Exhibit 99.2
PLATO LEARNING, INC.
Q4 FY 2004 PRE RELEASE SCRIPT
NOVEMBER 10, 2004
JOHN MURRAY
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Good afternoon, this is John Murray, Chairman, President and CEO of PLATO
Learning.
Before we begin, let me first remind you that any forward-looking statements
made by PLATO Learning are subject to the risks and uncertainties as outlined in
the Company's annual report as filed on Form 10-K for our fiscal year ended
October 31, 2003 and our latest Form 10-Q for the quarter ended July 31, 2004.
The content of this conference call contains time-sensitive information that is
accurate only as of November 10, 2004. This call is the property of PLATO
Learning, Inc. Any redistribution, or rebroadcast of this call in any form
without the express written consent of PLATO Learning, Inc. is strictly
prohibited.
Earlier today we issued two press releases. One provided updated guidance
regarding our Q4 and fiscal year 2004 revenues and operations. The second
announced the resignation of Greg Melsen, who has served as the Chief Financial
Officer of PLATO Learning since February of 2002. Greg is with me today for this
conference call as are Larry Betterley, our new Vice President and CFO and Steve
Schuster, our Vice President and Treasurer.
I will address both topics today, as well as discuss the recent resignation of
Rob Kilgarriff, our former Executive Vice President of Sales and Marketing.
Before addressing these personnel changes, let me begin by sharing my
observations regarding expected Q4 operating results.
OPERATIONS
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As stated in the press release, we expect our revenues for the fourth quarter to
be in the range of $41 to $43 million, which is below our expectations. The
lower than expected revenues, the gross margin impact of revenue mix shifts and
a higher than projected consolidated effective tax rate will also cause our net
earnings for the quarter to be less than expected, with fiscal year pre-tax
earnings expected to be near break-even.
When analyzing our preliminary Q4 results, you should conclude that this was
another relatively solid quarter for us, as compared to the industry and our
peers, as well as year over year.
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Our revenue growth for the quarter should be in the range of 8% to 13% as
compared to the proforma revenues reported by the combined PLATO Learning and
Lightspan entities in the three months ended October 31, 2003. This is
significant, especially as compared to at least four other K-12 providers that
have recently reported quarterly revenue percentage declines of mid single
digits to almost 20%. Our out-performance of the market this quarter is similar
to last quarter when one of our direct competitors announced its third
consecutive quarter of revenue declines in excess of 20%. The frequency and
extent of revenue declines experienced by other companies in our space
illustrates the cautiousness that decision-makers still have regarding funding
status. There remains concern regarding continuing softness in the K-12 sector.
We have stated in recent quarterly conference calls that we see the funding
situation to be slowly improving. This observation remains true. Federal funds
seem to be flowing more freely, but not at expected rates. State economic
conditions also seem to be improving, but their slow, steady recovery has not
yet translated into significantly more dollars being devoted to education.
Although these conditions are slowly improving, they continue to cause educators
to be cautious. Administrators are being subjected to greater scrutiny in making
purchasing decisions, often being required to obtain more extensive and higher
levels of approval.
We also continue to see a shift from perpetual license sales to subscription
sales and an on-going trend of transactions that contain a variety of products
and services. These are important trends that are detrimental to immediate
revenue recognition, but important to the long-term prospects of the Company.
Evidence of these trends can be seen in our deferred revenue position, which at
October 31 is again expected to be greater than the July 31, 2004 and pro forma
October 31, 2003 balances.
We have also addressed most of the procedural and internal issues that hindered
us in the third quarter and continue to make progress with other financial
metrics. You should again see positive improvement in our accounts receivable
metrics when we report our October 31 balance sheet. And we will also show our
second consecutive quarter of significant cash generation. Cash and marketable
securities were in excess of $45 million at October 31, up over $14 million from
our July 31, 2004 balances, and substantially more than the $28 million of cash
and marketable securities we had at October 31, 2003 or the $22 million we had
on hand just six months ago, at April 30, 2004.
For the second consecutive quarter, we expect to report the largest quarterly
revenues in the Company's history. We continue to demonstrate our ability to
grow revenues faster than market growth and have done so in an ongoing tough
market. Our pretax earnings growth over pro-forma 2003 will show the strength of
our operational leverage.
I would now like to address the two recent changes in our senior management
team.
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SALES & MARKETING
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First, Rob Kilgarriff resigned as Executive Vice President of Sales & Marketing
at PLATO Learning shortly after our fiscal year end.
I have come to know Rob very well during the last few years and commend him for
his drive and energy in re-shaping our sales organization and significantly
improving our productivity statistics - with the full support of our field sales
organization. Rob deserves a lot of credit for helping PLATO out-perform our
competition in a continually tough environment.
We will immediately begin an outside search for a candidate to assume leadership
of the Sales and Marketing functions. In the interim, Michael Hill, a long-time
PLATO Learning employee who is responsible for K-12 sales, and Ric Ferrentino
who is responsible for Post-Secondary Sales, will report directly to me.
While I'm very disappointed to see Rob leave, I understand his reasons and wish
him and his family the very best for the future. But changes such as this also
provide opportunity. I am confident we will attract a top-notch leader for this
position and view this as chance to further energize and advance our sales
prominence in our industry.
CHIEF FINANCIAL OFFICER
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Greg Melsen, our Vice President, Chief Financial Officer, has also resigned. As
stated in today's press release, he intends to accept a similar position at a
Minneapolis-based life sciences company with which he has a prior professional
relationship.
While also disappointed that Greg is leaving PLATO Learning, I fully understand
his reasons as well and wish him and his family the best for the future. I am
pleased to say that Greg has left the company in better standing than when he
joined us and thank him for his contributions. We are fortunate that Greg is
willing remain with us for a number of weeks to assist in transitional
activities.
We are also privileged to be able to attract experienced business people such as
Larry Betterley, who has served as our Vice President, Finance and Chief
Accounting Officer since he joined PLATO Learning. We have appointed Larry to
the additional role of Chief Financial Officer. He has previously been CFO at
two other publicly-held companies. Larry has earned tremendous respect within
the Company in a very short period of time. I am confident he will also be
well-received by the investment community.
I would now like to ask Greg to say a few words.
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GREG MELSEN
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I am deeply grateful to you and the other members of PLATO Learning's executive
team and all of its employees. I am appreciative of the opportunity to spend
almost three years with the Company and will leave will great memories and
hopefully some long-term friends and business associates. I have also thoroughly
enjoyed working with our investors and the investment community. My hope is that
the investment community found helpful our quest for continual improvement in
our operations, in our financial reporting and in our discussion and analysis.
The match between the Company's needs and my experience and talents seemed good.
I have learned a lot and, hopefully, contributed in excess of the benefits I
received.
I am also proud of our accomplishments during this time. In my opinion, the
Company is much stronger today because it is driven by a strategic vision and
plan. The financial performance is improving and better than our industry peers.
Despite excitement for my new opportunity, I continue to believe in the Company
and its prospects and thank you for the chance to be part of PLATO Learning and
your Executive Team.
JOHN MURRAY
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Greg, I totally agree with your observations. We will always strive for
continuous improvement and are confident that we are building a business with
market dominance and ultimately, greater predictability.
Through our strategies and operational accomplishments, have come solid revenue
growth and improved earnings. The following summary illustrates this statement:
o First, our fiscal year revenues are expected to be in the range of
$140 to $142 million. This represents 8% to 9% growth versus the $130
of proforma revenues PLATO Learning and Lightspan generated in the
twelve months ended October 31, 2003.
o Second, proforma, pretax losses for the two entities were
approximately $20 million for fiscal 2003. We have improved pretax
earnings to around break-even.
o Finally, we have grown cash and investments by $17 million during the
year to $45 million. This means we generated cash of about $0.70 per
share during the year and further means we have about $2.00 per share
of cash and marketable securities on hand.
The advancement of our year over year metrics is noteworthy, especially in a
soft market and compared to the performance of our peers.
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Although there remains uncertainty regarding funding timing and status in the
near-term, we remain optimistic regarding the medium and long-term. We continue
to believe our business model is sound and among the best in the business. While
we take very seriously our performance related to expectations, we also believe
a good measure is how PLATO Learning performs against others in the education
space and over the long term. In that regard, we continue to be one of the
pace-setters. We are gaining market share, have solid top-line growth, improving
net earnings, a strong balance sheet and the broadest and deepest offering of
instructional computer-based products and services to the education industry.
Our future is very bright.
We will provide more specific analysis during our regularly scheduled fourth
quarter conference call on December 2. At that time we also will give additional
commentary regarding general market conditions and provide more guidance
regarding fiscal 2005, including an update of our previous guidance when we
envisioned fiscal 2005 revenue growth of around 10% versus fiscal 2004 revenues.
We appreciate your patience, understanding and support and are now available to
answer your questions. Thank you.
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