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Profitability Proves Elusive for Software Company

Kintera Inc., a San Diego software company that grew quickly by acquiring about a dozen smaller firms in the last two years, is slimming down following yet another quarter of losses and projections it likely won’t reach profitability until the end of next year.

On Aug. 15, the 6-year-old company whose software helps nonprofit organizations manage donations, reported a net loss of $10.1 million on revenues of $10.4 million in the recent quarter, compared with a net loss of $4.2 million on revenues of $5.9 million in the same quarter of 2004.

In an effort to get its expenses in line, the firm said it is cutting 57 employees, or 10 percent of its total work force of 568 people. It also reduced its revenue and earnings forecast for the year.

The day following the announcement, Kintera’s Nasdaq-traded stock dropped to $2.88, close to its 52-week low of $2.85. It was trading above $7 earlier this year and reached a 52-week high last year of $10.67.

Company officials, who had predicted Kintera would reach profitability by the second half of this year, said they intended to get better control on its expenses by cutting personnel.

“We are choosing to reduce our sales and implementation costs to drive the profitability, which is why we are reducing our revenues guidance,” said Chief Financial Officer Dick Davidson.

For 2005, Kintera revised its sales forecast to come between $42 million and $45 million. It predicted an annual net loss should come between $1.15 to $1.24 per share. In the first quarter, Kintera forecasted annual revenues between $50 million and $55 million while its net loss would be in the range of 93 and 99 cents per share.

Harry Gruber, who helped launch two other successful technology firms, Gensia Pharmaceuticals and Intervu, founded Kintera in 1999. In December 2003, it conducted an initial public offering with shares priced at $7 in a deal that raised $36 million.

Buying Binge

Using that capital, the company went on an aggressive acquisition track, purchasing seven smaller firms last year.

At the midpoint of 2004, the company had 289 employees. By the first quarter of this year, the staff grew to 473, and as of June 30, it had increased to 568. About half the firm’s staff is based in San Diego.

The company said the cuts would be concentrated in the areas of sales and marketing, customer services and administration. Davidson said severance packages paid to laid off employees weren’t too large. He declined to reveal how much in savings it would generate by the staff reductions, but said the average annual cost for each employee was about $80,000.

Kintera derives its revenues through contracts it has with various nonprofits and obtains a small percentage of the donations. For the second quarter, donations were $56 million, more than double the amount in the same quarter of last year.

Restating Results

In other news, the company reported restated results for its first quarter. The restatement was necessary because of earlier incorrect accounting of software development costs. Because of the restatement, Kintera’s first-quarter net loss was increased by $1.7 million to $11.7 million.

For the six months ended June 30, Kintera reported a net loss of $21.7 million on $19.8 million in revenues, compared with a net loss of $8.9 million on $9 million in revenues.


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