University Group full year 2016 revenue
increased 2.3% versus prior year with total enrollment growth of
5.3%
Career Education Corporation (NASDAQ: CECO) today reported
operating and financial results for the fourth quarter and year
ended December 31, 2016.
University Group Full Year Highlights:
- Total student enrollment growth of 5.3
percent as compared to the prior year
- Revenue increase of 2.3 percent for
2016 as compared to the prior year
- Student retention continues to improve
as investments in various student-serving functions help enhance
overall student retention and outcomes
Fourth Quarter Consolidated Results:
- Revenue of $155.3 million for the
quarter as compared to $199.9 million in the prior year quarter,
with the decline primarily driven by teach-out campuses
- Operating loss of $55.9 million
compared to prior year quarter operating loss of $3.9 million;
fourth quarter 2016 includes charges recorded for:
- $18.4 million related to remaining
lease obligations for vacated space at teach-out campuses
- $10.0 million legal settlement
- $22.0 million of third party legal
fees
Full Year Consolidated Results:
- Revenue of $704.4 million for 2016 as
compared to $847.3 million in the prior year, with the decline
primarily driven by teach-out campuses
- Operating expenses decreased by $202.7
million as compared to the prior year driven by continued execution
on strategic initiatives
- As of December 31, 2016, cash, cash
equivalents, restricted cash and available-for-sale short-term
investments was $207.2 million, with cash flow provided by
operations of $5.9 million compared to cash usage in the prior year
of $21.7 million
“I am pleased with our 2016 results and with the progress our
teams have made against our strategic initiatives,” said Todd
Nelson, President and Chief Executive Officer. “Our commitment to
improving student retention and outcomes while investing in
technology and resources resulted in total enrollment growth at our
University Group, with year-end total enrollments at the highest
level since 2012. The results of our teach-out operations were
ahead of our expectations, and our overall operating costs
decreased by more than $200 million compared to last year,
resulting in a year end cash balance that was higher than our
outlook. For 2017, we will continue to invest in technology and
resources which we believe will further enhance student retention
and outcomes and pursue sustainable and responsible growth
opportunities within our University Group.”
REVENUE
For the quarter and year ended December 31, 2016, total revenue
was $155.3 million and $704.4 million, respectively, representing a
decrease of 22.4 percent and 16.9 percent, respectively, compared
to total revenue of $199.9 million and $847.3 million for the
quarter and year ended December 31, 2015, respectively. The
decrease was driven by declining revenues within the teach-out
segments. Total revenue for the University Group was $135.6 million
and $562.4 million for the quarter and year ended December 31,
2016, respectively, representing a decrease of 1.3 percent and an
increase of 2.3 percent, respectively.
For the Quarter Ended For the Year
Ended December 31, December 31,
Increase Increase
Revenue ($ in
thousands)
2016 2015 (Decrease) 2016 2015
(Decrease) CTU $ 94,696 $ 91,481 3.5 % $ 369,319 $ 348,215
6.1 % AIU 40,909 45,871 -10.8 % 193,032
201,649 -4.3 % Total University Group 135,605 137,352 -1.3 %
562,351 549,864 2.3 % Corporate and Other — 40 NM
— 157 NM Subtotal 135,605 137,392 -1.3 % 562,351
550,021 2.2 % Culinary Arts (1) 14,462 42,020 -65.6 % 104,452
170,190 -38.6 % Transitional Group (1) 5,188 20,535
-74.7 % 37,589 127,062 -70.4 % Total $ 155,255 $
199,947 -22.4 % $ 704,392 $ 847,273 -16.9 % (1) Teach-out
campuses included in the Transitional Group no longer enroll new
students. The Culinary Arts campuses were announced for teach-out
during December 2015 and ceased enrolling new students in January
2016.
TOTAL AND NEW STUDENT ENROLLMENTS
As of the end of 2016, total student enrollments for the
University Group were 33,600, compared to 31,900 as of the prior
year, primarily driven by improved student retention at CTU and new
enrollment growth at AIU. New student enrollments for the
University Group were 9,280 and 35,120 for the quarter and year
ended December 31, 2016, respectively, compared to new student
enrollments of 8,760 and 35,290 for the quarter and year ended
December 31, 2015, respectively.
As of December 31,
Increase
Total Student
Enrollments
2016 2015 (Decrease) CTU 21,900 21,300 2.8 %
AIU 11,700 10,600 10.4 % Total University Group 33,600 31,900 5.3 %
Culinary Arts 2,300 7,800 -70.5 % Transitional Group 700 3,500
-80.0 % Total 36,600 43,200 -15.3 %
For the
Quarter Ended For the Year Ended December 31,
December 31, Increase
Increase
New Student
Enrollments
2016 2015 (Decrease) 2016 2015
(Decrease) CTU (1) 5,530 5,710 -3.2 % 20,770 21,890 -5.1 %
AIU (1) 3,750 3,050 23.0 % 14,350 13,400 7.1 % Total University
Group (1) 9,280 8,760 5.9 % 35,120 35,290 -0.5 % Culinary Arts (2)
— 690 NM 990 7,470 NM Transitional Group (2) — 90 NM 90 3,260 NM
Total 9,280 9,540 -2.7 % 36,200 46,020 -21.3 % (1) New
student enrollments were positively impacted by a change to how the
Company records certain cancelled students. Excluding the impact of
this change new student enrollments would have decreased 7.7
percent for CTU, increased 15.4 percent for AIU and increased 0.3
percent for the University Group for the quarter ended December 31,
2016 as compared to the prior year quarter. For the full year 2016,
new student enrollments would have decreased 7.1 percent for CTU,
increased 4.3 percent for AIU and decreased 2.8 percent for the
University Group, as compared to the prior year. (2)
Teach-out campuses within the Transitional Group and Culinary Arts
no longer enroll new students, effective upon their teach-out
announcement; students who re-enter after 365 days are reported as
new student enrollments. For Culinary Arts, teach-outs announced in
December 2015 were effective beginning after the January 2016 new
enrollment.
OPERATING INCOME (LOSS)
For the quarter and year ended December 31, 2016, the Company
recorded an operating loss of $55.9 million and $32.3 million,
respectively, compared to operating losses of $3.9 million and
$92.2 million for the quarter and year ended December 31, 2015,
respectively. Total University Group operating loss of $9.9 million
and operating income of $69.8 million for the quarter and year
ended December 31, 2016, respectively, included charges of $32.0
million recorded for a legal settlement and associated third party
legal fees within AIU as well as increased compensation expenses
for the current year related to performance-driven metrics.
The fourth quarter operating loss for the teach-out segments
included $18.4 million of unused space charges as compared to $2.5
million in the prior year quarter. Additionally, asset impairment
charges for the teach-out segments of $0.9 million were recorded in
the current year as compared to $60.0 million recorded in the prior
year with $0.9 million and $9.2 million recorded in the current
year quarter and prior year quarter, respectively.
For the Quarter Ended For the Year
Ended December 31, December 31,
Increase Increase
Operating Income
(Loss) ($ in thousands)
2016 2015 (Decrease) 2016 2015
(Decrease) CTU $ 28,719 $ 30,001 -4.3 % $ 99,412 $ 87,496
13.6 % AIU (1) (38,634 ) 1,538 NM (29,598 )
5,520 NM Total University Group (9,915 ) 31,539 -131.4 %
69,814 93,016 -24.9 % Corporate and Other (7,937 )
(6,331 ) -25.4 % (25,097 ) (27,267 ) 8.0 % Subtotal
(17,852 ) 25,208 -170.8 % 44,717 65,749 -32.0 % Culinary Arts (2)
(22,274 ) (14,065 ) -58.4 % (20,608 ) (57,577 ) 64.2 % Transitional
Group (3) (15,781 ) (15,072 ) -4.7 % (56,453 )
(100,340 ) 43.7 % Total $ (55,907 ) $ (3,929 ) NM $ (32,344
) $ (92,168 ) 64.9 % (1) Charges of $10.0 million and $22.0
million were recorded during the quarter ended December 31, 2016
for a legal settlement and associated third party legal fees,
respectively. (2) Asset impairment charges of $0.4 million
were recorded during the quarter and year ended December 31, 2016.
Asset impairment charges of $52.1 million were recorded during the
year ended 2015, $9.0 million of which was recorded during the
fourth quarter of 2015. (3) Asset impairment charges of $0.5
million and $7.9 million were recorded during the year ended
December 31, 2016 and December 31, 2015, respectively.
NET INCOME (LOSS)
Net loss of $32.9 million was recorded for the quarter ended
December 31, 2016 as compared to net income of $142.7 million in
the prior year quarter. For the year ended December 31, 2016, net
loss was $18.7 million as compared to net income of $51.9 million
for the prior year. The prior year quarter and year ended included
a tax benefit of $146.5 million and $147.5 million, respectively,
driven by the partial reversal of tax valuation allowances.
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.)
As shown in the table below, adjusted EBITDA for the University
Group and Corporate was $17.9 million and $91.7 million for the
quarter and year ended December 31, 2016, respectively,
representing a decrease of 39.4 percent and an increase of 9.6
percent, respectively, as compared to the prior year periods. The
current quarter variance is driven by increased compensation
expenses related to performance-driven metrics recorded in the
current quarter. Adjusted EBITDA for the Transitional Group,
Culinary Arts and discontinued operations improved to negative
$19.6 million and a negative $49.8 million for the quarter and year
ended December 31, 2016, respectively, representing improvement of
5.1 percent and 43.5 percent, respectively, as compared to the
prior year periods.
For the Quarter Ended For the Year
Ended December 31, December 31,
Adjusted EBITDA
($ in thousands)
2016 2015 2016 2015
University Group
and Corporate:
(Loss) income from continuing operations (1) $
(30,030 ) $ 142,239 $
(14,816 ) $ 53,016 Benefit from income
taxes (25,326 ) (146,531 ) (16,550 ) (147,454 ) Transitional Group
pre-tax loss 15,657 15,182 55,856 102,000 Culinary Arts pre-tax
loss 22,211 14,065 20,451 57,518 Interest (income) expense, net (2)
(247 ) 87 (674 ) 44 Depreciation and amortization (2) 2,690 3,318
11,164 15,089 Legal settlements (2) 32,000 200 32,000 200
Stock-based compensation (2) 986 404 3,237 2,857 Asset impairments
(2) — 507 237 507 Unused space charges (2) (3) — 114
839 (63 )
Adjusted EBITDA--University Group and
Corporate
$ 17,941 $ 29,585 $
91,744 $ 83,714 Memo: Advertising
Expenses (2) $ 32,841 $
33,431 $ 154,693 $ 164,470
Transitional
Group, Culinary Arts and Discontinued Operations:
(Loss) income from discontinued operations (1)
$ (2,846 ) $ 485 $
(3,896 ) $ (1,131 ) Benefit from
income taxes from discontinued operations (2,064 ) (997 ) (2,690 )
(997 ) Transitional Group pre-tax loss (15,657 ) (15,182 ) (55,856
) (102,000 ) Culinary Arts pre-tax loss (22,211 ) (14,065 ) (20,451
) (57,518 ) Interest income, net (4) — — (4 ) — Loss on sale of
business (4) — 161 — 1,793 Depreciation and amortization (4) 3,071
1,759 11,583 9,849 Legal settlements (4) — — — 1,319 Asset
impairments (4) 927 9,171 927 60,008 Unused space charges (3) (4)
19,164 (2,002 ) 20,550 443
Adjusted
EBITDA--Transitional, Culinary Arts and Discontinued Operations
$ (19,616 ) $ (20,670 )
$ (49,837 ) $ (88,234 )
Consolidated Adjusted EBITDA $ (1,675 )
$ 8,915 $ 41,907 $ (4,520
) (1) (Loss) income from continuing operations and
(loss) income from discontinued operations make up the components
of net (loss) income as reflected on the Company’s consolidated
statements of (loss) income and comprehensive (loss) income.
(2) Amounts relate to the University Group and Corporate.
(3) Unused space charges represent the net present value of
remaining lease obligations for vacated space less an estimated
amount for sublease income as well as the subsequent accretion of
these charges. (4) Amounts relate to Transitional Group,
Culinary Arts and discontinued operations.
BALANCE SHEET AND CASH FLOW
Net cash used in operating activities was negative $9.8 million
and net cash flows provided by operating activities was $5.9
million for the quarter and year ended December 31, 2016,
respectively, as compared to net cash used in operating activities
of $0.7 million and $21.7 million for the prior year periods,
respectively. The cash usage in the fourth quarter of 2016 includes
increased payments related to exiting and reducing long-term lease
obligations as compared to the prior year. The Company’s continued
focus on improving marketing efficiencies within the University
Group and the reduction in operating losses related to our
teach-outs contributed to the improvement in cash flow from
operations for the full year.
For the Quarter Ended For the Year
Ended December 31, December 31,
Increase Increase
Selected Cash
Flow Items
2016 2015 (Decrease) 2016 2015
(Decrease) Net cash (used in) provided by operating
activities $ (9,802 ) $ (683 ) NM $ 5,912 $ (21,686 ) -127.3 %
Capital expenditures $ 777 $ 3,769 -79.4 % $ 4,129 $ 11,695 -64.7 %
As of December 31, 2016 and December 31, 2015, cash,
cash equivalents, restricted cash and available-for-sale short-term
and long-term investments, net of borrowings, totaled $207.2
million and $201.0 million, respectively.
As of December As of December
Increase
Consolidated Cash
($ in thousands)
31, 2016 31, 2015 (Decrease) Consolidated
cash, cash equivalents, restricted cash and
available-for-sale short-term
investments
$ 207,160 $ 231,641 -10.6 % Available-for-sale long-term
investments (1) — 7,374 NM Short-term borrowings (2) —
38,000 NM Consolidated cash, cash equivalents, restricted
cash
and available-for-sale short-term and
long-term
investments, net of borrowings (1)
$ 207,160 $ 201,015 3.1 % (1) Available-for-sale long-term
investment balances are included within non-current other assets on
the Company’s consolidated balance sheets. (2) Cash, cash
equivalents, restricted cash and available-for-sale short-term
investment balances as of December 31, 2015 include $38.0 million
of restricted cash related to cash-collateralized borrowings under
the Credit Agreement.
OUTLOOK
With the substantial completion of the teach-outs occurring in
2017, Career Education Corporation will begin disclosing its
outlook based on an operating income (loss) and adjusted operating
income (loss) measure as well as providing an outlook for year-end
cash, cash equivalents, restricted cash and short-term investments,
net of borrowings. The Company believes that an adjusted operating
income (loss) measure will better reflect the ongoing operations of
the business now that the teach-outs will be substantially
complete. The Company will no longer provide updates under the
previous measure of adjusted EBITDA. The Company expects the
following results, subject to the key assumptions identified below
(see the GAAP to non-GAAP reconciliation for adjusted operating
income (loss) attached to this press release for further
details):
- University Group and Corporate
operating income and adjusted operating income to grow in 2017 and
2018 as compared to each respective prior year period.
- Adjusted operating loss for our
teach-out segments, comprised of the Transitional Group and
Culinary Arts, to be in the range of $50 million to $60 million in
2017 and to improve to a range of $10 million to $20 million in
2018 as we wind-down the remainder of our teach-out campuses.
- End of year cash, cash equivalents,
restricted cash and available-for-sale short-term investments, net
of any borrowings, as reported on the consolidated balance sheets
(i) of approximately $150 million to $160 million for the year
ending December 31, 2017, which includes payments related to a
legal settlement of $10.0 million and $22.0 million of associated
third party legal fees (which amounts were recorded during the
fourth quarter of 2016); and (ii) to grow in 2018 as compared to
2017.
Operating income (loss), which is the most directly comparable
GAAP measure to adjusted operating income (loss), may not follow
the same trends as discussed in our outlook above because of
adjustments made for unused space charges that represent the
present value of future remaining lease obligations for vacated
space less an estimated amount for sublease income as well as
depreciation, amortization, asset impairment charges and
significant legal settlements. The operating income (loss) and
adjusted operating income (loss) and cash outlook provided above
for 2017 and 2018 are based on the following key assumptions and
factors, among others: (i) modest total enrollment growth within
the University Group while achieving the intended University Group
efficiencies, (ii) teach-outs to progress as expected and
performance consistent with current trends, (iii) achievement of
recovery rates for the Company’s real estate obligations and timing
of any associated lease termination payments consistent with the
Company’s historical experiences, (iv) continued right-sizing of
the Company’s corporate expense structure to serve primarily online
institutions, (v) no material changes in the legal or regulatory
environment and excludes legal and regulatory liabilities which are
not probable and estimable at this time and any impact of new or
proposed regulations, including the “borrower defense to repayment”
regulations issued in November 2016 and the gainful employment
regulation, and (vi) consistent working capital movements in line
with historical operating trends and potential impacts of teach-out
campuses on working capital in line with expectations. Although
these estimates and assumptions are based upon management’s good
faith beliefs regarding current events and actions that may be
undertaken in the future, actual results could differ materially
from these estimates.
CONFERENCE CALL INFORMATION
Career Education Corporation will host a conference call on
Thursday, February 23, 2017 at 5:30 p.m. Eastern time to discuss
its fourth quarter and full year 2016 results. 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 844-378-6484 (domestic) or 412-542-4179 (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 quality
education to a diverse student population in a variety of
disciplines through online, campus-based and blended learning
programs. The Company’s 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 are designed to 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. Career Education is committed to providing
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 “believe,” “will,” “expect,”
“estimate,” “continue,” “intend,” “trend” 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; 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, 90-10, financial
responsibility and administrative capability standards prescribed
by the U.S. Department of Education), as well as applicable
accreditation standards and state regulatory requirements; the
impact of recently issued “defense to repayment” regulations;
rulemaking by the U.S. Department of Education or any state or
accreditor and increased focus by Congress and governmental
agencies on, or increased negative publicity about, for-profit
education institutions; our ability to successfully defend
litigation and other claims brought against us; the success of our
initiatives to improve student experiences, retention and outcomes;
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;
increased competition; the impact of management changes; and
changes in the overall U.S. 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 year ended
December 31, 2016 and its subsequent filings with the
Securities and Exchange Commission.
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2016 2015 ASSETS CURRENT
ASSETS: Cash and cash equivalents, unrestricted $ 49,507 $
66,919 Restricted cash 1,375 49,821 Restricted short-term
investments 8,597 - Short-term investments 147,681
114,901 Total cash and cash equivalents, restricted cash and
short-term investments 207,160 231,641 Student receivables,
net 22,825 31,618 Receivables, other, net 929 5,194 Prepaid
expenses 14,446 14,380 Inventories 1,868 3,353 Other current assets
817 2,523 Assets of discontinued operations 148 254
Total current assets 248,193 288,963
NON-CURRENT ASSETS: Property and equipment, net 40,512
58,249 Goodwill 87,356 87,356 Intangible assets, net 8,500 9,300
Student receivables, net 3,055 3,958 Deferred income tax assets,
net 158,272 137,716 Other assets 7,608 16,562 Assets of
discontinued operations 6,105 8,811
TOTAL
ASSETS $ 559,601 $ 610,915
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT
LIABILITIES: Short-term borrowings $ - $ 38,000 Accounts
payable 10,099 25,906 Accrued expenses: Payroll and related
benefits 41,203 38,789 Advertising and production costs 10,253
11,788 Income taxes 1,830 1,061 Other 69,244 24,082 Deferred
tuition revenue 28,364 40,112 Liabilities of discontinued
operations 8,219 13,067 Total current liabilities
169,212 192,805
NON-CURRENT
LIABILITIES: Deferred rent obligations 30,713 45,927 Other
liabilities 31,751 25,197 Liabilities of discontinued operations
6,422 9,376 Total non-current liabilities
68,886 80,500
STOCKHOLDERS' EQUITY: Preferred
stock - - Common stock 835 830 Additional paid-in capital 613,325
610,784 Accumulated other comprehensive loss (258 ) (880 )
Accumulated deficit (76,230 ) (57,518 ) Cost of shares in treasury
(216,169 ) (215,606 ) Total stockholders' equity
321,503 337,610
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 559,601 $
610,915 CAREER EDUCATION CORPORATION AND
SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS)
INCOME AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share amounts
and percentages)
For the Quarter Ended December 31, %
of % of Total Total
2016 Revenue 2015 Revenue
REVENUE: Tuition and fees $ 154,489 99.5 % $ 198,445 99.2 %
Other 766 0.5 % 1,502 0.8 % Total revenue
155,255 199,947
OPERATING EXPENSES: Educational
services and facilities 64,107 41.3 % 66,931 33.5 % General and
administrative 140,367 90.4 % 122,190 61.1 % Depreciation and
amortization 5,761 3.7 % 5,077 2.5 % Asset impairment 927
0.6 % 9,678 4.8 % Total operating expenses 211,162
136.0 % 203,876 102.0 % Operating loss (55,907 )
-36.0 % (3,929 ) -2.0 %
OTHER INCOME (EXPENSE):
Interest income 362 0.2 % 246 0.1 % Interest expense (115 ) -0.1 %
(333 ) -0.2 % Loss on sale of business — 0.0 % (161 ) -0.1 %
Miscellaneous income (expense) 304 0.2 % (115 ) -0.1
% Total other income (expense) 551 0.4 % (363 ) -0.2
%
PRETAX LOSS (55,356 ) -35.7 % (4,292 ) -2.1 % Benefit from
income taxes (25,326 ) -16.3 % (146,531 ) -73.3 %
(LOSS) INCOME FROM CONTINUING OPERATIONS (30,030 )
-19.3 % 142,239 71.1 % (Loss) income from discontinued operations,
net of tax (2,846 ) -1.8 % 485 0.2 %
NET (LOSS)
INCOME (32,876 ) -21.2 % 142,724 71.4 %
OTHER COMPREHENSIVE LOSS, net of tax: Foreign currency
translation adjustments (220 ) — Unrealized loss on investments
(125 ) (260 ) Total other comprehensive loss
(345 ) (260 )
COMPREHENSIVE (LOSS) INCOME $ (33,221 )
$ 142,464
NET (LOSS) INCOME PER SHARE - BASIC: (Loss)
income from continuing operations $ (0.44 ) $ 2.09 (Loss) income
from discontinued operations (0.04 ) 0.01 Net (loss)
income per share $ (0.48 ) $ 2.10
NET (LOSS) INCOME PER
SHARE - DILUTED: (Loss) income from continuing operations $
(0.44 ) $ 2.08 Loss from discontinued operations (0.04 )
— Net (loss) income per share $ (0.48 ) $ 2.08
WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 68,505
68,046 Diluted 68,505 68,506
CAREER
EDUCATION CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS)
INCOME
(In thousands, except per share amounts
and percentages)
For the Year Ended December 31, %
of % of Total Total
2016 Revenue 2015 Revenue
REVENUE: Tuition and fees $ 700,525 99.5 % $ 842,062 99.4 %
Other 3,867 0.5 % 5,211 0.6 % Total revenue
704,392 847,273
OPERATING EXPENSES: Educational
services and facilities 235,100 33.4 % 289,777 34.2 % General and
administrative 477,725 67.8 % 564,211 66.6 % Depreciation and
amortization 22,747 3.2 % 24,938 2.9 % Asset impairment
1,164 0.2 % 60,515 7.1 % Total operating expenses
736,736 104.6 % 939,441 110.9 % Operating loss
(32,344 ) -4.6 % (92,168 ) -10.9 %
OTHER INCOME
(EXPENSE): Interest income 1,262 0.2 % 794 0.1 % Interest
expense (584 ) -0.1 % (835 ) -0.1 % Loss on sale of business — 0.0
% (1,793 ) -0.2 % Miscellaneous income (expense) 300 0.0 %
(436 ) -0.1 % Total other income (expense) 978 0.1 %
(2,270 ) -0.3 %
PRETAX LOSS (31,366 ) -4.5 % (94,438
) -11.1 % Benefit from income taxes (16,550 ) -2.3 %
(147,454 ) -17.4 %
(LOSS) INCOME FROM CONTINUING
OPERATIONS (14,816 ) -2.1 % 53,016 6.3 % Loss from discontinued
operations, net of tax (3,896 ) -0.6 % (1,131 ) -0.1
%
NET (LOSS) INCOME (18,712 ) -2.7 % 51,885
6.1 %
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments (77 ) — Unrealized gain
(loss) on investments 699 (27 ) Total other
comprehensive income (loss) 622 (27 )
COMPREHENSIVE (LOSS) INCOME $ (18,090 ) $ 51,858
NET (LOSS) INCOME PER SHARE - BASIC and DILUTED: (Loss)
income from continuing operations $ (0.22 ) $ 0.78 Loss from
discontinued operations (0.05 ) (0.02 ) Net (loss)
income per share $ (0.27 ) $ 0.76
WEIGHTED AVERAGE SHARES
OUTSTANDING: Basic 68,373 67,860 Diluted
68,373 68,328
CAREER EDUCATION CORPORATION AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended December 31,
2016 2015 CASH FLOWS FROM OPERATING
ACTIVITIES: Net (loss) income $ (18,712 ) $ 51,885 Adjustments
to reconcile net (loss) income to net cash provided by (used in)
operating activities: Asset impairment 1,164 60,515 Depreciation
and amortization expense 22,747 24,938 Bad debt expense 31,885
21,980 Compensation expense related to share-based awards 3,237
2,857 Loss on sale of business, net — 1,793 (Gain) loss on
disposition of property and equipment (438 ) 663 Deferred income
taxes (18,087 ) (145,807 ) Changes in operating assets and
liabilities: Student receivables, gross 6,925 (1,517 ) Allowance
for doubtful accounts (29,033 ) (20,960 ) Other receivables, net
1,127 14,311 Inventories, prepaid expenses, and other current
assets 2,783 6,160 Deposits and other non-current assets 1,634
2,711 Accounts payable (16,264 ) 2,539 Accrued expenses and
deferred rent obligations 28,691 (31,104 ) Deferred tuition revenue
(11,747 ) (12,650 ) Net cash provided by (used in)
operating activities 5,912 (21,686 )
CASH
FLOWS FROM INVESTING ACTIVITIES: Purchases of
available-for-sale investments (160,590 ) (93,360 ) Sales of
available-for-sale investments 126,830 100,173 Purchases of
property and equipment (4,129 ) (11,695 ) Proceeds on the sale of
assets 3,600 2,272 Payments of cash upon sale of businesses (62 )
(4,013 ) Purchase of equity method investment —
(1,368 ) Net cash used in investing activities (34,351 )
(7,991 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 773 1,401 Borrowings from credit facility
— 38,000 Payment on borrowings (38,000 ) (10,000 ) Change in
restricted cash 48,446 (26,883 ) Net cash provided by
financing activities 11,219 2,518
EFFECT OF
FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS:
(192 ) 246
NET DECREASE IN CASH AND CASH
EQUIVALENTS (17,412 ) (26,913 )
CASH AND CASH EQUIVALENTS,
beginning of the period 66,919 93,832
CASH AND
CASH EQUIVALENTS, end of the period $ 49,507 $ 66,919
CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED
SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
For the Quarter Ended December 31, 2016
2015 REVENUE: CTU $ 94,696 $ 91,481 AIU
40,909 45,871 Total University Group 135,605 137,352
Corporate and Other — 40 Subtotal 135,605 137,392
Culinary Arts 14,462 42,020 Transitional Group 5,188
20,535 Total $ 155,255 $ 199,947
OPERATING INCOME
(LOSS): CTU $ 28,719 $ 30,001 AIU (38,634 ) 1,538
Total University Group (9,915 ) 31,539 Corporate and Other
(7,937 ) (6,331 ) Subtotal (17,852 ) 25,208 Culinary Arts
(22,274 ) (14,065 ) Transitional Group (15,781 )
(15,072 ) Total $ (55,907 ) $ (3,929 )
OPERATING MARGIN
(LOSS): CTU 30.3 % 32.8 % AIU -94.4 % 3.4 % Total
University Group -7.3 % 23.0 % Corporate and Other NM NM Subtotal
-13.2 % 18.3 % Culinary Arts -154.0 % -33.5 % Transitional Group
-304.2 % -73.4 % Total -36.0 % -2.0 %
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
For the Year Ended December 31, 2016
2015 REVENUE: CTU $ 369,319 $ 348,215
AIU 193,032 201,649 Total University Group 562,351
549,864 Corporate and Other — 157 Subtotal 562,351
550,021 Culinary Arts 104,452 170,190 Transitional Group
37,589 127,062 Total $ 704,392 $ 847,273
OPERATING
INCOME (LOSS): CTU $ 99,412 $ 87,496 AIU (29,598 )
5,520 Total University Group 69,814 93,016 Corporate and
Other (25,097 ) (27,267 ) Subtotal 44,717 65,749
Culinary Arts (20,608 ) (57,577 ) Transitional Group (56,453
) (100,340 ) Total $ (32,344 ) $ (92,168 )
OPERATING MARGIN (LOSS): CTU 26.9 % 25.1 % AIU -15.3
% 2.7 % Total University Group 12.4 % 16.9 % Corporate and
Other NM NM Subtotal 8.0 % 12.0 % Culinary Arts -19.7 % -33.8 %
Transitional Group -150.2 % -79.0 % Total -4.6
% -10.9 %
CAREER EDUCATION CORPORATION AND
SUBSIDIARIES
UNAUDITED RECONCILIATION OF GAAP TO
NON-GAAP ITEMS (1)
(In thousands)
For the Quarter Ended For the
Year Ended December 31, December 31,
Adjusted
EBITDA
2016 2015 2016 2015
University Group
and Corporate:
(Loss) income from continuing operations (2) $
(30,030 ) $ 142,239 $
(14,816 ) $ 53,016 Benefit from income
taxes (25,326 ) (146,531 ) (16,550 ) (147,454 ) Transitional Group
pre-tax loss 15,657 15,182 55,856 102,000 Culinary Arts pre-tax
loss 22,211 14,065 20,451 57,518 Interest (income) expense, net (3)
(247 ) 87 (674 ) 44 Depreciation and amortization (3) 2,690 3,318
11,164 15,089 Legal settlements (3) (4) 32,000 200 32,000 200
Stock-based compensation (3) 986 404 3,237 2,857 Asset impairments
(3) — 507 237 507 Unused space charges (3) (5) — 114
839 (63 )
Adjusted EBITDA--University Group
and
Corporate (6)
$ 17,941 $ 29,585 $
91,744 $ 83,714 Memo: Advertising
Expenses (3) $ 32,841 $
33,431 $ 154,693 $ 164,470
Transitional
Group, Culinary Arts and Discontinued Operations:
(Loss) income from discontinued operations (2)
$ (2,846 ) $ 485 $
(3,896 ) $ (1,131 ) Benefit from
income taxes from discontinued operations (2,064 ) (997 ) (2,690 )
(997 ) Transitional Group pre-tax loss (15,657 ) (15,182 ) (55,856
) (102,000 ) Culinary Arts pre-tax loss (22,211 ) (14,065 ) (20,451
) (57,518 ) Interest income, net (7) — — (4 ) — Loss on sale of
business (7) — 161 — 1,793 Depreciation and amortization (7) 3,071
1,759 11,583 9,849 Legal settlements (4) (7) — — — 1,319 Asset
impairments (7) 927 9,171 927 60,008 Unused space charges (5) (7)
19,164 (2,002 ) 20,550 443
Adjusted
EBITDA--Transitional, Culinary Arts and Discontinued Operations
(6) (8) $ (19,616 ) $
(20,670 ) $ (49,837 ) $
(88,234 ) Consolidated Adjusted EBITDA
$ (1,675 ) $ 8,915 $
41,907 $ (4,520 ) (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. During 2016,
the Company believed adjusted EBITDA to be a useful measure as it
allowed the Company to compare current operating results with
corresponding historical periods and with the operational
performance of other companies in its industry because it did not
give effect to potential differences caused by items not considered
reflective of underlying operating performance. In evaluating
adjusted EBITDA for 2016 and earlier, investors should be aware
that in the future the Company may incur expenses similar to the
adjustments presented above. The presentation of adjusted EBITDA
should not be construed as an inference that the Company’s future
results will be unaffected by expenses that are unusual,
non-routine or non-recurring. Adjusted EBITDA has limitations as an
analytical tool, and it should not be considered in isolation, or
as a substitute for net (loss) income, operating (loss) income, 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 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) (Loss) income from continuing
operations and (loss) income from discontinued operations make up
the components of net (loss) income. A reconciliation of these
components for the quarters and years ended December 31, 2016 and
December 31, 2015 is presented below:
For the Quarter Ended For the Year Ended December
31, December 31, 2016 2015
2016 2015 (Loss) income from continuing
operations $ (30,030 ) $ 142,239 $ (14,816 ) $ 53,016 (Loss) income
from discontinued operations (2,846 ) 485
(3,896 ) (1,131 )
Net (loss) income $
(32,876 ) $ 142,724 $
(18,712 ) $ 51,885 (3) Amounts
relate to the University Group and Corporate. (4) Legal
settlement amounts are net of insurance recoveries. (5)
Unused space charges represent the net present value of remaining
lease obligations for vacated space less an estimated amount for
sublease income as well as the subsequent accretion of these
charges. These charges relate to vacated leased space as the
Company continues to right-size the organization and therefore are
not considered representative of ongoing operations. (6)
Management assesses results of operations for the University Group
and Corporate separately from the Transitional Group and Culinary
Arts. As the Transitional Group and Culinary Arts have been
announced for teach-out, management views these operations as not
reflective of the ongoing business. 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 and Culinary Arts
pre-tax losses are added back to (loss) income from continuing
operations and subtracted from (loss) income from discontinued
operations. (7) Amounts relate to the Transitional Group,
Culinary Arts and discontinued operations. (8) Adjusted
EBITDA amounts for Culinary Arts separate from the Transitional
Group and discontinued operations include:
For the Quarter Ended For the Year Ended December
31, December 31, 2016 2015
2016 2015 Pre-tax loss $ (22,211 ) $ (14,065 )
$ (20,451 ) $ (57,518 ) Depreciation and amortization 1,776 — 6,234
— Legal settlements — — — 775 Asset impairments 383 9,005 383
52,138 Unused space charges 13,684 191 17,394
(959 )
Adjusted EBITDA for Culinary Arts $
(6,368 ) $ (4,869 ) $
3,560 $ (5,564 ) CAREER
EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF GAAP TO
NON-GAAP ITEMS (1)
(In thousands)
ACTUAL RESULTS OUTLOOK
For the Year Ended For the Year Ended December
31, December 31,
Adjusted
Operating Income (Loss)
2015 2016 2017 2018
University Group
and Corporate:
Operating income (2) (3) $ 65,749
$ 44,717 Growth vs 2016 Growth vs 2017
Depreciation and amortization (3) 15,089 11,164 2016 Levels Asset
impairments (3) 507 237 None Assumed Unused space charges (3) (4)
1,556 1,134 None Assumed Significant legal settlements (3) —
32,000 None Assumed
Adjusted Operating Income --
University Group and Corporate
(5)
$ 82,901 $ 89,252 Growth vs 2016
Growth vs 2017
Transitional
Group and Culinary Arts:
Operating loss (2) (6) $ (157,917
) $ (77,061 ) $(80) -- $(90)
million $(18) -- $(28) million Depreciation and
amortization (6) 9,849 11,583 ~$5 million — Asset impairments (6)
60,008 927 None Assumed Unused space charges (4) (6) 17,940
34,719 ~$25 million ~$8 million
Adjusted Operating Loss
--
Transitional and Culinary Arts
(5)
$ (70,120 ) $ (29,832 )
$(50) -- $(60) million $(10) -- $(20) million (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. The Company
believes adjusted operating income (loss) allows it to analyze and
assess its ongoing operations and compare current operating results
with the operational performance of other companies in its industry
because it does not give effect to potential differences caused by
items it does not consider reflective of underlying operating
performance, such as unused space charges and significant legal
reserves. In evaluating adjusted operating income (loss), investors
should be aware that in the future the Company may incur expenses
similar to the adjustments presented above. The presentation of
adjusted operating income (loss) should not be construed as an
inference that the Company's future results will be unaffected by
expenses that are unusual, non-routine or non-recurring. Adjusted
operating income (loss) has limitations as an analytical tool, and
it should not be considered in isolation, or as a substitute for
net (loss) income, operating (loss) income, 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 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) Operating income for University
Group and Corporate and operating loss for the Transitional Group
and Culinary Arts make up the components of operating (loss)
income. A reconciliation of these components for the years ended
December 31, 2016 and December 31, 2015 is presented below:
For the Year Ended December 31, 2015
2016 Operating income for University Group and Corporate $
65,749 $ 44,717 Operating loss for Culinary Arts and Transitional
(157,917 ) (77,061 )
Operating loss $
(92,168 ) $ (32,344 ) (3)
Amounts relate to the University Group and Corporate. (4)
Unused space charges represent the net present value of remaining
lease obligations for vacated space less an estimated amount for
sublease income. These charges relate to exiting leased space as
the Company continues to right-size the organization and therefore
are not considered representative of ongoing operations. (5)
Management assesses results of operations for the University Group
and Corporate separately from the Transitional Group and Culinary
Arts. As the Transitional Group and Culinary Arts have been
announced for teach-out, management views these operations as not
reflective of the ongoing business. As a result, management views
adjusted operating income from the University Group and Corporate
separately from the remainder of the organization, to assess
results and make decisions. (6) Amounts relate to the
Transitional Group and Culinary Arts.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170223006482/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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