[PLATO LEARNING LOGO]
FOR IMMEDIATE RELEASE
CONTACT: David Smith -- President And CEO
Larry Betterley -- Sr. VP And CFO
Steve Schuster -- VP and Treasurer
952.832.1000
PLATO LEARNING, INC. REPORTS
FIRST QUARTER FISCAL YEAR 2005 RESULTS
MINNEAPOLIS, MN -- FEBRUARY 24, 2005 -- 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, 2005, totaling $25.5
million. This represents a $1.0 million or a 4% decrease versus the $26.4
million reported for the comparable period of fiscal 2004. On a pro-forma basis,
including revenues from Lightspan before the acquisition date, revenues declined
7% in the first quarter from the comparable period in 2004.
Net loss for the first quarter of 2005 was $10.5 million, or $0.46 per diluted
share, as compared to a net loss of $7.5 million, or $0.35 per share, for the
same period of 2004. The net loss, excluding the impact of restructuring and
other charges, was $8.2 million, or $0.36 per share, for the first quarter of
2005.
Gross margin was 46.7% for the quarter, versus 58.5% in first quarter 2004. The
lower gross margin was driven by the decline in high gross margin license fee
revenue, a greater mix of lower gross margin service revenues, and additional
investments and realignment of resources in the service organization to support
service revenue growth initiatives. The gross margin was further impacted by low
educational consulting service revenues in the quarter, for which most costs are
fixed.
Operating expenses declined 10% from first quarter 2004 on a pro-forma basis,
including expenses from Lightspan before the acquisition date, and declined 19%
excluding the impact of restructuring and other charges. The reduction resulted
from operating synergies of the merged businesses, realignment of service
resources to focus on revenue growth initiatives, and additional cost reduction
actions taken during the first quarter 2005. Restructuring and other charges
include severance costs incurred from restructuring activities and amounts paid
to or claimed by terminated executives under employment agreements.
David Smith, President and CEO, said, "Revenue was adversely impacted by several
disruptions in the quarter, including realignment of the sales and service
organizations to better serve market segments, implementation of new procedures
to improve selling processes, and management changes. The impact of these
activities was partially offset by increased revenue from new Supplemental
Educational Service offerings. The timing of Lightspan's year-end was also a
factor when comparing quarters. Lightspan's fourth quarter aligned with our
first quarter in 2004 at the time of the acquisition. After the merger, their
sales force continued to be compensated under Lightspan's annual plan until the
end of that quarter. As a result, our first quarter 2004 benefited from
increased sales activity, as the Lightspan sales force drove to reach their
annual performance objectives."
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"Operating expenses, excluding restructuring and other charges, declined
substantially on a pro-forma basis from 2004 due to the cost synergies realized
after the Lightspan merger and to our efforts to continue driving cost
efficiencies throughout the business. We accomplished this while initiating
actions to refine the Company's processes and align its resources for enhanced
profitability and accelerated growth in the future," added Smith.
The Company highlighted additional key financial information for the first
quarter 2005:
- - Loss Before Interest Taxes Depreciation and Amortization (EBITDA) and
restructuring and other charges was $3.1 million for the quarter,
compared to $2.9 million in 2004.
- - Cash and marketable securities were $41.9 million at January 31, 2005,
compared to $45.5 million at October 31, 2004, and $27.9 million at
January 31, 2004.
- - Deferred revenue was $46.7 million at January 31, 2005, versus $51.6
million at October 31, 2004, and $45.5 million at January 31, 2004.
USE OF NON-GAAP FINANCIAL MEASURES
The non-GAAP financial measures used in this press release exclude the impact of
2005 restructuring and other charges on PLATO Learning's operating results, as
well as present EBITDA and certain combined operations as if Lightspan had been
acquired as of November 1, 2003. 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 ongoing operating results and 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 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.
QUARTERLY CONFERENCE CALL
A conference call to discuss this announcement is scheduled for today at 3:45
p.m. (CT). The dial-in number for this call is 1-877-209-0397 in the U.S. and
Canada, and 612-332-0923 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 7:15 p.m. (CT) on February 24, 2005,
through midnight on March 2, 2005. 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 765768.
Additionally, investors have the opportunity to listen to the conference call
over the Internet through PLATO Learning's website at
http://www.plato.com/aboutus/investor_calls.asp.
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 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.
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PLATO Learning, Inc. is a publicly held company traded as TUTR on the NASDAQ,
with trailing 12-month revenues of approximately $141 million. 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 the United States, Canada, and the United Kingdom, as well as
international distributors in Puerto Rico, Singapore, South Africa, and the
United Arab Emirates. For more information, please visit 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, 2004. 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.
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PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
-------------------------------
2005 2004
-------------- --------------
Revenues:
License fees $ 11,095 $ 13,059
Subscriptions 4,533 4,508
Services 8,196 6,337
Other 1,631 2,544
-------------- --------------
Total revenues 25,455 26,448
-------------- --------------
Cost of revenues:
License fees 3,432 3,341
Subscriptions 2,313 1,679
Services 6,126 3,764
Other 1,700 2,199
-------------- --------------
Total cost of revenues 13,571 10,983
-------------- --------------
Gross profit 11,884 15,465
-------------- --------------
Operating expenses:
Sales and marketing 13,326 15,185
General and administrative 4,210 4,492
Product development 1,471 2,203
Amortization of intangibles 1,092 983
Restructuring and other charges 2,289 -
-------------- --------------
Total operating expenses 22,388 22,863
-------------- --------------
Operating loss (10,504) (7,398)
Interest income 212 119
Interest expense (15) (35)
Other expense, net (70) (71)
-------------- --------------
Loss before income taxes (10,377) (7,385)
Income tax expense 150 150
-------------- --------------
Net loss $ (10,527) $ (7,535)
============== ==============
Loss per share:
Basic and diluted $ (0.46) $ (0.35)
============== ==============
Weighted average common shares outstanding:
Basic and diluted 23,110 21,500
============== ==============
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PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
JANUARY 31, OCTOBER 31,
2005 2004
----------------- -----------------
(UNAUDITED) (SEE NOTE)
ASSETS
Current assets:
Cash and cash equivalents $ 38,859 $ 29,235
Marketable securities 2,999 12,615
Accounts receivable, net 28,672 41,852
Prepaid expenses and other current assets 10,434 9,460
----------------- -----------------
Total current assets 80,964 93,162
Long-term marketable securities - 3,608
Equipment and leasehold improvements, net of accumulated
depreciation and amortization of $11,152 and $10,361, respectively 7,839 7,946
Product development costs, net of accumulated amortization of
$20,731 and $18,835, respectively 17,821 17,116
Goodwill 71,404 71,267
Identified intangible assets, net 37,232 39,432
Other assets 178 213
----------------- -----------------
Total assets $ 215,438 $ 232,744
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,999 $ 5,196
Accrued employee salaries and benefits 6,907 8,772
Accrued liabilities 6,793 6,383
Deferred revenue 40,732 43,042
----------------- -----------------
Total current liabilities 57,431 63,393
Long-term deferred revenue 5,927 8,533
Deferred income taxes 1,472 1,322
Other liabilities 26 46
----------------- -----------------
Total liabilities 64,856 73,294
----------------- -----------------
Stockholders' equity:
Common stock, $.01 par value, 50,000 shares authorized; 23,340 shares
issued and 23,320 outstanding at January 31, 2005; 23,095 shares
issued and 23,075 shares outstanding
at October 31, 2004 233 231
Additional paid in capital 164,354 162,956
Treasury stock at cost, 20 shares (205) (205)
Accumulated deficit (13,377) (2,850)
Accumulated other comprehensive loss (423) (682)
----------------- -----------------
Total stockholders' equity 150,582 159,450
----------------- -----------------
Total liabilities and stockholders' equity $ 215,438 $ 232,744
================= =================
Note: The balance sheet at October 31, 2004 has been derived from our
audited financial statements at that date.
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PLATO LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
--------------------------------
2005 2004
-------------- --------------
OPERATING ACTIVITIES:
Net loss $ (10,527) $ (7,535)
-------------- --------------
Adjustments to reconcile net loss to net cash used in operating activities:
Deferred income taxes 150 150
Amortization of capitalized product development costs 1,868 1,764
Amortization of identified intangible assets 2,243 1,780
Depreciation and amortization of equipment and
leasehold improvements 873 911
Restructuring and other charges 2,289 -
Provision for doubtful accounts 305 346
Loss on disposal of equipment 14 1
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 12,875 5,741
Prepaid expenses and other current and noncurrent assets (939) (1,296)
Accounts payable (2,197) (1,314)
Accrued liabilities, accrued employee salaries and
benefits and other liabilities (3,738) (3,586)
Deferred revenue (4,916) 1,786
-------------- --------------
Total adjustments 8,827 6,283
-------------- --------------
Net cash used in operating activities (1,700) (1,252)
-------------- --------------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired - 2,324
Capitalization of product development costs (2,876) (1,664)
Capital expenditures (748) (572)
Purchases of marketable securities (2,985) -
Sales and maturities of marketable securities 16,251 116
-------------- --------------
Net cash provided by investing activities 9,642 204
-------------- --------------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 1,400 1,311
Repayments of capital lease obligations (26) (60)
-------------- --------------
Net cash provided by financing activities 1,374 1,251
-------------- --------------
Effect of foreign currency on cash 308 159
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,624 362
Cash and cash equivalents at beginning of period 29,235 23,834
-------------- --------------
Cash and cash equivalents at end of period $ 38,859 $ 24,196
============== ==============
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PLATO LEARNING, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
- --------------------------------------------------------------------------------
REVENUES QUARTER ENDED JANUARY 31,
------------------------------------------------
($000's) 2005 2004 % CHANGE
------------ ----------------------------------- ------------------
As As Lightspan Pro As Pro
Reported Reported (1) Forma Reported Forma
------------ ----------------------------------- ------------------
License fees $ 11,095 $ 13,059 $ - $ 13,059 -15% -15%
Subscriptions 4,533 4,508 531 5,039 1% -10%
Services 8,196 6,337 438 6,775 29% 21%
Other 1,631 2,544 - 2,544 -36% -36%
------------ -----------------------------------
$ 25,455 $ 26,448 $ 969 $ 27,417 -4% -7%
============ ===================================
(1) Lightspan revenues prior to acquisition.
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES QUARTER ENDED QUARTER ENDED
($000'S) JANUARY 31, 2005 JANUARY 31, 2004
-------------------- ------------------------------------------------
As % of As Lightspan Pro % of Revenue % Change
---------------- ------------------
Reported Revenue Reported (1) Forma Reported Pro Forma ReportedPro Forma
---------- --------- ------------------------------- ------------------ ------------------
Sales and marketing $13,326 52% $15,185 $1,282 $16,467 57% 60% -12% -19%
General and administrative 4,210 17% 4,492 310 4,802 17% 18% -6% -12%
Product development 1,471 6% 2,203 327 2,530 8% 9% -33% -42%
Amortization of intangibles 1,092 4% 983 22 1,005 4% 4% 11% 9%
Restructuring and
other charges 2,289 9% - - -
---------- -------------------------------
$22,388 88% $22,863 $1,941 $24,804 86% 90% -2% -10%
========== ===============================
Total operating expenses $22,388 $22,863 $24,804
Restructuring and
other charges (2,289) - -
---------- ---------- ----------
Operating expenses
before restructuring
and other charges $20,099 79% $22,863 $24,804 86% 90% -12% -19%
========== ========== ==========
(1) Lightspan operating expenses prior to acquisition.
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS QUARTER ENDED
($000's) January 31,
-------------------------
2005 2004
------------ -----------
As Reported
Net loss $(10,527) $(7,535)
Add back restructuring and other charges 2,289 -
------------ -----------
Net loss before restructuring and other charges $(8,238) $(7,535)
============ ===========
Weighted average common shares outstanding - basic and diluted 23,110 21,500
============ ===========
Loss per share - basic and diluted $ (0.36) $ (0.35)
============ ===========
- -------------------------------------------------------------------------------------------------------------------------
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PLATO LEARNING, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
ORDER SIZE QUARTER ENDED JANUARY 31,
------------------------------------------------------------
($000's) 2005 2004 (1) % Change
----------------------------- ----------------------------- -----------------------------
Number Value Number Value Number Value
----------------------------- ----------------------------- -----------------------------
$100 to $249 18 $ 2,529 30 $ 4,309 -40% -41%
$250 or greater 11 4,924 14 9,118 -21% -46%
----------------------------- -----------------------------
29 $ 7,453 44 $ 13,427 -34% -44%
============================= =============================
(1) 2004 includes both PLATO Learning and Lightspan.
- -------------------------------------------------------------------------------------------------------------------
EBITDA (EXCLUDING RESTRUCTURING AND OTHER CHARGES)
($000'S)
TWELVE MONTHS ENDED
JANUARY 31, 2005
------------------------------------------------------------------------
As Reported Q2-2004 Q3-2004 Q4-2004 Q1-2005 TOTAL
------------------------------------------------------------------------
Net earnings (loss) $ (3,230) $ 6,724 $ 2,213 $ (10,527) $ (4,820)
Income taxes 150 150 1,580 150 2,030
Interest expense 37 28 22 15 102
Depreciation and amortization 4,623 4,388 4,481 4,984 18,476
Restructuring and other charges - - - 2,289 2,289
------------------------------------------------------------------------
$ 1,580 $ 11,290 $ 8,296 $ (3,089) $ 18,077
========================================================================
TWELVE MONTHS ENDED
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 and other charges - 422 - - 422
------------------------------------------------------------------------
$ (995) $ 5,123 $ 7,890 $ (2,895) $ 9,123
------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
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