Excelligence Learning Corporation Announces First Quarter 2005 Results

Business Wire, May 11, 2005

MONTEREY, Calif. -- Excelligence Learning Corporation (Nasdaq:LRNS)

--Revenues Up 13.0% to $22.4 Million

--1st Quarter Net Loss Improves by 45.4%, to $515,000

Excelligence Learning Corporation (Nasdaq:LRNS), a leader in developing, manufacturing and distributing educational products to the early childhood and elementary school markets, today reported financial and operating results for the first quarter ending March 31, 2005.

The Company's Early Childhood division grew by 15.6% over the prior-year period, to $21.0 million, compared to $18.2 million for 2004. Revenues in the Company's Elementary School division declined by $0.3 million from $1.7 million for the first quarter of 2004 to $1.4 million for the first quarter of 2005. Total revenues for the first quarter of 2005 increased 13.0% to $22.4 million, compared to $19.8 million for the same period last year.

Ron Elliott, CEO of Excelligence, remarked, "We are happy to report 13.0% growth on our top line, driven by improvements in the Early Childhood division's circulation strategy, the rebranding of our in-house brand, Colorations, and the introduction of more high-value products sourced from China. While our Elementary School business is behind where it was a year ago, we are on target under the internal plan that we have in place for the division for 2005."

The Early Childhood division realized an increase in gross profit of 17.3% to $7.6 million for the quarter, compared to $6.5 million from a year earlier. The Elementary School division's gross profit decreased by a smaller percentage basis than did its revenue, declining 12.1% to $392,000, compared to $446,000 a year earlier. As a whole, the Company's gross profit for the quarter advanced by 15.4% to $8.0 million, compared to $6.9 million for the same period a year earlier.

On a 13.0% increase in revenues, SG&A expenses for the first quarter of 2005 increased only 5.9% or $504,000, to $9.0 million, compared to $8.5 million for the same period in 2004. SG&A would have increased by only 3.1% excluding a $240,000 charge related to a legal settlement.

Due to the seasonal nature of its business, the Company's first quarter has historically operated at a loss. The Early Childhood division showed an operating profit of $635,000 for the first quarter of 2005. Excluding the charge related to the legal settlement, the division had an operating profit of $875,000. The Company's consolidated loss, net of tax benefit, for the first quarter was $515,000, or $(0.06) per share, compared to net loss of $943,000, or $(0.11) per share, for the prior year. Excluding the charge related to the legal settlement, the Company's consolidated net loss for the first quarter would have been $375,000, or $(0.04) per share.

"We are ahead of our internal budget for the first quarter and are benefiting from all the programs put in place during 2004, a result of a thorough examination of our operating infrastructure. We believe that our success is demonstrated by the dramatic improvement in our operating loss on a year-over-year basis. Additionally, our gross profit margin improvement reflects the increased emphasis we placed on proprietary products during 2004, including the expansion of our in-house Colorations brand, sourcing from lower cost countries as well as our internal efforts to better manage freight-out expenses," said Mr. Elliott.

Business Outlook

For the full fiscal year 2005, the Company continues to expect net revenues of between $125 and $135 million, with operating income expected to fall between $5 and $8 million.

"2005 is off to a terrific start. In our Early Childhood division, sales and gross profit are trending up and expenses as a percentage of sales are trending down due to the strategies we put in place in 2004. After a difficult consolidation process caused our Elementary School division to miss its revenue and earnings objectives for 2004, we have regrouped and are now back on target. Taken together, we believe that 2005 will be the year the Company begins a sustained upward level of profitability. We are excited to see the year unfold," concluded Mr. Elliot.

Conference Call

The Company will host a conference call today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-356-3926. International callers should dial 706-679-5291. There is no pass code required for this call. If you are unable to participate in the call at this time, a replay will be available on Wednesday, May 11 at 3:00 p.m. Pacific Time, through Wednesday, May 18 at 9:00 p.m. Pacific Time. To access the replay, dial 800-642-1687 and enter the conference ID number 6065393.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties on Excelligence's website at www.excelligencelearning.com. To listen to the live call, please go to Excelligence's website at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available shortly after the call on Excelligence's website for 90 days.