questar presentation spring 2007 final (2)

Questar Assessment, Inc.Questar Assessment, Inc.(OTCBB:QUSA)(OTCBB:QUSA)

“ “Creating Quality Educational Solutions”Creating Quality Educational Solutions”

Spring 2007

Please note: Statements contained in this presentation that are not historical facts are “forward-looking” statements as contemplated by the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are subject to risks and uncertainties, which are enumerated in the Company’s reports filed with The Securities and Exchange Commission. These risks and uncertainties could cause actual results to differ materially from those projected or implied in the forward-looking statements.

AgendaAgenda

• Overview of the Education Assessment Market

• Corporate Branding / Alignment Initiative

• Key Financial Metrics

• Discussion

Education Assessment MarketEducation Assessment Market• Overall education assessment market currently has 14%

annual compound growth rate• Note - rapid growth of testing allows educators to address

weaknesses (i.e. formative instruction assessment) – growing 19% per annum.

• Summative market (high stakes) growing 8% per annum.• Target market estimated $2+ Billion • Mandated programs:

– English Language Arts/Math 3-8 plus high school

– Science – 3 grades

– English as a second language

– Alternate assessments

$0

$1,000

$2,000

$3,000

2003 2004 2005 2006 2007E 2008E

(mill

ions

)

Source: McGraw Hill

QUSA market projected to grow 14% annual blended rate (8% summative and 19% formative)

K-12 Testing/AssessmentK-12 Testing/Assessment

Assessment Industry DriversAssessment Industry Drivers

• Federal emphasis – No Child Left Behind Act (NCLB)

• States financially rewarded with funding by complying with NCLB

• Programs being added to federally supported initiative

• Technology / innovation creating new delivery methods for assessment activities

• Continuous evolution from proprietary products to state-level custom project work creates growth opportunities

Questar Assessment Branding Questar Assessment Branding & Alignment Initiative& Alignment Initiative

TASAAcquiresBeck EvaluationAnd Testing(BETA)

TASAAcquiresAchievementData, Inc.(ADI)

TASA Acquires Assessment Evaluation Concepts (AEC)

TASAAcquiresQuestarEducationalSystems(Questar)

6/2005 6/2006 3/2007

1/2005

Questar Assessment, Inc. Convergence & Emergence Timeline

1998

Prior TASA Division - Capabilities Strengths

Leadership in research, psychometric, standard setting, test design Large staff: senior development, analytical professionals Creatively meeting demand for customized assessment products: On line / web based capabilities

Test design and development Psychometric analysis Standard setting Distribution, scoring for niche programs

Prior Questar Division - Capabilities Strengths

• Ability to print millions of tests• High-speed scanning, scoring• High-volume distribution• Hand scoring

• Distribution and scanning/scoring for large scale state programs• High volume hand / performance scoring

The New Questar Assessment, Inc.The New Questar Assessment, Inc. • Dynamic and resourceful educational assessment organization

• Client relationships in over 30 states from current and/or former projects

• Experience as prime and subcontractor in multiple-participant projects

• Extremely flexible, innovative and responsive to specific, constantly evolving client needs

• Partner with clients to promote and enhance student learning through informing, supporting and guiding instructional decisions

• Provides full range of delivery options for small district level programsas well as large scale assessment solutions for single-source organizations

• Advanced web-based technologies

Questar Assessment ServiceQuestar Assessment Service

RFPDevelopment

Content Creation

Standards Alignment

Psychometric Evaluation

Test Publishing

Test Distribution

Test Delivery

Test Scoring

Score Analysis

And Reporting

Program Evaluation

End-to-End Assessment Products and Services

Key Financial Metrics:Key Financial Metrics:

RevenueEBITDA

Margin Opportunities

Actual /Pro forma Net RevenuesActual /Pro forma Net Revenues

For years ended October 31

Q1 Actual / Pro forma Net RevenuesQ1 Actual / Pro forma Net Revenues

Revenue Drivers 2007Revenue Drivers 2007• Large pipeline of requests for proposals

• Increased average contract bid size

• Expand business with current customers– Full range capabilities creates new options

• Business development initiative led by senior executives with significant industry experience and client relationships

• New formative testing products

Gross and Net Margin OpportunitiesGross and Net Margin Opportunities

• Higher dollar value projects more effectively leverage overhead expenses

• Eliminated operating unit redundancy during recent corporate realignment

• Versatile facilities for different-sized scoring projects

• Reduce costs with innovative web-based products

• Subsequent fiscal years will be less impacted bynon-cash amortization charges

Determining Gross Margins in Contract ProposalsDetermining Gross Margins in Contract Proposals

• Projects that emphasize Questar’s value-add(command higher margins)

• Project’s impact on idle capacity

• Incumbent contract holder– Opportunity to take market

• Leverage for future contracts from same source,opens new doors

Accelerating revenueAccelerating revenue

+ margin expansionmargin expansion

= Free Cash Flow

“EBITDA” Growth

Q1 2007/2006 Pro Forma EBITDAQ1 2007/2006 Pro Forma EBITDA

EBITDA PerformanceEBITDA Performance

• Full year 2006 pro forma EBITDA $6.5 million vs. 2005pro forma EBITDA $6.3 million

• 2006 EBITDA increased despite $1.78 million in pre-tax charges to operating income

• Future SG&A expected to decline as % of revenue

• Revenue and net cash generated (EBITDA) bestmeasures of financial success

Investment HighlightsInvestment Highlights

• Size, scope to compete on large contracts as either prime or

subcontractor

• Overall gross and net margin efficiencies yet to be fully realized

• Recurring revenues from long-term contracts

• Focus on free cash flow

• Strong balance sheet

• Only “pure play” public entity in educational assessment market

““Our mission is to provide the education market Our mission is to provide the education market with innovative and responsive assessment with innovative and responsive assessment

products and services.  Through exceptional and products and services.  Through exceptional and personalized customer support, we partner with personalized customer support, we partner with

our clients to promote and enhance student our clients to promote and enhance student learning.”learning.”

Questar Assessment, Inc.OTCBB: QUSA

Questar Assessment Goal