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Scientific Learning Corp. Reports Operating Results (10-Q)

August 13, 2010 | About:
10qk

10qk

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Scientific Learning Corp. (SCIL) filed Quarterly Report for the period ended 2010-06-30.

Scientific Learning Corp. has a market cap of $96.2 million; its shares were traded at around $5.23 with a P/E ratio of 16.8 and P/S ratio of 1.7.

Highlight of Business Operations:

For the three months ended June 30, 2010, our total revenue increased by 16% compared to the three months ended June 30, 2009 and for the six months ended June 30, 2010 our total revenue increased 21% over the corresponding period in 2009. Our total booked sales decreased by 7% for the three months ended June 30, 2010 and increased 6% for the six months ended June 30, 2010 compared to the same periods in 2009. (Booked sales is a non-GAAP financial measure. For more explanation on booked sales, see Revenues below.) K-12 booked sales decreased by 7% in the three months ended June 30, 2010, and increased 6% in the six months ending June 30, 2010 compared to the same periods in 2009. For the three months ended June 30, 2010, we closed 27 transactions in excess of $100,000, compared to 25 in the three months ended June 30, 2009. Non-school sales, including private practice, international, direct to consumer, virtual schools and OEM customers, decreased by 6% in the three months ended June 30, 2010 and increased 6% in the six months ended June 30, 2010 compared to the same periods in 2009. Operating expenses increased by 22% and 17% in the three and six months ended June 30, 2010 compared with the same period in 2009.

For the three and six months ended June 30, 2010, product revenue increased by 17% and 26% respectively, compared to the same periods in 2009, mainly as a result of the deferral of approximately $1.9 million in product revenue on transactions that included our new Reading Assistant Expanded Edition product during the three months ended June 30, 2009. This deferred revenue was subsequently recognized in the third quarter of 2009. There were no similar revenue deferrals during the three months ended June 30, 2010. Service and support revenue grew by 14% and 17% for the three and six month periods in 2010 as compared to the same periods in 2009, primarily due to the increased delivery of both on-line and traditional service offerings for training and implementation, and more schools using our Progress Tracker reporting tool.

Booked sales in the K-12 sector decreased 7% to $10.8 million during the three months ended June 30, 2010, and increased 6% to $18.1 million during the six months ended June 30, 2010, compared to $11.7 million and $17.1 million during the respective three and six month periods in 2009. As described above, state budget pressures caused many school districts to delay purchases during the second quarter of 2010. Booked sales to the K-12 sector for the three and six months ended June 30, 2010 and 2009 were 90% of total booked sales.

Booked sales to non-school customers decreased by 6% to 1.2 million for the three months ended June 30, 2010 compared to the same period in 2009. This decrease reflects declines in sales to private practice clinicians, as a result of the current economic difficulties, partially offset by increases in sales to virtual schools. For the six months ended June 30, 2010, sales to non-school customers increased 6% to $2 million compared to the prior year period as growth in the consumer, virtual school and OEM businesses offset declines in sales to private providers.

The overall gross profit margin improved by 1% in the second quarter and 2% in the first six months of 2010 compared to the corresponding periods in 2009. These increases in gross margin were driven by increases in both product gross margins and the proportion of higher margin product revenue.

Higher margin product revenues made up 59% and 54% of total revenues in the three and six months ending June 30, 2010 respectively, compared to 58% and 53% in the same periods in 2009. Product margins increased by 1% in the three and six months ending June 30, 2010 over the same periods in 2009, mainly due to lower royalty, material and fulfillment costs. Service and support margins were flat in the second quarter of 2010 compared to 2009. For the six months ending June 30, 2010 service and support margins increased to 56% in 2010 compared to 54% in 2009 reflecting higher delivery of services in 2010.

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