-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UfW4ziGirXxGl22PCLBlwDyjq62JRrTmQHXqlAnJ5d6duygOfFeSrtCZ7Zv0Tjg8 X5Z9p3ROCvt3Zdf8pWukzw== 0000950134-04-019354.txt : 20041215 0000950134-04-019354.hdr.sgml : 20041215 20041215172821 ACCESSION NUMBER: 0000950134-04-019354 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041215 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20041215 DATE AS OF CHANGE: 20041215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLATO LEARNING INC CENTRAL INDEX KEY: 0000893965 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 363660532 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-72523 FILM NUMBER: 041205774 BUSINESS ADDRESS: STREET 1: 10801 NESBITT AVENUE SOUTH CITY: BLOOMINGTON STATE: MN ZIP: 55437 BUSINESS PHONE: 8477817800 MAIL ADDRESS: STREET 1: 10801 NESBITT AVENUE SOUTH CITY: BLOOMINGTON STATE: MN ZIP: 55437 FORMER COMPANY: FORMER CONFORMED NAME: TRO LEARNING INC DATE OF NAME CHANGE: 19940218 8-K 1 c90525e8vk.txt FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 15, 2004 PLATO LEARNING, INC. -------------------- (Exact name of Registrant as specified in its charter) Delaware 0-20842 36-3660532 - -------- ------- ---------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification Number) 10801 Nesbitt Avenue South, Bloomington, MN 55437 - ------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (952) 832-1000 -------------- Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 1 ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On December 15, 2004, we issued a press release, attached hereto as Exhibit 99.1, announcing our fourth quarter and fiscal year 2004 financial results. ITEM 7.01. REGULATION FD DISCLOSURE. On December 15, 2004, we held our regularly scheduled conference call with the investment community to discuss our fourth quarter and fiscal year 2004 financial results. A transcript of our prepared remarks for this conference call is attached hereto as Exhibit 99.2. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. Exhibit 99.1 Press Release dated December 15, 2004. Exhibit 99.2 Transcript of prepared remarks for our fourth quarter and fiscal year 2004 earnings release conference call on December 15, 2004. 2 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. PLATO LEARNING, INC. December 15, 2004 By /s/ Laurence L. Betterley ---------------------------------- Senior Vice President and Chief Financial Officer 3 EX-99.1 2 c90525exv99w1.txt PRESS RELEASE Exhibit 99.1 [PLATO LEARNING LOGO] - ----------------------------------------------------------FOR IMMEDIATE RELEASE CONTACT: DAVID SMITH - INTERIM CEO LARRY BETTERLEY - SR. VP AND CFO STEVE SCHUSTER - VP AND TREASURER 952.832.1000 PLATO LEARNING, INC. REPORTS FISCAL YEAR 2004 RESULTS FOURTH QUARTER REVENUE INCREASES 12% FROM 2003 ON PRO-FORMA BASIS MINNEAPOLIS, MN - DECEMBER 15, 2004 - PLATO Learning, Inc. (NASDAQ: TUTR), a leading provider of K-adult computer-based and e-learning solutions, today announced revenues for its fourth quarter ended October 31, 2004, totaling $42.4 million. This represents a $14.9 million or a 54% increase versus the $27.5 million reported for the comparable period of fiscal 2003. Revenues for the year ended October 31, 2004, were $141.8 million, a $59.6 million or a 73% increase versus the $82.2 million reported for the same period in 2003. The Company's acquisition of Lightspan, Inc. in November 2003 significantly contributed to the revenue growth for the quarter and year ended October 31, 2004. On a pro-forma basis, including revenues from Lightspan before the acquisition date, revenues grew 12% for the fourth quarter and 10% for the year in 2004 over the comparable periods in 2003.
Reported Revenues Quarter Ended October 31, Year Ended October 31, ------------------------------ ------------------------------ (000's) 2004 2003 Growth 2004 2003 Growth -------------- --------------- ------------- -------------- --------------- ------------- PLATO Learning $ 42,420 $ 27,475 54% $ 141,801 $ 82,192 73% Lightspan (1) - 10,500 969 47,871 -------------- --------------- -------------- --------------- $ 42,420 $ 37,975 12% $ 142,770 $ 130,063 10% ============== =============== ============== ===============
(1) Lightspan revenues prior to acquisition. Net earnings for the fourth quarter of 2004 were $2.2 million, or $0.09 per diluted share, as compared to $3.3 million, or $0.20 per diluted share, for the same period of 2003. The net loss for the year ended October 31, 2004, was $1.8 million, or $0.08 per diluted share, as compared to a net loss of $1.7 million or $0.10 per diluted share, for the same period in 2003. The Company recorded consolidated income tax expense of $1.6 million for the fourth quarter and $2.0 million for the year 2004, compared to an expense of $1.7 million and an income tax benefit of $0.4 million in the same periods for 2003, respectively. The high consolidated tax rate for the 2004 periods is caused by losses in the Company's U.K. subsidiary, which are not offset against U.S. profits for tax expense purposes and for which no tax benefit is recognized, due to the ongoing losses of the U.K. entity. Earnings before taxes were $3.8 million for the fourth quarter 2004 and $0.2 million for the fiscal year 2004, compared to earnings of $5.0 million for fourth quarter 2003 and a loss of $2.1 million for fiscal year 2003. 1 The acquisition of Lightspan also added significant expenses to the Company's operations, the impact of which has been partially offset by cost reductions from operating synergies of the merged businesses.
Reported Operating Expenses Quarter Ended October 31, Year Ended October 31, ------------------------------ ------------------------------ (000's) 2004 2003 2004 2003 -------------- --------------- --------------- -------------- Operating expenses: PLATO Learning (1) 22,975 14,599 91,336 55,474 Lightspan (2) - 11,199 1,941 54,368 -------------- --------------- --------------- -------------- Total 22,975 25,798 93,277 109,842 ============== =============== =============== ============== As a percentage of pro-forma revenues 54.2% 67.9% 65.3% 84.5% ============== =============== =============== ==============
(1) PLATO operating expenses for the year in 2003 exclude $802 of restructuring charges. (2) Lightspan operating expenses prior to acquisition. David Smith, Interim CEO, said, "Revenues and earnings for the quarter and year were in line with our revised expectations and showed solid growth over 2003 on a pro-forma basis. This growth was achieved while expending substantial effort to integrate Lightspan operations. Even more notable was the increase in cash and investments of $14.5 million during the quarter to $45.5 million at year-end, driven by strong earnings before the impact of non-cash expenses, improvements in accounts receivable metrics, and growth in deferred revenues." Mr. Smith continued, "Since assuming the CEO role, much of my time has been spent assessing the business. I've been impressed by the Company's products and depth of intellectual assets, as well as the quality and enthusiasm of its employees. Much has been accomplished, but much more needs to be done to fully realize our growth and earnings potential. The foundation has been set. Now we need to clearly define the Company's focus, refine its processes, and align its resources to enhance profitability and accelerate growth. I firmly believe this can be done, and it will be our priority over the coming year." The Company highlighted additional key financial information: - Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) and restructuring charges were $18.3 million for the year ended October 31, 2004, compared to $9.0 million in 2003. - Cash and marketable securities were $45.5 million at October 31, 2004, compared to $31.0 million at July 31, 2004, and $27.7 million at October 31, 2003. - Deferred revenue was $51.6 million at October 31, 2004, versus $45.4 million at October 31, 2003, including Lightspan deferred revenue on a pro-forma basis. Both balances reflect a fourth quarter 2004 purchase accounting adjustment of $4.6 million to the Lightspan deferred revenue to align it with the fair value of undelivered educational consulting days at the acquisition date. - Stockholders' equity was $159.5 million at October 31, 2004, compared to $109.9 million at October 31, 2003. USE OF NON-GAAP FINANCIAL MEASURES The non-GAAP financial measures used in this press release exclude the impact a 2003 restructuring charge on PLATO Learning's operating results, as well as present EBITDA and certain combined operations as if Lightspan had been acquired as of November 1, 2002. 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. PLATO Learning's management views these non-GAAP financial measures to be helpful in assessing the Company's progress in integrating the operations of Lightspan. In addition, these non-GAAP financial measures facilitate management's internal comparisons to PLATO Learning's historical operating results and comparisons to competitors' operating results. PLATO Learning includes these non-GAAP financial measures in its earnings announcement, because the Company believes they are useful to investors in allowing for greater transparency related to supplemental information used by 2 management in its financial and operational analysis. Investors are encouraged to review the reconciliation 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. QUARTERLY CONFERENCE CALL A conference call to discuss this announcement is scheduled for today at 3:45 p.m. (CT). The dial-in number for this call is 1-877-775-1746. 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 5:00 p.m. (CT) on December 15, 2004, through midnight on December 20, 2004. To access the recording call 1-800-642-1687. At the prompt, enter pass code number 1632269. ABOUT PLATO LEARNING PLATO Learning, Inc. 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. With trailing 12-month revenues of approximately $142 million, PLATO Learning, Inc. is a publicly held company traded as TUTR on the NASDAQ. PLATO(R) 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 the United States, Canada, and the United Kingdom, as well as international distributors in Puerto Rico, Singapore, South Africa, and the United Arab Emirates. 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, 2003. Actual results may differ materially from anticipated results. (R) PLATO is a registered trademark of PLATO Learning, Inc. PLATO Learning is a trademark of PLATO Learning, Inc. 3 PLATO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- --------------- -------------- Revenues: License fees $ 24,385 $ 18,942 $ 80,078 $ 52,439 Subscriptions 5,073 1,954 20,718 7,151 Services 9,093 5,141 30,030 16,738 Other 3,869 1,438 10,975 5,864 -------------- -------------- --------------- -------------- Total revenues 42,420 27,475 141,801 82,192 -------------- -------------- --------------- -------------- Cost of revenues: License fees 5,107 2,419 15,060 8,217 Subscriptions 1,984 1,008 7,506 3,567 Services 4,846 2,905 17,373 10,929 Other 3,916 1,517 10,614 5,468 -------------- -------------- --------------- -------------- Total cost of revenues 15,853 7,849 50,553 28,181 -------------- -------------- --------------- -------------- Gross profit 26,567 19,626 91,248 54,011 -------------- -------------- --------------- -------------- Operating expenses: Sales and marketing 15,711 10,175 61,586 39,438 General and administrative 5,022 3,671 19,469 13,182 Product development 1,131 607 5,973 2,267 Amortization of intangibles 1,111 146 4,308 587 Restructuring charges - - - 802 -------------- -------------- --------------- -------------- Total operating expenses 22,975 14,599 91,336 56,276 -------------- -------------- --------------- -------------- Operating income (loss) 3,592 5,027 (88) (2,265) Interest income 134 22 432 317 Interest expense (22) (16) (122) (104) Other income (expense), net 89 (13) (20) (56) -------------- -------------- --------------- -------------- Earnings (loss) before income taxes 3,793 5,020 202 (2,108) Income tax expense (benefit) 1,580 1,744 2,030 (441) -------------- -------------- --------------- -------------- Net earnings (loss) $ 2,213 $ 3,276 $ (1,828) $ (1,667) ============== ============== =============== ============== Earnings (loss) per share: Basic $ 0.10 $ 0.20 $ (0.08) $ (0.10) ============== ============== =============== ============== Diluted $ 0.09 $ 0.20 $ (0.08) $ (0.10) ============== ============== =============== ============== Weighted average common shares outstanding: Basic 23,050 16,366 22,637 16,510 ============== ============== =============== ============== Diluted 23,468 16,618 22,637 16,510 ============== ============== =============== ==============
4 PLATO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
OCTOBER 31, OCTOBER 31, 2004 2003 ---------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 29,235 $ 23,834 Marketable securities 12,615 - Accounts receivable, net 41,852 39,176 Prepaid expenses and other current assets 9,460 4,819 Deferred income taxes - 2,218 ---------------- ----------------- Total current assets 93,162 70,047 Long-term marketable securities 3,608 3,862 Equipment and leasehold improvements, net 7,946 5,024 Product development costs, net 17,116 14,738 Goodwill 71,267 39,609 Identified intangible assets, net 39,432 14,707 Other assets 174 1,975 ---------------- ----------------- Total assets $ 232,705 $ 149,962 ================ ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,196 $ 2,876 Accrued employee salaries and benefits 8,772 6,678 Accrued liabilities 6,383 3,600 Deferred revenue 43,042 22,192 ---------------- ----------------- Total current liabilities 63,393 35,346 Deferred revenue 8,533 4,372 Deferred income taxes 1,322 - Other liabilities 7 312 ---------------- ----------------- Total liabilities 73,255 40,030 ---------------- ----------------- Stockholders' equity: Common stock, $.01 par value, 50,000 shares authorized; 23,095 shares issued and 23,075 outstanding at October 31, 2004; 17,671 shares issued and 16,370 shares outstanding at October 31, 2003 231 164 Additional paid in capital 162,956 123,135 Treasury stock at cost, 20 and 1,301 shares, respectively (205) (11,652) Accumulated deficit (2,850) (1,022) Accumulated other comprehensive loss (682) (693) ---------------- ----------------- Total stockholders' equity 159,450 109,932 ---------------- ----------------- Total liabilities and stockholders' equity $ 232,705 $ 149,962 ================ =================
5 PLATO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS) - --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, -------------------------------- 2004 2003 -------------- -------------- OPERATING ACTIVITIES: Net loss $ (1,828) $ (1,667) -------------- -------------- Adjustments to reconcile net loss to net cash provided by operating activities: Deferred income taxes 2,030 (441) Amortization of capitalized product development costs 6,941 5,720 Amortization of identified intangible assets 7,648 2,239 Depreciation and amortization of equipment and leasehold improvements 3,358 2,227 Provision for doubtful accounts 2,305 2,476 Stock-based compensation 217 - Loss on disposal of equipment 53 61 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable 4,786 (8,442) Prepaid expenses and other current and noncurrent assets (2,008) (956) Accounts payable (164) 1,988 Accrued liabilities, accrued employee salaries and benefits and other liabilities (4,183) (1,492) Deferred revenue 7,838 6,850 -------------- -------------- Total adjustments 28,821 10,230 -------------- -------------- Net cash provided by operating activities 26,993 8,563 -------------- -------------- INVESTING ACTIVITIES: Acquisitions, net of cash acquired 2,460 - Capitalization of product development costs (9,238) (6,863) Capital expenditures (3,615) (2,088) Purchases of marketable securities (13,176) (5,061) Sales and maturities of marketable securities 741 1,219 -------------- -------------- Net cash used in investing activities (22,828) (12,793) -------------- -------------- FINANCING ACTIVITIES: Repurchase of common stock (205) (2,161) Net proceeds from issuance of common stock 1,941 82 Repayments of capital lease obligations (239) (258) -------------- -------------- Net cash provided by (used in) financing activities 1,497 (2,337) -------------- -------------- Effect of foreign currency on cash (261) 11 -------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,401 (6,556) Cash and cash equivalents at beginning of period 23,834 30,390 -------------- -------------- Cash and cash equivalents at end of period $ 29,235 $ 23,834 ============== ==============
6 PLATO LEARNING, INC. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
REVENUES QUARTER ENDED OCTOBER 31, ($000'S) ------------------------------------------------------------------------------ 2004 2003 % CHANGE -------------------------------------- --------------------------------------- ------------------ As Lightspan Pro As Lightspan Pro As Pro Reported (1) Forma Reported (1) Forma Reported Forma -------------------------------------- --------------------------------------- ------------------ License fees $24,385 $ - $24,385 $18,942 $ 4,475 $23,417 29% 4% Subscriptions 5,073 - 5,073 1,954 2,812 4,766 160% 6% Services 9,093 - 9,093 5,141 2,499 7,640 77% 19% Other 3,869 - 3,869 1,438 714 2,152 169% 80% -------------------------------------- --------------------------------------- $42,420 $ - $42,420 $27,475 $10,500 $37,975 54% 12% ====================================== =======================================
(1) Lightspan revenues prior to acquisition. - --------------------------------------------------------------------------------
OPERATING EXPENSES QUARTER ENDED QUARTER ENDED ($000'S) OCTOBER 31, 2004 OCTOBER 31, 2003 ---------------------- ------------------------------------------------------- As % of As Lightspan Pro % of Revenue ------------------ Reported Revenue Reported (1) Forma Reported Pro Forma ------------ --------- ------------------------------------ ------------------- Sales and marketing $15,711 37% $10,175 $ 7,714 $17,889 37% 47% General and administrative 5,022 12% 3,671 586 4,257 13% 11% Product development 1,131 3% 607 2,088 2,695 2% 7% Amortization of intangibles 1,111 3% 146 811 957 1% 3% ------------ ------------------------------------ $22,975 54% $14,599 $11,199 $25,798 53% 68% ============ ====================================
QUARTER ENDED QUARTER ENDED QUARTER ENDED JULY 31, 2004 APRIL 30, 2004 JANUARY 31, 2004 ------------------------ ----------------------- --------------------------------------------- As % of As % of As Pro % of Revenue ------------------ Reported Revenue Reported Revenue Reported Forma (2) Reported Pro Forma -------------- --------- ------------- --------- -------------------------- ------------------- Sales and marketing $14,897 37% $ 15,793 49% $ 15,185 $ 16,467 57% 60% General and administrative 4,915 12% 5,040 16% 4,492 4,802 17% 18% Product development 1,293 3% 1,346 4% 2,203 2,530 8% 9% Amortization of intangibles 1,112 3% 1,102 3% 983 1,005 4% 4% -------------- ------------- -------------------------- $22,217 55% $ 23,281 72% $ 22,863 $ 24,804 86% 90% ============== ============= ==========================
(1) Lightspan operating expenses prior to acquisition. (2) Difference between As Reported and Pro Forma represents $1.9 million of Lightspan operating expenses prior to acquisition. - --------------------------------------------------------------------------------
ORDER SIZE QUARTER ENDED OCTOBER 31, ($000'S) ------------------------------------------------------------ 2004 2003 (1) % CHANGE ----------------------------- ----------------------------- ----------------------------- Number Value Number Value Number Value ----------------------------- ----------------------------- ----------------------------- $100 to $249 28 $ 4,335 39 $ 5,681 -28% -24% $250 or greater 20 15,470 16 9,770 25% 58% ----------------------------- ----------------------------- 48 $ 19,805 55 $ 15,451 -13% 28% ============================= =============================
(1) 2003 includes both PLATO Learning and Lightspan. - -------------------------------------------------------------------------------- 7 PLATO LEARNING, INC. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
REVENUES YEAR ENDED OCTOBER 31, ($000'S) ------------------------------------------------------------------------------------ 2004 2003 % CHANGE ---------------------------------------- ------------------------------------------- ------------------ As Lightspan Pro As Lightspan Pro As Pro Reported (1) Forma Reported (1) Forma Reported Forma ---------------------------------------- ------------------------------------------- ------------------ License fees $ 80,078 $ - $ 80,078 $ 52,439 $23,355 $ 75,794 53% 6% Subscriptions 20,718 531 21,249 7,151 11,611 18,762 190% 13% Services 30,030 438 30,468 16,738 9,524 26,262 79% 16% Other 10,975 - 10,975 5,864 3,381 9,245 87% 19% ---------------------------------------- ------------------------------------------- $141,801 $ 969 $142,770 $ 82,192 $47,871 $ 130,063 73% 10% ======================================== ===========================================
(1) Lightspan revenues prior to acquisition. - --------------------------------------------------------------------------------
OPERATING EXPENSES YEAR ENDED ($000'S) OCTOBER 31, 2004 % OF REVENUE ---------------------------------------- ------------------ As Lightspan Pro As Pro Reported (2) Forma Reported Forma ---------------------------------------- ------------------ Sales and marketing $ 61,586 $1,282 $ 62,868 43% 44% General and administrative 19,469 310 19,779 14% 14% Product development 5,973 327 6,300 4% 4% Amortization of intangibles 4,308 22 4,330 3% 3% ---------------------------------------- $ 91,336 $1,941 $ 93,277 64% 65% ========================================
YEAR ENDED OCTOBER 31, 2003 % OF REVENUE ---------------------------------------- ------------------ As Lightspan Pro As Pro Reported (1) (2) Forma Reported Forma ---------------------------------------- ------------------ Sales and marketing $ 39,438 $31,649 $ 71,087 48% 55% General and administrative 13,182 6,434 19,616 16% 15% Product development 2,267 9,641 11,908 3% 9% Amortization of intangibles 587 6,644 7,231 1% 6% ---------------------------------------- $ 55,474 $54,368 $109,842 67% 84% ========================================
(1) Excludes $802 of restructuring charges. (2) Lightspan operating expenses prior to acquisition. - --------------------------------------------------------------------------------
ORDER SIZE YEAR ENDED OCTOBER 31, ($000'S) ------------------------------------------------------------ 2004 (1) 2003 (2) % CHANGE ----------------------------- ----------------------------- ----------------------------- Number Value Number Value Number Value ----------------------------- ----------------------------- ----------------------------- $100 to $249 150 $ 22,304 140 $ 21,359 7% 4% $250 or greater 63 45,013 64 33,279 -2% 35% ----------------------------- ----------------------------- 213 $ 67,317 204 $ 54,638 4% 23% ============================= =============================
(1) 2004 includes $4,275 related to the second quarter Idaho Department of Education contract. (2) 2003 includes both PLATO Learning and Lightspan. - -------------------------------------------------------------------------------- 8 PLATO LEARNING, INC. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED) EBITDA (EXCLUDING RESTRUCTURING CHARGES)
TWELVE MONTHS ENDED ($000'S) OCTOBER 31, 2004 ------------------------------------------------------------------------ As Reported Q1-2004 Q2-2004 Q3-2004 Q4-2004 Total ------------------------------------------------------------------------ Net earnings (loss) $ (7,535) $(3,230) $ 6,724 $ 2,213 $ (1,828) Income taxes 150 150 150 1,580 2,030 Interest expense 35 37 28 22 122 Depreciation and amortization 4,455 4,623 4,388 4,481 17,947 Restructuring charge - - - - - ------------------------------------------------------------------------ $ (2,895) $ 1,580 $ 11,290 $ 8,296 $ 18,271 ========================================================================
TWELVE MONTHS ENDED OCTOBER 31, 2003 ------------------------------------------------------------------------ As Reported Q1-2003 Q2-2003 Q3-2003 Q4-2003 Total ------------------------------------------------------------------------ Net earnings (loss) $ (3,407) $ (1,821) $ 285 $ 3,276 $(1,667) Income taxes (2,350) (1,435) 1,600 1,744 (441) Interest expense 24 30 34 16 104 Depreciation and amortization 2,319 2,231 2,782 2,854 10,186 Restructuring charge 380 - 422 - 802 ------------------------------------------------------------------------ $ (3,034) $ (995) $ 5,123 $ 7,890 $ 8,984 ========================================================================
9 EX-99.2 3 c90525exv99w2.txt TRANSCRIPT Exhibit 99.2 PLATO LEARNING, INC FISCAL YEAR 2004 Q4 FINANCIAL RELEASE CONFERENCE CALL DECEMBER 15, 2004 OPERATOR - -------- Ladies and gentlemen, welcome to today's PLATO Learning fourth quarter conference call. At this time, I would like to introduce David Smith, Interim CEO and director of PLATO Learning. DAVE SMITH - ---------- Good afternoon. Thank you for joining us today for our regularly scheduled quarterly conference call. With me today are Larry Betterley, our Senior Vice President and Chief Financial Officer, and Steve Schuster, our Vice President and Treasurer. I will make a few opening remarks, Larry will comment on the financial results and then I will make some concluding comments. We will then take your questions. Before we start, Larry will preface our remarks with a safe harbor statement. Larry. LARRY BETTERLEY - --------------- This announcement includes forward-looking statements. PLATO Learning has based these 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 the assumptions and expectations will prove to have been correct. These statements 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, 2003. Actual results may differ materially from anticipated results. The content of our call contains time-sensitive information that is accurate only as of today, December 15, 2004. 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. This call is the property of PLATO Learning, Inc. Any redistribution, or rebroadcast of this call in any form without the express written consent of PLATO Learning, Inc. is prohibited. DAVE SMITH - ---------- Thanks Larry. 1 The financial results we announced today for our fourth quarter of fiscal 2004 were consistent with the guidance shared in our November 10th press release and subsequent conference call. While these results were short of original expectations, they did show solid progress over 2003, during a time of soft market conditions and during a time of transition for the Company, as we integrated the Lightspan operations. Revenues were at the highest level in Company history, growing 12% for the quarter and 10% for the year on a pro-forma basis, including pre-merger Lightspan revenue amounts. All revenue categories showed growth in those periods, especially the services area, continuing the trend toward those products. Deferred revenue also grew by 14% from last year on a pro-forma basis, further reflecting that trend. We closed 48 transactions over $100,000 in the quarter, with a total value of $19.8 million, bringing the total number of large sales to 213 for the year with a total value of $67.3 million. While the number of large transactions was similar to those achieved in 2003 on a pro-forma basis, the average value of those sales increased 47% for the quarter and 18% for the year. Gross Margins were lower than 2003, primarily due to product mix, which Larry will discuss in more detail. Operating expenses were in line with our expectations and reflect the cost synergies we expected to be achieved in the Lightspan merger. The resulting pre-tax earnings of $3.8 million for the quarter and $200 thousand for the year were substantial improvements over 2003 pro-forma amounts of less than $1 million for the quarter and a pre-tax loss of over $20 million for the year. The Company's cash and investment position has grown substantially to over $45 million at year-end as a result of significant cash flow from operations, driven by solid earnings before non-cash items, improvements in accounts receivable metrics and growing deferred revenue balances. This cash position provides the Company with the flexibility to make investments needed to grow the business further in the future. Much has been accomplished during 2004 and, as stated earlier, our financial results are solid improvements over 2003. The better news, however, is that we still have many improvements that can be made to our operations to drive performance substantially higher. I will discuss these in a few minutes, after Larry reviews the financial results for 2004 in further detail. Larry. LARRY BETTERLEY - --------------- Thank you Dave. Q4 FINANCIAL RESULTS: - --------------------- Revenues for fourth quarter 2004 totaled $42.4 million, a $4.4 million or 12% increase versus the $38.0 million of combined revenues reported by PLATO Learning and Lightspan in the comparable period of 2003. Our net earnings for the fourth quarter were $2.2 million, or $0.09 per diluted 2 share, as compared to net earnings of $3.3 million, or $0.20 per diluted share, for the same period of 2003. The fourth quarter results for 2004 included tax expense of $1.6 million, or 41.7% of pre-tax earnings, compared to $1.7 million, or 34.7% of pre-tax earnings in the fourth quarter of 2003. REVENUES: - --------- Revenue growth for the quarter was driven by growth in all revenue categories, especially services and other revenues. We have included supplemental information in today's press release that reconciles the revenue PLATO Learning reported last year to what we reported today, with consideration for the acquisition of Lightspan. Our 2004 year-to-date results in that presentation also reflect the fact that the acquisition did not close until mid-November. License fee revenues in fourth quarter 2004 were $24.4 million, a $1.0 million or 4% increase from the $23.4 million of combined revenue for the comparable period of 2003. Subscription revenue growth slowed to 6% during the quarter, impacted in part by the timing of renewals and in part by stronger sales of our client hosted courseware; however we still believe we will continue to see a shift away from perpetual licenses to our subscription-based products, as shown by the 13% year over year growth in this category. Professional services revenue grew by $1.5 million or 19% in the fourth quarter of 2004 over combined 2003 results, resulting from increased services to correlate curriculum to standards and to aid in the professional development of teachers. Other revenue grew substantially to $3.9 million for the quarter from a combined $2.2 million in 2003. This growth was driven by significant orders for our Achieve Now product line which includes sales of Sony playstations, and by increases in sales of third party courseware, such as our WorldView product line. Revenues for the year grew to $141.8 million, a 10% increase from 2003 amounts on a pro-forma basis, with license fees growing 6% and subscriptions and services growing 13% and 16%, respectively. Our October 31, 2004 deferred revenue balance was $51.6 million. This amount includes an increase in fourth quarter of $4.6 million for a purchase accounting adjustment related to the Lightspan acquisition, done to align the deferred revenue balance at the acquisition date to the estimated fair value of the undelivered consulting days at that time. The year end 2004 deferred revenue balance increased 14% from the adjusted combined balance at October 31, 2003 and also increased 9% from our July 31, 2004 balance, before considering the impact of the adjustment. GROSS PROFIT: - ------------- The overall gross profit margin for the quarter was 62.6%, versus 71.4% in fourth quarter 2003. Gross margins were impacted by several product mix factors, including: - an increase in hardware sales, on which the company has little markup, 3 - an increase in third party courseware sales, which have lower gross margins than the company's courseware sales, - an increase in sales of products on which royalties are due, and - increased service revenue content, which generates lower gross margins. Gross margins for the year 2004 were impacted by these factors as well, resulting in an overall gross margin of 64.3% versus 65.7% in 2003. OPERATING EXPENSES: - ------------------- Our total operating expenses in the fourth quarter 2004 were $23.0 million. This compares to $25.8 million of operating expenses for the combined companies during last year's fourth quarter. Excluding amortization of intangibles, combined operating expenses decreased by about $3.0 million this quarter versus the same quarter last year, again assuming that the companies were combined in both periods. This change reflects the achievement of our fourth quarter goal of extracting cost synergies from the combined entity. This was accomplished in conjunction with increasing combined revenues between periods, which added about $700 thousand of variable expenses in the current quarter. For the year, operating expenses have declined $16.6 million from 2003 on a pro-forma basis, before considering the added variable expenses of about $1.9 million generated by the increase in pro-forma revenue. Therefore, we have achieved our goal of realizing $15 to $20 million of cost reduction synergies this fiscal year, from the Lightspan acquisition. EFFECTIVE INCOME TAX RATE: - -------------------------- Our income tax expense is 41.7% of pre-tax earnings for the quarter and exceeds consolidated pre-tax earnings for the year 2004. As we have discussed in the past, this is caused by losses incurred in our U.K. subsidiary, which cannot be offset against U.S. profits for tax provision purposes. We also cannot recognize tax benefits in the U.K. due to the history of losses in that entity. The result is recognition of income tax expense based on U.S. profits compared to consolidated pre-tax earnings that are near breakeven, due to inclusion of those U.K. losses. BALANCE SHEET AND CASH FLOW: - ---------------------------- I'll now highlight a few key points regarding our balance sheet and cash flow. - We generated about $18.3 million of EBITDA during 2004 as compared to $9 million in 2003, excluding restructure charges. - We also generated $27 million of cash from operations this year, $18.8 million of which was generated in the fourth quarter, compared to generation of $8.6 million for the year in 2003. Key generators of cashflow for the year were $18.1 million from earnings before taxes, depreciation and amortization, $4.8 million from improvements in accounts receivable metrics, and $7.8 million from increased deferred revenue, partially offset by increased prepaid expenses and liabilities. 4 - Cash and marketable securities totaled $45.5 million at year-end, up over $14 million from our July 31, 2004 balances and up nearly $18 million from year-end 2003. We believe our business model will provide significant annual cash generation. - We also remain free of any bank borrowings or similar debt. - Capitalized courseware development costs exceeded amortization by about $600,000 for the quarter and $2.3 million for the year, due to devoting substantial resources to to develop science and other courseware related to the New Media acquisition. These projects are just being completed and starting to be amortized. Other capital expenditures exceeded depreciation for the quarter by about $1 million due to implementation of additional PeopleSoft modules and laptop computer upgrades, to improve field productivity. This concludes my formal remarks. I'll turn it back to Dave now for his further comments. DAVE SMITH - ---------- Thank you Larry. Since assuming the role of CEO on November 17th, I have spent extensive time meeting with key employees, especially the field sales organization, and evaluating the operations of the company. Overall, I have been very impressed and encouraged by the high degree of professionalism and enthusiasm of those employees. In fact, several outstanding sales people, who had previously left the company, have expressed an interest in returning and we are in the process of bringing them back. My evaluation has also confirmed the viability of our extensive product portfolio and the substantial value of the intellectual assets the company owns. The market continues to trend upward, driven by No Child Left Behind and general public concern for improving our educational system. Demand for reading, math and science products will continue to lead that growth trend. PLATO Learning is uniquely positioned, with its broad product offering, to take advantage of that growth and continue to increase its market share. As I mentioned earlier, much has been accomplished to-date, but many opportunities exist to substantially improve the performance of the company. I have initiated several key initiatives to capitalize on those opportunities. First, while the initial integration of PLATO and Lightspan has been completed, much refinement is needed to realize the full potential of that acquisition. To that end, a reorganization of the field sales and service organizations has recently been completed to focus on the vertical markets of elementary, secondary and post secondary. Other 5 reorganizations will be implemented to better support the field re-alignment and allocate resources accordingly. Our product offerings and sales strategies will be focused to better fit the available market opportunities. Many of our products are currently not coming close to their full sales potential. With the wealth of our product portfolio, this is arguably one of the greatest opportunities we have to gain market share and grow revenues. Also, now that we are a larger company as a result of the merger and growth, more classic methods, procedures and tools must be implemented to drive productivity and greater return on the assets employed in the business. These changes, such as establishing a formal product development process, will drive a more focused product development strategy, a better fit of products to the marketplace and greater accountability for performance throughout the company. Additionally, as with most growing companies, the organizational and cost structures that appropriately support a small revenue base cannot profitably sustain a larger growing business. PLATO must restructure and re-align its resources to reduce costs and improve productivity of its assets. This will include full evaluation of its international operations and actions to improve their profitability. Finally, we will establish a long range strategy and plan to clarify direction of the company and identify how to obtain the maximum return on our expansive intellectual assets over the long term. These actions will obviously take time to implement, but they have already begun and I expect to complete them over the coming year. 2005 OUTLOOK - ------------ I would now like to spend a few minutes discussing what this will mean for 2005 performance. As I said, we will be implementing the changes I discussed throughout this year, so it is prudent to expect that improvements will occur over that time, and not all immediately. We are not projecting high revenue growth, but are expecting a return to substantial profitability, excluding the impact of any restructure charges that may be incurred and before the cost of executive terminations. Given our experience in 2004, the uncertainty of spending in the industry, the expected shift to subscription and service revenues, and the impact of changes being implemented in the company, we expect revenue to grow in the range of 4% to 7% in 2005. This of course will depend on industry growth rates and the timing of the impact of our changes. The Albertson Foundation has also issued a press release that the Idaho Student Information Management System project is under review, due to increasing costs of that project. It is too 6 early to know what, if any, impact this will have on our portion of the project, but we have eliminated revenue for this from our 2005 plan for now. We anticipate revenue levels similar to or slightly below those of 2004 in the first two quarters, with growth occurring in the second half of the year. We have further tightened our revenue recognition policies for 2005, which should result in third quarter having the highest revenue for the year. Gross margins are expected to be similar to or slightly below 2004, with improvements from the unusually high hardware sales in fourth quarter 2004 being offset by a change in revenue mix toward more subscription and service revenue, and by investments in the service area to support that growth. The largest impact of this will be in the first two quarters, with gross margins expected to be about 50% in first quarter and near 60% in second quarter. Operating expenses are expected to decline from 2005 by about 4% to 6%, before the impact of any restructure charges or executive termination charges. These charges are estimated to be in the range of $3 million to $4 million, occurring primarily in the first quarter of the year. Amortization and depreciation expense is expected to be approximately $20 million. The result is an expected pre-tax earnings range of about $8.5-$9.5 million for the year, excluding restructuring and termination charges. The tax rate is currently estimated to be about 45%, depending on the timing and extent of losses in the U.K. subsidiary and actions taken to reduce those losses. That concludes our formal remarks. We will now take any questions you may have. Operator. Q&A - --- CLOSING STATEMENT - ----------------- Thank you again for joining us today. I am very optimistic about PLATO Learning's potential for profitable growth going forward. I hope I conveyed that optimism and my excitement about working with the company to achieve its full potential. I also look forward to working with you in the coming months. Thank you and good bye. 7 -----END PRIVACY-ENHANCED MESSAGE-----