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This document summarizes Archipelago Learning's presentation at the BMO Capital Markets 11th Annual Back to School Education Conference on September 15, 2011 in New York City. The presentation discusses Archipelago Learning's strong financial results and growth opportunities in the growing digital K-12 education market. It also outlines the company's strategies to increase market share and product offerings while continuing to deliver solid revenue, earnings, and cash flow.

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BMO Capital Market 11th Annual Back to School Education Conference Sept 15, 2011 New York, NY © 2011 Archipelago Learning 0
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
Overview, Operations and Strategy Tim McEwen Chairman, CEO and President © 2011 Archipelago Learning 2
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
Educators facing significant challenges School Budget Pressures Educational Reform Federal Regulatory Mandates Underperforming Students Emerging Digital Technologies © 2011 Archipelago Learning 4
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
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
Established presence with significant opportunity for growth © 2011 Archipelago Learning 7
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
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
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
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
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
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
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
Financial Discussion & Outlook Mark S. Dubrow Executive Vice President and CFO © 2011 Archipelago Learning 15
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
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
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
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
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
Long-term goals Leader in K-12 digital transformation $250 million invoiced sales business Strategic mergers & acquisitions Double digit organic invoiced sales growth 40%+ sustainable cash EBITDA margin © 2011 Archipelago Learning 21
Investment considerations Digital transformation of K-12 underway Disruptive online learning model high impact / low cost solution Differentiated product offering Solid market presence to date Significant market penetration opportunity Scalable SaaS business model Strong free cash flow and cash EBITDA generation © 2011 Archipelago Learning 22
APPENDIX © 2011 Archipelago Learning 23
Appendix 1: Invoiced sales FY Ending December 31, LTM ($ 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
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
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

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Archipelago Learning

  • 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 $250 million invoiced sales business Strategic mergers & acquisitions Double digit organic invoiced sales growth 40%+ sustainable cash EBITDA margin © 2011 Archipelago Learning 21
  • 23. Investment considerations Digital transformation of K-12 underway Disruptive online learning model high impact / low cost solution Differentiated product offering Solid market presence to date Significant market penetration opportunity Scalable SaaS business model Strong free cash flow and cash EBITDA generation © 2011 Archipelago Learning 22
  • 25. Appendix 1: Invoiced sales FY Ending December 31, LTM ($ 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