PLATO Learning Reports Fourth Quarter and Fiscal Year 2007 Results

Business Wire,  Dec 11, 2007  

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* Order Trend Turns Positive as Total Orders Grow 1%

* Rapid Growth in Orders for Subscription Courseware Products Continues, Increasing 90%

* Total Revenues Decrease, Net Loss Excluding Charges Increases on Perpetual to Subscription Transition

* Deferred Revenue Balance Grows 17% to $49.1 million

MINNEAPOLIS -- PLATO Learning, Inc. (NASDAQ:TUTR), a leading provider of K-adult computer-based e-learning solutions, today announced total orders of $25.9 million in its fourth quarter ended October 31, 2007, an increase of 1% over the same period last year. The increase marks the first quarter of total order growth for the Company since launching its new online learning management system, the PLATO Learning Environment[TM] (PLE[TM]), in the third quarter of fiscal year 2006, and is a significant change from the 22% decline in total orders the Company experienced through the first three quarters of fiscal year 2007.

Mike Morache, PLATO Learning President and CEO said, "Order growth in the quarter was another significant milestone in PLATO Learning's transformation. We are very pleased with the progress our sales organization made over the last six months and are excited about our momentum and the potential for growth in 2008."

Total revenues were $18.2 million in the fourth quarter of 2007, compared to $23.8 million for the fourth quarter of fiscal 2006. Subscription revenues grew to $7.1 million, an increase of 32% over the fourth quarter of 2006, and 9% over the third quarter of 2007. The decline in total revenues was due to a decline in license fees from legacy perpetual products as the Company continues its transition from a perpetual software licensing model, for which revenue is recognized upon delivery, to a software-as-a-service model in which revenue is recognized over a subscription period.

The Company's net loss for the fourth quarter declined to ($4.0) million, or ($0.17) per share, compared to ($11.6) million, or ($0.49) per share in the same period last year. Restructuring and impairment charges declined to $0.8 million, or $0.04 per share, in the fourth quarter of 2007, compared to $9.8 million, or $0.42 per share, in the fourth quarter of 2006. Excluding these charges, the Company's fourth quarter net loss was ($3.2) million, or ($0.13) per share in 2007 compared to ($1.8) million, or ($0.07) per share in 2006. Cash balances increased $1.9 million during the quarter to $24.3 million.

Mr. Morache continued, "In addition to order growth, healthy gains occurred in the other key metrics we monitor to measure our strategic progress. Orders for subscription courseware products were up 90% for both the fourth quarter and full year compared to 2006. During the quarter we added 176 school districts and community colleges as subscribers to PLE, including 57 districts and colleges that are new PLATO Learning customers. At the end of the quarter, 490,000 users in 719 school districts, community colleges and other learning institutions across the U.S. were registered to use PLE. The user base has increased by more than 400% since the end of fiscal 2006 and by 90% since the third quarter of this year. In addition, our deferred revenue balance, a key forward looking indicator of revenue, increased 17% during the quarter to $49.1 million."

Gross margins in the fourth quarter of 2007 were 43% compared to 53% in the same period last year, reflecting a decline in higher margin perpetual license fees, which have a relatively fixed cost base, and a decline in subscription margins from 52% in 2006 to 37% in 2007. The decline in subscription margin reflects a reallocation of customer support resources from legacy to new subscription products in response to the growth in subscription customers and, to a lesser degree, higher royalty costs from increased sales of solutions that include bundled third-party products.

Operating expenses in the quarter declined $12.6 million, consisting of an $8.4 million decline in restructuring and impairment costs and a $4.2 million, or 27% decline in other operating expenses. The decline in restructuring and impairment costs primarily reflects a one-time impairment charge in the fourth quarter of 2006 of $7.0 million on purchased intangible assets acquired in previous acquisitions. The decline in other operating expenses reflects the Company's cost reduction and restructuring activities in fiscal year 2006 and early 2007.

For the full fiscal year 2007, revenues totaled $69.6 million compared to $90.7 million in fiscal year 2006. The revenue decline reflects a $19.6 million decrease in license fee revenues derived from the sale of the Company's legacy perpetual license products. Revenues from these products are expected to decline further as the Company's shift to subscription-based products continues. Total cost of revenue and operating expenses in fiscal 2007 were $85.1 million, an improvement of $29.2 million, or 26% over fiscal 2006. The improvement consists of a $10.1 million reduction in impairment and restructuring charges and a $19.1 million, or 18% decline in other costs of revenue and operating expenses. Net loss for fiscal year 2007 improved to ($14.9) million, or ($0.63) per share, compared to ($22.5) million, or ($0.95) per share, in fiscal 2006. Net loss excluding restructure and impairment charges for the fiscal year increased to ($14.8) million, or ($0.62) per share in 2007 compared to ($12.3 million), or ($0.52) per share in 2006.