Apollo Group, Inc. Reports First Quarter 2013 Results

Apollo Group, Inc. Reports First Quarter 2013 Results

PHOENIX--(BUSINESS WIRE)-- Apollo Group, Inc. (NAS: APOL) today reported financial results for the three months ended November 30, 2012, with revenue of $1.1 billion and diluted earnings per share of $1.18 per share, or $1.22 per share excluding special items.

"In the first quarter, we continued to execute on our strategy to differentiate University of Phoenix, diversify Apollo Group and to further optimize our operations," said Apollo Group Chief Executive Officer Greg Cappelli. "We are rolling out new career-oriented tools for students, as well as working with leading companies to help them meet their needs to develop an educated workforce. We are committed to become the educator of choice to connect education to careers and believe this approach will position us for long-term success."


First Quarter 2013 Results of Operations

  • Net revenue for the first quarter 2013 was $1.1 billion compared to $1.2 billion in the first quarter 2012.

  • University of Phoenix Degreed Enrollment was 319,700, a 14.3% decrease from the prior year first quarter, and New Degreed Enrollment was 54,100, a 15.1% decrease from the prior year first quarter.

  • Operating income for the first quarter 2013 was $230.9 million, down 11.7%, compared to $261.7 million from the prior year first quarter.

  • Income from continuing operations attributable to Apollo Group for the first quarter 2013 was $133.5 million, or $1.18 per share, compared to $147.5 million, or $1.13 per share in the first quarter 2012.

Results for the first quarter 2013 include restructuring and other charges of $24.1 million attributable to the Company's optimization efforts and a $16.9 million credit for the reversal of charges associated with a securities class action lawsuit.

Excluding the special items noted above, income from continuing operations for the first quarter 2013 was $137.9 million, or $1.22 per share, compared to income from continuing operations of $165.3 million, or $1.26 per share, for the first quarter 2012. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for first quarter 2013 and 2012 special items).

Operating Expenses

Operating expenses for the first quarter 2013 totaled $824.2 million, a decrease of 9.4%, as compared to first quarter 2012. Excluding special items, operating expenses were $817.0 million, a decrease of 8.0%. This decrease was primarily attributable to a reduction in costs from restructuring activities, which contributed to the decline in admissions advisory headcount, rent expense and depreciation expense. Additionally, a portion of the decrease was related to variable expenses due to lower net revenue. The provision for uncollectible accounts receivable ("bad debt") also declined 19.7% to $33.4 million, primarily due to lower enrollment, as well as improved collection rates for aged receivables, at University of Phoenix.

Balance Sheet and Cash Flow

As of November 30, 2012, cash and cash equivalents, excluding restricted cash, totaled $776 million compared to $1.3 billion as of August 31, 2012. The decrease was primarily due to $625.8 million used for payments on borrowings, including the payment of $615.0 million borrowed under the Company's revolving credit facility, the Company's $42.5 million cash payment for its purchase of the noncontrolling interest in Apollo Global and $27.5 million for capital expenditures. These items were partially offset by $210.1 million of cash provided by operations.

Accounts receivable were $201.5 million as of November 30, 2012, 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 20 days as of November 30, 2012, as compared to 24 days as of November 30, 2011.

Business Outlook

The Company offers the following outlook for fiscal year 2013 based on the business trends observed during the first 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.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 p.m. ET, 3:00 p.m. MT, today, Tuesday, January 8, 2013.

Dial-In Numbers:

877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 82100134

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 January 22, 2013.

Dial-In Numbers:

855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 82100134

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 nearly 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 2012 and subsequent Form 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.

Financial and Operating Metrics

Below are Apollo Group's unaudited financial data and operating metrics for the first quarter 2013 compared to the first quarter 2012.

Degreed Enrollment(1)

New Degreed Enrollment(2)

Enrollment (rounded to hundreds)

Q1 2013

Q1 2012

Q1 2013

Q1 2012

Associate's

99,100

130,300

22,900

27,800

Bachelor's

168,000

182,500

22,500

26,100

Master's

46,000

52,900

8,000

8,900

Doctoral

6,600

7,400

700

900

319,700

373,100

54,100

63,700

Revenues (in thousands)

Degree Seeking Gross Revenues(3)

$

992,274

$

1,108,616

Less: Discounts and other

(67,275

)

(62,734

)

Degree Seeking Net Revenues(3)

924,999

1,045,882

Non-degree Seeking Revenues

9,813

8,577

Other, net of discounts

120,371

117,441

$

1,055,183

$

1,171,900

Revenue by Degree Type (in thousands)(3)

Associate's

$

251,890

$

313,598

Bachelor's

560,806

592,910

Master's

158,891

178,445

Doctoral

20,687

23,663

Less: Discounts and other

(67,275

)

(62,734

)

$

924,999

$

1,045,882

Degree Seeking Gross Revenues per Degreed Enrollment(1), (3)

Associate's

$

2,542

$

2,407

Bachelor's

3,338

3,249

Master's

3,454

3,373

Doctoral

3,134

3,198

All degrees (after discounts)

$

2,893

$

2,803

(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

($ in thousands)

November 30,
2012

August 31,
2012

ASSETS:

Current assets

Cash and cash equivalents

$

776,009

$

1,276,375

Restricted cash and cash equivalents

351,575

318,334

Accounts receivable, net

201,456

198,279

Prepaid taxes

5,041

26,341

Deferred tax assets, current portion

55,489

69,052

Other current assets

64,513

49,609

Total current assets

1,454,083

1,937,990

Property and equipment, net

546,520

571,629

Goodwill

103,558

103,345

Intangible assets, net

145,789

149,034

Deferred tax assets, less current portion

80,446

77,628

Other assets

38,521

28,696

Total assets

$

2,368,917

$

2,868,322

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities

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

$

22,236

$

638,588

Accounts payable

63,202

74,872

Income taxes payable

60,717

Student deposits

381,124

362,143

Deferred revenue

262,813

254,555

Accrued and other current liabilities

263,433

324,881

Total current liabilities

1,053,525

1,655,039

Long-term debt

75,562

81,323

Deferred tax liabilities

16,096

15,881

Other long-term liabilities

203,705

191,756

Total liabilities

1,348,888

1,943,999

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

41,311

93,770

Apollo Group Class A treasury stock, at cost

(3,864,989

)

(3,878,612

)

Retained earnings

4,876,645

4,743,150

Accumulated other comprehensive loss

(34,188

)

(30,034

)

Total Apollo shareholders' equity

1,018,883

928,378

Noncontrolling interests (deficit)

1,146

(4,055

)

Total equity

1,020,029

924,323

Total liabilities and shareholders' equity

$

2,368,917

$

2,868,322

Apollo Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

Three Months Ended November 30,

% of Net Revenue

(In thousands, except per share data)

2012

2011

2012

2011

Net revenue

$

1,055,183

$

1,171,900

100.0

%

100.0

%

Costs and expenses:

Instructional and student advisory

432,150

453,281

40.9

%

38.7

%

Marketing

162,873

165,564

15.4

%

14.1

%

Admissions advisory

71,308

101,388

6.8

%

8.7

%

General and administrative

73,539

79,899

7.0

%

6.8

%

Depreciation and amortization

43,695

46,167

4.1

%

3.9

%

Provision for uncollectible accounts receivable

33,406

41,583

3.2

%

3.6

%

Restructuring and other charges