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SumTotal Systems Reports Record Third Quarter Revenue
GAAP Revenue Grows 46% Year over Year
MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Oct. 31, 2006--SumTotal(R) Systems, Inc. (Nasdaq:SUMT), the largest provider of talent and learning solutions, announced its financial results for the third quarter ended September 30, 2006.
Third Quarter 2006 Results
On a Generally Accepted Accounting Principles (GAAP) basis, total revenue for the third quarter 2006 was $27.0 million, an increase of 46% from the $18.4 million reported in the third quarter of 2005. License revenue was $7.2 million, compared to $6.6 million a year ago. GAAP net loss was $2.7 million, or $0.11 per share fully diluted, compared to net income of $0.1 million, or $0.01 per share fully diluted, reported in the third quarter of 2005.
Deferred revenue on a GAAP basis at the end of the third quarter increased 59% year over year to end the quarter at $25.4 million, compared to $16.0 million for the same quarter of the previous year.
Non-GAAP revenue in the third quarter of 2006 increased by 49% to $27.5 million from revenue of $18.5 million as reported for the third quarter of 2005. License revenue was $7.5 million, compared to $6.7 million a year ago. Non-GAAP net income for the third quarter was $1.1 million, or $0.04 per share fully diluted, compared to non-GAAP net income of $1.3 million, or $0.06 per share fully diluted, for the third quarter a year ago.
Non-GAAP results exclude the impact of certain one-time charges primarily related to restructuring activities, and non-cash accounting adjustments and charges primarily related to acquisition accounting and stock-based compensation. A reconciliation to the GAAP results is provided in the attached statements.
"Our record revenue for the third quarter was driven by continued strong demand for our LMS solutions from both new and existing customers," said Don Fowler, SumTotal's chief executive officer. "We experienced particular strength in sales in the healthcare and financial services segments, demonstrating our continued traction in our target market segments. While I am disappointed with our higher-than-anticipated service expenses, I expect to see improvement this quarter in our service margins."
Recent Highlights
For the public sector, SumTotal Systems:
- Received a $1.5 million subcontract for continued support of
the U.S. Army's Defense Ammunition Center's (DAC) current and
future global training initiatives. SumTotal serves as a
subcontractor to SI International (Nasdaq:SINT) of Reston,
Va., a provider of information technology and network
solutions, on this award.
- Added new customers such as City of Roseville, California, and
Oklahoma Bureau of Narcotics and Dangerous Drugs.
- Earned the Military Training Technology magazine's Top 100
award as a software maker that has made a significant
contribution to the military training industry in 2006.
For the private sector, SumTotal Systems:
- Added new customers in North America such as Vancouver-based
Provincial Health Services Authority, BDO Seidman, The
Children's Hospital of Philadelphia, Stanford Hospital &
Clinics, Wisconsin-based Mercy Health System, Aruba Networks
and Manpower Inc.
- Won additional business outside North America with Bertelsmann
AG and PepsiCo - Latin America.
- Was named a KMWorld Trend-Setting Product of 2006. KMWorld
magazine designated SumTotal Enterprise Suite 7.2 as software
that "enhances the performance management process."
SumTotal Systems also:
- Was honored as one of Silicon Valley's fastest-growing
software and information technology companies in Deloitte's
Technology Fast 50 program.
- Received notification from the Securities and Exchange
Commission that its Form S-3 shelf registration statement was
declared effective for an aggregate maximum of $75 million.
- Continued SumTotal Enterprise Version 7 upgrades with more
than 230 customers who have purchased or upgraded to SumTotal
7.
- Re-launched Results-on-Demand, its Software-as-a-Service
offering that targets small businesses as well as departments
within large enterprises.
Guidance
For the fourth quarter of 2006, SumTotal Systems estimates its GAAP revenue will be between $27.7 million and $29.2 million. On a non-GAAP basis, revenue is estimated to be between $28.0 million and $29.5 million. GAAP net loss is estimated between $2.0 million, or $0.07 per share fully diluted, and $1.0 million, or $0.04 per share fully diluted. On a non-GAAP basis, net income is estimated to be between $1.5 million, or $0.06 per share fully diluted, and $2.5 million, or $0.09 per share fully diluted. The reconciling items between GAAP and non-GAAP income (loss) are estimated to be a $0.3 million adjustment to revenue, $2.1 million for amortization of intangibles and $1.1 million for stock-based compensation.
Conference Call
SumTotal will host an investor conference call and webcast on Tuesday, October 31, 2006, at 2:00 p.m. (Pacific Time) / 5:00 p.m. (Eastern Time) to discuss the financial results for the third quarter ended September 30, 2006. A live audio webcast is available to investors and the public at www.sumtotalsystems.com under the Investor Relations section.
In addition to the webcast, a telephone replay will be available on Tuesday, October 31, 2006, beginning at approximately 5:00 p.m. (Pacific Time) through the close of business (Pacific Time) on Tuesday, November 7, 2006. Investors and other interested parties can access the replay by dialing the U.S. toll-free number: 877-519-4471, access code: 7930097. The international dial-in number is 973-341-3080 access code: 7930097.
About SumTotal Systems, Inc.
SumTotal Systems (Nasdaq:SUMT) is the largest provider of talent and learning solutions. SumTotal deploys mission-critical solutions that align talent and knowledge with 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, 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. and/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 fourth quarter ending December 31, 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, expenses, loss, income, profitability, growth of recurring revenue base, backlog, 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) failure to implement in a timely fashion, or at all, the requisite steps to control expenses, especially in the services organization; (ii) failure to improve margins, especially in the services organization; (iii) increased or unexpected costs of migrating customers to the 7.x platform; (iv) the ability to successfully expand product distribution and service offerings and increase market share; (v) failure to maintain or increase quarterly bookings or revenue levels; (vi) 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; (vii) 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; (viii) the acceptance of SumTotal Enterprise Suite Version 7 and future product offerings; (ix) the ability to successfully implement the company's solutions; (x) significant current and expected additional competition causing, among other things, pricing pressure; (xi) future litigation that may result in additional expenses, potential adverse judgments or injunctions enjoining the shipment of the company's products; (xii) the ability to attract and retain highly qualified employees, and the risk of losing employees; (xiii) 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; (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 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 August 9, 2006, its Form 10-Q/A filed on September 15, 2006, its Form S-3/As filed on September 28, 2006, and October 2, 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.
SumTotal Systems, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
Unaudited
September 30, December 31,
2006 2005
------------- ------------
Assets
-------------------------------------------
Current assets:
Cash, cash equivalents and restricted cash $ 13,472 $ 18,489
Short-term investments 4,175 657
Accounts receivable, net 23,201 25,207
Prepaid expenses and other current assets 3,431 3,484
------------- ------------
Total current assets 44,279 47,837
Property and equipment, net 5,355 4,210
Goodwill 62,306 62,306
Intangible assets, net 19,119 25,705
Other assets 1,095 1,489
------------- ------------
Total assets $132,154 $141,547
============= ============
Liabilities and Stockholders' Equity
-------------------------------------------
Current liabilities:
Accounts payable $ 3,720 $ 2,845
Accrued compensation and benefits 6,534 5,509
Other accrued liabilities 4,303 4,048
Restructuring accrual 997 1,831
Deferred revenue 24,931 26,354
Provision for litigation settlement 1,039 970
Notes payable 4,375 4,877
------------- ------------
Total current liabilities 45,899 46,434
Non-current liabilities:
Other accrued liabilities, non-current 235 176
Restructuring accrual, non-current 30 808
Deferred revenue, non-current 461 369
Provision for litigation settlement, non-
current 1,634 2,333
Notes payable, non-current 9,844 13,125
------------- ------------
Total liabilities 58,103 63,245
Commitments and contingencies - -
Stockholders' equity 74,051 78,302
------------- ------------
Total liabilities and stockholders'
equity $132,154 $141,547
============= ============
SumTotal Systems, Inc.
GAAP Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2006 2005 2006 2005
--------- -------- -------- --------
Revenue:
License $ 7,169 $ 6,629 $22,014 $17,286
Service and maintenance 19,785 11,780 54,346 33,750
--------- -------- -------- --------
Total revenue 26,954 18,409 76,360 51,036
--------- -------- -------- --------
Cost of revenue:
License 289 212 632 1,072
Service and maintenance 9,849 5,368 27,260 15,368
Amortization of intangible
assets 2,090 742 6,586 2,841
--------- -------- -------- --------
Total cost of revenue 12,228 6,322 34,478 19,281
--------- -------- -------- --------
Gross margin 14,726 12,087 41,882 31,755
--------- -------- -------- --------
Operating expenses:
Research and development 4,572 3,068 12,711 8,897
Sales and marketing 7,895 5,673 22,760 17,800
General and administrative 4,571 3,288 15,123 10,929
Restructuring charge 68 - 68 -
--------- -------- -------- --------
Total operating expenses 17,106 12,029 50,662 37,626
--------- -------- -------- --------
Income (loss) from operations (2,380) 58 (8,780) (5,871)
Interest expense (429) (4) (1,295) (5)
Interest income 180 227 532 582
Other income (expense), net (49) (121) 131 (493)
--------- -------- -------- --------
Income (loss) before provision
for income taxes (2,678) 160 (9,412) (5,787)
Provision for income taxes 12 29 7 60
--------- -------- -------- --------
Net Income (loss) $(2,690) $ 131 $(9,419) $(5,847)
========= ======== ======== ========
Net income (loss) per share,
basic $ (0.11) $ 0.01 $ (0.38) $ (0.28)
========= ======== ======== ========
Net income (loss) per share,
diluted $ (0.11) $ 0.01 $ (0.38) $ (0.28)
========= ======== ======== ========
Weighted average common shares
outstanding, basic 25,131 21,207 24,914 20,973
========= ======== ======== ========
Weighted average common shares
outstanding, diluted 25,131 21,550 24,914 20,973
========= ======== ======== ========
Use of Non-GAAP Financial Measures
In managing its business financial performance and establishing
internal financial plans and targets the Company uses non-GAAP
financial measures. Management believes that certain non-GAAP
financial measures provide greater transparency in managing its
operations and business. The company has presented these non-GAAP
financial measures as supplemental information to allow investors to
see how management views the operating performance of the company and
how it communicates the performance internally. The company has
historically reported similar non-GAAP financial measures to its
investors and believes that the inclusion of comparative numbers
provides consistency in its financial reporting. This non-GAAP
information is subject to material limitations and is not intended to
be used in isolation or instead of results prepared in accordance with
GAAP but rather in addition to the GAAP results. Also, the non-GAAP
information prepared by SumTotal is not necessarily comparable to
non-GAAP information provided by other companies.
A reconciliation of the non-GAAP measures to GAAP is included in
the financial tables contained in this press release. Investors are
encouraged to review the reconciliation of the non-GAAP financial
measures to the most directly comparable GAAP financial measures as
provided herein.
The adjustments and the basis for excluding them are as follows:
Deferred Revenue Write-Down
The company excludes the impact of the write-down of acquired
deferred revenue to fair value relating to its acquisitions of Docent,
Inc. and Pathlore Software Corporation. This has the effect of
increasing licenses, service and maintenance revenue to the amounts
that would have been recorded in the absence of the purchase
accounting adjustments required by GAAP. This is done to provide
management with better visibility on the contractual revenue run rate,
maintenance and subscription renewal rates and the operating
profitability of the business.
Stock-Based Compensation
SumTotal has incurred stock-based compensation as required by FAS
123R in 2006 and by APB25 in prior years. The company excludes these
expenses from services and maintenance cost of revenue, research and
development expenses, sales and marketing expenses and general and
administrative expenses because it believes that the information is
not relevant in managing its operations. Excluding these expenses also
provides for better comparability between periods and for results that
better reflect the economic cash flows of the operations.
Amortization of Intangible Assets
The company has incurred expenses for amortization of intangible
assets in the cost of sales numbers reported in its GAAP financial
results. These expenses relate to various acquisitions of companies
and technology. Management excludes these expenses when evaluating its
operating performance because it believes that it provides for better
comparability between periods and provides results that are more
reflective of the operating performance of the business.
Restructuring Charges
The company has incurred expenses for restructuring activities and
accounted for them in accordance with FAS 146. These include, but are
not limited to, employee severance and leasehold termination costs.
Because of the one-time nature of these charges management excludes
them in evaluating its operating performance.
SumTotal Systems, Inc.
Non-GAAP to GAAP Reconciliation
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
2006 2005 2006 2005
-------- -------- -------- --------
Non-GAAP revenue $ 27,504 $ 18,464 $ 80,335 $ 51,467
Deferred revenue
write-off License (352) (42) (2,055) (193)
Deferred revenue
write-off Service and
Maintenance (198) (13) (1,920) (238)
-------- -------- -------- --------
GAAP revenue $ 26,954 $ 18,409 $ 76,360 $ 51,036
======== ======== ======== ========
Non-GAAP net income
(loss) $ 1,137 $ 1,257 $ 4,338 $ (1,863)
Deferred revenue
write-off License (352) (42) (2,055) (193)
Deferred revenue
write-off Service and
Maintenance (198) (13) (1,920) (238)
Amortization of
intangible assets (2,090) (742) (6,586) (2,841)
Stock-based
compensation Service
and Maintenance (272) (53) (754) (80)
Stock-based
compensation Research
and Development (138) (76) (382) (110)
Stock-based
compensation Sales
and Marketing (288) (77) (783) (232)
Stock-based
compensation General
and Administrative (421) (123) (1,209) (290)
Restructuring provision (68) - (68) -
-------- -------- -------- --------
GAAP net income (loss) $ (2,690) $ 131 $ (9,419) $ (5,847)
======== ======== ======== ========
Diluted EPS:
Non-GAAP earnings (loss)
per share $ 0.04 $ 0.06 $ 0.17 $ (0.09)
Deferred revenue
write-off (0.02) (0.00) (0.16) (0.02)
Amortization of
intangible assets (0.08) (0.03) (0.26) (0.14)
Stock-based
compensation (0.05) (0.02) (0.13) (0.03)
Restructuring provision (0.00) (0.00) (0.00) (0.00)
-------- -------- -------- --------
GAAP net income (loss)
per share $ (0.11) $ 0.01 $ (0.38) $ (0.28)
======== ======== ======== ========
Weighted average common
shares outstanding, basic 25,131 21,207 24,914 20,973
======== ======== ======== ========
Weighted average common
shares outstanding, diluted 26,586 21,550 26,116 20,973
======== ======== ======== ========
Media Contacts
Karen Ambrose HickeySr. Director of Corporate Marketing
SumTotal Systems, Inc.
+1-650-930-4827
kahickey@sumtotalsystems.com
Investor Contact:
Gwyn LauberSumTotal Systems, Inc.
+1 650-934-9594
glauber@sumtotalsystems.com
