Apollo Group, Inc. Reports Second Quarter 2013 Results

Apollo Group, Inc. Reports Second Quarter 2013 Results

PHOENIX--(BUSINESS WIRE)-- Apollo Group, Inc. (NAS: APOL) today reported financial results for the three and six months ended February 28, 2013, with second quarter revenue of $834.4 million and diluted earnings per share of $0.12 per share, or $0.34 per share excluding special items.

"Higher education is rapidly evolving as workforce demands and technological innovations drive change in our global economy," said Apollo Group Chief Executive Officer Greg Cappelli. "We are further positioning our organization and brand with our continued commitment to help students acquire real workplace skills, achieve their academic goals, and - through the power of education - realize their career aspirations."


Second Quarter 2013 Results of Operations

  • Net revenue for the second quarter 2013 was $834.4 million, compared to $962.7 million in the second quarter 2012.
  • University of Phoenix Degreed Enrollment was 300,800, a 15.5% decrease from the prior year second quarter, and New Degreed Enrollment was 38,900, down 20.1% from second quarter 2012.
  • Operating income was $29.8 million, compared to $103.7 million from the prior year second quarter.
  • Income from continuing operations attributable to Apollo Group was $13.5 million, or $0.12 per share, compared to $62.2 million, or $0.49 per share in the second quarter 2012.

Results for the second quarter 2013 included restructuring and other charges of $44.1 million attributable to optimization efforts and $6.4 million of credits associated with the favorable resolution of certain legal matters. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for second quarter 2013 and 2012 special items).

Excluding the special items noted above, income from continuing operations for the second quarter 2013 was $38.0 million, or $0.34 per share, compared to $72.2 million, or $0.57 per share, for the second quarter 2012. The decrease in income from continuing operations was attributable to lower enrollment and an increase in marketing costs primarily due to higher advertising expense, which was partially offset by a reduction in certain costs associated with the Company's restructuring activities and lower bad debt expense.

First Six Months of 2013 Results of Operations

Net revenue for the first six months of fiscal year 2013 totaled $1.9 billion, which represents an 11.5% decrease compared to the first six months of fiscal year 2012 principally due to lower enrollment. In the first six months of 2013, University of Phoenix Average Degreed Enrollment decreased 14.5% to 316,300 as compared to the same period a year ago. The Company reported income from continuing operations attributable to Apollo Group for the six months ended February 28, 2013, of $147.0 million, or $1.30 per share, compared to $209.7 million, or $1.63 per share, for the six months ended February 29, 2012.

Results for the first six months of 2013 included restructuring and other charges of $68.2 million attributable to the Company's optimization efforts and $23.2 million of credits associated with the favorable resolution of certain legal matters. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for the first six months of 2013 and 2012 special items.)

Excluding the special items noted above, income from continuing operations for the six months ended February 28, 2013, was $175.8 million, or $1.56 per share, compared to $237.5 million, or $1.84 per share, for the six months ended February 29, 2012.

Balance Sheet and Cash Flow

As of February 28, 2013, cash and cash equivalents, excluding restricted cash, totaled $821.2 million compared to $1.3 billion as of August 31, 2012. The decrease was primarily due to $629.5 million used for payments on borrowings, $49.0 million for capital expenditures, $42.5 million cash payment for the purchase of the noncontrolling interest in Apollo Global, and $39.4 million used for the purchase of short-term investments. These items were partially offset by $299.0 million of cash provided by operations.

Accounts receivable were $177.6 million as of February 28, 2013, compared to $198.3 million at August 31, 2012. Excluding accounts receivable and the related net revenue for Apollo Global, the Company's days sales outstanding was 19 days as of February 28, 2013, as compared to 22 days as of February 29, 2012.

Share Repurchase Authorization

On March 22, 2013, the Apollo Group Board of Directors approved a share repurchase authorization up to an aggregate amount of $250 million. There is no expiration date on the repurchase authorization and repurchases, if any, will be made at the discretion of management.

Business Outlook

The Company offers the following outlook for fiscal year 2013 based on the business trends observed during the second quarter 2013, as well as management's current expectations of future trends.

  • Net revenue of $3.65 - $3.75 billion; and
  • Operating income of $500.0 - $550.0 million, excluding the impact of special items and restructuring and other charges.

The Company continues initiatives to reengineer business processes and refine its educational delivery structure. These restructuring activities are expected to favorably impact annual operating expenses by at least $350 million by fiscal year 2014, when compared to fiscal year 2012. This is a $50 million increase in anticipated savings from the Company's previous outlook.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 8:00 a.m. ET, 5:00 a.m. PT, today, Monday, March 25, 2013.

Dial-In Numbers:
877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 12434663

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 April 12, 2013.

Dial-In Numbers:
855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 12434663

About Apollo Group, Inc.

Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business since 1973. The Company offers innovative and distinctive educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its subsidiaries: University of Phoenix, Apollo Global, Institute for Professional Development and College for Financial Planning. The Company offers programs and services throughout the United States and in Latin America and Europe, as well as online throughout the world.

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

Forward-Looking Statements Safe Harbor

Statements about Apollo Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Group's future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including without limitation: (i) the outcome of the current accreditation reaffirmation review of University of Phoenix by its principal institutional accreditor, The Higher Learning Commission, including the possible imposition of the sanction of probation as recommended in the peer review team's draft report; (ii) the impact of any sanctions, up to and including probation, imposed or proposed to be imposed on University of Phoenix by The Higher Learning Commission, including any impact on the University's pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs; (iii) the impact of any reduction in student financial aid available to students, particularly active and retired military personnel, due to the U.S. government budget sequestration; (iv) the impact of increased competition from traditional public universities and proprietary educational institutions; (v) the impact of the Company's recent restructuring initiatives and the operational, governance and other changes to increase University of Phoenix autonomy in response to governance concerns expressed by The Higher Learning Commission; (vi) the impact of changes in marketing channels and other recruiting practices to better identify students who are more likely to succeed at University of Phoenix; (vii) the impact of University of Phoenix initiatives to improve the student experience, improve student outcomes and enhance the connection between education and careers; (viii) changes in University of Phoenix enrollment or student mix; (ix) changes in the overall U.S. or global economy; (x) 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; and (xi) changes in the University of Phoenix's business necessary to remain in compliance with existing, new, or amended U.S. federal student financial aid program regulations, including the so-called 90/10 Rule and the limitations on cohort default rates, and to remain in compliance with the accrediting criteria of the relevant accrediting bodies. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Group's Form 10-K for fiscal year 2012 and subsequent Forms 10-Q, and other filings with the Securities and Exchange Commission, all of which are available on the Company's website at www.apollo.edu.

Use of Non-GAAP Financial Information

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

Financial and Operating Metrics

Below are Apollo Group's unaudited financial data and operating metrics for the second quarter 2013 compared to the second quarter 2012.

    Degreed Enrollment (1)     New Degreed Enrollment (2)
Enrollment (rounded to hundreds) Q2 2013     Q2 2012 Q2 2013     Q2 2012
Associate's 89,900 118,100 14,900 18,500
Bachelor's 159,600 179,400 16,700 22,000
Master's 44,900 51,000 6,700 7,500
Doctoral 6,400   7,300     600     700  
300,800   355,800     38,900     48,700  
 
Revenues (in thousands)
Degree Seeking Gross Revenues(3) $ 800,863 $ 931,610
Less: Discounts and other   (56,700 )   (56,508 )
Degree Seeking Net Revenues(3) 744,163 875,102
Non-degree Seeking Revenues 8,492 8,885
Other, net of discounts   81,717     78,695  
$ 834,372   $ 962,682  
 
Revenue by Degree Type (in thousands)(3)
Associate's $ 187,815 $ 245,771
Bachelor's 463,490 516,028
Master's 132,461 148,867
Doctoral 17,097 20,944
Less: Discounts and other   (56,700 )   (56,508 )
$ 744,163   $ 875,102  
 
Degree Seeking Gross Revenues per Degreed Enrollment(1), (3)
Associate's $ 2,089 $ 2,081
Bachelor's $ 2,904 $ 2,876
Master's $ 2,950 $ 2,919
Doctoral $ 2,671 $ 2,869
All degrees (after discounts) $ 2,474 $ 2,460
 

(1) Represents students enrolled in a University of Phoenix degree program who attended a credit bearing course during the quarter and had not graduated as of the end of the quarter; students who previously graduated from one degree program and started a new degree program in the quarter (for example, a graduate of the associate's degree program returns for a bachelor's degree); and students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

(2) Represents new students and students who have been out of attendance for more than 12 months who enroll in a University of Phoenix degree program and start a credit bearing course in the quarter; students who have previously graduated from a degree program and start a new degree program in the quarter; and students who commence participation in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

(3) Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs. Also includes revenue from tuition and other fees for students participating in University of Phoenix certificate programs of at least 18 credits in length with some course applicability into a related degree program.

 
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
     
  As of
February 28, August 31,

($ in thousands)

2013 2012
ASSETS:
Current assets
Cash and cash equivalents $ 821,163 $ 1,276,375
Restricted cash and cash equivalents 329,772 318,334
Marketable securities 31,804
Accounts receivable, net 177,557 198,279
Prepaid taxes 10,216 26,341
Deferred tax assets, current portion 49,870 69,052
Other current assets   45,813     49,609  
Total current assets 1,466,195 1,937,990
Property and equipment, net 502,702 571,629
Goodwill 103,829 103,345
Intangible assets, net 137,252 149,034
Deferred tax assets, less current portion 89,706 77,628
Other assets   40,380     28,696  
Total assets $ 2,340,064   $ 2,868,322  
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Short-term borrowings and current portion of long-term debt $ 20,080 $ 638,588
Accounts payable 76,017 74,872
Student deposits 363,721 362,143
Deferred revenue 260,669 254,555
Accrued and other current liabilities   291,820     324,881  
Total current liabilities 1,012,307 1,655,039
Long-term debt 71,203 81,323
Deferred tax liabilities 13,750 15,881
Other long-term liabilities   205,263     191,756  
Total liabilities   1,302,523     1,943,999  
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value
Apollo Group Class A nonvoting common stock, no par value 103 103
Apollo Group Class B voting common stock, no par value 1 1
Additional paid-in capital 43,600 93,770
Apollo Group Class A treasury stock, at cost (3,860,036 ) (3,878,612 )
Retained earnings 4,890,172 4,743,150
Accumulated other comprehensive loss   (37,246 )   (30,034 )
Total Apollo shareholders' equity   1,036,594     928,378  
Noncontrolling interests (deficit)   947     (4,055 )
Total equity   1,037,541     924,323  
Total liabilities and shareholders' equity $ 2,340,064   $ 2,868,322  
 
 
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
 
    Three Months Ended       % of Net Revenue
(In thousands, except per share data) February 28, 2013     February 29, 2012 2013     2012
Net revenue $ 834,372   $ 962,682   100.0 % 100.0 %
Costs and expenses:
Instructional and student advisory 383,702 425,607 46.0 % 44.2 %
Marketing 173,313 158,973 20.8 % 16.5 %
Admissions advisory 68,232 101,405 8.2 % 10.6 %
General and administrative 81,218 83,994 9.7 % 8.7 %
Depreciation and amortization 41,499 41,854

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