SOURCE: Peoples Educational Holdings, Inc.

October 07, 2010 06:30 ET

Peoples Educational Holdings, Inc. Reports First Quarter Results

SADDLE BROOK, NJ--(Marketwire - October 7, 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 months ended August 31, 2010.

Net revenue for the quarter was $13.1 million, a decrease of 10.9% from the same period in the prior year. Revenue from the Test Preparation, Assessment and Instruction product group was $5.1 million, compared to $6.3 million in the prior year. College Preparation product group revenue for the period was $7.2 million, a year-over-year decline of $444,000 and Literacy revenue was $850,000 compared to $861,000 in the prior year. Net income for the quarter was $1.1 million, compared to $1.5 million in the prior year. Basic and diluted net income per share was $0.24, compared to $0.33 in the prior year. 

Non-GAAP net income, which excludes non-recurring costs and adjusts for the difference between prepublication expenditures and amortization, for the current period was $940,000, or $0.21 per share, compared to $1.9 million or $0.42 per share in the prior year (see Exhibit 1). The $0.9 million fluctuation from the prior year is a result of the difference in net income between the two periods and the $0.8 million year-over-year increase in prepublication costs (product development) expenditures, as a result of the timing of our development schedule. We anticipate the full-year product development expenditures to be in line with the prior year expenditures of $4.8 million.

Free cash flow (cash provided by operating activities reduced by expenditures for prepublication costs, equipment and intangibles, see Exhibit 2) was $2.9 million, a decline of $0.9 million from the prior year due primarily to the increase in prepublication costs expenditures as discussed above.

Financial Highlights for the Three Months Ended August 31, 2010

  • Free cash flow for the quarter continues to be strong at $2.9 million.
  • Gross profit as a percentage of revenue decreased slightly from 40.2% to 39.5% due to revenue mix.
  • Amortization of prepublication costs decreased by 7.6% on a year-over-year basis.
  • General and administrative expenses declined 4.1% from the prior year to $1.2 million.
  • Bank debt declined by $2.3 million on a year-over-year basis.

Business Outlook -- Guidance Reiterated

Brian T. Beckwith, President and CEO, commented, "Although our operating results were lower than the prior year, they were in line with our expectations as the K-12 supplemental market continues to be impacted by state and local budget cuts. We continue to manage our operating expenses while continuing to invest heavily in product offerings with an emphasis on the continued rollout of our online product, the ePath Knowledge Suite, and new products aligned to the Common Core State Standards."

"Based on our first quarter results and our forecast for the balance of the year, we are reaffirming our previous guidance. We expect revenue to be between $35 million and $37 million, net income of $0.5 million to $0.8 million, or $0.11 to $0.18 per basic share, Non-GAAP net income to be between $0.9 million and $1.2 million or $0.20 to $0.27 per basic share, and positive free cash flow to range between $2.5 million to $3.5 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. We believe that presenting Non-GAAP net income and Non-GAAP earnings per share and Free Cash Flow are useful to investors because they describe our operating performance and help gauge our ability to generate cash flow. We use these Non-GAAP measures as important indicators of our past performance and to plan and forecast performance in future periods. The Non-GAAP financial information presented 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, October 7, 2010, at 11:00 A.M. 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 digital 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 digital, test preparation and assessment materials that help teachers prepare students for success in school and for required state proficiency tests for 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  
    August 31, 2010     May 31, 2010     August 31, 2009  
ASSETS                        
                         
Current Assets                        
Cash and Cash Equivalents   $ 209     $ 110     $ 102  
Accounts Receivable Net of Allowances for Doubtful Accounts and Returns     5,728       2,990       6,531  
Inventory, Net     3,565       3,591       3,887  
Prepaid Expenses and Other     309       264       355  
Prepaid Marketing Expenses     788       642       878  
Deferred Income Taxes     692       833       827  
  Total Current Assets     11,291       8,430       12,580  
                         
Equipment - At Cost, Less Accumulated Depreciation of $2,486, $2,444 and $2,301, respectively     236       249       347  
                         
Other Assets                        
Deferred Prepublication Costs, Net     13,064       12,864       12,800  
Deferred Income Taxes     -       477       412  
Trademarks, Net     224       189       185  
Prepaid Expenses and Other     149       167       250  
  Total Other Assets     13,437       13,697       13,647  
                         
Total Assets   $ 24,964     $ 22,376     $ 26,574  
                         
LIABILITIES AND STOCKHOLDERS' EQUITY                        
                         
Current Liabilities                        
Current Maturities of Long Term Obligations   $ 2,000     $ 2,000     $ 2,023  
Accounts Payable     8,857       4,904       7,829  
Accrued Compensation     346       153       326  
Other Accrued Expenses     585       527       1,040  
Deferred Revenue     441       404       259  
  Total Current Liabilities     12,229       7,988       11,477  
                         
Long Term Obligations, Less Current Maturities     5,845       8,584       8,122  
                         
Total Liabilities     18,074       16,572       19,599  
                         
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: 4,481,434, as of August 31, 2010 and 4,478,434 shares as of May 31, 2010 and August 31, 2009     90       90       90  
Additional Paid In Capital     8,154       8,120       8,080  
Accumulated Deficit     (1,290 )     (2,342 )     (1,131 )
Treasury Stock - 16,232 shares, at cost     (64 )     (64 )     (64 )
Total Stockholders' Equity     6,890       5,804       6,975  
                         
Total Liabilities and Stockholders' Equity   $ 24,964     $ 22,376     $ 26,574  
       
       
       
       
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
       
(In Thousands, Except Per Share Data)      
       
  Three Months Ended
  August 31,
       
  2010   2009
           
Revenue, Net $ 13,148   $ 14,749
           
Cost of Revenue          
  Direct Costs   6,666     7,413
  Prepublication Cost Amortization   1,294     1,400
  Total   7,960     8,813
           
Gross Profit   5,188     5,936
           
Selling, General and Administrative Expenses   3,409     3,511
           
Income from Operations   1,779     2,425
           
Other Expenses, Net   8     10
Interest Expense   101     94
           
Income Before Income Taxes   1,670     2,321
           
Income Tax Expense   618     859
           
Net Income $ 1,052   $ 1,462
           
Net Income per Common Share:          
  Basic and Diluted $ 0.24   $ 0.33
           
Weighted-average Number of Common Shares Outstanding:          
  Basic and Diluted   4,464     4,462
   
   
   
   
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  
           
(In Thousands) Three Months Ended  
  August 31,  
  2010     2009  
Cash Flows From Operating Activities              
Net Income $ 1,052     $ 1,462  
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities              
  Depreciation   42       60  
  Amortization of Prepublication Costs and Intangible Assets   1,301       1,403  
  Stock-Based Compensation   30       20  
  Market Value Adjustment of Interest Rate Swap   23       (39 )
  Deferred Income Taxes   618       859  
Changes in Assets and Liabilities              
  Accounts Receivable   (2,738 )     (3,689 )
  Inventory   26       332  
  Prepaid Expenses and Other   (27 )     (9 )
  Prepaid Marketing Expenses   (146 )     (16 )
  Accounts Payable and Accrued Expenses   4,204       4,172  
  Deferred Revenue   37       (19 )
    Net Cash Provided By Operating Activities   4,422       4,536  
               
Cash Flows From Investing Activities              
  Purchases of Equipment   (29 )     (20 )
  Expenditures for Intangibles   (42 )     (18 )
  Expenditures for Prepublication Costs   (1,494 )     (734 )
    Net Cash Used In Investing Activities   (1,565 )     (772 )
               
Cash Flows From Financing Activities              
  Net Payments Under Line of Credit   (2,262 )     (3,193 )
  Exercise of Stock Options   4       -  
  Principal Payments On Long-Term Debt   (500 )     (511 )
    Net Cash Used In Financing Activities   (2,758 )     (3,704 )
               
    Net Increase in Cash and Cash Equivalents   99       60  
               
Cash and Cash Equivalents              
  Beginning of Period   110       42  
  End of Period $ 209     $ 102  
               
Supplemental Cash Flow Information              
  Cash Payments for:              
    Interest $ 66     $ 139  
   
   
   
   
Exhibit 1  
           
Reconciliation of Net Income to Non-GAAP Adjusted Net Income     
           
(In Thousands - Except Share Data)          
  Three Months Ended  
  8/31/2010     8/31/2009  
Net Income $ 1,052     $ 1,462  
Amortization of Prepublications Costs   1,294       1,400  
Cash Expenditures for Prepublication Costs   (1,494 )     (734 )
Market Value Adjustment of Interest Rate Swap   23       (39 )
Adjusted Income Tax Benefit   65       (232 )
Non-GAAP Net Income $ 940     $ 1,857  
               
Basic Weighted Shares Outstanding   4,464       4,462  
               
Non-GAAP Earnings Per Share $ 0.21     $ 0.42  
               
Exhibit 2  
           
Reconciliation of Net Cash Provided By Operating Activities to Free Cash Flow  
               
(In Thousands)              
  Three Months Ended  
  8/31/2010     8/31/2009  
Net Cash Provided By Operating Activities $ 4,422     $ 4,536  
Cash Expenditures for Equipment and Intangibles   (71 )     (38 )
Cash Expenditures for Prepublication Costs   (1,494 )     (734 )
Free Cash Flow $ 2,857     $ 3,764  

 

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