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SOURCE: Peoples Education
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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
========== ========== ========== ==========