EXHIBIT 99.1
FOR: SKILLSOFT PLC
COMPANY CONTACT:
Tom McDonald
Chief Financial Officer
(603) 324-3000, x4232
INVESTOR CONTACTS:
Michael Polyviou/Kirin Smith
Financial Dynamics
(212) 850-5748
SKILLSOFT REPORTS SECOND QUARTER FISCAL 2005 RESULTS;
SECOND QUARTER REVENUE OF $50.6 MILLION;
ACQUIRES VIRTUAL CLASSROOM SOFTWARE
NASHUA, NH, SEPTEMBER 1, 2004 - SkillSoft PLC (NASDAQ: SKIL), a leading provider
of enterprise e-learning courseware and Referenceware(R) for business and IT
professionals, today announced financial results for its fiscal second quarter
ended July 31, 2004.
SECOND QUARTER RESULTS
The Company reported total revenue of $50.6 million for the quarter ended July
31, 2004, the second quarter of the fiscal year ending January 31, 2005 (fiscal
2005), which represented a 12% increase over the $45.1 million reported in the
fiscal 2004 second quarter. Gross margin was 90% for its fiscal 2005 second
quarter compared to 91% for its fiscal 2004 second quarter.
The Company reported net income of $1.4 million, or $0.01 per basic and diluted
share, for its fiscal 2005 second quarter. Fiscal 2005 second quarter net income
includes a charge of $2.3 million, or $0.02 per basic and diluted share, for
purchased technology and related costs in connection with the Company's
acquisition of virtual classroom software (as discussed further below) and
restructuring and other non-recurring expenses of $1.1 million, or $0.01 per
basic and diluted share. Fiscal 2005 second quarter net income was also impacted
by the Company's revision of its projected tax rate for the year. The Company
now expects to record a tax provision for fiscal 2005 in a range of 4.5% to 6.0%
compared to its previously estimated tax provision range of 28.0% to 32.0%. This
change in effective tax rate is based primarily upon the Company's ability to
realize the full benefit of certain tax deductions related to that portion of
the NETg settlement paid in fiscal 2005. The effective tax rate change resulted
in a tax benefit in the fiscal 2005 second quarter of $1.1 million, or $0.01 per
basic and diluted share.
SkillSoft reported a net loss of $53.2 million, or $0.53 per basic and diluted
share, for the fiscal 2004 second quarter, which included $44.0 million, or
$0.44 per basic and diluted share, for the settlement of its NETg litigation and
restructuring and other non-recurring expenses of $5.0 million, or $0.05 per
basic and diluted share, primarily for costs incurred due to the restatement of
the historical SmartForce PLC financial statements.
"We are pleased that our second quarter results are in line with the revenue and
EPS ranges we discussed at the end of the first quarter. Nevertheless, we
continue to devote significant effort to growing our sales going forward in a
challenging market for IT spending" said Chuck Moran, President and Chief
Executive Officer. "One strategy for sales growth that we are pursuing is the
investment in
new products that will create new business opportunities for the Company. As
part of this strategy, we are very excited about the virtual classroom blended
learning solution that we plan to introduce in the fourth quarter of fiscal
2005. We view this new product offering, which is based on technology we
acquired in the second quarter, as a sales growth opportunity that fits our
financial model of high gross margins, can be sold through our existing sales
channels, provides us with a competitive differentiator and continues to
increase SkillSoft's offerings that address our customers' blended learning
solution requirements," commented Moran.
The Company's gross margin was 90% for the fiscal 2005 second quarter compared
to 91% in the fiscal 2004 second quarter. The slight decrease is mainly due to a
higher mix of royalty bearing revenue in the fiscal 2005 second quarter.
Research and development expenses decreased to $10.3 million in the fiscal 2005
second quarter compared to $12.7 million in the fiscal 2004 second quarter due
to the completion of merger-related research and development and incremental
research and development regarding the Company's initiative for content and
platform improvements. Sales and marketing expenses decreased to $22.7 million
in the fiscal 2005 second quarter from $23.2 million in the fiscal 2004 second
quarter. This decrease was primarily due to a decrease in marketing expense in
the fiscal 2005 second quarter. General and administrative expenses decreased to
$6.2 million in the fiscal 2005 second quarter compared to $6.4 million in the
fiscal 2004 second quarter mainly due to lower legal expense. Amortization of
intangible assets and deferred compensation in the fiscal 2005 second quarter
was $2.7 million, or $0.03 per basic and $0.02 per diluted share, compared to
$3.0 million, or $0.03 per basic and diluted share, in the fiscal 2004 second
quarter. Restructuring and other non-recurring charges decreased to $1.1 million
in the fiscal 2005 second quarter as compared to $5.0 million in the fiscal 2004
second quarter. This expense decreased primarily due to the completion of the
restatement of the SmartForce PLC historical financial statements in the fiscal
year ended January 31, 2004. The restructuring and non-recurring expense
reflected in the fiscal 2005 second quarter relates primarily to the ongoing SEC
investigation, the re-filing of statutory tax returns as a result of the
restatement of the SmartForce PLC historical financial statements, and costs
associated with international restructuring activities.
SkillSoft had approximately $87.2 million in cash, cash equivalents, short-term
investments and restricted cash as of July 31, 2004 compared to $106.5 million
as of April 30, 2004. The decrease in cash is primarily due to the Company
making the final payment of $22.0 million in connection with the NETg litigation
settlement and the final payment of $6.0 million in connection with the 1998
securities class action settlement. At the end of July 2004, the court granted a
preliminary approval order relating to the 2002 securities class action
settlement. As a result, we made the first half of the 2002 securities class
action settlement payment, or $15.25 million, in August 2004, which reduced our
cash, cash equivalents and short-term investments from the July 31, 2004
balance.
In order to adequately assess the Company's collection efforts, taking into
account the seasonality of the Company's business, the Company believes that it
is most useful to compare current period days sales outstanding (DSOs) to the
prior year period. Given the quarterly seasonality of bookings, the deferral
from revenue of subscription billings may increase or decrease the DSOs on
sequential quarterly comparisons.
SkillSoft's DSOs were in the targeted range for the fiscal 2005 second quarter.
On a net basis, which considers only receivable balances for which revenue has
been recorded, DSOs were 9 days in the fiscal 2005 second quarter as compared to
14 days in the year ago period and 12 days in the first quarter of fiscal 2005.
On a gross basis, which considers all items billed as receivables, DSOs were 77
days in the fiscal 2005 second quarter compared to 106 days in the year ago
quarter and 76 days in the fiscal 2005 first quarter.
SkillSoft had deferred revenue of approximately $113.0 million as of July 31,
2004, which reflects a decrease of $5.3 million compared to the approximately
$118.3 million as of April 30, 2004. This decrease is mainly the result of a
higher proportion of quarterly billing contracts as compared to annual
billing contracts signed in the fiscal 2005 second quarter, as quarterly billing
contracts yield less deferred revenue than annual billing contracts in the
quarter in which they are signed.
FISCAL 2005 OUTLOOK
The Company's targeted revenue range of $221 million to $225 million and
targeted net income range of $21.0 million to $24.0 million, or $0.20 to $0.22
per basic and diluted share, for the fiscal year ending January 31, 2005 (fiscal
2005) remains unchanged. Although the Company's earnings outlook for fiscal 2005
remains unchanged, it has been impacted by two separate events. First, the
annual earnings outlook has been impacted by $6.5 million of incurred and
projected additional expenses in fiscal 2005 associated with the virtual
classroom product offering. These expenses include:
- $2.3 million for purchased technology and related development
expense in the second quarter ended July 31, 2004;
- $1.4 million of incremental research and development expense
anticipated to be paid to an outside party for the modification of
the purchased technology that is expected to occur in the third
quarter ending October 31, 2004;
- $0.8 million regarding the final payment for the purchased
technology anticipated in the fourth quarter ending January 31,
2005; and
- $2.0 million of incremental hosting, software amortization and sales
and marketing expenses over the final two quarters of fiscal 2005 to
support the launch of the virtual classroom offering.
Second, these costs are expected to be offset by a reduction in the Company's
provision for income tax as a result of the tax treatment applied to the NETg
settlement. Although that settlement was reflected in the fiscal 2004 results of
operations for accounting purposes, due to the timing of the cash payments to
NETg, $22.0 million of the settlement amount will be included as a deduction in
the calculation of the fiscal 2005 provision for income tax. After giving effect
to both the additional expenses associated with the virtual classroom software
acquisition and the tax benefit described above, the Company's targeted
Generally Accepted Accounting Principles (GAAP) net income for fiscal 2005
remains unchanged, at between $21.0 million and $24.0 million, or $0.20 to $0.22
per basic and diluted share.
The Company's quarterly revenue targets for the fiscal 2005 third and fourth
quarters as set forth in its press release issued on June 3, 2004 remain
unchanged at $52.0 to $56.0 million and $64.0 to $67.0 million, respectively.
The Company's quarterly earnings targets for the fiscal 2005 third and fourth
quarters as set forth in its press release issued on June 3, 2004 remain
unchanged at $0.04 to $0.055 and $0.105 to $0.125, respectively, per basic and
diluted share.
The Company now anticipates that annual capital expenditures will be in the
range of $9.0 million to $10.0 million as compared to the previous range of $7.5
million to $8.5 million. This increase is due to additional capital expenditures
expected to be made to introduce SkillSoft's virtual classroom product offering
later in this fiscal year. The Company expects its cash position to be
approximately $62.0 to $70.0 million as of January 31, 2005 taking into
consideration the additional cash needed for the purchased virtual classroom
technology, related operating expense and related incremental capital
expenditures.
The Company is assessing the impact of the recent SEC action against a former
SmartForce executive to determine the expenses to SkillSoft that are expected to
result under its director and officer indemnification arrangements. The earnings
outlook described above includes $500,000 per quarter to cover all SkillSoft
expenses associated with the SEC investigation and the re-filing of tax returns
relating to the restatement of the SmartForce historical financial statements.
The earnings outlook described above would have to be revised if these expenses
are higher.
The Company's outlook excludes the impact of potential restructuring charges, as
well as the potential impact of any future acquisitions or divestitures,
including potential non-recurring acquisition related expenses. The outlook also
excludes the effect of financing arrangements and Company stock buyback
transactions that could impact outstanding shares and thereby the Company's EPS
outlook.
CONFERENCE CALL
In conjunction with the release, management will conduct a conference call on
Wednesday, September 1, 2004 at 5:00 p.m. ET to discuss the Company's fiscal
2005 second quarter and fiscal 2005 outlook. Chuck Moran, President and Chief
Executive Officer, and Tom McDonald, Chief Financial Officer, will host the
call.
To participate in the conference call, local and international callers can dial
(973) 935-8511. The live conference call will be available via the Internet by
accessing the SkillSoft Web site at www.skillsoft.com. Please go to the Web site
at least fifteen minutes prior to the call to register, download and install any
necessary audio software.
A replay will be available from 8:00 p.m. ET on September 1, 2004 until 11:59
p.m. ET on September 8, 2004. The replay number is (973) 341-3080, passcode:
5114280. A webcast replay will also be available on SkillSoft's Web site at
www.skillsoft.com.
ABOUT SKILLSOFT
SkillSoft is a leading provider of comprehensive e-learning content and
technology products for business and IT professionals within the Global 2000.
SkillSoft's multi-modal learning solutions support and enhance the speed and
effectiveness of both formal and informal learning processes and integrate
SkillSoft's in-depth content resources, learning management platform and virtual
classroom technology and support services.
Content offerings include SkillSoft's Business Skills Library and IT Skills and
Certification Library; ITPro, BusinessPro, FinancePro, EngineeringPro,
OfficeEssentials, and ExecSummaries Referenceware(TM) collections by Books24x7;
and health and safety compliance courseware by GoTrain. Skillsoft's
complementary technologies include SkillPort, the Company's learning management
platform with its powerful Search-and-Learn capabilities, and SkillSoft
Dialogue, the Company's newly introduced virtual classroom offering with
associated tools for blended learning solutions. For more information, visit
www.skillsoft.com.
This release includes information that constitutes forward-looking statements
made pursuant to the safe harbor provision of the Private Securities Litigation
Reform Act of 1995. Any such forward-looking statements involve risk and
uncertainties that could cause actual results to differ materially from those
indicated by such forward-looking statements. Factors that could cause or
contribute to such differences include difficulties in integrating the
organizations of SmartForce and SkillSoft, competitive pressures, changes in
customer demands or industry standards, adverse economic conditions, loss of key
personnel, litigation and other risk factors disclosed under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Future Operating Results" in SkillSoft's Quarterly Report on Form
10-Q for the quarter ended April 30, 2004, as filed with the Securities and
Exchange Commission. The forward-looking statements provided by the Company in
this press release represent the Company's views as of September 1, 2004. The
Company anticipates that subsequent events and developments may cause the
Company's views to change. However, while the Company may elect to update these
forward-looking statements at some point in the future, the Company specifically
disclaims any obligation to do so. These forward-looking statements should not
be relied upon as representing the Company's views as of any date subsequent to
the date of this release.
SKILLSOFT PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------ ------------- ------------
Revenues $ 50,625 $ 45,109 $ 103,442 $ 88,722
Cost of revenues 5,257 4,180 10,335 9,677
------------- ------------ ------------- ------------
Gross profit 45,368 40,929 93,107 79,045
Operating expenses:
Research and development 10,347 12,650 19,791 25,432
Selling and marketing 22,664 23,227 47,026 46,574
General and administrative 6,182 6,401 12,236 13,085
Legal settlements -- 44,000 -- 46,250
Amortization of stock-based compensation 300 471 648 961
Amortization of intangible assets 2,390 2,518 4,812 4,924
Restructuring and other non-recurring items 1,090 4,986 1,675 11,538
Purchased technology and related expenses 2,292 -- 2,292 --
------------- ------------ ------------- ------------
Total operating expenses 45,265 94,253 88,480 148,764
Other income / (expense), net (32) 17 (211) 21
Interest income, net 241 231 364 594
Gain on sale of investments, net -- -- -- 3,682
------------- ------------ ------------- ------------
Income / (loss) before provision for income taxes 312 (53,076) 4,780 (65,422)
Provision for income taxes - cash (79) 150 62 379
Provision for income taxes - non-cash (966) -- 158 --
------------- ------------ ------------- ------------
Net income / (loss) $ 1,357 $ (53,226) $ 4,560 $ (65,801)
============= ============ ============= ============
Net income / (loss), per share, basic $ 0.01 $ (0.53) $ 0.04 $ (0.66)
============= ============ ============= ============
Basic weighted average common shares outstanding 105,421,510 99,615,128 104,304,852 99,609,891
============= ============ ============= ============
Net income / (loss), per share, diluted $ 0.01 $ (0.53) $ 0.04 $ (0.66)
============= ============ ============= ============
Diluted weighted average common shares outstanding 110,555,106 99,615,128 110,647,070 99,609,891
============= ============ ============= ============
SKILLSOFT PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
JULY 31, 2004 JANUARY 31, 2004
------------- ----------------
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and short term investments $ 86,843 $ 61,340
Restricted cash 400 25,044
Accounts receivable, net 42,202 72,775
Prepaid expenses and other current assets 16,947 24,759
-------- --------
Total current assets 146,392 183,918
Property and equipment, net 8,532 6,447
Goodwill 125,570 125,878
Acquired intangible assets, net 20,934 25,745
Long term investments 209 266
Other assets 71 124
-------- --------
Total assets $301,708 $342,378
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,220 $ 6,588
Accrued expenses 52,069 92,117
Deferred revenue 112,972 134,328
-------- --------
Total current liabilities 170,261 233,033
Total long term liabilities 21,678 23,587
Total stockholders' equity 109,769 85,758
-------- --------
Total liabilities and shareholders' equity $301,708 $342,378
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