Educate, Inc. Announces Strong Second Quarter Results and Raises Full Year Financial Guidance

Educate, Inc. Announces Strong Second Quarter Results and Raises
Full Year Financial Guidance 


BALTIMORE, July 28  /PRNewswire-FirstCall/ -- Educate, Inc. (NASDAQ:EEEE), a
pre-K through 12 education services company delivering industry leading
tutoring as well as high quality supplemental education programs to families
and schools, today reported financial results for the six and three-month
periods ended June 30, 2005.

  Financial Highlights For The Six-Month Period Ended June 30, 2005
  (excluding other financing costs):
  - Revenues increased 19% to $201.3 million.
  - Learning Center same territory revenue growth was 5% during the period.
  - Operating income, as adjusted, increased 21% to $33.2 million (an
    increase of 73% after including certain non-cash stock compensation
    expenses incurred in 2004).
  - Operating margins, as adjusted, increased from 16.2% to 16.5%.
  - EPS from continuing operations, as adjusted, were $0.42, an increase of
    17% from $0.36 in 2004 (or $0.40 per share, an increase of 186% over the
    $0.14 per share in 2004, including certain non-cash stock compensation
    and other financing costs).  See Tables 1 and 2 for a reconciliation of
    EPS, operating income and operating margins, each as adjusted.

  Financial Highlights For The Quarter Ended June 30, 2005 (excluding other
  financing costs):
  - Revenues increased 18% to $103.1 million.
  - Learning Center same territory revenue growth was 5% during the second
    quarter.
  - Operating income, as adjusted, increased 18% to $19.5 million (an
    increase of 139% including certain non-cash stock compensation expense
    in 2004).
  - Operating margins, as adjusted, remained constant at 18.9%.
  - EPS from continuing operations, as adjusted, were $0.25 as compared to
    $0.22 for the second quarter of 2004.  Including other financing costs
    in both periods and certain non-cash stock compensation in 2004, EPS
    from continuing operations were $0.23 as compared to $0.01 in the second
    quarter of 2004.



"We are pleased to report strong financial results and continued success in our
strategy of expanding revenues through addressing consumer needs with more
convenient access to our services and programs," stated Chris Hoehn-Saric,
Educate, Inc. Chairman and Chief Executive Officer.  "Along with continued
growth in the current period and raising full year 2005 guidance, we are
excited by the fact that we have already delivered over two thirds of our
expected full year net income and have funded investments in the Sylvan Online
integration, the launch of Catapult Online and the acquisition of strategic
Learning Center territories that will position us extremely well for growth in
2006 and beyond."

  Business Overview:

  Six-Month Results


Revenues for the six-month period increased 19% over the same period in 2004 to
$201.3 million driven primarily by growth in the consumer (Learning Center)
business segment.  Operating income for the six-month period increased 21% to
$33.2 million as compared to the as adjusted first half of 2004. Operating
income, as adjusted, excludes certain non-cash stock compensation in 2004.  The
Company believes this non-GAAP financial measure allows for a better comparison
of operating results because the 2005 period had no similar expenses.  See
Table 1 for a reconciliation of income from continuing operations, as reported
to operating income, as adjusted.  This six-month period represents an
important season for the Educate business as it is the peak period for
marketing and enrollments in the consumer business and it is also the primary
period of delivery of services to the school market.

Growth in revenues and operating income was primarily driven by the expansion
of the Learning Center network by 41 territories over the past year, same
territory revenue growth of 5%, acquisition and integration of Hooked on
Phonics in the consumer business, expansion of No Child Left Behind (NCLB)
services and investment of free cash flows generated by the business into the
acquisition of 56 franchise territories over the past year.

Quarterly Results

Revenues for the second quarter were $103.1 million, an increase of 18% over
the same period in 2004.  Operating income was $19.5 million, an increase of
18% over the operating income, as adjusted, for the three months ended June 30,
2004.  Consistent with the six-month results, these increases were driven by
growth in the consumer (Learning Center) business segment.

Learning Center segment revenues were $66.7 million for the quarter, up 34%
from the second quarter of 2004.  The Company's strategy of growing average
revenue per territory by partnering with franchisees to apply best operating
practices and the strategic acquisition of franchise territories drove
performance during the quarter.  Same territory revenue growth was 5% in the
second quarter of 2005.  Additionally, 15 new franchise territories were opened
throughout the network during the quarter. The Company also acquired 16
franchise territories during the second quarter of 2005.  However, since nine
of the territory acquisitions occurred in the latter half of June the revenue
impact was limited for the period.  Improved customer convenience is a focus of
management addressed through opening additional locations within existing
territories and the integration of Sylvan Online into the Learning Center
network.  As of the close of the quarter, Sylvan Online was being offered by
more than one third of the network territories.  The Company was also
successful in growing the revenues from its Hooked on Phonics education
programs in the period by expanding the number of retailers purchasing the
programs. Learning Center operating profit for the quarter was $19.2 million, a
29% increase over the same period in 2004.  Operating profit growth was driven
by revenue growth partially mitigated by a 1% operating margin decrease due to
the shift in the network mix of franchise and company-owned territories.

Catapult Learning segment revenues were $36.4 million during the quarter, a 3%
decrease compared with the same period in 2004.  Segment revenues reflected
NCLB growth offset by certain non-recurring 2004 summer school services and a
shortage of available therapists to staff special needs services in the current
quarter.  NCLB revenue growth of 16% for the quarter was limited by the earlier
start of service delivery in the current school year.  On a full school year
basis, NCLB revenues for school year 2004/2005 of $33.8 million were 37%
greater than $24.6 million in revenues for the prior school year.  The quarter
also bore the costs of the expanded Catapult Online pilot program which
delivers NCLB instruction in the convenience of each student's home.  Catapult
operating profit for the quarter was negatively impacted by the earlier start
of NCLB programs in the school year, the expenses of completing a greater
number of programs at the end of the school year and expenses incurred to
operate the NCLB online pilot.

Corporate expenses increased 9% to $3.7 million during the second quarter of
2005 as compared to the same period in 2004.  Non-operating expenses before
other financing costs, primarily interest, were $1.9 million for the quarter, a
27% decrease from the second quarter of 2004.  The decline in interest expense
was primarily due to lower levels of debt and lower borrowing costs during the
period as compared to the same period in 2004.  During the second quarter of
2005, the Company refinanced its term loan facility and wrote-off unamortized
financing costs of $1.5 million ($0.9 million net of the related tax benefit)
incurred in connection with previous financing agreements, which is included in
other financing costs.

Third Quarter and Full-Year 2005 Outlook:

The Company's current expectations for the third quarter and fiscal year 2005
are as follows:

  - The Company anticipates total revenues to be between $78 and $82 million
    for the third quarter and between $365 and $375 million for the full
    year.
  - Operating income, as adjusted, is expected to be between $9 and $10
    million for the third quarter and between $49 and $51 million for the
    full year.
  - Diluted earnings per share, as adjusted, is expected to be between $0.10
    and $0.12 per share for the third quarter and full year expectations
    have increased to between $0.59 and $0.61 per share.

  Learning Center Outlook:
  - Total revenues are expected to be between $68 and $70 million for the
    third quarter and between $247 and $253 million for the full year 2005.
  - Revenue growth is expected to result from the combination of same
    territory revenue growth (currently projected at 5% to 6% for the full
    year 2005), opening additional territories and acquisition of
    territories from franchisees.  During the second half of the year, the
    Company expects to add 15 to 20 new territories in the system and
    acquire 5 to 10 territories from franchisees.
  - Operating margins for the third quarter are expected to be between 25%
    and 26% and full year margins are expected to be between 23% and 24%.
    These expected margins include Sylvan Online and Hooked on Phonics
    results as well as the effect of acquiring additional territories from
    franchisees.  Since the operating income from the acquired territories
    is similar to the royalty income from franchisees in the year of
    acquisition, but the revenue increases substantially, Sylvan Learning
    Center margins decline by approximately 1% for every 15 territories
    acquired.

  Catapult Learning Outlook:
  - Total revenues are expected to be between $10 and $12 million for the
    third quarter of 2005 and between $118 and $122 million for the full
    year 2005.
  - Operating margins are projected to be a loss of between (35%) and (45%)
    for the third quarter when school is out of session, and between 6% and
    7% for the full year 2005.

  Corporate Services Outlook:
  - Corporate expenses are expected to be approximately $4.0 million for the
    third quarter and between $16.5 and $17.0 million for the full year
    2005.
  - Non-operating expenses before other financing costs, primarily interest,
    are expected to be approximately $2 million for the third quarter of
    2005 and between $7.0 and $7.5 million for the full year.
  - The Company's effective income tax rate is expected to be 38%.  This
    rate is subject to change based on the ultimate source of the Company's
    revenue and income; however, the 2005 cash tax rates are expected to be
    less than 20%, primarily as a result of goodwill amortization deductions
    reported in income tax returns.
  - Fully diluted shares outstanding are expected to be in the 44.1 to 44.2
    million range for 2005.



Educate management will host a conference call to review these results at 10:00
AM (EDT) today, July 28, 2005.  Interested parties may listen to the webcast by
accessing http://www.educate-inc.com/ and clicking on Investor Relations on the
Internet or by dialing 1-800-818-5264 (International 1-913- 981-4910) access
code 3654292.  The call will also be available through replay on the Educate
website through August 4, 2005.

About Educate, Inc.

Educate, Inc. (NASDAQ:EEEE) is a leading pre-K-12 education services company
delivering education services and products to students and their families.  It
has a portfolio of highly acclaimed brands including Sylvan Learning Centers,
North America's largest and most trusted network of tutoring centers, providing
supplemental, remedial and enrichment instruction; Hooked on Phonics, delivering
highly regarded early reading, math and study skills programs; and Catapult
Learning, a leading provider of educational services to public and non-public
schools.  More information on Educate, Inc. can be found at
http://www.educate-inc.com/.

Forward-looking Statements

This release includes information that could constitute forward-looking
statements made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995.  Such forward-looking statements involve risks
and uncertainties.  Although the Company believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, the Company's actual results could differ materially from those
described in the forward-looking statements.  The following factors might cause
such a difference:  the development and expansion of the Sylvan Learning Center
franchise system; changes in the relationships among Sylvan Learning Center and
its franchisees; the Company's ability to effectively manage business growth;
increased competition from other educational service providers; changes in laws
and government policies and programs; changes in the acceptance of the Company's
services by institutional customers and consumers; changes in customer
relationships; the seasonality of operating results; global economic
conditions, including interest and currency rate fluctuations, and inflation
rates.  Additional information regarding these and other risk factors and
uncertainties are set forth from time to time in the Company's filings with the
Securities and Exchange Commission, available for viewing on the Company's
website http://www.educate-inc.com/.  (To access this information on the
Company's website, click on "Investor Relations" and then "SEC Filings".)  All
forward-looking statements are based on information available to the Company on
the date of this Release.  The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

  Educate Inc. & Subsidiaries
  Consolidated Detailed Statements of Income
  Three and Six Months Ended June 30, 2005
                                           Three Months Ended June 30,

  (Dollar amounts in thousands, except                         $        %
   per share data)                         2005     2004   Variance Variance

  Revenues
      Franchise Services                $13,891   $12,716    $1,175     9%
      Company-Owned centers              44,603    29,845    14,758    49%
      European                            8,167     7,353       814    11%
    Total Learning Center                66,661    49,914    16,747    34%

      School Services                    25,193    27,673    (2,480)   -9%
      NCLB                               11,197     9,665     1,532    16%
    Total Catapult                       36,390    37,338      (948)   -3%

  Total Revenues                        103,051    87,252    15,799    18%

  Expenses
      Learning Centers                   47,486    35,066    12,420    35%
      Catapult                           32,441    32,347        94     0%
    Total Segment Operating Costs        79,927    67,413    12,514    19%

    Corporate Expenses                    3,526     3,298       228     7%
    Non-Cash stock compensation
     expense                                148     8,401    (8,253)  -98%

  Operating Income                       19,450     8,140    11,310   139%

  Non-Operating Items
    Interest expense, net                (1,853)   (2,533)      680    27%
    Foreign exchange gains (losses)           2        (6)        8   133%
    Other financing costs                (1,506)   (4,842)    3,336    69%
  Total Non-Operating                    (3,357)   (7,381)    4,024    55%

  Income Before Income Taxes             16,093       759    15,334  >200%
  Income Tax Expense                     (6,115)     (288)   (5,827)200%

    Loss from discontinued operations,
     net of tax                             -        (958)      958   100%
  Net Income (Loss)                      $9,978     $(487)  $10,465  >200%


  Weighted Average Shares - Diluted (1)  44,010    38,608     5,402    14%

  Diluted Earnings (loss) Per Share
   (1)                                    $0.23    $(0.01)    $0.24  >200%
  Diluted Earnings Per Share From
   Continuing Operations (1)              $0.23     $0.01     $0.22  >200%
  Diluted Earning Per Share From
   Continuing Operations,
    as adjusted (1),(2)                   $0.25     $0.22     $0.03    14%

  Segment Operating Margin
    Learning Center                         29%       30%       -1%
    Catapult Learning                       11%       13%       -2%


                                              Six Months Ended June 30,

  (Dollar amounts in thousands, except                         $        %
   per share data)                        2005      2004   Variance Variance

  Revenues
      Franchise Services                $26,828   $24,445    $2,383    10%
      Company-Owned centers              80,298    54,588    25,710    47%
      European                           16,342    14,268     2,074    15%
    Total Learning Center               123,468    93,301    30,167    32%

      School Services                    50,237    54,777    (4,540)   -8%
      NCLB                               27,601    21,368     6,233    29%
    Total Catapult                       77,838    76,145     1,693     2%

  Total Revenues                        201,306   169,446    31,860    19%

  Expenses
      Learning Centers                   93,146    68,988    24,158    35%
      Catapult                           67,217    65,713     1,504     2%
    Total Segment Operating Costs       160,363   134,701    25,662    19%

    Corporate Expenses                    7,426     7,166       260     4%
    Non-Cash stock compensation
     expense                                297     8,401    (8,104)  -96%

  Operating Income                       33,220    19,178    14,042    73%

  Non-Operating Items
    Interest expense, net                (3,651)   (5,736)    2,085    36%
    Foreign exchange gains (losses)         116       (10)      126  >200%
    Other financing costs                (1,506)   (4,842)    3,336    69%
  Total Non-Operating                    (5,041)  (10,588)    5,547    52%

  Income Before Income Taxes             28,179     8,590    19,589  >200%
  Income Tax Expense                    (10,708)   (3,264)   (7,444)200%

    Loss from discontinued operations,
     net of tax                             -      (1,721)    1,721   100%
  Net Income (Loss)                     $17,471     3,605   $13,866  >200%


  Weighted Average Shares - Diluted (1)  44,016    37,972     6,044    16%

  Diluted Earnings (loss) Per Share (1)   $0.40     $0.09     $0.31  >200%
  Diluted Earnings Per Share From
   Continuing Operations (1)              $0.40     $0.14     $0.26   186%
  Diluted Earning Per Share From
   Continuing Operations,
    as adjusted (1),(2)                   $0.42     $0.36     $0.06    17%

  Segment Operating Margin
    Learning Center                         25%       26%       -1%
    Catapult Learning                       14%       14%        0%

   (1) All share and per share amounts have been adjusted to give
       retroactive effect to a 1.00 for 1.25 reverse stock split effected on
       September 20, 2004.

   (2) Diluted earnings per share from continuing operations, as adjusted
       exclude the net of tax effect of non-recurring non-cash stock
       compensation expense and other financing costs for the three and six
       month periods ended June 30, 2004 and 2005.  Management believes this
       non-GAAP financial measure allows for a better comparison of earnings
       per share (EPS) for the periods presented. See table 2 for
       reconciliation of income from continuing operations, as reported to
       income from continuing operations, as adjusted and the diluted per
       share amounts.


                                        Three    Three    Six       Six
                                       Months   Months  Months    Months
                                        Ended    Ended   Ended     Ended
                                      June 30, June 30, June 30,  June 30,
  Business Metrics                       2005     2004    2005      2004

    Learning Center Same Territory
     Revenue Growth (3)                    5%       5%      5%        4%


                                      June 30,   December 31,  June 30,
    Number of Territories                2005        2004       2004
      Franchise                           735         738        750
      Company-owned                       144         111         88
    Total                                 879         849        838

                                      June 30,   December 31,  June 30,
    Number of Sylvan Learning Centers    2005        2004       2004
      Franchise                           889         896        898
      Company-owned                       214         163        141
    Total                               1,103       1,059      1,039

                                      June 30,   December 31,
  Balance Sheet Data:                   2005         2004
    Cash and cash equivalents        $14,681      $14,592
    Working capital                   11,551       10,802
    Total assets                     437,511      381,382
    Total long term debt             140,942      120,411

  (3) "Same Territory" amounts, include the results of territories for the
      identical months for each period presented in the comparison,
      commencing with the 13th full month the territory has been operating.
      Same territory growth is presented as the aggregate Educate revenue
      growth for franchise and company-owned territories, during the period.
      A territory reflects the geographically specified area where an
      operator controls rights to provision of services under the Sylvan
      franchise agreement.


  Consolidated Summarized Statements of Income

                                           Three Months Ended June 30,

                                                              $         %
  (Dollar amounts in thousands)          2005      2004   Variance  Variance

  Revenues
      Company-Owned Centers             $51,443   $36,096   $15,347    43%
      Franchise Services                 15,218    13,818     1,400    10%
    Total Learning Center                66,661    49,914    16,747    34%

    Total Catapult Learning              36,390    37,338      (948)   -3%

  Total Revenues                        103,051    87,252    15,799    18%

  Expenses
    Instructional and franchise
     operations costs                    70,006    59,305    10,701    18%
    Marketing and Advertising             8,369     6,642     1,727    26%
    Depreciation and amortization         1,954     1,858        96     5%
    General and Administrative
     expenses                             3,124     2,906       218     8%
    Non-cash stock compensation
     expense                                148     8,401    (8,253)  -98%

    Total costs and expenses             83,601    79,112     4,489     6%

  Operating Income                       19,450     8,140    11,310   139%

  Total Non-Operating                    (3,357)   (7,381)    4,024    55%

  Income Before Income Taxes             16,093       759    15,334  >200%
  Income Tax Expense                     (6,115)     (288)   (5,827)200%

    Loss from discontinued operations,
     net of tax                             -        (958)      958   100%
  Net Income (Loss)                      $9,978     $(487)  $10,465  >200%


                                            Six Months Ended June 30,

                                                              $         %
  (Dollar amounts in thousands)          2005      2004   Variance  Variance

  Revenues
      Company-Owned Centers             $93,903   $66,649   $27,254    41%
      Franchise Services                 29,565    26,652     2,913    11%
    Total Learning Center               123,468    93,301    30,167    32%

    Total Catapult Learning              77,838    76,145     1,693     2%

  Total Revenues                        201,306   169,446    31,860    19%

  Expenses
    Instructional and franchise
     operations costs                   140,395   118,234    22,161    19%
    Marketing and Advertising            16,742    13,606     3,136    23%
    Depreciation and amortization         4,036     3,644       392    11%
    General and Administrative
     expenses                             6,616     6,383       233     4%
    Non-cash stock compensation
     expense                                297     8,401    (8,104)  -96%

    Total costs and expenses            168,086   150,268    17,818    12%

  Operating Income                       33,220    19,178    14,042    73%

  Total Non-Operating                    (5,041)  (10,588)    5,547    52%

  Income Before Income Taxes             28,179     8,590    19,589  >200%
  Income Tax Expense                    (10,708)   (3,264)   (7,444)200%

    Loss from discontinued operations,
     net of tax                             -      (1,721)    1,721   100%
  Net Income (Loss)                     $17,471    $3,605   $13,866  >200%


  Table 1                                    Three Months Ended June 30,

                                                             $         %
  (Dollar amounts in thousands)          2005      2004  Variance  Variance

  Income from Continuing Operations,
   as reported                           $9,978      $471   $9,507   >200%
    Add: Income tax expense               6,115       288    5,827   >200%
    Add: total non-operating expense      3,357     7,381   (4,024)   -55%

  Operating Income, as reported          19,450     8,140   11,310    139%
    Add: Non-cash stock compensation
     expense(non-recurring)(4)              -       8,314   (8,314)  -100%

  Operating Income, as adjusted         $19,450   $16,454   $2,996     18%


                                             Six Months Ended June 30,

                                                               $        %
  (Dollar amounts in thousands)          2005      2004    Variance Variance

  Income from Continuing Operations,
   as reported                          $17,471    $5,326   $12,145  >200%
    Add: Income tax expense              10,708     3,264     7,444  >200%
    Add: total non-operating expense      5,041    10,588    (5,547)  -52%

  Operating Income, as reported          33,220    19,178    14,042    73%
    Add: Non-cash stock compensation
     expense(non-recurring)(4)              -       8,314    (8,314) -100%

  Operating Income, as adjusted         $33,220   $27,492    $5,728    21%


  Table 2                                    Three Months Ended June 30,

  (Dollar amounts in thousands, except                        $         %
   per share data)                       2005      2004   Variance  Variance

  Income from Continuing Operations,
   as reported                           $9,978      $471   $9,507   >200%
    Add: Other financing costs            1,506     4,842   (3,336)   -69%
    Add: Non-cash stock compensation
     expense(non-recurring)(4)              -       8,314   (8,314)  -100%
    Tax impact of items added back
     above                                 (572)   (4,999)   4,427     89%

  Income from Continuing Operations,
   as adjusted                          $10,912    $8,628   $2,284     26%

  Weighted Average Shares Diluted (1)    44,010    38,608    5,402     14%

  Diluted Earnings per share from
   Continuing Operations,                                      -
    as adjusted (1),(2)                   $0.25     $0.22    $0.03     14%


                                             Six Months Ended June 30,

  (Dollar amounts in thousands, except                        $         %
   per share data)                       2005      2004   Variance  Variance

  Income from Continuing Operations,
   as reported                          $17,471    $5,326   $12,145   >200%
    Add: Other financing costs            1,506     4,842    (3,336)   -69%
    Add: Non-cash stock compensation
     expense(non-recurring)(4)              -       8,314    (8,314)  -100%
    Tax impact of items added back
     above                                 (572)   (4,999)    4,427     89%

  Income from Continuing Operations,
   as adjusted                          $18,405   $13,483    $4,922     37%

  Weighted Average Shares Diluted (1)    44,016    37,972     6,044     16%

  Diluted Earnings per share from
   Continuing Operations,
    as adjusted (1),(2)                   $0.42     $0.36     $0.06     17%

   (4) The non-cash stock compensation expense added back includes the
       one-time charges associated with stock compensation granted in 2004
       that vested immediately.  Excluded from the add back are recurring
       expenses that are recognized over a specified vesting period.


Web sit:  http://www.educate-inc.com 

DATASOURCE: Educate, Inc.



CONTACT:  Tim Lordan of Educate, Inc., [phone]

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