CORRECTING and REPLACING Epiphany Announces Fourth Quarter Results

    Business Editors
    CORRECTION...

    SAN MATEO, Calif.--(BUSINESS WIRE)--Feb. 3, 2005--In BW5708 issued Feb. 3, 2005: In the paragraph titled "First Quarter Outlook," the second sentence should read: "Net loss per share on a GAAP basis for the first quarter is expected to range between $(0.09) and $(0.12), of which approximately ($0.02) will result from restructuring charges of approximately $1.5 million." (sted "Net loss per share on a GAAP basis for the first quarter is expected to range between $(0.09) and $(0.11), of which approximately ($0.02) will result from restructuring charges of approximately $1.5 million.")

    The corrected release reads:

    EPIPHANY ANNOUNCES FOURTH QUARTER RESULTS

    Epiphany, Inc. (Nasdaq:EPNY) today announced results for the quarter and year ended December 31, 2004.
    For the quarter ended December 31, 2004, the company reported revenues of $20.7 million, compared to revenues of $27.3 million in the fourth quarter of 2003. Fourth quarter license revenues were $8.0 million, service revenues were $4.9 million and maintenance revenues were $7.7 million, representing 39%, 24% and 37% of total revenues, respectively. Net loss under generally accepted accounting principles ("GAAP") for the quarter was $2.0 million, or $(0.03) per share, compared to net income under GAAP of $413,000, or $0.01 per share for the fourth quarter of 2003. Excluding the amortization of purchased technology and intangibles, stock-based compensation and restructuring costs, on a non-GAAP basis, net loss for the quarter was $2.2 million, or $(0.03) per share, compared to non-GAAP net income of $1.3 million, or $0.02 per share, for the fourth quarter of 2003.
    For the year ended December 31, 2004, the company reported revenues of $79.3 million, compared to revenues of $96.1 million in 2003. Net loss under GAAP for the year ended December 31, 2004 was $14.2 million, or $(0.19) per share, compared to a net loss under GAAP of $24.2 million, or $(0.33) per share, for the same period of 2003. Excluding the amortization of purchased technology and intangibles, stock-based compensation and restructuring costs, on a non-GAAP basis, net loss for the year ended December 31, 2004 was $12.8 million, or $(0.17) per share, compared to a non-GAAP net loss of $15.2 million, or $(0.21) per share, for the year ended December 31, 2003.
    "In 2004, Epiphany made great strides in proving to the market that it has solutions that deliver quantifiable business value," says Karen Richardson, chief executive officer. "In Q4, we added proof points including deals such as Wells Fargo, Hartford Insurance, KPN, Telefonica and Deutsche Post. While we are encouraged by this progress, we still face challenges in reaching profitability. In addition to growing revenue, we need to reduce costs by further focusing the entire company on the mission of generating increased profits for the largest consumer oriented companies through intelligent interactions."

    First quarter outlook

    For the quarter ending March 31, 2005, Epiphany currently expects total revenue to range between $16 million and $18 million, with license revenue ranging between $4 million and $6 million. Net loss per share on a GAAP basis for the first quarter is expected to range between $(0.09) and $(0.12), of which approximately ($0.02) will result from restructuring charges of approximately $1.5 million.

    About Epiphany

    Epiphany(R) provides CRM software solutions that increase profitability at the largest consumer-oriented companies by making every customer interaction intelligent. With over 475 customers -- including nearly 35 percent of the Fortune 100 -- Epiphany powers deep customer insights and optimizes each relationship from both a revenue generation and customer retention viewpoint. Built on the industry's most advanced, service-oriented architecture, Epiphany software solutions address problems that span business silos, departmental functions and geographic locations, and result in rapid, measurable ROI. With a suite of blended marketing, sales and service solutions, Epiphany enables global organizations to align touch points, processes and technologies around the most valuable enterprise asset -- the customer. With worldwide headquarters in San Mateo, CA, Epiphany serves customers in more than 40 countries worldwide. For more information please visit www.epiphany.com.

    This press release contains forward-looking statements relating to expected company focus, revenue growth, cost containment, first quarter total revenue, license revenue, restructuring charges and earnings per share. Actual results could differ materially from such forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include the degree of interest in and acceptance of Epiphany's products, increases in the length of Epiphany's sales cycles, our ability to close large deals within the quarter we have projected such deals to close, reduced IT spending by customers and potential customers, the introduction of new products and services by competitors and intense competition generally, general and industry-specific economic conditions and stock market conditions. These factors and others are described in more detail in our public reports filed with the Securities and Exchange Commission, such as those discussed in the "Risk Factors" section included in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in our prior press releases. Epiphany assumes no duty to update forward-looking statements.
    This press release includes certain non-GAAP financial measures, including non-GAAP net loss and net loss per share amounts, that exclude the amortization of purchased technology and intangibles, stock-based compensation and restructuring costs. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance prepared in accordance with GAAP. Epiphany's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the performance of the Company's business operations. These measures also facilitate management's internal comparisons to our historical operating results and to our competitors' operating results, operational forecasting and budgeting. Epiphany has reported similar non-GAAP financial measures to our investors in the past and believes that the inclusion of comparative numbers at this time provides consistency in our financial reporting. Investors and potential investors are encouraged to review the reconciliation of the non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results.

EPIPHANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts) (unaudited)

Three months ended Years Ended December 31, December 31, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- ---------

Revenues: Product license $8,048 $13,336 $28,483 $43,505 Services 4,944 6,380 20,391 24,108 Maintenance 7,708 7,539 30,419 28,519 --------- --------- --------- ---------

Total revenues 20,700 27,255 79,293 96,132 --------- --------- --------- ---------

Cost of revenues: Product license 361 474 1,566 1,557 Services 3,750 5,535 16,406 23,079 Maintenance 1,404 1,283 5,685 5,746 Amortization of purchased technology - 755 679 4,808 --------- --------- --------- ---------

Total cost of revenues 5,515 8,047 24,336 35,190 --------- --------- --------- ---------

Gross profit 15,185 19,208 54,957 60,942 --------- --------- --------- ---------

Operating expenses: Research and development 6,071 6,975 25,456 31,471 Sales and marketing 9,238 9,874 34,907 43,208 General and administrative 3,399 2,668 12,360 10,985 Restructuring costs (295) 89 579 3,929 Amortization of purchased intangibles - - - 261 Stock-based compensation 60 8 60 55 --------- --------- --------- ---------

Total operating expenses 18,473 19,614 73,362 89,909 --------- --------- --------- ---------

Operating loss (3,288) (406) (18,405) (28,967)

Other income, net 1,313 823 4,417 5,249 --------- --------- --------- --------- Net income (loss) before provision for taxes (1,975) 417 (13,988) (23,718)

Provision for taxes 34 4 168 526 --------- --------- --------- ---------

Net income (loss) $(2,009) $413 $(14,156) $(24,244) ========= ========= ========= =========

Diluted net income (loss) per share $(0.03) $0.01 $(0.19) $(0.33) ========= ========= ========= ========= Basic net income (loss) per share $(0.03) $0.01 $(0.19) $(0.33) ========= ========= ========= =========

Shares used in computing basic and diluted net income (loss) per share 76,456 74,337 75,818 73,499 ========= ========= ========= =========

EPIPHANY, INC. NON-GAAP FINANCIAL MEASURES AND RECONCILIATION

(in thousands, except per share amounts) (Unaudited)

Three months ended Years Ended December 31, December 31, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- ---------

GAAP net income (loss) $(2,009) $413 $(14,156) $(24,244) Less: Amortization of purchased technology - 755 679 4,808 Less: Restructuring costs (295) 89 579 3,929 Less: Amortization of purchased intangibles - - - 261 Less: Stock-based compensation 60 8 60 55 --------- --------- --------- --------- Non-GAAP net income (loss) (excluding restructuring costs and specified non- cash items) $(2,244) $1,265 $(12,838) $(15,191) ========= ========= ========= =========

Diluted non-GAAP net income (loss) per share $(0.03) $0.02 $(0.17) $(0.21) ========= ========= ========= ========= Basic non-GAAP net income (loss) per share $(0.03) $0.02 $(0.17) $(0.21) ========= ========= ========= =========

Shares used in computing basic and diluted non-GAAP net income (loss) per share 76,456 74,337 75,818 73,499 ========= ========= ========= =========

EPIPHANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

December 31, December 31, ASSETS 2004 2003 ------------ ------------ Current assets: Cash and cash equivalents $18,080 $30,468 Short-term investments 131,090 127,112 Accounts receivable, net 11,677 10,688 Prepaid expenses and other assets 4,849 5,825 Short-term restricted cash & investments 266 726 ------------ ------------

Total current assets 165,962 174,819

Long-term investments 96,404 105,171 Long-term restricted cash & investments 5,432 7,274 Property and equipment, net 4,621 6,710 Goodwill, net 81,499 81,499 Purchased intangibles, net - 679 Other assets 301 847 ------------ ------------

$354,219 $376,999 ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities: Accounts payable $1,194 $1,367 Accrued liabilities 7,186 8,081 Accrued compensation 5,850 8,536 Current portion of restructuring costs 5,532 7,215 Deferred revenue 14,011 19,157 ------------ ------------

Total current liabilities 33,773 44,356

Restructuring costs, net of current portion 15,904 20,489 Other long-term liabilities 232 185 ------------ ------------

Total liabilities 49,909 65,030

Stockholders' equity: Common stock 7 7 Additional paid-in capital 3,831,571 3,822,361 Deferred Compensation (1,166) - Accumulated and other comprehensive loss (2,230) (683) Accumulated deficit (3,523,872) (3,509,716) ------------ ------------

Total stockholders' equity 304,310 311,969 ------------ ------------

$354,219 $376,999 ============ ============

EPIPHANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

Years Ended December 31, --------------------- 2004 2003 ---------- ---------- Cash flows from operating activities: Net loss $(14,156) $(24,244) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 3,929 6,769 Loss on disposal of property and equipment 127 409 Stock-based compensation 60 55 Non-cash restructuring costs - 301 Amortization of purchased technology and purchased intangibles 679 5,069 Changes in operating assets and liabilities: Accounts receivable (989) (3,836) Prepaid expenses and other assets 1,522 3,270 Accounts payable (173) (1,050) Accrued liabilities and compensation (3,534) (1,038) Restructuring costs (6,268) (5,242) Deferred revenue (5,146) (1,369) ---------- ---------- Net cash used in operating activities (23,949) (20,906) ---------- ----------

Cash flows from investing activities: Purchases of property and equipment (1,967) (1,920) Restricted cash and investments 2,302 1,175 Proceeds from maturities of investments 294,621 196,022 Purchases of investments (291,411) (199,000) ---------- ---------- Net cash provided by (used in) investing activities 3,545 (3,723) ---------- ----------

Cash flows from financing activities: Principal payments on capital lease obligations - (156) Repayments on notes receivable - 556 Proceeds from sale of common stock, net of repurchases 7,985 7,199 ---------- ---------- Net cash provided by financing activities 7,985 7,599 ---------- ----------

Effect of foreign exchange rates on cash and cash equivalents 31 (737) ---------- ----------

Net decrease in cash and cash equivalents (12,388) (17,767) Cash and cash equivalents at beginning of period 30,468 48,235 ---------- ---------- Cash and cash equivalents at end of period $18,080 $30,468 ========== ==========

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CONTACT: Epiphany Gordon Evans, 650-356-3842 (Media) gevans@epiphany.com or The Blueshirt Group Todd Friedman, 415-217-5869 (Investors) todd@blueshirtgroup.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE SOFTWARE EARNINGS SOURCE: Epiphany

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