Ambassadors Group, Inc. Reports Second Quarter 2012 Results

SPOKANE, Wash., July 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 second quarter and six months ended June 30, 2012.

Overview

• Gross revenue, from all sources including non-directly delivered travel programs, of $84.1 million for the first six months of 2012 compared to $89.0 million in the prior year period.
• Year-to-date total reported revenue of $34.3 million compared to $37.7 million in the same period last year.
• Traveled 12,789 delegates year-to-date compared to 13,582 delegates traveled in the same period in 2011.
• Year-to-date gross margin of 37.0 percent compared to 38.1 percent in the prior year period.
• Total operating expenses down 15 percent to $23.8 million for the first six months of 2012 compared to $28.0 million in the same period last year.
• Year-to-date net income of $6.3 million, or $0.36 per diluted share, compared to net income of $4.7 million, or $0.26 per diluted share, in the prior year period. Net income before special items of $7.6 million.
• Continued to maintain strong balance sheet and liquidity position; cash and cash equivalents and short-term available-for-sale securities balance of $81.9 million and no debt outstanding.
• Enrolled revenue for 2012 programs, down 10.4 percent year-over-year for all programs and 8.4 percent year-over-year for the core Student Ambassadors Programs.

"Over the last year, we have welcomed four new members to our board of directors and appointed long-standing board member James Kalustian as Chairman. We are taking a hard look at our business and are continuing to implement the necessary organizational changes to return Ambassadors Group to a growth trajectory," said Jeff Thomas, Ambassador Group's President and Chief Executive Officer. "We have made a number of key hires in a variety of areas with a particular focus on digital marketing and information technology to support our long-term strategic plan. We are confident in the value of our programs; now we are concentrating on accelerating the evolution of our sales and marketing practices to ensure that we are tapping the broadest possible audience of prospects."

Thomas continued, "We are not satisfied with our decline in delegate counts in 2012 and continue to pilot new marketing programs to generate enrollments for the 2013 travel season in advance of the fall marketing campaign. We are pleased to report that we built upon the momentum we saw in the first quarter as we now have over 1,000 delegates enrolled compared to 300 at the time of our last update. With the positive response to our early engagement efforts, we will continue to refine and enhance this approach for future seasons. And as we gear up for this fall's marketing campaign, we are utilizing our multi-channel strategy to generate leads for the 2013 travel season.

"Our new website launched in June with a better platform to both support our direct marketing campaign as well as introduce our programs to new audiences. As a result, we have already seen an increase in organic leads from this source. We will also be expanding our digital outreach to include geographically targeted paid search, aligned with our direct marketing campaign, display advertising and targeted advertising on Facebook. By broadening our touch points among our target delegates and their families and integrating a variety of digital tools into our approach, we believe we can both drive greater attendance to our information meetings and communicate the compelling student experience to prospects who are not yet signed up for a meeting. Information meetings continue to be our key conversion channel as they provide the opportunity to truly showcase the power of the People to People experience, but we believe we also have to communicate more openly about this experience in pre-meeting formats such as our website and social media channels. Ultimately we expect this to translate to stronger enrollments for our 2013 travel programs. We are encouraged by the early results of our marketing tests and look forward to the start of our peak enrollment period, which runs mid-August through Thanksgiving."

Thomas concluded, "Results for the first half of the year were generally in line with our expectations, continuing our focus on our retention initiatives in preparation for the peak summer travel season while at the same time realigning our cost structure. The 2012 summer travel season commenced in June and during the second quarter, we traveled 10,778 delegates on our core Student Ambassadors programs to 28 countries. Year-to-date we have traveled 12,789 delegates across our programs. Our results also reflect the impact of the changes to the business that we initiated during the first quarter. Year-to-date our expenses are down $4.8 million, excluding the impact of special items, through continued streamlining of our sales and marketing infrastructure and corporate overhead. These actions have us well on our way to meeting our 2012 expense reduction targets."

Second Quarter 2012 Results

During the second quarter of 2012, the Company traveled 12,042 delegates compared to 13,262 delegates during the prior year quarter. Second quarter 2012 results were negatively impacted primarily by lower delegate counts on the Company's Student Ambassadors programs and by a shift in timing for the spring Student Leadership delegations into the first quarter. Total revenue of $31.8 million declined 12 percent from $36.1 million in the prior year quarter driven by a 12 percent decline in travel-related revenue, partially offset by a 10 percent increase in internet content and advertising revenue related to BookRags, the Company's online education research business. Net income for the quarter was $14.2 million, or $0.81 per diluted share, compared to a net income of $13.4 million, or $0.75 per diluted share, in the prior year quarter.

Gross margin for the quarter was $29.7 million, down from $32.8 million in the second quarter of 2011 primarily due to a lower number of delegates traveled in the period. Gross margin percentage decreased to 36.5 percent from 37.7 percent in the prior year period due primarily to higher air and land costs. 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.

Second quarter operating expenses of $10.9 million declined $2.7 million, or 20 percent, from $13.6 million in the prior year period as the Company continued to implement cost cutting initiatives.

Six Months Ended June 30, 2012 Results

During the six months ended June 30, 2012, the Company traveled 12,789 delegates compared to 13,582 delegates during the same period in the prior year. Total revenue of $34.3 million declined 9 percent compared to $37.7 million in the same period last year driven by a 10 percent decline in travel-related revenue, partially offset by a 15 percent increase in internet content and advertising revenue related to BookRags.  Net income for the six months ended June 30, 2012 was $6.3 million, or $0.36 per diluted share, compared to net income of $4.7 million, or $0.26 per diluted share, in the prior year period.

Gross margin for the six months ended June 30, 2012 was $31.1 million, down from $33.9 million in the same period last year. Gross margin percentage decreased to 37.0 percent from 38.1 percent in the prior year period due primarily to higher air and land costs. 

Total operating expenses for the six months ended June 30, 2012 declined $4.3 million, or 15 percent, compared to last year as the Company continued to implement cost cutting initiatives.

Balance Sheet and Liquidity

Total assets on June 30, 2012 were $150.0 million, including $81.9 million in cash, cash equivalents and short-term available-for-sale securities.  Long-term assets totaled $41.4 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 been listed for sale. Total liabilities were $67.7 million, including $54.3 million in participant deposits for future travel. The Company has no debt outstanding, with deployable cash, a non-GAAP measure, at June 30, 2012 of $41.7 million.

The Company paid a quarterly dividend of $0.06 per share on June 7, 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):

The change in cash flow from operations between periods, and in turn free cash flow, was driven by a return to a more normalized level of prepaid program costs and expenses relative to the first half of 2011. 

Free cash flow is a non-GAAP measure defined in the attached schedules.

Outlook for 2012

As of July 22, 2012, enrolled revenue for 2012 travel programs was $136.1 million, down 10.4 percent from the same point last year, based on enrolled travelers of 21,262 compared to 24,007. Enrolled revenue for the Company's core product, Student Ambassadors, is down 8.4 percent to $122.8 million compared to $134.1 million at the same date last year, based on enrolled travelers of 17,356 compared to 19,179.

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 originally provided on February 8, 2012 as follows:

• Consolidated gross revenues for all programs and operations to be between $135 million and $145 million;
• 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. 

As previously disclosed on July 3, 2012, the Company received a final order approving the settlement agreement entered into on April 14, 2011 regarding the class action suit against the Company. As a result, the Company does not expect any additional expenses related to this matter. 

Conference Call and Webcast Information

The Company will host a conference call to discuss second quarter 2012 results of operations on Thursday, July 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 888-256-1035 or 913-312-1466 (international) and providing the passcode: 4087455.  Approximately 24 hours following the call, a webcast will be available through October 25, 2012 at www.ambassadorsgroup.com/EPAX. A replay of the call will also be available through July 31, 2012 and can be accessed by dialing 888-203-1112 or 719-457-0820 (international) and providing the pass code: 4087455.  

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, and its proxy statement filed May 9, 2012.