E-FINANCE - training companies' financial performance

Any chance of an economic recovery in 2001?

It is becoming readily apparent, according to our due diligence, that sales cycles are continuing to extend because of the economic environment. At the beginning of 2001, the sales cycle was three to six months on the good side. Today, it's eight to nine months and creeping further out thanks to stringent due diligence checks as clients try to wade through marketing hype and mistake-free demonstrations.

Channel checks indicate an environment reminiscent of seven to 10 years ago, which is disturbing considering that employee training and development are supposed to be viewed as mission critical as opposed to a cost center. Each coming week brings more negative earnings revisions by Fortune 2000 companies, which significantly affects the dollars available for training initiatives. We currently view training budgets as water holes on the Serengeti. Within that environment potential, revenue pools are drying up each day. We don't see relief until new training budgets are determined for 2002, and we'd assume those budgets will be tenuous in first quarter 2002, as companies get a feel for the direction of economic trends.

We see the biggest impact occurring on the ILD (instructor-led delivery) side of the business. Public players such as Learning Tree and New Horizons have revised revenue forecasts down from 20 percent to flat due to the tremendous slowdown in It spending. We've seen traditional training dollars move to e-learning initiatives in an attempt to cut costs and leverage education, training, and retention initiatives over a wider employee and customer base. Despite the long-term benefits of those implementations, they require considerable due diligence and capital. They also can be time-consuming and, in a lot of cases, offer limited near-term ROI. One area in which we're seen significant resilience is the collaboration space due to ease of use and immediate impact on corporate expense lines. We believe companies such as Centra and Webex should continue to benefit from the current environment, as well as from testimonials of their products.

E-learning infrastructure providers continue to find sales leads, but leads aren't turning into purchase orders. More often than not, eventual orders are significantly less committed than anticipated. With the current economic environment showing no indications of a turnaround, we believe corporate training companies will be negatively affected through the end of the year. We expect to see additional downward revenue revisions by the public companies and continued attrition in the private marketplace, especially in the high-end, enterprise-wide application segment. That should prompt continued consolidation of the vendor market, allowing the leaders to strengthen their content or infrastructure offerings to position themselves better for the eventual upswing in the market. Providers that offer subscription-based revenues as opposed to one-time perpetual license sales should weather the poor environment better due to the lower, price point and implementation time of a hosted ASP product.

The performance of our chosen corporate sector in August was severely affected by continued economic concerns as well as summer vacations on Wall Street, which create volatility due to poor trading liquidity. The corporate sector declined nearly 14 percent in August compared to the NASDAQ and Russell 2000, which were down 11 percent and 3.3 percent. SmartForce had the toughest public relations month as it tumbled over concerns regarding account retention and insider selling, despite making two strategic acquisitions to strengthen its platform and content offerings. Shares of Centra were affected by profit taking in August, after its strong performance over the past several months. Click2 Learn posted the only out performance as its first quarter beat expectations and solidified investor concerns regarding its balance sheet with a line of credit at Silicon Valley Bank. It's interesting to note that as of the end of August, only four stocks are up YTD in the Jefferies & Company corporate universe of 34 firms.

Peter L. Martin, CFA, is a senior vice president with Jefferies & Co., San Francisco. He follows various segments within the knowledge services industry which are broadly categorized under e-learning and traditional education and training.

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Company                                            Price    52 Week
eLearning                      Rating    Ticker         8/31       High

Centra Software Inc            Accum     CTRA          $9.85     $17.14
Insightful Corp                NR        IFUL          $3.70      $4.44
Skillsoft Corp                 NR        SKIL         $28.00     $38.94
VCampus Corp                   NR        VCMP          $0.99      $7.38
Wire One Technologies Inc      NR        WONE          $4.53     $11.56
Rwd Technologies Inc           NR        RWDT          $3.00      $8.69
Dow Jones & Co Inc             NR        DJ           $54.88     $64.75
Wiley (John) & Sons            NR        JW.A         $20.15     $23.89
Webex Inc                      Accum     WEBX         $17.27     $58.00
SmartForce Pub Ltd             Buy       SMTF         $29.01     $57.25
DigitalThink Inc               NR        DTHK         $12.20     $47.23
Raindance Communications Inc   NR        RNDC          $1.21     $11.06
Factset Research Systems Inc   NR        FDS          $25.35     $47.49
Polycom Inc                    NR        PLCM         $20.28     $72.25
Eloquent Inc                   NR        ELOQ          $1.14      $5.09
Itc Learning Corp              NR        ITCCE         $0.11      $1.53
Adobe Systems Inc              NR        ADBE         $33.61     $87.31
Docent Inc                     NR        DCNT          $4.95     $27.13
Saba Software Inc              Buy       SABA          $8.25     $33.00
Innodata Corp                  NR        INOD          $2.45      $9.25
Stellent Inc                   NR        STEL         $21.80     $64.00
Click2learn Inc                Accum     CLKS          $3.80     $18.25
Vignette Corp                  NR        VIGN          $6.83     $39.50
Documentum Inc                 NR        DCTM         $14.70     $63.88
Interwoven Inc                 NR        IWOV          $8.15     $68.47
Nuance Communications Inc      NR        NUAN         $10.44    $153.00
Mentergy Ltd                   NR        MNTE          $0.47     $14.44
Macromedia Inc                 NR        MACR         $13.93     $85.25
Speechworks Intl Inc           NR        SPWX          $8.26     $99.50
Prosofttraining.com Inc        Hold      POSO          $1.03     $15.00
Corporate eLearning Average
New Horizons Worldwide Inc     NR        NEWH         $13.37     $23.38
Corporate Executive Brd Co     NR        EXBD         $34.75     $47.25
Learning Tree Intl Inc         NR        LTRE         $23.88     $78.88
Provant Inc                    Hold      POVT          $1.60      $9.00
Corporate Traditional Average
Total Corporate Average
Indices
Russell 2000                                         $468.56    $542.82
S&P 500 Composite                                  $1,133.58  $1,530.01
Nasdaq Composite Index                             $1,805.43  $4,259.87

Company                          52 Week         Mkt    Mon Avg
eLearning                            Low  Cap (mm)   Trdg Vol

Centra Software Inc                $2.75    $247.6    466,855
Insightful Corp                    $1.25     $39.9     36,632
Skillsoft Corp                    $11.75    $443.7    179,105
VCampus Corp                       $0.38     $14.0      5,274
Wire One Technologies Inc          $1.44     $97.1     83,945
Rwd Technologies Inc               $2.35     $45.9     14,470
Dow Jones & Co Inc                $48.10  $3,548.9    252,459
Wiley (John) & Sons               $17.90    $995.2     42,633
Webex Inc                          $5.06    $679.5   637,4329
SmartForce Pub Ltd                $18.13  $1,615.9  1,099,892
DigitalThink Inc                   $5.34    $431.0    506,759
Raindance Communications Inc       $0.74     $57.0    261,529
Factset Research Systems Inc      $22.65    $842.1    194,270
Polycom Inc                       $10.75  $1,694.0  1,013,676
Eloquent Inc                       $0.50     $21.1     96,568
Itc Learning Corp                  $0.10      $0.4      2,267
Adobe Systems Inc                 $24.56  $8,028.2  3,999,528
Docent Inc                         $2.75    $209.3    246,456
Saba Software Inc                  $3.56    $381.8    634,418
Innodata Corp                      $2.12     $52.4    130,964
Stellent Inc                      $14.75    $487.9    484,229
Click2learn Inc                    $1.00     $75.8    101,556
Vignette Corp                      $3.63  $1,687.2  3,487,075
Documentum Inc                     $5.88    $555.6    509,555
Interwoven Inc                     $5.84    $844.0  3,253,814
Nuance Communications Inc          $8.23    $342.8    906,782
Mentergy Ltd                       $0.35      $5.7     27,548
Macromedia Inc                    $13.14    $805.9    877,312
Speechworks Intl Inc               $4.81    $265.2    390,015
Prosofttraining.com Inc            $1.00     $24.2    268,471
Corporate eLearning Average                 $818.0    673,716
New Horizons Worldwide Inc        $11.00    $136.1     43,685
Corporate Executive Brd Co        $24.25  $1,207.5    294,777
Learning Tree Intl Inc            $14.50    $459.5    133,568
Provant Inc                        $1.40     $34.9     56,606
Corporate Traditional Average               $459.5    132,159
Total Corporate Average                     $775.8    610,004
Indices
Russell 2000                     $419.70
S&P 500 Composite              $1,081.19
Nasdaq Composite Index         $1,619.58

Company                                    Return (%)
eLearning                            1-Mo.   3-Mo.     6-Mo.

Centra Software Inc                   -39.8   -29.1      64.2
Insightful Corp                        16.0    73.7     107.7
Skillsoft Corp                        -19.2    -9.5      71.0
VCampus Corp                          -37.1   -41.4       5.1
Wire One Technologies Inc             -20.5   -15.5      34.2
Rwd Technologies Inc                   -9.1   -36.0     -30.4
Dow Jones & Co Inc                     -3.6    -1.6     -10.9
Wiley (John) & Sons                    -1.2    -0.2      -4.1
Webex Inc                             -24.6     9.0      54.4
SmartForce Pub Ltd                    -25.1     3.6     -20.4
DigitalThink Inc                      -15.9    48.8      41.4
Raindance Communications Inc           -1.6    -6.2     -44.7
Factset Research Systems Inc          -23.5   -36.8     -18.8
Polycom Inc                           -20.3   -18.2      -6.8
Eloquent Inc                           13.9    54.1      14.0
Itc Learning Corp                     -15.4   -45.0     -58.6
Adobe Systems Inc                     -10.3   -15.5      15.6
Docent Inc                            -21.6   -36.5     -36.6
Saba Software Inc                     -35.8   -30.6      -5.7
Innodata Corp                         -26.4   -59.1     -51.0
Stellent Inc                           -7.5   -39.6     -14.9
Click2learn Inc                       -25.8   133.1      19.2
Vignette Corp                         -14.0   -16.5      10.9
Documentum Inc                         -1.7     5.2     -31.2
Interwoven Inc                        -20.8   -55.0     -50.8
Nuance Communications Inc             -22.1   -30.9     -54.6
Mentergy Ltd                          -14.5   -71.5     -76.5
Macromedia Inc                        -19.0   -37.5     -52.5
Speechworks Intl Inc                  -27.2   -36.6     -49.7
Prosofttraining.com Inc               -16.3   -51.4     -91.1
Corporate eLearning Average           -14.6   -13.1      -9.1
New Horizons Worldwide Inc             -2.3   -27.7      -9.7
Corporate Executive Brd Co            -16.4     2.9      -2.8
Learning Tree Intl Inc                  4.0     1.2     -46.9
Provant Inc                           -11.1   -34.7     -71.2
Corporate Traditional Average          -6.5   -14.6     -32.7
Total Corporate Average               -13.7   -13.3    --11.8
Indices
Russell 2000                           -3.3    -5.6      -1.2
S&P 500 Composite                      -6.4    -9.7      -8.6
Nasdaq Composite Index                -10.9   -14.5     -16.1

Company                             Return (%)
eLearning                      12-Mo.      YTD

Centra Software Inc                7.2   154.2
Insightful Corp                   64.4   132.2
Skillsoft Corp                    57.7    49.3
VCampus Corp                     -86.4    16.7
Wire One Technologies Inc        -41.5    -0.7
Rwd Technologies Inc             -62.8    -2.0
Dow Jones & Co Inc               -12.3    -3.1
Wiley (John) & Sons                1.4    -6.3
Webex Inc                        -68.8   -17.3
SmartForce Pub Ltd               -44.2   -22.8
DigitalThink Inc                 -64.2   -28.5
Raindance Communications Inc     -89.0   -30.9
Factset Research Systems Inc     -25.9   -31.6
Polycom Inc                      -63.9   -37.0
Eloquent Inc                     -76.8   -37.1
Itc Learning Corp                -92.3   -38.9
Adobe Systems Inc                -48.3   -42.2
Docent Inc                          NA   -43.4
Saba Software Inc                -71.2   -47.6
Innodata Corp                     -3.8   -55.5
Stellent Inc                     -51.9   -57.3
Click2learn Inc                  -75.0   -61.0
Vignette Corp                    -82.1   -62.1
Documentum Inc                   -58.9   -70.4
Interwoven Inc                   -83.0   -75.3
Nuance Communications Inc        -92.1   -75.8
Mentergy Ltd                     -96.2   -76.5
Macromedia Inc                   -79.8   -77.1
Speechworks Intl Inc             -89.2   -83.2
Prosofttraining.com Inc          -92.3   -91.5
Corporate eLearning Average      -52.5   -27.4
New Horizons Worldwide Inc       -37.3    -3.6
Corporate Executive Brd Co        -2.1   -12.6
Learning Tree Intl Inc           -65.1   -51.8
Provant Inc                       76.5   -62.6
Corporate Traditional Average    -45.3   -32.7
Total Corporate Average          -51.6   -28.0
Indices
Russell 2000                     -12.9    -3.1
S&P 500 Composite                -25.3   -14.1
Nasdaq Composite Index           -57.1   -26.9

COPYRIGHT 2001 American Society for Training & Development, Inc.
COPYRIGHT 2001 Gale Group