Apollo Education Group, Inc. (NASDAQ: APOL) (“Apollo” or the “Company”) today reported financial results for the three months ended November 30, 2015, with first quarter revenue of $586.0 million and a $0.53 diluted loss per share from continuing operations, or $0.29 earnings per share excluding special items.

“Apollo is taking the necessary steps to enhance long-term shareholder value through a series of strategic actions which include transforming University of Phoenix into a higher retaining, more trusted provider of career relevant higher education, continued expansion of our international network, and a commitment to efficiency,” said Greg Cappelli, Chief Executive Officer, Apollo Education Group. “The University of Phoenix team is implementing major components of its transformational plan as quickly as possible, and although this is having a near-term negative impact on revenue, we believe speed of execution will help the University return to stability more quickly. Apollo Global continues to expand and grow its network through a combination of high quality acquisitions and organic growth and is on-target for a record year. Finally, we have committed to incremental cost reductions in order to preserve our operating margin during this transformational period.”

First Quarter 2016 Results of Operations

Apollo Education Group reported net revenue for the first quarter 2016 of $586.0 million, compared to $714.5 million for the first quarter 2015. First quarter 2016 University of Phoenix New Degreed Enrollment was 24,500 and Degreed Enrollment was 176,900, compared to New Degreed Enrollment of 39,600 and Degreed Enrollment of 227,400 for the prior year first quarter. Operating loss for the first quarter 2016 was $45.2 million, compared to operating income of $64.2 million for the first quarter 2015. The operating results for the first quarter 2016 were significantly impacted by $73.4 million of goodwill impairment charges. Loss from continuing operations attributable to Apollo Education Group for the first quarter 2016 was $57.5 million, or $0.53 per share, compared to income of $36.1 million, or $0.33 per share, for the prior year first quarter.

Excluding special items, income from continuing operations attributable to Apollo Education Group for the first quarter 2016 was $31.3 million, or $0.29 per share, compared to $49.9 million, or $0.46 per share, for the first quarter 2015. Adjusted EBITDA was $80.2 million for the first quarter 2016 compared to $118.5 million for the first quarter 2015. (Special items and Adjusted EBITDA for the respective periods are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)

Balance Sheet and Cash Flow

As of November 30, 2015, the Company’s unrestricted cash and cash equivalents and marketable securities (including current and noncurrent) totaled $755.7 million, compared to $794.2 million as of August 31, 2015. The decrease was primarily attributable to cash used in operating activities and capital expenditures during the first quarter 2016.

Total debt outstanding (including short-term borrowings and the current portion of long-term debt) was $43.3 million as of November 30, 2015.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 8:30 a.m. (ET), 6:30 a.m. (MT), today, Monday, January 11, 2016.

Dial-In Numbers:
877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 13724699

A live webcast of this event may be accessed by visiting the Company’s website at www.apollo.edu. A webcast replay will be available approximately one hour following the conclusion of the call at the same link.

A telephone replay will be available approximately two hours following the conclusion of the call until January 22, 2016.

Dial-In Numbers:
855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 13724699

About Apollo Education Group, Inc.

Apollo Education Group, Inc. is one of the world’s largest private education providers, serving students since 1973. Through its subsidiaries, Apollo Education Group offers undergraduate, graduate, certificate and non-degree educational programs and services, online and on-campus, principally to working learners in the U.S. and abroad. For more information about Apollo Education Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company’s website at www.apollo.edu.

     

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 
Three Months Ended

November 30,

(In thousands, except per share data) 2015                 2014
Net revenue $ 586,021 $ 714,525
Costs and expenses:
Instructional and student advisory 291,327 321,574
Marketing 93,802 126,883
Admissions advisory 34,188 57,085
General and administrative 70,326 71,823
Depreciation and amortization 27,394 33,631
Provision for uncollectible accounts receivable 15,313 17,398
Restructuring and impairment charges 97,823 18,748
Acquisition and other related costs 1,097   3,219  
Total costs and expenses 631,270   650,361  
Operating (loss) income (45,249 ) 64,164
Interest income 919 589
Interest expense (1,456 ) (1,662 )
Other loss, net (843 ) (1,290 )
(Loss) income from continuing operations before income taxes (46,629 ) 61,801
Provision for income taxes (12,239 ) (27,054 )
(Loss) income from continuing operations (58,868 ) 34,747
Loss from discontinued operations, net of tax (3,259 ) (2,278 )
Net (loss) income (62,127 ) 32,469
Net loss attributable to noncontrolling interests 1,362   1,316  
Net (loss) income attributable to Apollo $ (60,765 ) $ 33,785  
Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo $ (0.53 ) $ 0.33
Discontinued operations attributable to Apollo (0.03 ) (0.02 )
Basic (loss) income per share attributable to Apollo $ (0.56 ) $ 0.31  
Earnings (loss) per share - Diluted:
Continuing operations attributable to Apollo $ (0.53 ) $ 0.33
Discontinued operations attributable to Apollo (0.03 ) (0.02 )
Diluted (loss) income per share attributable to Apollo $ (0.56 ) $ 0.31  
Basic weighted average shares outstanding 108,446 108,581
Diluted weighted average shares outstanding 108,446 109,378
 
 
     

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 
As of
($ in thousands) November 30,
2015		                 August 31,
2015
ASSETS
Current assets:
Cash and cash equivalents $ 419,766 $ 503,705
Restricted cash and cash equivalents 209,480 198,369
Marketable securities 257,012 194,676
Accounts receivable, net 214,379 198,459
Prepaid taxes 26,795 38,371
Other current assets 57,559 48,823
Assets of business held for sale —   40,897  
Total current assets 1,184,991 1,223,300
Marketable securities 78,874 95,815
Property and equipment, net 351,602 370,281
Goodwill 173,012 247,190
Intangible assets, net 137,452 143,244
Deferred taxes 89,190 92,105
Other assets 31,457   29,129  
Total assets $ 2,046,578   $ 2,201,064  
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt $ 22,485 $ 14,080
Accounts payable 49,282 64,100
Student deposits 239,946 245,470
Deferred revenue 187,830 186,950
Accrued and other current liabilities 251,948 280,847
Liabilities of business held for sale —   40,897  
Total current liabilities 751,491 832,344
Long-term debt 20,782 31,566
Deferred taxes 7,928 7,729
Other long-term liabilities 169,661   172,452  
Total liabilities 949,862 1,044,091
Commitments and contingencies
Redeemable noncontrolling interests 9,702 11,915
Shareholders’ equity:
Preferred stock, no par value — —
Apollo Class A nonvoting common stock, no par value 103 103
Apollo Class B voting common stock, no par value 1 1
Additional paid-in capital — —
Apollo Class A treasury stock, at cost (3,923,029 ) (3,928,419 )
Retained earnings 5,092,995 5,153,452
Accumulated other comprehensive loss (83,575 ) (80,579 )
Total Apollo shareholders’ equity 1,086,495 1,144,558
Noncontrolling interests 519   500  
Total equity 1,087,014   1,145,058  
Total liabilities, redeemable noncontrolling interests and shareholders’ equity $ 2,046,578   $ 2,201,064  
 
 
     

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 
Three Months Ended

November 30,

($ in thousands) 2015                 2014
Operating activities:
Net (loss) income $ (62,127 ) $ 32,469
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Share-based compensation 9,520 10,711
Excess tax benefits from share-based compensation — (229 )
Depreciation and amortization 27,394 36,404
Accelerated depreciation included in restructuring 2,953 3,086
Impairment charges and loss on asset dispositions 73,393 972
Non-cash foreign currency loss, net 352 535
Provision for uncollectible accounts receivable 15,313 17,398
Deferred income taxes 3 2,938
Changes in assets and liabilities:
Restricted cash and cash equivalents (10,973 ) (3,298 )
Accounts receivable (32,899 ) (50,331 )
Prepaid taxes 11,612 19,989
Other assets (9,915 ) (13,032 )
Accounts payable (14,690 ) 5,156
Student deposits (4,880 ) (26,138 )
Deferred revenue 2,087 29,822
Accrued and other liabilities (26,010 ) (48,153 )
Net cash (used in) provided by operating activities (18,867 ) 18,299
Investing activities:
Purchases of property and equipment (14,456 ) (20,337 )
Purchases of marketable securities (109,715 ) (59,490 )
Maturities and sales of marketable securities 62,776 53,974
Other investing activities (196 ) 405  
Net cash used in investing activities (61,591 ) (25,448 )
Financing activities:
Payments on borrowings (3,448 ) (596,789 )
Proceeds from borrowings 926 3,563
Share repurchases (517 ) (20,064 )
Share reissuances — 217
Excess tax benefits from share-based compensation — 229
Payment for contingent consideration —   (21,371 )
Net cash used in financing activities (3,039 ) (634,215 )
Exchange rate effect on cash and cash equivalents (442 ) (2,473 )
Net decrease in cash and cash equivalents (83,939 ) (643,837 )
Cash and cash equivalents, beginning of period 503,705   1,228,813  
Cash and cash equivalents, end of period $ 419,766   $ 584,976  
Supplemental disclosure of cash flow and non-cash information:
Cash paid for income taxes, net of refunds $ — $ 3,214
Cash paid for interest 1,392 1,701
Restricted stock units vested and released 1,430 5,499
 
 
     

Apollo Education Group, Inc. and Subsidiaries

Segment Data and University of Phoenix Operating Metrics

(Unaudited)

 
Three Months Ended
November 30,
($ in thousands) 2015                 2014
Net revenue:
University of Phoenix:
Degree seeking gross revenues(1) $ 523,590 $ 657,166
Less: Discounts and other (70,468 ) (75,794 )
Degree seeking net revenues(1) 453,122 581,372
Other revenues 9,495   11,481  
Total University of Phoenix 462,617 592,853
Apollo Global 115,332 115,140
Other 8,072   6,532  
Net revenue $ 586,021   $ 714,525  
Operating (loss) income:
University of Phoenix $ (17,504 ) $ 96,614
Apollo Global (2,335 ) (4,842 )
Other (25,410 ) (27,608 )
Operating (loss) income $ (45,249 ) $ 64,164  

 

(1)     Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs or certificate programs of at least 18 credits in length with some course applicability into a related degree program.
 
 
 
University of Phoenix Enrollment Data:
(Rounded to the nearest hundred, except per degreed enrollment)       Three Months Ended

November 30,

2015           2014           % Change
Degreed Enrollment(1) 176,900 227,400 (22.2 )%
New Degreed Enrollment(2) 24,500 39,600 (38.1 )%
Average Degreed Enrollment(3) 183,800 230,500 (20.3 )%
Degree seeking net revenues per degreed enrollment $ 2,561 $ 2,557
 

(1)

    

Represents students enrolled in a degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter; students who previously graduated from one degree program and started a new degree program in the quarter (e.g., a graduate of an associate’s degree program returns for a bachelor’s degree); and students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

 

(2)

Represents new students and students who have been out of attendance for more than 12 months who enroll in a degree program and start a credit bearing course in the quarter; students who have previously graduated from a degree program and start a new degree program in the quarter; and students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

 

(3)

Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective periods.

 
 
     

Apollo Education Group, Inc. and Subsidiaries

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

(Unaudited)

 
Three Months Ended

November 30,

(In thousands, except per share data) 2015                 2014
Net (loss) income attributable to Apollo, as reported $ (60,765 ) $ 33,785
Less: Loss from discontinued operations, net of tax (3,259 ) (2,278 )
(Loss) income from continuing operations attributable to Apollo (57,506 ) 36,063
Special items:
Restructuring and impairment charges(1) 97,823 18,748
Acquisition and other related costs 1,097   3,219  
Special items before income taxes 98,920 21,967
Less: income tax effects of special items (10,077 ) (8,124 )
Special items, net of income taxes 88,843   13,843  
Income from continuing operations attributable to Apollo, excluding special items $ 31,337   $ 49,906  
Diluted (loss) income per share from continuing operations attributable to Apollo, as reported $ (0.53 ) $ 0.33
Diluted income per share from continuing operations attributable to Apollo, excluding special items $ 0.29 $ 0.46
Diluted weighted average shares outstanding 108,446 109,378

 

(1)     During the first quarter of fiscal year 2016, we recorded $73.4 million of goodwill impairment charges.
 

Reconciliation of Adjusted EBITDA to Net (Loss) Income

     

Three Months Ended

November 30,

($ in thousands) 2015                 2014
Adjusted EBITDA:
University of Phoenix $ 92,459 $ 129,614
Apollo Global 6,490 6,222
Other (18,727 ) (17,364 )
Adjusted EBITDA 80,222 118,472
Less: Special items before income taxes (see above table) 98,920 21,967
Less: Depreciation and amortization 27,394 33,631
Less: Interest expense, net of interest income 537 1,073
Less: Provision for income taxes 12,239 27,054
Plus: Loss from discontinued operations, net of tax (3,259 ) (2,278 )
Net (loss) income, as reported $ (62,127 ) $ 32,469  
 

Use of Non-GAAP Financial Information

The Company’s non-GAAP financial measures are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because: (i) such measures provide an additional analytical tool to clarify the Company’s results from operations and help to identify underlying trends in its results of operations; (ii) as to the non-GAAP earnings measures, such measures help compare the Company’s performance on a consistent basis across time periods; and (iii) these non-GAAP measures are employed by the Company’s management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in the non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate non-GAAP financial measures differently, limiting their usefulness as a comparative measure across companies.

“Adjusted EBITDA” is earnings from continuing operations before interest expense and interest income, income taxes, depreciation and amortization, and special items. It is intended to provide an indicator of our operating performance across time periods due to the impact of amortization from acquisitions and other factors.

Forward-Looking Statements Safe Harbor

Statements about Apollo Education Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Education Group’s future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including without limitation: (i) the impact of increased competition from traditional public universities and proprietary educational institutions; (ii) the impact of the initiatives to transform University of Phoenix into a more focused, higher retaining and less complex institution, including the near-term impact on enrollment; (iii) the impact of the Company’s ongoing restructuring and cost-reduction initiatives; (iv) impacts from actions taken by our regulators that could affect University of Phoenix’s eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs; (v) impact of changes in our business in order comply with existing or new regulatory requirements; (vi) further delay in the University’s pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs, or any limitations or qualifications imposed in connection with any recertification; (vii) the impact of the U.S. Department of Defense (“DoD”) action to place University of Phoenix on probation in relation to participation in the DoD’s Tuition Assistance Program for active duty military students; (viii) the impact of any reduction in financial aid available to students, including active and retired military personnel, due to the U.S. government deficit reduction proposals, debt ceiling limitations, budget sequestration or otherwise; (ix) unexpected changes in University of Phoenix enrollment or student mix; and (x) unexpected expenses or other challenges in integrating acquired businesses, consumer or regulatory impact arising from consummation of such acquisitions, and unexpected changes or developments in the acquired businesses. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Education Group’s Form 10-K for fiscal year 2015, and other filings with the Securities and Exchange Commission which are available at www.apollo.edu.