Cengage Learning Holdings II, Inc.

Greetings. Welcome to the Cengage Group Fiscal 2023 Fourth Quarter and Full Year Ended March 31st, 2023 Investor Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Richard Weiss, Treasurer at Cengage Group. You may begin.

Good morning, and welcome to Cengage Group's fiscal 2023 fourth quarter and full year investor update. Joining me on the call are Michael Hansen, Chief Executive Officer, and Bob Monroe, Chief Financial Officer. A copy of the slide presentation for today's call has been posted to the company's website at cengagegroup.com forward slash investors. The following discussion contains forward-looking statements within the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements can be identified by words such as believe, expect, may, will, estimate, likely, and similar words, and are neither historical facts nor assurances of future performance, and relate to future results and events, and they are based on Cengage Group's current expectations and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, and many of which are outside of our control. Many factors could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements. You should consider such factors, many of which are subject to the risks and uncertainties discussed in the slide presentation, which accompanies this call. And in the risk factor section of our fiscal 2022 annual report for the year ended March 31st, 2022, as may be updated by our quarterly reports for the fiscal year 2023. The company's fiscal 2023 annual report will be posted shortly. Any forward-looking statement made in this presentation is based on currently available information. The company disclaims any obligation to publicly update or revise any forward-looking statements except as required by law. On today's call, And in our slide presentation, we will refer to certain non-GAAP financial measures. Definitions and the rationale for using these measures and reconciliations of each to its most directly comparable GAAP financial measure are provided in the appendix to the slide presentation. I'll now turn the call over to Michael for an update on the business, followed by Bob, who will take you through the fourth quarter and full year details. before we open the call for questions. Michael?

Good morning, everyone, and thank you for joining us for our fourth quarter and full fiscal year 2023 update. I am pleased to share that we successfully closed the books on a strong year. We exceeded our guidance of mid-single digit revenue growth and expanding ELPP. Our cash revenue of 1.476 billion for the fiscal year exceeded the range we provided of 1.455 to 1.47. Similarly, we are pleased to share that our fiscal year 23 ELPP of 351 million is higher than the 345 to 350 million guidance range we provided. All in all, We are extremely proud of our second consecutive year of both revenue and profitability growth. We are reporting full-year growth across all business units. Cengage Work and Cengage Select both grew adjusted cash revenue by 13% on a pro forma basis. Cengage Academic's strong fourth quarter led to a 1% year-over-year increase in revenues. It is also worth highlighting that for the year Cengage Academic grew adjusted cash ELPP by 4%, underpinned by over $20 million of annualized cost savings and operating efficiencies as we successfully integrated our US and international higher education and secondary businesses. Looking across our business, there were a number of standout performances led by ELT with 45% growth in adjusted cash revenues, while secondary grew 23% year over year, and add to goal grew 17%. Coming off a strong fourth quarter, we have great momentum going into fiscal year 24. Building on the fiscal 23 success in the state Florida math adoption, where we estimated we won over 25% share, we have recently secured significant wins in both open territory and state adoptions in our secondary business due to our focus on core middle and high school disciplines. While the overall state adoption opportunity is lower in fiscal 24, the balanced performance of our state adoption wins in Florida social studies, and Tennessee math and open territory wins from Pennsylvania to Nevada are the outcome of our teams from across the organization collaborating to bring our best content, technology, and service to market. In US higher ed, we continue to outperform the industry and finish the year strong with sales in the fourth quarter growing 5% over the prior year driven by institutional sales. For the full year, our digital business, which accounts for 88% of net sales, had a solid year with overall performance being held back by declines in print unit volumes, which represents an ever-decreasing component of our business. We believe U.S. higher ed remains on track to progressively return to revenue growth over the coming years, driven by our digital strategies. The team is further building digital momentum through the sales campaign for FordStarts with a clear focus on driving institutional sales and winning adoptions with our differentiated products and commercial models. Cengage Work continues its growth trajectory, powered by investments we have made over the past two years, resulting in revenues now exceeding $100 million, making a meaningful contribution to Cengage Group. Our Add2Go business significantly accelerated its sales performance over the fourth quarter and closed the fiscal year with its strongest sales quarter in its 25-year history. Looking ahead, in fiscal 24, we are launching new flagship products, adding service improvements such as one-to-one texting, and expanding options to help learners finance their education with grant programs and flexible payment plans. Similarly, In InfoSec, we have seen an acceleration of sales through the fourth quarter and into the first quarter of this fiscal year, driven by investments in our go-to-market capabilities. Beyond these established businesses, we have spent fiscal 23 building our ready-to-hire solution focused on the employer channel, by far the largest customer segment of the workforce skills market. This solution creates new talent pipelines for employers, through dedicated train-to-hire programs, upskilling of current talent, and connecting employers to pre-qualified candidates from a network of local workforce and academic partners. In February, we launched Ready to Hire for Healthcare, and later in April, we launched Ready to Hire for IT and cybersecurity. So far, the response to our Ready to Hire solution has been extremely positive, with pilots well underway with flagship customers who are leaders in these sectors. We will continue to aggressively pursue further partnerships with corporate employers in fiscal 24 to help them address their structural talent shortages and help more learners gain the skills needed to secure a job and expand their earnings potential. Our research business also finished the year strong, delivering a second consecutive year of growth driven by our US K-12 academic library and digital archives business, which have been at the core of our refocus strategy coming out of COVID. The research business heads into fiscal 24 with sustained momentum, backed by a healthy pipeline of sales and new products. Lastly, Sales for our English language teaching business reached a record high in fiscal 23, boosted by an exceptional year from Ministry of Education customers. Across other customer segments, including US K-12 school districts, all regions experienced strong demand, which we expect to be sustained in fiscal 24. Our exclusive partnership with the National Geographic Society and our focus on bringing the world to the classroom differentiates us in the market and has helped us win adoptions and outperform competitors. At the end of May, we closed our $525 million convertible preferred stock financing transaction led by Apollo Global Management. This investment from Apollo is a testament to our performance and confidence in our strategy. This significant cash infusion will allow us to meaningfully reduce our outstanding debt while providing financial flexibility to continue to invest in future growth opportunities. We welcomed Apollo to our shareholder base along with two new board members to our board of directors. Looking ahead, as we consider our overall growth trajectory and financial objectives, we see great potential in advancements around generative AI. Our platforms have leveraged forms of AI such as machine learning for decades. The introduction of generative AI presents new opportunities to advance our products and services in ways that were not previously possible. While GenAI has the potential to disrupt nearly every market, we are confident that the demand for branded, trusted content aligned to pedagogical standards will continue to be central to education. To put it plainly, you can get answers to homework questions through generative AI, but you cannot obtain a degree or a certificate solely with generative AI. We know this because we have been approached by several AI companies to license our content, which we have politely declined. We are focused on enhancing and expanding our content experience through generative AI and see significant opportunity in all parts of our portfolio. Our AI center of excellence is leading the charge to develop highly iterative additional pilots to inform our go-forward gen AI strategy and product development across the board. In parallel, we have launched studies to better understand administrators, instructors, and student perspectives on generative AI relating to classroom and student experience and outcomes. We are currently accelerating the development of three specific concepts, leveraging GenAI in existing products and to plan to bring these products enhancements to market within the next 90 days. Simultaneously, we continue to fervently protect our valuable IP. In closing, As we enter the final weeks of our quarter of fiscal year 24, we continue to see good momentum across our businesses, which we expect to translate into another year of steady revenue growth and expanded profitability driven by our sound strategy and experienced management team. As we consider the pace of change that we're now experiencing education, I speak for all of Cengage Group when I say that we are excited about the opportunities ahead of us to continue to advance the way students learn across the markets we serve. I will now turn the call over to Bob.