ALSM Alphasmart (MM)

AlphaSmart Announces Third Quarter 2004 Results LOS GATOS, Calif., Oct. 14 /PRNewswire-FirstCall/ -- AlphaSmart, Inc. (NASDAQ:ALSM) today announced its operating results for the third quarter ended September 30, 2004. Final results were consistent with the preliminary expectations disclosed by the company on October 5, 2004. Net revenue was $8.8 million, compared with $10.6 million for the third quarter of 2003. Net income under generally accepted accounting principles (GAAP) was $840,000, or $0.06 per share on a fully diluted basis. This compared with net income under GAAP for the third quarter of 2003 of $928,000, or $0.08 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 third quarter of 2004 from 10.9 million shares for the same quarter a year earlier. "Softness in technology spending in the K-12 education market has continued to impact our quarterly revenue and earnings, as well as our outlook for full-year 2004," said Ketan D. Kothari, AlphaSmart chairman and chief executive officer. "As indicated previously, we have been particularly vulnerable to deferred purchasing decisions by certain school districts. However, we remain confident of both our profitable business model and the long-term growth potential of the K-12 opportunity for AlphaSmart products." For the nine months ended September 30, 2004, AlphaSmart's net revenue was $28.7 million, compared with $30.6 million for the same period of 2003. Net income under GAAP was $2.4 million, or $0.17 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 nine months of 2003 of $3.0 million, or $0.27 per share on a fully diluted basis, including the effect of $541,000 in interest paid on mandatorily redeemable preferred stock. Excluding the effects of the interest and premium described above, pro forma net income for the nine months of 2004 was $3.0 million, or $0.21 per share on a fully diluted basis, compared with $3.6 million, or $0.33 per share on a fully diluted basis, for the nine months a year ago. Nine-month weighted average shares outstanding increased year-over-year by 34% from 10.9 million to 14.6 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 related to this preferred stock. Forward-Looking Guidance For fiscal year 2004, AlphaSmart expects net revenue in the range of $38 million to $40 million; GAAP net income per share on a fully diluted basis in the range of $0.24 to $0.27; and pro forma net income per share on a fully diluted basis in the range of $0.28 to $0.31, 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 teleconference on quarterly results at 2:00 p.m. PDT / 5:00 p.m. EDT today. This call will be webcast live and archived 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 889148, through October 21, 2004. AlphaSmart intends to discuss financial and other statistical information on today's teleconference. 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 third quarter of 2003 and the nine months of 2004 and 2003, respectively, in the attached financial statements. AlphaSmart, Inc. AlphaSmart, Inc. is a provider of technology solutions for education and productivity. Its portable computer-companion products are used by students to enhance writing, keyboarding and comprehension, and have been adopted by more than 8,000 school districts in the United States and other countries. Based in Los Gatos, California, the company 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 confidence that we have a profitable business model and that there is long-term growth potential in the K-12 education market for our products; (ii) our having no further interest or premium obligations for mandatorily redeemable preferred stock; and (iii) 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 its Quarterly Reports on Form 10-Q. AlphaSmart does not undertake to update any forward-looking statements. NOTE: AlphaSmart is a registered trademark of AlphaSmart, Inc. in the United States and other countries. All other trademarks are the property of their respective owners. ALPHASMART, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2004 2003 ASSETS Current assets: Cash and cash equivalents $4,460 $2,285 Accounts receivable, net 5,652 4,405 Inventory 4,708 2,818 Other current assets 2,252 1,470 Total current assets 17,072 10,978 Property and equipment, net 626 709 Other assets 2,767 2,005 Total assets $20,465 $13,692 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $1,887 $1,892 Accrued liabilities 1,887 3,957 Income taxes payable 1,139 625 Borrowings under loan facility, current portion -- 2,680 Capital lease obligations, current portion 90 76 Total current liabilities 5,003 9,230 Borrowings against line of credit -- 873 Borrowings under loan facility, net of current portion -- 1,340 Capital lease obligations, net of current portion 48 106 Other long-term liabilities 18 60 Mandatorily redeemable preferred stock -- 9,747 Total liabilities 5,069 21,356 Redeemable convertible preferred stock -- 13,468 Stockholders' equity (deficit) 15,396 (21,132) Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $20,465 $13,692 ALPHASMART, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Three Months Ended Nine Months Ended September September September September 30, 30, 30, 30, 2004 2003 2004 2003 Net revenue $8,795 $10,590 $28,656 $30,600 Cost of revenue 4,185 5,428 13,372 14,868 Gross margin 4,610 5,162 15,284 15,732 Operating expenses: Research and development 596 764 1,843 2,409 Sales and marketing 1,638 1,522 5,334 4,414 General and administrative 1,111 1,072 3,344 3,096 Total operating expenses 3,345 3,358 10,521 9,919 Operating profit 1,265 1,804 4,763 5,813 Other expense, net (3) (257) (628) (795) Profit before income taxes 1,262 1,547 4,135 5,018 Provision for income taxes (422) (619) (1,703) (2,007) Net income $840 $928 $2,432 $3,011 Net income per share: Basic $0.06 $0.17 $0.18 $0.55 Diluted $0.06 $0.08 $0.17 $0.27 Shares used in computing per share amounts: Basic 14,724 5,552 13,478 5,533 Diluted 15,116 10,907 14,627 10,895 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 Nine Months Ended September September September September 30, 30, 30, 30, 2004 2003 2004 2003 Net revenue $8,795 $10,590 $28,656 $30,600 Cost of revenue 4,185 5,428 13,372 14,868 Gross margin 4,610 5,162 15,284 15,732 Operating expenses: Research and development 596 764 1,843 2,409 Sales and marketing 1,638 1,522 5,334 4,414 General and administrative 1,111 1,072 3,344 3,096 Total operating expenses 3,345 3,358 10,521 9,919 Operating profit 1,265 1,804 4,763 5,813 Other expense, net (3) (73) (40) (254) Profit before income taxes 1,262 1,731 4,723 5,559 Provision for income taxes (422) (619) (1,703) (2,007) Net income $840 $1,112 $3,020 $3,552 Net income per share: Basic $0.06 $0.20 $0.22 $0.64 Diluted $0.06 $0.10 $0.21 $0.33 Shares used in computing per share amounts: Basic 14,724 5,552 13,478 5,533 Diluted 15,116 10,907 14,627 10,895 A reconciliation of our pro forma net income excluding interest and premium on mandatorily redeemable preferred stock to our net income under generally accepted accounting principles is shown below: Net income excluding interest and premium on mandatorily redeemable preferred stock $840 $1,112 $3,020 $3,552 Interest and premium on mandatorily redeemable preferred stock -- (184) (588) (541) Net income as reported $840 $928 $2,432 $3,011 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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