TUTR Plato Learning (MM)

PLATO Learning, Inc. (NASDAQ:TUTR), a leading provider of K–adult e-learning solutions, today announced unaudited results for its fiscal 2009 third quarter ended July 31, 2009.

Total revenue for the third quarter was $16.7 million, compared to $18.6 million in the third quarter of 2008. Subscription revenue increased $1.6 million, or 17%, to $10.8 million on the Company’s growing base of subscription customers, while revenues from legacy perpetual products and related software maintenance declined $2.9 million, or 46%, to $3.5 million, as sales of these non-strategic products and services continue their natural decline. Continued improvements in gross margins and operating efficiencies resulted in the Company reporting its third consecutive quarter of profitability. Net income for the third quarter was $184,000, or $0.01 per share, compared to a net loss of ($2.1) million, or ($0.09) per share, a year ago. The third quarter 2008 net loss includes restructuring charges of $0.8 million, or $0.04 per share. Subscription orders grew 33% to $23.5 million compared to $17.7 million in the prior year quarter. Total orders for the quarter grew 13% to $31.2 million.

Vin Riera, PLATO Learning President and CEO said, “Our fiscal third quarter occurs during the primary buying season in the education market, and we are pleased to report strong financial results for this important period in our business. Compared to our third quarter last year, subscription orders and revenues grew at double-digit rates, gross margins improved, operating expenses declined, cash balances grew, and we achieved our third consecutive quarter of profitability.”

Mr. Riera continued, “During the quarter, we added 176 school districts and community colleges as first-time subscribers to PLE™. Although the budget environment remains difficult for our customers, we continued to experience strong new and recurring demand in the quarter for instructional solutions delivered on PLE™. Compared to the third quarter of 2008, total PLE™ orders grew nearly 50% to $21.3 million. Nearly two-thirds of PLE orders in the quarter came from new customers or expansions of existing customer installations, with the remainder coming from our increasing base of renewing customers. Our renewal rate in the third quarter was approximately 90%, and our dollar weighted average subscription term increased to 18.5 months, from 13.9 months in the third quarter of 2008. We view both these measures as strong indicators of the effectiveness and long-term value of our solutions to our customers.”

Subscription margins in the third quarter improved 12 percentage points to 62%, resulting in an improvement in total gross margins for the quarter to 57%, compared to 50% in the same quarter last year. The improvement in subscription margins reflects 17% growth in subscription revenues, and a decline in subscription product amortization. Operating expenses in the third quarter decreased 10% to $9.4 million, compared to non-GAAP operating expenses before restructuring charges of $10.4 million in the same quarter last year. Earnings before interest, taxes, depreciation and amortization (EBITDA, a non-GAAP measure), were $3.4 million in the third quarter of 2009, compared to adjusted EBITDA of $3.1 million in the third quarter of 2008.

Cash and cash equivalents at July 31, 2009 totaled $14.2 million, an increase of $3.9 million from the end of the second quarter 2009, and a $2.3 million increase from the end of the third quarter 2008, reflecting the growth in orders and lower spending in the quarter. The third quarter 2009 represented the Company’s first reported year-over-year increase in cash balances since the fourth quarter of fiscal 2005.

Outlook

In light of the Company’s strong third quarter performance, it now expects fiscal year 2009 subscription order growth to be in the range of 25% to 30%, versus growth in the mid-teens as previously expected. Cash balances are expected to increase from $14.2 million at the end of the third quarter, to between $25 million and $27 million at fiscal year end, up from previous expectations of approximately $20 million. The Company’s expectations for fiscal 2009 subscription revenue remain unchanged at low double-digit growth given the nature of subscription revenue recognition, the timing of orders, and the effect of longer subscription contracts on near-term revenue. Profitability for fiscal 2009 remains the Company’s goal; however, specific earnings guidance is not being provided.

Conference Call

A conference call to discuss this announcement is scheduled for today, September 1, 2009, at 9:00 am CT (10:00 am ET). The dial-in number for this call is 877-941-2068 in the U.S. and Canada, and 480-629-9712 internationally. Attendees should call 10 minutes prior to the start of the call and inform the operator they are participating in PLATO Learning’s call. A recording of the call will be available from 11:00 am CT (12:00 pm ET) on September 1, 2009, until midnight September 8, 2009. To access the recording, call 800-406-7325 in the U.S. and Canada and 303-590-3030 internationally. At the prompt, enter pass code number 4145401#. Additionally, the webcast will be available for replay on the investor relations section of PLATO Learning’s web site at www.plato.com/Investor-Relations/Conference-Calls.aspx.

About PLATO Learning

PLATO Learning is a leading provider of computer-based and e-learning instruction for kindergarten through adult learners, offering curricula in reading, writing, math, science, social studies, and life and job skills. Learn more about PLATO Learning by visiting www.plato.com.

The announcement includes the use of non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures have been used in this announcement because the Company believes they are useful to investors by providing greater transparency to supplemental information used in the Company’s internal financial and operational analysis. Investors are encouraged to review the reconciliations attached to this announcement of the non-GAAP financial measures used in this announcement to their most directly comparable GAAP financial measures.

This announcement includes forward-looking statements. PLATO Learning has based these forward-looking statements on its current expectations and projections about future events. Although PLATO Learning believes that its assumptions made in connection with the forward-looking statements are reasonable, no assurances can be given that its assumptions and expectations will prove to have been correct. These forward-looking statements are subject to various risks, uncertainties and assumptions. PLATO Learning undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward looking statements made are subject to the risks and uncertainties as those described in the Company's most recent filings with the Securities and Exchange Commission on Forms 10-K and 10-Q. Actual results may differ materially from anticipated results.

PLATO®, Straight Curve® and Academic Systems® are registered trademarks of PLATO Learning, Inc. PLATO Learning is a trademark of PLATO Learning, Inc.

  PLATO Learning, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share amounts)         Three Months Ended Nine Months Ended July 31, July 31, 2009 2008 2009 2008 REVENUES Subscriptions $ 10,774 $ 9,247 $ 30,368 $ 25,691 License fees 1,328 3,353 3,338 7,113 Services   4,637     6,038     14,577     18,214   Total revenues   16,739     18,638     48,283     51,018     COST OF REVENUES Subscriptions 4,095 4,593 12,165 14,058 License fees 611 1,540 1,467 4,060 Services   2,418     3,172     7,182     9,082   Total cost of revenues   7,124     9,305     20,814     27,200     GROSS PROFIT   9,615     9,333     27,469     23,818     OPERATING EXPENSES Sales and marketing 5,969 6,657 17,460 21,182 General and administrative 2,209 2,258 6,504 7,909 Software maintenance and development 976 1,128 2,251 3,306 Amortization of intangibles 214 388 640 1,163 Restructuring   -     800     -     2,435   Total operating expenses   9,368     11,231     26,855     35,995     OPERATING INCOME (LOSS) 247 (1,898 ) 614 (12,177 )   Other (expense) income, net   (63 )   (11 )   (48 )   188     INCOME (LOSS) BEFORE INCOME TAXES 184 (1,909 ) 566 (11,989 )   Income tax expense   -     152     -     456     NET INCOME (LOSS) $ 184   $ (2,061 ) $ 566   $ (12,445 )   INCOME (LOSS) PER SHARE Basic $ 0.01   $ (0.09 ) $ 0.02   $ (0.52 ) Diluted $ 0.01   $ (0.09 ) $ 0.02   $ (0.52 )  

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

Basic

  24,106     23,881     24,052     23,825   Diluted   24,757     23,881     24,383     23,825       PLATO Learning, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands)     July 31, October 31, 2009 2008   ASSETS   Current assets: Cash and cash equivalents $ 14,185 $ 20,018 Accounts receivable, net 17,751 6,834 Other current assets   6,053     7,408   Total current assets 37,989 34,260   Equipment and leasehold improvements, net 2,698 3,589 Software development costs, net 20,760 24,086 Identified intangible assets, net 2,719 3,723 Other long-term assets   3,203     3,309   Total assets $ 67,369   $ 68,967     LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable $ 1,305 $ 3,085 Accrued compensation 3,383 3,996 Other accrued liabilities 2,371 6,909 Deferred revenue   34,711     36,005   Total current liabilities 41,770 49,995   Long-term deferred revenue   13,859     8,916   Total liabilities   55,629     58,911     Stockholders' equity: Common stock 242 240 Additional paid-in capital 172,275 171,143 Treasury stock at cost (319 ) (315 ) Accumulated deficit (159,224 ) (159,790 ) Accumulated other comprehensive loss   (1,234 )   (1,222 ) Total stockholders' equity   11,740     10,056   Total liabilities and stockholders' equity $ 67,369   $ 68,967       PLATO Learning, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands)     Nine Months Ended July 31, 2009 2008 OPERATING ACTIVITIES: Net income (loss) $ 566   $ (12,445 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Deferred income taxes - 456 Depreciation and amortization 9,215 12,868 Stock-based compensation 1,023 559 Other adjustments (166 ) 105 Changes in operating assets and liabilities: Accounts receivable (10,727 ) (841 ) Other current and long-term assets 1,330 (238 ) Accounts payable (1,780 ) (1,967 ) Other current and long-term liabilities (5,144 ) (686 ) Deferred revenue   3,649     (1,275 ) Total adjustments   (2,600 )   8,981   Net cash used in operating activities   (2,034 )   (3,464 )   INVESTING ACTIVITIES: Capitalized software development costs (3,362 ) (8,741 ) Purchases of equipment and leasehold improvements   (525 )   (318 ) Net cash used in investing activities   (3,887 )   (9,059 )   FINANCING ACTIVITIES: Net proceeds from issuance of common stock, net of repurchases 107 60 Repayments of capital lease obligations   (7 )   (22 ) Net cash provided by financing activities   100     38    

EFFECT OF CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

  (12 )   26     Net decrease in cash and cash equivalents (5,833 ) (12,459 )   Cash and cash equivalents at beginning of period 20,018 24,297             CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,185   $ 11,838      

PLATO Learning, Inc.

Supplemental Financial Information

(Unaudited)

                                      Order Value ($000) Three Months Ended July 31, Nine Months Ended July 31, 2009 2008

%Change

2009 2008

%Change

  Subscriptions 23,522 17,709 33% 41,438 30,586 35%   License fees 1,057 2,457 (57%) 2,995 6,384 (53%)   Services : Professional services 3,861 3,153 22% 7,003 5,470 28% Software maintenance 2,071 3,594 (42%) 4,329 6,643 (35%) Other   720   761 (5%)   2,238   2,288 (2%) Total Services   6,652   7,508 (11%)   13,570   14,401 (6%)   $ 31,231 $ 27,674 13% $ 58,003 $ 51,371 13%                                     Reconciliation of Deferred Revenue to Non-GAAP Deferred Revenue Backlog ($000):       As of July 31,   2009 2008 % Change   Total Deferred Revenue $ 48,570 $ 43,324 12%  

Add: Unbilled amounts due under non-cancelable subscription agreements

  14,170   7,324 93%   Deferred Revenue Backlog $ 62,740 $ 50,648 24%   Components of Deferred Revenue Backlog: Subscriptions $ 51,771 $ 38,413 35%   License fees 99 349 (72%)   Services   10,870   11,886 (9%)   Deferred Revenue Backlog $ 62,740 $ 50,648 24%                    

PLATO Learning, Inc.

Supplemental Financial Information

(Unaudited)

    Revenue Details ($000s)             Three Months Ended July 31, Nine Months Ended July 31, 2009 2008

%Change

2009 2008

%Change

  Subscriptions 10,774 9,247 17% 30,368 25,691 18%   License fees 1,328 3,353 (60%) 3,338 7,113 (53%)   Services: Professional services 1,787 2,259 (21%) 5,536 6,579 (16%) Software maintenance 2,142 3,032 (29%) 6,838 9,393 (27%) Other   708   747 (5%)   2,203     2,242 (2%) Total services   4,637   6,038 (23%)   14,577     18,214 (20%)   $ 16,739 $ 18,638 (10%) $ 48,283 $ 51,018 (5%)                                    

Reconciliation of 2008 GAAP Net Loss and Loss Per Share to Non-GAAP Net Loss and Loss Per Share Before Restructuring Charges

($000s, except per share amounts)    

Three MonthsEnded July 31,

Nine MonthsEnded July 31,

2008 2008 Net loss, as reported $ (2,061 ) $ (12,445 ) Restructuring charges   800     2,435   Net loss before restructuring charges $ (1,261 ) $ (10,010 )   Loss per share (basic): Loss per share, as reported $ (0.09 ) $ (0.52 ) Restructuring charges   0.04     0.10   Loss per share before restructuring charges $ (0.05 ) $ (0.42 )                    

PLATO Learning, Inc.

Supplemental Financial Information

(Unaudited)

   

Reconciliation of 2008 GAAP Operating Expenses to Non-GAAP Operating Expenses Before Restructuring Charges ($000s)

   

Three Months

Nine Months Ended July 31, Ended July 31, 2008 2008 Total operating expenses $ 11,231 $ 35,995 Restructuring charges   800   2,435

Operating expenses before restructuring charges

$

10,431 $ 33,560                

Reconciliation of GAAP Net Income To 2009 Non-GAAP Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") and 2008 Non-GAAP Adjusted EBITDA ($000)

  Three Months Ended   Nine Months Ended July 31,   July 31, 2009   2008   2009   2008 Net income (loss) $ 184 $ (2,061 ) $ 566 $ (12,445 ) Income taxes - 152 - 456 Interest, net 59 12 27 (190 ) Depreciation and amortization   3,150     4,154     9,086     12,750   EBITDA $ 3,393   2,257 $ 9,679   571 Restructure charges   800     2,435   Adjusted EBITDA $ 3,057   $ 3,006