Ambassadors Group, Inc. Reports Fourth Quarter 2012 Results

Outlook for 2013

As of February 3, 2013, enrolled revenue for 2013 travel programs was $127.2 million, down 19.2 percent from the same point last year, based on enrolled travelers of 20,846 compared to 24,881. Enrolled revenue for the Company's core product, Student Ambassadors, is down 21.7 percent to $115.7 million compared to $147.9 million at the same date last year, based on enrolled travelers of 16,886 compared to 21,476.

Enrolled revenue consists of estimated gross receipts to be recognized upon travel of an enrolled participant and revenue recognized for any delegates who have completed travel for the travel year referenced. Reported net enrollments consist of all participants who have enrolled in the Company's programs less those that have already withdrawn, including travel that has been completed. Enrolled revenue may not result in actual gross receipts eventually recognized by the Company due to both withdrawals from the Company's programs and expected future enrollments.

Based on current visibility for the balance of the year, the Company is providing guidance as follows:

• Consolidated gross revenues for all programs and operations to be between $125 and $135 million;  
• Consolidated gross margin as a percentage of gross revenue for all programs and operations of 36 percent to 37 percent; and   
• Net income before any special items of between $0 million and $2 million.

Conference Call and Webcast Information

The Company will host a conference call to discuss fourth quarter and full year 2012 results of operations on Thursday, February 7, 2013, at 11:30 a.m. Eastern Time (8:30 a.m. Pacific Time).  Participants can access the call via the internet at www.ambassadorsgroup.com/EPAX. The call can also be accessed by dialing 888-715-1397 or 913-312-0855 (international) and providing the passcode: 9875414. Approximately 24 hours following the call, a webcast will be available through April 5, 2013 at www.ambassadorsgroup.com/EPAX. A replay of the call will also be available through February 12, 2013 and can be accessed by dialing 888-203-1112 or 719-457-0820 (international) and providing the pass code: 9875414.  

About Ambassadors Group, Inc.

Ambassadors Group, Inc. (Nasdaq:EPAX) is an education company located in Spokane, Washington. Ambassadors Group, Inc. is the parent company of Ambassador Programs, Inc., World Adventures Unlimited, Inc. and BookRags, Inc., an educational research website. The Company also oversees the Washington School of World Studies, an accredited travel study and distance learning school. Additional information about Ambassadors Group, Inc. and its subsidiaries is available at www.ambassadorsgroup.com . In this press release, "Company", "we", "us", and "our" refer to Ambassadors Group, Inc. and its subsidiaries.

The Ambassadors Group, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=3541

Forward-Looking Statements

This press release contains forward-looking statements regarding actual and expected financial performance and the reasons for variances between period-to-period results. Forward-looking statements, which are included per the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this release. Such forward-looking statements speak only as of the date of this release and may not reflect risks related to international unrest, outbreak of disease, conditions in the travel industry, the direct marketing environment, changes in economic conditions and changes in the competitive environment. We expressly disclaim any obligation to provide public updates or revisions to any forward-looking statements found herein to reflect any changes in expectations or any change in events. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be met. For a more complete discussion of certain risks and uncertainties that could cause actual results to differ materially from anticipated results, please refer to the Ambassadors Group, Inc. 10-K filed March 12, 2012, and its proxy statement filed May 9, 2012.

AMBASSADORS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
	UNAUDITED
	Quarter ended December 31,
	2012	2011	$ Change	% Change
Net revenue, non-directly delivered programs (1)	$ 248	$ 713	$ (465)	-65%
Gross revenue, directly delivered programs (2)	--	70	(70)	-100%
Internet content and advertising revenue	1,101	1,195	(94)	-8%
Total revenue	1,349	1,978	(629)	-32%
Cost of sales, directly delivered programs (2)	(65)	(90)	25	28%
Cost of sales, internet content and advertising	133	169	(36)	-21%
Gross margin (3)	1,281	1,899	(618)	-33%
Operating expenses:
Selling and marketing	8,386	8,961	(575)	-6%
General and administration	4,111	4,137	(26)	-1%
Total operating expenses	12,497	13,098	(601)	-5%
Operating loss	(11,216)	(11,199)	(17)	0%
Other income (expense)
Interest and dividend income	276	250	26	10%
Foreign currency expense and other	(8)	(1)	(7)	-700%
Total other income	268	249	19	8%
Loss before income tax benefit	(10,948)	(10,950)	2	0%
Income tax benefit	915	3,152	(2,237)	-71%
Net loss	$ (10,033)	$ (7,798)	$ (2,235)	-29%
Weighted average shares outstanding – basic	17,333	17,493	(160)	-1%
Weighted average shares outstanding – diluted	17,333	17,493	(160)	-1%
Net loss per share — basic	$ (0.58)	$ (0.45)	$ (0.13)	-29%
Net loss per share — diluted	$ (0.58)	$ (0.45)	$ (0.13)	-29%

(1) Net revenue, non-directly delivered programs consists of gross revenue, less program pass-through expenses for non-directly delivered programs because we primarily engage third-party operators to perform these services.

	UNAUDITED
	Quarter ended December 31,
	2012	2011	% Change
Gross revenue	$ 1,178	$ 3,610	-67%
Cost of sales	930	2,897	-68%
Net revenue	$ 248	$ 713	-65%

(2) Gross revenue and cost of sales for directly delivered programs are reported as separate items because we plan, organize and operate all activities, including speakers, facilitators, events, accommodations and transportation.
(3) Gross margin is calculated as the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue less cost of sales non-directly delivered programs, costs of sales directly delivered programs and cost of sales internet content and advertising. Gross margin percentage is calculated as gross margin divided by the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue.

AMBASSADORS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
	UNAUDITED
	Twelve months ended December 31,
	2012	2011	$ Change	% Change
Net revenue, non-directly delivered programs (1)	$ 44,837	$ 51,966	$ (7,129)	-14%
Gross revenue, directly delivered programs (2)	9,008	10,426	(1,418)	-14%
Internet content and advertising revenue	4,207	4,046	161	4%
Total revenue	58,052	66,438	(8,386)	-13%
Cost of sales, directly delivered programs (2)	6,107	6,822	(715)	-10%
Cost of sales, internet content and advertising	554	575	(21)	-4%
Gross margin (3)	51,391	59,041	(7,650)	-13%
Operating expenses:
Selling and marketing	34,845	40,367	(5,522)	-14%
General and administration	16,224	16,564	(340)	-2%
Total operating expenses	51,069	56,931	(5,862)	-10%
Operating income	322	2,110	(1,788)	-85%
Other income (expense)
Interest and dividend income	1,730	1,340	390	29%
Foreign currency expense and other	(13)	155	(168)	-108%
Total other income	1,717	1,495	222	15%
Income before income tax provision	2,039	3,605	(1,566)	-43%
Income tax provision	(295)	(649)	354	55%
Net income	$ 1,744	$ 2,956	$ (1,212)	-41%
Weighted average shares outstanding – basic	17,530	17,746	(216)	-1%
Weighted average shares outstanding – diluted	17,530	17,869	(339)	-2%
Net income per share — basic	$ 0.10	$ 0.17	$ (0.07)	-41%
Net income per share — diluted	$ 0.10	$ 0.17	$ (0.07)	-41%

(1) Net revenue, non-directly delivered programs consists of gross revenue, less program pass-through expenses for non-directly delivered programs because we primarily engage third-party operators to perform these services.

	UNAUDITED
	Twelve months ended December 31,
	2012	2011	% Change
Gross revenue	$ 126,734	$ 140,609	-10%
Cost of sales	81,897	88,643	-8%
Net revenue	$ 44,837	$ 51,966	-14%

(2) Gross revenue and cost of sales for directly delivered programs are reported as separate items because we plan, organize and operate all activities, including speakers, facilitators, events, accommodations and transportation.
(3) Gross margin is calculated as the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue less cost of sales non-directly delivered programs, costs of sales directly delivered programs and cost of sales internet content and advertising. Gross margin percentage is calculated as gross margin divided by the sum of gross revenue non-directly delivered programs, gross revenue directly delivered programs and internet content and advertising revenue.

AMBASSADORS GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data)
	UNAUDITED	AUDITED
	2012	2011	% Change
Assets
Current assets:
Cash and cash equivalents	$ 6,150	$ 19,519	-68%
Available-for-sale securities	32,122	39,128	-18%
Foreign currency exchange contracts	837	--	100%
Prepaid program cost and expenses	17,217	13,299	29%
Accounts receivable	850	1,395	-39%
Deferred tax asset	221	668	-67%
Total current assets	57,397	74,009	-22%
Property and equipment, net	26,344	26,104	1%
Available-for-sale securities	723	700	3%
Foreign currency exchange contracts	--	--	0%
Deferred tax asset	--	--	-100%
Intangibles	3,565	3,421	4%
Goodwill	9,781	9,781	0%
Other long-term assets	85	85	0%
Total assets	$ 97,895	$ 114,100	-14%
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$ 4,238	$ 5,858	-28%
Participants' deposits	25,735	27,396	-6%
Foreign currency exchange contracts	--	1,671	-100%
Deferred tax liability	--	--	100%
Other liabilities	111	112	-1%
Total current liabilities	30,084	35,037	-14%
Participants' deposits	--	--	0%
Foreign currency exchange contracts	--	102	-100%
Deferred tax liabilities	2,688	2,004	34%
Total liabilities	32,772	37,143	-12%
Stockholders' equity	65,123	76,957	-15%
Total liabilities and stockholders' equity	$ 97,895	$ 114,100	-14%

AMBASSADORS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	UNAUDITED
	December 31,
	2012	2011
Cash flows from operating activities:
Net Income	$ 1,744	$ 2,956
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	5,273	4,742
Stock-based compensation	1,455	1,475
Deferred income taxes	387	420
Gain on foreign currency exchange contracts	--	--
Loss on disposition and impairment of property and equipment	24	246
Excess tax benefit (shortfall) from stock-based compensation	347	(160)
Change in assets and liabilities:
Accounts receivable and other assets	545	581
Prepaid program costs and expenses	(3,918)	(10,069)
Accounts payable, accrued expenses, and other current liabilities	(1,977)	194
Participants' deposits	(1,661)	(7,040)
Net cash provided by (used in) operating activities	2,219	(6,655)
Cash flows from investing activities:
Purchase of available for sale securities	(74,022)	(48,693)
Proceeds from sale of available-for-sale securities	80,521	83,035
Purchase of property and equipment	(5,139)	(3,101)
Proceeds from sale of property and equipment	--	49
Purchase of intangibles	(533)	(493)
Net cash provided by investing activities	827	30,797
Cash flows from financing activities:
Repurchase of common stock	(3,056)	(7,590)
Dividend payment to shareholders	(13,012)	(4,258)
Proceeds from exercise of stock options	--	227
Excess tax shortfall (benefit) from stock-based compensation	(347)	160
Net cash used in financing activities	(16,415)	(11,461)
Net increase (decrease) in cash and cash equivalents	(13,369)	12,681
Cash and cash equivalents, beginning of period	19,519	6,838
Cash and cash equivalents, end of period	$ 6,150	$ 19,519

Special Items

Due to cost cutting initiatives, the Company incurred charges throughout 2012 related to severance payments made as the workforce was reduced. The company also incurred legal and other fees relating to a proxy contest. 

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