SPOKANE, Wash., April 25, 2012 (GLOBE NEWSWIRE) -- Ambassadors Group, Inc. (Nasdaq:EPAX), a leading provider of educational travel experiences and online education research materials, today announced its results for the first quarter ended March 31, 2012.
Overview
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Gross revenue, from all sources including non-directly delivered travel programs, of $2.7 million during seasonally lower first quarter.
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Total reported revenue of $2.5 million compared to $1.7 million in the first quarter of 2011.
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Gross margin of 52.4 percent compared to 58.6 percent in the prior year quarter.
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Total operating expense of $12.9 million compared to $14.5 million in the first quarter of last year.
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Net loss of $7.9 million, or $0.45 per diluted share, compared to net loss of $8.7 million, or $0.48 per diluted share, in the prior year quarter. Net loss before special items of $7.4 million.
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Maintained strong balance sheet and liquidity position; cash and cash equivalents and available-for-sale securities balance of $83.7 million and no debt outstanding.
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Continued improvement in enrolled revenue for 2012 programs, now down 8.1 percent year-over-year for all programs and 7.2 percent year-over-year for the core Student Ambassadors Programs.
- Subsequent to quarter-end, the Company listed its Spokane, Washington headquarters for sale.
| Financial Highlights | ||
| (in thousands except percent and per share data) | ||
| UNAUDITED | ||
| Quarter ended March 31, | ||
| 2012 | 2011 | |
| Gross revenue, all travel programs | $ 1,489 | $ 776 |
| Internet content and advertising revenue | $ 1,198 | $ 1,003 |
| Gross revenue, all sources | $ 2,687 | $ 1,779 |
| Gross margin, all travel programs | $ 381 | $ 173 |
| Gross margin, internet content and advertising | $ 1,028 | $ 870 |
| Gross margin percentage | 52.4% | 58.6% |
| Operating expense | $ 12,894 | $ 14,478 |
| Net loss before special items | $ (7,391) | $ (8,503) |
| Net loss | $ (7,906) | $ (8,729) |
| Loss per diluted share | $ (0.45) | $ (0.48) |
"During the first quarter, which is typically a seasonally slow period, we focused on executing on our retention initiatives to maximize enrolled revenue for the upcoming 2012 travel season. Using our higher touch, relationship-based model, we have been successful in driving improvement since our last update. Enrolled revenue for our core Student Ambassadors Program is now down 7.2 percent, an improvement from our first report on the 2012 season given on October 26, 2011, when enrolled revenue was down 13 percent," said Jeff Thomas, Ambassador Group's President and Chief Executive Officer. "With the progress we have made on 2012 enrollments for the Student Ambassadors programs, we are also now focusing our relationship-based approaches on piloting some new marketing programs to generate enrollments for the 2013 travel season in advance of our fall marketing campaign. By engaging with our customers earlier than usual, we were able to achieve sales of our high-quality, differentiated programs outside of our traditional channel as the value of our programs resonates with delegate families. We are pleased to report as a result we now have over 300 delegates enrolled for the 2013 season. We also continue to broaden our digital presence, as a complement to our traditional marketing program, through increased following and engagement on our Facebook page and a new live chat function on our website. We believe these efforts are positively impacting our program retention and expect to drive incremental enrollments from this lead source for the 2013 season."
Thomas continued, "Consistent with our commitment to prudently manage the business, we began implementing our cost cutting initiatives during the first quarter. Operating expenses declined $1.6 million year-over-year with improvements in our sales and marketing infrastructure, as well as corporate overhead. In addition, after evaluating options to maximize the value of our corporate headquarters, subsequent to quarter-end we listed the property for sale. We believe the Spokane real estate market has begun to stabilize, which should enable us to monetize an underutilized asset and strengthen the Company's financial condition. We remain on track to reduce our variable expense budget by approximately $4.5 to $5.5 million this year while executing on our strategic initiatives to drive the delegate growth necessary to improve our long-term profitability profile and increase value for our shareholders."
First Quarter 2012 Results
During the first quarter of 2012, the Company traveled 747 delegates compared to 320 delegates during the prior year quarter reflecting a shift in timing for the spring Student Leadership delegations, as school spring breaks occurred earlier than in the prior year. This increase in travel-related revenue coupled with a 19 percent increase in internet content and advertising revenue related to BookRags, the Company's online education research business, drove a 48 percent increase in total revenue to $2.5 million. Net loss for the quarter was $7.9 million, or $0.45 per diluted share, compared to a net loss of $8.7 million, or $0.48 per diluted share, in the prior year quarter.
Gross margin for the quarter was $1.4 million, up from $1.0 million in the first quarter of 2011 primarily due to the aforementioned timing of the Student Leadership delegations. Gross margin percentage decreased to 52.4 percent from 58.6 percent in the prior year period due primarily to the margin impact of BookRags combined with shorter duration product offerings of the spring Student Leadership programs. Gross margin is calculated as the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue less cost of sales non-directly delivered programs, costs of sales directly delivered programs and cost of sales internet content and advertising. Gross margin percentage is calculated as gross margin divided by the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue.
First quarter operating expenses of $12.9 million declined 11 percent from $14.5 million in the prior year period due to implementation of cost cutting initiatives.
Balance Sheet and Liquidity
Total assets on March 31, 2012 were $150.9 million, including $83.7 million in cash, cash equivalents and short-term available-for-sale securities. Long-term assets totaled $39.9 million primarily reflecting goodwill and intangible assets of the BookRags business, technology, hardware and systems used to deliver services, and the Company's office building which has since been listed for sale. Total liabilities were $81.7 million, including $73.8 million in participant deposits for future travel. The Company has no debt outstanding with deployable cash at March 31, 2012 of $27.5 million.
The Company paid a quarterly dividend of $0.06 per share on March 15, 2012.
The following table summarizes the cash flows as further disclosed in the accompanying financial statements. Free cash flow, a non-GAAP measure, which is defined as cash flow from operations less purchase of property, equipment and intangibles is also noted (in thousands):
| UNAUDITED | ||
| Quarter ended March 31, | ||
| 2012 | 2011 | |
| Cash flow from operations | $ 26,934 | $ 16,436 |
| Purchases of property, equipment and intangibles | (851) | (1,029) |
| Free cash flow | 26,083 | 15,407 |
| Net sale (purchase) of available-for-sale securities | (34,371) | (10,453) |
| Dividend payments to shareholders | (1,054) | (1,080) |
| Repurchase of common stock | -- | (5,327) |
| Other cash flows, net | (137) | 21 |
| Net change in cash and cash equivalents | $ (9,479) | $ (1,432) |
The change in cash flow from operations between periods, and in turn free cash flow, was driven by a return to a normalized level of prepaid program costs and expenses relative to the first quarter of 2011. This change is partially offset by a decline in participant deposits due to a lower number of enrollments for future travel periods.
Free cash flow is a non-GAAP measure defined in the attached schedules.
Subsequent Event
On April 4, 2012, the Company's board of directors approved the listing for sale of its corporate headquarters building located in Spokane, Washington. Management intends to relocate the headquarters to a new leased location also in Spokane. The Company will continue to classify the building as an asset held for use until the sale is probable and it becomes unlikely that significant changes to the plan will be made. The asset has a total net carrying value, including all related assets, of approximately $16.1 million and is recoverable as an asset held for use. However, the Company will reassess the fair value of the building at each reporting period to determine whether the building qualifies as an asset held for sale and if the carrying value is recoverable as the proposed sale process continues. If the carrying value is not deemed to be recoverable based on current market conditions, the Company may be required to record impairment charges for these assets in the future.
Outlook for 2012
As of April 22, 2012, enrolled revenue for 2012 travel programs was $141.5 million, down 8.1 percent from the same point last year, based on enrolled travelers of 22,686 compared to 24,974. Enrolled revenue for the Company's core product, Student Ambassadors, is down 7.2 percent to $129.0 million compared to $139.1 million at the same date last year, based on enrolled travelers of 18,734 compared to 20,326.
Enrolled revenue consists of estimated gross receipts to be recognized upon travel of an enrolled participant and revenue recognized for any delegates who have completed travel for the travel year referenced. Reported net enrollments consist of all participants who have enrolled in the Company's programs less those that have already withdrawn, including travel that has been completed. Enrolled revenue may not result in actual gross receipts eventually recognized by the Company due to both withdrawals from the Company's programs and expected future enrollments.
The Company is reaffirming its guidance for 2012 previously provided on February 8, 2012 as follows:
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Consolidated gross revenues for all programs and operations to be between $135 million and $145 million;
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Consolidated gross margin as a percentage of gross revenue for all programs and operations of 36 percent to 38 percent; and
- Net income before any special items of between $3 million and $5 million.
Conference Call and Webcast Information
The Company will host a conference call to discuss first quarter 2012 results of operations on Thursday, April 26, 2012, at 11:30 a.m. Eastern Time (8:30 a.m. Pacific Time). Participants can access the call via the internet at www.ambassadorsgroup.com/EPAX. The call can also be accessed by dialing 888-204-4520 or 913-312-0950 (international) and providing the passcode: 6513443. Approximately 24 hours following the call, a webcast will be available through July 28, 2012 at www.ambassadorsgroup.com/EPAX. A replay of the call will also be available through May 1, 2012 and can be accessed by dialing 888-203-1112 or 719-457-0820 (international) and providing the pass code: 6513443.
About Ambassadors Group, Inc.
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, the 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 12, 2012.
| AMBASSADORS GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in thousands, except per share data) | ||||||||
| UNAUDITED | ||||||||
| Quarter ended March 31, | ||||||||
| 2012 | 2011 | $ Change | % Change | |||||
| Net revenue (loss), non-directly delivered programs (1) | $ 89 | $ (35) | $ 124 | 354% | ||||
| Gross revenue, directly delivered programs (2) | 1,178 | 694 | 484 | 70% | ||||
| Internet content and advertising revenue | 1,198 | 1,003 | 195 | 19% | ||||
| Total revenue | 2,465 | 1,662 | 803 | 48% | ||||
| Cost of sales, directly delivered programs (2) | 886 | 486 | 400 | 82% | ||||
| Cost of sales, internet content and advertising | 170 | 133 | 37 | 28% | ||||
| Gross margin (3) | 1,409 | 1,043 | 366 | 35% | ||||
| Operating expenses: | ||||||||
| Selling and marketing | 8,687 | 10,095 | (1,408) | -14% | ||||
| General and administration | 4,207 | 4,383 | (176) | -4% | ||||
| Total operating expenses | 12,894 | 14,478 | (1,584) | -11% | ||||
| Operating loss | (11,485) | (13,435) | 1,950 | 15% | ||||
| Other income | ||||||||
| Interest and dividend income | 241 | 335 | (94) | -28% | ||||
| Foreign currency expense and other | 2 | 181 | (179) | -99% | ||||
| Total other income | 243 | 516 | (273) | -53% | ||||
| Loss before income tax benefit | (11,242) | (12,919) | 1,677 | 13% | ||||
| Income tax provision | 3,336 | 4,190 | (854) | -20% | ||||
| Net loss | $ (7,906) | $ (8,729) | $ 823 | 9% | ||||
| Weighted average shares outstanding – basic and diluted | 17,576 | 18,025 | (449) | -2% | ||||
| Net loss per share — basic and diluted | $ (0.45) | $ (0.48) | $ 0.03 | 6% | ||||
| (1) Net revenue, non-directly delivered programs consists of gross revenue, less program pass-through expenses for non-directly delivered programs because we primarily engage third-party operators to perform these services. | ||||||||
| UNAUDITED | ||||||
| Quarter ended March 31, | ||||||
| 2012 | 2011 | % Change | ||||
| Gross revenue | $ 310 | $ 82 | 278% | |||
| Cost of sales | 221 | 117 | 89% | |||
| Net revenue | $ 89 | $ (35) | 354% | |||
| (2) Gross revenue and cost of sales for directly delivered programs are reported as separate items because we plan, organize and operate all activities, including speakers, facilitators, events, accommodations and transportation. | ||||||
| (3) Gross margin is calculated as the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue less cost of sales non-directly delivered programs, costs of sales directly delivered programs and cost of sales internet content and advertising. Gross margin percentage is calculated as gross margin divided by the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue. | ||||||
| AMBASSADORS GROUP, INC. | |||
| CONSOLIDATED BALANCE SHEETS | |||
| (in thousands, except per share data) | |||
| UNAUDITED | AUDITED | ||
| March 31, | December 31, | ||
| 2012 | 2011 | 2011 | |
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents | $ 10,040 | $ 5,406 | $ 19,519 |
| Available-for-sale securities | 73,659 | 82,942 | 39,128 |
| Foreign currency exchange contracts | -- | 3,012 | -- |
| Prepaid program cost and expenses | 23,053 | 28,824 | 13,299 |
| Accounts receivable | 4,112 | 5,321 | 1,395 |
| Deferred tax asset | 142 | -- | 668 |
| Total current assets | 111,006 | 125,505 | 74,009 |
| Property and equipment, net | 25,734 | 27,461 | 26,104 |
| Available-for-sale securities | 703 | 1,249 | 700 |
| Foreign currency exchange contracts | 164 | 295 | -- |
| Intangibles | 3,440 | 3,369 | 3,421 |
| Goodwill | 9,781 | 9,781 | 9,781 |
| Other long-term assets | 85 | 85 | 85 |
| Total assets | $ 150,913 | $ 167,745 | $ 114,100 |
| Liabilities and Stockholders' Equity | |||
| Current liabilities: | |||
| Accounts payable and accrued expenses | $ 5,335 | $ 6,426 | $ 5,858 |
| Participants' deposits | 73,449 | 87,008 | 27,396 |
| Foreign currency exchange contracts | 531 | -- | 1,671 |
| Deferred tax liability | -- | 696 | -- |
| Other liabilities | 104 | 102 | 112 |
| Total current liabilities | 79,419 | 94,232 | 35,037 |
| Participants' deposits | 326 | -- | -- |
| Foreign currency exchange contracts | -- | -- | 102 |
| Deferred tax liability | 1,918 | 1,357 | 2,004 |
| Total liabilities | 81,663 | 95,589 | 37,143 |
| Stockholders' equity | 69,250 | 72,156 | 76,957 |
| Total liabilities and stockholders' equity | $ 150,913 | $ 167,745 | $ 114,100 |
| AMBASSADORS GROUP, INC. | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (in thousands) | ||
| UNAUDITED | ||
| March 31, | ||
| 2012 | 2011 | |
| Cash flows from operating activities: | ||
| Net loss | $ (7,906) | $ (8,729) |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||
| Depreciation and amortization | 1,181 | 1,153 |
| Stock-based compensation | 350 | 553 |
| Deferred income tax benefit | (89) | (391) |
| Gain on foreign currency exchange contracts | -- | (183) |
| Loss on disposition and impairment of property and equipment | -- | 4 |
| Excess tax benefit from stock-based compensation | 137 | -- |
| Change in assets and liabilities: | ||
| Accounts receivable and other assets | (2,717) | (3,345) |
| Prepaid program costs and expenses | (9,754) | (25,594) |
| Accounts payable, accrued expenses, and other current liabilities | (647) | 396 |
| Participants' deposits | 46,379 | 52,572 |
| Net cash provided by operating activities | 26,934 | 16,436 |
| Cash flows from investing activities: | ||
| Purchase of available for sale securities | (37,764) | (19,808) |
| Proceeds from sale of available-for-sale securities | 3,393 | 9,355 |
| Purchase and construction of property and equipment | (719) | (915) |
| Purchase of intangibles | (132) | (114) |
| Net cash used in investing activities | (35,222) | (11,482) |
| Cash flows from financing activities: | ||
| Repurchase of common stock | -- | (5,327) |
| Dividend payment to shareholders | (1,054) | (1,080) |
| Proceeds from exercise of stock options | -- | 21 |
| Excess tax benefit from stock-based compensation | (137) | -- |
| Net cash used in financing activities | (1,191) | (6,386) |
| Net decrease in cash and cash equivalents | (9,479) | (1,432) |
| Cash and cash equivalents, beginning of period | 19,519 | 6,838 |
| Cash and cash equivalents, end of period | $ 10,040 | $ 5,406 |
Deployable Cash
Deployable cash is a non-GAAP liquidity measurement 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. We believe this non-GAAP measurement is useful to investors in understanding important characteristics of our business.
The following summarizes deployable cash as March 31, 2012 and 2011 (in thousands):
| UNAUDITED | |||
| March 31, | December 31, | ||
| 2012 | 2011 | 2011 | |
| Cash, cash equivalents and short-term available-for-sale securities | $ 83,699 | $ 88,348 | $ 58,647 |
| Prepaid program cost and expenses | 23,053 | 28,824 | 13,299 |
| Less: Participants' deposits | (73,775) | (87,008) | (27,396) |
| Less: Accounts payable / accruals / other liabilities | (5,439) | (6,528) | (5,970) |
| Deployable cash | $ 27,538 | $ 23,636 | $ 38,580 |
Special Items
Due to cost cutting initiatives, the Company incurred charges related to severance payments made as the workforce was reduced. The Company also incurred legal and other fees relating to a potential proxy contest. Special items also include non-cash asset impairments and foreign currency de-designation.
Lastly, as previously disclosed, the Company was party to a shareholder class action suit and is party to an inquiry by the U.S. Securities and Exchange Commission ("SEC") more fully described in the Company's filings with the SEC on Form 10-K and 10-Q available on the Company's website www.ambassadorsgroup.com or at the SEC website www.sec.gov.
As a result of these events, the operations as presented in the accompanying financial statements for the first quarter ended March 31, 2012 and 2011 may not reflect a meaningful comparison between periods or in relation to the operational activities of the Company. In order to provide more meaningful disclosure, the following table represents a reconciliation of certain earnings measures before special items to those same items after the impact of special items (in thousands except per share data):
| UNAUDITED | ||||
| Net Loss | EPS | |||
| Three months ended March 31, | Three months ended March 31, | |||
| 2012 | 2011 | 2012 | 2011 | |
| Amount before special items | $ (7,391) | $ (8,503) | $ (0.42) | $ (0.47) |
| Asset impairments and loss on sale | -- | (4) | -- | -- |
| Foreign currency de-designation gain | -- | 183 | -- | 0.01 |
| Legal fees – class action and SEC, net | (180) | (513) | (0.01) | (0.03) |
| Legal and other fees - proxy contest | (380) | -- | (0.02) | -- |
| Separation payments | (173) | -- | (0.01) | -- |
| Tax impact | 218 | 108 | 0.01 | 0.01 |
| Amount per consolidated statement of operations | $ (7,906) | $ (8,729) | $ (0.45) | $ (0.48) |