Market Overview

Cambium Learning Group Reports Fourth Quarter 2017 Financial Results

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Digital Segments Learning A-Z and ExploreLearning Record Double-Digit Q4 and Full Year Top-Line Growth
Full Year Pre-Tax Net Income Grows 47%
Full Year Adjusted EBITDA and Cash Income Grow 14% and 13%, Respectively
Company Makes Q4 Debt Prepayments of $20.6 Million

DALLAS, March 07, 2018 (GLOBE NEWSWIRE) -- Cambium Learning® Group, Inc. (NASDAQ:ABCD) (the "Company"), an award-winning educational technology solutions leader dedicated to helping all students reach their potential through individualized and differentiated instruction, announced today financial results for the year ended December 31, 2017.

"Cambium Learning Group delivered solid fourth quarter and 2017 growth, in line with our most recent expectations," said John Campbell, Chief Executive Officer of Cambium Learning Group. "Our digital solutions at Learning A-Z and ExploreLearning, as well as LANGUAGE! Live at Voyager Sopris Learning, grew at double-digit rates and together drove our technology-enabled solutions to 79% of total Bookings mix in 2017. This growth enabled us to deliver on the promise of our increasingly technology-enabled, software as a service (SaaS) business model, driving margin expansion and higher Adjusted EBITDA and Cash Income. This in turn increased cash generated from our operations by 11%, self-funding our investments in future growth and enabling us to prepay a portion of our debt. We begin 2018 having made necessary adjustments to our sales and marketing tactics, which prepare us to capture additional top-line growth this year."

Financial Snapshot

For the year ended December 31, 2017, the Company reported the following financial results:

  Three Months Ended December 31,   Year Ended December 31,
(in millions) 2017   2016   $ Change   2017   2016   $ Change
GAAP net revenues $ 38.3     $ 37.5     $ 0.8     $ 158.2     $ 152.4     $ 5.8  
GAAP net income* 30.3     2.9     27.3     45.1     10.4     34.6  
Net income margin %* 79 %   8 %       28 %   7 %    
EBITDA 6.7     10.7     (3.9 )   41.4     39.5     1.9  
Adjusted EBITDA 12.9     11.9     1.0     49.0     42.8     6.2  
Adjusted EBITDA margin % 34 %   32 %       31 %   28 %    
                       
Bookings $ 37.0     $ 34.6     $ 2.3     $ 164.4     $ 161.8     $ 2.6  
Cash income 7.5     6.3     1.2     36.1     31.8     4.3  
Cash income margin % 20 %   18 %       22 %   20 %    

* 2017 fourth quarter and full-year periods include a tax benefit of $30.2 million and $29.3 million, respectively.

Year Ended December 31, 2017 Financial Highlights

  • Generally Accepted Accounting Principles (GAAP) net revenues for the year ended December 31, 2017 increased by 4% to $158.2 million compared with $152.4 million in 2016. GAAP net revenues by segment for the year ended December 31, 2017 compared to prior year were as follows:

    •  Learning A-Z® – $75.1 million, increased $9.1 million or 14%

    •  ExploreLearning® – $27.9 million, increased $4.1 million or 17%

    •  Voyager Sopris Learning® – $55.2 million, decreased $(7.4) million or (12)%.

  • Bookings for the year ended December 31, 2017 increased by 2% to $164.4 million compared with $161.8 million in 2016, with growth of $7.5 million at Learning A-Z and $4.9 million at ExploreLearning, partially offset by a Voyager Sopris Learning Bookings decline of $9.8 million.

  • Technology-enabled Bookings represented 79% of total 2017 Bookings compared with 73% of 2016 Bookings, and grew 10% compared to 2016.

  • Net interest expense was $4.8 million for the year ended December 31, 2017, down $2.3 million from 2016 as a result of the scheduled debt amortization payments and voluntary prepayments.

  • The Company recorded a non-cash goodwill impairment charge of $4.3 million related to the Kurzweil Education brand solutions, which experienced a Bookings decline of 9% in 2017 and is now fully integrated within the Voyager Sopris Learning segment structure.

  • The Company recorded an income tax benefit of $30.2 million and $29.3 million for the quarter and year ended December 31, 2017, respectively, predominantly the result of a reduction of the valuation allowance against most of the Company's deferred tax assets offset by a remeasurement of deferred tax assets at the newly-enacted corporate tax rate.

  • Net income was $45.1 million during the year ended December 31, 2017, up $34.6 million when compared to a net income of $10.4 million during the year ended December 31, 2016. Adjusted EBITDA was $49.0 million, up $6.2 million from 2016. Excluding the effect of the tax benefit on net income, the increase in GAAP net revenues, along with a greater portion of the top-line mix coming from the higher margin Learning A-Z and ExploreLearning segments, drove improvement in both net income and Adjusted EBITDA.

  • In response to lower-than-expected performance at the Voyager Sopris Learning segment in 2017, management completed restructuring activities to reduce its cost structure, and incurred $1.1 million of severance costs in the fourth quarter, in addition to the $0.3 million of severance costs incurred in the third quarter. These restructuring costs are excluded from the Adjusted EBITDA and Cash Income non-GAAP measures.

  • Cash Income was $36.1 million, an increase of $4.3 million compared to $31.8 million reported in the year ended December 31, 2016. Capital expenditures reflect planned investments in product development and totaled $18.2 million in the year ended December 31, 2017 versus $20.1 million in the year ended December 31, 2016.

  • In October 2017, the Company voluntarily prepaid the remaining $9.6 million principal amount outstanding on the Term Loan B of the Senior Secured Credit Facility. In December 2017, the Company voluntarily prepaid $11.0 million of principal on the Term Loan A of the Senior Secured Credit Facility.

  • The Company had cash and cash equivalents of $8.5 million at December 31, 2017. For the year ended December 31, 2017, cash provided by operations was $49.2 million, cash used in investing activities was $19.2 million, and cash used in financing activities was $26.4 million. At December 31, 2017, the principal amount of the term loan outstanding was $48.5 million, and there were no borrowings outstanding under the Company's revolving credit facility.

Fourth Quarter 2017 Financial Highlights

  • GAAP net revenues for the fourth quarter of 2017 increased by 2% to $38.3 million compared with $37.5 million in the fourth quarter of 2016. GAAP net revenues by segment for the three months ended December 31, 2017, and the change from the same period of 2016, were as follows:

    •  Learning A-Z – $19.8 million, increased $1.9 million or 10%

    •  ExploreLearning – $7.2 million, increased $1.0 million or 15%

    •  Voyager Sopris Learning – $11.3 million, decreased $(2.0) million or (15)%

  • Bookings for the fourth quarter of 2017 increased by 7% to $37.0 million compared with $34.6 million in the fourth quarter of 2016.

  • The Company reported net income of $30.3 million during the fourth quarter of 2017 compared to a net income of $2.9 million during the fourth quarter of 2016, an increase of $27.3 million. GAAP net income includes an income tax benefit of $30.2 million and a goodwill impairment charge of $4.3 million. Adjusted EBITDA was $12.9 million, increasing $1.0 million from $11.9 million in 2016. Excluding the effect of the tax benefit and goodwill impairment on net income, the increase in GAAP net revenues, along with a greater portion of the top-line mix coming from the higher margin Learning A-Z and ExploreLearning segments, drove improvement in both net income and Adjusted EBITDA.

  • Net interest expense was $1.0 million for the fourth quarter of 2017, down $0.6 million from the fourth quarter of 2016 as a result of the scheduled debt amortization payments and voluntary prepayments made during 2016.

  • Cash Income was $7.5 million, an increase of $1.2 million compared to Cash Income of $6.3 million in the fourth quarter of 2016. Capital expenditures totaled $4.2 million in the fourth quarter of 2017 versus $3.9 million in the fourth quarter of 2016.

Fiscal Year 2017 Segment Discussion

Net Revenues, Bookings, Net Income, and Cash Income changes by segment for the three months and year ended December 31, 2017, compared to the same period of 2016 were:

  Q4 - 2017
% Change
  YTD - 2017
% Change
  Net Revenues Bookings Net Income Cash Income   Net Revenues Bookings Net Income Cash Income
Learning A-Z 10 % 14 % 14 % 12 %   14 % 10 % 15 % 8 %
ExploreLearning 15 % 21 % 4 % 12 %   17 % 19 % 24 % 28 %
Voyager Sopris Learning (15 )% (19 )% (42 )% 3 %   (12 )% (16 )% (13 )% (23 )%
Shared Services     229 % (7 )%       66 % 5 %
Cambium Learning Group, Inc. 2 % 7 % 929 % 19 %   4 % 2 % 332 % 13 %

Bookings increased 2% for the year ended December 31, 2017 compared to 2016. By segment:

  • Learning A-Z reported Bookings growth of $7.5 million for the year ended December 31, 2017 compared to 2016, representing a double-digit year over year growth rate of 10%.

  • ExploreLearning reported a $4.9 million, or 19%, Bookings increase for the year ended December 31, 2017 compared to 2016 with double-digit growth for both the Reflex® math product and the Gizmos® math and science simulations.

  • Voyager Sopris Learning reported a Bookings decline of $(9.8) million for the year ended December 31, 2017 compared to 2016. The Bookings decline of (16)% came primarily from the segment's legacy print and transactional solutions, which are not the strategic focus of the segment, and were 21% lower than prior year. Bookings for the segment's technology-enabled solutions declined 3%, falling short of Company expectations for growth this year, as slow traction for the new Velocity® solution combined with an expected decline in many of the older technology offerings. LANGUAGE! Live®, the segment's digital flagship solution for technology-enabled adolescent intervention, had strong growth of 20% during the year.

2018 Outlook

Mr. Campbell concluded, "Our 2017 results show our continued focus on increasing cash generation and the long term value of the company. For 2018, we expect improved top-line growth, coupled with disciplined expense management, while investing in development, marketing and sales, should drive continued expansion in our Cash Income, Adjusted EBITDA, and cash flow generation. Cambium Learning's mission is to leverage technology to create solutions that are personalized, adaptive, scalable, and designed to achieve results in the classroom that can change the trajectory of students' lives. Demand for these solutions is strong, and we are poised and ready to execute well and to deliver strong financial results in 2018."

Company-wide, management is setting an initial outlook for 2018 Bookings growth at a higher percentage than 2017, with most of the growth expected in the second half of the year during the Company's seasonally strong periods. Cambium Learning Group's business is highly seasonal, with Bookings historically peaking during the third quarter, which represents by far the preponderance of Bookings, revenue, and income each year, and management expects to refine its Bookings outlook as the year progresses.

The Company expects its 2018 Bookings growth to be driven by its two 100% technology subscription businesses Learning A-Z and ExploreLearning. Voyager Sopris Learning is expected to build on the momentum of the LANGUAGE! Live solution and continue to make progress on repos

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