Rainmaker Reports First Quarter 2012 Financial Results

May 15, 2012 4:05 PM ET

CAMPBELL, Calif. , May 15, 2012 /PRNewswire/ -- Rainmaker Systems, Inc. $ RMKR , a leading global provider of B2B e-commerce solutions that drive online sales and renewal for products, subscriptions and training for clients and their channel partners, today reported financial results for its first quarter ended March 31, 2012.

Net revenue in the first quarter of 2012 was $8.6 million , compared to net revenue in the first quarter of 2011 of $8.8 million . 

Recent Business Highlights

• Announcing today two-year extension of multiple existing agreements with a global security software client
• Signed and launched multiple new programs
• Key pilot programs expanding and in process of converting to new client launches
• Renewed multiple existing e-commerce agreements
• Reduced first quarter net loss by $400,000 , representing third consecutive quarterly sequential decrease
• Approximately 34% sequential improvement in adjusted EBITDA for the first quarter

Rainmaker CEO Michael Silton commented, "During the first quarter, we saw a third consecutive substantial decrease in our quarterly net loss as the impact of our cost savings actions over the last two quarters take effect.  We also launched multiple new programs that are ramping in the second quarter and our key pilot programs are performing well and heading toward potential ramp to full programs. With our recent new client signings and pilot programs, we expect to see sequential growth in the second quarter and throughout the remainder of 2012.  Based on the substantial cost reductions we have made and the progress we are seeing in key programs, we continue to anticipate achieving a return to positive cash flow in the third quarter of 2012."

Gross margin in the first quarter of 2012 remained consistent at 35%, compared to first quarter of 2011.

Net loss for the first quarter of 2012 was $1.5 million , or a loss of $0.05 per share, compared to a net loss in the preceding quarter of $1.9 million , or a loss of $0.07 per share, and a net loss in the first quarter of 2011 of $3.1 million , or a loss of $0.15 per share.

First quarter 2012 non-GAAP net loss, which excludes stock-based compensation expense, amortization of purchased intangible assets, and a gain due to change in fair value of warrant liability was $1.3 million , or a loss of $0.05 per share, compared to a non-GAAP net loss in the preceding quarter of $1.6 million , or a loss of $0.06 per share, and a non-GAAP net loss in the first quarter of 2011 of $2.3 million , or a loss of $0.11 per share. See Exhibit A for a reconciliation of GAAP net loss to non-GAAP net loss.

First quarter 2012 adjusted EBITDA, which excludes non-cash stock compensation expense, was negative $614,000 , compared to negative $932,000 in the preceding quarter and negative $1.3 million in the first quarter of 2011. See Exhibit B for a reconciliation of GAAP net loss to EBITDA and adjusted EBITDA.

Total shares outstanding at March 31, 2012 were approximately 27 million common shares, which include approximately 1.3 million unvested restricted shares. In addition, Rainmaker had 886,000 unexercised options outstanding with a weighted average exercise price of approximately $1.60 per share and 1.6 million unexercised warrants outstanding with a weighted average exercise price of approximately $1.38 per share.

Total cash and cash equivalents were $8.2 million at March 31, 2012, compared to $8.7 million at December 31, 2011 . Our first quarter change in cash included a favorable impact of $1.4 million in balance sheet timing changes and the repayment of $591,000 in debt.

Conference Call

Rainmaker Systems will host a conference call and webcast today at 1:30 p.m. Pacific Time to discuss its first quarter 2012 financial results. Those wishing to participate in the live call should dial (877) 941-8609 using the password "Rainmaker." A replay of the call will be available for one week beginning approximately one hour after the call's conclusion by dialing (800) 406-7325 and entering 4533333 followed by the "#" key when prompted for a code. To access the live webcast of the call, go to the Investors section of Rainmaker's website at www.rainmakersystems.com . A webcast replay of the conference call will be available for one year on the Conference Calls/Events page of the Investors section at www.rainmakersystems.com .

Discussion of Non-GAAP Financial Measures

Rainmaker Systems' management evaluates and makes operating decisions using various performance measures. In addition to GAAP results, Rainmaker also considers non-GAAP net loss and non-GAAP net loss per share, EBITDA and adjusted EBITDA, which excludes non-cash stock compensation expense from EBITDA. These non-GAAP measures are derived from the revenue generated by Rainmaker's business and the costs directly related to the generation of that revenue, such as costs of services, sales and marketing expenses, technology expenses and general and administrative expenses, that management considers in evaluating the Company's operating performance. These non-GAAP measures exclude certain expenses that management does not consider to be related to the Company's core operating performance.

Non-GAAP net loss, non-GAAP net loss per share, EBITDA and adjusted EBITDA are supplemental measures of Rainmaker's performance that are not required by, or presented in accordance with, GAAP. Moreover, they should not be considered as an alternative to any performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of liquidity. Rainmaker presents these non-GAAP measures because management considers them to be important supplemental measures of Rainmaker's operating performance and profitability trends, and because management believes they give investors useful information on period-to-period performance as evaluated by management. Rainmaker believes that the use of these non-GAAP measures provides consistency and comparability with Rainmaker's past financial reports and also facilitates comparisons with other companies in Rainmaker's industry, a number of which use similar non-GAAP financial measures to supplement their GAAP results. Management has used these non-GAAP measures when evaluating operating performance because management believes that the inclusion or exclusion of the items described above provides an additional measure of the Company's core operating results and facilitates comparisons of the Company's core operating performance against prior periods and the Company's business model objectives. Rainmaker has chosen to provide this information to investors to enable them to perform additional analysis of past, present and future operating performance and as a supplemental means to evaluate the Company's ongoing core operations.

Non-GAAP net loss was $1.3 million for the first quarter of 2012 and consists of net loss excluding stock based compensation expense, amortization of purchased intangible assets and a gain due to change in fair value of warrant liability. Stock based compensation expense was $187,000 for the three months ended March 31, 2012 and represents the current quarter recognition of compensation expense related to stock options and restricted stock awards granted prior to and during the quarter.  Amortization of intangible assets was $40,000 for the three months ended March 31, 2012. The change in fair value of warrant liability was a $7,000 gain for the three months ended March 31, 2012 and related to a reduction in the fair value of the common stock warrant liability from the June 2011 equity financing. See Exhibit A for a reconciliation of GAAP net loss to non-GAAP net loss.

EBITDA was negative $801,000 for the first quarter of 2012. EBITDA consists of net loss excluding interest and other expense, income taxes, depreciation & amortization and certain other non-cash items. Non-cash charges for depreciation of property and equipment were $567,000 for the three months ended March 31, 2012. Income tax expense was $78,000 for the three months ended March 31, 2012. Non-cash charges for amortization of acquisition related intangibles were $40,000 for the three months ended March 31, 2012. The change in fair value of warrant liability was a $7,000 gain for the three months ended March 31, 2012 and related to a reduction in the fair value of the common stock warrant liability from the June 2011 equity financing.  Net interest and other income was $5,000 for the three months ended March 31, 2012. Adjusted EBITDA was negative $614,000 for the three months ended March 31, 2012 and adds back to EBITDA non-cash stock based compensation expense of $187,000 incurred in the first quarter of 2012. See Exhibit B for a reconciliation of GAAP net loss to EBITDA and adjusted EBITDA.

About Rainmaker

Rainmaker Systems, Inc. is a leading global provider of B2B e-commerce solutions that drive online sales and renewal for products, subscriptions and training for our clients and their channel partners. Rainmaker provides these solutions on a consistent, global basis supporting multiple payment methods, currencies and language capabilities. For more information, visit www.rainmakersystems.com  or call 800-631-1545.

NOTE: Rainmaker Systems and the Rainmaker logo are registered with the U.S. Patent and Trademark Office. All other service marks or trademarks are the property of their respective owners.

This press release contains forward-looking statements regarding future events. These forward-looking statements are based on information available to Rainmaker as of this date and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance, and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are our client concentration, as we depend on a small number of clients for a significant percentage of our revenue, the possibility of the discontinuation and/or realignment of some client relationships, general market conditions, the current difficult macro-economic environment and its impact on our business, as our clients are reducing their overall marketing spending and our clients' customers are reducing their purchase of services contracts, the high degree of uncertainty and our limited visibility due to economic conditions, our ability to execute our business strategy, our ability to integrate acquisitions without disruption to our business, the effectiveness of our sales team and approach, our ability to target, analyze and forecast the revenue to be derived from a client and the costs associated with providing services to that client, the date during the course of a calendar year that a new client is acquired, the length of the integration cycle for new clients and the timing of revenues and costs associated therewith, our ability to expand our channel hosted contract solution and drive adoption of this solution by resellers, potential competition in the marketplace, the ability to retain and attract employees, market acceptance of our service programs and pricing options, our ability to maintain our existing technology platform and to deploy new technology, our ability to sign new clients and control expenses, the financial condition of our clients' businesses, our ability to raise additional equity or debt financing, and other factors detailed in the Company's filings with the Securities and Exchange Commission, including our filings on Forms 10-K and 10-Q.

– Financial tables to follow –