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October 27, 2003
Onyx Software Announces 2003 Q3 Results
Second Consecutive Quarter of License Growth and Non-GAAP Operating Profit
Financial Results
Revenue for the third quarter of 2003 was $15.4 million, compared to $19.0 million in the third quarter of 2002. Reported net loss for the third quarter of 2003 was $0.3 million or ($0.02) per share, compared to a net loss of $0.9 million, or ($0.07) per share in the third quarter of 2002. All amounts expressed on a per share basis reflect the impact of the one-for-four reverse stock split approved by shareholders and announced on July 23, 2003. Third quarter 2003 net loss includes amortization of intangibles net of tax, restructuring charges and stock compensation expense totaling $0.5 million. Third quarter 2002 net loss included amortization of intangibles net of tax, restructuring charges and stock compensation expense totaling $1.6 million.
Non-GAAP operating income for the third quarter of 2003, was $0.6 million compared to a non-GAAP operating income of $0.0 million in the third quarter of 2002. Onyx believes that supplementary disclosure regarding non-GAAP operating income (loss) assists in comparing current operating results with those of past periods. A reconciliation of non-GAAP operating income (loss) with actual operating income (loss) is attached to the financial tables included below in this release.
License revenue in the third quarter of 2003 was $3.6 million compared to $7.3 million in the third quarter of 2002, and was up from $3.1 million in the second quarter of 2003. Service revenue in the third quarter of 2003 was $11.8 million compared to $11.8 million in the third quarter of 2002, and was lower than the $12.7 million service revenue reported for the second quarter of 2003 due to completion of certain professional services projects.
On September 30, 2003, Onyx had cash and cash equivalents of $12.0 million, compared to $13.9 million on June 30, 2003. During the quarter the company made scheduled payments of $2.2 million on agreements that eliminate excess facilities and severance obligations. The remaining scheduled payments to eliminate excess facilities consist of $1.6 million in the fourth quarter of 2003, $1.5 million in first quarter of 2004, and $0.7 million in the second quarter of 2004. The remaining cash restructuring obligations totaling $0.8 million are expected to be paid over several years beginning the third quarter of 2004.
Business Summary
"We are pleased to post our second consecutive quarter of improved license revenue and non-GAAP profit," said Brent Frei, Co-Founder and CEO. "Three of our top five license deals in the third quarter were add-on license purchases, demonstrating the business opportunity that results from Onyx Software's high customer satisfaction levels. Our largest license sale was more than two times the size of the customer's initial license purchase," Frei added.
Onyx had 30 license customers in the third quarter, consisting of eleven new customer wins and nineteen existing customers with add-on license purchases. Onyx direct sales accounted for a substantial portion of license revenue and the average size of new-direct sold deals was larger in the third quarter of 2003 compared to the second quarter of 2003. Overall sales performance improved outside of EMEA, which exhibited typical seasonality.
Onyx strength in the Financial Services market was demonstrated by new customer wins including SunAmerica, Australia Central Credit Union, Glenmede Trust and Saison Automobile & Fire Insurance, as well as add-on license purchases from customers such as Saxon Mortgage, PIMCO and Nuveen. Financial Services customers accounted for the majority of third quarter license revenue.
In Healthcare, The Regence Group purchased additional Onyx licenses. Scan Health became the first customer for IBM's hosted Onyx offering, CRM On Demand, during the quarter, and has gone live.
Other leading organizations purchasing Onyx Software included Calor Gas, Daiwabo Information Systems and Starbucks Coffee Company.
Representative Onyx Professional Services customers in the third quarter included ASB Bank Limited, CCH Australia, HealthNow, ntl Business Solutions, Nuveen, Reed Business Information, The Regence Group, Saxon Mortgage, and Starbucks Coffee Company.
No single customer accounted for more than 10 percent of total revenue in the quarter.
Onyx Embedded CRMTM progress
Onyx Software's Embedded CRM initiative exhibited additional partner success in the third quarter. Embedded CRM is a leading web services-based approach and flexible business model that combines the Onyx platform with components of other technologies, enabling Onyx partners to deliver composite business solutions tailored to specific customer segments and needs.
The IT subsidiary of Tokyo Electric Power Company (TEPCO) has developed Poweredcom to provide IT services to businesses in their large customer base on an ASP basis. TEPCO is one of the world's largest electric utilities. Following a pilot program announced in the first quarter of 2003, TEPCO is now hosting an Onyx application licensed to Saison Automobile & Fire Insurance - a unit of Japan's consumer finance company Credit Saison, Co. Ltd. - for their call center. Onyx Japan partner NTT Comware supported TEPCO in delivering this solution.
Onyx Software received distinguishing awards and recognition in the third quarter
CRM magazine recognized Onyx for excellence in all three areas evaluated for their CRM Leaders Award: 1) Overall, Onyx was named #1 in mid-market CRM; 2) Onyx Software customer University of Pittsburgh Medical Center was named to the magazine's CRM Elite in the category of channel management; and in a report of Most Influential Leaders, CRM magazine selected both Onyx Software's Chief Executive Officer Brent Frei and Chief Technology Officer Mary Reeder. Across all vendors, Reeder was the only technology officer to be recognized as a most influential leader.
Customer Inter@ction Solutions magazine recognized Onyx Software for CRM excellence, based on criteria of technology excellence, vision and demonstrated benefit to the customer base.
Business Outlook
While the outcome and timing of deals make a wide range of revenue outcomes possible, at this date the company believes it is likely that fourth quarter revenue will be in the same range as the third quarter 2003. Total costs and expenses are expected be in the same range to somewhat higher in the fourth quarter than in the third quarter.
Onyx Software Third Quarter Conference Call
Onyx Software will host a conference call to discuss the results of the third quarter of 2003. We suggest you access the call 10-15 minutes prior to the start time by signing on at www.onyx.com or www.companyboardroom.com. The call will be archived and available for replay at these same URLs. Alternatively, you can participate by phone.
| When: | Monday, October 27, 2003 |
| Time: | 4:30 pm (Eastern) / 1:30 pm (Pacific) |
| Dial-In: | 1-800-901-5218 |
| International Dial-In: | 1-617-786-4511 |
| Passcode: | 16916254 |
| Replay: | 1-617-801-6888 (available through November 4, 2003 11:45 pm) |
| Passcode: | 40674333 |
Onyx Software Corp., a worldwide leader in delivering successful CRM, offers a fast, cost-effective, useable solution that shares critical information among employees, customers and partners through three role-specific, Web services-based portals. The Onyx approach delivers real-world success by aligning CRM technology with business objectives, strategies and processes. Companies rely on Onyx across multiple departments to create a superior customer experience and a profitable bottom line. Onyx serves customers worldwide in a variety of industries, including financial services, healthcare, high technology and the public sector. Customers include Amway, United Kingdom lottery operator Camelot, Delta Dental Plans of California, Microsoft Corporation, Mellon Financial Corporation, The Regence Group, State Street Corporation and Suncorp. More information can be found at 888-ASK- ONYX or email info@onyx.com. Forward-Looking Statement
Onyx Software Corporation
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------- ------- ------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue
License $ 3,633 $ 7,265 $ 9,374 $ 16,828
Service 11,767 11,763 36,043 35,325
------- ------- ------- --------
Total revenue 15,400 19,028 45,417 52,153
Costs of revenue
Cost of license 175 270 657 667
Amortization of
acquired technology 84 138 252 414
Cost of service 5,251 4,922 16,129 15,181
------- ------- ------- --------
Total cost of revenue 5,510 5,330 17,038 16,262
Gross margin 9,890 13,698 28,379 35,891
Operating Expenses
Sales and marketing 4,460 7,882 16,025 20,941
Research and
development 2,798 3,530 9,074 11,506
General and
administrative 2,158 2,382 6,253 7,358
Restructuring and
other-related
charges 162 1,171 1,256 7,729
Amortization of
acquisition-related
intangibles 209 209 627 627
Amortization of
stock-based
compensation 4 51 32 203
------- ------- ------- --------
Total operating
expenses 9,791 15,225 33,267 48,364
Operating income
(loss) 99 (1,527) (4,888) (12,473)
Other income
(expense), net (117) 269 3 (73)
Change in fair value
of outstanding
warrants (123) - 134 -
------- ------- ------- --------
Loss before income
taxes (141) (1,258) (4,751) (12,546)
Income tax provision
(benefit) 86 (29) 7 383
Minority interest in
income (loss) of
consolidated
subsidiary 32 (345) (200) (817)
------- ------- ------- --------
Net loss $ (259) $ (884) $(4,558) $(12,112)
======= ======= ======= ========
Basic and diluted net
loss per share (A) $ (0.02) $ (0.07) $ (0.34) $ (0.97)
======= ======= ======= ========
Shares used in
computation of basic
and diluted net loss
per share (A) 13,902 12,641 13,284 12,427
======= ======= ======= ========
(A) On July 23, 2003, the company announced a one-for-four reverse
stock split authorized by its shareholders. All share and per
share amounts in the accompanying consolidated financial
statements have been adjusted to reflect this reverse stock split.
Onyx Software Corporation
Supplemental Non-GAAP Information:
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------- ------- ------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Operating income
(loss) $ 99 $(1,527) $(4,888) $(12,473)
Adjustments to
reconcile operating
income (loss) in the
financial statements
to non-GAAP operating
income (loss):
Restructuring charges
Facilities (10) 586 359 6,922
Severance 50 120 688 477
Asset impairments 122 465 209 590
Other - - - (260)
------- ------- ------- --------
Total restructuring
charges 162 1,171 1,256 7,729
Amortization of
acquired technology 84 138 252 414
Amortization of
acquisition-related
intangibles 209 209 627 627
Amortization of
stock-based
compensation 4 51 32 203
------- ------- ------- --------
Non-GAAP operating
income (loss) $ 558 $ 42 $(2,721) $ (3,500)
======= ======= ======= ========
Net loss $ (259) $ (884) $(4,558) $(12,112)
Adjustments to
reconcile net loss in
the financial statements
to non-GAAP net
income (loss):
Restructuring charges
Facilities (10) 586 359 6,922
Severance 50 120 688 477
Asset impairments 122 465 209 590
Other - - - (260)
------- ------- ------- --------
Total restructuring
charges 162 1,171 1,256 7,729
Amortization of
acquired technology 84 138 252 414
Amortization of
acquisition-related
intangibles 209 209 627 627
Amortization of
stock-based
compensation 4 51 32 203
Change in fair value
of outstanding
warrants 123 - (134) -
Deferred income tax
associated with
acquisitions (71) (72) (213) (279)
------- ------- ------- --------
Non-GAAP net income
(loss) $ 252 $ 613 $(2,738) $ (3,418)
======= ======= ======= ========
Non-GAAP basic and
diluted net income
(loss) per share $ 0.02 $ 0.05 $ (0.21) $ (0.28)
======= ======= ======= ========
Shares used in
computation of
non-GAAP basic net
income (loss)
per share 13,902 12,641 13,284 12,427
======= ======= ======= ========
Shares used in
computation of
non-GAAP diluted
net income (loss)
per share 14,012 12,817 13,284 12,427
======= ======= ======= ========
Onyx Software Corporation
Condensed Consolidated Balance Sheets
(In Thousands)
September 30, December 31,
2003 2002
------------ -----------
(Unaudited) (Unaudited)
Assets
Current Assets:
Cash and cash equivalents (B) $ 11,983 $ 19,279
Accounts receivable, net 12,419 14,408
Prepaid expenses and other current
assets 2,912 3,374
Current deferred tax asset 272 273
------------ -----------
Total current assets 27,586 37,334
Property and equipment, net 4,501 6,474
Purchased technology, net 3 253
Other intangibles, net 835 1,461
Goodwill, net 8,180 8,180
Other assets 830 1,085
------------ -----------
Total Assets $ 41,935 $ 54,787
============ -----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,026 $ 1,484
Salary and benefits payable 1,531 1,675
Accrued liabilities 2,489 3,147
Income taxes payable 1,003 660
Current portion long-term liabilities - 180
Current portion of restructuring-
related liabilities 4,055 10,224
Deferred revenue 14,287 16,258
------------ -----------
Total current liabilities 24,391 33,628
Long-term liabilities - 77
Long-term restructuring-related
liabilities 567 2,600
Long-term restructuring-related
liabilities - warrants 786 920
Deferred tax liability 284 497
Minority interest in joint venture 35 237
Shareholders' Equity
Common stock 142,445 139,459
Deferred stock-based compensation - (84)
Accumulated deficit (126,619) (122,061)
Accumulated other comprehensive income
(loss) 46 (486)
------------ -----------
Total shareholders' equity 15,872 16,828
------------ -----------
Total Liabilities and Shareholders'
Equity $ 41,935 $ 54,787
============ ===========
(B) Includes $3.0 million and $2.2 million in restricted cash as of
September 30, 2003 and December 31, 2002, respectively, which was
pledged in conjunction with the company's line of credit as of
September 30, 2003 and the company's line of credit and corporate
card program as of December 31, 2002.
| Contact: | Rosemary Moothart Investor Relations Director Onyx Software (425) 519-4068 |
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