SOURCE: Peoples Education

April 08, 2010 06:45 ET

Peoples Educational Holdings, Inc. Reports Third Quarter Results

SADDLE BROOK, NJ--(Marketwire - April 8, 2010) - Peoples Educational Holdings, Inc. (NASDAQ: PEDH), a leading provider of supplemental educational material for the K-12 school market, today announced financial results for the three and nine months ended February 28, 2010.

Net revenue for the quarter was $5.5 million, an increase of 4.7% from the same period in the prior year. Revenue from the Test Preparation, Assessment and Instruction product group was $4.4 million, a decline of 1.1% from the prior year. College Preparation revenue for the period was $521,000, a decline of $285,000. In addition, $579,000 of revenue was generated from our Literacy product offering, which was launched in March 2009. Net loss for the quarter was $801,000, a decrease of 15.2% from the prior year. Basic and diluted net loss per share was $0.18, compared to a loss of $0.21 in the prior year. Non-GAAP net loss, which excludes non-recurring costs, and adjusts for the difference between prepublication expenditures and amortization was, $672,000, or $0.15 per share, compared to a Non-GAAP net loss of $458,000 or $0.10 per share in the prior year (see Exhibit 1).

Net revenue for the nine months ended February 28, 2010 was $27.5 million, a decline of 6.7% from the same period in the prior year. Test Preparation, Assessment and Instruction revenue was $15.5 million, a 9.4% year-over-year decline, while College Preparation revenue was $10.1 million, a decline of 17.9%. Revenue generated from our Literacy products was $1.8 million. Net income for the period was $357,000; an increase of 126% over the prior year. Earnings per share for the period was $0.08, an increase of $0.04 over the prior year. Non-GAAP net income for the nine month period was $1.2 million, or $0.27 per share compared to $1.0 million or $0.23 per share in the prior year.

Financial Highlights for the Nine Months Ended February 28, 2010

--  Net income increased 126% and Non-GAAP net income increased 16% on a
    year-over-year basis, despite a decline in revenue.
--  Free cash flow (cash provided by operating activities reduced by
    expenditures for prepublication cost, equipment and intangibles, see
    Exhibit 2) for the nine months continues to be strong at $3.3 million,
    which is a $1.2 million increase over the prior year.
--  Gross profit as a percentage of revenue, increased from 38.0% to 41.7%,
    due to revenue mix and a decline in prepublication cost amortization.
--  General and administrative expenses declined 1.4% from the prior year
    to $3.4 million.
--  Bank debt declined by $3.3 million on a year-over-year basis.
--  Interest expense for the period was $206,000 a decrease of 63.5%
    compared to the prior year. The decrease is due to lower average
    outstanding debt, lower interest rates, and $117,000 of income from the
    fair value adjustment of our swap agreement.

Business Outlook - Guidance Reiterated

Brian T. Beckwith, President and CEO, commented, "We continue to operate in a challenging environment for K-12 instructional material sales and I'm encouraged that our revenue for the quarter exceeded the prior year. Although revenue declined for the nine months ended February 28, 2010, I am pleased that net income, Non-GAAP net income, and free cash flow all exceeded prior year results. We are managing our operating expenses well, while continuing to invest strongly in our next generation of new and revised product, with an emphasis on the rollout of our new online product, the ePath Knowledge Suite."

"Based on our year-to-date results and our forecast for the balance of the year, we are reaffirming our previous guidance. We expect revenue to be between $36 million and $38 million, net income of $0.5 million to $0.9 million or $0.11 to $0.20 per basic share, Non-GAAP net income to be between $0.7 million and $1.1 million or $0.16 to $0.25 per basic share and positive free cash flow to range between $2.0 million to $2.5 million."

Use of Non-GAAP Financial Measures

Some of the measures in this press release are Non-GAAP financial measures within the meaning of SEC Regulation G. Peoples Educational Holdings, Inc., believes presenting Non-GAAP net income and Non-GAAP earnings per share and Free Cash Flow are useful to investors because they describe the operating performance of the Company and helps investors gauge the Company's ability to generate cash flow excluding non-recurring charges and fluctuations between new product development amortization and new product development expenditures. Company management uses these Non-GAAP measures as important indicators of the Company's past performance and to plan and forecast performance in future periods. The Non-GAAP financial information Peoples Educational Holdings presents, may not be comparable to similarly titled financial measures used by other companies, and investors should not consider Non-GAAP financial measures in isolation from, or in substitution for, financial information presented in compliance with GAAP.

Conference Call

We have scheduled a conference call today, April 8, 2010, at 11:00 am Eastern Time. The call will be hosted by Brian Beckwith, President and Chief Executive Officer and Michael DeMarco, Executive Vice President and Chief Financial Officer. A slide presentation highlighting points discussed in our conference call will also be available prior to the conference call, through the investor relations section of our web site at www.peopleseducation.com.

About Peoples Educational Holdings, Inc.

Peoples Educational Holdings, Inc., is a publisher and marketer of print and electronic educational materials for the K-12 school market. The Company focuses its efforts in three market areas:

Test Preparation, Assessment, and Instruction

--  Test Preparation and Assessment: We create and sell state-customized,
    print and electronic, test preparation and assessment materials that
    help teachers prepare students for success in school and for required
    state proficiency tests, grades 1-12.
--  Instruction: We produce and sell proprietary state-customized print
    worktexts and print and web-based delivered assessments, for Grades
    1-8. These products provide students with in-depth instruction and
    practice in reading, language arts, and mathematics. In addition, our
    backlist remedial and multicultural products are included in this
    group.

Literacy

--  We distribute for three publishers, on an exclusive basis in the United
    States, supplemental literacy materials for grades K-8. These materials
    include an extensive selection of leveled reading materials, high
    interest engaging resources for striving readers, series that integrate
    reading, science and social studies, and selections and strategies for
    students who are in the process of learning English.

College Preparation

--  We distribute and publish instructional materials that meet the
    required academic standards for high school honors, college
    preparation, and Advanced Placement courses. We are the exclusive high
    school distributor for two major college publishers. We also publish
    our own proprietary college preparation supplements and ancillary
    materials.

Forward-Looking Statements

This press release contains forward-looking statements (as defined in section 21E of the Securities Exchange Act of 1934) regarding the Company and its markets. These forward-looking statements involve a number of risks and uncertainties, including (1) changes in demand from customers, (2) changes in product or customer mix or revenues and in the level of operating expenses, (3) rapidly changing technologies and the Company's ability to respond thereto, (4) the impact of competitive products and pricing, (5) federal, state and local levels of educational spending, (6) the Company's ability to retain qualified personnel, (7) the Company's ability to retain its distribution agreements in the College Preparation and Literacy markets, (8) the sufficiency of the Company's copyright protection, and (9) the Company's ability to continue to rely on the services of a third-party warehouse, and other factors as discussed in the Company's filings with the SEC. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this press release. Readers are urged to carefully review and consider the various disclosures made by the Company in this press release and the reports the Company files with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business and results of operations.


PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS


(In Thousands-Except Share Data)          UNAUDITED             UNAUDITED
                                           February    May 31,   February
                                           28, 2010     2009     28, 2009
                                          ----------  --------  ----------
ASSETS

Current Assets
Cash and Cash Equivalents                 $       95  $     42  $       33
Accounts Receivable Net of Allowances for
 Doubtful Accounts and Returns                 2,261     2,842       1,706
Inventory, Net                                 3,980     4,219       3,941
Prepaid Expenses and Other                       357       323         370
Prepaid Marketing Expenses                       443       862         964
Deferred Income Taxes                            938     1,092         661
                                          ----------  --------  ----------
     Total Current Assets                      8,074     9,380       7,675

Equipment - At Cost, Less Accumulated
 Depreciation of $2,405, $2,241 and $2,215,
 respectively                                    272       387         446
                                          ----------  --------  ----------

Other Assets
Deferred Prepublication Costs, Net            11,991    13,466      13,826
Deferred Income Taxes                            212     1,006       1,796
Trademarks, Net                                  189       170         191
Prepaid Expenses and Other                       185       273         376
Prepaid Marketing Expenses                         -         -         123
                                          ----------  --------  ----------
     Total Other Assets                       12,577    14,915      16,312
                                          ----------  --------  ----------

Total Assets                              $   20,923  $ 24,682  $   24,433
                                          ==========  ========  ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Current Maturities of Long Term
 Obligations                              $    2,000  $  2,034  $    2,045
Accounts Payable                               3,322     3,998       2,830
Accrued Compensation                             241       170         232
Other Accrued Expenses                           444       855         294
Deferred Revenue                                 546       278         403
                                          ----------  --------  ----------
     Total Current Liabilities                 6,553     7,335       5,804

Long Term Obligations, Less Current
 Maturities                                    8,475    11,854      11,885
                                          ----------  --------  ----------

Total Liabilities                             15,028    19,189      17,689
                                          ----------  --------  ----------

Commitments and Contingencies

Stockholders' Equity
Preferred Stock, authorized 1,500,000
 shares; none issued
Common Stock, $0.02 par value; authorized
 8,500,000 shares; issued: 4,478,434,
 for all periods                                  90        90          90
Additional Paid In Capital                     8,105     8,060       8,042
Accumulated Deficit                           (2,236)   (2,593)     (1,324)
Treasury Stock - 16,232 shares, at cost          (64)      (64)        (64)
                                          ----------  --------  ----------
Total Stockholders' Equity                     5,895     5,493       6,744
                                          ----------  --------  ----------

Total Liabilities and Stockholders'
 Equity                                   $   20,923  $ 24,682  $   24,433
                                          ==========  ========  ==========




PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In Thousands, Except Per Share Data)


                                 Three Months Ended     Nine Months Ended
                                    February 28,          February 28,

                                  2010       2009       2010       2009
                                ---------  ---------  ---------- ----------

Revenue, Net                    $   5,450  $   5,204  $   27,504 $   29,481

Cost of Revenue
  Direct Costs                      1,809      1,733      11,950     13,242
  Prepublication Cost
   Amortization                     1,364      1,688       4,092      5,040
                                ---------  ---------  ---------- ----------
  Total                             3,173      3,421      16,042     18,282
                                ---------  ---------  ---------- ----------

Gross Profit                        2,277      1,783      11,462     11,199

Selling, General and
 Administrative Expenses            3,398      3,146      10,548     10,366
                                ---------  ---------  ---------- ----------

Income (Loss) from Operations      (1,121)    (1,363)        914        833

Other Expenses, Net                    11          2          25         18
Interest Expense                       46        126         206        564
                                ---------  ---------  ---------- ----------

Income (Loss) Before Income
 Taxes                             (1,178)    (1,491)        683        251

Income Tax Expense (Benefit)         (377)      (546)        326         93

                                ---------  ---------  ---------- ----------
Net Income (Loss)               $    (801) $    (945) $      357 $      158
                                =========  =========  ========== ==========

Net Income (Loss) per Common
 Share:
   Basic                        $   (0.18) $   (0.21) $     0.08 $     0.04
   Diluted                      $   (0.18) $   (0.21) $     0.08 $     0.04

Weighted-average Number of
 Common Shares Outstanding:
   Basic                            4,462      4,457       4,462      4,455
   Diluted                          4,462      4,457       4,465      4,455
                                =========  =========  ========== ==========




PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(In Thousands)                                          Nine Months Ended
                                                           February 28,
                                                          2010      2009
                                                        --------  --------
Cash Flows From Operating Activities
Net Income                                              $    357  $    158
Adjustments to Reconcile Net Income to Net Cash
 Provided by Operating Activities
  Depreciation                                               164       221
  Amortization of Prepublication Costs and Intangible
   Assets                                                  4,104     5,048
  Stock-Based Compensation                                    45        30
  Market Value Adjustment of Interest Rate Swap             (117)       36
  Deferred Income Taxes                                      948       103
Changes in Assets and Liabilities
  Accounts Receivable                                        581     1,958
  Inventory                                                  239       453
  Prepaid Expenses and Other                                  54       (79)
  Prepaid Marketing Expenses                                 419       237
  Accounts Payable and Accrued Expenses                   (1,016)   (2,144)
  Deferred Revenue                                           268       (72)
                                                        --------  --------
    Net Cash Provided By Operating Activities              6,046     5,949
                                                        --------  --------

Cash Flows From Investing Activities
  Purchases of Equipment                                     (49)     (101)
  Expenditures for Intangibles                               (31)       (8)
  Expenditures for Prepublication Costs                   (2,617)   (3,666)
                                                        --------  --------
    Net Cash Used In Investing Activities                 (2,697)   (3,775)
                                                        --------  --------

Cash Flows From Financing Activities
  Net Payments Under Line of Credit                       (1,762)     (663)
  Principal Payments On Long-Term Debt                    (1,534)   (1,531)
                                                        --------  --------
    Net Cash Used In Financing Activities                 (3,296)   (2,194)
                                                        --------  --------

    Net Increase (Decrease) in Cash and Cash
     Equivalents                                              53       (20)

Cash and Cash Equivalents
  Beginning of Period                                         42        53
                                                        --------  --------
  End of Period                                         $     95  $     33
                                                        ========  ========

Supplemental Cash Flow Information
  Cash Payments for:
    Interest                                            $    382  $    581
                                                        ========  ========





                                Exhibit 1

Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss)

(In Thousands - Except Share Data)

                              Three Months Ended      Nine Months Ended
                            2/28/2010   2/28/2009   2/28/2010   2/28/2009
                            ----------  ----------  ----------  ----------
Net Income (Loss)           $     (801) $     (945) $      357  $      158
Amortization of
 Prepublications Costs           1,364       1,688       4,092       5,040
Cash Expenditures for
 Prepublication Costs           (1,122)       (926)     (2,617)     (3,666)
Market Value Adjustment of
 Interest Rate Swap                (38)         11        (117)         36
Adjusted Income Tax Benefit        (75)       (286)       (502)       (522)
                            ----------  ----------  ----------  ----------
Non-GAAP Net Income (Loss)  $     (672) $     (458) $    1,213  $    1,046
                            ==========  ==========  ==========  ==========

Basic Weighted Shares
 Outstanding                     4,462       4,457       4,462       4,455

Non-GAAP Earnings Per Share $    (0.15) $    (0.10) $     0.27  $     0.23

                                Exhibit 2

Reconciliation of Net Cash Provided By (Used In) Operating Activities to
 Free Cash Flow

(In Thousands)
                              Three Months Ended      Nine Months Ended
                            2/28/2010   2/28/2009   2/28/2010   2/28/2009
                            ----------  ----------  ----------  ----------
Net Cash Provided By (Used
 In) Operating Activities   $     (868) $   (2,484) $    6,046  $    5,949
Cash Expenditures for
 Equipment and Intangibles          (6)        (10)        (80)       (109)
Cash Expenditures for
 Prepublication Costs           (1,122)       (926)     (2,617)     (3,666)
                            ----------  ----------  ----------  ----------
Free Cash Flow              $   (1,996) $   (3,420) $    3,349  $    2,174
                            ==========  ==========  ==========  ==========

Contact Information

  • Contacts:

    Peoples Education, Inc.
    Saddle Brook, NJ 07663

    Investor Contact:
    James Kautz
    Phone: 888-654-5318

    Press Contact:
    Victoria Kiely
    Phone: 201-712-0090 ext. 215
    Email Contact