Cambium Learning Group Announces Second Quarter Earnings

DALLAS, Aug. 13, 2014 /PRNewswire/ -- Cambium Learning^® Group, Inc. (NASDAQ: ABCD, the "Company"), a leading educational solutions and services company committed to helping all students reach their full potential by providing evidence-based solutions and expert professional services, announced today its financial results for the second quarter of 2014.


	Three Months Ended June 30,			Six Months Ended June 30,
*($ in millions)*	2014	2013	$ Change	2014	2013	$ Change
GAAP net revenues	$36.2	$42.8	$(6.5)	$67.3	$74.2	$(6.9)
GAAP net income (loss)	(1.3)	0.4	(1.7)	(7.9)	(8.6)	0.8
EBITDA	8.6	10.7	(2.1)	12.0	11.2	0.8
Adjusted EBITDA	9.1	11.2	(2.1)	12.7	13.4	(0.7)
Cash income (loss)	0.5	5.4	(5.0)	(9.2)	(2.9)	(6.3)

Company-wide order volumes for the six months ended June 30, 2014 were down 16% compared with the same period of 2013. Order volume changes by segment were as follows:

Learning A–Z increased 19%
ExploreLearning^® decreased 11%
Voyager Sopris Learning^™ decreased 26%
Kurzweil Education^™ decreased 31%

"Though our first half results were sluggish in three of our four segments and we were impacted by some instability with respect to the support of Common Core, we are now seeing many of our sales opportunities come to fruition," said John Campbell, chief executive officer of Cambium Learning Group, Inc. "For the month of July, all four segments had order volumes ahead of last year as we increased our ability to leverage technology to help all students reach their potential. We will continue to make investments in best-of-breed solutions that enable students to do well in the more rigorous testing environment."

The Company continues to execute its strategy to shift resources to subscription and technology-enabled products. For the first six months of 2014, 48% of order volumes were generated by technology-enabled products versus 34% for the first six months of 2013.

Learning A–Z delivered a historically high second quarter order volume, continuing its trend of double-digit growth rates due to quality content, award-winning technology, and ongoing strategic investments. Although ExploreLearning order volumes for the first half of the year were impacted by timing of deals, this segment achieved its highest monthly sales order volume ever in July 2014, and is expected to see low double-digit order volume growth for the full year 2014. For the first half of 2014, Voyager Sopris Learning and Kurzweil Education continued to show order volume declines as reductions in legacy products are outpacing gains from newer technology-enabled solutions. Order volumes for Voyager Sopris Learning and Kurzweil Education are expected to decline for the full year 2014 versus 2013.

Other highlights include:

Overall, GAAP net revenues for the six months ended June 30, 2014 decreased by 9% to $67.3 million compared with $74.2 million for the same period in 2013. GAAP net revenues by segment for the six months ended June 30, 2014, and the change from the comparable period in 2013, were as follows:
- Learning A–Z—$20.7 million, increased $5.0 million or 32%
- ExploreLearning—$9.0 million, increased $1.2 million or 16%
- Voyager Sopris Learning—$33.7 million, decreased $12.1 million or 27%
- Kurzweil Education—$3.9 million, decreased $1.0 million or 21%
In April 2014, the Company completed the sale of its IntelliTools product line for $0.8 million.
Adjusted EBITDA was $12.7 million for the first six months of 2014, down $0.7 million from $13.4 million in 2013. Most of the revenue decline was overcome by increasing contributions from the Company's higher margin technology products, as well as lower costs in the Voyager Sopris Learning segment attributable to last year's efforts to right-size costs in slower-growing areas of the Company.
Cash Income (Loss) was $(9.2) million in the first half of 2014 compared to $(2.9) million in the first half of 2013, impacted by lower order volumes and increased capital expenditures as the Company continues to invest in the development of technology-enabled products that meet the needs of the market.
The Company has cash and cash equivalents of $29.7 million on the balance sheet as of June 30, 2014. During the six months ended June 30, 2014, cash used in operations was $16.3 million, cash used in investing activities was $11.2 million, including $3.6 million related to the December 2013 Headsprout^® acquisition, and cash used in financing activities was $10.9 million. During the first half of 2014, the Company repurchased $10.0 million aggregate principal amount of its 9.75% senior secured notes due 2017 for approximately $10.1 million.

Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, and Cash Income are not prepared in accordance with GAAP and may be different from similarly named, non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. The Company believes that these non-GAAP measures provide useful information to investors because they reflect the underlying performance of the ongoing operations of the Company and provide investors with a view of the Company's operations from management's perspective. Adjusted EBITDA and Cash Income remove significant purchase accounting, non-operational, or certain non-cash items from earnings. The Company uses Adjusted EBITDA and Cash Income to monitor and evaluate the operating performance of the Company and as the basis to set and measure progress toward performance targets, which directly affect compensation for employees and executives. The Company generally uses these non-GAAP measures as measures of operating performance and not as measures of the Company's liquidity. The Company's presentation of EBITDA, Adjusted EBITDA, and Cash Income should not be construed as an indication that our future results will be unaffected by unusual, non-operational, or non-cash items.

About Cambium Learning Group, Inc.

Cambium Learning^® Group is a leading educational solutions and services company that is committed to helping all students reach their full potential by providing evidence-based solutions and expert professional services to empower educators and raise the achievement levels of all students. The company is composed of four business units: Voyager Sopris Learning^™ (www.voyagersopris.com), Learning A–Z (www.learninga-z.com), ExploreLearning^® (www.explorelearning.com), and Kurzweil Education^™ (www.kurzweiledu.com). Together, these business units provide best-in-class intervention and supplemental instructional materials; gold-standard professional development and school-improvement services; breakthrough technology solutions for online learning and professional support; valid and reliable assessments; and proven materials to support a positive and safe school environment. Cambium Learning Group, Inc. (ABCD), is based in Dallas, Texas. For more information, please visit www.cambiumlearning.com

Media and Investor Contact:
Barbara Benson
Cambium Learning Group, Inc.
investorrelations@cambiumlearning.com

Forward-Looking Statements

Some of the statements contained herein constitute forward-looking statements. These statements relate to future events, including the future financial performance of Cambium Learning Group, Inc., and involve known and unknown risks, uncertainties, and other factors that may cause the markets, actual results, levels of activity, performance, or achievements of Cambium Learning Group, Inc., to be materially different from any actual future results, levels of activity, performance, or achievements. These risks and other factors you should consider include, but are not limited to, the ability to successfully attract and retain a broad customer base for current and future products, changes in customer demands or industry standards, success of ongoing product development, maintaining acceptable margins, the ability to control costs, K–12 enrollment and demographic trends, the level of educational and education technology funding, the impact of federal, state, and local regulatory requirements on the business of the company, the loss of key personnel, the impact of competition, the uncertainty of general economic conditions and financial market performance, and those other risks and uncertainties listed under the heading "RISK FACTORS" in Cambium Learning Group, Inc.'s Form 10-K. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," "projects," "intends," "prospects," or "priorities," or the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Cambium Learning Group, Inc., does not assume or undertake any obligation to update the information contained in this press release, and expressly disclaims any obligation to do so, whether as a result of new information, future events, or otherwise.


Cambium Learning Group, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Net revenues	$	36,243	$	42,786	$	67,323	$	74,215

Cost of revenues:
Cost of revenues		9,930		12,647		18,941		24,050
Amortization expense		4,438		4,281		8,518		7,988
Total cost of revenues		14,368		16,928		27,459		32,038

Research and development expense		2,598		2,528		5,345		4,859
Sales and marketing expense		10,083		11,715		20,665		22,048
General and administrative expense		4,457		4,880		9,637		11,673
Shipping and handling costs		404		399		600		698
Depreciation and amortization expense		1,036		1,220		2,100		2,436
Embezzlement-related expense		—		115		—		115
Total costs and expenses		32,946		37,785		65,806		73,867

Income before interest, other income (expense)and income taxes		3,297		5,001		1,517		348

Net interest expense		(4,420)		(4,679)		(9,158)		(9,255)
Loss on extinguishment of debt		(357)		—		(570)		—
Other income, net		215		211		430		430
Income (loss) before income taxes		(1,265)		533		(7,781)		(8,477)

Income tax expense		(23)		(102)		(94)		(170)
Net income (loss)	$	(1,288)	$	431	$	(7,875)	$	(8,647)

Net income (loss) per common share:
Basic	$	(0.03)	$	0.01	$	(0.17)	$	(0.18)
Diluted	$	(0.03)	$	0.01	$	(0.17)	$	(0.18)

Average number of common shares and equivalents outstanding:
Basic		45,641		47,357		45,663		47,377
Diluted		45,641		47,637		45,663		47,377


Cambium Learning Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share data)

	As of
	June 30, 2014		December 31, 2013
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	29,674	$	67,993
Accounts receivable, net		16,929		15,767
Inventory		7,468		9,221
Restricted assets, current		1,462		1,343
Other current assets		6,545		6,873
Total current assets		62,078		101,197

Property, equipment and software at cost		47,307		43,224
Accumulated depreciation and amortization		(26,936)		(22,909)
Property, equipment and software, net		20,371		20,315

Goodwill		47,842		47,842
Acquired curriculum and technology intangibles, net		6,924		8,719
Acquired publishing rights, net		3,734		4,705
Other intangible assets, net		5,242		6,251
Pre-publication costs, net		14,514		13,401
Restricted assets, less current portion		4,749		5,492
Other assets		9,746		8,288
Total assets	$	175,200	$	216,210


Cambium Learning Group, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share data)

	As of
	June 30, 2014		December 31, 2013
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Capital lease obligations, current	$	1,046	$	995
Accounts payable		2,192		1,301
Accrued expenses		17,743		25,279
Deferred revenue, current		37,791		53,532
Total current liabilities		58,772		81,107

Long-term liabilities:
Long-term debt		164,596		174,491
Capital lease obligations, less current portion		1,488		2,019
Deferred revenue, less current portion		8,393		7,829
Other liabilities		12,982		13,954
Total long-term liabilities		187,459		198,293

Stockholders' equity (deficit):
Preferred stock ($.001 par value, 15,000 shares authorized, zero shares issued and outstanding at June 30, 2014 and December 31, 2013)		—		—
Common stock ($.001 par value, 150,000 shares authorized, 51,244 and 51,208 shares issued, and 44,910 and 45,042 shares outstanding at June 30, 2014 and December 31, 2013, respectively)		51		51
Capital surplus		283,965		283,673
Accumulated deficit		(340,570)		(332,695)
Treasury stock at cost (6,334 and 6,166 shares at June 30, 2014 and December 31, 2013, respectively)		(12,448)		(12,147)
Accumulated other comprehensive loss:
Pension and postretirement plans		(2,029)		(2,072)
Accumulated other comprehensive loss		(2,029)		(2,072)
Total stockholders' equity (deficit)		(71,031)		(63,190)
Total liabilities and stockholders' equity (deficit)	$	175,200	$	216,210


Reconciliation Between Net Income (Loss) and Cash Income for the Three Months Ended June 30, 2014 and 2013 (Unaudited)

	Three Months Ended June 30,
*(in thousands)*	2014		2013
Net income (loss)	$	(1,288)	$	431
Reconciling items between net income (loss) and EBITDA:
Depreciation and amortization expense		5,474		5,501
Net interest expense		4,420		4,679
Income tax expense		23		102
Income from operations before interest, income taxes, and depreciation and amortization (EBITDA)		8,629		10,713

Non-operational or non-cash costs included in EBITDA but excluded from Adjusted EBITDA:
Other income, net		(215)		(211)
Loss on extinguishment of debt		357		—
Merger, acquisition and disposition activities		193		156
Stock-based compensation and expense		136		362
Embezzlement-related expense		—		115
Adjustments related to purchase accounting		—		9
Adjustments to CVR liability		—		19
Adjusted EBITDA		9,100		11,163

Change in deferred revenues		(4,712)		(1,605)
Change in deferred costs		463		67
Capital expenditures		(4,374)		(4,182)
Cash income	$	477	$	5,443


Reconciliation Between Net Loss and Cash Income (Loss) for the Six Months Ended June 30, 2014 and 2013 (Unaudited)

	Six Months Ended June 30,
*(in thousands)*	2014		2013
Net loss	$	(7,875)	$	(8,647)
Reconciling items between net loss and EBITDA:
Depreciation and amortization expense		10,618		10,424
Net interest expense		9,158		9,255
Income tax expense		94		170
Income from operations before interest, income taxes, and depreciation and amortization (EBITDA)		11,995		11,202

Non-operational or non-cash costs included in EBITDA but excluded from Adjusted EBITDA:
Other income, net		(430)		(430)
Loss on extinguishment of debt		570		—
Merger, acquisition and disposition activities		343		314
Stock-based compensation and expense		248		591
Embezzlement-related expense		—		115
Adjustments related to purchase accounting		—		38
Adjustments to CVR liability		—		74
Management transition		—		1,501
Adjusted EBITDA		12,726		13,405

Change in deferred revenues		(15,136)		(9,529)
Change in deferred costs		1,563		1,204
Capital expenditures		(8,360)		(7,974)
Cash income (loss)	$	(9,207)	$	(2,894)