Education Management Corporation Reports Fiscal 2014 Second Quarter Results - EBITDA of $87.1 million excluding certain expenses on reported net income of $1.1 million - - Diluted EPS of $0.01, or $0.10 excluding certain expenses - PR Newswire PITTSBURGH, Feb. 5, 2014 PITTSBURGH, Feb.5, 2014 /PRNewswire/ -- Education Management Corporation (NASDAQ: EDMC), one of the largest providers of post-secondary education in North America, today reported its financial results for the three months ended Dec. 31, 2013. Net revenues during the quarter were $593.7 million, a decrease of 9.3 percent from the prior year quarter, and the company reported net income of $1.1 million, or $0.01 per diluted share, as compared to net income of $31.1 million, or $0.25 per diluted share, in the prior year quarter. "While we still confront a challenging operating environment, several key measures of performance were favorable this past quarter, most notably the new student enrollment at The Art Institutes and South University and the continued improvement in our overall 180-day new student cohort retention rate," said Edward H. West, Education Management's president and CEO. "We have adjusted our outlook for the remainder of the fiscal year based on current business trends and an increased investment in scholarships and other initiatives that we believe will improve the student experience and result in long-term success." Financial and Operational Highlights Financial and operational highlights for the second quarter of fiscal 2014 included the following: oTotal new students were approximately 23,820, a slight decrease from approximately 23,980 new students in the second quarter of fiscal 2013. oFor the three months ended Dec. 31, 2013, average enrolled student body was approximately 122,990, a 6.5 percent decline from 131,480 in the prior year quarter. Net revenues were $593.7 million, a decrease of 9.3 percent from $654.9 million recorded in the second quarter of fiscal 2013. The revenue decrease was primarily due to the decline in average enrolled student body, a higher amount of scholarships awarded and fewer revenue days in the current quarter compared to the prior year quarter. oThe company recorded net income of $1.1 million, or $0.01 per diluted share, compared to net income of $31.1 million, or $0.25 per diluted share, for the prior year quarter. The company incurred restructuring expenses of $9.5 million ($5.7 million net of tax), settlement-related costs of $6.0 million ($3.6 million net of tax) and long-lived asset impairment charges of $3.8 million ($2.3 million net of tax) in the current quarter. Excluding these expenses, net income would have been $12.6 million, or $0.10 per diluted share, in the current quarter compared to $31.1 million, or $0.25 per diluted share, in the prior year quarter. oEarnings before interest, taxes and depreciation and amortization ("EBITDA") was $67.8 million in the current quarter compared to $123.3 million in the prior year quarter. After adjusting for restructuring expenses, settlement-related costs and long-lived asset impairment charges incurred in the current quarter as noted above, EBITDA would have been $87.1 million in the current quarter compared to $123.3 million in the prior year quarter. oCash flows provided by operating activities for the six months ended Dec. 31, 2013 were $39.7 million compared to $93.2 million for the six months ended Dec. 31, 2012. The decrease in cash flow from operations in the current quarter compared to the prior year quarter was primarily due to lower operating results. oAt Dec. 31, 2013, cash and cash equivalents were $60.8 million, compared to $189.0 million at Dec. 31, 2012. There were no borrowings outstanding on the revolving credit facility at Dec. 31, 2013. oOn a cash basis, capital expenditures were $31.3 million, or 2.7 percent of net revenues, for the six months ended Dec. 31, 2013 compared to $39.5 million, or 3.1 percent of net revenues, for the six months ended Dec. 31, 2012. Fiscal 2014 Outlook For the fiscal year ending June 30, 2014, capital expenditures are projected to be approximately $80 million, compared to $83.2 million in the fiscal year ended June 30, 2013. Based on current business trends, including the recent January start, the impact of an increase in scholarships, and excluding restructuring and other special charges that have been or may be incurred, the company provided the following outlook for fiscal 2014. Reconciliation of Fiscal Year 2014 Third Quarter and Annual Outlook of Net Income to EBITDA (Dollars in millions, except earnings per share) (Unaudited) For the Three Months Ending Fiscal 2014 Outlook – 3rd Quarter: March 31, 2014 Low High Earnings per diluted share $ 0.13 $ 0.15 Net income $ 17 $ 20 Income tax expense 12 13 Net interest expense 31 31 Depreciation and amortization 37 37 EBITDA $ 97 $ 101 Fiscal 2014 Outlook – Annual: For the Twelve Months Ending June 30, 2014 Low High Earnings per diluted share $ 0.09 $ 0.13 Earnings per diluted share excluding expenses related to restructuring charges, $ 0.19 $ 0.23 settlement-related costs and long-lived asset impairments Net income $ 11 $ 17 Expenses related to restructuring charges, settlement-related costs 13 13 and long-lived asset impairments, net of tax Net income excluding expenses related to restructuring charges, $ 24 $ 30 settlement-related costs and long-lived asset impairments Income tax expense 8 12 Net interest expense 126 126 Depreciation and amortization 152 152 EBITDA excluding expenses related to restructuring charges, $ 310 $ 320 settlement-related costs and long-lived asset impairments The above discussion of the company's fiscal 2014 outlook includes information that could constitute forward-looking statements within 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. The company's quarterly revenues and income fluctuate primarily as a result of the pattern of student enrollments, and its first fiscal quarter is typically the lowest revenue quarter of the fiscal year due to student vacations. 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 2014 second quarter results on Thursday, Feb.6, 2014 at 9 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, 2013 2012 % Change 2013 2012 % Change Net revenues $ 593,673 $ 654,895 (9.3) % $ 1,174,053 $ 1,264,459 (7.1) % Costs and expenses: Educational 345,587 360,377 (4.1) % 703,276 741,673 (5.2) % services ^(1) General and administrative 176,414 171,190 3.1 % 348,583 345,682 0.8 % ^(2) Depreciation and 38,593 39,255 (1.7) % 77,198 83,400 (7.4) % amortization ^(3) Long-lived asset 3,847 — N/M 3,847 — N/M impairments Total costs 564,441 570,822 (1.1) % 1,132,904 1,170,755 (3.2) % and expenses Income before interest and 29,232 84,073 (65.2) % 41,149 93,704 (56.1) % income taxes Interest 31,615 31,009 2.0 % 63,481 62,461 1.6 % expense, net (Loss) income before income (2,383) 53,064 (104.5) % (22,332) 31,243 (171.5) % taxes Income tax (benefit) (3,472) 21,920 (115.8) % (13,906) 13,192 (205.4) % expense Net income $ 1,089 $ 31,144 (96.5) % $ (8,426) $ 18,051 (146.7) % (loss) Earnings (loss) per share: Basic $ 0.01 $ 0.25 $ (0.07) $ 0.14 Diluted $ 0.01 $ 0.25 $ (0.07) $ 0.14 Weighted average number of shares outstanding: Basic 125,450 124,560 125,053 124,519 Diluted 131,010 124,762 125,053 124,620 (1) Includes restructuring charges of $3.9 million in the three months ended Dec. 31, 2013 and $4.7 million and $8.2 million in the six months ended Dec. 31, 2013 and 2012, respectively. (2) Includes restructuring and settlement-related costs of $11.6 million in the three months ended Dec. 31, 2013 and $12.3 million and $0.9 million in the six months ended Dec. 30, 2013 and 2012, respectively. (3) Includes a $4.6 million charge in the six months ended Dec. 31, 2012 related to software assets that no longer had a useful life. EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) June30, December31, 2013 December31, 2012 2013 (Unaudited) (Unaudited) Assets Current assets: Cash and cash equivalents $ 60,790 $ 130,695 $ 189,042 Restricted cash 270,272 271,340 273,425 Total cash, cash equivalents and restricted 331,062 402,035 462,467 cash Student receivables, net of allowances of $180,355, 163,741 206,406 156,294 $174,760 and $175,407 Notes, advances and other 37,639 32,547 16,532 receivables Deferred income taxes 76,927 76,927 102,668 Prepaid income taxes 35,379 20,854 — Other current assets 34,709 32,850 48,107 Total current assets 679,457 771,619 786,068 Property and equipment, net 477,222 525,625 562,184 Goodwill 669,090 669,090 963,550 Intangible assets, net 299,979 300,435 329,361 Other long-term assets 54,340 48,524 52,655 Total assets $ 2,180,088 $ 2,315,293 $ 2,693,818 Liabilities and shareholders' equity Current liabilities: Current portion of $ 11,901 $ 12,076 $ 12,076 long-term debt Revolving credit facility — 75,000 — Accounts payable 58,413 32,559 38,161 Accrued liabilities 154,758 157,417 136,613 Accrued income taxes — — 10,525 Unearned tuition 50,956 113,371 55,038 Advance payments 83,361 95,675 116,569 Total current liabilities 359,389 486,098 368,982 Long-term debt, less 1,272,387 1,273,164 1,447,699 current portion Deferred rent 189,173 201,202 212,085 Deferred income taxes 72,122 70,316 99,845 Other long-term liabilities 30,772 34,414 41,599 Shareholders' equity: Common stock, at par 1,450 1,435 1,435 Additional paid-in capital 1,809,769 1,794,846 1,785,413 Treasury stock, at cost (331,782) (328,605) (328,605) Accumulated deficit (1,212,362) (1,203,936) (917,909) Accumulated other (10,830) (13,641) (16,726) comprehensive loss Total shareholders' equity 256,245 250,099 523,608 Total liabilities and $ 2,180,088 $ 2,315,293 $ 2,693,818 shareholders' equity EDUCATION MANAGEMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Six Months Ended December 31, 2013 2012 Cash flows from operating activities: Net (loss) income $ (8,426) $ 18,051 Adjustments to reconcile net (loss) income to net cash flows from operating activities: Depreciation and amortization of property and 74,181 80,241 equipment Amortization of intangible assets 3,017 3,159 Bad debt expense 84,683 89,768 Long-lived asset impairments 3,847 — Amortization of debt issuance costs 7,200 2,561 Share-based compensation 9,828 7,679 Non cash adjustments related to deferred rent (9,956) (7,824) Amortization of deferred gains on sale-leaseback (1,126) — transactions Changes in assets and liabilities: Restricted cash 1,068 (5,545) Receivables (44,338) (40,727) Reimbursements for tenant improvements 573 3,891 Inventory (1,292) (583) Other assets (204) 2,939 Accounts payable 24,863 (15,853) Accrued liabilities, including income taxes (29,539) 2,343 Unearned tuition (62,416) (61,239) Advance payments (12,273) 14,316 Total adjustments 48,116 75,126 Net cash flows provided by operating activities 39,690 93,177 Cash flows from investing activities: Expenditures for long-lived assets (31,331) (39,458) Proceeds from sale of fixed assets — 65,065 Reimbursements for tenant improvements (573) (3,891) Net cash flows (used in) provided by investing (31,904) 21,716 activities Cash flows from financing activities: Payments under revolving credit facility (75,000) (111,300) Issuance of common stock as a result of stock option 2,722 3 exercises Gross excess tax benefit from share-based 3,391 — compensation Minimum tax withholding requirements upon restricted (2,724) — stock unit vesting Principal payments on long-term debt (6,088) (5,769) Net cash flows used in financing activities (77,699) (117,066) Effect of exchange rate changes on cash and cash 8 207 equivalents Net change in cash and cash equivalents (69,905) (1,966) Cash and cash equivalents, beginning of period 130,695 191,008 Cash and cash equivalents, end of period $ 60,790 $ 189,042 Cash paid (received) during the period for: Interest (including swap settlement) $ 55,870 $ 60,980 Income taxes, net of refunds (2,058) 7,860 As of December 31, Noncash investing activities: 2013 2012 Capital expenditures in current liabilities $ 11,826 $ 13,538 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, 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. Management also presents diluted 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 (loss) to consolidated net income, excluding certain expenses is detailed below: Segment Information and Reconciliation of EBITDA to Net Income (Loss) 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, 2013 2012 % Change 2013 2012 % Change Net revenues: The Art Institutes $ 371,474 $ 411,533 (9.7) % $ 727,989 $ 791,672 (8.0) % Argosy University 76,640 92,312 (17.0) % 159,788 174,232 (8.3) % Brown Mackie 69,463 78,274 (11.3) % 139,649 152,246 (8.3) % Colleges South University 76,096 72,776 4.6 % 146,627 146,309 0.2 % Total EDMC 593,673 654,895 (9.3) % 1,174,053 1,264,459 (7.1) % EBITDA excluding certain expenses: The Art Institutes 87,992 113,429 (22.4) % 147,089 182,848 (19.6) % Argosy University 2,547 15,231 (83.3) % 5,931 15,401 (61.5) % Brown Mackie 7,123 8,980 (20.7) % 13,407 18,186 (26.3) % Colleges South University 12,158 9,132 33.1 % 17,550 16,364 7.2 % Corporate and (22,737) (23,444) 3.0 % (44,727) (46,550) 3.9 % other Total EDMC 87,083 123,328 (29.4) % 139,250 186,249 (25.2) % Reconciliation to EBITDA: Long-lived asset 3,847 — N/M 3,847 — N/M impairments Restructuring 9,452 — N/M 11,097 9,145 21.3 % Settlement-related 5,959 — N/M 5,959 — N/M costs EBITDA 67,825 123,328 (45.0) % 118,347 177,104 (33.2) % Reconciliation to net income (loss): Depreciation and 38,593 39,255 (1.7) % 77,198 83,400 (7.4) % amortization Net interest 31,615 31,009 2.0 % 63,481 62,461 1.6 % expense Income tax expense (3,472) 21,920 (115.8) % (13,906) 13,192 (205.4) % (benefit) Net income (loss) $ 1,089 $ 31,144 (96.5) % $ (8,426) $ 18,051 (146.7) % Long-lived asset impairments, net $ 2,308 $ — N/M $ 2,308 $ — N/M of tax Restructuring, net 5,672 — N/M 6,659 5,488 21.3 % of tax Settlement-related 3,575 — N/M 3,575 — N/M costs, net of tax Loss on disposal of asset, net of — — N/M — 2,753 N/M tax Net income, excluding certain $ 12,644 $ 31,144 (59.4) % $ 4,116 $ 26,292 (84.3) % expenses Diluted earnings $ 0.01 $ 0.25 $ (0.07) $ 0.14 (loss) per share Diluted earnings per share, $ 0.10 $ 0.25 $ 0.03 $ 0.21 excluding certain expenses Weighted average number of diluted shares 131,010 124,762 129,904 124,620 outstanding, excluding certain expenses New Student Enrollment For the Three Months Ended December 31, 2013 2012 % Change The Art Institutes 12,430 12,240 1.6 % Argosy University 3,260 3,370 (3.3) % Brown Mackie Colleges 3,450 3,840 (10.2) % South University ^ 4,680 4,530 3.3 % Total EDMC 23,820 23,980 (0.7)% 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 Dec. 31, 2013 were approximately 7,170 as compared to 7,270 in the three months ended Dec. 31, 2012. Average Enrolled Student Body For the Three Months Ended December 31, 2013 2012 % Change The Art Institutes 64,560 69,400 (7.0) % Argosy University 23,830 25,530 (6.7) % Brown Mackie Colleges 16,090 17,520 (8.2) % South University 18,510 19,030 (2.7) % Total EDMC 122,990 131,480 (6.5) % Average enrolled student body is the three month average of the unique students who met attendance requirements within each 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 29,070 for the three months ended Dec. 31, 2013 as compared to 32,120 in the three months ended Dec. 31, 2012. For January 2014, starting student body enrollment for Total EDMC was approximately 119,340, a decrease of 7.6% percent from January 2013. Starting student body reflects the campus-based student census after the add/drop period for the first month of the fiscal quarter plus the average of fully online students who met attendance requirements in the third month of the prior fiscal quarter. About Education Management Corporation Education Management Corporation (www.edmc.edu), with approximately 125,560 students as of October 2013, 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. The company offers academic programs to students through campus-based and online instruction, or through a combination of both. The company is committed to offering quality academic programs and strives to improve the learning experience for its students. Its 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," "plans," "projects," 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 outlook for fiscal 2014, 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; student retention; the company's ability to maintain eligibility to participate in Title IV programs; changes in government spending; 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 growing its academic programs; increased or unanticipated legal and regulatory costs; the success of cost-cutting initiatives; 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 potential impact of the draft gainful employment regulation issued by the U. S. Department of Education on August 30, 2013; 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 does not undertake any obligation to update any forward-looking statements except as required by securities laws. Investor Contact: John Iannone Director of Investor Relations (412) 995-7727 Media Contact: Chris Hardman VP of Communications (412) 995-7187 SOURCE Education Management Corporation Website: http://www.edmc.edu
Education Management Corporation Reports Fiscal 2014 Second Quarter Results
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