Education Management Corporation Reports Fiscal 2014 Second Quarter Results

 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
 
Press spacebar to pause and continue. Press esc to stop.