Apollo Group, Inc. Reports Second Quarter 2013 Results Business Wire PHOENIX -- March 25, 2013 Apollo Group, Inc. (NASDAQ: APOL) today reported financial results for the three and six months ended February 28, 2013, with second quarter revenue of $834.4 million and diluted earnings per share of $0.12 per share, or $0.34 per share excluding special items. “Higher education is rapidly evolving as workforce demands and technological innovations drive change in our global economy,” said Apollo Group Chief Executive Officer Greg Cappelli. “We are further positioning our organization and brand with our continued commitment to help students acquire real workplace skills, achieve their academic goals, and – through the power of education – realize their career aspirations.” Second Quarter 2013 Results of Operations *Net revenue for the second quarter 2013 was $834.4 million, compared to $962.7 million in the second quarter 2012. *University of Phoenix Degreed Enrollment was 300,800, a 15.5% decrease from the prior year second quarter, and New Degreed Enrollment was 38,900, down 20.1% from second quarter 2012. *Operating income was $29.8 million, compared to $103.7 million from the prior year second quarter. *Income from continuing operations attributable to Apollo Group was $13.5 million, or $0.12 per share, compared to $62.2 million, or $0.49 per share in the second quarter 2012. Results for the second quarter 2013 included restructuring and other charges of $44.1 million attributable to optimization efforts and $6.4 million of credits associated with the favorable resolution of certain legal matters. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for second quarter 2013 and 2012 special items). Excluding the special items noted above, income from continuing operations for the second quarter 2013 was $38.0 million, or $0.34 per share, compared to $72.2 million, or $0.57 per share, for the second quarter 2012. The decrease in income from continuing operations was attributable to lower enrollment and an increase in marketing costs primarily due to higher advertising expense, which was partially offset by a reduction in certain costs associated with the Company’s restructuring activities and lower bad debt expense. First Six Months of 2013 Results of Operations Net revenue for the first six months of fiscal year 2013 totaled $1.9 billion, which represents an 11.5% decrease compared to the first six months of fiscal year 2012 principally due to lower enrollment. In the first six months of 2013, University of Phoenix Average Degreed Enrollment decreased 14.5% to 316,300 as compared to the same period a year ago. The Company reported income from continuing operations attributable to Apollo Group for the six months ended February 28, 2013, of $147.0 million, or $1.30 per share, compared to $209.7 million, or $1.63 per share, for the six months ended February 29, 2012. Results for the first six months of 2013 included restructuring and other charges of $68.2 million attributable to the Company’s optimization efforts and $23.2 million of credits associated with the favorable resolution of certain legal matters. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for the first six months of 2013 and 2012 special items.) Excluding the special items noted above, income from continuing operations for the six months ended February 28, 2013, was $175.8 million, or $1.56 per share, compared to $237.5 million, or $1.84 per share, for the six months ended February 29, 2012. Balance Sheet and Cash Flow As of February 28, 2013, cash and cash equivalents, excluding restricted cash, totaled $821.2 million compared to $1.3 billion as of August 31, 2012. The decrease was primarily due to $629.5 million used for payments on borrowings, $49.0 million for capital expenditures, $42.5 million cash payment for the purchase of the noncontrolling interest in Apollo Global, and $39.4 million used for the purchase of short-term investments. These items were partially offset by $299.0 million of cash provided by operations. Accounts receivable were $177.6 million as of February 28, 2013, 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 19 days as of February 28, 2013, as compared to 22 days as of February 29, 2012. Share Repurchase Authorization On March 22, 2013, the Apollo Group Board of Directors approved a share repurchase authorization up to an aggregate amount of $250 million. There is no expiration date on the repurchase authorization and repurchases, if any, will be made at the discretion of management. Business Outlook The Company offers the following outlook for fiscal year 2013 based on the business trends observed during the second 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. The Company continues initiatives to reengineer business processes and refine its educational delivery structure. These restructuring activities are expected to favorably impact annual operating expenses by at least $350 million by fiscal year 2014, when compared to fiscal year 2012. This is a $50 million increase in anticipated savings from the Company’s previous outlook. Conference Call Information The Company will hold a conference call to discuss these earnings results at 8:00 a.m. ET, 5:00 a.m. PT, today, Monday, March 25, 2013. Dial-In Numbers: 877-292-6888 (Domestic) 973-200-3381 (International) Conference ID: 12434663 A live webcast of this event may be accessed by visiting the Company’s website at www.apollo.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 April 12, 2013. Dial-In Numbers: 855-859-2056 (Domestic) 404-537-3406 (International) Conference ID: 12434663 About Apollo Group, Inc. Apollo Group, Inc. is one of the world’s largest private education providers and has been in the education business since 1973. 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.apollo.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 outcome of the current accreditation reaffirmation review of University of Phoenix by its principal institutional accreditor, The Higher Learning Commission, including the possible imposition of the sanction of probation as recommended in the peer review team’s draft report; (ii) the impact of any sanctions, up to and including probation, imposed or proposed to be imposed on University of Phoenix by The Higher Learning Commission, including any impact on the University’s pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs; (iii) the impact of any reduction in student financial aid available to students, particularly active and retired military personnel, due to the U.S. government budget sequestration; (iv) the impact of increased competition from traditional public universities and proprietary educational institutions; (v) the impact of the Company’s recent restructuring initiatives and the operational, governance and other changes to increase University of Phoenix autonomy in response to governance concerns expressed by The Higher Learning Commission; (vi) 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; (vii) the impact of University of Phoenix initiatives to improve the student experience, improve student outcomes and enhance the connection between education and careers; (viii) changes in University of Phoenix enrollment or student mix; (ix) changes in the overall U.S. or global economy; (x) changes in law or regulation affecting the University of Phoenix’s eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs; and (xi) changes in the University of Phoenix’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 Forms 10-Q, and other filings with the Securities and Exchange Commission, all of which are available on the Company’s website at www.apollo.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 second quarter 2013 compared to the second quarter 2012. Degreed Enrollment^(1) New Degreed Enrollment^(2) Enrollment (rounded to Q2 2013 Q2 2012 Q2 2013 Q2 2012 hundreds) Associate’s 89,900 118,100 14,900 18,500 Bachelor’s 159,600 179,400 16,700 22,000 Master’s 44,900 51,000 6,700 7,500 Doctoral 6,400 7,300 600 700 300,800 355,800 38,900 48,700 Revenues (in thousands) Degree Seeking $ 800,863 $ 931,610 Gross Revenues^(3) Less: Discounts (56,700 ) (56,508 ) and other Degree Seeking Net 744,163 875,102 Revenues^(3) Non-degree Seeking 8,492 8,885 Revenues Other, net of 81,717 78,695 discounts $ 834,372 $ 962,682 Revenue by Degree Type (in thousands)^(3) Associate’s $ 187,815 $ 245,771 Bachelor’s 463,490 516,028 Master’s 132,461 148,867 Doctoral 17,097 20,944 Less: Discounts (56,700 ) (56,508 ) and other $ 744,163 $ 875,102 Degree Seeking Gross Revenues per Degreed Enrollment^(1), (3) Associate’s $ 2,089 $ 2,081 Bachelor’s $ 2,904 $ 2,876 Master’s $ 2,950 $ 2,919 Doctoral $ 2,671 $ 2,869 All degrees (after $ 2,474 $ 2,460 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 February 28, August 31, ($ in thousands) 2013 2012 ASSETS: Current assets Cash and cash equivalents $ 821,163 $ 1,276,375 Restricted cash and cash equivalents 329,772 318,334 Marketable securities 31,804 — Accounts receivable, net 177,557 198,279 Prepaid taxes 10,216 26,341 Deferred tax assets, current portion 49,870 69,052 Other current assets 45,813 49,609 Total current assets 1,466,195 1,937,990 Property and equipment, net 502,702 571,629 Goodwill 103,829 103,345 Intangible assets, net 137,252 149,034 Deferred tax assets, less current portion 89,706 77,628 Other assets 40,380 28,696 Total assets $ 2,340,064 $ 2,868,322 LIABILITIES AND SHAREHOLDERS’ EQUITY: Current liabilities Short-term borrowings and current portion $ 20,080 $ 638,588 of long-term debt Accounts payable 76,017 74,872 Student deposits 363,721 362,143 Deferred revenue 260,669 254,555 Accrued and other current liabilities 291,820 324,881 Total current liabilities 1,012,307 1,655,039 Long-term debt 71,203 81,323 Deferred tax liabilities 13,750 15,881 Other long-term liabilities 205,263 191,756 Total liabilities 1,302,523 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 stock, 1 1 no par value Additional paid-in capital 43,600 93,770 Apollo Group Class A treasury stock, at (3,860,036 ) (3,878,612 ) cost Retained earnings 4,890,172 4,743,150 Accumulated other comprehensive loss (37,246 ) (30,034 ) Total Apollo shareholders’ equity 1,036,594 928,378 Noncontrolling interests (deficit) 947 (4,055 ) Total equity 1,037,541 924,323 Total liabilities and shareholders’ $ 2,340,064 $ 2,868,322 equity Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) Three Months Ended % of Net Revenue (In thousands, February 28, February except per 2013 29, 2012 2013 2012 share data) Net revenue $ 834,372 $ 962,682 100.0 % 100.0 % Costs and expenses: Instructional and student 383,702 425,607 46.0 % 44.2 % advisory Marketing 173,313 158,973 20.8 % 16.5 % Admissions 68,232 101,405 8.2 % 10.6 % advisory General and 81,218 83,994 9.7 % 8.7 % administrative Depreciation and 41,499 41,854 5.0 % 4.4 % amortization Provision for uncollectible 18,902 30,996 2.2 % 3.2 % accounts receivable Restructuring and other 44,076 16,148 5.3 % 1.6 % charges Litigation (6,350 ) — (0.8 )% — credit Total costs and 804,592 858,977 96.4 % 89.2 % expenses Operating 29,780 103,705 3.6 % 10.8 % income Interest income 388 215 — — Interest (2,092 ) (1,789 ) (0.3 )% (0.2 )% expense Other, net (126 ) 218 — — Income from continuing operations 27,950 102,349 3.3 % 10.6 % before income taxes Provision for (14,291 ) (43,108 ) (1.7 )% (4.4 )% income taxes Income from continuing 13,659 59,241 1.6 % 6.2 % operations Income from discontinued — 1,930 — 0.2 % operations, net of tax Net income 13,659 61,171 1.6 % 6.4 % Net (income) loss attributable to (132 ) 2,711 — 0.2 % noncontrolling interests Net income attributable to $ 13,527 $ 63,882 1.6 % 6.6 % Apollo Earnings per share – Basic: Continuing operations $ 0.12 $ 0.50 attributable to Apollo Discontinued operations — 0.01 attributable to Apollo Basic income per share $ 0.12 $ 0.51 attributable to Apollo Earnings per share – Diluted: Continuing operations $ 0.12 $ 0.49 attributable to Apollo Discontinued operations — 0.02 attributable to Apollo Diluted income per share $ 0.12 $ 0.51 attributable to Apollo Basic weighted average shares 112,573 125,298 outstanding Diluted weighted 113,068 126,467 average shares outstanding Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Income (Unaudited) Six Months Ended % of Net Revenue (In thousands, February 28, February 29, except per 2013 2012 2013 2012 share data) Net revenue $ 1,889,555 $ 2,134,582 100.0 % 100.0 % Costs and expenses: Instructional and student 815,852 878,888 43.2 % 41.2 % advisory Marketing 336,186 324,537 17.8 % 15.2 % Admissions 139,540 202,793 7.4 % 9.5 % advisory General and 154,757 163,893 8.2 % 7.7 % administrative Depreciation and 85,194 88,021 4.5 % 4.1 % amortization Provision for uncollectible 52,308 72,579 2.7 % 3.4 % accounts receivable Restructuring and other 68,192 21,710 3.6 % 1.0 % charges Litigation (23,200 ) — (1.2 )% — credit Goodwill and other — 16,788 — 0.8 % intangibles impairment Total costs and 1,628,829 1,769,209 86.2 % 82.9 % expenses Operating 260,726 365,373 13.8 % 17.1 % income Interest income 937 721 — — Interest (4,134 ) (3,788 ) (0.2 )% (0.1 )% expense Other, net 1,673 358 0.1 % — Income from continuing operations 259,202 362,664 13.7 % 17.0 % before income taxes Provision for (111,803 ) (158,287 ) (5.9 )% (7.4 )% income taxes Income from continuing 147,399 204,377 7.8 % 9.6 % operations Income from discontinued — 4,078 — 0.2 % operations, net of tax Net income 147,399 208,455 7.8 % 9.8 % Net (income) loss attributable to (377 ) 4,741 — 0.2 % noncontrolling interests Net income attributable to $ 147,022 $ 213,196 7.8 % 10.0 % Apollo Earnings per share – Basic: Continuing operations $ 1.31 $ 1.64 attributable to Apollo Discontinued operations — 0.03 attributable to Apollo Basic income per share $ 1.31 $ 1.67 attributable to Apollo Earnings per share – Diluted: Continuing operations $ 1.30 $ 1.63 attributable to Apollo Discontinued operations — 0.03 attributable to Apollo Diluted income per share $ 1.30 $ 1.66 attributable to Apollo Basic weighted average shares 112,496 127,808 outstanding Diluted weighted 112,984 128,729 average shares outstanding Apollo Group, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended February 28, February 29, ($ in thousands) 2013 2012 Cash flows provided by (used in) operating activities: Net income $ 147,399 $ 208,455 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 27,515 40,492 Excess tax benefits from share-based — (1,137 ) compensation Depreciation and amortization 85,194 88,283 Accelerated depreciation included in 30,641 — restructuring Amortization of lease incentives (7,114 ) (7,668 ) Amortization of deferred gains on (1,399 ) (1,399 ) sale-leasebacks Goodwill and other intangibles impairment — 16,788 Non-cash foreign currency loss (gain), net 146 (295 ) Provision for uncollectible accounts 52,308 72,579 receivable Litigation credit (23,200 ) — Deferred income taxes (4,100 ) (9,843 ) Changes in assets and liabilities, excluding the impact of acquisition and disposition: Restricted cash and cash equivalents (11,438 ) 6,454 Accounts receivable (33,919 ) (64,093 ) Prepaid taxes 16,143 27,529 Other assets (3,939 ) (9,789 ) Accounts payable 1,094 20,365 Student deposits 2,551 (13,777 ) Deferred revenue 8,632 8,551 Accrued and other liabilities 12,436 2,984 Net cash provided by operating activities 298,950 384,479 Cash flows provided by (used in) investing activities: Additions to property and equipment (49,024 ) (62,357 ) Purchase of marketable securities (39,444 ) — Maturities of marketable securities 7,470 — Restricted funds held for legal matter — (145,000 ) Acquisition, net of cash acquired — (73,736 ) Proceeds from disposition — 3,285 Other investing activities (1,500 ) (1,694 ) Net cash used in investing activities (82,498 ) (279,502 ) Cash flows provided by (used in) financing activities: Payments on borrowings (629,544 ) (498,895 ) Proceeds from borrowings 2,176 — Purchase of noncontrolling interest (42,500 ) — Apollo Group Class A common stock (3,881 ) (386,716 ) purchased for treasury Issuance of Apollo Group Class A common 2,131 9,336 stock Excess tax benefits from share-based — 1,137 compensation Net cash used in financing activities (671,618 ) (875,138 ) Exchange rate effect on cash and cash (46 ) (770 ) equivalents Net decrease in cash and cash equivalents (455,212 ) (770,931 ) Cash and cash equivalents, beginning of 1,276,375 1,571,664 period Cash and cash equivalents, end of period $ 821,163 $ 800,733 Supplemental disclosure of cash flow and non-cash information: Cash paid for income taxes, net of refunds $ 100,713 $ 141,047 Cash paid for interest $ 4,010 $ 4,859 Restricted stock units vested and released $ 10,825 $ 14,640 Capital lease additions $ 2,755 $ 19,440 Credits received for tenant improvements $ 1,540 $ 22,671 Unsettled share repurchases $ — $ 25,461 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 Six Months Ended (In thousands, February February February February except per 28, 2013 29, 2012 28, 2013 29, 2012 share data) Net income attributable $ 13,527 $ 63,882 $ 147,022 $ 213,196 to Apollo, as reported Income from discontinued operations, — (1,652 ) — (3,491 ) net of tax and noncontrolling interest Income from continuing operations 13,527 62,230 147,022 209,705 attributable to Apollo Reconciling items: Restructuring and other 44,076 16,148 68,192 21,710 charges^(1) Litigation (6,350 ) — (23,200 ) — credit^(2) Goodwill and other intangibles impairment, — — — 14,370 net of noncontrolling interest^(3) 37,726 16,148 44,992 36,080 Less: tax (13,292 ) (6,199 ) (16,169 ) (8,290 ) effects Income from continuing operations attributable $ 37,961 $ 72,179 $ 175,845 $ 237,495 to Apollo, adjusted to exclude special items Diluted income per share from continuing operations $ 0.12 $ 0.49 $ 1.30 $ 1.63 attributable to Apollo, as reported Diluted income per share from continuing operations attributable $ 0.34 $ 0.57 $ 1.56 $ 1.84 to Apollo, adjusted to exclude special items Diluted weighted 113,068 126,467 112,984 128,729 average shares outstanding ^(1) Restructuring and other charges represent charges associated with the Company’s optimization efforts. ^(2) Litigation credits during the three and six months ended February 28, 2013 resulting from the favorable resolution of certain legal matters. ^(3) The charges for the six months ended February 29, 2012 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 email@example.com Media Contact: Media Relations Hotline, 602-254-0086 firstname.lastname@example.org
Apollo Group, Inc. Reports Second Quarter 2013 Results
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