|Shares Out. (in M):||44||P/E||0.0x||0.0x|
|Market Cap (in M):||219||P/FCF||0.0x||0.0x|
|Net Debt (in M):||144||EBIT||0||0|
What do 5,000 barrel per day oil spills caused by neglectful big business barons, crumbling rigs, foreign currencies and ecologically sensitive wetlands, Wall Street fat cat securities fraud perpetrators, bad mortgages, Lloyd Blankfein, moral hazards, "too big to fail" and riots atop the Acropolis all have in common?
The answer is that each of these morality deficient and socially challenged current events may make you a few dollars if you can figure out how to overlay a trade or two around their sheer madness, but executing on these ideas will not help you sleep better at night.
While the idea I will present below is a far cry from mailing a cash stuffed envelope to the nearest "Action Against Hunger" outpost, potential investors in the idea I will present can take solace in the notion of investing in the education and development of America's children. It's the least you can do to help our poor country out of this mess as we fesat on 'Unleaded High Octane Shrimp Gumbo' from now until the day Tim Geithner is removed from his office by a slippery, sinister cadre of Goldman backed shills.
Brief Background and Overview
Cambium Learning Group Inc. (ticker: ABCD) is the (relatively) newly formed combination of Voyager Learning Company and Cambium Learning Systems, two companies that merged on December 8, 2009. Voyager was previously a publicly traded entity listed under the symbol VLCY. Cambium was owned and controlled by Veronis Suhler Stevenson, who now control just over 55% of ABCD. As is always the case with my write-ups, at various times I will pull information directly from Company filings and transcripts in order to disseminate factual information.
The Company is a "leading provider of research-based education solutions for students in Pre-K through the 12th grade, including intervention curricula and educational technologies and services." Put simply, Cambium Learning Group has developed industry leading intervention materials that have been statistically proven to accelerate learning and development in the areas of reading and math. They sell these materials (including an online offering) to a ~$4.6b market supported by Federal, State and Local funds via a national sales force of in-house and contract reps.
VIC member 'bondinvestor' delivered a good overview of Voyager Learning in his July 15, 2009 write up. At the time, The Voyager-Cambium Merger had just been announced and the Voyager 'stub' was trading for an obscenely low valuation. You may look back to this write-up if you choose, however it was more focused on the Merger event whereas my write-up is based on the Company as it stands today.
Having completed only the Merger and one reporting period which included a lot of pro forma and 'adjusted' numbers since the Merger occurred with only a few weeks left in 2009, the Company is set to report its first true quarter as a combined entity on Tuesday May 11th. This write-up is not a critical enticement to buy shares before this date. It is however a suggestion that you tune in to the call and take a look at what is still an immensely under-followed and very interesting story. I believe that ABCD shares offer at least 100% upside over a two year time frame, though the shares could achieve that target even more rapidly as coverage and awareness builds. The stock offers several other catalysts as well, including ever increasing Merger synergies, debt paydown, and a shift in product mix to more scalable, higher margin offerings.
The quick snapshot...
There are many who breeze through these write-ups rather not read about the details. For that audience I offer this 'top of the trees' perspective:
Cambium has around $200m in sales and around $50m in pro-forma EBITDA. It is my view that EBITDA will grow as Merger synergies work their way through the P&L and margins improve based on increased digital offerings. There was $157m in debt, and $13m in cash at the end of last year which when added to the market cap of $220m (using $5.00 per share) equates to an EV of $364m. Thus at current levels, ABCD trades for 7.28x EV/EBITDA.
While this is less than other public market comparables and private market transactions, I will admit it not terribly exciting when viewed in a nutshell. So for those who do like details, please read on...
The bigger picture...
Cambium is managed in three distinct business segments, with shared services supporting all three. The three segments are as follows:
This is the comprehensive intervention business unit which represents 65% of sales. Voyager offers the Company's largest product offering, including the adolescent literacy solutions, LANGUAGE! and Journeys. Other well known brands include early literacy solutions, Passport and Read Well and the math solutions TransMath, Vmath and Inside Algebra.
Cambium Learning Technologies
This is the Company's technology-based education product unit and represents 22% of sales. This unit includes the following well recognized brands; special education tools IntelliTools and Kurzweil; web-based reading, writing, vocabulary and other resources for students and teachers from Learning A-Z; and web-based math and computer science simulations from ExploreLearning.
This is the supplemental solutions business and represents 13% of sales. It's materials form a content treasure chest of work by some of most respected and foremost educational authors (the Company names Dr. Louisa Moats, Anita Archer, and Roland Good) and serves as a collection of research-based supplemental education materials. The materials are marketed via direct sales, the Web and catalogs.
Size of the market / proof that the product works
Cambium pegs the size of their target market at $4.6b out of a total of ~$16b spent by K-12 schools on all textbooks and additional materials and claims that they are "the only provider focused solely on the intervention market and covering the spectrum of at risk needs." There are very few, if any, direct competitors that have the scale to compete with Cambiums 122 Field and Inside Reps across all business units. While Voyager had been focused on more urban areas, Cambium's strengths lay more in regions with smaller footprints and the combination of the two should prove to be powerful.
More than 40% of the 52m K-12 students attending pubic and private schools are deemed 'challenged' learners and this is where your ethically responsible investment really starts to matter. Since Cambium targets many Title I ie economically challenged school districts, you are not only helping the most challenged learners, you are helping students who reside in some of the most disadvantaged and neglected corners of America.
I won't go into specifics on the effectiveness of the product in this write-up. Instead, I encourage you to visit the 'Evidence of Effectiveness' section of the Cambium Web site.
Funding for the Product Offering
Cambium's customers are funded from Federal, State, and Local funds (in that order of importance). The Company believes that more than half of its revenues are supported via Federal programs, with state and local coming in at 25% each. As of the beginning of 2010, Federal stimulus funding to states totaled almost $70b, of which $34b or so has been estimated to have gone towards broken education budgets. The Literacy Education for All, Results for the Nation (LEARN) Act, which was recently introduced into the House and Senate, is a comprehensive literacy bill promoting reading and writing across the K-12 levels and in all disciplines. The Company believes that LEARN could have a value of $2.3b but more importantly, it is a step in the right direction from its predecessor program which only covered K - Grade 3. Are Federal, State and Local budgets challenged having bailed out everybody in sight? You bet. However, I get around this point by noting that Cambium's small revenue base is only a fraction of the budget money that is out there and market share gains can and will offsett the poor condition of our nation's education maked purse-strings.
From a concentration perspective, the Company is most active in Florida, Texas and California, though no customer accounts for more than 5% of total sales.
Who sits on the Board?
As a general rule, I like to know that the interests of the Board are aligned with shareholders. However, it is even more important in this case as a Private Equity investor (VSS) is the control shareholder. While I have little to add about the track record or ability of VSS, I am generally skeptical when a Private Equity firm sits in the drivers seat. This seems to be a bit different. As a Voyager shareholder pre Merger, I will admit that the deal VSS struck was extremely favorable and generous to existing stockholders, offering both cash, shares, and a contingent distribution based on future tax matters. VSS also put up an additional $25m in capital to get the deal done and invited former large Voyager holders on to the Board. Rounding out President Dave Cappellucci and CEO Ron Klausner is one VSS partner and "under-the-radar" activist Neil Weiner, whose Foxhill Opportunity Fund is the second largest holder after VSS. Foxhill not only didn't complain about the price paid for Voyager, it seems as if they have not sold a single share of the former Voyager or the new Cambium to date.
Upside drivers: Synergies, NOLs, Higher Margin Offering
The merger between Voyager and Cambium is one of the few Mergers I have observed that actually made 100% sense. By leveraging the depth, reach and offering of a national sales and rep organization, the Voyager/Cambium combination is akin to say Pfizer adding a new drug to the repertoire of its salesforce or Oracle being able to offer 3 more software products to the customers it already interacts with.
On the expense side of the equation, Management has identified the following areas for synergies:
- Headcount reduction
- Outsourced development
- Professional services
- IT related expenses
Adding up what Management has put forth, you arrive at $10.5m in EBITDA synergies in 2010 and $12.5m in 2011. This is a significant figure on a $200m sales / $51m EBITDA revenue / cash flow base which Management may have even underestimated based on the speed at which post-merger some of this has already been achieved.
At year end, the Company had ~$61 million of federal net operating losses, or NOLs. At a tax rate of 35%, these NOLs will reduce future cash taxes due on taxable income by approximately $21 million. Additionally, Cambium has $7 million in available tax credits, which have no expiration period. However, it should be noted that $38 million of the NOLs and all of the $7 million in tax credits came from the acquisition of Voyager and therefore restricted their annual utilization.
The Company does not expect to be a federal taxpayer until at least 2012, and thereafter, their tax attributes would reduce federal taxes otherwise due on taxable income of $6.6 million a year.
I should first begin by stating that roughly half of Cambium's revenues are deemed to be 'recurring in nature' by Management. Even though customers do not enter into multi year contracts, it is unusual for a school to invest time and resources to switch out of an existing offering if they are happy with it. Think back to your days in grade school where "Phonics" was used year after year after year.
Web based subscription products represent $30m per year in revenue and Management has stated on multiple occasions that they are committed to growing this figure rapidly as it provides much higher margin potential. It is worth noting that Cambium's online early literacy program, Ticket to Read, has more than a quarter of a million students logging on weekly.
Valuation and Upside?
Here is a recap of the cap structure:
Cambium Learning Group Inc.
Shares out: 43.859m
Price 5.6.10: $5.00 per share
Market Cap: $219.3
Debt: $157 (see below for description)
Cash: $13m (does not include restricted cash)
Enterprise Value: $363.3m
EBITDA (adjusted for Merger) 2009 actual: $51m
Description of Debt:
$97m Senior Secured Loan (LIBOR + 500bps, LIBOR floor 3%, matures in 2013)
$55m Mezz Loan (Fixed at 10% cash + 3.75% PIK added to principal periodically, matures in 2014)
- - - - - - - - - - -
Combined (blended) effective rate on debt: ~10%
I expect that this year, Cambium can generate free cash flow in the range of $25-$28m calculated as follows:
Interest Expense: $18m
Free Cash: $25-$28m (11.4-12.7% yield)
If the Company were to pay down debt with free cash, total leverage would drop to under 2.4x Debt to EBITDA at which time a refinancing at better rates would not be out of the question. Ignoring the refinancing costs, a new average interest rate of say 7.5% on new remainig debt of ~$132m would take interest expense down to the $10m neighborhood. That's where Free Cash really gets interesting.
Interest Expense: $10m (assumes 7% rate on $132 in debt after $25m of debt is paid down in 2010)
Free Cash: $38-$41m
Under these assumptions, you are paying only $220m today for a business that will throw off a total of $63-$69 in free cash flow over the next two years.
Using normalized taxes in 2012 and beyond, and not taking into account the 2011e Free Cash which could be used to further pay down debt (or buybacks), Cambium shares could command the following valuation:
Interest Expense: $10m
Free Cash: $43-$46m
Value per share on 2012e projections at the following multiples of Free Cash (using the midpoint of the Free Cash estimate):
What if your horizon doesn't go this far out, and you don't want to guess about refinancing and debt paydown. Here is another way to look at the valuation...
8x projected EBITDA after synergies ($60m): $480m
NPV of the NOL (using a ~10% discount rate): $43m
Less Debt: $157m
Value per share: $8.65 (upside of over 70%)
In summary, I don't think a lot has to go right for Cambium to demonstrate results, gain coverage and execute on its plan. Better yet, with VSS at the helm, so to speak, you can be sure that this stock will not be around forever as PE firms have their harvest periods (5 years on average I would say) and a a carefully managed exit down the road is probably being discussed in some oak paneled Board room as I type the final lines of this write-up.
Synergies do not materialize as anticipated
Funding programs reverse course and the Company's customers are challenged
Company fails to gain attention / coverage
Investors continue to gravitate towards less responsible areas such as Casinos, Fast Food, or the guy in Omaha who between sips of Coca Cola, basically just talks his own book.
|Entry||05/06/2010 06:36 PM|
I actually own this one (but not huge) as well. What is holding me back from making it a really large position is nervousness over state and local school district funding issues. By some accounts, this year may be even worse for school budget cuts than next year:
That said, if things are truly getting better in the economy (and state budgets tend to lag this) and they can make it through this year things should start looking better for state budgets in the 2011-2012 fiscal year, giving them a better opportunity to grow in 2011 and beyond.
FWIW I talked to a friend formerly at a PE fund of funds and he said VSS has a very good reputation as a media industry investor and operator. VSS's purchase of Cambium has quite a colorful history, they purchased it from another private equity firm and later discovered fraud and embezzlement in the company, getting some of their original purchase price back from the selling PE firm. Even after that, VSS's ownership of ABCD is deeply in the red vs. their initial purchase of Cambium so they should be working hard to make it a success. I personally don't mind having private equity guys involved if I am confident they are still working hard to improve the business instead of looking to cash out after the value has been "created".
It's also worth mentioning that Thoma Bravo just bought out Plato Learning at about 7X EBITDA- apply that to $60M in next year's EBITDA andyou get a $6.30 share price, and this is a price paid by a financial investor expecting to realize a 15% or greater IRR on equity.
|Subject||Down on huge volume|
|Entry||06/25/2010 05:17 PM|
Hi Mr. Sox - Great writeup. We own Cambium and think this is a great long-term winner.
Any insight into today's market action? To your knowledge, any insiders selling?
|Subject||RE: RE: Down on huge volume|
|Entry||07/04/2010 12:41 PM|
I agree w majic. sorry for the late reply ... I have been away from the office and unable to access the msg boards here... I also added to my holdings and think that this stock is amongst the most compelling I have ever followed. people take advantage of liquidity during these russell balancing acts and this got caught in the mix. at these levels I would like to own the whole company for the next 5 years.
|Subject||RE: RE: RE: Down on huge volume|
|Entry||07/04/2010 07:40 PM|
This may very well work, but at 6x EBITDA is this really the best thing you guys see in the market?
|Subject||RE: RE: RE: RE: RE: Down on huge volume|
|Entry||07/08/2010 06:02 AM|
State budget cuts are nothing new to this story.
Keep in mind:
- this is a $4.6b market and Cambium will take share now that a focused, cohesive management and lead shareholder are in place. Historical comparisons are less meaningful when looking at the old Voyager, whose primary mission was to clean up the Proquest mess and get their financial statements in order.
- Management will exceed synergy targets in my view
- From what I gather about budget cuts, the majority of these will effect the employment rather than than the curriculum side. More than 75% of school budgets are comprised of jobs, ie materials are a much smaller portion, tiny even, and won't move the needle as much. The federal dollars that Cambium relies on are set to increase and similar to the way Medicaid rather keep you out of a hospital because it costs so much more than to have you be sick at home, there is a tendency here to want to keep children out of Special Education. Intervention products attempt to do just that.
|Subject||RE: RE: RE: RE: RE: RE: Down on huge volume|
|Entry||07/12/2010 03:40 PM|
It seems a large holder sold into the rebalancing - wreaking havoc for the arbitrageurs, thus the technical pressure. While I can't confirm, I am pretty sure SPO is eliminating (or has already) its position. I don't think this should be a cause of concern though, as they were legacy VLCY shareholders and rode the stock down for many many years (over 15+ years) ... so I don't blame them for moving on.
I agree with mrsox. This is a no-brainer. Good product, huge & fragmented market, sensical merger combination that will deliver on promises, strong growing cashflow and experienced management. While growth would be great, even in a no growth scenario margins should still improve and thus today's valuation is unwarranted. Even if the stock never gets rerated the deleveraging should deliver a great return.
While the state and local budget issues are a concern, I believe intervention products should suffer less of a burden. Bottom line is the USA has performed miserably in basic science and math education and the disparity between top and bottom decile students is wider than ever. I think there is a clear political imperative to address this, but that is just my opinion.
|Entry||08/12/2010 05:31 PM|
I want to hear Mr. Sox's comments, but I will offer my unsolicited earnings reaction.
I just listened to the call and it seems order volumes could recover in Q3 as districts are delaying orders closer to actual implementation. However, even if order trends stay in the negative 10% level - which mgmt indicated could potentially recover due to deals in the pipeline - their cost fixed / variable ratio is close to 50%, so marginal contribution of 10% top-line erosion would probably translate into something like 5% EBITDA drop. This is without cost-cutting, which managment also suggested is a lever they can pull in order for them to reach their EBITDA targets.
While the recent business trend isn't great, I was encouraged to see that management seemed committed to reach its $55 MM EBITDA goal. Their synergy savings are on track to being completed and, as such, cashflow is still quite healthy - my calculations: 2009 EBITDA of 50MM + 9MM (synergies) - 3MM(lower order volume) - 5MM (Capex) - 17MM(interest costs) = 34 MM of FCF to equity ... i.e. a 4X FCF multiple. On an EV / EBIT basis it is trading at 6X. None of these multiples account for future growth or deleveraging which will lower their 10% cash interest costs substantially.
While state / local budgets are a headwind, the federal government continues to intervene in "turnaround" efforts for schools + mkt share gains should eventually translate into growth - there was an article yesterday in the NYT that paints a picture of a crowded market of inexperienced companies "chasing" dollars in turnarounds (link: http://www.nytimes.com/2010/08/10/education/10schools.html). While this isn't exactly Cambium's business, these people do distort the market. I don't believe this will last; eventually offerings that demonstrate efficacy will gain ground. If anything, Cambium has been successful building this track-record with its products winning numerous awards.
While it wasn't a stellar quarter, I think this is a good opportunity for picking up additional shares for the long-term.
|Subject||RE: RE: Earnings--reaction?|
|Entry||08/12/2010 05:44 PM|
Sorry I just noticed I overstated FCF by a bit by only subtracting first half order volume impact and capex. FCF for 2010 should be closer to 26 - 27 MM, which still represents a 5X multiple. However, I encourage you to look at Mr. Sox 2011 and beyond numbers which don't seem realistic - valuation should be seen in this context.
|Subject||RE: RE: RE: Earnings--reaction?|
|Entry||08/16/2010 05:58 AM|
Sorry for the late reply. I have been travelling. First, let me say that thrive25's comments are not only accurate and insightful, but they represent what it means to be a true investor and owner of a company as opposed to a daytrader. Cambium's growth via market share gains, committment to achieving synergies, and deleveraging will substantially rewards investors in the coming years, even if, and I agree with your characterization, this quarter was a little light. The current environment is not terribly good for anybody in this space, and the fact that management has done an admirable job in offsetting the impact of a top line drop should mitigate risk while we wait for things to get better. Their is a substantial 'education curve' (no pun intended) with any new suite of offerings, and this young company (I say young since it is only 8 or 9 months since the merger) will take time to ramp its products and explain the benefits to what is a slow moving base of constituents and customers. As far as I can tell, given the low float and lack of Wall Street coverage, not too many people even know about this stock. My biggest fear at this point is not related to execution or a market in which I am confident they will take share, but that Management does a bad deal or two just to get the Company larger and because deals are what Private Equity operators love doing. More thoughts later as I am trying to arrange a call w the Company. mrS
|Entry||08/25/2010 03:13 PM|
Board Member and large holder Neil Weiner (Foxhill) adding shares at these levels... small, but the name is not too liquid either...
|Subject||RE: insider buying|
|Entry||08/26/2010 03:47 PM|
Hi Mr. Sox - Was wondering if you ever did have a chance to have a call with mgmt?
|Subject||RE: fy 2012e/NOL value|
|Entry||09/09/2010 06:21 PM|
Sorry for the late reply. I think that the difference between our free cash flow calculations resides in how we both calculate Depreciation and Amortization. As a result of the merger, Cambium inherited significant curriculum and technology intangibles that will cause D&A to exceed capex. This will also impact taxable income and thus the timing of how the NOL is used. No matter which way you slice it, I think that the risk reward, esp at these levels, is excellent. I did have the chance to speak to management about a week or so ago. Since I did not learn anything outrageously interesting that is not already in the public domain, I thought I would skip writing a post so as not to sound promotional or anything...
|Subject||Reaction(s) to results / call|
|Entry||11/16/2010 03:39 PM|
Still a believer this is a long-term winner. Was wondering if any updates? For what its worth, I've been picking up some shares for my PA at these levels.
|Subject||RE: Reaction(s) to results / call|
|Entry||11/16/2010 04:00 PM|
I am absolutely still a believer that this stock is cheap and have added to my position at these levels as well (despite horrible liquidity). Cambium delivered what I thought were very good results in the face of a terrible environment which points not only to the synergies embedded in the merger, but to Management's ability to make good on the cost cuts and other redundancies. Once again, this is a tremendous market to attack and they have relatively little share today. The stock trades like a private company, and given the VSS and Foxhill stakes (Foxhill filed that they bought more), it practically is. The shares continue to have no meaningful movement or correlation to the broader market (though this would probably not be true in a meltdown) and one must be patient and let management do their thing. Based on comparable multiples, it is not inconceivable that they could sell the entire company to a McGraw Hill today, as is, and get $7.00 a share for it.
|Subject||RE: RE: Reaction(s) to results / call|
|Entry||11/17/2010 01:23 PM|
I am in total agreement, Mr. Sox. The illiquidity certainly translates into lumpy trading and wide bid / asks.
Regarding the call, management's tone seemed pretty relaxed. They also seemed relieved that even in this horrible funding environment they managed to still deliver decent results. Thoughts?
The only aspect of the business that I am still trying to objectively discern is the visibility and recurring nature of their revenues. While management does make a convincing case that a big portion of their business simply rolls over year after year, the exact proportions of sticky revenues versus more volatile ones still eludes me. Of course I would imagine that if the products themselves are good and deliver results, repurchase rates for educators should be high. Switching costs would also seem to be, by nature, high.
I think Cambium must be on the radars of bigger publishers like McGraw. Hopefully the stock can head toward 6 - 7 dollars before they look to make a bid.
|Subject||RE: answer / refinancing announced|
|Entry||12/04/2010 12:08 PM|
Looks like the market didn't cooperate with their note offering. CEO: "The recent increase in long term rates does not align with our opportunistic goal" hmmm.... not sure I buy it. Did the credit markets really change that much? Do you see this as a negative signal that they couldn't sell significantly better terms? The current terms are pretty darn bad, it wouldn't take much to lower the firm's cost of capital.
|Subject||RE: Preliminary Results Out|
|Entry||02/08/2011 11:24 AM|
What do you expect the pro-forma leverage to be? With AR rising liquidity should improve in 1Q and net debt should drop under 3x, no?
There is more and more rhetoric in Congress about cutting the federal purview on education. While it is very unlikely to lead to any reform anytime soon, are you at all concerned that budget scrutiny could put pressure on the federal programs that support Cambium? Of course, intervention spending is a minor fraction of the $80 billion budget, but with the tea-party pushing for radical cuts it seems anything is possible.
Regardless, closing on new deals is a good sign and impressive result given the awful funding environment. I still believe this is one of the most attractive risk / rewards in the entire market. It is funny, the company screens terribly and pro-forma accounting (for merger) and headline noise has kept everybody away. The stock still sells at a 5 - 6x FCF!
|Entry||02/15/2011 10:52 AM|
It doesn't seem they improved their term by much:
Barclays and BMO Capital were the joint bookrunning managers for the sale. BORROWER: CAMBIUM LEARNING GROUP INC AMT $175 MLN COUPON 9.75 PCT MATURITY 2/15/2017 TYPE SR NTS ISS PRICE 99.442 FIRST PAY 8/15/2011 MOODY'S B2 YIELD 9.875 PCT SETTLEMENT 2/17/2011 S&P SINGLE-B SPREAD 753 BPS PAY FREQ SEMI-ANNUAL FITCH N/A MORE THAN TREAS NON-CALLABLE 3 YRS* *MAKE-WHOLE CALL 50 BPS
|Subject||RE: RE: refinancing|
|Entry||02/15/2011 11:17 AM|
They will save $800k - $1m in interest expense per year and not have to worry about onerous covenants. It's not fantastic, but it's certainly a positive. It's quite possible that BMO and Barclays can pick up coverage as well - BMO covers one or two of the comps.
|Subject||RE: 2011 guidance|
|Entry||03/10/2011 03:18 PM|
While no specific guidance was given on financials, management's comments on potential acquisitions were noteworthy:
"In 2010, we reviewed a number of merger and acquisition opportunities but we chose not to pursue those, as we remain focused primarily on the task of integration. In 2011, with the integration substantially complete, we will continue to concentrate on identifying and pursuing strategic acquisitions consistent with our goals of diversifying our product offerings and increasing our technology and services footprint. We will again be disciplined in our efforts but we will be looking to acquire companies that will enhance our servicebased capabilities, turnaround service, tuck-ins and software-based organizations that can enhance individualized treatment."
Overall, 2010 ended up being a pretty descent year despite the challenges. EBITDA of 55 MM, minus 12 capex, minus 18 debt, translated into 25 MM for equity (most of it consumed in one time items). But significant R&D investments were made for growth, and synergies were executed on, as well as financial restructuring. If the 2011 funding environment is comparable to 2010 and doesn't deteriorate too much, I believe the operational progress will show up in higher margins & cashflow, hopefully pushing the stock up out of this range-bound funk. Thoughts?
|Subject||RE: RE: Risk / Reward at these prices|
|Entry||05/17/2011 08:49 PM|
Majic - Good points. I agree that federal, state and local budgets will be tight for a long time; but don't you believe things will stabalize and lead to a more normal purchasing environment from educators...with or without subsidies / stimulus? Assuming the intervention market doesn't grow, do you not buy the growth through roll-up / market-share-gain argument?
Moreover, even without growth, is a 5x - 6x EBITDA multiple fair considering the limited capex needs? Are you skeptical on the recurring nature of revenue? I too have started to question just how sticky their business is...considering recent churn and a sales cycle that seems long and irregular, as you point out. But this could also be part of a natural transition to digital...either way, this uncertainty does warrant a lower multiple. Just not sure it will persist indefinitely, as it seems logical that switching costs would be high.
It all comes down on whether or not these are good / effective products. If they are, then I believe this is indeed a good business that just needs to continue penetrating and transitioning the market to digital. In which case, I believe a 10x EBITDA is closer to fair value. But I honestly can't discern if they are / aren't selling a differentiated product that will keep educators captive and loyal.
|Subject||RE: RE: RE: RE: Risk / Reward at these prices|
|Entry||05/18/2011 12:04 PM|
Majic - Thanks for your reply. We are definitely on the same page. Bottom line, there does seem to be some upside optionality here on the top-line growth / M&A strategy panning out; however, being conservative, I agree we should be highly skeptical about management's promises and wary about the funding headwinds. As you correctly point out, all of this seems to be discounted in the stock price.
Still, IMO the risk/reward does seem very attractive at these levels. While the quality of EBITDA / earnings recently has been questionable, due to fact that it has been driven by cost-cuts, it does send a good signal in terms of management's ability to navigate these difficult times. My comment on potential normalization from educator spending isn't so much referring to an improvement on their finances but more focused on a clearer understanding of them. In other words, bureaucracies / schools have already gone through the denial and anger phases of the budget crises and overhauls...eventually this leads to an acceptance phase, where they are more constructive towards their spending. Of course continuous reforms and changes just stirs things up again, so who knows, the whole environment might stay volatile for a very long time. In conclusion, as you mentioned, if anything the PE sponsors of Cambium will likely do everything in their power to extract value. On this basis alone, I agree this will end up being a good investment.
|Subject||EastBridge Investment Group Enters Consulting...|
|Entry||05/20/2011 11:03 AM|
Interesting news....anybody have insight on EastBridge?
EastBridge Investment Group Enters Consulting Agreement With Cambium Learning Group
8:00 AM ET 5/20/11 | Marketwire
EastBridge Investment Group (EBIG) (OTCBB: EBIG) (OTCQB: EBIG) today announced it has entered into a consulting agreement with Cambium Learning Group, Inc., a Nasdaq listed company based in Dallas, Texas.
Mr. Keith Wong, CEO of EastBridge, commented, "Cambium is a great company with a rich suite of products for online applications. Many of their K-12 products can be adapted to students in China, which has a total elementary, junior and high school student population of more than 200 million. We are very excited to be retained as a consultant to help them seek out opportunities in China for joint ventures, partnerships and merger & acquisition (M&A) work. We have substantial experience in China to help our clients achieve their expansionary goals."
To learn more about Cambium, go to: www.cambiumlearning.com
EastBridge Investment Group focuses on high-growth companies in Asia, offering IPOs, Joint Ventures and Merchant Banking services. The Company targets industries in the education, internet, energy, mining and service sectors. To learn more about EastBridge Investment Group go to our web site: www.EbigCorp.com. To receive EBIG's email alert, send a blank email to info@EbigCorp.com. Join us on Facebook at the following link: http://www.facebook.com/ebigcorp.
|Subject||RE: RE EastBridge Investment Group Enters Consult|
|Entry||05/23/2011 01:05 PM|
The stock seems to be behaving like a Chinese reverse merger :-)
|Subject||growing business value|
|Entry||05/23/2011 01:23 PM|
Sorry for the late reply on my thoughts.
Here are some of them...
-The subscription based business is growing at a very fast clip. Subscription renewal rates are 85% and will take lumpyness out of the business over time.
- The health of the underlying company across all busineses has only increased, in my estimation, over the last 12-18 months despite the headwinds that they face in funding, which cannot last forever.
- The business has high strategic value, which also increases steadily as book publishers such as McGraw Hill and Pearson continue to lose market share in this space.
- VSS knows understands this strategic value and will one day sell this company for a high single digit - double digit EBITDA multiple as earnings stabilize. see quote from Darth Vader himself from back in Nov when News Corp bought Wireless Generation for a huge sum... "When it comes to K through 12 education, we see a $500 billion sector in the U.S. alone that is waiting desperately to be transformed by big breakthroughs that extend the reach of great teaching," said News Corporation Chairman and CEO, Rupert Murdoch in a statement.
- I view the Eastbridge deal as extremely favorable in that it will open new markets to Cambium.
|Subject||Cambium Buys Back over 3.5% of the Company|
|Entry||05/23/2011 05:09 PM|
And without a press release...
Looks like they took out SPO at $3.00 per share. SPO had a massive tax loss in this name, having owned predecessor ProQuest, which unraveled in the wake of an accounting fraud. While the buyback will not help liquidity, SPO would be more likely to bleed their shares out into the market, thus creating an overhang.
|Subject||RE: Cambium Buys Back over 3.5% of the Company|
|Entry||05/24/2011 02:29 PM|
This is good news. I believe SPO was actually selling in the open market and was indeed creating an overhang on the stock (sold 500,000 shares from Dec to March).
|Entry||06/06/2011 06:13 PM|
CEO's is here...
|Subject||Volume on Friday?|
|Entry||06/26/2011 02:34 PM|
Is it attributed to index activity? both at close and aftermarket volume was off the charts.
|Subject||RE: Volume on Friday?|
|Entry||06/26/2011 08:41 PM|
Yes, just r2k stuff.
|Subject||RE: RE: RE: Bracing for another Q?|
|Entry||08/09/2011 07:38 PM|
Finally, a good quarter....They were very emphatic about not extrapolating, but I do think the dynamics in many of their business lines are improving. It also seems like their pipeline is healthy.
I guess we should also expect to hear news about an acquisition sometime in the next 6 months, huh? Based on the short discussion on M&A strategy, I think it is safe to say they won't overpay, and actually might create some value in the process.
Its looking good. We may eventually make some money on this after all. Hopefully politicians or the economy doesn't fuck it all up....
|Entry||08/09/2011 07:46 PM|
I agree. Obviously, this one has not worked from where I wrote it up and it has taken a lot longer for the 'noise' in the financial statements to go away. Some coverage of the stock wouldn't hurt either...
|Subject||RE: excellent quarter|
|Entry||08/09/2011 09:33 PM|
are you adjusting your estimates at all on forward looking EBITDA or FCF? It seems reasonable to assume they might hit $60 - 65 MM for 2011, no?
|Subject||RE: excellent quarter|
|Entry||08/10/2011 12:10 PM|
It doesn't seem the market is giving Cambium much credit at all for the good Q....
|Subject||RE: RE: excellent quarter|
|Entry||08/10/2011 12:40 PM|
Can you imagine if they blew the quarter? We'd be at $2...
|Subject||VSS to acquire $20 million ABCD common|
|Entry||08/11/2011 04:28 PM|
Cambium Learning Group, Inc. (Nasdaq: ABCD, the "Company"), a leading educational company focused primarily on serving the needs of at-risk and special student populations, announced today that the Company received notice from VSS-Cambium Holdings III, LLC, our majority shareholder which is controlled by Veronis Suhler Stevenson ("VSS"), that it is exercising its subscription right to acquire an additional $20 million of common stock in the Company. This subscription right was granted as part of the stockholder agreement relating to the merger between the Company and Voyager Learning Company in December 2009. The Company will issue 7,246,376 shares of its common stock to VSS-Cambium Holdings III, LLC as a result of this investment.
|Subject||RE: RE: RE: VSS to acquire $20 million ABCD common|
|Entry||08/11/2011 05:57 PM|
I wasn't even aware of this "option" - LOL, bad form, bad form...
So basically, with the recent buyback at $3.00, the company has effectively bought high and sold low.
In terms of mechanics, did mgmt know about the exercise before the call? Do you think this accelerates their M&A plans?
I hate getting diluted. The share count is increasing by what, 16%? I never know what to do in these situations when a position has reached my target size... I guess buy up, huh? Anybody considering doing the same?
|Entry||08/11/2011 08:52 PM|
Perhaps Foxhill will request that the Company use part of the proceeds to buy back more shares. They have been known to be an activist in the past, and Neil Weiner is on the Board.
|Entry||08/12/2011 10:28 AM|
Thought about this some more last night. Here are some thoughts.
1. VSS had an option that they could exercise anytime up until December 2011. They took advantage of the weak stock in this mkt. The Company bought back stock in May. I do get the sense that they will use some of the new proceeds to continue to buy back stock.
2. If the stock acted better after the earnings, I assume that VSS would not have excercised their option. One positive to come out of this is that ABCS is VSS's SECOND LARGEST INVESTMENT in their fund. Thus, the exercise of the option is a continuation of their confidence in the Company. Given the recent sell-off in asset prices, I am sure VSS's universe of investment opportunities has widened, yet they still chose to invest more in Cambium.
3. I dont think anybody, VSS included, thought that ABCS shares would still be this low. That is why the Company bought back stock and why insiders step up after every quarter and buy back shares.
|Subject||RE: price weakness|
|Entry||08/15/2011 11:33 PM|
The liquidity / volume for Cambium is terrible and I think this actually is a significant contributing factor for the share discount.
I too have been picking up shares here and there, but it is a pretty full position for me, so I guess its time to wait....
|Entry||08/18/2011 08:50 PM|
Neil Weiner - activist from Foxhill and Board Member at ABCD added 10,000 shares at 2.90
|Subject||RE: new coverage|
|Entry||08/26/2011 11:51 AM|
The report is awful, I agree. RLRN just got another bid higher...12x EBITDA
|Subject||More coverage, Gabelli PT: $7.00|
|Entry||09/20/2011 05:13 PM|
I still haven't read the report, but I saw the headline on my bloomberg terminal.
|Entry||12/15/2011 01:33 PM|
|To what degree is the sector pricing in the possible elimination, or severe cuts, to the department of education. It seems every Republican candidate would love to shrink the role the federal government plays in subsidizing education - some even declaring the DOE unconstitutional. Obviously one should probably discount a lot of this as political rhetoric, but it is hard to argue that education won't become a target if Obama loses the presidency. As for Cambium, has anybody tried to estimate the potential consequences? It seems the programs that support it would take a while to unwind, but eventually, they could plausibly dry up. Probably unlikely, but still, with the ongoing fiscal crises and the polarizing partisan politics dominating the country, it is hard to rule out anything. Thoughts?|
|Subject||RE: Federal DOE|
|Entry||12/15/2011 01:49 PM|
Hi Thrive, I agree with your assessment that this is a risk. However, I also think that bipartisan support for improvement in education is among the only areas of some agreement, although differences of opinion obviously exist as to how education should be improved....anyhow, I don't see how the government could relinquish some role of funding the "needs" of the education system. I think more scrutiny is ascribed to the 80% of costs that teachers comprise and numerous concerns of their effectiveness. I listened to Scholastic's call this morning and their intervention business is doing exceptionally well, they assert that they are gaining share. We know that Q4 at ABCD won't be as strong as in Q4 2010 but the FCF yield is quite attractive currently so I am among the incremental buyers.
|Subject||RE: RE: Federal DOE|
|Entry||12/15/2011 02:37 PM|
|I completely agree. The stock looks more appealing than ever; especially given the fact it is approaching all-time lows! I am also a marginal buyer, but I worry that I am experiencing some "escalation of commitment" here, and that I am missing something significant? But my checklist seems to still scream buy buy buy....or was that Cramer? Either way, thanks for your input - I agree that the intervention segment is a relatively insignificant part of the budget, and that there is bipartisan support for dealing with those students being left behind. However, it is hard to watch politicians talk these days, it seems the more controversial they can be, the better.|
|Subject||Apple iBooks/Author opportunity or threat?|
|Entry||01/19/2012 08:51 PM|
Is intervention market an inherently different market? Seems some venture stage companies were caught off guard, though.
|Subject||RE: anyone out there?|
|Entry||05/11/2012 02:32 PM|
Agree; a complete dud. There are so many lessons to be learned here for value investors.
Management has completely lost credibility in my eyes. They'be been overpromising and underdelivering for almost 3 years.
I haven't sold my shares, but I wouldn't be surprised if this becomes permanent loss...
|Subject||RE: RE: RE: anyone out there?|
|Entry||05/11/2012 09:33 PM|
Well I'd take VSS presence with a grain of salt, given that their primary board rep, i.e. the company's Chairman, just pulled up stakes and left.
|Subject||RE: RE: RE: RE: anyone out there?|
|Entry||05/11/2012 09:58 PM|
I think it's a real stretch to link a VSS partner leaving the company w/ VSS thinking (or that guy) that ABCD is a shitty investment and likely to fail. Partners at Private Equity firms oversee many investments and leave for many reasons.
Remember, they just put $25 Million into the company in August of 2011, though the business collapsed shortly after.
|Subject||RE: RE: RE: RE: RE: anyone out there?|
|Entry||05/12/2012 06:00 AM|
Looking back at my post I can't find the part where I said it was a shitty investment that was going to fail. I think I just said to take the VSS investment with a grain of salt. Yes, PE partners leave their firms all the time. The question is whether you can draw any conclusion between that event, and broader implications regarding that PE firm's overall investment profile and/or acumen. VSS record is mixed.
|Subject||RE: RE: RE: RE: anyone out there?|
|Entry||05/12/2012 07:02 PM|
My apologies for what has been an awful situation. Original VLCY investors have a low cost basis here given the cash and CVR that came out. At this point I am at a loss for words. I have not sold my shares and will likely hold on.
|Entry||05/16/2012 03:56 PM|
Could not resist adding some here as a trade - seems like somebody is getting liquidated.
|Subject||Anybody picking up shares at these levels?|
|Entry||05/19/2012 10:27 PM|
This is getting absurdly cheap. The CLT divisiois should be worth more than the current EV. Amazing what some uncertainty can do to a thinly traded stock like ABCD....
|Subject||$5m buy back announced (8-K filed)|
|Entry||05/29/2012 05:30 PM|
its a start...
|Subject||decent insider purchase by large holder|
|Entry||06/08/2012 09:47 AM|
Board Member and large holder Foxhill adds...
|Subject||RE: S&P downgrade|
|Entry||06/08/2012 05:20 PM|
what a disaster. the bonds are still in the 90s
|Entry||06/14/2012 11:22 AM|
getting to the point where VSS could clean this up and do a take-under at $1.00 or worse. Do you see that as a risk?
|Subject||RE: RE: take-under risk?|
|Entry||06/14/2012 11:39 AM|
The Company has good liquidity and no covenant issues - I don't think it's a donut in the near term, at least. I do agree that the CEO is unimpressive.
|Subject||Foxhill adding to their stake|
|Entry||06/14/2012 09:20 PM|
see here: http://bit.ly/KxInDf
|Subject||RE: RE: RE: RE: take-under risk?|
|Entry||06/15/2012 01:48 PM|
The key question, in my mind, is what no-growth steady state margins could end up being if all the above the line R&D investments were to be throttled back and the "right" fixed cost structure were put in place, in light of the eroding top-line? Even if revenue bottoms at, say, somewhere around $130 MM, I don't think it would be unreasonable to target a 25% EBITDA margin - which would translate into an EV near $300 MM. I do think a strategic could easily ignore 2012-13 results and find value in Cambium. I really hope the board is being proactive about considering a sale here...bottom line, this never should have been a public company.
|Subject||RE: RE: RE: RE: RE: RE: take-under risk?|
|Entry||06/15/2012 05:26 PM|
Looking back at this thing I agree that it should have never gone public. Clearly they have overinvested in a declining core Voyager business when the best investment would have been their digital offerings. That having been said, this was way oversold this week - it's not going out of business.
|Subject||RE: contest on tomorrows close|
|Entry||06/21/2012 03:47 PM|
i know nothing about this, but where is the 1MM share block coming from?
|Subject||RE: RE: RE: RE: contest on tomorrows close|
|Entry||06/21/2012 05:58 PM|
Cambium should step in with the buyback tmr.
|Subject||RE: RE: RE: RE: RE: RE: contest on tomorrows close|
|Entry||06/22/2012 06:56 AM|
The rebalance has gotten increasingly efficient over the last decade. Even some of the most illiquid names no longer seem to move much.
|Entry||06/22/2012 01:28 PM|
the stock is just a call option at this point
|Subject||RE: RE: rebalance|
|Entry||06/28/2012 05:14 PM|
now Im just confused.... Foxhill buys shares in the open market and then sells them back to Cambium?
|Entry||07/05/2012 05:06 PM|
light volume, but a start I guess
|Subject||RE: 2q earnings, 3q guidance|
|Entry||08/07/2012 03:04 PM|
I too am scared. Part of me wants to get involved with the bonds to try to salvage what has been a horrific position - but it just seems like i'd be falling victim to some escalation of commitment bias. I hate leverage. You live, you learn...
|Entry||08/08/2012 05:25 PM|
Smells like a doughnut for the equity....what a disaster
|Subject||RE: RE: RE: debt|
|Entry||08/08/2012 08:21 PM|
So where do you think this opens tomorrow? Below 50 cents?
|Subject||RE: RE: RE: RE: debt|
|Entry||08/09/2012 06:59 AM|
I hate Monday morning quarterbacks as much as the next guy, but since somebody asked for post-mortem comments I'll throw one in.
The biggest qualitative negative from my standpoint was that this business was a result of the merger of two businesses, both of which had accounting fraud issues in their past. It obviously wasn't accounting fraud that brought this down, and the management teams had each (respectively) been replaced, but something about that just kind of stinks to me. I'm a firm believer that accounting fraud isn't generally a result of just one or two bad actors at a company, but is made possible by systemic failures of leadership that go deep into an organization. One of the biggest P&L losers in the history of my fund was ProQuest (the old parent of one of the ABCD businesses), so I was scarred by my history with this business and fortunately stayed away. That was certainly due much more to luck than good judgment. If my memory serves me correctly (and it's been a while on this one), Ron had a history of overpromising and underdelivering after ProQuest bought his business as well.
|Subject||RE: RE: RE: RE: debt|
|Entry||08/09/2012 10:56 AM|
2013 will be better or conversely they will scale expenses down to the bone and dismantle this. This is no longer worth $5.00 let alone anything more... but at the current price (given the liquidity and the covenant light debt) this is a call option. The problem is that the option value could easily reach $0.80 or even $0.50. You also have the risk that VSS buys what they don't already own for $1.00 and takes it private or does something else we don't like. The Company is buying back shares and potentially trying to hold the line here at $1.00 for cosmetic reasons... I don't know. I'm not writing this one off just yet.
|Subject||RE: RE: RE: RE: RE: debt|
|Entry||08/09/2012 10:57 AM|
My sense is that Ron doesn't have much time left here.
|Subject||Excerpt from blast email from VSS...|
|Entry||08/16/2012 12:54 PM|
FWIW, this is an excerpt from a blast email sent out by VSS, control shareholders of ABCD. Looks like they are looking for add-ons for all their platform companies, not just ABCD.
|Subject||Any guesses at to what happens next?|
|Entry||10/18/2012 11:05 AM|
Tbis company has drained every ounce ond my patience. Is there any indication they might be shopping the company around, or will they "invest" their way into bankruptcy before selling?
|Subject||RE: Any guesses at to what happens next?|
|Entry||10/21/2012 06:15 PM|
Seems unlikely they are putting the company up for sale having just named a new chairman.
I still own this though my position is just 2% and I think it's likely to be worth 0. Would be pleasantly surprised if they somehow turn this around given state budget issues.
|Subject||More of the same?|
|Entry||11/08/2012 06:51 PM|
Some light at the other end of the tunnel? Now that I jinxed it, all deals will probably fall apart, and they'll burn all the cash blaming it all on state funding situation... What a POS business
|Subject||for what it's worth|
|Entry||05/24/2013 10:57 AM|
seemed to find a floor - plus directors are buying
|Subject||Weiner resigns from Board, writes angry letter|
|Entry||08/29/2013 07:39 AM|
stock has risen nicely since this was released. Any thoughts?
|Subject||Cambium buys back stock at $2.36 per share|
|Entry||11/15/2013 03:14 PM|
Looks like VSS is either:
1) ready to do something with this asset and wants to consolidate their ownership.
2) ready to make a bid for the Company themselves?
3) does not realize that stock can be bought on the open market for $1.30 albeit in small size.
From the latest 10-Q:
On November 4, 2013, the Company entered into a stock purchase agreement with an investor pursuant to its share repurchase program. As previously announced, on March 19, 2013 the Company's board of directors authorized the extension of the Company’s $5 million share repurchase program for an additional one year period (through July 5, 2014) and increased the remaining $2.2 million available for repurchases of shares thereunder up to $5 million. The transaction settled on November 6, 2013 with the Company purchasing 1,861,969 shares for a total cost of $4.4 million. Upon repurchase these treasury shares are no longer registered under the Securities Act of 1933.
|Subject||RE: RE: Cambium buys back stock at $2.36 per share|
|Entry||11/25/2013 01:58 PM|
If you take a look at the VSS web site, you will notice that a lot of the team members are gone. A cursory look into various LinkedIn whereabouts of some of the old VSS names shows that these departures are real.
My sense is that there is something going on at VSS and that it may be time to harvest/divest.. pure conjecture/scuttlebutt. They are way underwater on this investment in any case, but the clock could be running out.
|Subject||re: Cambium buys back stock at $2.36 per share|
|Entry||11/25/2013 03:23 PM|
Apolgies for being unclear. I am not asserting that VSS sold those shares. In fact they almost certainly did not. The unusal share sale and the idea that VSS could potentially be winding itself down are two competely different matters. A 13-D/G will have to be filed fairly soon, so we will see who sold them. My remarks attempt to bring light to the awful governance by VSS as steward of this asset. Connect the dots if you dare, but perhaps they think there is a buyer for the entire company at prices well above where they 'blessed' the transaction mentioned in the 10-Q. That would be one way to ex-post-justify it. The notion that they are potentially closing their firm would only serve as a catalyst to finally close the book on this idea, which has not worked at all.
|Subject||RE: RE: majic|
|Entry||11/26/2013 03:58 PM|
apologies for missing it, and thank you for posting. I pretty much assumed it was Wells and absolutely not VSS. Regardless, I continue to assert that something is happening with VSS and that there may be a catalyst here soon (albeit not necessarily a positive one).
|Subject||RE: RE: RE: RE: majic|
|Entry||11/26/2013 10:13 PM|
You answered your own question. I don't see them taking this private given the condition that I suspect their firm is in. But yes, I can see them selling it at a lousy price and this becoming a long protracted battle. I also use the word negative since I posted this idea at $5.00 per share ! ;)
|Subject||Rising on significant volume|
|Entry||01/08/2014 12:19 PM|
Not sure why this has caught a bid in recent weeks. Perhaps somebody put out a Sum Zero write-up or something of that nature? Any color appreciated. From our findings not a lot has changed here since the egregious Wells buyback.
|Subject||this could double. inflection point seems here.|
|Entry||11/07/2014 02:23 PM|
If I still have any credibility left on this one...
ABCD reported last night.
Cambium's "Learning A to Z (LAZ) product turned in another spectacular quarter of growth, coming in at 32%. It has now grown at 20-30% a year for the last 3+ years.
|Subject||Re: Re: Re: Re: this could double. inflection point seems here.|
|Entry||11/07/2014 04:47 PM|
Almost all of that def revenue has 0 cost associated w/ it. It's subscriptions that get recognized over the course of the contract.
|Subject||Re: Re: Re: Re: Re: this could double. inflection point seems here.|
|Entry||11/07/2014 04:59 PM|
Cash income is largely the same in LAZ as EBITDA
see page 32
But yes, no reason to debate this further but the buyer will not associate any cost in servicing 60m in def revs if there is no cost in servicing them. All that matters is what the future cash income is going to be, obviously.