Peoples Educational Holdings, Inc. F4Q10 (Qtr End 05/31/10) Earnings Call Transcript

Peoples Educational Holdings, Inc. F4Q10 (Qtr End 05/31/10) Earnings Call Transcript
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Peoples Educational Holdings, Inc. (PEDH)

F4Q10 (Qtr End 05/31/10) Earnings Call Transcript

August 05, 2010 11:00 am

Executives

Brian Beckwith - President & CEO

Mike DeMarco - CFO

Analysts

Sally Wallick - TriPoint

Presentation

Operator

Welcome to Peoples Educational Holdings earnings conference call. My name is Towanda, and I’ll be your operator today. (Operator Instructions).

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Before we begin, the company has asked me to read the following statement. Today’s presentation by management contains forward-looking statements within the meaning of the Securities Exchange Act of 1934. These forward-looking statements represent the company’s present expectations or beliefs concerning future events. The company cautions that such statements are necessarily based on certain assumptions which are subject to risks and uncertainties which could cause actual results to differ materially from those indicated today.

These risk factors include changes in general economic conditions; local and state levels of educational spending; changes in demand from customers; variations in the mix of products sold; the impact of competitive products and pricing; and the company’s ability to respond to rapidly changing technologies. Further information on these risk factors is included in the company’s filings with the Securities and Exchange Commission.

I’ll now like to hand the call over to the host for today’s call, Brian Beckwith. You may proceed, sir.

Brian Beckwith

I’m Brian Beckwith, President and CEO of Peoples Educational Holdings. Welcome to our fiscal year 2010 fourth quarter and year-end earnings conference call. I’ll begin with a brief overview and Mike DeMarco, our Chief Financial Officer, will discuss our financial results in more detail.

Our fiscal year ending May 31st, 2010 was challenging given the steep decline in the economy and a resulting difficult market for K-12 instruction materials. As state and local education budgets continue to be enormous pressure, despite the influx of federal funds from the American Recovery and Reinvestment Act.

Our revenue for the year was $34.9 million, a decrease of 5% from the prior year. Despite decline in revenue, however we continue to manage the business well from a bottom line perspective. We are pleased to report for the 12 months ended May31st, 2010 that net income was up significantly on a year-over-year basis. Free cash flow was up significantly as well and we continue to pay down our bank debt. Our overall bank debt including our term loan and revolving line of credit was approximately $3.1 million lower than at the same point in the prior year.

As I mentioned, we are operating in a difficult environment, yet we continue to do better than the overall market. According to The American Association of Publishers, K-12 education material sales for the 12-month period ending May 31st, 2010 were down 10% from the same period in the prior year, while Peoples Education was down 5% for the comparable period.

According to a recent report from the National Association of State Budget Officers, at least 30 states and the District of Columbia have enacted cuts in K-12 educational funding since the beginning of the recession and the majority of the states continue to face budget gaps. Yet despite the adverse conditions which have impacted our revenue in the short term, we are financially healthy as a result of prudent cost controls and increased efficiency in product development.

We continue to invest strongly in new product development with an enhanced focus on digital delivery of the assessments, instruction and practice. Having invested in the development of a strong, standard space content database and test preparation lessons and assessment, we feel that we are extremely well positioned to leverage that content into new segment to the test preparation market and digital applications delivered via a software service model.

And as states revised their standards and assessments, either independently or relative to the Common Core Standards initiative being considered by most states, we feel we are well positioned to repurpose our content to adapt to these changes. We’ve begun a major effort to align our content to the now released Common Core Standards, and we will be in a position to offer timely correlations to existing tested standards as well as new product that focuses specifically on the Common Core Standards that will begin to be taught in many states. It's too early to comment in detail on the outcome of the reauthorization of the Elementary and Secondary Education Act which has begun to be considered by national legislators.

In all of the preliminary discussions today, rigorous standards and strong accountability relative to these standards have been essential theme. These are positive indicators for our business. We believe that providing digital standards based instruction as well as assessment will be a key part of our strategy over the next several years as the market continues to move towards electronic preparation, test practice and instruction for state test.

We've been working over the past year to develop internet-delivered instruction and test practice capabilities. And we continue to be excited about the potential for our new ePath Knowledge suite. In addition to our digital expansion, we’ve continued to invest aggressively in new and revised print product with a focus on our popular Measuring Up series and our newer streamlined Measuring Up Express.

During the course of this fiscal year, we are planning to release new or revised print instruction and assessment into seven of the 11 states that we currently focused on with the state-specific product including California, Illinois, New Jersey, New York, Ohio, Texas and Virginia.

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