SumTotal Systems Reports Record Second-Quarter Revenue

GAAP Revenue Grows 58% Year over Year, Non-GAAP Revenue Up 66%

MOUNTAIN VIEW, Calif. – August 1, 2006 – SumTotal® Systems, Inc. (Nasdaq: SUMT), the largest provider of talent, learning and business performance technologies and services, announced its financial results for the second quarter ended June 30, 2006.

Second-Quarter 2006 Results

On a Generally Accepted Accounting Principles (“GAAP”) basis, total revenue for the second quarter of 2006 was $25.1 million, an increase of 58% from the $15.9 million reported in the second quarter of 2005. License revenue was $7.6 million in the second quarter of 2006, an increase of 49% from $5.1 million in the same quarter one year ago. Net loss, on a GAAP basis, for the second quarter of 2006 was $2.3 million, or $0.09 per share on both a basic and diluted basis, compared to a net loss of $3.4 million, or $0.16 per share in the same quarter one year ago.

Deferred revenue on a GAAP basis at the end of the second quarter increased 43% year over year to end the quarter at $28.1 million, compared to $19.7 million for the same quarter of the previous year.

On a non-GAAP basis, in the second quarter of 2006 revenue increased by 66% to $26.5 million from revenue of $16.0 million as reported for the second quarter of 2005. License revenue was $8.3 million on a non-GAAP basis, an increase of 60% from $5.2 million in the same quarter one year ago. Non-GAAP net income for the second quarter was $2.3 million, or $0.09 per share on both a basic and diluted basis, compared to a non-GAAP net loss of $2.4 million, or $0.11 per share on both a basic and diluted basis for the second quarter a year ago.

Non-GAAP results exclude the impact of certain non-cash accounting adjustments and one-time charges primarily related to acquisition accounting. A reconciliation to the GAAP results is provided in the attached statements.

“Our second quarter growth and profitability demonstrates the strength of our business model and our continued ability to execute,” said Donald Fowler, SumTotal’s chief executive officer. “We experienced solid sales activity across our targeted market segments with particularly strong contributions from the retail, financial services and manufacturing segments. We continued to grow our recurring revenue base to a new high of over 47% of total revenues in the second quarter. We are pleased with the progress we have made to date and the acceptance of our talent management platform, and remain enthusiastic about our ability to achieve our long-term growth objectives.”

Recent Highlights

During the second quarter, SumTotal Systems:

• Added North American customer wins, including solutions for talent management, with new customers such as: Alticor Inc., California Chamber of Commerce, Grant Thornton, ExecellerateHRO, Shaw Industries, Inc., The Timken Company, BlueLinx Corporation and The Weather Channel.


• Continued SumTotal Enterprise Suite Version 7 upgrades and installed base growth with more than 200 customers who have purchased or upgraded to SumTotal 7. Current quarter upgrades include Eaton Corporation, Eastman Kodak Company and Toys “R” Us, Inc.


• Expanded its international presence in new and existing markets:




• Entered the China market with learning and talent management for Liaoning Mobile, a wholly owned subsidiary of China Mobile Limited. China Mobile Limited is the leading mobile services provider in mainland China. Liaoning Mobile purchased licenses from SumTotal and its partner HP Education.


• Entered into a contract with leading global consulting and IT services company Satyam Computer Services Ltd. and partner C&S, making SumTotal 7 the backbone for the Satyam Learning Center, which supports all of their global locations.


• Expanded its Indian operation, opening a state-of-the-art office in Hyderabad, India. This new, high-tech R&D facility boasts a cutting-edge technology infrastructure.




• Strengthened its product leadership by becoming the first learning and talent management company to join the Google Enterprise Professional program, integrating the Google Search Appliance within SumTotal 7 to increase access to formal and informal knowledge and learning.


• Filed a Form S-3 shelf registration statement with the Securities and Exchange Commission for an aggregate maximum of $75 million.

Guidance

For the third quarter of 2006, SumTotal Systems estimates its GAAP revenue will be between $25.5 million and $27.5 million. On a non-GAAP basis, revenue is estimated to be between $26.0 million and $28.0 million. GAAP net loss is estimated between $1.9 million, or $0.08 per share, and $0.9 million, or $0.04 per share. On a non-GAAP basis, net income is estimated to be between $2.0 million, or $0.08 per share, and $3.0 million, or $0.12 per share. The reconciling items between GAAP and non-GAAP income (loss) are estimated to be a $0.5 million adjustment to revenue, $2.2 million for amortization of intangibles and $1.2 million for stock-based compensation.

Conference Call

SumTotal will host an investor conference call and webcast on Tuesday, August 1, 2006, at 2:00 p.m. (Pacific Time) / 5:00 p.m. (Eastern Time) to discuss the financial results for the second quarter ended June 30, 2006. A live audio webcast is available to investors and the public at: www.sumtotalsystems.com/company/investors.

In addition to the webcast, a telephone replay will be available on Tuesday, August 1, 2006, beginning at approximately 5:00 p.m. (Pacific Time) through the close of business (Pacific Time) on Tuesday, August 8, 2006. Investors and other interested parties can access the replay by dialing the U.S. toll-free number: 800-405-2236, access code: 11065300. The international dial-in number is +1 303-590-3000, access code: 11065300.

About SumTotal Systems, Inc.

SumTotal Systems, Inc. (NASDAQ: SUMT) is the largest provider of talent, learning and business performance technologies and services. SumTotal deploys mission-critical solutions that align talent and knowledge with organizational processes and business goals to generate significant bottom-line results. With more than 17 million users worldwide, SumTotal has helped accelerate performance and profits for more than 1,500 of the world’s best-known companies and government agencies including Accenture, Aetna, Cendant, DaimlerChrysler, Delta Air Lines, Harley-Davidson, Microsoft, Novartis, PNC Bank, U.S. Army, U.S. Air Force, U.S. Navy, U.S. Coast Guard, U.S. Bancorp, United Airlines, Vodafone, Wachovia and Wyeth. SumTotal has offices throughout the United States, and in London, Paris, Frankfurt, Singapore, Sydney, Tokyo, Hong Kong and Hyderabad. For more information about SumTotal's products and services, visit www.sumtotalsystems.com.

SumTotal and the SumTotal logo are registered trademarks or trademarks of SumTotal Systems, Inc. or its affiliates in the United States and/or other countries. Other names may be trademarks of their respective owners.

SAFE HARBOR / FORWARD-LOOKING STATEMENT
Information in this press release and the accompanying conference call contains forward-looking statements and management’s estimation regarding future performance of the company, including without limitation, financial estimates for the third quarter ending September 30, 2006. These statements represent SumTotal Systems’ current expectations or beliefs concerning its results and future events, and include statements, among others, regarding its financial guidance for estimated GAAP and non-GAAP revenue, loss, income, profitability, growth of recurring revenue base, backlog, expenses, charges related to stock-based compensation, amortization of intangibles; revenue adjustments; continued growth in deferred revenue balance and pipeline; the company’s competitive position and business model, including its market share and leadership position; the company’s ability to execute and the strength and scale of its business model; and the company’s product leadership. These statements are not historical facts or guarantees of future performance or events; 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) the ability to successfully expand product distribution and service offerings and increase market share; (ii) failure to maintain or increase quarterly bookings or revenue or maintain expense levels; (iii) unanticipated changes to the company’s estimated charges related to stock-based compensation, amortization of intangibles, revenue adjustments and results of adopting SFAS No. 123R; (iv) failure to comply with the covenants in the company’s credit facility that could result in a default, thereby causing a foreclosure or sale of its assets; (v) the acceptance of SumTotal Enterprise Suite Version 7 and future product offerings; (vi) the ability to successfully implement the company’s solutions; (vii) significant current and expected additional competition causing, among other things, pricing pressure; (viii) future litigation that may result in additional expenses, potential adverse judgments or injunctions enjoining the shipment of the company’s products; (ix) the ability to attract and retain highly qualified employees, and the risk of losing employees; (x) the inability to fix in a timely fashion unanticipated bugs, errors or defects that materially impact the functionality or usability of our product line, or unanticipated problems in customer upgrades to the new product line; (xi) other market conditions that include risks and uncertainties such as risks associated with financial, economic, political, terrorist activity and other uncertainties; and (xii) other events and other important factors disclosed previously and from time to time in SumTotal Systems’ filings with the Securities and Exchange Commission, including the company’s annual report on Form 10-K filed on March 28, 2006, its quarterly report on Form 10-Q filed on May 10, 2006, its Form S-3 filed on June 1, 2006, and its Form 8-Ks. SumTotal Systems assumes no obligation to update the information in this press release or in the accompanying conference call.