Tough Higher Ed market hits Cengage revenues

Cengage’s adjusted revenues stood at $1.5bn for the fiscal year 2017, down 10% from the prior year, the company has told investors, ahead of posting its annual report later this month.

Adjusted EBITDA for the year stood at $353m, a decline of 20% from the prior year.

The revenue decline was driven largely by the Higher Education performance within Cengage’s Learning business, where adjusted revenue was down 15% to $978m, driven by weakness in print sales, with EBITDA at $250m, down 30%. However core digital product grew 7%. Cengage measured its performance against an approximate 14% overall industry decline in this area last year.

The drop in Learning’s revenue was partially offset by 6% revenue growth in Cengage's International business, where there was strong growth in Higher Ed in EMEA, Australia and Canada, and “sustained” growth of ELT in EMEA and Latin America. There was also a “stable” performance at the Gale business, where revenue was flat but EBITDA growth was 15%.

C.e.o. Michael Hansen said there had been “significant volatility” in the Higher Education industry, hit by both a fall in enrolments, temporary impacts from channel ordering trends, and changes in faculty adoption and student purchasing behaviour affecting the demand for learning materials.

On that latter count, he noted: “Students continue to look for the most affordable solutions, moving away from purchasing new texts and towards the lowest cost options, often an e-book, rental or used book. Based on our data, rental has grown at a steady pace of about 7% year over year; however within the rental market, there is a shift away from current edition rentals to renting prior edition texts. This negatively impacts the sale of new textbooks to the rental providers.” Piracy is not a new issue in this space, but is increasingly significant, Hansen said. “Recent distribution efficiency of counterfeit materials appears to have increased significantly,” he noted. "We are committed to fight piracy in all forms… Counterfeiters - and anybody who enables them - profit at the expense of innovation, which students and faculty desperately need.”

The strong progress of Cengage's digital metrics affirmed the company’s overall strategy of driving digital penetration of the classroom at scale, Hansen affirmed. The company has the goal of being 90% digital within its Higher Education business by 2020. Among its priorities for the coming year, Hansen said: “We are reinventing the product development process and developing products largely independent of the physical book structure and framework.”

Cengage wants to be recognised as a student-focused company providing value and affordability, he added. “The industry has overstayed its welcome in the high-priced print textbook model and students are finding ways to access cheaper models.

“The pace of change within the industry is clearly increasing and our ability to develop and deploy new products and business practices will be a significant competitive advantage. Students and faculty seek products that improve learning and performance at affordable prices. Our investments are concentrated at large disciplines where we can scale to millions of students and increase our market share.” An example is its recent acquisition of WebAssign, he said, and MindTap ACE, which incorporates curated Open Educational Resources (OER).

A full annual report will be posted later this month.