Voyager Learning Bought by Veronis (Cambium)

Troubled educational publisher Voyager Learning has been acquired by educational investment vehicle Cambium. This represents a rather ignominious end to what was once a billion dollar information company but for management and staff perhaps they will be able to look forward to a more productive and stable future. Here is the press release:

Voyager Learning Company (PinkSheets: VLCY) , a publisher of education materials and provider of education solutions for the K-12 market, today announced the signing of a definitive merger agreement to combine its business with Cambium Learning, Inc., an education company serving the needs of at-risk and special student populations in the Pre-K through grade 12 market. In 2008, Cambium Learning had revenues of approximately $100 million and Voyager Learning Company reported $98.5 million in revenues. The combination of the companies' businesses will create a leading provider of education intervention services in the United States.

The business combination will be effected through a newly-formed company, Cambium-Voyager Holdings, Inc., which will acquire both companies and issue shares in the combined company to stockholders of each of Voyager Learning Company and Cambium Learning. Cambium-Voyager Holdings will be majority owned by VSS-Cambium Holdings III, LLC, which will be majority owned by Veronis Suhler Stevenson, a leading private equity investor in the information, education and media industries and current owner of Cambium Learning. Upon completion of the mergers, Cambium-Voyager Holdings will be a public company, and anticipates having its common stock approved for listing on the NASDAQ Global Market.

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.

Documents:

Allan & Co. Press Release

10K

Voyager to Take $45mm Charge

Voyager Learning will take a $35-45mm non-cash charge against its 2006 operating results as a result of the sale of Proquest Information and Learning. PQIL was sold in 2007 to Cambridge Information Group for $222mm. The write down represents 20% of the value of the business unit and in retrospect it is hard to understand how that purchase price could have been effectively negotiated given the current accounting disclosures. On the earnings call last week, Mr. Richard Surratt, Voyager Company's President and CEO noted that they will also take a non-cash charge against goodwill for the purchase of Voyager. In November, Mr. Surrat noted that they expected to have their 2006 10-Qs and 10-K competed by the end of the first quarter 2008; however, they are six weeks behind and do not expect to have that work completed until mid-May. They do expect to have their financial reports for 2007 completed by July.

Mr. Surratt went on to note the status of several lawsuit against the company but there is little change here since the last update in November. He was joined on the call by Ron Klausner, President, and Brad Almond, CFO, of Voyager Expanded Learning.

On an operating basis the company appears to be performing consistently and is stable given a challenging operating environment. Mr. Almond commented on the full year results:

For the fiscal year ending December 29, 2007, the Voyager operating business had preliminary revenue of $110 million, earnings before interest and taxes, or EBIT, of $8 million and earnings before interest, taxes, depreciation and amortization, or EBITDA, of $30 million. These three results each fall within the guidance we gave in November. This compares to 2006 preliminary revenue of $ 115 million, EBIT of $ 6 million and EBITDA of $ 30 million.

In his comments, Mr Klausner concluded the call with a number of comments about the operating environment faced by the company.

We have a terrific track record in developing capabilities that address very difficult problems. While some of our competitors are creating uncertainty and doubt about us as a result of the board's decision to consider strategic alternatives, we are encouraged by how well these new capabilities have been received in the market. Based on the explosive growth in usage of Ticket to Read and the early feedback on the redesign of Passport, we continue to be optimistic that our focus on researched based curriculum, high levels of implementation support, embedded professional development, and web based practice will be rewarded.

The company expects to continue their gradual operating improvement with anticipated 2008 revenue in the range of $111 to $119 million, EBIT between $6 and $10 million, and EBITDA between $28 and $32 million.

Call Transcript

Cambium Learning (Voyager) Makes Executive Changes

The fun never stops in education publishing these days. The Dallas based education content and technology company Cambium Learning Group announced senior level executive changes last week with their CEO and CFO leaving the company. Cambium comprises three businesses: Voyager, a comprehensive intervention business; Sopris, a supplemental solutions business; and Cambium Learning Technologies, which includes ExploreLearning, IntelliTools, Kurzweil and Learning A-Z. Cambium will have been negatively impacted by the general slow down (some say collapse) of the US K-12 market over the past three years.

Last week the company announced the resignations of CEO Ron Klausner and CFO Brad Almond. In both cases internal candidates were designated as replacements and both resigned their board positions as did board member Vernon Johnson. John Campbell who had been SVP and President of the Cambium Learning Technologies unit was named CEO.  Barbara Benson, currently the Controller and Principal Accounting Officer of the Company was named CFO. Johnson's position on the board was taken by Joe Walsh who was also named Chairman of the Board. Walsh has clearly been brought in as an executive chairman and in a change management role. There is more on the changes in the following 8K: SEC.GOV (8K Statement)

Over the past several years revenues have been up and down at Cambium but 2012 was clearly a painful year for the company as this summary indicates:

Cambium Learning Group, Inc 10K

Voyager was purchased by Veronis in 2009

MediaWeek (Vol 2, No 11): Voyager Learning, ReedElsevier, CBS Radio, Libraries

Near Norwich, Bertrams were sold for £8.6mm and all 600 staff were kept on. A remarkable event given the state of UK bookselling. Smiths News is the purchaser. Reed is paying Pat Tierney a £2.4m bonus and The Times suggests shareholders will be pissed. Tierney ran the educational unit (Harcourt) which Reed sold for a large premium over what they purchased it for. In addition, Tierney deferred retirement to take care of the sale process. A good backgrounder on how legal publishing works from a taxonomy and text mining perspective. (Legal Technology). ReedElsevier's earning call transcript (SeekingAlpha).

As far as the 2008 financial performance, 15% earnings growth and that is our highest for many years, and I think in this market, it is an excellent performance. Good above-market revenue growth we’ve seen for Elsevier, LexisNexis, and Reed Exhibitions, our core businesses. All three of those businesses, I think, did very well in terms of organic revenue growth.

Our focus in the last two or three years on accelerating margin improvement is paying off with 110% basis point margin improvement. We had a record year in terms of cash conversion, 102% of operating profit into free cash flow, that’s just £1 billion, which is an extraordinary number of free cash flow. Return on capital employed rose for the fifth year in a row. It is now about 12% and obviously significantly ahead of our cost for capital, and I think after the 1.5 billion corporate bond issue in January and the renegotiation of the revolving credit facility, we are now financially in a good position and with well-spaced debt maturities going forward. - Sir Crispin Davis

A shareholder suit against the remaining parts of what was Proquest and is now Voyager Learning is going ahead. (Law360). Voyager also announced their full year 2008 results (Press Release):

• Net sales for 2008 were $98.5 million, a decrease of 10 percent from net sales for 2007 of $109.6 million.
• Gross profit decreased $10.8 million in fiscal 2008 to $62.6 million compared to $73.4 million in fiscal 2007. The gross profit margin also decreased to 63.5 percent in 2008 compared to 67.0 percent in fiscal 2007.
• Loss from continuing operations before interest, other income (expense) and income taxes was $83.3 million in fiscal 2008 compared to $104.4 million in fiscal 2007. The Company had adjusted EBITDA, reflecting ongoing business operations, of $15.8 million in 2008 compared to $28.7 million in 2007, where adjusted EBITDA excludes depreciation and amortization expense, goodwill impairment charges, costs to terminate leases in Ann Arbor, Michigan, and corporate overhead costs which were predominantly for restatement related activities in 2007 and 2008.

The good news is the company is 'all caught up' in their long running financial reporting saga. (PND) The company is still looking to be acquired. The Chronicle reports on belt tightening in the library world (this year and next will be tough for vendors).

Greg Doyle, electronic resources program manager of the Orbis Cascade Alliance, in Portland, Ore., describes his group as "a buying club" that represents 36 academic libraries at public and private institutions in Oregon and Washington. I buttonholed him after he made lengthy stops at the Oxford and Ebsco exhibits.

Mr. Doyle is not afraid to use the word "dire" to describe the economic situation that faces his alliance's members. "Right now everybody's budget is terrible," he said. Many don't yet know just how bad the cuts will be. To prepare for the worst, though, they "are actively identifying databases to cut."

HyperLinked data from Tim Berners-Lee (TED Video). There is also a related video from 2006 meeting about using data sets in new ways which is very interesting. (TED Video) The library of the future being built in Palo Alto? Not really but this is an interesting article on how (public) libraries will evolve from an unusual source. I liked this bit:

Loertscher teaches his library-science students to use the "learning common" tool, in which an information professional sits in on an online conversation, helping teachers and students who have created assignments and projects on iGoogle pages. The librarian in coming decades "will burrow right into the center of where the clients are now," commenting on assignments and offering reference and research materials that support projects, Loertscher predicted. In his model of the future, the librarian goes into the student's space, rather than the student coming to the building, he said. "It's very proactive and moving into the space where kids (are comfortable). You have to take their social-networking skills and bend them over into their learning skills," he said.

Some lessons to be learned in the way CBS is managing their radio stations and the seemingly misguided understanding of their key market. (CrunchGear).

We now turn to Mr. Bouloukos’ comment, that young people—most of you guys are young people, I would guess!—are “using the radio to discover today’s most popular music.” First off, that wording is just wrong. If a song is already popular—remember, 92.3 Now will only only play “hit music”—then the odds are that people have already heard it before; in other words, hit music is already popular! A song becomes popular when a lot of people know it, and enjoy it. If a song is popular, then people aren’t, by definition, “discovering” it! (Amateur Hour at CBS Radio, apparently.) Even giving Mr. Bouloukos the benefit of the doubt, that what he meant to say is that people are using radio to discover new music… well, good luck bro. I’d like to find the last 17-year-old in America who is using commercial radio as his primary source of new music. I mean, it’s not like these kids are using THE INTERNET to find new music, right? MySpace Music, music blogs like Hype Machine, sites like Imeem and YouTube, etc. (Then these kids turn around and buy said music either directly from the band’s Web site, or use iTunes or, yes, download it “from BitTorrent.” (BitTorrent is an Internet protocol; you don’t download things “from it.”)

Voyager Learning Company First Half 2008 Update

No SEC filing for the first half which is becoming something of a broken record for Voyager. The company held a conference call for investors which did motivate some analysts to participate in contrast to some prior calls.

Read it in full here.

Following are some selected quotes and those about the potential sale and valuation of the business are interesting.

Brad Almond

With that said, when we last provided an update via our July 22 press release, we anticipated that we would file our 2006 10-K by July, 31, 2008. We have obviously slipped from that target. We are in the final stages of preparation for the release of the 2006 10-K and expect to have it filed before the end of this month. We expect to file our 2007 10-K approximately four to six weeks after the filing of the 2006 10-K. We have been preparing the 2007 results and audit work in parallel with 2006 efforts and such work has been progressing very well to date.

*********************************************************************************

Doug Asiello – Invesco

Hoping you would help me through what the implied free cash flow for your – for the firm will be, so let me just show – let me walk through my math and you can tell me where I am off. So that $19 million your current cash, $45 million from the tax refund, $25 million in operating cash flow, gives you about $89 million, less the uses of cash $5 million from the settlement, $4 million from the wrap-up of the legacy corporate, $3 million from the shut down of the headquarters. So if you expect to have $70 million at year-end, by my math you are generating about $20 million in free cash flow. Is that wrong?

Brad Almond

You are essentially right. We’ve – the math you’ve done, you add up all the pieces and our range would be – these are actually out at the highs and lows, all those ranges that I gave, you probably see something more in the $73 million to $83 million—

Doug Asiello – Invesco

Yes.

Brad Almond

But however to account for any unknowns out there and therefore I gave a range of $70 million to $80 million.

Doug Asiello – Invesco

Alright. Okay, so let me ask a followup then. My enterprise value for your firm is roughly $100 million and you are generating $20 million in free cash flow. That’s five times free cash flow. And then I guess if you layer in SG&A cost and corporate overhead, I have a hard time believing there is not some strategic buyer out there that hasn’t thought that this is – this would be very easy to wrap – to roll up into their existing franchise and sales force at – and then kind of wipe out a good chunk of SG&A and corporate overhead at a extremely inexpensive valuation. What’s wrong with my analysis?

MediaWeek (Vol 1, No 31):

The Telegraph reports on another media deal in the works concerning Wilmington a publisher of Press Gazette and legal and charity databases. ReadWriteWeb note the publication of study suggesting females rather than males rule the web:

Online reputation company Rapleaf has released a new study of 49.3 million people, revealing gender and age data about social network users. On most of the main social networks - including MySpace, Facebook, Bebo, Hi5 - women outnumber men by a considerable amount. On Facebook, the 18-24 age group is largest, with 1,685,029 women in that age group compared to 977,753 men. In MySpace, the same age group dominates, with 7,091,214 women and 5,226,788 men.

Informa announced late last week that they had received an indication of interest from a new group. The Guardian finds out it's Dubai. But Blackstone is seen as a favorite by The Times. The Times Online reports on the self-publishing market for authors with a provocative lead-in. One Kindle, Two Kindle, Three Kindle... TechCrunch tries to get to the bottom of the sales numbers. Torstar reports better quarterly results for Harlequin:

Book Publishing revenue was $118.9 million in the second quarter, up $2.9 million from $116.0 million in the same period last year. Underlying revenues were up $6.3 million in the quarter with strong growth in the North America Retail division partially offset by a decrease of $3.4 million from the unfavourable impact of foreign exchange rates. Operating profit was $18.5 million in the second quarter of 2008, up $6.0 million from $12.5 million in 2007. Corporate costs were $4.2 million in the second quarter of 2008, down $0.6 million from the second quarter of 2007.

Guards say they locked him up in a cupboard. Not true, says Rushdie and threatens to sue. He may have a chance. Guardian (no relation) Some spectacular declines in magazine readership in the UK. BrandRepublic

Maxim will be the hardest hit of the men's monthlies, but Bauer Media-owned titles Arena and FHM, with news-stand circulation expected to be down 20% and 17% respectively, IPC-owned Loaded (expected to be down around 20%) and NatMags-owned Esquire (expected to be down 19%) are all understood to have suffered in the latest ABCs, released on 14 August.

Things continue as expected at Voyager Learning. Still no filings, revenues are in decline and cash is tight. SEC

The Company anticipates it will file its 2006 10-K by July 31, 2008. It further expects that the 2007 10-K will be filed four to eight weeks after the filing of the 2006 10-K. The Company provided preliminary and unaudited 2007 financial results for the Voyager Learning Company operating business by means of a conference call on April 15, 2008. As the Company has continued its efforts to file 2006 and 2007 financials, certain estimates made April 15, 2008 have been updated resulting in a change to the projected 2007 earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA is now expected to be in the range of $28 - $29 million versus the previously reported $30 million.

Proquest Guidance

Clearly as a result of the garage style sell off, Proquest are undergoing a significant restructuring and this morning they released an update. The story so far:

The company had a lot of debt, began selling off assets, were hit with accounting irregularities, became embroiled in a subsequent SEC investigation, before they closed the sale to CIG the company announced that the Chairman (Aldworth) was leaving and some pundits said they sold the wrong business. This is were we pick up the story.

• The company is moving all operations to Dallas where the Education division is located which should be completed by the end of 2007. Most staff functions will be eliminated in Ann Arbor with the exception of staff for transition and (presumably) accounting staff needed to deal with legacy issues (like SEC reporting and the investigation)
• Corporate functions transferred to the education unit are expected to be $4-5mm per year.
• They have two buildings with long term leases in Ann Arbor which will soon be surplus to their needs. It is assumed that they will attempt to buy-out the remain lease term but that will be discussed in a subsequent update.
• The company had a significant capital gain on the sale of the business solutions segment to Snap-On tools resulting in capital gain taxes of $60-65mm.
• The company had a significant capital loss on the sale of the information and learning segment to CIG and they will carry-back this loss against the gain in 2005 and they think that $40-45mm will come back as a refund in 2008.
• There is some class action suit stuff going on related to the accounting issues.
• Proquest Education includes Voyager Expanded Learning (acquired 1/31/05), Explore Learning (acquired 2/25/05) and LearningPage (acquired in 2004). Partial year 2005 revenues for the segment are expected to be $91million, EBIT of $7.4mm and EBITDA of $27.7mm.
• Education segment results for 2006 are projected to be Revenues of $117.3mm, EBIT of $12.0mm and EBITDA of $34.5mm.
• Guidance for 2007: Education segment revenues of $116-124mm, EBIT of $10-13mm and EBITDA of $32-35mm.
• 2007 Corporate expenses are expected to be between $30-32mm excluding taxes and interest. They note interest income of $4-5mm but don't project taxes and interest expense.
• There is no note about any subsequent debt repayments, write-downs, or other mitigating factors (like rent buy-outs) that could influence the 2007 results.
• The company still has a lot of financial reporting to do and risks being delisted if they miss an April 2, 2007 due date.

That's the update so far. Stay tuned for more.

News Update: Week 7/9

Deals, M/A:
Apparently News of Murdoch's Dow Jones Purchase was Premature: MSNBC
Not so Smooth: Pearson are Selling Les Echos: WSJ
Soon to be everything except moot court, LN buys services provider: Dayton Bus Jrnal
Visant (educational pulisher) for sale: Reuters
In case you were wondering, Proquest are now Voyager: PRNews

Publishing:
Publishers create web travel aids: Galleycat

Retailing:
Looking for Divine Intervention for Christian Retailing: Washington Post

Search:
Topic Specific Search Engines are the Next Best Thing: Economist

Library:
Book Industry Council (UK) looks to improve Library Supply Chain: PN

Sport:
Beckham arrives (and Posh): LA Times (It is all a bit silly)
Belmar Five: 34:10

Google Print Integration

I always wondered at my own immediate need for 10,000 e-book titles available on things like the Kindle and Sony e-Reader. Give me an e-Book library of my librarything.com titles then I might be interested. The idea that I could browse the full text of my collection on librarything has far more relevance for me than a e-Book catalog that's just BIG. And what do you know? We are almost there because librarything.com announced an integration with Google Book Search several weeks ago and on the site a user can link to the text of many of the titles in their collection. The links aren't universal but as a taste of what is surely inevitable it is a great step forward.

Other companies are jumping on the API bandwagon. ExLibris announced they have integrated a link to 'About this Book' pages on Google Book Search. From their press release:

Using a new “viewability” application programming interface (API) supported by Google Book Search, library patrons can now enhance their findings with Google Book Search features such as full text, book previews, cover thumbnails, and a mashup from Google Maps linking pages in a book describing a specific place to its location on the world map. Use of this “viewability” API has been added to the Ex Libris Primo® discovery and delivery solution, SFX® context-sensitive link resolver, and the Aleph® and Voyager® integrated library systems.

In the ILS world everyone plays follow the leader so the links should start appearing in all the other vendors products if they haven't already. Libraries have long had the ability to gather content in a similar manner (not full text) from Amazon.com. Many have done this successfully to augment (prettify) their catalogs, but the Google option will prove to be compelling both because of the potential breadth of content in the 'About the Book' package but also the limited commercial nature of the Google Book Program. The Google Book Program could become the primary distribution mechanism for publishers into libraries: Imagine every ILS using the Google API and publishers making their titles available via a subscription/lending module. All of this at very low capital expense for publishers.

The other interesting aspect of the Exlibris implementation is the integration with the SFX link resolver. How this will develop could also be interesting for the discovery of journals and articles.

Over on Exact Editions, Adam had some related thoughts on this.

Also, I had an additional thought that it may be Microsoft that has the better Publisher workbench/toolkit for managing access to their content from what I saw at their presentations last year. Where they are in their relationships to library intermediaries is anyone's guess however.