Human Resources: SumTotal Systems Announces Preliminary Fourth Quarter 2007 Results

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Jan. 15, 2008--SumTotal(R)
Systems, Inc. (NASDAQ:SUMT), a global provider of talent and learning
management solutions, today announced preliminary financial results
for the fourth quarter ended December 31, 2007. The Company plans to
announce its full results on February 5, 2008.

Fourth Quarter Preliminary Results
For the fourth quarter, SumTotal expects revenue on a Generally
Accepted Accounting Principles (GAAP) basis to be in the range of
$33.0 to $33.4 million compared to its previous guidance of between
$27.8 and $29.8 million. Net loss is expected to be in the range of
$2.7 to $2.4 million or $0.08 to $0.07 per share on a basic and
diluted basis compared to its previous guidance of between $3.2 and
$2.2 million or between $0.10 and $0.07 per share.

SumTotal expects non-GAAP revenue to be in the range of $33.2 to
$33.6 million compared to its previous guidance of between $28.0 and
$30.0 million. Non-GAAP net income is expected to be in the range of
$1.5 to $1.8 million or $0.05 to $0.06 per share on a fully diluted
basis compared to its previous guidance of between $0.5 and $1.5
million or between $0.02 and $0.05 per share.
The fourth quarter results are expected to include approximately
$1.4 million of revenue relating to an $8 million contract with a
large retailer.

"I am pleased with our fourth quarter results," commented SumTotal
CEO Don Fowler. "Led by a very strong quarter in North American
enterprise sales, we saw strength in all areas of our business. These
preliminary results reflect a very strong performance and record
revenue. We also expect to exceed our guidance on the bottom line
despite the additional commissions and bonus expenses associated with
the record results. In addition, the approximately $1.4 million of
revenue expected from the large contract is comprised of the
development portion which has a low margin."

Full Year 2007 Preliminary Results

For the fiscal year 2007, SumTotal expects GAAP revenue to be
between $121.6 and $122.0 million compared to its previous guidance of
between $116.4 and $118.4 million. Net loss is expected to be in the
range of $8.0 to $7.7 million or $0.26 to $0.25 per share on a basic
and diluted basis compared to its previous guidance of between $8.5
and $7.5 million or $0.28 to $0.25 per share.

SumTotal expects non-GAAP revenue to be between $122.8 and $123.2
million compared to its previous guidance of between $117.6 and $119.6
million. Non-GAAP net income is expected to be in the range of $6.9 to
$7.2 million or $0.22 to $0.23 per share on a fully diluted basis
compared to its previous guidance of between $5.9 and $6.9 million or
$0.19 to $0.22 per share.

2008 Guidance

For the fiscal year of 2008, SumTotal Systems estimates its GAAP
revenue will be between $133.7 and $137.7 million. GAAP net income is
estimated to be between $1.4 million, or $0.04 per share on a basic
and diluted basis, and $2.4 million, or $0.07 per share on a basic and
diluted basis.

On a non-GAAP basis, revenue is estimated to be between $134.0
million and $138.0 million. Non-GAAP net income is estimated to be
between $12.9 million or $0.37 per share on a fully diluted basis, and
$13.9 million, or $0.40 per share on a fully diluted basis.

"Our forecast for 2008 confirms the underlying health of our
business and the strength of our competitive position, and is
consistent with prior expectations. I believe that the international,
mid-market, and performance management programs that we put in place
are the right ones and that they are starting to pay off," continued
CEO Don Fowler. "As our guidance reflects, we remain cautiously
optimistic about 2008 and expect to achieve healthy annual revenue
growth and an improved bottom line."

Use of Non-GAAP Financial Measures

Non-GAAP preliminary results and estimates included in this press
release exclude the impact of certain non-cash accounting adjustments
and one-time charges primarily related to acquisition accounting. A
reconciliation to the GAAP preliminary results and estimates is
attached.

A conference call to discuss the fourth quarter results will be
held on February 5, 2008, at 5:00 p.m. ET/2:00 p.m. PT. SumTotal plans
to make a live audio webcast available to investors and the public at
http://investor.sumtotalsystems.com. Along with the webcast, SumTotal
plans to make available a telephone replay of the call on February 5,
2008, beginning at approximately 5:00 p.m. PT through the close of
business on February 12, 2008. Interested parties can access the
replay by dialing 800-642-1687 within the United States or
706-645-9291 outside the United States and entering the access code
30025951.

The time or manner of the webcast may change for technical and/or
administrative reasons.

About SumTotal Systems

SumTotal Systems, Inc. (NASDAQ:SUMT) is a global provider of
talent and learning management solutions. SumTotal deploys
mission-critical solutions designed to align goals, develop skills,
assess performance, plan for succession and set compensation.
SumTotal's solutions aim to accelerate performance and profits for
more than 1,500 companies and governments of all sizes, including six
of the world's 10 biggest pharmaceutical makers, six of the 10 largest
automotive companies in the world, four of the five branches of the
U.S. Armed Forces, three of the world's top five airlines, five of the
six largest U.S. commercial banks, and two of the world's top five
specialty retailers. Mountain View, Calif.-based SumTotal has offices
across Asia, Australia, Europe and North America. For more information
about SumTotal's products and services, visit www.sumtotalsystems.com.

SumTotal is a registered trademark of SumTotal Systems, Inc.
and/or its affiliates in the United States and/or other countries.
Other names may be trademarks of their respective owners.

Safe Harbor/Forward-Looking Statements

Information in this press release contains forward-looking
statements and management's preliminary estimates of the company's
financial performance for the quarter and year ended December 31,
2007, and financial guidance for fiscal year 2008. These statements
represent the company's current expectations and beliefs, and are
subject to change as management completes the close of its financial
books and as the company's independent auditors complete their audit
of the company's financial statements for the year ended December 31,
2007. These statements are not historical facts or guarantees of
financial results for the quarter or year ended December 31, 2007, or
future performance for fiscal year 2008 and include statements
regarding, among others, the company's 2007 fiscal fourth quarter
performance, including the timing of recognizing revenue, and
financial guidance for fiscal year 2008; the company's ability to grow
its subscriptions and support business, including internationally and
in the performance management markets; and the company's ability to
execute on its goals and forecasts. They are based on current
expectations, estimates, beliefs, assumptions, goals and objectives
and involve known and unknown risks, uncertainties and other factors
that may cause actual results to be materially different from the
results expressed or implied by these statements. Readers of this
press release are cautioned not to place undue reliance on any
preliminary financial result or forward-looking statement. Additional
factors that could cause actual results to differ include, but are not
limited to: (i) additional information regarding the audit and close
of the financial books for the quarter and year ended December 31,
2007, including, without limitation, the Company's review of revenue
transactions and expenditures; (ii) inability of the company's
executive team, including its new hire in field operations, to execute
on its plans, causing the company to miss its financial forecasts or
not grow the company's business at or above the forecasts; (iii)
underestimating the cost reductions necessary to maintain
profitability, or making cuts that aversely impact the company's
ability to execute; (iv) inability to recruit or retain key personnel,
including management, especially in light of the company's
reorganization; (v) ability to successfully manage and increase growth
internationally and in the performance and learning management
markets; (vi) increased competition, especially in the performance
management market, causing the loss of deals, material reductions in
prices or acceptance of terms the company otherwise would not accept;
(vii) inaccurately estimating the speed, ability or cost of the
company transitioning its product offerings to on-demand subscriptions
and a recurring revenue model; (viii) customer dissatisfaction with
the company's products or services, causing the return of product or
refusal to pay for product or services; (ix) the company's ability to
protect its intellectual property rights and claims that the company
has infringed the intellectual property rights of others; (x) the
lengthening of the company's sales cycle and increased difficulties in
negotiating sales contracts on terms favorable to us and the uncertain
timing of such sales; (xi) the level of corporate spending and changes
in general economic conditions that affect demand for computer
software and services in general which may disproportionately affect
the market for our products or services; (xii) other market conditions
that include risks and uncertainties such as risks associated with
financial, economic, political, terrorist activity and other
uncertainties associated with operating a global business; and (xiii)
other events and other important factors disclosed previously and from
time to time in the company's filings with the Securities and Exchange
Commission, including the company's annual report for fiscal year 2006
on Form 10-K filed on March 16, 2007, its quarterly report on Form
10-Q filed on November 8, 2007, its Prospectus Supplement on Form
424B2 filed on May 21, 2007, and its Form 8-Ks. The forward-looking
statements contained in this release are made as of the date of this
release, and the company assumes no obligation to update the
information in this release.

Use of non-GAAP Financial Measures
----------------------------------------------------------------------

In managing its business financial performance and establishing
internal financial plans and targets, the Company uses non-GAAP
financial measures. Management believes that certain non-GAAP
financial measures provide greater transparency in managing its
operations and business. The Company has presented these non-GAAP
financial measures as supplemental information to allow investors to
see how management views the operating performance of the Company and
how it communicates the performance internally. The Company has
historically reported similar non-GAAP financial measures to its
investors and believes that the inclusion of comparative numbers
provides consistency in its financial reporting. This non-GAAP
information is subject to material limitations and is not intended to
be used in isolation or instead of results prepared in accordance
with GAAP, but rather in addition to the GAAP results. Also, the non-
GAAP information prepared by SumTotal is not necessarily comparable
to non-GAAP information provided by other companies.

A reconciliation of the non-GAAP measures to GAAP is included in the
financial tables contained in this press release. Investors are
encouraged to review the reconciliation of the non-GAAP financial
measures to the most directly comparable GAAP financial measures as
provided herein.

The adjustments and the basis for excluding them are as follows:

Deferred Revenue Write-down

The Company excludes the impact of the write-down of acquired deferred
revenue to fair value relating to its acquisitions of Docent, Inc.,
Pathlore Software Corporation and MindSolve Technologies, Inc. This
has the effect of increasing licenses and subscriptions and support
revenue to the amounts that would have been recorded in the absence
of the purchase accounting adjustments required by GAAP. This is done
to provide management with better visibility on the contractual
revenue run rate, subscription and support renewal rates and the
operating profitability of the business.

Stock-Based Compensation

SumTotal has incurred stock-based compensation as required by FAS
123R. The Company excludes these expenses from services and
subscriptions and support cost of revenue, research and development
expenses, sales and marketing expenses and general and administrative
expenses because it believes that the information is not relevant in
managing its operations. Excluding these expenses also provides for
better comparability between periods and for results that better
reflect the economic cash flows of the operations.

Amortization of Intangible Assets

The Company has incurred expenses for amortization of intangible
assets in the cost of sales numbers reported in its GAAP financial
results. These expenses relate to various acquisitions of companies
and technology. Management excludes these expenses when evaluating
its operating performance because it believes that it provides for
better comparability between periods and provides results that are
more reflective of the operating performance of the business.

Restructuring Charges

The Company has incurred expenses for restructuring activities and
accounted for them in accordance with FAS 146. These include, but are
not limited to, employee severance and leasehold termination costs.
Because of the one-time nature of these charges, management excludes
them in evaluating its operating performance.

Provision for Litigation Settlement

In the fourth quarter of 2005, the Company recorded a litigation
settlement charge related to a patent infringement claim in its GAAP
financial results. Management has excluded this charge when
evaluating its operating performance because it believes that it
provides for better comparability between periods and provides
results that are more reflective of the operating performance of the
business.

In-process Research and Development Charge

In the fourth quarter of 2006, the Company incurred a charge for in-
process research and development in conjunction with its acquisition
of MindSolve Technologies, Inc, which is reported in its GAAP
financial results. Management excludes these expenses when evaluating
its operating performance because it believes that it provides for
better comparability between periods and provides results that are
more reflective of the operating performance of the business.

Income taxes

These adjustments are not tax effected as management believes that
given the Company's historical operating losses and other tax
considerations, they would not result in a tax charge to the income
statement.

Non-GAAP to GAAP Reconciliation

All numbers except per share data are in $million.
Net income (loss) per share is expressed in $.