Scientific Learning Reports Second Quarter Results
Revenue of $13.5 Million
7/30/08
Media Contact:
Jessica Lindl
Vice President of Marketing
Scientific Learning Corporation
(510) 625-6784
jlindl@scilearn.com
Investor Contact:
Jane A. Freeman
Executive Vice President and CFO
Scientific Learning Corporation
(510) 625-2281
investorrelations@scilearn.com
Oakland, CA, July 30, 2008 - Scientific Learning (NASDAQ: SCIL), a leading provider of brain fitness solutions for the education market, today announced its revenue for the quarter ended June 30, 2008 was $13.5 million, compared to $14.6 million for the quarter ended June 30, 2007, a decrease of 8%. For the six months ended June 30, 2008 revenue was $22.6 million compared to $23.4 million in the prior year, a decrease of 4%. Deferred revenue totaled $20.6 million on June 30, 2008 compared to $21.1 million as of June 30, 2007.
"Last year, we had a single transaction that contributed $3.2 million in revenue to the quarter, which we were not able to replicate this quarter. Excluding this transaction, second quarter revenue increased 19%," said Robert C. Bowen, Chairman and CEO of Scientific Learning. "In the second quarter, we had 31 transactions over $100,000, compared to 25 last year, which reflects an expanding customer base. With an expanding base of transactions, our new account managers gaining experience with Fast ForWord, and a new, exciting product to sell, the Reading Assistant, we are positive about the outlook for the second half, despite tough economic conditions."
Gross margins were 77% in the second quarter of 2008, compared to 82% in the same quarter of 2007. The decline in gross margins was primarily the result of a shift revenue to a higher proportion of service and support revenue. Service and support gross margins improved to 48% in the second quarter of 2008 from 41% in the same quarter of 2007, offsetting declines in product gross margin of 3% due to amortization and increased material costs associated with the acquisition of the Reading Assistant. Gross margins for the six months ended June 30, 2008 were 74% compared to 78% in the same period last year.
Operating expenses in the second quarter of 2008 increased 3% and totaled $9.8 million, compared to $9.5 million in the second quarter of 2007. Increases in research and development as the result of the acquisition of the Reading Assistant business were offset by lower sales and marketing and general and administrative costs. For the six months ended June 30, 2008, operating expenses were $20.8 million compared to $18.8 million in 2007, an increase of 11%, the majority of which is associated with the acquisition of the Reading Assistant.
"Despite the fact that the acquisition of the Reading Assistant is depressing our profits over the short term, we are very encouraged with how this unique and easy to use solution is allowing us to quickly initiate a positive dialogue and interest with the reading community," said Mr. Bowen. "Using speech verification technology to provide each student with an electronic reading coach is the only scalable option to solve the oral reading requirement for all students. The Reading Assistant is providing our sales force with ways to engage new districts, sell more to existing customers and increase the size of our transactions."
"In the first half of the year, we better aligned our sales, services and support organizations to improve our responsiveness to customers, and we simplified internal processes to increase K-12 sales effectiveness and productivity. We are already seeing evidence that these changes will have a positive impact on future growth," stated Andy Myers, President and Chief Operating Officer. "We have now experienced two consecutive quarters of sales mix improvements and we have made significant progress on bringing our cost structure in line with current sales levels. We also expect to gain sales momentum and enable customers to realize even greater implementation success as a direct result of our recent releases of Fast ForWord Language and Language To Reading Version 2 and the introduction of live and recorded online training offerings for teachers and administrators."
Operating profit for the quarter was $690,000, compared to operating profit of $2.5 million in the second quarter of 2007. For six months ending June 30, 2008 we had an operating loss of $4.2 million compared to an operating loss of $553,000 in same period of the prior year.
In the second quarter, we recorded income tax expense of $1.2 million which included an increase in the valuation allowance against our deferred tax asset.
The net loss for the quarter was $438,000 compared to a profit of $2.7 million in the second quarter of 2007. The basic and diluted net loss per share was $0.03 in the second quarter of 2008, compared to a profit of $.16 and $.15, respectively, in the same period last year. The net loss for the six months ended June 30, 2008 was $5.1 million compared to a net profit of $31,000 in same period in 2007. Basic and diluted net loss per share was $.29 in the six months ended June 30, 2008 compared to $.00 in the same period last year.
Cash and equivalents totaled $2.3 million on June 30, 2008, compared to $9.4 million on June 30, 2007. The primary reason for the decline in cash was due to the acquisition of the Reading Assistant, which was an all cash transaction of $10.7 million, which occurred on January 7, 2008. Because of the seasonality of our sales and expenses, we typically use cash in the first half of the year and generate cash in the second half. Accounts receivable totaled $10.7 million at quarter end compared to $16.3 million on June 30, 2007.
Conference Call Information
The call will be broadcast over the Internet on Wednesday, July 30, 2008 at 5:00 p.m. EDT / 2:00 p.m. PDT. The conference call will be available live on the Investor Information portion of the Company's website at www.scilearn.com/investorinfo. The conference call can also be accessed at 877-419-6592 (domestic) or 719-325-4910 (international). Please dial in or visit the website at least 10 minutes prior to the commencement of the call to ensure your participation. A replay of this teleconference will be made available on the Scientific Learning website approximately two hours following the conclusion of the call. To hear the replay by phone, please call 888-203-1112 (domestic) and 719-457-0820 international and enter the replay passcode: 7482756
About Scientific Learning Corporation
Scientific Learning creates educational software that accelerates learning by improving the processing efficiency of the brain. Based on more than 30 years of neuroscience and cognitive research, the Fast ForWord® family of products provides struggling readers with computer-delivered exercises that build the cognitive skills required to read and learn effectively. Scientific Learning Reading AssistantTM combines advanced speech recognition technology with scientifically-based courseware to help students strengthen fluency, vocabulary and comprehension to become proficient, life-long readers. The efficacy of the products has been established by more than 550 research studies and publications. For more information, visit http://www.scientificlearning.com/ or call toll-free 888-452-7323.
This press release contains forward-looking statements that are subject to the safe harbor created by the federal securities laws. Such statements include, among others, statements relating to future sales, the impact of the Reading Assistant and other new product releases, the effect of increased experience of our new sales representatives and other organizational changes, the extent of customer acceptance of our products, expense levels, liquidity and other financial results. Such statements are subject to substantial risks and uncertainties. Actual events or results may differ materially as a result of many factors, including but not limited to: general economic conditions; seasonality and sales cycles in Scientific Learning's markets; competition; availability of funding to purchase the Company's products and generally available to schools; the acceptance of new products and product changes; the extent to which the Company's marketing, sales and implementation strategies are successful; personnel changes; the Company's ability to continue to demonstrate the efficacy of its products, and other risks detailed in the Company's SEC reports, including but not limited to the Report on Form 10Q (Part II, Item 1A, Risk Factors), filed May 9, 2008.
Scientific Learning Corporation 2008 Second Quarter Financials (PDF)