Haights Cross Communications Reports Third Quarter 2006 Results

Business Wire, Nov 7, 2006

Investor and Analyst Conference Call Scheduled for Tuesday, November 7, 2006, at 4:00 PM (ET)

WHITE PLAINS, N.Y. -- Haights Cross Communications, Inc. (HCC) today reported results for the third quarter ended September 30, 2006.

Third Quarter 2006 Results

Revenue for the third quarter 2006 was $58.9 million compared to revenue of $56.3 million for the third quarter 2005, reflecting strong performances from our Test-prep and Intervention and Library segments, offset by a continued revenue decline from our K-12 Supplemental Education segment.

Revenue for the Library segment, representing our Recorded Books business, was $21.8 million for the third quarter 2006, reflecting growth of 14.3% compared to $19.1 million for the quarter ended September 30, 2005. The core Public Library channel, representing approximately 68% of the business for the quarter, reported revenue growth of 13.9%, while sales to schools grew more than 60% reflecting the benefits of our new Plugged-in to Reading product released in May 2006.

Revenue for the Test-prep and Intervention segment, representing our Triumph Learning, Buckle Down and Options Publishing businesses, grew $2.5 million, or 15.3%, to $18.7 million for the third quarter 2006. Revenue for Triumph Learning and Buckle Down, our state-specific test-prep publishers, grew $2.6 million, or 21.8%, for the quarter, reflecting continued strong demand for our No Child Left Behind (NCLB)-positioned test-prep products. Revenue for Options Publishing declined $0.1 million for the quarter reflecting lower sales of certain reading and math assessment products in the 2006 period versus the 2005 period as the company readies new product editions for release in the fourth quarter 2006 and first quarter 2007.

Revenue for the K-12 Supplemental Education segment, reflecting our Sundance/Newbridge business, declined $2.8 million, or 21.7%, to $10.2 million for the third quarter 2006, reflecting the continuing effect of competition in the supplemental education market, and especially in the leveled-reader product category which represents Sundance/Newbridge's leading product lines. While this business continues to receive management's substantial attention and management has implemented many turn-around product, sales and marketing initiatives, we have yet to realize any meaningful benefit from these actions.

Revenue for the Medical Education segment, representing our Oakstone Publishing business, increased $0.2 million, or 3.1%, for the third quarter 2006, which was the first quarter reflecting a full period performance in both the 2006 and 2005 periods of our 2005 acquisitions of Scott Publishing and CMEinfo. Revenue for the quarter primarily reflected sales gains for the CMEinfo and core Oakstone Medical product lines, partially offset by a sales decline in MKSAP, Oakstone's largest product, and certain Wellness products.

Income from Operations for the third quarter 2006 declined $1.5 million to $8.5 million from $10.0 million for the third quarter 2005. Income from Operations for the third quarter 2006 includes a $2.9 million write-off of prepublication costs related to our Sundance/Newbridge business that resulted from management's assessment that the future benefit from certain product lines would be below the carrying value of prepublication costs. Excluding this prepublication cost write-off, Income from Operations increased $1.4 million, reflecting primarily the results of our Library segment.

EBITDA, which we define as earnings before interest, taxes, depreciation, amortization, discontinued operations and goodwill impairment charges, increased $2.8 million, or 18.7%, for the third quarter 2006, reflecting gains from our Library, Test-prep and Intervention and Medical Education segments, partially offset by an EBITDA decline from our K-12 Supplemental Education segment.

Results for the Nine Months Ended September 30, 2006

Revenue for the nine months ended September 30, 2006 increased $8.0 million, or 5.0%, to $167.3 million from $159.3 million for the nine months ended September 30, 2005, reflecting strong growth from our Test-prep and Intervention segment, a revenue gain for our Library segment, as well as incremental revenue from our Medical Education segment reflecting the acquisitions of Scott Publishing and CMEinfo acquired in April and June 2005, respectively, partially offset by a revenue decline from our K-12 Supplemental Education segment.

Revenue for the Library segment increased $2.1 million, or 3.6%, for the nine months ended September 30, 2006. With its strong third quarter 2006 performance, core Public Library channel revenue was up 4.9% for the nine month period 2006, following a 19.7% sales gain reported for the nine months ended September 30, 2005. Sales to schools grew nearly 23% for the nine months 2006 reflecting the benefits of our new Plugged-in to Reading product. The nine month performance also reflects the first quarter 2006 decline in Pimsleur language series royalties.

Revenue for the Test-prep and Intervention segment grew $8.8 million, or 19.2%, for the nine months ended September 30, 2006. Triumph Learning and Buckle Down accounted for all of the segment's growth reflecting continued strong demand for our NCLB-positioned test-prep products. Revenue for Options Publishing was down slightly for the nine month period 2006 primarily reflecting slower 2006 sales of certain reading and math assessment products prior to new product releases as mentioned earlier, as well as certain large non-repeating district-level sales in the 2005 period.