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, 2014.
Overview
- Gross revenue, from all sources including non-directly
delivered programs, of $1.6 million during the seasonally slower
first quarter compared to $2.9 million in the prior year period.
Traveled 183 delegates compared to 572 delegates in the first
quarter of 2013, which included the Presidential Inauguration
Program that traveled in January 2013.
- Gross margin of $1.1 million compared to $1.4 million in the
2013 period.
- Operating expenses for the quarter, excluding the impact of
special items, of $10.0 million, a decrease of $2.0 million
year-over-year.
- Net loss before special items of $7.3 million compared to $6.7
million last year; Net loss of $7.6 million, compared to net loss
of $8.1 million in the first quarter of 2013.
- Cash and cash equivalents and available-for-sale securities
balance of $64.4 million; deployable cash, as defined, of $15.0
million and no debt outstanding.
- Enrolled revenue for 2014 programs down 6.8 percent
year-over-year for all programs and 8.4 percent year-over-year for
core Student Ambassador 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
March 31, |
|
2014 |
2013 |
Gross revenue, all travel programs |
$560 |
$1,894 |
Internet content and advertising revenue |
$1,008 |
$999 |
Gross revenue, all sources |
$1,568 |
$2,893 |
Gross margin, all travel programs |
$180 |
$522 |
Gross margin, internet content and
advertising |
$876 |
$870 |
Gross margin, all sources |
$1,056 |
$1,392 |
Gross margin percentage |
67.3% |
48.1% |
Operating expense |
$10,241 |
$14,185 |
Operating expense, before special items |
$9,952 |
$11,994 |
Operating income, internet content and
advertising |
$336 |
$332 |
Net loss before special items |
$(7,310) |
$(6,663) |
Net loss |
$(7,551) |
$(8,059) |
Loss per diluted share before special
items |
$(0.44) |
$(0.39) |
Loss per diluted share |
$(0.45) |
$(0.47) |
Commenting on the Company's results, Anthony Dombrowik,
Ambassadors Group Interim Chief Executive Officer said, "We gained
efficiencies this quarter, evidenced by the $2 million reduction in
operating expenses before special items. As we continue to
focus on protecting our profitability, we are targeting a $3
million to $4 million reduction in operating expenses on a full
year basis during 2014, in addition to the $10.8 million of cost
savings achieved in 2012 and 2013."
Dombrowik continued, "While being fiscally responsible, we have
also made meaningful progress in our evolution to a year-round,
integrated multi-channel marketing and sales strategy. In the first
quarter we saw the integrated model begin to deliver important
efficiencies on a year-over-year basis as we applied what we have
learned in the last year from multiple test initiatives. For
instance, the recently completed winter campaign, aimed at 2014
travel season enrollments, delivered about 90 percent of last
year's campaign on a 35 percent reduction in spend. We have also
driven meaningful efficiencies in our spring campaign aimed at 2015
travel season enrollments owing to our ongoing efforts to source,
nurture, and enroll leads across existing and new direct mail,
digital, and relationship based marketing and sales channels. As a
reminder, we held our first-ever spring campaign last year; it was
designed to uncover the optimal volume, targeting, timing,
messaging and markets for this time period. Based on our findings,
we deliberately ran a smaller campaign this spring, which thus far
has delivered our anticipated enrollments on decreased spend, while
also exhibiting notable year- over- year improvements in response
rates and meeting attendance."
Dombrowik concluded, "We have delivered gross Student
enrollments for the 2014 travel season on par with the prior year,
while materially improving our marketing and financial
model. While we are encouraged by the results of our recent
campaigns, the reality is that we continue to face a higher
withdrawal rate for the 2014 travel season in spite of our
augmented retention efforts. Personal financial reasons are by far
the number one factor for families that withdraw -- even more so
than in 2013. As a result, we have seen our net enrollments
for the 2014 travel season remain on the trajectory we noted last
quarter, with point in time enrolled revenue now down 6.8 percent.
We are disappointed with these results; however, we firmly believe
the long-range changes we are making to our sales and marketing
strategies are the right ones to put us on track to not only drive
delegate growth, but also do so in a more cost effective
manner. Our extended sales and delivery business cycle demands
that we take a long-term view and rigorously apply what we have
learned over each seasonal campaign. The spring campaign for 2015
travel is a strong foundation as we prepare for our next push for
enrollments this fall for 2015."
First Quarter 2014 Results
During the first quarter of 2014, the Company traveled 183
delegates, compared to 572 delegates during the prior year quarter,
which included travelers on the Company's Presidential Inauguration
Program in January 2013. As a result, total revenue of $1.6 million
declined 46 percent from $2.9 million in the prior year quarter.
Gross margin for the quarter was $1.1 million compared to $1.4
million in the first quarter of 2013. Gross margin percentage
increased to 67.3 percent from 48.1 percent in the prior year
period due primarily to a higher mix of revenue contribution from
BookRags, the Company's online education research business. 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.
First quarter 2014 operating expenses were $10.2 million, down
28 percent from $14.2 million in the prior year
period. Excluding special items, first quarter 2014 operating
expenses declined $2.0 million, or 17 percent. Selling and
marketing expenses decreased approximately $1.5 million year- over
-year mainly due to a purposeful reduction in marketing spend as
well as lower overall personnel costs. General and
administrative expenses decreased approximately $2.5 million
primarily due to separation expenditures incurred in the first
quarter of 2013 that did not recur in the current
period.
Net loss for the first quarter of 2014 was $7.6 million, or
$0.45 per diluted share, compared to net loss of $8.1 million, or
$0.47 per diluted share, in the prior year period. First quarter
2014 net loss before special items was $7.3 million compared to
$6.7 million in 2013.
Balance Sheet and Liquidity
Total assets at March 31, 2014 were $114.8 million including
cash, cash equivalents and short-term available-for-sale securities
of $64.4 million. Long-term assets totaled $32.0 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 $66.0 million, including $60.6 million in
participant deposits for future travel. The Company had no debt
outstanding and deployable cash of $15.0 million at March 31,
2014. Deployable cash is a non-GAAP measure defined in the
attached schedules.
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 purchases of property, equipment and intangibles,
is also noted (in thousands):
|
UNAUDITED |
|
Three months
ended March 31, |
|
2014 |
2013 |
Net cash provided by operating
activities |
$19,365 |
$20,131 |
Purchases of property, equipment and
intangibles |
(760) |
(688) |
Free cash flow |
18,605 |
19,443 |
|
|
|
Net proceeds from sale (purchase) of
available-for-sale securities |
(15,489) |
(15,444) |
Dividend payments to shareholders |
-- |
(1,017) |
Repurchase of common stock |
-- |
(487) |
Other cash flows, net |
(15) |
(346) |
Net increase in cash and cash
equivalents |
$3,101 |
$2,149 |
Outlook for 2014
As of April 27, 2014, enrolled revenue for 2014 travel programs
was 102.3 million, down 6.8 percent from the same point last year,
based on enrolled travelers of 16,849 compared to 18,149. Enrolled
revenue for the Company's core product, Student Ambassadors, is
down 8.4 percent to 91.9 million compared to 100.3 million at the
same date last year, based on enrolled travelers of 13,138 compared
to 14,591. 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 $104 million and $110 million;
- Consolidated gross margin as a percentage of gross revenue for
all programs and operations of 36 percent to 37 percent; and
- Net income before any special items of between $0 and $2
million.
Conference Call and Webcast Information
The Company will host a conference call to discuss first quarter
2014 results of operations on Thursday, May 1, 2014, 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 877-280-2342 or
212-444-0896 (international) and providing the passcode:
1896989. Approximately 24 hours following the call, a
webcast will be available through August 1, 2014 at
www.ambassadorsgroup.com/EPAX. A replay of the call will
also be available through May 6, 2014 and can be accessed by
dialing 888-203-1112 or 719-457-0820 (international) and providing
the pass code: 1896989.
About Ambassadors Group, Inc.
Ambassadors Group, Inc. (Nasdaq:EPAX) is an 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.
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 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
March 31, |
|
2014 |
2013 |
$ Change |
% Change |
Net revenue, non-directly delivered programs
(1) |
$116 |
$-- |
$116 |
100% |
Gross revenue, directly delivered
programs (2) |
273 |
1,894 |
(1,621) |
-86% |
Internet content and advertising revenue |
1,008 |
999 |
9 |
1% |
Total revenue |
1,397 |
2,893 |
(1,496) |
-52% |
Cost of sales, directly delivered programs
(2) |
209 |
1,372 |
(1,163) |
-85% |
Cost of sales, internet content and
advertising |
132 |
129 |
3 |
2% |
Gross margin (3) |
1,056 |
1,392 |
(336) |
-24% |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Selling and marketing |
6,993 |
8,519 |
(1,526) |
-18% |
General and administration |
3,140 |
5,666 |
(2,526) |
-45% |
Restructuring costs |
108 |
-- |
108 |
100% |
Total operating expenses |
10,241 |
14,185 |
(3,944) |
-28% |
|
|
|
|
|
Operating loss |
(9,185) |
(12,793) |
3,608 |
28% |
|
|
|
|
|
Other income (expense): |
|
|
|
|
Interest and dividend income |
131 |
127 |
4 |
3% |
Foreign currency and other income |
3 |
20 |
(17) |
-85% |
Total other income |
134 |
147 |
(13) |
-9% |
Loss before income tax
benefit |
(9,051) |
(12,646) |
3,595 |
28% |
Income tax benefit |
1,500 |
4,587 |
(3,087) |
-67% |
Net loss |
$(7,551) |
$(8,059) |
$508 |
6% |
|
|
|
|
|
Weighted average shares outstanding –
basic |
16,755 |
17,001 |
(246) |
-1% |
Weighted average shares outstanding –
diluted |
16,755 |
17,001 |
(246) |
-1% |
|
|
|
|
|
Net loss per share — basic |
$(0.45) |
$(0.47) |
$0.02 |
4% |
Net loss per share — diluted |
$(0.45) |
$(0.47) |
$0.02 |
4% |
(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, |
|
2014 |
2013 |
% Change |
Gross revenue |
$287 |
$-- |
100% |
Cost of sales |
171 |
-- |
100% |
Net revenue |
$116 |
$-- |
100% |
|
|
|
|
(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) |
|
|
|
|
|
UNAUDITED |
AUDITED |
|
March
31, |
December 31, |
|
2014 |
2013 |
2013 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$12,574 |
$8,299 |
$9,473 |
Available-for-sale securities |
51,834 |
47,634 |
36,174 |
Foreign currency exchange
contracts |
20 |
79 |
-- |
Prepaid program cost and expenses |
14,661 |
26,361 |
7,069 |
Accounts receivable |
1,312 |
1,353 |
1,792 |
Deferred tax assets |
2,382 |
375 |
1,295 |
Total current
assets |
82,783 |
84,101 |
55,803 |
Property and equipment, net |
17,925 |
25,737 |
18,452 |
Available-for-sale securities |
723 |
729 |
719 |
Foreign currency exchange
contracts |
15 |
32 |
-- |
Deferred tax assets |
-- |
779 |
-- |
Intangibles |
3,502 |
3,553 |
3,522 |
Goodwill |
9,781 |
9,781 |
9,781 |
Other long-term assets |
84 |
82 |
82 |
Total assets |
$114,813 |
$124,794 |
$88,359 |
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable and accrued
expenses |
$3,339 |
$4,954 |
$3,587 |
Participants' deposits |
59,877 |
62,821 |
26,362 |
Foreign currency exchange
contracts |
134 |
56 |
244 |
Other liabilities |
130 |
101 |
119 |
Total current
liabilities |
63,480 |
67,932 |
30,312 |
Participants' deposits |
712 |
357 |
-- |
Foreign currency exchange
contracts |
-- |
-- |
52 |
Deferred tax liabilities |
1,835 |
-- |
2,087 |
Total liabilities |
66,027 |
68,289 |
32,451 |
Stockholders' equity |
48,786 |
56,505 |
55,908 |
Total liabilities and stockholders'
equity |
$114,813 |
$124,794 |
$88,359 |
|
AMBASSADORS GROUP,
INC. |
CONSOLIDATED STATEMENTS
OF CASH FLOWS |
(in
thousands) |
|
|
|
|
UNAUDITED |
|
March
31, |
|
2014 |
2013 |
Cash flows from operating
activities: |
|
|
Net loss |
$(7,551) |
$(8,059) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
Depreciation and amortization |
1,307 |
1,326 |
Stock-based compensation |
202 |
1,751 |
Deferred income tax benefit |
(1,484) |
(3,724) |
Loss on disposition and impairment of
property and equipment |
-- |
4 |
Excess tax shortfall from stock-based
compensation |
15 |
351 |
Change in assets and liabilities: |
|
|
Accounts receivable and other assets |
478 |
(500) |
Prepaid program costs and expenses |
(7,592) |
(9,197) |
Accounts payable, accrued expenses, and
other current liabilities |
(237) |
736 |
Participants' deposits |
34,227 |
37,443 |
Net cash provided by operating
activities |
19,365 |
20,131 |
|
|
|
Cash flows from investing
activities: |
|
|
Purchase of available-for-sale
securities |
(15,609) |
(15,633) |
Proceeds from sale of available-for-sale
securities |
120 |
189 |
Purchase of property and equipment |
(678) |
(606) |
Purchase of intangibles |
(82) |
(82) |
Net cash used in investing
activities |
(16,249) |
(16,132) |
|
|
|
Cash flows from financing
activities: |
|
|
Repurchase of common stock |
-- |
(487) |
Dividend payment to shareholders |
-- |
(1,017) |
Proceeds from exercise of stock
options |
-- |
5 |
Excess tax shortfall from stock-based
compensation |
(15) |
(351) |
Net cash used in financing
activities |
(15) |
(1,850) |
|
|
|
Net increase in cash and cash
equivalents |
3,101 |
2,149 |
Cash and cash equivalents, beginning of
period |
9,473 |
6,150 |
Cash and cash equivalents, end of
period |
$12,574 |
$8,299 |
Special Items
During the third quarter of 2013, the Company announced its
decision to restructure two of its travel programs believed to be
no longer financially viable in their current form – Discovery
Student Adventures and People to People China. During the
first quarter of 2014, the Company incurred additional expenditures
of approximately $0.1 million related to the continued transition
out of these travel programs.
In connection with the February 2013 resignations of two
executives, the Company incurred separation payments of
approximately $2.7 million recorded during the first quarter of
2013.
In addition, as previously disclosed, 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 Forms 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.
As a result of these events, the operations as presented in the
accompanying financial statements for the three months ended March
31, 2014 and 2013 do not necessarily 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, |
|
2014 |
2013 |
2014 |
2013 |
Amount before special
items |
$(7,310) |
$(6,663) |
$(0.44) |
$(0.39) |
Restructuring costs |
(108) |
-- |
-- |
-- |
Legal and other fees |
(181) |
547 |
(0.01) |
0.03 |
Separation payments |
-- |
(2,738) |
-- |
(0.16) |
Tax impact |
48 |
795 |
-- |
0.05 |
Amount per consolidated statement of
operations |
$(7,551) |
$(8,059) |
$(0.45) |
$(0.47) |
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 March 31, 2014 and
2013 (in thousands):
|
UNAUDITED |
|
March
31, |
December 31, |
|
2014 |
2013 |
2013 |
Cash, cash equivalents and short-term
available-for-sale securities |
$64,408 |
$55,933 |
$45,647 |
Prepaid program cost and expenses |
14,661 |
26,361 |
7,069 |
Less: Participants' deposits |
(60,589) |
(63,178) |
(26,362) |
Less: Accounts payable / accruals / other
liabilities |
(3,469) |
(5,055) |
(3,706) |
Deployable cash |
$15,011 |
$14,061 |
$22,648 |
CONTACT: Investor Relations:
Stacy Feit
Financial Relations Board
(213) 486-6549
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