Epiphany Announces First Quarter Results

    Business Editors/High-Tech Editors

    SAN MATEO, Calif.--(BUSINESS WIRE)--April 21, 2005--Epiphany, Inc. (Nasdaq:EPNY) today announced results for the quarter ended March 31, 2005.
    For the quarter ended March 31, 2005, the company reported revenues of $16.2 million, compared to revenues of $20.2 million in the first quarter of 2004. First quarter license revenues were $4.3 million, service revenues were $4.2 million and maintenance revenues were $7.7 million, representing 26%, 26% and 48% of total revenues, respectively. Net loss under generally accepted accounting principles ("GAAP") for the quarter was $6.4 million, or $(0.08) per share, compared to net loss under GAAP of $4.2 million, or $(0.06) per share for the first quarter of 2004. Excluding the amortization of purchased technology and intangibles, stock-based compensation and restructuring costs, on a non-GAAP basis, net loss for the quarter was $6.1 million, or $(0.08) per share, compared to non-GAAP net loss of $2.9 million, or $(0.04) per share, for the first quarter of 2004.
    "Epiphany's strategy is to focus the company around our core competitive advantage -- helping large consumer-oriented enterprises generate organic growth through intelligent interactions. During a seasonally challenging first quarter where we were also focused on redirecting sales and marketing activities toward this strategy, I am pleased that our results were within our financial guidance and we maintained our strong cash and investments balance of approximately $250 million," said Karen Richardson, chief executive officer.

    Second quarter outlook

    For the quarter ending June 30, 2005, Epiphany currently expects total revenue to range between $15.5 million and $18.0 million, with license revenue ranging between $4 million and $6 million. Net loss per share on a GAAP basis for the second quarter is expected to range between $(0.12) and $(0.14), of which approximately ($0.05) will result from restructuring charges of up to $4 million.

    About Epiphany

    Epiphany(R) provides CRM software solutions that increase profitability at the largest consumer-oriented companies by making every customer interaction intelligent. With over 475 customers -- including nearly 35 percent of the Fortune 100 -- Epiphany powers deep customer insights and optimizes each relationship from both a revenue generation and customer retention viewpoint. Built on the industry's most advanced, service-oriented architecture, Epiphany software solutions address problems that span business silos, departmental functions and geographic locations, and result in rapid, measurable ROI. With a suite of blended marketing, sales and service solutions, Epiphany enables global organizations to align touch points, processes and technologies around the most valuable enterprise asset -- the customer. With worldwide headquarters in San Mateo, CA, Epiphany serves customers in more than 40 countries worldwide. For more information please visit www.epiphany.com.

    This press release contains forward-looking statements relating to Epiphany's future strategy and business focus, and second quarter total revenue, license revenue, restructuring charges, and earnings per share. Actual results could differ materially from such forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements include the degree of interest in and acceptance of Epiphany's products, increases in the length of Epiphany's sales cycles, our ability to close large deals within the quarter we have projected such deals to close, reduced IT spending by customers and potential customers, the introduction of new products and services by competitors and intense competition generally, general and industry-specific economic conditions and stock market conditions. These factors and others are described in more detail in our public reports filed with the Securities and Exchange Commission, such as those discussed in the "Risk Factors" section included in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in our prior press releases. Epiphany assumes no duty to update forward-looking statements.
    This press release includes certain non-GAAP financial measures, including non-GAAP net loss and net loss per share amounts, that exclude the amortization of purchased technology and intangibles, stock-based compensation and restructuring costs. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance prepared in accordance with GAAP. Epiphany's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the performance of the Company's business operations. These measures also facilitate management's internal comparisons to our historical operating results and to our competitors' operating results, operational forecasting and budgeting. Epiphany has reported similar non-GAAP financial measures to our investors in the past and believes that the inclusion of comparative numbers at this time provides consistency in our financial reporting. Investors and potential investors are encouraged to review the reconciliation of the non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results.

EPIPHANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts) (unaudited)

Three months ended March 31, ---------------------- 2005 2004 ------ ------

Revenues: Product license $ 4,292 $ 7,106 Services 4,199 5,535 Maintenance 7,736 7,588 ---------- ---------- Total revenues 16,227 20,229 ---------- ---------- Cost of revenues: Product license 366 415 Services 3,951 4,498 Maintenance 1,436 1,276 Amortization of purchased technology - 679 ---------- ---------- Total cost of revenues 5,753 6,868 ---------- ----------

Gross profit 10,474 13,361 ---------- ----------

Operating expenses: Research and development 6,630 6,673 Sales and marketing 7,337 8,431 General and administrative 4,078 2,705 Restructuring costs 237 636 Stock-based compensation 77 - ---------- ---------- Total operating expenses 18,359 18,445 ---------- ---------- Operating loss (7,885) (5,084)

Other income, net 1,473 928 ---------- ---------- Net income (loss) before provision for taxes (6,412) (4,156)

Provision for taxes 9 46 ---------- ---------- Net income (loss) $ (6,421) $ (4,202) ========== ==========

Diluted net income (loss) per share $ (0.08) $ (0.06) ========== ========== Basic net income (loss) per share $ (0.08) $ (0.06) ========== ==========

Shares used in computing basic and diluted net income (loss) per share 76,654 74,982 ========== ==========

EPIPHANY, INC. NON-GAAP FINANCIAL MEASURES AND RECONCILIATION

(in thousands, except per share amounts) (unaudited)

Three months ended March 31, ---------------------- 2005 2004 ------ ------

GAAP net income (loss) $ (6,421) $ (4,202) Less: Amortization of purchased technology - 679 Less: Restructuring costs 237 636 Less: Stock-based compensation 77 - ---------- ---------- Non-GAAP net income (loss) (excluding restructuring costs and specified non-cash items) $ (6,107) $ (2,887) ========== ==========

Diluted non-GAAP net income (loss) per share $ (0.08) $ (0.04) ========== ========== Basic non-GAAP net income (loss) per share $ (0.08) $ (0.04) ========== ========== Shares used in computing basic and diluted non-GAAP net income (loss) per share 76,654 74,982 ========== ==========

EPIPHANY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

March 31, December 31, ASSETS 2005 2004 -------- ------------ ------------ Current assets: Cash and cash equivalents $ 21,511 $ 18,080 Investments in marketable securities 138,785 131,090 Accounts receivable, net 6,332 11,677 Prepaid expenses and other assets 4,534 4,849 Short-term restricted cash & investments 542 266 ------------ ------------ Total current assets 171,704 165,962

Long-term investments 84,238 96,404 Long-term restricted cash & investments 5,156 5,432 Property and equipment, net 4,081 4,621 Goodwill, net 81,499 81,499 Other assets 251 301 ------------ ------------ $ 346,929 $ 354,219 ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY -------------------------------------- Current liabilities: Accounts payable $ 225 $ 1,194 Accrued liabilities 6,879 7,186 Accrued compensation 5,775 5,850 Current portion of restructuring costs 4,790 5,532 Deferred revenue 16,653 14,011 ------------ ------------ Total current liabilities 34,322 33,773

Restructuring costs, net of current portion 15,111 15,904 Other long-term liabilities 232 232 ------------ ------------ Total liabilities 49,665 49,909

Stockholders' equity: Common stock 7 7 Additional paid-in capital 3,831,674 3,831,571 Deferred Compensation (1,089) (1,166) Accumulated and other comprehensive loss (3,035) (2,230) Accumulated deficit (3,530,293) (3,523,872) ------------ ------------ Total stockholders' equity 297,264 304,310 ------------ ------------ $ 346,929 $ 354,219 ============ ============

EPIPHANY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)

Three Months Ended March 31, -------------------- 2005 2004 ------ ------ Cash flows from operating activities: Net loss $ (6,421) $ (4,202) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 832 1,176 Loss on disposal of property and equipment - 66 Stock-based compensation 77 - Amortization of purchased technology and purchased intangibles - 679 Changes in operating assets and liabilities: Accounts receivable 5,345 2,860 Prepaid expenses and other assets 365 559 Accounts payable (969) (191) Accrued liabilities and compensation (382) (3,270) Restructuring costs (1,535) (1,272) Deferred revenue 2,642 (1,217) -------- --------- Net cash used in operating activities (46) (4,812) -------- ---------

Cash flows from investing activities: Purchases of property and equipment (292) (278) Proceeds from maturities of investments 80,117 110,971 Purchases of investments (76,357) (105,711) -------- --------- Net cash provided by investing activities 3,468 4,982 -------- ---------

Cash flows from financing activities: Proceeds from sale of common stock, net of repurchases 103 2,822 -------- --------- Net cash provided by financing activities 103 2,822 -------- ---------

Effect of foreign exchange rates on cash and cash equivalents (94) (183) -------- ---------

Net increase in cash and cash equivalents 3,431 2,809 Cash and cash equivalents at beginning of period 18,080 30,468 -------- --------- Cash and cash equivalents at end of period $ 21,511 $ 33,277 ======== =========

--30--HR/sf*

CONTACT: Epiphany Gordon Evans, 650-356-3842 (Media) gevans@epiphany.com or The Blueshirt Group Todd Friedman, 415-217-5869 (Investor) todd@blueshirtgroup.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE SOFTWARE EARNINGS SOURCE: Epiphany, Inc.

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