Thread regarding Cengage layoffs

I suppose another bankruptcy would take care of the debt servicing problem. Those .25% performance increases may be back sooner than u would like.

@1gcr+19nHo13D. EBITDA is up $23mm year over year. The funny thing is that everything AFTER the E in EBITDA is the important stuff. Take a look at interest, taxes, depreciation and amoritization costs and you have a company losing money. Cuts are not remotely done.

Again. EBITDA only one measure of whether a business is healthy or not. EBITDA is fine at cengage. Its the debt servicing that is hurting them.

The real report to pay attention to is the quarterly report, not the investor slides. What EBITDA does NOT calculate, which is the I in EBITDA, is interest. CL has paid $75 million dollars in interest over the past 9 months and will pay more than $110 million for the year.

Just think of that. $110 million dollars in profit is taken away to pay for all the debt that APAX threw on our balance sheets.

Its no different than having a solid job but buying a huge house....way bigger and what you can afford. Its absolutely no different than the real estate/financial crisis of 2008.

Take away the debt servicing, the business is OK. Not great or good. Just OK.

MH and team have done a solid job of whittling away at costs and they arent going to stop. They stripped $50mm in costs out first 9 months of 2020 vs. 2019. They still have lots of work to do.

Cengage needs to save money, but major layoffs are not the only option. They can save money other ways. Digital, for example, saves inventory costs and reduces print returns. Normal attrition reduces jobs without layoffs if you don’t replace workers who leave. Increasing market share, which they claim they are doing, likewise helps. And they have also stated they may save on office space by changing to more work from home. The business is changing, but that is not necessarily a death knell.

So EBITDA is down -212% from 3 to -3. Is that good or bad?

@foq+19nHo13D. They didn't lose $80mm. Losing $80mm would mean EBITDA declined by $80mm.
But it didn't. Revenue declined by $80mm. A trillion dollars in revenue is worthless if your cost is $1.1 trillion. Any business in the world would take less in top-line revenue but more in profit. Profit (cash) is all that matters UNLESS you are an early-stage company, who is focused on hyper-growth, betting that profit will come once scale is hit.

Cengage is the opposite. There is no growth, so the scenario I just described is impossible. The only answer for Cengage is to generate more profit by getting smaller.

I guess I'm just not that knowledgable when it comes to finance. How do you turn one dollar into two while losing 80 million dollars a quarter?

Is it because the margins are so high that if they cut so much the revenue is smaller but the cuts make the margin higher?

I would like to understand if anyone can explain for the layperson.

@eaz+19nHo13D They are managing the business like the cold and clear eyed consultants that they are. For those of you who wonder why Michael is still around, he's executing the job private equity sent him there to do. The problem is that what he has done to Cengage is not a very pleasant or inspiring story for employees, so they gloss it up with nonsense like "mission based company" and "focus on the student." At the end of the day private equity/management consulting is about turning one dollar into two, and that's exactly what he's done.

@llm+19nHo13D. Completely agree. Most of us came up in publishing sales and all that mattered was making your number. It was someone elses job to worry about margin. If I heard correctly gross margin is 78%, which is an amazing number.

You have to give credit where credit is due, MH and team have stripped every possible costs, (so far) that they can out of the business, while managing revenue down. Next stop is sales.

Net income or loss only tells one story. Cash is king. You can show a big income on paper, but if the company is out of cash they're out of business. The opposite is also true and appears to be what Cengage is pulling off. They actually have more cash on hand this quarter compared to the previous quarter and it doesn't appear to be from drawing on credit. That's pretty remarkable given the significant revenue decline, so they must be cutting expenses at a very significant rate. Another factor that isn't clear is how much the temporary salary reduction factored into their savings. But for now they are making it work. If revenue levels off at some point in the near future the company will be in decent shape. But the trend has been decreasing revenue every quarter and you can only cut for so long until you hit bone. Time will tell.

In terms of the investor call, a couple of key phrases from Bob Munroe speak to the questions on everyone's mind. Omitting the flowery double-speak, what the quote below is saying is that this enormous loss was partially offset with restructuring & cost reduction efforts and that these are expected to continue as we complete the 4Q and continue into the new fiscal year. Here's the relevant quote:

". . . The $77 million year-to-date decline and adjust to cash revenues translates to a gross margin impact for $43 million . . . This was driven by structural cost actions and product mix benefits.

We expect both to stay and build-on these benefits through ongoing cost programs, aligned to our digital strategy as we go forward . . . These savings continue to flow from our actions to mitigate the impact of the COVID crisis, the ongoing digital transformation in our business and the annualization benefits from the restructuring in the second half of the last fiscal year. . . "

Hansen did sink a lot of money into Boston but he did the same thing in SF and they closed that prestige branch.

I have heard two things, that NGL is being sold to Pearson and that’s why they dropped their K-12 but I’ve also heard that NG was very unhappy with what Cengage did with the NGL brand and DH was let go to try to appease them and keep the name, which may not be re-licensed to Cengage. Not sure if either is true.

I do know that there have been a lot of higher ups blocking off whole days for meetings and nobody I talk to seems to know why.

MH did seem even more stilted today and was off his game. He sounded like he was nervously reading a script. Maybe my imagination.

Does anyone know if we will see layoffs next week or in early March or if we have until Fall?

I think the selling off of NatGeo is true. I’ve heard things

Oh, you can bet that Hanson & Co. are taking the losses seriously. So seriously that even more people seem destined to lose their jobs in the coming weeks and months.

But that's not the point of investor calls. The purpose of these verbal parades is to present the rosiest picture possible for the folks holding the purse strings. That is how CEOs keep their jobs - even failing CEOs like Hanson.

As for large-scale sell-offs, the most natural victim would be NGL, especially as their leadership has departed. Assuming Pearson is involved in this pending transaction, as has been rumored, this makes little sense though. as Pearson recently sold off its K-12 business. There could be another NGL buyer in the mix, however.

Assuming the Pearson-related rumor IS true (speculation that something is up within that company is heavy right now, too), the most obvious target would be the former Delmar imprint in NY. While this business unit does seem to perform better than the general HED group (hard to tell, these days), losing that piece of the business frees Cengage from an entire branch location and a whole lot of personnel costs, too. Delmar's disciplines also line up quite nicely with Pearson's. The other thing to keep in mind there is that Clifton Park has never accounted for more than 10-12% of Thomson/Cengage domestic revenues, so while the success has been there through the years, the savings benefit could well outweigh whatever that group contributes to the overall profitability.

Boston HQ is going no where. Hansen sank far too much money and climbed way too far out on a PR limb to promote the space to pull back now. The irony here is, of course, that he unveiled an open, collaboration-oriented workspace just before a pandemic forced people apart. Seems par for the course when it comes to Hansen's leadership record.

The other thing to keep in mind is that given the virtual workplace situation everyone operates in right now, physical location begins to matter less and less to employers. Many companies are sharply reducing office space or eliminating large HQs altogether - simply because if they are no longer really needed. At least not like before. This puts any and all physical hubs at risk of closure - the few "bigwigs" in Mason can just as well work from home and commute to Boston as needed in the future.

Gonna be an interesting 2021 at Cengage, eh? But isn't it always . . .