KANA Software Reports Second Quarter 2009 Financial Results

• Press Release
• Source: KANA Software, Inc.
• On 4:01 pm EDT, Wednesday July 29, 2009

MENLO PARK, CA--(Marketwire - 07/29/09) - KANA Software, Inc. (OTC.BB:KANA - News), a world leader in multi-channel customer service, today announced financial results for the second quarter ended June 30, 2009.

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--  KANA increased its cash position, reduced the combined total of its
    payables and its accrued liabilities, and generated positive net cash flow
    from operating activities in the second quarter of 2009.
--  The Company reported a net loss in accordance with accounting
    principles generally accepted in the United States (GAAP) of $607,000, or
    $0.01 per share for the second quarter of 2009, compared to a net loss of
    $3.3 million or $0.08 per share in the first quarter of 2009 and compared
    to a net loss of $137,000, or $0.00 per share for the second quarter of
    2008.
--  For the second quarter of 2009, KANA reported non-GAAP net income of
    $703,000, or $0.02 per share, compared to a non-GAAP net loss of $2.7
    million or $0.07 per share in the first quarter of 2009, and compared to
    non-GAAP net income of $549,000, or $0.01 per share, in the second quarter
    of 2008.  KANA's quarterly non-GAAP net income (loss) was calculated by
    adding back accounting charges for stock-based compensation expense,
    amortization of acquired intangible assets, and restructuring expense to
    KANA's GAAP net loss.
--  KANA's total revenues for the second quarter of 2009 were $11.9
    million, compared to $10.9 million in the first quarter of 2009 and
    compared to $16.7 million in the second quarter of 2008.
--  Maintenance revenue in the second quarter of 2009 was $7.1 million,
    compared to $6.6 million in the first quarter of 2009 and compared to $7.6
    million in the second quarter of 2008.  In the second quarter of 2009,
    service revenue was $3.3 million, compared to $3.1 million in the first
    quarter of 2009 and compared to $5.1 million for the second quarter of
    2008, while license revenue was $1.5 million in the second quarter of 2009
    compared to $1.2 million in the first quarter of 2009 and compared to $4.0
    million in the second quarter of 2008.
--  KANA announced during the quarter the completion of a term sheet for
    $1 million in subordinated debt financing as part of the recently extended
    Loan & Security Agreement between the Company and Bridge Bank.
--  KANA continues to make improvements to its cost structure.  In the
    first two quarters of 2009, the Company's run rate is on track to reduce
    annual costs by at least $16 million. The Company continues to expect 2009
    total non-GAAP operating expenses to be at least 25% less than 2008 non-
    GAAP operating expense.  KANA has achieved these cost reductions in 2009
    while maintaining its level of investment in both research and development
    and customer support.
    

Company Highlights:

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--  KANA announced during the second quarter that online travel service
    provider priceline.com selected KANA 10, which provides customer-service
    executives unprecedented control over the end-to-end Service Experience.
    KANA and IBM made the announcement of priceline.com's selection
    simultaneously with their announcement of the rollout of KANA 10, which is
    built on IBM's industry-leading SOA foundation and enables its customers to
    make changes in minutes instead of months.  "Priceline.com wanted a
    solution that increased our agility in accommodating varying business
    conditions and changes in products to ensure our customers have the ideal
    service experience," said priceline.com's Chief Technology Officer, Ron
    Rose.  "KANA 10, with its experience flow capability, provided us with the
    ability to accomplish that."
--  Additional customers selecting KANA solutions during the second
    quarter included Biogen Idec, Inc.; LoveFilm UK, Limited; and one of the
    largest telecommunications companies in the United States.
--  KANA also announced that it has formed KANA Global Consulting
    Services, a new business unit charged with providing strategic business
    consulting, expertise in industry-specific business processes and delivery
    of new technology solutions critical to helping major corporations deliver
    superior service experiences for their customers.  As part of the formation
    of the new services unit, KANA is fully merging eVergance Partners LLC, its
    management consulting services subsidiary, into KANA to streamline
    operations and better align its strategic business services.
--  During the second quarter, KANA was named a Service Leader by CRM
    magazine for the third consecutive year. KANA won the "Web Interaction
    Management" category and was listed as a leader in the "Web Self-Service"
    category.  Also, KANA customer Xerox won a 2009 STAR Award for Best
    Practices from the Service & Support Professionals Association (SSPA).
    

"Non-GAAP profitability, positive net operating cash flow, increased cash and immediate success for KANA 10 were the hallmarks of our second quarter," said Michael Fields, KANA's Chief Executive Officer. "By sustaining strong renewal maintenance revenue within a significantly lower operational cost structure, KANA succeeded in achieving non-GAAP profitability in the second quarter, even though a handful of deployment delays caused our overall revenue to come in slightly below the lower end of our guidance range. Excellent early traction for KANA 10, typified by the selection by priceline.com, bolsters our confidence in maintaining non-GAAP profitability in each of the two remaining quarters of the year. KANA has positioned itself well for growth and sustainable profitability and is focused on market leadership in multi-channel customer service."

KANA said that it expects revenue of $12 million to $13.5 million and non-GAAP operating profitability in the third quarter of 2009.

Investor Conference Call Information

KANA's management team will host a conference call today at 4:30PM EDT (1:30PM PDT) in which it will discuss the Company's reported quarterly financial results and financial outlook. Investors are invited to listen to the call by dialing (866) 831-6270 or (617) 213-8858 and entering passcode #32622796. The conference call will also be broadcast from KANA's website. A digital recording will be provided by telephone two hours after the completion of the conference call, through midnight on August 1, 2009. To access the replay, please dial (888) 286-8010 or (617) 801-6888 and enter passcode #76356713. The replay will also be available on the Company's website for one year.

About KANA

KANA is a world leader in multi-channel customer service. KANA's integrated solutions allow companies to deliver consistent, managed service across all channels, including email, chat, call centers and Web self-service, so customers have the freedom to choose the service they want, how and when they want it. KANA's clients report double-digit increases in customer satisfaction, while reducing call volumes by an average of 20 percent. KANA's award-winning solutions have been proven in more than 600 companies worldwide, including approximately half of the world's largest 100 companies. For more information, visit www.KANA.com.

Non-GAAP Financial Measures

To supplement our financial results presented on a GAAP basis, we use the non-GAAP measures indicated in the attached table, which exclude certain expenses including stock-based compensation, that we believe are helpful in understanding our past financial performance and our future results. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures.

Cautionary Note Regarding Forward-looking Statements Under the Private Securities Litigation Reform Act of 1995: Information in this release regarding KANA's forecasts, projections, expectations, beliefs, and intentions are forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this release are based upon information available to KANA as of the date of this release, which will likely change and we assume no obligation to update any such forward-looking statement. These statements include statements about anticipated revenue growth, profitability, market leadership, demand for KANA's software, and customers' expected benefits and results from KANA applications. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to such differences include, but are not limited to: competition in our marketplace, including introductions of new products or services, or reductions in prices, by competitors; risks associated with lack of market acceptance of KANA's products or services; inability to enhance and develop our products and services within budget and on schedule; inability to attract and retain qualified employees, to manage cash and expenditures or to expand sales; KANA's history of losses; the effect of potential military action and terrorist activities; and slow economic conditions, particularly as they affect spending by our prospective customers on multi-channel customer service and similar enterprise software products. These and other factors are risks associated with our business that may affect our operating results and are discussed in KANA's filings with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q.

NOTE: KANA is a registered trademark of KANA Software, Inc. All other company and product names may be trademarks of their respective owners.

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Kana Software, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Revenues:
License fees                        $  1,518  $  3,972  $  2,717  $  9,695
Services                              10,395    12,681    20,088    25,243
                                    --------  --------  --------  --------
Total revenues                        11,913    16,653    22,805    34,938
                                    --------  --------  --------  --------

Costs and expenses:
Cost of license fees                     187       146       375       558
Cost of services                       3,606     5,340     8,084    10,758
Amortization of acquired intangible
 assets                                  125       125       250       250
Sales and marketing                    2,235     5,028     5,237    11,272
Research and development               3,386     3,426     7,049     6,760
General and administrative             2,115     2,641     4,715     5,825
Restructuring expense (recovery)         805         -       805      (482)
                                    --------  --------  --------  --------
Total costs and expenses              12,459    16,706    26,515    34,941
                                    --------  --------  --------  --------
Loss from operations                    (546)      (53)   (3,710)       (3)
Interest and other income
 (expense), net                          (51)      (64)     (137)     (167)
                                    --------  --------  --------  --------
Loss before income tax expense          (597)     (117)   (3,847)     (170)
Income tax expense                       (10)      (20)      (26)      (46)
                                    --------  --------  --------  --------
Net loss                            $   (607) $   (137) $ (3,873) $   (216)
                                    ========  ========  ========  ========

Basic and diluted net loss per
 share                              $  (0.01) $  (0.00) $  (0.09) $  (0.01)
                                    ========  ========  ========  ========
Shares used in computing basic and
 diluted net loss per share           41,215    41,212    41,214    41,211
                                    ========  ========  ========  ========

Stock-based compensation included
 in the expense line items:

Cost of services                    $     67  $     82  $    150  $    185
Sales and marketing                      103       176       214       340
Research and development                  71        96       134       173
General and administrative               139       207       316       424
                                    --------  --------  --------  --------
                                    $    380  $    561  $    814  $  1,122
                                    ========  ========  ========  ========

Reconciliation of GAAP net loss to
 non-GAAP net income (loss):
                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Net loss, GAAP                      $   (607) $   (137) $ (3,873) $   (216)
Non-GAAP adjustments:
        Stock-based compensation         380       561       814     1,122
        Restructuring expense
         (recovery)                      805         -       805      (482)
        Amortization of acquired
         intangible assets               125       125       250       250
                                    --------  --------  --------  --------
Net income (loss), non-GAAP         $    703  $    549  $ (2,004) $    674
                                    ========  ========  ========  ========

Net income (loss) per share,
 non-GAAP
        Basic                       $   0.02  $   0.01  $  (0.05) $   0.02
                                    ========  ========  ========  ========
        Diluted                     $   0.02  $   0.01  $  (0.05) $   0.02
                                    ========  ========  ========  ========

Shares used in per share
 calculation
        Basic                         41,215    41,212    41,214    41,211
                                    ========  ========  ========  ========
        Diluted                       41,230    41,418    41,214    41,241
                                    ========  ========  ========  ========






Kana Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)

                                          June 30, 2009   December 31, 2008
                                        ----------------  -----------------
Assets

Cash and cash equivalents               $          2,939  $           6,988
Accounts receivable, net                           6,030              7,556
Other current assets                               2,063              2,030
                                        ----------------  -----------------
Total current assets                              11,032             16,574

Restricted cash, long-term                           305                751
Property and equipment, net                        1,544              1,923
Goodwill                                          12,415             12,415
Acquired intangible assets, net                    1,476              1,726
Other assets                                         131                428
                                        ----------------  -----------------
Total Assets                            $         26,903  $          33,817
                                        ================  =================

Liabilities and Stockholders' Equity
 (Deficit)

Line of credit                          $          3,856  $           6,000
Notes payable, current portion                       247              1,821
Accounts payable                                   3,045              3,559
Accrued liabilities                                5,088              5,143
Accrued restructuring                                873                946
Deferred revenue                                  13,700             12,946
                                        ----------------  -----------------
Total current liabilities                         26,809             30,415

Deferred revenue, long-term                          242                 86
Accrued restructuring, long-term                      94                234
Notes payable, long-term                               -                 13
Other long-term liabilities                          451                479
                                        ----------------  -----------------
Total liabilities                                 27,596             31,227

Total stockholders' equity (deficit)                (693)             2,590
                                        ----------------  -----------------
Total Liabilities and Stockholders'
 Equity (Deficit)                       $         26,903  $          33,817
                                        ================  =================






Kana Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------

OPERATING ACTIVITIES
Net loss                            $   (607) $   (137) $ (3,873) $   (216)
Adjustments to reconcile net loss
 to net cash provided by (used in)
 operating activities:
Depreciation and amortization            325       287       662       587
Amortization of acquired intangible
 assets                                  125       125       250       250
Employee and non-employee
 stock-based compensation                380       561       814     1,122
Provision for doubtful accounts            9       (11)        9         5
Change in fair value of warrant
 liability                                 2         -        (4)        -
Non-cash interest accretion               11        27        23        77
Restructuring costs (recovery)           341         -       341      (482)

Changes in operating assets and
 liabilities:
Accounts receivable                      415    (3,390)    1,484    (1,389)
Prepaid expenses and other assets       (237)      (95)      264       349
Accounts payable and accrued
 liabilities                            (477)     (255)     (715)       50
Accrued restructuring                   (251)     (289)     (554)     (695)
Deferred revenue                           2       158       893      (609)
                                    --------  --------  --------  --------
Net cash provided by (used in)
 operating activities                     38    (3,019)     (406)     (951)
                                    --------  --------  --------  --------

INVESTING ACTIVITIES
Purchases of property and equipment     (194)     (377)     (284)     (844)
Acquisition, net of cash acquired          -        85         -        85
Decrease in restricted cash              746         -       446         -
                                    --------  --------  --------  --------
Net cash provided by (used in)
 investing activities                    552      (292)      162      (759)
                                    --------  --------  --------  --------

FINANCING ACTIVITIES
(Repayments) borrowings on line of
 credit, net                           1,103     1,726    (2,144)    2,111
Borrowings on notes payable              227         -       227         -
Repayments under notes payable        (1,534)     (776)   (1,814)   (1,410)
                                    --------  --------  --------  --------
Net cash provided by (used in)
 financing activities                   (204)      950    (3,731)      701
                                    --------  --------  --------  --------

Effect of exchange rate changes on
 cash                                     59      (112)      (74)      (85)

                                    --------  --------  --------  --------
Net increase (decrease) in cash and
 cash equivalents                        445    (2,473)   (4,049)   (1,094)

Cash and cash equivalents at
 beginning of period                   2,494     5,685     6,988     4,306
                                    --------  --------  --------  --------
Cash and cash equivalents  at end
 of period                          $  2,939  $  3,212  $  2,939  $  3,212
                                    ========  ========  ========  ========

 
Contact:
Investors
KANA Software
650-614-8160
Email Contact
Press/Media
New Venture Communications for KANA
Ted Rossman
914-432-7083
Email Contact
Lauren Dresnick
650-343-2735
Email Contact