JOHN MURRAY - PLATO LEARNING - (TUTR)
CEO Interview - published 02/19/01

DOCUMENT # LAS613

JOHN MURRAY is President and CEO of PLATO Learning. He is responsible for the day-to-day operation of PLATO Learning. His responsibilities include formulating sales and marketing strategies and partnerships, financial and strategic planning, financial reporting, SEC and shareholder reporting, investor relations, and acquisition analysis. He provides direction to the sales, marketing, human resources, finance, product development, and client support and operations organizations and is also responsible for PLATO Learning’s international operations and distributors, its Navy learning center business and third-party relationships. Associated with PLATO Learning since its inception, Mr. Murray previously held the positions of Executive Vice President and Chief Financial Officer, Senior Vice President of Operations, and Vice President, Product Development. Mr. Murray was also responsible for the introduction of PLATO’s PLATO Learning Systems in the United Kingdom where he was Managing Director for seven years prior to relocating to the United States in 1996. 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.

Sector: Education & Training Services

TWST: Could you give a brief overview of the company?

Mr. Murray: The PLATO system was originally conceived and developed using National Science Foundation grant money in the late 1960s by the University of Illinois. Control Data Corporation picked up the rights to the product and were marketing the product in the late 1970s and early 1980s, primarily to adult literacy, numeracy, job welfare and job training markets. Our founder, Bill Roach, acquired the rights to the product when he acquired Control Data Corporation’s training and education business in September 1989. So our product, the PLATO product, is really viewed as the original product. We see ourselves as the original content company which gets results. What we’ve done during the 1990s is to transform the business from a literacy/numeracy business into a mainstream core curricula education company. We’ve also, at the same time, transformed the product from a fairly old-looking product to a very contemporary product with the latest instructional design methodologies, including artificial intelligence, to go after the mainstream secondary sector: everything from basic skills through workplace skills, including critical thinking and problem-solving skills. The 1990s have really been a major investment period on our part, investing some $44 million on R&D to produce what we believe is the broadest and deepest adult, adolescent online curriculum that anybody has anywhere. My background:. I was in the Army in the UK for 16 years. I left the Army in December 1986 and joined Control Data Corporation running their training systems business in London. When Bill Roach and his venture partners acquired the business from Control Data in September 1989, I came along with that acquisition and founded TRO Learning (UK), Limited. I ran that company for seven years and moved across here in April 1996. Since coming here I’ve had a variety of roles within the company, including running product development, operations, Chief Financial Officer and Executive Vice President. Last year, I was President and Chief Operating Officer, and these last couple of months I’ve stepped up to the role of CEO as well as President. So my tenure with PLATO goes back to December 1986, which is 14-plus years, and I’ve held a number of different roles, covering every aspect of the business essentially.

TWST: Could you give us an idea of the marketplace today that you are focusing on and the competitive landscape within that marketplace?

Mr. Murray: In the secondary sector in fiscal 2000, we derived about 73% of our revenues from secondary education, which is high school, middle school, alternative education and charter schools. That’s in stark contrast to 1990, when only 50 of our installed clients were secondary schools. Now we have 5,600 installed clients from secondary. We believe we are the leader in secondary education online. We have more installed sites of a significant nature than anybody else. The industry is very fragmented: it’s more consolidated at the elementary sector, K through 6, where there are a couple of bigger players. They occasionally breach into the middle and high school sector, but very seldom. In the secondary sector, there are one or two emerging companies coming in with new online subscription-based products. While we think that’s the thing of the future, we do believe that education generally moves slower than the rest of the IT and business sector, so there will be a two or three-year time lag before subscription in education really catches on. We, ourselves, are positioned for that. Because of our Control Data heritage, we’ve been delivering Internet products for about four years, and last week we released our new PLATO Web Learning Network, which is an applications service provider model enabling all of our content, all 2,000 hours, to be delivered online in a Web browser curriculum manager. Our delivery platforms take into account everything from individual CDs, to integrated local area networks, wide area networks, and also intranet delivery worldwide.

TWST: How will that change your marketing focus over the next 12 – 24 months

Mr. Murray: We don’t think it’s going to change it significantly in that short a timeframe. We believe that most of our business will continue to come from school buildings and school districts using their own local and wide area networks. Last year, about 54% of our business was repeat business from installed base, which obviously speaks very highly of our product, our service, and the PLATO company. Forty-four percent of our business was new and, over time, we know a lot of that will become repeat business. So our focus over the next 18 – 24 months is to continue to sell our core products to the same core markets. We released two new products last week:the PLATO Web Learning Network, and we also released the new PLATO Web simulated test system. We will be offering those two products to school districts on an annual subscription basis so that we can start to build up a subscription–based recurring revenue stream, both from the school building and into the home.

TWST: Do you anticipate any changes at the top management level as you focus more on this new technology? Do you feel you have the basic skill sets and bench strength on board today?

Mr. Murray: We do have a fairly strong management team that has been with the organization for some time and some of whom have come from other high tech leading companies in the education and e-learning sector. A couple of months ago we added a new VP of Marketing, who has significant experience in channel management and branding capabilities and also in the Internet technology field. And we’ve just added a new Chief Financial Officer who has had many years experience in public companies and in the technology sector. We continue to look at where we’re going in the next three years. We just completed a three-year strategic planning effort and assessment, looking at the next three years, trying to assess our infrastructure scalability based on our fairly aggressive growth plans. We do believe that over the next couple of years as we move forward, we will probably add one or two additional senior people to take advantage of some of the new e-learning initiatives.

TWST: Looking at top line and bottom line today, do you feel you have the necessary resources to meet these opportunities?

Mr. Murray: Yes, we do. That’s one of the things we have been telling the investment community this last year. In fiscal 2000 our revenues were $56 million and we generated about $8 million pre-tax. In 2003, three full operating years from the beginning of this fiscal year, we believe that this organization is capable of driving revenues of $100 million to $125 million, which should generate earnings-per-share compared to last year’s $0.60 per share, of $1.50 to just over $2.00 fully taxed. The reason for the range is we are looking at some additional acquisition opportunities. If we go forward with additional acquisitions and leverage the distribution channels we put in place last year for the first time, and leverage the Internet subscription business, which we believe we can, we can get to the high end of that range and possibly above. We are looking at various options to get us there. Last year we acquired a science company for our very first acquisition. That was accretive in the first three months or so. Therefore we believe we have the necessary skill sets, resources and management capabilities here to acquire companies, integrate them, and use our significant distribution capability to take products to market. Other companies just can’t get there.

TWST: Could you give us an idea of where these markets are on a global basis? The percentage focus within the United States domestic market, and then the markets outside of that domestic market?

Mr. Murray: Most of our business, historically, has come from North America largely because the United States has been the leader in technology in education. I’d say, probably until this last fiscal year, 96%-97% of our revenues came from domestic US, and as I said earlier, 73% of our revenues last year came from the secondary school sector in North America. About 5% of our revenues came from DOD in North America. A couple percent of our revenues came from corporate North America, which is a largely untapped market for us and we are looking for distribution partners to get there in a more significant way. Last year the UK, which is where most of our international business comes from, delivered about 9% of our revenues. The UK is growing at a much faster rate than the United States at the moment, because they started much later and are closing the gap. The UK, historically, has been five to seven years behind the US in terms of implementing technology in education. Three years ago, the UK government allocated $1.5 billion to take education forward in the use of technology. I think in the last three years the UK has closed that five to seven-year lag to, maybe, one to two years in some cases. I think, in a number of cases, the UK has taken the lead, particularly in the adoption of broadband initiatives and teacher training in the use of technology. That’s resulted in us having some significant contracts in the UK. Just over a year ago, we won a $6 million contract with the City of Glasgow in Scotland to put PLATO into all 29 secondary schools. We also just won a contract in England with a government agency that is paying us just over $1.5 million to develop browser–based content for the college and school system because they don’t believe other products they’ve seen have the kind of capabilities that they need. For that project we’re taking some of the PLATO product, building in some new content and solving that problem for them. There are some opportunities in other international areas: South Africa, the Middle East and Asia. We do some business there on and off, but it’s not been a concerted effort. I think the introduction of our new Web Learning Network and the simulated test system as well as our unbundled individual titles CDs that we created last year will enable us to drive revenues going forward from some of these other international markets.

TWST: At this point, how could the investment community better understand PLATO? What misperceptions do you encounter? Are there any legacy issues that, at this point, should just be left at the front door?

Mr. Murray: I think there have been issues. One of our dilemmas when the business was acquired from Control Data was —do we keep the name PLATO or do we lose it? We decided very conscientiously to keep the name PLATO because of its rich heritage, and of course, when you’re a leader, sometimes people have a different perspective. Just to give you an example of that, PLATO — under Control Data — was probably about 10 years ahead of its time in the 1960s and 1970s. There are some people out there who view PLATO as being an old, archaic system when compared to modern applications, multimedia programs and things like Microsoft Encarta. Those people generally remember PLATO as it was then and compare it against modern systems now. If people are open-minded enough or informed enough by us and have visibility to today’s PLATO product, they have a whole different perspective. They feel that the modern PLATO product is every bit as innovative, informative and motivational for students, with all the latest media and instructional design techniques as any of the modern systems, and is better than most. At the same time, they remember, with a great deal of fondness in many cases, the rich heritage that Control Data gave us with PLATO and they know that we’ve continually migrated forward our technology. It’s the same underlying technology and architecture that was delivering content over mainframes and leased lines at 50 bauds 25 years ago that we are still using in our core product, although it looks nothing like the original content. It looks like a very contemporary 2000-plus product set.

TWST: What are the three to four key points that would convince or compel an investor today to buy in?

Mr. Murray: I think, first of all, we’ve shown in the last three years that we have a business which is scalable, we’ve seen our revenues grow from $36 million in 1997 to $56 million last year. We’ve seen consistent profitability, growing and improved margins over the last three years. We’ve done that in a fairly tight economy at times. When many other educational software companies are not making money, PLATO is. At this point in time, we are the only main educational software company that is making a profit and growing revenues at the same time. I think another key driver for the educational sector and for PLATO over the next few years is the whole accountability graduation standards issue. There are something like 19 states to 22 states which currently have high stakes testing systems in place. For example, students who don’t meet the academic standards in these states do not receive diplomas. Superintendents and principals around the country are being held accountable. PLATO fits very well into that environment. We have 2,000 hours of online content covering 10,000 learning objectives. It’s an extremely modular comprehensive product which we align to each of the national, federal, state and district standards. We provide our content with our very comprehensive curriculum management system, so that the superintendents and principals can get immediate access to individual student, class, building and district reports on student performance against their standards. We have shown in a number of cases, and there are numerous examples, including one in a Florida high school where students who use PLATO dramatically increase their scores by as little as 15 points and as high as 40 points. We do know that PLATO is the system which helps schools get results. And our tag line is: Real learning, real results.

TWST: Thank you. (DA)

JOHN MURRAY
 President & CEO
 PLATO Learning, Inc.
 10801 Nesbitt Avenue South
 Bloomington, MN 55437
 (952) 832-1000
 (800) 447-5286 – TOLL FREE
 (952) 832-1210 – FAX
 www.plato.com

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