Apollo Group, Inc. Reports Second Quarter 2013 Results

Apollo Group, Inc. Reports Second Quarter 2013 Results

PHOENIX--(BUSINESS WIRE)-- Apollo Group, Inc. (NAS: APOL) today reported financial results for the three and six months ended February 28, 2013, with second quarter revenue of $834.4 million and diluted earnings per share of $0.12 per share, or $0.34 per share excluding special items.

"Higher education is rapidly evolving as workforce demands and technological innovations drive change in our global economy," said Apollo Group Chief Executive Officer Greg Cappelli. "We are further positioning our organization and brand with our continued commitment to help students acquire real workplace skills, achieve their academic goals, and - through the power of education - realize their career aspirations."


Second Quarter 2013 Results of Operations

  • Net revenue for the second quarter 2013 was $834.4 million, compared to $962.7 million in the second quarter 2012.

  • University of Phoenix Degreed Enrollment was 300,800, a 15.5% decrease from the prior year second quarter, and New Degreed Enrollment was 38,900, down 20.1% from second quarter 2012.

  • Operating income was $29.8 million, compared to $103.7 million from the prior year second quarter.

  • Income from continuing operations attributable to Apollo Group was $13.5 million, or $0.12 per share, compared to $62.2 million, or $0.49 per share in the second quarter 2012.

Results for the second quarter 2013 included restructuring and other charges of $44.1 million attributable to optimization efforts and $6.4 million of credits associated with the favorable resolution of certain legal matters. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for second quarter 2013 and 2012 special items).

Excluding the special items noted above, income from continuing operations for the second quarter 2013 was $38.0 million, or $0.34 per share, compared to $72.2 million, or $0.57 per share, for the second quarter 2012. The decrease in income from continuing operations was attributable to lower enrollment and an increase in marketing costs primarily due to higher advertising expense, which was partially offset by a reduction in certain costs associated with the Company's restructuring activities and lower bad debt expense.

First Six Months of 2013 Results of Operations

Net revenue for the first six months of fiscal year 2013 totaled $1.9 billion, which represents an 11.5% decrease compared to the first six months of fiscal year 2012 principally due to lower enrollment. In the first six months of 2013, University of Phoenix Average Degreed Enrollment decreased 14.5% to 316,300 as compared to the same period a year ago. The Company reported income from continuing operations attributable to Apollo Group for the six months ended February 28, 2013, of $147.0 million, or $1.30 per share, compared to $209.7 million, or $1.63 per share, for the six months ended February 29, 2012.

Results for the first six months of 2013 included restructuring and other charges of $68.2 million attributable to the Company's optimization efforts and $23.2 million of credits associated with the favorable resolution of certain legal matters. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release for the first six months of 2013 and 2012 special items.)

Excluding the special items noted above, income from continuing operations for the six months ended February 28, 2013, was $175.8 million, or $1.56 per share, compared to $237.5 million, or $1.84 per share, for the six months ended February 29, 2012.

Balance Sheet and Cash Flow

As of February 28, 2013, cash and cash equivalents, excluding restricted cash, totaled $821.2 million compared to $1.3 billion as of August 31, 2012. The decrease was primarily due to $629.5 million used for payments on borrowings, $49.0 million for capital expenditures, $42.5 million cash payment for the purchase of the noncontrolling interest in Apollo Global, and $39.4 million used for the purchase of short-term investments. These items were partially offset by $299.0 million of cash provided by operations.

Accounts receivable were $177.6 million as of February 28, 2013, 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 19 days as of February 28, 2013, as compared to 22 days as of February 29, 2012.

Share Repurchase Authorization

On March 22, 2013, the Apollo Group Board of Directors approved a share repurchase authorization up to an aggregate amount of $250 million. There is no expiration date on the repurchase authorization and repurchases, if any, will be made at the discretion of management.

Business Outlook

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

The Company continues initiatives to reengineer business processes and refine its educational delivery structure. These restructuring activities are expected to favorably impact annual operating expenses by at least $350 million by fiscal year 2014, when compared to fiscal year 2012. This is a $50 million increase in anticipated savings from the Company's previous outlook.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 8:00 a.m. ET, 5:00 a.m. PT, today, Monday, March 25, 2013.

Dial-In Numbers:
877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 12434663

A live webcast of this event may be accessed by visiting the Company's website at www.apollo.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 April 12, 2013.

Dial-In Numbers:
855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 12434663

About Apollo Group, Inc.

Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business since 1973. 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.apollo.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 outcome of the current accreditation reaffirmation review of University of Phoenix by its principal institutional accreditor, The Higher Learning Commission, including the possible imposition of the sanction of probation as recommended in the peer review team's draft report; (ii) the impact of any sanctions, up to and including probation, imposed or proposed to be imposed on University of Phoenix by The Higher Learning Commission, including any impact on the University's pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs; (iii) the impact of any reduction in student financial aid available to students, particularly active and retired military personnel, due to the U.S. government budget sequestration; (iv) the impact of increased competition from traditional public universities and proprietary educational institutions; (v) the impact of the Company's recent restructuring initiatives and the operational, governance and other changes to increase University of Phoenix autonomy in response to governance concerns expressed by The Higher Learning Commission; (vi) 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; (vii) the impact of University of Phoenix initiatives to improve the student experience, improve student outcomes and enhance the connection between education and careers; (viii) changes in University of Phoenix enrollment or student mix; (ix) changes in the overall U.S. or global economy; (x) changes in law or regulation affecting the University of Phoenix's eligibility to participate in or the manner in which it participates in U.S. federal and state student financial aid programs; and (xi) changes in the University of Phoenix'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 Forms 10-Q, and other filings with the Securities and Exchange Commission, all of which are available on the Company's website at www.apollo.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 second quarter 2013 compared to the second quarter 2012.

Degreed Enrollment(1)

New Degreed Enrollment(2)

Enrollment (rounded to hundreds)

Q2 2013

Q2 2012

Q2 2013

Q2 2012

Associate's

89,900

118,100

14,900

18,500

Bachelor's

159,600

179,400

16,700

22,000

Master's

44,900

51,000

6,700

7,500

Doctoral

6,400

7,300

600

700

300,800

355,800

38,900

48,700

Revenues (in thousands)

Degree Seeking Gross Revenues(3)

$

800,863

$

931,610

Less: Discounts and other

(56,700

)

(56,508

)

Degree Seeking Net Revenues(3)

744,163

875,102

Non-degree Seeking Revenues

8,492

8,885

Other, net of discounts

81,717

78,695

$

834,372

$

962,682

Revenue by Degree Type (in thousands)(3)

Associate's

$

187,815

$

245,771

Bachelor's

463,490

516,028

Master's

132,461

148,867

Doctoral

17,097

20,944

Less: Discounts and other

(56,700

)

(56,508

)

$

744,163

$

875,102

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

Associate's

$

2,089

$

2,081

Bachelor's

$

2,904

$

2,876

Master's

$

2,950

$

2,919

Doctoral

$

2,671

$

2,869

All degrees (after discounts)

$

2,474

$

2,460

(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

February 28,

August 31,

($ in thousands)

2013

2012

ASSETS:

Current assets

Cash and cash equivalents

$

821,163

$

1,276,375

Restricted cash and cash equivalents

329,772

318,334

Marketable securities

31,804

Accounts receivable, net

177,557

198,279

Prepaid taxes

10,216

26,341

Deferred tax assets, current portion

49,870

69,052

Other current assets

45,813

49,609

Total current assets

1,466,195

1,937,990

Property and equipment, net

502,702

571,629

Goodwill

103,829

103,345

Intangible assets, net

137,252

149,034

Deferred tax assets, less current portion

89,706

77,628

Other assets

40,380

28,696

Total assets

$

2,340,064

$

2,868,322

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities

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

$

20,080

$

638,588

Accounts payable

76,017

74,872

Student deposits

363,721

362,143

Deferred revenue

260,669

254,555

Accrued and other current liabilities

291,820

324,881

Total current liabilities

1,012,307

1,655,039

Long-term debt

71,203

81,323

Deferred tax liabilities

13,750

15,881

Other long-term liabilities

205,263

191,756

Total liabilities

1,302,523

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

43,600

93,770

Apollo Group Class A treasury stock, at cost

(3,860,036

)

(3,878,612

)

Retained earnings

4,890,172

4,743,150

Accumulated other comprehensive loss

(37,246

)

(30,034

)

Total Apollo shareholders' equity

1,036,594

928,378

Noncontrolling interests (deficit)

947

(4,055

)

Total equity

1,037,541

924,323

Total liabilities and shareholders' equity

$

2,340,064

$

2,868,322

Apollo Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

Three Months Ended

% of Net Revenue

(In thousands, except per share data)

February 28, 2013

February 29, 2012

2013

2012

Net revenue

$

834,372

$

962,682

100.0

%

100.0

%

Costs and expenses:

Instructional and student advisory

383,702

425,607

46.0

%

44.2

%

Marketing

173,313

158,973

20.8

%

16.5

%

Admissions advisory

68,232

101,405

8.2

%

10.6

%

General and administrative

81,218

83,994

9.7

%

8.7

%

Depreciation and amortization

41,499

41,854