KANA Announces Fourth Quarter, 2001 Year-End Results and 2002 Guidance; KANA Exceeds Its Profitability Targets.

Business/Technology Editors

MENLO PARK, Calif.--(BUSINESS WIRE)--Jan. 22, 2002

KANA(R) (NASDAQ: KANA), the leading provider of external-facing eCRM solutions, today announced its results for the fourth quarter and fiscal year ended December 31, 2001.

Revenues for the fourth quarter were $24.8 million. Pro forma net income for the quarter ended December 31, 2001 was $338,000 or $.02 per share, compared to pro forma net losses of $2.19 per share for the quarter ended December 31, 2000 and $2.30 per share for the quarter ended September 30, 2001 (1). Net loss for the quarter on a GAAP basis was $24.2 million or $1.30 per share, compared to a net loss of $271.57 per share for the quarter ended December 31, 2000 and a net loss of $5.33 per share for the quarter ended September 30, 2001.

Pro forma revenues for the year ended December 31, 2001 were $113.3 million (1). GAAP revenues for the year ended December 31, 2001 were $86.9 million. Pro forma net loss for the fiscal year ended December 31, 2001 was $113.1 million or $6.27 per share, compared to a net loss of $6.51 per share for fiscal year 2000 (1). Net loss for the year ended December 31, 2001 on a GAAP basis was $942.9 million or $68.61 per share, compared to a net loss of $395.68 per share for the year ended December 31, 2000. KANA's consolidated financial statements are available on its web site.

"Our fourth quarter results capped off an outstanding year for KANA," said Chuck Bay, CEO and president of KANA. "Over the past year, KANA has done a great job of leveraging our strategic partnerships, providing global 2000 organizations with unique external-facing eCRM solutions that produce tremendous ROI, and strategically retooling our operations for greater efficiency. We move into 2002 with great products, tremendous momentum and a solid long term strategy which includes achieving absolute customer satisfaction, enabling partner success and continuing profitability."

Highlights from Q4 included:

Customer Wins: KANA Q4 customer wins included: Amersham Biosciences, Bertelsmann Marketing Services, Best Western International, BMG Music, Chello Broadband, CitiGroup, Credit Lyonnais, The Columbia House, DBA Ireland, The Dutch Tax Office, EKZ, Estee Lauder, Ford Motor Credit, Freeserve, Great West, Hitachi Software, Napster, Nextel, Open University, Paytrust, Plow and Hearth PG&E, Smart Technology, State Store Telecom Austria, Texas Instruments, Verizon Wireless, Wanadoo S.A., West Interactive and Zebank, among others.

Industry Honors: During the fourth quarter, KANA was named a Rising Star in the Deloitte & Touche Fast 500 Program and was honored with the ICCM/CRM Solutions Best of Show 2001 award by Customer Support Magazine. In addition, KANA product innovation was recognized when the KANA iCARE suite received a coveted Product of the Year Award from Communications Solutions(TM) magazine, a Technology Marketing Corporation (TMC) publication.

Successful partner relationships: KANA continued to gain traction with its systems integration partners, including Accenture, CSC, Deloitte Consulting, IBM Global Services and KPMG. These relationships led to a series of customer engagements, including Amersham Biosciences, Best Western, Chello Broadband, Cisco, Citicorp, Citizens Bank, Credit Lyonnais, Freeserve, Security Broadband, SITA/Equant, TELUS, Texas Instruments, Verizon and Wanadoo S.A., among others.

In addition, KANA has updated its revenue and earnings expectations for 2002 as follows:

-- KANA believes that Q1 '02 will be relatively flat from Q4 `01 in both revenue and pro forma EPS.

-- The company expects quarterly revenue to grow moderately from Q1 '02 with total 2002 revenues of approximately $110 million. We expect pro forma EPS to also grow moderately from Q1 '02 with total 2002 pro forma pre tax EPS to be $.17 to $.19.

"Achieving pro forma profitability is a key milestone for the company and puts KANA in position to further take advantage of the enormous growth and market opportunities ahead," said Brett White, CFO of KANA.

KANA Software, Inc., will hold its fourth quarter and year-end 2001 earnings conference call on Tuesday, January 22 at 1:30 p.m. (PST) / 4:30 p.m. (EST). Investors are invited to listen to KANA's quarterly conference call on the investor relations section of our Web site at www.kana.com. A replay of the Web cast will also be available at www.kana.com for a week following the completion of the call.

About KANA

KANA (NASDAQ: KANA) provides the industry's leading external facing eCRM solutions to the largest businesses in the world, helping them to better service, market to, and understand their customers and partners, while improving results and decreasing costs in contact centers and marketing departments. Through comprehensive multi-channel customer relationship management that combines the best-in-class KANA iCARE Architecture with enterprise applications, KANA has become one of the fastest-growing providers of next generation eCRM technology. The company's customer-focused service, marketing and commerce software applications enable organizations to improve customer and partner relationships by enabling them to productively interact when, where and how they want - across all touch points, including web contact, web collaboration, e-mail, and telephone. KANA's global customer base includes Global 2000 organizations in the financial services, manufacturing, high technology, communications, retail and services markets. ADP, Chase, E*Trade, GAP, GM, Hewlett-Packard, Kodak, Sony, United Airlines, Verizon, and Williams Sonoma are among the industry leaders that have implemented KANA's eCRM solutions. KANA has locations in 22 countries worldwide, in addition to an extensive global network of channel partners. For more information, please visit www.kana.com.

(1) Pro forma results assume the acquisition of Broadbase (acquired in June 2001) and Silknet (acquired in April 2000) occurred at the beginning of each period presented and excludes amortization of intangible assets and stock-based compensation, discontinued operations, and non-recurring charges identified below.

Cautionary Note Regarding Forward-looking Statements Under the Private Securities Litigation Reform Act of 1995:

Information in this release that involves KANA's expectations, beliefs, hopes, plans, intentions or strategies regarding the future are forward-looking statements that involve risks and uncertainties. These statements include statements about KANA's expected profitability, revenue, earnings per share, growth and new business, its market position and its relationship with customers. All forward-looking statements included in this release are based upon information available to KANA as of the date of the release, which may likely change, and we assume no 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; visibility remains limited after the first half of the year 2002. Factors, trends and uncertainties that could cause or contribute to such differences include, but are not limited to, uncertain economic conditions, competition in our marketplace, including introduction of new products or services, or reductions in prices, by competitors; inability to attract and retain qualified employees, to manage case and expenditures or to expand sales; inability to manage business in light of recent management changes and personnel reductions; KANA's history of losses; particularly as they affect spending by our prospective customers on eCRM and similar enterprise software products, risks associated with the merger with Broadbase and integration of the companies; 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; competition in our marketplace, including introduction of new products or services, or reductions in prices, by competitors; inability to attract and retain qualified employees, to manage cash and expenditures or to expand sales; inability to manage business in light of recent management changes and personnel reductions; and trends and uncertainties slowing and uncertain economic conditions, particularly as they affect spending by our prospective customers on eCRM and similar enterprise software products. These and other factors are risks associated with our business that may affect our operating results are discussed in KANA's filings with the Securities and Exchange Commission ("SEC"), including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, and registration statements on Forms S-3 and S-4.

NOTE: KANA is a registered trademark, and KANA Software, KANA iCARE, KANA Contact Center, KANA IQ, KANA ResponseIQ, KANA Response, KANA Marketing, KANA iCARE Analytics and the KANA logo are trademarks of KANA Software, Inc. All other company and product names may be trademarks of their respective owners.

                          KANA SOFTWARE, INC.
            UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
                            (In thousands)


                                            December 31,  December 31,
                                                2001          2000
ASSETS

Current assets:
    Cash and short-term investments           $ 40,130      $ 76,499
    Accounts receivable, net                    15,942        43,393
    Prepaid expenses and other current assets    6,442        13,385

       Total current assets                     62,514       133,277

Restricted cash                                 11,018            --
Property and equipment, net                     19,382        40,095
Intangible assets, principally goodwill         64,800       800,000
Other assets                                     2,958         6,752

       Total assets                           $160,672      $980,124


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable                             $  1,363      $  1,456
    Accounts payable                             6,276        17,980
    Accrued liabilities                         25,292        35,846
    Accrued restructuring and merger costs      21,100            --
    Deferred revenue                            22,180        25,242

       Total current liabilities                76,211        80,524

Accrued restructuring, less current portion     17,514            --
Long-term debt, less current portion               108           148

       Total liabilities                        93,833        80,672

Total stockholders' equity                      66,839       899,452

       Total liabilities and
        stockholders' equity                  $160,672      $980,124



                          KANA SOFTWARE, INC.
  UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share data)


                              Three Months Ended      Year Ended
                                 December 31,         December 31,
                               2001      2000       2001       2000

Revenues:
  License                    $13,628    $32,272    $54,075   $110,006
  Service                     11,202     11,931     59,272     51,265

Total revenues                24,830     44,203    113,347    161,271

Cost of revenues:
  License                        747      2,410      4,082      7,308
  Service                      5,027     25,120     59,107     67,128

Total cost of revenues         5,774     27,530     63,189     74,436

Gross profit                  19,056     16,673     50,158     86,835

Operating expenses:
  Sales and marketing         10,107     36,493     92,417    125,433
  Research and development     6,100     14,966     47,804     59,931
  General and administrative   3,124      7,395     28,245     25,781

Total operating expenses      19,331     58,854    168,466    211,145

Operating loss                  (275)   (42,181)  (118,308)  (124,310)
Other income, net                613      3,635      5,180     17,386

Pro forma net income (loss)     $338   $(38,546) $(113,128) $(106,924)

Pro forma net income (loss)
 per share
  Basic                        $0.02     $(2.19)    $(6.27)    $(6.51)
  Diluted                      $0.02     $(2.19)    $(6.27)    $(6.51)

Shares used in per share
 pro forma calculation:
  Basic                       18,633     17,635     18,042     16,429
  Diluted                     18,769     17,635     18,042     16,429


All share and per share amounts above have been adjusted to give
effect to a 1 for 10 reverse stock split in December 2001.

The above unaudited pro forma condensed consolidated statements
assume the acquisition of Broadbase and Silknet occurred at the
beginning of the earliest period presented and exclude the effects of
the following (in thousands):

Pro forma net
 income (loss)             $338     $(38,546)  $(113,128)   $(106,924)
 Pro forma net loss
  of Broadbase               --        4,793      24,501       20,920
  Amortization of
   intangible assets
   and stock-based
   compensation         (18,868)    (317,126)   (143,540)    (887,737)
  Restructuring costs    (2,709)          --     (89,047)          --
  Merger and transition
   related costs         (1,926)          --     (13,443)      (6,564)
  In process research
   and development           --           --          --       (6,900)
  Goodwill impairment        --   (2,084,841)   (603,446)  (2,084,841)
  Impairment of
   investment            (1,000)          --      (1,000)          --
  Income (loss) from
   operations of
   discontinued operation    --          570        (125)       1,173
  Loss on disposal,
   including provision
   of $1.1 million for
   operating losses during
   phase-out period          --           --      (3,667)          --
Net loss               $(24,165) $(2,435,150)  $(942,895) $(3,070,873)



                          KANA SOFTWARE, INC.
       UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except per share data)

                          Three Months Ended          Year Ended
                             December 31,             December 31,
                          2001        2000         2001        2000
Revenues:
  License               $13,628      $28,727     $37,963      $75,360
  Service                11,202       11,560      48,907       37,657

Total revenues           24,830       40,287      86,870      113,017

Cost of revenues:
  License                   747        1,137       2,536        2,856
  Service                 5,027       23,469      48,074       51,144

Total cost of
 revenues                 5,774       24,606      50,610       54,000

Gross profit             19,056       15,681      36,260       59,017

Operating expenses:
  Sales and marketing    10,107       29,889      69,635       88,186
  Research and
   development            6,100       13,433      35,558       42,724
  General and
   administrative         3,124        7,016      21,215       18,945
  Amortization of
   intangible assets and
   stock-based
   compensation          18,868      317,126     143,540      887,737
  Restructuring costs     2,709           --      89,047           --
  Merger and transition
   related costs          1,926           --      13,443        6,564
  In process research
   and development           --           --          --        6,900
  Goodwill impairment        --    2,084,841     603,446    2,084,841

Total operating
 expenses                42,834    2,452,305     975,884    3,135,897

Operating loss          (23,778)  (2,436,624)   (939,624)  (3,076,880)
Impairment of investment (1,000)        --        (1,000)        --
Other income, net           613          904       1,521        4,834
Loss from continuing
 operations             (24,165)  (2,435,720)   (939,103)  (3,072,046)

Discontinued operation:
  Income (loss) from
   operations of
   discontinued operation    --          570        (125)       1,173
  Loss on disposal,
   including provision
   of $1.1 million
   for operating
   losses during
   phase-out period          --           --      (3,667)          --

Net loss               $(24,165) $(2,435,150)  $(942,895) $(3,070,873)


Basic and diluted loss
 per share:
  Loss from continuing
   operations            $(1.30)    $(271.63)    $(68.33)    $(395.83)
  Income (loss) from
   discontinued
   operation             $   --        $0.06      $(0.28)       $0.15
  Net loss               $(1.30)    $(271.57)    $(68.61)    $(395.68)

Shares used in computing
 basic and diluted net
 loss per share          18,633        8,967      13,744        7,761


All share and per share amounts above have been adjusted to give
effect to a 1 for 10 reverse stock split in December 2001.