Apollo Group, Inc. (NASDAQ: APOL) (“Apollo Group,” “Apollo” or
the “Company”) today reported financial results for the three
months ended November 30, 2009.
“We are pleased with our first quarter results and continued
enrollment growth, particularly among our core bachelor’s
programs,” said Apollo Group Co-Chief Executive Officer and Apollo
Global Chairman Greg Cappelli. “We remain committed to providing
access to high-quality education, while ensuring that only students
who have a reasonable chance to succeed enroll in our
institutions.”
Apollo Group Co-Chief Executive Officer Chas Edelstein, added,
“We have recently received an important recertification of
University of Phoenix’s Program Participation Agreement and have
successfully resolved some significant uncertainties. In addition,
University of Phoenix published its second Academic Annual Report,
demonstrating our commitment to championing accountability and
transparency in academics.”
Unaudited First Quarter of
Fiscal 2010 Results of Operations
Consolidated net revenue for the three months ended November 30,
2009, totaled $1,270.3 million, which represents a 30.8% increase
over the first quarter of fiscal 2009. Contributing to the growth
in the first quarter was an 18.4% year-over-year increase in
University of Phoenix total Degreed Enrollment to 455,600 as well
as $88.7 million in revenue from recently acquired BPP Holdings.
The Company reported net income attributable to Apollo Group for
the three months ended November 30, 2009, of $240.1 million, or
$1.54 per share (156.0 million weighted average diluted shares
outstanding), compared to net income attributable to Apollo Group
of $180.4 million, or $1.12 per share (160.8 million weighted
average diluted shares outstanding) for the three months ended
November 30, 2008.
The first quarter of fiscal 2010 results contain a tax benefit
of $11.4 million resulting from the settlement of disputed tax
issues with the Internal Revenue Service. Excluding this special
item, net income attributable to Apollo Group for the three months
ended November 30, 2009, was $228.7 million, or $1.47 per share,
compared to net income attributable to Apollo Group of $180.4
million, or $1.12 per share for the three months ended November 30,
2008. (See the reconciliation of GAAP financial information to
non-GAAP financial information in the tables section of this press
release.)
In the first quarter of fiscal 2010, BPP’s operations
contributed $88.7 million to revenue and increased earnings per
share by approximately $0.04. (See the supplemental schedule
detailing BPP’s financial results and those of Apollo Group
excluding BPP for the first quarter of fiscal 2010 in the tables
section of this press release.)
Instructional costs and services increased by $152.2 million, or
40.3% to $529.5 million for the three months ended November 30,
2009, compared to the three months ended November 30, 2008. As a
percentage of net revenue, instructional costs and services
increased 280 basis points to 41.7% versus 38.9% in the prior
year’s first quarter. The increase, as a percentage of revenue, was
predominantly due to the addition of BPP, as its cost structure is
more heavily weighted towards instructional costs and services. The
increase was also due to higher bad debt expense which, as a
percentage of revenue, grew 130 basis points to 4.9% in the first
quarter of fiscal 2010 versus 3.6% in the first quarter a year ago.
BPP’s operations favorably impacted overall bad debt expense as a
percentage of revenue by 40 basis points in the first quarter of
fiscal 2010. The higher bad debt expense, as a percentage of
revenue, is primarily a result of lower collection rates on aged
receivables, due in part, to the economic downturn, as well as a
continued shift in University of Phoenix’s student mix to a higher
percentage of students in associate degree programs. Partially
offsetting the increase in instructional costs and services was
continued leverage of the Company’s fixed costs including classroom
space.
Selling and promotional expenses increased by $46.9 million, or
20.5%, to $275.5 million for the three months ended November 30,
2009, compared to the three months ended November 30, 2008. A
substantial portion of the increase resulted from investments in
the Company’s non-internet long-term branding initiatives. As a
percentage of net revenue, selling and promotional expenses
declined 180 basis points to 21.7% versus 23.5% in the prior year’s
first quarter. The reduction, as a percentage of revenue, was less
when excluding the impact of BPP’s operations in the first quarter
of fiscal 2010. The remaining decrease as a percentage of revenue
was mainly a result of continued improvement in enrollment
counselor effectiveness at University of Phoenix.
General and administrative (“G&A”) expenses increased by
$14.2 million, or 24.4%, to $72.4 million, for the three months
ended November 30, 2009, compared to the three months ended
November 30, 2008. As a percentage of net revenue, G&A expenses
declined 30 basis points to 5.7% versus 6.0% in the prior year’s
first quarter. The decrease is mainly attributable to a reduction
of share-based compensation expense, as a percentage of revenue.
BPP’s operations had little impact on G&A expenses as a
percentage of net revenue in the first quarter of fiscal 2010.
The Company’s effective tax rate for the first quarter of fiscal
2010 was 38.4%. The decrease versus a year ago is principally
attributable to the tax benefit of $11.4 million resulting from the
settlement of disputed tax issues with the Internal Revenue
Service.
Financial and Operating
Metrics
Below are Apollo Group’s unaudited financial data and operating
metrics for the first quarter of fiscal 2010 versus the prior year
period.
Q1 2010 Q1 2009
Revenues (in thousands)
Degree Seeking Gross Revenues (1) $ 1,173,452 $ 944,356 Less:
Discounts and other (62,154 ) (42,870 ) Degree
Seeking Net Revenues (1) 1,111,298 901,486 Non-degree Seeking
Revenues (2) 9,881 9,281 Other, net of discounts (3) 149,122
60,200 $ 1,270,301 $ 970,967
Revenue by Degree Type (in thousands)
(1)
Associates $ 447,226 $ 327,935 Bachelors 487,266 401,633 Masters
216,943 197,800 Doctoral 22,017 16,988 Less: Discounts and other
(62,154 ) (42,870 ) $ 1,111,298 $ 901,486
Degreed Enrollment (rounded to hundreds)
(4)
Associates 205,400 161,800 Bachelors 171,000 146,800 Masters 71,900
69,800 Doctoral 7,300 6,500
455,600 384,900
Degree Seeking Gross Revenues per Degreed
Enrollment (1) (4)
Associates $ 2,177 $ 2,027 Bachelors 2,850 2,736 Masters 3,017
2,834 Doctoral 3,016 2,614 All degrees (after discounts) 2,439
2,342
New
Degreed Enrollment (rounded to hundreds) (5)
Associates 52,200 45,800 Bachelors 32,100 26,100 Masters 13,100
13,300 Doctoral 700 1,100 98,100
86,300
(1
)
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 credit
hours in length with some course applicability into a related
degree program.
(2
)
Represents revenue from tuition and other fees for students
participating in University of Phoenix certificate programs less
than 18 hours in length, certificate programs with no applicability
into a related degree program, single course and continuing
education courses.
(3
)
Represents revenues from IPD,
CFFP, Western International University (excluding associate's
degree students), Insight Schools, Apollo Global - BPP (acquired in
July 2009), Apollo Global - Other and other.
(4
)
Represents individual students enrolled in a University of Phoenix
degree program who attended a course during the quarter and did not
graduate as of the end of the quarter. Degreed Enrollment for a
quarter also includes any student who previously graduated from one
degree program and started a new University of Phoenix degree
program in the quarter (for example, a graduate of the associate’s
degree program returns for a bachelor’s degree or a bachelor’s
degree graduate returns for a master’s degree). In addition,
Degreed Enrollment includes students participating in University of
Phoenix certificate programs of at least 18 credit hours in length
with some course applicability into a related degree program.
(5
)
Represents any individual student enrolled in a University of
Phoenix degree program who is a new student and started a course in
the quarter, any individual student who previously graduated from
one degree program and started a new degree program in the quarter
(for example, a graduate of an associate’s degree program returns
for a bachelor’s degree program, or a graduate of a bachelor’s
degree program returns for a master’s degree), as well as any
individual student who started a degree program in the quarter and
had been out of attendance for greater than 12 months. In addition,
New Degreed Enrollment includes students who in the quarter started
participating in University of Phoenix certificate programs of at
least 18 credit hours in length with some course applicability into
a related degree program.
Unaudited Balance
Sheet
As of November 30, 2009, the Company’s cash, cash equivalents,
and marketable securities, excluding restricted cash, totaled
$924.8 million as compared to $987.8 million as of August 31, 2009.
The decrease is primarily attributable to repayments on the
Company’s outstanding debt, largely offset by cash generated from
operations. Restricted cash increased by $37.8 million compared to
August 31, 2009, primarily due to increased student enrollment.
Student deposits decreased by $11.5 million compared to August 31,
2009, due to increased student enrollment at the University of
Phoenix which was more than offset by a reduction in student
deposits at BPP due to the timing of course starts.
At November 30, 2009, accounts receivable increased to $341.0
million from $298.3 million at August 31, 2009. Excluding accounts
receivable and the associated revenue for Apollo Global, the
Company’s days sales outstanding (“DSO”) increased to 32 days at
November 30, 2009, consistent with August 31, 2009, and compared to
26 days at November 30, 2008. The increase in DSO versus a year ago
is due to certain operational changes that cause an increase in the
Company’s accounts receivable balance, as well as increases in
gross accounts receivable due to lower collection rates on aged
receivables.
Total deferred revenue at November 30, 2009, increased to $377.1
million from $333.0 million at August 31, 2009. The increase is
principally due to increased student enrollment at University of
Phoenix and the timing of course starts at BPP.
Total debt outstanding (including short-term borrowings and the
current portion of long-term debt) decreased by $396.3 million to
$192.8 million at November 30, 2009, from $589.1 million at August
31, 2009. The decrease is due to the repayment of US denominated
borrowings on the Company’s $500 million credit facility.
U.S. Department of Education
Program Review
On December 31, 2009, University of Phoenix received the
Department of Education’s Program Review Report, which is a
preliminary report of the Department’s findings from its February
2009 program review of University of Phoenix’s policies and
procedures involving Title IV programs. The report contains six
findings and one concern. The Company believes its liability
resulting from the findings will be approximately $1.5 million. In
addition, the Department’s regulations require certain institutions
to post a letter of credit where a preliminary program review
report cites untimely return of unearned Title IV funds for more
than 10% of the sampled students. Absent relief from this
requirement, the University of Phoenix will be required to post by
January 30, 2010, a letter of credit in the amount of approximately
$125 million.
Conference Call
Information
The Company will hold a conference call to discuss these
earnings results at 5:00 PM Eastern, 3:00 PM Phoenix time, today,
Thursday, January 7, 2010. The call may be accessed by dialing
(877) 292-6888 (domestic) or (973) 200-3381 (international) and
entering the conference ID number 45413704. A live webcast of this
event may be accessed by visiting the Company’s website at
www.apollogrp.edu. A replay of the call will be available on the
website or by dialing (800) 642-1687 (domestic) or (706) 645-9291
(international) and entering the conference ID number 45413704
until January 15, 2010.
About Apollo Group,
Inc.
Apollo Group, Inc. is one of the world's largest private
education providers and has been in the education business for more
than 35 years. The Company offers innovative and distinctive
educational programs and services both online and on-campus at the
high school, undergraduate, masters and doctoral levels through its
subsidiaries: University of Phoenix, Institute for Professional
Development, College for Financial Planning, Western International
University, Meritus University, Insight Schools and Apollo Global.
The Company's programs and services are provided in 40 states and
the District of Columbia; Puerto Rico; Canada; Latin America; and
Europe, as well as online throughout the world (data as of November
30, 2009).
For more information about Apollo Group, Inc. and its
subsidiaries, call (800) 990-APOL or visit the Company’s website at
www.apollogrp.edu.
Forward-Looking Safe
Harbor
Statements in this press release which are not statements of
historical fact, including statements regarding Apollo Group’s
business outlook, future financial and operating results, future
enrollment, and overall future strategy and plans, 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 results may differ materially from those
projected in such statements due to various factors. For a
discussion of the various factors that may cause actual results to
differ materially from those projected, please refer to the risk
factors and other disclosures contained in Apollo Group’s
previously filed Form 10-K, Forms 10-Q, and other filings with the
Securities and Exchange Commission.
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 our 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 than we do, limiting their usefulness as a comparative
measure across companies.
Apollo Group, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets (Unaudited)
As of
November 30, August 31, 2009
2009 ($ in thousands)
ASSETS: Current assets
Cash and cash equivalents $ 905,262 $ 968,246 Restricted cash and
cash equivalents 470,129 432,304 Accounts receivable, net 340,973
298,270 Deferred tax assets, current portion 97,652 88,022 Prepaid
taxes 3,771 57,658 Other current assets 39,215
35,517
Total current assets 1,857,002 1,880,017
Property and equipment, net 577,453 557,507 Marketable securities
19,579 19,579 Goodwill 527,177 522,358 Intangible assets, net
198,020 203,671 Deferred tax assets, less current portion 71,339
66,254 Other assets 14,464 13,991
Total assets $ 3,265,034 $ 3,263,377
LIABILITIES AND SHAREHOLDERS' EQUITY: Current
liabilities Short-term borrowings and current portion of
long-term debt $ 65,037 $ 461,365 Accounts payable 74,809 66,928
Accrued liabilities 249,567 268,418 Income taxes payable 127,748 -
Student deposits 480,181 491,639 Deferred revenue 377,134 333,041
Other current liabilities 86,921 133,887
Total current liabilities 1,461,397 1,755,278
Long-term debt 127,767 127,701 Deferred tax liabilities 56,463
55,636 Other long-term liabilities 103,833
100,149
Total liabilities 1,749,460
2,038,764 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 38,772 1,139 Apollo Group Class A
treasury stock, at cost (2,014,048 ) (2,022,623 ) Retained earnings
3,435,185 3,195,043 Accumulated other comprehensive loss
(9,732 ) (13,740 )
Total Apollo Group, Inc. shareholders'
equity 1,450,281 1,159,923
Noncontrolling interests 65,293 64,690
Total equity 1,515,574 1,224,613
Total liabilities and shareholders' equity $
3,265,034 $ 3,263,377
Apollo Group, Inc. and
Subsidiaries Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended November 30,
2009 2008 (in thousands, except per share data)
Net revenue $ 1,270,301 $ 970,967
Costs and
expenses: Instructional costs and services 529,496 377,296
Selling and promotional 275,483 228,585 General and administrative
72,427 58,221
Total costs and
expenses 877,406 664,102
Income
from operations 392,895 306,865 Interest income 932 5,379
Interest expense (2,911 ) (1,432 ) Other, net (866 )
(2,431 )
Income before income taxes 390,050 308,381
Provision for income taxes (149,918 ) (128,073 )
Net income 240,132 180,308
Net loss attributable to
noncontrolling interests 10 52
Net income attributable to Apollo Group, Inc. $ 240,142
$ 180,360
Earnings per share:
Basic income per share attributable to Apollo Group, Inc. $
1.55 $ 1.13
Diluted income per share attributable
to Apollo Group, Inc. $ 1.54 $ 1.12
Basic
weighted average shares outstanding 154,824
159,138
Diluted weighted average shares
outstanding 156,045 160,762
Apollo Group, Inc. and Subsidiaries Condensed
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended November 30, 2009 2008 ($
in thousands)
Cash flows provided by (used in) operating
activities: Net income $ 240,132 $ 180,308 Adjustments to
reconcile net income to net cash provided by operating activities:
Share-based compensation 14,154 15,119 Excess tax benefits from
share-based compensation (238 ) (3,950 ) Depreciation and
amortization 32,303 22,897 Amortization of deferred gain on
sale-leaseback (450 ) (397 ) Non-cash foreign currency losses, net
357 2,467 Provision for uncollectible accounts receivable 62,698
34,857 Deferred income taxes (15,899 ) (8,776 ) Changes in assets
and liabilities: Accounts receivable (104,798 ) (21,142 ) Other
assets (4,105 ) (6,998 ) Accounts payable and accrued liabilities
(16,806 ) 14,666 Income taxes payable 170,230 113,475 Student
deposits (11,627 ) 42,136 Deferred revenue 43,163 (8,182 ) Other
liabilities (3,884 ) 4,316
Net cash
provided by operating activities 405,230
380,796
Cash flows provided by (used in) investing
activities: Additions to property and equipment (37,574 )
(30,646 ) Maturities of marketable securities - 1,660 Increase in
restricted cash and cash equivalents (37,825 )
(58,607 )
Net cash used in investing activities
(75,399 ) (87,593 )
Cash flows provided by (used in)
financing activities: Payments on borrowings (410,126 ) (11,564
) Proceeds from borrowings 12,251 13,126 Issuance of Apollo Group
Class A common stock 5,771 18,333 Class A common stock purchased
for treasury (1,025 ) (2,505 ) Excess tax benefits from share-based
compensation 238 3,950
Net cash
(used in) provided by financing activities (392,891 )
21,340 Exchange rate effect on cash and cash
equivalents 76 (836 )
Net (decrease)
increase in cash and cash equivalents (62,984 ) 313,707
Cash
and cash equivalents, beginning of period 968,246
483,195
Cash and cash equivalents, end of
period $ 905,262 $ 796,902
Supplemental
disclosure of cash flow information Cash paid during the period
for income taxes, net of refunds $ 2,535 $ 19,270 Cash paid during
the period for interest $ 1,536 $ 734
Supplemental disclosure of
non-cash investing and financing activities Credits received
for tenant improvements $ 3,786 $ 2,117 Purchases of property and
equipment included in accounts payable $ 6,132 $ 4,838 Restricted
stock units vested and released $ 2,594 $ 7,362 Unrealized loss on
auction-rate securities $ - $ 2,203
Apollo Group, Inc. and
Subsidiaries Supplemental Schedule - Combined Condensed
Statements of Income (Unaudited)
Three Months
Ended November 30, 2009
Apollo Group,
Inc.Excluding BPP
BPP
Apollo Group,
Inc.Consolidated
($ in thousands)
Net revenue $ 1,181,628 $ 88,673
$ 1,270,301
Costs and expenses: Instructional
costs and services 465,215 64,281 529,496 Selling and promotional
270,710 4,773 275,483 General and administrative 68,410
4,017 72,427
Total costs and
expenses 804,335 73,071
877,406
Income from operations 377,293 15,602 392,895
Interest income 850 82 932 Interest expense (1,628 ) (1,283 )
(2,911 ) Other, net 1,793 (2,659 ) (866
)
Income before income taxes 378,308 11,742 390,050
Provision for income taxes (145,480 ) (4,438 )
(149,918 )
Net income 232,828 7,304 240,132
Net loss
(income) attributable to noncontrolling interests 1,238
(1,228 ) 10
Net income attributable
to Apollo Group, Inc. $ 234,066 $ 6,076 $ 240,142
Earnings per share: Basic income per
share attributable to Apollo Group, Inc. $ 1.51 $ 0.04
$ 1.55
Diluted income per share attributable to
Apollo Group, Inc. $ 1.50 $ 0.04 $ 1.54
Basic weighted average shares outstanding 154,824
154,824 154,824
Diluted
weighted average shares outstanding 156,045
156,045 156,045
Apollo Group, Inc.
and Subsidiaries Reconciliation of GAAP financial
information to non-GAAP financial information (Unaudited)
Three Months Ended November 30, 2009
2008 (in millions, except per share data) Net income
attributable to Apollo Group, Inc. as reported $ 240.1 $
180.4 Reconciling item: Tax benefit from IRS settlement (1)
(11.4 ) - Net income attributable to Apollo Group,
Inc. adjusted to exclude special item $ 228.7 $ 180.4
Diluted income per share attributable to Apollo Group, Inc. as
reported $ 1.54 $ 1.12 Diluted income per share
attributable to Apollo Group, Inc. adjusted to exclude special item
$ 1.47 $ 1.12 Diluted weighted average shares
outstanding 156.0 160.8
(1) The $11.4 million tax benefit
during the three months ended resulted from our settlement of
disputed tax issues with the Internal Revenue Service.
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