ProQuest Reports Revenue Growth of 10 Percent And Earnings Per Share of $0.41 for the Third Quarter of 2003
ANN ARBOR, Mich., Oct. 21, 2003 -- ProQuest Company , a leading publisher of information solutions and content for the library, classroom, automotive and powersports markets, today reported growth in revenue and earnings, and a significant increase in free cash flow for the third quarter ended September 27, 2003.
"We've been focused on ProQuest Company's strategic priorities all year, which were to grow revenues, reduce costs, increase free cash flow, make strategic acquisitions, and bring new products to market," said Alan Aldworth, president and chief executive officer of ProQuest Company. "Our execution during the third quarter was excellent," Aldworth added.
Third Quarter 2003 Highlights
* Revenues were $116.7 million, compared with $106.4 million in the third quarter of 2002.
* EBIT was $22.3 million for the quarter, compared with 2002 third quarter EBIT of $21.9 million.
* Net earnings for the quarter were $11.7 million, or $0.41 per fully diluted share, compared with pro forma net earnings of $11.1 million or $0.39 per fully diluted share one year ago. Pro forma net earnings for the third quarter of 2002 exclude a one-time charge of $5.1 million after tax, or $0.18 per share, related to the settlement of interest rate swaps during that quarter.
* Free cash flow of $14.6 million was generated during the quarter, compared with $2.1 million generated in the third quarter of 2002, an improvement of $12.5 million. (The company defines free cash flow as operating cash flow less capital expenditures and software spending.)
* Capital expenditures and software spending decreased 8 percent to $19.2 million, from $20.8 million in the third quarter of 2002.
* Debt, net of cash during the quarter increased $12.9 million to $230.2 million. This was primarily the result of a debt increase for the SIRS acquisition offset by cash generated from operations during the quarter.
"ProQuest's third quarter net earnings include charges of $0.9 million for severance expense, and $0.4 million in compensation expense for an executive incentive compensation plan based on our stock price," said Kevin Gregory, senior vice president and chief financial officer of ProQuest Company. "Excluding these two items, ProQuest's third quarter fully diluted earnings per share was $0.44," Gregory added.
ProQuest Business Solutions
At Business Solutions, third quarter revenues increased 6 percent to $47.6 million, compared with $44.7 million in the third quarter of 2002. Third quarter 2003 EBIT was $14.6 million, an increase of 11 percent over EBIT of $13.2 million in the third quarter of 2002.
Product Line Detail
Business Solutions' results in the third quarter were driven by sales of automotive parts and service products, which were up 4 percent to $31.5 million. The revenue growth was the result of increases in the installed base of dealers and pricing.
Sales of automotive dealer performance management products increased 16 percent to $9.1 million. Market demand for the company's network development and standards products, which assist in compliance with the European Common Market's block exemption regulations, contributed strongly to this increase.
Sales of Powersports' electronic products grew 13 percent to $6.3 million. This increase was primarily the result of sales of the company's new dealer management system for smaller powersports dealerships, as well as dealer upgrades from UNIX-based to Windows-based products.
Business Solutions Highlights
* Extended through 2006 the exclusive contract the company has had with DaimlerChrysler A.G. since 1989. Under this agreement, ProQuest will now provide its new web-based solution to Mercedes-Benz dealers worldwide.
* Signed Ford Europe to an extension of a contract to provide dealer performance management products on Business Solutions' web-based NXC platform.
* Signed new agreement with Toyota Europe to provide Business Solutions' dealer performance management products.
* Signed new multi-year agreement with Kia Motors America, Inc. to be their exclusive provider of automotive parts cataloging information for their more than 600 U.S. dealerships.
ProQuest Information and Learning
Information and Learning's third quarter revenues increased 12 percent to $69.1 million, compared with $61.7 million one year ago. Third quarter EBIT of $11.4 million decreased 4 percent compared with $11.9 million in the third quarter of 2002. "Information and Learning's EBIT declined slightly as a result of increased depreciation and amortization on past investments made in major new products like Historical Newspapers," said Kevin Gregory. "Depreciation and amortization expense increased $3.8 million over the third quarter of 2002. Information and Learning's EBIT excluding depreciation and amortization expense -- or EBITDA -- grew by 15 percent in the third quarter," added Gregory.
Product Line Detail
Sales of classroom products increased 27 percent over the prior year's third quarter to $5.4 million. "Growth in classroom products in the third quarter was driven by strong sales of our coursepack products," said Kevin Gregory. "We expect our classroom products revenue growth for the year to be within a range of 50 to 60 percent," he added.
Sales of Information and Learning's published products grew 32 percent over the prior year to $24.0 million for the quarter. The revenue increase was driven by strong sales of our Digital Vault Initiative products and Historical Newspapers products. During the quarter, we completed the acquisition of SIRS Publishing, Inc. Incremental revenue of $3.4 million from SIRS products was also a factor in the increase in published products sales. Excluding sales of SIRS products, growth in published products in the third quarter was 13 percent.
Sales of general reference products increased by 22 percent to $18.7 million as a result of incremental revenues from Bigchalk.
Sales of traditional products were $21.0 million, a 12 percent decline compared to the third quarter of 2002, as the soft library funding environment impacted sales of archival backfile microfilm and topical microfilm collections.
Information and Learning Highlights
* Recaptured two of the nation's top 10 business schools, the University of Chicago and Dartmouth College, as subscribers to ProQuest's ABI / INFORM product.
* Digitized early issues of the Los Angeles Times (1881-1922) and made them available in ProQuest Historical Newspapers products.
* Added Australian newspaper content from leading publisher John Fairfax Holdings Limited to ProQuest online service, providing comprehensive access to these preferred news sources in that region.
Consolidated Year-to-Date 2003 Highlights
* Revenues were up 8 percent to $343.7 million, compared with $318.1 million for the first nine months of 2002.
* EBIT was $68.2 million for the first nine months of 2003, an increase of 4 percent over EBIT of $65.7 million in the same period of 2002.
* Net earnings for the first nine months of 2003 increased 20 percent to $35.3 million, or $1.25 per fully diluted share, compared with pro forma net earnings of $29.5 million or $1.13 per fully diluted share one year ago. Pro forma net earnings for the first nine months of 2002 exclude a one-time charge of $5.1 million after tax, or $0.19 per share, related to the settlement of interest rate swaps during the third quarter of 2002.
* Free cash flow of $3.9 million was generated in the first nine months of 2003, an improvement of $44.5 million over the same nine-month period in 2002.
2003 Outlook and Guidance
ProQuest expects library budget tightness to continue to impact sales of microfilm backfiles in the fourth quarter. Sales of electronic library products are expected to continue to show strong growth, and classroom products revenue growth is expected to be 50 to 60 percent for the full year. Therefore, the company expects full-year revenues and earnings per share to be at the low end of its guidance, which is consistent with current analyst estimates.
"We anticipate generating significant free cash flow in the fourth quarter, and are comfortable with our guidance of $35 to $40 million in free cash flow for the full year," said Kevin Gregory.
Basis of Presentation
The financial results in this press release are presented in accordance with generally accepted accounting principles (GAAP), except for references to earnings before interest and taxes (EBIT), which excludes interest and income taxes; earnings before interest, taxes, depreciation and amortization (EBITDA), which excludes interest, income taxes, depreciation and amortization; debt, net of cash and cash equivalents (net debt); and free cash flow. Reconciliations of non-GAAP amounts to the company's GAAP results are attached, and can also be found on the ProQuest Company website at www.proquestcompany.com .
EBIT and free cash flow are key metrics used by ProQuest Company to assess the performance of its business segments. Free cash flow also provides a measure of the company's cash flows after all operational expenditures. EBITDA provides useful information about how ProQuest Company's management assesses the company's ability to fund working capital items and capital expenditures as well as service its debt. The company's ability to fund working capital items, fund capital expenditures and service debt in the future, however, may be affected by other operating or legal requirements.
EBITDA is also a component of ProQuest's debt covenants under both its senior notes and revolving credit facility. Debt, net of cash and cash equivalents, provides a source of consistent measurement from period to period of the company's outstanding debt commitments, net of any cash on hand that may be utilized to pay down the debt balance.
Conference Call
To participate in a conference call and question and answer session regarding the third quarter with ProQuest's senior management, call 888-688-0384 (International 706-679-7706), using the password ProQuest Company, at 5:00 p.m. (ET) on Tuesday, October 21, 2003. For your convenience, the call will be taped and archived until October 31, 2003 and can be accessed by calling 706-645-9291, and entering ID#2499319. This conference call may also be accessed over the Internet at www.proquestcompany.com or www.streetevents.com . To listen to the live call, please go to the web site at least fifteen minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call at the StreetEvents website.
About ProQuest Company
ProQuest Company is based in Ann Arbor, Mich., and is a leading publisher of value-added information and content for the library, classroom, automotive and powersports markets. We provide products and services to our customers through two business segments: Information & Learning and Business Solutions. Through our Information & Learning segment, which primarily serves the library and classroom markets, we aggregate and publish value-added content from a wide range of sources including newspapers, periodicals and books. Our Business Solutions segment is primarily engaged in the delivery in electronic form of comprehensive parts and service information to the automotive market. It also provides dealers in the powersports (motorcycle, marine, RV and outdoor power) markets with management systems that enable them to manage their inventory, customer service and other aspects of their businesses.
Forward-Looking Statements
Some of the statements contained herein constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our markets' actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks and other factors you should specifically consider include, among other things, the company's ability to successfully integrate acquisitions and reduce costs, global economic conditions, product demand, financial market performance, and other risks listed under "Risk Factors" in our regular filings with the Securities and Exchange Commission. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," "projects," "intends," "prospects," "priorities," or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions, Except Per Share Data)
Third Quarter Ended
Pro Forma (2)
Sept. % of Sept. % of
2003 Sales 2002 Sales
Net sales $116.7 100% $106.4 100%
Cost of sales (57.4) (49%) (52.1) (49%)
Gross profit 59.3 51% 54.3 51%
R&D expense (4.3) (4%) (4.4) (4%)
SG&A expense (1) (29.0) (25%) (24.8) (23%)
Corporate expense (1) (3.7) (3%) (3.2) (3%)
Earnings from operations before
interest and income taxes 22.3 19% 21.9 21%
Net interest expense:
Interest income 0.6 1% 1.0 1%
Interest expense (4.7) (4%) (5.0) (5%)
Net interest expense (4.1) (3%) (4.0) (4%)
Earnings before income taxes 18.2 16% 17.9 17%
Income tax expense (6.5) (6%) (6.8) (6%)
Net earnings (2) $11.7 10% $11.1 11%
Shares (Basic) 28.315 27.993
Shares (Diluted) 28.625 28.343
EPS (Basic) (2) 0.41 0.40
EPS (Diluted) (2) 0.41 0.39
(1) Amount includes severance charges (SG&A) as well as a charge related to an incentive compensation plan (Corporate) that is based on our stock price, as detailed below:
Third Quarter Ended
2003
Net Diluted
of Tax EPS
Severance charges $0.9 $0.6 $0.02
Incentive compensation 0.4 0.2 0.01
Total $1.3 $0.8 $0.03
Earnings per share excluding these charges is $0.44.
(2) Amounts have been adjusted to exclude settlement of interest rate swaps and the write-off of remaining fees on our previous revolving credit facility in the third quarter of 2002. The impact of this is displayed below:
Third Quarter Ended
2002
Diluted
EPS
Net earnings $6.0 $0.21
Add back: settlement of interest rate swaps 5.1 0.18
Pro Forma net earnings $11.1 $0.39
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions, Except Per Share Data)
Year to Date
Pro Forma (2)
Sept. % of Sept. % of
2003 Sales 2002 Sales
Net sales $343.7 100% $318.1 100%
Cost of sales (171.3) (50%) (151.5) (48%)
Gross profit 172.4 50% 166.6 52%
R&D expense (13.3) (4%) (14.9) (5%)
SG&A expense (1) (80.6) (23%) (76.8) (24%)
Corporate expense (1) (10.3) (3%) (9.2) (3%)
Earnings from operations before
interest and income taxes 68.2 20% 65.7 20%
Net interest expense:
Interest income 1.1 - 2.1 1%
Interest expense (14.3) (4%) (20.2) (6%)
Net interest expense (13.2) (4%) (18.1) (5%)
Earnings before income taxes 55.0 16% 47.6 15%
Income tax expense (19.7) (6%) (18.1) (6%)
Net earnings (2) $35.3 10% $29.5 9%
Shares (Basic) 28.128 25.581
Shares (Diluted) 28.306 26.056
EPS (Basic) (2) 1.25 1.15
EPS (Diluted) (2) 1.25 1.13
(1) Amount includes severance charges (SG&A) as well as a charge related to an incentive compensation plan (Corporate) that is based on our stock price, as detailed below:
Year to Date
2003
Net Diluted
of Tax EPS
Severance charges $0.9 $0.6 $0.02
Incentive compensation 0.8 0.5 0.02
Total $1.7 $1.1 $0.04
Earnings per share excluding these charges is $1.29.
(2) Amounts have been adjusted to exclude settlement of interest rate swaps and the write-off of remaining fees on our previous revolving credit facility in the third quarter of 2002. The impact of this is displayed below:
Year to Date
2002
Diluted
EPS
Net earnings $24.4 $0.94
Add back: settlement of interest rate swaps 5.1 0.19
Pro Forma net earnings $29.5 $1.13
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions)
Third Quarter Ended
September September % Inc./
2003 2002 (Dec.)
Net sales
ProQuest Information and Learning $69.1 $61.7 12%
ProQuest Business Solutions 47.6 44.7 6%
Total Net Sales $116.7 $106.4 10%
EBIT (1), (3)
ProQuest Information and Learning $11.4 $11.9 (4%)
ProQuest Business Solutions 14.6 13.2 11%
Corporate / Other (3.7) (3.2) (16%)
Total EBIT $22.3 $21.9 2%
EBITDA (2), (3)
ProQuest Information and Learning $25.7 $22.4 15%
ProQuest Business Solutions 16.1 14.1 14%
Corporate / Other (3.6) (3.2) (13%)
Total EBITDA $38.2 $33.3 15%
Other Data
Capital expenditures & software spending $19.2 $20.8 (8%)
(1) EBIT is defined as earnings from operations before interest and income
taxes.
(2) EBITDA is defined as EBIT plus depreciation and amortization.
(3) See "Reconciliation of Non-GAAP Measures".
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions)
Year to Date
September September % Inc./
2003 2002 (Dec.)
Net sales
ProQuest Information and Learning $203.8 $186.9 9%
ProQuest Business Solutions 139.9 131.2 7%
Total Net Sales $343.7 $318.1 8%
EBIT (1), (3)
ProQuest Information and Learning $37.6 $37.8 (1%)
ProQuest Business Solutions 40.9 37.1 10%
Corporate / Other (10.3) (9.2) (12%)
Total EBIT $68.2 $65.7 4%
EBITDA (2), (3)
ProQuest Information and Learning $78.5 $69.2 13%
ProQuest Business Solutions 45.2 40.7 11%
Corporate / Other (10.2) (9.1) (12%)
Total EBITDA $113.5 $100.8 13%
Other Data
Capital expenditures & software spending $53.6 $62.2 (14%)
Debt, net of cash (3) $230.2 $208.4 10%
(1) EBIT is defined as earnings from operations before interest and income
taxes.
(2) EBITDA is defined as EBIT plus depreciation and amortization.
(3) See "Reconciliation of Non-GAAP Measures".
PROQUEST COMPANY AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(In Thousands)
ASSETS
September 27, December 28, September 28,
2003 2002 2002
Cash and cash equivalents $3,855 $1,782 $1,110
Accounts receivable, net 127,055 103,517 111,313
Inventory, net 5,551 4,909 4,127
Other current assets 39,479 25,475 43,832
Total current assets 175,940 135,683 160,382
Net property, plant, equipment
and product masters 179,662 173,230 165,917
Long-term receivables 4,509 4,635 2,730
Goodwill 300,905 247,354 243,209
Intangibles, net 7,627 692 -
Other assets 81,678 69,923 102,489
Total assets $750,321 $631,517 $674,727
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable $ - $62 $19
Current maturities of
long-term debt - - 138
Accounts payable 48,664 38,055 39,728
Accrued expenses 39,202 28,090 45,004
Current portion of
monetized future billings 24,950 26,738 27,223
Deferred income 123,978 109,865 105,290
Total current liabilities 236,794 202,810 217,402
Long-term debt, less current
maturities 234,050 187,000 209,361
Monetized future billings 47,848 51,071 51,711
Other liabilities 58,517 60,880 86,134
Total long-term liabilities 340,415 298,951 347,206
Total shareholders' equity 173,112 129,756 110,119
Total liabilities and
shareholders' equity $750,321 $631,517 $674,727
PROQUEST COMPANY AND SUBSIDIARIES
CASH FLOW SCHEDULE
(In Thousands)
Third Quarter Ended Year to Date
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
Operating activities:
Earnings from
continuing
operations $11,746 $5,962 $35,269 $24,391
Adjustments to
reconcile earnings
to net cash provided
by operating activities:
Depreciation and
amortization 15,875 11,408 45,284 35,057
Deferred income taxes 5,561 2,400 20,724 5,540
Interest expense
due to swap
settlement - 7,414 - 7,414
Changes in operating
assets and liabilities:
Accounts receivable,
net (46,323) (36,771) (21,205) (24,229)
Inventory, net 257 278 (173) 352
Other current
assets (2,893) (5,155) (4,871) (10,155)
Long-term
receivables 266 517 126 (1,280)
Other assets (1,534) (4,411) (1,768) 406
Accounts payable 11,905 4,125 4,119 (1,507)
Accrued expenses 8,638 6,420 (6,170) (600)
Deferred income 31,582 24,961 (8,828) (12,578)
Other long-term
liabilities (957) 274 (3,192) (1,659)
Other, net (289) 5,505 (1,864) 460
Net cash provided
by operating
activities 33,834 22,927 57,451 21,612
Investing activities:
Expenditures for
property, plant,
equipment, product
masters,
and software (19,254) (20,806) (53,558) (62,255)
Acquisitions, net
of cash acquired (26,824) (2,134) (50,628) (4,751)
Costs associated
with sales of
discontinued
operations (342) (3,000) (2,050) (15,611)
Net cash used
in investing
activities (46,420) (25,940) (106,236) (82,617)
Financing activities:
Net increase (decrease)
in short-term debt 8 (57) (79) (827)
Proceeds from
long-term debt 160,150 252,720 445,550 363,470
Repayment of
long-term debt (144,100) (243,454) (398,500) (407,045)
Cash paid for
settlement of
interest rate
swap contracts - (9,765) - (9,765)
Monetized future
billings (1,527) (2,093) (5,011) (9,947)
Repurchases of
common stock - - (1,328) -
Proceeds from
issuance of common
stock, net - - - 123,295
Proceeds from
exercise of stock
options, net 1,198 253 9,576 4,583
Net cash provided
by (used in)
financing
activities 15,729 (2,396) 50,208 63,764
Effect of exchange
rate changes on
cash (16) (2,467) 650 (2,144)
Increase (decrease)
in cash and
cash equivalents 3,127 (7,876) 2,073 615
Cash and cash
equivalents,
beginning of period 728 8,986 1,782 495
Cash and cash
equivalents,
end of period $3,855 $1,110 $3,855 $1,110
Note: Certain reclassifications to the 2002 cash flow statement have been made to conform to the 2003 presentation.
RECONCILIATION OF NON-GAAP MEASURES
(In Millions)
Reconciliations of non-GAAP measures to GAAP measures:
EBITDA & EBIT
Third Quarter Ended September 2003
PQIL PQBS Corp./Other Total
EBITDA $25.7 $16.1 $(3.6) $38.2
Less: Depreciation & amortization (14.3) (1.5) (0.1) (15.9)
EBIT $11.4 $14.6 $(3.7) $22.3
Less: Net interest expense (4.1)
Income tax expense (6.5)
Settlement of interest
rate swaps (net of tax) -
Net earnings $11.7
Third Quarter Ended September 2002
PQIL PQBS Corp./Other Total
EBITDA $22.4 $14.1 $(3.2) $33.3
Less: Depreciation & amortization (10.5) (0.9) - (11.4)
EBIT $11.9 $13.2 $(3.2) $21.9
Less: Net interest expense (4.0)
Income tax expense (6.8)
Settlement of interest
rate swaps (net of tax) (5.1)
Net earnings $6.0
Year to Date September 2003
PQIL PQBS Corp./Other Total
EBITDA $78.5 $45.2 $(10.2) $113.5
Less: Depreciation & amortization (40.9) (4.3) (0.1) (45.3)
EBIT $37.6 $40.9 $(10.3) $68.2
Less: Net interest expense (13.2)
Income tax expense (19.7)
Settlement of interest
rate swaps (net of tax) -
Net earnings $35.3
Year to Date September 2002
PQIL PQBS Corp./Other Total
EBITDA $69.2 $40.7 $(9.1) $100.8
Less: Depreciation & amortization (31.4) (3.6) (0.1) (35.1)
EBIT $37.8 $37.1 $(9.2) $65.7
Less: Net interest expense (18.1)
Income tax expense (18.1)
Settlement of interest
rate swaps (net of tax) (5.1)
Net earnings $24.4
Debt, net of cash and cash equivalents
September June December September
2003 2003 2002 2002
Long-term debt, less current
maturities $234.1 $218.0 $187.0 $209.4
Current maturities of long-term debt - - - 0.1
Notes payable - - 0.1 -
Less: Cash and cash equivalents (3.9) (0.7) (1.8) (1.1)
Net debt $230.2 $217.3 $185.3 $208.4
Free cash flow
Third Quarter Ended Year to Date
September September September September
2003 2002 2003 2002
Net cash (used in) provided by
operating activities $33.8 $22.9 $57.5 $21.6
Expenditures for property, plant,
equipment, product masters,
and software (19.2) (20.8) (53.6) (62.2)
Free cash flow $14.6 $2.1 $3.9 $(40.6)
Adjusted for charges
Third Quarter Ended September 2003
Net Diluted
EBIT earnings EPS
As reported $22.3 $11.7 $0.41
Add back:
Severance charges 0.9 0.6 0.02
Incentive compensation 0.4 0.2 0.01
Amount excluding charges $23.6 $12.5 $0.44
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