KANA Software Reports First Half / Second Quarter 2008 Financial Results

KANA Software, Inc. (OTCBB:KANA.OB), a world leader in multi-channel customer service, today announced financial results for the first half and second quarter ended June 30, 2008. Financial Highlights: KANA's total revenues for the first half of 2008 were $34.9 million, a 32% increase from $26.4 million in the same period in 2007. The company’s revenues in the second quarter of 2008 were $16.7 million, a 24% increase from $13.4 million in the same period in 2007. License revenue for the first half of 2008 was $9.7 million, a 36% increase over the $7.1 million in the first half of the previous year. License revenue for the second quarter of 2008 was $4.0 million, a 13% increase from the $3.5 million in the second quarter of 2007. Service revenue for the first half of 2008 was $25.2 million, a 31% increase from $19.3 million for the first half of 2007. Service revenue for the second quarter of 2008 was $12.7 million, a 28% increase from the $9.9 million for the second quarter of 2007. For the fourth consecutive quarter, KANA achieved non-GAAP operating profit and net income. KANA reiterated its existing fiscal 2008 guidance of $69 million to $72 million in revenue, positive cash flow and at least 5% in non-GAAP operating income. The Company reported a net loss in accordance with accounting principles generally accepted in the United States (GAAP) of $216,000 or $0.01 per share for the first half of 2008, compared to a loss of $7.3 million or $0.20 per share for the first half of 2007. For the second quarter of 2008, Kana reported a GAAP net loss of $137,000 or $0.00 per share, versus a GAAP net loss of $3.5 million, or $0.10 per share, for the quarter ended June 30, 2007. For the first half of 2008, KANA reported non-GAAP net income of $676,000, or $0.02 per share, as compared to a non-GAAP net loss of $5.8 million, or $0.16 per share, for the first half of 2007. For the second quarter of 2008, KANA reported non-GAAP net income of $551,000, or $0.01 per share, as compared to non-GAAP net loss of $2.9 million, or $0.08 per share, in the second quarter of 2007. KANA’s quarterly non-GAAP net income (loss) was calculated by adding back accounting charges for stock-based compensation expense measured in accordance with SFAS 123R, amortization of acquired intangible assets, and restructuring expense to KANA’s GAAP net loss. "KANA’s growth in the first half of 2008 demonstrates that this company is a resurgent, global leader in multi-channel customer service,” said Michael Fields, chief executive officer of KANA. "We are on-plan to meet our 2008 guidance, which includes significant revenue growth, profitability and a substantial expansion of our elite partnership with IBM. In a challenging economic climate, KANA is seeing continued demand for our software and services at large enterprise customers in a range of industries. We are laser-focused on maintaining our growth and increasing profitability for the rest of 2008. Based on our strong current sales pipeline, we expect solid sequential growth in the second half of this year, and beyond.” First Half 2008 Company Highlights Customers purchasing KANA solutions during the first half included Aetna, AT&T Mobility, Best Buy, Best Western International, General Motors, Hutchison 3G, Sprint Nextel, Verizon and Yahoo Japan. KANA expanded its Global Strategic Alliance agreement with IBM with an initiative to jointly market, sell and support Service Oriented Architecture (SOA)-based customer service solutions. KANA added to its industry-class management ranks by welcoming Mike Shannahan, existing KANA board member and chairman of KANA’s audit committee, as Chief Financial Officer, and former Gartner analyst Esteban Kolsky as Vice President and Practice Leader for KANA’s management consulting and systems integration subsidiary, eVergance. KANA launched new education and training programs that enhance traditional classroom education with the latest technology, community and value-added support services. KANA received numerous product and innovation awards, including honors from KMWorld Magazine and Technology Marketing Corporation (TMC)’s Customer Interaction Solutions® magazine. KANA also was named a Service Leader by CRM Magazine. Investor Conference Call Information KANA’s management team will host a conference call today at 4:30PM EDT (1:30PM PDT) where it will discuss the Company's reported quarterly financial results and financial outlook. The live webcast can be accessed by visiting the investor relations section of KANA's website at www.kana.com. The call can be accessed via phone by dialing 617.597.5377. The pass code 38276093 will be required. A replay of the conference call will be available after 6:30PM PDT on August 5, 2008, through August 12, 2008, by dialing 617-801-6888 and entering pass code 55242704. The conference call and supplemental financial information will also be available on the investor relations portion of the KANA website. About KANA KANA is a world leader in multi-channel customer service. KANA's integrated solutions allow companies to deliver consistent, managed service across all channels, including email, chat, call centers and Web self-service, so customers have the freedom to choose the service they want, how and when they want it. KANA's clients report double-digit increases in customer satisfaction, while reducing call volumes by an average of 20 percent. KANA's award-winning solutions are proven in more than 600 companies worldwide, including approximately half of the world's largest 100 companies. For more information visit www.kana.com. Non-GAAP Financial Measures To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the attached table, which exclude certain expenses including stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. Cautionary Note Regarding Forward-looking Statements Under the Private Securities Litigation Reform Act of 1995: Information in this release regarding KANA's forecasts, projections, expectations, beliefs, and intentions are forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this release are based upon information available to KANA as of the date of this release, which will likely change, and we assume no obligation to update any such forward-looking statement. These statements include statements about anticipated growth, profitability, expansion of the relationship with IBM, demand for;KANA’s software, and customers' expected benefits and results from KANA applications. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include, but are not limited to: competition in our marketplace, including introductions of new products or services, or reductions in prices, by competitors; risks associated with lack of market acceptance of KANA's products or services; inability to enhance and develop our products and services within budget and on schedule; inability to attract and retain qualified employees, to manage cash and expenditures or to expand sales; KANA's history of losses; the effect of potential military action and terrorist activities; and slow economic conditions, particularly as they affect spending by our prospective customers on multi-channel customer service and similar enterprise software products. These and other factors are risks associated with our business that may affect our operating results and are discussed in KANA's filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. NOTE: KANA is a registered trademark of KANA Software, Inc. All other company and product names may be trademarks of their respective owners. KANA Software, Inc. Condensed Consolidated Balance Sheets (in thousands) (unaudited)     June 30, 2008 December 31, 2007 Assets   Cash and cash equivalents $ 3,212 $ 4,306 Accounts receivable, net 11,810 10,247 Other current assets   2,200   2,391 Total current assets 17,222 16,944   Restricted cash, long-term 761 771 Property and equipment, net 2,556 2,292 Goodwill 12,415 12,500 Acquired intangible assets, net 1,976 2,226 Other assets   509   667 Total Assets $ 35,439 $ 35,400   Liabilities and Stockholders' Equity   Line of credit $ 1,726 $ 1,177 Notes payable, current portion 1,302 1,873 Accounts payable 3,542 2,943 Accrued liabilities 5,053 5,486 Accrued restructuring 878 1,261 Deferred revenue   15,605   15,825 Total current liabilities 28,106 28,565   Deferred revenue, long-term 221 297 Accrued restructuring, long-term 697 1,491 Notes payable, long-term 880 110 Other long-term liabilities   488   531 Total liabilities 30,392 30,994   Total stockholders' equity   5,047   4,406 Total Liabilities and Stockholders' Equity $ 35,439 $ 35,400 KANA Software, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)     Three Months Ended   Six Months Ended June 30, June 30,   2008       2007     2008       2007     Revenues: License fees $ 3,972 $ 3,511 $ 9,695 $ 7,127 Services   12,681     9,882     25,243     19,300   Total revenues   16,653     13,393     34,938     26,427     Costs and expenses: Cost of license fees 146 240 558 527 Cost of services 5,340 3,668 10,758 6,736 Amortization of acquired intangible assets 125 24 250 39 Sales and marketing 5,028 6,660 11,272 12,853 Research and development 3,426 3,083 6,760 6,735 General and administrative 2,641 3,120 5,825 6,623 Restructuring costs   -     -     (482 )   -   Total costs and expenses   16,706     16,795     34,941     33,513     Loss from operations (53 ) (3,402 ) (3 ) (7,086 )   Interest and other income (expense), net (64 ) (87 ) (167 ) (106 )         Loss before income tax expense (117 ) (3,489 ) (170 ) (7,192 )   Income tax expense (20 ) (54 ) (46 ) (101 )         Net loss $ (137 ) $ (3,543 ) $ (216 ) $ (7,293 )   Basic net loss per share $ (0.00 ) $ (0.10 ) $ (0.01 ) $ (0.20 )   Shares used in computing basic net loss per share   41,212     36,382     41,212     36,201         Stock-based compensation included in the expense line items:   Cost of services $ 82 $ 56 $ 185 $ 124 Sales and marketing 176 226 340 449 Research and development 96 72 173 141 General and administrative   209     304     426     696   $ 563   $ 658   $ 1,124   $ 1,410       Reconciliation of GAAP net loss to non-GAAP net income (loss): Three Months Ended Six Months Ended June 30, June 30,   2008     2007     2008     2007     Net loss, GAAP $ (137 ) $ (3,543 ) $ (216 ) $ (7,293 ) Non-GAAP adjustments: Stock-based compensation 563 658 1,124 1,410 Restructuring - - (482 ) - Amortization of acquired intangible assets   125     24     250     39   Net income (loss), non-GAAP $ 551   $ (2,861 ) $ 676   $ (5,844 )   Net income (loss) per share, non-GAAP   Basic $ 0.01   $ (0.08 ) $ 0.02   $ (0.16 ) Diluted $ 0.01   $ (0.08 ) $ 0.02   $ (0.16 )   Shares used in per share calculation   Basic   41,212     36,382     41,211     36,201   Diluted   41,241     36,382     41,330     36,201   KANA Software, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)   Six Months Ended June 30,   2008       2007       OPERATING ACTIVITIES Net loss $ (216 ) $ (7,293 )   Depreciation and amortization 587 503 Amortization of acquired intangible assets 250 39 Employee and non-employee stock-based compensation 1,124 1,513 Provision for doubtful accounts 5 217 Non-cash interest accretion 75 63 Restructuring recovery (482 ) -   Changes in operating assets and liabilities: Accounts receivable (1,389 ) (442 ) Prepaid expenses and other assets 349 175 Accounts payable and accrued liabilities 50 (391 ) Accrued restructuring (695 ) (1,064 ) Deferred revenue   (609 )   1,785   Net cash used in operating activities   (951 )   (4,895 )   INVESTING ACTIVITIES Purchases of property and equipment (844 ) (683 ) Acquisition, net of cash acquired - (762 ) Goodwill 85 - Restricted cash   -     (8 ) Net cash used in investing activities   (759 )   (1,453 )   FINANCING ACTIVITIES Net borrowings under line of credit 2,111 4,175 Repayments under notes payable (1,410 ) (278 ) Borrowings under notes payable - 71 Proceeds from issuance of common stock   -     1,114   Net cash provided by financing activities   701     5,082     Effect of exchange rate changes on cash and cash equivalents (85 ) 21     Net decrease in cash and cash equivalents (1,094 ) (1,245 )   Cash and cash equivalents at beginning of period   4,306     5,719   Cash and cash equivalents at end of period $ 3,212   $ 4,474