Dear Sir-
Have you considered reaching out to the Clarke-Stewart estate to remind them how much money that you’ve saved all the poor down-trodden students? You know, the ones who when recently surveyed said that 73% will spend their student loan forgiveness money on travel and eating out.
Greetings,
There are a few points to be aware of in this quarter's Losses Report.
1- The rate charged to existing debt has skyrocketed. The debt Cengage carries is all variable rate. So when rates go up, our interest rate/payment rises.
Page 24 outlines the terms of the company's debt. Cengage's rate is tied to Prime +.50% or LIBOR +1.0%, whichever is higher. Prime was at 3.5% in March, and today it's at 7.0%. So just the interest we're paying is up 100%.
There is also a commitment fee for the open line of credit of .50% and a quarterly participation fee of 2.5% - 2.75%.
Next, look at page 7. Again, Cengage's assets are worth 300 million dollars less than the company's liabilities.
As a general rule, most investors look for a debt ratio of 0.3 to 0.6, the ratio of total liabilities to total assets, which is the reverse of the current ratio, total assets divided by total liabilities.
In Cengage's case, it's about 1.1, which means the company has more debt than it has assets.
The Estate of Alison Clarke-Stewart is also suing Cengage for unpaid royalties and some other shenanigans. It looks like unspecified punitive damages are being sought as the case progresses. Cengage's efforts to get it dismissed have failed.
For those who may not be fluent in legalese, punitive damages are awarded to punish a defendant for doing something wrong. Compulsory damages would also be awarded in a case like this to cover the unpaid royalties. These types of cases can get very expensive very fast, or not. We will have to wait and see.
There are a lot more interesting points contained within the Quarterly Losses Report but these are a few to think about.
Full Stop!
@2rro+1jCrsN7L Thank you for the explanation.
Net income was negative 16mil for first 6 months of year. The business lost money.
Higher interest payments are going to be deadly.
What a sh-t show.
@2edk+1jCrsN7L Looking at the financial statements (not the cherry picked garbage deck) you can see that interest payments went up as did cost of goods/expenses. Still doesn’t explain a $200mm+ outflow when their revenue was mostly flat. The statement of cash flows showed a $89m outflow on assets.
My favorite was the $13bb addressable market. First, $13bb is tiny. Second it’s not growing and all business must be taken from competitors, which is very very hard.
It’s just such a dog of a business and industry in general. There are so many better places to put investor money.
They are going to restructure the debt at a different yield hence, saving costs, I almost got through that without laughing!
Can someone please ELI5, how did the cash get halved in 12 months?
Greetings,
Just as I told you, compare my post from before the report was posted to these quotes from the Cengage Losses Report released today. Let me be clear, transparency is an important part of our credo.
Full Stop!
*** U.S. Higher Education increased $6.0 million primarily related to continued digital sales growth driven by the performance of Cengage Unlimited, eTextbooks, and courseware
*** Research decreased $13.3 million primarily driven by a decrease in print sales in the United States related to customer budget constraints due to the COVID-19 pandemic, which negatively impacted direct and wholesale orders;
*** a $14.6 million reduction, net of employee compensation and related costs primarily attributable to the fiscal year 2020 restructuring cost savings initiative; a reduction in headcount; and an increase in annual incentive costs;
Cash is less than half what it was 12 months ago. You can't spin that away with "normal business cycles" but they did exactly that.
Net leverage ratio went up half a point - yet they say that "gross" debt decreased. Well, yeah, but you have a LOT less cash than you did a year ago.
A first year accounting student could see that this deck is complete nonsense.
And the core business has a cold that's about to turn into a flu.
If a mid level manager presented a deck like the financial update and spun it like the year was shaping up nicely, they would get taken to the woodshed.
The latest segment is the business is flat in revenue and down in profit and this is good news?
As enrollments fall off a cliff I’m looking forward to more of this comedy.
MH and team are a complete joke but there’s nothing they can do. It’s death by a thousand cuts.
HED down 10%. Unlimited growth stalled.
No surprises there. Headwinds, I guess.
IPS really needs to go into consulting. Dude would make a mint.
Greetings,
I predict it will be a splendid deep dive into the inner workings of a concern on the bleeding edge of EdTech.
Activations will no doubt be on the rise with print on its steady decline. Revenue may be down due to forces beyond our control, but as Cengage is in the business of changing how people learn this is really of little to no consequence.
Most importantly, I would assume that students and faculty will have been delighted, as they've saved millions of dollars with Cengage Unlimited, which has been an unmitigated success.
Let me be clear, our business is solid and we have in place the tools to borrow any monies that we may require. Lastly, structural realignments are being planned that will offset any of the losses we've experienced.
It will be good to hear Mary's voice again.
Full Stop!