Apollo Education Group, Inc. (NASDAQ: APOL) (“Apollo” or the
“Company”) today reported financial results for the three and nine
months ended May 31, 2016, with third quarter revenue of $558.0
million and diluted earnings per share from continuing operations
of $0.19, or $0.37 excluding special items.
“We remain committed to our transformational plan at University
of Phoenix, which we believe will result in a higher retaining and
more focused and trusted university,” said Greg Cappelli,
Chief Executive Officer of Apollo Education Group. “We also
continue to grow internationally through Apollo Global where we
serve more than 150,000 students on six continents. While we have
significantly reduced the cost base of the company, we will
continue to look for additional efficiencies, as necessary, in
order to support our long-term strategic plan.”
Third Quarter 2016 Results of
Operations
Apollo Education Group reported net revenue for the third
quarter 2016 of $558.0 million compared to $676.4 million for the
third quarter 2015. Third quarter 2016 University of Phoenix New
Degreed Enrollment was 17,900 and Degreed Enrollment was 155,600,
compared to New Degreed Enrollment of 29,400 and Degreed Enrollment
of 206,900 for the prior year third quarter. Operating income for
the third quarter 2016 was $32.0 million, compared to $93.3 million
for the third quarter 2015. Income from continuing operations
attributable to Apollo Education Group for the third quarter 2016
was $20.7 million, or $0.19 per share, compared to $50.3 million,
or $0.46 per share, for the prior year third quarter.
Excluding special items, income from continuing operations
attributable to Apollo Education Group for the third quarter 2016
was $40.5 million, or $0.37 per share, compared to $59.7 million,
or $0.55 per share, for the third quarter 2015. Adjusted EBITDA was
$90.7 million for the third quarter 2016 compared to $132.2 million
for the third quarter 2015. (Special items and Adjusted EBITDA for
the respective periods are included in the reconciliation of GAAP
to non-GAAP financial information tables of this press
release.)
First Nine Months of 2016 Results of
Operations
Net revenue for the first nine months of fiscal year 2016
totaled $1.6 billion, compared to $2.0 billion in the first nine
months of fiscal year 2015. In the first nine months of 2016,
University of Phoenix Average Degreed Enrollment was 171,400,
compared to 220,400 for the prior year period. Operating loss for
the first nine months of 2016 was $94.1 million compared to
operating income of $120.0 million in the prior year period. Loss
from continuing operations attributable to Apollo Education Group
for the first nine months of 2016 was $97.2 million, or $0.89 per
share, compared to income of $63.1 million, or $0.58 per share, for
the first nine months of 2015.
Excluding special items, income from continuing operations
attributable to Apollo Education Group for the first nine months of
fiscal year 2016 was $40.3 million, or $0.37 per share, compared to
$101.7 million, or $0.93 per share, for the first nine months of
2015. Adjusted EBITDA was $160.9 million for the first nine months
of 2016 compared to $268.5 million for the first nine months of
2015. (Special items and Adjusted EBITDA for the respective periods
are included in the reconciliation of GAAP to non-GAAP financial
information tables of this press release.)
Balance Sheet and Cash
Flow
As of May 31, 2016, the Company’s unrestricted cash and
cash equivalents and marketable securities (including current and
noncurrent) totaled $643.2 million, compared to $794.2 million as
of August 31, 2015. The decrease was primarily attributable to
$101.2 million paid to acquire Career Partner GmbH and capital
expenditures.
Total debt outstanding (including short-term borrowings and the
current portion of long-term debt) was $62.1 million as of
May 31, 2016.
Business Outlook
Due to the pending merger transaction announced February 8,
2016, the Company is not providing an updated financial outlook at
this time.
Conference Call
Information
In light of the pending merger, the Company will not be hosting
an investor conference call following the issuance of its fiscal
year 2016 third quarter earnings press release.
About Apollo Education Group,
Inc.
Apollo Education Group, Inc. is one of the world’s largest
private education providers, serving students since 1973. Through
its subsidiaries, Apollo Education Group offers undergraduate,
graduate, certificate and nondegree educational programs and
services, online and on-campus, principally to working learners in
the U.S. and abroad. For more information about Apollo Education
Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the
Company’s website at www.apollo.edu.
Apollo Education Group, Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations
(Unaudited)
Three Months EndedMay
31,
Nine Months EndedMay 31, (In thousands, except
per share data)
2016 2015 2016
2015 Net revenue $ 558,002 $ 676,358 $ 1,609,371 $
1,965,986 Costs and expenses: Instructional and student advisory
274,486 294,841 836,453 907,348 Marketing 87,530 116,839 279,128
369,120 Admissions advisory 30,192 52,994 94,500 167,919 General
and administrative 59,066 64,437 192,300 206,215 Depreciation and
amortization 28,330 29,969 82,478 95,705 Provision for
uncollectible accounts receivable 15,716 13,005 43,812 42,372
Restructuring and impairment charges 22,366 11,444 149,578 52,722
Merger, acquisition and other related costs (credit), net 8,317
(455 ) 25,188 4,506 Litigation charge — — —
100
Total costs and expenses 526,003 583,074
1,703,437 1,846,007
Operating income
(loss) 31,999 93,284 (94,066 ) 119,979 Interest income 1,041
762 2,883 2,091 Interest expense (1,569 ) (1,715 ) (4,997 ) (5,116
) Other loss, net (273 ) (2,038 ) (2,229 ) (4,480 )
Income
(loss) from continuing operations before income taxes 31,198
90,293 (98,409 ) 112,474 Provision for income taxes (11,399 )
(40,667 ) (3,796 ) (53,797 )
Income (loss) from continuing
operations 19,799 49,626 (102,205 ) 58,677 Loss from
discontinued operations, net of tax — (2,186 ) (3,259 )
(14,906 )
Net income (loss) 19,799 47,440 (105,464 ) 43,771
Net loss attributable to noncontrolling interests 945
624 5,047 4,468
Net income (loss)
attributable to Apollo $ 20,744 $ 48,064 $
(100,417 ) $ 48,239 Earnings (loss) per share - Basic:
Continuing operations attributable to Apollo $ 0.19 $ 0.47 $ (0.89
) $ 0.59 Discontinued operations attributable to Apollo —
(0.02 ) (0.03 ) (0.14 )
Basic income (loss) per share
attributable to Apollo $ 0.19 $ 0.45 $ (0.92 ) $
0.45 Earnings (loss) per share - Diluted: Continuing
operations attributable to Apollo $ 0.19 $ 0.46 $ (0.89 ) $ 0.58
Discontinued operations attributable to Apollo — (0.02 )
(0.03 ) (0.14 )
Diluted income (loss) per share attributable to
Apollo $ 0.19 $ 0.44 $ (0.92 ) $ 0.44
Basic weighted average shares outstanding 108,658 107,678 108,567
108,140 Diluted weighted average shares outstanding 109,444 108,623
108,567 109,124
Apollo Education Group, Inc. and
Subsidiaries
Condensed Consolidated Balance
Sheets
(Unaudited)
As of ($ in thousands)
May
31, 2016 August 31, 2015
ASSETS Current assets: Cash and cash equivalents $ 361,526 $
503,705 Restricted cash and cash equivalents 185,320 198,369
Marketable securities 242,301 194,676 Accounts receivable, net
193,477 198,459 Prepaid taxes 29,165 38,371 Other current assets
53,201 48,823 Assets of business held for sale — 40,897
Total current assets 1,064,990 1,223,300 Marketable
securities 39,323 95,815 Property and equipment, net 343,094
370,281 Goodwill 265,765 247,190 Intangible assets, net 200,756
143,244 Deferred taxes 93,772 92,105 Other assets 29,926
29,129
Total assets $ 2,037,626 $ 2,201,064
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
SHAREHOLDERS’ EQUITY Current liabilities: Short-term borrowings
and current portion of long-term debt $ 19,514 $ 14,080 Accounts
payable 56,297 64,100 Student deposits 213,986 245,470 Deferred
revenue 185,025 186,950 Accrued and other current liabilities
248,863 280,847 Liabilities of business held for sale —
40,897 Total current liabilities 723,685 832,344 Long-term
debt 42,597 31,566 Deferred taxes 16,924 7,729 Other long-term
liabilities 182,491 172,452
Total liabilities
965,697 1,044,091 Commitments and contingencies
Redeemable
noncontrolling interests 7,204 11,915 Shareholders’ equity:
Preferred stock, no par value — — Apollo Class A nonvoting common
stock, no par value 103 103 Apollo Class B voting common stock, no
par value 1 1 Additional paid-in capital — — Apollo Class A
treasury stock, at cost (3,915,279 ) (3,928,419 ) Retained earnings
5,061,631 5,153,452 Accumulated other comprehensive loss (82,286 )
(80,579 ) Total Apollo shareholders’ equity 1,064,170 1,144,558
Noncontrolling interests 555 500
Total equity
1,064,725 1,145,058
Total liabilities, redeemable
noncontrolling interests and shareholders’ equity $ 2,037,626
$ 2,201,064
Apollo Education Group, Inc. and
Subsidiaries
Condensed Consolidated Statements of
Cash Flows
(Unaudited)
Nine Months Ended
May 31,
($ in thousands)
2016 2015 Operating
activities: Net (loss) income $ (105,464 ) $ 43,771 Adjustments to
reconcile net (loss) income to net cash provided by operating
activities: Share-based compensation 27,318 29,768 Excess tax
benefits from share-based compensation — (236 ) Depreciation and
amortization 82,478 101,779 Accelerated depreciation included in
restructuring 12,262 7,207 Impairment charges and loss on asset
dispositions 76,470 22,228 Non-cash foreign currency loss, net 492
1,722 Provision for uncollectible accounts receivable 43,812 42,372
Deferred income taxes (6,175 ) (12,471 ) Changes in assets and
liabilities, excluding the impact of acquisitions: Restricted cash
and cash equivalents 13,567 5,529 Accounts receivable (37,296 )
(51,555 ) Prepaid taxes 8,104 21,038 Other assets (684 ) (1,974 )
Accounts payable (8,872 ) 7,753 Student deposits (32,002 ) (25,918
) Deferred revenue (28,564 ) 22,677 Accrued and other liabilities
(35,813 ) (89,987 )
Net cash provided by operating
activities 9,633 123,703 Investing activities: Purchases of
property and equipment (51,414 ) (74,254 ) Purchases of marketable
securities (203,504 ) (156,465 ) Maturities and sales of marketable
securities 208,360 156,337 Acquisitions, net of cash acquired
(101,196 ) (21,166 ) Other investing activities (727 ) (14,216 )
Net cash used in investing activities (148,481 ) (109,764 )
Financing activities: Payments on borrowings (63,785 ) (605,214 )
Proceeds from borrowings 56,961 4,515 Share repurchases (732 )
(40,700 ) Share reissuances 638 995 Excess tax benefits from
share-based compensation — 236 Payment for contingent consideration
— (21,371 )
Net cash used in financing activities
(6,918 ) (661,539 ) Exchange rate effect on cash and cash
equivalents 3,587 (3,991 )
Net decrease in cash and cash
equivalents (142,179 ) (651,591 )
Cash and cash equivalents,
beginning of period 503,705 1,228,813
Cash and
cash equivalents, end of period $ 361,526 $ 577,222
Supplemental disclosure of cash flow and non-cash
information: Cash paid for income taxes, net of refunds $ 1,144 $
36,545 Cash paid for interest 5,081 5,134 Restricted stock units
vested and released 2,083 7,407
Apollo Education Group, Inc. and
Subsidiaries
Segment Data and University of Phoenix
Operating Metrics
(Unaudited)
Three Months Ended
May 31,
Nine Months Ended
May 31,
($ in thousands)
2016 2015 2016
2015 Net revenue: University of Phoenix: Degree
seeking gross revenues(1) $ 474,749 $ 625,949 $ 1,412,637 $
1,825,254 Less: Discounts and other (61,010 ) (79,362 ) (188,741 )
(219,315 ) Degree seeking net revenues(1) 413,739 546,587 1,223,896
1,605,939 Other revenues 10,740 14,105 28,156
35,375 Total University of Phoenix 424,479 560,692 1,252,052
1,641,314 Apollo Global 125,007 109,622 334,135 305,862 Other 8,516
6,044 23,184 18,810
Net revenue
$ 558,002 $ 676,358 $ 1,609,371 $ 1,965,986
Operating income (loss): University of Phoenix $
59,681 $ 103,395 $ 33,099 $ 216,776 Apollo Global (459 ) 5,465
(29,677 ) (26,918 ) Other (27,223 ) (15,576 ) (97,488 ) (69,879 )
Operating income (loss) $ 31,999 $ 93,284 $
(94,066 ) $ 119,979
(1) Represents revenue from tuition and other fees for students
enrolled in University of Phoenix degree programs or certificate
programs of at least 18 credits in length with some course
applicability into a related degree program.
University of Phoenix Enrollment Data:
(Rounded to the nearest hundred, except
per degreed enrollment)
Three Months Ended May 31, Nine Months Ended May 31,
2016 2015
%Change
2016 2015
%Change
Degreed Enrollment(1), (2) 155,600 206,900 (24.8 )% Average Degreed
Enrollment(2), (4) 171,400 220,400 (22.2 )% New Degreed
Enrollment(3) 17,900 29,400 (39.1 )% Aggregate New Degreed
Enrollment 59,600 97,300 (38.7 )%
Degree seeking net revenuesper degreed
enrollment
$ 2,659 $ 2,642
(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) As described in Footnote 1, Degreed Enrollment includes
students who attended a credit bearing course during the quarter
and had not graduated as of the end of the quarter. The proportion
of students included in Degreed Enrollment who have completed their
academic work but not yet formally graduated (“academically
complete students”) increased during the third quarter of fiscal
year 2016 compared to the prior year period due to changes in the
manner in which graduation applications are processed. We estimate
that the number of academically complete students reflected in this
increase is approximately 2,000 - 3,000.
(3) 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.
(4) Represents the average of quarterly Degreed Enrollment from
the beginning to the end of the respective periods.
Apollo Education Group, Inc. and
Subsidiaries
Reconciliation of GAAP Financial
Information to Non-GAAP Financial Information
(Unaudited)
Three Months Ended
May 31,
Nine Months Ended
May 31,
(In thousands, except per share data)
2016
2015 2016 2015 Net income (loss)
attributable to Apollo, as reported $ 20,744 $ 48,064 $ (100,417 )
$ 48,239 Less: Loss from discontinued operations, net of tax —
(2,186 ) (3,259 ) (14,906 ) Income (loss) from continuing
operations attributable to Apollo 20,744 50,250 (97,158 ) 63,145
Special items: Restructuring and impairment charges(1)
22,366 11,444 149,578 52,722 Merger, acquisition and other related
costs (credit), net 8,317 (455 ) 25,188 4,506 Litigation charge —
— — 100 Special items before income
taxes 30,683 10,989 174,766 57,328 Less: income tax effects of
special items (10,972 ) (4,532 ) (37,262 ) (21,747 ) Tax expense
from resolution with tax authority — 3,002 —
3,002 Special items, net of income taxes 19,711 9,459
137,504 38,583 Income from continuing
operations attributable to Apollo, excluding special items $ 40,455
$ 59,709 $ 40,346 $ 101,728 Diluted
income (loss) per share from continuing operations attributable to
Apollo, as reported $ 0.19 $ 0.46 $ (0.89 ) $ 0.58 Diluted income
per share from continuing operations attributable to Apollo,
excluding special items $ 0.37 $ 0.55 $ 0.37 $ 0.93
(1) During the first quarter of fiscal year 2016, we recorded
$73.4 million of goodwill impairment charges.
Reconciliation of
Adjusted EBITDA to Net Income (Loss)
Three Months Ended
May 31,
Nine Months Ended
May 31,
($ in thousands)
2016 2015 2016
2015 Adjusted EBITDA: University of Phoenix $ 93,326
$ 129,644 $ 205,345 $ 315,986 Apollo Global 11,374 12,481 2,221 771
Other (13,961 ) (9,921 ) (46,617 ) (48,225 )
Adjusted EBITDA
90,739 132,204 160,949 268,532 Less: Special items before income
taxes (see above table) 30,683 10,989 174,766 57,328 Less:
Depreciation and amortization 28,330 29,969 82,478 95,705 Less:
Interest expense, net of interest income 528 953 2,114 3,025 Less:
Provision for income taxes 11,399 40,667 3,796 53,797 Plus: Loss
from discontinued operations, net of tax — (2,186 ) (3,259 )
(14,906 )
Net income (loss), as reported $ 19,799 $
47,440 $ (105,464 ) $ 43,771
Use of Non-GAAP Financial
Information
The Company’s non-GAAP financial measures are intended to
supplement, but not substitute for, the most directly comparable
GAAP measures. Management uses, and chooses to disclose to
investors, these non-GAAP financial measures because: (i) such
measures provide an additional analytical tool to clarify the
Company’s results from operations and help to identify underlying
trends in its results of operations; (ii) as to the non-GAAP
earnings measures, such measures help compare the Company’s
performance on a consistent basis across time periods; and (iii)
these non-GAAP measures are employed by the Company’s management in
its own evaluation of performance and are utilized in financial and
operational decision-making processes, such as budgeting and
forecasting. Exclusion of items in the non-GAAP presentation should
not be construed as an inference that these items are unusual,
infrequent or non-recurring. Other companies, including other
companies in the education industry, may calculate non-GAAP
financial measures differently, limiting their usefulness as a
comparative measure across companies.
“Adjusted EBITDA” is earnings from continuing operations before
interest expense and interest income, income taxes, depreciation
and amortization, and special items. It is intended to provide an
indicator of our operating performance across time periods.
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 timing of the completion of the previously
announced pending merger transaction with AP VIII Queso Holdings,
L.P., an affiliate of Apollo Management VIII, L.P., which is a fund
managed by an affiliate of Apollo Global Management, LLC, an entity
unrelated to Apollo Education Group; (ii) the inability to complete
the merger due to the failure to satisfy customary and other
conditions to completion of the merger, including receipt of
required regulatory approvals; (iii) the risk that regulatory
agencies impose restrictions, limitations, costs, divestitures or
other conditions in connection with providing regulatory approval
of the merger; (iv) the outcome of pending or potential litigation
or governmental investigations; (v) disruptions resulting from the
proposed merger making it more difficult for Apollo Education Group
to maintain relationships with its students, customers, employees,
suppliers and strategic partners; (vi) competitive responses to the
proposed merger; (vii) unexpected costs, liabilities, charges or
expenses resulting from the merger; (viii) the inability to obtain,
renew or modify permits in a timely manner, or comply with
government regulations; (ix) the inability to retain key personnel
of Apollo Education Group or its subsidiaries; (x) the occurrence
of any event, change or other circumstance that could give rise to
the termination of the merger agreement, including a termination of
the merger agreement under circumstances that could require Apollo
Education Group to pay a termination fee; (xi) unexpected expenses
or other challenges in integrating acquired businesses, student,
consumer or regulatory impact arising from consummation of such
acquisitions, and unexpected changes or developments in the
acquired businesses; (xii) diversion of management’s attention from
ongoing business concerns; (xiii) limitations placed on Apollo
Education Group’s ability to operate its business by the merger
agreement; (xiv) the impact of increased competition from
traditional public universities and proprietary educational
institutions; (xv) the impact of the initiatives to transform
University of Phoenix into a more-focused, higher-retaining and
less-complex institution, including the near-term impact on
enrollment; (xvi) the impact of Apollo Education Group’s ongoing
restructuring and cost-reduction initiatives; (xvii) impacts from
actions taken by our regulators that could affect University of
Phoenix’s eligibility to participate in or the manner in which it
participates in U.S. Federal and state student financial aid
programs, including the recent requirement that all substantial
changes be approved by the U.S. Department of Education in advance;
(xviii) further delay in University of Phoenix’s pending
recertification by the U.S. Department of Education for
participation in Title IV student financial aid programs, or any
limitations or qualifications imposed in connection with any
recertification; (xix) 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; (xx)
changes in regulation of the U.S. education industry and
eligibility of proprietary schools to participate in U.S. Federal
student financial aid programs; (xxi) changes in University of
Phoenix’s enrollment or student mix; (xxii) the impact on student
enrollments of the announcement of the proposed merger and general
economic conditions; (xxiii) the impact of third party claims that
Apollo Education Group’s products and services infringe their
intellectual property rights; and (xxiv) fluctuations in non-U.S.
currencies that could impact reported operating results of foreign
subsidiaries. For a discussion of the various factors that may
cause actual plans implemented and actual results achieved to
differ materially from those set forth in the forward-looking
statements, please refer to the risk factors and other disclosures
contained in Apollo Education Group’s Form 10-K for fiscal year
2015, filed with the Securities and Exchange Commission (the “SEC”)
on October 22, 2015, Form 10-Q for the quarterly period ended May
31, 2016, filed with the SEC on July 7, 2016, and other
filings with the SEC which are available at www.apollo.edu. The
cautionary statements referred to above also should be considered
in connection with any subsequent written or oral forward-looking
statements that may be issued by Apollo Education Group or persons
acting on Apollo Education Group’s behalf. Apollo Education Group
undertakes no obligation to publicly update or revise any
forward-looking statements for any facts, events, or circumstances
after the date hereof that may bear upon forward-looking
statements. Furthermore, Apollo Education Group cannot guarantee
future results, events, levels of activity, performance, or
achievements.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160707006472/en/
Apollo Education Group, Inc.Investor Relations
Contact:Beth Coronelli,
312-660-2059beth.coronelli@apollo.eduMedia Contact:Media
Relations Hotline, 602-254-0086media@apollo.edu
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