Archipelago Learning (NASDAQ: ARCL), a leading,
subscription-based, software-as-a-service (SaaS) provider of
education products, today announced its financial results for the
first quarter 2012.
First Quarter 2012
Highlights:
- Revenue grew 10.9 percent to $19.2
million
- Invoiced sales rose 1.0 percent to
$15.6 million
- Cash EBITDA of $3.4 million, up 0.8
percent
- Diluted EPS of $0.02; Reflects $0.07
per share impact from charges associated with evaluating strategic
alternatives
Tim McEwen, chairman, chief executive officer and president of
Archipelago Learning, said, “We are pleased with our first quarter
2012 performance driven by solid invoiced sales in some of our key
states. Pennsylvania, Georgia and California sales more than offset
the continued softness we are experiencing in Texas and Ohio.”
Mr. McEwen went on to say, “We remain focused on being a leader
in the digital transformation of K-12 education through our
high-impact, low-cost suite of products and commitment to customers
as the uncertain funding and budget environment continues. By
entering into the definitive merger agreement with PLATO Learning
on March 3, 2012, we believe Archipelago Learning will be even
better positioned to serve educators, parents and students as they
strive for learning excellence.”
Financial Summary Table (Table
1)
Three months ended March 31, ($ in thousands, except
EPS)
2012 2011
$Change
%Change
Revenue $ 19,185 $ 17,303 $ 1,882
10.9 % Invoiced sales 15,550 15,398 152 1.0 Royalties
on invoiced sales (246 ) (111 ) (135 ) 121.6 Operating costs(1)
(17,241 ) (14,788 ) (2,453 ) 16.6 Depreciation and amortization
1,610 1,479 131 8.9 Stock-based compensation(2) 638 1,286 (648 )
(50.4 ) Unusual, non-recurring charges(3) 3,080
100 2,980
NM Cash EBITDA(4) 3,391
3,364 27
0.8 Net income 514 989 (475 ) (48.0 ) Diluted
EPS $ 0.02 $ 0.04 $ (0.02 ) (50.0 )% (1) Operating costs are cost
of revenue plus operating expenses. (2) Stock-based compensation
includes non-cash compensation expense recorded in shares or
options issued to our employees or directors.
(3) Unusual, non-recurring charges include
charges associated with evaluating strategic alternatives,
restructuring charges, and investments and permitted acquisition
expense.
(4) Cash EBITDA is defined as invoiced sales less royalties,
operating costs, excluding depreciation and amortization,
stock-based compensation and unusual, non-recurring charges.
First Quarter 2012
Summary
Revenue for the first quarter 2012 was $19.2 million, an
increase of $1.9 million, or 10.9 percent compared with the same
period a year ago. For the first quarter 2012, invoiced sales were
$15.6 million compared with $15.4 million for the first quarter
2011, an increase of 1 percent. The increases in revenue and
invoiced sales were primarily due to higher new and existing
average invoiced sales per unique customer.
Operating costs (operating expenses plus cost of revenue) for
the first quarter 2012 were $17.2 million, compared with $14.8
million for the first quarter 2011. The increase was primarily due
to costs associated with the exploration of strategic alternatives
and was partially offset by cost savings realized from the closure
of the EducationCity U.S. office.
Cash EBITDA for the first quarter ended March 31, 2012 rose 0.8
percent to $3.4 million, due to higher invoiced sales.
Provision for income tax was $262 thousand, or 33.8 percent of
income before tax for the first quarter 2012. This compares with a
tax rate of 27.8 percent for the first quarter 2011, which included
an one-time tax benefit for a tax rate decrease in the U.K.
For the first quarter 2012, net income was $514 thousand
compared with $989 thousand for the first quarter 2011, and diluted
earnings per share (EPS) was $0.02, compared with $0.04 per share
for the same period a year ago. Charges associated with evaluating
strategic alternatives lowered net income by $2.0 million and EPS
by $0.07 per share.
Definitive Merger Agreement
Update
On March 5, 2012, Archipelago Learning announced that it entered
into a definitive agreement on March 3, 2012 to be acquired by
PLATO Learning for $11.10 per share. Stockholders of record as of
April 11, 2012, should have received their meeting and voting
materials, and are encouraged to vote prior to the Special Meeting
of Stockholders, which is scheduled for May 16, 2012. If you were a
stockholder on April 11, 2012 and have not received the meeting and
voting materials or have any questions, please contact the investor
relations department at christy.linn@archlearning.com or (800)
419-3191 extension 7125.
Conference Call and Quarterly
Report
As a result of the announcement that Archipelago Learning has
entered into a definitive agreement to be acquired by PLATO
Learning, we will not hold an earnings conference call and webcast
for the quarter. However, our quarterly report on Form 10-Q is
expected to be filed with the SEC and be available on May 10,
2012.
About Archipelago Learning
Inc.
Archipelago Learning (NASDAQ:ARCL) is a leading,
subscription-based, software-as-a-service (SaaS) provider of
education products used by over 14.6 million students in
approximately 38,100 schools throughout the United States, Canada,
and the United Kingdom. Our comprehensive digital supplemental
product suite uses technology to transform education by making
rigorous learning fun, engaging, accessible, and affordable. For
more information, please visit us at
www.archipelagolearning.com.
Forward-Looking
Statements
This release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended, and
the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact, including, but
not limited to, statements about our future performance are
considered forward-looking statements and reflect current
expectations relating to our financial condition, results of
operations, plans, objectives, future performance and business as
of May 8, 2012. This release also contains forward-looking
statements regarding the proposed merger with PLATO Learning, Inc.
(the “Transaction”). The words “anticipate,” “estimate,” “expect,”
“objectives,” “project,” “plan,” “intend,” “believe,” “may,”
“should,” “likely,” “future,” and other words and terms of similar
meaning are used to identify forward-looking statements. These
forward-looking statements are based on assumptions that we have
made in light of our industry experience and on our perceptions of
historical trends, current conditions, expected future developments
and other factors we believe are appropriate under the
circumstances.
These statements are not guarantees of performance or results
and are subject to known and unknown risks and uncertainties (some
of which are beyond our control), which could cause actual results
to vary materially from the forward-looking statements contained in
this release. Although we believe that these forward-looking
statements are based on reasonable assumptions, many factors could
cause actual results to vary materially from those anticipated in
such forward-looking statements. Certain risk factors are
discussed in the Company's filings with the Securities and Exchange
Commission (the “SEC”) and include, but are not limited to (i)
risks associated with the pending Transaction, including, but not
limited to: the ability of the parties to consummate the proposed
Transaction in a timely manner or at all; the satisfaction of
conditions precedent to consummation of the Transaction, including
the ability to secure regulatory approvals and approval by
Archipelago Learning’s stockholders; successful completion of
anticipated financing arrangements; the possibility of litigation
and the outcome of existing litigation (including litigation
related to the Transaction itself); (ii) our customers' reliance
on, and the availability of, state, local and federal funding;
(iii) competitive factors, including large publishers
aggressively entering our markets and new competitors more easily
entering our markets if national educational standards are adopted;
(iv) legislation and regulation, including changes in or the repeal
of legislation that mandates state educational standards and annual
assessments; (v) difficulty in evaluating our current and future
business prospects because of our recent rapid growth; (vi)
web-based education failing to achieve widespread acceptance by
students, parents, teachers, schools and other institutions; (vii)
lower customer renewal rates or a decrease in sales for our Study
Island products; (viii) decisions at district or state levels to
use our competitors' products rather than ours; (ix) seasonal
fluctuations; (x) system or network disruptions and technology
issues; (xi) delays in product development or product releases and
the success of new product introductions; (xii) acquisition related
risks; (xiii) intellectual property related risks; (xiv) our
ability to retain key employees; (xv) risks related to our
indebtedness; (xvi) legal risks; (xvii) risks related to global and
U.S. economic conditions; and, (xviii) risks associated with the
integration of EducationCity and Alloy Multimedia and the future
performance of our EducationCity and ESL ReadingSmart products.
Any forward-looking statement speaks only as of the date on
which it is made, and the Company undertakes no obligation to
update any forward-looking statements to reflect new information,
future developments or otherwise, except as may be required by
law.
Additional Information About the
Transaction and Where to Find It
In connection with the proposed Transaction and required
stockholder approval, the Company has filed a proxy statement with
the SEC on April 13, 2012. INVESTORS AND SECURITY HOLDERS ARE
ADVISED TO READ THE PROXY STATEMENT AND OTHER RELEVANT MATERIALS AS
THEY BECOME AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION
ABOUT ARCHIPELAGO LEARNING AND THE TRANSACTION. Investors and
security holders may obtain free copies of these documents and
other documents filed with the SEC at the SEC’s web site at
www.sec.gov. In addition, the documents filed by Archipelago
Learning, Inc. with the SEC may be obtained free of charge by
contacting Archipelago Learning’s Investor Relations Department (i)
by mail to Archipelago Learning, 3232 McKinney Avenue, Suite 400,
Dallas, Texas 75204, Attn: Investor Relations or (ii) by email to
christy.linn@archlearning.com. Our filings with the SEC are also
available on our website at www.archipelagolearning.com.
Participants in the
Solicitation
Archipelago Learning and its directors and executive officers
may be deemed to be participants in the solicitation of proxies
from Archipelago Learning’s stockholders in connection with the
proposed Transaction. Information about Archipelago Learning’s
directors and executive officers is set forth in Archipelago
Learning’s proxy statement for its 2012 Special Meeting of
Stockholders, which was filed with the SEC on April 13, 2012,
its Annual Report on Form 10-K for the year ended December 31,
2011, which was filed with the SEC on March 15, 2012 and as amended
on April 30, 2012, and its Form 8-Ks filed with the SEC on January
11, 2012, March 18, 2011, and January 7, 2011. These documents are
available free of charge at the SEC’s web site at www.sec.gov, and
from Archipelago Learning by contacting Archipelago Learning’s
Investor Relations Department (i) by mail to Archipelago
Learning, 3232 McKinney Avenue, Suite 400, Dallas, Texas 75204,
Attn: Investor Relations or (ii) by e-mail to
christy.linn@archlearning.com. Information regarding the interests
of participants in the solicitation of proxies in connection with
the Transaction was included in the proxy statement that
Archipelago Learning filed with the SEC on April 13, 2012.
Table 2
ARCHIPELAGO LEARNING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME – (UNAUDITED)
(in thousands, except share and per share
data)
Three Months Ended Three Months Ended March
31, % March 31, 2012
2011 Change 2012
2011 As a % of revenue Revenue
$
19,185
$
17,303 10.9 % 100.0 % 100.0 % Cost of revenue
1,755 1,707 2.8 9.1
9.9 Gross profit 17,430 15,596 11.8 90.9 90.1
Operating expense: Sales and marketing 6,214 5,921 4.9 32.4 34.2
Content development 1,729 1,707 1.3 9.0 9.9 General and
administrative 7,543 5,453
38.3 39.3 31.5 Total
15,486 13,081 18.4 80.7
75.6 Operating income 1,944 2,515 (22.7 ) 10.1
14.5 Interest expense, net 1,070 1,094 2.2 5.6 6.3 Other
income (expense) (98 ) (51 ) (92.2 )
(0.5 ) (0.3 ) Income before tax 776 1,370 43.4 4.0
7.9 Provision for income tax 262
381 (31.2 ) 1.4 2.2 Net
income $ 514 $ 989 (48.0 ) 2.7 %
5.7 % Earnings per share: Basic $ 0.02 $ 0.04 (50.0 )
Diluted $ 0.02 $ 0.04 (50.0 ) Weighted-average shares
outstanding: Basic 25,546,030 25,381,150 Diluted 25,646,960
25,629,288
Non-GAAP Financial
Measures
This press release contains the following non-GAAP financial
measures: invoiced sales, non-GAAP operating costs, and cash
EBITDA. Because these financial measures are not recognized under
GAAP, they should not be used as indicators of, or alternatives to,
the corresponding GAAP financial measures of operating
performance.
- We recognize invoiced sales in the
period in which the purchase order or other evidence of an
arrangement is received and the invoice is issued, which may be at
a different time than the commencement of the subscription. Under
GAAP, revenue for invoiced sales is deferred and recognized ratably
over the subscription term beginning on the commencement date of
the applicable subscription. This difference between non-GAAP
invoiced sales and revenue in a given period is equal to the change
in the Company’s deferred revenue balance for that period,
excluding acquired deferred revenue.
- Non-GAAP operating costs are defined as
cost of revenue plus operating expenses.
- Cash EBITDA aligns with our management
performance-based compensation metric, and is defined by invoiced
sales less royalties, operating expenses and cost of revenue,
excluding non-cash stock-based compensation, depreciation and
amortization, and unusual, non-recurring charges.
- Stock-based compensation is part of our
strategy and is used to attract and retain key employees and
executives. It is principally aimed at aligning their interests
with those of our stockholders and at long-term employee retention,
rather than to motivate or reward operational performance for any
particular period. Thus, stock-based compensation expense varies
for reasons that are generally unrelated to operational decisions
and performance in any particular period.
- Depreciation and amortization is
included in our operating expenses in accordance with GAAP.
Depreciable assets include: computer equipment and software,
furniture and fixtures, office equipment, and leasehold
improvements. Amortization includes: customer relationships,
technical development/program content, and non-compete
agreements.
- We exclude stock-based compensation and
depreciation and amortization from our non-GAAP financial measures
because they are non-cash expenses that we do not consider part of
ongoing operating results when assessing the performance of our
business, and we believe that doing so facilitates comparisons to
our historical operating results and to the results of other
companies in our industry, which have their own unique acquisition
histories.
Reconciliation tables of GAAP to non-GAAP financial measures for
invoiced sales, non-GAAP operating costs, and cash EBITDA are
included in this release.
Management believes that these non-GAAP measures provide useful
information to investors regarding certain financial and business
trends relating to our financial condition and results of
operations. Although management uses these non-GAAP financial
measures to assess the operating performance of our business, they
have significant limitations as an analytical tool because they may
exclude certain material costs. For example, because cash EBITDA
does not account for certain expenses, its utility as a measure of
operating performance has material limitations. In addition, the
definitions of non-GAAP financial measures may vary among companies
and industries, and may not be comparable to other similarly titled
measures used by other companies.
Table 3 ARCHIPELAGO LEARNING, INC.
RECONCILIATIONS OF NON-GAAP MEASURES –
(UNAUDITED)
(in thousands)
Three Months Ended March 31, 2012
2011 Net Invoiced Sales:
New customers $ 3,607 $ 4,251 Existing customers 11,820 11,002
Other sales 123 145 Total
15,550 15,398 Royalties on invoiced sales (246 ) (111 ) Change in
deferred revenue(5) 3,881 2,016
Revenue $ 19,185 $ 17,303 (5)
Change in deferred revenue excludes the amount of deferred revenue
assumed with the acquisitions of EducationCity and Alloy Multimedia
and includes foreign exchange rate fluctuation impacts.
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