EXHIBIT 99.1 - Press release
For Immediate Release
PEOPLES EDUCATIONAL HOLDINGS, INC. ANNOUNCES 2005 YEAR END RESULTS
(Saddle Brook, NJ) - March 24, 2006 - Peoples Educational Holdings, Inc.
(NASDAQ: PEDH) today reported its 2005 year-end results.
The Company has reorganized revenue reporting into two primary groups, which
reflect its core businesses:
1) Test Preparation, Assessment, and Instruction, which is comprised
primarily of proprietary state-specific, standards-based test
preparation and instructional worktexts, and printed and on-line
classroom assessments. Revenue from this group represented 66% of
total revenue in 2005. At year-end, Test Preparation and Assessment
products were customized in 12 states, and customized Instructional
worktexts were available in 8 states.
2) College Preparation, which consist primarily of college level texts
and other materials sold into senior high schools for Advanced
Placement, honors, and other college track courses. The Company does
publish its own proprietary products, but the majority of the revenue
within this group is derived from the sale of distributed products
from major college publishers with whom exclusive distribution
agreements are in place. Revenue for this group represented 34% of the
Company's total 2005 revenue.
Revenue for both product groups was $35.5 million for 2005 representing an
increase of 9.1% from 2004.
Test Preparation, Assessment, and Instruction revenue for 2005 was $23.6 million
representing an increase of 9.8% over the prior year. However, revenue was
essentially flat (down 0.6%) in the first half of 2005 relative to the same
period in 2004. This was primarily due to changes in academic standards and/or
test formats in a number of the states in which the Company offers customized
product, which necessitated a revision and a relaunch of the products. Revenue
for the second half of 2005 was up 19.4% compared to the same period in the
prior year, as a result of the release of the new and revised products. Revenue
for the fourth quarter of 2005 was up 22.0% compared to the same period in 2004.
Revenue, from 2001 to 2005 has increased from $4.8 million to $23.5 million, a
compound annual growth rate of 48.8%.
College Preparation revenue for 2005 was $11.9 million representing an increase
of 7.9% over the prior year. Revenue was up 17% for the first half of 2005, and
up 3.5% in the second half of 2005 compared to the same periods in 2004. Revenue
in the first half of 2005 was higher than anticipated due the timing of customer
orders that were received during the second quarter that normally would have
been received in the third quarter, which is the largest revenue quarter for
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this group. Revenue for the fourth quarter of 2005 decreased by 23.5% compared
to the same period in 2004. However, historically, the fourth quarter is a
relatively small quarter, representing approximately 9% of the annual revenue
for this group. The Company believes the decline in revenue during the fourth
quarter is temporary fluctuation. Revenue, from 2001 to 2005 has increased from
$8.3 million to $11.9 million, a compound annual growth rate of 9.4%.
Related to the reorganization of product line revenue groupings, the Company
made a strategic decision to focus its product development, sales, and marketing
efforts on its core businesses with a particular emphasis on our fast-growing
Test Preparation, Assessment, and Instruction product group. In conjunction with
this reevaluation, the Company has written-down, on a one-time basis, a number
of underperforming assets. In addition, in connection with these write-downs, a
general reserve against prepublication assets and inventory has been
established. The total amount of the adjustment was $4.7 million.
The strategic reorganization was focused in a number of key areas, as follows:
1. Electronic - The Company is continuing its product development in this
area, although to a lesser degree than in the past. The Company will
continue to actively develop, market and sell its electronic products.
It was determined that a write-down was warranted to bring the
capitalized investment to a level that is in line with the expected
future revenue.
2. Test Preparation and Assessment - A number of underperforming,
discontinued, and incomplete products, many of them customized
district level products that have not performed to expectations, are
also being written off.
3. The Company has made the strategic decision to pull back from the
professional development initiative that it tested in a number of
states last year. It was determined that the management attention,
sales force focus, and investment in product development could be more
productively utilized within its core student materials product
offerings. The Company will not be investing in any new product
development, however it will continue its distributor relationships
with other publishers of professional development materials in order
to take advantage of strategic selling opportunities.
As noted, during the fourth quarter of 2005 the Company incurred a one-time
expense of $4.7 million, as discussed above relating to the write-down or
write-off of underperforming prepublication assets and their related inventory
and the establishment of general reserves for inventory and prepublication
assets. The $4.7 million adjustment is all reflected within Cost of Revenue in
the income statement, but on various expense lines depending on the exact nature
of the expense. It is broken down as follows:
- Direct Costs $ 200,000
- Prepublication Cost Amortization $ 600,000
- Product Line Restructuring Charges $3,900,000
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Gross profit decreased from $15.2 million in 2004 to $10.7 million in 2005. The
fluctuation is primarily a result of the $4.7 million adjustment noted above. If
this adjustment was excluded, gross profit would have been $15.4 million, or 43%
of revenue in 2005 compared to $15.2 million or 47% of revenue in 2004. The
fluctuation as a percent of revenue is due to an increase in direct costs and
prepublication cost amortization related to our new product launches.
Operating expenses increased from $12.8 million in 2004 to $15.2 million in
2005. As a percent of revenue it increased from 39.4% in 2004 to 43.0% in 2005.
The increase is a result of the increased sales and marketing expenses including
salaries, promotion, exhibit, book sample, catalog, and travel expense
associated with new product and product line launches. In addition,
administrative expenses increased as a result of infrastructure investments to
support revenue growth, and increased accounting expenses as a result of
Sarbanes-Oxley compliance requirements.
Operating income for 2004 was $2.4 million compared to a loss of $4.6 million in
2005. The decrease is primarily a result of the $4.7 million adjustment within
Cost of Revenue and increases in prepublication amortization, direct costs and
operating expenses as noted above.
Liquidity and Capital Resources
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Net cash provided by operating activities for 2005 was $5.3 million, compared to
$4.8 million in 2004.
Net cash used in investing activities was $11.9 million in 2005 compared to $8.5
million in 2004. Net cash used in investing activities for 2005 consisted
primarily of expenditures for prepublication costs of $11.5 million in 2005,
which represents an increase of $3.4 million from 2004.
Net cash provided by financing activities was $6.7 million in 2005 compared to
$3.3 million in 2004. Net cash provided by financing activities consisting
primarily of $3.9 million of net borrowings under the Company's line of credit
and term loans, $2.9 million from the proceeds from the sale of common stock,
offset by net payments on long-term debt.
In May 2005, the Company entered into a new $12 million financing facility,
which consists of a revolving line of credit and a term loan:
- The revolving line of credit provides for advances up to $7,000,000
and expires in May 2010.
- The term loan is for $5,000,000 and matures in May 2012. The term loan
provides for payments of interest only for the first twelve months and
for 72 equal monthly payments of principal and interest.
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As previously reported, The Company has changed its fiscal year end from
December 31st to May 31st. This will more closely align the Company's financial
year-end with its revenue cycle and its customers purchasing cycle. This change
will be effective May 31st 2006. Therefore our next full fiscal will begin June
1, 2006 (Fiscal '07).
The Company is projecting revenue for the 5-month stub-period ending May 31,
2006 to be approximately $12 million, which represents an increase of over 20%
from the same period in 2005.
Due to the seasonality of the revenue cycle, historically the Company has had
operating losses during the 5-month period January to May. For the 5 months
ending May 31, 2006, the Company is projecting an operating loss of between $1.2
and $1.4 million. This would be approximately 20% less than the operating loss
during the same period in 2005.
"Having made some important decisions relative to the strategic reorganization
noted above, we feel well-positioned to not only continue our revenue growth,
but to also deliver significant earnings growth during Fiscal '07," said Brian
Beckwith, President and CEO. "We will continue to leverage our revenue growth
against our fixed expense base, and reduce our variable costs, primarily product
cost. We have no plans for any major new product line launches in Fiscal '07;
instead, our product development, sales and marketing focus will be on growing
our existing core business with new and revised products and maximizing
profitability. We feel that operating income in Fiscal '07 will be significantly
greater than in past years, and will reach 20% within the next 3 to 4 years. We
also feel that a net income percentage of 10-12% is also attainable during that
same time period, and that significant strides toward that goal will be made in
Fiscal '07."
About Peoples Educational Holdings, Inc.
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Peoples Educational Holdings, Inc. is a publisher and marketer of print and
electronic educational materials for the K-12 school market. The Company focuses
its efforts in two market areas:
Test Preparation, Assessment, and Instruction Product Group
- -----------------------------------------------------------
- Test Preparation and Assessment: The Company creates and sells state
customized, print and electronic, test preparation and assessment
materials that help teachers prepare students for success in school
and for required state proficiency tests, grades 2-12.
- Instruction: Grades 2-8 state customized, print worktext and print and
web-based assessments that provide students in-depth instruction and
practice in reading, language arts, and mathematics.
College Preparation Product Group
- ---------------------------------
- The Company distributes and publishes instructional materials that
meet the academic standards high schools require for honors, college
preparation, and Advanced Placement courses. We are the exclusive high
school distributor for two major college publishers.
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The Company's proprietary products are supplemental in nature. They are
predominately soft-cover, high gross profit margin titles that can be sold
efficiently through the Company's direct sales force, as well as through
catalogs, direct mail, telemarketing, and independent commission sales
representatives. Distributed products are both basal and supplemental in nature.
Peoples Educational Holdings, Inc., Saddle Brook, NJ
Investor Contact: Michael DeMarco
Press Contact: Michael DeMarco
Phone: 201-712-0090
investorrelations@peoplespublishing.com
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This press release contains forward-looking statements regarding the Company and
its markets as defined in section 21E of the Securities Exchange Act of 1934.
These forward-looking statements involve a number of risks and uncertainties,
including (1) demand from major customers, (2) effects of competition, (3)
changes in product or customer mix or revenues and in the level of operating
expenses, (4) rapidly changing technologies and the Company's ability to respond
thereto, (5) the impact of competitive products and pricing, (6) local and state
levels of educational spending, (7) ability to retain qualified personnel, (8)
ability to retain its distribution agreements in the College Preparation market,
(9) the sufficiency of the Company's copyright protection, and (10) 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 report. 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.
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