SOURCE: Knova Software

November 07, 2006 16:32 ET

KNOVA Software Reports Third Quarter 2006 Results

CUPERTINO, CA -- (MARKET WIRE) -- November 7, 2006 -- KNOVA Software (OTCBB: KNVS), a leading provider of Intelligent Customer Experience applications, today announced the financial results for the third quarter ended September 30, 2006.

Revenue for the third quarter of 2006 was $5.8 million, a 1.4 percent increase over third quarter 2005 revenue of $5.7 million. Revenue for the quarter was comprised of $2.1 million of software license revenue and $3.7 million of services and maintenance revenue compared to $2.2 million of software license revenue and $3.5 million of services and maintenance revenue for the third quarter of 2005.

The GAAP net loss for the third quarter of 2006 was $2.1 million or $0.24 per share. This compares to a net loss of $942,000 or $0.11 per share for the third quarter of 2005. GAAP net loss in the third quarter of 2006 includes stock based compensation charges of approximately $524,000 reflecting the company's adoption of Statement of Financial Standards No. 123R ("SFAS 123R") as of January 1, 2006.

On an adjusted non-GAAP basis, net loss for the third quarter of 2006 was $1.3 million or $0.14 per share. This compares to an adjusted non-GAAP net loss of $682,000 or $0.08 per share for the third quarter of 2005. Adjusted non-GAAP net income excludes non-cash amortization, restructuring charges and stock based compensation expense. Please see the Use of Adjusted Non-GAAP Financial Measures section below for a reconciliation of the GAAP to adjusted non-GAAP financial results.

Revenue for the nine months ending September 30, 2006 was $20.3 million, an increase of 21 percent over the same period in 2005. Software license revenue for the nine-month period was $8.1 million, representing a 26 percent increase over the same period last year.

Commenting on the financial results, Bruce Armstrong, president and CEO of KNOVA Software, stated, "In what has traditionally been a challenging quarter for KNOVA, our third quarter delivered continued year-over-year growth, with additional penetration into our target markets. We added seven new customers during the third quarter including Siemens, Informatica and Spansion. The release of KNOVA 7 in the third quarter is the beginning of a new product cycle for the company, and with its personalization, powerful analytics, and advanced search optimization, has been met with outstanding customer and analyst feedback.

"We are also excited about our acquisition of Active Decisions and the new functionality it brings to our application suite," continued Armstrong. "We expect these new capabilities, combined with the release of KNOVA 7, will help us deliver on our vision to provide an intelligent experience throughout the entire customer lifecycle."

Third Quarter Highlights

Highlights of KNOVA's third quarter include:

--  7 new customer deployments in key target markets, including
    telecommunications, medical equipment and high technology
--  17 follow-on deals with existing customers
--  KNOVA acquired Active Decisions®, a leading provider of multi-
    channel Guided Selling solutions for retail, manufacturing, finance and
    telecommunications industries - broadening the scope of KNOVA's application
--  KNOVA announced General Availability of the KNOVA 7 platform,
    representing a consolidation of the former Kanisa and ServiceWare product
    lines, after successful deployment of a Limited Availability release at
    several customers beginning in June
--  KNOVA's worldwide user conference, Discovery 2006, attracted more than
    250 attendees with keynote speakers Patricia Seybold; John Ragsdale, VP of
    Research for the SSPA; and Brad Maybee, VP of Customer Support for Research
    in Motion
--  KNOVA was positioned in the Visionaries Quadrant in Gartner's Magic
    Quadrant report on Information Access for the third consecutive year
--  Baseline magazine named KNOVA the fourth fastest-growing software
    company in its October 2006 report
--  Andy Feit joined KNOVA as chief marketing officer, bringing more than
    20 years of technology marketing and sales experience to the company
"We feel that our visionary technology and products, highly referenceable customers, and strong management team will sustain our leadership position in this market," continued Armstrong. "We expect that this leadership, combined with continued innovation and execution will enable us to execute our financial plan and achieve profitable growth."

Financial Guidance and Business Outlook

Based on the results for the first nine months of 2006, the company maintained its annual guidance. Revenue for 2006 is expected to be in the range of $26 million to $29 million.

Conference Call Information:

KNOVA will present its third quarter earnings in a teleconference today at 5:00 p.m. Eastern (2:00 p.m. Pacific). Domestic callers can join the teleconference by dialing 1.866.825.3209 (domestic), providing the company name, "KNOVA" and the following conference ID pass code: 29496189, International callers can access the broadcast by dialing 1.617.213.8061 providing the company name and same pass code. The teleconference also can be accessed online by clicking on the Investor Relations area of KNOVA's Web site, Participants are asked to call the assigned number approximately 10 minutes before the conference call begins.

If you are unable to participate, an audio digital replay of the call will be available beginning two hours after the call and will be available until 11:59 p.m. on November 14, 2006 by dialing 1.888.286.8010 (domestic) or 1.617.801.6888 (international) using the pass code 58531123. KNOVA will also provide a replay of the conference call on the Investor Relations page of its Web site.

Use of Adjusted Non-GAAP Financial Measures

KNOVA is providing adjusted non-GAAP historical financial measures presented below as the Company believes that these figures are helpful in allowing individuals to better assess the ongoing nature of KNOVA's core operations. An "adjusted non-GAAP financial measure" is a numerical measure of a company's historical or future financial performance that excludes amounts that are included in the most directly comparable measure calculated and presented in the GAAP statement of operations. Adjusted non-GAAP net income (loss) and adjusted non-GAAP net income (loss) per share (non-GAAP), as we present them in the financial data below included in this press release, have been normalized to exclude the net effects of the amortization of purchased technology, in-process research and development and intangible assets, restructuring charges and non-cash compensation charges. Management believes that these normalized non-GAAP financial measures better reflect its operating performance. Management believes that these charges are not necessarily representative of underlying trends in the Company's performance and their exclusion provides individuals with additional information to compare the Company's results over multiple periods. The Company uses the adjusted non-GAAP financial measures internally to focus management on period-to-period changes in the Company's core business. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. KNOVA's utilization of non-GAAP measurements is not meant to be considered in isolation or as a substitute for income from operations, net loss, cash flow and other measures of financial performance prepared in accordance with GAAP. Adjusted non-GAAP results are not a GAAP measurement and KNOVA's use of it may not be comparable to similarly titled measures employed by other companies in the technology industry.

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the table below presents the most directly comparable GAAP financial measure and reconciles the adjusted non-GAAP financial metrics to the comparable GAAP measures.

About KNOVA Software

KNOVA Software is a leading provider of Intelligent Customer Experience™ solutions that maximize the value of every interaction throughout the customer lifecycle. Built on an adaptive search and knowledge management platform, KNOVA's suite of applications helps companies increase revenues, reduce service costs and improve customer satisfaction. Industry leaders including AOL, Ford, H&R Block, HP, McAfee, Novell and Reuters rely on KNOVA's award-winning Service Resolution Management, Interactive Brand Optimization and Guided Selling applications to power an intelligent customer experience on their Web sites, and within their contact centers. KNOVA Software is headquartered in Cupertino, Calif. For more information, visit

KNOVA Software, KNOVA Contact Center, KNOVA Self-Service, KNOVA Forums, KNOVA Field Service, KNOVA Knowledge Desk and KNOVA 7 are trademarks of KNOVA Software, Inc. All other trademarks are properties of their respective owners.

Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, statements in this press release that are not historical facts, including those statements that refer to KNOVA Software's plans, prospects, expectations, strategies, intentions, hopes and beliefs and the expected benefits of the use of KNOVA's products are forward-looking statements. These forward-looking statements are not historical facts and are only estimates or predictions. Actual results may differ materially from those projected as a result of risks and uncertainties including, but not limited to, risks related to our software strategy, fluctuations in customer demand, performance of outside distributors and resellers, use of the Web as a delivery vehicle for customer support solutions, risks resulting from new product introductions, integration of acquired products with current offerings, customer acceptance of new products, rapid technological change, risks associated with competition, continued growth in the use of the Internet, our ability to retain and increase revenue from existing customers and to execute agreements with new customers, unforeseen expenses, our ability to attract and retain qualified personnel and to secure necessary financing for our operations and business development, and other market conditions and risks detailed from time to time in our Securities and Exchange Commission filings. Any forward-looking statements are based on information available to the Company today and the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future events, new information, or otherwise.

                           KNOVA Software, Inc.
                        CONSOLIDATED BALANCE SHEETS
             (Amounts in thousands, except per share amounts)

                                                 September 30, December 31,
                                                     2006         2005
                                                  -----------  -----------
Current assets
   Cash and cash equivalents                      $     9,277  $     6,731
   Marketable securities                                1,075        5,461
   Accounts receivable, less allowance for              6,379        6,442
    doubtful accounts of $125 at
    September 30, 2006 and $126
    at December 31, 2005
   Prepaid expenses and other current assets              460          781
                                                  -----------  -----------
      Total current assets                             17,191       19,415
Non current assets
   Property and equipment
     Office furniture, equipment, and leasehold
      improvements                                      1,518        1,518
     Computer equipment                                 5,924        5,166
                                                  -----------  -----------
       Total property and equipment                     7,442        6,684
     Less accumulated depreciation                     (6,614)      (6,319)
                                                  -----------  -----------
   Property and equipment, net                            828          365
Intangible assets, net of amortization of $1,415        4,267        4,604
 at September 30, 2006 and $778
 at December 31, 2005
Goodwill                                               14,890       14,485
Other noncurrent assets                                    61          123
                                                  -----------  -----------
       Total noncurrent assets                         20,046       19,577
                                                  -----------  -----------
       Total assets                               $    37,237  $    38,992
                                                  ===========  ===========
Liabilities and Stockholders' Equity
Current liabilities
   Accounts payable                                     2,433        1,636
   Accrued compensation and benefits                      793        1,003
   Deferred revenue - licenses                            118        1,571
   Deferred revenue - services                          5,521        5,114
   Accrued restructuring charges                           20          261
   Line of credit - short term                          2,175        3,600
   Current portion of capital lease obligations            21           40
   Current portion of equipment loan                      372            -
   Other current liabilities                              969          795
   Commitments and Contingencies                          100            -
                                                  -----------  -----------
       Total current liabilities                       12,522       14,020
Noncurrent deferred revenue                               598          182
Other non-current liabilities                              63           89
Long term portion of equipment loan                       431            -
Capital lease obligations                                  22           35
                                                  -----------  -----------
       Total liabilities                               13,636       14,326
Stockholders' equity
   Common stock, $0.01 par; 50,000 shares
    authorized, 8,921 and 8,744                            89           87
   shares outstanding at September 30, 2006 and
    December 31, 2005, respectively
   Additional paid in capital                         103,463      101,472
   Treasury stock, 26 shares at September 30,
    2006 and December 31, 2005                           (151)        (151)
   Deferred compensation                                    -           (5)
   Warrants                                             6,549        6,549
   Accumulated other comprehensive loss                     -          (12)
   Accumulated deficit                                (86,349)     (83,274)
                                                  -----------  -----------
       Total stockholders' equity                      23,601       24,666
                                                  -----------  -----------
       Total liabilities and stockholders'
        equity                                    $    37,237  $    38,992
                                                  ===========  ===========

See accompanying condensed notes to unaudited
 interim consolidated financial statements

                           KNOVA Software, Inc.
             (Amounts in thousands, except per share amounts)

                                 Three months ended     Nine months ended
                                    September 30,         September 30,
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
   Licenses                     $   2,086  $   2,208  $   8,054  $   6,409
   Services                         3,710      3,511     12,229     10,351
                                ---------  ---------  ---------  ---------
      Total revenues                5,796      5,719     20,283     16,760
                                ---------  ---------  ---------  ---------
Cost of revenues
   Cost of licenses                   225        227        639        647
   Cost of services                 2,047      2,186      6,778      6,034
                                ---------  ---------  ---------  ---------
      Total cost of revenues        2,272      2,413      7,417      6,681
                                ---------  ---------  ---------  ---------
Gross margin                        3,524      3,306     12,866     10,079
Operating expenses
   Sales and marketing              2,837      2,080      7,775      5,784
   Research and development         1,754      1,364      5,236      4,205
   General and administrative         826        777      2,566      3,175
   Intangible assets
    amortization                       70         70        210        187
   Restructuring charges              139          -        139      1,355
                                ---------  ---------  ---------  ---------
      Total operating expenses      5,626      4,291     15,926     14,706
                                ---------  ---------  ---------  ---------
(Loss) income from operations      (2,102)      (985)    (3,060)    (4,627)
Other income (expense)
   Interest expense                   (29)        (2)       (66)        (5)
   Other, net                          (6)        45         51        247
                                ---------  ---------  ---------  ---------
Other income (expense), net           (35)        43        (15)       242
                                ---------  ---------  ---------  ---------
Net (loss) income               ($  2,137) ($    942) ($  3,075) ($  4,385)
                                =========  =========  =========  =========

Net (loss) income  per common
 share, basic                   ($   0.24) ($   0.11) ($   0.35) ($   0.53)
Net (loss) income  per common
 share, diluted                 ($   0.24) ($   0.11) ($   0.35) ($   0.53)

Shares used in computing per
 share amounts, basic               8,831      8,725      8,783      8,212
                                =========  =========  =========  =========
Shares used in computing per
 share amounts, diluted             8,831      8,725      8,783      8,212
                                =========  =========  =========  =========

See accompanying condensed notes to unaudited interim
consolidated financial statements

Reconciliation from GAAP to Adjusted Non GAAP

KNOVA Software, Inc
(in thousands except per share data)

                                For the three months  For the nine months
                                 ended September 30    ended September 30
                                --------------------  --------------------
                                    2006       2005       2006       2005
                                     in         in         in         in
                                 thousands  thousands  thousands  thousands
GAAP net (loss) income          $  (2,137) $    (942) $  (3,075) $  (4,385)
Restructuring charge                  139          -        139      1,355
Intangible assets amortization         70         70        210        187
Purchased technology
 amortization                         142        142        426        379
In-process research and
 development                            -          -          -        421
Stock based compensation              524         48      1,423        187

                                ---------  ---------  ---------  ---------
Non GAAP Adjusted net income
 (loss)                         $  (1,262) $    (682) $    (877) $  (1,856)
                                =========  =========  =========  =========
Shares used in per share
 calculation - basic                8,831      8,725      8,783      8,212
Shares used in per share
 calculation - diluted              8,831      8,725      8,783      8,212
Net loss per share, basic (Non
 GAAP)                          $   (0.14) $   (0.08) $   (0.10) $   (0.23)
Net loss per share, diluted
 (Non GAAP)                     $   (0.14) $   (0.08) $   (0.10) $   (0.23)

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