Ambassadors Group, Inc. (Nasdaq:EPAX), a leading provider of
educational travel experiences and online education research
materials, announced $0.77 fully diluted per share earnings for the
nine months ended September 30, 2010, a 44 percent decline over
$1.37 fully diluted per share earnings for the same period one year
ago. Net income for the nine months ended September 30, 2010 was
$14.8 million, compared to $26.4 million for the same period in
2009. Delegates traveled declined 22 percent, resulting in a $40
million reduction in gross receipts year-over-year. Gross margin as
a percentage of gross receipts was 41 percent during both the nine
months ended September 30, 2010 and 2009. Comparing the third
quarters ended September 30, 2010 and 2009, fully diluted per share
earnings decreased 42 percent to $0.37 in 2010 from $0.64 in 2009,
and net income decreased 43 percent to $7.1 million in 2010 from
$12.5 million in 2009.
"While we are disappointed in our financial results for 2010, we
are encouraged by our progress for 2011," stated Jeff Thomas,
president and chief executive officer of Ambassadors Group, Inc.
"As of October 17, 2010, our consolidated enrolled revenue for 2011
showed a 7 percent year over year improvement, compared to the same
time last year. Our core program line, Student Ambassador Programs,
posted an 11 percent improvement in both enrolled participants and
revenue. We believe this trend is a result of our concentrated
marketing and sales efforts.
The resiliency of the Student Ambassador Program line is also
visible in the 2010 financial results, specifically in maintaining
a 41 gross margin percent in the midst of a 22 percent decline in
delegates traveled. The reduced gross receipts coupled with an
increase in operating expenses resulted in operating income of
$20.6 million, a 48 percent decrease from last year. In reviewing
operating expenses, the majority of our sales and marketing
expenses in Q3, and of course Q4, are for 2011 revenue. In
addition, we are still on track to close our print and production
facility by the end of the year, yet the financial benefits will
not be gained until 2011.
Our core mission of connecting people though global classroom
experiences continued at a very high success rate. Year-to-date,
about 25,000 ambassadors logged over 253,000 hours of community
service around the globe, traveled safely to 40 countries, and
rated their travel experience even higher on the Net Promoter
scale. Our Student Leaders participated in the ongoing
reconstruction of New Orleans through our Remember Katrina program,
interacted with many influential leaders, such as Spike Lee, Laura
Bush and Katie Couric, and brought home new insights about
leadership in the 21st century. In addition, our Company had the
opportunity to participate in NBC's Education Nation Summit,
allowing us to connect with teachers from across the country and
promote how Ambassadors Group, Inc. assists in preparing youth
through leadership and global experiences."
Nine months ended September 30, 2010
During the nine months ended September 30, 2010, we traveled
25,224 People to People Ambassador Programs and Discovery Student
Adventures delegates, a 22 percent decrease from the 32,454
delegates traveled during the same period one year ago. Comparing
the nine months ended September 30, 2010 and 2009, gross receipts
decreased 21 percent to $152.0 million from $192.5 million, and
gross margin decreased 22 percent to $61.7 million from $78.8
million, respectively, both directly related to the decline in
delegates traveled year-over-year. For the nine months ended
September 30, 2010, we maintained the 41 percent gross margin as a
percent of gross receipts achieved in 2009. Gross receipts and
gross margin for the nine months ended September 30, 2010 also
include results of operations for BookRags of $2.2 million and $1.8
million, respectively. For the comparable period in 2009, BookRags
reported $2.3 million and $2.1 million in gross receipts and gross
margin, respectively.
Operating expenses for the nine months ended September 30, 2010
and 2009 were $41.2 million and $39.3 million, respectively.
Selling and marketing expenses increased $1.6 million and general
and administrative expenses increased $0.2 million. The increase is
principally due to initiatives aimed at driving our 2011 campaign,
promotional activities and higher personnel expenses as we engaged
key management new hires.
Other income was $1.2 million for the nine months ended
September 30, 2010, compared to $0.6 million for the nine months
ended September 30, 2009. The increase in other income is a result
of the nonrecurring foreign currency loss of $1.0 million related
to our over-hedged foreign currency contracts in the first quarter
of 2009, offset by a $0.4 million decrease in interest income from
lower prevailing interest rates during the first nine months of
2010 compared to a year earlier.
Quarter ended September 30, 2010
During the third quarter of 2010, we traveled 11,025 People to
People Ambassador Programs and Discovery Student Adventures
delegates, a 1,942 decrease from 12,967 delegates traveling during
the same quarter one year ago. Gross receipts in the third quarter
of 2010 decreased 21 percent to $65.7 million from $82.8 million in
the third quarter of 2009. Gross margin was $25.6 million in the
third quarter of 2010 as compared to $33.2 million in the same
period of 2009. Gross margin as a percentage of gross receipts
decreased one percent to 39 percent in the third quarter of 2010
from 40 percent in the third quarter of 2009. Gross receipts and
gross margin for the quarter ended September 30, 2010 also include
results of operations for BookRags of $0.6 million and $0.5
million, respectively, compared to $0.7 million and $0.6 million,
respectively, during the third quarter of 2009.
Operating expenses were $15.7 million in the third quarter of
2010 compared to $14.5 million in the third quarter 2009, an
increase of 8 percent. Selling and marketing expenses increased
$0.9 million primarily due to initiatives for our 2011 marketing
campaign and increased personnel expenses related to key new hires
made earlier in the year. General and administrative expenses
increased $0.2 million as a result of higher personnel costs
year-over-year.
The Company realized other income of $0.4 million in the third
quarter of 2010, compared to $0.5 million in the third quarter of
2009. The $0.1 million decrease in other income represents lower
interest income earned as a result of lower prevailing interest
rates.
Balance Sheet and Cash Flow
Total assets at September 30, 2010 were $129.5 million, of which
60 percent, or $77.8 million, were cash, cash equivalents and
short-term available-for-sale securities. Total assets at September
30, 2009 were $127.8 million, of which 63 percent, or $80.3
million, were cash, cash equivalents and short-term
available-for-sale securities. Our deployable cash (see definition
following the cash flow statement of the press release) increased 3
percent, to $57.0 million, in the third quarter of 2010 from $55.5
million in the third quarter of 2009. Participant deposits at
September 30, 2010 and 2009 were $15.2 million and $16.5 million,
respectively, an 8 percent decline primarily due to the decline in
Student Leadership delegates expected to travel over the next two
quarters as compared to the same period in 2009.
Cash provided by operations was $8.9 million and $12.7 million
during the nine months ended September 30, 2010 and 2009,
respectively. The $3.8 million decrease is mainly the result of
lower current period earnings coupled with a decline in participant
deposits and accounts payable, offset by an increase in prepaid
expenses. Cash used in investing activities decreased $7.2 million
to $5.8 million during the nine months ended September 30, 2010
compared to the same period in 2009, primarily due to a net
increase in cash provided by the sale of available-for-sale
securities.
Cash used in financing activities was $7.5 million and $3.5
million, respectively, during the nine months ended September 30,
2010 and 2009. Year-to-date we have distributed $3.5 million in
cash dividends to our shareholders and have repurchased $4.8
million of common stock, offset by $0.7 million in proceeds from
stock option exercises by employees. During the nine months ended
September 30, 2009, we distributed $3.4 million in cash dividends
to our shareholders and repurchased $0.4 million of common stock,
offset by $0.3 million in proceeds from stock option exercises.
Outlook
As of October 17, 2010, enrolled revenue for 2011 travel
programs in comparison to the same date one year ago increased 7
percent. Enrolled revenue was $124.4 million, driven by the 19,661
net enrolled participants for 2011 travel programs compared to
$116.2 million in enrolled revenue on the same date one year ago
driven by the 19,688 net enrolled participants for 2010 travel
programs. Despite our enrolled participants being relatively flat
year-over- year, the increase in enrolled revenue is due to an 11
percent growth in enrollments for our core Student Ambassador
Programs.
Enrolled revenue consists of estimated gross receipts to be
recognized, in the future, upon travel of an enrolled participant.
Net enrollments consist of all participants who have enrolled in
the Company's programs less those that have withdrawn. Enrolled
revenue may not result in actual gross receipts recognized by the
Company, due to variances in enrollments and withdrawals from
Company programs compared to anticipated expectations.
The following summarizes our statements of operations for the
quarters and nine months ended September 30, 2010 and 2009 (in
thousands, except per share amounts):
|
UNAUDITED |
|
Nine months
ended September 30, |
Quarter
ended September 30, |
|
2010 |
2009 |
2010 |
2009 |
Gross receipts |
$ |
151,984 |
$ |
192,461 |
$ |
65,743 |
$ |
82,770 |
Gross margin |
$ |
61,737 |
$ |
78,774 |
$ |
25,635 |
$ |
33,201 |
Operating expenses: |
|
|
|
|
|
|
|
|
Selling and marketing |
|
31,048 |
|
29,411 |
|
12,200 |
|
11,281 |
General and administration |
|
10,123 |
|
9,924 |
|
3,482 |
|
3,252 |
Total operating expenses |
|
41,171 |
|
39,335 |
|
15,682 |
|
14,533 |
|
|
|
|
|
|
|
|
|
Operating income |
|
20,566 |
|
39,439 |
|
9,953 |
|
18,668 |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest and dividend income |
|
1,236 |
|
1,589 |
|
362 |
|
501 |
Foreign currency and other income
(expense) |
|
1 |
|
(961) |
|
15 |
|
— |
Total other income |
|
1,237 |
|
628 |
|
377 |
|
501 |
Income before income tax |
|
21,803 |
|
40,067 |
|
10,330 |
|
19,169 |
Income tax provision |
|
6,967 |
|
13,637 |
|
3,188 |
|
6,664 |
Net income |
$ |
14,836 |
$ |
26,430 |
$ |
7,142 |
$ |
12,505 |
|
|
|
|
|
|
|
|
|
Net income per share — basic |
$ |
0.78 |
$ |
1.39 |
$ |
0.38 |
$ |
0.66 |
Weighted average shares outstanding –
basic |
|
19,069 |
|
19,048 |
|
18,979 |
|
19,051 |
Net income per share — diluted |
$ |
0.77 |
$ |
1.37 |
$ |
0.37 |
$ |
0.64 |
Weighted average shares outstanding –
diluted |
|
19,294 |
|
19,356 |
|
19,185 |
|
19,451 |
Gross receipts reflect total payments received for directly and
non-directly delivered programs, internet content sales, and
advertising revenues. Gross margin consists of gross receipts, less
program pass-through expenses for non-directly delivered programs,
cost of sales for directly delivered programs, and for content. For
directly delivered programs, we plan, organize and operate all
activities, including speakers, facilitators, events,
accommodations and transportation. For non-directly delivered
programs, we primarily engage third-party operators to perform
these services.
The following summarizes our balance sheet as of September 30,
2010 and 2009, and December 31, 2009 (in thousands):
|
UNAUDITED |
|
AUDITED |
|
September
30, |
December
31, |
|
|
2010 |
|
2009 |
|
2009 |
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
3,219 |
$ |
3,207 |
$ |
7,656 |
Available-for-sale securities and other |
|
74,615 |
|
77,094 |
|
73,528 |
Foreign currency exchange contracts |
|
1,340 |
|
1,255 |
|
1,076 |
Prepaid program cost and expenses |
|
6,053 |
|
5,326 |
|
3,175 |
Accounts receivable |
|
956 |
|
1,022 |
|
2,020 |
Deferred tax asset |
|
— |
|
— |
|
25 |
Total current assets |
|
86,183 |
|
87,904 |
|
87,480 |
Property and equipment, net |
|
28,912 |
|
28,578 |
|
29,376 |
Available-for-sale securities |
|
1,263 |
|
1,403 |
|
1,397 |
Deferred tax asset |
|
— |
|
157 |
|
— |
Intangibles |
|
3,253 |
|
2,698 |
|
2,822 |
Goodwill |
|
9,781 |
|
6,911 |
|
6,911 |
Other long-term assets |
|
110 |
|
118 |
|
109 |
Total assets |
$ |
129,502 |
$ |
127,769 |
$ |
128,095 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
Accounts payable and accrued
expenses |
$ |
11,556 |
$ |
13,499 |
$ |
5,188 |
Participants' deposits |
|
15,219 |
|
16,539 |
|
31,137 |
Deferred tax liability |
|
109 |
|
— |
|
— |
Other liabilities |
|
114 |
|
107 |
|
112 |
Total current liabilities |
|
26,998 |
|
30,145 |
|
36,437 |
Deferred tax liability |
|
54 |
|
258 |
|
652 |
Total liabilities |
|
27,052 |
|
30,403 |
|
37,089 |
Stockholders' equity |
|
102,450 |
|
97,366 |
|
91,006 |
Total liabilities and
stockholders' equity |
$ |
129,502 |
$ |
127,769 |
$ |
128,095 |
The following summarizes our statements of cash flows for the
nine months ended September 30, 2010 and 2009 (in thousands):
|
|
UNAUDITED |
|
|
Nine months ended
September 30, |
|
|
2010 |
|
2009 |
Cash flows from operating
activities: |
|
|
|
|
Net income |
$ |
14,836 |
$ |
26,430 |
Adjustments to reconcile net loss
to net cash provided by operating activities: |
|
|
|
|
Depreciation and
amortization |
|
3,500 |
|
3,250 |
Deferred income tax
benefit |
|
(321) |
|
(24) |
Stock-based
compensation |
|
1,551 |
|
1,344 |
Excess tax benefit
from stock-based compensation |
|
(77) |
|
(25) |
Loss on sale of
assets |
|
133 |
|
— |
Write down of
property and equipment |
|
286 |
|
436 |
Loss on foreign
currency contracts |
|
— |
|
962 |
Change in assets and
liabilities: |
|
|
|
|
|
Accounts receivable and other
current assets |
|
1,064 |
|
944 |
|
Prepaid program costs and
expenses |
|
(2,878) |
|
(1,166) |
|
Accounts payable, accrued
expenses, and other current liabilities |
|
6,721 |
|
8,184 |
|
Participants' deposits |
|
(15,919) |
|
(27,627) |
Net cash provided by operating
activities |
|
8,896 |
|
12,708 |
Cash flows from investing
activities: |
|
|
|
|
Proceeds from
available-for-sale securities |
|
51,360 |
|
46,218 |
Purchase of
available-for-sale securities |
|
(52,961) |
|
(55,096) |
Proceeds from sale
of property and equipment |
|
75 |
|
19 |
Purchase and
construction of property and equipment |
|
(3,534) |
|
(3,610) |
Purchase of
intangibles |
|
(725) |
|
(519) |
Adjustments to
goodwill |
|
— |
|
(13) |
Net cash used in investing
activities |
|
(5,785) |
|
(13,001) |
Cash flows from financing
activities: |
|
|
|
|
Dividend payment to
shareholders |
|
(3,452) |
|
(3,431) |
Repurchase of
common stock |
|
(4,830) |
|
(409) |
Proceeds from
exercise of stock options |
|
657 |
|
337 |
Excess tax benefit
from stock-based compensation |
|
77 |
|
25 |
Capital lease
payments and other |
|
— |
|
(11) |
Net cash used in financing
activities |
|
(7,548) |
|
(3,489) |
Net decrease in cash and cash
equivalents |
|
(4,437) |
|
(3,782) |
Cash and cash equivalents,
beginning of period |
|
7,656 |
|
6,989 |
Cash and cash equivalents, end of
period |
$ |
3,219 |
$ |
3,207 |
Our Company is organized into two reporting segments, (1)
"Ambassador Programs and Other," which provides educational travel
services to students, professionals and athletes through multiple
itineraries within five travel program types, and (2) "BookRags,"
which provides online research capabilities through book summaries,
critical essays, online study guides, lesson plans, biographies,
and references to encyclopedia articles.
The following presents segment operating performance during the
three and nine months ended September 30, 2010 and 2009 (in
thousands):
|
|
UNAUDITED |
|
Nine months
ended September 30, |
|
Quarter
ended September 30, |
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
Gross margin: |
|
|
|
|
|
|
|
|
Ambassador Programs and
Other |
$ |
59,915 |
$ |
76,715 |
$ |
25,111 |
$ |
32,641 |
BookRags |
|
1,822 |
|
2,059 |
|
524 |
|
560 |
Total consolidated gross margin |
$ |
61,737 |
$ |
78,774 |
$ |
25,635 |
$ |
33,201 |
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
Ambassador Programs and
Other |
$ |
19,899 |
$ |
38,106 |
$ |
9,844 |
$ |
18,331 |
BookRags |
|
667 |
|
1,333 |
|
109 |
|
337 |
Total operating income |
$ |
20,566 |
$ |
39,439 |
$ |
9,953 |
$ |
18,668 |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Ambassador Programs and
Other |
$ |
114,686 |
$ |
116,474 |
|
|
|
|
BookRags |
|
14,816 |
|
11,295 |
|
|
|
|
Total assets |
$ |
129,502 |
$ |
127,769 |
|
|
|
|
Deployable cash is a non-GAAP liquidity measure, and is
calculated as the sum of cash and cash equivalents, short-term
available-for-sale securities, and prepaid program costs and
expenses, less the sum of accounts payable, accrued expenses and
other short-term liabilities (excluding deferred taxes) and
participant deposits. Free cash flow is a non-GAAP cash flow
measure, and is calculated as cash flow from operations less
purchase of property, plant, equipment and intangibles. We believe
these non-GAAP measures are useful to investors in understanding
the cash available to deploy for current and future business
opportunities, as well as for use in operations.
The following summarizes deployable cash as of September 30,
2010 and 2009, and December 31, 2009 (in thousands):
|
|
UNAUDITED |
|
|
September
30, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2009 |
Cash, cash equivalents and short-term
available-for-sale securities |
$ |
77,834 |
$ |
80,301 |
$ |
81,184 |
Prepaid program cost and expenses |
|
6,053 |
|
5,326 |
|
3,175 |
Less: Participants' deposits |
|
(15,219) |
|
(16,539) |
|
(31,137) |
Less: Accounts payable / accruals / other
liabilities |
|
(11,670) |
|
(13,606) |
|
(5,300) |
Deployable cash |
$ |
56,998 |
$ |
55,482 |
$ |
47,922 |
The following summarizes free cash flow for the nine months
ended September 30, 2010 and 2009, and December 31, 2009 (in
thousands):
|
|
UNAUDITED |
|
|
September
30, |
|
December 31, |
|
|
2010 |
|
2009 |
|
2009 |
Cash flow from operations as reported |
$ |
8,896 |
$ |
12,708 |
$ |
16,138 |
Purchase of property, equipment and
intangibles |
|
(4,259) |
|
(4,129) |
|
(5,883) |
Free cash flow |
$ |
4,637 |
$ |
8,579 |
$ |
10,255 |
Quarterly conference call and webcast
Our Company will host a conference call to discuss third quarter
2010 results of operations on Thursday, October 21, 2010, at 8:30
A.M. Pacific Time. You may join the call by dialing
888-401-4685,then use the pass code: 3578014. Or, you may
join the call via the internet at www.ambassadorsgroup.com/EPAX.
For post-view access, you may dial 888-203-1112 using the same pass
code, as well as visit www.ambassadorsgroup.com/EPAX. Post-view
dial-in and Webcast access will be available beginning October 22,
2010
Business overview
Ambassadors Group, Inc. (Nasdaq:EPAX) is a socially conscious
education company located in Spokane, Washington. Ambassadors
Group, Inc. is the parent company of Ambassador Programs, Inc.,
World Adventures Unlimited, Inc. and BookRags, Inc., an educational
research website. The Company also oversees the Washington School
of World Studies, an accredited travel study and distance learning
school. Additional information about Ambassadors Group, Inc. and
its subsidiaries is available at www.ambassadorsgroup.com. In this
press release, "Company", "we", "us", and "our" refer to
Ambassadors Group, Inc. and its subsidiaries.
The Ambassadors Group, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3541
Forward-Looking Statements
This press release contains forward-looking statements regarding
actual and expected financial performance and the reasons for
variances between period-to-period results. Forward-looking
statements, which are included per the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, may involve
known and unknown risks, uncertainties and other factors that may
cause actual results and performance in future periods to be
materially different from any future results or performance
suggested by the forward-looking statements in this release. Such
forward-looking statements speak only as of the date of this
release and may not reflect risks related to international unrest,
outbreak of disease, conditions in the travel industry, direct
marketing environment, changes in economic conditions and changes
in the competitive environment. We expressly disclaim any
obligation to provide public updates or revisions to any
forward-looking statements found herein to reflect any changes in
expectations or any change in events. Although we believe the
expectations reflected in such forward-looking statements are based
upon reasonable assumptions, we can give no assurance that our
expectations will be met. For a more complete discussion of certain
risks and uncertainties that could cause actual results to differ
materially from anticipated results, please refer to the
Ambassadors Group, Inc. 10-K filed March 2, 2010, proxy statement
filed April 13, 2010 and 10-Q filed on August 6, 2010.
CONTACT: Ambassadors Group, Inc.
Kristi J. Gravelle, Vice President of Finance and Accounting
509-568-7800
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