Scientific Learning Reports Third Quarter Growth in Revenue, Net Income and EPS
11/6/2008
Media Contact:Jessica Lindl
Vice President of Marketing
Scientific Learning Corporation
(510) 625-6784
jlindl@scilearn.com
Investor Contact:
Dale Hill
Director of Finance
Scientific Learning Corporation
(510) 625-2245
investorrelations@scilearn.com
Oakland CA, November 6, 2008 - Scientific Learning (NASDAQ: SCIL), a leading provider of brain fitness solutions for the education market, today announced its results for the quarter ended September 30, 2008. Revenue increased 12% to $12.7 million from $11.3 million for the same period in 2007, net income increased 140% to $590,000 from $246,000 in the third quarter of 2007 and earnings per share increased from $0.01 to $0.03.
For the nine months ended September 30, 2008 revenue was $35.3 million compared to $34.7 million in the same period last year, an increase of 1.5%. Deferred revenue totaled $23.1 million at September 30, 2008 compared to $24.3 million on September 30, 2007.
"We are pleased with our double digit revenue growth and progress in improving profitability. Our booked sales in the quarter were lower than we expected. The uncertainty caused by the crisis in the financial markets froze activity on many of the large orders we expected to close in the last two weeks of September. As a result of the delayed orders, the number of large transactions in the quarter was down. Earlier in the quarter we closed a $2.2 million order for the Fast ForWord to Reading Series," said Robert C. Bowen, Chairman and CEO of Scientific Learning.
Gross margins were 76% in the third quarter of 2008, compared to 79% in the same quarter of last year. This decline in gross margins was primarily the result of a shift in revenue mix to a higher proportion of lower margin service and support revenue, and amortization associated with the acquisition of the Reading Assistant product. This was partially offset by improved service and support margins which increased to 54% in the third quarter of 2008 from 52% in the same quarter of 2007. For the nine months ended September 30, 2008 gross margins were 75% compared to 78% in the same period last year.
Operating expenses in the third quarter of 2008 were $9.3 million, compared to $9.0 million in the third quarter of 2007, an increase of 2%. General and administrative costs included charges for severance costs and an increase in bad debt expense associated with one customer. The total of these two costs was approximately $660,000, masking the ongoing improvements made in our underlying cost structure. Research and development costs increased as a result of the acquisition of the Reading Assistant business. These increases were partially offset by reduced sales and marketing costs. Overall, for the nine months ended September 30, 2008 operating expenses increased 8% from the prior year.
Profit from operations for the quarter was $413,000, compared to an operating loss of $30,000 in the third quarter of 2007. Net loss for the nine months ended September 30, 2008 was $4.5 million compared to a net income of $277,000 for the same period in 2007. Basic and diluted net loss per share for the nine months ended September 30, 2008 was ($0.26) per share compared to basic and diluted net income of $0.02 per share for the same period in 2007.
"We are starting to see the impact of our first half 2008 initiatives, which better aligned our sales, services and support organizations to improve our responsiveness to customers and simplified internal processes to increase K-12 sales effectiveness and productivity," said Andy Myers, President and Chief Operating Officer. "While we had some delays in Q3 orders due to the economic environment, we are optimistic that most of those sales will not be lost since federal budgets used to purchase our products remain set to increase for the 2008-09 school year. Still, we continue to focus on expense reductions to prepare for longer term uncertainty and improve profitability."
Mr. Myers continued, "The progress we have already made to bring our cost structure in line with sales is evident in the third quarter results, as operating expenses increased slightly, despite $660,000 in bad debt and severance expense charges in G&A and increases in R&D expenses from the Reading Assistant acquisition."
Cash and equivalents totaled $6.1 million on September 30, 2008, compared to $2.3 million on June 30, 2008 and $19.9 million on September 30, 2007. Most of the decline in cash from the prior year was due to the acquisition of the Reading Assistant in January 2008. Accounts receivable totaled $11.0 million at quarter end, compared to $9.8 million on September 30, 2007.
Conference Call Information
The Company will host a conference call at 5:00p.m. EDT / 2:00 p.m. PDT on Thursday November 6, 2008. 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 866-290-0920 (domestic) or 913-312-1294 (international) passcode: 3034494. 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: 3034494
About Scientific Learning Corp.
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. The Scientific Learning Reading Assistant 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.scilearn.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, expected levels of government funding for education, the effect of organizational changes and expense levels. 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 and financial conditions (including the recent adverse events in the financial and credit markets); 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 for the second quarter of 2008 (Part II, Item 1A, Risk Factors), filed August 6, 2008. The Company disclaims any obligation to update information contained in these forward-looking statements, whether as a result of new information, future events, or otherwise.
Scientific Learning Corporation 2008 Third Quarter Financials (PDF)