As most of the firms on Wall Street queue up to report their end-of-year numbers, educational software provider PLATO Learning (NASDAQ:TUTR) is once again a step ahead of the pack. When reporting its earnings news tomorrow, it'll be talking about fiscal Q1 2007.

What analysts say:

  • Buy, sell, or waffle? Four analysts study PLATO, giving the firm two buy ratings, a hold, and a sell.
  • Revenues. On average, the analysts expect PLATO's sales to come in 19% lower than last year, at $19 million.
  • Earnings. The quarterly loss, however, is expected to grow -- up a penny to $0.14 per share.

What management says:
In January, PLATO switched auditors, "firing" PricewaterhouseCoopers and hiring Grant Thornton in its stead. Make of that what you will. In other news, the firm also lost a director (in January), its vice president for K-12 sales (in February), and Chief Financial Officer Larry Betterley (in January). Robert Rueckl, company vice president and chief accounting officer, took over as CFO last month, as Betterley was bid farewell with thanks for his "key role in the turnaround of the company."

What management does:
Make of all that what you will, too. And meanwhile, take a gander at the numbers describing the "turnaround" Betterley accomplished: Rolling gross, operating, and net margins have all fallen for three straight quarters. Hmm.

Margins

7/05

10/05

1/06

4/06

7/06

10/06

Gross

58.1%

57.6%

59.9%

58.7%

58.0%

56.2%

Operating

(5.0%)

(6.7%)

(2.5%)

(5.8%)

(8.0%)

(13.1%)

Net

(8.9%)

(22.7%)

(17.0%)

(21.5%)

(24.6%)

(24.8%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Going forward, PLATO cites several factors that will help its operations become profitable: "innovative new products," "improvement in the ... sales organization," "migration toward a subscription-based business" (such as fellow software makers Synopsys (NASDAQ:SNPS) and Pegasystems (NASDAQ:PEGA) have adopted), and "dramatically reduced" operating costs. Combined, CEO Mike Morache argues that the firm can now break even on a net earnings basis with less than $100 million of annual revenue.

The firm booked $91 million in revenue last year, but because it expects sales to decline in fiscal 2007, that means profits remain at least a year off (Morache predicts "profitability in 2008"). Nearer term, he tells investors to expect 10% to 15% in "order growth" -- orders translating into sales sometime after being received -- this year, with most of that growth coming in the second, third, and fourth quarters. In other words, tomorrow's news should remain bleak. The key to this company is whether it delivers on last quarter's promises in the latter quarters of this year.

PLATO's woes stretch back to the days of ancient Greece -- almost. Read more about them in: "Plato's Hollow Proclamation."

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Fool contributor Rich Smith does not own shares of any company named above.