Scientific Learning Reports Third Quarter 2012 Financial Results OAKLAND, Calif., Nov. 12, 2012 (GLOBE NEWSWIRE) -- Scientific Learning Corporation (OTCQB:SCIL), a leading provider of technologies for accelerated learning, today announced financial results for the third quarter ended September 30, 2012. Total revenue in the third quarter of 2012 was $6.8 million, compared to $10.5 million in the third quarter of 2011. Total booked sales for the third quarter were $7.7 million, compared to $12.2 million in the third quarter of 2011. The net loss in the third quarter of 2012 was $(2.2) million, or $(0.10) per share, compared to a net loss of $(1.2) million, or $(0.07) per share, in the third quarter of 2011. Included in results for the third quarter of 2012 is a restructuring charge of $1.5 million. Adjusted EBITDA (which includes the restructuring charge as an adjustment) was a loss of $(957) thousand in the third quarter of 2012 compared to a loss of $(453) thousand in the same period of 2011. "Rapid customer transition to our new on demand platform (MySciLEARN) continues with over 70% converted as we established a record peak of over 85,000 student training sessions per day," stated Bob Bowen, Chairman and CEO. "In the third quarter of 2012 we achieved our goal of realigning our cost structures, putting us in a position of being cash flow positive in 2013 on much more conservative sales targets. Our employees have been terrific and their commitment to our important mission is inspiring." Third Quarter 2012 Metrics: oK-12 transaction volume increased 9% over third quarter 2011 oThe number of active school sites increased approximately 11% year over year to almost 3,400 sites oSubscription revenue increased 127% over third quarter 2011 oAs of September 30, 2012, 70% of the Company's active K-12 school sites are accessing Fast ForWord or Reading Assistant via the new on-demand, SaaS platform known as MySciLEARN, up from about 51% at the end of June, 2012 oAs of September 30, 2012 the number of employees was 146 compared to 229 on June 30, 2012 "The above metrics demonstrate good progress on moving to our new SaaS business model; however, booked sales and revenue do not yet reflect this progress because of the lower average price for a subscription license compared to a perpetual license," stated Bob Bowen. Booked sales and Adjusted EBITDA are both non-GAAP measures. Additional information on these non-GAAP measures and reconciliations are included at the end of this earnings release and in the investor information section of our website, http://www.scientificlearning.com/. Conference Call Information A conference call to discuss third quarter 2012 financial results is scheduled for today, November 12, 2012 at 4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time. Investors and analysts interested in participating in the call are invited to dial (877) 878-2695 (domestic) or (253) 237-1145 (international) and use conference ID # 64677781 ten minutes prior to the start of the call. The conference call will be available live on the Investor Information portion of the Company's website at http://www.scilearn.com/investorinfo. A replay of this teleconference will be made available on the Scientific Learning website approximately two hours following the conclusion of the call. About Scientific Learning Corporation We accelerate learning by applying proven research on how the brain learns. Scientific Learning's results are demonstrated in over 250 research studies and protected by over 55 patents. Learners can realize achievement gains of up to two years in as little as three months and maintain an accelerated rate of learning even after the programs end. Today, learners have used over 3.5 million Scientific Learning software products. We provide our offerings directly to parents, K-12 schools and learning centers, and in more than 40 countries around the world. For more information, visit http://www.scientificlearning.com/. The Scientific Learning Corp. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=15680 Forward-Looking Statements This press release contains forward-looking statements that are subject to the safe harbor created by the federal securities laws. Such statements include, among others, statements relating to rapid customer transition to our on-demand platform, future profitability and cash flow, our cost structure, and employees' continued commitment to our mission. Such statements are subject to substantial risks and uncertainties. Actual events or results may differ materially as a result of many factors, including but not limited to: general economic and financial conditions (including current adverse conditions in government budgets and the general economy); availability of funding to purchase the Company's products and generally available to schools, including the amount and duration of federal stimulus funding; the acceptance of new products and product changes in existing and new markets; acceptance of subscription and other recurring offerings; seasonality and sales cycles in Scientific Learning's markets; competition; the extent to which the Company's marketing, sales and implementation strategies are successful; personnel changes; the Company's ability to continue to demonstrate the efficacy of its products, and other risks detailed in the Company's SEC reports, including but not limited to its Report on Form 10-K for the year ended December 31, 2011 (Part I, Item 1A, Risk Factors) filed March 30, 2012 and its Reports on Form 10-Q (Part II, Item 1A, Risk Factors) for the quarters ended subsequent to June 30, 2012. The Company disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise. SCIENTIFIC LEARNING CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, 2012 December 31, 2011 Assets Current assets: Cash and cash equivalents $2,617 $5,871 Accounts receivable, net 4,610 4,433 Prepaid expenses and other current 820 1,709 assets Total current assets 8,047 12,013 Property and equipment, net 2,450 3,326 Goodwill 4,568 4,568 Other intangible assets, net 130 518 Other assets 1,087 1,438 Total assets $16,282 $21,863 Liabilities and stockholders' equity (net capital deficiency) Current liabilities: Accounts payable $507 $881 Accrued liabilities 3,192 3,556 Loan payable 1,397 -- Deferred revenue 12,156 12,606 Total current liabilities 17,252 17,043 Deferred revenue, long-term 3,584 4,716 Warrant Liability 1,012 -- Other liabilities 659 785 Total liabilities 22,507 22,544 Stockholders' equity (net capital deficiency): Common stock and additional paid in 95,614 90,735 capital Accumulated deficit (101,842) (91,419) Accumulated other comprehensive income 3 3 Total stockholders' equity (net capital (6,225) (681) deficiency) Total liabilities and stockholders' $16,282 $21,863 equity (net capital deficiency) SCIENTIFIC LEARNING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September September 30, 30, 2012 2011 2012 2011 Revenues: Subscriptions $1,200 $529 $2,884 $1,392 License 2,018 5,738 6,918 17,768 Service and support 3,610 4,269 11,260 14,208 Total revenues 6,828 10,536 21,062 33,368 Cost of revenues: Cost of subscription 288 245 793 340 Cost of license 236 342 735 987 Cost of service and support 1,322 2,190 4,752 6,426 Total cost of revenues 1,846 2,777 6,280 7,753 Gross profit 4,982 7,759 14,782 25,615 Operating expenses: Sales and marketing 3,367 4,682 12,634 14,075 Research and development 1,395 2,347 5,898 7,801 General and administrative 1,948 1,922 6,137 6,343 Restructuring 1,462 -- 1,462 -- Total operating expenses 8,172 8,951 26,131 28,219 Operating loss (3,190) (1,192) (11,349) (2,604) Interest and other income 1,030 (5) 1,095 10 (expense), net Loss before income tax (2,160) (1,197) (10,254) (2,594) Provision for income taxes 86 46 169 128 Net income loss $(2,246) $(1,243) $(10,423) $(2,722) Net loss per share: Basic and diluted loss per $(0.10) $(0.07) $(0.48) $(0.14) share Weighted average shares used in computation of per share data: Basic and diluted weighted 23,368 18,883 21,933 18,807 average shares outstanding SCIENTIFIC LEARNING CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2012 2011 Operating Activities: Net loss $(10,423) $(2,722) Adjustments to reconcile net loss to cash used in operating activities Depreciation and amortization 1,866 1,389 Impairment charge 200 -- Stock-based compensation 615 1,005 Change in fair value of warrant (1,356) -- Changes in operating assets and liabilities: Accounts receivable (177) (3,251) Prepaid expenses and other current assets 889 489 Other assets 25 69 Accounts payable (374) 203 Accrued liabilities (364) (73) Deferred revenue (1,582) (2,409) Other liabilities (126) (26) Net cash used in operating activities (10,807) (5,326) Investing Activities: Purchases of property and equipment, net (476) (1,773) Purchases of investments -- (4,633) Sales and maturities of investments -- 8,555 Net cash provided by (used in) investing (476) 2,149 activities Financing Activities: Borrowings under bank line of credit 7,897 -- Repayment of borrowings under bank line of (6,500) -- credit Proceeds from exercise of options 152 177 Proceeds from issuance of common stock, net 6,512 -- Net settlement of common stock (32) (111) Net cash provided by financing activities 8,029 66 Decrease in cash and cash equivalents (3,254) (3,111) Cash and cash equivalents at beginning of 5,871 5,415 period Cash and cash equivalents at end of period $2,617 $2,304 Scientific Learning Corporation Supplemental Information Reconciliation of Booked Sales, Revenue and Change in Deferred Revenue $s in thousands Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Booked sales $7,737 $12,166 $19,480 $30,367 Less: revenue 6,828 10,536 21,062 33,368 Adjustments (2) 69 -- 592 Net decrease in current and $907 $1,699 $(1,582) $(2,409) long-term deferred revenue Beginning balance in current and long-term deferred $14,833 $17,763 $17,322 $21,871 revenue Ending balance in current and long-term deferred $15,740 $19,462 $15,740 $19,462 revenue Booked sales is a non-GAAP financial measure that we believe to be a useful measure of the current level of business activity both for management and for investors.Booked sales equals the total value (net of allowances) of software and services invoiced in the period.Because a significant portion of our revenue is recognized over a period of months, booked sales is a good indicator of current activity.The table above shows the reconciliation of booked sales, revenue, and changes in deferred revenue. Reconciliation of Net Loss to Adjusted EBITDA $s in thousands Three Months Ended Nine Months Ended September 30, September 30, 2012 2011 2012 2011 Net loss $(2,246) $(1,243) $(10,423) $(2,722) Adjustments to reconcile to Adjusted EBITDA: Provision for income taxes^1 86 46 169 128 Interest and other (income) 38 5 47 (10) expense, net^2 Depreciation and 641 474 1,866 1,389 amortization^3 Stock-based compensation^4 130 265 615 1,005 Change in fair value of (1,068) -- (1,356) -- warrant^5 Restructuring^6 1,462 -- 1,462 -- Impairment charge^7 -- -- 200 -- Adjusted EBITDA $(957) $(453) $(7,420) $(210) Earnings before interest, taxes, depreciation, amortization and stock-based compensation expense (Adjusted EBITDA) is a non-GAAP financial measure we believe to be a useful measure of the resources available to the Company in the current period. We also believe that Adjusted EBITDA will be useful in allowing investors to compare our performance with that of other companies.The table above shows a reconciliation of Adjusted EBITDA to net loss, the closest GAAP measure. Adjusted EBITDA should not be considered in isolation or as a substitute for analysis for our results as reports under GAAP. Adjusted EBITDA has the following differences from net loss, the closest GAAP measure: ^1 Provision for income taxes is a required expense for all businesses. We excluded it inorder to allow investors to evaluate our operating results without regard to our tax obligations. ^2 Because we have borrowed and invested money, interest income and expense is a necessary element of our costs and ability to generate profits and cash flows. We excluded interest income and expense in order to allow investors to evaluate our operating results without regard to our financing methods. Other income and expense includes foreign exchange gain and loss as well as gain and loss on disposal of fixed assets, all of which we believe are not indicative of our core operating performance and are not meaningful in comparison to our past operating performance. ^3 Depreciation and amortization are necessary elements of our costs and our ability to generate profits; and the assets being depreciated and amortized will often have to be replaced in the future. Adjusted EBITDA does not reflect any cash requirements for such replacements. See below for allocation of non-cash charges. ^4 Stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation because we believe it is not an indicator of the performance of our core operations. See below for allocation of non-cash charges. ^5 Change in fair value of warrant is the change in the fair value of our common stock warrants which were issued on March 28, 2012. The fair value was estimated using the Black-Scholes Merton option pricing model, which requires the input of highly subjective assumptions as determined by the Company's management which we believe is not indicative of our core operating performance and is not meaningful in comparison to our past operating performance. ^6 Restructuring charge consists of severance and related benefits incurred as related to reduction in force completed in the third quarter 2012 which we believe is not indicative of our core operating performance and is not meaningful in comparison to our past operating performance. ^7 Impairment charge consisting of a write off of an investment which was deemed to be impaired as of June 30, 2012 due to the financial condition of the company with which this investment was for. Non-Cash Charges $s in thousands Three Months Ended September 30, Nine Months Ended September 30, 2012 2012 Depreciation Stock-based Depreciation Stock-based & Compensation Total & Compensation Total Amortization Amortization Included in: Cost of products $160 $1 $161 $473 $4 $477 Cost of service and -- 2 2 -- 17 17 support Operating expenses 481 127 608 1,393 594 1,987 Total $641 $130 $771 $1,866 $615 $2,481 $s in thousands Three Months Ended September 30, Nine Months Ended September 30, 2011 2011 Depreciation Stock-based Depreciation Stock-based & Compensation Total & Compensation Total Amortization Amortization Included in: Cost of Products $141 $1 $142 $419 $1 $420 Cost of Service and -- 10 10 -- 30 30 Support Operating Expenses 339 255 594 976 975 1,951 Total $480 $266 $746 $1,395 $1,006 $2,401 Booked sales of subscription contracts Three Months Ended Nine Months Ended September 30, 2012 September 30, 2012 2012 2011 2012 2011 Subscription booked $1,465 $535 $3,933 $910 sales^1 Non-subscription 6,272 11,631 15,547 29,457 booked sales^2 Total booked sales $7,737 $12,166 $19,480 $30,367 Subscriptionbooked sales as a % of 19% 4% 20% 3% total booked sales Non-subscription booked sales as a % 81% 96% 80% 97% of total booked sales Booked sales is a non-GAAP financial measure that we believe to be a useful measure of the current level of business activity both for management and for investors.Booked sales equals the total value (net of allowances) of software and services invoiced in the period. Please see first table above for reconciliation of total booked sales, total revenue, and total change in deferred revenue. ^1 Booked sales of subscriptions contracts is a non-GAAP measure of sales that generate revenue from annual or monthly subscriptions to our web-based products. ^2 Non-subsription booked sales represent the sale of licenses, services and support for perpetual licenses and on premise products. CONTACT: Media: Liz Kline Sr. Director of Marketing Scientific Learning Corporation (510) 625-2269 firstname.lastname@example.org Investor Relations: Jane Freeman Chief Financial Officer Scientific Learning Corporation (510) 625-6710 email@example.com firstname.lastname@example.org Scientific Learning Corp. logo
Scientific Learning Reports Third Quarter 2012 Financial Results
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