ECLG Ecollege Common St (MM)

Company Reports Third Quarter EPS of $0.07 and Adjusted EPS of $0.15 CHICAGO, Nov. 9 /PRNewswire-FirstCall/ -- eCollege(R) (NASDAQ:ECLG), a leading provider of value-added information services to the post-secondary education industry, today announced it achieved record revenue of $30.6 million for the quarter ended September 30, 2006, an increase of 16 percent from revenue of $26.4 million for the same period in the prior year. Third quarter revenue included $13.0 million from the Company's eLearning Division and $17.6 million from the Company's Enrollment Division, Datamark, Inc. Net income for the third quarter of 2006 totaled $1.7 million ($0.07 per diluted share) compared to net income of $1.8 million ($0.08 per diluted share) for the third quarter of 2005. Results for the third quarter of 2006 included a pre-tax one-time charge of approximately $750 thousand related to the exit of two small product lines at the Company's Enrollment Division. Adjusted net income was $3.4 million ($0.15 per diluted share) for the third quarter of 2006, compared to adjusted net income of $3.4 million ($0.15 per diluted share) for the third quarter of 2005. "We are very pleased with our record revenue, as well as strong third quarter operating income growth of 45 percent at our eLearning Division," said Oakleigh Thorne, chairman and CEO of eCollege. "However, our consolidated third quarter earnings were negatively impacted by reduced direct mail margins and a $750 thousand write-off at our Enrollment Division." "We're realizing the results of our efforts to reinvigorate Datamark as evidenced by a 700 basis point improvement in direct mail margins from the second quarter to the third quarter of this year," said Thorne. "We also are encouraged by the initial buyer interest we have seen thus far as we pursue strategic alternatives for the Datamark business." Third Quarter 2006 Financial Highlights Revenue eLearning Division revenue for the third quarter of 2006 increased 25 percent from the same period in 2005 to $13.0 million. Student fee revenue, which represented 88 percent of the eLearning Division's revenue in the third quarter of 2006, increased 24 percent from the third quarter of 2005. Enrollment Division revenue for the third quarter of 2006 increased 10 percent from the same period in 2005 to $17.6 million. Direct mail revenue, which represented 60 percent of the Enrollment Division's revenue in the third quarter of 2006, increased 14 percent from the third quarter of 2005. Interactive marketing revenue, which represented 31 percent of the Enrollment Division's revenue in the third quarter of 2006, increased 12 percent from the third quarter of 2005. Gross Margin Gross margin declined to 44 percent for the third quarter of 2006 from 49 percent for the same period in 2005. Factors contributing to the decline in gross margin included reduced direct mail margins compared to the prior year and the write-off of capitalized software related to product line exits at the Enrollment Division. Excluding the write-off, gross margin was 46 percent for the third quarter of 2006. Income from Operations Income from operations for the third quarter of 2006 was $3.3 million, a decrease of 17 percent from $4.0 million for the third quarter of 2005. Comparisons to prior year results were impacted by one-time charges totaling approximately $750 thousand related to the exit of two small product lines at the Enrollment Division. Excluding these charges, operating income increased 2 percent from the prior year period. Operating Margin Operating margin decreased to 11 percent for the third quarter of 2006 from 15 percent for the same period in the prior year. Operating margin adjusted for stock-based compensation expense was 14 percent, compared to 19 percent for the same period in the prior year. Excluding the one-time charges related to product line exits at the Enrollment Division, operating margin for the third quarter of 2006 was 13 percent (16 percent adjusted for stock-based compensation expense). Net Income before Income Taxes Net income before taxes for the third quarter of 2006 was $2.6 million, a decrease of 15 percent from $3.1 million for the third quarter of 2005. Excluding the one-time charges related to product line exits at the Enrollment Division, net income before taxes increased 9 percent from the prior year period. Income Taxes The tax provision for the third quarter of 2006 was $1.0 million, which reflects an effective tax rate for the quarter of 36 percent. The lower effective tax rate resulted from favorable tax effects of stock-based compensation and lower state rates. This compares to an effective tax rate of 43 percent for the same period in the prior year. Net Income Net income for the third quarter of 2006 was $1.7 million ($0.07 per diluted share), a decrease of 5 percent compared to $1.8 million ($0.08 per diluted share) for the same period in the prior year. Excluding the one-time charges related to product line exits at the Enrollment Division, net income increased 21 percent from the prior year period. Adjusted Net Income In the third quarter of 2006, the Company recorded non-cash charges of $1.7 million, including expenses related to stock-based compensation, amortization of identifiable intangible assets associated with the Datamark acquisition and the accretion of the discount on the Company's debt (non-cash interest expense). After adding these items back to GAAP net income, adjusted net income was $3.4 million ($0.15 per diluted share) for the third quarter of 2006, compared to adjusted net income of $3.4 million ($0.15 per diluted share) for the third quarter of 2005. Comparisons to prior year results were impacted by the charges totaling approximately $750 thousand related to the product line exits at the Enrollment Division. Differences between the Company's GAAP net income and adjusted net income and adjusted net income per diluted share are further explained in the financial table that follows the unaudited Condensed Consolidated Statements of Operations included in this press release. Free Cash Flow and Capital Expenditures For the third quarter of 2006, the Company generated free cash flow of $4.8 million, an increase of 15 percent from $4.2 million for the third quarter of 2005. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as adjusted EBITDA (EBITDA plus stock-based compensation expense) less cash interest and capital expenditures. Capital expenditures, including capitalized software development costs, were $1.3 million for the third quarter of 2006, compared to $1.4 million for the same period in 2005. Cash interest expense was $386 thousand for the third quarter of 2006 compared to $634 thousand for the third quarter of 2005. Differences between the Company's GAAP net income and free cash flow are further explained in the financial table that follows the unaudited Condensed Consolidated Statements of Operations included in this press release. Balance Sheet As of September 30, 2006, the Company had cash of $28.4 million as compared to $22.7 million at June 30, 2006 and $16.2 million at September 30, 2005. As of September 30, 2006, the Company's debt consisted of $500 thousand in original face amount of seller notes and $20.0 million in original face amount of senior subordinated debt. On October 31, 2006, the Company prepaid the $20.0 million senior subordinated debt. Operating Highlights * For the 2006 summer academic term, which impacts both the second and third quarters, the total number of distance student enrollments supported by the eLearning Division was approximately 271,000, up 61 percent from approximately 168,000 distance student enrollments in the summer term of 2005. * For the 2006 fall academic term, which impacts both the third and fourth quarters, the total number of distance student enrollments is expected to be approximately 465,000, up 66 percent from approximately 280,000 distance student enrollments in the fall term of 2005. * The Company signed two new platinum customers in the third quarter -- one at the eLearning Division and one at the Enrollment Division. The Company has signed ten platinum customers year-to-date, including seven at the eLearning Division and three at the Enrollment Division. * Cross sell revenues totaled $3.3 million for the third quarter of 2006, up 116 percent from $1.6 million for the same period in the prior year. * Average annualized revenue per client at the eLearning Division was approximately $268,000 in the third quarter of 2006, an increase of 22 percent from $220,000 in the third quarter of 2005. * Total media under management (defined as customers' gross media spending for direct mail, interactive and other media managed by the Enrollment Division) totaled approximately $34.4 million for the third quarter of 2006, an increase of 28 percent from the same quarter in the prior year. * In the third quarter, the eCollege System hit its all time highest day of usage, supporting a record 18.5 million usage minutes (more than 35 years of learning) in a single day. Additionally, since the start of the fall term, eCollege has achieved 100 percent system availability with zero unscheduled downtime. * The eLearning Division has so far renewed all three of its Top 20 customers that were up for renewal in 2006, and eight of the nine Top 40 customers that were up for renewal in 2006. Fourth Quarter 2006 Financial Guidance On October 18, 2006 the Company announced that it is exploring strategic alternatives for its Enrollment Division. As a result, beginning in the fourth quarter of 2006, operating results for the Enrollment Division (including appropriate allocations of certain corporate expenses) will be reported as an asset held for sale using a discontinued operations treatment. Accordingly, the Company has converted its previously announced fourth quarter guidance to a format consistent with the discontinued operations approach as shown below. In order to facilitate comparisons of fourth quarter 2006 guidance to prior period results on a like basis, the Company is providing pro forma results of operations for the three months ended December 31, 2005 that present such results of operations as if Datamark had been reported as an asset held for sale, using a discontinued operations treatment, since the beginning of such period. Please refer to the accompanying Schedules A and B for such pro forma information as well as reconciliations of related non-GAAP metrics to GAAP net income. The Company's fourth quarter guidance as presented for the treatment of the Enrollment Division as a discontinued operation is as follows: * eLearning revenue of $13.9 million to $14.2 million, representing growth of 26 to 29 percent from the fourth quarter of 2005. * Income from continuing operations of $3.0 million to $3.2 million, compared to $2.1 million in the fourth quarter of 2005. * Net income from continuing operations of $1.7 million to $1.9 million ($0.07 to $0.08 per fully diluted shares), compared to $1.4 million ($0.06 per fully diluted share) in the fourth quarter of 2005. Net loss from discontinued operations of $900 thousand to $1.1 million ($0.04 to $0.05 per fully diluted share), compared to net income of $1.1 million ($0.05 per fully diluted share) in the fourth quarter of 2005. * Adjusted net income from continuing operations of $2.5 million to $2.7 million (adjusted net income per fully diluted share of $0.11 to $0.12), compared to $2.0 million (adjusted net income of $0.09 per fully diluted share) for the fourth quarter of 2005. Adjusted net income from discontinued operations of $1.2 million to $1.4 million (adjusted net income of $0.05 to $0.06 per fully diluted share). * Free cash flow from continuing operations of $3.7 million to $3.9 million, compared to $3.0 million in the fourth quarter of 2005. Free cash flow from discontinued operations of zero to $400 thousand, compared to $1.9 million in the fourth quarter of 2005. Fourth quarter guidance for adjusted net income, adjusted net income per diluted share and free cash flow is reconciled in the accompanying financial tables. In connection with the Company's strategic review of Datamark, it intends to analyze related intangible assets. Any impairment adjustments that may result from such analysis are not reflected in the Company's current estimates of fourth quarter earnings. Additional Financial Information -- Nine Months Results The Company is providing pro forma financial results for the nine months ended September 30, 2006 using a presentation consistent with the format used in reporting fourth quarter guidance and the prior period comparison. Comparisons to the nine months ended September 30, 2005 have also been provided using the same presentation. Please see Schedules C and D for these results and a reconciliation of adjusted net income, adjusted EBITDA and free cash flow. The nine month results include the following highlights regarding financial results specific to continuing operations: * eLearning revenue of $38.2 million, representing growth of 26 percent from the prior year period. * Income from continuing operations of $8.4 million, representing growth of 76 percent from the prior year period, with operating margins of 22 percent. * Net Income from continuing operations of $5.3 million, compared to $2.7 million for the prior year period. * Adjusted net income from continuing operations of $7.5 million, representing growth of 65 percent from the prior year period. * Adjusted EBITDA from continuing operations of $12.8 million, representing growth of 57 percent from the prior year period. * Free cash flow from continuing operations of $9.0 million, compared to $4.5 million for the same prior year period. Conference Call eCollege will hold a conference call to discuss its third quarter financial results at 3:30 p.m. Central time (4:30 p.m. Eastern time) on November 9, 2006. Interested parties can listen to the live conference call webcast by going to the Investor Relations section of eCollege's Web site at http://www.ecollege.com/ and clicking on the "Live Webcast" link. Please access the Web site at least 15 minutes prior to the call to register, download and install any necessary audio software. For those unable to listen at the designated time, the archived webcast will be available on eCollege's Web site for the next 12 months. A conference call replay also will be available from approximately 5:30 p.m. Central time (6:30 p.m. Eastern time) on November 9, 2006 until 11 p.m. Central time (midnight Eastern time) on November 16, 2006. To listen to the replay, participants should dial 800-642-1687. The conference ID for the replay is 9607498. About eCollege eCollege (NASDAQ:ECLG) is a leading provider of value-added information services to the post-secondary and K-12 education industries. The Company's eLearning Division designs, builds and supports some of the most successful, fully online degree, certificate/diploma and professional development programs in the country. The Company's Enrollment Division, Datamark, Inc., helps institutions build new enrollments and increase student retention. Customers include publicly traded for-profit institutions, community colleges, public and private universities, school districts and state departments of education. eCollege was founded in 1996 and is headquartered in Chicago, with the eLearning Division headquartered in Denver. Datamark was founded in 1987 and is headquartered in Salt Lake City. For more information, visit http://www.ecollege.com/ and http://www.datamark.com/. This news release contains statements that are not historical in nature and that may be characterized as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements about the Company's pursuit of strategic alternatives for Datamark (including the Company's ability to achieve the strategic objectives contemplated thereby), expected future revenue, expenses, income from operations, adjusted income from operations, net income, adjusted net income, non-cash charges, EBITDA, adjusted EBITDA, cash and cash equivalents, free cash flow, capital expenditures, profitability, customer enrollments and any other statements that are not historical facts. These statements are based on management's current expectations and are subject to a number of uncertainties and risks. Actual performance and results may differ materially from those reflected in these forward-looking statements due to general financial, economic, regulatory and political conditions affecting the Company's industries as well as the more specific risks and uncertainties facing the Company, including those identified in the Company's reports on Form 10-K, Form 10-Q and Form 8- K filed with the U.S. Securities and Exchange Commission ("SEC"), which you are encouraged to review in connection with this release. You should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date of this release. We are not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this release. This news release and/or the financial results attached hereto include "adjusted net income," "adjusted net income per diluted share," "adjusted EBITDA," "free cash flow" and "adjusted income from operations" amounts that are considered "non-GAAP financial measures" under SEC rules. As required, we have included reconciliations of these measures to GAAP with this news release. eCollege is a registered trademark of eCollege. eCollege Condensed Consolidated Balance Sheets Unaudited (in thousands) September 30, December 31, 2006 2005 Current Assets: Cash and Cash Equivalents $28,351 $23,037 Accounts Receivable and Other Current Assets 27,659 18,667 Total Current Assets 56,010 41,704 Property and Equipment (Net), Software Development Costs (Net) and Other Assets 11,588 10,074 Identified Intangible Assets (Net) 7,450 8,745 Deferred Tax Asset 17,238 18,806 Goodwill 54,406 54,745 Total Assets $146,692 $134,074 Current Liabilities: Accounts Payable and Accrued Liabilities $16,296 $14,923 Deferred Revenue and Customer Advances 6,937 3,766 Current Portion of Capital Lease Obligations 469 320 Total Current Liabilities 23,702 19,009 Deferred Revenue 53 26 Other Liabilities and Capital Lease Obligations 744 572 Long-Term Debt ($20 million face value) 18,627 18,366 Seller Notes Payable ($2 million face value) 431 1,657 Total Liabilities 43,557 39,630 Common Stock and Additional Paid In Capital, Less Treasury Stock(1) 148,060 140,015 Warrants (1) 3,304 3,304 Other Stockholders' Equity (1) -- 3,678 Accumulated Deficit (48,229) (52,551) Total Stockholders' Equity 103,135 94,444 Total Liabilities and Stockholders' Equity $146,692 $134,074 (1) The Company adopted SFAS 123 during the fourth quarter of 2003. Effective January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment," using the modified-prospective transition method. SFAS 123(R) clarifies and expands the guidance in SFAS 123 with respect to the accounting for stock-based compensation. As a result of adopting SFAS 123(R), certain balance sheet amounts associated with share-based compensation costs have been reclassified within the equity section of the balance sheet. This change in presentation had no net effect on total equity. Effective January 1, 2006, stock-based compensation expense has been reclassified from other stockholders' equity into additional paid-in capital. eCollege Condensed Consolidated Statements of Operations Unaudited (in thousands, except per share data) For the Three Months Ended September 30, September 30, 2006 2005 Revenue eLearning Revenue $13,040 $10,410 Enrollment Marketing Revenue 17,595 16,009 Total Revenue 30,635 26,419 Cost of Revenue 17,188 13,521 Gross Profit 13,447 12,898 Research and Development 2,014 1,976 Sales and Marketing 2,718 2,331 General and Administrative 4,970 4,211 Amortization of Intangible Assets 468 414 Total Operating Costs and Expenses 10,170 8,932 Income from Operations 3,277 3,966 Interest and Other Income (Expense), Net (643) (858) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,634 3,108 Income Tax (Expense) (961) (1,342) NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $1,673 $1,766 Cumulative Effect of Accounting Change, Net of Tax -- -- Net Income $1,673 $1,766 Basic Net Income Per Share $0.08 $0.08 Diluted Net Income Per Share $0.07 $0.08 Shares Used in Computing Basic Net Income Per Share 22,232 21,871 Shares Used in Computing Diluted Net Income Per Share 22,935 22,522 eCollege Reconciliation of GAAP to Non-GAAP Measures (in thousands, except per share data) For the Three Months Ended September 30, September 30, 2006 2005 Reconciliation of Income from Operations to Adjusted Income from Operations:(1) Income from Operations $3,277 $3,966 Stock-Based Compensation Expense 991 955 Adjusted Income from Operations(1) $4,268 $4,921 Reconciliation of Net Income to Adjusted Net Income, Adjusted EBITDA and Free Cash Flow:(1) Net Income $1,673 $1,766 Adjustments for Non-Cash Charges Stock-Based Compensation Expense 991 955 Amortization of Identified Intangibles 468 414 Non-Cash Interest Expense 257 224 Adjusted Net Income(1) $3,389 $3,359 Depreciation 963 700 Amortization of Capitalized Software 813 155 Cash Interest (Income)/Expense, Net 386 634 Income Taxes 961 1,342 Adjusted EBITDA(1) $6,512 $6,190 Capital Expenditures 919 1,122 Capitalized Software 415 283 Cash Interest 386 634 Free Cash Flow(1) $4,792 $4,151 Net Income per Diluted Share $0.07 $0.08 Adjustments for Non-Cash Charges Stock-Based Compensation Expense 0.04 0.04 Amortization of Identified Intangibles 0.02 0.02 Non-Cash Interest Expense 0.01 0.01 Adjusted Net Income per Diluted Share(1) $0.15 $0.15 (1) Adjusted Income from Operations, Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are not generally accepted accounting principles, or "GAAP," based measures. However, management believes, based on feedback from investors, analysts and other users of the Company's financial information, that Adjusted Income from Operations, Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are appropriate measures of the operating performance of the Company because they are an indication of the resources available for strategic opportunities and are used by many investors to assess the Company's profitability from current operations. Further, management believes, based on feedback from analysts, that Adjusted Net Income, Adjusted Net Income per Diluted Share and Free Cash Flow are important measures that analysts use in estimating and analyzing results for the Company, which estimates are used by investors and potential investors. Finally, as a result of the Company's acquisition of Datamark in the fourth quarter of 2003 and related borrowings, Adjusted EBITDA has been defined by the Company's lenders as an important metric, and is used in the Company's debt compliance covenants. These measures, however, should be considered in addition to, not as a substitute for or superior to, net income, cash flows or other measures of financial performance prepared in accordance with GAAP. Adjusted Income from Operations, Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are reconciled herein to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. eCollege Condensed Consolidated Statements of Operations Unaudited (in thousands, except per share data) For the Nine Months Ended September 30, September 30, 2006 2005 Revenue eLearning Revenue $38,235 $30,426 Enrollment Marketing Revenue 48,151 42,878 Total Revenue 86,386 73,304 Cost of Revenue 46,878 37,176 Gross Profit 39,508 36,128 Research and Development 6,341 5,421 Sales and Marketing 8,131 7,448 General and Administrative 14,449 12,425 Amortization of Intangible Assets 1,295 1,200 Total Operating Costs and Expenses 30,216 26,494 Income from Operations 9,292 9,634 Interest and Other Income (Expense), Net (2,376) (2,691) INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 6,916 6,943 Income Tax (Expense) (2,622) (3,018) NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE $4,294 $3,925 Cumulative Effect of Accounting Change, Net of Tax (1) 28 -- Net Income $4,322 $3,925 Basic Net Income Per Share $0.20 $0.18 Diluted Net Income Per Share $0.19 $0.18 Shares Used in Computing Basic Net Income Per Share 22,140 21,670 Shares Used in Computing Diluted Net Income Per Share 23,024 22,353 (1) As a result of adopting SFAS 123(R), the Company is required to estimate forfeitures of share-based awards as of the grant date rather than recognizing such forfeitures as incurred. The Company recognized an after-tax gain of $28,000 ($46,000 pre-tax) as the cumulative effect of this change in accounting principle. eCollege Reconciliation of GAAP to Non-GAAP Measures (in thousands, except per share data) For the Nine Months Ended September 30, September 30, 2006 2005 Reconciliation of Income from Operations to Adjusted Income from Operations:(1) Income from Operations $9,292 $9,634 Stock-Based Compensation Expense 2,988 2,058 Adjusted Income from Operations(1) $12,280 $11,692 Reconciliation of Net Income to Adjusted Net Income, Adjusted EBITDA and Free Cash Flow: (1) Net Income $4,322 $3,925 Adjustments for Non-Cash Charges Stock-Based Compensation Expense 2,988 2,058 Amortization of Identified Intangibles 1,295 1,200 Non-Cash Interest Expense 1,010 684 Adjusted Net Income(1) $9,615 $7,867 Depreciation 2,663 2,087 Amortization of Capitalized Software 1,152 425 Cash Interest (Income)/Expense, Net 1,366 2,007 Income Taxes 2,622 3,018 Adjusted EBITDA(1) $17,418 $15,404 Capital Expenditures 4,446 3,244 Capitalized Software 1,085 1,240 Cash Interest 1,366 2,007 Free Cash Flow(1) $10,521 $8,913 Net Income per Diluted Share $0.19 $0.18 Adjustments for Non-Cash Charges Stock-Based Compensation Expense 0.13 0.09 Amortization of Identified Intangibles 0.06 0.05 Non-Cash Interest Expense 0.04 0.03 Adjusted Net Income per Diluted Share(1) $0.42 $0.35 (1) Adjusted Income from Operations, Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are not generally accepted accounting principles, or "GAAP," based measures. However, management believes, based on feedback from investors, analysts and other users of the Company's financial information, that Adjusted Income from Operations, Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are appropriate measures of the operating performance of the Company because they are an indication of the resources available for strategic opportunities and are used by many investors to assess the Company's profitability from current operations. Further, management believes, based on feedback from analysts, that Adjusted Net Income, Adjusted Net Income per Diluted Share and Free Cash Flow are important measures that analysts use in estimating and analyzing results for the Company, which estimates are used by investors and potential investors. Finally, as a result of the Company's acquisition of Datamark in the fourth quarter of 2003 and related borrowings, Adjusted EBITDA has been defined by the Company's lenders as an important metric, and is used in the Company's debt compliance covenants. These measures, however, should be considered in addition to, not as a substitute for or superior to, net income, cash flows or other measures of financial performance prepared in accordance with GAAP. Adjusted Income from Operations, Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are reconciled herein to net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. eCollege Condensed Consolidated Statement of Cash Flows Unaudited (in thousands) For the Nine Months Ended September 30, September 30, 2006 2005 Cash Flows from Operating Activities: Net Income $4,322 $3,925 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 2,663 2,087 Amortization of Capitalized Software 1,152 425 Amortization of Intangible Assets 1,295 1,200 Stock-Based Compensation 2,988 2,058 Cumulative Effect of Accounting Change (28) -- Deferred Income Taxes 1,091 2,921 Loss on Early Retirement of Debt 226 -- Other (Net) 540 963 Changes In: Accounts Receivable and Accrued Revenue Receivable (7,908) (7,388) Accounts Payable and Accrued Liabilities 1,373 (750) Deferred Revenue 3,197 4,566 Other Changes in Assets and Liabilities (Net) (857) (725) Net Cash Provided by Operating Activities 10,054 9,282 Cash Flows from Investing Activities: Purchases of Property and Equipment (3,481) (2,715) Capitalized Software Development Costs (1,099) (1,240) Other 346 -- Net Cash Used in Investing Activities (4,234) (3,955) Cash Flows from Financing Activities Proceeds from Issued Shares, Net of Tax Payments 690 4,690 Tax Benefit from the Issuance of Stock-based awards 662 -- Payments on Leasing Arrangements (358) (167) Payments on Seller Notes (1,500) -- Payments on Term Loan -- (1,917) (506) 2,606 Net Decrease in Cash and Cash Equivalents 5,314 7,933 Cash and Cash Equivalents, Beginning of Period 23,037 8,223 Cash and Cash Equivalents, End of Period $28,351 $16,156 Schedule A eCollege Fourth Quarter 2006 Financial Guidance Unaudited (in thousands, except per share data) For the Three Months Ended December 31 Prior Converted Converted Guidance Actual Guidance Actual Low High Q4 2005 Low High Q4 2005 eLearning Revenue $13,900 $14,200 $11,031 $13,900 $14,200 $11,031 Enrollment Revenue 14,500 15,500 18,532 -- -- -- Total Revenue $28,400 $29,700 $29,563 $13,900 $14,200 $11,031 Operating Income - Cont Ops $2,600 $3,200 $3,900 $3,000 $3,200 $2,077 Net Income - Cont Ops 200 600 2,002 1,700 1,900 1,377 Net Income (Loss) - Disc Ops -- -- -- (1,100) (900) 1,057 Net Income - Consolidated $200 $600 $2,002 $600 $1,000 $2,433 Adjusted Net Income - Cont Ops 3,700 4,100 3,431 2,500 2,700 1,996 Adjusted Net Income - Disc Ops -- -- -- 1,200 1,400 1,452 Adjusted Net Income - Consolidated $3,700 $4,100 $3,431 $3,700 $4,100 $3,448 EBITDA - Cont Ops 5,400 6,000 5,984 4,700 4,900 3,286 EBITDA - Disc Ops -- -- -- 700 1,100 2,698 EBITDA - Consolidated $5,400 $6,000 $5,984 $5,400 $6,000 $5,984 Free Cash Flow - Cont Ops 3,700 4,300 4,932 3,700 3,900 3,037 Free Cash Flow - Disc Ops -- -- -- -- 400 1,896 Free Cash Flow - Consolidated $3,700 $4,300 $4,932 $3,700 $4,300 $4,932 Diluted Shares 23,300 23,300 22,773 23,300 23,300 22,773 GAAP EPS - Cont Ops $0.01 $0.03 $0.09 $0.07 $0.08 $0.06 GAAP EPS (Loss) - Disc Ops -- -- -- ($0.05) ($0.04) $0.05 GAAP EPS - Total $0.01 $0.03 $0.09 $0.02 $0.04 $0.11 Adjusted EPS - Cont Ops $0.16 $0.18 $0.15 $0.11 $0.12 $0.09 Adjusted EPS - Disc Ops -- -- -- $0.05 $0.06 $0.06 Adjusted EPS - Total $0.16 $0.18 $0.15 $0.16 $0.18 $0.15 Schedule B eCollege Reconciliation of GAAP Net Income and Net Income per Diluted Share Guidance to Adjusted Net Income, Adjusted Net Income per Diluted Share and Free Cash Flow Guidance Unaudited (in thousands, except per share data) For the Three Months Ended December 31 Prior Actual Converted Converted Guidance Guidance Actual Range Q4 2005 Range Q4 2005 Continued Operations Net Income Guidance $200 to $600 $2,002 $1,700 to $1,900 $1,377 Stock-Based Compensation Expense 1,100 782 800 622 Amortization of Identified Intangibles 400 414 -- -- Non-Cash Interest Expense 2,000 233 -- (2) Adjusted Net Income Guidance(1) $3,700 to $4,100 $3,431 $2,500 to $2,700 $1,996 Depreciation 1,000 731 700 483 Amortization of Capitalized Software 300 158 200 105 Cash Interest (Income)/Expense, Net 100 590 -- (36) Taxes on Income 300 to 500 1,074 1,300 738 Adjusted EBITDA(1) $5,400 to $6,000 $5,984 $4,700 to $4,900 $3,286 Capital Expenditures 1,100 362 500 186 Capitalized Software 500 99 500 99 Cash Interest 100 590 -- (36) Free Cash Flow Guidance(1) $3,700 to $4,300 $4,932 $3,700 to $3,900 $3,037 Discontinued Operations Net Income (Loss) Guidance -- ($1,100) to ($900) $1,057 Stock-Based Compensation Expense -- 300 160 Amortization of Identified Intangibles -- -- -- Non-Cash Interest Expense -- 2,000 235 Adjusted Net Income Guidance(1) -- $1,200 to $1,400 $1,452 Depreciation -- -- -- Amortization of Capitalized Software -- 100 53 Cash Interest (Income)/Expense, Net -- 100 626 Taxes on Income -- (700) to (500) 567 Adjusted EBITDA(1) -- $700 to $1,100 $2,698 Capital Expenditures -- 600 176 Capitalized Software -- -- -- Cash Interest -- 100 626 Free Cash Flow Guidance(1) -- $0 to $400 $1,896 Consolidated Operations Net Income Guidance $200 to $600 $2,002 $600 to $1,000 $2,433 Stock-Based Compensation Expense $1,100 $782 $1,100 $782 Amortization of Identified Intangibles 400 414 -- -- Non-Cash Interest Expense 2,000 233 2,000 233 Adjusted Net Income Guidance(1) $3,700 to $4,100 $3,431 $3,700 to $4,100 $3,448 Depreciation 1,000 731 700 483 Amortization of Capitalized Software 300 158 300 158 Cash Interest (Income)/Expense, Net 100 590 100 591 Taxes on Income 300 to 500 1,074 600 to 800 1,305 Adjusted EBITDA(1) $5,400 to $6,000 $5,984 $5,400 to $6,000 $5,984 Capital Expenditures 1,100 362 1,100 362 Capitalized Software 500 99 500 99 Cash Interest 100 590 100 591 Free Cash Flow Guidance(1) $3,700 to $4,300 $4,932 $3,700 to $4,300 $4,932 For the Three Months Ended December 31 Prior Actual Converted Converted Guidance Guidance Actual Range Q4 2005 Range Q4 2005 Continued Operations Net Income per Diluted Share Guidance $0.01 to $0.03 $0.09 $0.07 to $0.08 $0.06 Stock-Based Compensation Expense $0.05 $0.03 $0.03 $0.03 Amortization of Identified Intangibles $0.02 $0.02 -- -- Non-Cash Interest Expense $0.09 $0.01 -- -- Adjusted Net Income per Diluted Share Guidance(1) $0.16 to $0.18 $0.15 $0.11 to $0.12 $0.09 Discontinued Operations Net Income per Diluted Share Guidance -- -- ($0.05) to ($0.04) $0.05 Stock-Based Compensation Expense -- -- $0.01 $0.007 Amortization of Identified Intangibles -- -- -- -- Non-Cash Interest Expense -- -- $0.09 $0.01 Adjusted Net Income per Diluted Share Guidance(1) -- -- $0.05 to $0.06 $0.06 Consolidated Operations Net Income per Diluted Share Guidance $0.01 to $0.03 $0.09 $0.02 to $0.04 $0.11 Stock-Based Compensation Expense $0.05 $0.03 $0.05 $0.03 Amortization of Identified Intangibles $0.02 $0.02 -- -- Non-Cash Interest Expense $0.09 $0.01 $0.09 $0.01 Adjusted Net Income per Diluted Share Guidance(1) $0.16 to $0.18 $0.15 $0.16 to $0.18 $0.15 (1) Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are not generally accepted accounting principles, or "GAAP," based measures. However, management believes, based on feedback from investors, analysts and other users of the Company's financial information, that Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are appropriate measures of the operating performance of the Company because they are an indication of the resources available for strategic opportunities and are used by many investors to assess the Company's profitability from current operations. Further, management believes, based on feedback from analysts, that Adjusted Net Income, Adjusted Net Income per Diluted Share and Free Cash Flow are important measures that analysts use in estimating and analyzing results for the Company, which estimates are used by investors and potential investors. Finally, as a result of the Company's acquisition of Datamark in the fourth quarter of 2003 and related borrowings, Adjusted EBITDA has been defined by the Company's lenders as an important metric, and is used in the Company's debt compliance covenants. These measures, however, should be considered in addition to, not as a substitute for or superior to, net income, cash flows or other measures of financial performance prepared in accordance with GAAP. The Company's guidance for Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow is reconciled herein to guidance for net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. Schedule C eCollege Pro Forma Financial Results Unaudited (in thousands, except per share data) For the Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Reported Results Converted Results Under Current Model Under New Model eLearning Revenue 38,235 30,426 38,235 30,426 Enrollment Revenue 48,151 42,878 -- -- Total Revenue $86,386 $73,304 $38,235 $30,426 Operating Income - Continued Operations $9,292 $9,634 $8,358 $4,745 Net Income - Continued Operations 4,322 3,925 5,346 2,657 Net Income - Discontinued Operations -- -- 292 2,418 Net Income - Consolidated $4,322 $3,925 $5,638 $5,075 Adjusted Net Income - Continued Operations 9,615 7,867 7,506 4,543 Adjusted Net Income - Discontinued Operations -- -- 2,131 3,274 Adjusted Net Income - Consolidated $9,615 $7,867 $9,637 $7,817 EBITDA - Continued Operations 17,418 15,404 12,774 8,111 EBITDA - Discontinued -- -- 4,644 7,293 EBITDA - Consolidated $17,418 $15,404 $17,418 $15,404 Free Cash Flow - Continued Operations 10,521 8,913 9,007 4,472 Free Cash Flow - Discontinued Operations -- -- 1,514 4,441 Free Cash Flow - Consolidated $10,521 $8,913 $10,521 $8,913 Diluted Shares 23,024 22,353 23,024 22,353 GAAP EPS - Continued Operations $0.19 $0.18 $0.23 $0.12 GAAP EPS - Discontinued Operations -- -- $0.01 $0.11 GAAP EPS - Total $0.19 $0.18 $0.24 $0.23 Adjusted EPS - Continued Operations $0.42 $0.35 $0.33 $0.20 Adjusted EPS - Discontinued Operations -- -- $0.09 $0.15 Adjusted EPS - Total $0.42 $0.35 $0.42 $0.35 Schedule D eCollege Reconciliation of Pro Forma Results to GAAP Unaudited (in thousands, except per share data) For the Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Reported Results Converted Results Under Current Model Under New Model Continued Operations Net Income $4,322 $3,925 $5,346 $2,657 Adjustments for Non-Cash Charges Stock-Based Compensation Expense 2,988 2,058 2,154 1,854 Amortization of Identified Intangibles 1,295 1,200 -- -- Non-Cash Interest Expense 1,010 684 6 32 Adjusted Net Income(1) $9,615 $7,867 $7,506 $4,543 Depreciation 2,663 2,087 1,827 1,270 Amortization of Capitalized Software 1,152 425 454 243 Cash Interest (Income)/Expense, Net 1,366 2,007 (240) 42 Taxes on Income 2,622 3,018 3,228 2,012 Adjusted EBITDA(1) $17,418 $15,404 $12,774 $8,111 Capital Expenditures 4,446 3,244 2,922 2,384 Capitalized Software 1,085 1,240 1,085 1,213 Cash Interest 1,366 2,007 (240) 42 Free Cash Flow(1) $10,521 8,913 $9,007 $4,472 Discontinued Operations Net Income -- -- $292 $2,418 Adjustments for Non-Cash Charges Stock-Based Compensation Expense -- -- 834 204 Amortization of Identified Intangibles -- -- -- -- Non-Cash Interest Expense -- -- 1,004 651 Adjusted Net Income(1) -- -- $2,131 $3,274 Depreciation -- -- -- -- Amortization of Capitalized Software -- -- 698 182 Cash Interest (Income)/Expense, Net -- -- 1,605 1,965 Taxes on Income -- -- 208 1,873 Adjusted EBITDA(1) -- -- $4,644 $7,293 Capital Expenditures -- -- 1,524 860 Capitalized Software -- -- -- 27 Cash Interest -- -- 1,605 1,965 Free Cash Flow(1) -- -- $1,514 $4,441 Consolidated Operations Net Income $4,322 $3,925 $5,639 $5,075 Adjustments for Non-Cash Charges Stock-Based Compensation Expense 2,988 $2,058 2,988 2,058 Amortization of Identified Intangibles 1,295 1,200 -- -- Non-Cash Interest Expense 1,010 684 1,010 684 Adjusted Net Income(1) $9,615 $7,867 $9,637 $7,817 Depreciation 2,663 2,087 1,827 1,270 Amortization of Capitalized Software 1,152 425 1,152 425 Cash Interest (Income)/Expense, Net 1,366 2,007 1,366 2,007 Taxes on Income 2,622 3,018 3,436 3,885 Adjusted EBITDA(1) $17,418 $15,404 $17,418 $15,404 Capital Expenditures 4,446 3,244 4,446 3,244 Capitalized Software 1,085 1,240 1,085 1,240 Cash Interest 1,366 2,007 1,366 2,007 Free Cash Flow(1) $10,521 $8,913 $10,521 $8,913 For the Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2006 2005 2006 2005 Reported Results Converted Results Under Current Model Under New Model Continued Operations Net Income per Diluted Share $0.19 $0.18 $0.23 $0.12 Stock-Based Compensation Expense $0.13 $0.09 $0.10 $0.08 Amortization of Identified Intangibles $0.06 $0.05 -- -- Non-Cash Interest Expense $0.04 $0.03 -- -- Adjusted Net Income per Diluted Share(1) $0.42 $0.35 $0.33 $0.20 Discontinued Operations Net Income per Diluted Share -- -- $0.01 $0.11 Stock-Based Compensation Expense -- -- $0.04 $0.01 Amortization of Identified Intangibles -- -- -- -- Non-Cash Interest Expense -- -- $0.04 $0.03 Adjusted Net Income per Diluted Share(1) -- -- $0.09 $0.15 Consolidated Operations Net Income per Diluted Share $0.19 $0.18 $0.24 $0.23 Stock-Based Compensation Expense $0.13 $0.09 $0.14 $0.09 Amortization of Identified Intangibles $0.06 $0.05 -- -- Non-Cash Interest Expense $0.04 $0.03 $0.04 $0.03 Adjusted Net Income per Diluted Share(1) $0.42 $0.35 $0.42 $0.35 (1) Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are not generally accepted accounting principles, or "GAAP," based measures. However, management believes, based on feedback from investors, analysts and other users of the Company's financial information, that Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow are appropriate measures of the operating performance of the Company because they are an indication of the resources available for strategic opportunities and are used by many investors to assess the Company's profitability from current operations. Further, management believes, based on feedback from analysts, that Adjusted Net Income, Adjusted Net Income per Diluted Share and Free Cash Flow are important measures that analysts use in estimating and analyzing results for the Company, which estimates are used by investors and potential investors. Finally, as a result of the Company's acquisition of Datamark in the fourth quarter of 2003 and related borrowings, Adjusted EBITDA has been defined by the Company's lenders as an important metric, and is used in the Company's debt compliance covenants. These measures, however, should be considered in addition to, not as a substitute for or superior to, net income, cash flows or other measures of financial performance prepared in accordance with GAAP. The Company's guidance for Adjusted Net Income, Adjusted Net Income per Diluted Share, Adjusted EBITDA and Free Cash Flow is reconciled herein to guidance for net income, the most directly comparable financial measure calculated and presented in accordance with GAAP. DATASOURCE: eCollege CONTACT: Reid Simpson, Chief Financial Officer, +1-312-706-1706, ; or Kristi Emerson, Director, Corporate Communications, +1-303-915-9574, , both of eCollege Web site: http://www.ecollege.com/

Copyright