-----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, Mv/emvVyGpi1O4EJHZb4BLN3+E10miihoMwJIzBK/jWcLPLGHG3EU8zQTeng6ELF phz5U7zQ43pv+5FrShK/Yg== 0000950134-05-011284.txt : 20050611 0000950134-05-011284.hdr.sgml : 20050611 20050602172047 ACCESSION NUMBER: 0000950134-05-011284 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050602 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050602 DATE AS OF CHANGE: 20050602 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: 05875035 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 c95765e8vk.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): June 2, 2005 PLATO LEARNING, INC. (Exact name of Registrant as specified in its charter) Delaware 0-20842 36-3660532 -------- ------- ---------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File Number) 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)) ================================================================================ ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On June 2, 2005, we issued a press release, attached hereto as Exhibit 99.1, announcing our second quarter 2005 financial results. ITEM 7.01. REGULATION FD DISCLOSURE. On June 2, 2005, we held our regularly scheduled conference call with the investment community to discuss our second quarter 2005 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 June 2, 2005. Exhibit 99.2 Transcript of prepared remarks for our second quarter 2005 earnings release conference call on June 2, 2005. 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. June 2, 2005 By /s/ Laurence L. Betterley -------------------------------- Senior Vice President and Chief Financial Officer 3 EX-99.1 2 c95765exv99w1.txt PRESS RELEASE [PLATO LEARNING LOGO] __________________________________________________________FOR IMMEDIATE RELEASE CONTACT: MIKE MORACHE -- PRESIDENT AND CEO LARRY BETTERLEY -- SR. VP AND CFO STEVE SCHUSTER -- VP AND TREASURER 952.832.1000 PLATO LEARNING, INC. REPORTS SECOND QUARTER FISCAL YEAR 2005 RESULTS MINNEAPOLIS, MN -- JUNE 2, 2005 -- PLATO Learning, Inc. (NASDAQ: TUTR), a leading provider of K--adult computer-based and e-learning solutions, today announced revenues for its second quarter ended April 30, 2005, totaling $31.4 million. This represents a $0.9 million or a 3% decrease versus the $32.3 million reported for the comparable period of fiscal 2004. Net loss for the second quarter of 2005 was $3.0 million, or $0.13 per diluted share, as compared to a net loss of $3.2 million, or $0.14 per share, for the same period of 2004. The net loss, excluding the impact of restructuring and other charges, was $2.3 million, or $0.10 per share, for the second quarter of 2005. Gross margin was 58.3% for the quarter versus 62.2% in the second quarter of 2004. The lower gross margin was primarily driven by a shift in revenue mix from high gross margin license fee revenue to lower gross margin service revenues. Operating expenses, excluding the impact of restructuring and other charges, declined 12% for the quarter from 2004. The decrease resulted from cost reduction actions initiated throughout 2004 and 2005 and from realignment of service resources from sales support to billable activities. Restructuring and other charges primarily include severance payments, facility closing costs, and amounts paid to terminated executives under employment agreements. Revenues for the six months ended April 30, 2005, were $56.9 million, also a 3% decrease from 2004. Net loss, excluding restructuring and other charges of $2.9 million, was $10.6 million, compared to $10.8 million in 2004. Loss per share, excluding the impact of restructuring and other charges of $0.13, was $0.45, compared to $0.48 in 2004. Mike Morache, PLATO Learning President and CEO, said, "Our performance in the second quarter was somewhat better than anticipated and got us back on plan for the first six months of the year. Particularly noteworthy was the 12% reduction in operating expenses from 2004 for both the quarter and year-to-date periods, excluding restructuring and other charges. These declines reflect our continuing focus on reducing the company's cost structure and improving efficiency." 1 "Since joining the company much of my time has been spent on assessing the business. PLATO Learning has tremendous assets in its intellectual property, customer relationships, and the talent of its employees who have a sincere passion for improving education. The company, however, also needs to make changes in its business structure, systems, and processes to sustain a growing and profitable business in the future. All of us at PLATO Learning are working diligently to implement the changes necessary to transform the Company during 2005, with the goal of having them in place as we enter into fiscal year 2006," said Morache. "Our financial goals for the year remain unchanged, as we see sufficient opportunity to achieve our objectives. The type and magnitude of the changes we are implementing, however, can have an impact on our near-term financial performance. We intend to manage change to minimize disruption; however, the changes are needed to achieve our expected financial performance over the long term and are among the Company's top priorities," added Morache. The Company highlighted additional key financial information for the second quarter of 2005: o Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), and restructuring and other charges, was $2.4 million for the quarter, compared to $1.6 million for the same period in 2004. o Cash and marketable securities were $31.5 million at April 30, 2005, compared to $21.7 million at April 30, 2004, and $45.5 million at October 31, 2004. o Deferred revenue was $39.3 million at April 30, 2005, versus $38.3 million at April 30, 2004, and $51.6 million at October 31, 2004. o Both cash and marketable securities and deferred revenue were impacted by low order volume in the first half of the year, due in part to changes in the sales organization and procedures and in part to the seasonality of the business. USE OF NON-GAAP FINANCIAL MEASURES The non-GAAP financial measures used in this press release exclude the impact of 2005 restructuring and other charges on PLATO Learning's operating results, as well as present 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. PLATO Learning's management views these non-GAAP financial measures to be helpful in assessing the Company's ongoing operating results. 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 management in its 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. 2 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 1.877.209.0397 in the U.S. and Canada and 1.612.332.0923 for international calls. Please call 10 minutes prior to the start of the call and inform the operator you are participating in PLATO Learning's quarterly earnings call. Should you be unable to attend the live conference call, a recording will be available to you from 7:15 p.m. (CT) on June 2, 2005, through midnight on June 9, 2005. 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 765768. 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, 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. PLATO Learning, Inc. is a publicly held company traded as TUTR on the NASDAQ, with trailing 12-month revenues of approximately $140 million. 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 the United States, Canada, and the United Kingdom, as well as international distributors in Puerto Rico, 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, 2004. 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 SIX MONTHS ENDED APRIL 30, APRIL 30, ------------------------------- ------------------------------- 2005 2004 2005 2004 -------------- -------------- --------------- -------------- Revenues: License fees $ 14,233 $ 17,213 $ 25,328 $ 30,272 Subscriptions 4,517 5,325 9,050 9,833 Services 10,908 7,197 19,104 13,534 Other 1,771 2,585 3,402 5,129 -------------- -------------- --------------- -------------- Total revenues 31,429 32,320 56,884 58,768 -------------- -------------- --------------- -------------- Cost of revenues: License fees 2,869 3,234 6,301 6,575 Subscriptions 2,142 2,061 4,455 3,740 Services 6,108 4,570 12,234 8,334 Other 1,985 2,342 3,685 4,541 -------------- -------------- --------------- -------------- Total cost of revenues 13,104 12,207 26,675 23,190 -------------- -------------- --------------- -------------- Gross profit 18,325 20,113 30,209 35,578 -------------- -------------- --------------- -------------- Operating expenses: Sales and marketing 13,410 15,793 26,736 30,978 General and administrative 4,842 5,040 9,052 9,532 Product development 1,222 1,346 2,693 3,549 Amortization of intangibles 1,080 1,102 2,172 2,085 Restructuring and other charges 632 - 2,921 - -------------- -------------- --------------- -------------- Total operating expenses 21,186 23,281 43,574 46,144 -------------- -------------- --------------- -------------- Operating loss (2,861) (3,168) (13,365) (10,566) Interest income 168 138 380 257 Interest expense (28) (37) (43) (72) Other expense, net (83) (13) (153) (84) -------------- -------------- --------------- -------------- Loss before income taxes (2,804) (3,080) (13,181) (10,465) Income tax expense 150 150 300 300 -------------- -------------- --------------- -------------- Net loss $ (2,954) $ (3,230) $ (13,481) $ (10,765) ============== ============== =============== ============== Loss per share: Basic and diluted $ (0.13) $ (0.14) $ (0.58) $ (0.48) ============== ============== =============== ============== Weighted average common shares outstanding: Basic and diluted 23,378 22,989 23,240 22,236 ============== ============== =============== ==============
PLATO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - --------------------------------------------------------------------------------
APRIL 30, OCTOBER 31, 2005 2004 ----------------- ----------------- (UNAUDITED) (SEE NOTE) ASSETS Current assets: Cash and cash equivalents $ 25,534 $ 29,235 Marketable securities 5,982 12,615 Accounts receivable, net 28,589 41,852 Prepaid expenses and other current assets 9,672 9,460 ----------------- ----------------- Total current assets 69,777 93,162 Long-term marketable securities - 3,608 Equipment and leasehold improvements, net of accumulated depreciation and amortization of $11,955 and $10,361, respectively 7,499 7,946 Product development costs, net of accumulated amortization of $22,294 and $18,835, respectively 18,628 17,116 Goodwill 71,997 71,267 Identified intangible assets, net 35,291 39,432 Other assets 1,088 213 ----------------- ----------------- Total assets $ 204,280 $ 232,744 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,104 $ 5,196 Accrued employee salaries and benefits 6,798 8,772 Accrued liabilities 5,624 6,383 Deferred revenue 33,434 43,042 ----------------- ----------------- Total current liabilities 47,960 63,393 Long-term deferred revenue 5,835 8,533 Deferred income taxes 1,622 1,322 Other liabilities 39 46 ----------------- ----------------- Total liabilities 55,456 73,294 ----------------- ----------------- Stockholders' equity: Common stock, $.01 par value, 50,000 shares authorized; 23,495 shares issued and 23,475 outstanding at April 30, 2005; 23,095 shares issued and 23,075 shares outstanding at October 31, 2004 235 231 Additional paid in capital 165,457 162,956 Treasury stock at cost, 20 shares (205) (205) Accumulated deficit (16,331) (2,850) Accumulated other comprehensive loss (332) (682) ----------------- ----------------- Total stockholders' equity 148,824 159,450 ----------------- ----------------- Total liabilities and stockholders' equity $ 204,280 $ 232,744 ================= =================
Note: The balance sheet at October 31, 2004 has been derived from our audited financial statements at that date. PLATO LEARNING, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS) - --------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, -------------------------------- 2005 2004 --------------- --------------- OPERATING ACTIVITIES: Net loss $ (13,481) $ (10,765) --------------- --------------- Adjustments to reconcile net loss to net cash used in operating activities: Deferred income taxes 300 300 Amortization of capitalized product development costs 3,463 3,478 Amortization of identified intangible and other noncurrent assets 4,280 3,763 Depreciation and amortization of equipment and leasehold improvements 1,743 1,837 Restructuring and other charges 2,921 - Provision for doubtful accounts 674 827 Stock-based compensation 39 217 Loss on disposal of equipment 32 1 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable 12,589 5,775 Prepaid expenses and other current and noncurrent assets (1,170) (755) Accounts payable (3,092) (1,854) Accrued liabilities, accrued employee salaries and benefits and other liabilities (5,588) (6,210) Deferred revenue (12,306) (834) --------------- --------------- Total adjustments 3,885 6,545 --------------- --------------- Net cash used in operating activities (9,596) (4,220) --------------- --------------- INVESTING ACTIVITIES: Acquisitions, net of cash acquired - 2,460 Capitalization of product development costs (5,211) (4,291) Capital expenditures (1,375) (1,112) Purchases of marketable securities (9,266) (287) Sales and maturities of marketable securities 19,559 370 --------------- --------------- Net cash provided by (used in) investing activities 3,707 (2,860) --------------- --------------- FINANCING ACTIVITIES: Net proceeds from issuance of common stock 1,925 1,491 Repurchase of common stock - (205) Repayments of capital lease obligations (127) (70) --------------- --------------- Net cash provided by financing activities 1,798 1,216 --------------- --------------- Effect of foreign currency on cash 390 (28) --------------- --------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (3,701) (5,892) Cash and cash equivalents at beginning of period 29,235 23,834 --------------- --------------- Cash and cash equivalents at end of period $ 25,534 $ 17,942 =============== ===============
PLATO LEARNING, INC. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------- REVENUES QUARTER ENDED SIX MONTHS ENDED ($000's) APRIL 30, APRIL 30, ---------------------------- --------------------------- 2005 2004 % CHANGE 2005 2004 % CHANGE ------------- ------------- ------------- ------------- ------------- -------------- License fees $ 14,233 $ 17,213 -17% $ 25,328 $ 30,272 -16% Subscriptions 4,517 5,325 -15% 9,050 9,833 -8% Services 10,908 7,197 52% 19,104 13,534 41% Other 1,771 2,585 -31% 3,402 5,129 -34% ------------- ------------- ------------- ------------- $ 31,429 $ 32,320 -3% $ 56,884 $ 58,768 -3% ============= ============= ============= ============= - ---------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES QUARTER ENDED APRIL 30, --------------------------------------------------- ($000's) 2005 2004 ------------------------- ------------------------- % of % of ---------- Revenue Revenue % Change ------------ ---------- ----------- Total operating expenses $ 21,186 67% $ 23,281 72% -9% Restructuring and other charges (632) - ------------- ------------- Operating expenses before restructuring and other charges $ 20,554 65% $ 23,281 72% -12% ============= ============= SIX MONTHS ENDED APRIL 30, --------------------------------------------------- 2005 2004 ------------------------- ------------------------- % of % of ---------- Revenue Revenue % Change ------------ ---------- ----------- Total operating expenses $ 43,574 77% $ 46,144 79% -6% Restructuring and other charges (2,921) - ------------- ------------- Operating expenses before restructuring and other charges $ 40,653 71% $ 46,144 79% -12% ============= ============= - -------------------------------------------------------------------------------------------------------------------- NET LOSS QUARTER ENDED SIX MONTHS ENDED ($000's) APRIL 30, APRIL 30, -------------------------- ---------------------------- 2005 2004 2005 2004 ----------- ------------- ------------ -------------- Net loss $ (2,954) $ (3,230) $ (13,481) $ (10,765) Add back restructuring and other charges 632 - 2,921 - ----------- ------------- ------------ -------------- Net loss before restructuring and other charges $ (2,322) $ (3,230) $ (10,560) $ (10,765) =========== ============= ============ ============== Weighted average common shares outstanding - basic and diluted 23,378 22,989 23,240 22,236 =========== ============= ============ ============== Loss per share before restructuring and other charges - basic and diluted (0.10) (0.14) (0.45) (0.48) =========== ============= ============ ==============
PLATO LEARNING, INC. SUPPLEMENTAL FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------- ORDER SIZE QUARTER ENDED APRIL 30, ------------------------------------------------------------ ($000's) 2005 2004 % CHANGE ----------------------------- ----------------------------- ----------------------------- Number Value Number Value Number Value ----------------------------- ----------------------------- ----------------------------- $100 to $249 19 $ 3,021 40 $ 5,961 -53% -49% $250 or greater 10 5,060 11 6,919 -9% -27% ----------------------------- ----------------------------- 29 $ 8,081 51 $ 12,880 -43% -37% ============================= ============================= SIX MONTHS ENDED APRIL 30, ------------------------------------------------------------ 2005 2004 % CHANGE ----------------------------- ----------------------------- ----------------------------- Number Value Number Value Number Value ----------------------------- ----------------------------- ----------------------------- $100 to $249 37 $ 5,550 70 $ 10,270 -47% -46% $250 or greater 21 9,984 25 16,037 -16% -38% ----------------------------- ----------------------------- 58 $ 15,534 95 $ 26,307 -39% -41% ============================= ============================= - ------------------------------------------------------------------------------------------------------------------------ EBITDA (EXCLUDING RESTRUCTURING AND OTHER CHARGES) ($000'S) TWELVE MONTHS ENDED APRIL 30, 2005 ------------------------------------------------------------------------ Q3-2004 Q4-2004 Q1-2005 Q2-2005 TOTAL ------------------------------------------------------------------------ Net earnings (loss) $ 6,724 $ 2,213 $ (10,527) $ (2,954) $ (4,544) Income taxes 150 1,580 150 150 2,030 Interest expense 28 22 15 28 93 Depreciation and amortization 4,388 4,481 4,984 4,502 18,355 Restructuring and other charges - - 2,289 632 2,921 ------------------------------------------------------------------------ $ 11,290 $ 8,296 $ (3,089) $ 2,358 $ 18,855 ======================================================================== TWELVE MONTHS ENDED APRIL 30, 2004 ------------------------------------------------------------------------ Q3-2003 Q4-2003 Q1-2004 Q2-2004 TOTAL ------------------------------------------------------------------------ Net earnings (loss) $ 285 $ 3,276 $ (7,535) $ (3,230) $ (7,204) Income taxes 1,600 1,744 150 150 3,644 Interest expense 34 16 35 37 122 Depreciation and amortization 2,782 2,854 4,455 4,623 14,714 Restructuring and other charges 422 - - - 422 ------------------------------------------------------------------------ $ 5,123 $ 7,890 $ (2,895) $ 1,580 $ 11,698 ======================================================================== - -----------------------------------------------------------------------------------------------------------------------
EX-99.2 3 c95765exv99w2.txt TRANSCRIPT OF PREPARED MARKS FOR CONFERENCE CALL PLATO LEARNING, INC FISCAL YEAR 2005 Q2 FINANCIAL RELEASE CONFERENCE CALL JUNE 2, 2005 OPERATOR - -------- Ladies and gentlemen, welcome to PLATO Learning's second quarter conference call. At this time, I would like to introduce Mike Morache, President and CEO of PLATO Learning. MIKE MORACHE - ------------ 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. We have based these statements on our current expectations and projections about future events. Although we believe that the 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, 2004. Actual results may differ materially from anticipated results. 1 The content of our call contains time-sensitive information that is accurate only as of today, June 2, 2005. 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 re-distribution, or rebroadcast of this call in any form without the express written consent of PLATO Learning is prohibited. Mike. MIKE MORACHE - ------------ Thanks Larry. The financial results we announced today for our second quarter of fiscal 2005 were somewhat better than our expectations and helped us to get back to our financial plan year-to-date. Revenues were $31.4 million for the quarter and $56.9 million year-to-date, both down about 3% from those periods in 2004, but within our expectations. As discussed in the first quarter call, several factors were expected to affect our performance in the first half, including management changes, sales and service organization realignment, and implementation of new systems and procedures to improve the efficiency of our sales process in the future. These changes affected all non-service revenues, including deferred revenues. Service revenues continued to grow and nearly offset the declines in non-service revenue areas. Total gross margin percentage declined, primarily due to the shift in revenue mix to services, which have lower gross margins than license fees and subscriptions. Most of this shift was anticipated, and total gross margin is in line with planned levels. We are pleased with our progress in reducing operating expenses, which declined 12% for both the quarter and year-to-date from 2004, excluding the effects of restructuring and other charges. We continue to scrutinize the level of spending and allocation of resources to improve our productivity. 2 The resulting net loss for the quarter, excluding restructuring and other charges, was $2.3 million, or $0.10 per share. This is a 28% improvement over last year, clearly demonstrating the value of our cost reduction initiatives to-date, especially given our lower gross margins this year. Net loss, excluding restructuring and other charges, also improved year-to-date to $10.6 million, or $0.45 per share, compared to $10.8 million, or $0.48 last year. The Company's cash and investment position of $31.5 million is down from year-end and first quarter levels, due to low cash receipts during second quarter, resulting from low order volume in the first half of the year and seasonality of cash flow. It is, however, still nearly $10.0 million greater than the end of second quarter last year. We are satisfied with second quarter performance and see sufficient opportunity to achieve our financial goals for the year, which remain consistent with our previous financial guidance. We also continue to implement the operational improvements needed to achieve our expected financial performance over the long term. The type and magnitude of these changes can have an effect on our near-term financial performance. We intend to manage change to minimize disruption; however, the changes must be made and are among the company's top priorities. I will discuss these initiatives in a few minutes, after Larry reviews the financial results in further detail. Larry. LARRY BETTERLEY - --------------- Thank you Mike. Q2 FINANCIAL RESULTS: - --------------------- Revenues for second quarter 2005 totaled $31.4 million, a 3% decrease from the $32.3 million reported in 2004. Our net loss for the second quarter was $3.0 million, or $0.13 per share, as compared to a net loss of $3.2 million, or $0.14 per share, for the same period of 2004. Excluding the impact of restructuring and other charges, however, the net loss was 28% lower than last year's second quarter at $2.3 million, or $0.10 per share. For the year-to-date, revenue also declined 3% to $56.9 million, with a net loss of $13.5 million, or $0.58 per share. Excluding restructuring and other charges, the net loss was $10.6 million, or $0.45 per share, a 2% and 6% improvement, respectively, from last year. 3 REVENUES: - --------- License fee revenues in second quarter 2005 were $14.2 million, a $3.0 million or 17% decrease from 2004. The decline was expected due to the factors discussed by Mike, which resulted in a low order volume and decrease in the number of large orders closed. 29 transactions over $100,000, with a total order value of $8.1 million, were closed in the quarter, compared to 51 transactions with a total order value of $12.9 million last year. Subscription revenue declined 15% to $4.5 million, impacted by the low order level, but also due to strong sales of our client hosted web products. A decrease in hardware sales, which tend to fluctuate by quarter, led the decline in other revenues. Service revenues grew by $3.7 million or 52% in the second quarter of 2005 over 2004, offsetting much of the decline in non-service revenue categories. Approximately half of the growth was in software support fees and educational consulting, with the other half coming from our new Supplemental Educational Services offering. Year-to-date declines in license fee revenues of 16%, subscription revenues of 8%, and other revenues of 34%, were nearly offset by a 41% increase in services revenues. The reasons for the year-to-date changes from last year are similar to those discussed for the quarter. Our deferred revenue balance at quarter-end was $39.3 million. This is down from a high at the end of 2004 of $51.6 million, but near the April 30, 2004 level of $38.3 million. The decline is due to low order volume from factors previously discussed and also to the general seasonality of orders. Deferred revenues are expected to grow as order volume increases in the 2nd half of the year. GROSS PROFIT: - ------------ The overall gross profit margin for the quarter was 58.3%, versus 62.2% in second quarter 2004. This decline for the quarter was anticipated and is primarily due to a shift in revenue mix toward more services revenues, which generates lower gross margins, and to the reduction in license fees and subscription revenues, which have low variable costs. 4 Gross margins year-to-date 2005 were also affected as expected by these factors, resulting in an overall gross margin of 53.1% versus 60.5% in 2004. Gross margins are expected to improve in the second half of the year as license fee revenues grow. OPERATING EXPENSES: - ------------------- Our total operating expenses in the second quarter 2005 were $20.6 million, excluding restructuring and other charges of $632,000. This compares to $23.3 million of operating expenses in last year's second quarter, representing a 12% reduction. The reduction reflects the effect of cost reduction activities initiated during 2004 and 2005 in all areas of the company, and realignment of service resources from sales support to billable activities. These reductions were partially offset by increased professional fees in G&A for Sarbanes-Oxley compliance, senior management changes, and implementation of new processes. Restructuring and other charges for the quarter consist primarily of committed costs of vacated facilities in the U.K., as well as severance costs for several terminations in the U.S. as part of our continued evaluation of the company's business structure. Year-to-date operating expenses, excluding restructuring and other charges, also declined 12% from 2004 to $40.7 million, for similar reasons as discussed for the quarter. Restructuring and other expenses totaled $2.9 million year-to-date, including employee terminations in the U.K. and U.S., vacated facilities in the U.K., and executive termination costs. BALANCE SHEET AND CASH FLOW: - ---------------------------- Cash and marketable securities were $31.5 million at April 30, 2005. This is down $14 million from year-end, due to low order volume, including the general seasonality of orders, and the fixed nature of most of our costs. Compared to April 30, 2004, cash and marketable securities have increased nearly $10 million. EBITDA, excluding restructuring and other charges, was a positive $2.4 million for the quarter and near breakeven year-to-date. Cash used in operating activities year-to-date was $9.6 million, favorably affected by $9.5 million of depreciation and amortization expense. Continued improvements in receivable collection metrics were offset by the decline in deferred revenues. 5 Total capitalized courseware development costs and capital expenditures exceeded amortization and depreciation expense by $1.4 million year-to-date, due to the timing of completion of capitalized projects. A $1.0 million payment was also made during the quarter to the prior CEO, in lieu of a stock option grant due under the terms of his employment agreement. This payment is being expensed over a 36-month term associated with non-compete and other provisions of the agreement. This concludes my formal remarks. I'll turn it back to Mike now for his further comments. MIKE MORACHE - ------------ Thank you Larry. Since becoming the CEO in March, I have spent a great deal of time meeting with employees and assessing the business. PLATO Learning has tremendous assets in its intellectual property, customer relationships, and the talent of its employees who have a sincere passion for improving education. The company, however, also needs to make changes in its business structure, systems, and processes to sustain a growing and profitable business in the future. Some of these changes were begun under the leadership of Dave Smith in his role as interim CEO and continue to be implemented. Others are being initiated as needs are identified. I will discuss the most significant of these in more detail. The sales organization is being realigned to better concentrate on market opportunities. This was begun in the beginning of the year to improve sales in the elementary market and continues to be adjusted to improve our productivity. As part of this, management layers have been reduced, and strategic and support positions have been assigned territories with quota accountability. New tools and procedures are also being implemented to improve our forecasting, pipeline management, pricing discipline, and transaction close time. These changes have caused some attrition in the field organization and others may leave who can't be effective in the new organization. Dave Smith has taken leadership for our K-12 sales business, due to a leave of absence of our Sr. VP in that area, which is unrelated to the changes being made. A search for a new leader has begun to fill the position on a permanent basis. 6 As Dave has discussed in the past, we are implementing a new product development review process to focus the development efforts of the company on projects that fit our strategic direction and meet return on investment criteria. We have completed a review of our strategy and identified specific market segments to pursue and the key product requirements needed to be successful in those markets. This will result in focused investment in those markets and products and phase out of products that no longer meet our long term vision. We are also making improvements to our software development processes to make them best of class. To that end, we have hired Jim Lynn as Chief Technology Officer. Jim has extensive experience in software development at Lockheed Martin, Pearson Digital Education and Motorola, and he is uniquely qualified to accomplish critical software development process improvements at PLATO Learning. In addition, we continue to look for cost savings and productivity improvements throughout the company and will implement them as they are identified. The changes I've identified are substantial, but necessary to transform the company from one of slow growth and losses to one of consistent double-digit profitable growth in both the top and bottom lines, and a 15-20% operating income. It will take some time, but I am confident it can be done and have experience in doing just that in a prior role in this industry. With the wealth of assets and talent of employees at PLATO Learning, there is no reason this can't occur here as well, once the necessary changes to business operations are in place and working well. Before I conclude the formal comments and take questions, I would like to acknowledge Dave Smith for his outstanding contributions throughout the first half of the year as PLATO's interim CEO, then as interim K12 VP sales, and as our full time executive chair. Dave's leadership, versatility, and strategic thinking during our transition cannot be over-stated. As executive chair, I am pleased that Dave will remain a full time member of PLATO's leadership. 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 in the future. I hope I conveyed that optimism and my excitement about working with the company to achieve its full potential. Thank you and good bye. 8 -----END PRIVACY-ENHANCED MESSAGE-----