Smartforce Reports Second Quarter Results

Results improve sequentially from first quarter

SmartForce, the world's largest e-Learning company, today announced financial results for the second quarter of 2002. Revenues for the quarter increased to $44.4 million, compared to first quarter revenues of $43.0 million.The Company’s second quarter loss improved to $0.15 per share before acquisition-related charges and restructuring charges, compared to its first quarter loss of $0.26 per share before such charges.

Although the environment for new business continued to be very challenging in the second quarter, there were several positive developments that suggest that the fundamentals of the Company’s business are stabilising. Revenues increased 3 percent sequentially over the first quarter.

Importantly, revenues from new business signed during the quarter increased 31 percent sequentially over the first quarter, reflecting stronger new contract signings during the second quarter.

In addition, the company signed four million-dollar plus agreements during the quarter, an improvement from the two such contracts signed during the first quarter. SmartForce has also announced today that it has signed, in total, more than 150 agreements worth in excess of $1 million

On the balance sheet, new contract signings drove a $1.4 million increase in deferred revenues over their level at the end of the first quarter, to $47.4 million. The Company also successfully reduced its accounts receivable balance by $3.1 million during the second quarter, resulting in a 10-day improvement in DSOs compared to March 31 levels.

“We are, on the whole, encouraged by our second quarter performance with respect to our revenue, bookings and balance sheet objectives,” said Greg Priest, chairman and CEO of SmartForce. “We continued to experience a very challenging market environment. And the environment was made all the more challenging for SmartForce by the issues that we faced this quarter surrounding missing our first quarter revenue and earnings targets, planning and making a major reduction in our staff and planning the execution of a major merger. Notwithstanding all these challenges, we kept our eyes on the ball, and our performance stabilised, and even improved modestly. We see this as a positive sign.”

On the cost front as well, SmartForce has made substantial progress. On April 18, 2002, SmartForce announced a restructuring plan that was designed to reduce costs, focus the Company on its core strategies and eliminate peripheral activities. The Company completed the initial steps in the plan, involving the elimination of approximately 400 jobs (or approximately 20 percent of the Company’s workforce), in late April and early May.

On the basis of execution against the restructuring plan to date, the Company believes that it has already achieved approximately 90 percent of the savings that it had originally targeted to achieve by the fourth quarter of this year. The Company has recorded a restructuring charge of $26.4 million during the second quarter, compared to the Company’s previous guidance of $30 million. Including the restructuring charge (and acquisition-related amortisation), the Company’s net loss for the second quarter was $37.7 million, or $0.66 per share.

“We are pleased with the progress of our restructuring,” continued Priest. “Our restructuring was planned and executed quickly and efficiently. There is work left to do on this front as we join together with SkillSoft, but we are confident of our ability to execute.” Going forward, SmartForce is tracking toward its plans, announced last month, to merge with SkillSoft Corporation. The merger, which is on schedule to close later this quarter, will, among other things, leverage SmartForce’s strength in IT, sales and CRM training with SkillSoft’s strength in interpersonal and other critical business skills training. The combined company will focus on moving deeper into its enterprise customer accounts to serve a wider range of their learning-related business requirements.

“Despite the challenges we have faced, SmartForce remains the world’s largest and most experienced e-Learning company,” continued Priest. “We look forward to working together with our colleagues at SkillSoft to build on this base to create a profitable and even more powerful franchise in an exciting market space.”

July 18th, 2002