Apollo Group, Inc. Reports First Quarter 2013 Results

  Apollo Group, Inc. Reports First Quarter 2013 Results

Business Wire

PHOENIX -- January 8, 2013

Apollo Group, Inc. (NASDAQ: APOL) today reported financial results for the
three months ended November 30, 2012, with revenue of $1.1 billion and diluted
earnings per share of $1.18 per share, or $1.22 per share excluding special
items.

“In the first quarter, we continued to execute on our strategy to
differentiate University of Phoenix, diversify Apollo Group and to further
optimize our operations,” said Apollo Group Chief Executive Officer Greg
Cappelli. “We are rolling out new career-oriented tools for students, as well
as working with leading companies to help them meet their needs to develop an
educated workforce. We are committed to become the educator of choice to
connect education to careers and believe this approach will position us for
long-term success.”

First Quarter 2013 Results of Operations

  *Net revenue for the first quarter 2013 was $1.1 billion compared to $1.2
    billion in the first quarter 2012.
  *University of Phoenix Degreed Enrollment was 319,700, a 14.3% decrease
    from the prior year first quarter, and New Degreed Enrollment was 54,100,
    a 15.1% decrease from the prior year first quarter.
  *Operating income for the first quarter 2013 was $230.9 million, down
    11.7%, compared to $261.7 million from the prior year first quarter.
  *Income from continuing operations attributable to Apollo Group for the
    first quarter 2013 was $133.5 million, or $1.18 per share, compared to
    $147.5 million, or $1.13 per share in the first quarter 2012.

Results for the first quarter 2013 include restructuring and other charges of
$24.1 million attributable to the Company’s optimization efforts and a $16.9
million credit for the reversal of charges associated with a securities class
action lawsuit.

Excluding the special items noted above, income from continuing operations for
the first quarter 2013 was $137.9 million, or $1.22 per share, compared to
income from continuing operations of $165.3 million, or $1.26 per share, for
the first quarter 2012. (See the reconciliation of GAAP financial information
to non-GAAP financial information in the tables section of this press release
for first quarter 2013 and 2012 special items).

Operating Expenses

Operating expenses for the first quarter 2013 totaled $824.2 million, a
decrease of 9.4%, as compared to first quarter 2012. Excluding special items,
operating expenses were $817.0 million, a decrease of 8.0%. This decrease was
primarily attributable to a reduction in costs from restructuring activities,
which contributed to the decline in admissions advisory headcount, rent
expense and depreciation expense. Additionally, a portion of the decrease was
related to variable expenses due to lower net revenue. The provision for
uncollectible accounts receivable (“bad debt”) also declined 19.7% to $33.4
million, primarily due to lower enrollment, as well as improved collection
rates for aged receivables, at University of Phoenix.

Balance Sheet and Cash Flow

As of November 30, 2012, cash and cash equivalents, excluding restricted cash,
totaled $776 million compared to $1.3 billion as of August 31, 2012. The
decrease was primarily due to $625.8 million used for payments on borrowings,
including the payment of $615.0 million borrowed under the Company’s revolving
credit facility, the Company’s $42.5 million cash payment for its purchase of
the noncontrolling interest in Apollo Global and $27.5 million for capital
expenditures. These items were partially offset by $210.1 million of cash
provided by operations.

Accounts receivable were $201.5 million as of November 30, 2012, 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 20 days as of November 30, 2012, as compared to 24 days as of November 30,
2011.

Business Outlook

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

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

Conference Call Information

The Company will hold a conference call to discuss these earnings results at
5:00 p.m. ET, 3:00 p.m. MT, today, Tuesday, January 8, 2013.

Dial-In Numbers:

877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 82100134

A live webcast of this event may be accessed by visiting the Company’s website
at www.apollogrp.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 January 22, 2013.

Dial-In Numbers:

855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 82100134

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 nearly 40 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 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.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) the impact of increased competition from traditional
public universities and proprietary educational institutions, (ii) the impact
of the Company’s restructuring initiatives to increase operating efficiency
and better align operations with student demand and business strategy,
including the substantial reduction in University of Phoenix on-ground
locations, (iii) the impact of changes in marketing channels and other
recruiting practices to better identify students who are more likely to
succeed at University of Phoenix, (iv) the impact of the Company’s initiatives
to improve the student experience, improve student outcomes and enhance the
connection between education and careers, (v) changes in enrollment or student
mix, (vi) changes in the overall U.S. or global economy, (vii) changes in law
or regulation affecting the Company’s eligibility to participate in or the
manner in which it participates in U.S. federal and state student financial
aid programs, and (viii) 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. 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 Form 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.

Financial and Operating Metrics

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

                                            
                      Degreed Enrollment^(1)        New Degreed Enrollment^(2)
Enrollment
(rounded to           Q1 2013     Q1 2012         Q1 2013         Q1 2012
hundreds)
   Associate’s        99,100        130,300         22,900            27,800
   Bachelor’s         168,000       182,500         22,500            26,100
   Master’s           46,000        52,900          8,000             8,900
   Doctoral           6,600        7,400          700              900         
                      319,700      373,100        54,100           63,700      
                                                                      
Revenues (in
thousands)
   Degree
   Seeking                                          $ 992,274         $ 1,108,616
   Gross
   Revenues^(3)
   Less:
   Discounts                                        (67,275     )     (62,734     )
   and other
   Degree
   Seeking Net                                      924,999           1,045,882
   Revenues^(3)
   Non-degree
   Seeking                                          9,813             8,577
   Revenues
   Other, net                                       120,371          117,441     
   of discounts
                                                    $ 1,055,183      $ 1,171,900 
                                                                      
Revenue by
Degree Type (in
thousands)^(3)
   Associate’s                                      $ 251,890         $ 313,598
   Bachelor’s                                       560,806           592,910
   Master’s                                         158,891           178,445
   Doctoral                                         20,687            23,663
   Less:
   Discounts                                        (67,275     )     (62,734     )
   and other
                                                    $ 924,999        $ 1,045,882 
                                                                      
Degree Seeking
Gross Revenues
per Degreed
Enrollment^(1),
(3)
   Associate’s                                      $ 2,542           $ 2,407
   Bachelor’s                                       3,338             3,249
   Master’s                                         3,454             3,373
   Doctoral                                         3,134             3,198
   All degrees
   (after                                           $ 2,893           $ 2,803
   discounts)
                                                                      

^(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)                               November 30,    August 31,
                                               2012              2012
ASSETS:
Current assets
Cash and cash equivalents                      $ 776,009         $ 1,276,375
Restricted cash and cash equivalents           351,575           318,334
Accounts receivable, net                       201,456           198,279
Prepaid taxes                                  5,041             26,341
Deferred tax assets, current portion           55,489            69,052
Other current assets                           64,513           49,609      
Total current assets                           1,454,083         1,937,990
Property and equipment, net                    546,520           571,629
Goodwill                                       103,558           103,345
Intangible assets, net                         145,789           149,034
Deferred tax assets, less current              80,446            77,628
portion
Other assets                                   38,521           28,696      
Total assets                                   $ 2,368,917      $ 2,868,322 

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities
Short-term borrowings and current              $ 22,236          $ 638,588
portion of long-term debt
Accounts payable                               63,202            74,872
Income taxes payable                           60,717            —
Student deposits                               381,124           362,143
Deferred revenue                               262,813           254,555
Accrued and other current liabilities          263,433          324,881     
Total current liabilities                      1,053,525         1,655,039
Long-term debt                                 75,562            81,323
Deferred tax liabilities                       16,096            15,881
Other long-term liabilities                    203,705          191,756     
Total liabilities                              1,348,888        1,943,999   
Commitments and contingencies
Shareholders’ equity
Preferred stock, no par value                  —                 —
Apollo Group Class A nonvoting common          103               103
stock, no par value
Apollo Group Class B voting common             1                 1
stock, no par value
Additional paid-in capital                     41,311            93,770
Apollo Group Class A treasury stock, at        (3,864,989  )     (3,878,612  )
cost
Retained earnings                              4,876,645         4,743,150
Accumulated other comprehensive loss           (34,188     )     (30,034     )
Total Apollo shareholders’ equity              1,018,883        928,378     
Noncontrolling interests (deficit)             1,146            (4,055      )
Total equity                                   1,020,029        924,323     
Total liabilities and shareholders’            $ 2,368,917      $ 2,868,322 
equity
                                                                             
                                                                             


Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
                  Three Months Ended November 30,    % of Net Revenue
(In thousands,
except per           2012            2011                2012       2011
share data)
Net revenue          $ 1,055,183      $ 1,171,900        100.0 %      100.0 %
Costs and
expenses:
Instructional
and student          432,150           453,281             40.9  %      38.7  %
advisory
Marketing            162,873           165,564             15.4  %      14.1  %
Admissions           71,308            101,388             6.8   %      8.7   %
advisory
General and          73,539            79,899              7.0   %      6.8   %
administrative
Depreciation
and                  43,695            46,167              4.1   %      3.9   %
amortization
Provision for
uncollectible        33,406            41,583              3.2   %      3.6   %
accounts
receivable
Restructuring
and other            24,116            5,562               2.3   %      0.5   %
charges
Litigation           (16,850     )     —                   (1.6  )%     —
credit
Goodwill and
other                —                16,788             —           1.4   %
intangibles
impairment
Total costs          824,237          910,232            78.1  %      77.7  %
and expenses
Operating            230,946           261,668             21.9  %      22.3  %
income
Interest             549               506                 —            0.1   %
income
Interest             (2,042      )     (1,999      )       (0.2  )%     (0.2  )%
expense
Other, net           1,799            140                0.2   %      —     
Income from
continuing
operations           231,252           260,315             21.9  %      22.2  %
before income
taxes
Provision for        (97,512     )     (115,179    )       (9.2  )%     (9.8  )%
income taxes
Income from
continuing           133,740           145,136             12.7  %      12.4  %
operations
Income from
discontinued         —                2,148              —           0.2   %
operations,
net of tax
Net income           133,740           147,284             12.7  %      12.6  %
Net (income)
loss
attributable         (245        )     2,030              —           0.1   %
to
noncontrolling
interests
Net income
attributable         $ 133,495        $ 149,314          12.7  %      12.7  %
to Apollo
                                                                        
Earnings per
share – Basic:
Continuing
operations           $ 1.19            $ 1.13
attributable
to Apollo
Discontinued
operations           —                0.02        
attributable
to Apollo
Basic income
per share            $ 1.19           $ 1.15      
attributable
to Apollo
                                                                        
Earnings per
share –
Diluted:
Continuing
operations           $ 1.18            $ 1.13
attributable
to Apollo
Discontinued
operations           —                0.01        
attributable
to Apollo
Diluted income
per share            $ 1.18           $ 1.14      
attributable
to Apollo
                                                                        
Basic weighted
average shares       112,420          130,318     
outstanding
Diluted
weighted             112,849          130,874     
average shares
outstanding
                                                                        
                                                                        


Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                              Three Months Ended
                                                 November 30,
($ in thousands)                                 2012          2011
Cash flows provided by (used in) operating
activities:
Net income                                       $ 133,740       $ 147,284
Adjustments to reconcile net income to net
cash provided by operating activities:
Share-based compensation                         16,889          20,892
Excess tax benefits from share-based             —               (372        )
compensation
Depreciation and amortization                    43,695          46,298
Accelerated depreciation included in             9,326           —
restructuring
Amortization of lease incentives                 (3,740    )     (3,789      )
Amortization of deferred gains on                (700      )     (700        )
sale-leasebacks
Goodwill and other intangibles impairment        —               16,788
Non-cash foreign currency gain, net              (607      )     (397        )
Provision for uncollectible accounts             33,406          41,583
receivable
Litigation credit                                (16,850   )     —
Deferred income taxes                            6,064           (1,747      )
Changes in assets and liabilities,
excluding the impact of acquisition:
Restricted cash and cash equivalents             (33,241   )     2,315
Accounts receivable                              (36,349   )     (75,698     )
Other assets                                     (6,432    )     (6,105      )
Accounts payable                                 (11,771   )     858
Income taxes payable                             82,032          115,412
Student deposits                                 18,522          (22,272     )
Deferred revenue                                 8,075           22,340
Accrued and other liabilities                    (31,928   )     (1,448      )
Net cash provided by operating activities        210,131        301,242     
Cash flows provided by (used in) investing
activities:
Additions to property and equipment              (27,539   )     (23,585     )
Acquisition, net of cash acquired                —               (73,736     )
Other investing activities                       (14,819   )     —           
Net cash used in investing activities            (42,358   )     (97,321     )
Cash flows provided by (used in) financing
activities:
Payments on borrowings                           (625,762  )     (496,322    )
Proceeds from borrowings                         2,176           —
Purchase of noncontrolling interest              (42,500   )     —
Apollo Group Class A common stock                (3,472    )     (80,682     )
purchased for treasury
Issuance of Apollo Group Class A common          1,113           2,575
stock
Excess tax benefits from share-based             —              372         
compensation
Net cash used in financing activities            (668,445  )     (574,057    )
Exchange rate effect on cash and cash            306            (491        )
equivalents
Net decrease in cash and cash equivalents        (500,366  )     (370,627    )
Cash and cash equivalents, beginning of          1,276,375      1,571,664   
period
Cash and cash equivalents, end of period         $ 776,009      $ 1,201,037 
Supplemental disclosure of cash flow and
non-cash information
Cash paid for income taxes, net of refunds       $ 10,243        $ 1,316
Cash paid for interest                           $ 1,906         $ 2,344
Restricted stock units vested and released       $ 9,496         $ 7,125
Capital lease additions                          $ —             $ 6,668
Credits received for tenant improvements         $ —             $ 19,941
Debt incurred for acquired technology            $ —             $ 14,389
                                                                             
                                                                             


Apollo Group, Inc. and Subsidiaries
Reconciliation of GAAP financial information to non-GAAP financial information
(Unaudited)
                                            Three Months Ended November 30,
(In thousands, except per share data)          2012              2011
Net income attributable to Apollo, as          $  133,495          $ 149,314
reported
Income from discontinued operations, net       —                  1,839     
of tax and noncontrolling interest
Income from continuing operations              133,495             147,475
attributable to Apollo
Reconciling items:
Restructuring and other charges^(1)            24,116              5,562
Litigation credit^(2)                          (16,850     )       —
Goodwill and other intangibles
impairment, net of noncontrolling              —                  14,370    
interest^(3)
                                               7,266               19,932
Less: tax effects                              (2,877      )       (2,091    )
Income from continuing operations
attributable to Apollo, adjusted to            $  137,884         $ 165,316 
exclude special items
                                                                   
Diluted income per share from continuing
operations attributable to Apollo, as          $  1.18            $ 1.13    
reported
                                                                   
Diluted income per share from continuing
operations attributable to Apollo,             $  1.22            $ 1.26    
adjusted to exclude special items
                                                                   
Diluted weighted average shares                112,849            130,874   
outstanding
                                                                   

^(1) Restructuring and other charges represent charges associated with the
Company’s series of restructuring activities to reengineer business processes
and refine its delivery structure.

^(2) Litigation credit during the three months ended November 30, 2012
represents the reversal of charges associated with the Securities Class Action
(Policeman’s Annuity and Benefit Fund of Chicago) matter.

^(3) 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.

Contact:

Apollo Group, Inc.
Investor Relations Contact:
Beth Coronelli, 312-660-2059
beth.coronelli@apollogrp.edu
Media Contact:
Media Relations Hotline, 602-254-0086
media@apollogrp.edu
 
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