Apollo Group, Inc. Reports Third Quarter 2013 Results

Apollo Group, Inc. Reports Third Quarter 2013 Results

PHOENIX--(BUSINESS WIRE)-- Apollo Group, Inc. (NAS: APOL) today reported financial results for the three and nine months ended May 31, 2013, with third quarter revenue of $946.8 million and diluted earnings per share of $0.71 per share, or $1.05 per share excluding special items.

"This is a time of extraordinary change in higher education. At Apollo Group we are creating a more nimble organization and reengineering our learning solutions to better support our student's needs and meet the demands of employers. We are focused on making the necessary changes to deliver an improved set of educational offerings," said Apollo Group Chief Executive Officer Greg Cappelli. "As education evolves, the transfer of knowledge and the acquisition of skills for working adults will be delivered in new and different ways. We are working directly with employers to define the skills students must bring to the workplace to more effectively compete in a global economy. The repositioning of higher education—also reflected in Apollo Group's mission to create a more educated global workforce—has perhaps never been more important."


Third Quarter 2013 Results of Operations

  • Net revenue for the third quarter 2013 was $946.8 million, compared to $1.1 billion in the third quarter 2012.
  • University of Phoenix Degreed Enrollment was 287,500, a 17.0% decrease from the prior year third quarter, and New Degreed Enrollment was 38,900, down 24.5% from third quarter 2012.
  • Operating income was $132.0 million, compared to $221.4 million from the prior year third quarter.
  • Income from continuing operations attributable to Apollo Group was $80.0 million, or $0.71 per share, compared to $131.4 million, or $1.11 per share in the third quarter 2012.

Results for the third quarter 2013 included restructuring and other charges of $63.1 million attributable to the Company's restructuring activities. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for third quarter 2013 and 2012 special items.)

Excluding special items, income from continuing operations for the third quarter 2013 was $119.1 million, or $1.05 per share, compared to $139.6 million, or $1.18 per share, for the third quarter 2012. The decrease in income from continuing operations was attributable to lower net revenue due to declines in enrollment, partially offset by reduced operating expenses.

First Nine Months of 2013 Results of Operations

Net revenue for the first nine months of fiscal year 2013 totaled $2.8 billion, which represents a 12.9% decrease compared to the first nine months of fiscal year 2012 principally due to lower enrollment. In the first nine months of 2013, University of Phoenix Average Degreed Enrollment decreased 15.1% to 309,100 as compared to the same period a year ago. Income from continuing operations attributable to Apollo Group for the nine months ended May 31, 2013, was $227.0 million, or $2.01 per share, compared to $341.1 million, or $2.72 per share, for the nine months ended May 31, 2012.

Results for the first nine months of 2013 included restructuring and other charges of $131.3 million attributable to restructuring activities 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 nine months of 2013 and 2012 special items.)

Excluding special items, income from continuing operations for the nine months ended May 31, 2013, was $295.0 million, or $2.61 per share, compared to $377.1 million, or $3.01 per share, for the nine months ended May 31, 2012.

Balance Sheet and Cash Flow

As of May 31, 2013, cash and cash equivalents, excluding restricted cash, totaled $776.7 million compared to $1.3 billion as of August 31, 2012. The decrease was primarily due to $633.5 million used for payments on borrowings, $130.2 million used for the purchase of short-term investments, $96.7 million for capital expenditures, and a $42.5 million cash payment for the purchase of the noncontrolling interest in Apollo Global. These items were partially offset by $390.4 million of cash provided by operations.

Accounts receivable were $198.0 million as of May 31, 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 consistent at 20 days as of May 31, 2013 and May 31, 2012.

Business Outlook

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

  • Net revenue of $3.65 - $3.70 billion; and
  • Operating income of $525 - $550 million, excluding the impact of special items and restructuring and other charges.

The Company continues to reengineer business processes and refine its educational delivery structure. These restructuring activities are expected to favorably impact annual operating expenses by at least $400 million beginning in fiscal year 2014, when compared to fiscal year 2012. This is a $50 million increase in anticipated savings from the Company's previous outlook. The Company expects to realize at least $300 million of these annual cost savings in fiscal year 2013.

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, Tuesday, June 25, 2013.

Dial-In Numbers:
877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 86623109

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 3, 2013.

Dial-In Numbers:
855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 86623109

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 impact of the possible imposition of the sanction of probation as recommended in the peer review team's report or the lesser sanction of notice status for two years as recommended by the Commission's Institutional Actions Council First Committee, 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; (ii) the impact of increased competition from traditional public universities and proprietary educational institutions; (iii) the impact of accelerating the enhancement of University of Phoenix educational offerings to remain competitive and to more effectively deliver a quality student experience at the right value; (iv) the impact of the Company's recent restructuring initiatives and the recent operational and governance changes made to increase University of Phoenix autonomy in response to governance concerns expressed by The Higher Learning Commission; (v) the impact of any reduction in student financial aid available to students, including active and retired military personnel, due to the U.S. government budget sequestration or otherwise; (vi) the impact of changes in marketing channels and other recruiting practices to better identify students who can succeed at University of Phoenix and for whom the University provides a compelling value proposition; (vii) the impact of University of Phoenix initiatives to improve student retention, improve student outcomes and demonstrate a compelling relationship between a student's education and career; (viii) 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; (ix) 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 student loan cohort default rates, and to remain in compliance with the accrediting criteria of the relevant accrediting bodies; (x) changes in University of Phoenix enrollment or student mix; and (xi) changes in the overall U.S. or global economy. 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 third quarter 2013 compared to the third quarter 2012.

             
Degreed Enrollment (1) New Degreed Enrollment (2)
Enrollment (rounded to hundreds) Q3 2013     Q3 2012 Q3 2013     Q3 2012
Associate's 84,300 112,100 15,800 21,400
Bachelor's 154,100 178,300 16,400 22,100
Master's 42,900 48,900 6,200 7,400
Doctoral 6,200   7,000   500   600  
287,500   346,300   38,900   51,500  
 
Revenues (in thousands)
Degree Seeking Gross Revenues(3) $ 907,766 $ 1,063,755
Less: Discounts and other (76,862 ) (65,173 )
Degree Seeking Net Revenues(3) 830,904 998,582
Non-degree Seeking Revenues 11,041 10,648
Other, net of discounts 104,829   113,028  
$ 946,774   $ 1,122,258  
 
Revenue by Degree Type (in thousands)(3)
Associate's $ 205,166 $ 269,566
Bachelor's 529,897 600,823
Master's 152,875 170,041
Doctoral 19,828 23,325
Less: Discounts and other (76,862 ) (65,173 )
$ 830,904   $ 998,582  
 
Degree Seeking Gross Revenues per Degreed Enrollment(1), (3)
Associate's $ 2,434 $ 2,405
Bachelor's $ 3,439 $ 3,370
Master's $ 3,564 $ 3,477
Doctoral $ 3,198 $ 3,332
All degrees (after discounts) $ 2,890 $ 2,884
 
(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
($ in thousands)

May 31,
2013

   

August 31,
2012

ASSETS:
Current assets
Cash and cash equivalents $ 776,739 $ 1,276,375
Restricted cash and cash equivalents 319,081 318,334
Marketable securities 114,317
Accounts receivable, net 197,952 198,279
Prepaid taxes 4,594 26,341
Deferred tax assets, current portion 60,018 69,052
Other current assets 59,504   49,609  
Total current assets 1,532,205 1,937,990
Property and equipment, net 503,609 571,629
Goodwill 104,023 103,345
Intangible assets, net 133,207 149,034
Deferred tax assets, less current portion 83,436 77,628
Other assets 36,474   28,696  
Total assets $ 2,392,954   $ 2,868,322  
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Short-term borrowings and current portion of long-term debt $ 20,063 $ 638,588
Accounts payable 77,033 74,872
Income taxes payable 19,442
Student deposits 350,642 362,143
Deferred revenue 222,745 254,555
Accrued and other current liabilities 283,159   324,881  
Total current liabilities 973,084 1,655,039
Long-term debt 67,578 81,323
Deferred tax liabilities 14,998 15,881
Other long-term liabilities 223,984   191,756  
Total liabilities 1,279,644   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 29,281 93,770
Apollo Group Class A treasury stock, at cost (3,848,759 ) (3,878,612 )
Retained earnings 4,970,125 4,743,150
Accumulated other comprehensive loss (38,584 ) (30,034 )
Total Apollo shareholders' equity 1,112,167   928,378  
Noncontrolling interests (deficit) 1,143   (4,055 )
Total equity 1,113,310   924,323  
Total liabilities and shareholders' equity $ 2,392,954   $ 2,868,322  
 
 
           

Apollo Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 

Three Months Ended
May 31,

% of Net Revenue
(In thousands, except per share data) 2013     2012 2013     2012
Net revenue $ 946,774   $ 1,122,258   100.0 % 100.0 %
Costs and expenses:
Instructional and student advisory 393,387 466,117 41.5 % 41.5 %
Marketing 156,918 158,583 16.6 %

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