Sumtotal (NASDAQ:SUMTE)
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SumTotal Systems(TM), Inc. (Nasdaq:SUMTE) and
Pathlore(R) Software Corporation, two leading enterprise software
companies in the learning and business performance management market,
today announced the signing of a definitive merger agreement for
SumTotal to acquire Pathlore for approximately $48 million. At the
closing of the acquisition, Pathlore shareholders will receive
approximately $29 million in cash and 4 million shares of SumTotal
Systems common stock. The merger reinforces SumTotal's position as the
largest software provider in the emerging learning and performance
management market and is expected to provide its collective customers
even greater resources for support and product innovation.
According to industry analysts, the acquisition brings together
the leaders in revenue and customer count. The combination is expected
to offer Pathlore customers access to SumTotal's broader enterprise
suite of product capabilities and expanded global support as well as
extend SumTotal's reach into key segments, including state government,
health care, and the rapidly growing middle-market. The Pathlore
customer base includes over 100 healthcare organizations, as well as
government agencies in 38 of the 50 United States. Key benefits of the
acquisition include:
-- Increased R&D capacity to bring new innovations to market more
rapidly and economically
-- Enhanced global and vertical market support and delivery
capabilities
-- Enhanced scale and stability with over $100 million in
expected annualized revenue
-- Increased investment capability with approximately $10 million
in expected annual cash flow
-- Expanded footprint with over 1,500 customers worldwide to
drive industry roadmap
"After surveying our industry's landscape, it became evident that
Pathlore has a tremendous amount of momentum in complementary
markets," said Andy Eckert, CEO of SumTotal. "We believe that its
growth, significant revenue base, and profitability profile could help
us reach a critical threshold of revenue scale and profitability for
our customers, partners and investors. With similar philosophies and
cultures, complementary technology and offerings, and an unmatched
footprint, we believe the combined company will be a true
enterprise-class player in our industry with the scale to drive
innovation and customer satisfaction in a profitable manner."
"We believe the combination of these two strong companies will
expand the scope of our operations and ensure that we will have the
capabilities and financial strength to successfully serve our
customers around the globe," said Steve Thomas, president and CEO of
Pathlore. "We believe strongly that this combination allows us to
bring our customers significant value in terms of new capabilities and
products. Given our large worldwide customer footprint, this
combination meaningfully raises the bar for learning and business
performance management providers."
"The combined company's number one priority will continue to be
customer care and success," said Eckert. "We will spend even more time
on applications development and customer support. Both Steve and I
believe that our integration plans and these increased investments
will help ensure our customers' success. We look forward to working
with a broad team that represents the best of what both companies
currently offer."
Terms of the Agreement and Financials
Under terms of the proposed transaction, Pathlore shareholders
will receive approximately $29 million in cash along with 4 million
shares of SumTotal common stock. The company will also incur
additional cash obligations due to deal-related and severance
expenses. The company plans to fund the cash element of the
transaction, in part, by establishing a new $22.5 million credit
facility. The proposed transaction has been approved by the SumTotal
and Pathlore Boards of Directors. Completion of the acquisition will
be subject to Pathlore stockholder approval, customary closing
conditions, and the issuance of a permit from the Commissioner of
Corporations for the State of California so that the issuance of the
company's stock will be exempt from registration under the Securities
Act of 1933. The proposed transaction is expected to close within 90
days.
For calendar year 2004, SumTotal Systems reported revenue of $55.2
million and Pathlore reported revenue of $23.9 million. For the first
half of calendar year 2005, SumTotal reported revenue of $32.6 million
and Pathlore reported revenues of $14.6 million. These numbers are all
on a GAAP basis. Once the acquisition is completed and SumTotal has
worked through the impact of the write down of the deferred revenue
balance acquired from Pathlore, the combined company is expected to
have revenues in excess of $100 million on an annualized basis.
Given expected expense synergies, SumTotal expects the transaction
to yield significant cost savings and increased cash flow. In 2004,
SumTotal generated $0.1 million of cash from operating activities and
Pathlore generated $1.5 million in cash from operating activities.
With expense synergies expected to be approximately $8 million to $10
million on an annualized basis, the combined company therefore expects
to generate cash flow from operating activities of at least $10
million on an annualized basis.
SumTotal will continue to be led by Andrew Eckert as CEO and Kevin
Oakes as president. Steve Thomas, president and CEO of Pathlore, will
join the SumTotal board of directors and remain actively involved with
the combined company.
ThinkEquity Partners LLC acted as financial adviser to SumTotal.
Conference Call & Live Webcast
SumTotal Systems will host an investor conference call and webcast
to discuss the financial results of the second quarter ended June 30,
2005, and this acquisition. The conference call and webcast will take
place on Wednesday, August 3, 2005, at 2:00 p.m. (Pacific Time)/5:00
p.m. (Eastern Time).
A live audio webcast will be available to investors and the public
from SumTotal's website at www.sumtotalsystems.com/company/investors.
In addition to the webcast, a telephone replay will be available on
Wednesday, August 3, 2005, beginning at approximately 5:00 p.m.
(Pacific) through the close of business on Wednesday, August 10. The
replay can be accessed by dialing the U.S. toll-free number:
1-800-207-7077, access code: 4153. The international dial-in number is
+1-913-383-5767, access code: 4153.
You are cautioned that the time and/or manner of the webcast may
change for technical and or administrative reasons outside of SumTotal
Systems' control.
About SumTotal Systems, Inc.
SumTotal Systems Inc. (Nasdaq:SUMTE) is the largest provider of
learning and business performance technologies and services. SumTotal
deploys mission-critical solutions that align learning with
organizational and business goals to generate significant bottom-line
results. With more than 12 million users worldwide, SumTotal has
helped accelerate performance and profit for nearly 700 of the world's
best-known companies and government agencies, including US Army, Air
Force, Navy and Coast Guard, Microsoft, United Airlines, Vodafone,
Aetna, Accenture, Cendant, Harley-Davidson, Wyeth, Wachovia and D&B.
SumTotal has offices throughout the US, in London, Paris, Heidelberg,
Sydney, Tokyo and Hyderabad, India. For more information about
SumTotal's products and services, visit www.sumtotalsystems.com.
About Pathlore Software Corporation
Pathlore Software Corporation provides the most widely adopted
learning management solution in the world. Millions of users and over
1,000 organizations rely on Pathlore's learning-management offerings
to drive business performance. Whether your company's success depends
on developing and retaining employees, getting sales channels up to
speed quickly on new products, increasing quality and customer
satisfaction, or reducing the costs associated with regulatory
compliance, Pathlore learning management solutions ensure that you
achieve the maximum return on your investment in people. Pathlore
clients include DaimlerChrysler, Delta Air Lines, Novartis, PNC Bank,
U.S. Bancorp, four of America's top 10 hospitals (as ranked by U.S.
News & World Report in 2004) and government agencies on three
continents. For more information, go to www.pathlore.com
Pathlore is a registered trademark of Pathlore Software
Corporation. All other registered and unregistered trademarks and
trade names are the property of their respective owners.
SAFE HARBOR STATEMENT/FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements that
involve risks and uncertainties. These forward-looking statements
include statements regarding the expected financial performance of
SumTotal Systems following the consummation of the acquisition,
SumTotal's ability to achieve the expected expense synergies as a
result of the acquisition, including without limitation, projected
revenue, profitability and cash flow, the strengthening of SumTotal's
position in the learning performance and business management market as
a result of the acquisition, and the expected timing for closing the
acquisition in the third quarter of 2005. Such statements are just
predictions and involve risks and uncertainties such that actual
results and performance may differ materially. Factors that might
cause such a difference include the failure to (1) receive approval
from Pathlore shareholders for the acquisition, (2) timely achieve the
projected synergies so that the financial projections will be met, (3)
be issued a permit from the Commissioner of Corporations for the State
of California so that the issuance of SumTotal Systems common stock in
the Merger will be exempt from registration under the Securities Act
of 1933, (4) successfully integrate Pathlore and its employees into
SumTotal and achieve expected synergies, (5) accurately forecast the
acquisition related restructuring costs and allocation of the purchase
price to in process research and development, goodwill and other
intangibles acquisition related inventory and other asset adjustments,
(6) retain legacy Pathlore customers, (7) compete successfully in this
highly competitive and rapidly changing marketplace, and (8) retain
key employees. In addition, there is no assurance that SumTotal will
be able to consummate a credit facility on favorable terms, or at all.
These and other risks are detailed from time to time in SumTotal's
periodic reports that are filed with the Securities and Exchange
Commission, including SumTotal's annual report on Form 10-K for the
fiscal year ended December 31, 2004 and its quarterly report on Form
10-Q for the fiscal quarter ended March 31, 2005. SumTotal Systems
assumes no obligation to update the information in this press release
or in the accompanying conference call.
Additional Information And Where To Find It
SumTotal Systems, Inc. filed a Form 8-K on August 3, 2005.
Investors and security holders are urged to read this filing.
Investors and security holders may obtain free copies of this document
and other documents filed with the Securities and Exchange Commission
at the Securities and Exchange Commission's web site at www.sec.gov.
In addition, investors and security holders may obtain free copies of
the documents filed with the Securities and Exchange Commission by
SumTotal by contacting SumTotal Investor Relations at (650) 934-9525.