Human Resources: SumTotal Systems Announces Fourth Quarter 2006 Preliminary Results and Guidance for 2007

    MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--Jan. 15, 2007--SumTotal(R)
Systems (Nasdaq: SUMT), the largest provider of talent and learning
solutions, today announced preliminary financial results for the
fourth quarter ended December 31, 2006.

    Fourth Quarter 2006 Preliminary Results

    For the fourth quarter, SumTotal expects revenue on a Generally
Accepted Accounting Principles (GAAP) basis to be in the range of
$29.6 to $29.8 million, license revenue in the range of $9.1 to $9.2
million and net loss in the range of $2.8 to $2.5 million or $0.10 to
$0.09 per share on a fully diluted basis.

    SumTotal expects non-GAAP revenue to be in the range of $30.0 to
$30.2 million, non-GAAP license revenue in the range of $9.3 and $9.4
million and non-GAAP net income in the range of $2.0 to $2.3 million
or $0.07 to $0.08 per share on a fully diluted basis.

    GAAP deferred revenue is estimated to be between $30.4 and $30.6
million compared to $25.4 million at the end of the third quarter of
2006 and $26.7 million at the end of the fourth quarter of 2005.

    Full Year 2006 Preliminary Results

    For the fiscal year 2006, SumTotal expects GAAP revenue to be
between $106.0 and $106.2 million, license revenue between $31.1 and
$31.2 million and net loss between $12.2 and $11.9 million or $0.47
and $0.46 per share on a fully diluted basis.

    SumTotal expects non-GAAP revenue between $110.3 and $110.5
million, non-GAAP license revenue between $33.4 and $33.5 million and
non-GAAP net income between $6.3 and $6.6 million or $0.24 and $0.25
per share on a fully diluted basis.

    Full Year 2007 Guidance

    For 2007 SumTotal forecasts GAAP revenue between $129.0 million
and $134.0 million with license revenue between $36.5 million and
$39.5 million and net loss between $1.5 million and $0.5 million or
$0.05 and $0.02 per share on a fully diluted basis.

    On a non-GAAP basis, SumTotal forecasts revenue between $130.0
million and $135.0 million, license revenue between $37.0 and $40.0
million and net income between $13.0 million and $14.0 million or
$0.45 and $0.48 per share on a fully diluted basis.

    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.

    "The fourth quarter marked a strong finish to a very good year for
SumTotal," commented Don Fowler, CEO. "I am pleased with our
preliminary results. Our record revenue and deferred revenue numbers
exceeded our expectations and demonstrate the strength of our market
position and our ability to execute against our strategy. Our net
income also improved significantly compared to the third quarter
despite the impact of higher commission expense resulting from the
large number of sales personnel exceeding quota. The growth in our
recurring revenue lines, augmented by our acquisition of a largely
subscription-based performance management business, gives us good
reason to be optimistic about 2007. At the mid-point of our guidance
range, our year on year revenue growth for 2007 is forecast at
approximately 20% with net income twice that of 2006."

    A conference call to discuss the final fourth quarter results will
be held on Tuesday, February 6, 2007, 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 www.sumtotalsystems.com/company/investors. Along
with the webcast, SumTotal plans to make available a telephone replay
of the call on Tuesday, February 6, 2007, beginning at approximately
5:00 p.m. Pacific Time through the close of business on Tuesday,
February 13, 2007. Interested parties can access the replay by dialing
877-519-4471 within the US or 973-341-3080 outside the US and entering
the access code 8288214.

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

    About SumTotal Systems

    SumTotal Systems (Nasdaq: SUMT) is the largest provider of talent
and learning solutions. SumTotal deploys mission-critical solutions
that align talent and knowledge with business goals to generate
significant bottom-line results. With more than 17 million users
worldwide, SumTotal has helped accelerate performance and profits for
more than 1,500 of the world's best-known companies and government
agencies including Accenture, Aetna, Cendant, DaimlerChrysler, Delta
Air Lines, Harley-Davidson, Microsoft, Novartis, PNC Bank, U.S. Army,
U.S. Air Force, U.S. Navy, U.S. Coast Guard, U.S. Bancorp, United
Airlines, Vodafone, Wachovia and Wyeth. SumTotal has offices
throughout the United States, in London, Paris, Frankfurt, Singapore,
Sydney, Tokyo, Hong Kong and Hyderabad. For more information about
SumTotal's products and services, visit www.sumtotalsystems.com.

    SumTotal and the SumTotal logo are trademarks or registered
trademarks 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 regarding management's preliminary estimates of the
financial performance of the company for the fourth quarter and year
ended December 31, 2006 and financial guidance for fiscal year 2007.
These statements represent SumTotal Systems' current expectations and
beliefs, but 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, 2006. These statements are not historical
facts or guarantees of financial results for the year ended December
31, 2006 or future performance for fiscal year 2007. 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 close of the
financial books and the audit for the year ended December 31, 2006,
(ii) failure to accurately estimate fiscal year 2007 financial
results, particularly given that the company has not previously
provided full fiscal year guidance; (iii) failure to fully realize the
anticipated benefits of the acquisition of MindSolve, including
without limitation, failure to successfully integrate the MindSolve
product or retain its employees; (iv) inability to grow revenue as the
company expects, especially in its core market or in its newly
acquired performance management product; (v) unexpected expenses or
failure to implement in a timely fashion, or at all, the requisite
steps to control expenses, especially in the services organization,
and the implementation of operating cost structures that align with
revenue growth; (vi) increased or unexpected costs of migrating
customers to the 7.x platform or of integrating or implementing its
new performance management product; (vii) the Company's ability to
attract and retain key personnel; (viii) the Company's continued
ability to protect its intellectual property rights and potential
claims that the Company has infringed the intellectual property rights
of others; (ix) adoption of new accounting regulations and standards
that may affect reported earnings and operating income; (x) foreign
currency, interest rate, and fixed income risks; (xi) the level of
corporate spending and changes in general economic conditions that
affect demand for computer software and 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 SumTotal Systems' filings with the Securities
and Exchange Commission, including the company's annual report for
fiscal year 2005 on Form 10-K filed on March 28, 2006, its quarterly
report for the quarter ended September 30, 2006 on Form 10-Q filed on
November 9, 2006, its Form S-3/As filed on September 28, 2006 and
October 2, 2006, and its Form 8-Ks. The forward-looking statements
contained in this release are made as of January 15, 2007, and
SumTotal Systems assumes no obligation to update the information in
this press 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. This has
the effect of increasing licenses, service and maintenance 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, maintenance and subscription renewal rates and the operating
profitability of the business.

    Stock-Based Compensation

    SumTotal has incurred stock-based compensation as required by FAS
123R in 2006 and by APB25 in prior years. The company excludes these
expenses from services and maintenance 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 Intangibles

    The company has incurred expenses for amortization of intangibles
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.

    In Process R & D

    The company has incurred expenses for the acquisition of In
Process R & D in respect of various acquisitions. Management excludes
these expenses when evaluating its operating performance because it
believes these expenses are not reflective of the ongoing 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.

CONTACT: SumTotal Systems
             Press:
             Bill Perry, 716-652-1762
             bperry[at]sumtotalsystems.com
             or
             Investors:
             Gwyn Lauber, 650-934-9594
             glauber[at]sumtotalsystems.com