TUTR Plato Learning (MM)

PLATO Learning, Inc. (NASDAQ: TUTR), a leading provider of K�adult e-learning solutions, today announced results for its fiscal 2008 fourth quarter and year ended October 31, 2008. Total revenue for the fourth quarter was $17.4 million, compared to $18.2 million in the fourth quarter of 2007, reflecting lower perpetual license fees and maintenance revenues from legacy products. Subscription revenue for the quarter increased 34% to $9.5 million, from $7.1 million in the fourth quarter of last year. Total orders for the fourth quarter declined 20% to $20.7 million, compared to $25.9 million for the fourth quarter of fiscal 2007. Subscription orders for the quarter decreased 5% to $13.0 million. Vin Riera, PLATO Learning President and CEO said, �While we began the fourth quarter tracking to expectations, we experienced delays in buying decisions midway through the quarter, reflecting the overall economy and state budgetary constraints. At the same time, we continue to see many positive trends in our business. For the full fiscal year, we grew subscription revenue 46 percent, generated 20 percent growth in subscription orders, and increased our PLATO Learning Environment� (PLE�) customer base by 65 percent. The fourth quarter marks our third consecutive quarter of margin improvement, contributing to a substantial decline in our fourth quarter net loss and $8 million in free cash flow. �While the market remains challenging, our innovative and proven learning solutions address core instructional programs needed by schools, funded largely by federal and state level programs targeting school improvement, reduced drop-out rates and the increased use of technology in schools. Furthermore, we are seeing increasing benefit from steps we have taken to significantly reduce our cost structure and ended the fiscal year with a strong balance sheet that includes $20 million in cash. Finally, while we expect market uncertainty to continue, we are optimistic about the potential of our software-as-a-service (SaaS) business model, which provides us with a high base of potential renewals. As such, we believe we are well positioned to continue to grow our subscription business in fiscal 2009.� During the fourth quarter, PLATO Learning added 145 school districts and community colleges as new subscribers to its PLE� SaaS platform, growing its total PLE� customer base to more than 1,200 educational institutions across the U.S., a 65% increase over the fourth quarter of fiscal 2007. New PLATO Learning customers accounted for more than half of the total PLE� customers added in the quarter. Registered users of PLE� grew to 1.2 million at October 31, 2008, a 138% increase compared to this time last year. Subscription margins in the fourth quarter improved 14 percentage points to 52.0%. Non-GAAP total gross margin for the quarter, which excludes impairment charges, improved to 47.2% from 45.8% as the effect on gross margin of lower perpetual license fee revenues offset some of the gains in subscription margins. Non-GAAP operating expenses, which excludes restructuring, impairment and other costs, declined to $10.0 million in the fourth quarter of 2008 from $11.6 million in the fourth quarter of 2007. Non-GAAP net loss for the fourth quarter, which excludes impairment and restructuring charges totaling $9.4 million, improved to ($1.7) million, or ($0.07) per share, versus ($3.2) million, or ($0.13) per share in the fourth quarter of fiscal 2007. Reported net loss for the quarter was ($11.1) million, or ($0.46) per share, compared to ($0.17) per share in the fourth quarter of fiscal 2007. Impairment charges in the fiscal 2008 fourth quarter totaled $6.5 million, reflecting weaker than expected sales of the Company�s Straight Curve Math product and write-downs of legacy purchased intangible assets. Restructuring and other charges in the quarter totaled $2.9 million related to the implementation of operating efficiencies enabled by the transition to the SaaS business model, and to the Company�s CEO transition. These restructuring activities and impairments are expected to result in approximately $8.0 million in cash and non-cash savings in fiscal 2009. Cash and cash equivalents at October 31, 2008 were $20.0 million. For the fiscal 2008 full year, total orders declined 7% to $72.1 million. Revenues totaled $68.4 million for the year, compared to $69.6 million in fiscal 2007. The revenue decline reflects lower perpetual license fees and maintenance revenues from legacy products. Total non-GAAP cost of revenue and operating expenses in fiscal 2008, which excludes charges related to restructuring, impairment and other charges, were $80.0 million, compared to $85.0 million in fiscal 2007. Non-GAAP net loss, which excludes impairment, restructuring and other charges, was ($11.7) in fiscal 2008, or ($0.49) per share, compared to a non-GAAP net loss of ($14.8) million, or ($0.62) per share, for fiscal 2007. These results are provided on a preliminary basis. The Company is currently conducting an evaluation of goodwill reported on the Company�s balance sheet related to multiple acquisitions made by the Company from 2000 - 2003, prior to the Company�s strategic shift to the SaaS business model. The non-cash goodwill impairment charge, if any, that might result from this evaluation would not impact the Company's day-to-day business operations, liquidity or long-term SaaS strategy. Guidance �While our current view of 2009 has been complicated by the effect of economic conditions on school budgets, we believe we can achieve high single-digit subscription order and revenue growth in fiscal 2009, and continued improvement in subscription margins. On the spending side, we expect total costs and expenses to decline by nearly $8 million and our capital product investment to moderate to between $5 million and $6 million. We�re beginning 2009 with a healthy cash balance of over $20 million and expect free cash flow in Fiscal 2009 to be flat to positive,� Mr. Riera concluded. Conference Call A conference call to discuss this announcement is scheduled for today, December 3, 2008, at 7:45 a.m. CDT (Central Daylight Time). The dial-in number for this call is 800-218-8862 in the U.S. and Canada, and 303-242-0002 internationally. Attendees should call 10 minutes prior to the start of the call and inform the operator they are participating in PLATO Learning�s call. A recording of the call will be available from 6:00 p.m. CDT on December 3, 2008, until midnight on December 10, 2008. To access the recording, call 800-405-2236 in the U.S. and Canada and 303-590-3000 internationally. At the prompt, enter pass code number 11123001#. 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/Investor-Relations/Conference-Calls.aspx. 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 market. PLATO Learning�s online educational software 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 sales representatives located throughout the U.S., as well as international distributors in Canada, the United Kingdom and South Africa. For more information, please visit http://www.plato.com. The announcement includes the use of non-GAAP financial measures that 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 a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures have been used in this announcement because the Company believes they are useful to investors by providing greater transparency to supplemental information used in the Company�s internal financial and operational analysis. Investors are encouraged to review the reconciliations attached to this announcement of the non-GAAP financial measures used in this announcement to their most directly comparable GAAP financial measures. 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 most recent filings with the Securities and Exchange Commission on Forms 10-K and 10-Q. Actual results may differ materially from anticipated results. PLATO�, Straight Curve� and Academic Systems� are registered trademarks of PLATO Learning, Inc. PLATO Learning is a trademark of PLATO Learning, Inc. PLATO Learning, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts) � � � � � � Three Months Ended Twelve Months Ended October 31, October 31, � 2008 � � 2007 � � 2008 � � 2007 � REVENUES Subscriptions $ 9,530 $ 7,128 $ 35,221 $ 24,173 License fees 1,345 4,060 8,458 17,712 Services � 6,508 � � 7,002 � � 24,722 � � 27,747 � Total revenues � 17,383 � � 18,190 � � 68,401 � � 69,632 � � COST OF REVENUES Subscriptions 4,616 4,465 18,674 15,540 License fees 1,217 2,184 5,277 8,396 Services 3,350 3,215 12,432 13,052 Impairment charges � 5,085 � � 531 � � 5,085 � � 531 � Total cost of revenues � 14,268 � � 10,395 � � 41,468 � � 37,519 � � GROSS PROFIT � 3,115 � � 7,795 � � 26,933 � � 32,113 � � OPERATING EXPENSES Sales and marketing 6,450 7,167 27,632 29,849 General and administrative 2,456 3,112 10,366 12,095 Product maintenance and development 754 922 4,060 4,334 Amortization of intangibles 388 388 1,550 1,740 Restructuring, impairment & other charges (benefit) � 4,312 � � 288 � � 6,747 � � (478 ) Total operating expenses � 14,360 � � 11,877 � � 50,355 � � 47,540 � � OPERATING LOSS (11,245 ) (4,082 ) (23,422 ) (15,427 ) � Other income, net � 66 � � 242 � � 254 � � 1,159 � � LOSS BEFORE INCOME TAXES (11,179 ) (3,840 ) (23,168 ) (14,268 ) � Income tax (benefit) expense � (88 ) � 158 � � 368 � � 608 � � NET LOSS $ (11,091 ) $ (3,998 ) $ (23,536 ) $ (14,876 ) � LOSS PER SHARE Basic and diluted $ (0.46 ) $ (0.17 ) $ (0.99 ) $ (0.63 ) � WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic and diluted � 23,908 � � 23,774 � � 23,854 � � 23,754 � PLATO Learning, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands) � � � � � October 31, October 31, 2008 2007 � ASSETS � Current assets: Cash and cash equivalents $ 20,018 $ 24,297 Accounts receivable, net 6,834 11,752 Other current assets � 7,409 � � 7,759 � Total current assets 34,261 43,808 � Equipment and leasehold improvements, net 3,589 5,615 Product development costs, net 24,086 30,266 Goodwill 71,865 71,865 Identified intangible assets, net 3,723 7,983 Other long-term assets � 3,309 � � 3,243 � Total assets $ 140,833 � $ 162,780 � � LIABILITIES AND STOCKHOLDERS' EQUITY � Current liabilities: Accounts payable $ 3,085 $ 4,608 Accrued compensation 3,996 5,453 Other accrued liabilities 6,909 4,245 Deferred revenue � 36,005 � � 36,094 � Total current liabilities 49,995 50,400 � Long-term deferred revenue 8,916 8,506 Deferred income taxes � 3,504 � � 3,139 � Total liabilities � 62,415 � � 62,045 � � Stockholders' equity: Common stock 240 238 Additional paid-in capital 171,143 169,927 Treasury stock at cost (315 ) (205 ) Accumulated deficit (91,429 ) (67,893 ) Accumulated other comprehensive loss � (1,221 ) � (1,332 ) Total stockholders' equity � 78,418 � � 100,735 � Total liabilities and stockholders' equity $ 140,833 � $ 162,780 � PLATO Learning, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) � � � � � � � Twelve Months Ended October 31, � 2008 � � 2007 � OPERATING ACTIVITIES: Net loss $ (23,536 ) $ (14,876 ) Adjustments to reconcile net loss to net cash provided by operating activities: Deferred income taxes 368 608 Impairment charges 6,674 531 Depreciation and amortization 16,945 16,150 Provision for doubtful accounts - (553 ) Stock-based compensation 1,012 1,174 Other adjustments 103 3 Changes in operating assets and liabilities: Accounts receivable 4,918 6,322 � Other current and long-term assets 37 (385 ) Accounts payable (1,523 ) (78 ) Other current and long-term liabilities 1,216 (3,020 ) Deferred revenue � 321 � � 3,786 � Total adjustments � 30,071 � � 24,538 � Net cash provided by operating activities � 6,535 � � 9,662 � � INVESTING ACTIVITIES: Capitalized internal product development costs (10,670 ) (15,698 ) Purchased product development - (475 ) Purchases of equipment and leasehold improvements � (338 ) � (1,750 ) Net cash used in investing activities � (11,008 ) � (17,923 ) � FINANCING ACTIVITIES: Net proceeds from issuance of common stock, net of repurchases 109 203 Payment of debt financing fees - (523 ) Repayments of capital lease obligations � (25 ) � (47 ) Net cash provided by (used in) financing activities � 84 � � (367 ) � � EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS � 110 � � (169 ) � Net decrease in cash and cash equivalents (4,279 ) (8,797 ) � Cash and cash equivalents at beginning of period 24,297 33,094 � � CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,018 � $ 24,297 � PLATO Learning, Inc. Supplemental Financial Information (Unaudited) � � � � � � � � Order Information ($000s) � Three Months Ended October 31, Twelve Months Ended October 31, 2008 2007 % Change 2008 2007 % Change Order Value: Subscriptions $ 12,999 $ 13,659 (5 %) $ 43,585 $ 36,368 20 % � License fees 1,501 4,625 (68 %) 7,886 16,931 (53 %) � Services � 6,237 � 7,654 (19 %) � 20,637 � 24,377 (15 %) $ 20,737 $ 25,938 (20 %) $ 72,108 $ 77,676 (7 %) PLATO Learning, Inc. Supplemental Financial Information (Unaudited) � � � � Deferred Revenue Balances ($000s) � As of October 31, � 2008 � � 2007 � % Change � Subscriptions $ 41,694 $ 32,938 27 % License fees 467 622 (25 %) Services � 11,705 � � 15,563 � (25 %) Total 53,866 49,123 10 % Less: Amounts not billed under non-cancelable subscription agreements � (8,945 ) � (4,523 ) 98 % Net deferred revenue $ 44,921 � $ 44,600 � 1 % PLATO Learning, Inc. Supplemental Financial Information (Unaudited) � � � � � � Reconciliation of GAAP Net Loss and Loss Per Share to Non-GAAP Net Loss and Loss Per Share Before Restructuring, Impairment and Other Charges ($000s, except per share amounts) Three Months Ended Twelve Months Ended October 31, October 31, � 2008 � � 2007 � � 2008 � � 2007 � Net loss, as reported $ (11,091 ) $ (3,998 ) $ (23,536 ) $ (14,876 ) Restructuring, impairment and other charges � 9,397 � � 819 � � 11,832 � � 53 � Net loss before restructuring, impairment and other charges $ (1,694 ) $ (3,179 ) $ (11,704 ) $ (14,823 ) � Loss per share (basic and diluted): Loss per share, as reported $ (0.46 ) $ (0.17 ) $ (0.99 ) $ (0.63 ) Restructuring, impairment and other charges per share � 0.39 � � 0.04 � � 0.50 � � 0.01 � Loss per share before restructuring, impairment and other charges $ (0.07 ) $ (0.13 ) $ (0.49 ) $ (0.62 ) � Basic and diluted (GAAP) weighted average common shares outstanding � 23,908 � � 23,774 � � 23,854 � � 23,754 � PLATO Learning, Inc. Supplemental Financial Information (Unaudited) � � � � � � Reconciliation of GAAP Operating Expenses to Non-GAAP Operating Expenses Before Restructuring, Impairment and Other Charges ($000s) � Three Months Ended Twelve Months Ended October 31, October 31, 2008 2007 % Change 2008 � 2007 � % Change Total operating expenses $ 14,360 $ 11,877 21 % $ 50,355 $ 47,540 6 % Restructuring, impairment and other charges (benefit) � 4,312 � 288 1397 % � 6,747 � (478 ) (1512 %) Operating expenses before restructuring, impairment and other charges (benefit) $ 10,048 $ 11,589 (13 %) $ 43,608 $ 48,018 � (9 %) PLATO Learning, Inc. Supplemental Financial Information (Unaudited) � � � � � � Reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit Before Impairment Charges ($000s) Three Months Ended Twelve Months Ended October 31, October 31, 2008 2007 % Change 2008 2007 % Change Gross profit, as reported $ 3,115 $ 7,795 (60 %) $ 26,933 $ 32,113 (16 %) Impairment charges � 5,085 � � 531 � 858 % � 5,085 � � 531 � 858 % Gross profit before impairment charges $ 8,200 � $ 8,326 � (2 %) $ 32,018 � $ 32,644 � (2 %) � Gross margin, as reported 18 % 43 % (25 %) 39 % 46 % (7 %) Gross margin effect of impairment charges 29 % 3 % 26 % 8 % 1 % 7 % Gross margin, excluding impairment charges 47 % 46 % 1 % 47 % 47 % 0 % PLATO Learning, Inc. Supplemental Financial Information (Unaudited) � � � � � � Reconciliation of GAAP Cash Flow Provided By Operating Activities To Non-GAAP Free Cash Flow ($000) Three Months Ended Twelve Months Ended October 31, October 31, � 2008 � � 2007 � � 2008 � � 2007 � Cash flow provided by operating activities $ 9,999 $ 6,684 $ 6,535 $ 9,662 Capitalized internal product development costs (1,929 ) (3,980 ) (10,670 ) (15,698 ) Purchased product development - (475 ) - (475 ) Purchases of equipment and leasehold improvements � (20 ) � (279 ) � (338 ) � (1,750 ) Free Cash Flow $ 8,050 � $ 1,950 � $ (4,473 ) $ (8,261 )