(PLATO LEARNING LOGO)
FOR IMMEDIATE RELEASE
CONTACT: JOHN MURRAY - CHAIRMAN, PRESIDENT & CEO
GREG MELSEN - CFO
STEVE SCHUSTER - VP & TREASURER
952.832.1000
PLATO LEARNING, INC. REPORTS
FIRST QUARTER FISCAL YEAR 2004 RESULTS
LIGHTSPAN ACQUISITION AIDS REVENUE GROWTH
AND OPERATIONAL IMPROVEMENT
MINNEAPOLIS, MN - FEBRUARY 26, 2004 - PLATO Learning, Inc. (NASDAQ: TUTR), a
leading provider of K-Adult computer-based and e-learning solutions, today
announced revenues for its first quarter ended January 31, 2004, totaling $26.4
million, a $12.9 million or a 97% increase versus the $13.5 million reported for
the comparable period of fiscal 2003. The Company's acquisition of Lightspan,
Inc. significantly contributed to the quarter's revenue growth.
<Table>
<Caption>
Reported Revenues Quarter Ended January 31,
(000's) ----------------------------
2004 2003 Growth
---------- ---------- ----------
PLATO Learning $ 26,448 $ 13,457 97%
Lightspan (1) 967 13,046
---------- ----------
$ 27,415 $ 26,503 3%
========== ==========
</Table>
(1) Lightspan revenues prior to acquisition.
The net loss for the first quarter of 2004 was $7.5 million, or $0.35 per
diluted share, as compared to a loss of $3.4 million, or $0.20 per diluted
share, for the same period of 2003. The first quarter results for the period
ended January 31, 2003 benefited from a tax credit of $2.35 million, or $0.14
per diluted share. No tax credit was recorded for the quarter ended January 31,
2004. This tax accounting treatment is consistent with the full valuation
allowance we provided against our deferred tax assets in connection with the
acquisition of Lightspan.
<Table>
<Caption>
Adjusted Net Loss Quarter Ended January 31,
(000's, except per share amounts) -----------------------------
2004 2003
---------- ----------
Net loss (GAAP) $ (7,535) $ (3,407)
Exclude:
Income tax benefit -- (2,350)
---------- ----------
Net loss (Non-GAAP) $ (7,535) $ (5,757)
========== ==========
Weighted average common shares outstanding 21,500 16,775
========== ==========
Loss per basic and diluted share (Non-GAAP) $ (0.35) $ (0.34)
========== ==========
</Table>
The acquisition of Lightspan also added significant expenses to the Company's
operations.
<Table>
<Caption>
Reported Costs and Expenses Quarter Ended January 31,
(000's) -----------------------------
2004 2003
---------- ----------
Operating expenses:
PLATO Learning (1) 22,863 13,222
Lightspan (2) 1,941 14,248
---------- ----------
Total 24,804 27,470
========== ==========
As a percentage of revenues 90.5% 103.6%
========== ==========
</Table>
(1) PLATO operating expenses in 2003 exclude $380 of restructuring charges.
(2) Lightspan operating expenses prior to acquisition.
On December 17, 2003, the Company also acquired New Media (Holdings) Limited, a
United Kingdom (UK) based publisher of curriculum-focused software primarily for
teaching secondary school science and math. This acquisition was not significant
to the revenues, operating expenses or net loss for the quarter.
John Murray, Chairman, President and CEO, said, "The first quarter was a
critical period for PLATO Learning. We closed acquisitions with both Lightspan
and New Media and began integrating both operations. Each of these transactions
was strategically important in allowing PLATO Learning to emerge as a stronger,
leading provider of products and services to the K-12 market, as well as being
the clear leader in the post-secondary market." Mr. Murray added, "Our first
quarter results reflect our ability to grow revenues in a continually tough
funding environment, when competition continues to experience year over year
declines, and to do so while working through the distractions inherent in
consummating mergers of this magnitude. We also demonstrated our ability to
remove costs from the combined entities."
Mr. Murray continued, "Although we achieved our first quarter targets from both
a financial and integration perspective, there is even greater opportunity
ahead. We must continue to wisely integrate operations and begin to capitalize
on the product, brand and human assets of PLATO Learning. The results of the
quarter are encouraging and validate the strategic wisdom of these combinations.
We look forward to the revenue growth and improved operating results we can
accomplish."
Mr. Murray highlighted additional key financial information:
o Earnings Before Interest Taxes Depreciation and Amortization (EBITDA),
calculated as operating income (loss) before depreciation, amortization
and restructuring charges, was $9.1 million for the twelve month period
ended January 31, 2004 as compared to $4.5 million for the twelve month
period ended January 31, 2003.
o Cash flow used in operations in Q1 2004 totaled $1.3 million as
compared to cash flow generated from operations of $959,000 in the
first quarter of last fiscal year
The Company's balance sheet remains strong:
o Cash and marketable securities were $27.9 million at January 31, 2004,
compared to $27.7 million at October 31, 2003, despite using $6.8
million to acquire New Media (Holdings) Limited in December. There were
no bank borrowings outstanding at January 31, 2004.
o Deferred revenue was $40.9 million at January 31, 2004, versus $20.1
million at January 31, 2003. Lightspan had deferred revenue of $12.3
million at January 31, 2003.
o Stockholders' equity was $153.3 million at January 31, 2004, compared
to $109.9 million at October 31, 2003.
USE OF NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures used in this press release exclude the impact of
an income tax credit in 2003, and a 2003 restructuring charge on PLATO
Learning's operating results, as well as present certain proforma operations as
if Lightspan had been acquired as of November 1, 2002. 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, 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 progress in integrating the operations
of Lightspan. 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
reconciliation 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.
QUARTERLY CONFERENCE CALL
A conference call to discuss this announcement is scheduled for today at 3:45 PM
(CST). The dial-in number for this call is 1-877-775-1746. Please call ten
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 6:00 p.m. on February
26, 2004, through midnight March 4, 2004. To access the recording call:
1-800-642-1687. At the prompt, enter pass code number 5050874.
ABOUT PLATO LEARNING
PLATO Learning, Inc. 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 4,000 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.
With trailing 12-month revenues of over $97 million, PLATO Learning, Inc. is a
publicly held company traded as TUTR on the NASDAQ-NMS. PLATO(R) Learning
educational software is marketed to K-12 schools and colleges. We also sell to
job training programs, correctional institutions, military education programs,
corporations and individuals and delivered via networks, CD-ROM, the Internet
and private intranets.
PLATO Learning is headquartered at 10801 Nesbitt Avenue South, Bloomington,
Minnesota 55437, (952) 832-1000 or (800) 869-2000. The Company has domestic
offices throughout the United States and international offices in the United
Kingdom and Canada. International distributors are located in Puerto Rico,
Singapore, South Africa and the United Arab Emirates. The Company's Web address
is http://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 on Form 10-K for the year ended October 31, 2003. Actual results
may differ materially from anticipated results.
(R) PLATO is a registered trademark of PLATO Learning, Inc. PLATO Learning is a
trademark of PLATO Learning, Inc.
PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
THREE MONTHS ENDED
JANUARY 31,
-----------------------------
2004 2003
---------- ----------
Revenues:
License fees $ 13,059 $ 7,445
Subscriptions 4,508 1,624
Services 6,337 3,383
Other 2,544 1,005
---------- ----------
Total revenues 26,448 13,457
---------- ----------
Cost of revenues:
License fees 3,341 1,757
Subscriptions 1,679 569
Services 3,764 2,370
Other 2,199 991
---------- ----------
Total cost of revenues 10,983 5,687
---------- ----------
Gross profit 15,465 7,770
---------- ----------
Operating expenses:
Sales and marketing 15,185 9,238
General and administrative 4,492 3,276
Product development 2,203 561
Amortization of intangibles 983 147
Restructuring charges -- 380
---------- ----------
Total operating expenses 22,863 13,602
---------- ----------
Operating loss (7,398) (5,832)
Interest income 119 120
Interest expense (35) (24)
Other expense, net (71) (21)
---------- ----------
Loss before income taxes (7,385) (5,757)
Income tax expense (benefit) 150 (2,350)
---------- ----------
Net loss $ (7,535) $ (3,407)
========== ==========
Loss per share:
Basic and diluted $ (0.35) $ (0.20)
========== ==========
Weighted average common shares outstanding:
Basic and diluted 21,500 16,775
========== ==========
</Table>
PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
JANUARY 31, OCTOBER 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,196 $ 23,834
Accounts receivable, net 41,638 39,176
Prepaid expenses and other current assets 9,276 4,819
Deferred income taxes -- 2,218
------------ ------------
Total current assets 75,110 70,047
Long-term marketable securities 3,746 3,862
Equipment and leasehold improvements, net 7,367 5,024
Product development costs, net 14,695 14,738
Goodwill 69,393 39,609
Identified intangible assets, net 45,562 14,707
Other assets 1,940 1,975
------------ ------------
Total assets $ 217,813 $ 149,962
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,416 $ 2,876
Accrued employee salaries and benefits 4,592 6,678
Accrued liabilities 13,390 3,600
Deferred revenue 34,931 22,192
------------ ------------
Total current liabilities 57,329 35,346
Deferred revenue 6,010 4,372
Deferred income taxes 863 --
Other liabilities 284 312
------------ ------------
Total liabilities 64,486 40,030
------------ ------------
Stockholders' equity:
Common stock, $.01 par value, 50,000 shares authorized; 22,979 shares
issued and outstanding at January 31, 2004; 17,671 shares issued and
16,370 shares outstanding at October 31, 2003 230 164
Additional paid in capital 162,110 123,135
Treasury stock at cost, 0 and 1,301 shares, respectively -- (11,652)
Accumulated deficit (8,557) (1,022)
Accumulated other comprehensive loss (456) (693)
------------ ------------
Total stockholders' equity 153,327 109,932
------------ ------------
Total liabilities and stockholders' equity $ 217,813 $ 149,962
============ ============
</Table>
PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
THREE MONTHS ENDED
JANUARY 31,
------------------------------
2004 2003
------------ ------------
OPERATING ACTIVITIES:
Net loss $ (7,535) $ (3,407)
------------ ------------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Deferred income taxes 150 (2,350)
Amortization of capitalized product development costs 1,764 1,294
Amortization of identified intangible assets 1,780 476
Depreciation and amortization of equipment and
leasehold improvements 911 549
Provision for doubtful accounts 346 525
Loss on disposal of equipment 1 2
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 5,741 4,830
Prepaid expenses and other current and noncurrent assets (1,296) (370)
Accounts payable (1,314) 1,029
Accrued liabilities, accrued employee salaries and
benefits and other liabilities (3,586) (2,048)
Deferred revenue 1,786 429
------------ ------------
Total adjustments 6,283 4,366
------------ ------------
Net cash provided by (used in) operating activities (1,252) 959
------------ ------------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired 2,324 --
Capitalization of product development costs (1,664) (1,667)
Capital expenditures (572) (297)
Sales of marketable securities 116 --
------------ ------------
Net cash provided by (used in) investing activities 204 (1,964)
------------ ------------
FINANCING ACTIVITIES:
Repurchase of common stock -- (540)
Net proceeds from issuance of common stock 1,311 16
Repayments of capital lease obligations (60) (69)
------------ ------------
Net cash provided by (used in) financing activities 1,251 (593)
------------ ------------
Effect of foreign currency on cash 159 81
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 362 (1,517)
Cash and cash equivalents at beginning of period 23,834 30,390
------------ ------------
Cash and cash equivalents at end of period $ 24,196 $ 28,873
============ ============
</Table>
PLATO LEARNING, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
<Table>
<Caption>
REVENUES QUARTER ENDED JANUARY 31,
---------------------------------------------------------------------------
($000's) 2004 2003 % CHANGE
------------------------------------ ------------------------------------ ------------------------
As Lightspan Pro As Lightspan Pro As Pro
Reported (1) Forma Reported (1) Forma Reported Forma
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
License fees $ 13,059 $ -- $ 13,059 $ 7,445 $ 6,825 $ 14,270 75% -8%
Subscriptions 4,508 531 5,039 1,624 2,977 4,601 178% 10%
Services 6,337 438 6,775 3,383 2,425 5,808 87% 17%
Other 2,544 -- 2,544 1,005 819 1,824 153% 39%
---------- ---------- ---------- ---------- ---------- ----------
$ 26,448 $ 969 $ 27,417 $ 13,457 $ 13,046 $ 26,503 97% 3%
========== ========== ========== ========== ========== ==========
</Table>
(1) Lightspan revenues prior to acquisition.
<Table>
<Caption>
OPERATING EXPENSES QUARTER ENDED JANUARY 31,
($000'S) 2004 % OF REVENUE
------------------------------------ ------------------------
As Lightspan Pro As Pro
Reported (1) Forma Reported Forma
---------- ---------- ---------- ---------- ----------
Sales and marketing $ 15,185 $ 1,282 $ 16,467 57% 60%
General and administrative 4,492 310 4,802 17% 18%
Product development 2,203 327 2,530 8% 9%
Amortization of intangibles 983 22 1,005 4% 4%
---------- ---------- ----------
$ 22,863 $ 1,941 $ 24,804 86% 90%
========== ========== ==========
</Table>
<Table>
<Caption>
QUARTER ENDED JANUARY 31,
2003 % OF REVENUE
------------------------------------ ------------------------
As Lightspan Pro As Pro
Reported (1) Forma Reported Forma
---------- ---------- ---------- ---------- ----------
Sales and marketing $ 9,238 $ 6,862 $ 16,100 69% 61%
General and administrative 3,276 2,367 5,643 24% 21%
Product development 561 3,018 3,579 4% 14%
Amortization of intangibles 147 2,001 2,148 1% 8%
---------- ---------- ----------
$ 13,222 $ 14,248 $ 27,470 98% 104%
========== ========== ==========
</Table>
(1) Lightspan operating expenses prior to acquisition.
<Table>
<Caption>
ORDER SIZE QUARTER ENDED JANUARY 31,
-------------------------------------------------
($000'S) 2004 2003 (1) % CHANGE
----------------------- ----------------------- ------------------------
Number Value Number Value Number Value
---------- ---------- ---------- ---------- ---------- ----------
$100 to $249 30 $ 4,309 20 $ 3,150 50% 37%
$250 or greater 14 9,118 9 4,675 56% 95%
---------- ---------- ---------- ----------
44 $ 13,427 29 $ 7,825 52% 72%
========== ========== ========== ==========
</Table>
(1) 2003 includes both PLATO Learning and Lightspan
PLATO LEARNING, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
<Table>
<Caption>
DEFERRED REVENUE JANUARY 31,
--------------------------- OCTOBER 31,
($000'S) 2004 2003 2003
------------ ------------ ------------
License fees $ 7,096 $ 4,706 $ 4,762
Subscriptions 11,675 1,790 4,134
Services 21,968 13,382 17,360
Other 202 265 308
------------ ------------ ------------
40,941 20,143 26,564
Lightspan -- 12,324 14,262
------------ ------------ ------------
Total $ 40,941 $ 32,467 $ 40,826
============ ============ ============
</Table>
<Table>
<Caption>
EBITDA TWELVE MONTHS ENDED
($000'S) JANUARY 31, 2004
---------------------------------------------------------------------------
As Reported Q2-2003 Q3-2003 Q4-2003 Q1-2004 TOTAL
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ (1,821) $ 285 $ 3,276 $ (7,535) $ (5,795)
Income taxes (1,435) 1,600 1,744 150 2,059
Interest expense 30 34 16 35 115
Depreciation and amortization 2,231 2,782 2,854 4,455 12,322
Restructuring charge -- 422 -- -- 422
------------ ------------ ------------ ------------ ------------
$ (995) $ 5,123 $ 7,890 $ (2,895) $ 9,123
============ ============ ============ ============ ============
</Table>
<Table>
<Caption>
TWELVE MONTHS ENDED
JANUARY 31, 2003
---------------------------------------------------------------------------
As Reported Q2-2002 Q3-2002 Q4-2002 Q1-2003 TOTAL
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ 297 $ (200) $ 119 $ (3,407) $ (3,191)
Income taxes 275 (350) 1,575 (2,350) (850)
Interest expense 31 34 24 24 113
Depreciation and amortization 1,586 2,017 2,076 2,319 7,998
Restructuring charge -- -- -- 380 380
------------ ------------ ------------ ------------ ------------
$ 2,189 $ 1,501 $ 3,794 $ (3,034) $ 4,450
============ ============ ============ ============ ============
</Table>