EX-99.1 2 ex99_1.htm EXHIBIT 99.1

EXHIBIT 99.1
 
Scientific Learning Reports Third Quarter Financial Results
 
OAKLAND, Calif., November 12, 2013 (GLOBE NEWSWIRE) -- Scientific Learning Corporation (OTCQB: SCIL), a leading provider of technologies for accelerated learning, today announced financial results for the third quarter ended September 30, 2013.
 
Total revenue in the third quarter of 2013 was $5.2 million, compared to $6.8 million in the third quarter of 2012 due to a decline in perpetual license revenue. Total booked sales for the third quarter were $7.2 million, compared to $7.7 million in the same period of 2012, reflecting continued difficulties in the K-12 funding environment and reductions in sales capacity made in 2012. Operating expenses totaled $4.7 million compared to $6.7 million in the third quarter of 2012 before $1.5 million in restructuring costs in Q3 2012.  The net loss in the third quarter of 2013 was $(0.9) million, or $(0.04) per share, compared to a net loss of $(2.2) million, or $(0.10) per share, in the third quarter of 2012. Adjusted EBITDA was a loss of $(0.2) million in the third quarter of 2013 compared to a loss of $(1.0) million in the same period of 2012.  Cash flow was positive.
 
Other third quarter highlights:
 
· Subscription revenue increased 41% over third quarter 2012
· As of September 30, 2013 87% of the Company's active K-12 school sites are using MySciLEARN
· Annualized recurring revenue including subscription, support, and non-K-12 recurring revenue is about $15M
· Average transaction volume per K-12 sales representative increased 21% compared to 2012
· As of September 30, 2013 the number of employees was 136 compared to 146 on September 30, 2012
 
“While business conditions remain challenging, we continue to make solid progress transforming our business with Q3 showing our best booked sales comparison in nine quarters.  This year’s Back-to-School period has been one of the best ever.  Customers are pleased with the retirement of our legacy systems  and the continued improvements to MySciLEARN,” said Robert Bowen, CEO.  “We continue to see strong student gains in areas of critical focus such as college readiness.  For example, Boone County, Kentucky used Reading Assistant™ to help a group of lower performing students and improved ACT scores by an average of 45%.”
 
Booked sales and Adjusted EBITDA are both non-GAAP measures. Additional information on these non-GAAP measures and reconciliations are included at the end of this earnings release and in the investor information section of our website, http://www.scientificlearning.com/.
 
Conference Call Information
 
A conference call to discuss third quarter 2013 financial results is scheduled for today, November 12, 2013 at 4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time. Investors and analysts interested in participating in the call are invited to dial (877) 878-2695 (domestic) or (253) 237-1145 (international) and use conference ID # 89688809 ten minutes prior to the start of the call. The conference call will be available live on the Investor Information portion of the Company's website at http://www.scilearn.com/investorinfo. A replay of this teleconference will be made available on the Scientific Learning website approximately two hours following the conclusion of the call.

About Scientific Learning Corporation
 
We accelerate learning by applying proven research on how the brain learns. Scientific Learning's results are demonstrated in over 270 research studies and protected by over 55 patents. Learners can realize achievement gains of up to two years in as little as three months and maintain an accelerated rate of learning even after the programs end.
 
Today, more than 2.2 million learners have used Scientific Learning software products.  We provide our offerings directly to parents, K-12 schools and learning centers, and in more than 45 countries around the world. For more information, visit http://www.scientificlearning.com/.
 
Forward-Looking Statements
 
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 the education business environment. 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 current adverse conditions in government budgets and the general economy); availability of funding to purchase the Company's products and generally available to schools, including the amount and duration of federal stimulus funding; the acceptance of new products and product changes in existing and new markets; acceptance of subscription and other recurring offerings; seasonality and sales cycles in Scientific Learning's markets; competition; 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 its Annual Report on Form 10-K for the year ended December 31, 2012 (Part I, Item 1A, Risk Factors) filed April 1, 2013 and its Quarterly Reports on Form 10-Q for the quarter ended March 31, 2013 and June 30,2013 (Part II, Item 1A, Risk Factors) filed on May 14, 2013 and August 13, respectively. 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.
 
CONTACT: Media Contact:
 
Steve Gardner
 
Vice President, Marketing, Inside Sales and Support
 
Scientific Learning Corporation
 
(530) 282-6226
 
sgardner@scilearn.com
 
CONTACT: Investor Relations:
 
Jane Freeman
 
Chief Financial Officer
 
Scientific Learning Corporation
 
(510) 625-6710
 
jfreeman@scilearn.com
 
investorrealtions@scilearn.com

SCIENTIFIC LEARNING CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
 
September 30,
 2013
   
December 31,
2012
 
Assets
 
   
 
Current assets:
 
   
 
Cash and cash equivalents
 
$
2,887
   
$
2,272
 
Accounts receivable, net of allowance
   
2,751
     
2,446
 
Prepaid expense and other current assets
   
762
     
1,484
 
 
               
Total current assets
   
6,400
     
6,202
 
 
               
Property and equipment, net
   
1,227
     
2,028
 
Goodwill
   
4,568
     
4,568
 
Other assets
   
1,048
     
260
 
 
               
Total assets
 
$
13,243
   
$
13,058
 
 
               
Liabilities and stockholders’ equity (net capital deficiency)
               
Current liabilities:
               
Accounts payable
 
$
216
   
$
715
 
Accrued liabilities
   
1,849
     
1,981
 
Loan payable
   
-
     
800
 
Deferred revenue, short-term
   
10,634
     
10,964
 
 
               
Total current liabilities
   
12,699
     
14,460
 
Deferred revenue, long-term
   
1,203
     
2,521
 
Long-term debt
   
4,368
     
-
 
Warrant liability
   
852
     
534
 
Other liabilities
   
700
     
771
 
 
               
Total liabilities
   
19,822
     
18,286
 
 
               
Stockholders' equity (net capital deficiency):
               
Common stock and additional paid in capital
   
96,481
     
95,839
 
Accumulated deficit
   
(103,059
)
   
(101,069
)
Accumulated other comprehensive income (loss)
   
(1
)
   
2
 
 
               
Total stockholders' equity (net capital deficiency)
   
(6,579
)
   
(5,228
)
 
               
Total liabilities stockholders' equity (net capital deficiency)
 
$
13,243
   
$
13,058
 


SCIENTIFIC LEARNING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Revenues:
 
   
   
   
 
Subscription
 
$
1,686
   
$
1,200
   
$
4,909
   
$
2,884
 
License
   
1,057
     
2,018
     
2,472
     
6,918
 
Service and support
   
2,477
     
3,610
     
8,647
     
11,260
 
 
                               
Total revenues
   
5,220
     
6,828
     
16,028
     
21,062
 
 
                               
Cost of revenues:
                               
Cost of subscription
   
315
     
288
     
931
     
793
 
Cost of license
   
64
     
236
     
200
     
735
 
Cost of service and support
   
794
     
1,322
     
2,619
     
4,752
 
 
                               
Total cost of revenues
   
1,173
     
1,846
     
3,750
     
6,280
 
 
                               
Gross profit
   
4,047
     
4,982
     
12,278
     
14,782
 
 
                               
Operating expenses:
                               
Sales and marketing
   
2,297
     
3,367
     
6,938
     
12,634
 
Research and development
   
959
     
1,395
     
2,966
     
5,898
 
General and administrative
   
1,487
     
1,948
     
4,150
     
6,137
 
Restructuring
   
-
     
1,462
     
-
     
1,462
 
 
                               
Total operating expenses
   
4,743
     
8,172
     
14,054
     
26,131
 
 
                               
Operating loss
   
(696
)
   
(3,190
)
   
(1,776
)
   
(11,349
)
 
                               
Interest and other income (expense), net
   
(209
)
   
1,030
     
(140
)
   
1,095
 
 
                               
Loss before provision for income tax
   
(905
)
   
(2,160
)
   
(1,916
)
   
(10,254
)
Provision for income taxes
   
27
     
86
     
74
     
169
 
 
                               
Net loss
 
$
(932
)
 
$
(2,246
)
 
$
(1,990
)
 
$
(10,423
)
 
                               
Net loss per share:
                               
Basic and diluted loss per share
 
$
(0.04
)
 
$
(0.10
)
 
$
(0.08
)
 
$
(0.48
)
 
                               
Weighted average shares used in computation of per share data:
                               
Basic weighted average shares outstanding
   
23,739
     
23,368
     
23,633
     
21,933
 
Diluted weighted average shares outstanding
   
23,739
     
23,368
     
23,633
     
21,933
 
 

SCIENTIFIC LEARNING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
Operating Activities:
 
   
   
   
 
Net loss
 
$
(932
)
 
$
(2,246
)
 
$
(1,990
)
 
$
(10,423
)
Adjustments to reconcile net loss to cash used in operating activities:
                               
Depreciation and amortization
   
304
     
641
     
1,021
     
1,866
 
Investment impairment charge
   
-
     
-
     
-
     
200
 
Fixed asset impairment charge
   
32
     
-
     
32
     
-
 
Stock-based compensation expense
   
185
     
130
     
607
     
615
 
Paid-in-kind interest expense
   
144
     
-
     
277
     
-
 
Amortization of debt discount and deferred debt issuance cost
   
110
     
-
     
219
     
-
 
Decrease in fair value of warrant
   
(42
)
   
(1,068
)
   
(380
)
   
(1,356
)
Changes in operating assets and liabilities:
                               
Accounts receivable
   
(916
)
   
(331
)
   
(305
)
   
(177
)
Prepaid expenses and other current assets
   
265
     
408
     
722
     
889
 
Other assets
   
(587
)
   
30
     
(770
)
   
25
 
Accounts payable
   
(253
)
   
(602
)
   
(499
)
   
(374
)
Accrued liabilities
   
167
     
229
     
(132
)
   
(364
)
Deferred revenue
   
1,969
     
907
     
(1,648
)
   
(1,582
)
Other liabilities
   
2
     
(67
)
   
(71
)
   
(126
)
 
                               
Net cash provided (used) in operating activities
   
448
     
(1,969
)
   
(2,917
)
   
(10,807
)
 
                               
Investing Activities:
                               
Purchases of property and equipment and additions to capitalized software
   
(25
)
   
(11
)
   
(182
)
   
(476
)
 
                               
Net cash used in investing activities
   
(25
)
   
(11
)
   
(182
)
   
(476
)
 
                               
Financing Activities:
                               
Borrowings under bank line of credit
   
-
     
4,897
     
2,300
     
7,897
 
Repayment of borrowings under bank line of credit
   
-
     
(3,500
)
   
(3,100
)
   
(6,500
)
Proceeds from exercise of options
   
-
     
4
     
37
     
152
 
Proceeds from issuance of common stock, net
   
-
     
1
     
-
     
6,512
 
Proceeds from issuance of subordinated debt
   
-
     
-
     
4,600
     
-
 
Debt issuance cost
   
-
     
-
     
(118
)
   
-
 
Net cash paid for common stock issued
   
-
     
(1
)
   
(2
)
   
(32
)
 
                               
Net cash provided by financing activities
   
-
     
1,401
     
3,717
     
8,029
 
 
                               
Effect of exchange rate changes on cash and cash equivalents
   
5
     
-
     
(3
)
   
-
 
 
                               
Increase (decrease) in cash and cash equivalents
   
428
     
(579
)
   
615
     
(3,254
)
 
                               
Cash and cash equivalents at beginning of period
   
2,459
     
3,196
     
2,272
     
5,871
 
 
                               
Cash and cash equivalents at end of period
 
$
2,887
   
$
2,617
   
$
2,887
   
$
2,617
 


Scientific Learning Corporation
Supplemental Information

Reconciliation of Booked Sales, Revenue and Change in Deferred Revenue

$s in thousands
 
   
   
   
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Booked sales
 
$
7,191
   
$
7,737
   
$
14,383
   
$
19,480
 
Less: revenue
   
(5,220
)
   
(6,828
)
   
(16,028
)
   
(21,062
)
Adjustments
   
(2
)
   
(2
)
   
(3
)
   
-
 
Net decrease in current and long-term deferred revenue
 
$
1,969
   
$
907
   
$
(1,648
)
 
$
(1,582
)
 
                               
Beginning balance in current and long-term deferred revenue
 
$
9,868
   
$
14,833
   
$
13,485
   
$
17,322
 
Ending balance in current and long-term deferred revenue
 
$
11,837
   
$
15,740
   
$
11,837
   
$
15,740
 
 
Booked sales is a non-GAAP financial measure that we believe to be a useful measure of the current level of business activity both for management and for investors.  Booked sales equals the total value (net of allowances) of software and services invoiced in the period.  Because a significant portion of our revenue is recognized over a period of months, booked sales is a good indicator of current activity.  The table above shows the reconciliation of booked sales, revenue, and changes in deferred revenue.

Reconciliation of Net Loss to Adjusted EBITDA

$s in thousands
 
   
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Net loss
 
$
(932
)
 
$
(2,246
)
 
$
(1,990
)
 
$
(10,423
)
Adjustments to reconcile to Adjusted EBITDA:
                               
Provision for income taxes1
   
27
     
86
     
74
     
169
 
Interest and other (income) expense, net2
   
251
     
(162
)
   
520
     
61
 
Depreciation and amortization3
   
304
     
641
     
1,021
     
1,866
 
Stock-based compensation4
   
185
     
130
     
607
     
615
 
Change in fair value of warrant5
   
(42
)
   
(1,068
)
   
(380
)
   
(1,356
)
Restructuring6
   
-
     
1,462
     
-
     
1,462
 
Impairment charge7
   
32
     
200
     
32
     
200
 
Adjusted EBITDA
 
$
(175
)
 
$
(957
)
 
$
(116
)
 
$
(7,406
)
 
Earnings before interest, taxes, depreciation, amortization and stock-based compensation expense (Adjusted EBITDA) is a non-GAAP financial measure we believe to be a useful measure of the resources available to the Company in the current period. We also believe that Adjusted EBITDA will be useful in allowing investors to compare our performance with that of other companies.  The table above shows a reconciliation of Adjusted EBITDA to net loss, the closest GAAP measure.
 
Adjusted EBITDA should not be considered in isolation or as a substitute for analysis for our results as reported under GAAP. Adjusted EBITDA has the following differences from net loss, the closest GAAP measure:

1 Provision for income taxes is a required expense for all businesses. We excluded in it order to allow investors to evaluate our operating results without regard to our tax obligations.

2 Because we have borrowed and invested money, interest income and expense is a necessary element of our costs and ability to generate profits and cash flows. We excluded interest income and expense in order to allow investors to evaluate our operating results without regard to our financing methods. Interest expense includes accrued PIK interest and amortization of debt discount and debt issuance costs related to our subordinated debt financing in April 2013.  Other income and expense includes foreign exchange loss which we believe are not indicative of our core operating performance and are not meaningful in comparison to our past operating performance.

3 Depreciation and amortization are necessary elements of our costs and our ability to generate profits and the assets being depreciated and amortized will often have to be replaced in the future. Adjusted EBITDA does not reflect any cash requirements for such replacements. See below for allocation of non-cash charges.

4 Stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation because we believe it is not an indicator of the performance of our core operations. See below for allocation of non-cash charges.

5 Change in fair value of warrant is the change in the fair value of our common stock warrants which were issued on March 28, 2012 and April 5, 2013. The fair value was estimated using the Black-Scholes-Merton option pricing model, which requires the input of highly subjective assumptions as determined by the Company’s management which we believe is not indicative of our core operating performance and is not meaningful in comparison to our past operating performance.

6 Restructuring charge consists of severance and related benefits incurred as related to a reduction in force completed in the third quarter of 2012 which we believe is not indicative of our core operating performance and is not meaningful in comparison to our past operating performance.

7 Impairment charge consisting of a write off of an investment which was deemed to be impaired as of June 30, 2012 due to the financial condition of the company with which this investment was for.


Non-Cash Charges
 
$s in thousands
 
Three Months Ended September 30, 2013
   
Nine Months Ended September 30, 2013
 
 
 
Depreciation
Amortization
   
Stock-based
 Compensation
   
Total
   
Depreciation &
 Amortization
   
Stock-based
Compensation
   
Total
 
Included in:
 
   
   
   
   
   
 
Cost of subscriptions and licenses
 
$
77
   
$
1
   
$
78
   
$
235
   
$
5
   
$
240
 
Cost of service and support
   
-
     
3
     
3
     
-
     
5
     
5
 
Operating expenses
   
227
     
181
     
408
     
786
     
597
     
1,383
 
Total
 
$
304
   
$
185
   
$
489
   
$
1,021
   
$
607
   
$
1,628
 

$s in thousands
 
Three Months Ended September 30, 2012
   
Nine Months Ended September 30, 2012
 
 
 
Depreciation &
 Amortization
   
Stock-based
Compensation
   
Total
   
Depreciation &
Amortization
   
Stock-based
 Compensation
   
Total
 
Included in:
 
   
   
   
   
   
 
Cost of subscriptions and licenses
 
$
160
   
$
1
   
$
161
   
$
473
   
$
4
   
$
477
 
Cost of service and support
   
-
     
2
     
2
     
-
     
17
     
17
 
Operating expenses
   
481
     
127
     
608
     
1,393
     
594
     
1,987
 
Total
 
$
641
   
$
130
   
$
771
   
$
1,866
   
$
615
   
$
2,481
 

Booked sales of subscription contracts
   
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
 
 
2013
   
2012
   
2013
   
2012
 
 
 
   
   
   
 
Subscription booked sales1
 
$
1,830
   
$
1,691
   
$
5,274
   
$
5,021
 
Non-subscription booked sales2
   
5,361
     
6,046
     
9,109
     
14,459
 
 
                               
Total booked sales
 
$
7,191
   
$
7,737
   
$
14,383
   
$
19,480
 
 
                               
Subscription booked sales as a % of total booked sales
   
25
%
   
22
%
   
37
%
   
26
%
Non-subscription booked sales as a % of total booked sales
   
75
%
   
78
%
   
63
%
   
74
%
 
Booked sales is a non-GAAP financial measure that we believe to be a useful measure of the current level of business activity both for management and for investors.  Booked sales equals the total value (net of allowances) of software and services invoiced in the period. Please see first table above for reconciliation of total booked sales, total revenue, and total change in deferred revenue.

1 Booked sales of subscriptions contracts represent a non-GAAP measure of sales that generate revenue from annual or monthly subscriptions to our web-based applications.

2 Non-subscription booked sales represent the sale of licenses, services and support for perpetual licenses and on premise products.