SumTotal Systems Reports Significant Growth In License Revenue And Total Revenue

MOUNTAIN VIEW, CA (February 2, 2005) - SumTotal Systems, Inc. (Nasdaq: SUMT), the business performance and learning technology industry's largest single provider of technologies and solutions, today announced its fourth quarter and full-year financial results ending December 31, 2004.


Fourth Quarter 2004 Results


On a Generally Accepted Accounting Principles (GAAP) basis, fourth quarter license revenue was $1.6 million in 2003 and grew to $8.6 million in 2004. Total revenue increased, year-over- year, from $5.8 million to $18.7 million and net losses declined, year-over-year, from $3.1 million to $1.9 million. A large part of the year-over-year improvement is due to the acquisition of Docent, Inc. by Click2learn, Inc. to form SumTotal Systems, Inc. on March 18, 2004.

On a non-GAAP basis, year-over-year fourth quarter license revenue was up 69%, from $5.2 million to $8.9 million, total revenue was up 36%, from $14.3 million to $19.5 million and net income of $0.2 million improved from a net loss of $4.1 million in the fourth quarter of 2003. As noted below, non-GAAP numbers include the results of both Docent and Click2learn for all periods reported and exclude certain GAAP adjustments associated with Docent’s acquisition by Click2learn.

In announcing the company’s results, Andy Eckert, CEO, said, “Our Company finished 2004 with very positive momentum. License revenues in the fourth quarter grew 69% as we continue to accumulate market share. Deferred revenue grew by 30% from the prior quarter, giving us great confidence as we enter 2005. Our industry is growing up and, as such, is beginning to appreciate the strength and stability of SumTotal. Customers and partners worldwide are looking to us as a company they can trust.”


Fourth Quarter Highlights:

• Introduced SumTotal Enterprise Suite 7.0, delivering new innovations and
  combining the best of Docent Enterprise 6.5 and Click2learn’s Aspen 2.5 products



• Secured new clients including Altera, Benjamin Moore, Lehman Brothers and
  Philip Morris, among others



• Increased presence with existing clients, including Aetna, Ariba, BAE Systems,
  Baker Hughes, Kia Motors, Pfizer and Saab, among others



• Expanded North American market presence through strategic partnerships with
  WebEx, Stranix, and Cannon Learning



• Expanded international market presence with partners COSMO iNet (Korea),
  Bernard Julhiet Interactive (France) and HumanSoft (Middle East and North
  Africa), and through sales to international clients such as Accor (France),
  National College for School Leadership (UK), Telecom New Zealand and Liverpool
  (Mexico), among others



• Increased presence with the U.S. government sector through sales to the
  U.S. Army Recruiting Command, U.S. Army Intelligence School, the Defense Acquisition
  University, the North America Aerospace Defense Command (NORAD) and United
  States Northern Command, and were named to Military Training Technology Magazine’s
  Top 100 for 2004
  

Full Year 2004 Results


On a GAAP basis, full-year license revenue was up from $9.1 million in 2003 to $22.4 million in 2004; total revenue was up from $29.5 million to $55.2 million. Net loss was $6.2 million in 2003 and $16.0 million in 2004.

On a non-GAAP basis, full year license revenue was up 17%, from $22.5 million to $26.3 million, total revenue was up 10%, from $59.7 million to $65.6 million. Net losses decreased by 54% from $14.3 million to $6.6 million.

Mr. Eckert continued, “Since our merger was completed in March, we have greatly improved our financial performance while continuing to invest in critical product development and customer support operations. Most importantly, we delivered on our commitment to introduce SumTotal 7.0 to the market in the fourth quarter. I’d like to thank our customers, partners and employees for their support this past year. Judging from their reaction, we believe our merger has been a great success.”


Full-Year Highlights:

• Created SumTotal Systems on March 18, 2004 from the merger of Docent and
  Click2learn



• Introduced SumTotal Enterprise Suite 7.0



• Added new clients including BellSouth, Corning, Fannie Mae, Forzani, Hilton
  Group PLC, Manpower, McCann-Erickson, MayBank, NVIDIA, Petroleos Mexicanos
  (Pemex), Reynolds & Reynolds, Sovereign Bank and Toshiba, among others



• Expanded presence with existing clients including Bank of Montreal, Cendant,
  ColesMyer Limited, GlaxoSmithKine, Harley-Davidson, M&T Bank, Microsoft,
  Raytheon, Shell Canada, Southern Company, Standard & Poors, Symantec,
  Symbol, Toronto Dominion Bank Group, Vodafone, Wachovia and the U.S. Army,
  among others



• Created SumTotal’s inaugural Customer Advisory Board including Cendant,
  GlaxoSmithKline, Microsoft, NCR, New Horizons, United Airlines, Vodafone,
  Wyeth, Wachovia, and the U.S. Army, among others



• Hosted nine SumTotal Systems User Group meetings across nine cities: Atlanta,
  Boston, Chicago, Houston, New York, Santa Clara, London, Sydney and Sao Paolo
  

Guidance


For the first quarter of 2005, SumTotal estimates it will achieve revenue between $16.0 million and $18.0 million on a GAAP basis. The net loss, also on a GAAP basis, is estimated at between $1.9 million or 9 cents per share and $1.0 million or 5 cents per share. Cash and short-term investments at the end of the first quarter are expected to be between $35 and $37 million.


Non-GAAP Financial Measures


Non-GAAP financial measures exclude certain non-cash and cash items relating to the merger of Docent and Click2learn and related transactions, which are included in the GAAP results. The non-GAAP financial measures also include the full results of both Docent and Click2learn for the periods prior to the merger. The company believes this information, when used in conjunction with the GAAP results, may provide useful additional insight into the underlying operations of the company, but should not be considered superior to, or as a substitute for, GAAP measures. A reconciliation of these numbers to the GAAP results is included in this release.


Conference Call


SumTotal Systems will host an investor conference call today, Wednesday, February 2, 2005 at 2:00 p.m. (PST); 5:00 p.m. (EST) to discuss the fourth quarter and full-year financial results ending December 31, 2004.

A live audio webcast will be available to investors and the public from SumTotal’s website at www.sumtotalsystems.com/company/investors. In addition to the webcast, a telephone replay will be available beginning at approximately 5:00 p.m. (PST) today through the close of business on Tuesday, February 8. The replay can be accessed by dialing the U.S. toll-free number: 1-800-207-7077, access code: 4060. The international dial-in number is 1-913-383-5767, access code: 4060.


About SumTotal Systems


SumTotal Systems Inc. (NASDAQ: SUMT) is the business performance and learning technology industry’s largest single provider of technologies, processes and services. Formed by the merger of industry pioneers Docent and Click2learn, the company is uniquely focused on helping organizations harness and manage mission-critical intellectual power to solve real-world business problems and produce significant bottom-line results. SumTotal has helped accelerate performance and profit for more than 600 of the world’s best-known companies and federal and local government agencies, including Microsoft, the U.S. Army, Air Force, Navy and Coast Guard, Vodafone, Lucent, Accenture, Cendant, Harley-Davidson, Wyeth, Wachovia and D & B. SumTotal Systems is headquartered in Mountain View, CA, with offices throughout the U.S., as well as London, Paris, Heidelberg, Sydney, Tokyo and Hyderabad, India.

SAFE HARBOR STATEMENT/ FORWARD-LOOKING STATEMENTS
Information in this press release and the accompanying conference call contain forward-looking statements. These statements represent SumTotal System’s expectations or beliefs concerning future events and include statements, among others, regarding SumTotal System’s new product, SumTotal 7.0, financial guidance regarding revenue, profitability, cash balance, bookings, projections, operating expenses, and growth of the company, customer satisfaction, future business, industry leadership, timing and features of our product offerings, and customer benefits, and market acceptance of our solutions. These statements are not historical facts or guarantees of future performance or events and are based on current expectations, estimates, beliefs, assumptions, goals and objectives, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results expressed or implied by these statements. Readers of this press release and listeners to the accompanying conference call are cautioned not to place undue reliance on any forward-looking statements. Additional factors that could cause actual results to differ include, but are not limited to (i) SumTotal Systems limited operating history, and its, along with its predecessor companies, history of losses; (ii) completion of the year end audit by the company’s independent auditors which may result in adjustments to the company’s financial results reported in this press release and the accompanying conference call; (iii) customers or partners delaying purchasing or upgrade decisions until there is widespread market acceptance of SumTotal enterprise suite 7.0; (iv) inability to fix in a timely fashion, or unanticipated bugs, errors or defects that materially impact the functionality or usability of SumTotal enterprise suite 7.0, or unanticipated problems in customer upgrades to SumTotal enterprise suite 7.0 from prior SumTotal products; (v) long sales cycles for closing software contracts and seasonality in purchasing decisions; (vi) an emerging and rapidly evolving market; (vii) adverse changes in general economic or market conditions; (viii) dependence on the growth of SumTotal’s market and fluctuation in customer spending; (ix) delays or reductions in information technology spending; (x) the ability to attract and retain highly qualified employees, and the risk of losing employees; (xi) intense competition in the marketplace causing, among other things, pricing pressure; (xii) failure to comply with Section 404 of Sarbanes-Oxley in a timely fashion or at all, and/or material weaknesses or significant deficiencies in our internal controls and procedures and/or documentation thereof; (xiii) increase of litigation related costs, as well as the cost of potential settlements; (xiv) other market conditions that include risks and uncertainties such as risks associated with financial, economic, political, terrorist activity and other uncertainties; and (xv) other events and other important factors disclosed previously and from time to time in SumTotal’s filings with the Securities and Exchange Commission, including the quarterly report filed on Form 10-Q on November 15, 2004. SumTotal Systems assumes no obligation to update the information in this press release or in the accompanying conference call.