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

August 14, 2012 | About:
10qk

10qk

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Scientific Learning Corp. (SCIL) filed Quarterly Report for the period ended 2012-06-30.

Scientific Learning Corporation has a market cap of $26 million; its shares were traded at around $1.1 with and P/S ratio of 0.6.

Highlight of Business Operations:

Our total revenue decreased by 42% and 38% during the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011. We experienced a 30% and 35% decrease in booked sales in the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011. (Booked sales is not a generally accepted accounting principles (“GAAP”) financial measure. For more explanation on booked sales, see discussion below.) The change in booked sales is due primarily to K-12 sales which decreased by 33% and 41% during the three and six months ended June 30, 2012, respectively, as compared to the same periods in 2011. We believe that the decline in booked sales year-to-date reflects continued budget pressures on schools.

In the three and six months ended June 30, 2012, we closed no transactions in excess of $0.5 million. In the three and six months ended June 30, 2011, we closed zero and two transactions, respectively, in excess of $0.5 million totaling $2.0 million. In 2012, we expect to gain traction with our On Demand MySciLEARN (Company-hosted) platform and per student license pricing in the U.S. K-12 market and therefore become less dependent on large transactions. We believe our On Demand MySciLEARN platform will enable us to significantly increase the number of smaller, more predictable transactions and recurring revenue. In the three and six months ended June 30, 2012, the recurring portion of our revenue as a percentage of total revenue increased to 46% and 44% respectively, from 27% and 28%, respectively, as compared to the three and six months ended June 30, 2011. Non-school booked sales, including private practice, international, direct to consumer, virtual schools and OEM customers, decreased by 9% or $0.1 million and 4% or $0.1 million during the three and six months ended June 30, 2012 as compared to the same periods in 2011.

We continue to focus on increasing both the number of customers using our applications and the percentage of those customers on the On Demand MySciLEARN and On Premise SciLEARN Enterprise platforms in order to drive increased recurring revenue. In the first quarter of 2012 we released an updated version of the MySciLEARN On Demand platform as well as our Reading Assistant product for the On Premise SciLEARN Enterprise platform. In the second quarter of 2012 we released our Reading Assistant product on the On Demand MySciLEARN platform. At June 30, 2012, the total number of active school sites has increased 4% compared to March 31, 2012 and 11% compared to December 31, 2011 to 3,413 total active school sites, with 51% of those sites using the MySciLEARN On-Demand platform to access our applications. We expect that the MySciLEARN platform will increase the proportion of our revenue that is recurring. Over time, we expect that MySciLEARN, together with per student pricing options we introduced in the second quarter of 2011 and changes in our business model, will increase our volume of smaller transactions, shorten sales cycles, and increase our ability to drive predictable, recurring revenue. For the three and six months ended June 30, 2012 compared to the same periods in 2011, our transaction count increased 15% from 443 transactions to 511 transactions and 24% from 726 transactions to 903, respectively. For the three and six months ended June 30, 2012 compared to the same periods in 2011, the recurring portion of our revenue stream decreased 2% to $3.3 million and 2% to $6.3 million, respectively. The following table sets forth information relating to our recurring revenues (dollar amounts in thousands):

Booked sales in the K-12 sector decreased by 33% to $6.0 million in the three months ended June 30, 2012 compared to $8.8 million in the three months ended June 30, 2011. Booked sales in the K-12 sector decreased by 41% to $9.2 million in the six months ended June 30, 2012 compared to $15.6 million in the six months ended June 30, 2011. As described above, state and local budget pressures continued to cause many school districts to struggle to maintain their core functions. Booked sales to the K-12 sector were 84% and 87% of total booked sales for the three months ended June 30, 2012 and 2011, respectively. Booked sales to the K-12 sector were 79% and 86% of total booked sales for the six months ended June 30, 2012 and 2011, respectively. “Adjustments” in the three months ended June 30, 2012 consist primarily of adjustment for a manual credit for an order booked in a previous period. “Adjustments” in the six months ended June 30, 2012 consist primarily of the reversal of deferred revenue for an accrual for an order for which a payment that was sent by an international customer at the end of 2011 which was not received until beginning of 2012. “Adjustments” in the three and six months ended June 30, 2011 consist primarily of the deferral of revenue and the related receivable for booked sales with Free-On-Board (“FOB”) destination delivery terms that were not delivered at the end of the second quarter 2011.

Large booked sales include volume and negotiated discounts but the percentage discount applicable to any given transaction will vary and the relative percentage of large booked sales and smaller booked sales in a given quarter may fluctuate. Because we discount license fees but do not discount service and support fees for non-subscription orders, license booked sales and revenue are disproportionately affected by discounting. We cannot predict the size and number of large transactions in the future. MySciLEARN, together with per student pricing options we introduced in the second quarter of 2011 and changes in our business model, are designed to decrease our dependence on large transactions by increasing our volume of smaller transactions and shortening sales cycles. We continue to focus on increasing the percentage of recurring, predictable sales. In the three months ended June 30, 2012 compared to the same period in 2011, the recurring portion of our booked sales increased 41% to $4.1 million. In the six months ended June 30, 2012 compared to the same period in 2011, the recurring portion of our booked sales increased 20% to $6.1 million. Recurring booked sales as a percentage of total booked sales increased to 57% from 29% for the three months ended June 30, 2012 and increased to 52% from 28% for the six months ended June 20, 2012 compared to the same periods in 2011. The following table sets forth information relating to our recurring booked sales (dollar amounts in thousands):

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