This excerpt taken from the SCIL 10-K filed Mar 14, 2006.
Booked sales and selling activity: Booked sales is a non-GAAP financial measure that management uses to evaluate current selling activity. We believe that booked sales is a useful metric for investors as well as management because it is the most direct measure of current demand for our products and services. Booked sales equals the total value (net of allowances) of software, services and support invoiced in the period. Revenue on a GAAP basis is recorded for booked sales when all four of the requirements for revenue recognition have been met; if not, the sale is booked to deferred revenue. We use booked sales information for resource allocation, planning, compensation and other management purposes. We believe that revenue is the most comparable GAAP measure to booked sales. However, booked sales should not be considered in isolation from revenues, and is not intended to represent a substitute measure of revenues or any other performance measure calculated under GAAP.
The following reconciliation table sets forth our booked sales, revenues and change in deferred revenue for the twelve months ended December 31, 2005, 2004 and 2003.
Booked sales in the K-12 sector, which accounted for 90% of booked sales in 2005, declined 17% to $28.4 million, compared to $34.3 million in 2004. Booked sales in the K-12 sector were $27.9 million in 2003. We sold 673 site license packages over $10,000 in 2005, compared to 1,013 in the same period in 2004 and 862 in 2003.
We believe that the principal reasons for our decline in 2005 booked sales are to our earlier sales focus on very large transactions in urban districts, which are extremely unpredictable, as well as to increased caution among buyers, which extended our selling cycle. In addition, funding uncertainty in Texas, one of our key states, and sales management issues in our Southwest region also contributed to the booked sales decline
We believe large booked sales are an important indicator of mainstream education industry acceptance and an important factor in reaching our goal of increasing sales force productivity.* In 2005 we continued to focus our sales force on multi-site sales. The number of booked sales over $100,000 declined to 59 in 2005 from 66 in 2004 and 59 in 2003. For the twelve months ended December 31, 2005, 59% of our K-12 booked sales were realized from sales over $100,000. For the comparable periods ending December 31, 2004 and 2003, large booked sales accounted for 67% and 56% of booked sales respectively.
Both 2005 and 2004 included large transactions with the School District of Philadelphia. The transaction was $10.4 million, with $6.0 million booked in 2004 and another $1.4 million booked in 2005. The remaining $3.0 million is scheduled to be recorded as booked sales in the coming three years.* Large booked sales include volume discounts but the percentage discount applicable to any given transaction will vary and the relative percentage of large sales and smaller sales in a given quarter may fluctuate. Because we discount product license fees but do not discount service and support fees, product booked sales and revenue are disproportionately affected by discounting. We cannot predict the size, number and timing of large transactions in the future.*
Booked sales outside the K-12 market (primarily private practice clinicians and international customers) increased by 2% in 2005, compared to a 7% increase in 2004 over 2003. We believe we have stabilized our booked sales to this market and expect to hold near the current level in 2006 and may even experience modest growth due to increased booked sales to international customers.* Our primary focus remains the U.S. K-12 market.
Although federal, state and local budget pressures make for an uncertain funding environment for our customers, we remain optimistic about our growth prospects in the K-12 market.* However, achieving our booked sales growth objectives will depend on increasing customer acceptance of our products, which requires us to continue to focus on improving our products ease of use, their fit with school requirements, and our connection with classroom teachers and administrators.* Our K-12 growth prospects are also influenced by factors outside our control including the overall level, certainty and allocation of state, local and federal funding. For a discussion of some of the other important factors that affect our results, see