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Education Overview

Education Industry publishers are portraying a conservative outlook for 2009 on the K-12 side, with limited state and local budgets, and 2010 adoptions outdistancing those occurring in 2009.  Higher Education growth is continuing at single digit rates, the strong suit as student loan availability and the realization of higher education necessity for long-term career stability and a higher standard of living re-emerges.

Increasing interest in ROHC (Return On Human Capital) is driving testing expansion, with increasing levels of technology integration, and heightened demand for accountability in the Industry.  Testing contracts often extend for 3 - 5 years, incurring greater revenue generation stability.

International Markets - Primary Research Sample Brief:  Cayman Islands - Math and Science Educational Program Trends Analysis

Princeton Review

June, 2009

Princeton Review (PR) generates revenue from state-aligned research-based academic tutoring instruction to students in schools in need of improvement, driven by the “No Child Left Behind” Act of 2001, as part of the Supplemental Education Services (SES) division.  SES revenue has been driven by expansion into 9 new markets, yielding a 39% increase year over year, and current gross margin of 55%. 

The Test Preparation Services division, offering test preparation, tutoring, and academic counseling online and at company owned as well as ex-US franchised locations, currently accounts for 61% of overall revenue. 

Acquisitions of test centers in California, Utah, New Mexico, and Pittsburgh have expanded PR’s reach as well as direct revenue.  Gross margin has increased to 65%, while corporate operations have been consolidated to the Boston location.

After acquiring Test Services, Inc (TSI) in March, 2008, the September decision to divest their K-12 division was rendered.  CORE's purchase of the K-12 division yielded $9.5 MM in cash, utilized by the company to pay down their outstanding $20 MM Wells Fargo term loan.  The TSI acquisition from Alta, at a minimum cost of $36 MM in cash and stock, is accompanied by a share value guarantee for 1 year. 

A 2008 breach in online security led to the filing of a class action suit on behalf of Tampa students whose information was left unprotected, and a subsequent April, 2009 settlement which included identity protection services for the affected individuals.

PR is experiencing increasing cash flow delays due to the increase in school district and post secondary institution customership accompanied by prolonged approval cycles and purchase order generation timelines.  Seasonality of revenue currently centers on 3Q, with migration to 1Q and 4Q expected as SES expands.

While international franchise expansion has progressed to more than 20 operations in as many countries, revenue generation is relatively limited.  PR publishes more than 165 print and software products, including the newly added SAT preparation App Vocab challenge, available for the IPhone/IPod as of May, 2009.
Pearson Education

January, 2009

Pearson has experienced 12% profit on acquisitions during the past 5 years, with sales and profit growth of 8% and 12%, respectively, as of end 3Q, 2008.  Asia, Latin America, and Central Europe represent the most rapidly growing markets for them, a central focus of their international expansion strategy for 2009.

MyLabs revenue has doubled during the past 2 years, with 4 million student registrations as of end 3Q, 2008.  Math share increased to 52%, Physics 48%, an increase of 12%, and IT share was up 30% to the 50 level. 

FT group sales have shifted to 30% ex-US, with future growth drivers including the aging UK population, increasing literacy rates n markets such as India, and increasing wealth in the emerging economies.

Penguin e-books will show growth in 2009, although the broader outlook is conservative for this division.  The Supplemental market is projected to lag for Pearson, with the adoption situation as described above.  Higher education growth will be supported by increasing enrollment and students remaining in and finishing college programs.

Recent win rates in new testing have been encouraging for them.  Backstepping on the part of several states will be offset by continuation of the trend toward upgrading.

Literacy rate growth in India, South Africa, Australia, and China define these markets as offering good short and intermediate term opportunity potential. 


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