Plato Learning (MM) (NASDAQ:TUTR)
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PLATO Learning, Inc. (NASDAQ:TUTR), a leading provider of K–adult
computer-based and e-learning solutions, today announced orders for its
fourth quarter ended October 31, 2006, totaling $25.7 million, compared
to $33.1 million for the same period in 2005, a decline of 22%. Orders
for subscription courseware products, which are the foundation of the
Company’s new product strategy, grew by over
160% for the quarter and nearly 200% for the year from comparable
periods in 2005. The decline in total orders and continued shift in
order mix from perpetual to subscription license products resulted in a
29% decrease in revenues for fourth quarter 2006 to $23.8 million, from
the $33.7 million reported for fourth quarter 2005.
Mike Morache, PLATO Learning President and CEO, said, “Further
review confirmed our previously disclosed conclusions about the factors
that contributed to a decline in fourth quarter orders. These factors
included a higher rate of decline of perpetual license orders than
expected; the timing of some new products and features; a relatively new
sales organization that did not have the experience working with
customers to close year-end opportunities; and a longer ramp-up required
for sales of our new classroom supplemental solution, Straight CurveTM
Mathematics. These planning and execution gaps have been corrected.”
“We did continue to make significant progress
selling subscription courseware solutions as evidenced by the growth of
over 160% for the quarter and nearly 200% for the year over 2005 for
these products. There is no significant market resistance to
subscription delivery of web-based instructional solutions. Our new
infrastructure for delivering web-based instruction over the Internet,
the PLATO Learning Environment™, is fully
operational and has achieved 100% up-time since it was released at the
end of July. Another favorable achievement was in post-secondary orders,
which were up 11% for the year over 2005. Significant new products for
this market will be released in 2007, which is expected to drive more
growth from post-secondary institutions.”
Cash and marketable securities remained strong at $33.1 million,
compared to $31.7 million at the end of third quarter 2006 and $47.1
million at October 31, 2005. The decline from year-end 2005 was affected
by an $8.9 million increase in purchased and capitalized product
development in 2006 over 2005, driven by the Company’s
aggressive product development strategy. Deferred revenue at October 31,
2006, of $41.8 million grew 7.0% from July 31, 2006 and 3.5% from
October 31, 2005, as the order mix continued to shift toward
subscription products.
Reported net loss for the fourth quarter 2006, including charges of $9.8
million, was $(11.6) million, or $(0.49) per share, compared to a net
loss of $(13.9) million, or $(0.59) per share, for the same period of
2005, including charges of $16.1 million. Net loss for fourth quarter
2006 was $(1.8) million, or $(0.07) per share, as compared to net
earnings of $2.2 million, or $0.09 per share, for the same period of
2005, excluding restructuring, impairment, and other charges in both
periods (a non-GAAP measure).
Cost reductions partially offset the effect of lower revenues in the
quarter. Adjusted EBITDA (Earnings before interest, taxes, depreciation
and amortization, excluding restructuring, impairment, and other
charges, a non-GAAP measure) were $2.7 million for the quarter, compared
to $6.6 million for the same period in 2005.
Reported gross margin was 52.9% for the fourth quarter 2006 versus 23.1%
in the fourth quarter of 2005. The gross margins include $1.1 million
and $13.2 million, respectively, of asset impairment charges of certain
capitalized product development and purchased technology assets, due to
changes in the Company’s product strategy
resulting in lower expected future revenues. Gross margin was 57.5% for
the fourth quarter versus 62.3% in the fourth quarter of 2005, excluding
impairment charges in both periods (a non-GAAP measure). The decline was
primarily driven by lower license fee and service revenues, which was
partially offset by lower service costs and higher subscription gross
profit, as a result of lower royalty costs.
Operating expenses declined 16% for the quarter from 2005, excluding
restructuring, impairment and other charges in both periods. The
decrease primarily resulted from reduced variable costs associated with
reduced revenue, cost reduction actions initiated throughout 2006, and
lower bad debt expense. Restructuring, impairment and other charges of
$8.7 million were incurred in the quarter, including $5.9 million of
impairment costs related to acquired intangible non-technology assets,
as a result of a reduction in anticipated future revenues from those
assets; $1.6 million for vacated facilities in the U.K., and $1.2
million for severance related costs from anticipated workforce
reductions.
Revenues for the year ended October 31, 2006, were $90.7 million, a 26%
decrease from 2005. Net loss for the year was $(22.5) million, or
$(0.95) per share, compared to a net loss of $(27.7) million, or $(1.18)
per share in 2005. Net loss, excluding restructuring, impairment and
other charges (a non-GAAP measure), was $(12.3) million, or $(0.52) per
share for fiscal year 2006, compared to a net loss of $(8.5) million, or
$(0.36) per share in 2005.
“2006 was a transition year for the Company,
and the effects of the transitions were greater than we had anticipated.
We are making progress on many fronts, including introduction of
innovative new products from a development team that is second to none
in the industry, improvement in the quality and maturity of the sales
organization, greatly improved business processes that will facilitate
growth in the future, and accelerated migration toward a
subscription-based business that will lower our business costs and
provide market-leading product quality at affordable prices to our
customers. We have also dramatically reduced our costs and lowered our
net earnings break-even point to less than $100 million of revenue,”
said Morache.
“These changes set the stage for strong order
growth in 2007 and attractive financial returns in the long term. The
order growth will generate deferred revenue increases, our key indicator
of future financial performance. Revenue and net earnings will continue
to lag in performance until the transition from perpetual license to
subscription products is completed, which is expected to occur during
fiscal year 2008,” said Morache.
Fiscal year 2007 financial guidance:
The Company expects total order growth in 2007 of 10% to 15% over 2006,
as a result of increased sales productivity and availability of new
products. This growth will occur in the last three quarters of the year.
Revenue is expected to decline by 6% to 11% due to the continued
transition from perpetual to subscription license orders, which results
in revenue being deferred and recognized over the subscription period
rather than up-front upon shipment. As a result of the order growth and
transition to subscription products, deferred revenue is expected to
increase up to 50% by the end of 2007 over the end of 2006.
The total gross profit percentage should be similar to that achieved in
2006, excluding impairment charges. The Company has taken further
actions to reduce its operating costs to partially offset the effect of
lower revenues, and amortization expense will be lower, due to 2006
impairment charges; therefore, operating expenses are expected to
decline by 10% to 12% from 2006, excluding restructuring, impairment and
other charges. As a result, the net loss for 2007 is expected to improve
by 15% to 30% from the net loss in 2006, excluding restructuring,
impairment and other charges, even though revenue will decline. The
Company expects to achieve profitability in 2008, when the transition
from perpetual to subscription license products is largely completed.
Cash and marketable securities at October 31, 2007, are expected to be
similar to the balance at the end of 2006, as the Company expects to
continue to heavily invest in new product development, increasing its
spending on capitalized product development projects in 2007 from 2006.
These expected financial results are highly dependent on the actual
amount of orders received, as well as the mix and timing of those orders.
Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release exclude the
impact of restructuring, impairment and other charges from our operating
results, as well as present Adjusted EBITDA. 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. We view these non-GAAP
financial measures to be helpful in assessing the Company’s
ongoing operating results. In addition, these non-GAAP financial
measures facilitate our internal comparisons to historical operating
results and comparisons to competitors' operating results. We include
these non-GAAP financial measures in our earnings announcement because
we believe they are useful to investors in allowing for greater
transparency related to supplemental information we use in our 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.
Conference Call
A conference call to discuss this announcement is scheduled for today,
December 12, 2006, at 3:45 p.m. CST (Central Standard Time). The dial-in
number for this call is 1-888-428-4480 in the U.S. and Canada, and
1-612-332-0226 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 8:15 p.m. CST on December 12, 2006, until midnight on December 19,
2006. 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 824940.
Additionally, investors have the opportunity to listen to the conference
call over the Internet through PLATO Learning’s
web site at http://www.plato.com/aboutus/investor_calls.asp.
About PLATO Learning
PLATO Learning 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.
PLATO Learning is a publicly held company traded as TUTR on the NASDAQ.
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 North America and Puerto Rico, as well as
international distributors in the United Kingdom and South Africa. 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, 2005. Actual results may differ materially from anticipated
results.
PLATO® is a registered trademark of PLATO
Learning, Inc. PLATO Learning and Straight Curve are trademarks of PLATO
Learning, Inc. PLATO Inc. is a PLATO Learning, Inc., company.
PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share amounts)
Three Months Ended
Year Ended
October 31,
October 31,
2006
2005
2006
2005
REVENUES:
License fees
$ 9,664
$ 16,622
$ 37,322
$ 62,527
Subscriptions
5,393
4,547
18,176
17,997
Services
8,745
12,512
35,221
41,280
Total revenues
23,802
33,681
90,719
121,804
COST OF REVENUES:
License fees
3,499
4,175
13,204
17,680
Subscriptions
2,564
3,341
9,000
9,576
Services
4,054
5,190
17,490
24,358
Impairment charges
1,089
13,194
1,089
13,194
Total cost of revenues
11,206
25,900
40,783
64,808
Gross profit
12,596
7,781
49,936
56,996
OPERATING EXPENSES:
Sales and marketing
9,749
11,740
38,598
49,996
General and administrative
3,593
4,227
16,619
18,420
Product maintenance and development
1,522
1,726
5,496
5,646
Amortization of intangibles
905
1,075
3,711
4,322
Restructuring, impairment and other charges
8,733
2,904
9,093
6,025
Total operating expenses
24,502
21,672
73,517
84,409
Operating loss
(11,906)
(13,891)
(23,581)
(27,413)
OTHER INCOME (EXPENSE):
Interest income
435
395
1,684
1,026
Interest expense
(2)
(1)
(34)
(90)
Other, net
30
12
51
(350)
LOSS BEFORE INCOME TAXES
(11,443)
(13,485)
(21,880)
(26,827)
Income tax expense
150
410
600
860
NET LOSS
$ (11,593)
$ (13,895)
$ (22,480)
$ (27,687)
LOSS PER SHARE:
Basic and diluted
$ (0.49)
$ (0.59)
$ (0.95)
$ (1.18)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted
23,714
23,550
23,679
23,381
Note: Amounts previously reported in 2005 as other revenues and
other cost of revenues were reclassified to license fees and
services to conform to the 2006 classification. The
reclassifications had no effect on previously reported 2005 total
revenues, total cost of revenues, or gross profit.
PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except per share amounts)
October 31,
October 31,
2006
2005
ASSETS
Current assets:
Cash and cash equivalents
$ 33,094
$ 46,901
Marketable securities
-
213
Accounts receivable, net
18,529
22,768
Inventories
1,832
4,026
Other current assets
6,346
6,351
Total current assets
59,801
80,259
Equipment and leasehold improvements, net
6,308
5,711
Product development costs, net
25,363
14,753
Goodwill
71,865
71,865
Identified intangible assets, net
10,545
22,505
Other long-term assets
2,348
2,235
Total assets
$ 176,230
$ 197,328
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$ 4,685
$ 2,938
Accrued compensation
5,990
7,772
Accrued liabilities
6,622
8,933
Deferred revenue
33,736
35,218
Total current liabilities
51,033
54,861
Long-term deferred revenue
8,110
5,213
Deferred income taxes
2,531
1,931
Other long-term liabilities
106
496
Total liabilities
61,780
62,501
Stockholders' equity:
Common stock
237
236
Additional paid-in capital
168,597
166,295
Treasury stock at cost
(205)
(205)
Accumulated deficit
(53,017)
(30,537)
Accumulated other comprehensive loss
(1,162)
(962)
Total stockholders' equity
114,450
134,827
Total liabilities and stockholders' equity
$ 176,230
$ 197,328
PLATO Learning, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Year Ended
October 31,
2006
2005
OPERATING ACTIVITIES:
Net loss
$ (22,480)
$ (27,687)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Deferred income taxes
600
628
Impairment charges
7,044
13,194
Amortization of capitalized product development costs
7,706
7,272
Amortization of identified intangible and other long-term assets
5,249
8,352
Depreciation and amortization of equipment and leasehold improvements
2,408
3,393
Provision for doubtful accounts
(380)
1,245
Stock-based compensation
1,650
39
Gain on sale of marketable securities
(37)
-
Loss on disposal of equipment
166
289
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable
4,619
17,839
Inventories
2,194
(1,343)
Other current and long-term assets
(441)
(1,846)
Accounts payable
1,748
(2,258)
Other current and long-term liabilities
(4,480)
1,863
Deferred revenue
1,415
(11,144)
Total adjustments
29,461
37,523
Net cash provided by operating activities
6,981
9,836
INVESTING ACTIVITIES:
Capitalized internal product development costs
(15,316)
(9,440)
Purchased product development
(3,000)
-
Purchases of equipment and leasehold improvements
(3,172)
(1,400)
Purchases of marketable securities
(11,750)
(9,474)
Sales of marketable securities
229
4,559
Maturities of marketable securities
11,750
21,000
Net cash (used in) provided by investing activities
(21,259)
5,245
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock
741
2,764
Repayments of capital lease obligations
(90)
(225)
Net cash provided by financing activities
651
2,539
EFFECT OF CURRENCY EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS
(180)
46
Net (decrease) increase in cash and cash equivalents
(13,807)
17,666
Cash and cash equivalents at beginning of period
46,901
29,235
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$ 33,094
$ 46,901
PLATO Learning, Inc.
Supplemental Financial Information
(Unaudited)
Order Information ($000s)
Three Months Ended October 31,
Year Ended October 31,
2006
2005
% Change
2006
2005
% Change
Order Value:
License fees
$ 8,557
$ 14,972
(43%)
$ 36,974
$ 57,201
(35%)
Subscriptions (a)
Courseware
6,980
2,613
167%
18,651
6,339
194%
Assessment and other
1,885
3,637
(48%)
7,608
11,192
(32%)
Total subscriptions
8,865
6,250
42%
26,259
17,531
50%
Services (a)
8,280
11,882
(30%)
29,177
33,425
(13%)
$ 25,702
$ 33,104
(22%)
$ 92,410
$ 108,157
(15%)
Percent of Total Order Value:
License fees
33%
45%
40%
53%
Subscriptions (a)
Courseware
27%
8%
20%
6%
Assessment and other
8%
11%
8%
10%
Total subscriptions
35%
19%
28%
16%
Services (a)
32%
36%
32%
31%
100%
100%
100%
100%
(a) Certain amounts previously reported as services orders have
been reclassified to subscriptions orders to conform to the
current period presentation.
Deferred Revenue Balances ($000s)
As of October 31,
2006
2005
% Change
License fees
$ 2,282
$ 5,736
(60%)
Subscriptions
20,192
12,546
61%
Services
19,372
22,149
(13%)
$ 41,846
$ 40,431
3%
Reconciliation of GAAP Loss Per Share to Non-GAAP Income (Loss)
Per Share
Before Restructuring, Impairment and Other Charges
($000s, except per share amounts)
Three Months Ended
Year Ended
October 31,
October 31,
2006
2005
2006
2005
Net loss, as reported
$ (11,593)
$ (13,895)
$ (22,480)
$ (27,687)
Restructuring, impairment and other charges
9,822
16,098
10,182
19,219
Net income (loss) before restructuring, impairment and other
charges
$ (1,771)
$ 2,203
$ (12,298)
$ (8,468)
Income (loss) per share (basic and diluted):
Loss per share, as reported
$ (0.49)
$ (0.59)
$ (0.95)
$ (1.18)
Restructuring, impairment and other charges
0.41
0.68
$ 0.43
0.82
Income (loss) per share before restructuring, impairment and other
charges
$ (0.07)
$ 0.09
$ (0.52)
$ (0.36)
Weighted average common shares outstanding:
Basic and diluted (GAAP)
23,714
23,550
23,679
23,381
Diluted (Non-GAAP)
23,714
23,687
23,679
23,381
Reconciliation of GAAP Operating Expenses to Non-GAAP Operating
Expenses
Before Restructuring, Impairment and Other Charges ($000s)
Three Months Ended
Three Months Ended
October 31,
October 31,
2006
2005
% Change
2006
2005
% Change
Total operating expenses
$ 24,502
$ 21,672
13%
$ 73,517
$ 84,409
(13%)
Restructuring, impairment and other charges
(8,733)
(2,904)
201%
(9,093)
(6,025)
51%
Operating expenses before restructuring,
impairment and other charges
$ 15,769
$ 18,768
(16%)
$ 64,424
$ 78,384
(18%)
Reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit
Before Impairment Charges ($000s)
Three Months Ended
Year Ended
October 31,
October 31,
2006
2005
% Change
2006
2005
% Change
Gross profit, as reported
$ 12,596
$ 7,781
62%
$ 49,936
$ 56,996
(12%)
Impairment charges
(1,089)
(13,194)
(92%)
(1,089)
(13,194)
(92%)
Gross profit before impairment charges
$ 13,685
$ 20,975
(35%)
$ 51,025
$ 70,190
(27%)
Gross margin, as reported
53%
23%
55%
47%
Gross margin effect of impairment charges
5%
39%
1%
11%
Gross margin, excluding impairment charges
58%
62%
56%
58%
Reconciliation of GAAP Net Loss to Non-GAAP Adjusted EBITDA
(EBITDA excluding restructuring, impairment and other charges,
and stock-based compensation)
($000s)
Year Ended
Q4-2006
Q3-2006
Q2-2006
Q1-2006
October 31,2006
Net Loss:
$ (11,593)
$ (1,791)
$ (5,899)
$ (3,197)
$ (22,480)
Income taxes
150
150
150
150
600
Interest, net
(433)
(373)
(400)
(444)
(1,650)
Depreciation and amortization
4,111
3,766
3,894
3,592
15,363
Restructuring, impairment and other charges
9,822
21
259
80
10,182
Stock-based compensation
612
222
480
316
1,630
Adjusted EBITDA
$ 2,669
$ 1,995
$ (1,516)
$ 497
$ 3,645
Year Ended
Q4-2005
Q3-2005
Q2-2005
Q1-2005
October 31,2005
Net Loss:
$ (13,895)
$ (311)
$ (2,954)
$ (10,527)
$ (27,687)
Income taxes
410
150
150
150
860
Interest, net
(394)
(205)
(140)
(197)
(936)
Depreciation and amortization
4,374
5,074
4,585
4,984
19,017
Restructuring, impairment and other charges
16,098
200
632
2,289
19,219
Stock-based compensation
-
-
39
-
39
Adjusted EBITDA
$ 6,593
$ 4,908
$ 2,312
$ (3,301)
$ 10,512