SumTotal® Systems (Nasdaq:SUMT) announced its financial results for the first quarter ended March 31, 2008.
First Quarter 2008 Results
On a Generally Accepted Accounting Principles (GAAP) basis, total revenue for the first quarter 2008 was $36.0 million, an increase of 24% from $29.1 million in the first quarter 2007. GAAP net income was $1.5 million, or $0.05 per share on a diluted basis, compared to a net loss of $1.8 million, or $0.07 per share on a diluted basis, in the first quarter 2007.
Non-GAAP revenue for the first quarter 2008 increased by 22% to $36.1 million from $29.5 million in the first quarter 2007. Non-GAAP net income was $4.6 million, or $0.14 per share on a diluted basis, compared to non-GAAP net income of $1.9 million, or $0.07 per share on a diluted basis, a year ago.
Deferred revenue on a GAAP basis at the end of the first quarter 2008 increased to $33.1 million from $30.9 million for the same quarter of the previous year.
Cash flows from operating activities for the quarter was $3.6 million compared to $2.5 million for the same period 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.
"Fueled by the growth in our on-demand business and the recognition of over $5 million of revenue from one large deal, the first quarter was the best in our history and we posted record revenues and record profit,” said Don Fowler, SumTotal’s chief executive officer. “Although I am pleased with the strong start to the year, I remain cautious about the remainder of the year due to the broader economic climate. But with the momentum in our on-demand business, I believe we are well-positioned for the long-term.”
Business Highlights
- Expanded our on-demand business by 45% year-over-year with new and existing customers such as Wendy’s International;
- Signed deals with new customers including Newmont Mining, and expanded our relationship with customers including the U.K. Ministry of Defence;
- Doubled our performance management bookings year-over-year with new customers such as H&R Block and the American Cancer Society;
- Continued growth in international regions, including new customers such as Daiwa Securities in Japan and HDFC Securities in India;
- Recognized as a leader in the February 2008 Forrester Wave: Enterprise Learning Management Suites; received the highest possible score;
- Named as the market share leader in the LMS market by Bersin & Associates, an independent advisory firm; and
- Continued innovation leadership with beta release of industry’s first content authoring solution for mobile devices, starting with a version for Apple’s iPhone™.
Second Quarter Guidance
For the second quarter 2008, SumTotal Systems estimates its GAAP revenue will be between $29.9 million and $31.9 million. GAAP net loss is estimated to be between ($2.5) million and ($1.5) million, or between ($0.08) and ($0.05) per share on both a basic and diluted basis.
On a non-GAAP basis, revenue is estimated to be between $30.0 million and $32.0 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 GAAP loss and non-GAAP income are estimated to be a $0.1 million adjustment to revenue, $1.4 million for amortization of intangibles, $0.1 million for restructuring charges, and $1.4 million for stock-based compensation.
SumTotal Systems, Inc. |
Condensed Consolidated Balance Sheets |
(in thousands) |
(Unaudited) |
| | |  | | | | |
| | | | March 31, | | December 31, |
| | | | 2008 | | 2007 |
Assets | | | | |
| | | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 41,931 | | $ | 19,182 |
| Short-term investments | | | 9,366 | | | 30,143 |
| Accounts receivable, net | | | 24,415 | | | 26,734 |
| Prepaid expenses and other current assets | | | 3,846 | | | 4,482 |
| Total current assets | | | 79,558 | | | 80,541 |
| | | | | | |
| Property and equipment, net | | | 7,079 | | | 7,901 |
| Goodwill | | | 68,461 | | | 68,461 |
| Intangible assets, net | | | 11,241 | | | 12,924 |
| Other assets | | | 1,254 | | | 1,213 |
| Total assets | | $ | 167,593 | | $ | 171,040 |
| | | | | | |
Liabilities and Stockholders' Equity | | | | |
| | | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 2,544 | | $ | 2,326 |
| Accrued compensation and benefits | | | 6,634 | | | 8,630 |
| Other accrued liabilities | | | 4,492 | | | 3,759 |
| Restructuring accrual | | | 135 | | | 100 |
| Deferred revenue | | | 32,492 | | | 35,898 |
| Notes payable | | | 6,189 | | | 6,157 |
| Total current liabilities | | | 52,486 | | | 56,870 |
| | | | | | |
| Non-current liabilities: | | | | |
| Other accrued liabilities, non-current | | | 177 | | | 193 |
| Deferred revenue, non-current | | | 658 | | | 858 |
| Notes payable, non-current | | | 3,281 | | | 4,661 |
| | Total liabilities | | | 56,602 | | | 62,582 |
| | | | | | |
| Commitments and contingencies | | | - | | | - |
| | | | | | |
| Stockholders' equity | | | 110,991 | | | 108,458 |
| | Total liabilities and stockholders' equity | | $ | 167,593 | | $ | 171,040 |
SumTotal Systems, Inc. |
GAAP Condensed Consolidated Statements of Operations |
(in thousands, except per share amounts) |
(Unaudited) |
| | | | | | | |
| | | | Three-Months Ended |
| | | | March 31, |
| | | | | 2008 | | | | 2007 | |
| | | | | | |
| Revenue: | | | | |
| Subscriptions and Support | | $ | 17,627 | | | $ | 14,468 | |
| Services | | | 9,672 | | | | 8,233 | |
| License | | | 8,693 | | | | 6,349 | |
| | Total revenue | | | 35,992 | | | | 29,050 | |
| | | | | | |
| Cost of revenue: | | | | |
| Subscriptions and Support | | | 5,961 | | | | 4,746 | |
| Services | | | 6,891 | | | | 5,590 | |
| License | | | 64 | | | | 92 | |
| Amortization of intangible assets | | | 1,684 | | | | 2,250 | |
| | Total cost of revenue | | | 14,600 | | | | 12,678 | |
| | | | | | |
| Gross margin | | | 21,392 | | | | 16,372 | |
| | | | | | |
| Operating expenses: | | | | |
| Research and development | | | 5,830 | | | | 5,039 | |
| Sales and marketing | | | 8,728 | | | | 7,902 | |
| General and administrative | | | 5,176 | | | | 5,006 | |
| Restructuring charge | | | 85 | | | | - | |
| | Total operating expenses | | | 19,819 | | | | 17,947 | |
| | | | | | |
| | Income (loss) from operations | | | 1,573 | | | | (1,575 | ) |
| | | | | | |
| Interest expense | | | (222 | ) | | | (378 | ) |
| Interest income | | | 493 | | | | 163 | |
| Other income (expense), net | | | 21 | | | | (12 | ) |
| | | | | | |
| | Income (loss) before provision for income taxes | | | 1,865 | | | | (1,802 | ) |
| Provision for income taxes | | | 363 | | | | 24 | |
| | | | | | |
| | Net income (loss) | | $ | 1,502 | | | $ | (1,826 | ) |
| | | | | | |
| | | | | | |
| Net income (loss) per share, basic | | $ | 0.05 | | | $ | (0.07 | ) |
| Net income (loss) per share, diluted | | $ | 0.05 | | | $ | (0.07 | ) |
| | | | | | |
| Weighted average common shares outstanding, basic | | | 32,177 | | | | 26,839 | |
| Weighted average common shares outstanding, diluted | | | 32,483 | | | | 26,839 | |
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 Pathlore Software Corporation and MindSolve Technologies, Inc. This has the effect of increasing licenses and subscriptions and support 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, subscriptions and support renewal rates, and the operating profitability of the business.
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.
Stock-Based Compensation
SumTotal has incurred stock-based compensation as required by FAS 123R. The Company excludes these expenses from services and subscriptions and support 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.
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.
Income Taxes
These adjustments are not tax effected as management believes that given the Company's historical operating losses and other tax considerations, they would not result in an additional tax charge to the income statement.
SumTotal Systems, Inc. |
Non-GAAP to GAAP Reconciliation |
(in thousands, except per share amounts) |
(Unaudited) |
| | | | | | | | | |
| | | | Three-Months Ended March 31, |
| | | | | 2008 | | | | | | 2007 | |
| | | | | | | | |
| | Non-GAAP revenue | $ | | 36,096 | | | | $ | | 29,490 | |
| | Deferred revenue write-off Subscriptions and Support | | | (104 | ) | | | | | (410 | ) |
| | Deferred revenue write-off License | | | - | | | | | | (30 | ) |
| | GAAP revenue | $ | | 35,992 | | | | $ | | 29,050 | |
| | | | | | | | |
| | | | | | | | |
| | Non-GAAP net income | $ | | 4,594 | | | | $ | | 1,916 | |
| | Deferred revenue write-off Subscriptions and Support | | | (104 | ) | | | | | (410 | ) |
| | Deferred revenue write-off License | | | - | | | | | | (30 | ) |
| | Amortization of intangible assets | | | (1,684 | ) | | | | | (2,250 | ) |
| | Stock-based compensation Subscriptions and Support | | | (70 | ) | | | | | (60 | ) |
| | Stock-based compensation Services | | | (150 | ) | | | | | (137 | ) |
| | Stock-based compensation Research and Development | | | (175 | ) | | | | | (138 | ) |
| | Stock-based compensation Sales and Marketing | | | (355 | ) | | | | | (275 | ) |
| | Stock-based compensation General and Administrative | | | (469 | ) | | | | | (442 | ) |
| | Restructuring charge | | | (85 | ) | | | | | - | |
| | GAAP net income (loss) | $ | | 1,502 | | | | $ | | (1,826 | ) |
| | | | | | | | |
| | Basic EPS: | | | |