Press Releases & Coverage

SkillSoft Reports Third Quarter Fiscal 2008 Results Including Revenue of $75.1 Million and; EPS of $0.06, and Raises Full Year Fiscal 2008 Net Income Targets

NASHUA, N.H., Nov. 26 /PRNewswire-FirstCall/ -- SkillSoft PLC (Nasdaq: SKIL), a leading Software as a Service (SaaS) provider of on-demand e-learning and performance support solutions for global enterprises, government, education and small to medium-sized businesses, today announced financial results for its third fiscal quarter of fiscal 2008.

Fiscal 2008 Third Quarter Results

The Company reported total revenue of $75.1 million for its third quarter (ended October 31, 2007) of the fiscal year ending January 31, 2008 (fiscal 2008), which represented a 32 % increase over the $57.1 million reported in its third quarter of fiscal year 2007. The increased revenue in the third quarter of fiscal 2008 was primarily attributable to the NETg acquisition (which closed in May 2007) and includes incremental revenues of $9.0 million related to the amortization of acquired deferred revenue retained by the Company following the NETg acquisition. The Company's deferred revenue at October 31, 2007 was approximately $141 million compared to approximately $98 million at October 31, 2006. The increase in deferred revenue reflects, in addition to order intake and billings from SkillSoft's base business, approximately $5.7 million of unamortized acquired deferred revenue from the NETg acquisition (after purchase accounting adjustments) and an increase in billings due to additional customers acquired in the NETg acquisition.

On a US generally accepted accounting principles (US GAAP) basis, the Company's net income was $6.0 million, or $0.06 per diluted share, for the fiscal 2008 third quarter. SkillSoft reported net income of $7.1 million or $0.07, per diluted share, for the fiscal 2007 third quarter. The Company's US GAAP net income results include restatement expenses of $0.1 million in the third quarter of both fiscal 2008 and 2007, as well as the following acquisition related expenses and non-cash charges:

    Acquisition and integration related expenses:
    -- Merger related integration costs of $2.6 million in the third quarter
       of fiscal 2008.
    -- Loss from discontinued operations net of tax of $0.2 million in the
       third quarter of fiscal 2008.

    Non-Cash Charges:
    -- Stock based compensation expense of $1.4 million in the third quarter
       of fiscal 2008 and $0.8 million in the third quarter of fiscal 2007.
    -- Amortization of intangible assets of $5.4 million in the third quarter
       of fiscal 2008 and $1.2 million in the third quarter of fiscal 2007.
    -- Amortization of deferred financing costs of $0.2 million in the third
       quarter of fiscal 2008.
    -- Non-cash provision for income tax of $0.3 million in the third quarter
       of fiscal 2008 and $3.8 million in the third quarter of fiscal 2007.

"Our priorities for the next six months will be to focus on the general integration of NETg into SkillSoft's operations, the migration of NETg customers from NETg platforms to SkillPort and the continued renewal of NETg customer contracts. We are encouraged by the results of our third quarter NETg customer renewal efforts and feel cautiously optimistic going into our critical fourth quarter renewal period," commented Chuck Moran, President and Chief Executive Officer. "We are pleased with the progress we have experienced so far with the NETg integration and are working hard to normalize our operational cost structure as soon as possible. We are excited about the combined company's opportunity to generate cash, which will validate the significant operating model leverage that our software as a service business has been working towards since its inception."

Gross margin remained at 87% for the Company's fiscal 2008 third quarter as compared to 87% for its fiscal 2007 third quarter. Gross margin for the fiscal 2007 third quarter includes amortization of intangible assets related to acquired technology and capitalized software development costs of $0.7 million. These costs were previously recorded within operating expenses under the caption "amortization of intangible assets" and have been reclassified to cost of revenues to conform with current period presentation. Gross margin for the fiscal 2008 third quarter includes amortization of intangible assets related to acquired technology and capitalized software development costs of $1.7 million in the fiscal 2008 third quarter. The intangible asset amortization reduced the fiscal 2008 third quarter gross margin 2% as compared to reducing gross margin 1% in the fiscal 2007 third quarter.

In the fiscal 2008 third quarter we incurred additional hosting platform maintenance and royalty expense to support the acquired NETg customer base as well as incremental expenses related to transitioning NETg customers to the SkillSoft hosting platform and product obligations assumed in the acquisition. These incremental hosting and infrastructure expenses will largely be incurred over the next three fiscal quarters, with lower levels of costs forecasted for two additional quarters until the transition is complete. The gross margin percentage is impacted mainly by the mix of royalty-bearing content and the costs incurred to augment the hosting capacity needed to meet our existing and new customer solution requirements.

Research and development expense increased to $13.7 million in the fiscal 2008 third quarter from $10.0 million in the fiscal 2007 third quarter. This increase was primarily due to the inclusion of expenses related to supporting acquired customer contracts and product obligations assumed in the NETg acquisition. We anticipate that there will be additional research and development expenses for content outsourcing, software outsourcing and additional personnel that will bring total research and development expenses to a range of $15.0 million to $16.0 million for the fiscal 2008 fourth quarter. These incremental costs are largely attributed to the NETg integration initiatives.

Sales and marketing expenses increased to $25.2 million in the fiscal 2008 third quarter from $22.0 million in the fiscal 2007 third quarter. This increase was primarily due to additional personnel, including additions to direct sales, tele-sales and field support and additional marketing expenses to support the increased customer base as a result of the NETg acquisition. We anticipate that continued investment in sales distribution, field support and marketing efforts is required to support the increased customer base and growth initiatives and such investment will bring total sales and marketing expenses to a range of $28.0 million to $29.0 million in the fourth quarter of fiscal 2008.

General and administrative expenses increased to $9.4 million in the fiscal 2008 third quarter compared to $6.8 million in the fiscal 2007 third quarter. This increase was primarily due to additional personnel, contractors and professional services that were required to support the increase in the volume of customer contracts and the transition activities resulting from the NETg acquisition as compared to the fiscal 2007 third quarter. It is anticipated that continued investment in headcount and services will be required to support the increased customer base and operational and strategic initiatives and such investment will keep total general and administrative expenses in a range of $8.5 million to $9.5 million for the fourth quarter of fiscal 2008.

Operating expenses for the fiscal 2008 third quarter include approximately $1.4 million of stock-based compensation expense. The allocation of such stock-based compensation expense for the fiscal 2008 third quarter was as follows: Cost of Revenue $54,000, Research and Development, $200,000; Sales and Marketing, $400,000; and General and Administrative, $700,000. By comparison, operating expenses for the fiscal 2007 third quarter included approximately $0.8 million of stock-based compensation expense. The allocation of such stock-based compensation expense for the fiscal 2007 third quarter was as follows: Cost of Revenue, $14,000, Research and Development, $100,000; Sales and Marketing, $300,000; and General and Administrative, $400,000.

The SEC staff has not closed its informal investigation concerning the option granting practices at SmartForce for the period beginning April 12, 1996 through July 12, 2002, prior to its merger in September 2002 with SkillSoft. The restatement charges relating to the ongoing SEC investigation of $0.1 million in the fiscal 2008 third quarter included expenses incurred as part of this options review, and the restatement charges of $0.1 million in the fiscal 2007 third quarter related solely to the SEC's investigation regarding the restatement of the historical financial statements of SmartForce.

Merger related integration expenses for the fiscal 2008 third quarter were $2.6 million. Compensation and benefits costs for transition employees represented approximately 60% of these costs, and the remaining 40% related primarily to services, travel and administrative costs associated with transitioning the NETg operations to SkillSoft and meeting NETg customer obligations. Merger related integration expenses will largely be incurred over the next three quarters with lower levels for two additional quarters until these customer obligations are complete and the NETg business is fully integrated into SkillSoft's operations. We expect merger related integration expenses over subsequent quarters to decline as compared to the quarter ended October 31, 2007 as different phases of the transition are completed.

The Company is discontinuing the operations of four businesses acquired from NETg. These include NETg Press, InteractNow, Wave, and Financial Campus. In August 2007, the Company sold the assets of Financial Campus and in October 2007, the Company sold the assets of NETg Press. The Company exited the Wave business in the third quarter of fiscal 2008 and expects to exit the InteractNow business by the middle of fiscal 2009.

For the nine month period ended October 31, 2007, the Company's effective cash tax rate from continuing operations is approximately 6.2% as compared to 3.7% for the nine months ended October 31, 2006. The increase in the current year cash tax provision is primarily due to geographic distribution of earnings throughout the United States.

For the nine month period ended October 31, 2007, the Company's effective non-cash tax benefit from continuing operations is approximately $9.0 million. Included in the non-cash tax benefit is approximately $25 million from the reduction in the Company's deferred tax valuation allowance. The aforementioned benefit is partially offset by non-cash tax adjustments required as a result of the purchase accounting for the NETg acquisition and the Company's tax provision.

SkillSoft had approximately $54.5 million in cash, cash equivalents, short-term investments, restricted cash and long-term investments as of October 31, 2007 as compared to $127.8 million as of January 31, 2007. This decrease primarily reflects cash used, net of cash acquired, of $279 million in connection with the NETg acquisition. This decrease was partially offset by cash provided by operations of $8.5 million, net borrowings under long-term debt of $194 million, proceeds from the exercise of stock options and employee stock purchase activity of $11.1 million and $38.8 million of net investment maturities.

In order to adequately assess the Company's collection efforts, taking into account the seasonality of the Company's business, the Company believes that it is most useful to compare current period days sales outstanding (DSOs) to the prior year period. Given the quarterly seasonality of bookings, the deferral from revenue of subscription billings may increase or decrease the DSOs on sequential quarterly comparisons.

SkillSoft's DSOs were in the targeted range for the fiscal 2008 third quarter. On a net basis, which considers only receivable balances for which revenue has been recorded; DSOs were 13 days in the fiscal 2008 third quarter as compared to 7 days in the year ago period and 14 days in the second quarter of fiscal 2008. On a gross basis, which considers all items billed as receivables, DSOs were 118 days in the fiscal 2008 third quarter compared to 77 days in the year ago quarter and 108 days in the second quarter of fiscal 2008.

FISCAL 2008 OUTLOOK

The Company, based on its performance in the fiscal 2008 third quarter, is now providing the following guidance for the fiscal year ending January 31, 2008:

Revenue is expected to be in the range of $276.7 million to $280.0 million compared to the previously targeted range of $272.0 million to $280.0 million.

GAAP net income is currently expected to be in the range of $24.0 million to $26.0 million, or $0.22 to $0.24 per basic and diluted share compared to the previously targeted range of $20.5 million to $23.0 million, or $0.19 to $0.21 per basic and diluted share.

Our GAAP net income outlook includes restatement expenses of $1.4 million to $1.6 million; merger related integration costs of $12.0 million to $13.0 million; and non-cash items consisting of stock based compensation expense of $5.0 million to $ 6.0 million, amortization of intangible assets of $15.5 million to $17.5 million, and deferred financing costs of $0.5 million to $0.8 million. All of these estimated amounts are the same as the estimates included in our financial guidance following the fiscal 2008 second quarter. In addition the Company expects a non-cash benefit for income tax of $4.5 million to $5.5 million.

For the fiscal 2008 fourth quarter ending January 31, 2008, the Company currently anticipates revenue to be in the range of $73.0 million to $76.3 million. The Company also anticipates net income for the fiscal 2008 fourth quarter to be between $0.0 million and $1.0 million, or $0.00 to $0.01 per basic and diluted share.

As a reminder, an important leverage covenant included in our credit facility is adjusted EBITDA. The adjusted EBITDA projected range for fiscal 2008 remains unchanged and is expected to be $69.0 million to $75.0 million which equates to a debt leverage ratio range of 2.7 to 3.1. The adjusted EBITDA targeted range for fiscal 2008 is calculated by taking net income ($24.0 million to $26.0 million) and adding back depreciation and amortization ($7.0 million to $8.0 million), amortization of intangibles assets and capitalized software development costs ($15.5 million to $17.5 million), stock-based compensation ($5.5 million to $6.5 million), restatement expenses ($1.4 million to $1.6 million), merger and integration expenses ($12.0 million to $13.0 million), other expense ($1.25 million to $1.75 million) and interest expense ($8.5 million to $9.5 million) less income from discontinued operations ($0.3 million) and the benefit of income taxes ($4.5 million to $5.5 million).

The Company's projected net income in fiscal 2008 (including the fiscal 2008 fourth quarter) does not reflect any foreign exchange gains or losses. The fiscal 2008 earnings outlook also does not take into account the potential negative impact of the resolution of litigation matters, potential merger and integration related expenses (excluding the NETg acquisition), or the potential impact of any future acquisitions or divestitures (excluding the NETg acquisition), including potential non-recurring acquisition related expenses and the amortization of any purchased intangibles and deferred compensation charges resulting from an acquisition transaction (excluding the NETg acquisition). The outlook also does not take into account the effect of a public offering or other financing arrangement that could impact outstanding shares and thereby the Company's EPS outlook.

SkillSoft is presenting projected net income (for both fiscal 2008 and the fiscal 2008 fourth quarter) without the impact of those items because it is currently unable to estimate the amount of those items and it believes that presenting net income without taking them into account presents investors with meaningful information about the Company's projected operating performance for fiscal 2008.

Supplemental financial information will be available on SkillSoft's web site www.skillsoft.com following our earnings call.

Conference Call

In conjunction with the release, management will conduct a conference call on Monday, November 26, 2007 at 8:30 a.m. EST to discuss the Company's third quarter fiscal 2008 operating results and fiscal 2008 outlook. Chuck Moran, President and Chief Executive Officer, and Tom McDonald, Chief Financial Officer, will host the call.

To participate in the conference call, local and international callers can dial (973) 582-2717. The live conference call will be available via the Internet by accessing the SkillSoft Web site at www.skillsoft.com. Please go to the Web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.

A replay will be available from 12:01 p.m. EST on November 26, 2007 until 11:59 p.m. EST on December 3, 2007. The replay number is (973) 341-3080, passcode: 8526861. A webcast replay will also be available on SkillSoft's Web site at www.skillsoft.com.

About SkillSoft

SkillSoft PLC (Nasdaq: SKIL) is a leading SaaS provider of on-demand e- learning and performance support solutions for global enterprises, government, education and small to medium-sized businesses. SkillSoft enables business organizations to maximize business performance through a combination of comprehensive e- learning content, online information resources, flexible learning technologies and support services.

Content offerings include business, IT, desktop, compliance and consumer/SMB courseware collections, as well as complementary content assets such as Leadership Development Channel video products, KnowledgeCenter(TM) portals, virtual instructor-led training services and online mentoring services. The Books24x7(R) division offers online access to more than 15,000 digitized IT and business books, as well as book summaries and executive reports. Technology offerings include the SkillPort(R) learning management system, Search-and-Learn(R), SkillSoft(R) Dialogue(TM) and virtual classroom. SkillSoft courseware content described herein is for information purposes only and is subject to change without notice. SkillSoft has no obligation or commitment to develop or deliver any future release, upgrade, feature, enhancement or function described in this press release except as specifically set forth in a written agreement.

SkillSoft, the SkillSoft logo, SkillPort, Search-and-Learn, SkillChoice, Books24x7, ITPro, BusinessPro, OfficeEssentials, GovEssentials, EngineeringPro, FinancePro, AnalystPerspectives, ExecSummaries, ExecBlueprints, Express Guide and Dialogue are trademarks or registered trademarks of SkillSoft PLC in the United States and certain other countries. All other trademarks are the property of their respective owners.

This release includes information that constitutes forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include challenges in integrating the operations of NETg, competitive pressures, changes in customer demands or industry standards, adverse economic conditions, loss of key personnel, litigation and other risk factors disclosed under the heading "Risk Factors" in SkillSoft's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2007 as filed with the Securities and Exchange Commission. The forward-looking statements provided by the Company in this press release represent the Company's views as of November 26, 2007. The Company anticipates that subsequent events and developments may cause the Company's views to change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of this release.



                                       SkillSoft PLC and Subsidiaries
                               Condensed Consolidated Statements of Operations
                                                (Unaudited)


                                Three Months Ended       Nine Months Ended
                                    October 31                October 31
                                 2007         2006        2007         2006

    Revenues                   $75,124      $57,135     $203,733     $167,521

    Cost of revenues -
     amortization of
     capitalized software
     development costs and
     content                     1,740          740        3,683        4,203
    Cost of revenues -
     other                       8,282        6,846       23,827       19,962

      Gross profit              65,102       49,549      176,223      143,356

    Operating expenses:
      Research and
       development              13,710       10,047       35,315       29,913
      Selling and
       marketing                25,227       21,983       71,489       68,375
      General and
       administrative            9,449        6,844       25,572       20,948
      Amortization of
       intangible assets         3,634          412        7,955        1,240
      Merger and
       integration related
       expenses                  2,616           25       11,144           47
      Restatement - SEC
       investigation               105          114        1,328          434

    Total operating
     expenses                   54,741       39,425      152,803      120,957

    Other (expense) /
     income, net                  (642)         (35)      (1,026)         (67)
    Interest income                654        1,137        2,990        3,011
    Interest expense            (3,927)         (69)      (7,741)        (205)

    Income before for
     income taxes from
     continuing operations       6,446       11,157       17,643       25,138

      Provision /
       (Benefit) for
       income taxes - cash          92          274        1,099          931
      Provision /
       (Benefit) for
       income taxes - non-
       cash                        178        3,799       (8,985)       8,245
    Income from continuing
     operations                  6,176        7,084       25,529       15,962

    (Loss) / income from
     operations of
     businesses to be
     disposed, net of
     income tax benefit
      of $464 for the
       three months ended
       October 31, 2007           (198)           -          326          -


    Net income                  $5,978       $7,084      $25,855      $15,962


    Net income, per share,
     basic - continuing
     operations                  $0.06        $0.07        $0.25        $0.16
    Net income, per share,
     basic - discontinued
     operations                  $0.00         $-          $0.00         $-
                                 $0.06        $0.07        $0.25        $0.16

    Basic weighted average
     common shares
     outstanding           104,789,720  101,763,654  104,165,555  101,446,427

    Net income, per share,
     diluted - continuing
     operations                  $0.06        $0.07        $0.24        $0.15
    Net income, per share,
     diluted -
     discontinued
     operations                  $0.00         $-          $0.00         $-
                                 $0.06        $0.07        $0.24        $0.15

    Diluted weighted
     average common shares
     outstanding           108,552,456  104,724,685  108,018,673  103,887,852

      (1) The following
       summarizes the
       departmental
       allocation of the
       stock-based
       compensation

      Cost of revenues             $54          $14         $119          $31
      Research and
       development                 226          151          659          818
      Selling and
       marketing                   442          269        1,309        1,646
      General and
       administrative              657          404        1,921        1,657




                                SkillSoft PLC
                    Condensed Consolidated Balance Sheets
                                 (Unaudited)

                                            October 31, 2007  January 31, 2007

    ASSETS

    CURRENT ASSETS:
         Cash, cash equivalents and
          short-term investments                 $50,565          $104,117
         Restricted cash                           3,919            20,095
         Accounts receivable, net                 94,249            94,343
         Prepaid acquisition costs                   -               2,881
         Prepaid expenses and other
          current assets                          24,134            22,215

    Total current assets                         172,867           243,651

         Property and equipment, net               8,033             9,672
         Goodwill                                316,301            83,171
         Acquired intangible assets, net          34,909             2,638
         Long-term investments                       -               3,598
         Deferred tax assets                      45,376               159
         Other assets                              9,205                81

    Total assets                                $586,691          $342,970


    LIABILITIES AND STOCKHOLDERS' EQUITY

    CURRENT LIABILITIES:

         Accounts payable                         $3,186            $3,327
         Accrued expenses                         64,637            53,297
         Deferred revenue                        140,598           146,012

    Total current liabilities                    208,421           202,636

    Total long-term liabilities                  201,676             2,405

    Total stockholders' equity                   176,594           137,929

    Total liabilities and stockholders'
     equity                                     $586,691          $342,970



                                  SkillSoft PLC
                 Condensed Consolidated Statements of Cash Flows
                                   (Unaudited)


                                                      Nine Months Ended
                                                         October 31
                                                     2007             2006

    Cash flows from operating activities
     from continuing operations:

         Net income                                 $25,529          $15,962
         Adjustments to reconcile net
          income to net cash provided
          by operating activities---
         Share-based compensation                     4,008            4,152
         Depreciation and amortization                5,481            4,502
         Amortization of acquired
          intangibles and FAS 86 assets              11,638            5,443
         Provision for bad debts                        470             (477)
         Non-cash interest expense                      481              -
         (Benefit)/Provision for income
          taxes - non-cash                           (8,986)           8,245
         Realized loss on sale of assets, net           (58)             -
         Changes in current assets and
          liabilities, net of acquisitions
            Accounts receivable                      36,344           39,354
            Prepaid expenses and other
             current assets                          14,145            8,498
            Accounts payable                         (1,313)            (403)
            Accrued expenses
              Accrued merger                           (282)            (451)
              Accrued restructuring                     345             (364)
              Accrued other                         (45,626)         (12,375)
            Deferred revenue                        (33,707)         (40,043)

         Net cash provided by operating
          activities from continuing operations       8,469           32,043

    Cash flows from investing activities
     from continuing operations:

         Purchases of property and equipment         (2,321)          (3,989)
         Cash used in purchase of business,
          net of cash acquired                     (278,923)             -
         Disposition of net assets                   (5,981)             -
         Purchases of investments                    (9,575)         (74,843)
         Maturity of investments                     48,378           39,810
         Release of restricted cash                  16,183              335

         Net cash (used in) / provided by
          investing activities from
          continuing operations                    (232,239)         (38,687)

    Cash flows from financing activities
     from continuing operations:

         Borrowings under long-term debt,
          net of debt financing costs               193,633              -
         Exercise of stock options                    8,836            1,977
         Proceeds from employee stock
          purchase plan                               2,220            2,561

         Net cash provided by financing
          activities from continuing
          operations                                204,689            4,538

         Change in cash from discontinued
          operations                                 (1,032)             -

         Effect of exchange rate changes
          on cash and cash equivalents                1,864              562

         Net increase in cash and cash
          equivalents                               (18,249)          (1,544)
         Cash and cash equivalents,
          beginning of period                        48,612           51,937

         Cash and cash equivalents, end of
          period                                    $30,363          $50,393
SOURCE  SkillSoft PLC
    -0-                             11/26/2007
    /CONTACT:  Company Contact, Tom McDonald, Chief Financial Officer of
SkillSoft PLC, +1-603-324-3000, x4232, Investor Contacts, Michael Polyviou or
Peter Schmidt, both of Financial Dynamics, +1-212-850-5748, for SkillSoft PLC/
    /Web site:  http://www.skillsoft.com/
    (SKIL)

CO:  SkillSoft PLC
ST:  New Hampshire
IN:  STW CPR
SU:  ERN CCA ERP

KS-AA
-- NYM038 --
5712 11/26/2007 07:00 EST http://www.prnewswire.com