Monday, February 25, 2008

Proquest: In Case You Care

Proquest, hereafter referred to as Voyager Learning Company is for sale. The company announced they had retained Allan & Co. to determine strategic options for the company. So far has Voyager fallen, that this news barely caused a ripple of notice from industry outlets. No doubt the bank will already have done the rounds with all educational publishers to gin up some interest. As some will recall, the company has sold all saleable assets of the company over the past four years but it has also been embroiled in accounting irregularities, had its stock delisted and is also the target of copyright and shareholder lawsuits. This is pretty grim news for a company with such a long and illustrious history which included brands such as Bell & Howell, UMI and even R.R. Bowker. (If you are not paying attention they join CQ Press and Haights Cross as recently 'in-play' educational publishers).

The company finally produced their 2005 10K on August 31 last year and announced a few weeks ago that they would produce audited 2006 accounts by the end of first quarter 2008. The only good news about this appalling schedule is that they “anticipate much of the 2007 work will be done in parallel with the 2006 work” and thus may be almost caught up by April.

There have been a number of management changes as a result of the divestitures and the irregularities. The company is now run by Richard Surratt, Voyager Learning Company's President and CEO. The remaining business operations of the company are now in Dallas and Voyager has reduced to 11 the number of employees still in Ann Arbor. (Imagine the morale there). As the accounting becomes clearer so will the current net value of the business; further asset write downs are possible and whether these result in significant income statement charges which in turn result in transferable tax credits remains to be seen. The company did revalue goodwill as a result of their restatement resulting in a $180mm charge to the 2004 income statement.

The company appears to be performing satisfactorily and while they have completed a reinvestment of their core product line they operate in a very competitive marketplace in a down market. The company expects to have $75million to $85million in cash by year end which is lower than planned due to the loss of a copyright lawsuit ($7mm) and lower full year revenue expectations ($3mm).

The company faces a consolidated shareholder suit and the company expects discovery to start sometime in early 2008 and eventually go to trial in 12-24mths. They have lost one attempt to have the suit dismissed. The law issue complicates matters significantly not least because in reading some of the employee agreements (bolstered by stay bonuses) they expect a sale of the company within the next 12mths. Who will be around to defend the lawsuit and who will pay for that? The company also have a derivative law suit that "asserts claims for breaches of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, and unjust enrichment." and "breaches of fiduciary duty, abuse of control, gross mismanagement, constructive fraud, and unjust enrichment" (10k). (Sounds like someone checked every box on the form).

The company combines Voyager Expanded Learning, ExploreLearning and Learning A to Z into the category “Voyager Operating”. The following is from their earnings conference call:
For the three quarters ending September 30, 2007, the Voyager Operating business had estimated and preliminary revenue of $87 million, Earnings from Continuing Operations before Interest and Income Tax, which is referred to here are as EBIT, of $10 million and EBITDA of $26 million. This compares to preliminary revenue of $94 million, EBIT of $13 million and EBITDA of $30 million for the same nine month period of 2006. Due to Q3 results coming in less than expected, we are adjusting our previously issued full year guidance to a range of $106 to $112 million in revenue versus previous guidance of $116 to $124 million. We project a resulting EBIT range of $7 to $10 million versus the original guidance of $10 to $13 million. And lastly we are updating our EBITDA guidance to a range of $29 to $32 million versus original guidance of $32 to $35 million.
Reviewing their 2005 10K shows how significantly the company has been transformed.

  • Net sales of $545.9million versus $439.6mm in 2004
  • EBITDA of $28.9mm versus $(149.1)mm in 2004 which included a goodwill impairment charge of $180mm
  • Full year revenues for Proquest Education (Voyager Operations) were $91mm in 2005
  • Proquest Information & Learning revenues were $271.4mm. This is the business unit sold to Cambridge Information Group for the bargain basement price of $218mm in February 2007. Operating income may be a loss of around $10mm - hard to say given the presentation.
  • 2005 revenues for the automotive group were $183mm and this unit was sold for approximately $490mm. Go figure.


Allan & Co. Press Release


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