SOURCE: UCN

August 07, 2008 16:05 ET

UCN Reports Second Quarter 2008 Results

Second Quarter SaaS Segment Revenue Up 29 Percent Over Year-Ago Quarter

SALT LAKE CITY, UT--(Marketwire - August 7, 2008) - UCN, Inc. (NASDAQ: UCNN), innovator of all-in-one hosted contact center software for intelligent routing and agent improvement, today reported financial results for second quarter ended June 30, 2008.

SECOND QUARTER 2008 HIGHLIGHTS

--  Revenue for the SaaS segment increased 29% to $4.5 million in the
    second quarter, as compared to $3.5 million in SaaS revenue during the same
    period in 2007, bringing the total for the first half of 2008 to $8.9
    million, a 59% increase from $5.6 million in SaaS segment revenue for the
    same period in 2007.
--  Consolidated revenue for the quarter was $19.3 million, compared to
    $20.0 million for the same period a year ago, bringing the total for the
    first half of 2008 to $39.2 million.
--  Consolidated costs of revenue as a percentage of revenue for the
    quarter improved by 2.0 percentage points to 53.7% from the same period in
    2007.
--  Signed 29 new SaaS contracts during the quarter, including a Fortune
    100 health care services provider and a Fortune 1000 energy services
    company.
    

"We saw a significant increase in new contract closes from Q1 to Q2," said Paul Jarman, UCN CEO. "The key drivers of this accelerated sales activity include the need to solve multi-location challenges; the need to minimize capital expenditures; the need to support at-home workers, and the increasing acceptance of the SaaS model. I expect these key drivers, combined with progress within our partner program and the upcoming release of the inContact platform, will have a positive impact on UCN SaaS revenue for the remainder of 2008 and provide accelerated SaaS revenue growth in 2009."

SECOND QUARTER FINANCIAL RESULTS

SaaS Segment Results

SaaS segment revenue totaled $4.53 million, an increase of 4% from $4.37 million in the previous quarter and a 29% increase from $3.50 million in the same period in 2007.

The SaaS segment includes all monthly recurring revenue related to the delivery of the company's software applications plus the associated professional services and setup fees related to the software services product features (referred to as SaaS). See discussion of "Segment Reporting" below for further description of the current segment presentation method and segment financial results.

Consolidated Results

Revenue for the quarter decreased by $0.7 million to $19.3 million, as compared to $20.0 million for the same period in 2007 due to a decrease of $1.7 million in Telecom segment revenue from expected attrition. The company has focused more of its sales and marketing efforts on increasing SaaS segment revenue, which increased $1.0 million compared to the same period in 2007. Costs of revenue as a percentage of revenue improved by 2.0 percentage points to 53.7% during the quarter, as compared to the same period in 2007. This decrease is due to an increase in higher margin SaaS revenue primarily resulting from the addition of new customers. The company's cost of revenue excludes certain costs such as depreciation and amortization related to the production of revenue.

Net loss for the quarter was $3.2 million, or $0.10 per share, as compared to a net loss of $1.6 million or $0.06 per share for the same period in 2007. The loss is attributable, in part, to depreciation and amortization expense of $1.4 million and non-cash stock-based compensation expense of $307,000. The increase in net loss was also the result of an investment in payroll in the areas of general and administrative expenses and research and development, primarily to support the growing SaaS segment.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter was a negative $1.6 million, which includes $307,000 of non-cash stock-based compensation expense. Year-to-date negative EBITDA grew to $2.8 million and includes $685,000 of non-cash stock-based compensation expense. EBITDA is a non-GAAP measure management believes provides important insight into UCN's operating results (see reconciliation of non-GAAP measures below).

FINANCIAL OUTLOOK

UCN provides the following guidance for the full year of 2008:

--  SaaS revenue (defined as software and related fees only, with no
    telecom and related fees included) to range between $19 million and $20
    million.
--  Consolidated revenue to range between $77 million and $80 million.
--  Consolidated costs of revenue expected to continue to decrease in
    2008.
    

CONFERENCE CALL INFORMATION

UCN will host a conference call to discuss its second quarter 2008 results later today at 4:30 p.m. Eastern Time (1:30 p.m. Pacific)

      Dial-In Number: 1-800-895-0231
      International: 1-785-424-1054
      Conference ID#: 7UCN

The call will be recorded and accessible as an audio file after the call from UCN's investor page at www.ucn.net/investors. A replay of the call will be available via telephone after 7:30 today and until August 14, 2008:

      Toll-free replay number: 1-800-839-5244
      International replay number: 1-402-220-2699
      (No replay pass code required)

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

All statements included in this press release, other than statements or characterizations of historical fact, are forward-looking statements. These forward-looking statements are based on UCN's current expectations, estimates and projections about UCN's industry, management's beliefs, and certain assumptions made by management, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words and include, but are not limited to, statements regarding projected results of operations and management's future strategic plans. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement.

The risks and uncertainties referred to above include, but are not limited to, risks associated with UCN's business model; our ability to develop or acquire, and gain market acceptance for new products, including our new sales and marketing and voice automation products, in a cost-effective and timely manner; the gain or loss of key customers; competitive pressures; its ability to expand operations; fluctuations in its earnings as a result of the impact of stock-based compensation expense; interruptions or delays in our hosting operations; breaches of our security measures; its ability to protect our intellectual property from infringement, and to avoid infringing on the intellectual property rights of third parties; and its ability to expand, retain and motivate our employees and manage its growth. Further information on potential factors that could affect our financial results is included in UCN's Annual Report on Form 10-K, quarterly reports of Form 10-Q, and in other filings with the Securities and Exchange Commission. The forward-looking statements in this release speak only as of the date they are made. UCN undertakes no obligation to revise or update publicly any forward-looking statement for any reason.

                                UCN, INC.

                  CONDENSED CONSOLIDATED BALANCE SHEETS
                             (in thousands)


                                                    June 30,   December 31,
                                                      2008         2007
                                                  -----------  -----------
                       ASSETS                     (Unaudited)
Current assets:
   Cash and cash equivalents                      $     3,723  $     2,760
   Short-term investments                                   -        2,000
   Accounts and other receivables, net of
    allowance for uncollectible accounts
    of $1,636 and $1,779, respectively                  8,221        9,988
   Other current assets                                   767          941
                                                  -----------  -----------
      Total current assets                             12,711       15,689

Property and equipment, net                             7,106        6,375
Intangible assets, net                                  5,179        6,813
Goodwill                                                2,512        2,155
Auction rate preferred securities                         890            -
Other assets                                              429          336
                                                  -----------  -----------

      Total assets                                $    28,827  $    31,368
                                                  ===========  ===========

      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt and capital
    lease obligations                             $       716  $       781
   Trade accounts payable                               6,899        7,713
   Accrued liabilities                                  2,753        2,120
   Accrued commissions                                  1,301        1,470
   Deferred revenue                                       934          338
                                                  -----------  -----------
      Total current liabilities                        12,603       12,422

Long-term debt and  capital lease obligations           3,119          746
Other long-term liabilities and deferred revenue          277          172
                                                  -----------  -----------
      Total liabilities                                15,999       13,340

      Total stockholders' equity                       12,828       18,028
                                                  -----------  -----------

      Total liabilities and stockholders' equity  $    28,827  $    31,368
                                                  ===========  ===========



                                UCN, INC.

      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
                   (in thousands except per share data)


                                       Three months         Six months
                                      ended June 30,      ended June 30,
                                    ------------------  ------------------
                                      2008      2007      2008      2007
                                    --------  --------  --------  --------

Revenue                             $ 19,285  $ 19,975  $ 39,166  $ 39,795

Operating expenses:
  Costs of revenue (excluding
   depreciation and amortization
   shown separately below)            10,362    11,128    20,870    22,665
  Selling and promotion                4,286     4,102     8,480     7,952
  General and administrative           5,164     4,164    10,625     7,862
  Depreciation and amortization        1,440     1,495     2,892     3,288
  Research and development             1,078       447     2,036       875
                                    --------  --------  --------  --------
    Total operating expenses          22,330    21,336    44,903    42,642
                                    --------  --------  --------  --------

      Loss from operations            (3,045)   (1,361)   (5,737)   (2,847)

Other income (expense):
  Interest income                         11         3        31        18
  Interest expense                      (113)     (202)     (168)     (402)
                                    --------  --------  --------  --------
    Total other expense                 (102)     (199)     (137)     (384)
                                    --------  --------  --------  --------

      Loss before income taxes        (3,147)   (1,560)   (5,874)   (3,231)

Income tax expense                         3         2         6         5
                                    --------  --------  --------  --------

      Net loss                      $ (3,150) $ (1,562) $ (5,880) $ (3,236)
                                    ========  ========  ========  ========

Net loss per common share:
  Basic and diluted                 $  (0.10) $  (0.06) $  (0.19) $  (0.12)

Weighted average common shares
 outstanding:
  Basic and diluted                   31,039    28,166    31,033    27,243

Segment Reporting

Effective January 1, 2008, UCN's management changed the way it manages the business and accordingly, UCN has changed the way it reports segments to reflect sales based on its two primary product service segments. The new segments are Software as a Service ("SaaS") and Telecom, which is different than the previously reported Telecom segment. The SaaS segment includes all monthly recurring revenue related to the delivery of our software applications plus the associated professional services and setup fees related to the software services product features (referred to as SaaS). The new SaaS segment no longer includes any telecom revenue. SaaS software includes:

--  Skills-based routing,
--  Automated call distribution ("ACD"),
--  Self-service menus,
--  Speech recognition based automated interactive voice response,
--  Database integration with the contact handling technology,
--  Multimedia contact management (voice, fax, email, chat),
--  Management reporting features,
--  Performance optimization benchmarking,
--  Custom call routing and call flow design,
--  Workforce scheduling, simulation and forecasting,
--  Customer satisfaction tracking and scoring,
--  New hire screening and on-line training tools, and
--  One-time professional services and setup fees.
    

Prior to January 1, 2008, UCN managed and reported its financial results based on two customer segments: inContact and Telecom. The inContact segment included all product revenues from customers using any inContact services as well as their long distance voice and data services. The previous Telecom segment included all voice and data long distance services provided to customers not utilizing any inContact services.

Operating segment revenues and profitability for the three and six months ended June 30, 2008 and 2007 were as follows (in thousands):

                         Three months ended        Three months ended
                            June 30, 2008             June 30, 2007
                      -------------------------  -------------------------
                                        Consol-                    Consol-
                      Telecom   SaaS    idated   Telecom   SaaS    idated
                      -------  -------  -------  -------  -------  -------
Revenue (1)           $14,752  $ 4,533  $19,285  $16,471  $ 3,504  $19,975

Costs of revenue
 (excluding depreciation
 and amortization shown
 separately below)     10,251      111   10,362   11,058       70   11,128
Selling and promotion   1,311    2,975    4,286    1,683    2,419    4,102
General and
 administrative         3,116    2,048    5,164    2,995    1,169    4,164
Depreciation and
 amortization             724      716    1,440      800      695    1,495
Research and
 development                -    1,078    1,078        -      447      447
                      -------  -------  -------  -------  -------  -------
  Loss from
   operations         $  (650) $(2,395) $(3,045) $   (65) $(1,296) $(1,361)
                      =======  =======  =======  =======  =======  =======


                          Six months ended          Six months ended
                            June 30, 2008             June 30, 2007
                      -------------------------  -------------------------
                                        Consol-                    Consol-
                      Telecom   SaaS    idated   Telecom   SaaS    idated
                      -------  -------  -------  -------  -------  -------
Revenue (2)           $30,263  $ 8,903  $39,166  $34,149  $ 5,646  $39,795

Costs of revenue
 (excluding depreciation
 and amortization shown
 separately below)     20,666      204   20,870   22,555      110   22,665
Selling and promotion   2,720    5,760    8,480    3,656    4,296    7,952
General and
 administrative         6,542    4,083   10,625    5,889    1,974    7,862
Depreciation and
 amortization           1,437    1,455    2,892    2,002    1,285    3,288
Research and
 development                -    2,036    2,036        -      875      875
                      -------  -------  -------  -------  -------  -------
  Loss from
   operations         $(1,102) $(4,635) $(5,737) $    47  $(2,894) $(2,847)
                      =======  =======  =======  =======  =======  =======

(1) SaaS segment revenue includes professional services revenue of $218,000
    and $256,000 for the three months ended June 30, 2008 and 2007,
    respectively.
(2) SaaS segment revenue includes professional services revenue of $474,000
    and $449,000 for the six months ended June 30, 2008 and 2007,
    respectively.

Reconciliation of Non-GAAP Measures:

"EBITDA," which is calculated as Earnings Before deductions for Interest, Taxes, Depreciation and Amortization, is not a measure of financial performance under generally accepted accounting principles (GAAP). EBITDA is provided for the use of the reader in understanding UCN's operating results and is not prepared in accordance with, nor does it serve as an alternative to GAAP measures and may be materially different from similar measures used by other companies. While not a substitute for information prepared in accordance with GAAP, management believes that this information is helpful for investors to more easily understand our operating financial performance. Management also believes this measure may better enable an investor to form views of UCN's potential financial performance in the future. This measure has limitations as an analytical tool, and investors should not consider EBITDA in isolation or as a substitute for analysis of our results prepared in accordance with GAAP.

                                              Three months ended June 30,
                                              ----------------------------
                                                  2008           2007
                                              -------------  -------------
Net loss                                      $      (3,150) $      (1,562)

Depreciation and amortization                         1,440          1,495
Interest income and expense, net                        102            199
Income tax expense                                        3              2
                                              -------------  -------------
EBITDA                                        $      (1,605) $         134
                                              =============  =============


                                                Six months ended June 30,
                                              ----------------------------
                                                  2008           2007
                                              -------------  -------------
Net loss                                      $      (5,880) $      (3,236)

Depreciation and amortization                         2,892          3,288
Interest income and expense, net                        137            384
Income tax expense                                        6              5
                                              -------------  -------------
EBITDA                                        $      (2,845) $         441
                                              =============  =============

Contact Information

  • UCN Contact:
    Aaron Glauser
    Communications Director
    801-320-3468
    Email Contact

    Investor Contact:
    Liolios Group Inc
    Scott Liolios or Ron Both
    949-574-3860
    Email Contact