Riverdeep first-quarter profit margins take dive

ANALYSTS suggested yesterday that e-learning firm Riverdeep has some questions to answer on its first-quarter figures for the fiscal year 2003 after a substantial drop in its profit margins.

Riverdeep shares took a drop on the ISEQ earlier in the week after a negative report from Merrion Stockbrokers, which slated the company for “inadequate and poor” communications with the financial markets.

However, they were holding steady at 1.10 early yesterday.

Yesterday, Riverdeep reported almost a doubling of first quarter revenues to $56.7 million, compared to $29.6 million in the same period last year. Net income before charges also rose substantially to $11.9 million against $3.2 million in Q1 2002.

However, the figure doesn’t include a restructuring charge of $8.2m linked mainly to costs associated with the integration of Riverdeep’s Broderbund acquisition earlier this year.

After the charge is taken into account, there was in fact a net loss of $110,000.

“We look forward to a strong second quarter in which we will be able to fully leverage the business, particularly at this time of year our consumer distribution channel to include the recently added leading titles from Broderbund,” said Riverdeep executive chairman Barry O’Callaghan.

Merrion Stockbrokers said Riverdeep’s revenues came in ahead of expectations, growing 9% sequentially to $56.7m.

Adjusted EPS came in at 0.05 per ordinary share. However, gross margins dropped 5.3% during the quarter to 78.3%.

“While some slippage is not surprising due to the likelihood of a higher proportion of consumer business signed during the quarter (as schools typically purchase earlier in the year - in the June quarter, well ahead of the start of the new school year in September) this drop was greater than we expected,” Merrion said.

“Operating costs of $31.9m grew only 3% in the quarter, but the overall effect was a reduction in operating margins to 22%, down from 25.6%

in Q4.”

Merrion analysts also said there were a number of issues on the balance sheet on which they would seek

clarification.

These included the fall in deferred revenue to $11.6 million from $12.9 million in the prior quarter, which they said was a further suggestion of a lower contribution from subscription revenues.