Apollo Group, Inc. (NASDAQ: APOL) (“Apollo Group,” “Apollo” or
the “Company”) today reported financial results for the three
months ended November 30, 2011.
“Our strategic initiatives to further enhance the student
experience and provide world-class student protections remain our
focus,” said Apollo Group Co-Chief Executive Officer and Apollo
Global Chairman Greg Cappelli. “We are also pleased to report
positive new enrollment growth during the first quarter and
improving trends in admissions advisor effectiveness, while
reaching students who we believe can be successful in our degree
programs.”
Apollo Group Co-Chief Executive Officer Chas Edelstein added,
“During the first quarter, we continued to invest in areas that
will further differentiate University of Phoenix and enhance the
student experience. We believe the acquisition of Carnegie Learning
will accelerate our efforts to incorporate adaptive learning
technologies into our academic platform, which support our
students’ success in the classroom.”
Unaudited First Quarter of Fiscal 2012
Results of Operations
Consolidated net revenue for the first quarter of fiscal 2012
totaled $1,178.7 million, which represents an 11.1% decrease from
the first quarter of fiscal 2011. This decrease was principally due
to lower enrollments at University of Phoenix, which was partially
offset by selective tuition price and other fee changes. For the
quarter, University of Phoenix Degreed Enrollment decreased 14.8%
to 373,100 compared with the prior year first quarter, primarily
due to decreases in New Degreed Enrollment during fiscal 2011,
which the Company believes were primarily the result of the
operational changes and initiatives it implemented to more
effectively support students and improve educational outcomes, as
well as the broader competitive environment. University of Phoenix
New Degreed Enrollment increased 12.7% in the first quarter of
fiscal 2012 compared with the prior year period.
The Company reported income from continuing operations
attributable to Apollo Group for the three months ended November
30, 2011, of $149.3 million, or $1.14 per share (130.9 million
weighted average diluted shares outstanding), compared to income
from continuing operations attributable to Apollo Group of $236.0
million, or $1.61 per share (146.7 million weighted average diluted
shares outstanding) for the three months ended November 30, 2010.
Results for the first quarters of fiscal 2012 and 2011 included a
number of special items that are detailed below.
Results for the first quarter of fiscal 2012 included the
following:
- Goodwill and other intangible asset
impairment charges of $16.8 million for the UNIACC subsidiary of
Apollo Global ($14.4 million net of the portion attributable to
noncontrolling interests). The Company did not record a tax benefit
associated with the goodwill impairment as it is not deductible for
tax purposes.
- Restructuring and other charges of $5.6
million associated with the Company’s real estate rationalization
plan.
Results for the first quarter of fiscal 2011 included the
following:
- Restructuring and other charges of $3.8
million associated with a strategic reduction in force, primarily
at University of Phoenix.
- A $0.9 million charge representing an
accrual for incremental post-judgment interest related to the
Policeman’s Annuity and Benefit Fund of Chicago securities class
action lawsuit.
Excluding the items noted above, income from continuing
operations attributable to Apollo Group for the three months ended
November 30, 2011 was $167.2 million, or $1.28 per share, compared
to income from continuing operations attributable to Apollo Group
of $238.9 million, or $1.63 per share for the three months ended
November 30, 2010. (See the reconciliation of GAAP financial
information to non-GAAP financial information in the tables section
of this press release.)
Operating Expenses
Instructional and student advisory expenses increased by $1.0
million, or 0.2%, to $456.8 million for the three months ended
November 30, 2011, compared to the three months ended November 30,
2010, which represents a 450 basis point increase as a percentage
of net revenue. The increase in expense was primarily related to
the Company’s various initiatives, including technology, to more
effectively support students and their educational outcomes. The
expense associated with these initiatives includes costs incurred
by Carnegie Learning and integration costs following this
acquisition. Additionally, although the Company expects to realize
future savings from its real estate rationalization plan, rent
expense increased primarily due to the sale-leaseback of its
principal office buildings in fiscal 2011.
Marketing expenses decreased by $0.3 million, or 0.2%, to $165.8
million for the three months ended November 30, 2011, compared to
the three months ended November 30, 2010, which represents a 160
basis point increase as a percentage of net revenue. The increase
as a percentage of net revenue was primarily the result of the
decline in revenue, as well as an increase in costs principally
attributable to efforts to establish relationships with select
employers.
Admissions advisory expenses decreased by $12.4 million, or
10.9%, to $101.4 million for the three months ended November 30,
2011, compared to the three months ended November 30, 2010. As a
percentage of net revenue, admissions advisory was consistent. The
decrease in expense was a result of lower admissions advisory
headcount which was partially attributable to a strategic reduction
in force near the end of the first quarter of fiscal 2011. The
decrease was partially offset by higher average employee
compensation costs.
General and administrative expenses decreased by $4.9 million,
or 5.8%, to $79.9 million for the three months ended November 30,
2011, compared to the three months ended November 30, 2010, which
represents a 40 basis point increase as a percentage of net
revenue. The increase as a percentage of net revenue was primarily
due to an increase in share-based compensation expense.
Depreciation and amortization increased by $9.2 million, or
24.8%, to $46.3 million for the three months ended November 30,
2011, compared to the three months ended November 30, 2010, which
represents a 110 basis point increase as a percentage of net
revenue. The increase was principally attributable to increased
capital expenditures in recent years related to information
technology and $2.7 million of intangible asset amortization in the
first quarter of fiscal 2012 as a result of the Carnegie Learning
acquisition. The increase was partially offset by a decrease in
amortization of BPP intangible assets and the absence of
depreciation of the Company’s principal office buildings for which
the Company entered into a sale-leaseback arrangement in fiscal
2011.
The provision for uncollectible accounts receivable (“bad debt
expense”) decreased by $15.3 million, or 26.9%, to $41.6 million
for the three months ended November 30, 2011, compared to the three
months ended November 30, 2010, which represents an 80 basis point
decrease as a percentage of net revenue. The decrease was primarily
attributable to reductions in gross accounts receivable principally
resulting from decreases in University of Phoenix Degreed
Enrollment, a shift in the mix of students from Associates to
Bachelors degree level programs, and the full implementation of
University Orientation, which the Company believes has improved the
student retention rate. Improved collection rates at University of
Phoenix, which were favorably impacted by an initiative to address
the Company’s oldest receivables in fiscal 2011, also contributed
to the decrease.
Financial and Operating
Metrics
Below are Apollo Group’s unaudited financial data and operating
metrics for the first quarter of fiscal 2012 versus the prior year
period.
Q1 2012
Q1 2011 Revenues (in thousands) Degree Seeking Gross
Revenues(1) $ 1,108,616 $ 1,251,810 Less: Discounts and other
(62,734 ) (64,154 ) Degree Seeking Net Revenues(1) 1,045,882
1,187,656 Non-degree Seeking Revenues(2) 8,577 9,493 Other, net of
discounts(3) 124,231 129,286 $ 1,178,690 $
1,326,435 Revenue by Degree Type (in thousands)(1)
Associates $ 313,598 $ 432,894 Bachelors 592,910 582,371 Masters
178,445 212,316 Doctoral 23,663 24,229 Less: Discounts and other
(62,734 ) (64,154 ) $ 1,045,882 $ 1,187,656
Degreed Enrollment (rounded to hundreds)(4) Associates 130,300
177,200 Bachelors 182,500 187,300 Masters 52,900 66,000 Doctoral
7,400 7,600 373,100 438,100
Degree Seeking Gross Revenues per Degreed Enrollment(1), (4)
Associates $ 2,407 $ 2,443 Bachelors 3,249 3,109 Masters 3,373
3,217 Doctoral 3,198 3,188 All degrees (after discounts) $ 2,803 $
2,711 New Degreed Enrollment (rounded to hundreds)(5)
Associates 27,800 24,000 Bachelors 26,100 22,800 Masters 8,900
8,900 Doctoral 900 800 63,700 56,500
(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 credits 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 credits in length, certificate
programs with no applicability into a related degree program,
single course and continuing education courses. (3) Represents
revenues from IPD, CFFP, Apollo Global - BPP, Apollo Global - Other
and Other. (4) 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 or a bachelor's degree graduate returns for a master’s
degree); and - students participating in certain certificate
programs of at least 18 credits with some course applicability into
a related degree program. (5) 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.
Unaudited Balance Sheet
As of November 30, 2011, the Company’s cash and cash
equivalents, excluding restricted cash, totaled $1,201.0 million,
compared to $1,571.7 million as of August 31, 2011. The decrease
was primarily attributable to repayments on borrowings, share
repurchases, the purchase of Carnegie Learning and capital
expenditures, partially offset by cash generated from
operations.
At November 30, 2011, accounts receivable increased to $250.9
million from $215.6 million at August 31, 2011. Excluding accounts
receivable and the associated net revenue for Apollo Global, the
Company’s days sales outstanding (“DSO”) was 24 days at November
30, 2011, compared to 23 days at August 31, 2011, and 26 days at
November 30, 2010. The decrease in DSO versus a year ago was
primarily attributable to reductions in gross accounts receivable
principally resulting from decreases in University of Phoenix
Degreed Enrollment, a shift in the mix of students from Associates
to Bachelors degree level programs and the full implementation of
University Orientation, which the Company believes has improved the
student retention rate. Improved collection rates at University of
Phoenix, which were favorably impacted by an initiative to address
the Company’s oldest receivables in fiscal 2011, also contributed
to the decrease.
Total debt outstanding (including short-term borrowings and the
current portion of long-term debt) decreased by $484.7 million to
$114.3 million at November 30, 2011, from $599.0 million at August
31, 2011. The decrease is due to the repayment of the borrowings on
the Company's $500 million credit facility.
Share Repurchases
The Company repurchased approximately 1.7 million shares of its
Class A common stock at a weighted average purchase price of $45.84
per share for a total expenditure of $78.2 million during the three
months ended November 30, 2011. Subsequent to quarter-end and
through December 31, 2011, the Company repurchased an additional
2.6 million shares of Class A common stock at a weighted average
purchase price of $49.71 per share for a total expenditure of
$128.3 million. As of December 31, 2011, approximately $293.5
million remained available under the Company's current share
repurchase authorization.
Business Outlook
The Company offers the following commentary regarding the
outlook for fiscal 2012 based on the business trends observed
during the first quarter of fiscal 2012, as well as management’s
current expectations of future trends.
- Consolidated net revenue of $4.1-$4.3
billion; and
- Operating income, excluding the impact
of special items, of $655-$750 million.
Conference Call
Information
The Company will hold a conference call to discuss these
earnings results at 5:00 p.m. Eastern, 3:00 p.m. Phoenix time,
today, Thursday, January 5, 2012. The call may be accessed by
dialing (877) 292-6888 (domestic) or (973) 200-3381 (international)
and entering the conference ID number 35168260. 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 (855) 859-2056 (domestic) or (404) 537-3406
(international) and entering the conference ID number 35168260
until January 19, 2012.
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
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's programs and services are provided in 40 states and the
District of Columbia; Puerto Rico; 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.apollogrp.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)
changes in the overall U.S. or global economy, (ii) changes in
enrollment or student mix, (iii) the impact of the Company’s
initiatives to improve the student experience, (iv) changes in law
or regulation affecting the Company's eligibility to participate in
or the manner in which it participates in U.S. federal student
financial aid programs, (v) changes in the Company'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, and (vi) the impact of increased
competition from traditional public universities and proprietary
educational institutions. 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 2011 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.apollogrp.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.
Apollo Group, Inc. and Subsidiaries Condensed
Consolidated Balance Sheets (Unaudited)
As
of ($ in thousands)
November 30,2011
August 31,2011
ASSETS: Current assets Cash and cash equivalents $
1,201,037 $ 1,571,664 Restricted cash and cash equivalents 377,092
379,407 Accounts receivable, net 250,895 215,567 Deferred tax
assets, current portion 116,499 124,137 Prepaid taxes — 35,629
Other current assets 41,208 44,382
Total current
assets 1,986,731 2,370,786 Property and equipment, net 549,364
553,027 Marketable securities 5,946 5,946 Goodwill 149,639 133,297
Intangible assets, net 169,568 121,117 Deferred tax assets, less
current portion 68,100 70,949 Other assets 24,303 14,584
Total assets $ 2,953,651 $ 3,269,706
LIABILITIES AND SHAREHOLDERS’ EQUITY: Current
liabilities Short-term borrowings and current portion of
long-term debt $ 27,598 $ 419,318 Accounts payable 65,963 69,551
Accrued liabilities 379,771 398,806 Income taxes payable 79,888 —
Student deposits 399,803 424,045 Deferred revenue 314,919 293,436
Other current liabilities 50,420 50,131
Total
current liabilities 1,318,362 1,655,287 Long-term debt 86,739
179,691 Deferred tax liabilities 25,055 26,400 Other long-term
liabilities 199,178 164,339
Total liabilities
1,629,334 2,025,717 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 79,356 68,724 Apollo Group Class A
treasury stock, at cost (3,194,406 ) (3,125,175 ) Retained earnings
4,469,786 4,320,472 Accumulated other comprehensive loss (31,124 )
(23,761 )
Total Apollo shareholders’ equity 1,323,716
1,240,364
Noncontrolling interests 601 3,625
Total equity 1,324,317 1,243,989
Total liabilities and shareholders’ equity $ 2,953,651
$ 3,269,706
Apollo Group, Inc. and
Subsidiaries Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended November
30, % of Revenue 2011 2010
2011 2010 (In thousands, except per share data)
Net revenue $ 1,178,690 $ 1,326,435 100.0 %
100.0 %
Costs and expenses: Instructional and student
advisory 456,797 455,812 38.8 % 34.3 % Marketing 165,845 166,143
14.1 % 12.5 % Admissions advisory 101,388 113,752 8.6 % 8.6 %
General and administrative 79,944 84,874 6.8 % 6.4 % Depreciation
and amortization 46,298 37,102 3.9 % 2.8 % Provision for
uncollectible accounts receivable 41,583 56,909 3.5 % 4.3 %
Goodwill and other intangibles impairment 16,788 — 1.4 % — %
Restructuring and other charges 5,562 3,846 0.5 % 0.3 % Litigation
charge — 881 — % 0.1 %
Total costs and
expenses 914,205 919,319 77.6 % 69.3 %
Operating income 264,485 407,116 22.4 % 30.7 % Interest
income 589 983 0.1 % 0.1 % Interest expense (1,999 ) (2,170 ) (0.2
)% (0.2 )% Other, net 141 (54 ) — % — %
Income from
continuing operations before income taxes 263,216 405,875 22.3
% 30.6 % Provision for income taxes (115,932 ) (169,579 ) (9.8 )%
(12.8 )%
Income from continuing operations 147,284 236,296
12.5 % 17.8 % Loss from discontinued operations, net of tax —
(628 ) — % — %
Net income 147,284 235,668 12.5 % 17.8
%
Net loss (income) attributable to noncontrolling interests
2,030 (255 ) 0.2 % (0.1 )%
Net income attributable to
Apollo $ 149,314 $ 235,413 12.7 % 17.7 %
Earnings per share — Basic: Continuing operations
attributable to Apollo $ 1.15 $ 1.61 Discontinued operations
attributable to Apollo — —
Basic income per share
attributable to Apollo $ 1.15 $ 1.61
Earnings per share — Diluted: Continuing operations
attributable to Apollo $ 1.14 $ 1.61 Discontinued operations
attributable to Apollo — —
Diluted income per
share attributable to Apollo $ 1.14 $ 1.61
Basic weighted average shares outstanding 130,318
146,352
Diluted weighted average shares outstanding
130,874 146,663
Apollo Group, Inc.
and Subsidiaries Condensed Consolidated Statements of Cash
Flows From Continuing and Discontinued Operations (Unaudited)
Three Months EndedNovember
30,
2011 2010 ($ in thousands)
Cash flows
provided by (used in) operating activities: Net income $
147,284 $ 235,668 Adjustments to reconcile net income to net cash
provided by operating activities: Share-based compensation 20,892
15,032 Excess tax benefits from share-based compensation (372 ) (69
) Depreciation and amortization 46,298 37,102 Amortization of lease
incentives (3,789 ) (3,531 ) Amortization of deferred gains on
sale-leasebacks (700 ) (411 ) Goodwill and other intangibles
impairment 16,788 — Non-cash foreign currency gain, net (397 ) (5 )
Provision for uncollectible accounts receivable 41,583 56,909
Litigation charge — 881 Restructuring and other charges 5,562 3,846
Deferred income taxes (1,747 ) (2,379 ) Changes in assets and
liabilities, excluding the impact of acquisition: Restricted cash
and cash equivalents 2,315 (28,275 ) Accounts receivable (75,698 )
(40,333 ) Other assets (6,105 ) (12,788 ) Accounts payable and
accrued liabilities (20,160 ) (24,500 ) Income taxes payable
115,412 142,219 Student deposits (22,272 ) (6,301 ) Deferred
revenue 22,340 (3,116 ) Other liabilities 14,008 15,727
Net cash provided by operating activities 301,242
385,676
Cash flows provided by (used in) investing
activities: Additions to property and equipment (23,585 )
(50,640 ) Acquisition, net of cash acquired (73,736 ) —
Net cash used in investing activities (97,321 ) (50,640 )
Cash flows provided by (used in) financing activities:
Payments on borrowings (496,322 ) (406,283 ) Proceeds from
borrowings — 1,799 Apollo Group Class A common stock purchased for
treasury (80,682 ) (176,931 ) Issuance of Apollo Group Class A
common stock 2,575 1,847 Excess tax benefits from share-based
compensation 372 69
Net cash used in financing
activities (574,057 ) (579,499 ) Exchange rate effect on cash
and cash equivalents (491 ) 184
Net decrease in cash and
cash equivalents (370,627 ) (244,279 )
Cash and cash
equivalents, beginning of year 1,571,664 1,284,769
Cash and cash equivalents, end of year $ 1,201,037
$ 1,040,490
Supplemental disclosure of cash flow
and non-cash information Cash paid for income taxes, net of
refunds $ 1,316 $ 17,080 Cash paid for interest $ 2,344 $ 3,179
Credits received for tenant improvements $ 19,941 $ 5,012 Acquired
technology $ 14,389 $ — Restricted stock units vested and released
$ 7,125 $ 1,409 Capital lease additions $ 6,668 $ —
Apollo
Group, Inc. and Subsidiaries Reconciliation of GAAP
financial information to non-GAAP financial information
(Unaudited)
Three Months EndedNovember
30,
2011 2010 (In thousands, except per share
data) Net income attributable to Apollo, as reported $ 149,314 $
235,413 Loss from discontinued operations, net of tax — (628
) Income from continuing operations attributable to Apollo 149,314
236,041 Reconciling items: Goodwill and other intangibles
impairment, net of noncontrolling interest(1) 14,370 —
Restructuring and other charges(2) 5,562 3,846 Litigation charge(3)
— 881 19,932 4,727 Less: tax effects (2,091 ) (1,871
) Income from continuing operations attributable to Apollo,
adjusted to exclude special items $ 167,155 $ 238,897
Diluted income per share from continuing operations
attributable to Apollo, as reported $ 1.14 $ 1.61
Diluted income per share from continuing operations
attributable to Apollo, adjusted to exclude special items $ 1.28
$ 1.63 Diluted weighted average shares
outstanding 130,874 146,663
(1) The charges for the three months ended November 30,
2011, represent impairments of UNIACC’s goodwill and other
intangibles, net of noncontrolling interest, with no income tax
benefit as UNIACC’s goodwill and other intangibles are not
deductible for tax purposes. (2) Restructuring and other charges
for the three months ended November 30, 2011, represents charges
associated with the Company’s real estate rationalization plan. The
charges for the three months ended November 30, 2010, represent
charges associated with a strategic reduction in force at
University of Phoenix. (3) The charges for the three months ended
November 30, 2010, represent estimated losses associated with the
Securities Class Action (Policeman's Annuity and Benefit Fund of
Chicago).
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