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, 2011.
Net revenue for the quarter was $5.1 million, compared to $5.5
million in the prior year. Net loss for the seasonally slow third
quarter was $625,000, an improvement of $176,000 and 22% from the
prior year. Net loss per share for the quarter was $0.14, compared
to $0.18 in the prior year.
"Although revenue did decline in the third quarter compared to
the prior year we are encouraged by the positive trend over our
first and second quarter results and we are expecting this momentum
to continue into the fourth quarter. I'm also particularly pleased
by the feedback from the market to our new Common Core Standards
products which were introduced during the quarter," states Brian T.
Beckwith, President and Chief Executive Officer.
Third Quarter Financial Results
-- Total revenue for the third quarter ending February 28, 2011 was
$5.1 million compared to $5.5 million in the prior year. Test
Preparation, Assessment, and Instruction product group revenue was
$4.1 million compared to $4.4 million in the prior year. College
Preparation revenue increased to $713,000 for the current period from
$521,000 and Literacy revenue was $306,000 compared to $579,000 in
the prior year.
-- Gross profit as a percentage of revenue increased from 41.8% of revenue
in the prior year to 43.8% in the current period. Direct Cost as a
percentage of revenue decreased from 33.2% to 29.2% primarily due to
product revenue mix. Prepublication cost amortization expense remained
consistent in dollars but increased as a percentage of revenue from
25.0% in the prior year to 27.0% due to the decline in revenue.
-- Marketing and selling expenses declined in both dollars and as a
percentage of revenue from $2.3 million and 42.8% of revenue in the
prior year to $2.0 million and 38.9% of revenue.
-- General and administrative expenses increased by $99,000 on a
year-over-year basis primarily due to $137,000 of stock-based
compensation expense, offset by overall expense reductions.
-- Net loss for the period for the third quarter was $625,000 ($0.14 per
share) compared to a loss of $801,000 ($0.18 per share) in the
prior year.
Nine-Month Financial Results
-- Total revenue for the nine-month period ending February 28, 2011 was
$24.4 million compared to $27.5 million in the prior year. Test
Preparation, Assessment and Instruction revenue was $13.2 million,
compared to $15.5 million in the prior year. College Preparation
revenue was $9.7 million for the current period compared to
$10.1 million and Literacy revenue was $1.5 million compared to
$1.8 million in the prior year.
-- Gross profit as a percentage of revenue declined from 41.7% in the
prior year to 40.7%. The decline is primarily due to amortization of
prepublication costs which although decreased $174,000 from the prior
year to $3.9 million, increased as a percentage of revenue from 14.9%
to 16.0% due to revenue decline.
-- Marketing and selling expenses decreased from $7.1 million (25.8% of
revenue) in the prior year to $6.5 million (28.8% of revenue).
-- General and administrative expenses decreased by $49,000 on a
year-over-year basis primarily due to overall expense reductions,
offset by an increase of $125,000 in stock-based compensation expense.
-- Net loss for the period for the nine-month period was $155,000
($0.03 per share) compared to net income of $357,000 ($0.08 per share)
in the prior year.
-- Non-GAAP net income (loss), which excludes non-recurring costs and
adjusts for the difference between prepublication expenditures and
amortization, was a loss of $291,000, or $0.07 per share, compared to
income of $1.2 million or $0.27 per share in the prior year (see
Exhibit 1). The year-over-year fluctuation is primarily due to the
$512,000 decline in net income, and the $1.5 million increase in product
development expenditures, due to the timing of new product releases.
We anticipate however, that the full year product development
expenditures will be comparable to the prior year.
-- Free cash flow (cash provided by operating activities reduced by
expenditures for prepublication costs, equipment and intangibles, see
Exhibit 2) declined from $3.3 million in the prior year to a negative
$292,000 in the current year. The decline in free cash flow is a
result of a $2.0 million decrease in net cash provided by operations
consisting primarily of fluctuations in net income, deferred taxes and
prepaid marketing expenses compared to the prior year. In addition,
product development expenditures were $1.5 million higher than the
prior year due to timing of product releases. However, full-year
product development expenditures are anticipated to be in line with
the prior year expenditures.
Full Year Guidance - Revised
"Although we are encouraged by the improvement in revenue for
the third quarter and expect that trend to continue into the fourth
quarter, we are still being impacted by the effects of state and
local budgetary issues. Therefore we are adjusting our full year
guidance. We are projecting full year revenue to be between $32
million to $33 million, net loss to be between $200,000 to
$300,000, or $0.04 to $0.07 per basic share, Non-GAAP net income to
be between $175,000 to $275,000 or $0.04 to $0.06 per share, and
positive free cash flow to range between $250,000 to $400,000,"
states Brian T. Beckwith.
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, April 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.
Conference Call and Webcast Details:
Live Conference Call
Thursday, April 7, 2011 at 11:00 A.M. Eastern Time
US: 800-638-4930
International: 617-614-3944
Participant Passcode: 65713950
Live Audio Webcast:
http://phx.corporate-ir.net/playerlink.zhtml?c=184416&s=wm&e=3837309
Webcast Replay (available approximately two hours after
conference call ends through April 6, 2012)
http://phx.corporate-ir.net/playerlink.zhtml?c=184416&s=wm&e=3837309
Dial-in Audio Replay (available approximately two hours after
conference call ends through April 14, 2011)
Dial In: 888-286-8010
International: 617-801-6888
Passcode: 54552733
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
February May 31, February
28, 2011 2010 28, 2010
--------- --------- ---------
ASSETS
Current Assets
Cash and Cash Equivalents $ 33 $ 110 $ 95
Accounts Receivable Net of Allowances for
Doubtful Accounts and Returns 2,204 2,990 2,261
Inventory, Net 3,554 3,591 3,980
Prepaid Expenses and Other 390 264 357
Prepaid Marketing Expenses 710 642 443
Deferred Income Taxes 900 833 938
--------- --------- ---------
Total Current Assets 7,791 8,430 8,074
Equipment - At Cost, Less Accumulated
Depreciation of $2,551, $2,444 and
$2,405, respectively 308 249 272
--------- --------- ---------
Other Assets
Deferred Prepublication Costs, Net 13,095 12,864 11,991
Deferred Income Taxes 502 477 212
Trademarks, Net 232 189 189
Prepaid Expenses and Other 114 167 185
--------- --------- ---------
Total Other Assets 13,943 13,697 12,577
--------- --------- ---------
Total Assets $ 22,042 $ 22,376 $ 20,923
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long Term
Obligations $ 2,000 $ 2,000 $ 2,000
Accounts Payable 4,004 4,904 3,322
Accrued Compensation 391 153 241
Other Accrued Expenses 506 527 444
Deferred Revenue 508 404 546
--------- --------- ---------
Total Current Liabilities 7,409 7,988 6,553
Long Term Obligations, Less Current
Maturities 8,810 8,584 8,475
--------- --------- ---------
Total Liabilities 16,219 16,572 15,028
--------- --------- ---------
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 February 28, 2011 and 4,478,434 shares
as of May 31, 2010 and February 28, 2010 90 90 90
Additional Paid In Capital 8,294 8,120 8,105
Accumulated Deficit (2,497) (2,342) (2,236)
Treasury Stock - 16,232 shares, at cost (64) (64) (64)
--------- --------- ---------
Total Stockholders' Equity 5,823 5,804 5,895
--------- --------- ---------
Total Liabilities and Stockholders' Equity $ 22,042 $ 22,376 $ 20,923
========= ========= =========
PEOPLES EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
February 28, February 28,
2011 2010 2011 2010
-------- -------- -------- ---------
Revenue, Net $ 5,126 $ 5,450 $ 24,430 $ 27,504
Cost of Revenue
Direct Costs 1,496 1,809 10,561 11,950
Prepublication Cost
Amortization 1,385 1,364 3,918 4,092
-------- -------- -------- ---------
Total 2,881 3,173 14,479 16,042
-------- -------- -------- ---------
Gross Profit 2,245 2,277 9,951 11,462
Selling, General and Administrative
Expenses 3,162 3,398 9,945 10,548
-------- -------- -------- ---------
Income (Loss) from Operations (917) (1,121) 6 914
Other Expenses, Net 5 11 22 25
Interest Expense 71 46 230 206
-------- -------- -------- ---------
Income (Loss) Before Income Taxes (993) (1,178) (246) 683
Income Tax Expense (Benefit) (368) (377) (91) 326
-------- -------- -------- ---------
Net Income (Loss) $ (625) $ (801) $ (155) $ 357
======== ======== ======== =========
Net Income (Loss) per Common Share:
Basic and Diluted $ (0.14) $ (0.18) $ (0.03) $ 0.08
Weighted-average Number of
Common Shares Outstanding:
Basic 4,465 4,462 4,465 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) Nine Months Ended
February 28,
2011 2010
-------- --------
Cash Flows From Operating Activities
Net Income (Loss) $ (155) $ 357
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation 107 164
Amortization of Prepublication Costs and Intangible
Assets 3,936 4,104
Stock-Based Compensation 170 45
Market Value Adjustment of Interest Rate Swap 15 (117)
Deferred Income Tax (Benefit) (92) 948
Changes in Assets and Liabilities
Accounts Receivable 786 581
Inventory 37 239
Prepaid Expenses and Other (73) 54
Prepaid Marketing Expenses (68) 419
Accounts Payable and Accrued Expenses (683) (1,016)
Deferred Revenue 104 268
-------- --------
Net Cash Provided By Operating Activities 4,084 6,046
-------- --------
Cash Flows From Investing Activities
Purchases of Equipment (166) (49)
Expenditures for Intangibles (61) (31)
Expenditures for Prepublication Costs (4,149) (2,617)
-------- --------
Net Cash Used In Investing Activities (4,376) (2,697)
-------- --------
Cash Flows From Financing Activities
Net (Payments) Borrowings Under Line of Credit 1,711 (1,762)
Exercise of Stock Options 4 -
Principal Payments On Long-Term Debt (1,500) (1,534)
-------- --------
Net Cash Provided By (Used In) Financing Activities 215 (3,296)
-------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents (77) 53
Cash and Cash Equivalents
Beginning of Period 110 42
-------- --------
End of Period $ 33 $ 95
======== ========
Supplemental Cash Flow Information
Cash Payments for:
Interest $ 217 $ 382
======== ========
Exhibit 1
Reconciliation of Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss)
(In Thousands - Except Share Data)
Nine Months Ended
2/28/2011 2/28/2010
--------- ---------
Net Income (Loss) $ (155) $ 357
Amortization of Prepublication Costs 3,918 4,092
Cash Expenditures for Prepublication Costs (4,149) (2,617)
Market Value Adjustment of Interest Rate Swap 15 (117)
Adjusted Income Tax Expense (Benefit) 80 (502)
--------- ---------
Non-GAAP Net Income (Loss) $ (291) $ 1,213
========= =========
Basic Weighted Shares Outstanding 4,465 4,462
Non-GAAP Earnings Per Share $ (0.07) $ 0.27
Exhibit 2
Reconciliation of Net Cash Provided By Operating Activities to Free Cash
Flow
(In Thousands)
Nine Months Ended
2/28/2011 2/28/2010
--------- ---------
Net Cash Provided By Operating Activities $ 4,084 $ 6,046
Cash Expenditures for Equipment and Intangibles (227) (80)
Cash Expenditures for Prepublication Costs (4,149) (2,617)
--------- ---------
Free Cash Flow $ (292) $ 3,349
========= =========
Contacts: Peoples Education, Inc., Saddle Brook, NJ 07663 Press
Contact: Victoria Kiely Phone: 201-712-0090 ext. 215 Email
Contact
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