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1. 2 Forward Looking Statements Certain statements in this presentation constitute “forward- looking statements” within the meaning of the U.S. Private.

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Presentation on theme: "1. 2 Forward Looking Statements Certain statements in this presentation constitute “forward- looking statements” within the meaning of the U.S. Private."— Presentation transcript:

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2 2 Forward Looking Statements Certain statements in this presentation constitute “forward- looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations and involve certain risks and uncertainties. Actual results might differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the preliminary prospectus.

3 3 Educate, Inc. $700 million enterprise value Estimated 2005 revenues of $350 to $365 million, 17% to 22% growth over 2004 Estimated 2005 adjusted EPS (1) of $.58 to $.60 per share, 18% to 22% growth over 2004 Portfolio of highly acclaimed brands including Sylvan Learning Center and Hooked on Phonics Strong Cash flow generation The Leading Pre-K through 12 Education Services Company (1) Excludes refinancing costs

4 4 Educate Revenue ($ mm) Company History 2003 Sylvan Tutoring Company Founded Chris Hoehn-Saric Joins as Chairman & Co-CEO of Laureate (Sylvan Learning Systems) Catapult Business Founded 500th Center Opens 750th Center Opens 1,000th Center Opens IPO completed 9/2004 197919911995199920041994 Apollo/Management Buyout of Pre-K-12 Business (6/30/03)

5 5 Segment Contribution NCLB School Service European Franchise Company - Owned Catapult Learning Sylvan Learning 10% 23% 7% 14% 46% 14% 86% Revenue Operating Profit 33% Catapult Learning 67% Sylvan Learning Schools Consumer Schools Consumer

6 6 Strategic Focus Leverage Educate’s competitive advantages as largest services provider in Pre-K – 12 education industry. Consumer Operations –Expand Sylvan Learning Center network –Improve average territory revenue through implementation of best practices –Increased focus on convenience (densification / Sylvan Online) –Expand fun, affordable programs targeted to younger students School-Based Operations –Focus public / non-public services on strong margin contributors –Balanced approach to No Child Left Behind services, growth and profitability (site based and Catapult Online)

7 7 Pre-K-12 Education - $600 Billion Industry GROWING CONSUMERISM GOVERNMENT POLICY ECONOMIC DRIVERS - Highly fragmented - No company with a 1% overall share - Educate, Inc – largest services company in Pre-K-12 education

8 8 Economic Drivers High School Diploma: 103% of Average Salary Primary Economic Force: Manufacturing 73% of Average Salary Knowledge Based 1970 Today

9 9 Federal Government Policy No Child Left Behind – Standards, Accountability, Penalties 1980’s Medicare drove deregulation and reform - 11.5% of total healthcare spending The “Special Edification” of classroom instruction – tailored solutions for each student

10 10 Education Consumerism Consumers spending to supplement free public education Consumers begin demanding changes at the school level $12 Billion is spent on supplemental education products and services 1 out 6 children has left the traditional public schools - Charters, Private, Virtual Charter, Home Schooling

11 11 Brand Market Presence Consumer Marketplace School Marketplace

12 12 Long-Term Sustainable Advantages Control of the two leading consumer brands in education Unique direct-to-consumer distribution system Dominant share (5x next competitor) Scale -Broadest and deepest distribution system -Marketing - $63M in annual spend Deep management bench w/ competencies in consumer marketing, multi-unit operating expertise, education Proven learning center franchise model Long-standing school relationships Unique integrated online service offering Outstanding track record of growth and financial performance

13 13 Consumer Business Overview Premium Tutors Mass Market Programs Online European

14 14 Sylvan Learning Center Segment Strong Sylvan Network Territories Centers Franchise 736 898 Company-Owned 128 185 Total System 864 1,083 $565,000 average franchise territory revenue –Average 8% royalty ($45,000) $1,000,000 average company territory revenue –19% operating margin ($190,000) Low capital investment ~ $140-200K Low service distribution cost - 3 yr, strip center leases in 3 rd party locations Leading tutoring center business in Germany - Schuelerhilfe

15 15 Source: RoperASW Awareness & Attitude Study 2004 Leader in Brand Awareness & Market Share Brand AwarenessEstimated Revenue Share Best Known Brand – Approximately $63mm Total Ad Spend in 2004 Sylvan Local Centers Branded National Competitors Combined 400,000+ Private Tutors

16 16 Proprietary Instruction and Programs Generate parent inquiry 1 of every 3 inquiries enrolls Average program price of approximately $3,250 Learning program matched to specific student Proprietary instructional program Guaranteed results Inquiry AssessmentInstruction Enrollment Ongoing Conferences Teacher/Parent

17 17 Strong Territory Based System Franchises (736 Territories) ~4,000 inquiries per year, screened for 35 - 45 new territories Typical franchisees are family teams committed to improving children’s lives New franchisees invest $140k - $200k, typically first year cash flow positive Owner operators – no franchisee owns more than 15 centers Educate has right of first refusal to match any purchase offers Top performing territories are 3-4 times average territory revenue Company-Owned (128 Territories) Higher revenue per territory and greater operating income contribution Best practices developed

18 18 Improving Performance Learning Center Best Practices Complete assessment of student needs Greater emphasis on convenience (expanded hours; more locations; Sylvan Online integration) Greater use of third party financing Co-op marketing efficiency Expansion of fun, affordable services Future Growth Expansion of territories to meet growing population needs Drive existing territory revenue growth throughout Learning Center network –Work with existing franchisees to implement proven best practices –Match energetic new franchisees with available territories –Opportunistic acquisition of franchise territories in strategic company-owned DMA’s

19 19 Our Unique Sylvan Online Approach Proprietary system based on Sylvan Learning Center concepts Online, live, two-way teacher-led vocal, written and graphic instruction delivered via dial-up connection Same guaranteed academic achievement and similar pricing to in-center services Meeting family convenience needs Currently, 25% of the Learning Centers offer Sylvan Online. Expectation is over 50% by year-end.

20 20 Hooked on Phonics 99% Brand Awareness w/ a 15+ year old company Over 2,000,000 Satisfied Customers Learn to Read, Math, Master Reader, School Success Programs Successful services business with 600 small store within a store daycare locations Multiple potential service locations – –Leveraged with a program through Sylvan franchise network Addressing consumer demand for low-stakes, fun, afterschool educational programs

21 21 School Business Traditional NCLB Online

22 22 School Market Overview Features: Providing outsourced services Programs focused on specific student needs Measurement of academic success Growth Drivers: Leveraging long-term school partnerships Serving growing idea marketplace Integration of consumer / school services (NCLB) Catapult Online (urban and rural markets) Movement toward school accountability

23 23 School Business Overview Core service offerings remain strong with high contract retention rates New offerings being launched to meet emerging opportunities - Tutoring for eligible students funded by federal government - Catapult Online services to meet needs of underserved rural market Partnering with schools to address accountability requirements 1993 Small Group Instruction Paid for by School Districts 1997 Address Other School Outsourcing Service Need 2002 Government Sponsored Tutoring (NCLB) 2004 Catapult On-Line Pilot

24 24 Financial Overview

25 25 Outstanding Track Record of Growth Revenue ($ in millions) 25% CAGR 1999-2003 12% MBO (1) Reflects the Company’s current estimate of 2005 revenues, at the mid-point of projected range. (1)

26 26 2005 Full Year Financial Expectations (1) Margin shift in revenue growth for franchise / co-owned (2) Excludes other financing costs, and in 2004, certain non-cash stock compensation expense associated with grants that vested immediately (2) (1)

27 27 Seasonality of Educate Profits Peak royalties (Q1, Q2) School break (Q3) Marketing and start-up expenses for government-funded tutoring (Q4)

28 28 Strong Free Cash Flow Generation Strong EBITDA Margins Low Debt Service Requirements Low Maintenance Capital Expenditures Favorable Tax Structure with Low Cash Tax Requirements (Approximately 20%) Cash Flow Available for Investment and Growth

29 29 Growth Strategies in Action ~ ~

30 30 Growth Initiative Pipeline Low Cost Service Catapult Online Sylvan Online Center Convenience Expansion Territory Best Practices Revenue Focus NCLB Market Expansion Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2005 2006 2007

31 31 Educate – Market Vision Control best brands in education Own and grow a propriety distribution system direct to consumer Lead the integration of consumer involvement and school partnership solutions

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