IEDU Investools Inc. (MM)

INVESTools Inc. (Nasdaq:IEDU), the market leader in fulfilling the lifelong education needs of self-directed investors, today announced financial results for the quarter ended June 30, 2006. Sequential quarter over quarter highlights include: -- GAAP Revenue of $38.4 million, a 1 percent decrease -- Record Sales Transaction Volume of $73.4 million, a 25 percent increase -- Net Loss of $20.3 million, a 106 percent increase -- Record Adjusted EBITDA of $17.9 million, a 53 percent increase -- Cash, cash equivalents and marketable securities increased to $59.0 million, an $11 million increase from March 31, 2006, net of $3.1 million for capital expenditures and $1.4 million for stock repurchases -- Graduated 24,700 students, including 14,800 paid students, a 63 percent increase in total graduates -- Increase in Alumni to approximately 248,000 graduates -- Active subscribers to the Company's websites increased to 83,700, or 14 percent Year over year second quarter highlights include: -- GAAP Revenue increased from $34.2 million to $38.4 million, or 12 percent -- Sales Transaction Volume increased from $45.7 million to $73.4 million, or 61 percent -- Adjusted EBITDA increased from $6.8 million to $17.9 million, or 163 percent -- Cash, cash equivalents and marketable securities increased from $19.5 million to $59.0 million -- Alumni base increased from 182,000 to 248,000, or 36 percent "INVESTools had an outstanding second quarter with record sales transaction volume of $73.4 million and record adjusted EBITDA of $17.9 million, or 24 percent adjusted EBITDA margins. We acquired 14,800 new paid graduates during the quarter and increased our active subscribers to 83,700, another new record," said Lee K. Barba, Chairman and CEO. "A greater number and percentage of new graduates were originated through our co-marketing partners during the second quarter due to their heavier schedules. There was a slight decline to 3,700 in the number of graduates acquired through the INVESTools channel in the second quarter, although our cost of acquisition metrics for this channel remained within targeted ranges. "Due to our continued focus on improving margins in the second quarter, we realized significant improvements through more efficient sizing of workshops, a significant increase in online fulfillment and a transition from one-to-one personal training to online group training. While it is still early in the process, we are pleased with our progress towards a more efficient and scalable online fulfillment model, complementing our leadership in live training." Conference Call Information A conference call to discuss the financial results is scheduled for 10:00 a.m. Eastern today. The live call is being webcast by CCBN and will be available through INVESTools' corporate website at www.investools.com (About Us / Investor Relations). The webcast is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.earnings.com or by visiting any of the investor sites in CCBN's Individual Investor Network. Institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com). Please allow extra time prior to the call to visit the site and to download the streaming media software required to listen to the Internet broadcast. The online archive of the broadcast will be available within two hours following completion of the live call. About INVESTools Inc. INVESTools offers a full range of investor education products and services that provide lifelong learning in a variety of interactive delivery formats, including instructor-led online courses, in-person workshops, "at home" study programs, one-on-one and group online coaching sessions and telephone, live-chat and email support. Approximately 248,000 investors around the world have graduated from INVESTools' investor education programs. Log on to http://www.investools.com to learn more about the INVESTools Method(TM) -- one of the most widely recognized, adopted and endorsed approaches to investor education. All statements in this press release that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by words such as "believe", "intend," "expect", "may", "could", "would", "will", "should", "plan", "project", "contemplate", "anticipate", or similar statements. Because these statements reflect the Company's current views concerning future events, these forward-looking statements are subject to risks and uncertainties. The Company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this press release, including, without limitation, the success of brand development efforts and strategic alliances; demand for the Company's products and services; the ability to compete effectively and adjust to changing market conditions; inability to protect the Company's proprietary technology; difficulties or delays in developing improved products when expected or desired and with the additional features contemplated or desired; the potential for intellectual property infringement, warranty, product liability, and other claims; the uncertainties associated with governmental regulation; and other factors detailed from time to time in INVESTools' SEC filings. The forward-looking statements are made only as of the date hereof and the Company assumes no obligation to publicly update or revise the forward-looking statements whether as a result of new information, future events, or otherwise. Explanation and Reconciliation of Non-GAAP Information The Company believes that sales transaction volume is an important measure of business volume. Sales transaction volume is a non-GAAP financial measure and represents sales in a particular period before the effect of recognition of deferred revenue from prior periods and the deferral of current period sales. It is consistent with the amount of cash receipts from selling activities in the period and with the majority of the components of cost of revenue. The table below provides a reconciliation of sales transaction volume to revenue for the periods indicated: -0- *T Three Months Ended ---------------------------------- Jun Mar Dec Sep Jun 30, 31, 31, 30, 30, ($ in millions) 2006 2006 2005 2005 2005 ------ ------ ------ ------ ------ Sales transaction volume $73.4 $58.7 $50.0 $38.5 $45.7 Change to deferred revenue (35.0) (19.9) (13.2) (1.5) (11.5) ------ ------ ------ ------ ------ Revenue $38.4 $38.8 $36.8 $37.0 $34.2 ====== ====== ====== ====== ====== *T The Company believes that Adjusted EBITDA as shown in the table below is a valuable representation of operating performance given the impact of accounting for deferred revenue and for costs associated with deferred revenue. The table below provides a reconciliation of net income (loss) to Adjusted EBITDA for the periods indicated: -0- *T Three Months Ended ---------------------------------- Jun Mar Dec Sep Jun 30, 31, 31, 30, 30, ($ in millions) 2006 2006 2005 2005 2005 ------- ------ ------ ----- ------ Net income (loss) $(20.3) $(9.9) $(4.2) $4.0 $(6.3) Depreciation and amortization 1.2 1.1 0.9 0.6 0.6 Other non-cash items 2.0 0.6 1.8 0.6 0.9 Net change in deferred revenue 35.0 19.9 12.8 1.6 11.6 ------- ------ ------ ----- ------ Adjusted EBITDA $17.9 $11.7 $11.3 $6.8 $6.8 ======= ====== ====== ===== ====== *T These non-GAAP financial measures may not be comparable to similarly titled measurements used by other companies and should not be used generally as a substitute for revenue, net income (loss) or other GAAP operating measurements. -0- *T INVESTOOLS INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) June 30, December 31, 2006 2005 ----------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 20,969 $ 11,466 Marketable securities 37,662 16,871 Accounts receivable, net of allowance ($73 and $55) 2,927 3,353 Current portion of restricted cash -- 4,722 Other current assets 4,800 3,133 ----------- ------------- Total current assets 66,358 39,545 Long-term restricted cash 371 366 Goodwill 18,085 18,085 Intangible assets, net of accumulated amortization ($3,141 and $1,891) 3,949 5,199 Furniture and equipment, net of accumulated depreciation ($3,470 and $2,403) 12,365 8,890 Other long-term assets 1,229 614 ----------- ------------- Total assets $102,357 $ 72,699 =========== ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current portion of deferred revenue $112,268 $ 68,215 Accounts payable 4,458 3,210 Accrued payroll 3,850 3,522 Accrued tax liabilities 9,384 7,359 Other current liabilities 5,891 4,193 Current portion of capitalized lease obligations 171 125 ----------- ------------- Total current liabilities 136,022 86,624 Other long-term accrued liabilities 265 -- Long term portion of capitalized lease obligations 580 513 Long-term portion of deferred revenue 19,732 9,301 ----------- ------------- Total liabilities 156,599 96,438 Stockholders' deficit: Common stock $0.01 par value (45,088 and 44,754 shares issued and outstanding, respectively) 450 447 Additional paid-in capital 127,220 131,162 Accumulated other comprehensive loss (256) (116) Deferred stock compensation -- (3,742) Accumulated deficit (181,656) (151,490) ----------- ------------- Total stockholders' deficit (54,242) (23,739) ----------- ------------- Total liabilities and stockholders' deficit $102,357 $ 72,699 =========== ============= *T -0- *T INVESTOOLS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- 2006 2005 2006 2005 --------- -------- --------- --------- Revenue $ 38,396 $34,162 $77,177 $64,786 Costs and expenses Cost of revenue 35,851 25,211 64,550 50,591 Selling expense 12,166 9,329 24,054 17,945 General and administrative expense 8,611 5,915 16,686 11,962 Special charges 2,624 40 2,990 40 --------- -------- --------- --------- Total costs and expenses 59,252 40,495 108,280 80,538 --------- -------- --------- --------- Loss from operations (20,856) (6,333) (31,103) (15,752) Other income Gain (loss) on sale of assets 3 (93) 10 (93) Interest income and other, net 587 166 935 287 --------- -------- --------- --------- Other income 590 73 945 194 --------- -------- --------- --------- Net loss before income taxes and cumulative effect of accounting change (20,266) (6,260) (30,158) (15,558) Income tax expense 28 -- 56 5 --------- -------- --------- --------- Net loss before cumulative effect of accounting change (20,294) (6,260) (30,214) (15,563) Cumulative effect of accounting change -- -- 48 -- --------- -------- --------- --------- Net loss $(20,294) $(6,260) $(30,166) $(15,563) ========= ======== ========= ========= Net loss per common share - basic and diluted $ (0.45) $ (0.14) $ (0.67) $ (0.35) ========= ======== ========= ========= Weighted average common shares outstanding - basic and diluted 45,067 45,008 44,943 44,990 ========= ======== ========= ========= *T -0- *T INVESTOOLS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Six Months Ended June 30, ------------------- 2006 2005 --------- --------- Cash flows from operating activities: Net loss $(30,166) $(15,563) Reconciling adjustments: Depreciation and amortization 2,316 1,169 Deferred taxes 56 -- Stock compensation expense 491 252 Provision for sales return reserve 315 1,083 Provision for lease termination 213 -- Provision for (recovery of) bad debt (35) 58 Loss (gain) on sale of assets (10) 93 Impairment of internally developed software 1,464 -- Changes in operating assets and liabilities, net of the effect of acquired businesses: Accounts receivable 461 (981) Restricted cash -- 3 Other assets (1,659) (494) Accounts payable 1,248 (1,941) Deferred revenue 54,969 22,621 Accrued payroll 328 404 Other current liabilities 600 (2,810) Accrued tax liabilities 1,318 688 --------- --------- Net cash provided by operating activities 31,909 4,582 --------- --------- Cash flows from investing activities: Purchases of marketable securities (23,403) -- Proceeds from the maturity of marketable securities 2,500 4,170 Proceeds from the sale of equipment 10 40 Purchases of furniture, fixtures and equipment (5,472) (4,171) Cash paid in business acquisitions, net of cash received -- (7,879) --------- --------- Net cash used in investing activities (26,365) (7,840) --------- --------- Cash flows from financing activities: Payments on capital leases and notes payable (70) (9) Changes in long-term restricted cash 4,717 (3,026) Repurchase of stock (1,360) -- Proceeds from exercise of stock options 672 90 --------- --------- Net cash provided by (used in) financing activities 3,959 (2,945) --------- --------- Increase (decrease) in cash and cash equivalents 9,503 (6,203) Cash and cash equivalents: Beginning of period 11,466 10,736 --------- --------- End of period $ 20,969 $ 4,533 ========= ========= *T