Scientific Learning Corporation (NASDAQ:SCIL), a leading provider of technologies for accelerated learning, today announced financial results for the second quarter ended June 30, 2011.

Total revenue in the second quarter of 2011 was $12.4 million, compared to $12.3 million in the second quarter of 2010. The second quarter of 2011 included $2.1 million of deferred revenue for sales booked in previous quarters. Total booked sales for the second quarter were $10.1 million, compared to $12.0 million in the second quarter of 2010, reflecting the continuing difficulties in the K-12 funding environment. Adjusted EBITDA was $1.7 million in the second quarter of 2011 compared to $238,000 in the second quarter of 2010. Net income in the second quarter of 2011 was $884,000, or $0.05 per share, compared to a net loss of $781,000, or $0.04 per share, in the second quarter of 2010.

“Although we experienced a decrease in K-12 booked sales this quarter, we’ve made important strides in our business model and internal processes to better align with our new technology and upcoming product launches,” said Andy Myers, Chief Executive Officer. “We are encouraged by the positive trends in our international and direct-to-consumer markets and with our new on-demand platform, the historical barriers to entry in these growth markets are diminishing. We also saw a 27% increase in the number of K-12 transactions, which is a testament to the positive traction we’re seeing with our new pricing and on-demand solution. As we look out to the second half of the year, we’ll continue to focus on transforming our sales, customer service, and operations to leverage the new platform and pricing model across the K-12, international and consumer markets.”

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, www.scientificlearning.com.

Conference Call Information

A conference call to discuss second quarter 2011 financial results is scheduled for today, August 11, 2011 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 (866) 652-3154 (domestic) or (706) 634-7311 (international), Conference ID # 86460967, approximately 10 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. To hear the replay by phone, please call (800) 642-1687 (domestic) and (706) 645-9291 (international) and enter conference id number 86460967.

About Scientific Learning Corporation

We accelerate learning by applying proven research on how the brain learns. Scientific Learning’s results are demonstrated in over 200 research studies and protected by over 55 patents. Learners can realize achievement gains of 1 - 2 years in as little as 8 - 12 weeks and maintain an accelerated rate of learning even after the programs end.

Today, learners have used nearly 3 million Scientific Learning software products, which apply “Brain Fitness” principles to the areas of English language and reading. We provide our offerings directly to parents, K–12 schools and learning centers, and in more than 40 countries around the world. For more information, visit http://www.scilearn.com/ or call toll-free (888) 358-0212.

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 trends in and growth expectations for our markets, our new product release plans, the impact and potential of the new SciLEARN platform On-Demand offering, and the impact of our recent and planned business process changes. 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; unexpected challenges in product development; 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 the Report on Form 10-Q for the quarter ended March 31, 2011 (Part II, Item 1A, Risk Factors), filed May 3, 2011. 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
   
June 30, December 31,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 1,885 $ 5,415
Short-term investments 6,748 9,631
Accounts receivable, net 6,107 5,053
Prepaid expenses and other current assets   1,793     2,206  
 
Total current assets 16,533 22,305
 
Property and equipment, net 3,379 2,497
Goodwill 4,568 4,568
Other intangible assets, net 778 1,034
Other assets   1,331     1,399  
 
Total assets $ 26,589   $ 31,803  
 
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 507 $ 543
Accrued liabilities 3,815 4,198
Deferred revenue   12,397     16,388  
 
Total current liabilities 16,719 21,129
Deferred revenue, long-term 5,367 5,483
Other liabilities   833     857  
 
Total liabilities 22,919 27,469
 
Stockholders' equity:
Common stock and additional paid in capital 90,096 89,277
Accumulated deficit (86,421 ) (84,943 )
Accumulated other comprehensive loss   (5 )   -  
 
Total stockholders' equity   3,670     4,334  
 
Total liabilities and stockholders' equity $ 26,589   $ 31,803  

       
SCIENTIFIC LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
Revenues:
Products $ 7,164 $ 7,223 $ 12,641 $ 12,725
Service and support   5,233   5,084     10,191     10,647  
 
Total revenues 12,397 12,307 22,832 23,372
 
Cost of revenues:
Cost of products 331 562 646 1,081
Cost of service and support   2,037   2,292     4,330     4,726  
 
Total cost of revenues 2,368 2,854 4,976 5,807
 
Gross profit 10,029 9,453 17,856 17,565
 
Operating expenses:
Sales and marketing 4,477 5,851 9,393 11,801
Research and development 2,550 1,895 5,454 3,863
General and administrative   2,078   2,460     4,421     4,523  
 
Total operating expenses 9,105 10,206 19,268 20,187
 
Operating income (loss) 924 (753 ) (1,412 ) (2,622 )
 
Interest and other income, net   3   18     15     35  
 
Income (loss) before provision for income taxes 927 (735 ) (1,397 ) (2,587 )
Provision for income taxes   43   46     82     92  
 
Net income (loss) $ 884 $ (781 ) $ (1,479 ) $ (2,679 )
 
Net income (loss) per share:
Basic net income (loss) per share $ 0.05 $ (0.04 ) $ (0.08 ) $ (0.15 )
Diluted net income (loss) per share $ 0.05 $ (0.04 ) $ (0.08 ) $ (0.15 )
 
Weighted average shares used in computation of per share data:
Basic weighted average shares outstanding 18,812 18,453 18,770 18,397
Diluted weighted average shares outstanding 19,485 18,453 18,770 18,397

   
SCIENTIFIC LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
2011 2010
Operating Activities:
Net loss $ (1,479 ) $ (2,679 )
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization 915 1,269
Stock-based compensation 740 818
Changes in operating assets and liabilities:
Accounts receivable (1,054 ) (386 )
Prepaid expenses and other current assets 376 252
Other assets 19 (195 )
Accounts payable (36 ) (175 )
Accrued liabilities (383 ) (2,983 )
Deferred revenue (4,107 ) (1,677 )
Other liabilities   (24 )   97  
 
Net cash used in operating activities (5,033 ) (5,659 )
 
Investing Activities:
Purchases of property and equipment, net (1,492 ) (815 )
Purchases of short-term investments (3,584 ) (8,941 )
Maturities of short-term investments   6,500     500  
 
Net cash provided by (used in) investing activities 1,424 (9,256 )
 
Financing Activities:
Proceeds from issuance of common stock 178 348
Net settlement of common stock   (99 )   -  
 
Net cash provided by financing activities 79 348
 
Decrease in cash and cash equivalents (3,530 ) (14,567 )
 
Cash and cash equivalents at beginning of period   5,415     20,679  
 
Cash and cash equivalents at end of period $ 1,885   $ 6,112  

       

Scientific Learning Corporation
Supplemental Information
 

Reconciliation of Booked Sales, Revenue and Change in Deferred Revenue
 

$s in thousands
Three months ended June 30, Six months ended June 30,
2011 2010 2011 2010
 
Booked sales $ 10,118 $ 12,036 $ 18,201 $ 20,061
Less: revenue 12,397 12,307 22,832 23,372
Other adjustments   146     302   524     1,634  
Net decrease in current and long-term deferred revenue $ (2,133 ) $ 31 $ (4,107 ) $ (1,677 )
 
Beginning balance in current and long-term deferred revenue $ 19,897 $ 20,522 $ 21,871 $ 22,230
Ending balance in current and long-term deferred revenue $ 17,764 $ 20,553 $ 17,764 $ 20,553
 
 
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 Income (loss) to Adjusted EBITDA
 

$s in thousands
  Three months ended June 30,   Six months ended June 30,
2011   2010 2011   2010
 
Net income (loss) $ 884 $ (781 ) $ (1,479 ) $ (2,679 )
Adjustments to reconcile to Adjusted EBITDA:
Provision for income taxes 43 46 82 92
Interest (income) expense, net 3 18 12 27
Depreciation and amortization 440 646 915 1,269
Stock-based compensation expense   285   309     740     818  
Adjusted EBITDA $ 1,655 $ 238   $ 270   $ (473 )
 
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.
             
Non-Cash Charges
 
$s in thousands Three months ended June 30, 2011 Six months ended June 30, 2011

Depreciation & Amortization

Stock-based Compensation
Total

Depreciation & Amortization

Stock-based Compensation
Total
Included in:
Cost of products $ 139 $ - $ 139 $ 278 $ - $ 278
Cost of service and support - 11 11 - 20 20
Operating expenses   301   274   575   637   720   1,357
Total $ 440 $ 285 $ 725 $ 915 $ 740 $ 1,655
 
 
$s in thousands Three months ended June 30, 2010 Six months ended June 30, 2010

Depreciation & Amortization

Stock-based Compensation
Total

Depreciation & Amortization

Stock-based Compensation
Total
Included in:
Cost of Products $ 264 $ - $ 264 $ 525 $ - $ 525
Cost of Service and Support 21 24 45 85 63 148
Operating Expenses   361   315   676   658   755   1,413
Total $ 646 $ 339 $ 985 $ 1,268 $ 818 $ 2,086

Copyright Business Wire 2010

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