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Press release from Business Wire

Apollo Group, Inc. Reports First Quarter 2013 Results

Tuesday, January 08, 2013

Apollo Group, Inc. Reports First Quarter 2013 Results16:01 EST Tuesday, January 08, 2013 PHOENIX (Business Wire) -- Apollo Group, Inc. (NASDAQ: APOL) today reported financial results for the three months ended November 30, 2012, with revenue of $1.1 billion and diluted earnings per share of $1.18 per share, or $1.22 per share excluding special items. “In the first quarter, we continued to execute on our strategy to differentiate University of Phoenix, diversify Apollo Group and to further optimize our operations,” said Apollo Group Chief Executive Officer Greg Cappelli. “We are rolling out new career-oriented tools for students, as well as working with leading companies to help them meet their needs to develop an educated workforce. We are committed to become the educator of choice to connect education to careers and believe this approach will position us for long-term success.” First Quarter 2013 Results of Operations Net revenue for the first quarter 2013 was $1.1 billion compared to $1.2 billion in the first quarter 2012. University of Phoenix Degreed Enrollment was 319,700, a 14.3% decrease from the prior year first quarter, and New Degreed Enrollment was 54,100, a 15.1% decrease from the prior year first quarter. Operating income for the first quarter 2013 was $230.9 million, down 11.7%, compared to $261.7 million from the prior year first quarter. Income from continuing operations attributable to Apollo Group for the first quarter 2013 was $133.5 million, or $1.18 per share, compared to $147.5 million, or $1.13 per share in the first quarter 2012. Results for the first quarter 2013 include restructuring and other charges of $24.1 million attributable to the Company's optimization efforts and a $16.9 million credit for the reversal of charges associated with a securities class action lawsuit. Excluding the special items noted above, income from continuing operations for the first quarter 2013 was $137.9 million, or $1.22 per share, compared to income from continuing operations of $165.3 million, or $1.26 per share, for the first quarter 2012. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for first quarter 2013 and 2012 special items). Operating Expenses Operating expenses for the first quarter 2013 totaled $824.2 million, a decrease of 9.4%, as compared to first quarter 2012. Excluding special items, operating expenses were $817.0 million, a decrease of 8.0%. This decrease was primarily attributable to a reduction in costs from restructuring activities, which contributed to the decline in admissions advisory headcount, rent expense and depreciation expense. Additionally, a portion of the decrease was related to variable expenses due to lower net revenue. The provision for uncollectible accounts receivable (“bad debt”) also declined 19.7% to $33.4 million, primarily due to lower enrollment, as well as improved collection rates for aged receivables, at University of Phoenix. Balance Sheet and Cash Flow As of November 30, 2012, cash and cash equivalents, excluding restricted cash, totaled $776 million compared to $1.3 billion as of August 31, 2012. The decrease was primarily due to $625.8 million used for payments on borrowings, including the payment of $615.0 million borrowed under the Company's revolving credit facility, the Company's $42.5 million cash payment for its purchase of the noncontrolling interest in Apollo Global and $27.5 million for capital expenditures. These items were partially offset by $210.1 million of cash provided by operations. Accounts receivable were $201.5 million as of November 30, 2012, compared to $198.3 million at August 31, 2012. Excluding accounts receivable and the related net revenue for Apollo Global, the Company's days sales outstanding was 20 days as of November 30, 2012, as compared to 24 days as of November 30, 2011. Business Outlook The Company offers the following outlook for fiscal year 2013 based on the business trends observed during the first quarter 2013, as well as management's current expectations of future trends. Net revenue of $3.65 – $3.75 billion; and Operating income of $500.0 – $550.0 million, excluding the impact of special items and restructuring and other charges. Conference Call Information The Company will hold a conference call to discuss these earnings results at 5:00 p.m. ET, 3:00 p.m. MT, today, Tuesday, January 8, 2013. Dial-In Numbers: 877-292-6888 (Domestic)973-200-3381 (International)Conference ID: 82100134 A live webcast of this event may be accessed by visiting the Company's website at www.apollogrp.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, 2013. Dial-In Numbers: 855-859-2056 (Domestic)404-537-3406 (International)Conference ID: 82100134 About Apollo Group, Inc. Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business for nearly 40 years. The Company offers innovative and distinctive educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its subsidiaries: University of Phoenix, Apollo Global, Institute for Professional Development and College for Financial Planning. The Company offers programs and services throughout the United States and in Latin America and Europe, as well as online throughout the world. For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company's website at www.apollogrp.edu. Forward-Looking Statements Safe Harbor Statements about Apollo Group and its business in this release which are not statements of historical fact, including statements regarding Apollo 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 Company's restructuring initiatives to increase operating efficiency and better align operations with student demand and business strategy, including the substantial reduction in University of Phoenix on-ground locations, (iii) the impact of changes in marketing channels and other recruiting practices to better identify students who are more likely to succeed at University of Phoenix, (iv) the impact of the Company's initiatives to improve the student experience, improve student outcomes and enhance the connection between education and careers, (v) changes in enrollment or student mix, (vi) changes in the overall U.S. or global economy, (vii) changes in law or regulation affecting the Company's eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs, and (viii) changes in the Company's business necessary to remain in compliance with existing, new, or amended U.S. federal student financial aid program regulations, including the so-called 90/10 Rule and the limitations on cohort default rates, and to remain in compliance with the accrediting criteria of the relevant accrediting bodies. 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 Group's Form 10-K for fiscal year 2012 and subsequent Form 10-Q, and other filings with the Securities and Exchange Commission, all of which are available on the Company's website at www.apollogrp.edu. Use of Non-GAAP Financial Information This press release and the related conference call contain non-GAAP financial measures, which 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. Financial and Operating Metrics Below are Apollo Group's unaudited financial data and operating metrics for the first quarter 2013 compared to the first quarter 2012.               Degreed Enrollment(1)New Degreed Enrollment(2) Enrollment (rounded to hundreds)Q1 2013     Q1 2012Q1 2013     Q1 2012 Associate's 99,100 130,300 22,900 27,800 Bachelor's 168,000 182,500 22,500 26,100 Master's 46,000 52,900 8,000 8,900 Doctoral 6,600   7,400   700   900   319,700   373,100   54,100   63,700     Revenues (in thousands) Degree Seeking Gross Revenues(3) $ 992,274 $ 1,108,616 Less: Discounts and other (67,275 ) (62,734 ) Degree Seeking Net Revenues(3) 924,999 1,045,882 Non-degree Seeking Revenues 9,813 8,577 Other, net of discounts 120,371   117,441   $ 1,055,183   $ 1,171,900     Revenue by Degree Type (in thousands)(3) Associate's $ 251,890 $ 313,598 Bachelor's 560,806 592,910 Master's 158,891 178,445 Doctoral 20,687 23,663 Less: Discounts and other (67,275 ) (62,734 ) $ 924,999   $ 1,045,882     Degree Seeking Gross Revenues per Degreed Enrollment(1), (3) Associate's $ 2,542 $ 2,407 Bachelor's 3,338 3,249 Master's 3,454 3,373 Doctoral 3,134 3,198 All degrees (after discounts) $ 2,893 $ 2,803   (1) Represents students enrolled in a University of Phoenix 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 (for example, a graduate of the 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 University of Phoenix 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 revenue from tuition and other fees for students enrolled in University of Phoenix degree programs. Also includes revenue from tuition and other fees for students participating in University of Phoenix certificate programs of at least 18 credits in length with some course applicability into a related degree program.       Apollo Group, Inc. and SubsidiariesCondensed Consolidated Balance Sheets (Unaudited)       As of($ in thousands)November 30,2012     August 31, 2012ASSETS:Current assets Cash and cash equivalents $ 776,009 $ 1,276,375 Restricted cash and cash equivalents 351,575 318,334 Accounts receivable, net 201,456 198,279 Prepaid taxes 5,041 26,341 Deferred tax assets, current portion 55,489 69,052 Other current assets 64,513   49,609   Total current assets 1,454,083 1,937,990 Property and equipment, net 546,520 571,629 Goodwill 103,558 103,345 Intangible assets, net 145,789 149,034 Deferred tax assets, less current portion 80,446 77,628 Other assets 38,521   28,696   Total assets $ 2,368,917   $ 2,868,322     LIABILITIES AND SHAREHOLDERS' EQUITY:Current liabilities Short-term borrowings and current portion of long-term debt $ 22,236 $ 638,588 Accounts payable 63,202 74,872 Income taxes payable 60,717 — Student deposits 381,124 362,143 Deferred revenue 262,813 254,555 Accrued and other current liabilities 263,433   324,881   Total current liabilities 1,053,525 1,655,039 Long-term debt 75,562 81,323 Deferred tax liabilities 16,096 15,881 Other long-term liabilities 203,705   191,756   Total liabilities 1,348,888   1,943,999   Commitments and contingencies Shareholders' equity Preferred stock, no par value — — Apollo Group Class A nonvoting common stock, no par value 103 103 Apollo Group Class B voting common stock, no par value 1 1 Additional paid-in capital 41,311 93,770 Apollo Group Class A treasury stock, at cost (3,864,989 ) (3,878,612 ) Retained earnings 4,876,645 4,743,150 Accumulated other comprehensive loss (34,188 ) (30,034 ) Total Apollo shareholders' equity 1,018,883   928,378   Noncontrolling interests (deficit) 1,146   (4,055 ) Total equity 1,020,029   924,323   Total liabilities and shareholders' equity $ 2,368,917   $ 2,868,322         Apollo Group, Inc. and SubsidiariesCondensed Consolidated Statements of Income (Unaudited)       Three Months Ended November 30,       % of Net Revenue(In thousands, except per share data)2012     20112012     2011Net revenue $ 1,055,183   $ 1,171,900   100.0 % 100.0 % Costs and expenses: Instructional and student advisory 432,150 453,281 40.9 % 38.7 % Marketing 162,873 165,564 15.4 % 14.1 % Admissions advisory 71,308 101,388 6.8 % 8.7 % General and administrative 73,539 79,899 7.0 % 6.8 % Depreciation and amortization 43,695 46,167 4.1 % 3.9 % Provision for uncollectible accounts receivable 33,406 41,583 3.2 % 3.6 % Restructuring and other charges 24,116 5,562 2.3 % 0.5 % Litigation credit (16,850 ) — (1.6 )% — Goodwill and other intangibles impairment —   16,788   —   1.4 % Total costs and expenses 824,237   910,232   78.1 % 77.7 % Operating income 230,946 261,668 21.9 % 22.3 % Interest income 549 506 — 0.1 % Interest expense (2,042 ) (1,999 ) (0.2 )% (0.2 )% Other, net 1,799   140   0.2 % —   Income from continuing operations before income taxes 231,252 260,315 21.9 % 22.2 % Provision for income taxes (97,512 ) (115,179 ) (9.2 )% (9.8 )% Income from continuing operations 133,740 145,136 12.7 % 12.4 % Income from discontinued operations, net of tax —   2,148   —   0.2 % Net income 133,740 147,284 12.7 % 12.6 % Net (income) loss attributable to noncontrolling interests (245 ) 2,030   —   0.1 % Net income attributable to Apollo $ 133,495   $ 149,314   12.7 % 12.7 %   Earnings per share – Basic: Continuing operations attributable to Apollo $ 1.19 $ 1.13 Discontinued operations attributable to Apollo —   0.02   Basic income per share attributable to Apollo $ 1.19   $ 1.15     Earnings per share – Diluted: Continuing operations attributable to Apollo $ 1.18 $ 1.13 Discontinued operations attributable to Apollo —   0.01   Diluted income per share attributable to Apollo $ 1.18   $ 1.14     Basic weighted average shares outstanding 112,420   130,318   Diluted weighted average shares outstanding 112,849   130,874         Apollo Group, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows (Unaudited)       Three Months EndedNovember 30,($ in thousands)2012     2011Cash flows provided by (used in) operating activities: Net income $ 133,740 $ 147,284 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 16,889 20,892 Excess tax benefits from share-based compensation — (372 ) Depreciation and amortization 43,695 46,298 Accelerated depreciation included in restructuring 9,326 — Amortization of lease incentives (3,740 ) (3,789 ) Amortization of deferred gains on sale-leasebacks (700 ) (700 ) Goodwill and other intangibles impairment — 16,788 Non-cash foreign currency gain, net (607 ) (397 ) Provision for uncollectible accounts receivable 33,406 41,583 Litigation credit (16,850 ) — Deferred income taxes 6,064 (1,747 ) Changes in assets and liabilities, excluding the impact of acquisition: Restricted cash and cash equivalents (33,241 ) 2,315 Accounts receivable (36,349 ) (75,698 ) Other assets (6,432 ) (6,105 ) Accounts payable (11,771 ) 858 Income taxes payable 82,032 115,412 Student deposits 18,522 (22,272 ) Deferred revenue 8,075 22,340 Accrued and other liabilities (31,928 ) (1,448 ) Net cash provided by operating activities 210,131   301,242   Cash flows provided by (used in) investing activities: Additions to property and equipment (27,539 ) (23,585 ) Acquisition, net of cash acquired — (73,736 ) Other investing activities (14,819 ) —   Net cash used in investing activities (42,358 ) (97,321 ) Cash flows provided by (used in) financing activities: Payments on borrowings (625,762 ) (496,322 ) Proceeds from borrowings 2,176 — Purchase of noncontrolling interest (42,500 ) — Apollo Group Class A common stock purchased for treasury (3,472 ) (80,682 ) Issuance of Apollo Group Class A common stock 1,113 2,575 Excess tax benefits from share-based compensation —   372   Net cash used in financing activities (668,445 ) (574,057 ) Exchange rate effect on cash and cash equivalents 306   (491 ) Net decrease in cash and cash equivalents (500,366 ) (370,627 ) Cash and cash equivalents, beginning of period 1,276,375   1,571,664   Cash and cash equivalents, end of period $ 776,009   $ 1,201,037   Supplemental disclosure of cash flow and non-cash information Cash paid for income taxes, net of refunds $ 10,243 $ 1,316 Cash paid for interest $ 1,906 $ 2,344 Restricted stock units vested and released $ 9,496 $ 7,125 Capital lease additions $ — $ 6,668 Credits received for tenant improvements $ — $ 19,941 Debt incurred for acquired technology $ — $ 14,389       Apollo Group, Inc. and SubsidiariesReconciliation of GAAP financial information to non-GAAP financial information (Unaudited)       Three Months Ended November 30,(In thousands, except per share data)2012     2011 Net income attributable to Apollo, as reported $ 133,495 $ 149,314 Income from discontinued operations, net of tax and noncontrolling interest —   1,839   Income from continuing operations attributable to Apollo 133,495 147,475 Reconciling items: Restructuring and other charges(1) 24,116 5,562 Litigation credit(2) (16,850 ) — Goodwill and other intangibles impairment, net of noncontrolling interest(3) —   14,370   7,266 19,932 Less: tax effects (2,877 ) (2,091 ) Income from continuing operations attributable to Apollo, adjusted to exclude special items $ 137,884   $ 165,316     Diluted income per share from continuing operations attributable to Apollo, as reported $ 1.18   $ 1.13     Diluted income per share from continuing operations attributable to Apollo, adjusted to exclude special items $ 1.22   $ 1.26     Diluted weighted average shares outstanding 112,849   130,874     (1) Restructuring and other charges represent charges associated with the Company's series of restructuring activities to reengineer business processes and refine its delivery structure.   (2) Litigation credit during the three months ended November 30, 2012 represents the reversal of charges associated with the Securities Class Action (Policeman's Annuity and Benefit Fund of Chicago) matter.   (3) The charges for the three months ended November 30, 2011 represent impairments of UNIACC's goodwill and other intangibles, net of noncontrolling interest, with no income tax benefit as UNIACC's goodwill and other intangibles are not deductible for tax purposes. Apollo Group, Inc.Investor Relations Contact:Beth Coronelli, 312-660-2059beth.coronelli@apollogrp.eduMedia Contact:Media Relations Hotline, 602-254-0086media@apollogrp.edu