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8-K - PEOPLES EDUCATIONAL HOLDINGS | v207431_8k.htm |
EXHIBIT
99.1 – Press release
For
Release Before Market Opens
January
7, 2011
Peoples Educational
Holdings, Inc. Reports Second Quarter Results
Saddle
Brook, New Jersey, January 7, 2011 – 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.
|
2
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.
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
investorrelations@peoplesed.com
3
PEOPLES
EDUCATIONAL HOLDINGS, INC. AND SUBSIDIARY
|
||||||||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
||||||||||||
(In
Thousands-Except Share Data)
|
UNAUDITED
|
UNAUDITED
|
||||||||||
November
30, 2010
|
May
31, 2010
|
November
30, 2009
|
||||||||||
ASSETS
|
||||||||||||
Current
Assets
|
||||||||||||
Cash
and Cash Equivalents
|
$ | 34 | $ | 110 | $ | 118 | ||||||
Accounts
Receivable Net of Allow ances 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 |
4
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,
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|||||||||||||||
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 |
5
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 Sw ap
|
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
Flow s 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
Flow s 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 |
6
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 Sw ap
|
(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 |
7