Education Management Corporation Reports Fiscal 2013 Second Quarter Results

 Education Management Corporation Reports Fiscal 2013 Second Quarter Results

PR Newswire

PITTSBURGH, Jan. 30, 2013

PITTSBURGH, Jan. 30, 2013 /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 $654.9 million for
the three months ended December 31, 2012.  The Company reported net income of
$31.1 million, or $0.25 per diluted share.

"As a result of the efforts and dedication of our faculty and staff, I am
pleased with the progress we have made to improve student retention which is
reflected in our January class start," said Edward H. West, Education
Management's President and Chief Executive Officer. "While the operating
environment remains challenging, we continue to see several encouraging signs.
 In addition to positive retention rates, new student demand has turned
positive at several of our colleges and universities.  Furthermore, we are
continuing to make investments in our students to help them achieve their
goals as they progress toward graduation in this difficult economy."

Financial Highlights

  o Financial highlights for the second quarter of fiscal 2013 included the
    following:

       o Net revenues were $654.9 million, a decrease of 11.2% from $737.2
         million recorded in the second quarter of fiscal 2012, primarily due
         to a 12.7% decline in average enrolled student body for the three
         months ended December 31, 2012 compared to the prior year quarter.
       o The Company recorded net income of $31.1 million, or $0.25 per
         diluted share, compared to $63.1 million, or $0.49 per diluted share,
         for the prior year quarter.
       o Earnings before interest, taxes and depreciation and amortization
         ("EBITDA") was $123.3 million compared to $169.3 million in the prior
         year quarter. 

  o Cash flows provided by operating activities remained relatively flat for
    the six months ended December 31, 2012 at $93.2 million, compared to $97.0
    million in the six months ended December 31, 2011.  Lower operating
    performance was substantially offset by lower tax payments and lower
    working capital usage in the current year period compared to the prior
    year period.  Additionally, the conversion to a non-term academic
    structure for students attending fully-online programs at Argosy
    University and South University resulted in a greater change in restricted
    cash in the prior year period compared to the current year period.  
  o At December 31, 2012, cash and cash equivalents were $189.0 million,
    compared to $299.9 million at December 31, 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 letter of credit with the U.S. Department of Education.
  o On a cash basis, capital expenditures were $39.5 million, or 3.1% of net
    revenues, for the six months ended December 31, 2012 compared to $36.1
    million, or 2.5% of net revenues, in the same period in the prior year.
  o During the quarter ended December 31, 2012, the Company completed five
    sale-leaseback transactions with unrelated third parties for net proceeds
    of $65.1 million.  The Company recorded a net loss of $3.5 million related
    to these transactions during the quarter ended December 31, 2012.  A
    deferred gain of approximately $17.8 million will be recognized over the
    initial terms of the new leases, which range from three to 15 years.   

New Student Enrollment 

New student enrollment by segment was as follows:

                      For the Three Months Ended December 31,
                      2012          2011         % Change
The Art Institutes    12,300        15,200       (20.2)   %
Argosy University     3,400         3,800        (10.3)   %
Brown Mackie Colleges 3,800         4,100        (5.3)    %
South University      4,500         7,600        (40.0)   %
Total EDMC            24,000        30,700       (21.9)   %

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 December 31, 2012
were approximately 7,300 as compared to 12,500 in three months ended December
31, 2011.  The reduction in new students enrolled in fully-online programs
represented approximately 80% of the total EDMC year-over-year decline in new
students for the three months ending December 31, 2012.

Average Enrolled Student Body

Average enrolled student body by segment was as follows:    

                      For the Three Months Ended December 31,
                      2012          2011         % Change
The Art Institutes    69,500        78,900       (12.1)   %
Argosy University     25,500        29,900       (14.7)   %
Brown Mackie Colleges 17,500        19,500       (10.0)   %
South University      19,000        22,300       (14.8)   %
Total EDMC            131,500       150,600      (12.7)   %

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
32,100 for the three months ended December 31, 2012 as compared to 41,000 in
the three months ended December 31, 2011.

Starting Student Enrollment

Starting student enrollment by segment was as follows:    

                      January  January  %
                      2013     2012     Change
The Art Institutes    67,700   75,600   (10.5) %
Argosy University     24,100   27,700   (13.0) %
Brown Mackie Colleges 17,200   18,700   (8.4)  %
South University      17,800   20,600   (13.4) %
Total EDMC            126,800  142,600  (11.1) %

The starting 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.  Starting students enrolled in
fully-online programs were approximately 29,100 as of January 2013 as compared
to 35,800 as of January 2012.  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.

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, 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 third quarter and
annual guidance for fiscal 2013 exclude the impact of restructuring and other
special charges. 

Reconciliation of Fiscal Year 2013 Third Quarter and Annual Guidance of Net
Income to EBITDA
(Dollars in millions, except earnings per share) (Unaudited)
Fiscal 2013 Guidance – 3rd Quarter:              For the Three Months Ending

                                                 March 31, 2013
                                                 Low              High
Earning per diluted share                        $    0.20        $    0.22
Net income                                       $       25       $       27
Net interest expense                             31               31
Income tax expense                               17               19
Depreciation and amortization                    40               40
EBITDA                                           $     113        $     117
Fiscal Year 2013 Guidance – Annual:              For the Twelve Months Ending

                                                 June 30, 2013
                                                 Low              High
Earnings per diluted share                       $     0.32       $     0.37
Earnings per diluted share excluding expenses    $     0.38       $     0.44
related to restructuring and other charges
Net income                                       $        40      $        47
Expenses related to restructuring and other      8                8
charges, net of tax
Net income excluding expenses related to         $        48      $        55
restructuring and other charges
  Net interest expense                           $      124       $      124
Income tax expense                               34               37
Depreciation and amortization                    159              159
EBITDA excluding expenses related to             $      365       $      375
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 second quarter results on Thursday, January 31, 2013 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      For the Six Months Ended

               December 31,                    December 31,
               2012       2011       % Change  2012         2011         % Change
Net revenues   $ 654,895  $ 737,188  (11.2) %  $ 1,264,459  $ 1,419,283  (10.9) %
Costs and
expenses:
Educational
services ^(1)  360,377    375,770    (4.1)  %  741,673      750,217      (1.1)  %
(2)
General and
administrative 171,190    192,085    (10.9) %  345,682      389,879      (11.3) %
^(1) (3)
Depreciation
and            39,255     39,196     0.2    %  83,400       78,084       6.8    %
amortization
^(4)
Total costs    570,822    607,051    (6.0)  %  1,170,755    1,218,180    (3.9)  %
and expenses
Income before
interest and
income         84,073     130,137    (35.4) %  93,704       201,103      (53.4) %

taxes
Interest       31,009     26,846     15.5   %  62,461       53,697       16.3   %
expense, net
Income before  53,064     103,291    (48.6) %  31,243       147,406      (78.8) %
income taxes
Income tax     21,920     40,164     (45.4) %  13,192       57,325       (77.0) %
expense
Net income     $ 31,144   $ 63,127   (50.7) %  $ 18,051     $ 90,081     (80.0) %
Earnings per
share:
Basic          $ 0.25     $ 0.50               $ 0.14       $ 0.70
Diluted        $ 0.25     $ 0.49               $ 0.14       $ 0.70
Weighted
average number
of

shares
outstanding:
Basic          124,560    127,193              124,519      127,833
Diluted        124,762    128,764              124,620      129,240

(1) Certain reclassifications of fiscal 2012 data have been made to conform to
    the fiscal 2013 presentation. 
    Includes bad debt expense of $40.8 million and $41.3 million in the three
(2) months ended December 31, 2012 and 2011, respectively and $89.8 million
    and $76.5 million in the six months ended December 31, 2012 and 2011,
    respectively. 
    Also, the six months ended December 31, 2012 period include $6.6 million
    of employee severance costs and a lease abandonment charge of $1.6
    million.  The six months ended December 31, 2011 include a lease
    termination fee of $1.5 million.
(3) Includes employee severance costs of $0.9 million and $5.2 million in the
    six months ended December 31, 2012 and 2011, respectively.
(4) The six months ended December 31, 2012 period include 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)
                         December 31, 2012  June 30, 2012  December 31, 2011
Assets                   (Unaudited)                       (Unaudited)
Current assets:
Cash and cash            $    189,042       $  191,008     $    299,934
equivalents
Restricted cash          273,425            267,880        79,323
Total cash, cash
equivalents and          462,467            458,888        379,257
restricted cash
Student receivables net
of allowances of
$180,337,                151,364            198,411        156,495

$230,587 and $211,467
Notes, advances and      16,532             22,174         14,652
other receivables
Inventories              8,968              8,382          9,430
Deferred income taxes    102,668            102,668        76,804
Prepaid income taxes     —                  6,796          —
Other current assets     39,139             40,399         46,941
Total current assets     781,138            837,718        683,579
Property and equipment,  562,184            651,797        663,660
net
Other long-term assets   57,585             56,001         45,717
Intangible assets, net   329,361            330,029        460,144
Goodwill                 963,550            963,550        2,581,999
Total assets             $    2,693,818     $  2,839,095   $    4,435,099
Liabilities and
shareholders' equity
Current liabilities:
Current portion of       $    12,076        $  12,076      $    12,076
long-term debt
Revolving credit         —                  111,300        —
facility
Accounts payable         38,161             54,834         28,620
Accrued liabilities      136,613            137,348        130,512
Accrued income taxes     10,525             —              18,976
Unearned tuition         55,038             116,277        61,170
Advance payments         116,569            102,170        140,323
Total current            368,982            534,005        391,677
liabilities
Long-term debt, less     1,447,699          1,453,468      1,460,720
current portion
Deferred income taxes    99,845             111,767        215,157
Deferred rent            212,085            197,758        195,723
Other long-term          41,599             45,533         45,391
liabilities
Shareholders' equity:
Common stock, at par     1,435              1,434          1,434
Additional paid-in       1,785,413          1,777,732      1,770,645
capital
Treasury stock, at cost  (328,605)          (328,605)      (296,409)
(Accumulated deficit)    (917,909)          (935,960)      669,862)
Retained earnings
Accumulated other        (16,726)           (18,037)       (19,101)
comprehensive loss
Total shareholders'      523,608            496,564        2,126,431
equity
Total liabilities and    $    2,693,818     $  2,839,095   $    4,435,099
shareholders' equity

 

 

EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
                                              For the Six Months Ended

                                               December 31,
Cash flows from operating activities:         2012             2011
Net income                                     $      18,051    $      90,081
Adjustments to reconcile net income to net
cash

flows from operating activities:
Depreciation and amortization of property and 80,241           74,246
equipment
Amortization of intangible assets             3,159            3,838
Bad debt expense                              89,768           76,458
Amortization of debt issuance costs           2,561            2,632
Share-based compensation                      7,679            6,530
Non cash adjustments related to deferred rent (7,824)          (5,398)
Changes in assets and liabilities:
Restricted cash                               (5,545)          (31,810)
Receivables                                   (40,727)         (76,106)
Reimbursements for tenant improvements        3,891            10,705
Inventory                                     (583)            155
Other assets                                  2,939            (6,666)
Accounts payable                              (15,853)         (26,522)
Accrued liabilities                           2,343            29,437
Unearned tuition                              (61,239)         (78,980)
Advance payments                              14,316           28,404
Total adjustments                             75,126           6,923
Net cash flows provided by operating          93,177           97,004
activities
Cash flows from investing activities:
Expenditures for long-lived assets            (39,458)         (36,125)
Sale of fixed assets                          65,065           —
Reimbursements for tenant improvements        (3,891)          (10,705)
Net cash flows provided by (used in)          21,716           (46,830)
investing activities
Cash flows from financing activities:
Payments under revolving credit facility      (111,300)        (79,000)
Issuance of common stock                      3                2,270
Common stock repurchased for treasury         —                (70,378)
Principal payments on long-term debt          (5,769)          (6,054)
Net cash flows used in financing activities   (117,066)        (153,162)
Effect of exchange rate changes on cash and   207              (302)
cash equivalents
Net change in cash and cash equivalents       (1,966)          (103,290)
Cash and cash equivalents, beginning of       191,008          403,224
period
Cash and cash equivalents, end of period       $    189,042     $    299,934
Cash paid during the period for:
Interest (including swap settlement)           $      60,980    $      60,433
Income taxes, net of refunds                  7,860            27,525
                                              As of December 31,
Noncash investing activities:                 2012             2011
Capital expenditures in current liabilities    $      13,538    $      12,249

 

 

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 net interest expense, 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 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      For the Six Months Ended

                  December 31,                   December 31,
                 2012       2011       % Change  2012       2011       % Change
Net revenues:
The Art          $ 411,533  $ 469,603  (12.4) %  $ 791,672  $ 898,503  (11.9) %
Institutes
Argosy           92,312     106,070    (13.0) %  174,232    204,213    (14.7) %
University
Brown Mackie     78,274     81,745     (4.2)  %  152,246    162,668    (6.4)  %
Colleges
South University 72,776     79,770     (8.8)  %  146,309    153,899    (4.9)  %
Total EDMC       654,895    737,188    (11.2) %  1,264,459  1,419,283  (10.9) %
EBITDA excluding certain
expenses:
The Art          112,263    151,759    (26.0) %  180,189    262,038    (31.2) %
Institutes
Argosy           15,797     21,144     (25.3) %  16,990     31,380     (45.9) %
University
Brown Mackie     9,766      18,629     (47.6) %  20,361     36,212     (43.8) %
Colleges
South University 8,946      3,136      185.3  %  15,259     3,300      362.4  %
Corporate and    (23,444)   (25,335)   (7.5)  %  (46,550)   (47,076)   (1.1)  %
other
Total EDMC       123,328    169,333    (27.2) %  186,249    285,854    (34.8) %
Reconciliation
to EBITDA:
Restructuring    —          —          N/M       9,145      6,667      37.2   %
EBITDA           123,328    169,333    (27.2) %  177,104    279,187    (36.6) %
Reconciliation to operating
income:
Depreciation and 39,255     39,196     0.2    %  83,400     78,084     6.8    %
amortization
Operating income 84,073     130,137    (35.4) %  93,704     201,103    (53.4) %
Reconciliation to net
income:
Net interest     31,009     26,846     15.5   %  62,461     53,697     16.3   %
expense
Income tax       21,920     40,164     (45.4) %  13,192     57,325     (77.0) %
expense
Net income       $ 31,144   $ 63,127   (50.7) %  $ 18,051   $ 90,081   (80.0) %
Restructuring,   $ —        $ —        N/M       $ 5,488    $ 4,000    37.2   %
net of tax
Software-related
charge, net of   —          —          N/M       2,753      —          N/M
tax
Net income,
excluding        $ 31,144   $ 63,127   (50.7) %  $ 26,292   $ 94,081   (72.1) %
certain expenses
Diluted earnings
per share,       $ 0.25     $ 0.49               $ 0.21     $ 0.73
excluding
certain expenses
Weighted average
number of        124,762    128,764              124,620    129,240
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 third 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