ProQuest Reports Revenue of $159.4 Million, Earnings Per Share of $0.60 for Third Quarter 2005
Announces Intent to Divest Periodical Microfilm Business and Other Assets
ANN ARBOR, Mich., Oct. 27 -- ProQuest Company , a leading publisher of information and education solutions, today reported revenue and earnings growth from continuing operations for the thirteen and thirty-nine week periods ended October 1, 2005.
"ProQuest Company's revenue and earnings increased in the third quarter of 2005 despite the previously disclosed impact of Hurricanes Katrina and Rita and earnings dilution from acquisitions and investments made at Business Solutions," said Alan Aldworth, chairman and chief executive officer of ProQuest Company.
Third Quarter Financial Results
* Revenue from continuing operations increased 41 percent to $159.4 million from $113.1 million in the prior year's third quarter.
* EBIT from continuing operations (earnings from continuing operations before interest and income taxes) increased 63 percent to $35.3 million from $21.6 million in the third quarter of 2004.
* EBITDA from continuing operations (earnings from continuing operations before interest, income taxes, depreciation and amortization) increased 48 percent to $60.3 million from $40.8 million in the third quarter of 2004.
* Earnings from continuing operations were $18.2 million or $0.60 per fully diluted share, an increase of 57 percent. This compares to pro forma earnings of $11.6 million or $0.40 per fully diluted share in the third quarter of fiscal 2004.
* Operating cash flow was $16.4 million compared to $24.6 million in the prior year's third quarter.
* Expenditures for property, plant, equipment, product masters, curriculum development costs and software were $14.9 million versus $13.6 million in the prior year's third quarter.
* Free cash flow (operating cash flow from continuing operations less expenditures for property, plant, equipment, product masters, curriculum development costs and software plus proceeds from asset dispositions) was $1.5 million compared to $11.9 million generated in the third quarter of fiscal 2004.
"In the third quarter, Voyager was adversely impacted by Hurricanes Katrina and Rita as well as a recent change to decentralized purchasing in the New York City school district. Excluding these events Voyager performed well and continued to realize strong renewals. Voyager solutions are now in more than 850 school districts nationwide, an increase of more than 40 percent versus the same time last year," said Aldworth.
"Business Solutions' revenue growth continues to be strong, with an increase of 10 percent. However, dilution from recent acquisitions and one- time charges related to our General Motors agreement had an adverse impact on third quarter earnings," said Kevin Gregory, senior vice president and chief financial officer of ProQuest Company.
Consolidated Nine Months Financial Results
* Revenue from continuing operations increased 25 percent to $420.9 million from $336.1 million in the first nine months of 2004.
* EBIT from continuing operations (earnings from continuing operations before interest and income taxes) increased 23 percent to $81.5 million from $66.1 million in the first nine months of 2004.
* EBITDA from continuing operations (earnings from continuing operations before interest, income taxes, depreciation and amortization) increased 23 percent to $144.2 million from $117.4 million in the first nine months of 2004.
* Earnings from continuing operations were $38.3 million or $1.27 per fully diluted share, an increase of 8 percent. This compares to pro forma earnings of $35.4 million or $1.23 per fully diluted share in the first nine months of fiscal 2004.
* Operating cash flow was $34.7 million compared to operating cash flow of $43.2 million generated in the prior year's first nine months.
* Expenditures for property, plant, equipment, product masters, curriculum development costs and software were $62.6 million versus $52.6 million in the prior year's first nine months.
* Free cash flow (operating cash flow from continuing operations less expenditures for property, plant, equipment, product masters, curriculum development costs and software plus proceeds from asset dispositions) was a use of $27.9 million compared to a use of $8.5 million in the first nine months of fiscal 2004.
Divestiture of Periodical Microfilm and Course Pack Businesses
ProQuest plans to divest the company's periodical microfilm business and related manufacturing assets, as well as the course pack business. Negotiations with a potential buyer are near completion, and a transaction is anticipated to be executed soon.
"Archival content historically has been and remains an important part of the business mission of ProQuest Company. Today, we believe that redirecting our higher education resources to our digital published products will result in more sustainable revenue growth. This divestiture will give us greater flexibility to focus on our growth platforms -- K-12 curriculum products and unique published products for higher education," noted Aldworth.
"As we are in final negotiations, we are not providing further information regarding this divestiture at this time," said Gregory. "After the completion of this transaction, we will provide full year and fourth quarter guidance for 2005 reflecting the impact of this transaction," added Gregory.
Conference Call
To participate in ProQuest Company's third quarter conference call, dial (888) 688-0384 at 5:00 p.m. ET on Thursday, October 27, 2005. The password for the call is "ProQuest Company". This conference call may also be accessed over the Internet at http://www.proquestcompany.com/ or http://www.streetevents.com/ . The call will be taped and archived until November 11, 2005 and can be replayed by calling (800) 642-1687, and entering ID#9923462. The replay will be available shortly after the call at the http://www.proquestcompany.com/ website.
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 from continuing operations before interest and income taxes (EBIT), which excludes interest, income taxes and discontinued operations; earnings from continuing operations before interest, income taxes, depreciation and amortization (EBITDA), which excludes interest, income taxes, depreciation and amortization and discontinued operations; 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 http://www.proquestcompany.com/ .
EBIT and free cash flow are key metrics used by ProQuest Company to assess the performance of its business segments. The company defines free cash flow as operating cash flow from continuing operations less expenditures for property, plant, equipment, product masters, curriculum development costs and software, plus proceeds from fixed asset dispositions. Free cash flow 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, capital expenditures, and service and comply with the terms of its debt agreements. 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.
As previously disclosed, ProQuest Company sold its powersports dealer management system business during the second quarter of 2004. As a result of the sale, and in accordance with GAAP, income statement amounts for 2004 have been adjusted to classify the results of this business as a discontinued operation.
About ProQuest Company
ProQuest Company is based in Ann Arbor, Mich., and is a leading publisher of information solutions for the education, automotive and power equipment markets. We provide products and services to our customers through two business segments: Information and Learning and Business Solutions. Through our Information and Learning segment, which primarily serves the education market, we collect, organize and publish 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. Its products transform complex technical data, like parts catalogs and service manuals, into easily accessed electronic information. For the world's automotive manufacturers and their dealer networks, ProQuest also secures business-to-business information and retail performance management services. ProQuest Company was recently named one of the nation's 200 best small companies by Forbes magazine, and one of the 100 fastest growing technology companies in the United States by Business 2.0 magazine.
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, but are not limited to: increased debt level due to the acquisition of Voyager Learning, changes in customer demands or industry standards, adverse economic conditions, loss of key personnel, litigation, decreased library and educational funding/budgets, the ability to successfully integrate the Voyager Learning acquisition, the ability to successfully close and integrate other acquisitions, demand for ProQuest's products and services, success of ongoing product development, maintaining acceptable margins, ability to control costs, the impact of federal, state and local regulatory requirements on ProQuest's business, including K-12 and higher education, and automotive, the impact of competition and the uncertainty of economic conditions in general, the ability to successfully attract and retain customers, sell additional products to existing customers, and win new business due to changes in technology, the ability to maintain a broad customer base to avoid dependence on any one single customer, K-12 enrollment and demographic trends, the level of educational funding, the level of education technology investments, the company's ability to obtain OEM data access agreements, the company's ability to obtain financing, global economic conditions, 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. We undertake no obligation to update any of these forward-looking statements.
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions, Except Per Share Data)
Third Quarter Ended
October 1, % of October 2, % of
2005 Sales 2004 (1) Sales
Net sales $159.4 100% $113.1 100%
Cost of sales (77.8) (49%) (55.7) (49%)
Gross profit 81.6 51% 57.4 51%
R&D expense (6.3) (4%) (4.0) (4%)
SG&A expense (37.2) (23%) (28.8) (25%)
Corporate expense (2.8) (2%) (3.0) (3%)
Earnings from continuing operations
before interest and income taxes 35.3 22% 21.6 19%
Net interest expense:
Interest income 0.4 - 0.3 -
Interest expense (9.1) (6%) (4.6) (4%)
Net interest expense (8.7) (6%) (4.3) (4%)
Earnings from continuing operations
before income taxes 26.6 16% 17.3 15%
Income tax expense (8.4) (5%) (5.7) (5%)
Net earnings from continuing
operations $18.2 11% $11.6 10%
Shares (Basic) 29.752 28.588
Shares (Diluted) 30.233 28.815
EPS (Basic) 0.61 0.41
EPS (Diluted) 0.60 0.40
(1) Amounts have been adjusted to exclude a benefit from a reduction in storage units, as displayed below:
Third Quarter Ended
October 2, 2004
Diluted
EPS
Reported earnings $12.2 $0.42
Other income, net (2) (0.6) (0.02)
Net earnings from continuing operations $11.6 $0.40
(2) This amount relates to a benefit from a reduction in storage units. Proceeds from units disposed of were $0.9 million.
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions, Except Per Share Data)
Year to Date
October 1, % of October 2, % of
2005 Sales 2004 (1) Sales
Net sales $420.9 100% $336.1 100%
Cost of sales (205.3) (49%) (164.8) (49%)
Gross profit 215.6 51% 171.3 51%
R&D expense (14.8) (4%) (12.5) (4%)
SG&A expense (108.7) (26%) (82.5) (24%)
Corporate expense (10.6) (2%) (10.2) (3%)
Earnings from continuing operations
before interest and income taxes 81.5 19% 66.1 20%
Net interest expense:
Interest income 1.2 - 1.2 -
Interest expense (25.0) (6%) (13.5) (4%)
Net interest expense (23.8) (6%) (12.3) (4%)
Earnings from continuing operations
before income taxes 57.7 13% 53.8 16%
Income tax expense (19.4) (4%) (18.4) (6%)
Net earnings from continuing operations $38.3 9% $35.4 10%
Shares (Basic) 29.602 28.494
Shares (Diluted) 30.036 28.806
EPS (Basic) 1.29 1.24
EPS (Diluted) 1.27 1.23
(1) Amounts have been adjusted to exclude a benefit from a reduction in storage units, earnings from discontinued operations and a gain on sale of discontinued operations, as displayed below:
Year to Date
October 2, 2004
Diluted
EPS
Reported earnings $52.1 $1.81
Other income, net (2) (0.6) (0.02)
Earnings from discontinued operations, net (0.8) (0.03)
Gain on sale of discontinued operations, net (15.3) (0.53)
Net earnings from continuing operations $35.4 $1.23
(2) This amount relates to a benefit from a reduction in storage units. Proceeds from units disposed of were $0.9 million.
PROQUEST COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
(In Millions)
Third Quarter Ended
October October
1, % of 2, % of Inc/(Dec)
2005 Sales 2004 Sales $ %
Net Sales
ProQuest Information and Learning:
Published Products $31.9 28% $27.8 40% $4.1 15%
General Reference Products 16.3 14% 16.0 22% 0.3 2%
Traditional Products 20.1 18% 21.7 30% (1.6) (7%)
Classroom Products 5.0 5% 5.8 8% (0.8) (14%)
Voyager 40.1 35% - - 40.1 NM
Total ProQuest Information and
Learning $113.4 100% $71.3 100% $42.1 59%
ProQuest Business Solutions:
Automotive Group $43.3 94% $39.4 94% $3.9 10%
Power Equipment - Electronic 2.3 5% 2.1 5% 0.2 10%
Other 0.4 1% 0.3 1% 0.1 33%
Total ProQuest Business Solutions $46.0 100% $41.8 100% $4.2 10%
Total Net Sales $159.4 $113.1 $46.3 41%
EBIT (1), (3)
ProQuest Information and Learning $27.3 17% $11.2 10% $16.1 144%
ProQuest Business Solutions 10.7 7% 13.4 12% (2.7) (20%)
Corporate / Other (2.7) (2%) (3.0) (3%) 0.3 10%
Total EBIT $35.3 22% $21.6 19% $13.7 63%
EBITDA (2), (3)
ProQuest Information and Learning $50.9 32% $29.1 26% 21.8 75%
ProQuest Business Solutions 12.1 8% 14.7 13% (2.6) (18%)
Corporate / Other (2.7) (2%) (3.0) (3%) 0.3 10%
Total EBITDA $60.3 38% $40.8 36% $19.5 48%
Other Data
Capital expenditures & software
spending $14.9 9% $13.6 12% $1.3
Debt $575.4 $194.6
Debt, net of cash (3) $550.5 $193.6
(1) EBIT is defined as earnings from continuing 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
October October
1, % of 2, % of Inc/(Dec)
2005 Sales 2004 Sales $ %
Net Sales
ProQuest Information and Learning:
Published Products $97.5 34% $83.5 40% $14.0 17%
General Reference Products 47.8 17% 48.6 23% (0.8) (2%)
Traditional Products 61.6 22% 67.4 32% (5.8) (9%)
Classroom Products 9.3 3% 10.4 5% (1.1) (11%)
Voyager 69.1 24% - - 69.1 NM
Total ProQuest Information and
Learning $285.3 100% $209.9 100% $75.4 36%
ProQuest Business Solutions:
Automotive Group $128.3 94% $119.2 94% $9.1 8%
Power Equipment - Electronic 6.2 5% 6.1 5% 0.1 2%
Other 1.1 1% 0.9 1% 0.2 22%
Total ProQuest Business Solutions $135.6 100% $126.2 100% $9.4 7%
Total Net Sales $420.9 $336.1 $84.8 25%
EBIT (1), (3)
ProQuest Information and Learning $57.9 14% $38.9 12% $19.0 49%
ProQuest Business Solutions 34.1 8% 37.4 11% (3.3) (9%)
Corporate / Other (10.5) (3%) (10.2) (3%) (0.3) (3%)
Total EBIT $81.5 19% $66.1 20% $15.4 23%
EBITDA (2), (3)
ProQuest Information and Learning $116.4 27% $85.2 25% 31.2 37%
ProQuest Business Solutions 38.1 9% 42.3 13% (4.2) (10%)
Corporate / Other (10.3) (2%) (10.1) (3%) (0.2) (2%)
Total EBITDA $144.2 34% $117.4 35% $26.8 23%
Other Data
Capital expenditures & software
spending $62.6 15% $52.6 16% $10.0
(1) EBIT is defined as earnings from continuing 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
October 1, January 1, October 2,
2005 2005 2004
Cash and cash equivalents $24,917 $4,313 $970
Accounts receivable, net 135,663 95,279 113,476
Inventory, net 15,761 5,312 4,995
Other current assets:
Prepaid royalties 26,549 17,793 19,168
Other 43,482 32,340 43,408
Total other current assets 70,031 50,133 62,576
Total current assets 246,372 155,037 182,017
Net property, plant, equipment and
product masters 213,300 199,997 192,661
Long-term receivables 10,065 8,084 5,599
Goodwill 603,089 311,279 308,214
Identifiable intangibles, net 21,572 15,379 16,377
Curriculum, net 94,357 - -
Purchased and developed software, net 38,301 41,699 44,808
Other assets 20,278 21,454 17,267
Total assets $1,247,334 $752,929 $766,943
LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt $164 $5,000 $-
Accounts payable 49,343 49,364 38,811
Accrued expenses 57,004 35,303 39,543
Current portion of monetized future
billings 18,816 24,331 25,219
Deferred income 86,018 100,480 114,392
Total current liabilities 211,345 214,478 217,965
Long-term debt, less current
maturities 575,264 150,000 194,600
Monetized future billings, less
current portion 22,323 36,197 42,194
Other liabilities 103,092 82,533 68,460
Total long-term liabilities 700,679 268,730 305,254
Total shareholders' equity 335,310 269,721 243,724
Total liabilities and shareholders'
equity $1,247,334 $752,929 $766,943
Note: Certain reclassifications to the 2004 balance sheets have been made to conform to the 2005 presentation.
PROQUEST COMPANY AND SUBSIDIARIES
CASH FLOW SCHEDULE
(In Thousands)
Third Quarter Ended Year to Date
October 1, October 2, October 1, October 2,
2005 2004 2005 2004
Operating activities:
Net earnings $18,172 $12,189 $38,257 $52,084
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Gain on sale of discontinued
operations - - - (15,338)
Other income (1) - (900) - (900)
Depreciation and
amortization 25,095 19,216 62,719 51,833
Deferred income taxes 3,717 6,209 8,852 17,110
Changes in operating assets and
liabilities, net of
acquisitions:
Accounts receivable, net (50,073) (30,019) (27,790) (18,712)
Inventory, net (1,493) (126) (2,732) (614)
Other current assets (6,852) (6,199) (17,309) (14,886)
Long-term receivables (583) 169 (1,958) (462)
Other assets 716 (241) 2,286 (229)
Accounts payable 714 (2,535) (2,347) (10,275)
Accrued expenses 668 (2,055) (5,026) (9,281)
Deferred income 26,195 28,673 (17,382) (10,737)
Other long-term liabilities (352) 120 (2,810) 3,042
Other, net 447 58 (77) 562
Net cash provided by operating
activities 16,371 24,559 34,683 43,197
Investing activities:
Expenditures for property,
plant, equipment, product
masters, curriculum
development costs
and software (14,898) (13,571) (62,632) (52,628)
Proceeds from fixed assets
disposition (1) - 900 - 900
Acquisitions, net of cash
acquired (4,080) (11,940) (355,835) (23,402)
Purchases of equity
investments
available for sale (517) (388) (3,122) (7,677)
Proceeds from disposals
of equity investments
available for sale 240 92 1,801 4,171
Expenditures associated with
sales of discontinued
operations (13) (74) (87) (2,924)
Proceeds from sale of
discontinued operations - - - 35,900
Net cash used in investing
activities (19,268) (24,981) (419,875) (45,660)
Financing activities:
Net (decrease) increase
in short-term debt (7) 144 (4,958) (305)
Proceeds from long-term debt 718,900 76,970 1,611,500 310,670
Repayment of
long-term debt (694,596) (75,050) (1,186,500) (307,070)
Principal payment under
capital lease obligation (41) - (107) -
Cash paid for settlement of
treasury locks - - (490) -
Debt issuance costs - - (2,013) -
Monetized future billings (6,038) (1,217) (19,390) (5,005)
Repurchases of common stock - (1,720) - (1,720)
Proceeds from exercise
of stock options 184 418 8,426 3,085
Net cash provided by (used in)
financing activities 18,402 (455) 406,468 (345)
Effect of exchange rate changes
on cash (280) (227) (672) (245)
Increase (decrease) in cash and
cash equivalents 15,225 (1,104) 20,604 (3,053)
Cash and cash equivalents,
beginning of period 9,692 2,074 4,313 4,023
Cash and cash equivalents,
end of period $24,917 $970 $24,917 $970
NOTE: Certain reclassifications to the 2004 cash flow statements have been made to conform to the 2005 presentation.
(1) This amount relates to a benefit from a reduction in storage units.
PROQUEST COMPANY AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(In Millions)
Reconciliations of non-GAAP measures to GAAP measures:
EBITDA & EBIT
Third Quarter Ended October 1, 2005
Corp./
PQIL PQBS Other Total
EBITDA $50.9 $12.1 $(2.7) $60.3
Less: Depreciation & amortization (23.6) (1.4) - (25.0)
EBIT $27.3 $10.7 $(2.7) $35.3
Plus: Proceeds from fixed asset
disposition, net -
Less: Net interest expense (8.7)
Income tax expense (8.4)
Net earnings $18.2
Third Quarter Ended October 2, 2004
Corp./
PQIL PQBS Other Total
EBITDA $29.1 $14.7 $(3.0) $40.8
Less: Depreciation & amortization (17.9) (1.3) - (19.2)
EBIT $11.2 $13.4 $(3.0) $21.6
Plus: Proceeds from fixed asset
disposition, net 0.6
Less: Net interest expense (4.3)
Income tax expense (5.7)
Net earnings $12.2
Year to Date Ended October 1, 2005
PQIL PQBS Corp./
Other Total
EBITDA $116.4 $38.1 $(10.3) $144.2
Less: Depreciation & amortization (58.5) (4.0) (0.2) (62.7)
EBIT $57.9 $34.1 $(10.5) $81.5
Plus: Proceeds from fixed asset
disposition, net -
Less: Net interest expense (23.8)
Income tax expense (19.4)
Earnings from discontinued
operations, net -
Gain on sale of discontinued
operations, net -
Net earnings $38.3
Year to Date Ended October 2, 2004
PQIL PQBS Corp./
Other Total
EBITDA $85.2 $42.3 $(10.1) $117.4
Less: Depreciation & amortization (46.3) (4.9) (0.1) (51.3)
EBIT $38.9 $37.4 $(10.2) $66.1
Plus: Proceeds from fixed asset
disposition, net 0.6
Less: Net interest expense (12.3)
Income tax expense (18.4)
Earnings from discontinued
operations, net 0.8
Gain on sale of discontinued
operations, net 15.3
Net earnings $52.1
October 1, October 2,
2005 2004
Debt, net of cash
Long-term debt, less current
maturities $575.3 $194.6
Current maturities of long-term debt 0.1 -
Less: Cash and cash equivalents (24.9) (1.0)
Debt, net of cash $550.5 $193.6
Free cash flow
Third Quarter Ended Year to Date
October 1, October 2, October 1, October 2,
2005 2004 2005 2004
Net cash provided by
operating activities $16.4 $24.6 $34.7 $43.2
Expenditures for property,
plant, equipment,
product masters, curriculum
development
costs and software (14.9) (13.6) (62.6) (52.6)
Proceeds from fixed assets
disposition - 0.9 - 0.9
Free cash flow $1.5 $11.9 $(27.9) $(8.5)
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