Education Management Corporation Reports Fiscal 2013 First Quarter Results

  Education Management Corporation Reports Fiscal 2013 First Quarter Results

PR Newswire

PITTSBURGH, Oct. 31, 2012

PITTSBURGH, Oct. 31, 2012 /PRNewswire/ --Education Management
Corporation(the "Company") (NASDAQ:EDMC), one of the largest providers of
post-secondary education in North America, today reported net revenues of
$609.6 million for the three months ended September30, 2012. The Company
reported a net loss of $13.1 million, or $0.11 per diluted share; excluding
restructuring charges of $9.1 million and accelerated depreciation of $4.6
million related to the write-off of certain assets, the Company's net loss
would have been $4.9 million, or $0.04 per diluted share, for the three months
ended September30, 2012.

"Our financial and operating results for the first quarter were largely
consistent with our expectations, despite the challenges of the current
operating environment. Further, we are seeing several encouraging demand
trends for our campus-based programs," said Edward H. West, Education
Management's President and Chief Executive Officer. "Our results this quarter
are attributable to the dedication of our faculty and staff who remain
committed to helping more students improve their lives through education and
in assisting them to find jobs that close the skills gap of the American
workforce."

Financial Highlights

  oFinancial highlights during the first quarter of fiscal 2013 included the
    following:

       oNet revenues were $609.6 million, a decrease of 10.6% from $682.1
         million recorded in the first quarter of fiscal 2012, primarily due
         to an 11.5% decline in average enrolled student body for the three
         months ended September 30, 2012 compared to the prior year period.
       oThe Company recorded a net loss of $13.1 million, or a $0.11 loss per
         diluted share, compared to net income of $27.0 million, or $0.21 per
         diluted share, for the prior year quarter.
       oAfter adjusting for restructuring charges of $9.1 million ($5.5
         million, net of tax), which included $7.5 million for employee
         severance and $1.6 million for a lease abandonment charge, and $4.6
         million in accelerated depreciation ($2.8 million, net of tax), the
         net loss would have been $4.9 million, or a $0.04 loss per diluted
         share. In the same quarter in the prior year, the Company recorded
         net income of $31.0 million, or $0.24 per diluted share, after
         adjusting for restructuring charges of $6.7 million ($4.0 million,
         net of tax).
       oEarnings before interest, taxes and depreciation and amortization
         ("EBITDA") was $53.8 million compared to $109.9 million in the prior
         year quarter. After adjusting for restructuring charges of $9.1
         million and $6.7 million, respectively, EBITDA was $62.9 million in
         the first quarter of fiscal 2013 compared to $116.6 million in the
         prior year quarter.

  oCash flow provided by operations for the three months ended September30,
    2012 was $156.6 million, compared to $221.3 million in the prior year
    period. The decrease in operating cash flows was due primarily to reduced
    operating performance as compared to the prior year period.
  oAt September30, 2012, cash and cash equivalents were $212.0 million,
    compared to $465.5 million at September 30, 2011. The decrease in cash
    and cash equivalents was due primarily to the transfer in March 2012 of
    $210.0 million to restricted cash in connection with the issuance of
    letters of credit under the Company's cash secured letter of credit
    facilities. These facilities are being used to help satisfy the Company's
    previously disclosed $414.5 million letter of credit with the U.S.
    Department of Education. There were no borrowings on the revolving credit
    facility at September30, 2012.
  oOn a cash basis, capital expenditures were $20.5 million, or 3.4% of net
    revenues, for the three months ended September30, 2012 compared to $20.2
    million, or 3.0% of net revenues, in the same period in the prior year.
  oSubsequent to the quarter ended September 30, 2012, the Company entered
    into sale leaseback transactions on three of its facilities. The net cash
    proceeds from these transactions totaled approximately $36.9 million.

Student Enrollment
Total student enrollment by segment as of October 2012 and 2011 was as
follows: 



                         October  October  %
                         2012     2011     Change
The Art Institutes       71,000   80,400   (11.6)%
Argosy University        24,800   29,000   (14.6)%
Brown Mackie Colleges    17,800   19,900   (10.6)%
South University         18,400   21,900   (16.0)%
Total student enrollment 132,000  151,200  (12.7)%



The student enrollment data shown above includes the number of students
enrolled in fully-online programs at The Art Institute of Pittsburgh, Argosy
University and South University. Total students enrolled in fully-online
programs were approximately 30,300 as of October 2012 as compared to 39,100 as
of October 2011. Fully-online enrollment is measured based on the number of
students meeting attendance requirements over a two-week period near the start
of the fiscal quarter.

New Student Enrollment
New student enrollment by segment for each quarter ended September 30 was as
follows:



                             For the Three Months Ended September 30,
                             2012             2011             % Change
The Art Institutes           17,000           19,800           (14.6)%
Argosy University            5,900            7,200            (18.3)%
Brown Mackie Colleges        5,000            5,400            (6.0)%
South University             4,900            7,700            (36.2)%
Total new student enrollment 32,800           40,100           (18.2)%



The new student enrollment data shown above includes the number of new
students who enrolled in fully-online programs at The Art Institute of
Pittsburgh, Argosy University and South University. Total new students who
enrolled in fully-online programs for the three months ended September 30,
2012 were approximately 8,600 as compared to 13,200 in three months ended
September 30, 2011.

Average Enrolled Student Body
Average enrolled student body by segment for each quarter ended September 30
was as follows: 



                                    For the Three Months Ended September 30,
                                    2012         2011           %
                                                                Change
The Art Institutes                  66,900       75,100         (11.1)%
Argosy University                   24,600       28,800         (14.4)%
Brown Mackie Colleges               17,400       19,800         (11.9)%
South University                    19,800       21,800         (9.1)%
Total average enrolled student body 128,700      145,500        (11.5)%

Average enrolled student body is the three month average of the unique
students who met attendance requirements within a month of the quarter. The
data above includes the number of students enrolled in fully-online programs
at The Art Institute of Pittsburgh, Argosy University and South University.
The average enrolled student body in fully-online programs was approximately
33,600 for the three months ended September 30, 2012 as compared to 42,100 in
the three months ended September 30, 2011.

Our quarterly revenues and income fluctuate primarily as a result of the
pattern of student enrollments, and our first fiscal quarter is typically the
lowest revenue quarter of the fiscal year due to student vacations. However,
the seasonality of our business has decreased over the last several years,
primarily due to the percentage of students enrolling in online programs,
which generally experience less seasonal fluctuation than campus-based
programs.

Fiscal 2013 Guidance
The following discussion of the Company's fiscal 2013 guidance includes
information that could constitute forward-looking statements with the meaning
of the Private Securities Litigation Reform Act of 1995. As more fully
described below under the heading "Cautionary Statement," these and other
forward-looking statements are based on information currently available to
management and involve estimates, assumptions, known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements to differ materially and unpredictably from any future results,
performance or achievements expressed or implied by such forward-looking
statements. 

For the fiscal year ending June 30, 2013, capital expenditures are projected
to be between 3.0% and 3.5% of net revenues, compared to 3.4% of net revenues
in the fiscal year ended June 30, 2012. The following second quarter and
annual guidance for fiscal 2013 exclude the impact of restructuring and other
special charges.

Reconciliation of Fiscal Year 2013 Second Quarter and Annual Guidance of Net
Income to EBITDA
(Dollars in millions, except earnings per share) (Unaudited)



Fiscal 2013 Guidance – 2nd Quarter:  For the Three Months Ending
                                     December 31, 2012

                                     Low              High
Earning per diluted share            $ 0.18          $ 0.19
Net income                           $   22         $   24
Net interest expense                 32               32
Income tax expense                   15               16
Depreciation and amortization        38               38
EBITDA                               $  107          $  110



Fiscal Year 2013 Guidance – Annual:              For the Twelve Months Ending
                                                 June 30, 2013
                                                 Low              High
Earnings per diluted share                       $  0.43         $ 0.50
Earnings per diluted share excluding expenses    $  0.50         $ 0.57
related to restructuring and other charges
Net income                                       $   54        $   63
Expenses related to restructuring and other      8                8
charges, net of tax
Net income excluding expenses related to         $   62        $  71
restructuring and other charges
 Net interest expense                           125              125
Income tax expense                               42               48
Depreciation and amortization                    156              156
EBITDA excluding expenses related to             $  385         $  400
restructuring and other charges

The presentation of EBITDA, as well as the presentations excluding certain
expenses, do not comply with U.S. generally accepted accounting principles
("GAAP"). For an explanation of EBITDA and EBITDA and net income excluding
certain expenses, together with a reconciliation to net income, which is the
most directly comparable GAAP financial measure, see the Non-GAAP Financial
Measures disclosure in the financial tables section below.

Conference Call and Webcast
Education Management Corporation will host a conference call to discuss its
fiscal 2013 first quarter results on Thursday, November1, 2012 at 9:00 a.m.
(Eastern Time). Those wishing to participate in this call should dial
412-317-6789 approximately 10 minutes prior to the start of the call. A
listen-only audio of the conference call will also be broadcast live over the
Internet at www.edmc.edu. A replay of the conference call will be available
at www.edmc.edu for up to one year.





EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share amounts)


                       For the Three Months Ended
                       September 30,
                       2012                    2011                % Change
                       
Net revenues                                   $  682,095         (10.6)%
                       $  609,564
Costs and expenses:
Educational services   381,296                 374,447             1.8%
^(1) (2)
General and
administrative ^(1)    174,492                 197,757             (11.8)%
(3)
Depreciation and       44,145                  38,888              13.5%
amortization ^(4)
Total costs and        599,933                 611,092             (1.8)%
expenses
Income before interest 9,631                   71,003              (86.4)%
and income taxes
Interest expense, net  31,452                  26,888              17.0%
(Loss) Income before   (21,821)                44,115              (149.5)%
income taxes
Income tax (benefit)   (8,728)                 17,161              (150.9)%
expense
Net (loss) income      $  (13,093)            $   26,954        (148.6)%
(Loss) Earnings per
share:
Basic                  $    (0.11)          $    0.21
Diluted                $    (0.11)          $    0.21
Weighted average
number of shares
outstanding:
Basic                  124,478                 128,474
Diluted                124,478                 129,715
(1) Certain reclassifications of fiscal 2012 data have been made to conform to
the fiscal 2013 presentation.
(2) Includes bad debt expense of $48.9 million and $35.1 million,
respectively, in the 2012 and 2011 periods presented above. Also, the 2012
period includes $6.6 million of employee severance costs and a lease
abandonment charge of $1.6 million. The 2011 period includes a lease
termination fee of $1.5 million.
(3) Includes employee severance costs of $0.9 million and $5.2 million in the
three months ended September 30, 2012 and 2011, respectively.
(4) The 2012 period includes a $4.6 million charge related to software assets
that no longer had a useful life.





EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
                                               June30,        September30,
                           September30, 2012                  2011
                                               2012
                           (Unaudited)                         (Unaudited)
Assets
Current assets:
                                                             
Cash and cash equivalents
                           $    211,956     $   191,008   $    465,492
Restricted cash            277,376             267,880         88,071
Total cash, cash
equivalents and restricted 489,332             458,888         553,563
cash
Student receivables net of
allowances of $244,245,   229,847             198,411         202,523
$230,587 and
$198,950
Notes, advances and other  30,856              22,174          31,057
receivables
Inventories                10,041              8,382           12,858
Deferred income taxes      102,668             102,668         76,804
Prepaid income taxes       15,789              6,796           10,021
Other current assets       40,856              40,399          47,286
Total current assets       919,389             837,718         934,112
Property and equipment,    626,337             651,797         676,950
net
Other long-term assets     57,551              56,001          43,733
Intangible assets, net     329,658             330,029         461,342
Goodwill                   963,550             963,550         2,581,999
Total assets               $  2,896,485      $ 2,839,095    $  4,698,136
Liabilities and
shareholders' equity
Current liabilities:
Current portion of         $     12,076    $    12,076  $    12,076
long-term debt
Revolving credit facility  —                   111,300         —
Accounts payable           30,168              54,834          34,395
Accrued liabilities        154,342             137,348         159,574
Unearned tuition           168,601             116,277         170,399
Advance payments           238,957             102,170         320,779
Total current liabilities  604,144             534,005         697,223
Long-term debt, less       1,450,583           1,453,468       1,463,749
current portion
Deferred income taxes      110,053             111,767         215,481
Deferred rent              198,449             197,758         196,323
Other long-term            46,429              45,533          47,702
liabilities
Shareholders' equity:
Common stock, at par       1,434               1,434           1,432
Additional paid-in capital 1,781,345           1,777,732       1,764,848
Treasury stock             (328,605)           (328,605)       (274,234)
(Accumulated deficit)      (949,053)           (935,960)       606,735
Retained earnings
Accumulated other          (18,294)            (18,037)        (21,123)
comprehensive loss
Total shareholders' equity 486,827             496,564         2,077,658
Total liabilities and      $   2,896,485     $ 2,839,095    $  4,698,136
shareholders' equity





EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
                                    For the Three Months Ended September 30,
                                    2012                   2011
Cash flows from operating
activities:
Net (loss) income                   $   (13,093)        $   26,954
Adjustments to reconcile net (loss)
income to net cash

flows from operating activities:
Depreciation and amortization of    42,616                 36,978
property and equipment
Amortization of intangible assets   1,529                  1,910
Bad debt expense                    48,931                 35,130
Amortization of debt issuance costs 1,280                  1,316
Share-based compensation            3,613                  2,926
Non cash adjustments related to     (3,622)                (2,410)
deferred rent
Changes in assets and liabilities:
Restricted cash                     (9,496)                (40,558)
Receivables                         (89,033)               (95,813)
Reimbursements for tenant           1,202                  6,980
improvements
Inventory                           (1,654)                (3,282)
Other assets                        (3,410)                (217)
Accounts payable                    (21,896)               (17,701)
Accrued liabilities                 10,624                 29,894
Unearned tuition                    52,324                 30,249
Advance payments                    136,662                208,951
Total adjustments                   169,670                194,353
Net cash flows provided by          156,577                221,307
operating activities
Cash flows from investing
activities:
Expenditures for long-lived assets  (20,541)               (20,198)
Reimbursements for tenant           (1,202)                (6,980)
improvements
Net cash flows used in investing    (21,743)               (27,178)
activities
Cash flows from financing
activities:
Payments under revolving credit     (111,300)              (79,000)
facility
Issuance of common stock            —                      75
Common stock repurchased for        —                      (49,702)
treasury
Principal payments on long-term     (2,885)                (3,025)
debt
Net cash flows used in financing    (114,185)              (131,652)
activities
Effect of exchange rate changes on  299                    (209)
cash and cash equivalents
Net change in cash and cash         20,948                 62,268
equivalents
Cash and cash equivalents,          191,008                403,224
beginning of period
Cash and cash equivalents, end of   $   211,956          $  465,492
period
Cash paid during the period for:
Interest (including swap            $    22,044         $   26,904
settlement)
Income taxes, net of refunds        1,059                  14,945
                                    As of September 30,
Noncash investing activities:       2012                   2011
Capital expenditures in current     $     9,050        $    9,117
liabilities



EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited)

The Company reports results in four segments - The Art Institutes, Argosy
University, Brown Mackie Colleges and South University. The Company evaluates
segment performance based on EBITDA excluding certain expenses. Adjustments
to reconcile segment results to consolidated results are included under the
caption "Corporate and Other," which primarily includes unallocated corporate
activity.

EBITDA, a measure used by management to measure operating performance, is
defined as net income before interest expense, net, provision for income taxes
and depreciation and amortization. EBITDA is not a recognized term under GAAP
and does not purport to be an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a measure
of liquidity. Additionally, EBITDA is not intended to be a measure of free
cash flow available for management's discretionary use, as it does not
consider certain cash requirements such as interest payments, tax payments and
debt service requirements. Management believes EBITDA is helpful in
highlighting trends because EBITDA excludes the results of decisions that are
outside the control of operating management and can differ significantly from
company to company depending on long-term strategic decisions regarding
capital structure, the tax jurisdictions in which companies operate and
capital investments. We also present earnings per share, net income and EBITDA
after adjusting for certain expenses, which also are non-GAAP financial
measures. Management believes this presentation is also helpful in
highlighting trends in our business because it excludes certain expenses
management believes are not indicative of ongoing operations. Management
compensates for the limitations of using non-GAAP financial measures by using
them to supplement GAAP results to provide a more complete understanding of
the factors and trends affecting the business than GAAP results alone. Because
not all companies use identical calculations, this presentation of EBITDA may
not be comparable to similarly titled measures of other companies. A
reconciliation of EBITDA excluding certain expenses by segment to consolidated
net (loss) income is detailed below:





Segment Information and Reconciliation of EBITDA to Net Income to
Net Income Excluding Certain Expenses
(In thousands except per share amounts) (Unaudited)
                            For the Three Months Ended September 30,
                            2012              2011        % Change
Net revenues:
The Art Institutes          $   380,139     $         (11.4)%
                                              428,900
Argosy University           81,920            98,143      (16.5)%
Brown Mackie Colleges       73,972            80,923      (8.6)%
South University            73,533            74,129      (0.8)%
Total EDMC                  609,564           682,094     (10.6)%
EBITDA excluding certain
expenses:
The Art Institutes          67,926            110,318     (38.4)%
Argosy University           1,193             10,234      (88.3)%
Brown Mackie Colleges       10,595            17,583      (39.7)%
South University            6,313             164         N/M
Corporate and other         (23,106)          (21,741)    6.3%
Total EDMC                  62,921            116,558     (46.0)%
Reconciliation to EBITDA:
Restructuring               9,145             6,667       37.2%
EBITDA                      53,776            109,891     (51.1%)
Reconciliation to operating
income:
Depreciation and            44,145            38,888      13.5%
amortization
Operating income            9,631             71,003      (86.4%)
Reconciliation to net
(loss) income:
Net interest expense        31,452            26,888      17.0%
Income tax (benefit)        (8,728)           17,161      (150.9)%
expense
Net (loss) income           $   (13,093)   $         (148.6)%
                                              26,954
Restructuring, net of tax   $     5,488   $        37.2%
                                              4,000
Software-related charge,    2,753             —            N/M
net of tax
Net (loss) income,          $              $  
excluding                   (4,852)          30,954     (115.7)%
certain expenses
Diluted (loss) earnings per $             $    
share, excluding            (0.04)           0.24
certain expenses
Weighted average number of  124,478           129,715
diluted shares outstanding



About Education Management Corporation

Education Management Corporation (www.edmc.edu), with approximately 132,000
students as of October 2012, is among the largest providers of post-secondary
education in North America, based on student enrollment and revenue, with a
total of 110 locations in 32 U.S. states and Canada. We offer academic
programs to our students through campus-based and online instruction, or
through a combination of both. We are committed to offering quality academic
programs and strive to improve the learning experience for our students. Our
educational institutions offer students the opportunity to earn undergraduate
and graduate degrees and certain specialized non-degree diplomas in a broad
range of disciplines, including media arts, health sciences, design,
psychology and behavioral sciences, culinary, business, fashion, legal,
education and information technology.

Cautionary Statement

This press release includes information that could constitute forward-looking
statements with the meaning of the Private Securities Litigation Reform Act of
1995. These statements, which are based on information currently available to
management, concern the Company's strategy, plans, intentions or expectations
and typically contain words such as "anticipates," "believes," "estimates,"
"expects," "intends," "may," "will," "should," "seeks," "approximately," or
"plans" or similar words, although the absence of such words does not mean
that any particular statement is not forward-looking. All of the statements
included in this press release that relate to estimated and projected
earnings, margins, costs, expenditures, cash flows, growth rates and financial
results, including the second quarter and annual guidance for fiscal 2013, and
including statements regarding expected enrollment, revenue, expense levels,
capital expenditures and earnings, are forward-looking statements, as are any
statements concerning the Company's expected future operations and performance
and other future developments. These and other forward-looking statements
involve estimates, assumptions, known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements to
differ materially and unpredictably from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
Company derives many of its forward-looking statements from its operating
budgets and forecasts, which are based upon many detailed assumptions, and the
Company cautions that it is very difficult to predict the impact of unknown
factors, and impossible to anticipate all factors, that could affect its
actual results. Some of the factors that the Company believes could affect
its results and that could cause actual results to differ materially from
expectations include, but are not limited to: the timing and magnitude of
student enrollment and changes in student mix, including the relative
proportions of campus-based and online students enrolled in its programs;
changes in average registered credits taken by students; the Company's ability
to maintain eligibility to participate in Title IV programs; other changes in
its students' ability to access federal and state financial aid, as well as
obtain loans from third-party lenders; difficulties the Company may face in
opening new schools, growing its academic programs and otherwise implementing
its growth strategy; increased or unanticipated legal and regulatory costs;
the results of program reviews and audits; changes in accreditation standards;
the implementation of new operating procedures for the Company's fully online
programs; the implementation of program initiatives in response to the U.S.
Department of Education's new gainful employment regulations; adjustments to
the Company's programmatic offerings to comply with the 90/10 rule; its high
degree of leverage and ability to generate sufficient cash to service all of
its debt obligations and other liquidity needs; market and credit risks
associated with the post-secondary education industry, adverse media coverage
of the industry and the overall condition of the industry; changes in the
overall U.S. or global economies and access to credit and capital markets; the
effects of war, terrorism, natural disasters or other catastrophic events and
other risks affecting the Company, including but not limited to those
described in its periodic reports filed with the Securities Exchange
Commission pursuant to the Securities Exchange Act of 1934.

Education Management Corporation
COMPANY CONTACT:
John Iannone
Director of Investor Relations
(412)995-7727

SOURCE Education Management Corporation

Website: http://www.edmc.edu
 
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