PLATO Learning, Inc. (TUTR)
Interview with:
John Murray, President and CEO
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PLATO Learning has a vision and strategic plan to become the primary player in K-12

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PLATO Learning, Inc.

PLATO Learning, Inc.

10801 Nesbitt Avenue South
Bloomington, MN 55437
Phone: 952-832-1220

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John Murray
President and
Chief Executive Officer

Interview conducted by:
Lynn Fosse
March 2003

Bio of CEO,
JOHN MURRAY is President and Chief Executive Officer, and a director, of PLATO Learning, Inc., a publicly held, international training and education company. Mr. Murray is responsible for setting the vision, strategy and long-term aspirations of PLATO Learning. His international experience, cultural awareness, and foreign language competency render the desired skills and cognizance as PLATO Learning expands on a global basis through a growing network of distributors.

Associated with PLATO Learning since its inception in 1989, Mr. Murray previously held the positions of President and Chief Operating Officer, Executive Vice President and Chief Financial Officer, Senior Vice President of Operations and Vice President, Product Development.  It was largely Mr. Murray’s initiative that identified and implemented operational improvements and expense reductions in PLATO Learning’s ‘reinvention’ in 1997 which, together with his continued focus on process improvement and profitable growth, has had a positive impact on the Company’s recent financial performance.  Mr. Murray was also responsible for the introduction of the PLATO Learning System in the United Kingdom where he was Managing Director for 7 years prior to relocating to the USA in 1996.  Under his direction, PLATO Learning (UK) Limited achieved accreditation under the ISO 9001 quality assurance standard.

Prior to joining the Company, Mr. Murray was the Manager of Control Data Corporation’s Training Systems Group in the United Kingdom.  With 16 years tenure in the British Army’s Royal Corps of Signals, Mr. Murray held many management positions in operational and training units.  He was recognized in the Queen’s 1985 Birthday Honors list for his outstanding commitment to army training during his military career. Mr. Murray is also on the Executive Board of the National Dropout Prevention Network.   A native of Scotland, Mr. Murray and his family reside in Eden Prairie, Minnesota.

Company Profile:
PLATO Learning, Inc. (NASD: TUTR) is a leading provider of computer-based and e-learning instruction, offering basic to advanced level courseware in reading, writing, math, science, social studies, and life and job skills. The PLATO Learning System and PLATO Web Learning Network provide more than 3,500 hours of objective-based, problem solving courseware and include assessment, alignment and management tools to create standards-based curricula and facilitate the learning process. PLATOģ educational software is marketed to K-12 schools, colleges, job training programs, correctional institutions, military education programs, corporations, and consumers.   PLATO software is delivered via networks, CD-ROM, the Internet, and private intranets; it is also available for immediate purchase on the Company’s web site.

PLATO Learning’s headquarters are located in Bloomington, Minnesota. In addition, they have several U.S. sales offices, Canadian offices, and a UK subsidiary in London.

CEOCFOinterviews: Mr. Murray, please give us a brief history of PLATO Learning.

Mr. Murray: “The Plato name and product started in 1963, as part of a National Science Foundation grant, for the University of Illinois. It was the first online computer-based education program. Control Data Corporation picked up the rights in the late sixties and early seventies and started to commercialize it. Unfortunately, for Control Data, they were about fifteen years ahead of their time. They were very innovative and had a lot of computer technology, but the telecommunications systems were running at fifty baud, so that the bandwidth wasn’t there; the graphics were primitive, although they did manage to run it worldwide on various main-frame computers and other dedicated hardware systems that they built.

In the original days, the project was to determine the application of a new cutting-edge technology that could teach adult literacy. From that beginning, the company has grown into one of the top two or three companies in education technology. However, these days we are quite different. We no longer focus only on adult literacy. We have been in an acquisition mode for the last two years and we currently service everything from kindergarten through adult, in math, reading, science, writing, social studies and various other topics.”

CEOCFOinterviews: What are the main products that you offer?

Mr. Murray: “We have a range of products, but math, reading and writing are the main products we offer. Three years ago, we acquired a science company because under ‘No Child Left Behind’ science will become the fourth subject that is assessed in schools as part of a formalized assessment program and that will be implemented by 2005-2006. We acquired our science product in the summer of 2001. Last year we enjoyed revenues of six-and-a-half million dollars from that product set. We believe science is going to be a fast-growing market for us. Math, reading, and writing are the primary subjects; everything from third-grade, up to college level.

We have a matrix by elementary, middle school, high school, and college, at different grade levels and across different sub-sections of each of the three disciplines. Last year we acquired another company; the product is “Focus” and the company was “Learning Elements”. That is a kindergarten to third-grade reading product, covering the topics of phonics, vocabulary, fluency and comprehension, which are the five components of the reading first initiative under ‘No Child Left Behind’, which is the President’s push to ensure that all children learn to read by third grade.”

CEOCFOinterviews: What is it that you are selling?

Mr. Murray: “Typically what we sell, is a license to use our software products as individual CDs or on local or wide area networks or over the internet. All four thousand hours of our curriculum, which we have online is deliverable over the Internet. People can buy a perpetual license to use the products on a number of computers under license or they can sign up for an annual per-student of per-port fee to use our products. The products are aligned to the state and federal education standards, and with the online curriculum, which teaches the mathematical, reading and writing subjects, and allows the student to practice online using problem solving and reading strategy techniques. They also offer a wide range of assessments tied to the standards, so that once students go online and go through our products, they not only learn the material from a concepts, facts and principles standpoint, they learn the application of those skills typically in a work-place environment, so that it has meaning beyond the school years. The teachers and school administrators can print reports from our system, showing by-student, by school, by-class, by-district, and the performance of those students using our products against the standardized tests.”

CEOCFOinterviews: Is that important to the schools?

Mr. Murray: “It is extremely important under ‘No Child Left Behind’. Several years ago, accountability started to sweep the nation and under the accountability requirement, schools must show adequate yearly progress against the previous year’s results. Failure to do so would put them on a watch list and could ultimately result in the school being taken into government control, turned around and then put back in the hands of educators. People can lose their jobs if accountability standards are not met. It is extremely important to educators and to the broader community.”

CEOCFOinterviews: Are you selling to school districts?

Mr. Murray: “Historically we have sold to individual schools. Over the last number of years as we as a company have gained more prominence and reputation and more installed sites; we have seen more districts use their buying power to get better acquisition deals for the district. ‘No Child Left Behind’ is talking about the use of technology at the district level, not only for online curriculum and assessment but also for teacher training, professional development, teacher accreditation and the reporting of that data on a desegregated basis. School districts used to only report at the district level or the building level, in terms of grades and tests, now they have to report based on ethnics and various other criteria.”

CEOCFOinterviews: Do your customers start with math and then add on some of the other products?

Mr. Murray: “There are some clients that only buy a math program because that is their specific focus, other clients will probably buy the core products of math, reading and writing, and some will add science and social studies. Some of the larger districts and those that have been using technology for some time will typically go for a more full-scale approach, and they will include all the other things we have like life skill, job sills, social skills, and other topics. They will typically enter into an agreement, which buys them licensed rights to access a number of licenses or PC accesses for a particular package. Let’s say we have ten packages, some school districts will come in and want twenty computers per school building for package three, because that is what we can afford this year and that is how we want to get started because we can’t do it all at once; and in subsequent years, they will come back. Historically for the past five or six years, we have shown that fifty plus percent of our annual billing is to people we have billed before.”

CEOCFOinterviews: How do you reach the schools, and how do you get them to sit up and take notice?

Mr. Murray: “We have a large direct sales organization of seventy-five sales people, fifteen sales management and about twenty-five junior sales associates. We also for the last couple of years have a team of about thirty inside telephone sales people to do service and support, add-on sales, and certain products that can be sold over the phone using web-casting. We have a marketing team of about twenty-five people. Most of it is direct selling. Much of it is reference selling.

Plato does have a good name out there and we have been around for a long time. Districts are increasingly being asked to spend more money to implement technology. They want to know that they are spending with companies that have heritage and sustainability. Added to that is the fact that three years ago, during the era, many school superintendents were badly ‘bitten’ by investments in companies who came in as start-ups saying that they could use the web as a panacea, and make technology pervasive to the teacher and the administrator, parent and student; but they failed. We are seeing increasingly, large districts signing up for deals in excess of a million dollars, and they are looking for company financial strength before they make that decision.”

CEOCFOinterviews: Is there much competition for Plato’s products?

Mr. Murray: “There are really two types of competition and the education industry is really fragmented. There are ten to twelve what I would call good size players in the field, as well as a lot of very small, regionalized education providers. There has been a lot of consolidation in the industry in the last few years and I think the consolidation will continue. For years, many companies have been talking about being a K-12 provider, where in fact that has not been true. Most companies have been providing only to the elementary sector or only the high school or college sector.

It is only in the last two or three years that we and a couple of other companies have formulated a strategy to build a K-12 enterprise offering. That is driven by the legislation of the Elementary and Secondary Education Act and No Child Left Behind (NCLB), and the need for more technology being used by school districts.. Certainly there are competitive players, but we believe our heritage, our breadth and newness of product gives us an edge.

We have spent one hundred and twenty million dollars since 1990 in R&D, and we spent sixty million dollars in the last two years acquiring five technology companies; we believe that is more of an investment than most people have made in this space. Half of our current online curriculum has been newly developed in the last five years, and the other half has been refreshed several times in the last ten years.”

CEOCFOinterviews: Why chose Plato over the competition?

Mr. Murray: “We strongly recommend side-by-side evaluations of our products and our competition’s products, because we believe our product stands up from an educational structure, integrity, a pedagogy standpoint, and sheer breadth, volume and the design of the product. We also have many evaluations that have been done over a number of years, which is becoming increasingly important because under ‘No Child Left Behind’ the law demands that educational technology software products come from a research basis. Everything that we build, we don’t build in a vacuum on our own; we invite people from universities, teacher and students to be part of our design process and assessment and test process, to be sure we have the right research base in there. Educators want to see research and data.”

CEOCFOinterviews: How much of your business is other than K-12?

Mr. Murray: “We did probably about fourteen million dollars last year, probably about 19% of our business in the post-secondary or adult level.”

CEOCFOinterviews: Is that a growing area for you?

Mr. Murray: “That is very much a growing area; the unfortunate thing is that 9/11 had an impact on the economy. The new ‘No Child Left Behind’ has not been without confusion. There has been a delay in the release of funds for K-12, which resulted last year in the down-turn of the market compared to the previous four or five years of 30% top-line growth for us. Last year we grew at 6%, the market as a whole grew at 1% and most of our direct competition saw revenues decline at 10-25%.’

CEOCFOinterviews: Is there a copyright or proprietary technology with the software you produce?

Mr. Murray: “We are open architecture systems, which is one of the benefits of coming from Control Data. We use standard hardware and everything is off the shelf. What we do from the software perspective is when we develop software we use industry standard tools, all of the different web tools. We tend to use those to build our own architecture, which we consider proprietary because that’s the intellectual property, of how we go about building our products for quick development and ongoing maintenance and ease-of-use by clients. By and large, we are open architecture and not proprietary.”

CEOCFOinterviews: Will you tell us about the financial position of the company?

Mr. Murray: “The Company is in good financial shape, but you would need to look back five years to get you a sense of that. In 1997, the company had revenues of thirty-six million and losses of twenty million. Some things were not working right and we reinvented the company and did a number of things to get costs out of the business and within twelve months, our revenues had gone up by 14% and we had gone from a twenty million loss to a three million profit. We continued on that growth path of 25% or so of top-line revenue growth, and larger 30-40% earnings growth on the bottom-line until the impact of 9/11.

In 1997, our balance sheet was really not in good shape; we owed the bank fifteen million.   We now owe the bank zero; we have no debt; we are now sitting on about thirty million in cash. In 1997, our stockholders equity was about seven hundred thousand; it’s now at one hundred and thirteen million. Our working capital was minus four million; it is now forty plus million. We went to the market in a secondary offering about fourteen months ago and raised $56 million. We generate cash from the business; last year despite a tough environment, we generated four million in cash from operations, the previous year was twelve and the previous year was fourteen.”

CEOCFOinterviews: Do you see any more acquisitions in the future?

Mr. Murray: “We are looking at opportunistic acquisitions. We have a very large product line, but there are always areas that we should be looking to plug gaps or add a little more. We also have some strategic acquisition activity that we are looking at. We are not in a rush. There are some things we can do to better serve the K-12 and broader community environments. We continue to look at the acquisition space. This is an interesting time to look at acquisitions because unfortunately very few companies in the education space make money. Most of them are losing 10,20, or 30, million dollars a year.”

CEOCFOinterviews: What are your biggest challenges?

Mr. Murray: “One of the biggest challenges is the federal government and state budgets getting back on track, and returning to a good economy, and that is dependent on many things including a war with Iraq. I think it is just a case of being out there and pulling together the acquired companies and integrating them.

CEOCFOinterviews: Are you selling for under book value now?

Mr. Murray: “Our stock price is just under six dollars at the moment!”

CEOCFOinterviews: In closing, what would you like to say to shareholders and potential investors?

Mr. Murray: “We developed a strategic plan eighteen months ago, which is a three-year rolling plan, that firmly looks to us as being the leader of K-12. Our internal development, staff training and motivation are all focused around our mission, values and corporate vision, which is to become the primary player in K-12. Financial results are one aspect that shareholders should look at. I think, also, from a company perspective, people should look at the fact that many of our employees here, have been here 10-20 years. We have a strong team here. People here are very passionate about education; at least one-third if not more of our workforce are former educators.”


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