ALSM Alphasmart (MM)

AlphaSmart Announces Final Second Quarter 2004 Results LOS GATOS, Calif., July 15 /PRNewswire-FirstCall/ -- AlphaSmart, Inc. (NASDAQ:ALSM) today announced its operating results for the second quarter ended June 30, 2004. Final results were consistent with the preliminary expectations disclosed by the company on July 1, 2004. Net revenue was $11.1 million, compared with $11.7 million for the second quarter of 2003. Net income under generally accepted accounting principles (GAAP) was $1.5 million, or $0.10 per share on a fully diluted basis. This compared with net income under GAAP for the second quarter of 2003 of $1.6 million, or $0.15 per share on a fully diluted basis. As a result of AlphaSmart's initial public offering in February 2004, the number of weighted average shares outstanding on a fully diluted basis increased by 39% to 15.1 million shares for the second quarter of 2004 from 10.9 million shares for the same quarter a year earlier. "We were disappointed that spending by certain school districts, particularly those dependent on federal funding, missed our expectations and negatively impacted our revenue and earnings for the second quarter," said Ketan D. Kothari, AlphaSmart chairman, chief executive officer and co-founder. "However, we were pleased with the market's reception of our new low-cost computer companion for elementary and middle schools, Neo by AlphaSmart, and our new classroom management solutions for educators, AlphaSmart Manager 2 and AlphaSmart Manager for Dana. We launched these three products at the National Education Computer Conference (NECC) on June 21, 2004." "Despite the unanticipated revenue shortfall in the second quarter, our net income on a GAAP basis actually increased slightly as a percentage of revenue from last year," said James M. Walker, vice president, chief financial officer and chief operating officer. "Gross margin also exceeded our expectations at 56%, compared with 54% for the second quarter of 2003 and 51% for the first quarter of 2004." For the six months ended June 30, 2004, AlphaSmart's net revenue was $19.9 million, compared with $20.0 million for the same period of 2003. Net income under GAAP was $1.6 million, or $0.11 per share on a fully diluted basis, which included the effect of $588,000 in interest and a premium paid on the redemption of mandatorily redeemable preferred stock in the first quarter. This compared with net income under GAAP for the six months of 2003 of $2.1 million, or $0.19 per share on a fully diluted basis, including the effect of $357,000 in interest paid on mandatorily redeemable preferred stock. Excluding the effects of the interest and premium described above, pro forma net income for the six months of 2004 was $2.2 million, or $0.15 per share on a fully diluted basis, compared with $2.4 million, or $0.22 per share on a fully diluted basis, for the six months a year ago. Six-month weighted average shares outstanding increased year-over-year by 33% from 10.9 million to 14.5 million. All outstanding shares of mandatorily redeemable preferred stock were redeemed in connection with AlphaSmart's initial public offering of common stock in February 2004. Accordingly, the company has no further interest or premium obligations. Forward-Looking Guidance For fiscal year 2004, AlphaSmart expects net revenue in the range of $40 million to $42 million; GAAP net income per share on a fully diluted basis in the range of $0.27 to $0.31; and pro forma net income per share on a fully diluted basis in the range of $0.31 to $0.35, excluding the effect of $588,000 in interest and a redemption premium paid on mandatorily redeemable preferred stock in the first quarter of 2004. AlphaSmart plans to conduct a management conference call on quarterly results at 2:00 p.m. PDT / 5:00 p.m. EDT today. This call will be webcast live for all investors on the AlphaSmart website at http://www.alphasmart.com/ir/. In addition, a phone replay of the call will be available at 719-457-0820, access code 590412, through July 22, 2004. AlphaSmart intends to discuss financial and other statistical information on today's conference call. This information will also be available on the company's website at http://www.alphasmart.com/ir/, in the webcast described above. Use of Non-GAAP Financial Measures AlphaSmart believes that the supplemental presentation of net income and net income per share calculations excluding the effects of interest and a premium paid on the redemption of mandatorily redeemable preferred stock provides meaningful non-GAAP financial measures to help investors understand and compare business trends among different reporting periods on a consistent basis, independently of events impacted by the company's initial public offering in February 2004 or other infrequent or unusual events. AlphaSmart management also uses pro forma financial measures to plan and forecast results for future periods. Readers are cautioned not to view pro forma results as an alternative to GAAP results or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with pro forma results for the second quarter of 2003 and the six months of 2004 and 2003, respectively, in the attached financial statements. AlphaSmart, Inc. AlphaSmart, Inc. is a provider of technology solutions for the education market. AlphaSmart's portable computer-companion products are used by students in 8,000 U.S. school districts to enhance writing, keyboarding and comprehension. Based in Los Gatos, California, AlphaSmart was founded in 1992 by former Apple Computer engineers. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to (i) our having no further interest or premium obligations for mandatorily redeemable preferred stock; and (ii) our expectations of net revenue and GAAP and pro forma net income per share on a fully diluted basis for the full year, fiscal 2004. Our expectations and beliefs regarding these matters may not materialize. Actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include fewer teachers and administrators embracing technology solutions and one-to-one computing than we expect; our platforms failing to obtain broad market acceptance; a decline in investment in, or a loss or reduction of funding for, educational institutions; our need to maintain and develop strong brand identity; our potential customers choosing the greater functionality offered by PCs over our platforms; the risk that some government initiatives may not endorse, or be complementary to, our platforms; risks associated with the lack of diversity among our product offerings; our Dana by AlphaSmart platform's dependence on our license with PalmSource; and our dependence on our suppliers, particularly our single-source suppliers, among other risks. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in AlphaSmart's filings with the Securities and Exchange Commission (SEC), including its Registration Statement on Form S-1 declared effective by the SEC in February 2004 and Quarterly Report on Form 10-Q filed with the SEC in May 2004. AlphaSmart does not undertake to update any forward-looking statements. NOTE: AlphaSmart is a registered trademark of AlphaSmart, Inc. All other trademarks are the property of their respective owners. ALPHASMART, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 2004 2003 ASSETS Current assets: Cash and cash equivalents $7,746 $2,285 Accounts receivable, net 4,690 4,405 Inventory 5,090 2,818 Other current assets 2,533 1,470 Total current assets 20,059 10,978 Property and equipment, net 691 709 Other assets 1,663 2,005 Total assets $22,413 $13,692 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Borrowings against line of credit $873 $-- Accounts payable 3,679 1,892 Accrued liabilities 2,251 3,957 Borrowings under loan facility, current portion -- 2,680 Other current liabilities 1,192 701 Total current liabilities 7,995 9,230 Borrowings against line of credit -- 873 Borrowings under loan facility, net of current portion -- 1,340 Other long-term liabilities 99 166 Mandatorily redeemable preferred stock -- 9,747 Total liabilities 8,094 21,356 Redeemable convertible preferred stock -- 13,468 Stockholders' equity (deficit) 14,319 (21,132) Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $22,413 $13,692 ALPHASMART, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per-share amounts) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2004 2003 2004 2003 Net revenue $11,075 $11,712 $19,861 $20,010 Cost of revenue 4,906 5,364 9,187 9,440 Gross margin 6,169 6,348 10,674 10,570 Operating expenses: Research and development 633 884 1,247 1,645 Sales and marketing 1,850 1,481 3,696 2,892 General and administrative 1,256 1,038 2,233 2,024 Total operating expenses 3,739 3,403 7,176 6,561 Operating profit 2,430 2,945 3,498 4,009 Other expense, net (2) (278) (625) (538) Profit before income taxes 2,428 2,667 2,873 3,471 Provision for income taxes (899) (1,067) (1,281) (1,388) Net income $1,529 $1,600 $1,592 $2,083 Net income per share: Basic $0.10 $0.29 $0.12 $0.38 Diluted $0.10 $0.15 $0.11 $0.19 Shares used in computing per-share amounts: Basic 14,628 5,524 13,121 5,523 Diluted 15,123 10,885 14,494 10,890 ALPHASMART, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (EXCLUDING INTEREST AND PREMIUM ON MANDATORILY REDEEMABLE PREFERRED STOCK) (in thousands, except per-share amounts) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2004 2003 2004 2003 Net revenue $11,075 $11,712 $19,861 $20,010 Cost of revenue 4,906 5,364 9,187 9,440 Gross margin 6,169 6,348 10,674 10,570 Operating expenses: Research and development 633 884 1,247 1,645 Sales and marketing 1,850 1,481 3,696 2,892 General and administrative 1,256 1,038 2,233 2,024 Total operating expenses 3,739 3,403 7,176 6,561 Operating profit 2,430 2,945 3,498 4,009 Other expense, net (2) (98) (37) (181) Profit before income taxes 2,428 2,847 3,461 3,828 Provision for income taxes (899) (1,067) (1,281) (1,388) Net income $1,529 $1,780 $2,180 $2,440 Net income per share: Basic $0.10 $0.32 $0.17 $0.44 Diluted $0.10 $0.16 $0.15 $0.22 Shares used in computing per-share amounts: Basic 14,628 5,524 13,121 5,523 Diluted 15,123 10,885 14,494 10,890 A reconciliation of pro forma net income excluding interest and premium on mandatorily redeemable preferred stock to net income under generally accepted accounting principles is shown below: Net income excluding interest and premium on mandatorily redeemable preferred stock $1,529 $1,780 $2,180 $2,440 Interest and premium on mandatorily redeemable preferred stock -- (180) (588) (357) Net income as reported $1,529 $1,600 $1,592 $2,083 DATASOURCE: AlphaSmart, Inc. CONTACT: investors, James M. Walker, Vice President, Chief Financial Officer and Chief Operating Officer of AlphaSmart, Inc., +1-408-355-1029, or Web site: http://www.alphasmart.com/

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