Scientific Learning Reports Second Quarter
Increases 2006 Guidance
8/9/06
Media Contact
Mary Anne Petrillo
Director of Marketing
Scientific Learning Corporation
(510) 625-2218
mpetrillo@scilearn.com
Investor Contact
Jane A. Freeman
Senior Vice President and CFO
Scientific Learning Corporation
(510) 625-2281
investorrelations@scilearn.com
Oakland, CA, August 09, 2006 - Scientific Learning (NASDAQ: SCIL) today announced its results for the quarter ended June 30, 2006. Revenue for the quarter was $13.0 million, compared to $13.3 million for the same period in 2005, a 2% decline.
"From a booked sales perspective, the second quarter was very strong. Booked sales grew 26% over last year's second quarter, resulting in a year-to-date booked sales growth of 31%, above our targeted growth rate of 20 to 30%. K-12 booked sales increased 27% for the second quarter and 33% for the first half. Business strength was broadly based. Along with our veteran account managers, the additional sales capacity we added in 2005 continued to produce," said Robert C. Bowen, Chairman and CEO of Scientific Learning. "One of the key indicators of market acceptance of our patented family of Fast ForWord software products is our ability to close transactions over $100,000. In the second quarter, we had 35 sales over $100,000, compared to 25 in the second quarter of 2005 and 53 year-to-date compared to 35 for the first half of 2005."
"Revenue exceeded plan for the quarter. However, revenue for the second quarter declined slightly year over year. We had anticipated a larger decline in revenues because of the tough comparison from 2005 which resulted from a change in revenue recognition in late 2004," stated Mr. Bowen
Gross margins were 81% in the second quarter of 2006, compared to 84% in the same quarter of 2005. "Gross margins declined in the second quarter, due to planned investments in our service and support organization. These investments will allow us to increase personal touches with our customers as well as effectively support our strong booked sales growth," said Mr. Bowen.
Operating expenses in the second quarter of 2006 increased 7% and totaled $8.2 million, compared to $7.6 million in the second quarter of 2005. Nearly all of the increase in operating expenses is attributable to stock-based compensation, a new requirement under FAS 123R. Stock-based compensation expense, which is included in both operating expenses and service and support costs, totaled $510,000 in the quarter ended June 30, 2006.
Operating profit for the quarter was $2.3 million, compared to an operating profit of $3.5 million in the second quarter of 2005. Net income for the quarter was $2.4 million, compared to a net income of $3.6 million in the same period in 2005. Basic and diluted income per share were $.14 and $.13, respectively, in the second quarter of 2006, compared to $.22 and $.20, respectively, in the same period in 2005.
Cash and equivalents totaled $8.3 million on June 30, 2006, compared to $7.3 million on June 30, 2005. Accounts receivable totaled $11.8 million at quarter end, compared to $7.8 million on June 30, 2005.
Results for the six months ended June 30, 2006 exceeded our internal plan, due to higher booked sales and revenue and lower operating expenses. Booked sales for the first six months grew 31% to $22.0 million from $16.8 million in the first six months 2005. Revenue declined 12% to $20.8 million, from $23.5 million reported in the same period last year due to higher recognized revenues in 2005 from sales made in prior periods.
Net profit was $.2 million for the first six months of 2006 and basic and diluted earnings per share were $.01. For the first six months of 2005, net profit was $4.9 million and $.29 per share. Diluted earnings per share for the six months ended June 30, 2005 were $.28.
Business Outlook
"We continue to expect a strong year in 2006. The demand for our unique family of Fast ForWord products continues to grow as demonstrated by our record sales pipelines and strong first half results," said Mr. Bowen. "Consequently, we are raising our booked sales guidance for 2006 to reflect a 25% to 35% annual growth rate. Our long-term targeted booked sales growth remains 20% to 30%.
For the year ending December 31, 2006, revenue is expected to be in the range of $38.0 to $40.0 million, compared to $40.3 million in 2005. The Company expects to report a net loss of between breakeven and $1.0 million. One factor driving expense growth is the adoption of FAS 123R which requires the expensing of stock-based compensation. The estimated equity compensation expense in 2006 is $2.1 million. For the full year 2006, basic loss per share is expected to be in the range of $.00 to $.06.
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 August 9, 2006. 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 5:00 p.m. EDT / 2:00 p.m. PDT on Wednesday, August 9, 2006. The conference call will be available live on the Investor Information portion of the Company's web site at http://www.scilearn.com/investorinfo. The conference call can also be accessed at 800-798-2864 (domestic) or 617-614-6206 (international). The access code "13065595" 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 Corporation
Scientific Learning produces the patented Fast ForWord® family of products, a series of computer-delivered reading intervention products that build learning capacity by developing the neurocognitive skills required to read and learn effectively. These foundational skills are built through a series of brain-based exercises that create fast, effective, and enduring results. Based on more than 30 years of neuroscience and cognitive research, the Fast ForWord products use patented technology and applications of accepted neuroscience principles to help children, adolescents, and adults build the language and reading skills widely recognized as the keys to all learning.
The exercises align with the scientifically based reading-research guidelines and the requirements of the No Child Left Behind Act. The efficacy of the products has been confirmed by independent researchers, by evaluating the results of standardized achievement tests, and by Scientific Learning's scientists.
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, the statements in the Business Outlook section of this release and 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 2005 Report on Form 10-K (Part 1. Item 1A, Risk Factors) filed March 14, 2006 and the Report on Form 10Q for the first quarter of 2006 (Part II, Item 1A, Risk Factors), filed May 12, 2006.
Scientific Learning Corporation 2006 Second Quarter Financials (PDF)