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, May 31, August 31,
2010 2010 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
============= =============
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
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