Career Education Corporation Reports Results for First Quarter 2013

Career Education Corporation Reports Results forFirst Quarter 2013

SCHAUMBURG, Ill.--(BUSINESS WIRE)-- Career Education Corporation (NAS: CECO) today reported total revenue of $340.5 million, and a net loss of $15.2 million, or -$0.23 per diluted share, for the first quarter of 2013 compared to total revenue of $431.4 million and net income of $52.1 million, or $0.78 per diluted share, for the first quarter of 2012.

"Since joining Career Education a month ago, I believe even more strongly that this organization has the right tools to achieve high levels of academic and financial success," said Scott W. Steffey, president and chief executive officer. "We are taking the necessary steps to right-size and re-engineer our organization to become more efficient and effective, better reflecting the support structure needed at our current enrollment levels."


"While we implement these changes, we must continue to retool and expand our academic programs for our domestic schools, foster continued educational innovation like our new adaptive learning technology, and improve our efforts and success in attracting, enrolling and retaining students. As we right-size and re-engineer the domestic schools we will also continue fostering growth in our highly successful International schools, and ensure that our Transitional Schools segment serves students with quality and integrity while teaching out those schools," Steffey said. "We're moving in the right direction and I look forward to leading this organization."

CONSOLIDATED RESULTS

Quarter Ended March 31, 2013

  • Total revenue was $340.5 million for the first quarter of 2013, a 21.1 percent decrease from $431.4 million for the first quarter of 2012.

  • An operating loss of $18.1 million was reported for the first quarter of 2013 versus operating income of $47.9 million for the first quarter of 2012. The operating margin was -5.3 percent for the first quarter of 2013 versus 11.1 percent for the first quarter of 2012. Operating income for the first quarter of 2012 included a $19.0 million ($0.18 per diluted share) insurance recovery related to the settlement of claims under certain insurance policies.

  • The loss from continuing operations for the first quarter of 2013 was $14.5 million, or -$0.22 per diluted share compared to the income from continuing operations of $41.7 million, or $0.62 per diluted share, for the first quarter of 2012.

  • The net loss for the first quarter of 2013 included a $6.7 million ($0.10 per diluted share) loss related to the pending sale of the American InterContinental University campus in London, England which is reported in other (expense) income. The sale closed on April 1, 2013.

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

Net cash flows used in operating activities totaled $14.2 million for the quarter ended March 31, 2013, compared to net cash flows provided by operating activities of $17.4 million for the quarter ended March 31, 2012.

Capital expenditures decreased to $4.1 million for the quarter ended March 31, 2013, from $12.3 million for the quarter ended March 31, 2012. Capital expenditures represented 1.2 percent and 2.8 percent of total revenue of continuing and discontinued operations during the quarters ended March 31, 2013 and 2012, respectively.

Financial Position

As of March 31, 2013 and December 31, 2012, cash and cash equivalents and short-term investments totaled $299.2 million and $402.3 million, respectively. During the first quarter of 2013, the Company repaid the $80 million of outstanding borrowings under its Credit Agreement. Accordingly, restricted cash balances decreased to $11.4 million at March 31, 2013 from $97.9 million at December 31, 2012.

STUDENT POPULATION AND NEW STUDENT STARTS

Student Population

Total student population by reportable segment as of March 31, 2013 and 2012, was as follows:

As of March 31,

% Change

2013

2012

2013 vs. 2012

Student Population

CTU

21,500

23,500

-9

%

AIU

15,500

18,900

-18

%

Total University Schools

37,000

42,400

-13

%

Health Education

9,500

13,600

-30

%

Culinary Arts

8,600

12,500

-31

%

Design & Technology

5,600

7,800

-28

%

Total Career Schools

23,700

33,900

-30

%

International (1)

10,000

8,000

25

%

Subtotal

70,700

84,300

-16

%

Transitional Schools

4,300

11,100

-61

%

Total Student Population

75,000

95,400

-21

%

(1)

Student population as of March 31, 2013 includes approximately 900 students enrolled in the International schools acquired the second and fourth quarters of 2012. Excluding the impact of these acquisitions, student population increased 14%.

New Student Starts

New student starts by reportable segment for the quarters ended March 31, 2013 and 2012, were as follows:

For the Quarter Ended

March 31,

% Change

2013

2012

2013 vs. 2012

New Student Starts

CTU (1)

4,520

5,670

-20

%

AIU (1)

4,610

6,640

-31

%

Total University Schools

9,130

12,310

-26

%

Health Education

2,780

3,160

-12

%

Culinary Arts

2,810

3,160

-11

%

Design & Technology

980

1,080

-9

%

Total Career Schools

6,570

7,400

-11

%

International (2)

1,080

740

46

%

Subtotal

16,780

20,450

-18

%

Transitional Schools (3)

70

2,630

NM

Total New Student Starts

16,850

23,080

-27

%

(1)

During 2012 and 2013, CTU and AIU had established certain programs to enable students to assess their readiness to commit to enrolling in college-level courses. Excluding the impact of these readiness programs, the change in new student starts for CTU and AIU is -10% and -22%, respectively.

(2)

The first quarter of 2013 was favorably impacted when compared to the prior year quarter due to the timing of program offerings in the first quarter of 2013 versus the prior year. Excluding the impact of these items, the change in new student starts for International would have been 22%.

(3)

Campuses within the Transitional Schools segment no longer enroll new students; students who re-enter after 365 days are reported as new student starts.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Tuesday, May 7, 2013 at 10:00 a.m. Eastern time. Interested parties can access the live webcast of the conference call at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 800-580-9478 (domestic) or 630-691-2769 (international) and citing code 34607968. Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. An archived version of the webcast will be accessible for 90 days at www.careered.com in the Investor Relations section of the website. A replay of the call will also be available for seven days by calling 888-843-7419 (domestic) or 630-652-3042 (international) and citing code 34607968.

ABOUT CAREER EDUCATION CORPORATION

The colleges, schools and universities that are part of the Career Education Corporation ("CEC") family offer high-quality education to a diverse student population of approximately 75,000 students across the world in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. The more than 90 campuses that serve these students are located throughout the United States, and in France and Monaco, and offer doctoral, master's, bachelor's and associate degrees and diploma and certificate programs.

CEC is an industry leader whose institutions are recognized globally. Those institutions include, among others, American InterContinental University ("AIU"); Brooks Institute; Colorado Technical University ("CTU"); Harrington College of Design; INSEEC Group ("INSEEC") Schools; International University of Monaco ("IUM"); International Academy of Design & Technology ("IADT"); Le Cordon Bleu North America ("LCB"); and Sanford-Brown Institutes and Colleges. Through its schools, CEC is committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.

For more information, see CEC's website at www.careered.com. The website includes a detailed listing of individual campus locations and web links to CEC's colleges, schools, and universities.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as "anticipate," "believe," "plan," "expect," "intend," "project," "will," "potential" and similar expressions, are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on information currently available to us and are subject to various assumptions, risks, uncertainties and other factors that could cause our results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise such factors or any of the forward-looking statements contained herein to reflect future events, developments or changed circumstances, or for any other reason. These risks and uncertainties, the outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: declines in enrollment; our ability to implement our strategic initiatives and effective cost reduction strategies; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the "90-10 Rule" and financial responsibility standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; our ability to successfully defend litigation and other claims brought against us; rulemaking by the U.S. Department of Education and increased focus by the U.S. Congress and governmental agencies on for-profit education institutions; and changes in the overall U.S. or global economy. Further information about these and other relevant risks and uncertainties may be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and its subsequent filings with the Securities and Exchange Commission.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)

March 31,

December 31,

2013(1)

2012(1)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents, unrestricted

$

223,816

$

240,559

Restricted cash

11,408

97,878

Short-term investments

63,951

63,876

Total cash and cash equivalents and short-term investments

299,175

402,313

Student receivables, net

50,420

68,885

Receivables, other, net

4,413

3,845

Prepaid expenses

57,710

44,386

Inventories

7,500

8,514

Deferred income tax assets, net

7,125

7,092

Other current assets

6,845

4,422

Assets of discontinued operations

3,716

4,104

Total current assets

436,904

543,561

NON-CURRENT ASSETS:

Property and equipment, net

259,121

277,416

Goodwill

131,725

133,025

Intangible assets, net

61,127

61,670

Student receivables, net

6,652

6,832

Deferred income tax assets, net

48,128

47,900

Other assets, net

32,324

33,331

Assets of discontinued operations

18,643

18,968

TOTAL ASSETS

$

994,624

$

1,122,703

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Short-term borrowings and current maturities of capital lease obligations

$

103

$

80,211

Accounts payable

42,601

38,419

Accrued expenses:

Payroll and related benefits

46,124

46,586

Advertising and production costs

20,634

20,963

Other

41,171

44,630

Deferred tuition revenue

83,718

112,018

Liabilities of discontinued operations

12,306

9,888

Total current liabilities

246,657

352,715

NON-CURRENT LIABILITIES:

Deferred rent obligations

93,260

95,146

Other liabilities

30,057

29,853

Liabilities of discontinued operations

28,178

33,199

Total non-current liabilities

151,495

158,198

STOCKHOLDERS' EQUITY:

Preferred stock

-

-

Common stock

818

816

Additional paid-in capital

598,903

596,826

Accumulated other comprehensive loss

(6,527

)

(4,785

)

Retained earnings

217,718

232,921

Cost of shares in treasury

(214,440

)

(213,988

)

Total stockholders' equity

596,472

611,790

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

994,624

$

1,122,703

(1)

During the first quarter of 2013 and the fourth quarter of 2012, the Company completed the teach-out of SBC Hazelwood and LCB Pittsburgh, respectively. As a result, all current and prior period results for these campuses are reflected as components of discontinued operations.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(In thousands, except per share amounts and percentages)

For the Quarter Ended March 31,(1)

% of

% of

Total

Total

2013

Revenue

2012

Revenue

REVENUE:

Tuition and registration fees

$ 335,285

98.5%

$ 420,885

97.6%

Other

5,198

1.5%

10,479

2.4%

Total revenue

340,483

431,364

OPERATING EXPENSES:

Educational services and facilities

132,883

39.0%

150,739

34.9%

General and administrative

206,419

60.6%

212,973

49.4%

Depreciation and amortization

19,125

5.6%

19,713

4.6%

Goodwill and asset impairment