Cengage Learning Hldgs Ii Inc · OTC:CNGO
Cengage Learning Hldgs Ii — Cengage Learning Holdings II — Q4 2023 Earnings Presentation
37 slides from Cengage Learning Hldgs Ii's earnings presentation, Jun 8, 2023
Slide 1: Fourth Quarter & Fiscal Year 2023 Investor Update
Fourth Quarter & Fiscal Year 2023 Investor Update June 8, 2023
Slide 2: Safe Harbor/Forward-looking statements
Safe Harbor/Forward-looking statements Cautionary Note Regarding Forward-Looking Statements The following slides and related discussion contain “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward- looking
Slide 3: Agenda
Agenda • Introduction Richard Veith, SVP, Treasurer • Business Update Michael Hansen, Chief Executive Officer • Financial Update Bob Munro, Chief Financial Officer Pooja R. • Q&A Cengage Work Takeyce W. Cengage Academic Michael C. Cengage Select
Slide 4: Business Update
Business Update Michael Hansen, Chief Executive Officer
Slide 5: Q4 Business Update
Q4 Business Update Strong fourth quarter closed out successful Fiscal 23 – FY23 proforma adjusted cash revenue growth of +6% with adjusted cash ELPP growth +7% All businesses contributed to FY23 revenue growth – +13% proforma growth in Work & Select ; Academic +1% ahead after strong Q4 (+5%) driven
Slide 6: Our Approach to Generative AI
Our Approach to Generative AI We see great We are confident We are focused Our AI Center of We are currently potential in that demand for on enhancing and Excellence is accelerating the generative AI branded, trusted expanding our developing an development of along two paths – content aligned to con
Slide 7: Financial Update
Financial Update Bob Munro, Chief Financial Officer
Slide 8: Financial Highlights
Financial Highlights Quarter Ended March 31 FY23 Adjusted Cash Revenue $1,476M up +6% on proforma basis $M FY22 FY23 Δ Δ Proforma¹ • Full year revenue ahead of guidance ($1,455-$1,470M), driven by strong fourth quarter, up +12% Adjusted Cash Revenue $346 $388 12% 11% • Revenue growth driven by Work
Slide 9: Full Year Segment Performance
Full Year Segment Performance¹ Adj. Cash Revenue ($M) FY22 FY23 % Growth % Proforma² Growth US Higher Ed $628 $597 (5%) (5%) International Higher Ed 123 130 5% 5% Secondary 150 184 23% 23% Cengage Academic $901 $911 1% 1% Cengage Work $60 $106 75% 13% Research 205 214 4% 4% English Language Teaching
Slide 10: Cengage Academic
Cengage Academic Full year revenues improve +1%, with strong growth in Secondary and solid progress in International offsetting slowing declines in US Higher Education US Higher Ed Academic Net Sales • Full year adjusted cash revenue down -5%, including –1% drag from US Higher Ed Net Sales licensing
Slide 11: Cengage Work
Cengage Work FY23 full year revenues exceeded $100M, growing 13% on a proforma basis; Investments accelerated revenue growth through Q4 FY23 and into FY24. Achieved break even ELPP in Q4 ed2go Work Net Sales Net Sales • FY23 net sales grew +17% driven by strong demand for advanced ed2go career train
Slide 12: Cengage Select
Cengage Select1 Full year revenue increased +13%, driven by outstanding year in ELT and second year of steady growth in Research Research Select Net Sales Research • Research revenue grew 4% driven by US, with strong archive and Net Sales 4% new database sales outweighing lower legacy e book sales 1
Slide 13: Summary of Cash Flows
Summary of Cash Flows FY23 Unlevered Free Cashflow of $252M • Temporary supply chain impacts $M FY22 FY23 Change increase working capital by $35-40M and depress operating cash conversion Adj. Cash ELPP 1 $ 325 $ 351 $ 26 by ~10% • Intentional build of paper/print inventory Less: Capex (32) (35) (3)
Slide 14: Liquidity & Net Debt
Liquidity & Net Debt As of Continued progress in deleveraging balance MAR 31, MAR 31, sheet over FY23 through ELPP growth, cash generation, debt repayment $M 2022 2023 • Gross leverage 6.1x (0.8X lower) • Net leverage 5.3x (0.5X lower) Cash and Cash Equivalents $ 348 $ 269 Repayment of $620M senior
Slide 15: Convertible Preferred Equity Issuance
Convertible Preferred Equity Issuance Investment led by Apollo completed on May 22, 2023; issuance amount of $530M with proceeds of $525M after 1% OID used to redeem $500M senior unsecured notes on June 7th 2023. Deal Highlights5 Proforma Cap Table Issuance of $530M with proceeds of $525M after 1% I
Slide 16: FY24 Full Year Outlook
FY24 Full Year Outlook Adjusted Cash Revenue: Adjusted Cash ELPP: Net Leverage: Expect steady growth over FY23 Anticipated ELPP growth and • Academic/Select FY24 growth Anticipating continued profit improved operating cash expected to moderate vs FY23 growth over FY23 performance to drive continued
Slide 17: Q&A
Q&A Thais A., Cengage Academic
Slide 18: Appendix
Appendix Sherrise R., Cengage Select
Slide 19: Definitions: Non-GAAP Financial Measures
Definitions: Non-GAAP Financial Measures We believe that certain non-GAAP financial measures provide useful information for evaluating our business performance. These non-GAAP measures are on a constant currency basis whereby we convert current period and prior period amounts from local currency to
Slide 20: Delivering on the digital growth strategy: FY23 digital sales of $1,053M
Delivering on the digital growth strategy: FY23 digital sales of $1,053M represent 73% of total Net Sales • Cengage Group – FY23 digital sales climb to 73%, expanding over FY22 Total Cengage Group Net Sales1 ($M) • Cengage Academic – Digital sales climb to 88% in US HED reflecting stable 1,337 1,272
Slide 21: FY22 proforma - FY23 Adjusted Cash ELPP bridge
FY22 proforma¹ - FY23 Adjusted Cash ELPP bridge FY23 revenue growth combined with corresponding gross margin contribution and savings initiatives fund investments across the business, offsetting inflation and post-COVID cost normalization +7% $22 $54 $351 $19 $329 $9 $26 $8 FY22 Proforma Gross Margi
Slide 22: Quarterly Cost Profile
Quarterly Cost Profile Total SG&A & Prepub¹ ($M) FY23 Actual FY22 Proforma² $803 Cost Summary Cost growth moderated to 1% $770 in Q4 with full run rate $211 $213 benefit of FY23 savings $204 initiatives realized in quarter $193 $191 $194 $192 $176 • COVID normalization costs included in prior year b
Slide 23: US Higher Education
US Higher Education Solid digital performance underpinned by strong Institutional sales growth across both IA and CU-I. Overall courseware activations flat, with Institutional growth offsetting declines in bundles and direct to student CU subscriptions Full Year FY23 Key US HED Stats Fiscal Year 202
Slide 24: US Higher Education – Sales by Product Type
US Higher Education¹ – Sales by Product Type Gross Sales Net Sales Sales by Product Type - Q4 FULL YEAR Q4 FULL YEAR US Higher Ed ($M) % % % % FY23 Growth FY23 Growth FY23 Growth FY23 Growth Cengage Unlimited $62.2 10% $176.9 -7% $61.6 10% $174.5 -7% Standalone 78.8 21% 216.7 16% 77.2 24% 210.5 18%
Slide 25: US Higher Education – Unit Analysis
US Higher Education¹ – Unit Analysis % of Units from Recurring Products FY23 Units by Product Type 88% 89% 93% Total Units 9.6M, Recurring 8.9M 11% 7% Non-Recurring 12% 3% 6% 7% Print Rental 9% Cengage Unlimited 3% 33% 24% 26% 30% 28% 32% 29% 33% ebooks/CU eText 25% 23% 24% 32% FY21 FY22 FY23 Studen
Slide 26: US Higher Education Trending Share Performance
US Higher Education Trending Share Performance Cengage digital strategy driving long-term share gain and outperformance of the market1 TTM Rest of Mkt CU launch changed Cengage trajectory; 8% TTM Cengage 8% underpinning 5 years of 4% Pre-CU Post-CU share gain and strong 3% +1% -2% outperformance1 +8
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures¹ Three Months Ended Three Months Ended March 31, B / (W) March 31, B / (W) 2023 2022 $ % 2023 2022 $ % Adjusted Revenue: Prepub Additions: Cengage Academic $ 210.7 $ 224.8 $ (14.1) -6.3% Cengage Academic $ 12.9 $ 14.3 $ 1.4 9.8% Cengage Work 25.5 16.5 9.0 54.5% Cengage Wo
Slide 28: Non-GAAP Financial Measures
Non-GAAP Financial Measures¹ Twelve Months Ended Twelve Months Ended March 31, B / (W) March 31, B / (W) 2023 2022 $ % 2023 2022 $ % Adjusted Revenue: Prepub Additions: Cengage Academic $ 884.2 $ 915.1 $ (30.9) -3.4% Cengage Academic $ 39.3 $ 38.0 $ (1.3) -3.4% Cengage Work 99.7 58.3 41.4 71.0% Ceng
Slide 29: Non-GAAP Cash Financial Measures
Non-GAAP Cash Financial Measures¹ Three Months Ended Three Months Ended March 31, B / (W) March 31, B / (W) 2023 2022 $ % 2023 2022 $ % Adjusted Cash Revenue: Prepub Additions: US Higher Ed $ 190.6 $ 181.0 $ 9.5 5.3% Cengage Academic $ 12.9 $ 14.3 $ 1.4 9.8% International Higher Ed 36.0 35.2 0.9 2.5
Slide 30: Non-GAAP Cash Financial Measures
Non-GAAP Cash Financial Measures¹ Twelve Months Ended Twelve Months Ended March 31, B / (W) March 31, B / (W) 2023 2022 $ % 2023 2022 $ % Adjusted Cash Revenue: Prepub Additions: US Higher Ed $ 596.7 $ 628.3 $ (31.6) -5.0% Cengage Academic $ 39.3 $ 38.0 $ (1.3) -3.4% International Higher Ed 129.8 12
Slide 31: GAAP Results
GAAP Results Fiscal Year Ended March 31, 2023 (in millions) 2023 2022 Revenues $ 1,423.5 $ 1,371.6 Cost of revenues, excluding amortization of pre-publication costs and identifiable intangible assets and depreciation stated below 609.0 575.4 Amortization of pre-publication costs 73.9 81.2 Amortizati
Slide 32: Non-GAAP Reconciliations
Non-GAAP Reconciliations¹ $M FY2021 FY2022 FY2023 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY GAAP Revenue 238 377 309 314 1,238 302 389 333 347 1,372 303 384 376 361 1,423 Impact of foreign currency 2 2 1 (2) 3 (1) (1) 1 - (1) 2 4 7 5 18 Adjusted revenue 240 379 309 313 1,241 300 388 334 348 1,371
Slide 33: Total SG&A & Prepub Reconciliation
Total SG&A & Prepub Reconciliation $M FY2022 FY2023 Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FY Additions to pre-publication costs $ 14 $ 16 $ 16 $ 27 $ 73 $ 14 $ 16 $ 18 $ 27 $ 75 Proforma SG&A1,2,3 162 175 176 185 698 179 178 185 186 728 Total Spend - Management Reporting $ 176 $ 191 $ 192 $ 211 $ 770 $ 193 $ 1
Slide 34: Balance Sheet
Balance Sheet As of As of March 31, 2023 March 31, 2022 Change March 31, 2023 March 31, 2022 Change (in millions) Assets Liabilities and Stockholders' Deficit Cash and cash equivalents $ 269.3 $ 348.0 $ (78.7) Accounts payable and accrued expenses $ 364.7 $ 331.3 $ 33.4 Accounts receivable, net 188.
Slide 35: Summary of Cash Flows
Summary of Cash Flows $M FY22 FY23 Change Summary of cash flows: Net cash provided by operating activities 206 158 (48) Net cash used in investing activities (296) (132) 164 Net cash used in financing activities (19) (103) (84) Impact on cash and cash equivalents from changes in foreign currency (0)
Slide 36: Q4 Segment Performance
Q4 Segment Performance¹ Adj. Cash Revenue ($M) Q4 FY22 Q4 FY23 % Growth % Proforma² Growth US Higher Ed $181 $191 5% 5% International Higher Ed 35 36 2% 2% Secondary 12 13 5% 5% Cengage Academic $229 $240 5% 5% Cengage Work $19 $31 57% 25% Research 47 49 5% 5% English Language Teaching 29 41 39% 39%
Slide 37: Quarterly Segment Performance FY21 – FY23
Quarterly Segment¹ Performance FY21 – FY23 Adj. Cash Revenue ($M) Q1 FY21 Q2 FY21 Q3 FY21 Q4 FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q3 FY23 Q4 FY23 US Higher Ed $75 $285 $101 $179 $85 $251 $111 $181 $77 $224 $105 $191 International Higher Ed 15 45 26 31 22 40 26 35 24 40 30 36 Secondar
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