Rainmaker Reports 7% Sequential Revenue Increase over the Preceding Quarter; Reaffirms Guidance of Adjusted EBITDA Cash Flow Positive for the Third Quarter of 2012

CAMPBELL, Calif., July 31, 2012 /PRNewswire/ -- Rainmaker Systems, Inc. (NASDAQ: 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 second quarter ended June 30, 2012.

Net revenue in the second quarter of 2012 was $6.9 million, a 7% sequential increase from net revenue in the preceding quarter of $6.4 million. Net revenue in the six months ended June 30, 2012 was $13.3 million, a 9% year-over-year increase from net revenue of $12.2 million in the same period of 2011.

Recent Business Highlights

• Achieved approximately 90% reduction in quarterly adjusted EBITDA loss year-over-year, from $1.7 million to $191,000
• Signed new multi-year agreement with Comcast totaling an estimated $10 million over full term for e-commerce platform and telesales services to drive subscription sales to business customers for certain products and services
• Signed three-year, $15 million renewal with Microsoft for B2B telesales services for certain of its cloud-based products within Europe, Asia, and Latin America
• Signed new three-year, $7 million agreement with a major software client for B2B telesales services for the client's full product line within Latin America, further expanding relationship
• Announced today the signing of an additional two-year, $2 million agreement with major software client for B2B telesales services for the client's flagship cloud-based offering within Europe, Asia, and Latin America, representing conversion of initial pilot program
• Signed new client Demandforce, a fast growing company which was recently acquired by Intuit, for telesales services
• Renewed multiple existing e-commerce agreements
• Signed new credit facility with Comerica Bank in the amount of $5 million, composed of a $3 million, 36 month term loan facility and a $2 million, 18 month revolving line of credit
• Engaged in a process to sell the Company's call center operations in Manila and in discussions with three bidders
• Completed the planned $5 million cost reduction program with the full benefit expected in the third quarter

"Our recent major customer wins confirm our strategy of providing e-commerce clients with the only true end-to-end solution for the B2B market," said Michael Silton, chairman and chief executive officer.  "Our latest e-commerce release provides our customers with a multi-language offering and, combined with our telesales capabilities and training tools, offers a comprehensive solution to the marketplace.  In addition, we signed a new credit facility with Comerica Bank, committed to a plan to sell our  call center operations in Manila, and have positioned the company for continued growth as the new contracts ramp in the third quarter.  We continue to expect sequential quarterly revenue growth for the remainder of the year and continue to anticipate achieving a return to positive cash flow in the third quarter of 2012."

Gross margin in the second quarter of 2012 increased to 44%, compared to 43% in the both the preceding quarter and the second quarter of 2011.  Gross margin in the six months ended June 30, 2012 increased to 44%, compared to 41% in the same period of 2011.

Net loss from continuing operations for the second quarter of 2012 was $901,000, or a loss of $0.03 per share, compared to a net loss from continuing operations in the preceding quarter of $1.2 million, or a loss of $0.04 per share, and a net loss from continuing operations in the second quarter of 2011 of $2.8 million, or a loss of $0.13 per share.  Net loss from continuing operations for the six months ended June 30, 2012 was $2.1 million, or a loss of $0.08 per share, compared to a net loss from continuing operations in the same period of 2011 of $6.0 million, or a loss of $0.29 per share.

The net loss from discontinued operations in the second quarter was $1.7 million.  The net loss from discontinued operations was due primarily to the establishment of a reserve for the bankruptcy of a client, costs related to the Company's exit of its BPI lease and the move into a larger facility to accommodate future expansion for these operations and the initial costs incurred to launch a significant new program.

Second 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 $673,000, or a loss of $0.02 per share, compared to a non-GAAP net loss in the preceding quarter of $1 million, or a loss of $0.04 per share, and a non-GAAP net loss in the second 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 from continuing operations to non-GAAP net loss.

Second quarter 2012 adjusted EBITDA, which excludes non-cash stock compensation expense, was negative $191,000, compared to negative $546,000 in the preceding quarter and negative $1.7 million in the second quarter of 2011. See Exhibit B for a reconciliation of GAAP net loss from continuing operations to EBITDA and adjusted EBITDA.

Total shares outstanding at June 30, 2012 were approximately 27.1 million common shares, which include approximately 1.2 million unvested restricted shares. In addition, Rainmaker had 836,000 unexercised options outstanding with a weighted average exercise price of approximately $0.88 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 $6.0 million at June 30, 2012, compared to $8.5 million at December 31, 2011. Approximately 75% of the Company's cash burn over the first six months of 2012 related to its call center operations in Manila.   Total cash used by discontinued operations was $1.8 million for the six month ended June 30, 2012.

Conference Call

Rainmaker Systems will host a conference call and webcast today at 1:30 p.m. Pacific Time to discuss its second quarter 2012 financial results. Those wishing to participate in the live call should dial (888) 549-7880 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 4553788 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.  

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.

Safe Harbor Statement

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, our ability to sell our Manila operations in a timely manner, 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.

CONTACT:

– Financial tables to follow –

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 $673,000 for the second quarter of 2012 and consists of net loss from continuing operations 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 $215,000 for the three months ended June 30, 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 $28,000 for the three months ended June 30, 2012. The change in fair value of warrant liability was a $15,000 gain for the three months ended June 30, 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 from continuing operations to non-GAAP net loss.

EBITDA was negative $406,000 for the second quarter of 2012. EBITDA consists of net loss from continuing operations 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 $374,000 for the three months ended June 30, 2012. Income tax expense was $65,000 for the three months ended June 30, 2012. Net interest and other expense was $43,000 for the three months ended June 30, 2012. Non-cash charges for amortization of acquisition related intangibles were $28,000 for the three months ended June 30, 2012. The change in fair value of warrant liability was a $15,000 gain for the three months ended June 30, 2012 and related to a reduction in the fair value of the common stock warrant liability from the June 2011 equity financing.  Adjusted EBITDA was negative $191,000 for the three months ended June 30, 2012 and adds back to EBITDA non-cash stock based compensation expense of $215,000 incurred in the second quarter of 2012. See Exhibit B for a reconciliation of GAAP net loss from continuing operations to EBITDA and adjusted EBITDA.

SOURCE Rainmaker Systems, Inc.

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