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 FINANCIAL TARGETS FOR FISCAL 2006
PROVIDES UPDATE ON FISCAL 2005 TARGETS
ANNOUNCES SMARTCERTIFY SUBSIDIARY PLANNED SALE
ANNOUNCES NEW TELESALES DISTRIBUTION INITIATIVE
NASHUA, NH, MARCH 14, 2005 - SkillSoft PLC (NASDAQ: SKIL), a leading provider of
content resources and complementary technologies for integrated enterprise
learning, today provided an update on targets for the fiscal year ended January
31, 2005 (fiscal 2005) and for its fiscal 2005 fourth quarter and its outlook
for its fiscal year ending January 31, 2006 (fiscal 2006). The Company expects
that it will announce its actual fiscal 2005 fourth quarter and fiscal 2005
results later in March 2005. The Company is issuing this press release to allow
SkillSoft to discuss its update on fiscal 2005 financial targets and fiscal 2006
outlook in public speaking engagements that will take place prior to the
complete earnings release.
UPDATE ON FISCAL 2005 TARGETS
The following update on fiscal 2005 targets is subject to changes which may
result from the completion of the Company's fiscal 2005 audit and certain other
matters discussed herein, including the impact, if any, of the sale or shutdown
of the SmartCertify operation.
The Company expects fourth quarter revenue will be at the lower end of its
previously estimated range of $56.0 to $61.0 million. As a result, fiscal 2005
revenue is also expected to be at the lower end of the previously estimated
range of between $212.0 and $217.0 million.
The Company anticipates that fourth quarter net income, excluding the
restructuring costs associated with the reorganization of the content
development organization discussed in our third quarter earnings release and the
closure of our German direct sales office, will be at the lower end of the
previously estimated range of between $0.03 and $0.07 per basic and diluted
share. Accordingly, fiscal 2005 net income, excluding these costs, also is
expected to be at the lower end of the previously estimated range of $0.11 to
$0.15 per basic and diluted share.
SkillSoft anticipates reporting approximately $65 million in cash and
investments as of January 31, 2005.
On a net basis, which considers only receivable balances for which revenue has
been recorded, days sales outstanding (DSOs) are expected to be in the targeted
range for the fiscal 2005 fourth quarter at approximately 19 days. On a gross
basis, which considers all items billed as receivables, which includes deferred
revenue, DSOs are expected to be approximately 142 days in the fourth quarter of
fiscal 2005.
For each of the previous four quarters in fiscal 2005, the Company's average
annual contract length ranged from 18 to 24 months with an average of 19 months
in the fourth quarter. For each of these four quarters, the average annual
contract value ranged from $69,000 to $237,000 with an average of $135,000 in
the fourth quarter of fiscal 2005. SkillSoft's average contract value for the
fiscal 2005 fourth quarter was $214,000.
The Company's dollar weighted renewal rate declined to 48% for the fiscal year
ended January 31, 2005 compared to 65% for the fiscal year ended January 31,
2004. This decrease was due mainly to competitive pricing pressures. Customers
upgraded their annual dollar commitments to the Company by an average of 120%
for the fiscal year ended January 31, 2005 compared to 121% for the fiscal year
ended January 31, 2004. The combined dollar renewal rate for the fiscal year
ended January 31, 2005 was 91%. This new metric combines the dollar renewal rate
on expiring customers and the dollar upgrade rate on all existing customers
(committed and expiring) to provide a single metric that compares existing
customer contract dollars spent with SkillSoft year over year. This new combined
dollar renewal rate metric is what SkillSoft will report going forward on an
annual basis in place of the customer upgrade rate and expiring customer renewal
rate metrics previously reported.
"Fiscal 2005 was another challenging year, and I believe we met the challenges
we encountered effectively. We have strengthened SkillSoft's position as a
leader in the e-learning industry," commented Chuck Moran, President and Chief
Executive Officer. "SkillSoft has addressed pressures in its traditional product
markets by aggressively investing in new products which represent revenue growth
opportunities. We are also initiating a new distribution growth strategy to
complement our current direct sales model. With the help of a leading consulting
firm specializing in the creation and development of telesales operations, we
expect a new revenue generating sales capability focused on small to mid-size
companies to be operational by the third quarter of this year, fiscal 2006. We
continue to aggressively pursue new revenue opportunities that we believe will
further expand our market position in the future," commented Chuck Moran.
SMARTCERTIFY SUBSIDIARY PENDING SALE TRANSACTION
The Company has entered into a non-binding letter of intent with respect to the
sale of its retail IT certification business, SmartCertify. In the event the
transaction is not consummated as anticipated, the Company will shut down the
operation. As previously noted in our fiscal 2005 third quarter earnings
release, the SmartCertify IT Certification focused direct-to-consumer business
has contributed less revenue than expected. This planned action will allow us to
fully focus our attention and resources on our core enterprise business. The
Company engaged an investment banker to assist it in eliciting acquisition
proposals for this business and has progressed to discussions with a buyer to
the point where the Company expects to consummate a transaction in the fiscal
2006 first quarter. The Company is now working on finalizing sale terms with the
potential purchaser. If SmartCertify is sold, SkillSoft will maintain a reseller
arrangement with the new organization. If the Company were to shutdown the
operation, a plan to do so would be established. Such plan would outline a
timeline and schedule of costs associated with the shutdown. The Company would
not maintain a reseller arrangement under a shut down scenario. In either a
shutdown or a sale scenario, the Company will maintain the existing customer
contracts and service those contracts until the contractual obligation is
fulfilled. This decision process is expected to be finalized in the first
quarter of fiscal 2006. The current fiscal 2006 financial targets, detailed
below, assume SmartCertify's full operation for the fiscal 2006 first quarter
and a reseller arrangement for the remaining three quarters of fiscal 2006. The
accounting for this transaction is currently being reviewed, and any effect on
the fiscal 2005 or 2006 earnings outlook would be announced after the
finalization of the transaction. Whether SmartCertify is sold or shut down, the
Company anticipates recognizing revenue from the deferred revenue balance
related to direct-to-consumer business over the succeeding 18 to 24 months
following
the sale or shutdown. Substantially all of the sales, marketing and
administrative costs, on a going forward basis following a sale or shutdown,
will be eliminated.
FISCAL 2006 OUTLOOK
For fiscal 2006, the Company is currently anticipating revenue to be in the
range of $200.0 to $206.0 million. This revenue target assumes that the current
competitive pricing environment will continue and offset revenue growth from new
customers and new product initiatives and also assumes the impact of the sale of
the SmartCertify business.
The Company estimates that its 12-month non-cancelable revenue backlog at
January 31, 2005 was approximately $168 million, which represents approximately
83% of the midpoint of the Company's revenue expectations for fiscal 2006.
The Company currently anticipates that it will achieve adjusted net income for
fiscal 2006 of between $8.0 and $13.0 million, or $0.08 to $0.12 per basic and
diluted share.
Adjusted net income represents GAAP net income, with the exclusion of the
following items: (1) foreign exchange gains or losses; (2) expensing of stock
options beginning in the third quarter of fiscal 2006; (3) any settlement with
the Company's insurers related to the 2002 class action litigation settlement,
related litigation and SEC investigation; and (4) the other contingencies
described in the eighth paragraph of this FISCAL 2006 OUTLOOK section. The most
significant non-cash items included in projected adjusted net income are the
following: (1) amortization of intangible assets and deferred compensation of
approximately $10.0 million; and (2) a non-cash tax provision of approximately
$3.5 to $6.1 million. Also included in the adjusted net income forecast is a
charge of $600,000 related to a payment expected to be made to Greg Priest
triggered by a planned amendment to his employment agreement in connection with
a change in this role from Chief Strategy Officer to strategic advisor and a
reduction in his annual compensation commensurate with his changed role.
Adjusted net income is a non-GAAP financial measure within the meaning of
applicable SEC regulations. SkillSoft is presenting this measure (for both
fiscal 2006 and the first quarter of fiscal 2006) because it is currently unable
to estimate the amount of the items excluded from adjusted net income and it
believes that presenting this measure presents investors with meaningful
information about the Company's projected operating performance for fiscal 2006.
The Company anticipates that it will have 108 million to 112 million diluted
shares outstanding for earnings per share (EPS) calculation purposes.
The Company expects gross margin to be in the range of 88% to 90% of revenue for
fiscal 2006. Research and development expenses are expected to be in the range
of $36.0 to $38.0 million. Sales and marketing expenses are expected to be in
the range of $89.0 to $91.0 million, including the investment in the new
telesales distribution capability, which is being outsourced to a leading
consulting firm. General and administrative expenses are expected to be in the
range of $27.0 to $28.0 million. Amortization of intangible assets and deferred
compensation is expected to be approximately $10.0 million. Provision for income
taxes is expected to be in the range of $4.0 to $7.0 million, or approximately
28% to 34% of net income. Only $0.5 to $0.9 million of this amount is expected
to be represented by actual cash tax payments. The remainder of the provision
($3.5 to $6.1 million) is non-cash due to the utilization of net operating loss
carry forwards acquired in the merger. The non-cash portion of the provision for
income tax will reduce goodwill on the Company's balance sheet. Interest income
is expected to be in the range of $0.4 to $0.5 million. Additionally, capital
expenditures are expected to be in the range of $6.0 to $8.0 million, and
depreciation expense is expected to be in the range of $6.0 to $8.0 million.
For the first quarter of fiscal 2006 ending April 30, 2005, the Company
currently anticipates revenue to be in the range of $49.0 to $51.0 million. The
Company currently anticipates adjusted net income for the fiscal 2006 first
quarter to be between $0.0 and $1.0 million, or $0.00 to $0.01 per basic and
diluted share.
The Company's fiscal 2006 earnings outlook also excludes the potential negative
impact of the resolution of litigation matters and potential restructuring
charges, as well as the potential impact of any future acquisitions or
divestitures, including potential non-recurring acquisition related expenses and
the amortization of any purchased intangibles and deferred compensation charges
resulting from an acquisition transaction. The outlook also excludes the effect
of a public offering or other financing arrangements that could impact
outstanding shares and thereby the Company's EPS outlook.
CONFERENCE CALL
In conjunction with this release, management will conduct a conference call on
Monday, March 14, at 9am ET to discuss the Company's fiscal 2006 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
973-935-2408. 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 1:00 p.m. ET on March 14, until 11:59 p.m. ET on
March 21, 2005. The replay number is 973-341-3080, passcode: 5808332. 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, virtual
classroom technology and support services.
Content offerings include SkillSoft's business and IT skills courseware
collections; ITPro(TM), BusinessPro(TM), FinancePro(TM), EngineeringPro(TM),
OfficeEssentials(TM) and ExecSummaries(TM) Referenceware(R) collections by
Books24x7(R); and health and safety compliance courseware by GoTrain.
SkillSoft's complementary technologies include SkillPort(R), the Company's
learning management platform with its powerful Search-and-Learn capabilities,
and SkillSoft(R) Dialogue(TM), the Company's newly introduced virtual classroom
offering with associated tools for blended learning solutions. For more
information, visit http://www.skillsoft.com.
SkillSoft, the SkillSoft logo, Ahead of the Learning Curve, SkillPort,
Search-and-Learn, SkillChoice, Books24x7, Referenceware, ITPro, BusinessPro,
OfficeEssentials, EngineeringPro, ExecSummaries, ExecBlueprints, Express Guide
and SkillSoft Dialogue are trademarks or registered trademarks of SkillSoft PLC
in the United States and certain other countries.
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 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 October 31, 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 March 14, 2005. 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.###
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