Apollo Group, Inc. Reports Fiscal 2012 Fourth Quarter and Year-End Results

Apollo Group, Inc. Reports Fiscal 2012 Fourth Quarter and Year-End Results

PHOENIX--(BUSINESS WIRE)-- Apollo Group, Inc. (NAS: APOL) ("Apollo Group," "Apollo" or the "Company") today reported financial results for the three months and fiscal year ended August 31, 2012.

  • Net revenue of $996.5 million for fourth quarter 2012 and $4.3 billion for fiscal year 2012

  • Earnings per share attributable to Apollo for fourth quarter 2012 of $0.46 per share, or $0.52 per share excluding special items, and $3.22 per share, or $3.56 excluding special items, for fiscal year 2012

  • University of Phoenix Degreed Enrollment at 328,400 and New Degreed Enrollment in the fourth quarter at 52,800

  • Initiatives to reengineer business processes and refine the delivery structure, including a University of Phoenix ground location realignment, are expected to favorably impact annual operating expenses by at least $300 million by fiscal 2014

"This past year, we have made great strides in executing on our strategy to differentiate University of Phoenix, diversify Apollo Group, and refine our business processes and delivery structure to be more efficient and effective, while providing a world-class student experience," said Apollo Group Chief Executive Officer and Apollo Global Chairman Greg Cappelli. "As we build the university of the future, our priority is to connect education to careers for our students, helping them achieve their desired academic and life outcomes."


Unaudited Fourth Quarter Fiscal Year 2012 Results of Operations

Net revenue for the fourth quarter of fiscal year 2012 totaled $996.5 million, which represents an 11.0% decrease compared to the fourth quarter of fiscal year 2011. The decrease was due principally to lower University of Phoenix enrollment, partially offset by selective tuition price and other fee changes. For the quarter, University of Phoenix Degreed Enrollment decreased 13.8% to 328,400 and New Degreed Enrollment decreased 13.7% compared to the fourth quarter of fiscal year 2011.

The Company reported income from continuing operations attributable to Apollo Group for the three months ended August 31, 2012, of $52.6 million, or $0.46 per share (113.5 million weighted average diluted shares outstanding), compared to income from continuing operations attributable to Apollo Group of $189.7 million, or $1.38 per share (137.3 million weighted average diluted shares outstanding), for the three months ended August 31, 2011.

Results for the fourth quarter of fiscal year 2012 include restructuring and other charges of $9.4 million ($6.0 million net of tax and the portion attributable to noncontrolling interests) associated with a series of restructuring activities to reengineer business processes and refine the Company's delivery structure. Results for the fourth quarter of fiscal year 2011 also contained special items, which are detailed in the reconciliation of GAAP financial information to non-GAAP financial information tables of this press release.

Excluding the special items noted above, income from continuing operations attributable to Apollo Group for the three months ended August 31, 2012, was $58.6 million, or $0.52 per share, compared to income from continuing operations attributable to Apollo Group of $140.7 million, or $1.02 per share, for the three months ended August 31, 2011. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)

During the fourth quarter of fiscal year 2012, the Company completed the disposition of BPP Holdings Limited's ("BPP") subsidiary Mander Portman Woodward ("MPW"), a UK secondary education institution, for £54.8 million (equivalent to $85.3 million as of the date of sale). The Company recognized a gain on sale of $26.7 million, net of transaction costs, and has reported MPW's operating results as discontinued operations in the Company's Consolidated Statements of Income for all periods presented.

Operating Expenses

Instructional and student advisory increased $20.4 million, or 4.7%, to $455.6 million in the fourth quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011. The expense increase was primarily related to the Company's initiatives to more effectively support students and enhance their educational experience and outcomes, including investments in adaptive learning, curriculum development, the new learning and service platforms, and initiatives to connect education to careers. This was partially offset by a decrease in costs that are more variable in nature such as faculty and certain student advisory functions.

Marketing increased $9.7 million, or 5.7%, to $180.3 million in the fourth quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011. The increase was principally attributable to higher employee compensation and other costs, including expense related to building employer relationships, partially offset by lower advertising costs.

Admissions advisory decreased $13.6 million, or 13.7%, to $85.9 million in the fourth quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011. The decrease was principally attributable to lower admissions advisory headcount, partially offset by higher average employee compensation costs.

General and administrative decreased $6.2 million, or 6.2%, to $92.3 million in the fourth quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011.

Depreciation and amortization increased $3.2 million, or 7.7%, to $44.7 million in the fourth quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011. The increase was principally attributable to higher intangible asset amortization as a result of acquiring Carnegie Learning in the first quarter of fiscal year 2012 and increased capital expenditures and capital leases in recent years primarily related to information technology.

Provision for uncollectible accounts receivable ("bad debt expense") decreased $0.9 million, or 2.3%, to $38.7 million in the fourth quarter of fiscal year 2012 compared to the fourth quarter of fiscal year 2011. The expense decrease was primarily attributable to reductions in gross accounts receivable principally resulting from decreases in University of Phoenix Degreed Enrollment.

Financial and Operating Metrics

Below are Apollo Group's unaudited financial data and operating metrics for the fourth quarter of fiscal year 2012 versus the prior-year period.

Q4 2012

Q4 2011

Revenues (in thousands)

Degree Seeking Gross Revenues (1)

$

972,079

$

1,099,572

Less: Discounts and other

(62,613

)

(63,486

)

Degree Seeking Net Revenues (1)

909,466

1,036,086

Non-degree Seeking Revenues (2)

12,563

12,730

Other, net of discounts (3)

74,468

71,404

$

996,497

$

1,120,220

Revenue by Degree Type (in thousands)(1)

Associate's

$

237,737

$

320,985

Bachelor's

560,406

580,588

Master's

152,205

174,451

Doctoral

21,731

23,548

Less: Discounts and other

(62,613

)

(63,486

)

$

909,466

$

1,036,086

Degreed Enrollment (rounded to hundreds)(4)

Associate's

102,600

136,300

Bachelor's

172,600

183,100

Master's

46,400

54,000

Doctoral

6,800

7,400

328,400

380,800

Degree Seeking Gross Revenues per Degreed Enrollment (1), (4)

Associate's

$

2,317

$

2,355

Bachelor's

3,247

3,171

Master's

3,280

3,231

Doctoral

3,196

3,182

All degrees (after discounts)

$

2,769

$

2,721

New Degreed Enrollment (rounded to hundreds)(5)

Associate's

20,400

24,200

Bachelor's

23,500

27,200

Master's

8,200

9,000

Doctoral

700

800

52,800

61,200

(1) 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.

(2) Represents revenue from tuition and other fees for students participating in University of Phoenix certificate programs less than 18 credits in length, certificate programs with no applicability into a related degree program, single course and continuing education courses.

(3) Represents revenues from Apollo Global and other.

(4) 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 or a bachelor's degree graduate returns for a master's degree); and

- students participating in certain certificate programs of at least 18 credits with some course applicability into a related degree program.

(5) 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.

Unaudited 2012 Fiscal Year Results of Operations

Net revenue for fiscal year 2012 totaled $4.3 billion, which represents a 9.7% decrease compared to fiscal year 2011. The decrease was primarily attributable to University of Phoenix's 10.2% decrease in net revenue principally due to lower University of Phoenix enrollment, partially offset by selective tuition price and other fee changes. In fiscal year 2012, University of Phoenix's Average Degreed Enrollment decreased 14.8% as compared to fiscal year 2011.

The Company reported income from continuing operations attributable to Apollo Group for fiscal year 2012, of $393.7 million, or $3.22 per share (122.4 million weighted average diluted shares outstanding), compared to $566.3 million, or $4.00 per share (141.8 million weighted average diluted shares outstanding), for fiscal year 2011. Results for fiscal years 2012 and 2011 contained special items, which are detailed in the reconciliation of GAAP financial information to non-GAAP financial information tables of this press release. Excluding the special items, income from continuing operations attributable to Apollo Group for fiscal year 2012 was $435.7 million, or $3.56 per share, compared to income from continuing operations attributable to Apollo Group of $696.5 million, or $4.91 per share for fiscal year 2011.

Unaudited Balance Sheet

As of August 31, 2012, the Company's cash and cash equivalents, excluding restricted cash, totaled $1.3 billion, compared to $1.6 billion as of August 31, 2011. The decrease was primarily attributable to share repurchases, capital expenditures, and the purchase of Carnegie Learning, partially offset by cash provided by operations, and proceeds from the disposition of Mander Portman Woodward.

As of August 31, 2012, accounts receivable decreased to $198.3 million from $215.6 million at August 31, 2011. Excluding accounts receivable and the related net revenue for Apollo Global, the Company's days sales outstanding was 22 days as of August 31, 2012, as compared to 23 days as of August 31, 2011.

Total debt outstanding (including short-term borrowings and the current portion of long-term debt) increased by $120.9 million to $719.9 million as of August 31, 2012, from $599.0 million as of August 31, 2011. Subsequent to August 31, 2012, the Company repaid the $615.0 million drawn on its revolving credit facility.

Share Repurchases

The Company repurchased approximately 2.0 million and 19.1 million shares of its common stock at a weighted average purchase price of $31.60 and $41.82 per share for a total cost of $63.5 million and $799.5 million during the three and twelve months ended August 31, 2012, respectively.

Optimization Initiatives

The Company continues initiatives to reengineer business processes and refine its delivery structure, while maintaining a commitment to enhance the student educational experience and outcomes. These activities, including the actions discussed below, are expected to favorably impact annual operating expenses by at least $300 million by fiscal year 2014, when compared to fiscal year 2012. The Company expects to realize more than half of these cumulative cost savings in fiscal year 2013, with the remainder in fiscal year 2014.

As part of the reengineering initiative, University of Phoenix is realigning its ground locations throughout the U.S., which will directly impact approximately 4% of total Degreed Enrollment, or around 13,000 students. These students will be offered support to continue their education at the University of Phoenix either online, through alternative on-ground arrangements or, in limited cases, at existing University of Phoenix locations. This plan includes closing 115 locations, consisting of 90 learning and student resource centers, which are generally smaller satellite locations, and 25 campuses. University of Phoenix will preserve a national coast-to-coast network of 112 locations and plans to retain a presence in 36 states, the District of Columbia and Puerto Rico. Subject to regulatory approvals, the realignment is expected to be substantially complete in fiscal year 2013. The Company expects to incur approximately $175 million of restructuring and other charges, principally for lease exit and other related costs, with most of these costs incurred in fiscal year 2013. The Company plans to continue investing in its ground locations to create state-of-the-art, technologically-integrated facilities offering academic and career support and increased mobile connectivity, while also continuing to advance its leading-edge online learning platform.

The Company has also begun implementing a workforce reduction and expects to decrease total headcount, excluding faculty, by approximately 800 employees during fiscal year 2013. The Company anticipates incurring approximately $25 million of restructuring and other charges in fiscal year 2013 related to workforce reductions.

Apollo Global, Inc.

On October 12, 2012, the Company entered into an agreement with The Carlyle Group and closed the purchase of Carlyle's remaining 14.4% noncontrolling ownership interest in Apollo Global, Inc. for $42.5 million in cash, plus a contingent payment based on a portion of the Apollo Global operating results through the fiscal years ending August 31, 2017.

Business Outlook

The Company offers the following commentary regarding the outlook for fiscal year 2013 based on the business trends observed during the fourth quarter of fiscal year 2012, as well as management's current expectations of future trends.

  • Net revenue of $3.65 - $3.80 billion; and

  • Operating income of $525 - $575 million, excluding the impact of special items and restructuring and other charges, but including the expected expense savings associated with the realignment plan and workforce reduction.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 p.m. Eastern, 2:00 p.m. Phoenix time, today, Tuesday, October 16, 2012.

Dial-In Numbers:

877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 33161955

A live webcast of this event may be accessed by visiting the Company's website at www.apollogrp.edu. A webcast replay will be available approximately one hour following the conclusion of the call at the same link.

A telephone replay will be available approximately two hours following the conclusion of the call until October 30, 2012.

Dial-In Numbers:

855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 33161955

About Apollo Group, Inc.

Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business for approximately 40 years. The Company offers innovative and distinctive educational programs and services both online and on-campus at the undergraduate, master's and doctoral levels through its subsidiaries: University of Phoenix, Apollo Global, Institute for Professional Development and College for Financial Planning. The Company offers programs and services throughout the United States and in Latin America and Europe, as well as online throughout the world.

For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company's website at www.apollogrp.edu.

Forward-Looking Statements Safe Harbor

Statements about Apollo Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Group's future strategy and plans and commentary regarding future results of operations and prospects, are forward-looking statements and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual plans implemented and actual results achieved may differ materially from those set forth in or implied by such statements due to various factors, including without limitation (i) the impact of increased competition from traditional public universities and proprietary educational institutions, (ii) the impact of the Company's restructuring initiatives to increase operating efficiency and better align operations with student demand and business strategy, including the substantial reduction in University of Phoenix on-ground locations, (iii) the impact of changes in marketing channels and other recruiting practices to better identify students who are more likely to succeed at University of Phoenix, (iv) the impact of the Company's initiatives to improve the student experience, improve student outcomes and enhance the connection between education and careers, (v) changes in enrollment or student mix, (vi) changes in the overall U.S. or global economy, (vii) changes in law or regulation affecting the Company's eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs, and (viii) changes in the Company's business necessary to remain in compliance with existing, new, or amended U.S. federal student financial aid program regulations, including the so-called 90/10 Rule and the limitations on cohort default rates, and to remain in compliance with the accrediting criteria of the relevant accrediting bodies. For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in Apollo Group's Form 10-K for fiscal year 2011 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.apollogrp.edu.

Use of Non-GAAP Financial Information

This press release and the related conference call contain non-GAAP financial measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because (i) such measures provide an additional analytical tool to clarify the Company's results from operations and help to identify underlying trends in its results of operations, (ii) as to the non-GAAP earnings measures, such measures help compare the Company's performance on a consistent basis across time periods, and (iii) these non-GAAP measures are employed by the Company's management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in the non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate non-GAAP financial measures differently, limiting their usefulness as a comparative measure across companies.

Apollo Group, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

As of August 31,

(In thousands)

2012

2011

ASSETS:

Current assets

Cash and cash equivalents

$

1,276,375

$

1,571,664

Restricted cash and cash equivalents

318,334

379,407

Accounts receivable, net

198,279

215,567

Prepaid taxes

26,341

35,629

Deferred tax assets, current portion

69,052

124,137

Other current assets

49,609

44,382

Total current assets

1,937,990

2,370,786

Property and equipment, net

571,629

553,027

Marketable securities

5,946

5,946

Goodwill

103,345

133,297

Intangible assets, net

149,034

121,117

Deferred tax assets, less current portion

77,628

70,949

Other assets

22,750

14,584

Total assets

$

2,868,322

$

3,269,706

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities

Short-term borrowings and current portion of long-term debt

$

638,588

$

419,318

Accounts payable

74,872

69,551

Student deposits

362,143

424,045

Deferred revenue

254,555

293,436

Accrued and other current liabilities

324,881

448,937

Total current liabilities

1,655,039

1,655,287

Long-term debt

81,323

179,691

Deferred tax liabilities

15,881

26,400

Other long-term liabilities

191,756

164,339

Total liabilities

1,943,999

2,025,717

Commitments and contingencies

Shareholders' equity

Preferred stock, no par value

Apollo Group Class A nonvoting common stock, no par value

103

103

Apollo Group Class B voting common stock, no par value

1

1

Additional paid-in capital

93,770

68,724

Apollo Group Class A treasury stock, at cost

(3,878,612

)

(3,125,175

)

Retained earnings

4,743,150

4,320,472

Accumulated other comprehensive loss

(30,034

)

(23,761

)

Total Apollo shareholders' equity

928,378

1,240,364

Noncontrolling (deficit) interests

(4,055

)

3,625

Total equity

924,323

1,243,989

Total liabilities and shareholders' equity

$

2,868,322

$

3,269,706

Apollo Group, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

Three Months Ended August 31,

% of Revenue

2012

2011

2012

2011

(In thousands, except per share data)

Net revenue

$

996,497

$

1,120,220

100.0

%

100.0

%

Costs and expenses:

Instructional and student advisory

455,564

435,181

45.7

%

38.9

%

Marketing