Renaissance Learning(R) Announces Preliminary Results for 3rd Quarter and Revised Expectations for Balance of 2004 - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Renaissance Learning third-quarter update conference call. At this time, everyone is in a listen-only mode. (Operator Instructions). As a reminder, your conference is also being recorded. At this time, I would like to introduce you to the President and Chief Executive Officer, Mr. John Hickey. Please go ahead, sir.

JOHN HICKEY, PRESIDENT & CEO, RENAISSANCE LEARNING INC.: Good afternoon. I'm John Hickey, CEO of Renaissance Learning Inc., and this is a conference call to discuss this afternoon's announcement about our revised outlook for the second half of 2004.

Before starting, I need to point out that this call may include information constituting forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding sales, expectations, and introductions of new products and services. Any such forward-looking statements may involve risks and uncertainties that could cause actual results to differ materially from any future results encompassed within forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the Company's Securities & Exchange Commission's filings, including 10-K and 10-Q.

With me today is Steve Schmidt, our Executive Vice President and Chief Financial Officer. Steve and I will provide some brief comments and then we will take your questions.

Last quarter when we spoke with you, we reported that we expected our second-half comparisons to be improved over the first half of the year. While we remain very optimistic about our long-term strategy and our expectation for renewed growth, spurred on by our Renaissance Place platform, we have continued to see delays, which we review primarily as a timing issue. As you know, we are on the early stages of a business transformation. We have shifted from providing product and service offerings aimed solely at individual classrooms or school buildings to products and services that include solutions aimed at districts, for implementation of our solutions district-wide.

Because the sales cycle is typically much longer at a district level than at an individual educator or school level, third-quarter contributions from our district-level sales were lower than we anticipated. We have been expecting contracts for several large deals, even right up to the end of the quarter, and those did not materialize in the quarter. However, we still remain very confident about the district opportunities in our pipeline. In fact, we have several very exciting opportunities that could close in the very near future.

It is important to note that our overall order rates are actually much stronger than our expected third-quarter decline in earnings would seem to indicate. Total order rates were approximately flat compared to the third quarter of 2003. Steve will comment a bit more on the accounting impacts and why revenue is lagging order rates, but the key item to realize is that although we admittedly did not reach the higher order levels we had hoped for in the third quarter, orders are actually significantly stronger than the revenue declines indicate.

Despite the delays caused by a lengthening sales cycle, customer feedback continues to show excitement about Renaissance Place solutions. Our quote activity has increased in each month of the third quarter. In fact, we currently have a record amount of quotes outstanding, confirming the excitement that these products have produced with substantial additional potential as we market to our entire base of 66,000 Renaissance schools. We now have at least one Renaissance Place product in over 3100 school buildings, up about 900 buildings in the third quarter, which is traditionally a time when schools are closed for the summer. We firmly believe that as funding continues to improve and customers become more aware of the outstanding benefits of Renaissance Place, we will begin to see meaningful growth in our reported revenue and earnings in 2005. Now here is Steve to provide the financial details on the expected third-quarter results. Steve.

STEVE SCHMIDT, EVP & CFO, RENAISSANCE LEARNING INC.: Thank you, John. As our press release outlined, we are now expecting our third-quarter revenue to be approximately 25.3 to $25.8 million, a decline of 18 to 19 percent from the third-quarter 2003 level, and earnings per share to be 11 to 12 cents per share compared to 27 cents per share for the …