APOL Apollo Education Grp., Inc.

Apollo Education Group, Inc. (NASDAQ: APOL) today reported financial results for the three and nine months ended May 31, 2015, with third quarter revenue of $681.5 million and diluted earnings per share of $0.44, or $0.53 excluding special items.

“At Apollo Education Group, we are building a diversified global network committed to academic excellence and strong student support, as we work to change lives through higher education,” said Greg Cappelli, Chief Executive Officer, Apollo Education Group. “In a time of transformation, University of Phoenix, our largest subsidiary, is working to become a more focused, higher retaining and less complex institution. Our commitment across all of our institutions is to deliver world-class experiences and outcomes, connecting students’ education with their career aspirations, and helping employers recruit, retain, and develop a highly engaged and productive workforce.”

Third Quarter 2015 Results of Operations

Apollo Education Group (the “Company”) reported net revenue for the third quarter 2015 of $681.5 million, compared to $793.6 million for the third quarter 2014. Third quarter 2015 University of Phoenix New Degreed Enrollment was 29,400 and Degreed Enrollment was 206,900, compared to New Degreed Enrollment of 33,900 and Degreed Enrollment of 241,900 for the prior year third quarter. Operating income for the third quarter 2015 was $90.7 million, compared to $116.3 million for the third quarter 2014. Income from continuing operations attributable to Apollo Education Group for the third quarter 2015 was $48.1 million, or $0.44 per share, compared to $68.1 million, or $0.61 per share for the prior year third quarter.

Excluding special items, operating income was $101.6 million for the third quarter 2015, compared to $140.3 million for the third quarter 2014, and income from continuing operations attributable to Apollo Education Group for the third quarter 2015 was $57.5 million, or $0.53 per share, compared to $86.9 million, or $0.78 per share, for the third quarter 2014. Adjusted Operating Income was $132.2 million for the third quarter 2015 compared to $178.1 million for the third quarter 2014. (Special items and Adjusted Operating Income for the respective periods are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)

First Nine Months of 2015 Results of Operations

Net revenue for the first nine months of fiscal year 2015 totaled $2.0 billion, compared to $2.3 billion in the first nine months of fiscal year 2014. In the first nine months of 2015, University of Phoenix Average Degreed Enrollment was 220,400, compared to 256,100 for the first nine months of 2014. Operating income for the first nine months of 2015 was $96.6 million, compared to $297.0 million in the prior year period. Income from continuing operations attributable to Apollo Education Group for the first nine months of 2015 was $48.2 million, or $0.44 per share, compared to $183.9 million, or $1.63 per share, for the first nine months of 2014.

Excluding special items, operating income was $167.2 million for the first nine months of 2015, compared to $390.2 million for the first nine months of 2014. Income from continuing operations attributable to Apollo Education Group for the first nine months of 2015 was $95.0 million, or $0.87 per share, compared to $240.1 million, or $2.12 per share, for the first nine months of 2014. Adjusted Operating Income was $269.0 million for the first nine months of 2015 compared to $501.7 million for the first nine months of 2014. (Special items and Adjusted Operating Income for the respective periods are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)

Balance Sheet and Cash Flow

As of May 31, 2015, the Company’s unrestricted cash and cash equivalents and short-term marketable securities totaled $778.4 million, compared to $1.4 billion as of August 31, 2014. The decrease was primarily attributable to $600.7 million of net payments on borrowings, $74.3 million for capital expenditures, $40.7 million of share repurchases (which includes $2.6 million of share repurchases for tax withholding requirements on share-based awards), $34.5 million paid for contingent consideration, and $21.2 million for an acquisition. These items were partially offset by cash provided by operations.

Total debt outstanding (including short-term borrowings and the current portion of long-term debt) was $55.5 million as of May 31, 2015.

Business Outlook

The Company offers the following revised outlook for fiscal year 2015 based on the business trends observed during the third quarter of fiscal year 2015, as well as management’s current expectations of future trends.

• Net revenue of $2.60 billion to $2.62 billion; and
• Operating income of $190 to $200 million, excluding the impact of special items.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 p.m. (ET), 2:00 p.m. (PT), today, Monday, June 29, 2015.

Dial-In Numbers:877-292-6888 (Domestic)973-200-3381 (International)Conference ID: 59341014

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

A telephone replay will be available approximately two hours following the conclusion of the call until July 7, 2015.

Dial-In Numbers:855-859-2056 (Domestic)404-537-3406 (International)Conference ID: 59341014

About Apollo Education Group, Inc.

Apollo Education Group, Inc. is one of the world’s largest private education providers, serving students since 1973. Through its subsidiaries, Apollo Education Group offers undergraduate, graduate, professional development and other nondegree educational programs and services, online and on-campus principally to working learners. Its educational programs and services are offered throughout the United States and in Europe, Australia, Latin America, Africa and Asia, as well as online throughout the world.

For more information about Apollo Education Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company’s website at www.apollo.edu.

   

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 

Three Months EndedMay 31,

Nine Months EndedMay 31,

(In thousands, except per share data)

2015   2014 2015   2014 Net revenue $ 681,481 $ 793,610 $ 1,979,105 $ 2,314,512 Costs and expenses: Instructional and student advisory 298,506 324,621 915,843 978,400 Marketing 119,505 135,894 375,719 408,995 Admissions advisory 52,994 56,256 167,919 159,075 General and administrative 65,274 75,112 208,239 217,166 Depreciation and amortization 30,556 37,721 101,779 111,524 Provision for uncollectible accounts receivable 13,005 12,485 42,372 37,997 Restructuring and impairment charges 11,444 14,904 66,008 62,076 Acquisition and other related (credit) costs, net (455 ) 16,168 4,506 29,173 Litigation charges —   4,125   100   13,125   Total costs and expenses 590,829   677,286   1,882,485   2,017,531   Operating income 90,652 116,324 96,620 296,981 Interest income 762 453 2,091 1,620 Interest expense (1,715 ) (1,915 ) (5,116 ) (5,984 ) Other (loss) income, net (2,039 ) (284 ) (4,470 ) 630   Income from continuing operations before income taxes 87,660 114,578 89,125 293,247 Provision for income taxes (40,220 ) (47,539 ) (45,354 ) (112,627 ) Income from continuing operations 47,440 67,039 43,771 180,620 Loss from discontinued operations, net of tax —   (2,029 ) —   (4,392 ) Net income 47,440 65,010 43,771 176,228 Net loss attributable to noncontrolling interests 624   1,015   4,468   3,293   Net income attributable to Apollo $ 48,064   $ 66,025   $ 48,239   $ 179,521   Earnings (loss) per share - Basic: Continuing operations attributable to Apollo $ 0.45 $ 0.62 $ 0.45 $ 1.64 Discontinued operations attributable to Apollo —   (0.02 ) —   (0.04 ) Basic income per share attributable to Apollo $ 0.45   $ 0.60   $ 0.45   $ 1.60   Earnings (loss) per share - Diluted: Continuing operations attributable to Apollo $ 0.44 $ 0.61 $ 0.44 $ 1.63 Discontinued operations attributable to Apollo —   (0.02 ) —   (0.04 ) Diluted income per share attributable to Apollo $ 0.44   $ 0.59   $ 0.44   $ 1.59   Basic weighted average shares outstanding 107,678 110,613 108,140 112,024 Diluted weighted average shares outstanding 108,623 112,082 109,124 113,129    

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

As of ($ in thousands)

May 31, 2015

 

August 31,2014

ASSETS Current assets: Cash and cash equivalents $ 577,222 $ 1,228,813 Restricted cash and cash equivalents 231,324 224,135 Marketable securities 201,143 187,472 Accounts receivable, net 220,880 225,398 Prepaid taxes 12,731 34,006 Deferred taxes 78,668 83,871 Other current assets 59,505   58,855   Total current assets 1,381,473 2,042,550 Marketable securities 70,741 87,811 Property and equipment, net 399,584 435,733 Goodwill 243,968 259,901 Intangible assets, net 160,905 189,365 Deferred taxes 51,037 37,335 Other assets 43,733   40,240   Total assets $ 2,351,441   $ 3,092,935   LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY Current liabilities: Short-term borrowings and current portion of long-term debt $ 15,088 $ 609,506 Accounts payable 72,019 63,907 Student deposits 252,058 280,562 Deferred revenue 233,995 225,818 Accrued and other current liabilities 265,001   363,607   Total current liabilities 838,161 1,543,400 Long-term debt 40,383 47,590 Deferred taxes 22,695 22,674 Other long-term liabilities 214,410   233,942   Total liabilities 1,115,649 1,847,606 Commitments and contingencies Redeemable noncontrolling interests 56,345 64,527 Shareholders’ equity: Preferred stock, no par value — — Apollo Class A nonvoting common stock, no par value 103 103 Apollo Class B voting common stock, no par value 1 1 Additional paid-in capital — — Apollo Class A treasury stock, at cost (3,962,717 ) (3,936,607 ) Retained earnings 5,201,238 5,143,949 Accumulated other comprehensive loss (59,923 ) (27,320 ) Total Apollo shareholders’ equity 1,178,702 1,180,126 Noncontrolling interests 745   676   Total equity 1,179,447   1,180,802   Total liabilities, redeemable noncontrolling interests and shareholders’ equity $ 2,351,441   $ 3,092,935      

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

Nine Months EndedMay 31,

($ in thousands) 2015   2014 Operating activities: Net income $ 43,771 $ 176,228 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 29,768 33,694 Excess tax benefits from share-based compensation (236 ) (49 ) Depreciation and amortization 101,779 111,524 Accelerated depreciation included in restructuring 7,207 6,159 Loss (gain) on asset dispositions and impairment charges, net 22,228 (862 ) Non-cash foreign currency loss, net 1,722 642 Provision for uncollectible accounts receivable 42,372 37,997 Deferred income taxes (12,471 ) (22,067 ) Changes in assets and liabilities, excluding the impact of acquisitions and disposition: Restricted cash and cash equivalents 5,529 3,659 Accounts receivable (51,555 ) (20,472 ) Prepaid taxes 21,038 39,724 Other assets (1,974 ) (9,436 ) Accounts payable 7,753 (10,789 ) Student deposits (25,918 ) (15,436 ) Deferred revenue 22,677 (7,768 ) Accrued and other liabilities (89,987 ) (33,742 ) Net cash provided by operating activities 123,703 289,006 Investing activities: Purchases of property and equipment (74,254 ) (80,642 ) Purchases of marketable securities (156,465 ) (265,083 ) Maturities and sales of marketable securities 156,337 136,157 Acquisitions, net of cash acquired (21,166 ) (119,454 ) Changes in restricted cash and other investing activities (14,216 ) 3,446   Net cash used in investing activities (109,764 ) (325,576 ) Financing activities: Payments on borrowings (605,214 ) (624,393 ) Proceeds from borrowings 4,515 1,081 Share repurchases (40,700 ) (118,478 ) Share reissuances 995 1,793 Excess tax benefits from share-based compensation 236 49 Payment for contingent consideration (21,371 ) —   Net cash used in financing activities (661,539 ) (739,948 ) Exchange rate effect on cash and cash equivalents (3,991 ) 829   Net decrease in cash and cash equivalents (651,591 ) (775,689 ) Cash and cash equivalents, beginning of period 1,228,813   1,414,485   Cash and cash equivalents, end of period $ 577,222   $ 638,796   Supplemental disclosure of cash flow and non-cash information: Cash paid for income taxes, net of refunds $ 36,545 $ 113,753 Cash paid for interest 5,134 5,859

Restricted stock units vested and released

7,407 10,195      

Apollo Education Group, Inc. and Subsidiaries

Segment Data and University of Phoenix Operating Metrics

(Unaudited)

 

Three Months EndedMay 31,

Nine Months EndedMay 31,

($ in thousands) 2015   2014 2015   2014 Net revenue: University of Phoenix: Degree seeking gross revenues(1) $ 625,949 $ 739,183 $ 1,825,254 $ 2,179,917 Less: Discounts and other (79,362 ) (69,055 ) (219,315 ) (189,752 ) Degree seeking net revenues(1) 546,587 670,128 1,605,939 1,990,165 Other revenues 14,105   11,579   35,375   30,486   Total University of Phoenix 560,692 681,707 1,641,314 2,020,651 Apollo Global 109,622 100,459 305,862 260,252 Other 11,167   11,444   31,929   33,609   Net revenue $ 681,481   $ 793,610   $ 1,979,105   $ 2,314,512   Operating income (loss): University of Phoenix $ 102,773 $ 135,153 $ 197,634 $ 405,308 Apollo Global 5,465 (13,845 ) (26,918 ) (51,632 ) Other (17,586 ) (4,984 ) (74,096 ) (56,695 ) Operating income $ 90,652   $ 116,324   $ 96,620   $ 296,981     (1) Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs or certificate programs of at least 18 credits in length with some course applicability into a related degree program. University of Phoenix Enrollment Data:   (Rounded to the nearest hundred, except per degreed enrollment)  

Three Months EndedMay 31,

   

Nine Months EndedMay 31,

2015   2014   % Change 2015   2014   % Change Degreed Enrollment(1) 206,900 241,900 (14.5 )% Average Degreed Enrollment(3) 220,400 256,100 (13.9

)%

New Degreed Enrollment(2) 29,400 33,900 (13.3 )% Degree seeking net revenues per degreed enrollment $ 2,642 $ 2,770 (1) Represents students enrolled in a degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter; students who previously graduated from one degree program and started a new degree program in the quarter (e.g., a graduate of an associate’s degree program returns for a bachelor’s degree); and students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program. (2) Represents new students and students who have been out of attendance for more than 12 months who enroll in a degree program and start a credit bearing course in the quarter; students who have previously graduated from a degree program and start a new degree program in the quarter; and students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program. (3) Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective periods.      

Apollo Education Group, Inc. and Subsidiaries

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

(Unaudited)

 

Consolidated Financial Information Reconciliation

Three Months EndedMay 31,

Nine Months EndedMay 31,

($ in thousands, except per share data) 2015   2014 2015   2014 Operating income $ 90,652 $ 116,324 $ 96,620 $ 296,981 Income from continuing operations before income taxes 87,660 114,578 89,125 293,247 Provision for income taxes (40,220 ) (47,539 ) (45,354 ) (112,627 ) Net income attributable to Apollo 48,064 66,025 48,239 179,521 Loss from discontinued operations, net of tax —   2,029   —   4,392   Income from continuing operations attributable to Apollo $ 48,064 $ 68,054 $ 48,239 $ 183,913 Diluted income per share from continuing operations attributable to Apollo $ 0.44 $ 0.61 $ 0.44 $ 1.63 Special items: Restructuring and impairment charges $ 11,444 $ 14,904 $ 66,008 $ 62,076 Acquisition and other related (credit) costs, net (455 ) 16,168 4,506 29,173 Litigation charges — 4,125 100 13,125 Gain related to foreign indirect taxes(1) —   (11,173 ) —   (11,173 ) Special items before income taxes 10,989 24,024 70,614 93,201 Less: income tax effects of special items (4,532 ) (5,171 ) (26,890 ) (26,819 ) Tax expense from resolution with tax authority 3,002 — 3,002 — Tax benefit from Internal Revenue Service settlement —   —   —   (10,176 ) Special items, net of income tax $ 9,459   $ 18,853   $ 46,726   $ 56,206   Excluding special items: Operating income $ 101,641 $ 140,348 $ 167,234 $ 390,182 Income from continuing operations before income taxes 98,649 138,602 159,739 386,448 Provision for income taxes (41,750 ) (52,710 ) (69,242 ) (149,622 ) Income from continuing operations attributable to Apollo 57,523 86,907 94,965 240,119 Diluted income per share from continuing operations attributable to Apollo $ 0.53 $ 0.78 $ 0.87 $ 2.12  

(1) This gain is included in instructional and student advisory on the Company’s Condensed Consolidated Statements of Income.

Adjusted Operating Income (Loss) Reconciliation

  Consolidated   Apollo Global(1)

Three Months EndedMay 31,

 

Nine Months EndedMay 31,

Three Months EndedMay 31,

 

Nine Months EndedMay 31,

($ in thousands) 2015   2014 2015   2014 2015   2014 2015   2014 Operating income (loss) $ 90,652 $ 116,324 $ 96,620 $ 296,981 $ 5,465 $ (13,845 ) $ (26,918 ) $ (51,632 ) Depreciation and amortization 30,556 37,721 101,779 111,524 9,528 11,055 29,677 26,421 Restructuring and impairment charges 11,444 14,904 66,008 62,076 41 3,817 142 5,384 Acquisition and other related (credit) costs, net (455 ) 16,168 4,506 29,173 (1,040 ) 15,837 1,658 28,834 Litigation charges — 4,125 100 13,125 — — — — Gain related to foreign indirect taxes —   (11,173 ) —   (11,173 ) —   (11,173 ) —   (11,173 ) Adjusted Operating Income (Loss) $ 132,197   $ 178,069   $ 269,013   $ 501,706   $ 13,994   $ 5,691   $ 4,559   $ (2,166 )

(1) Open Colleges’ educational offerings generally extend beyond one year and the associated revenue is recognized over the contractual period that students are provided access to complete their program, or the time period it takes students to complete their program, as applicable. However, Open Colleges’ operating costs are period costs that are expensed as incurred and a substantial portion are incurred before, or soon after, the students begin their programs. Accordingly, as a result of Open Colleges’ enrollment growth, service model, and cost structure, Apollo Global’s operating results are negatively impacted in the near term. However, these factors do not have the same adverse impact on cash flows generated from Open Colleges.

Use of Non-GAAP Financial Information

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

Adjusted Operating Income (Loss) excludes depreciation and amortization and certain other items and is intended to provide an indicator of our operating performance across time periods due to the impact of acquisitions.

Forward-Looking Statements Safe Harbor

Statements about Apollo Education Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Education Group’s future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including without limitation: (i) the impact of increased competition from traditional public universities and proprietary educational institutions; (ii) the impact of the initiatives to transform University of Phoenix to a more focused, higher retaining and less complex institution, including the near-term impact on enrollment; (iii) the impact on retention from the technical challenges experienced in implementing the new University of Phoenix online student classroom; (iv) changes in law or regulation affecting the University of Phoenix’s eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs, including the recent Department of Education regulations relating to gainful employment, future changes that may be included in the reauthorization of the federal Higher Education Act and the Department of Education’s proposed regulation relating to state authorization; (v) any adverse impact on University of Phoenix’s business arising from the Notice sanction imposed by the University’s principal accreditor, and any associated impact on the University’s pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs; (vi) the impact of the Company’s ongoing restructuring and cost-reduction initiatives; (vii) the impact of any reduction in financial aid available to students, including active and retired military personnel, due to the U.S. government deficit reduction proposals, debt ceiling limitations, budget sequestration or otherwise; (viii) changes in University of Phoenix enrollment or student mix; and (ix) unexpected expenses or other challenges in integrating acquired businesses, consumer or regulatory impact arising from consummation of such acquisitions, and unexpected changes or developments in the acquired businesses. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Education Group’s Form 10-K for fiscal year 2014, and other filings with the Securities and Exchange Commission which are available at www.apollo.edu.

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Apollo Education Group, Inc.Investor Relations Contact:Beth Coronelli, 312-660-2059beth.coronelli@apollo.eduorMedia Contact:Media Relations Hotline, 602-254-0086media@apollo.edu