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  2020-04-13

  Corporate Financial Response for C2 Education due to Continuing Pandemic Difficulties

  Fellow Associates, In my emails to you over the past few weeks, I have thanked and applauded the whole C2 Team on how we have adapted so fast into Virtual, while I have also been writing that we might need to adjust as we learn more about the situation and the economy. I had hoped that we would not need to make adjustments. We have held off as long as we could and frankly longer than many companies. However, the environment has further deteriorated and so the time is now. I want to share with you some critical adjustments we now need to make in the face of these challenging unprecedented times. First, I want to reinforce how proud I am of the C2 Team in how we have responded to shutting down our centers with skillful, innovative and hard work by so many. C2 Virtual was developed and launched in an extraordinary fast timeline. We already have about 60% of the sessions per day as we had before we shut our centers, and about 40% of our students in February have already been in a Virtual session. Our surveys are now showing high satisfaction with Virtual by our students and parents. Thank you to every single one of our 2,000 associates for embracing the change with Virtual. However, these times are so uncertain for so many of C2 potential customers and many are just not willing to decide to spend money on our type of services right now. This results in our revenue being only about 25% of a normal level. By continuing to serve our students with our teachers, we are spending money to pay teachers but with only 25% of the revenue coming in. That means we are losing cash and that is not sustainable. Over the past 3 weeks the leadership team has been trying to secure funding to make up for these losses. Our main shareholder and investor, Serent Capital, is being very supportive with extra capital and we are trying to get a loan from the SBA and the Cares Act. However, those efforts will not be sufficient to weather the current storm. We now need to temporarily adjust the numbers of our associates to enable C2 to get financially through this COVID -19 period. These are planned to be temporary COVID-19 adjustments and to be in place for the next 3 months. I will refer to “furloughs" and I want to first explain a furlough. Someone who is on furlough has their pay suspended temporarily but can keep benefits such as health. Importantly they are still employees of the company. They are NOT “Laid off”. They can be asked to come back into the workplace again at any time. While on furlough one can get unemployment benefits including the higher amounts from the two trillion dollar Cares Act. These adjustment plans have been carefully worked on by the ESC leadership team and the RVPs. We have had two overriding goals: - to be sure we continue to serve our existing students and are as well positioned as possible to regain momentum once the centers can open and the environment improves. - to take care of our employees as much as possible. So we are adjusting with furloughs rather than layoffs, enabling the continuation of everyone’s C2 benefits. Here are the broad details. -The ESC will reduce costs by 60% with half of the associates being furloughed, and with salary cuts for all the remaining ESC associates and RVPs in amounts ranging depending on salary... starting with myself at 50% and then down in percentage tiers from that. -We will keep all our centers open in the Virtual world. Some centers will move into combined lobbies, but with no changes in experience for our students or teachers. -We will have to operate with many less associates spread across the virtual centers. -For District Managers, half will be going on furlough or changing their duties. -For our Center Directors and Education Coordinators, 40% will be going on furlough. -Our teachers will continue as per the student schedules. Even after these cuts, we will be losing cash each month and this cash loss difference will be supported by our investors until we come out of this period when we can re-build with our re-opened centers and returning associates. Over the next few hours, the leadership team will be sharing with each one of you how this impacts you. These adjustments will be effective at the end of tomorrow. The rest of today and all of tomorrow will be considered Hand Off Days to ensure we can continue to serve our students. To minimize the impact on our students and their families, I trust we will all act as One Team over these two days with a high level of professionalism no matter how we are each impacted. In all my years as a leader, I could never have imagined that I would encounter such a situation in such unprecedented times. It’s never easy making changes like furloughs but it is especially difficult personally in such a great engaging, inspiring, values-driven and growing company as C2, and when it is of this magnitude, being in response to something that is entirely out of everyone’s control. C2 is so personal to us all. This really hurts all our hearts. It is all of our hope that once the centers can open we will be able to ramp up our business and bring associates back to engage again in C2. As the environment and confidence improves, families will find ways to pay for C2’s great services. I know the next days and months will be very tough. I wish all those going on furlough well and I thank those who remain and who will often take on a different scope of responsibilities. As we go though our different journeys, drawing on courage and resilience, I wish that you and your families stay healthy. In closing, whether on furlough or still working at C2, we are all connected in the C2 spirit. It runs through our veins. In spirit, we are still ONE TEAM with ONE PURPOSE. Best,