Press Releases

Scientific Learning Reports Fourth Quarter Results

Revenue Increases 10% and EPS Rises 40% to $0.07

2/26/09

Media Contact:
Jessica Lindl
Vice President of Marketing
Scientific Learning Corporation
(510) 625-6784
jlindl@scilearn.com

Investor Contact: 
Robert Feller
Chief Financial Officer
Scientific Learning Corporation
(510) 625-2281
investorrelations@scilearn.com

Oakland, Calif. - February 26, 2009 - Scientific Learning Corporation (NASDAQ:SCIL) today announced financial results for the fourth quarter and fiscal year periods ended December 31, 2008.

Fourth Quarter Results (2008 vs. 2007):

• Total revenues increased 10% to $12.5 million compared to $11.3 million;
• Gross profit increased 12% to $9.6 million, or 76.5% of total revenues, compared to $8.6 million, or 75.7% of total revenues;
• Operating income increased to $1.1 million compared to an operating loss of $611,000;
• Net income increased 36% to $1.2 million compared to $877,000; and
• Diluted earnings per share increased 40% to $0.07 compared to $0.05.

Andy Myers, Chief Executive Officer stated, "The serious budget constraints faced by many school districts as a result of the recession led to a modest decrease in our fourth quarter booked sales, but we were still able to grow total revenues by 10% in the quarter and substantially improve our operating income. While public school districts continue to face significant financial challenges, we believe that the federal stimulus package gives us reason to be cautiously optimistic in 2009. The economic recovery plan includes substantial increases in Title I and IDEA, the types of education funding frequently used in the purchase of our programs. We also believe our new web-hosted and direct-to-consumer offerings will give us access to new demand and help us drive long-term growth."

Operating Results

Total revenue increased 10% to $12.5 million in the fourth quarter of 2008 compared to $11.3 million in the fourth quarter of 2007. Product revenue increased 3% to $7.3 million and service and support revenue increased 23% to $5.2 million. The increase in service and support revenue was primarily due to a higher number of schools on support, more services delivered, and higher revenue for the Reading Progress Indicator.

Gross profit increased 12% to $9.6 million, or 76.5% of total revenue, in the fourth quarter of 2008 compared to $8.6 million, or 75.7% of total revenue, in the fourth quarter of 2007. The increase in the gross margin as a percentage of total revenue was primarily the result of significant profit enhancements made in services and support. Product gross margin declined to 93.3% from 94.1%, while service and support gross margin increased to 53.0% from 44.9%.  Product margins were negatively impacted from the incremental amortization expense from the Soliloquy acquisition in January 2008. Service and support margins improved because a larger proportion of these revenues arose from support and Progress Tracker, which have higher margins than training and implementation services. 

Total operating expenses decreased 8% to $8.4 million in the fourth quarter of 2008 compared to $9.2 million in the fourth quarter of 2007. Sales and marketing expenses decreased 16% to $5.1 million and general and administrative expenses decreased 21% to $1.5 million. Partially offsetting these decreases was an increase in research and development to $1.7 million from $1.1 million. This was mostly due to increased development personnel costs stemming from the Soliloquy acquisition.

Operating income increased to $1.1 million, or 9.2% of total revenue, in the fourth quarter of 2008 compared to an operating loss of $611,000 in the fourth quarter of 2007. The income tax provision in the fourth quarter of 2008 was $41,000 compared to an income tax benefit of $1.1 million in the fourth quarter of 2007. Net income increased 36% to $1.2 million, or $0.07 per diluted share, in the fourth quarter of 2008 compared to $877,000, or $0.05 per diluted share, in the fourth quarter of 2007.

Selected Balance Sheet Information

As of December 31, 2008, cash and cash equivalents were $7.6 million compared to $6.1 million at September 30, 2008 and $21.2 million at December 31, 2007. The year-over-year decrease is primarily attributable to the Soliloquy acquisition in January 2008. Net accounts receivable were $7.7 million at December 31, 2008 compared to $11.0 million at September 30, 2008 and $6.2 million at December 31, 2007. 

Conference Call Information

A conference call to discuss fourth quarter results is scheduled for today, February 26, 2009 at 5:00 p.m. Eastern Time / 2:00 p.m. Pacific Time. Investors and analysts interested in participating in the call are invited to dial 888-708-5710 (domestic) or 913-312-0652 (international) approximately 10 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. To hear the replay by phone, please call 888-203-1112 (domestic) and 719-457-0820 international and enter the replay passcode: 1805944.

About Scientific Learning Corporation

Scientific Learning creates educational software that accelerates learning by improving the processing efficiency of the brain. Based on more than 30 years of neuroscience and cognitive research, the Fast ForWord® family of products provides struggling readers with computer-delivered exercises that build the cognitive skills required to read and learn effectively. Scientific Learning's Reading Assistant^TM combines advanced speech recognition technology with scientifically-based courseware to help students strengthen fluency, vocabulary and comprehension to become proficient, life-long readers. The efficacy of the products has been established by more than 550 research studies and publications. For more information, visit http://www.scientificlearning.com/ or call toll-free 888-452-7323.

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 the Company's future financial results, future growth, planned product launches, and positioning for the future.  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 the recent adverse events in the general economy and in the financial and credit markets); availability of funding to purchase the Company's products and generally available to schools; unexpected challenges in product development; the acceptance of new products and product changes; 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 the Report on Form 10Q for the third quarter of 2008 (Part II, Item 1A, Risk Factors), filed November 7, 2008.  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.