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 six
months ended November 30, 2010.
Net revenue for the quarter was $6.2 million, a decrease of $1.1
million from the same period in the prior year. Revenue from the
Test Preparation, Assessment and Instruction product group was $4.0
million, compared to $4.9 million in the prior year. College
Preparation product group revenue for the period was $1.8 million,
a year-over-year decline of $186,000 and Literacy product group
revenue was $371,000 compared to $405,000 in the prior year. Net
loss for the quarter was $581,000, compared to $303,000 in the
prior year. Basic and diluted net loss per share was $0.13,
compared to $0.07 in the prior year. Non-GAAP net loss, which
excludes non-recurring costs and adjusts for the difference between
prepublication expenditures and amortization, for the current
period was $825,000, or $0.18 per share, compared to a Non-GAAP net
income of $29,000 or $0.01 per share in the prior year (see Exhibit
1).
Net revenue for the six months ended November 30, 2010 was $19.3
million, a decline of $2.8 million from the same period in the
prior year. Test Preparation, Assessment and Instruction product
group revenue was $9.1 million, a year-over-year decline of $2.1
million. College Preparation product group revenue was $9.0
million, a decline of $0.6 million and revenue generated from our
Literacy product group was $1.2 million, a decline of $47,000. Net
income for the period was $471,000; a decline from prior year
results of $1.2 million, and earnings per share was $0.11, as
compared to $0.26 in the prior year. Non-GAAP net income for the
six month period was $115,000, or $0.03 per share compared to $1.9
million or $0.42 per share in the prior year. The year-over-year
decline in Non-GAAP net income is due to the $687,000 decline in
Net Income and an increase, due to the timing of new product
releases, of $1.6 million in product development expenditures.
Free cash flow (cash provided by operating activities reduced by
expenditures for prepublication costs, equipment and intangibles,
see Exhibit 2) was $2.2 million, a decline from $5.3 million in the
prior year. The change in the free cash flow is a result of the
difference in net income between the two periods and the $1.6
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.
Financial Highlights for the Six Months Ended November 30,
2010
- Free Cash Flow (cash provided by operating activities reduced
by expenditures for prepublication cost, equipment and intangibles,
see Exhibit 2) for the six months continues to be strong at $2.2
million.
- Amortization of prepublication costs decreased by 7.1% on a
year-over-year basis.
- General and Administrative expenses declined 6.2% from the
prior year to $2.2 million.
- Bank Debt declined by $2.3 million from May 31, 2010.
Business Outlook - Guidance Revised
Brian T. Beckwith, President and CEO, commented, "The K-12
supplemental market continues to be impacted by budget cuts and
schools are reacting by delaying, and in some cases reducing or not
placing orders for supplemental materials. These circumstances have
had an adverse impact on our revenue. However, we continue to
closely manage our operating expenses while continuing to invest in
new product offerings with an emphasis on the continued rollout of
our digital product; ePath Knowledge Suite, and new products
aligned to the Common Core State Standards. Despite the current
state of the market, we feel this product development strategy will
have long term benefits and position us well for future growth when
the market improves."
"Based on our six month year to date results and our forecast
for the balance of the year, we are adjusting our full year
guidance. We expect revenue to be between $34 million to $35
million, net income of $250,000 to $500,000, or $0.06 to $0.11 per
basic share, Non-GAAP net income to be between $500,000 to $1.0
million, or $0.11 to $0.22 per basic share, and positive free cash
flow to range between $1.5 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. 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, January 7, 2011, 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
November May 31, November
30, 2010 2010 30, 2009
---------- ---------- ----------
ASSETS
Current Assets
Cash and Cash Equivalents $ 34 $ 110 $ 118
Accounts Receivable Net of Allowances
for Doubtful Accounts and Returns 2,190 2,990 2,203
Inventory, Net 3,673 3,591 4,047
Prepaid Expenses and Other 320 264 347
Prepaid Marketing Expenses 625 642 617
Deferred Income Taxes 632 833 708
---------- ---------- ----------
Total Current Assets 7,474 8,430 8,040
Equipment - At Cost, Less Accumulated
Depreciation of $2,528, $2,444 and
$2,358, respectively 206 249 319
---------- ---------- ----------
Other Assets
Deferred Prepublication Costs, Net 13,445 12,864 12,233
Deferred Income Taxes 402 477 700
Trademarks, Net 226 189 188
Prepaid Expenses and Other 131 167 224
---------- ---------- ----------
Total Other Assets 14,204 13,697 13,345
---------- ---------- ----------
Total Assets $ 21,884 $ 22,376 $ 21,704
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long Term
Obligations $ 2,000 $ 2,000 $ 2,012
Accounts Payable 6,097 4,904 5,392
Accrued Compensation 199 153 155
Other Accrued Expenses 438 527 557
Deferred Revenue 534 404 375
---------- ---------- ----------
Total Current Liabilities 9,268 7,988 8,491
Long Term Obligations, Less Current
Maturities 6,315 8,584 6,528
---------- ---------- ----------
Total Liabilities 15,583 16,572 15,019
---------- ---------- ----------
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 November 30, 2010 and
4,478,434 shares as of May 31, 2010
and November 30, 2009 90 90 90
Additional Paid In Capital 8,146 8,120 8,094
Accumulated Deficit (1,871) (2,342) (1,435)
Treasury Stock - 16,232 shares, at cost (64) (64) (64)
---------- ---------- ----------
Total Stockholders' Equity 6,301 5,804 6,685
---------- ---------- ----------
Total Liabilities and Stockholders'
Equity $ 21,884 $ 22,376 $ 21,704
========== ========== ==========
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
November 30, November 30,
2010 2009 2010 2009
-------- -------- --------- ---------
Revenue, Net $ 6,156 $ 7,305 $ 19,304 $ 22,054
Cost of Revenue
Direct Costs 2,399 2,727 9,065 10,141
Prepublication Cost
Amortization 1,239 1,328 2,533 2,728
-------- -------- --------- ---------
Total 3,638 4,055 11,598 12,869
-------- -------- --------- ---------
Gross Profit 2,518 3,250 7,706 9,185
Selling, General and Administrative
Expenses 3,374 3,640 6,783 7,150
-------- -------- --------- ---------
Income (Loss) from Operations (856) (390) 923 2,035
Other Expenses, Net 9 3 17 14
Interest Expense 58 65 159 160
-------- -------- --------- ---------
Income (Loss) Before Income Taxes (923) (458) 747 1,861
Income Tax Expense (Benefit) (342) (155) 276 703
-------- -------- --------- ---------
Net Income (Loss) $ (581) $ (303) $ 471 $ 1,158
======== ======== ========= =========
Net Income (Loss) per Common Share:
Basic and Diluted $ (0.13) $ (0.07) $ 0.11 $ 0.26
Weighted-average Number of Common
Shares Outstanding:
Basic 4,465 4,462 4,464 4,462
Diluted 4,465 4,462 4,465 4,465
======== ======== ========= =========
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands) Six Months Ended
November 30,
2010 2009
---------- ----------
Cash Flows From Operating Activities
Net Income $ 471 $ 1,158
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation 84 117
Amortization of Prepublication Costs and
Intangible Assets 2,544 2,735
Stock-Based Compensation 22 34
Market Value Adjustment of Interest Rate Swap 16 (79)
Deferred Income Taxes 276 690
Changes in Assets and Liabilities
Accounts Receivable 800 639
Inventory (82) 172
Prepaid Expenses and Other (20) 25
Prepaid Marketing Expenses 17 245
Accounts Payable and Accrued Expenses 1,150 1,081
Deferred Revenue 130 97
---------- ----------
Net Cash Provided By Operating Activities 5,408 6,914
---------- ----------
Cash Flows From Investing Activities
Purchases of Equipment (41) (49)
Expenditures for Intangibles (48) (25)
Expenditures for Prepublication Costs (3,114) (1,495)
---------- ----------
Net Cash Used In Investing Activities (3,203) (1,569)
---------- ----------
Cash Flows From Financing Activities
Net Payments Under Line of Credit (1,285) (4,247)
Exercise of Stock Options 4 -
Principal Payments On Long-Term Debt (1,000) (1,022)
---------- ----------
Net Cash Used In Financing Activities (2,281) (5,269)
---------- ----------
Net Increase (decrease) in Cash and Cash
Equivalents (76) 76
Cash and Cash Equivalents
Beginning of Period 110 42
---------- ----------
End of Period $ 34 $ 118
========== ==========
Supplemental Cash Flow Information
Cash Payments for:
Interest $ 135 $ 252
========== ==========
Exhibit 1
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss)
(In Thousands - Except Share Data)
Three Months Ended Six Months Ended
11/30/2010 11/30/2009 11/30/2010 11/30/2009
---------- ---------- ---------- ----------
Net Income (Loss) $ (581) $ (303) $ 471 $ 1,158
Amortization of
Prepublications Costs 1,239 1,328 2,533 2,728
Cash Expenditures for
Prepublication Costs (1,620) (761) (3,114) (1,495)
Market Value Adjustment of
Interest Rate Swap (7) (40) 16 (79)
Adjusted Income Tax Expense
(Benefit) 144 (195) 209 (427)
---------- ---------- ---------- ----------
Non-GAAP Net Income (Loss) $ (825) $ 29 $ 115 $ 1,885
========== ========== ========== ==========
Basic Weighted Shares
Outstanding 4,465 4,462 4,464 4,462
Non-GAAP Earnings Per Share $ (0.18) $ 0.01 $ 0.03 $ 0.42
Exhibit 2
Reconciliation of Net Cash Provided By Operating Activities to Free
Cash Flow
(In Thousands)
Three Months Ended Six Months Ended
11/30/2010 11/30/2009 11/30/2010 11/30/2009
---------- ---------- ---------- ----------
Net Cash Provided By
Operating Activities $ 986 $ 2,378 $ 5,408 $ 6,914
Cash Expenditures for
Equipment and Intangibles (18) (36) (89) (74)
Cash Expenditures for
Prepublication Costs (1,620) (761) (3,114) (1,495)
---------- ---------- ---------- ----------
Free Cash Flow $ (652) $ 1,581 $ 2,205 $ 5,345
========== ========== ========== ==========
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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