By Porter Anderson, Editor-in-Chief | @Porter_Anderson
CEO Hansen Says Students Saved US$60 MillionRegular readers of Publishing Perspectives will recall that the US-based educational content company Cengage last year announced an industry-leading move to place full access to its more-than 22,000 titles into a subscription model it calls Cengage Unlimited.
Hoping to see “potential department-wide adoption and institution-wide adoption,” Cengage CEO Michael E. Hansen described the surprise his announcement of the new move had brought to the company’s sales force.
“We thought about this, obviously, very carefully” he told Publishing Perspectives in January 2018, “and we believe that there’s a first-mover advantage. We believe we can take market share from competitors because the combination of the quality of our content and this affordability is so compelling.”
In a new announcement, Hansen now says that while final results won’t be available until mid- to late-May, “I am pleased to share that we accomplished our main strategic objective—the launch of Cengage Unlimited—and, as a result, exceeded our financial guidance for the year.
“Despite another turbulent year for the industry at large,” he says in a commentary prepared for the news media, “we outperformed our competitors and improved the performance of our Higher Ed business. We were able to make significant investments in our strategic priorities while also generating positive free cash flow, thereby positioning ourselves for future growth.”
The company is offering preliminary 2019 fiscal highlights that include:
- Adjusted cash revenue of US$1.474 million, flat vs prior year, and adjusted cash EBITDA less prepub of $291 million versus guidance of $275 million
- Launched Cengage Unlimited, with more than 1 million subscriptions sold since August 2018
- Gained 65 basis points of market share in US higher education [based on MPI net sales data for twelve months ending March 31] and grew courseware activations by over 15 percent
- Initiated a company-wide transformation project to drive operational productivity
- Strong liquidity position of $440 million and net leverage ratio of 6.6x
In describing that preliminary set of top lines, the company writes, “The accelerating traction in Cengage Unlimited through the academic year, combined with a strong Q4 performance, enabled Cengage to deliver full-year adjusted cash revenue of $1,474 million, flat against prior year, and adjusted cash EBITDA less prepub of $291 million.
“The Q4 performance was underpinned by continuing momentum in Cengage Unlimited, double-digit revenue growth in international and a non-recurring software license sale.
“Revenue achievement coupled with continued cost improvements delivered earnings ahead of guidance for the full year.”
The Full-Access Adjustment
As Hansen described it to us in interview last year, the change meant something on the order of a US$179 outlay for a student on an annual basis instead of roughly $579. The cost of the subscription as the program approached its rollout was $119 for a semester.
Hansen credited the company’s development of content for his ability to attempt the change in model. “The key difference is that we have the depth and the breadth of content,” he said. “We can credibly say that we can fulfill all the content needs you have.”
The switch to a full-access subscription model was seen as a relatively aggressive adjustment includes ebooks, online homework and study guides, services including Chegg, the Kaplan Test Prep, Quizlet, and Evernote’s app, and has been described as vastly lowering costs for students who previously had been obliged to buy specific curricula bundles of content.
Indeed, so fundamental a change was the approach that it became apparent that anyone—not just a campus student—could subscribe to the Cengage library and follow any line of course work desired, a potential boon to the “lifetime learning” set.
In this month’s statement, Hansen says, “The commercial availability of Cengage Unlimited accelerated our digital transformation and proved that it’s possible for a longstanding incumbent to address customers’ needs for significantly enhanced value and user experience through pioneering new services.
“Students are willing to embrace change if they believe there’s value in it. In just eight months, more than one million subscriptions were purchased, saving students more than $60 million.”
Founded in 1994 as Thomson Learning, the company changed its name to Cengage in 2007. The Boston-based corporation has been under the direction of Hansen since 2012. Before that, he was an executive vice president with Bertelsmann.
And Cengage has moved rapidly to develop interactive learning functionality, offering students course materials in short bursts that test retention and gauge the speed with which a given subscriber is progressing.
As Hansen said at the time of the announcement, the introduction of the full-access model “changes our relationship with the end-user, whether an adult learner or a student in college.”