Ambassadors Group, Inc. (NASDAQ:EPAX), (?Company?) a leading provider of educational travel experiences, announced today a $1.25 fully diluted earnings per share and $26.7 million net income for the year ended December 31, 2006, a 19 percent increase from $1.05 fully diluted earnings per share and $22.4 million net income for the year ended December 31, 2005.

Jeff Thomas, president and chief executive officer of Ambassadors Group, Inc., said, ?We are pleased with our 2006 financial results. We have continued to operate and build a business that offers unique, life-changing and globally beneficial travel programs to motivated and achievement-oriented delegates. In 2006, we traveled to 40 countries and had students from 70 countries participate in our domestic programs. This global reach enriches the lives of those who experience our programs.

At the same time, our operating success has continued to create value for our shareowners.

During the year just ended, we generated $26.7 million in net income and $37.2 million in operating cash flow. We then returned $18.4 million in cash to shareowners through our cash dividend and share buyback programs. Subsequent to year-end, we have already deployed $35.5 million to buy back 6.3% of shares outstanding. The net impact of these capital deployment efforts has resulted in Ambassadors returning $53.9 million to our shareowners since the beginning of 2006.

We will continue to seek opportunities to maximize shareowner returns through capital deployment, as well as continuing to grow our company.?

Year Ended December 31, 2006

During 2006 we traveled 43,075 delegates compared to 37,846 delegates in 2005. Gross program receipts increased 22 percent to $219.5 million in 2006 from $180.0 million in 2005, while net revenues increased 17 percent to $77.5 million in 2006 from $66.4 million in 2005. The increase in gross program receipts and net revenue are primarily due to the 13 percent increase in delegates traveled during the year. The decrease in gross margin for 2006 to 35 percent compared to 37 percent in 2005 is primarily due to higher international airfares and increased fuel surcharges.

Operating expenses were $43.4 million and $35.8 million for the years ended December 31, 2006 and 2005, respectively. This $7.6 million increase was attributable to expenses supporting the greater number of delegates traveling in 2006 and increased marketing expenses for 2007 travel programs. As a percent of gross receipts, operating expenses remained at 20 percent during 2006 and 2005.

The resulting operating income was $34.1 million for the year ended December 31, 2006 compared to $30.7 million for the year ended December 31, 2005.

Other income increased $2.1 million to $4.8 million for 2006 from $2.6 million in 2005 due to higher interest rates and increased investment balances held during the year.

Quarter Ended December 31, 2006

The fourth quarter 2006 net loss was $5.4 million, resulting in $0.26 loss per share. The comparable fourth quarter 2005 net loss was $4.8 million or $0.24 loss per share.

Fourth quarter 2006 gross program receipts increased to $12.6 million from $10.3 million for the fourth quarter 2005, and net revenue increased to $4.7 million from $4.1 million for the respective fourth quarters. The 14 percent increase in net revenue resulted primarily from traveling approximately 200 more delegates than the same quarter a year ago.

For the quarters ended December 31, 2006 and 2005, operating expenses incurred were $13.7 million and $11.8 million, respectively. The $1.9 million increase resulted from additional selling and marketing costs associated with increased expenditures to support continued growth in 2007, as well as the increased number of delegates traveling and the expensing of stock options as required by FASB 123R.

Cashflow and Balance Sheet

Total assets increased 23 percent to $154.0 million from $125.0 million at December 31, 2006 and 2005, respectively... Cash, cash equivalents and available-for-sale securities were $133.1 million and $116.6 million, of which $60.7 million and $47.5 million represented participant deposits, respectively. Deployable cash (see definition on page 4 of press release) at December 31, 2006 and 2005 was $67.9 million and $61.9 million, respectively.

Cash provided by operations was $37.2 million during 2006, a $0.6 million decrease from $37.8 million in 2005. Cash used in investing activities was $12.9 million and $15.6 million during 2006 and 2005, respectively, resulting from a $6.8 million decrease in net purchases of available-for-sale investments and a $4.2 million increase in purchases of property plant and equipment during 2006. The increase in property, plant and equipment was primarily due to the construction of the company's new headquarters to be occupied in 2007.

Cash used in financing activities increased to $14.4 million from $6.3 million as a result of increased quarterly dividends, increased common stock repurchases, and decreased proceeds from the exercise of common stock options in comparing the two fiscal years. During 2006 and 2005, we distributed $7.7 million and $5.7 million in cash dividends to our shareholders, and repurchased $10.7 million and $3.7 million of common stock, respectively. During the first quarter of 2007, the Company has deployed $35.5 million for the repurchase of common stock including the repurchase of 1.2 million shares held by Invemed Catalyst Fund, L.P.

The following table summarizes our statements of operations for the years and quarters ended December 31, 2006 and 2005 (in thousands, except per share amounts). Certain prior-period amounts have been reclassified to conform to the current year financial presentation. Such reclassification had no impact on previously reported net income or stockholders' equity.

UNAUDITED
Years ended December 31, 2006  2005 
Gross program receipts $ 219,451  $ 179,950 
Net revenue $ 77,482  $ 66,449 
Operating expenses:
Selling and marketing 31,638  27,574 
General and administrative 11,721  8,185 
Total operating expenses 43,359  35,759 
 
Operating income 34,123  30,690 
Other income, net 4,755  2,648 
Income before tax 38,878  33,338 
Income tax provision 12,186  10,928 
Net income $26,692  $ 22,410 

Weighted average shares outstanding ? basic

20,554 

20,311 

Earnings per share ? basic $ 1.30  $ 1.10 
Weighted average shares outstanding ? diluted 21,393  21,312 
Earnings per share ? diluted $ 1.25  $ 1.05 
UNAUDITED
Three months ended December 31, 2006  2005 
Gross program receipts $ 12,599  $ 10,285 
Net revenue $ 4,704  $ 4,131 
Operating expenses:
Selling and marketing 8,713  8,153 
General and administrative 5,014  3,640 
Total operating expenses 13,727  11,793 
 
Operating loss (9,023) (7,662)
Other income, net 1,129  638 
Loss before tax (7,894) (7,024)
Income tax benefit 2,468  2,209 
Net loss $ (5,426) $ (4,815)

Weighted average shares outstanding ? basic and diluted

20,540 

20,470 

Loss per share ? basic and diluted $ (0.26) $ (0.24)

Gross program receipts reflect total payments received by us for directly delivered and non-directly delivered programs. Gross program receipts less program pass-through expenses for non-directly delivered programs and cost of sales for directly delivered programs constitute our net revenues.

We have a single operating segment consisting of the educational travel and sports programs for students, athletes and professionals. These programs have similar economic characteristics and offer comparable products to participants, as well as utilize similar processes for the program marketing.

The following summarizes our balance sheets as of December 31, 2006 and 2005 (in thousands):

UNAUDITED
2006  2005 
Assets
Cash and cash equivalents $ 36,784  $ 26,916 
Available-for-sale securities 96,350  89,688 
Foreign currency exchange contracts 2,571  - 
Prepaid program cost and expenses 3,786  1,596 
Deferred tax asset and other 675  955 
Total current assets 140,166  119,155 
Property and equipment, net 12,267  5,140 
Deferred tax asset 1,328  584 
Other assets 192  167 
Total assets $ 153,953  $ 125,046 
 
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 6,863  $ 6,022 
Other liabilities 1,268  2,596 
Foreign currency exchange contracts -  1,896 
Participants' deposits 60,651  47,463 
Deferred tax liability 737  - 
Current portion of long-term capital lease 191  180 
Total current liabilities 69,710  58,157 
Capital lease, long term 196  387 
Total Liabilities 69,906  58,544 
Stockholders' equity 84,047  66,502 
Total liabilities and stockholders' equity $ 153,953  $ 125,046 

The following summarizes our statements of cash flows for the years ended December 31, 2006 and 2005 (in thousands):

UNAUDITED
2006  2005 
Cash flows from operating activities:
Net income $ 26,692  $ 22,410 

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,447  1,175 
Amortization of unearned compensation 765  455 
Deferred income tax provision (748) 130 
Equity in earnings on investment (25) (11)
Excess tax benefit from stock based compensation (2,376) - 
Stock option expense 1,292  - 
Change in assets and liabilities:
Prepaid program costs and expenses (2,190) 865 
Accounts payable and accrued expenses (230) 3,856 
Participants' deposits 13,188  8,855 
Other current assets (608) 57 
Net cash provided by operating activities 37,207  37,792 
Cash flows from investing activities:
Net change in available-for-sale securities and other (6,468) (13,332)
Purchase of property and equipment and other (6,455) (2,260)
Net cash used in investing activities (12,923) (15,592)
Cash flows from financing activities:
Dividend payment to shareholders (7,655) (5,729)
Repurchase of common stock (10,710) (3,741)
Proceeds from exercise of stock options 1,753  3,328 
Excess tax benefit from stock based compensation 2,376  - 
Capital lease payments and other (180) (178)
Net cash used in financing activities (14,416) (6,320)
Net increase in cash and cash equivalents 9,868  15,880 
Cash and cash equivalents, beginning of period 26,916  11,036 
Cash and cash equivalents, end of period $ 36,784  $ 26,916 

Deployable cash is a non-GAAP liquidity measure. Deployable cash is calculated as the sum of cash and cash equivalents, available for sale securities, and prepaid program costs and expenses less the sum of accounts payable, accrued expenses and other short-term liabilities (excluding deferred taxes and foreign exchange currency contracts), participant deposits and the current portion of long-term capital lease. We believe this non-GAAP measure is useful to investors in understanding the cash available to deploy for future business opportunities. The following summarizes our deployable cash as of December 31, 2006 and 2005 (in thousands):

2006  2005 
Cash, cash equivalents and available-for-sale securities $ 133,134  $ 116,604 
Prepaid program cost and expenses 3,786  1,596 
Less: Participants' deposits (60,651) (47,463)
Less: Accounts payable, accrued expenses and other short-term liabilities

(8,322)

(8,798)

Total deployable cash $ 67,947  $ 61,939 

Quarterly conference call and webcast

Ambassadors Group, Inc. will host a conference call to discuss results of operations for 2006, Friday, February 9, 2007 at 8:30 a.m. Pacific Time. Interested parties may join the call by dialing (866) 362-4820 then entering the passcode "Ambassadors Group". For international calls, dial (617) 597-5345. The conference call may also be joined via the Internet at www.AmbassadorsGroup.com/EPAX. For replay access, parties may dial (888) 286-8010 with the pass code 64855150 and follow the prompts, or visit the www.AmbassadorsGroup.com/EPAX website. Replay access will be available beginning February 9, 2007 at 10:30 a.m. Pacific Time through February 16, 2007. Post-view web cast access will be available following the conference call through April 16, 2007.

Business overview

Ambassadors Group, Inc. is a leading educational travel organization that organizes and promotes international and domestic programs for students, athletes, and professionals. These programs provide the opportunities for grade school, junior, and senior high school students to visit foreign and domestic destinations to learn about the history, government, economy and culture of such areas, as well as for junior and senior high school athletes to participate in international sports challenges. Our professional programs emphasize meetings and seminars between participants and persons in similar professions abroad. We are headquartered in Spokane, Washington with associates also in Washington, D.C. In this press release, ?Company,? ?we,? ?us,? and ?our? refer to Ambassadors Group, Inc.

Forward-Looking Statements