University Group Operating Income Increases 50%
and Strategic Transformation Continues to Position the Company for
Long-Term Success
Career Education Corporation (NASDAQ: CECO) today reported
operating and financial results for the second quarter of 2015.
Business Highlights:
- Increased University Group revenue by
2.6 percent year-over-year to $138.2 million, driven by increased
total enrollments
- Increased University Group operating
income by 50.0 percent year-over-year to $29.4 million, driven by
ongoing cost discipline and modest total student enrollment
growth
- 2015 operating expenses for continuing
operations remain in line with the Company’s expectations and were
lowered by $25.9 million, excluding severance charges of $12.6
million
- Adjusted EBITDA was $26.6 million for
the University Group and Corporate, an improvement of 36.3 percent
or $7.1 million as compared to the prior year quarter
- Adjusted EBITDA for the Transitional
Group and Discontinued Operations improved to ($30.8) million,
compared to ($39.1) million in the same quarter last year, as a
result of continued progress in executing legacy teach-outs,
reducing lease obligations and benefits from the accretive nature
of the Career College teach-outs announced in early May
- Pleased to welcome experienced
education industry executive Todd Nelson as President & CEO,
effective August 12, 2015
Chairman and Interim CEO Ron McCray commented, “Our core
University assets continued to perform very well during the quarter
driven by modest total enrollment growth and our commitment to
providing high-quality educational experiences to our students.
Further, our cost discipline initiatives were quite evident in our
performance during the second quarter as the University Group’s
operating income increased approximately 50%. This improved
business performance will allow us to expand and incrementally
invest in our predominantly online University platform in the
future. For example, we were very pleased this past quarter to
announce that American InterContinental University (AIU) has
received approval for its new Master of Education (M.Ed.) degree
programs focused on Elementary and Secondary Education.”
BUSINESS TRANFORMATION UPDATE
In May 2015, Career Education announced that the Company would
teach out its Sanford-Brown institutions and pursue strategies to
divest or teach-out the remaining institutions within the former
Career Colleges group. As part of the process to focus its
resources on the University Group, the Company also announced that
it was taking actions to better align its corporate overhead and
streamline operations in order to make the University Group more
efficient and effective in supporting its students.
Transformation Highlights:
- Company continues to make progress
against its strategy to divest and/or teach-out its remaining
Career Colleges. Excluding restructuring charges, the Company
expects these actions to be accretive to 2015 results. In addition
to other initiatives, the Company has
- Initiated teach-outs at the 15
Sanford-Brown campuses, including Sanford-Brown Online
- Completed the sale of Brooks Institute
in June 2015
- Signed a purchase agreement for
Missouri College and initiated the divestiture process for
Briarcliffe College
- Sale process for Le Cordon Bleu (“LCB”)
campuses continues, and a number of prospective buyers have
initiated due diligence processes; Company expects to execute an
agreement by year end
- Company remains on track to generate
flat-to-modest total student enrollment growth within the
University Group over time
- Updated restructuring charges for the
teach out and divestiture initiatives, which are now expected to
total $32 to $38 million, compared to the original projection of
$40 to $50 million
- Recorded approximately $12.6 million
for severance and related costs during the second quarter, which
are expected to be paid through 2018
- The Company expects to record an
additional $20 million - $25 million of aggregate charges
associated with exiting lease obligations as campuses cease
operations through 2018, with cash payments continuing through
2023
- Based on the Company’s analysis and the
key assumptions referenced below, Adjusted EBITDA(1) from the
Transitional Group and Discontinued Operations, excluding our LCB
campuses(1) is now estimated to be approximately ($100) million in
2015 and ($85) million in 2016
- Transformation strategy is expected to
remove approximately $375 million in operating expenses(1) by the
end of 2018 compared to annualized second quarter 2015 operating
expenses (including discontinued operations and excluding asset
impairments). Key drivers of this expense reduction will be
- Completion of the teach-out/divestiture
of Transitional Group and LCB
- Right-sizing of corporate overhead to
serve primarily online institutions
- Achievement of greater operating
efficiencies within the core University Group
McCray concluded, “The strategic actions that we began
implementing during the quarter were transformational. As a result
of these decisions, and based on the assumption that our
divestitures will be completed by early 2016 while maintaining
flat-to-modest total enrollment growth within our University Group,
we expect total company operating margins to increase to mid-single
digits in 2016 as we continue to make progress toward competitive
operating margins. Furthermore, we expect to not only maintain a
cash, cash equivalents and investment balance above $190 million in
2015, we expect that balance to remain stable in 2016 and to grow
in 2017 and beyond as a result of the accretive nature of this
transformation. We believe Career Education has a long and
prosperous future ahead of it, and we look forward to sharing our
success with our students, employees and shareholders as we execute
against our strategic plan.
“We also look forward to the addition of Todd Nelson as our next
CEO, whom we recently announced will be joining us on August 12. We
strongly believe that he is the best leader to execute the
remaining steps of this transformation while positioning the
Company for long-term success.”
(1) The estimates provided above for future Transitional Group
and Discontinued Operations Adjusted EBITDA (excluding LCB) and
company-wide operating expense reductions are based on the
following key assumptions and factors, among others: (i)
flat-to-modest total enrollment growth within the University Group
over time, (ii) teach-outs and divestitures to occur as planned and
performance consistent with historical experience, (iii) signed
purchase agreement for LCB by year end and transaction closed by
early 2016, (iv) achievement of projected rates of recovery for our
real estate lease obligations which are consistent with historical
experience, (v) right-sizing of our Corporate expense structure to
serve primarily online institutions, (vi) no material changes in
the legal or regulatory environment, and (vii) consistent working
capital trends as compared to historical results. All projections
for 2016 and beyond assume a completed sale of our LCB
campuses. Although these estimates and assumptions are based
upon management’s good faith beliefs regarding current events and
actions that we may undertake in the future, actual results could
differ from these estimates.
REVENUE
For the second quarter of 2015, total revenue was $174.8
million, a 6.1 percent decrease from $186.2 million for the second
quarter of 2014. Total revenue for the University Group was $138.2
million for the second quarter of 2015 compared to $134.7 million
for the second quarter of 2014, an increase of 2.6 percent.
Adjusting for changes related to accounting for withdrawn students
that occurred in the fourth quarter of 2014, revenue increased 3.9
percent for the current quarter as compared to the prior year
quarter for the University Group.
`
Revenue ($ in thousands)
Q2 2015 (3) Q1 2015 (3)
Q4 2014 (3) Q3 2014 Q2
2014 CTU $
86,174 $ 85,127 $ 82,202 $ 82,410 $ 85,041 AIU 52,024
53,066 44,749 51,889
49,685 Total University Group 138,198
138,193 126,951 134,299
134,726 Corporate and Other 39 39 40 52 38 Transitional Group (1)
36,543 44,070 47,216
48,474 51,408 Total (2) $ 174,780 $
182,302 $ 174,207 $ 182,825 $ 186,172
__________
(1) Teach-out campuses included in the Transitional Group
are in the process of being taught out and therefore no longer
enroll new students. Additionally, campuses which have ceased
operations subsequent to December 31, 2014 and no longer qualify
for discontinued operations treatment under Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 360 – Property, Plant & Equipment or campuses that were
announced for sale subsequent to December 31, 2014 are also
included in the Transitional Group. (2) Excludes discontinued
operations, which consists of the results of operations for
campuses that have ceased operations prior to 2015 and the LCB
campuses which are held for sale. (3) Fourth quarter of 2014 total
revenue was negatively impacted by approximately $9.4 million due
to the change in how the Company accounts for revenue for students
who withdrew from one of its institutions prior to completion of
their programs. This cumulative adjustment was recorded during the
fourth quarter of 2014. First quarter and second quarter of 2015
were negatively impacted by approximately $1.9 million and $2.2
million, respectively, related to this change in accounting.
TOTAL AND NEW STUDENT ENROLLMENTS
For the second quarter of 2015, total student enrollments for
the University Group were 31,300, which increased 2.3 percent as
compared to the prior year quarter. New student enrollments for the
University Group were 7,950, an increase of 9.1 percent as compared
to the prior year quarter due to growth at Colorado Technical
University (CTU). This increase was also partially attributable to
a change in the methodology used to calculate new student
enrollments at AIU beginning in the second quarter of 2014 related
to cancelled student enrollments. Excluding the impact of this
change, new student enrollments within the University Group
increased by 2.4 percent during the second quarter as compared to
the prior year quarter.
Total Student Enrollment Q2 2015
Q1 2015 Q4 2014 Q3 2014
Q2 2014 CTU
20,600 20,300 20,400 19,800 19,800 AIU 10,700 13,500
11,600 11,500 10,800 Total University Group 31,300
33,800 32,000 31,300 30,600
Transitional Group 7,000 9,500 9,400 11,300
10,300 Total 38,300 43,300 41,400
42,600 40,900
New Student Enrollments Q2 2015 Q1
2015 Q4 2014 Q3 2014 Q2
2014 CTU 5,670 5,040 5,670 5,460 5,280 AIU (1) 2,280
5,090 3,370 3,300 2,010 Total
University Group 7,950 10,130 9,040 8,760
7,290 Transitional Group (2) 830 1,830 1,150
3,290 1,660 Total 8,780 11,960 10,190
12,050 8,950
__________
(1) Beginning in the second quarter of 2014, AIU changed its
methodology related to certain cancelled student enrollments. As a
result, the increase in the current quarter versus the prior year
quarter was a result of this change in methodology. (2) Teach-out
campuses within the Transitional Group no longer enroll new
students; students who re-enter after 365 days are reported as new
student enrollments.
OPERATING (LOSS) INCOME
For the second quarter of 2015, operating loss of $9.3 million
improved 17.1 percent compared to an operating loss of $11.3
million in the prior year quarter. Total University Group operating
income increased to $29.4 million from $19.6 million in the prior
year quarter, an increase of 50.0 percent. This increase in
operating income was primarily driven by ongoing cost improvement
initiatives, which were partially offset by increased
administrative expense as a result of general corporate overhead no
longer being allocated to the LCB campuses which are held for sale,
therefore increasing the percentage allocated to the University
Group.
Operating (Loss) Income
Q2 2015 Q1 2015 Q4 2014
Q3 2014 Q2 2014 ($ in
thousands)
CTU $ 24,263 $ 14,616 $ 23,356 $
10,698 $ 20,957 AIU 5,174 (2,887 )
(304 ) (4,194 ) (1,331 )
Total University Group 29,437 11,729
23,052 6,504
19,626 Corporate and Other (1) (7,036 ) (5,860
) (7,048 ) 2,528 (5,513 ) Transitional Group (2) (31,733 )
(30,470 ) (23,788 )
(40,764 ) (25,364 ) Total (3) $ (9,332 ) $
(24,601 ) $ (7,784 ) $ (31,732 ) $ (11,251 )
(1) Income related to a net insurance recovery of $8.6
million was recorded during the third quarter of 2014. (2) Asset
impairment charges of $1.7 million, $6.0 million, $3.9 million and
$12.9 million were recorded during the second quarter of 2015,
first quarter of 2015, fourth quarter of 2014 and third quarter of
2014, respectively. (3) Excludes discontinued operations, which
consists of the results of operations for campuses that have ceased
operations prior to 2015 and the LCB campuses which are held for
sale.
ADJUSTED EBITDA
The Company believes it is useful to present non-GAAP financial
measures, which exclude certain significant items, as a means to
understand the performance of its operations. (See tables below and
the GAAP to non-GAAP reconciliation attached to this press release
for further details.)
For the second quarter of 2015, Adjusted EBITDA for the
University Group and Corporate increased $7.1 million compared to
the prior year quarter, driven by increased revenue and continued
cost reduction initiatives. Adjusted EBITDA for the Transitional
Group and Discontinued Operations was ($30.8) million for the
second quarter of 2015, compared to ($39.1) million in the prior
year quarter. This favorability is a result of the completion of
teach-out campus operations and continued focus on reducing lease
obligations once a teach-out is complete.
Adjusted
EBITDA Q2 2015 Q1
2015 Q4 2014 Q3 2014 Q2
2014 ($ in thousands)
University Group
and Corporate:
Pre-tax loss from continuing operations $ (10,218 ) $ (24,990 ) $
(7,747 ) $ (31,651 ) $ (11,664 ) Transitional Group pre-tax loss
32,624 30,470 23,788 40,764 25,364 Interest (income) expense, net
(52 ) 2 (38 ) (120 ) (177 ) Depreciation and amortization (1) 3,956
4,361 5,170 5,402 5,732 Stock-based compensation (1) 530 940 966
950 1,020 Legal settlements (1) (2) - - - - (400 ) Asset
impairments (1) - - - 73 - Unused space charges (1) (3) (348 ) 556
(373 ) (368 ) (363 ) Insurance recovery - - - (8,588 ) - Cumulative
adjustment related to revenue recognition (1) 94
93 1,354 -
-
Adjusted EBITDA--University Group
and Corporate $ 26,586 $
11,432 $ 23,120
$ 6,462 $ 19,512
Memo: Advertising Expenses $ 34,258
$ 50,587 $ 36,731
$ 50,410 $
37,407
Transitional
Group and Discontinued Operations:
Pre-tax loss from discontinued operations $ (11,252 ) $ (102 ) $
(17,195 ) $ (15,201 ) $ (33,046 ) Transitional Group pre-tax loss
(32,624 ) (30,470 ) (23,788 ) (40,764 ) (25,364 ) Loss on sale of
business (4) 917 - - - 311 Depreciation and amortization (4) 3,231
2,351 7,319 7,739 8,662 Legal settlements (4) (166 ) 1,485 - 225
2,000 Asset impairments (4) 11,372 6,019 14,203 14,412 7,454 Unused
space charges (3) (4) (2,305 ) (2,424 ) (2,063 ) (3,343 ) 920
Cumulative adjustment related to revenue recognition (4) 13
(67 ) 1,029
- -
Adjusted EBITDA--Transitional
and Discontinued Operations $ (30,814 )
$ (23,208 ) $
(20,495 ) $ (36,932 )
$ (39,063 )
Consolidated Adjusted
EBITDA $ (4,228 ) $
(11,776 ) $ 2,625
$ (30,470 ) $ (19,551
) (1) Quarterly amounts relate to the University
Group and Corporate (2) Legal settlement amounts are net of
insurance recoveries (3) Unused space charges include initial
charge and subsequent accretion (4) Quarterly amounts relate to
Transitional Group and Discontinued Operations
BALANCE SHEET AND CASH FLOW
Net cash used in operating activities improved to $6.4 million
for the second quarter of 2015, compared to $45.9 million in the
prior year quarter. The current quarter operating cash usage
included the cash receipt of $14.0 million for an income tax
refund. The prior year quarter cash usage included $21.6 million of
payments related to legal settlements. The Company continues to
expect to end 2015 with over $190 million in total cash, cash
equivalents, restricted cash and short-term and long-term
investments.
Capital expenditures decreased to $1.6 million during the
quarter ended June 30, 2015, compared to $3.6 million for the
quarter ended June 30, 2014.
As of June 30, 2015 and June 30, 2014, cash, cash equivalents,
restricted cash and short-term and long-term investments totaled
$204.1 million and $282.0 million, respectively.
Cash and Cash Flow from
Q2 2015 Q1 2015 (3) Q4
2014 (3) Q3 2014 Q2 2014
Operations ($ in thousands)
Consolidated Cash, Cash
Equivalents,Restricted Cash and Short-Termand Long-Term Investments
(1)
$ 204,104 $ 213,739 $ 247,002 $ 258,274
$ 281,991 Cash Flow from Operations (2) $ (6,419) $
(20,176) $ (17,479) $ (19,860) $ (45,865)
__________
(1) Consolidated cash, cash equivalents, restricted cash and
short-term and long-term investment balances are quarter end
balances and include both continuing and discontinued operations.
Long-term investment balances of $7.4 million for each of the
periods disclosed are reflected within other non-current assets on
our consolidated balance sheets. (2) Cash flow from operations
includes payments of legal settlements of $2.4 million, $1.3
million and $21.6 million during the first quarter of 2015, fourth
quarter of 2014 and second quarter of 2014, respectively. (3) The
fourth quarter of 2014 ending cash, cash equivalents, restricted
cash and investment balance includes $10.0 million of restricted
cash related to borrowings under the Credit Agreement. The $10.0
million of outstanding borrowings was repaid during the first
quarter of 2015.
CONFERENCE CALL INFORMATION
Career Education Corporation will host a conference call on
Friday, August 7, 2015 at 10:00 a.m. Eastern time. Interested
parties can access the live webcast of the conference call and the
related presentation materials at www.careered.com in the Investor
Relations section of the website. Participants can also listen to
the conference call by dialing 888-317-6016 (domestic) or
412-317-6016 (international). Please log-in or dial-in at least 10
minutes prior to the start time to ensure a connection. An archived
version of the webcast will be accessible for 90 days at
www.careered.com in the Investor Relations section of the
website.
ABOUT CAREER EDUCATION CORPORATION
Career Education’s academic institutions offer a high-quality
education to a diverse student population in a variety of
disciplines through online, on-ground and hybrid learning programs.
Our two universities – American InterContinental University (“AIU”)
and Colorado Technical University (“CTU”) – provide degree programs
through the master’s or doctoral level as well as associate and
bachelor’s levels. Both universities predominantly serve students
online with career-focused degree programs that meet the
educational demands of today’s busy adults. AIU and CTU continue to
show innovation in higher education, advancing new personalized
learning technologies like their intellipath™ adaptive learning
platform that allow students to more efficiently move toward
earning a degree by receiving course credit for knowledge they can
already demonstrate. Career Education is committed to providing
high-quality education that closes the gap between learners who
seek to advance their careers and employers needing a qualified
workforce.
A listing of individual campus locations and web links to Career
Education’s institutions can be found at www.careered.com.
Except for the historical and present factual information
contained herein, the matters set forth in this release, including
statements identified by words such as “expect,” “estimate,”
“believe,” “will,” “anticipate,” “continue,” “on track,” “position
us” and similar expressions, are forward-looking statements as
defined in Section 21E of the Securities Exchange Act of 1934,
as amended. These statements are based on information currently
available to us and are subject to various assumptions, risks,
uncertainties and other factors that could cause our results of
operations, financial condition, cash flows, performance, business
prospects and opportunities to differ materially from those
expressed in, or implied by, these statements. Except as expressly
required by the federal securities laws, we undertake no obligation
to update or revise such factors or any of the forward-looking
statements contained herein to reflect future events, developments
or changed circumstances, or for any other reason. These risks and
uncertainties, the outcomes of which could materially and adversely
affect our financial condition and operations, include, but are not
limited to, the following: declines in enrollment; the success of
our initiatives to divest our LCB culinary arts campuses and
remaining Career College institutions, which could be impacted by
the level of buyer interest and related valuations, required
regulatory approvals, the various factors noted in this paragraph,
among other things; negative trends in the real estate market which
could impact the costs related to teaching out campuses and the
success of our initiatives to reduce our real estate obligations;
our ability to achieve anticipated cost savings and business
efficiencies; rulemaking by the U.S. Department of Education or any
state and increased focus by Congress, the President and
governmental agencies on for-profit education institutions; our
continued compliance with and eligibility to participate in Title
IV Programs under the Higher Education Act of 1965, as amended, and
the regulations thereunder (including the gainful employment and
financial responsibility standards prescribed by the U.S.
Department of Education), as well as national and regional
accreditation standards and state regulatory requirements; the
impact of management changes; our ability to successfully defend
litigation and other claims brought against us; and changes in the
overall U.S. or global economy. Further information about these and
other relevant risks and uncertainties may be found in the
Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2014 and its subsequent filings with the
Securities and Exchange Commission.
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30,
December 31,
2015
2014
(unaudited) ASSETS CURRENT ASSETS: Cash and
cash equivalents, unrestricted $ 63,266 $ 93,832 Restricted cash
13,438 22,938 Short-term investments 120,026
122,858 Total cash and cash equivalents, restricted cash and
short-term investments 196,730 239,628 Student receivables,
net 25,872 24,564 Receivables, other, net 4,472 18,925 Prepaid
expenses 17,513 14,679 Inventories 2,668 3,305 Other current assets
1,852 2,384 Assets held for sale (1) 66,541 76,846 Assets of
discontinued operations 280 473 Total
current assets 315,928 380,804
NON-CURRENT ASSETS: Property and equipment, net 57,946
73,083 Goodwill 87,356 87,356 Intangible assets, net 7,900 9,819
Student receivables, net 2,887 2,926 Other assets 17,506 18,571
Assets of discontinued operations 853 975
TOTAL ASSETS $ 490,376 $
573,534 LIABILITIES AND STOCKHOLDERS'
EQUITY CURRENT LIABILITIES: Short-term borrowings $ - $
10,000 Accounts payable 17,636 21,968 Accrued expenses: Payroll and
related benefits 31,754 29,545 Advertising and production costs
12,735 13,162 Income taxes 1,545 1,633 Other 17,884 21,440 Deferred
tuition revenue 37,105 37,572 Liabilities held for sale (1) 44,999
50,357 Liabilities of discontinued operations 13,343
15,506 Total current liabilities 177,001
201,183
NON-CURRENT LIABILITIES:
Deferred rent obligations 39,883 48,381 Other liabilities 20,040
19,178 Liabilities of discontinued operations 14,984
22,859 Total non-current liabilities 74,907
90,418
STOCKHOLDERS' EQUITY:
Preferred stock - - Common stock 828 823 Additional paid-in capital
608,935 606,531 Accumulated other comprehensive loss (701 ) (853 )
Retained deficit (155,007 ) (109,403 ) Cost of shares in treasury
(215,587 ) (215,165 ) Total stockholders' equity
238,468 281,933
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 490,376
$ 573,534
__________
(1) During the second quarter of 2015, the Company
made the decision to sell one of its campuses which is currently
reported within the Transitional Group segment. As a result of the
decision to sell this campus, the assets and liabilities for this
campus are classified as held for sale within continuing operations
and are presented along with the LCB campuses as held for sale on
our condensed consolidated balance sheet as of June 30, 2015.
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS (In thousands, except per share amounts and
percentages)
For the Quarter Ended June 30,
% of % of Total Total 2015
Revenue 2014 Revenue REVENUE:
Tuition and registration fees $ 173,963 99.5 % $ 185,136 99.4 %
Other 817 0.5 % 1,036 0.6 % Total
revenue 174,780 186,172
OPERATING EXPENSES: Educational services and facilities
53,949 30.9 % 59,001 31.7 % General and administrative 121,365 69.4
% 129,051 69.3 % Depreciation and amortization 7,113 4.1 % 9,368
5.0 % Asset impairment 1,685 1.0 % 3
0.0 % Total operating expenses 184,112 105.3 %
197,423 106.0 % Operating loss (9,332 ) -5.3 %
(11,251 ) -6.0 %
OTHER (EXPENSE) INCOME: Interest
income 222 0.1 % 285 0.2 % Interest expense (170 ) -0.1 % (108 )
-0.1 % Loss on sale of business (917 ) -0.5 % - 0.0 % Miscellaneous
expense (21 ) 0.0 % (590 ) -0.3 % Total other expense
(886 ) -0.5 % (413 ) -0.2 %
PRETAX LOSS
(10,218 ) -5.8 % (11,664 ) -6.3 % (Benefit from) provision
for income taxes (747 ) -0.4 % 1,854 1.0 %
LOSS FROM CONTINUING OPERATIONS (9,471 ) -5.4 %
(13,518 ) -7.3 % Loss from discontinued operations, net of
tax (11,252 ) -6.4 % (33,046 ) -17.8 %
NET
LOSS (20,723 ) -11.9 % (46,564 ) -25.0 %
OTHER COMPREHENSIVE LOSS, net of tax: Unrealized loss on
investments (43 ) (107 )
COMPREHENSIVE
LOSS $ (20,766 ) $ (46,671
) NET LOSS PER SHARE - DILUTED: Loss from
continuing operations $ (0.14 ) $ (0.20 ) Loss from discontinued
operations (0.17 ) (0.49 ) Net loss per share $ (0.31
) $ (0.69 )
DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 67,893 67,157
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS (In thousands, except per share amounts and
percentages)
For the Year to Date Ended June
30,
% of % of Total Total 2015
Revenue 2014 Revenue REVENUE:
Tuition and registration fees $ 355,364 99.5 % $ 382,045 99.4 %
Other 1,718 0.5 % 2,281 0.6 % Total
revenue 357,082 384,326
OPERATING EXPENSES: Educational services and facilities
108,900 30.5 % 120,639 31.4 % General and administrative 260,513
73.0 % 277,497 72.2 % Depreciation and amortization 13,898 3.9 %
19,313 5.0 % Asset impairment 7,704 2.2 % 77
0.0 % Total operating expenses 391,015 109.5 %
417,526 108.6 % Operating loss (33,933 ) -9.5
% (33,200 ) -8.6 %
OTHER INCOME (EXPENSE):
Interest income 382 0.1 % 391 0.1 % Interest expense (332 ) -0.1 %
(189 ) 0.0 % Loss on sale of business (917 ) -0.3 % - 0.0 %
Miscellaneous expense (408 ) -0.1 % (108 ) 0.0 %
Total other (expense) income (1,275 ) -0.4 % 94
0.0 %
PRETAX LOSS (35,208 ) -9.9 % (33,106 )
-8.6 % (Benefit from) provision for income taxes (958
) -0.3 % 2,074 0.5 %
LOSS FROM CONTINUING
OPERATIONS (34,250 ) -9.6 % (35,180 ) -9.2 % Loss from
discontinued operations, net of tax (11,354 ) -3.2 %
(69,527 ) -18.1 %
NET LOSS (45,604 ) -12.8 %
(104,707 ) -27.2 %
OTHER COMPREHENSIVE INCOME
(LOSS) , net of tax: Unrealized income (loss) on investments
152 (135 )
COMPREHENSIVE LOSS
$ (45,452 ) $ (104,842 )
NET LOSS PER SHARE - DILUTED: Loss from continuing
operations $ (0.51 ) $ (0.52 ) Loss from discontinued operations
(0.16 ) (1.04 ) Net loss per share $ (0.67 ) $ (1.56
)
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING:
67,714 67,076 CAREER
EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
For the Year to date
Ended June 30,
2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (45,604 ) $
(104,707 ) Adjustments to reconcile net loss to net cash used in
operating activities: Asset impairment 17,391 7,521 Depreciation
and amortization expense 13,899 29,825 Bad debt expense 9,138
12,409 Compensation expense related to share-based awards 1,470
2,361 Loss on sale of businesses, net 917 311 Loss on disposition
of property and equipment 3 32 Changes in operating assets and
liabilities (23,809 ) (29,037 ) Net cash used in
operating activities (26,595 ) (81,285 )
CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of
available-for-sale investments (33,707 ) (121,590 ) Sales of
available-for-sale investments 36,051 28,726 Purchases of property
and equipment (4,994 ) (7,031 ) Payments of cash upon sale of
businesses (2,018 ) (250 ) Other - (11 ) Net
cash used in investing activities (4,668 ) (100,156 )
CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of
common stock 939 392 Payment on borrowings (10,000 ) - Change in
restricted cash 9,500 636 Net cash
provided by financing activities 439 1,028
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS: 258
78
NET DECREASE IN CASH AND CASH
EQUIVALENTS (30,566 ) (180,335 )
DISCONTINUED OPERATIONS
CASH ACTIVITY INCLUDED ABOVE: Add: Cash balance of discontinued
operations, beginning of the period - 475 Less: Cash balance of
discontinued operations, end of the period - -
CASH AND CASH
EQUIVALENTS, beginning of the period 93,832
318,468
CASH AND CASH EQUIVALENTS, end of the
period $ 63,266 $ 138,608
CAREER
EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED SELECTED
SEGMENT INFORMATION (In thousands, except percentages)
For the Quarter Ended June 30, 2015
2014 REVENUE: CTU $ 86,174 $ 85,041 AIU
52,024 49,685 Total University Group
138,198 134,726 Corporate and Other 39 38
Transitional Group 36,543 51,408 Total
$ 174,780 $ 186,172
OPERATING (LOSS)
INCOME: CTU $ 24,263 $ 20,957 AIU 5,174
(1,331 ) Total University Group 29,437 19,626
Corporate and Other (7,036 ) (5,513 ) Transitional Group
(31,733 ) (25,364 ) Total $ (9,332 ) $ (11,251 )
OPERATING (LOSS) MARGIN: CTU 28.2 % 24.6 % AIU 9.9 %
-2.7 % Total University Group 21.3 % 14.6 % Corporate and
Other NM NM Transitional Group NM NM Total -5.3 % -6.0 %
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION (In thousands, except
percentages)
For the Year to Date Ended June
30, 2015 2014 REVENUE: CTU $
171,301 $ 171,961 AIU 105,090 102,258
Total University Group 276,391 274,219
Corporate and Other 78 138 Transitional Group 80,613
109,969 Total $ 357,082 $ 384,326
OPERATING (LOSS) INCOME: CTU $ 38,879 $ 35,438 AIU
2,287 (4,914 ) Total University Group
41,166 30,524 Corporate and Other (12,896 )
(16,649 ) Transitional Group (62,203 ) (47,075 )
Total $ (33,933 ) $ (33,200 )
OPERATING (LOSS)
MARGIN: CTU 22.7 % 20.6 % AIU 2.2 % -4.8 % Total University
Group 14.9 % 11.1 % Corporate and Other NM NM Transitional Group NM
NM Total -9.5 % -8.6 %
CAREER EDUCATION CORPORATION AND
SUBSIDIARIES UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP
ITEMS (1) (In thousands)
Adjusted
EBITDA Q2 2015 Q1 2015 Q4
2014 Q3 2014 Q2 2014
University Group
and Corporate:
Pre-tax loss from continuing operations $ (10,218 ) $ (24,990 ) $
(7,747 ) $ (31,651 ) $ (11,664 ) Transitional Group pre-tax loss
32,624 30,470 23,788 40,764 25,364 Interest (income) expense, net
(52 ) 2 (38 ) (120 ) (177 ) Depreciation and amortization (3) 3,956
4,361 5,170 5,402 5,732 Stock-based compensation (3) 530 940 966
950 1,020 Legal settlements (3) (5) - - - - (400 ) Asset
impairments (3) - - - 73 - Unused space charges (3) (6) (348 ) 556
(373 ) (368 ) (363 ) Insurance recovery - - - (8,588 ) - Cumulative
adjustment related to revenue recognition (3) (7) 94
93 1,354 - -
Adjusted EBITDA--University Group and Corporate
(2) $ 26,586 $ 11,432
$ 23,120 $ 6,462
$ 19,512
Memo: Advertising Expenses (3) $ 34,258
$ 50,587 $ 36,731
$ 50,410 $ 37,407
Transitional
Group and Discontinued Operations (4):
Pre-tax loss from discontinued operations $ (11,252 ) $ (102 ) $
(17,195 ) $ (15,201 ) $ (33,046 ) Transitional Group pre-tax loss
(32,624 ) (30,470 ) (23,788 ) (40,764 ) (25,364 ) Loss on sale of
business (8) 917 - - - 311 Depreciation and amortization (8) 3,231
2,351 7,319 7,739 8,662 Legal settlements (5) (8) (166 ) 1,485 -
225 2,000 Asset impairments (8) 11,372 6,019 14,203 14,412 7,454
Unused space charges (6) (8) (2,305 ) (2,424 ) (2,063 ) (3,343 )
920 Cumulative adjustment related to revenue recognition (7) (8)
13 (67 ) 1,029 -
-
Adjusted EBITDA--Transitional and Discontinued
Operations (2) $ (30,814 ) $
(23,208 ) $ (20,495 ) $
(36,932 ) $ (39,063 )
Consolidated Adjusted EBITDA
$ (4,228 ) $ (11,776 )
$ 2,625 $ (30,470 )
$ (19,551 )
(1) The
Company believes it is useful to present non-GAAP financial
measures which exclude certain significant items as a means to
understand the performance of its operations. As a general matter,
the company uses non-GAAP financial measures in conjunction with
results presented in accordance with GAAP to help analyze the
performance of its operations, assist with preparing the annual
operating plan, and measure performance for some forms of
compensation. In addition, the company believes that non-GAAP
financial information is used by analysts and others in the
investment community to analyze the company's historical results
and to provide estimates of future performance and that failure to
report non-GAAP measures could result in a misplaced perception
that the company's results have underperformed or exceeded
expectations. We believe adjusted EBITDA allows us to
compare our current operating results with corresponding historical
periods and with the operational performance of other companies in
our industry because it does not give effect to potential
differences caused by items we do not consider reflective of
underlying operating performance. We also present adjusted EBITDA
because we believe it is frequently used by securities analysts,
investors and other interested parties as a measure of performance.
In evaluating adjusted EBITDA, investors should be aware that in
the future we may incur expenses similar to the adjustments
presented above. Our presentation of adjusted EBITDA should not be
construed as an inference that our future results will be
unaffected by expenses that are unusual, non-routine or
non-recurring. Adjusted EBITDA has limitations as an analytical
tool, and you should not consider it in isolation, or as a
substitute for net income (loss), operating income (loss), or any
other performance measure derived in accordance and reported under
GAAP or as an alternative to cash flow from operating activities or
as a measure of our liquidity. Non-GAAP financial measures,
when viewed in a reconciliation to corresponding GAAP financial
measures, provide an additional way of viewing the company's
results of operations and the factors and trends affecting the
company's business. Non-GAAP financial measures should be
considered as a supplement to, and not as a substitute for, or
superior to, the corresponding financial results presented in
accordance with GAAP.
(2) Management assesses results
of operations for the University Group and Corporate separately
from the Transitional Group. As a result, management views adjusted
EBITDA from the University Group and Corporate separately from the
remainder of the organization, to assess results and make
decisions. Accordingly, the Transitional Group pre-tax losses are
added back to pre-tax loss from continuing operations and
subtracted from pre-tax loss from discontinued operations.
(3) Quarterly amounts relate to the University Group and
Corporate.
(4)
The Company announced the Culinary Arts
segment as held for sale during the fourth quarter of 2014 and it
is therefore now reported within discontinued operations. Quarterly
adjusted EBITDA amounts for Culinary Arts include:
Q2 2015 Q1 2015
Q4 2014 Q3 2014 Q2 2014 Pre-tax (loss)
income $ (10,532 ) $ 250 $ (15,927 ) $ (12,602 ) $ (19,771 )
Depreciation and amortization - - 4,504 4,282 4,310 Legal
settlements - 775 - - 2,000 Asset impairments 9,687 - 10,320 1,523
7,400 Unused space charges (982 ) (377 ) 65 213 (467 ) Cumulative
adjustment related to revenue recognition 5 54
514 - - Total
$ (1,822 ) $ 702 $
(524 ) $ (6,584 ) $
(6,528 ) (5) Legal settlement amounts
are net of insurance recoveries.
(6) Unused space
charges represent the net present value of remaining lease
obligations less an estimated amount for sublease income as well as
the subsequent accretion of these charges.
(7)
Revenue recognition adjustment relates to the accounting for
students who withdraw from one of our institutions prior to
completion of their program. This adjustment now reflects revenue
earned on a cash-basis of accounting beginning in the fourth
quarter of 2014 for these students.
(8) Quarterly
amounts relate to the Transitional Group and Discontinued
Operations.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150806006377/en/
Investors:Alpha IR GroupSam Gibbons or Chris Hodges(312)
445-2870CECO@alpha-ir.comorMedia:Career Education
Corporation(847) 585-2600media@careered.com
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