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TheStreet Open House

Scientific Learning Reports Fourth Quarter And Year End 2012 Financial Results

Stock quotes in this article: SCIL

"We have decided that the company would benefit from some more permanent financing and are in the process of completing an approximately $4.5 million debt financing with insiders and our largest shareholders," stated Bob Bowen. "We look forward to announcing the close of the financing soon."

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/investorinfo .

Conference Call Information

A conference call to discuss fourth quarter 2012 financial results is scheduled for today, April 2, 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 # 31279456 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, learners have used over 3.7 million 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/ .

The Scientific Learning Corp. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=15680

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 future profitability and cash flow, expectations for the first quarter of 2013 and our plans for securing more permanent financing. 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 Report on Form 10-K for the year ended December 31, 2012 (Part I, Item 1A, Risk Factors) filed April 1, 2013. 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
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Audited)
     
  December 31, 2012 December 31, 2011
Assets    
Current assets:    
Cash and cash equivalents   $ 2,272  $ 5,871
Accounts receivable, net  2,446  4,433
Prepaid expenses and other current assets  1,484  1,709
     
Total current assets  6,202  12,013
     
Property and equipment, net  2,028  3,326
Goodwill  4,568  4,568
Other intangible assets, net  --   518
Other assets  260  1,438
     
Total assets  $ 13,058  $ 21,863
     
     
Liabilities and stockholders' equity (net capital deficiency)    
Current liabilities:    
Accounts payable  $ 715  $ 881
Accrued liabilities  1,981  3,556
Loan payable  800  -- 
Deferred revenue, short-term  10,964  12,606
     
Total current liabilities  14,460  17,043
Deferred revenue, long-term  2,521  4,716
Warrant Liability  534  -- 
Other liabilities  771  785
     
 Total liabilities  18,286  22,544
     
Stockholders' equity (net capital deficiency):    
Common stock and additional paid in capital  95,839  90,735
Accumulated deficit  (101,069)  (91,419)
Accumulated other comprehensive income  2  3
     
Total stockholders' equity (net capital deficiency)  (5,228)  (681)
     
Total liabilities and stockholders' equity (net capital deficiency)  $ 13,058  $ 21,863
     
SCIENTIFIC LEARNING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
         
  (Unaudited) (Audited)
         
  Three Months Ended December 31,  Year Ended December 31, 
  2012 2011 2012 2011
Revenues:        
Subscriptions  $ 1,640  $ 1,015  $ 4,524  $ 2,407
License 1,852 2,234 8,770 20,002
Service and support 3,589 4,462 14,849 18,670
         
Total revenues 7,081 7,711 28,143 41,079
         
Cost of revenues:        
Cost of subscription 317 273 1,110 613
Cost of license 239 422 974 1,412
Cost of service and support 952 2,240 5,704 8,663
         
Total cost of revenues 1,508 2,935 7,788 10,688
         
Gross profit 5,573 4,776 20,355 30,391
         
Operating expenses:        
Sales and marketing 2,734 3,904 15,368 17,979
Research and development 1,100 2,523 6,998 10,324
General and administrative 1,412 2,070 7,549 8,413
Restructuring 0 -- 1,462 --
         
Total operating expenses 5,246 8,497 31,377 36,716
         
Operating income(loss)  327  (3,721)  (11,022)  (6,325)
         
Interest and other income, net  465  2  1,560  13
         
Income(loss) before income tax  792  (3,719)  (9,462)  (6,312)
Provision for income taxes 19 35 188 164
         
Net income(loss)  $ 773  $ (3,754)  $ (9,650)  $ (6,476)
         
Net income(loss) per share:        
Basic and diluted income(loss) per share  $ 0.03  $ (0.20)  $ (0.43)  $ (0.34)
         
Weighted average shares used in computation of per share data:        
Basic weighted average shares outstanding 23,395 18,943 22,310 18,870
Diluted weighted average shares outstanding 23,395 18,943 22,310 18,870
 
SCIENTIFIC LEARNING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
  (Unaudited) (Audited)
         
  Three Months Ended December 31,  Year Ended December 31, 
  2012 2011 2012 2011
Operating Activities:        
Net income (loss)  $ 773  $ (3,754)  $ (9,650)  $ (6,476)
Adjustments to reconcile net income(loss) to cash used in operating activities      
Depreciation and amortization  580  534  2,446  1,924
Investment impairment charge  --   --   200  --
Capitalized software impairment charge  116  --   116  --
Fixed asset impairment charge  23  --   23  --
Stock-based compensation  200  225  815  1,232
Change in fair value of warrant  (479)  --   (1,834)  --
Changes in operating assets and liabilities:        
Accounts receivable  2,163  3,871  1,987  620
Prepaid expenses and other current assets  (663)  (80)  225  409
Other assets  785  (7)  807  62
Accounts payable  208  135  (166)  338
Accrued liabilities  (1,209)  (569)  (1,575)  (642)
Deferred revenue  (2,256)  (2,139)  (3,837)  (4,549)
Other liabilities  110  (46)  (14)  (72)
         
Net cash provided by (used in) operating activities  351  (1,830)  (10,457)  (7,154)
         
Investing Activities:        
Purchases of property and equipment, net  (122)  (365)  (598)  (2,138)
Purchases of investments  --   (680)  --   (5,313)
Sales and maturities of investments  --   6,277  --   14,832
         
Net cash provided by (used in) investing activities  (122)  5,232  (598)  7,381
         
Financing Activities:        
Borrowings under bank line of credit  700  --   8,597  -- 
Repayment of borrowings under bank line of credit  (1,297)  --   (7,797)  -- 
Proceeds from exercise of options  26  193  178  370
Proceeds from issuance of common stock, net  --   --   6,512  -- 
Net settlement of common stock  0  (32)  (33)  (144)
         
Net cash provided by (used in) financing activities  (571)  161  7,457  226
         
Effect of exchange rate changes on cash and cash equivalents  (3)  3  (1)  3
         
Increase (decrease) in cash and cash equivalents  (345)  3,566  (3,599)  456
         
Cash and cash equivalents at beginning of period  2,617  2,305  5,871  5,415
         
Cash and cash equivalents at end of period  $ 2,272  $ 5,871  $ 2,272  $ 5,871
         
Scientific Learning Corporation        
Supplemental Information      
(Unaudited)        
Reconciliation of Booked Sales, Revenue and Change in Deferred Revenue      
         
$s in thousands        
  Three Months Ended December 31,  Year Ended December 31, 
  2012 2011 2012 2011
         
Booked sales  $ 4,825  $ 5,583  $ 24,305  $ 35,950
Less: revenue  (7,081)  (7,711)  (28,143)  (41,079)
Adjustments  1  (12)  1  580
Net decrease in current and long-term deferred revenue  $ (2,255)  $ (2,140)  $ (3,837)  $ (4,549)
         
Beginning balance in current and long-term deferred revenue  $ 15,740  $ 19,462  $ 17,322  $ 21,871
Ending balance in current and long-term deferred revenue  $ 13,485  $ 17,322  $ 13,485  $ 17,322
         
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 December 31,  Year Ended December 31, 
  2012 2011 2012 2011
         
Net income (loss)  $ 773  $ (3,754)  $ (9,650)  $ (6,476)
Adjustments to reconcile to Adjusted EBITDA:        
Provision for income taxes 1  19  35  188  164
Interest and other (income) expense, net 2  14  2  74  13
Depreciation and amortization 3  580  534  2,446  1,924
Stock-based compensation 4  200  225  815  1,232
Change in fair value of warrant 5  (479)  --   (1,834)  -- 
Restructuring 6  --   --   1,462  -- 
Impairment charge 7  139  --   339  -- 
Adjusted EBITDA  $ 1,246  $ (2,958)  $ (6,160)  $ (3,143)
         
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 reports 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. Other income and expense includes foreign exchange gain 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. 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. In addition, the charge includes fixed asset impairment charges related to software and fixed assets that were deemed impaired during 2012.
             
Scientific Learning Corporation            
Supplemental Information          
(Unaudited)            
             
Non-Cash Charges            
             
$s in thousands Three Months Ended December 31, 2012 Year Ended December 31, 2012
  Depreciation & Amortization Stock-based Compensation Total Depreciation & Amortization Stock-based Compensation Total
Included in:            
Cost of subscriptions and licenses  $ 160  $ 1  $ 161  $ 633  $ 5  $ 638
Cost of service and support  $ --   $ 1  1  --   14  14
Operating expenses  $ 420  $ 198  618  1,813  796  2,609
Total   $ 580  $ 200  $ 779  $ 2,446  $ 815  $ 3,260
             
$s in thousands Three Months Ended December 31, 2011 Year Ended December 31, 2011
  Depreciation & Amortization Stock-based Compensation Total Depreciation & Amortization Stock-based Compensation Total
Included in:            
Cost of subscriptions and licenses  $ 140  $ 1  $ 141  $ 559  $ 2  $ 561
Cost of service and support  --  10  10  --   40  40
Operating expenses  394  214  608  1,365  1,190  2,555
Total   $ 534  $ 225  $ 759  $ 1,924  $ 1,232  $ 3,156
             
Booked sales of subscription contracts        
  Three Months Ended December 31,  Year Ended December 31, 
  2012 2011 2012 2011
         
Subscription booked sales 1  $ 1,428  $ 1,347  $ 6,449  $ 4,213
Non-subscription booked sales 2  3,397  4,232  17,856  31,737
         
Total booked sales  $ 4,825  $ 5,579  $ 24,305  $ 35,950
         
Recurring booked sales as a % of total booked sales 30% 24% 27% 12%
Non-recurring booked sales as a % of total booked sales 70% 76% 73% 88%
         
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.
CONTACT: Media Contact:
         Steve Gardner
         Vice President, Marketing, Inside Sales and Support
         Scientific Learning Corporation
         (530) 282-6226
         sgardner@scilearn.com
         
         Investor Relations:
         Jane Freeman
         Chief Financial Officer
         Scientific Learning Corporation
         (510) 625-6710
         jfreeman@scilearn.com
         investorrealtions@scilearn.com

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