SumTotal Systems Reports Third Quarter 2007 Results

Announces Addition of Senior Executive and Organizational Changes

MOUNTAIN VIEW, Calif. – October 30, 2007 – SumTotal® Systems (Nasdaq: SUMT), a global provider of talent and learning management solutions, announced its financial results for the third quarter ended September 30, 2007.

Third Quarter 2007 Results
On a Generally Accepted Accounting Principles (GAAP) basis, total revenue for the third quarter of 2007 was $29.3 million, an increase of 9% from $27.0 million reported in the third quarter of 2006. GAAP net loss was $2.0 million, or $0.06 per share on a basic and diluted basis, compared to a net loss of $2.7 million, or $0.11 per share on a basic and diluted basis in the same quarter of 2006. Subscription and support revenue increased 28% to $15.7 million from $12.2 million in the third quarter of 2006.

Deferred revenue increased 38% year-over-year to end the third quarter of 2007 at $34.9 million, compared to $25.4 million for the same quarter of the previous year.

Cash flow from operating activities for the quarter generated $2.1 million for the quarter and $11.1 million for the first nine months of the year.

Non-GAAP revenue in the third quarter increased 7% to $29.5 million from $27.5 million reported for the third quarter of 2006. Non-GAAP net income was $1.5 million, or $0.05 per share on a diluted basis, compared to net income of $1.1 million, or $0.04 per share on a diluted basis in the same quarter of 2006. Subscription and support revenue increased 26% to $15.9 million from $12.6 million in the same quarter last year.

Non-GAAP results exclude the impact of certain one-time charges primarily related to restructuring activities, if any, and non-cash accounting adjustments and charges primarily related to acquisition accounting, stock-based compensation, and any related income tax effects. A reconciliation to the GAAP results is provided in the attached statements.

“I am pleased that our results were within our forecasted range,“ said Don Fowler, SumTotal’s chief executive officer. “Our revenue grew year over year, we were profitable on a non-GAAP basis for the ninth consecutive quarter, and we continued to generate cash from operations.”

Organizational Changes
SumTotal Systems today announced that Ray Villareal plans to join the Company as senior vice president of field operations effective November 5. In this role, Mr. Villareal will be responsible for all customer-facing activities including sales, marketing, services and support. Most recently, he was vice president of field operations and marketing at WebEx Communications. Prior to WebEx, he held CEO positions at several start-up companies. Additionally, Mr. Villareal worked for Compaq and was responsible for its enterprise business segment in North America.

As it focuses on its growth, the Company also announced that it has changed its operating structure and created two business units. This structure will allow it to better focus on the strategic direction of its learning and performance management businesses. Senior Vice President Sanjay Dholakia will be responsible for the learning and talent management business while Vice President Jon Ciampi will be responsible for the performance management business. As the Company looks to further extend its leading position in learning and capitalize on its early successes in performance management, this new structure allows for greater strategic focus and operational alignment across functions.

The Company further announced that it is taking actions during the fourth quarter to reduce its ongoing expense level by approximately $4 million on an annual basis. These actions will result in the elimination of a number of positions. The Company will take a one time restructuring charge in the fourth quarter in connection with these actions. The full benefit of the savings will commence in the first quarter of 2008.

“The creation of a field operations group headed by Ray Villareal along with the creation of our two business units is the right structure for SumTotal,” said Mr. Fowler. “Ray brings a wealth of experience that I believe will help accelerate our sales growth. Our new structure will also help to accelerate our growth by allowing us to focus on the unique issues and opportunities of each business. The Company continues to be committed to profitability and we believe that the cost cutting measures will allow us to continue to grow profitably.”

Third Quarter Business Highlights

• Board of Directors approved a $15 million share repurchase program of which the Company has utilized $2.1 million to date.


• Signed contracts with North American customers, including American Management Association, Citrix Systems, Jenny Craig International, and Unum.


• Signed contracts with international customers including Femsa Servicios, S.A. de C.V., the largest beverage company in Latin America, St. George Bank, Toshiba Medical Systems Corporation, and Vodafone PLC.


• Signed government contracts, including U.S. Army Recruiting Command, the Defense Ammunition Center, and New Mexico Department of Health.


• Released SumTotal Enterprise Suite™ 7.6, SumTotal’s newest version of its talent management suite for managing learning, performance and compensation.


• Received an eLearning Guild 2007 Platinum Award for Overall Customer Satisfaction for ToolBook Instructor 9.0, SumTotal’s product for developing online assessments, software simulations, scenario-based training, and elearning content.  Earned a place on the Military Training Technology 2006 Top 100 List for the third consecutive year.


• Hosted TotalConnection 2007, SumTotal’s global user conference brought together more than 300 attendees from four continents to discuss product innovations, best practices and industry trends.

Fourth Quarter Guidance
For the fourth quarter of 2007, SumTotal Systems estimates its GAAP revenue will be between $27.8 million and $29.8 million. GAAP net loss is estimated to be between $3.2 million, or $0.10 per share on both a basic and diluted basis, and $2.2 million, or $0.07 per share on both a basic and diluted basis, excluding any one time restructuring charges.

On a non-GAAP basis, revenue is estimated to be between $28.0 million and $30.0 million. Non-GAAP net income is estimated to be between $0.5 million or $0.02 per share on a diluted basis, and $1.5 million, or $0.05 per share on a diluted basis. The reconciling items between the GAAP loss and non-GAAP income are estimated to be a $0.2 million adjustment to revenue, $2.1 million for amortization of intangibles, and $1.4 million for stock-based compensation.

The fourth quarter guidance assumes no revenue from a large retail customer.

Conference Call
SumTotal will host an investor conference call and webcast on Tuesday, October 30, 2007, at 2:00 p.m. (Pacific Time) / 5:00 p.m. (Eastern Time) to discuss the financial results for the third quarter. 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 30, 2007, beginning at approximately 5:00 p.m. (Pacific Time) through the close of business (Pacific Time) on Tuesday, November 6, 2007. Investors and other interested parties can access the replay by dialing the U.S. toll-free number: 877-519-4471, access code: 9333043. The international dial-in number is 973-341-3080 access code: 9333043.

About SumTotal Systems, Inc.
SumTotal Systems, Inc. (NASDAQ: SUMT) is a global provider of talent and learning management solutions. SumTotal deploys mission-critical solutions designed to align goals, develop skills, assess performance, plan for succession and set compensation. SumTotal’s solutions aim to accelerate performance and profits for more than 1,500 companies and governments of all sizes, including six of the world’s 10 biggest pharmaceutical makers, six of the 10 largest automotive companies in the world, four of the five branches of the U.S. Armed Forces, three of the world’s top five airlines, five of the six largest U.S. commercial banks, and two of the world’s top five specialty retailers. Mountain View, Calif.-based SumTotal has offices across Asia, Australia, Europe and North America. For more information about SumTotal's products and services, visit www.sumtotalsystems.com.

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SumTotal, the SumTotal logo, TotalLMS, ToolBook, and ResultsOnDemand 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 contain 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, 2007 and the 2007 fiscal year. These statements represent the company’s current expectations or beliefs concerning its future results, and include statements, among others, regarding its financial guidance for estimated GAAP and non-GAAP revenue; loss and income; growth of recurring revenue base; the company’s competitive position and business model, including its market share and its ability to grow its subscriptions and support business, including internationally and in the performance management markets; and, the company’s ability to execute and the strength and scale of its business model. 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 statement or statements. Additional factors that could cause actual results to differ include, but are not limited to, (i) completing the requisite work necessary in order to gain ‘acceptance’ so the company can recognize revenue on deals the company has signed, but revenue has not yet been recognized. (ii) inability of the company’s executive team, including its new hire in field operations, to execute on its plans, causing the company to miss its financial forecasts or not grow the company’s business at or above the forecasted or expected rates; (iii) underestimating the cost reductions necessary to maintain profitability, or making cuts that aversely impacts the company’s ability to execute; (iv) inability to recruit or retain key personnel, including management, to support the company’s current business and future growth, especially in light of the company’s reorganization; (v) failure to close expected transactions in the fourth quarter of fiscal 2007, and the timing of recognizing revenue from such transactions; (vi) the ability to successfully manage and increase growth outside of the United States and significant current and expected additional competition; (vii) increased competition, especially in the performance management segment, causing the loss of deals, material reductions in prices or acceptance of terms the company otherwise would not accept; (viii) inaccurately estimating the speed, ability or cost of the company transitioning its product offerings to on-demand subscriptions and a recurring revenue model; (ix) the company’s inability to grow its business and revenue, and to accurately predict the timing and expense of growing them, especially for on-demand subscriptions and its performance management product; (x) unexpected expenses or failure to implement in a timely fashion, or at all, the requisite steps to control expenses; (xi) customer dissatisfaction with the company’s products, causing the return of product or refusal to pay for product or services; (xii) the company’s ability to protect its intellectual property rights and claims that the company has infringed the intellectual property rights of others; (xiii) adoption of new accounting regulations and standards that may affect reported earnings and operating income; (xiv) the lengthening of the company’s sales cycle and increased difficulties in negotiating sales contracts on terms favorable to us and the uncertain timing of such sales; (xv) the level of corporate spending and changes in general economic conditions that affect demand for computer software and services in general which may disproportionately affect the market for our products; (xvi) other market conditions that include risks and uncertainties such as risks associated with financial, economic, political, terrorist activity and other uncertainties associated with operating a global business; and (xvii) 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 for fiscal year 2006 on Form 10-K filed on March 16, 2007, its quarterly report on Form 10-Q filed on August 7, 2007, its Prospectus Supplement filed on Form 424B2 filed on May 21, 2007 and its Form 8-Ks. The forward-looking statements contained in this release and the accompanying conference are made as of the date of this press release and conference call, and the company assumes no obligation to update the information in either the press release or the accompanying conference call.