Orwell Award Announcement SusanOhanian.Org Home

NCLB Outrages

NCLB Winner

And the tutoring companies shall flourish across the land. . . .


Baltimore -- Educate, Inc., a leading pre-K through 12 education services company delivering tutoring and high quality supplemental education services to families and schools, today reported financial results for the first quarter of 2005.

Financial Highlights for the Quarter Ended March 31, 2005:

* Revenues were $98.3 million, up 20% from $82.2 million generated in the
first quarter of 2004.
* Learning Center same territory revenue growth increased to 5% for the
* Operating income was $13.8 million, a 25% increase over $11.0 million
reported in the first quarter of 2004.
* Operating margins increased to 14.0% from 13.4%.
* Earnings per share were $.17 per share for the first quarter, a 31%
increase from the first quarter of 2004.

"The year is off to an excellent start," stated Chris Hoehn-Saric, Chairman and Chief Executive Officer. "With our dominant Sylvan and Hooked on Phonics consumer brands, Educate is uniquely positioned to capitalize on the outstanding growth opportunities in the pre-K through
12 education industry in 2005 and beyond. We are especially pleased that while generating these strong quarterly results, we have remained focused on long-term initiatives to address customer needs of additional convenience through the roll-out of Sylvan Online and the expansion of early learning programs through developing integrated Hooked on Phonics service offerings. We are committed to remaining an industry leader for many years to come."

Business Overview:

Revenue increases for the quarter of 20% over the same period in 2004 to
$98.3 million resulted from increases in both the consumer (Learning
Center) and school (Catapult Learning) business segments. The first quarter represents an important season for Educate as consumer marketing and enrollments are high and schools are in session.

Revenues from the Learning Center segment were $56.8 million for the quarter, up 31% from the first quarter of 2004. Revenue increases were driven by same territory revenue growth of 5%, 39 additional territories added to the Sylvan Learning Center network in the past year and the acquisition of franchise territories. The first quarter is a period of significant consumer advertising and the results were evidenced in enrollment growth and increases in same territory revenues. During the first quarter of 2005, 15 new franchise territories were opened and the Company acquired 17 franchise territories. Additionally, integration of Sylvan Online into the Learning Center system has progressed to the point that over one quarter of the Learning Centers are currently equipped to offer the integrated Sylvan Online program to customers.

Management is focused on improving territory revenues through a combination of applying best practices and strategically acquiring available franchised territories. Learning Center segment profit for the quarter was $11.1 million, an 18% increase from the first quarter of 2004.

Revenues from the Catapult Learning segment, previously referred to as Institutional Services, were $41.4 million for the quarter, a 7% increase over the first quarter of 2004. Significant expansion in Catapult's No Child Left Behind (NCLB) service offerings drove revenue growth during the quarter. The first quarter remains a strong operating period for Catapult as schools are in session and NCLB services are fully operational. Catapult segment profit was $6.7 million for the quarter, up 23% from the same period in 2004.

Second Quarter and Full-Year 2005 Outlook:

Management's current expectations for the second quarter and fiscal year 2005 are as follows:

* The Company anticipates total revenues to be between $102 and $106 million for the second quarter of 2005 and between $350 and $365 million for the full year 2005.
* Operating income is expected to be between $17 and $19 million for the second quarter of 2005 and between $47 and $49 million for 2005.
* The Company expects diluted earnings per share prior to other financing costs to be between $0.23 and $0.25 for the second quarter of 2005 and between $0.58 and $0.60 for the full year 2005.

Learning Center Outlook:

* Total revenues are expected to be between $68 and $70 million for the second quarter and between $230 and $240 million for the full year 2005.
* Revenue growth is expected to come from the combination of: opening new territories, acquisition of territories from franchisees and same territory growth of 5% to 7% in 2005.
* Operating margins for the second quarter of 2005 are expected to be between 26% and 27% and full year margins are expected to be between
23% and 24%. These expected margins reflect the impact of integrating Sylvan Online and Hooked on Phonics into Learning Center results as well as the effect of acquiring additional territories from franchisees. Since the operating income from the acquired territories is similar to the royalty income from franchisees in the year of acquisition, the full year effect on combined Sylvan Learning Center margins is a decline in business unit margin percentage of approximately 1% for every 15 territories acquired. The seasonality of
operating income also gradually decreases from the heavily weighted first six month period as a result of the timing of services provided in acquired company owned territories.

Catapult Learning Outlook:

* Total revenues are expected to be between $34 and $36 million for the second quarter of 2005 and between $120 and $125 million for the full year.
* Operating margins are expected to be between 12% and 13% in the second quarter and between 8% and 9% for the full year 2005.

Corporate Services:

* General and administrative expenses are expected to be approximately $4.0 million in the second quarter of 2005 and approximately $17
million for the full year 2005.
* Non-operating expense, prior to other financing costs, is expected to be approximately $1.5 million for the second quarter of 2005 and
between $6.0 and $6.5 million for fiscal year 2005.
* The effective income tax rate is expected to be approximately 38%. This rate is subject to change based on the ultimate source of the
Company's revenues; however, the 2005 cash tax rates are expected to be less than 20%, primarily as a result of goodwill amortization
deductions reported in income tax returns.
* Fully diluted shares outstanding are expected to be in the 44 million to 44.5 million range for 2005.

Educate management will host a conference call to review these results at 10:00 AM (EDT) today, April 28, 2005. Interested parties may listen to the webcast by accessing http://www.educate-inc.com and clicking on Investor Relations on the Internet or by dialing 1-800-467-8998 (International 1-312-461-0644) access code 2744920. The call will also be available through replay on the Educate website.

About Educate, Inc.

Educate, Inc. (Nasdaq: EEEE - News) is a leading pre-K-12 education services company delivering supplemental education services to students and their families. It has a portfolio of highly acclaimed brands including Sylvan Learning Centers, North America's largest and most trusted network of tutoring centers, providing supplemental, remedial and enrichment instruction; Hooked on Phonics, delivering highly regarded early reading, math and study skills programs; and Catapult Learning, a leading provider of educational services to public and non-public schools. More information on Educate, Inc. can be found at http://www.educate-inc.com .

Forward-looking Statements

This release includes information that could constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company's actual results could differ materially from those described in the forward-looking statements. The following factors might cause such a difference: the development and expansion of the Sylvan Learning Center franchise system; changes in the relationships among Sylvan Learning Center and its franchisees; the Company's ability to effectively manage business growth; increased competition from other educational service providers; changes in laws and government policies and programs; changes in the acceptance of the Company's services by institutional customers and consumers; changes in customer relationships; the seasonality of operating results; global economic conditions, including interest and currency rate fluctuations and inflation rates. Additional information regarding these and other risk factors and uncertainties are set forth from time to time in the Company's filings with the Securities and Exchange Commission, available for viewing on the Company's website http://www.educate-inc.com

(To access this information on the Company's website, click on "Investor Relations" and then "SEC Filings".) All forward-looking statements are based on information available to the Company on the date of this Release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

— Press Release


This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of education issues vital to a democracy. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information click here. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.