Human Resources: SumTotal Systems Reports First Quarter 2007 Results

MOUNTAIN VIEW, Calif.--(BUSINESS WIRE)--May 1, 2007--SumTotal(R)
Systems (Nasdaq:SUMT), a global provider of talent and learning
management solutions, announced its financial results for the first
quarter ended March 31, 2007.

    First Quarter 2007 Results

    On a Generally Accepted Accounting Principles (GAAP) basis, total
revenue for the first quarter of 2007 was $29.1 million, an increase
of 20% from the $24.3 million reported in the first quarter of 2006.
GAAP net loss was $1.8 million, or $0.07 per share on a basic and
diluted basis, compared to a net loss of $4.4 million, or $0.18 per
share on a basic and diluted basis reported in the first quarter of
2006.

    Deferred revenue on a GAAP basis increased 17% year-over-year to
end the first quarter of 2007 at $30.9 million, compared to $26.4
million for the same quarter of the previous year and $30.7 million at
the end of fiscal 2006.

    Cash Flow from Operating Activities for the quarter was $2.5
million compared to $0.9 million for the same period last year.

    Non-GAAP revenue in the first quarter increased to $29.5 million
from $26.3 million reported for the first quarter of 2006. Non-GAAP
net income for the first quarter was $1.9 million, or $0.07 per share
on a diluted basis, compared to non-GAAP net income of $0.9 million,
or $0.04 per share on a diluted basis for the first quarter a year
ago.

    Non-GAAP results exclude the impact of certain one-time charges
primarily related to restructuring activities, and non-cash accounting
adjustments and charges primarily related to acquisition accounting,
stock-based compensation, and any related income tax effects. A
reconciliation to the GAAP results is provided in the attached
statements.

    "I am pleased with our progress in the first few months of the
year which includes a deal that we signed in April with a large
retailer," said Don Fowler, SumTotal's chief executive officer. "We
are seeing strong demand for our solutions and our pipeline is solid.
Of particular note is the growth in our recurring subscriptions and
support revenue which in the quarter reached approximately 50% of our
total revenue. I believe we are well on the way to reaching our goals
for 2007."

    First Quarter Business Highlights

    -- Signed numerous North American customers, including University
        of California, Los Angeles Police Department, Office Depot,
        BEA Systems and JDS Uniphase.

    -- Signed new and additional international contracts including
        St. George Bank, a major Australian bank, the Singapore
        National Library and AGCO International Limited, a European
        affiliate of AGCO Corporation.

    -- Signed a subcontract with Northrop Grumman Information
        Technology to provide a large US county government with
        TotalLMS(TM) which will deliver and report on certification
        and regulatory requirements for the county's approximately
        17,000 employees.

    -- Received top rankings in annual customer satisfaction reports
        from Bersin & Associates, an independent research and advisory
        firm, and the eLearning Guild, a global Community of Practice
        for e-learning professionals. Also received analyst
        recognition for holding the largest share of the learning
        management systems market.

    Second Quarter Guidance

    For the second quarter of 2007, SumTotal Systems estimates its
GAAP revenue will be between $29.7 million and $30.7 million. On a
non-GAAP basis, revenue is estimated to be between $30.0 million and
$31.0 million. GAAP net loss is estimated to be between $1.4 million,
or $0.05 per share on both a basic and diluted basis, and $0.9
million, or $0.03 per share on both a basic and diluted basis. On a
non-GAAP basis, net income is estimated to be between $2.0 million or
$0.07 per share on a diluted basis, and $2.5 million, or $0.09 per
share on a diluted basis. The reconciling items between the GAAP loss
and non-GAAP income are estimated to be a $0.3 million adjustment to
revenue, $2.1 million for amortization of intangibles and $1.0 million
for stock-based compensation.

    Conference Call

    SumTotal will host an investor conference call and webcast on
Tuesday, May 1, 2007, at 2:00 p.m. (Pacific Time) / 5:00 p.m. (Eastern
Time) to discuss the financial results for the first quarter. A live
audio webcast is available to investors and the public at
www.sumtotalsystems.com under the Investor Relations section.

    In addition to the webcast, a telephone replay will be available
on Tuesday, May 1, 2007, beginning at approximately 5:00 p.m. (Pacific
Time) through the close of business (Pacific Time) on Tuesday, May 8,
2007. Investors and other interested parties can access the replay by
dialing the U.S. toll-free number: 877-519-4471, access code: 8685913.
The international dial-in number is 973-341-3080 access code: 8685913.

    About SumTotal Systems, Inc.

    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, two of the
five largest banks in the world 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, the SumTotal logo, and TotalLMS are registered
trademarks or 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 STATEMENT

    Information in this press release and the accompanying conference
call contain forward-looking statements and management's estimation
regarding future performance of the company, including without
limitation, financial estimates for the second quarter ending June 30,
2007 and the 2007 fiscal year. These statements represent the
company's current expectations or beliefs concerning its future
results, and include statements, among others, regarding its financial
guidance for estimated GAAP and non-GAAP revenue; loss and income;
growth of recurring revenue base; the company's competitive position
and business model, including its market share and its ability to grow
its subscriptions and support business, including internationally and
in the performance management market; and, the company's ability to
execute and the strength and scale of its business model. These
statements are not historical facts or guarantees of future
performance or events; 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 and
listeners to the accompanying conference call are cautioned not to
place undue reliance on any forward-looking statement or statements.
Additional factors that could cause actual results to differ include,
but are not limited to, (i) failure to close expected transactions for
the Company's solutions and products either in the second quarter of
fiscal 2007 or thereafter, and the timing of recognizing revenue from
such transactions; (ii) the ability to successfully manage and
increase growth outside of the United States, significant current and
expected additional competition, and the need to continue to expand
product distribution and services offerings; (iii) the company's
inability to grow its business, and to accurately predict the timing
and expense of growing it; (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; (vi) increased or unexpected costs or
delays of transitioning sales efforts and customers to our newly
acquired performance management product; (vii) the company's ability
to recruit and retain key personnel, including management, to support
our current business and future growth; (viii) the company's ability
to protect its intellectual property rights and 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) the lengthening of our
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; (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 2006 on Form
10-K filed on March 16, 2007, 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 and the accompanying conference
are made as of the date of this press release and conference call, and
the company assumes no obligation to update the information in either
the press release or the accompanying conference call.
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, subscriptions 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 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.

    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.

CONTACT: SumTotal Systems, Inc.
Investor Contact:
Gwyn Lauber, 650-934-9594
glauber[at]sumtotalsystems.com
or
SumTotal Systems, Inc.
Media Contact:
Bill Perry, 614-975-7538
bperry[at]sumtotalsystems.com