Scientific Learning Reports Record 2004 Revenue and Cash Flow
4/14/05
Media Contact:
Mary Anne Petrillo
Scientific Learning Corporation
(510) 625-2218
mpetrillo@scilearn.com
Investor Contact
Jane A. Freeman
Senior Vice President and
Chief Financial Officer
Scientific Learning Corporation
(888) 665-9707, ext. 5526
investorrelations@scilearn.com
Oakland, CA, April 14, 2005 — Scientific Learning Corporation (NASDAQ: SCIL) today announced results for the fourth quarter and year ended December 31, 2004.
Revenue for the twelve months ended December 31, 2004 was $31.0 million, a 4% increase compared to $29.9 million reported in 2003. Deferred revenue increased 32% year over year and totaled $25.8 million, compared to $19.5 million on December 31, 2003.
The Company reported an operating loss of $735,000, compared to an operating profit of $2.9 million for the year ended December 31, 2003. The net loss was $693,000 and $0.04 per share in 2004, compared to net profit of $2.1 million and $0.13 per share in 2003. Cash flow from operating activities totaled $6.7 million in 2004, an increase of 46% compared to $4.6 million in 2003.
"Operating results for 2004 were very strong," stated Robert C. Bowen, Chairman and Chief Executive Officer. "Our K-12 booked sales grew 23%, well in excess of the 4% to 5% industry growth rate, and we saw good growth in the number of large transactions during the year."
"While booked sales and deferred revenue both grew robustly in 2004, revenue growth was modest, because of a longer average revenue recognition period. Our spending, however, is largely driven by sales-related activities. This mismatch in the timing of revenues and costs, together with the unusual level of expenses incurred in connection with our restatement, led to an operating loss for the year."
"Cash flow from operating activities, which is tied more closely to sales, grew 48% in the year, reflecting an operating expense growth rate lower than the sales growth rate and good working capital management. We ended the year with over $10 million in cash and no debt."
Revenue for the quarter ended December 31, 2004 was $8.2 million, compared to $7.0 million for the quarter ended December 31, 2003, an increase of 17%.
"Fourth quarter sales to K-12 schools remained solid, increasing 18%. Large transactions for the quarter (sales of over $100,000) increased from 14 in 2003 to 19 in 2004," stated Mr. Bowen. "We also closed our second transaction of the year over $1.0 million, with a sale to Cumberland County, North Carolina."
Gross margins were 79% in the fourth quarter of 2004, compared to 78% in the same quarter of 2003. Margins for both products and service and support improved. Operating expenses in the fourth quarter of 2004 totaled $7.6 million, compared to $5.0 million in the fourth quarter of 2003. Operating expenses included approximately $550,000 in costs associated with the restatement of earlier results.
The operating loss for the quarter was $1.1 million, compared to a $424,000 operating profit in the fourth quarter of 2003. The net loss for the fourth quarter of 2004 was $1.0 million and $0.06 per share, compared to a net profit of $162,000 and $0.01 per share in the fourth quarter of 2003.
Business Outlook
"We expect the education spending environment to improve somewhat during 2005," said Mr. Bowen. "State budgets are improving, federal funding of Title I and Special Education is budgeted to be up by approximately $1.0 billion, and the rigor of accountability demands on districts and schools continues to grow. Our optimism is supported by the growing acceptance of our products by educators, an expanded sales force and new products in our Fast ForWord¨ to Reading suite. We expect booked sales will grow in the range of 15% to 25% in 2005."
"During the fourth quarter, we initiated a strategic pricing change," added Mr. Bowen. "As a result, starting in 2005, we expect most of the product revenue from our perpetual license sales to be recognized up front. In 2005, we anticipate that revenue will grow more rapidly than sales, the reverse of our experience in 2004."
For the year ending December 31, 2005, the Company projects revenue in the range of $46.0 to $49.0 million, an increase of approximately 50% to 55%. The revenue projections include both deferred revenue from previous sales and the revenue from sales of licenses recognized during the period of sale. The Company expects to report a net profit for 2005 between $6.2 million and $6.8 million and primary earnings per share of $0.37 to $0.40.
The above targets represent the Company's current revenue and earnings goals as of the date of this release and are based on information current as of April 14, 2005. Scientific Learning does not expect to update the business outlook until the release of its next quarterly earnings announcement. However, the Company may update the business outlook or any portion thereof at any time for any reason.
Conference Call Information
The Company will host a conference call at 11:00 a.m. EDT on April 15, 2005. The conference call will be available live on the Investor Information portion of the Company's web site at www.scientificlearning.com. The conference call can also be accessed at 866-800-8649 (domestic) or 617-614-2703 (international). The access code "88916871" is required to access the call. Please dial in or visit the web site at least 10 minutes prior to the commencement of the call to ensure your participation. A replay of this teleconference will be made available on the Scientific Learning web site approximately two hours following the conclusion of the call.
About Scientific Learning
Scientific Learning produces the patented Fast ForWord® family of products, a series of computer-delivered reading intervention products that complement reading instruction. Based on more than 30 years of neuroscience and cognitive research, Fast ForWord products help children, adolescents, and adults build the cognitive skills critical for improving reading and language skills. For more information about Scientific Learning and its products, visit our Web sites at www.scientificlearning.com and www.brainconnection.com, or call toll-free 888-452-7323.
This press release contains projections and other forward-looking statements that are subject to the safe harbor created by the federal securities laws. Such statements include, among others, statements relating to projected levels of revenue, sales, margins, expenses, profit or loss, and other financial results and trends in the education market. 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 conditions; the extent of acceptance and purchase of the Company's products by target customers; seasonality and sales cycles in Scientific Learning's markets; competition; availability of funding to purchase the Company's products and generally available to schools; the extent to which the Company's marketing, sales and implementation strategies are successful; the Company's ability to continue to demonstrate the efficacy of its products, which depends on how the programs are administered, the demography of participants and other factors; the Company's ability to recruit and retain key personnel; the Company's ability to timely execute its new product development strategies; pricing pressures; expense levels at the Company; risks associated with litigation and intellectual property; and other risks detailed in the Company's SEC reports, including but not limited to the 2003 Report on Form 10-K/A (Part 1. Item 1. Business) filed on February 15, 2005 and the 2004 Report on Form 10-K (Part 1. Item 1. Business) to be filed April 15, 2005.
Scientific Learning Corporation 2004 Fourth Quarter Financials (PDF)