Revenue Increased 33% to $13.6 Million Adjusted Cash Flow from Operations Increased 32% to $5.0 Million Adjusted Diluted EPS was $0.10 Company Reiterates 2010 Guidance

Archipelago Learning, Inc. (Nasdaq:ARCL), a leading subscription-based online education company, today announced financial results for the quarter ended June 30, 2010.

Second Quarter Highlights (2Q10 vs. 2Q09):

Archipelago Learning Including EducationCity:

  • Revenue increased 33% to $13.6 million
  • Adjusted cash flow from operations (non-GAAP) increased 32% to $5.0 million (excluding approximately $3.3 million of EducationCity acquisition related cash costs)
  • Invoiced sales (non-GAAP) increased 33% to $15.7 million
  • Adjusted EBITDA (non-GAAP) increased 30% to $7.8 million
  • Adjusted diluted earnings per share was $0.10

Archipelago Learning Excluding EducationCity:

  • Revenue increased 27% to $13.1 million
  • Invoiced sales (non-GAAP) increased 23% to $14.6 million
  • Adjusted EBITDA (non-GAAP) increased 21% to $7.2 million

Tim McEwen, chief executive officer, stated, “We are very pleased with our second quarter results, as our high impact and low cost value proposition continued to resonate with educators, even in a time of difficult school budget pressures. In particular, sales of our core Study Island program were strong in June, as school districts spent their remaining 2010 fiscal year Title I and district funds and began to prepare for the next school year.”

“EducationCity has performed well since we acquired it on June 9th,” McEwen continued, “with invoiced sales of $1.1 million and GAAP revenue of $0.5 million. Our integration of EducationCity continues to progress as planned, and we are enthusiastic about their future prospects and new programs. In particular, we are excited about several new programs that EducationCity has under development, including a new program for English Language Learners launching this autumn.”

McEwen concluded, “While the school funding environment remains challenging, we continue to see growing interest in our products and believe we are well positioned to benefit from the educational reform driven by school budget pressures, the shift from print to online digital educational solutions, the integration of curriculum and assessment and the demand for cost effective differentiated instruction to improve student performance. We are off to a strong start in the third quarter as we experienced record sales in July. Our business is seasonal in nature and July has historically been our largest sales month. In addition, our v4 high school enhancements and new common core products are being released this month in time for the start of the new school year, and we are reiterating our previously provided full-year guidance.”

On a consolidated basis, Archipelago Learning and EducationCity delivered the following results for the second quarter:

Revenue increased 33% to $13.6 million and invoiced sales increased 33% to $15.7 million from the second quarter of 2009 due to both strong organic growth and the impact of the acquisition of EducationCity in June 2010. Organic revenue growth of 27% was driven by the recognition of the strong invoiced sales generated in the current and previous quarters. Organic invoiced sales growth of 23% reflected continued strong execution of the Company’s sales force in the second quarter, including in our top ten states where invoiced sales increased 25% over prior year and in high schools where invoiced sales grew 59% over prior year. EducationCity contributed $0.5 million of revenue and $1.1 million of invoiced sales in the period.

Adjusted Cash Flow from Operating Activities increased 32% to $5.0 million from the second quarter 2009 (excluding approximately $3.3 million of EducationCity acquisition related cash costs), as a result of the Company’s continued strong operating performance and the acquisition of EducationCity. 

Deferred Revenue as of June 30, 2010 was $47.4 million, an increase of 79% from June 30, 2009 and an increase of 38% from March 31, 2010. The increase in deferred revenue over prior periods was the result of strong invoiced sales growth and the acquisition of EducationCity.

Income from Continuing Operations decreased 81% to $0.6 million from the second quarter 2009. The decrease was the result of $3.3 million of one-time expenses related to the EducationCity acquisition. Excluding these acquisition related expenses, income from continuing operations benefited from increased revenue partially offset by increased cost of revenue and operating expenses in the following areas: planned staffing increases across most departments, greater stock-based compensation expense related to options issued in connection with the Company’s November IPO, increased professional fees and other expenses related to being a public company and modest post-acquisition operating expenses for EducationCity.

Adjusted EBITDA increased 30% to $7.8 million from the second quarter 2009. Adjusted EBITDA as a percent of invoiced sales decreased slightly to 49% from 50% in the second quarter of 2009. The increase in adjusted EBITDA was the result of our invoiced sales growth, partially offset by increased costs of revenue and operating expenses.

Net Income (Loss) from continuing operations was $(0.1) million compared to $2.4 million in the second quarter 2009. The net loss from continuing operations was primarily due to the transaction related expenses from the EducationCity acquisition. Excluding acquisition related expenses, stock-based compensation, the gain (loss) on the interest rate swap, and other non-recurring items, second quarter of 2010 adjusted net income from continuing operations was $2.5 million. Growth in adjusted net income was negatively impacted by the higher applicable income tax rate resulting from our conversion from a limited liability company to a C corporation in connection with our November IPO. If our income tax rate of 37% in the second quarter of 2010 was applied to the second quarter of 2009, our adjusted net income from continuing operations would have increased by 34% from the prior year period.

Earnings per Diluted Share (Loss per Share) was $(0.01) and adjusted diluted EPS was $0.10. There were 24.2 million weighted-average diluted shares outstanding for the second quarter of 2010.

Other Balance Sheet Highlights: At June 30, 2010, cash and cash equivalents totaled $23.3 million as compared to $15.9 million at June 30, 2009 and $58.7 million at March 31, 2010. The decrease from March 31, 2010 was primarily due to cash used for the EducationCity acquisition, offset by additional borrowings. Total debt outstanding was $86.2 million at June 30, 2010. The increase in total debt outstanding was due to increased borrowing to fund the EducationCity acquisition. The market value of the Company’s interest rate swap was $0.5 million as compared to $0.9 million at March 31, 2010.

Fiscal 2010 Outlook

As of August 11, 2010, Archipelago Learning is reiterating guidance for the fiscal year 2010.

On a combined basis including EducationCity, Archipelago Learning currently expects the following for the fiscal year ending December 31, 2010:

  • Revenue1 of $58 to $62 million
  • Adjusted diluted EPS2 of $0.34 to $0.38
  • Diluted EPS1 of $0.30 to $0.34
  • Cash flow from operations3 of $27 to $29 million
  • Capital expenditures of approximately $3 million
  • Total schools of 35,000 to 38,0004

(1)   Revenue and diluted EPS shown before any write-down to EducationCity’s deferred revenue that may result from purchase adjustments at close and non-recurring acquisition related expenses of $3.3 million (refer to the reconciliations of non-GAAP measures for Adjusted Revenue and Adjusted Net Income and Diluted EPS included in this press release).

(2)   Adjusted diluted EPS excludes stock compensation expense, the gain/loss on our interest rate swap, any non-cash deferred revenue write-down resulting from the EducationCity acquisition and acquisition related expenses of $3.3 million (refer to the reconciliations of non-GAAP measures for Adjusted Revenue and Adjusted Net Income and Diluted EPS included in this press release).

(3)   Cash flow from operations excludes non-recurring acquisition related expenses of $3.3 million.

(4)   Assumes approximately 25% overlap of Study Island and EducationCity Schools in the U.S.

TeacherWeb Divestiture

TeacherWeb was divested in November 2009 and has been classified as a discontinued operation for financial reporting purposes. As a result, the income statement related metrics discussed herein, such as revenue, invoiced sales, income from continuing operations, adjusted EBITDA, and net income and earnings per share from continuing operations exclude TeacherWeb in all periods.  Cash flow and balance sheet related results discussed herein include TeacherWeb except where specifically noted.

Non-GAAP Financial Measures

This press release contains six non-GAAP financial measures: adjusted revenue, invoiced sales, adjusted EBITDA, adjusted cash flow from operations, adjusted net income and adjusted diluted EPS. 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.

Invoiced sales are recognized in the period in which a customer places a purchase order and an invoice is issued, which may be in a different period 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 GAAP revenue in a given period is equal to the change in the Company’s deferred revenue balance for that period.

Adjusted revenue differs from revenue in that it includes the impact of purchase accounting adjustments to deferred revenue.

Adjusted EBITDA, adjusted net income and adjusted diluted EPS differ from the corresponding GAAP measures in that they exclude stock-based compensation expense, gains or losses on the Company’s interest rate swap and other non-recurring items, as well as the change in deferred revenue, interest, tax, depreciation and amortization expense, in the case of adjusted EBITDA. Reconciliation tables of GAAP to non-GAAP financial measures are included at the end of this release.

Adjusted cash flow from operations differs from cash flow from operations in that it excludes the EducationCity acquisition related cash costs.

Management believes that these non-GAAP measures provide useful information to investors regarding certain financial and business trends relating to the Company’s 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 adjusted EBITDA, adjusted net income and adjusted diluted EPS do not account for certain expenses, their utility as a measure of operating performance has material limitations. In addition, the definitions of these non-GAAP financial measures may vary among companies and industries, and they may not be comparable to other similarly titled measures used by other companies. 

Conference Call Information

Archipelago Learning will host a conference call to discuss its second quarter fiscal 2010 results and 2010 outlook at 8:00 a.m. Eastern Time on Thursday, August 12, 2010. Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 approximately ten minutes prior to the start of the call. A replay of this call will be available starting around 11:00 a.m. Eastern Time and will remain active until August 25, 2010. The replay can be accessed by dialing (877) 660-6853 and entering account number 3055 and conference code 353839. The conference call will be also webcast and can be accessed via the Investor Relations section of the Company’s website at http://www.archipelagolearning.com. future developments or otherwise, except as may be required by law.

ARCHIPELAGO LEARNING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS – UNAUDITED (in thousands, except share data)         As of June 30,  2010 As of December 31, 2009 Assets     Current assets:     Cash and cash equivalents  $ 23,261 $ 58,248 Accounts receivable, net  11,292 7,535 Deferred tax assets  2,150 2,528 Prepaid expenses and other current assets  4,010 1,809 Total  40,713 70,120 Property and equipment, net  3,087 2,620 Goodwill  166,160 94,373 Intangible assets, net  38,165 12,327 Investment  6,446 6,446 Notes receivable  4,931 4,931 Other long-term assets  1,817 1,718 Total assets  $ 261,319 $ 192,535       Liabilities and Stockholders’ Equity     Current liabilities:     Accounts payable – trade  $ 1,461 $ 1,254 Accrued employee-related expenses  1,875 2,033 Other accrued expenses  655 927 Taxes payable  82 625 Deferred tax liabilities  442 — Deferred revenue  35,470 31,181 Revolving credit facility  10,000 — Current portion of note payable to related party  2,414 — Current portion of long-term debt  850 700 Interest rate swap  532 1,149 Total  53,781 37,869 Long-term deferred tax liabilities  13,375 5,093 Long-term deferred revenue  11,970 5,262 Long-term note payable to related party, net of current and discount  2,290 — Long-term debt, net of current  75,338 60,876 Other long-term liability  425 425 Total liabilities  157,179 109,525 Commitments and contingencies     Stockholders’ equity:     Preferred stock ($0.001 par value, 10,000,000 shares authorized, none issued and outstanding at June 30, 2010 and December 31, 2009)  — — Common stock ($0.001 par value, 200,000,000 shares authorized, 26,358,480 and 25,110,255 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively)  26 25 Additional paid-in capital  94,395 76,072 Accumulated other comprehensive income  884 — Retained earnings  8,835 6,913 Total stockholders’ equity  104,140 83,010 Total liabilities and stockholders’ equity  $ 261,319 $ 192,535   ARCHIPELAGO LEARNING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – UNAUDITED (in thousands, except share and per share data)             Three Months Ended June 30,  Six Months Ended June 30,    2010 2009 2010 2009 Revenue  $ 13,597 $ 10,253 $ 26,146 $ 20,200 Cost of revenue  1,029 685 1,942 1,435 Gross profit  12,568 9,568 24,204 18,765 Operating Expense:         Sales and marketing  4,146 3,316 7,968 6,258 Content development  1,226 752 2,267 1,588 General and administrative  6,591 2,301 9,380 4,334 Total  11,963 6,369 19,615 12,180 Income from continuing operations  605 3,199 4,589 6,585 Other income (expense):         Interest expense  (879) (637) (1,649) (1,349) Interest income  150 6 303 14 Foreign currency loss  (99) — (99) — Derivative gain (loss)  27 (81) (46) (169) Total  (801) (712) (1,491) (1,504) Net (loss) income from continuing operations before tax  (196) 2,487 3,098 5,081 (Benefit) provision for income tax  (51) 117 1,176 232 Net (loss) income from continuing operations  (145) 2,370 1,922 4,849 Income from discontinued operation before tax  — 83 — 83 Benefit from income tax on discontinued operation  — (42) — (99) Net income from discontinued operation  — 125 — 182 Net (loss) income  $ (145) $ 2,495 $ 1,922 $ 5,031 Earnings (loss) per share:          Basic:         Continuing operations  $ (0.01) $ 0.12 $ 0.08 $ 0.24 Discontinued operation  — 0.01 — 0.01 Total  $ (0.01) $ 0.13 $ 0.08 $ 0.25 Diluted:         Continuing operations  $ (0.01) $ 0.12 $ 0.08 $ 0.24 Discontinued operation  — 0.01 — 0.01 Total  $ (0.01) $ 0.13 $ 0.08 $ 0.25 Weighted-average shares outstanding:         Basic  24,181,680 19,965,866 24,019,902 19,965,866 Diluted  24,181,680 19,965,866 24,403,727 19,965,866   ARCHIPELAGO LEARNING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – UNAUDITED (in thousands)        Six Months Ended June 30,    2010 2009 Cash flows from operating activities     Net income  $ 1,922 $ 5,031 Adjustments to reconcile net income to net cash provided by operating activities:     Amortization of debt financing costs  149 101 Depreciation and amortization  1,602 1,307 Stock-based compensation  928 212 Unrealized gain on interest rate swap  (617) (414) Deferred income taxes  1,041 — Deduction of net income from discontinued operation  — (182) Operating cash used by discontinued operation  — (8) Changes in operating assets and liabilities, net of acquisition, disposition and discontinued operation:     Accounts receivable  317 13 Prepaid expenses and other  (1,194) (455) Accounts payable  918 (10) Accrued expenses  (1,054) (787) Deferred revenue  132 (206) Other long-term liabilities  17 230 Net cash provided by operating activities  4,161 4,832 Cash flows from investing activities     Purchase of EducationCity  (61,300) — Purchase of property and equipment  (424) (394) Net cash used in investing activities  (61,724) (394) Cash flows from financing activities     Proceeds from supplemental term note  15,000 — Proceeds from revolver  10,000 — Payment of debt financing costs  (804) — Tax distributions to members  — (768) Purchase of common stock from ESPP  3 — Payment of offering costs  (1,460) — Payments on term note  (388) (874) Net cash provided by (used in) financing activities  22,351 (1,642) Effect of foreign exchange on cash and cash equivalents  225 — Net change in cash and cash equivalents  (34,987) 2,796 Beginning of period  58,248 13,144 End of period  $ 23,261 $ 15,940 Supplemental information     Cash paid for interest  $ 1,495 $ 1,371 Cash paid for income taxes  $ 1,254 $ 73 Non-cash investing and financing activities     Accrued purchases of property and equipment  $ 252 $ 125 Issuance of common stock for purchase of EducationCity  $ 17,393 $ — Issuance of note payable for purchase of EducationCity  $ 4,687 $ —   ARCHIPELAGO LEARNING, INC. RECONCILIATIONS OF NON-GAAP MEASURES – UNAUDITED (in thousands)             Three Months Ended June 30,  Six Months Ended June 30,    2010 2009 2010 2009 Invoiced Sales:         Study Island new customers  $ 3,850 $ 3,618 $ 7,353 $ 6,550 Study Island existing customers  10,521 7,933 17,254 12,839 Study Island other sales  233 286 567 605 EducationCity  1,104 — 1,104 — Total  15,708 11,837 26,278 19,994 Change in deferred revenue  (2,111) (1,584) (132) 206 Revenue  $ 13,597 $ 10,253 $ 26,146 $ 20,200 Adjusted Revenue:         Revenue  $ 13,597 $ 10,253 $ 26,146 $ 20,200 Impact of purchase accounting adjustment to deferred revenue(1) 224 — 224 — Adjusted revenue  $ 13,821 $ 10,253 $ 26,370 $ 20,200 ____________                   (1)  Purchase accounting under U.S. GAAP requires that deferred revenue assumed in an acquisition be recorded and subsequently recognized at its fair value at the time of the acquisition. Consequently, we do not recognize the full amounts paid by customers for acquired subscriptions. This adjustment reflects the difference between the amount we recognized in revenue and the full amounts paid by customers for that revenue.             Three Months Ended June 30,  Six Months Ended June 30,    2010 2009 2010 2009 Adjusted EBITDA:         Income from continuing operations  $ 605 $ 3,199 $ 4,589 $ 6,585 Depreciation and amortization  903 665 1,602 1,307 Change in deferred revenue  2,111 1,584 132 (206) Stock-based compensation(2) 520 86 928 212 Investments / permitted acquisition expense(3) 3,290 257 3,293 257 Professional services and severance(4) 98 112 136 230 Unusual, non-recurring charges(5) 226 73 263 155 Adjusted EBITDA  $ 7,753 $ 5,976 $ 10,943 $ 8,540 ____________                   (2)  Stock-based compensation includes non-cash compensation expense recorded in respect of shares or options issued to our employees or directors. (3)  Investments and permitted acquisition expense includes fees and expenses in connection with investments or acquisitions permitted by our credit facility. (4)  Represents recruitment costs associated with the hiring of our SVP Finance, severance costs, valuation study costs, contract labor fees for an international market study, and accounting and legal costs incurred in preparation for our IPO. (5)  Unusual, non-recurring charges as defined by our credit agreement include agency fees paid to the agents under our credit facility, expense reimbursements to Providence Equity Partners permitted under our credit facility, costs related to the move of our corporate offices, non-executive recruiting fees, relocation costs, retention bonuses, bank fees and bad debt accrual in addition to those line items disclosed separately above.   Three Months Ended June 30,    2010 2009   Dollars  Diluted EPS  Dollars  Diluted EPS    (In thousands, except EPS) Adjusted Net Income and Diluted EPS:         Net (loss) income from continuing operations  $ (145) $ (0.01) $ 2,370 $ 0.12 Stock-based compensation  520 0.02 86 — Derivative (gain) loss  (27) — 81 — Investments / permitted acquisition expense  3,290 0.13 257 0.01 Impact of purchase accounting adjustment to deferred revenue(1) 224 0.01 — — Professional services and severance  98 0.01 112 0.01 Corporate office move  38 — — — Tax impact of above adjustments(2) (1,544) (0.06) — — Adjusted net income and diluted EPS  $ 2,454 $ 0.10 $ 2,906 $ 0.14             Six Months Ended June 30,    2010 2009   Dollars  Diluted EPS  Dollars  Diluted EPS    (In thousands, except EPS) Adjusted Net Income and Diluted EPS:         Net income from continuing operations  $ 1,922 $ 0.08 $ 4,849 $ 0.24 Stock-based compensation  928 0.04 212 0.01 Derivative loss  46 — 169 0.01 Investments / permitted acquisition expense  3,293 0.13 257 0.01 Impact of purchase accounting adjustment to deferred revenue(1) 224 0.01 — — Professional services and severance  136 — 230 0.01 Corporate office move  38 — — — Tax impact of above adjustments(2) (1,738) (0.07) — — Adjusted net income and diluted EPS  $ 4,849 $ 0.19 $ 5,717 $ 0.28 ____________                   (1)  Purchase accounting under U.S. GAAP requires that deferred revenue assumed in an acquisition be recorded and subsequently recognized at its fair value at the time of the acquisition. Consequently, we do not recognize the full amounts paid by customers for acquired subscriptions. This adjustment reflects the difference between the amount we recognized in revenue and the full amounts paid by customers for that revenue. (2)  The tax impact of the adjustments is calculated using the Company’s effective tax rate of 37.25% and 0% for the six months ended June 30, 2010 and 2009, respectively.   ARCHIPELAGO LEARNING, INC. COMPUTATION OF DILUTED EPS – UNAUDITED (in thousands)             Three months ended June 30,    2010 2009   Net Income  Shares  Net Income  Shares  Continuing operations:         Net (loss) income  $ (145) 25,409 $ 2,370 19,966 Less: Income attributable to restricted shares  — (1,227)     Net (loss) income available to common stockholders  (145) 24,182     Basic (loss) earnings per share  $ (0.01)   $ 0.12   Dilutive effect of restricted common stock    —     Diluted (loss) earnings per share  $ (0.01) 24,182 $ 0.12               Six months ended June 30,    2010 2009   Net Income  Shares  Net Income  Shares  Continuing operations:         Net income  $ 1,922 25,258 $ 4,849 19,966 Less: Income attributable to restricted shares  (94) (1,238)     Net income available to common stockholders  $ 1,828 24,020     Basic earnings per share  $ 0.08   $ 0.24   Dilutive effect of restricted common stock    384     Diluted earnings per share  $ 0.08 24,404 $ 0.24  

Similar Posts:

Share