Greetings,
The much anticipated Q4 financials are here. Looking at the slide deck vs. the actual filing shows the brilliance and skill of the Cenforce leadership, as digital sales are up and growth is strong. The efforts being made by the combined team at Cengage have been an unmitigated success!
Potential Office Closings:
As someone else pointed out, it's looking grim for employees in Kentucky, and I believe that these employees will soon realize the dream of being their CEO. A lease expires in September 2024, and the building has 27,000 square feet of unused space. There is another lease for part of the property that expires in 2026, but looking into Cengage's past, we know that closing an office with a few years left on a lease has been done before. If I remember correctly, Boston, San Francisco, and NYC were all closed with leases remaining.
This would be a quick and clean way to reduce expenses for the balance sheet. I know there is no high-level leadership in KY, and it's only a 45-minute drive to Mason. Cengage has a trend of concentrating leadership in flyover Ohio, where employees are cheaper than on the coast. I would think any mid-level KY employee would suck it up and make the commute vs. being unemployed in that region of the country.
Losses:
Despite increased digital sales, the company lost 40.2 million dollars in FY23. The second quarter showed substantial revenue of 16.5m, but this was eroded and slightly surpassed in Q3 and Q4 losses totaling 17.8m. Q1 was a mess with a 38.9m loss. This was slightly less than FY22, where the losses totaled 44.6m.
Liabilities:
This is where Cengage's balance sheet scares me the most. In simple terms, liabilities are monies owed to other people, and assets are what the company owns.
There is a simple formula used to determine a company's debt-to-asset ratio, and this number determines how healthy a company is and also plays into how much it can borrow and the rates it will need to pay.
Imagine being a Cenforce member with $100,000 in student loans, making $50,000/yr, and having rent, credit cards, and a car payment. Chances are you would not qualify for a good rate on a mortgage for a $1m home.
Cengage's assets are 2646.2m. This is down 84.2m from 2022 (2730.7).
Cengage's liabilities are 2955. This is down 33.9m from 2022 (2988.9).
Lowering liabilities is a good thing, and the slide deck makes a big deal out of this, along with digital sales growth. On the surface, these are solid milestones that should be celebrated.
Simply put, the amount of debt that was eliminated (33.9) is about 40% of the total revenue the company lost (84.2). To use the example above, imagine if the Cenforce member managed to pay off $800* in credit card debt but at the same time took a $2000* pay cut. Would this make the employee better off financially?
*I've used the same 40% to make the example relevant.
Digital Sales - Good or Bad?
Much is said of increased digital sales, and the information presented is accurate. Digital revenue has grown since 2021, and this is good.
Looking at past data, we see increases and decreases in quarters based on the nature of Cengage's business. The Q4 digital numbers were up, but courseware, digital, and print were down for the year (-1%, -1%, and -24%, respectively).
Higher Ed courseware activations were up 1%, but HE Cengage Unlimited subscriptions were down 15%.
Conclusion:
I could keep going with this analysis, but I'm WFH as it's Friday, and I need to go to the grocery store and get breakfast before my one meeting today.
I suggest looking at the filing section regarding restructuring costs, leases, and revenue losses, and that should give the average Cenforce member an idea of what's to come in 2024.
Full Stop!