SkillSoft Raises Full Year Fiscal 2006 Financial Targets
NASHUA, N.H., Nov. 29 /PRNewswire-FirstCall/ -- SkillSoft PLC (Nasdaq: SKIL), a leading provider of content resources and complementary technologies for integrated enterprise learning, today announced financial results for its third quarter of fiscal 2006 ended October 31, 2005.
Third Quarter Results
The Company reported total revenue of $53.9 million for the third quarter of fiscal 2006, which represented a 3% increase over the $52.5 million reported in the third quarter of fiscal 2005. Gross margin was 88% for the third quarter of fiscal 2006 compared to 89% for the third quarter of fiscal 2005 and 88% for the second quarter of fiscal 2006.
The Company's net income was $5.7 million, or $0.06 per basic and diluted share, for the third quarter of fiscal 2006. Third quarter net income includes $0.5 million in expenses for the ongoing SEC investigation primarily related to the restatement of the historical SmartForce financial statements and $0.2 million in expenses related to restructuring activities for a total of approximately $0.7 million, or $0.01 per basic and diluted share. Fiscal 2006 third quarter net income included the following non-cash charges totaling $6.4 million: $2.5 million for amortization of intangible assets and deferred compensation expense and $3.9 million for the non-cash portion of the provision for income tax. SkillSoft reported net income of $4.1 million, or $0.04 per basic and diluted share, for the third quarter of fiscal 2005. The fiscal 2005 third quarter net income included restatement expenses of $0.8 million, or $0.01 per basic and diluted share, primarily related to costs incurred in connection with the re-filing of statutory tax returns as a result of the restatement of the historical SmartForce financial statements and charges for the ongoing SEC investigation. Fiscal 2005 third quarter net income included the following non-cash charges totaling $2.8 million: $2.7 million for amortization of intangible assets and deferred compensation expense and $0.1 million for the non-cash portion of the provision for income tax.
The Company's effective tax rate year to date increased from 15.5% at July 31, 2005 to 22.0% at October 31, 2005. The change in the effective tax rate is primarily due to the increase in the fiscal 2006 financial targets discussed below as well as a shift in the geographical distribution of earnings into jurisdictions with higher tax rates.
"We are pleased with our performance in the third quarter of fiscal 2006. Our results came in ahead of the revenue range and the EPS range we forecasted, and for the third consecutive quarter our core business has contributed at expected levels. This contribution indicates continued stability in the marketplace," said Chuck Moran, President and Chief Executive Officer. "Some of our new products and new telesales distribution strategy will require more time to gain market acceptance, but we are confident that our continuing focused effort will be rewarded in the future," commented Moran.
The decrease in gross margin to 88% in the fiscal 2006 third quarter compared to 89% in the fiscal 2005 third quarter was due mainly to a higher mix of royalty-bearing content in the fiscal 2006 third quarter due to growth of the Referenceware product line. Research and development expenses decreased to $9.1 million in the fiscal 2006 third quarter compared to $10.5 million in the fiscal 2005 third quarter due primarily to $0.9 million of purchased technology included in the fiscal 2005 third quarter results and savings realized as the result of the reorganization of the content development organization completed in the fiscal 2005 fourth quarter. Sales and marketing expenses decreased to $20.4 million in the fiscal 2006 third quarter from $22.4 million in the fiscal 2005 third quarter. This decrease was primarily due to the expense reduction resulting from the sale of certain assets of SmartCertify, the Company's retail IT certification business, at the end of the fiscal 2006 first quarter, which was partially offset by the ongoing incremental expenses to support the new Dialogue product line, new telesales distribution operation and additional investment in the Books 24x7 sales force. General and administrative expenses decreased to $5.5 million in the fiscal 2006 third quarter compared to $6.4 million the fiscal 2005 third quarter primarily due to a decrease in expenses related to legal, tax, and other service fees, and the expense reduction resulting from the sale of certain assets of SmartCertify at the end of the fiscal 2006 first quarter.
SkillSoft had approximately $75.3 million in cash, cash equivalents, short-term investments, restricted cash and long-term investments as of October 31, 2005 compared to $64.9 million as of January 31, 2005. SkillSoft's increase in cash, cash equivalents, restricted cash and investments of $10.4 million as of October 31, 2005 primarily reflects cash provided by operations of $36.5 million in the nine months ended October 31, 2005, which includes the receipt of $19.5 million from the insurance settlement related to the 2002 securities class action lawsuit. Operating cash flow was offset in part by purchases of equipment, primarily investments in the Company's hosting infrastructure, and capitalized software development costs of $5.4 million in the nine months ended October 31, 2005. During the nine months ended October 31, 2005, the Company spent approximately $22.0 million to repurchase approximately 6.1 million outstanding shares under its current shareholder-authorized share repurchase program. To date, including shares repurchased in fiscal 2005, the Company has spent approximately $24.5 million to repurchase approximately 6.5 million outstanding shares under this program.
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 of revenue due to subscription billings may increase or decrease the DSOs on sequential quarterly comparisons.
SkillSoft's DSOs were in the targeted range for the fiscal 2006 third quarter. On a net basis, which considers only receivable balances for which revenue has been recorded, DSOs were 10 days in the fiscal 2006 third quarter as compared to 12 days in the year ago period and 10 days in the second quarter of fiscal 2006. On a gross basis, which considers all items billed as receivables, DSOs were 76 days in the fiscal 2006 third quarter compared to 81 days in the year ago quarter and 84 days in the second quarter of fiscal 2006.
FISCAL 2006 OUTLOOK
For the fourth quarter of fiscal 2006 ending January 31, 2006, the Company currently anticipates revenue to be in the range of $52.2 to $54.0 million. This revenue range reflects the impact of the declining quarterly deferred revenue recognition associated with the sale of certain assets of SmartCertify completed at the end of the fiscal 2006 first quarter. The Company currently anticipates net income for the fiscal 2006 fourth quarter to be between $3.0 and $5.0 million, or $0.03 to $0.05 per basic and diluted share.
Based on the reported third quarter performance and the guidance for the fourth quarter, the Company is raising its full year fiscal 2006 revenue and earnings targets. The Company is now targeting a revenue range of $213 million to $214.8 million and a net income range of $34.1 million to $36.1 million, or $0.33 to $0.35 per basic and diluted share, for fiscal 2006 as a whole, compared to the previously targeted revenue range of $208 million to $212 million and a targeted net income range of $30.0 million to $34.0 million, or $0.29 to $0.33 per basic and diluted share. As a reminder, the Company's net income forecast includes a $19.5 million benefit in the second quarter of fiscal 2006 for the final settlement with the Company's insurance carriers regarding the 2002 securities class action lawsuit and related legal fees.
The Company's forecasted net income excludes foreign exchange gains or losses and potential restructuring charges, as well as the potential impact of any future legal settlements, acquisitions or divestitures, including potential non-recurring acquisition related expenses and the amortization of any purchased intangibles and deferred compensation charges resulting from an acquisition transaction. The net income outlook also excludes the effect of a public offering or other financing arrangements that could impact outstanding shares and thereby the Company's EPS calculation.
SkillSoft is presenting its net income outlook without these items (for both fiscal 2006 and the fourth quarter of fiscal 2006) because it is currently unable to estimate the amount of the excluded items and it believes that this presents investors with meaningful information about the Company's projected operating performance for fiscal 2006.
In conjunction with the release, management will conduct a conference call on Tuesday, November 29, 2005 at 8:30 a.m. ET to discuss the Company's fiscal 2006 third quarter and fiscal 2006 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) 935-2408. The live conference call will be available via the Internet by accessing the SkillSoft Web site at http://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. ET on November 29, 2005 until 11:59 p.m. ET on December 6, 2005. The replay number is (973) 341-3080, passcode: 6732001. A webcast replay will also be available on SkillSoft's Web site at http://www.skillsoft.com.
SkillSoft is a leading provider of comprehensive e-learning content and technology products for business and IT professionals within global enterprises. SkillSoft's multi-modal learning solutions support and enhance the speed and effectiveness of both formal and informal learning processes and integrate SkillSoft's in-depth content resources, learning management system, virtual classroom technology and support services.
Content offerings include SkillSoft's business, IT, desktop and compliance courseware collections and BusinessPro(TM), ITPro(TM), OfficeEssentials(TM), FinancePro(TM), EngineeringPro(TM), GovEssentials(TM), ExecSummaries(TM) and ExecBlueprints(TM) collections from Books24x7(R). SkillSoft's complementary technologies include SkillPort(R), the company's learning management system with its powerful Search-and-Learn(TM) technology and premium add-on modules, and SkillSoft(R) Dialogue(TM) virtual classroom, a tool that allows customers to create and deliver effective blended learning programs using custom content and off-the-shelf learning resources. For more information, visit http://www.skillsoft.com.
SkillSoft, the SkillSoft logo, Ahead of the Learning Curve, SkillPort, Search-and-Learn, SkillChoice, Books24x7, Referenceware, ITPro, BusinessPro, OfficeEssentials, GovEssentials, EngineeringPro, FinancePro, 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.
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.
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 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Future Operating Results" in SkillSoft's Annual Report on Form 10-K for the fiscal year ended January 31, 2005 and its Form 10-Q for the quarterly period ended July 31, 2005, 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 29, 2005. 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
Three Months Ended Nine Months Ended
October 31, October 31,
2005 2004 2005 2004
Revenues $53,901 $52,507 $160,833 $155,949
Cost of revenues 6,509 5,597 18,662 15,932
Gross profit 47,392 46,910 142,171 140,017
development 9,122 10,505 29,181 32,587
marketing 20,382 22,441 65,130 69,467
administrative 5,496 6,388 18,507 18,625
Legal settlements /
(recoveries) - - (19,500) -
compensation 219 296 675 944
assets and FAS
86 assets 2,285 2,390 6,838 7,202
Restructuring 226 (7) 813 315
SEC investigation 507 803 1,591 1,905
Professional fees -
statements - - - 250
Total operating expenses 38,237 42,816 103,235 131,295
Other income / (expense),
net 268 75 653 (164)
Interest income, net 414 88 1,019 481
Loss on sale of component,
net - - (681) -
provision for income
taxes 9,837 4,257 39,927 9,039
Provision for income
taxes - cash 303 74 980 137
Provision for income
taxes - non-cash 3,851 68 7,853 226
Net income $5,683 $4,115 $31,094 $8,676
Net income, per share,
basic $0.06 $0.04 $0.30 $0.08
Basic weighted average
outstanding 100,663,757 105,935,620 103,055,159 104,851,577
Net income, per
share, diluted $0.06 $0.04 $0.30 $0.08
shares outstanding 101,540,690 108,941,334 103,726,562 109,974,424
Condensed Consolidated Balance Sheets
October 31, 2005 January 31, 2005
Cash, cash equivalents and
short-term investments $69,715 $54,927
Restricted cash 5,409 994
Accounts receivable, net 44,741 87,030
Prepaid expenses and other current
assets 16,213 22,659
Total current assets 136,078 165,610
Property and equipment, net 9,376 9,137
Goodwill 94,217 103,576
Intangible assets, net 10,581 16,171
Long-term investments 221 8,943
Other assets 454 60
Total assets $250,927 $303,497
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $3,258 $5,361
Accrued expenses 43,231 66,995
Deferred revenue 102,639 140,008
Total current liabilities 149,128 212,364
Total long-term liabilities 4,173 6,214
Total stockholders' equity 97,626 84,919
Total liabilities and stockholders' equity $250,927 $303,497
Condensed Consolidated Statements of Cash Flows
Nine Months Ended
Cash flows from operating activities:
Net income $31,094 $8,676
Adjustments to reconcile net income
to net cash provided by / (used in)
Stock-based compensation 676 944
Depreciation and amortization 3,790 3,439
Amortization of acquired
intangibles and FAS 86 assets 6,838 7,202
Provision for bad debts (772) (1)
Loss on disposition 683 -
Provision for income taxes -
non-cash 7,853 226
Changes in current assets and
liabilities, net of acquisitions
Accounts receivable 41,381 26,903
Prepaid expenses and other
current assets 6,815 10,706
Accounts payable (2,644) (2,917)
Accrued merger (3,705) (2,572)
Accrued restructuring (6,918) (84)
Accrued other (12,023) (56,244)
Deferred revenue (36,547) (29,907)
Net cash provided by / (used in)
operating activities 36,521 (33,629)
Cash flows from investing activities:
Purchases of property and equipment (4,157) (6,423)
Purchases of FAS 86 assets (1,247) -
Purchases of investments (14,848) (40,481)
Maturity of investments 21,596 35,258
Sale of investments 248 -
(Designation) / release of restricted
cash (4,415) 24,600
Net cash (used in) / provided by
investing activities (2,823) 12,954
Cash flows from financing activities:
Exercise of stock options 550 20,553
Proceeds from employee stock purchase
plan 2,210 -
Payments to acquire treasury stock (22,000) -
Net cash (used in) / provided by
financing activities (19,240) 20,553
Effect of exchange rate changes on
cash and cash equivalents (1,305) 359
Net increase in cash and cash
equivalents 13,153 237
Cash and cash equivalents,
beginning of period 34,906 42,866
Cash and cash equivalents,
end of period $48,059 $43,103
SOURCE SkillSoft PLC
/CONTACT: Tom McDonald, Chief Financial Officer, +1-603-324-3000, x4232;
Investor: Michael Polyviou or Peter Schmidt, both of Financial Dynamics,
+1-212-850-5748, for SkillSoft PLC /
/Web site: http://www.skillsoft.com /
CO: SkillSoft PLC
ST: New Hampshire
IN: CPR ITE
SU: ERN ERP CCA