BMO Capital Market 11th Annual Back to School Education Conference

1. BMO Capital Market 11th Annual
Back to School Education Conference
Sept 15, 2011
New York, NY
© 2011 Archipelago Learning 0

2. Safe harbor
These slides and the accompanying oral presentation include forward-looking statements. These statements relate to
future events or to future financial performance and involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, levels of activity, performance, or achievements to be materially different
from any future results, levels of activity, performance, or achievement expressed or implied by these forward-looking
statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,”
“expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative
of these terms or other comparable terminology.
These forward-looking statements are based on assumptions that we have made in light of our industry experience
and on our perceptions of historical trends, current conditions, expected future developments and other factors we
believe are appropriate under the circumstances. These statements are not guarantees of future performance or
results and may vary from the examples discussed, and therefore undue reliance should not be placed upon them. We
undertake no obligation to update any forward-looking statements in order to reflect events or circumstances that
may arise after the date of this conference call. Factors that could materially affect our actual results, levels of activity,
performance or achievements include those referenced in the current report on Form 8-K filed with the Securities and
Exchange Commission (the “SEC”) on August 9, 2011, and those listed under the caption “Risk Factors” of Archipelago
Learning’s annual report on Form 10-K filed with the SEC on March 11, 2011, and its quarterly report on Form 10-Q
filed with the SEC on August 9, 2011.
During this presentation, we will mention financial terms such as Invoiced Sales, Cash EBITDA and Free Cash Flow --
which are non-GAAP measures. While these are non-GAAP measures of financial performance, management believes
these are common and useful tools in evaluating the performance of our business. Reconciliation to comparable
GAAP measures can be found in the appendix of this presentation which is available on our website, in the Investor
Relations section.
© 2011 Archipelago Learning 1

3. Overview, Operations and Strategy
Tim McEwen
Chairman, CEO and President
© 2011 Archipelago Learning 2

4. ARCL overview
Solid results, well-positioned for growth
100% online subscription-based provider of
supplemental products for K-12 education
Flexible, affordable solution to address technology
adoption in traditional, blended and virtual schools
Used in nearly 38,700 schools by over 14 million
students in the U.S., Canada and the UK
SaaS model with strong recurring revenue and
cash flow dynamics
…and we’re just getting started…
© 2011 Archipelago Learning 3

5. Educators facing
significant challenges
School Budget
Pressures
Educational
Reform
Federal Regulatory
Mandates
Underperforming
Students
Emerging Digital
Technologies
© 2011 Archipelago Learning 4

6. Disruptive web-based
learning model
High Impact
Web-based and dynamic
Rigorous academic content
Deeply customized to
standards
Low Impact Engaging and fun
Traditional K-12 Built-in remediation and
Materials enrichment
Immediate feedback and
High Cost Low Cost reinforcement
Print-based and static
Real-time assessment and
Loosely aligned to standards
reporting
Delayed and no feedback
Just-in-time professional
Expensive
development
Textbooks are boring
Affordable
© 2011 Archipelago Learning 5

7. Large market undergoing
digital transformation
U.S. K-12 Market U.K. K-12 Market
$630 Billion £85.5 Billion 9.6
54 Million 118,000 33,000
Annual Spend Students Schools Annual Million
Schools
[$12 Billion Spend on Spend Students
Instructional Materials ]
0.6% 24% 25% 0.004% 11% 28%
By by by By By By
Revenue Students Schools Revenue Students School
Sources: National Center for Educational Statistics (NCES) ; MDR; and Government Departments for Education.
© 2011 Archipelago Learning 6

8. Established presence with
significant opportunity for growth
© 2011 Archipelago Learning 7

9. Multiple long-term
growth opportunities
Expand number of schools
 Increase U.S. school penetration
 Grow internationally: UK and beyond
Increase average invoiced
sale and revenue per school
 Expand product initiatives
 Enrich product portfolio
 Enhance platform
© 2011 Archipelago Learning 8

10. Create a comprehensive
supplemental solution for educators
Current product offerings complement and transition
learning across all grade levels, subjects and on all devices
4-12
Post-Secondary
PreK-2
4-12
K-12
PreK-6
Future product offering
opportunities
Credit Recovery – RtI (All grades)
Math (Elem/Middle)
Science (Middle/High)
Online Courses (High)
© 2011 Archipelago Learning 9

11. Strive to partner with
educators
Students like the games and interactivity in Study Island.
Any time we can put more technology into students’ hands, they’re
going to enjoy school more and learning is going to increase.
B. Hah Supervisor of Elementary Mathematics, Academic Support Instruction (ASI)
Language Arts/Math, Elementary Testing, and K-12 Art
Woodbridge Township School District, New Jersey
© 2011 Archipelago Learning 10

12. Significant digital K-12
education investment opportunity
Leading provider of
online supplemental
education
Rigorous, engaging and cost-effective content
Comprehensive supplemental bundles provide
packaged solutions
Agile platform enables “safe harbor”
© 2011 Archipelago Learning 11

13. Customers First
Grassroots sales and marketing
initiatives
Enhanced operations and sales
management
Sustain and improve renewal rate
Award winning customer service
 Turn customers into champions
 Over 96% of teachers would
recommend Study Island to a 2011 Stevie Award for
Best Customer Service
colleague
© 2011 Archipelago Learning 12

14. Become part of
daily routine in classroom
Questions Answered
High usage 3.6
Study Island Only
 Greater likelihood of in billions 3.2
renewal
 Drives add-on business 2.5
Investment in customer
retention expected to: 1.6
 Raise usage
0.9
 Increase renewal rate
2006 2007 2008 2009 2010
© 2011 Archipelago Learning 13

15. Focused growth strategy
First to Lead; Second to None
Expand market presence and reach
 Increase number of schools and students
Enrich product initiatives and portfolio to offer
complete supplemental solution
 Engrain products into daily workflow
Continuously enhance platform – next product
release scheduled for Fall 2012
 Complete new user interface
 Single sign-on across all products
 District dashboard
 Prescriptive lesson plan
© 2011 Archipelago Learning 14

16. Financial Discussion & Outlook
Mark S. Dubrow
Executive Vice President and CFO
© 2011 Archipelago Learning 15

17. Financial focus
Sustainable growth
Financial discipline to decision making
Leverage SaaS business model
Financial community transparency and engagement
 Establish credibility via execution and delivering results
 Expand investor awareness about ARCL
Focus on maximizing shareholder value
© 2011 Archipelago Learning 16

18. Strong top-line growth
Invoiced Sales Revenue
in millions
$78.0 in millions $68.1
$71.4
$58.7
$53.9
$42.8
$39.8
$31.4
$25.9
$18.3
$14.5
$10.1
2006 2007 2008 2009 2010 LTM 2006 2007 2008 2009 2010 LTM
6/30/11 6/30/11
2008 data excludes TeacherWeb.
See Appendix for non-GAAP reconciliation of Invoiced Sales.
© 2011 Archipelago Learning 17

19. Highly seasonal sales cycle
Full year %
contribution Q1 Q2 Q3 Q4
Invoiced sales 16-18% 23-24% 34-36% 23-24%
Revenue 23-25% 24-26% 23-25% 26-28%
Revenue recognized over life of subscription
Average subscription: 16 months
Results in high revenue visibility
© 2011 Archipelago Learning 18

20. Cash EBITDA highly
correlated with invoiced sales
Predominantly fixed cost
Cash EBITDA
structure in millions
$32.5
Investments made in FY11 $30.9
to position company for $27.3
next stage of growth $22.4
Expenses support sales $14.1
generation and $8.1
customer care
Cash EBITDA reflective of
our operating efficiency 2006 2007 2008 2009 2010 LTM
6/30/11
See Appendix for non-GAAP reconciliation of Cash EBITDA.
© 2011 Archipelago Learning 19

21. Solid operating cash flow
to support growth
in millions
$27.6
Cash from operating activities
$24.3 $24.3
Free cash flow
$21.6 $22.0
$19.8
$13.6
$12.7$12.2 $12.2
$7.5 $7.2
2006 2007 2008 2009 2010 LTM 6/30/11
See Appendix for non-GAAP reconciliation of Free Cash Flow.
© 2011 Archipelago Learning 20

22. Long-term goals
Leader in K-12 digital transformation
$250 million invoiced sales business
Strategic mergers & acquisitions
Double digit organic invoiced sales growth
40%+ sustainable cash EBITDA margin
© 2011 Archipelago Learning 21

23. Investment considerations
Digital transformation of K-12 underway
Disruptive online learning model
high impact / low cost solution
Differentiated product offering
Solid market presence to date
Significant market penetration opportunity
Scalable SaaS business model
Strong free cash flow and cash EBITDA generation
© 2011 Archipelago Learning 22

24. APPENDIX
© 2011 Archipelago Learning 23

25. Appendix 1: Invoiced sales
FY Ending December 31,
LTM
($ in thousands) 2006 2007 2008 2009 2010 6/30/2011
Invoiced sales:
New customers $ 7,021 $ 11,224 $ 14,099 $ 15,567 $ 18,207 $ 18,358
Existing customers 6,896 13,841 24,709 37,219 51,642 57,872
Other sales 587 798 1,013 1,088 1,536 1,811
Total invoiced sales 14,504 25,863 39,821 53,874 71,385 78,041
Royalties on invoiced sales - - - - (153) (429)
Change in deferred revenue (4,439) (7,613) (8,405) (11,106) (12,582) (9,518)
Revenue $ 10,065 $ 18,250 $ 31,416 $ 42,768 $ 58,650 $ 68,094
2008 data excludes TeacherWeb.
Invoiced Sales Reconciliation includes results from EducationCity after June 9, 2010.
© 2011 Archipelago Learning 24

26. Appendix 2: Cash EBITDA
FY Ending December 31,
LTM
($ in thousands) 2006 2007 2008 2009 2010 6/30/2011
Total invoiced sales $ 14,504 $ 25,863 $ 39,821 $ 53,874 $ 71,385 $ 78,041
Royalties on invoiced sales - - - - (153) (429)
Net invoiced sales 14,504 25,863 39,821 53,874 71,232 77,612
Operating costs (1) 6,429 14,635 23,185 30,138 49,713 57,222
Depreciation & amortization 71 1,670 1,970 2,720 4,396 5,841
Cash EBITDA before adjustments 8,146 12,898 18,606 26,456 25,915 26,231
Stock based compensation - 631 355 562 1,762 2,677
Unusual, non-recurring items (2) - 590 3,481 284 4,803 1,950
Cash EBITDA $ 8,146 $ 14,119 $ 22,442 $ 27,302 $ 32,480 $ 30,858
(1) Operating costs are cost of revenues plus operating expenses.
(2) Unusual, non-recurring charges, when applicable, includes: investments and permitted acquisition expense, costs related to our corporate move,
and material severance.
2008 data excludes TeacherWeb. Data presented after June 9, 2010, includes results from EducationCity.
© 2011 Archipelago Learning 25

27. Appendix 3: Free cash flow
FY Ending December 31,
LTM
($ in thousands) 2006 2007 2008 2009 2010 6/30/2011
Cash flows from operating activities $ 7,451 $ 12,718 $ 13,551 $ 21,627 $ 24,303 $ 27,668
Purchase of property and equipment (211) (498) (1,324) (1,855) (2,268) (3,369)
Free cash flow $ 7,240 $ 12,220 $ 12,227 $ 19,772 $ 22,035 $ 24,299
© 2011 Archipelago Learning 26