May 29, 2012 06:00 ET

ePals Announces 2012 First Quarter Results

Registered Users, Paid Subscriptions and Revenue Increase 31%, 177% and 827% on Year-Over-Year Basis

WASHINGTON, DC--(Marketwire - May 29, 2012) - ePals Corporation (TSX VENTURE: SLN) ("ePals" or the "Company"), a leading education media and safe social learning company, today released its operating results for the first quarter ended March 31, 2012. Results were prepared by management in accordance with International Financial Reporting Standards. All figures are in U.S. dollars unless otherwise stated. A conference call will be held today at 11:00 a.m. Eastern Daylight Time to discuss the results.

First Quarter 2012 Business Highlights

  • Growth in Key Metrics - On a year-over-year basis, registered users and paid subscriptions of the Company's products grew 31% and 177% respectively, while revenue grew to approximately $4.6 million for the quarter, an increase of 827%, reflecting an average of $0.59 per registered user of the Company's products ("ARPU"). The timing of government education budgets creates seasonality in ePals' key metrics, making year-over-year comparisons more meaningful than quarter over quarter comparisons. In North America and other markets, demand for the Company's products and services are substantially weighted to the third/fourth quarter:

    • Total registered users of ePals' products increased year-over-year by approximately 1.9 million, or 31%, to more than 8.0 million at March 31, 2012. The increase in registered users during the first quarter of 2012 was more than 10 times higher than the increase in registered users during first quarter of 2011, driven primarily by an increasingly international audience and the willingness of educators to add their students to ePals' safe social learning community.

    • Total paid subscriptions of the Company's media and platform products increased year-over-year by 310,000, or 177%, as ePals added home-based users of its media products, enhanced its institutional (at school) product set to include both platform and media-based subscriptions, and refined those products in response to market demands. While the vast majority of these revenues were due to US-based sales, the Company expects international revenue to grow significantly as a result of platform and media subscriptions in international markets as sales channels are established by ePals China and ePals Europe. The Company's licensing/services-based revenue continues to grow as a percentage of overall revenue, reaching 9% in Q1 of 2012 as the mix between subscription, licensing, services and commerce revenue adjusts due to the differences in North American and international markets, as well as competitive conditions.

  • Integration of Carus Publishing - ePals has completed the integration of Carus Publishing Company ("Carus"), which was acquired during the fourth quarter of 2011. The Company believes that synergies between its publishing and platform products and channels positions ePals to be a leading content provider and distributor for both physical and digital education media for school and home markets domestically and abroad. Media subscriptions from school markets increased approximately 60% (versus the first quarter of 2011 in the Carus stand-alone business), driven by new sales channels, including cross-promotion with the ePals Global Community. Early indications are that these cross promotions also increase conversion rates for registered users. These integration efforts have also diversified ePals' business by opening home-based markets that complement school/institutional purchasing of ePals' products.

  • Channel Partner Expansion - During the quarter, the Company announced the launch of ePals' Custom Knowledge Libraries™ product that helps students achieve English/Language Arts standards and enables publishers and developers to better serve primary and secondary schools. Initial licenses have been sold to leading groups as described here: ePals also opened a major new sales channel through a partnership with First Book, which reaches more than 25,000 schools in the US and Canada.

  • Product Recognition - ePals' products continue to garner top awards as recognized by industry, consumer and respected educator groups. In2Books, ePals' Common Core standards-aligned, e-mentoring program won a Codie award from the Software & Information Industry Association for Best Reading/English Instructional Solution, and ePals' Children's publications dominated the Parent's Choice Awards gold medal category, receiving seven of the eleven gold medals awarded. These awards recognize the top children's magazines as voted upon by the Parents' Choice Foundation's panel of educators, scientists, performing artists, librarians, parents and even kids themselves.

  • International Growth and Operations - During the first quarter of 2012, over 50% of new ePals users were generated outside of North America. ePals' mobile apps have become increasingly popular outside of North America as well -- LadyBug's™ Bookshelf -- delivering read-along, interactive stories and games -- previously reached number one under education apps in multiple countries.

    This organic international growth is also being supplemented by ePals' venture-driven strategies in Europe and China. In April 2012 ePals executed a definitive agreement in respect of its previously announced joint venture with NeuEdu Tianjin ("NeuEdu") for ePals China. Related regulatory filings have been submitted and are pending approval. The Company anticipates regulatory approvals to be forthcoming with initial products launched in the second half of 2012. China has approximately 205 million students age 6-15. ePals Europe is recruiting European management and has commenced discussions with distribution partners under the direction of Dr. Thomas Middelhoff, Chairman of ePals Europe, and David Meredith, President of ePals International.

  • C$10M Financing Completed - Subsequent to the first quarter, ePals completed a fully subscribed private placement financing for gross proceeds of C$10 million for working capital and general corporate purposes. Insider participation was significant at approximately 30% of the total financing, including NeuEdu.

Q1 2012 Business Metrics (amounts in thousands except per user data)

March 31,
Key Business Metrics 2012 2011 Increase
Registered users 8,035 6,148 31 %
Subscriptions 485 175 177 %
Revenue $ 4,589 $ 495 827 %
Average revenue per user (ARPU) $ 0.59 $ 0.08 638 %

"Our strong operating results reflect the progress we have made against key goals of focusing on the proper balance of user and subscription/licensing growth, diversifying our revenue lines and expanding internationally," stated Miles Gilburne, ePals Chairman & CEO. "We believe that by continuing to execute on these goals in 2012 and beyond, and combining organic growth and strategically important acquisitions, ePals can become a unique media asset and a highly scalable, high margin education business."

Q1 2012 Financial Review

The following table is a summary of ePals' unaudited consolidated financial data for the quarters ended March 31, 2012 and 2011:

Three months ended
March 31,
Q1 2012 Financial Highlights 2012 2011 Increase (Decrease)
(dollars in thousands, except per share data)
Revenue--media $ 4,127 $ 91 $ 4,036 4435 %
Revenue--platform 462 404 58 14 %
Total revenue 4,589 495 4,094 827 %
Operating expenses (8,493 ) (2,395 ) 6,098 255 %
Loss from operations (3,904 ) (1,900 ) 2,004 105 %
Other income (expense) (25 ) (53 ) (28 ) 53 %
Net loss $ (3,929 ) $ (1,953 ) $ 1,976 101 %
Basic and diluted net loss per share $ (0.03 ) $ (0.77 )
Weighted average shares outstanding--Basic 116,490,803 2,528,351

For the quarter ended March 31, 2012, ePals had total revenue of approximately $4.6 million, an increase of $4.1 million or 827%, compared to revenue of approximately $0.5 million during the first quarter of 2011. ePals' revenues are segregated between its media business and its platform business. Media revenue is derived from learning products and educational content distributed to schools, libraries, teachers, parents and students worldwide through ePals Global Community™ and other direct and indirect channels. Platform revenue is derived from sales and services related to ePals' Schoolsafe solutions (LearningSpace™ and SchoolMail®365) and licensing of the ePals' platform to third parties.

ePals' media revenue for the first quarter of 2012 was approximately $4.1 million, contributing 90% of total revenue. The approximately $4 million increase in media revenue was primarily due to the addition of magazine sales and other consumer-based revenues. Media subscriptions totaled 323,000 at the end of the quarter. Platform revenue increased 14% year-over-year to approximately $0.5 million in the first quarter of 2012 primarily due to increased professional services revenue relating to ongoing projects resulting in deeper integration of ePals platform technology, while year-over-year, platform subscriptions to ePals' LearningSpace product decreased by approximately 13,000 or 7%.

Total operating expenses for the first quarter of 2012 were approximately $8.5 million, an increase of $6.1 million compared to the first quarter of 2011 which was prior to the Company's public listing on the TSX-V, and before business acquisitions made in between the comparable periods. Approximately $3.4 million of the year-over-year increase in operating expenses is attributable to the establishment of the Company's home-based business.

General & administrative expenses for the first quarter of 2012 increased year-over-year from approximately $0.7 million to $1.8 million, with the establishment of the home-based business to consumers contributing approximately $0.6 million of the increase. General & administrative expenses were also higher due to human resources and accounting consultants for the integration of businesses acquired in 2011, new senior management hires, additional travel expenses in anticipation of expanding business opportunities in Europe and China, and increased fees for legal, audit, tax and corporate insurance associated with the new public corporate structure. Technology, development & operational expenses increased from approximately $1.2 million to $3.1 million for the first quarter of 2012, with approximately $1.6 million generated by the establishment of the home-based business to consumers. Also contributing to the increase in technology, development & operational expenses are additional consulting expenses and staffing in 2012 to develop and support ePals' expanding platform and media products. Sales and marketing expenses increased from approximately $0.4 million to $2.3 million, primarily due to the establishment of the home-based business to consumers, increased staffing in marketing, business development and education media, and additional marketing and travel expenses due to a greater presence at tradeshows in the first quarter of 2012.

For the first quarter of 2012, ePals reported a net loss of $3.9 million, or ($0.03) per share, compared to a net loss of $2.0 million, or ($0.77) per share, for the first quarter of 2011.

As of May 29, 2012, ePals has a total of 141,838,252 common shares outstanding, of which 92,001,039 are voting common shares and 49,837,213 are restricted voting common shares.

Important factors, including those discussed in ePals' regulatory filings (, could cause actual results to differ from ePals' expectations and those differences may be material. ePals' unaudited financial statements for the quarter ended March 31, 2012, together with the related management's discussion & analysis, will be filed at by May 30, 2012.

Annual and Special Meeting Reminder
The ePals Annual and Special Meeting of Shareholders will be held on June 12, 2012 at 4:30PM Eastern Daylight Time in Toronto at The Design Exchange, 234 Bay Street. Shareholders and interested investors are encouraged to attend ePals' Annual and Special Meeting to discuss the first quarter financial results, and meet with Management and members of the Board of Directors. A review of 2011 and the outlook for 2012 and beyond will be presented at the meeting, along with an update on the Company's international initiatives. An electronic version of the Company's 2011 annual report can be found on

Conference Call Today (11:00 a.m. EDT)
A conference call to discuss these results will take place today at 11:00 a.m. EDT. To participate in the call, please dial +1-913-312-0380 or 1-888-204-4520 approximately 10 minutes prior to the conference call, and enter passcode 3641796. A recording of the conference call will be available by dialing +1-719-457-0820 or 1-888-203-1112 and entering the passcode 3641796. The call will also be available on ePals' website at for replay.

About ePals Corporation
ePals Corporation (TSX VENTURE: SLN) is an education media company and the leading provider of safe social learning networks. Focused on the K-12 market, ePals offers elementary and secondary school administrators, teachers, students and parents worldwide a safe and secure platform for building educational communities, providing quality digital content and facilitating collaboration for effective 21st century learning. ePals' award-winning products include: the ePals Global Community™; SchoolMail®365; LearningSpace®; In2Books®, a common core eMentoring program that builds reading, writing and critical thinking skills; and popular children's educational publishing brands including Cricket® and Cobblestone®. ePals customers and partners include the International Baccalaureate, Microsoft Corporation, Dell Inc., IBM Corp., National Geographic and leading school districts across the United States and globally. ePals serves approximately 800,000 educators and reaches millions of teachers, students and parents in approximately 200 countries and territories. For the ePals Global Community™, visit

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this press release constitute forward-looking information within the meaning of applicable securities laws, including statements with respect to customers, ventures such as ePals China and Europe ("ePals Ventures"); partnerships; ePals' strategy, prospects and success in pursuing domestic or international markets and the composition of its leadership teams to be established in connection therewith; and ePals' anticipated plans to increase its subscription base, ARPU, and media and platform businesses. These statements relate to future events or future performance. Often, but not always, forward-looking information can be identified by the use of words such as "plans," "expects," "is expected," "budget," "scheduled," "estimates," "forecasts," "intends," "anticipates," or "believes" or variations (including negative variations) of such words and phrases, or statements formed in the future tense or indicating that certain actions, events or results "may," "could," "would," "might" or "will" (or other variations of the forgoing) be taken, occur, be achieved, or come to pass. Forward-looking information is necessarily based upon a number of assumptions and factors that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking information. Those assumptions and factors are based on information currently available to ePals. Such material factors and assumptions include, but are not limited to: ePals' ability to execute on its business plan, including the successful launch of ePals' Ventures; the acceptance of ePals' products and services by customers globally; that ePals affiliated entities will be able to secure distribution partners for sale of ePals' products and services; ePals' subjective assessment of the likelihood of success of a sales lead or opportunity; that sales will be completed at or above ePals' estimated margins; that the demand for webhosting and secure email communication, as well as education media related products domestically, in Europe and in China will continue to grow; that the demand for ePals' products and services globally will develop and grow; the receipt of all requisite regulatory approvals throughout venture territories for the sale of ePals' products and services; the availability of additional financing, if and when required and market conditions generally. Although ePals has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking information, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. The forward-looking information contained in this press release is made as of the date hereof and ePals is not obligated to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Because of the risks, uncertainties and assumptions contained herein, investors should not place undue reliance on forward-looking information. The foregoing statements expressly qualify any forward-looking information contained herein.

Contact Information


    Chief Financial Officer
    Aric Holsinger
    ePals Corporation
    Phone: (703) 885-3400

    Investor Relations
    Cory Pala
    Phone: (416) 657-2400

    SVP, Marketing & Corporate Communications
    Will Jarred
    ePals Corporation
    Phone: (703) 885-3400