Filed by Kana Communications, Inc. Pursuant
to Rule 425 under the Securities Act of
1933, as amended and deemed filed pursuant
to Rule 14a-12 of the Securities Exchange
Act of 1934, as amended.
Subject Company: Broadbase Software, Inc.
Commission File No.: 000-26789
On May 24, 2001, Kana Communications, Inc. and Broadbase Software, Inc. held a
conference call related to the pending merger involving the two companies, the
transcript of which follows:
OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to
the Kana and Broadbase joint conference call to discuss their initial financial
guidance regarding their pending merger. During the presentation, all
participants will be in a listen only mode. Afterwards, you will be invited to
participate in the question and answer session. At that time, if you have a
question, you will need to press the 1 followed by the 4 on your telephone touch
pad. As a reminder, this conference is being recorded Thursday, May 24, 2001.
And, now, I would like to turn the conference over to Chuck Bay, CEO of
Broadbase. Please go ahead, Mr. Bay.
MR. BAY: Good afternoon, this is Chuck Bay. Thank you for joining us
this afternoon. I am here with the CEO of Kana, Jay Wood, and our new CFO,
Brett White. We would like to take this opportunity to give you some initial
guidance with respect to the combination of Kana and Broadbase. Earlier this
week we received antitrust clearance from the Department of Justice to proceed
with the merger. We anticipate that our shareholder meetings will take place on
June 28, and, assuming shareholder approval, that the merger will close early in
July. As such, we believe that it is appropriate to give initial guidance with
respect to the financial model for the combined company. I hope that you have
had an opportunity to review the press release sent out today with respect to
this combined company guidance.
Before I begin, I will ask Brett to read you some cautionary statements in
relation to what you are about to hear.
MR. WHITE: Good afternoon, everyone. On this call, we will make
forward-looking statements, regarding anticipated events or the future
performance of the proposed combined Kana/Broadbase company, including
projections, expectations, beliefs, intentions, plans and strategies based upon
a proposed merger that has not yet been consummated. Actual events or results
could differ materially.
We want to emphasize that our discussion today is based on initial projections
from each company, that any projection involves judgment, and that individual
judgments may vary. The projections on which our comments today are based, and
the factors that we currently identify as influencing those projections, were
developed by a small subset of management of each company involved in the
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preparation of these projections, and do not necessarily represent those of all
employees, managers and board members of the companies. Moreover, those
projections are based on limited information available to us now on our
respective businesses, and the internal estimates on which each company bases
its outlook today and its perception of the factors influencing this outlook are
based on preliminary information.
Although the projections and the factors influencing them will likely change, we
will not inform you when they do and assume no obligation to do so. We will not
update our guidance or any other forward-looking statement until the next
scheduled call. Actual results may differ substantially from what we say today
and no one should assume later in the quarter that the comments we provide today
are still valid. The projections we make today are particularly speculative
given that the merger has not been completed and the two companies are separate
operating entities with limited access to information from the other. We
further note that our projections regarding future revenues and earnings and the
expected benefits of the proposed combination may not be realized for a number
of reasons including the risk that we do not achieve anticipated sales
opportunities or cost reductions, the risks of intense competition in our
markets, and the risk that the merger may not be approved by the stockholders of
Kana and Broadbase and the other conditions of closing may not be satisfied.
These and other factors are risks associated with each of our businesses that
may affect our operating results and the merger are discussed in each company's
filings with the Securities and Exchange Commission ("SEC"), including each
company's most recent annual report on Form 10-K and quarterly report on Form
10-Q and the Registration Statement on Form S-4 recently filed by Kana.
Now, I will turn it back to Chuck.
MR. BAY: Thanks, Brett. As you are aware, Regulation FD limits our
ability to communicate significant facts outside of the scope of our press
release. As such, we will be able to answer questions with respect to general
business conditions, customer reactions to the merger, merger integration
progress, the remaining process of closing the merger, and other general topics.
We will not be able to answer questions requesting details about the financial
guidance beyond what we are providing in today's press release.
Combined revenue expectations for this calendar year are approximately $152
million, reflecting second quarter revenue expectations of $35 million and
sequential quarterly growth of approximately 9 to 10% through year-end.
Gross margins of 57 to 59% are expected in the second quarter with sequential
improvement to 68 to 69% by the fourth quarter.
Sales and marketing expenses, research and development expenses, and general and
administrative expenses, as a percentage of total revenue, are expected to be
approximately 65%, 31% and 12%, respectively, in the second quarter. These
costs are expected to trend down to approximately 54%, 24% and 11%,
respectively, by the fourth quarter.
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Pro forma EPS losses (excluding the effect of amortization of stock based
compensation and costs and expenses associated with acquisitions) are expected
to be approximately $0.09, $0.07 and $0.04 for the second, third, and fourth
quarters, respectively.
Looking to 2002, annual revenues are expected to be approximately $210 million
reflecting sequential quarterly growth of approximately 8 to 9% throughout the
year. Gross margins are expected to reach approximately 76 to 78% in the fourth
quarter of 2002 with sequential improvement throughout the year.
Sales and marketing expenses, research and development expenses and general and
administrative expenses, as a percentage of total revenue, are expected to trend
down to approximately 42%, 14% and 9% by the fourth quarter of 2002.
Pro forma EPS (excluding the effect of amortization of stock based compensation
and costs and expenses associated with acquisitions) are expected to be
approximately break even, $0.01, $0.03 and $0.05 for the first, second, third
and fourth quarters, respectively.
As we have communicated to you before, we are very excited about this merger.
We have been working very hard on integration planning, and we believe that we
will be able to quickly begin to act as one company upon the close of this
merger. It is great to have the opportunity to begin communicating about our
plans for the combined entity. At this point, I would like to hand things over
to you, Jay, if you have any closing remarks.
MR. WOOD: Thanks, Chuck. I would like to add a couple of things. Over
the past six weeks, Chuck and I have been busy meeting with customers and
partners around the world. The reaction to this merger has been very positive.
Our customers and prospective customers have embraced the merger as providing a
comprehensive CRM solution that is unique in the market. Our analytics,
marketing, knowledge management, e-mail, collaboration and contact center
applications enable our customers to better manage their customer relationships
no matter how their customers choose to contact and interact with them. We
believe our EJB/J2EE technology is unique in the CRM market, and is a
competitive advantage for Kana. Our integrator partners are excited about their
ability to bring these solutions to Fortune 500 companies around the world.
I would like to thank you all for your time this afternoon. At this point, we
would like to turn the call back to the operator for any questions.
OPERATOR: Ladies and gentlemen, should you have questions or comments
at this time, please press the 1 followed by the 4 on your telephone touch pad.
You will hear a three tone prompt acknowledging your request. If your question
has been answered and you wish to withdraw your call-in request, you may do so
by pressing the 1 followed by the 3. If you're using a speakerphone, please
pick up your handset before answering your request. One moment, please, for the
first question.
Our first question or questions comes from Ryan Ratham at Morgan Stanley.
Please go ahead, Mr. Ratham.
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MR. RATHAM: Thanks. Hey guys. Give us a little business update on how
the quarter's going, you know, obviously, not what you've done already, but at
least kind of what you're seeing in deals. Are company coming back to the
table, what are some of the issues if any other than just the spending
environment, that you're seeing in any deals that are kind of still on the
fence?
MR. BAY: Hi. This is Chuck. The business environment looks good.
You know, we've gotten a lot of big deals. There's a lot of Fortune 200
customers that we're doing business with this quarter. And as Jay mentioned, he
and I have been out personally visiting many of these prospective customers.
And what we're seeing is that people are very excited about an opportunity to
have a product that could manage external contact points as well as internal
contact points. And for all the companies who opened a web channel, that can
create an awful backlog of people calling the 800-number, and we provide the
very first solution for contact centers and we see a great demand for that.
Now, February looked like a great month, too, and March turned out to be very
cautious for CFO's around the world, so we're cautious here too, as you can tell
from the numbers we're talking about. But the pipeline looks really healthy and
the customers are very excited about what our products bring.
MR. RATHAM: One follow-up question, and to the degree that you can
actually go into it, you know, looking at the guidance that you've given for
gross margin, any kind of color that you could give on that as far as the, you
know, expectation for gross margins coming out of the service organization and
kind of long term turning over more of those services to the partners and maybe
doing more of putting in a few of your people with their people, letting them do
more of the implementation?
MR. BAY: Yeah. I think as you can tell from the numbers, you know,
the first really great news is Nigel Donovan is going to be the EVP of
professional services for the combined company, and he brings an incredible
track record of dealing with customers, customer satisfaction issues, and
integrators. Broadbase has historically leveraged integrators very heavily.
And the new combined entity Kana will have a very, very similar strategy.
Integrators will be involved in virtually all of our deals. We have very strong
integrator partnerships with IBM Global Services, Accenture, KPMG, Deloitte &
Touche, EDS, Perot Systems. I think because the list is very long and
impressive and the gross margin reflects the fact that we'll be leveraging those
relationships very heavily.
MR. RATHAM: All right. Thanks a lot.
OPERATOR: We are now ready for questions or comments from Steve Call at
Goldman Sachs. Please go ahead Mr. Call.
MR. CALL: Thanks for the guidance. I had a question around the
appetite and the customers that you've talked to. Are people willing to buy now
or are they want to wait a little bit further to see the fully integrated
product? And how much in this discussion do you have to do kind
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of more education about how your product is different or do you think people are
fairly up on the knowledge curve there?
MR. WOOD: Well, I think the market was obviously slow last quarter,
and, you know, as you could see by our guidance, we're being cautious as Chuck
said. I don't think there's any slowness due to the merger of the company. In
fact, I think it's accelerated the opportunity for customers to buy it. I think
they feel more comfortable with the combined entity and the potential of the
combined entity to be a leader in this space. I think our customers are also
excited that they'll get a greater breadth of product. And customers who are
looking at Kana for instance in our contact center solution now see that they
could bring analytics into the mix, a stronger knowledge base, etc., makes them
more positive.
I think, you know, there's always some education to do with the customers, but
we've done a great job I think in bringing the sales organization together,
informing them of the advantages against the competition in the marketplace.
And Chuck and I and the rest of the executive staff have been very aggressive
about getting out there and making the pitch, which I think, as Chuck said, has
gone over very, very well. So I think, you know, the merger from our customers
and prospective customers has been a very positive thing.
MR. CALL: Great. And one follow-up question: If I remember correctly,
Broadbase and Kana had different revenue recognition policies. Have you
standardized on any one policy? Are you going to give guidance on that as well?
MR. WOOD: Yeah. Actually, the revenue recognition methods were very
similar. Because when you rely heavily on integrators, revenue recognition as
an issue is much smaller. So I think it'll really be an easy transition as we
put the two businesses together because as I said in virtually all of the deals,
they'll be an integrator involved and that makes revenue recognition a much
simpler issue for us. So I think you'll find that it's really not going to be
an issue.
MR. CALL: Great. Thank you.
OPERATOR: Cameron Steele at Dain Rauscher Wessels. We are now ready
for your questions or comments.
MR. STEELE: Thanks very much. There's been obviously a big land grab
recently for, I'm not sure what are the big 5 consultants. Can you guys just
give us an update specifically on the relationships with IBM, Accenture and
KPMG, and kind of where those are today, and if they're going to be proceeding
on schedule?
MR. WOOD: Yeah. Let me address IBM and Accenture, and I'll turn it
over to Chuck for some of the others. You know, the relationship with IBM is
obviously a very powerful one for Kana. We are one of their recommended
solutions. We are the only CRM solution that's being delivered on the web
sphere, so we feel very confident, that that relationship will continue to
blossom. We've seen some results in the field and we expect to see more.
Accenture also names Kana as one of their top 13 vendors for the coming year and
we've been working very closely with them.
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I think the merger with Broadbase has actually accelerated that relationship
considerably. Chuck and I have personally been involved in working with
Accenture. We've been able to close some business over the last couple of
months with them. So in those two arenas, I think the merger has been very
positive and we're feeling great about those relationships.
MR. BAY: Yeah. I would definitely echo those comments. I think, you
know, as everyone is aware, it's very important this year for IBM to propagate
their application server business. And they're working very closely with us
because we have the only solution in the contact center call center world that
works well with their application servers. That will spill over to quite a few
companies in that market.
I would have to add KPMG to the list. KPMG has a fantastic relationship with
Broadbase. They were personally involved in, for example, all 24 installations
around the world of the Broadbase marketing and analytics product suite. They
were in 22 countries around the world with 24 installations culminating in a
large, North American project, and they did outstanding work with us and they
loved the way that our system has been accepted in our customer base. So we
look forward to KPMG continuing to be a lead integrator with us. And Perot
Systems is working well with us. EDS, they like the knowledge management system
that we have and have very large installations going on in some vertical very
strongly such as telco. But I think you'll see that across the board, we'll
have very strong, integrator relationships. We're told by those partners that
they have big plans for us this year.
MR. STEELE: Grand. Just one kind of follow up: Can you talk, assuming
the merger closes on time, kind of the product integration plans, more kind of
from the data level up to the user interface kind of over the next year.
MR. WOOD: Sure. I think we've said before and we're on target, we will
have by the end of Q2, the products integrated at the data level. And we can do
that so fast because of the strength of the historic Broadbase analytic
platform. And then by October, we will have the user interface feature function
integration completed and ready for the customers, which is a big important
step. Because once you get that done, salespeople are selling a product that
works well together and that looks like it's from a single vendor and operates
as a unified suite of applications and that will enable us to move into the
sales force integration by January 1, which, as everyone knows, that would be
within 6 months from closing. That is very fast. And because this is our fifth
merger in five quarters and we've never missed one of these milestones, we feel
very strongly that we can accomplish this.
MR. STEELE: Great. Thanks a lot.
OPERATOR: Reg King at JP Morgan H & Q. We're now ready for your
questions or comments.
MR. KING: Great. Thank you. Jay and Chuck, I was hoping that you
could give us an update on the headcount adjustments, where you stand now, and
do you see any further refinements.
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MR. WOOD: Well, we've been very aggressive, Reg. We've taken the
company down to a point where Chuck and I felt comfortable that the expense rate
makes sense so that type of revenue and given the economic condition, we're
really in a mode now where we want to conserve our cash and make intelligent
decisions about that. There are obviously some individuals who are in the Kana
camp and Broadbase camp now that are doing HR and finance functions that when we
complete the merger, they'll be a few more eliminations. But we're pretty much
down to where we want to be and we feel great that it's the right number to take
this company forward to be successful. And, you know, you'll see us be in the
low 800 as a combined entity, which is a fairly significant reduction, but still
a company that I think has enough power to be very successful on our segment.
MR. KING: Great. Thank you. Good luck on the quarter.
MR. WOOD: Yeah. Thanks Reg.
OPERATOR: Ben Rows of Adam, Harkness and Hill. Please go ahead with
your questions or comments.
MR. ROWS: Good afternoon. I apologize I don't have the full press
release in front of me, but are you also giving guidance at this time with
regard to the license/services mix and how that will unfold over time?
MR. WOOD: I don't think we are actually on that.
MR. ROWS: Any initial thoughts on, you know, where we ought to begin?
MR. WOOD: Are you asking about revenue breakdown, Ben?
MR. ROWS: Yes, you know, like product versus services.
MR. WOOD: I think the best thing to do is take a blend of the historic
Broadbase and Kana revenue mixes and then extrapolate that forward because we're
blending the businesses. As the integrators begin to kick in more and more,
you'll see us moving by year-end towards a model that was more of the Broadbase
type blend than the Kana blend. But a great place to start would be just blend
arithmetically the historic businesses.
MR. ROWS: Out of the boxed meaning, in the third quarter, what
percentage of the deals roughly would you expect to be you know inspired by a
systems integrator?
MR. WOOD: I think we'll see over half our deals that will be touched
and assisted by a systems integrator. Right now we're in a mode where we're
helping each other out a lot. We're sharing joint leads. We're helping to
close business. And both sides feel good about the fact that the other side is
bringing them business. And handing over half of the deals assisted by a
partner makes us feel pretty good about the business.
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MR. ROWS: Okay. And then finally if I may, Jay, you listed toward the
end of your remarks the list of capabilities that the combined firm will offer.
If I take a look at the growth rate for the corporation that you're initially
projecting which is I guess around 33% overall, could you go through each of
those and you know tell us which ones are kind of at the overall rate, the ones
that are higher, and the ones that are lower?
MR. WOOD: Okay. Well, let me just give you a general feel. I think
some of this has to do with economic conditions as well, Ben. I think we have
seen certainly at Kana, I think Broadbase more so, then, an economic downturn,
marketing is one of the first places to see cuts made. So, we haven't seen as
aggressive buying on the marketing side as we have on the service side where
people can attribute to an ROI. But, of course, I think an important point here
is our objective is to sell the complete suite. And we see more and more, now,
customers looking for a completely, you know, one solution from one vendor that
handles all of these areas. That's one of the powerful things about this
combination is that we have such a greater breadth of product now. We can
address that.
So I think, you know, that's probably as fine as I could break it down right
now. But I do want to emphasize we see more and more opportunities to sell a
complete product line, and that's going to be the future of the company.
MR. ROWS: If I may just a final one: Could you wager to speculate what
percentage of the customers roughly in the first quarter out of the box would
buy both kind of broadly defined marketing and a service application together?
MR. WOOD: You know, I don't think I would wager or guess at that thing
because I don't have that data in front of me. I'd have to go research that.
MR. ROWS: Okay. Thanks a lot.
MR. WOOD: Okay. Thank you.
OPERATOR: Ladies and gentlemen, if there are any additional questions
at this time, please press the 1 followed by the 4 on your telephone touch pad.
Karen Price at First Union Securities. Please go ahead with your questions or
comments.
MS. PRICE: Hi. I was hoping you could tell us how many salespeople you
have right now and if the sales teams from both sides are all trained to do
joint selling?
MR. WOOD: I think that the number of quoted reps is just over a hundred
in the combined company. And the initial sales training is beginning to take
place but really it's July where we will kick off some large regional meetings,
Asia and Europe and the US to do some intensive product training.
I think part of the good news is the reps in the field know each other. They've
been running into each other for the last two and half or three years and have a
pretty good sense of the capabilities of each other's products. So no one was
surprised by this merger and it should be pretty quick to get
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people cross trained. And as I mentioned before, by the end of the year, we'll
be moving into our products in everyone's bag.
MS. PRICE: Thank you.
MR. WOOD: You're welcome.
OPERATOR: Mr. Bay, there are no additional questions at this time.
Please continue with any closing remarks you may have.
MR. BAY: Okay. I'd just like to thank everyone for listening to the
call. And I would encourage you if you have questions to contact Jay or myself.
We'll be as receptive as we can to questions, and we look forward to talking to
you all in July.
OPERATOR: Ladies and gentlemen, you may all disconnect and thank you
for participating in the Kana and Broadbase joint conference call.
# # # #
Cautionary Note Regarding Forward-looking Statements Under the Private
Securities Litigation Reform Act of 1995:
Information in this presentation that involves each company's financial
forecasts, projections, expectations, beliefs, hopes, plans, intentions or
strategies regarding the future are forward-looking statements that involve
risks and uncertainties. These statements include statements about each
company's strategies in the marketplace, its market position and its
relationship with customers. All forward-looking statements included in this
presentation are based upon information available to each company as of the date
of the release, which may likely change, and neither party assumes any
obligation to update any such forward-looking statement. 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, slowing economic conditions;
competition in each of our marketplace; risks associated with the evolving and
varying demand for eCRM customer communication and similar software; lack of
market acceptance of each company's products or services; inability to integrate
and enhance existing products and services within budget and on schedule, and
develop new products and services on a timely basis; introduction of new
products or services by competitors; inability to attract and retain qualified
employees; the ability to manage cash and expenditures; each company's history
of losses; the ability to expand sales; inability to manage business in light of
recent management changes and personnel reductions; litigation over property
rights; and general economic factors, particularly as it affects spending by our
prospective customers on software products such as ours.
In addition, statements that describe the proposed merger and the anticipated
results of combining the product lines and businesses of Kana and Broadbase,
include forward looking statements. The expected benefits of the proposed
combination may not be realized for a number of reasons including the following:
the merger may not be approved by the stockholders of Kana and Broadbase and the
other conditions of closing may not be satisfied; the announcement of the merger
may disrupt the companies' normal sales cycles because their sales forces may be
distracted by the pending business combination or because customers may delay
new orders until the merger is
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closed and the sales forces and product lines are combined; the combined product
lines may not be as broad as those of some of the competitors of Kana and
Broadbase, and the merger could cause Kana and Broadbase's business partners and
potential competitors to acquire other product lines that would compete directly
with the combined company; Kana and Broadbase may not be able to rapidly
integrate the operations or retain the key employees; the combined company may
not achieve the increase in revenues that it expects or the optimal mix between
license and service revenues that it targets to achieve its profitability goals.
These and other factors are risks associated with each of our businesses that
may affect our operating results are discussed in the each company's filings
with the Securities and Exchange Commission ("SEC"), including each company's
most recent annual report on Form 10-K and quarterly report on Form 10-Q, and
the Registration Statement on Form S-4 filed by Kana.
# # # #
NOTE: Kana Communications, Kana and the Kana logo are trademarks of Kana
Communications, Inc. Broadbase is a trademark of Broadbase Software, Inc. All
other company and product names may be trademarks of their respective owners.
# # # #
Additional Information and Where to Find It
Kana Communications has filed a Registration Statement on SEC Form S-4 in
connection with the merger, and Kana and Broadbase expect to mail a Joint Proxy
Statement/Prospectus to stockholders of Kana and Broadbase containing
information about the merger. Investors and security holders of Kana and
Broadbase are urged to read the Registration Statement and Joint Proxy
Statement/Prospectus carefully when they are available. The Registration
Statement and the Joint Proxy Statement/Prospectus contains important
information about Kana, Broadbase, the merger and related matters. Investors and
security holders will be able to obtain free copies of these documents through
the Web site maintained by the U.S. Securities and Exchange Commission at
http://www.sec.gov . Free copies of the Proxy Statement/Prospectus and these
other documents may also obtained from Broadbase by directing a request through
the Investor Relations portion of Broadbase's site Investor Relations
Department, 500 Broadway, Redwood City, CA 94063 or from Kana at Kana
Communications, Inc., 740 Bay Road, Redwood City, CA 94063, attention: Investor
Relations, telephone: 650-298-9282. In addition to the Registration Statement
and the Proxy Statement/Prospectus, Kana and Broadbase file annual, quarterly
and special reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy any reports, statements or other
information filed by Kana and Broadbase at the SEC public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549 or at any of the SEC's other public
reference rooms in New York, New York and Chicago, Illinois. Please call the SEC
at 800-SEC-0330 for further information on the public reference rooms. Kana
Communications' and Broadbase Software's filings with the SEC are also available
to the public from commercial document-retrieval services and at the Web site
maintained by the SEC at http://www.sec.gov.
Interests of Certain Persons in the Merger
The directors and executive officers of Kana Communications and Broadbase
Software have interests in the merger, some of which may differ from, or may be
in addition to, those of Broadbase
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Software's stockholders generally. A description of the interests that Kana
Communications and Broadbase Software's directors and executive officers have in
the merger is available in the Joint Proxy Statement/Prospectus.
Solicitation of Proxies
Kana Communications, its directors, executive officers and certain other members
of its management and employees may be soliciting proxies from Kana stockholders
in favor of the merger. Broadbase Software, its directors, executive officers
and certain other members of its management and employees may be soliciting
proxies from Broadbase stockholders in favor of the merger. Information
concerning the participants are set forth in the Joint Proxy
Statement/Prospectus.
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