2004 was a very productive year for ProQuest Company. During the year our net earnings increased 13 percent to $52.7 million on revenue growth of 3 percent, and we converted 80 percent of our net earnings into $41.9 million of free cash flow. ProQuest Company has entered 2005 with accelerating momentum. We're enjoying revenue growth, exciting new product introductions, and a robust new K–12 platform. We expect to deliver consistent increases in revenue, earnings and cash flow through our growth platforms. These are:
- Innovative K–12 classroom solutions,
- Digital published products for the higher education market,
- Digital archival news products, and
- Information solutions for the automotive market.
Going into 2005, we're operating from a position of financial strength and flexibility. This is evident in maximized profit and cash from our mature product lines, and conversion of a greater percentage of our earnings into free cash fl ow. We've made demonstrable progress on our growth platforms and these financial initiatives.
ProQuest Company Growth Platforms
Innovative K–12 Classroom Solutions The market for K–12 classroom solutions is large and growing as educators look for unique solutions with proven results. Financing this movement is the new funding available from federal, state, local, and international sources. Most states are reporting greater-than-projected revenue improvement, and funding for K–12 education is a high priority, representing more than one-third of average state general funds spending. Let's look at how ProQuest has targeted this burgeoning market.
The transformational acquisition of Voyager Expanded Learning, completed early in 2005, was an important milestone in our K–12 strategy. It represents for us a K–12 platform with signifi cant scale. Voyager's programs in core reading instruction, reading intervention, and teacher professional development have produced proven results for major school districts throughout the United States.
Reading curriculum and intervention are two of the quickly growing segments in the K–12 market. Voyager's solutions have substantial growth potential, and provide ProQuest with access to significant new revenue streams. We plan to further develop our offerings by:
- Expanding the reading intervention program through the eighth grade,
- Introducing math intervention,
- Expanding VoyagerU teacher professional development, and
- Integrating ProQuest's proprietary content into Voyager programs.
Another of ProQuest's new and innovative products for the K–12 market is ProQuest Historical Newspapers Graphical Edition, which delivers key national newspapers starting with their first editions, through an interface designed specifically for students. It includes editorial content aligned to common K–12 classroom and homework activities. This product grew quickly after it was introduced in 2004 and has built an enthusiastic base of subscribers. We've incorporated features which help students to learn through exploration and discovery. One of these is an interactive timeline that enlivens the classroom experience by taking students directly to our historical content and teaching them when historical events occurred in relation to one another.
Also targeted at the K–12 market are products from Reading A–Z and ExploreLearning which offer web-delivered learning solutions. Reading A–Z offers proprietary downloadable, interactive books indexed to students' reading levels. The books are combined with lesson plans, supplemental classroom activities and online support to provide a comprehensive solution for teachers and tutors. ExploreLearning offers a comprehensive catalog of online, interactive mathematics and science simulations. These dynamic visual models are a proven and powerful enhancement to the ways teachers teach and students learn. The simulations follow state and national curriculum standards and are fl exible enough to support many different teaching styles and contexts.
Digital Published Products for the Higher Education Market
Digital published products, which include ProQuest Historical Newspapers and our Chadwyck-Healey humanities products, represented 26 percent of Information and Learning's revenue in 2001. By 2004 digital published products made up 41 percent of Information and Learning's revenue on a larger base, representing a compound annual growth rate of about 20 percent! Revenue from published products grew more than 25 percent in 2004 alone. These products are proprietary and have the value-added features and functionality that customers demand. They are also growing rapidly, helping to offset declines in revenue from traditional microfilm products.
We use the rich historical content in our vast microfilm vault for a pipeline of digital products. The Gerritsen Collection — Women's History Online is just one of the Digital Vault products that performed well in 2004. This database is the definitive cross-cultural resource for information on women's history. It spans more than four centuries, 15 languages and two million pages.
Scholars and researchers value The Gerritsen Collection as it provides immediate access to material previously available only in a limited number of rare book rooms around the world. Content is critical, and we continued to build our holdings in 2004 with the addition of the Nineteenth Century Short Title Catalog. This index of nearly all printed materials published in the United States and the British Empire during the nineteenth century will become the base for derivative digital products. As an example, we're planning to release the complete nineteenth century British House of Commons Parliamentary Papers later in 2005.
Digital Archival News Products
ProQuest Historical Newspapers set the precedent for digital archival news products. It began with six top-tier U.S. newspapers — The New York Times, Wall Street Journal, The Washington Post, The Christian Science Monitor, Los Angeles Times, and Chicago Tribune — digitized cover-to-cover, beginning with their first issues. We're now adding regional newspapers, including the Atlanta Journal-Constitution and Boston Globe archives. This product, with its combination of unique content and features not available anywhere else, is the basis of a rapidly growing family of subscription products. It also represents an archive of primary source content that we are repurposing into a collection of revolutionary educational products, such as ProQuest Historical Newspapers Graphical Edition.
Information Solutions for the Automotive Market
The solutions we publish for the automotive market continue to generate solid growth. Our automotive performance management products, which enable automotive original equipment manufacturers (OEMs) and dealers to monitor and evaluate financial and standards compliance metrics, are growing at double-digit rates. We expect continued expansion as more customers experience the value of these must-have analytics. As for our parts and service products, renewal rates remain high. We increased our client base further when Toyota Motor Corporation Australia signed as a new customer early in 2005. To concentrate our resources on publishing these electronic solutions, we sold our powersports dealer management system software business during 2004.
We broadened our portfolio of automotive market solutions with the acquisition of Syncata Corporation in early 2005. Syncata's solutions help automotive OEMs and dealers with sales, service and parts, demand analytics, and financing.
Finnancial Strength and Flexibility
We're investing in our product growth platforms from a position of financial strength and flexibility.
We've improved our financial strength by maximizing the profit and cash fl ow from our mature product lines, such as our traditional microfilm products. This includes creating new digital products from our film archive and sunsetting products that are not sustainable. We've also made excellent progress in converting more of our earnings into cash. When we became ProQuest Company in 2001, we had $26.0 million of negative free cash flow. In 2004, we generated $41.9 million in free cash flow, converting 80 percent of our net earnings into cash.
ProQuest Company is firmly committed to sound principles of corporate governance. We implemented a state-of-the-art whistleblower system in 2004. In addition, we were pleased that while the Sarbanes-Oxley Section 404 certification process identified areas for improvement in our internal control processes, no material weaknesses were identified.
We're committed to continuous improvement and maintaining the highest level of integrity in our fi nancial reporting. The composition of the ProQuest Company Board of Directors underwent some changes over the past year. On behalf of the entire company, I would like to extend heartfelt thanks to Bill White and David Bonderman, who retired from our board after 14 and 17 respective years of service to ProQuest Company and its predecessor, Bell & Howell Company. Two new directors joined us in 2004: Michael S. Geltzeiler, senior vice president and chief financial officer of The Reader's Digest Association, Inc. and Frederick J. Schwab, former president and chief executive officer of Porsche Cars North America. Early in 2005 we authorized an increase in the number of directors from nine to ten and Randy Best, the co-founder of Voyager Learning, joined the board.
If at any time you have questions about ProQuest Company's corporate governance, you can find comprehensive information under the Investor Relations link at www.proquestcompany.com.
Outlook for 2005
We're moving through 2005 with great energy and drive. For the year, we expect:
- Revenue in a range of $590 million to $610 million,
- Earnings of $2.20 to $2.40 per share, and
- Conversion of 85 to 100 percent of net earnings into free cash flow.
I encourage you to refer to our 2004 Annual Report on the web at www.proquestcompany.com. This new, multimedia online report offers great depth and detail. It will also bring you updates on our progress throughout the year. Our company has an exciting, bright future ahead.
Chairman, President and Chief Executive Officer
April 14, 2005