EXHIBIT 99.1
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For Immediate Release
Contact: | Mike Morache – President and CEO | |||
Larry Betterley – Sr. VP and CFO | ||||
Steve Schuster – VP and Treasurer | ||||
952.832.1000 |
PLATO Learning, Inc. Reports Fiscal Third Quarter 2006 Results
Orders Increase, Strategic Shift to Subscription Products Accelerates
MINNEAPOLIS, MN – August 31, 2006– PLATO Learning, Inc. (NASDAQ: TUTR), a leading provider of K–adult computer-based and e-learning solutions, today announced revenues for its third quarter ended July 31, 2006, totaling $23.5 million. This was a 25% decrease versus the $31.2 million reported for the comparable period of fiscal 2005. However, U.S. orders booked in the third quarter 2006 grew 6% over the same period in 2005 to $34.4 million. The Company has made a strategic change toward delivering its products on a subscription basis via the Internet. This has resulted in a shift in order mix from perpetual license sales to subscription sales. This shift is the primary cause of the revenue reduction, as revenue for subscription sales is recognized over the term of the subscription period, whereas revenue for perpetual license sales is typically recognized upfront upon delivery.
Mike Morache, President and CEO said, “Our sales organization is relatively new, but productivity improved significantly, resulting in U.S. order growth of 114% from second quarter of this year and 6% growth over last year’s third quarter. Our strategy to transform the business by delivering our solutions on a subscription basis over the Internet is happening rapidly, as evidenced by the acceleration of sales from perpetual to subscription license products. In fact, subscription orders more than doubled over third quarter last year. As a result, deferred revenue grew to $39.1 million, which is 35% greater than the end of second quarter this year and near October 31 and July 31, 2005 balances. Cash and marketable securities remained strong at $31.7 million and we have delivered positive Adjusted EBITDA (EBITDA adjusted for impairment, restructuring and other charges, and stock based compensation, a non-GAAP measure) of $7.6 million over the trailing 12 month period.”
Net loss for the third quarter of 2006 was $(1.8) million, or $(0.08) per share, as compared to a net loss of $(0.3) million, or $(0.01) per share, for the same period of 2005. Net loss, excluding restructuring and other charges (a non-GAAP measure), was $(0.1) million, or $(0.00) per share for the third quarter of 2005. The increase in net loss was primarily driven by the shift in order mix and resulting decline in revenue, with much of the effect offset by a decrease in costs. Adjusted EBITDA for the quarter was $2.0 million, compared to $4.9 million in third quarter 2005.
Gross margin was 58.4% for the third quarter versus 60.8% in the third quarter of 2005. The lower gross margin was primarily driven by a decrease in high gross margin license fee revenues, substantially offset by cost reductions, especially in cost of services, and lower depreciation, amortization and royalty expenses. Operating expenses, excluding restructuring and other charges, declined 17% for the quarter from the comparable period in 2005. The decrease resulted from cost reduction initiatives, primarily in sales, marketing, general and administrative expenses, and from lower variable costs as a result of lower revenues.
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“We continued to control costs, offsetting much of the net loss effect of lower revenue on the quarter and all of the effect year-to-date, even though we incurred about $1.0 million of stock based compensation so far this year. We accomplished this while spending aggressively on product development and delivering several new products during the quarter: Straight Curve™ Mathematics for grades 3-5, eight new PLATO® Courses, and our new Internet based management system called PLATO Learning Environment™. More than 80% of our courses and content will be available on the new PLATO Learning Environment by the end of October 2006,” said Morache.
Revenues for the nine months ended July 31, 2006, were $66.9 million, a 24% decrease from 2005. Net loss for the period was $(10.9) million, or $(0.46) per share, compared to a net loss of $(13.8) million, or $(0.59) per share in 2005. Net loss, excluding restructuring and other charges, was $(10.5) million, or $(0.44) per share for the nine months ended July 31, 2006, compared to $(10.7) million, or $(0.46) per share in 2005. The revenue decline was primarily the result of the change in order mix and to a lesser extent an 11% reduction in U.S. orders year-to-date from 2005. The effect of the revenue decline on net loss was more than offset by reductions in cost.
The Company’s previous guidance was an increase in U.S. orders in the second half of fiscal year 2006 over 2005 and a revenue decrease of at least 15% to 20% for the full fiscal year 2006 from 2005, with an expected net loss at that revenue range of $(6.5) million to $(11.5) million, excluding restructuring and other charges. The Company’s U.S. orders increased by 6% in the third quarter 2006 over 2005 and fourth quarter orders are expected to increase as well over the 2005 amount of $33.1 million. The mix of the orders, however, is accelerating more rapidly towards subscription license products, for which revenue is recognized over time, rather than perpetual license products, for which revenue is typically recognized up-front upon delivery. These factors are expected to result in an increase in cash and marketable securities and deferred revenue balances during the fourth quarter from the end of third quarter 2006. Revenues for the full fiscal year 2006 are now are expected to decline to a range of $91.0 million to $96.0 million. The expected net loss, excluding impairment, restructuring and other charges, of this revenue range is approximately $(9.0) million to $(13.0) million, compared to $(8.5) million in 2005, as cost reductions will offset much of the effect of the lower revenues. Actual results, however, could vary significantly from these expected results depending on the level of orders and the mix of subscription and perpetual license orders actually achieved, which is difficult to predict during this period of transition toward subscription products.
Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release exclude the impact of impairment, restructuring and other charges on PLATO Learning’s operating results, as well as present Adjusted EBITDA. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may not be computed the same as similarly titled measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. PLATO Learning’s management views these non-GAAP financial measures to be helpful in assessing the Company’s ongoing operating results. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to PLATO Learning’s historical operating results and comparisons to competitors’ operating results. PLATO Learning includes these non-GAAP financial measures in its earnings announcement, because the Company believes they are useful to investors in allowing for greater transparency related to supplemental information used by management in its financial and operational analysis. Investors are encouraged to review the reconciliations of the non-GAAP financial measures used in this press release to their most directly comparable GAAP financial measures as provided with the financial statements attached to this press release.
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Quarterly Conference Call
A conference call to discuss this announcement is scheduled for today at 3:45 p.m. (Central Daylight Savings Time). The dial-in number for this call is 1-888-428-4480 in the U.S. and Canada, and 1-612-332-0226 internationally. Please call 10 minutes prior to the start of the call and inform the operator you are participating in PLATO Learning’s call. Should you be unable to attend the live conference call, a recording will be available to you from 8:15 p.m. (Central Daylight Savings Time) on August 31, 2006, until midnight on September 7, 2006. To access the recording, call 1-800-475-6701 in the U.S. and Canada and 1-320-365-3844 internationally. At the prompt, enter pass code number 824939.
Additionally, investors have the opportunity to listen to the conference call over the Internet through PLATO Learning’s website athttp://www.plato.com/aboutus/investor_calls.asp.
About PLATO Learning
PLATO Learning is a leading provider of computer-based and e-learning instruction for kindergarten through adult learners, offering curricula in reading, writing, math, science, social studies, and life and job skills. The Company also offers innovative online assessment and accountability solutions and standards-based professional development services. With over 6,000 hours of objective-based, problem-solving courseware, plus assessment, alignment and curriculum management tools, we create standards-based curricula that facilitate learning and school improvement.
PLATO Learning, Inc. is a publicly held company traded as TUTR on the NASDAQ. PLATO Learning educational software delivered via networks, CD-ROM, the Internet, and private intranets, is primarily marketed to K–12 schools and colleges. The Company also sells to job training programs, correctional institutions, military education programs, corporations, and individuals.
PLATO Learning is headquartered at 10801 Nesbitt Avenue South, Bloomington, Minnesota 55437, 952. 832.1000 or 800.869.2000. The Company has offices throughout North America as well as international distributors in the United Kingdom and South Africa. For more information, please visithttp://www.plato.com.
This announcement includes forward-looking statements. PLATO Learning has based these forward-looking statements on its current expectations and projections about future events. Although PLATO Learning believes that its assumptions made in connection with the forward-looking statements are reasonable, no assurances can be given that its assumptions and expectations will prove to have been correct. These forward-looking statements are subject to various risks, uncertainties and assumptions. PLATO Learning undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward looking statements made are subject to the risks and uncertainties as those described in the Company’s Annual Report onForm 10-K for the year ended October 31, 2005. Actual results may differ materially from anticipated results.
PLATO is a registered trademark of PLATO Learning, Inc. Straight Curve and PLATO Learning are trademarks of PLATO Learning, Inc. PLATO, Inc., is a PLATO Learning, Inc. Company.
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PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three Months Ended | Nine Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Revenues: | ||||||||||||||||
License fees | $ | 11,689 | $ | 18,604 | $ | 27,658 | $ | 45,905 | ||||||||
Subscriptions | 4,373 | 4,400 | 12,783 | 13,450 | ||||||||||||
Services | 7,394 | 8,235 | 26,476 | 28,768 | ||||||||||||
Total revenues | 23,456 | 31,239 | 66,917 | 88,123 | ||||||||||||
Cost of revenues: | ||||||||||||||||
License fees | 4,051 | 4,858 | 9,705 | 13,505 | ||||||||||||
Subscriptions | 1,539 | 1,780 | 6,436 | 6,235 | ||||||||||||
Services | 4,174 | 5,595 | 13,436 | 19,168 | ||||||||||||
Total cost of revenues | 9,764 | 12,233 | 29,577 | 38,908 | ||||||||||||
Gross profit | 13,692 | 19,006 | 37,340 | 49,215 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 9,539 | 11,520 | 28,849 | 38,256 | ||||||||||||
General and administrative | 4,064 | 5,141 | 13,026 | 14,193 | ||||||||||||
Product maintenance and development | 1,210 | 1,227 | 3,974 | 3,920 | ||||||||||||
Amortization of intangibles | 904 | 1,075 | 2,806 | 3,247 | ||||||||||||
Restructuring and other charges | 21 | 200 | 360 | 3,121 | ||||||||||||
Total operating expenses | 15,738 | 19,163 | 49,015 | 62,737 | ||||||||||||
Operating loss | (2,046 | ) | (157 | ) | (11,675 | ) | (13,522 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest income | 378 | 251 | 1,249 | 631 | ||||||||||||
Interest expense | (5 | ) | (46 | ) | (32 | ) | (89 | ) | ||||||||
Other, net | 32 | (209 | ) | 21 | (362 | ) | ||||||||||
Loss before income taxes | (1,641 | ) | (161 | ) | (10,437 | ) | (13,342 | ) | ||||||||
Income tax expense | 150 | 150 | 450 | 450 | ||||||||||||
Net loss | $ | (1,791 | ) | $ | (311 | ) | $ | (10,887 | ) | $ | (13,792 | ) | ||||
Loss per share: | ||||||||||||||||
Basic and diluted | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.46 | ) | $ | (0.59 | ) | ||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic and diluted | 23,701 | 23,490 | 23,668 | 23,325 | ||||||||||||
Note: Amounts previously reported in 2005 as other revenues and other cost of revenues were reclassified to license fees and services to conform to the 2006 classification. The reclassifications had no effect on previously reported 2005 total revenues, total cost of revenues, or gross profit.
PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands)
July 31, | October 31, | |||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 30,223 | $ | 46,901 | ||||
Marketable securities | 1,507 | 213 | ||||||
Accounts receivable, net | 21,403 | 22,768 | ||||||
Inventories | 2,025 | 4,026 | ||||||
Other current assets | 5,540 | 6,351 | ||||||
Total current assets | 60,698 | 80,259 | ||||||
Equipment and leasehold improvements, net | 5,484 | 5,711 | ||||||
Product development costs, net | 22,975 | 14,753 | ||||||
Goodwill | 71,865 | 71,865 | ||||||
Identified intangible assets, net | 18,794 | 22,505 | ||||||
Other long-term assets | 1,999 | 2,235 | ||||||
Total assets | $ | 181,815 | $ | 197,328 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,873 | $ | 2,938 | ||||
Accrued compensation | 6,784 | 7,772 | ||||||
Accrued liabilities | 5,955 | 8,933 | ||||||
Deferred revenue | 31,678 | 35,218 | ||||||
Total current liabilities | 46,290 | 54,861 | ||||||
Long-term deferred revenue | 7,440 | 5,213 | ||||||
Deferred income taxes | 2,381 | 1,931 | ||||||
Other long-term liabilities | 211 | 496 | ||||||
Total liabilities | 56,322 | 62,501 | ||||||
Stockholders’ equity: | ||||||||
Common stock | 237 | 236 | ||||||
Additional paid-in capital | 167,931 | 166,295 | ||||||
Treasury stock at cost | (205 | ) | (205 | ) | ||||
Accumulated deficit | (41,424 | ) | (30,537 | ) | ||||
Accumulated other comprehensive loss | (1,046 | ) | (962 | ) | ||||
Total stockholders’ equity | 125,493 | 134,827 | ||||||
Total liabilities and stockholders’ equity | $ | 181,815 | $ | 197,328 | ||||
PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended | ||||||||
July 31, | ||||||||
2006 | 2005 | |||||||
Operating activities: | ||||||||
Net loss | $ | (10,887 | ) | $ | (13,792 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Deferred income taxes | 450 | 450 | ||||||
Amortization of capitalized product development costs | 5,443 | 5,521 | ||||||
Amortization of identified intangible and other long-term assets | 3,961 | 6,318 | ||||||
Depreciation and amortization of equipment and leasehold improvements | 1,848 | 2,637 | ||||||
Provision for doubtful accounts | 164 | 1,291 | ||||||
Stock-based compensation | 1,038 | 39 | ||||||
Gain on sale of marketable securities | (37 | ) | — | |||||
Loss on disposal of equipment | 61 | 65 | ||||||
Changes in assets and liabilities, net of effects of acquisitions: | ||||||||
Accounts receivable | 1,201 | 12,093 | ||||||
Inventories | 2,001 | (2,514 | ) | |||||
Other current and long-term assets | 790 | (410 | ) | |||||
Accounts payable | (1,065 | ) | (1,902 | ) | ||||
Other current and long-term liabilities | (4,238 | ) | (150 | ) | ||||
Deferred revenue | (1,313 | ) | (9,629 | ) | ||||
Total adjustments | 10,304 | 13,809 | ||||||
Net cash (used in) provided by operating activities | (583 | ) | 17 | |||||
Investing activities: | ||||||||
Capitalized internal product development costs | (10,665 | ) | (7,906 | ) | ||||
Purchased product development | (3,000 | ) | — | |||||
Purchases of equipment and leasehold improvements | (1,682 | ) | (1,450 | ) | ||||
Purchases of marketable securities | (4,250 | ) | (9,266 | ) | ||||
Sales of marketable securities | 229 | 4,559 | ||||||
Maturities of marketable securities | 2,750 | 20,985 | ||||||
Net cash (used in) provided by investing activities | (16,618 | ) | 6,922 | |||||
Financing activities: | ||||||||
Net proceeds from issuance of common stock | 670 | 2,271 | ||||||
Repayments of capital lease obligations | (84 | ) | (185 | ) | ||||
Net cash provided by financing activities | 586 | 2,086 | ||||||
Effect of currency exchange rate changes on cash and cash equivalents | (63 | ) | 666 | |||||
Net (decrease) increase in cash and cash equivalents | (16,678 | ) | 9,691 | |||||
Cash and cash equivalents at beginning of period | 46,901 | 29,235 | ||||||
Cash and cash equivalents at end of period | $ | 30,223 | $ | 38,926 | ||||
PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)
Supplemental Financial Information
(Unaudited)
Sales Order Information ($000s)
Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||||||||||
2006 | 2005 | % Change | 2006 | 2005 | % Change | |||||||||||||||||||
Order Value: | ||||||||||||||||||||||||
License fees | $ | 13,219 | $ | 17,087 | -23 | % | $ | 28,417 | $ | 42,229 | -33 | % | ||||||||||||
Subscriptions | 10,932 | 5,224 | 109 | % | 16,319 | 10,226 | 60 | % | ||||||||||||||||
Services | 10,226 | 10,080 | 1 | % | 21,972 | 22,598 | -3 | % | ||||||||||||||||
$ | 34,377 | $ | 32,391 | 6 | % | $ | 66,708 | $ | 75,053 | -11 | % | |||||||||||||
Percent of Total Order Value: | ||||||||||||||||||||||||
License fees | 38 | % | 53 | % | 43 | % | 56 | % | ||||||||||||||||
Subscriptions | 32 | % | 16 | % | 24 | % | 14 | % | ||||||||||||||||
Services | 30 | % | 31 | % | 33 | % | 30 | % | ||||||||||||||||
100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||||
Reconciliation of GAAP Loss Per Share to Non-GAAP Loss Per Share
Before Restructuring and Other Charges
Before Restructuring and Other Charges
Three Months Ended | Nine Months Ended | |||||||||||||||
July 31, | July 31, | |||||||||||||||
($000’s, except per share amounts) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Net loss, as reported | $ | (1,791 | ) | $ | (311 | ) | $ | (10,887 | ) | $ | (13,792 | ) | ||||
Restructuring and other charges | 21 | 200 | 360 | 3,121 | ||||||||||||
Net loss before restructuring and other charges | $ | (1,770 | ) | $ | (111 | ) | $ | (10,527 | ) | $ | (10,671 | ) | ||||
Loss per share (basic and diluted): | ||||||||||||||||
Loss per share, as reported | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.46 | ) | $ | (0.59 | ) | ||||
Restructuring and other charges | 0.01 | 0.01 | 0.02 | 0.13 | ||||||||||||
Loss per share before restructuring and other charges | $ | (0.07 | ) | $ | — | $ | (0.44 | ) | $ | (0.46 | ) | |||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic and diluted | 23,701 | 23,490 | 23,668 | 23,325 | ||||||||||||
Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses
Before Restructuring and Other Charges ($000’s)
Before Restructuring and Other Charges ($000’s)
Three Months Ended July 31, | Nine Months Ended July 31, | |||||||||||||||||||||||
2006 | 2005 | % Change | 2006 | 2005 | % Change | |||||||||||||||||||
Total operating expenses | $ | 15,738 | $ | 19,163 | -18 | % | $ | 49,015 | $ | 62,737 | -22 | % | ||||||||||||
Restructuring and other charges | (21 | ) | (200 | ) | (360 | ) | (3,121 | ) | ||||||||||||||||
Operating expenses before restructuring and other charges | $ | 15,717 | $ | 18,963 | -17 | % | $ | 48,655 | $ | 59,616 | -18 | % | ||||||||||||
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PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)
Supplemental Financial Information
(Unaudited)
Reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA
(EBITDA excluding impairment, restructuring and other charges, and stock-based
compensation)
($000’s)
(EBITDA excluding impairment, restructuring and other charges, and stock-based
compensation)
($000’s)
Twelve | ||||||||||||||||||||
Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
July 31, | ||||||||||||||||||||
Q3-2006 | Q2-2006 | Q1-2006 | Q4-2005 | 2006 | ||||||||||||||||
Net loss | $ | (1,791 | ) | $ | (5,899 | ) | $ | (3,197 | ) | $ | (13,895 | ) | $ | (24,782 | ) | |||||
Income taxes | 150 | 150 | 150 | 410 | 860 | |||||||||||||||
Interest, net | (373 | ) | (400 | ) | (444 | ) | (394 | ) | (1,611 | ) | ||||||||||
Depreciation and amortization | 3,766 | 3,894 | 3,592 | 4,374 | 15,626 | |||||||||||||||
Impairment charges | — | — | — | 13,194 | 13,194 | |||||||||||||||
Restructuring and other charges | 21 | 259 | 80 | 2,904 | 3,264 | |||||||||||||||
Stock-based compensation | 222 | 480 | 316 | — | 1,018 | |||||||||||||||
Adjusted EBITDA | $ | 1,995 | $ | (1,516 | ) | $ | 497 | $ | 6,593 | $ | 7,569 | |||||||||
Twelve | ||||||||||||||||||||
Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
July 31, | ||||||||||||||||||||
Q3-2005 | Q2-2005 | Q1-2005 | Q4-2004 | 2005 | ||||||||||||||||
Net earnings (loss) | $ | (311 | ) | $ | (2,954 | ) | $ | (10,527 | ) | $ | 2,213 | $ | (11,579 | ) | ||||||
Income taxes | 150 | 150 | 150 | 1,580 | 2,030 | |||||||||||||||
Interest, net | (205 | ) | (140 | ) | (197 | ) | (112 | ) | (654 | ) | ||||||||||
Depreciation and amortization | 5,074 | 4,585 | 4,984 | 4,481 | 19,124 | |||||||||||||||
Restructuring and other charges | 200 | 632 | 2,289 | — | 3,121 | |||||||||||||||
Stock-based compensation | — | 39 | — | — | 39 | |||||||||||||||
Adjusted EBITDA | $ | 4,908 | $ | 2,312 | $ | (3,301 | ) | $ | 8,162 | $ | 12,081 | |||||||||