Ambassadors Group, Inc. (Nasdaq:EPAX), a leading provider of
educational travel, today announced its results for the second
quarter ended June 30, 2014.
Overview
- For the first six months of 2014, net income before
special items of $2.2 million compared to $1.3 million in the 2013
period. Net loss of $11.7 million compared to net income of $33
thousand in the prior year period.
- Gross revenue, from all sources including non-directly
delivered programs, of $59.4 million during the first six months of
2014 compared to $65.4 million in the prior year period. In 2014,
the Company traveled 8,903 delegates compared to 9,800 delegates in
the same period in 2013.
- Year-to-date gross margin of 35.1 percent compared to 37.0
percent in 2013, the current year was impacted by unfavorable Euro
and British Pound foreign exchange rates and a program merchandise
write-down.
- Goodwill write-down associated with BookRags, our online
education-oriented research subsidiary, resulting in pre-tax
charges totaling $9.7 million.
- Subsequent to the balance sheet date, we anticipate executing a
purchase and sale agreement for the corporate headquarters building
listed for sale since April 2012. The Company recorded a $2.0
million in pre-tax asset impairment at June 30,
2014.
- Year-to-date, special items totaled $14.7 million, including
$12.7 million of non-cash items, for asset impairments,
restructuring charges and separation costs.
- Operating expenses for the six month period, excluding the
impact of special items, of $18.9 million, a decrease of $3.4
million, or 15.2 percent, year-over-year.
- Cash and cash equivalents and available-for-sale securities
balance of $57.5 million compared to $55.9 million at the same
point in 2013.
- Enrolled revenue for 2014 programs down 7.2 percent
year-over-year for all programs and 9.7 percent year-over-year for
core Student Ambassadors Programs. Prior year enrolled
travelers for Discovery Student Adventures and People to People
China programs have been excluded for year-over-year comparability
given the Company's decision during the third quarter of 2013 to no
longer operate these programs in 2014.
Financial
Highlights |
(in thousands except
percent and per share data) |
|
|
UNAUDITED |
|
Quarter ended
June 30, |
Six months ended
June 30, |
|
2014 |
2013 |
2014 |
2013 |
Gross revenue, all travel programs |
$ 56,805 |
$ 61,476 |
$ 57,365 |
$ 63,370 |
BookRags revenue |
$ 1,055 |
$ 1,029 |
$ 2,063 |
$ 2,028 |
Gross revenue, all sources |
$ 57,860 |
$ 62,505 |
$ 59,428 |
$ 65,398 |
Gross margin, all travel programs |
$ 18,869 |
$ 21,900 |
$ 19,049 |
$ 22,422 |
Gross margin, BookRags |
$ 937 |
$ 903 |
$ 1,813 |
$ 1,773 |
Gross margin, all sources |
$ 19,806 |
$ 22,803 |
$ 20,862 |
$ 24,195 |
Gross margin percentage |
34.2% |
36.5% |
35.1% |
37.0% |
Operating expense |
$ 23,333 |
$ 10,261 |
$ 33,574 |
$ 24,446 |
Operating expense, before special items |
$ 8,913 |
$ 10,258 |
$ 18,865 |
$ 22,253 |
Operating income, BookRags |
$ (9,831) |
$ 377 |
$ (9,495) |
$ 709 |
Net income before special items |
$ 9,461 |
$ 8,094 |
$ 2,151 |
$ 1,303 |
Net income (loss) |
$ (4,185) |
$ 8,092 |
$ (11,736) |
$ 33 |
Income per diluted share before special
items |
$ 0.56 |
$ 0.48 |
$ 0.13 |
$ 0.08 |
Income (loss) per diluted share |
$ (0.25) |
$ 0.48 |
$ (0.70) |
$ -- |
Commenting on the Company's results, Philip B. Livingston,
Ambassadors Group Interim Chief Executive Officer said, "We
streamlined and flattened the organization structure in June and
the current quarter results reflect several initiatives aimed to
simplify the way we work and move faster. Our focus is
traveling more People to People student delegates and we have taken
measures to concentrate on that nimbly and cost
effectively. Our summer travel season was very successful from
a customer perspective, and customer satisfaction continues to be
very high. We have begun to more actively promote the voice of
the customer and are publishing customer reviews on our sites.
We expect this to substantially improve the ability of
travelers and their parents to understand the unique nature of our
educational programs. Home stays, visits to local schools,
debates and discussions with local residents are part of what sets
us apart from other travel companies."
Livingston continued, "Our marketing season for 2015 travel is
underway with intense digital marketing, direct mail and local
meetings all taking place from August to November of this
year. We are acutely focused on web-based services integration
into our traditional direct marketing channels. These customer
centric initiatives are aimed at driving higher attendance at our
information meetings, targeting qualified prospects, converting
generated leads and improving our retention rate. The results
of those revised efforts will be important to reflect on in our
third quarter results."
Livingston concluded, "We are driving aggressive changes in
order to deliver solid, broad-based financial results driven by
strong execution and a more efficient cost structure. We
believe that these changes, as well as our strong People to People
brand, will in the long-term deliver profitability, a stronger
balance sheet and shareholder value."
Second Quarter 2014 Results
During the second quarter of 2014, the Company traveled 8,720
delegates, compared to 9,228 delegates during the prior year
quarter primarily due to lower delegate counts on the Company's
core Student Ambassadors programs. The prior year period
includes Discovery Student Adventures traveled students affecting
year-over-year comparability given the Company's decision during
the third quarter of 2013 to no longer operate these programs in
2014. Total revenue of $22.7 million declined 7.2 percent from
$24.5 million in the prior year quarter driven by lower
travel-related revenue. Gross margin for the quarter was $19.8
million compared to $22.8 million in the second quarter of 2013,
and gross margin percentage was 34.2 percent compared to 36.5
percent in the prior year period. 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. The lower current period gross margin
percentage is reflective of higher foreign exchange rates
negatively impacting land vendor program costs year-over-year, as
well as a program merchandise write-down of $0.6 million in the
current period. Year-over-year, the Company experienced a decrease
of approximately $1.2 million in Student Ambassador program gross
margin, excluding the impact of the decline in delegates traveled
year-over-year, $0.8 million of which is due to unfavorable Euro
and British Pound rates hedged for 2014 travel compared to hedged
rates for 2013 travel.
Second quarter operating expenses were $23.3 million compared to
$10.3 million in the prior year period. Excluding special
items, second quarter 2014 operating expenses were $8.9 million, a
decline of $1.3 million, or 13.1 percent, compared to the same time
in 2013. Special items of $14.4 million for the second quarter of
2014 are more fully described in a table to this release, and
include restructuring charges related to the write-down of goodwill
recorded upon the purchase of BookRags in 2008, an additional
write-down of the corporate headquarters building and separation
and other related benefit costs from the workforce reduction and
other personnel changes previously announced during the
quarter.
Net loss for the second quarter of 2014 was $4.2 million, or
$0.25 per diluted share, compared to net income of $8.1 million, or
$0.48 per diluted share, in the prior year period. Second
quarter 2014 net income before special items was $9.5 million
compared to $8.1 million in 2013.
Six Months Ended June 30, 2014 Results
During the six months ended June 30, 2014, the Company traveled
8,903 delegates compared to 9,800 delegates during the same period
in the prior year. The prior year period includes Discovery
Student Adventures and People to People China traveled students
affecting year-over-year comparability given the Company's decision
during the third quarter of 2013 to no longer operate these
programs in 2014. Total revenue of $24.1 million declined 11.9
percent from $27.4 million in the same period last year driven by
the decline in travel-related revenue. Gross margin for the
six months ended June 30, 2014 was $20.9 million, down from $24.2
million in the same period last year, with gross margin percentage
at 35.1 percent compared to the prior year at 37.0 percent.
Year-to-date, operating expenses excluding special items
decreased 15.2 percent compared to the prior year period to $18.9
million. Special items of $14.7 million for the year-to-date
period are more fully described in a table to this release.
The Company recorded a valuation allowance on its deferred tax
assets due to the loss it recorded for the six months ended June
30, 2014, resulting in a deferred tax benefit of $0.7 million for
the year-to-date period. The Company does not anticipate
having current tax expense until its net operating loss
carryforward has been absorbed.
Net loss for the six months ended June 30, 2014 was $11.7
million, or $0.70 per diluted share, compared to net income of $33
thousand in the prior year period.
Balance Sheet and Liquidity
Total assets at June 30, 2014 were $95.9 million, including
$57.5 million in cash, cash equivalents and short-term
available-for-sale securities. Long-term assets totaled $19.0
million primarily reflecting 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 and remains categorized as held for use at June 30,
2014. During the second quarter of 2014, the Company
recognized restructuring and other asset reduction charges that
resulted in a $9.7 million reduction in the balance of goodwill as
well as an additional write-down of $2.0 million to the carrying
value of the corporate headquarters building. We anticipate
executing a purchase and sale agreement subsequent to the balance
sheet date; therefore, the carrying value will be reclassed to an
asset held for sale during the third quarter of 2014. The Company
recorded a valuation allowance on its deferred tax assets due to
the loss it recorded for the six months ended June 30, 2014.
Total liabilities were $50.2 million, including $42.9 million in
participant deposits for future travel. Deployable cash at
June 30, 2014, totaled $25.3 million, and is a non-GAAP measure
defined in the attached schedules. On June 1, 2014, the
Company's existing credit agreement with Wells Fargo Bank, National
Association, expired and was not renewed.
The below 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). We believe this non-GAAP measurement is useful to
investors in understanding the cash generated or distributed within
the current period for future use in operations.
|
UNAUDITED |
|
Six months ended
June 30, |
|
2014 |
2013 |
Net cash provided by operating
activities |
$ 12,988 |
$ 23,415 |
Purchases of property, equipment and
intangibles |
(1,098) |
(1,963) |
Free cash flow |
11,890 |
21,452 |
|
|
|
Net proceeds from purchase of
available-for-sale securities |
(10,656) |
(19,515) |
Dividend payments to shareholders |
-- |
(1,017) |
Repurchase of common stock |
(186) |
(486) |
Other cash flows, net |
(109) |
(2,090) |
Net increase (decrease) in cash and cash
equivalents |
$ 939 |
$ (1,656) |
Outlook for 2014
As of July 28, 2014, enrolled revenue for 2014 travel programs
was $97.4 million, down 7.2 percent from the same point last year,
based on enrolled travelers of 16,126 compared to 17,283. Enrolled
revenue for the Company's core product, Student Ambassadors, is
down 9.7 percent to $86.0 million compared to $95.3 million at the
same date last year, based on enrolled travelers of 12,256 compared
to 13,849. Prior year data excludes the impact of enrolled
travelers for Discovery Student Adventures and China programs as of
this time last year to reflect year-over-year comparability given
the Company's decision to no longer operate these programs in
2014.
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 updating its guidance for 2014 as follows:
- Consolidated gross revenues for all programs and operations to
be between $100 million and $105 million;
- Consolidated gross margin as a percentage of gross revenue for
all programs and operations of 35 percent to 36 percent; and
- Net loss before any special items of between $2.0 million and
$0.
About Ambassadors Group, Inc.
Ambassadors Group, Inc. (Nasdaq:EPAX) is an education and
student travel company located in Spokane, Washington.
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.
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, changes in
foreign currency rates 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 27,
2014, and its proxy statement filed April 11, 2014.
AMBASSADORS GROUP,
INC. |
CONSOLIDATED STATEMENTS
OF OPERATIONS |
(in thousands, except
per share data) |
|
|
UNAUDITED |
|
Quarter ended
June 30, |
|
2014 |
2013 |
$ Change |
% Change |
Net revenue, non-directly delivered programs
(1) |
$ 18,092 |
$ 21,183 |
$ (3,091) |
-15% |
Gross revenue, directly delivered
programs (2) |
3,565 |
2,270 |
1,295 |
57% |
Internet content and advertising revenue |
1,055 |
1,029 |
26 |
3% |
Total
revenue |
22,712 |
24,482 |
(1,770) |
-7% |
Cost of sales, directly delivered programs
(2) |
2,234 |
1,553 |
681 |
44% |
Cost of sales, internet content and
advertising |
118 |
126 |
(8) |
-6% |
Cost of sales, program merchandise
markdown |
554 |
-- |
554 |
100% |
Gross margin
(3) |
19,806 |
22,803 |
(2,997) |
-13% |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling and marketing |
6,159 |
7,323 |
(1,164) |
-16% |
General and administration |
3,510 |
2,938 |
572 |
19% |
Restructuring costs |
11,664 |
-- |
11,664 |
100% |
Asset impairments |
2,000 |
-- |
2,000 |
100% |
Total operating expenses |
23,333 |
10,261 |
13,072 |
127% |
|
|
|
|
|
Operating income
(loss) |
(3,527) |
12,542 |
(16,069) |
-128% |
|
|
|
|
|
Other income (expense): |
|
|
|
|
Interest and dividend
income |
142 |
160 |
(18) |
-11% |
Foreign currency and other
income |
5 |
1 |
4 |
400% |
Total other income |
147 |
161 |
(14) |
-9% |
Income (loss) before
income tax provision |
(3,380) |
12,703 |
(16,083) |
-127% |
Income tax provision |
(805) |
(4,611) |
3,806 |
83% |
Net income
(loss) |
$ (4,185) |
$
8,092 |
$
(12,277) |
-152% |
|
|
|
|
|
Weighted average shares outstanding –
basic |
16,823 |
16,960 |
(137) |
-1% |
Weighted average shares outstanding –
diluted |
16,823 |
16,960 |
(137) |
-1% |
|
|
|
|
|
Net income (loss) per share — basic |
$ (0.25) |
$ 0.48 |
$ (0.73) |
-152% |
Net income (loss) per share — diluted |
$ (0.25) |
$ 0.48 |
$ (0.73) |
-152% |
(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
June 30, |
|
2014 |
2013 |
% Change |
Gross revenue |
$ 53,241 |
$ 59,210 |
-10% |
Cost of sales |
35,149 |
38,027 |
-8% |
Net revenue |
$
18,092 |
$
21,183 |
-15% |
(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 STATEMENTS
OF OPERATIONS |
(in thousands, except
per share data) |
|
|
UNAUDITED |
|
Six months ended
June 30, |
|
2014 |
2013 |
$ Change |
% Change |
Net revenue, non-directly delivered programs
(1) |
$ 18,208 |
$ 21,183 |
$ (2,975) |
-14% |
Gross revenue, directly delivered
programs (2) |
3,838 |
4,164 |
(326) |
-8% |
Internet content and advertising revenue |
2,063 |
2,028 |
35 |
2% |
Total
revenue |
24,109 |
27,375 |
(3,266) |
-12% |
Cost of sales, directly delivered programs
(2) |
2,443 |
2,925 |
(482) |
-16% |
Cost of sales, internet content and
advertising |
250 |
255 |
(5) |
-2% |
Cost of sales, inventory markdown |
554 |
-- |
554 |
100% |
Gross margin
(3) |
20,862 |
24,195 |
(3,333) |
-14% |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling and marketing |
13,152 |
15,842 |
(2,690) |
-17% |
General and administration |
6,650 |
8,604 |
(1,954) |
-23% |
Restructuring costs |
11,772 |
-- |
11,772 |
100% |
Asset impairments |
2,000 |
-- |
2,000 |
100% |
Total operating expenses |
33,574 |
24,446 |
9,128 |
37% |
|
|
|
|
|
Operating
loss |
(12,712) |
(251) |
(12,461) |
-4965% |
|
|
|
|
|
Other income (expense): |
|
|
|
|
Interest and dividend
income |
273 |
287 |
(14) |
-5% |
Foreign currency and other
income |
8 |
21 |
(13) |
-62% |
Total other income |
281 |
308 |
(27) |
-9% |
Income (loss) before
income tax benefit (provision) |
(12,431) |
57 |
(12,488) |
-21909% |
Income tax benefit (provision) |
695 |
(24) |
719 |
2996% |
Net income
(loss) |
$
(11,736) |
$
33 |
$
(11,769) |
-35664% |
|
|
|
|
|
Weighted average shares outstanding –
basic |
16,789 |
16,980 |
(191) |
-1% |
Weighted average shares outstanding –
diluted |
16,789 |
16,980 |
(191) |
-1% |
|
|
|
|
|
Net loss per share — basic |
$ (0.70) |
$ -- |
$ (0.70) |
-100% |
Net loss per share — diluted |
$ (0.70) |
$ -- |
$ (0.70) |
-100% |
(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 |
|
Six months ended
June 30, |
|
2014 |
2013 |
% Change |
Gross revenue |
$ 53,528 |
$ 59,210 |
-10% |
Cost of sales |
35,320 |
38,027 |
-7% |
Net revenue |
$
18,208 |
$
21,183 |
-14% |
(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 |
|
June
30, |
December 31, |
|
2014 |
2013 |
2013 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ 10,412 |
$ 4,494 |
$ 9,473 |
Available-for-sale securities |
47,088 |
51,358 |
36,174 |
Foreign currency exchange contracts |
60 |
-- |
-- |
Prepaid program cost and expenses |
17,918 |
26,354 |
7,069 |
Accounts receivable |
1,421 |
905 |
1,792 |
Deferred tax assets |
-- |
583 |
1,295 |
Total current assets |
76,899 |
83,694 |
55,803 |
Property and equipment, net |
14,633 |
25,656 |
18,452 |
Available-for-sale securities |
729 |
716 |
719 |
Intangibles |
3,462 |
3,540 |
3,522 |
Goodwill |
70 |
9,781 |
9,781 |
Other long-term assets |
85 |
83 |
82 |
Total assets |
$
95,878 |
$
123,470 |
$
88,359 |
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued expenses |
$ 7,145 |
$ 6,668 |
$ 3,587 |
Participants' deposits |
41,043 |
47,785 |
26,362 |
Foreign currency exchange contracts |
-- |
358 |
244 |
Deferred tax liabilities |
77 |
-- |
-- |
Other liabilities |
103 |
77 |
119 |
Total current
liabilities |
48,368 |
54,888 |
30,312 |
Participants' deposits |
1,822 |
1,673 |
-- |
Foreign currency exchange contracts |
-- |
53 |
52 |
Deferred tax liabilities |
19 |
4,333 |
2,087 |
Total liabilities |
50,209 |
60,947 |
32,451 |
Stockholders' equity |
45,669 |
62,523 |
55,908 |
Total liabilities and stockholders'
equity |
$
95,878 |
$
123,470 |
$
88,359 |
|
AMBASSADORS GROUP,
INC. |
CONSOLIDATED STATEMENTS
OF CASH FLOWS |
(in
thousands) |
|
|
UNAUDITED |
|
June
30, |
|
2014 |
2013 |
Cash flows from operating
activities: |
|
|
Net income (loss) |
$ (11,736) |
$ 33 |
Adjustments to reconcile net income (loss) to
net cash provided by operating activities: |
|
|
Depreciation and
amortization |
2,977 |
2,711 |
Stock-based compensation |
1,168 |
1,957 |
Deferred income tax
benefit |
(805) |
(275) |
Loss on disposition and
impairment of property and equipment |
2,000 |
7 |
Loss on impairment of
goodwill |
9,711 |
-- |
Program merchandise
writedown |
554 |
-- |
Excess tax shortfall from
stock-based compensation |
109 |
2,095 |
Change in assets and liabilities: |
|
|
Accounts receivable and other
assets |
368 |
(53) |
Prepaid program costs and
expenses |
(11,403) |
(9,189) |
Accounts payable, accrued
expenses, and other current liabilities |
3,542 |
2,406 |
Participants' deposits |
16,503 |
23,723 |
Net cash provided by operating
activities |
12,988 |
23,415 |
|
|
|
Cash flows from investing
activities: |
|
|
Purchase of available-for-sale
securities |
(24,517) |
(26,844) |
Proceeds from sale of
available-for-sale securities |
13,861 |
7,329 |
Purchase of property and
equipment |
(952) |
(1,799) |
Purchase of intangibles |
(146) |
(164) |
Net cash used in investing
activities |
(11,754) |
(21,478) |
|
|
|
Cash flows from financing
activities: |
|
|
Repurchase of common stock |
(186) |
(486) |
Dividend payment to
shareholders |
-- |
(1,017) |
Proceeds from exercise of stock
options |
-- |
5 |
Excess tax shortfall from
stock-based compensation |
(109) |
(2,095) |
Net cash used in financing
activities |
(295) |
(3,593) |
|
|
|
Net increase (decrease) in cash and cash
equivalents |
939 |
(1,656) |
Cash and cash equivalents, beginning of
period |
9,473 |
6,150 |
Cash and cash equivalents, end of
period |
$
10,412 |
$
4,494 |
Special Items
During the third quarter of 2013, the Company initiated a
corporate restructuring plan aimed at streamlining its cost
structure and focusing the business primarily on its core Student
Ambassador Programs in order to promote the long-term health of the
organization. At that time, the Company announced its decision
to restructure two of its travel programs believed no longer
financially viable in their current form – Discovery Student
Adventures and People to People China. During the second
quarter of 2014, the Company evaluated the carrying value of its
BookRags subsidiary and determined that its fair value was lower,
resulting in a goodwill impairment of $9.7 million that has been
included within restructuring costs in the table
below.
As part of the Company's restructuring plan and as previously
announced, the Company completed a workforce reduction and incurred
pre-tax charges of approximately $1.6 million for severance
benefits and other related expenses during the second quarter of
2014 that has been included within restructuring costs in the table
below. Of the $1.6 million in expense, a $0.4 million non-cash
expense is included to reflect accelerated vesting of previously
awarded stock options and stock grants. In addition, the
Company has incurred other restructuring related charges including
from accelerated depreciation on assets to be replaced.
The Company's corporate headquarters, listed for sale since
April 2012, is classified as an asset to be held and used in
operations. Subsequent to the balance sheet date, the Company
anticipates executing a purchase and sale agreement to sell
the building for $8.8 million. As such, the Company recorded
an additional asset impairment of $2.0 million to lower its
carrying value to the sales price. During the third quarter of
2014, the Company expects to reclassify the building as an asset
held for sale and anticipates incurring additional charges related
to transaction closing fees.
In connection with the previously announced termination of the
Company's former interim chief executive officer, during the second
quarter of 2014 the Company incurred pre-tax charges of
approximately $0.7 million for severance benefits and other related
expenses, including a non-cash expense of approximately $0.3
million to reflect accelerated vesting of previously awarded stock
options and stock grants under the terms of the executive's
separation agreement. During the first quarter of 2013, the
Company incurred separation expense of approximately $2.7 million
upon the resignation of two executives.
In addition, as previously disclosed in prior year periods, the
Company has incurred legal and other fees in relation to a
shareholder class action suit and 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. These two matters were settled in 2012, however, the
Company received a recovery of funds from insurance coverage on
these matters during the first quarter of 2013 and has been
included in the table below during the prior year periods.
As a result of these events, the operations as presented in the
accompanying financial statements for the three months and six
months ended June 30, 2014 and 2013 do 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 Income
(Loss) |
EPS |
|
Three months
ended June 30, |
Three months
ended June 30, |
|
2014 |
2013 |
2014 |
2013 |
Amount before special
items |
$ 9,461 |
$ 8,094 |
$ 0.56 |
$ 0.48 |
Asset impairments |
(2,000) |
-- |
(0.12) |
-- |
Restructuring costs |
(11,664) |
-- |
(0.69) |
-- |
Legal and other fees |
(92) |
45 |
(0.01) |
-- |
Separation payments |
(664) |
(48) |
(0.04) |
-- |
Tax impact |
774 |
1 |
0.05 |
-- |
Amount per consolidated statement of
operations |
$ (4,185) |
$ 8,092 |
$ (0.25) |
$ 0.48 |
|
|
|
|
|
|
UNAUDITED |
|
Net Income
(Loss) |
EPS |
|
Six months ended
June 30, |
Six months ended
June 30, |
|
2014 |
2013 |
2014 |
2013 |
Amount before special
items |
$ 2,151 |
$ 1,303 |
$ 0.13 |
$ 0.08 |
Asset impairments |
(2,000) |
-- |
(0.12) |
-- |
Restructuring costs |
(11,772) |
-- |
(0.70) |
-- |
Legal and other fees |
(273) |
593 |
(0.02) |
0.03 |
Separation payments |
(664) |
(2,786) |
(0.05) |
(0.16) |
Tax impact |
822 |
923 |
0.05 |
0.05 |
Amount per consolidated statement of
operations |
$ (11,736) |
$ 33 |
$ (0.71) |
$ -- |
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 at June 30, 2014 and
2013, and December 31, 2013 (in thousands):
|
UNAUDITED |
|
June
30, |
December 31, |
|
2014 |
2013 |
2013 |
|
|
|
|
Cash, cash equivalents and short-term
available-for-sale securities |
$ 57,500 |
$ 55,852 |
$ 45,647 |
Prepaid program cost and expenses |
17,918 |
26,354 |
7,069 |
Less: Participants' deposits |
(42,865) |
(49,458) |
(26,362) |
Less: Accounts payable / accruals / other
liabilities |
(7,248) |
(6,745) |
(3,706) |
Deployable cash |
$
25,305 |
$
26,003 |
$
22,648 |
CONTACT: Investor Relations:
Lisa Netz
Ambassadors Group, Inc.
(509) 568-7800
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