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July 27, 2004
Onyx Software Announces Solid Second Quarter Results with Net Income
BELLEVUE, WA. -Onyx® Software Corporation (NASDAQ: ONXS) today announced results for the second quarter of 2004.
Financial Summary
Revenue for the second quarter of 2004 was $14.8 million, compared to $15.8 million in the second quarter of 2003 and $14.2 million for the first quarter of 2004. License revenue for the second quarter of 2004 was $3.6 million, compared to $3.1 million in the second quarter of 2003 and $3.6 million in the first quarter of 2004. Reported net income for the second quarter of 2004 was $0.2 million, or an income of $0.01 in diluted earnings per share, compared to a reported net loss of $0.9 million or a loss of $0.07 per share in the second quarter of 2003. For the first half of 2004, license revenue was 25% higher than the same period in 2003.
Non-GAAP operating income for the second quarter of 2004, which excludes the amortization of intangibles, stock-based compensation expense, and restructuring and related charges, was $0.5 million, compared to a non-GAAP operating income of $0.1 million for the second quarter of 2003. Onyx believes that supplementary disclosure regarding non-GAAP operating results assists in comparing current operating results with those of past periods. A reconciliation of non-GAAP operating income (loss) to GAAP operating income (loss) is attached to the financial tables included below in this release.
Onyx Software's cash balance was $12.3 million on June 30, 2004 compared to $13.0 million on March 31, 2004, which includes outflows of $1.1 million consisting of payments on restructuring related liabilities of $0.7 million, including the final payment for Bellevue excess facilities, and $0.4 million paid toward the acquisition of Visuale assets during the quarter.
In addition, the buyout of a telecommunications operating lease increased property, plant and equipment by $0.5 million. The increase of property, plant and equipment was partially offset by depreciation, net of other capital purchases. A restricted cash balance of $1.3 million reported on March 31, 2004 was eliminated on June 30, 2004 due to a reduction in outstanding letters of credit during the second quarter related to the fulfillment of the Bellevue lease termination agreement and the telecommunications operating lease buyout.
Business Summary
"Onyx delivered a solid quarter with progress on a number of fronts," said Janice P. Anderson, Chairman and Chief Executive Officer of Onyx Software. "We announced several important partnership agreements intended to extend our reach, we strengthened our executive and sales team, and we enhanced solution capabilities in target markets. Additionally, customers are reacting favorably to the enhancements of Onyx Enterprise 5.0 with strong upgrade interest, and through our Visuale acquisition, we will be able to offer customers exciting new technology that combines Business Process Management technology and CRM."
"We increasingly see midsize and larger enterprises working with Onyx and our partners on an initial project while concurrently negotiating key aspects of a broader enterprise-level agreement. Our world class technology platform and global footprint fulfills enterprise selection criteria, while our product functionality and packaging provide an easy starting point for departmental or regional projects. We believe this positions Onyx to benefit from this change in buying behavior," Anderson said.
Onyx Expands Success in Targeted Markets
Thirty-nine companies and organizations contributed to Onyx Software's second quarter license revenue. Seventeen became new customers and 22 existing customers made add-on license purchases. No single customer accounted for as much as 10% of second quarter revenue. Selected second quarter license transactions include:
Financial Services: AIG Insurance became a new Onyx enterprise customer in the second quarter, building on a prior successful Onyx deployment in an acquired subsidiary. Fisher Investments and Toyota Financial Services expanded their existing Onyx deployments and acquired additional licenses in the second quarter.Onyx Demonstrates Momentum in Partnerships and Onyx Embedded CRMHealthcare: Shield Healthcare -- a part of Kobayashi Pharmaceutical Co, Ltd -- became a new Onyx customer during the quarter. Shield Healthcare markets a broad range of disposable medical products and product-related services required for the treatment and care of patients in the home. HealthNow, with over 780,000 members throughout upstate New York, expanded their Onyx deployment and purchased additional licenses in the second quarter.
Government: Medway Council became a new Onyx customer in the second quarter through Onyx partner Deloitte & Touche, building on prior success in the UK local government market segment. Separately, a return on investment study conducted by the United Kingdom's National Computer Center and released during the quarter showed that the Knowsley Metropolitan Borough council had identified savings exceeding $450,000 in just two service areas that resulted from the implementation of Onyx Software's flagship CRM product tailored for local government needs called Onyx OneServe. Knowsley council's reported savings significantly exceed the Onyx license expense required for the deployment.
Name-Brand Customers: Amway Japan Ltd became the latest Amway division to select Onyx to manage the cultivation and retention of their independent business owners. Amway Japan Ltd intends to roll out Onyx CRM 5.0 in their contact center and will adopt the marketing campaign management capabilities already successfully deployed in Korea and Australia. Other name-brand companies becoming new Onyx customers in the second-quarter included Hewitt and Palmer & Cay. Existing name-brand companies adding to their deployments included Reed Business Information and Starbucks Coffee Company.
During the second quarter, Onyx made significant progress in partner relationships and in its Embedded CRM initiative:
- Onyx had another quarter of strong performance from Asia operations, and announced a reseller agreement with Fujitsu for Japan. Fujitsu and Onyx already have several successful joint customers in the pharmaceutical, financial services and local government verticals.
- In Embedded CRM, following their selection and deployment of Onyx CRM internally, Hewitt became an Onyx partner offering an Onyx Embedded CRM solution that has already attracted a new healthcare customer. Financial services companies becoming Onyx Embedded CRM partners include MEMBERS Development Company, LCC, also known as MDC, and CIT -- an international IT services and solutions provider. MDC chose Onyx as the technology framework to deliver its new CRM Common Model solution designed for the specific needs of credit unions. CIT launched the Onyx-based CIT Merchant Management System as a solution to automate the enrollment and servicing of merchants to serve the needs of processors and independent sales organizations in the payment industry.
- In Government, Onyx, Microsoft and Unisys announced an alliance that launched a joint education initiative to deliver CRM solutions to cities and counties in North America.
- In Contact Center Customer Management: Onyx and Concerto Software announced a Joint Marketing Agreement to promote the benefits of customer interaction management (CIM) and CRM. Onyx also announced alliances with KnowledgeBase Solutions and Interactive Intelligence for integrated Contact Center offerings.
"Customers tell us that they want to cost-effectively create, execute and manage customer-related business processes," said Anderson. "Onyx took a major step towards meeting this need as we completed the acquisition of Visuale's business process management graphical workflow and business rule design tools in the second quarter." Visuale business process management (BPM) technology is built on Microsoft .NET standards and supports Microsoft SQL Server and Oracle Database, making the acquired technology compatible with the existing Onyx technology platform.
On April 7, 2004 Onyx Software acquired BPM technology from Visuale, Inc. in an asset acquisition valued at $4.1 million. Consideration includes an initial payment of $400,000 in cash and Onyx common stock valued at $1.7 million in the form of 504,891 shares. In April 2005, Onyx will make a subsequent payment of $1.0 million, with the option of using either cash or common stock valued at the then-current fair market value. In each of years three and four following the closing, Onyx will make minimum royalty payments of $500,000 in cash based on sales of Onyx products incorporating the acquired technology. Costs to purchase and other assumed liabilities were offset by imputed interest on the deferred payments. The above future payments have been recorded on the balance sheet as acquisition obligations net of imputed interest in short-term and long-term liabilities respectively.
Onyx Releases Product Enhancements and Industry-Specific Versions
Onyx continued to offer enhancements to its powerful CRM platform and industry-specific vertical editions, making the following announcements in the second quarter:
- Onyx Software enhanced contact center solutions by introducing Intelligent Call Scripting capabilities delivered through the recent release of Onyx Enterprise CRM 5.0 and integrated into the latest edition of the Onyx Contact Center Solution.
- Onyx Software's local government solutions were expanded with new functionality, including new process automation and intelligent call scripting in Onyx OneServe 5.0 - the next generation of the company's successful eShop offering for Local Government in the United Kingdom. Onyx also launched OneServe FASTrack for Local Government, a new fixed fee license and service offering to help local authorities achieve their eGovernment targets faster and at lower cost.
- Onyx introduced Onyx CitiServe, a solution developed specifically to allow cities and governments in North America to provide enhanced levels of citizen service.
- On July 13, Onyx announced CRMExpress - a pre-configured version of Onyx designed to grow with a company over time. CRMExpress packages Onyx Enterprise CRM software licenses, implementation services, training and product support -- all for a single, low fixed fee. The package provides a complete CRM system at an affordable price that can be implemented in 30 days or less to address the need for organizations to deploy solutions in a pilot or department as a starting point.
On June 9th, Onyx Software announced that former Lucent CRM executive Janice P. Anderson had been named Chairman and Chief Executive Officer. Onyx also announced that Ron Tarkoff, Executive Vice President and Chief Strategy Officer of Documentum, a division of EMC, has joined the Onyx Board of Directors. To strengthen the company's distribution channel, Onyx recently hired field professionals formerly with Siebel, UpShot, Pivotal and Salesforce.com.
Business Outlook
Onyx expects total revenues in the second half of 2004 to modestly grow beyond revenues for the first half of 2004. Third quarter license revenue has a wide range of possible results compared to the second quarter license results. Third quarter service revenue should be in the same range of the second quarter with modest upside potential. Total costs and expenses are expected to increase $0.4 million in the third quarter, reflecting increased compensation expenses, increased marketing activity and significant costs associated with Sarbanes-Oxley internal controls requirements.
Onyx Software Conference Call
Onyx Software Corporation (NASDAQ: ONXS) will hold its quarterly conference call to discuss results for the second quarter of 2004 on Tuesday, June 27, 2004, at 8:30 a.m. Eastern time. The live broadcast of Onyx Software's quarterly conference call will be available online at www.onyx.com or www.companyboardroom.com. The call will be archived and available for replay for one week. Alternatively, you can participate by phone.
When: Tuesday, July 27, 2004
Time: 8:30 am (Eastern) / 5:30 am (Pacific)
Dial-In: 1-866-800-8651
International Dial-In: 1-617-614-2704
Passcode: 61258795
Replay: 1-617-801-6888 (available from 10:30 ET 07/27/04 through 11:59 pm ET 8/3/04)
Passcode: 33907148
About Onyx Software
Onyx Software Corporation (Nasdaq: ONXS), a worldwide leader in delivering successful CRM, offers a fast, cost-effective, usable 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, Microsoft Corporation, Mellon Financial Corporation, The Regence Group, State Street Corporation and Suncorp. More information can be found at (888) ASK-ONYX or info@onyx.com . Forward-Looking Statement
| Contact: | Rosemary Moothart Investor Relations Director Onyx Software (425) 519-4068 |
Onyx Software Corporation
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2004 2003 2004 2003
------- ------- ------- --------
Revenue
License $3,561 $3,122 $7,180 $5,741
Service 11,232 12,688 21,857 24,276
------- ------- ------- --------
Total revenue 14,793 15,810 29,037 30,017
Costs of revenue
Cost of license 266 197 459 482
Amortization of acquired technology - 84 - 168
Cost of service 4,515 5,443 8,971 10,878
------- ------- ------- --------
Total cost of revenue 4,781 5,724 9,430 11,528
Gross margin 10,012 10,086 19,607 18,489
Operating Expenses
Sales and marketing 4,604 5,082 9,381 11,565
Research and development 2,704 3,147 5,318 6,276
General and administrative 2,227 1,842 4,151 4,095
Restructuring and other-related
charges - 754 484 1,094
Amortization of other acquisition-
related intangibles 209 209 418 418
Amortization of stock-based
compensation - 15 - 28
------- ------- ------- --------
Total operating expenses 9,744 11,049 19,752 23,476
Operating income (loss) 268 (963) (145) (4,987)
Other income (expense), net (121) 111 (314) 120
Change in fair value of outstanding
warrants 90 15 212 257
------- ------- ------- --------
Income (loss) before income taxes 237 (837) (247) (4,610)
Income tax provision (benefit) 93 135 149 (79)
Minority interest in income (loss) of
consolidated subsidiary (31) (75) 24 (232)
------- ------- ------- --------
Net income (loss) $175 $(897) $(420) $(4,299)
======= ======= ======= ========
Diluted net income (loss)
per share (A) $0.01 $(0.07) $(0.03) $(0.33)
======= ======= ======= ========
Shares used in diluted share
computation (A) 14,615 13,238 14,224 12,969
======= ======= ======= ========
Basic net income (loss) per share (A) $0.01 $(0.07) $(0.03) $(0.33)
======= ======= ======= ========
Shares used in basic share
computation (A) 14,465 13,238 14,224 12,969
======= ======= ======= ========
(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.
-0-
Onyx Software Corporation
Supplemental Non-GAAP Information:
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2004 2003 2004 2003
------- ------- ------- --------
Operating income (loss) $268 $(963) $(145) $(4,987)
Adjustments to reconcile operating
income (loss) in the financial
statements to non-GAAP forma
operating income (loss):
Restructuring charges
Facilities - 15 155 369
Severance - 739 329 638
Asset impairments - - - 87
------- ------- ------- --------
Total restructuring charges - 754 484 1,094
Amortization of acquired technology - 84 - 168
Amortization of other acquisition-
related intangibles 209 209 418 418
Amortization of stock-based
compensation - 15 - 28
------- ------- ------- --------
Non-GAAP operating income (loss) $477 $99 $757 $(3,279)
======= ======= ======= ========
Net income (loss) $175 $(897) $(420) $(4,299)
Adjustments to reconcile net income
(loss) in the financial statements
to non-GAAP net income (loss):
Restructuring charges
Facilities - 15 155 369
Severance - 739 329 638
Asset impairments - - - 87
------- ------- ------- --------
Total restructuring charges - 754 484 1,094
Amortization of acquired technology - 84 - 168
Amortization of other acquisition-
related intangibles 209 209 418 418
Amortization of stock-based
compensation - 15 - 28
Change in fair value of outstanding
warrants (90) (15) (212) (257)
Deferred income tax associated with
acquisitions (71) (71) (142) (142)
------- ------- ------- --------
Non-GAAP net income (loss) $223 $79 $128 $(2,990)
======= ======= ======= ========
Non-GAAP diluted and basic net income
(loss) per share $0.02 $0.01 $0.01 $(0.23)
======= ======= ======= ========
Shares used in computation of Non-GAAP
diluted net income (loss) per share 14,615 13,343 14,353 12,969
======= ======= ======= ========
Shares used in computation of Non-GAAP
basic net income (loss) per share 14,465 13,238 14,224 12,969
======= ======= ======= ========
-0-
Onyx Software Corporation
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
June December
30, 2004 31, 2003
----------- ----------
Assets
Current Assets:
Cash and cash equivalents (B) $12,292 $11,850
Accounts receivable, net 10,952 12,245
Prepaid expenses and other current assets 1,576 1,666
Deferred tax asset 333 362
----------- ----------
Total current assets 25,153 26,123
Property and equipment, net 4,120 4,277
Purchased technology, net 4,085 -
Other intangibles, net 229 675
Goodwill, net 9,685 9,508
Deferred tax asset 92 -
Other assets 832 842
----------- ----------
Total Assets $44,196 $41,425
=========== ----------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $987 $883
Salary and benefits payable 1,225 946
Accrued liabilities 2,031 1,829
Income taxes payable 717 770
Current portion of restructuring-related
liabilities 1,268 2,758
Current portion of acquisition obligation 943 -
Current portion of term loan 167 -
Current portion of deferred revenue 14,544 15,053
----------- ----------
Total current liabilities 21,882 22,239
Long-term accrued liabilities 492 544
Long-term deferred revenue 2,268 1,025
Long-term restructuring-related liabilities 93 405
Long-term restructuring-related liabilities -
warrants 353 565
Long-term acquisition obligation 816 -
Term loan 306 -
Deferred tax liability - 229
Minority interest in joint venture 141 119
Shareholders' Equity
Common stock 144,569 142,682
Accumulated deficit (128,635) (128,215)
Accumulated other comprehensive loss 1,911 1,832
----------- ----------
Total shareholders' equity 17,845 16,299
----------- ----------
Total Liabilities and Shareholders' Equity $44,196 $41,425
=========== ==========
(B) Includes $0 and $1.7 million in restricted cash as of June 30,
2004 and December 31, 2003, respectively.
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