Apollo Education Group, Inc. (NASDAQ: APOL) today reported financial results for the three months ended November 30, 2013, with revenue of $856.3 million and diluted earnings per share of $0.87 per share, or $1.04 per share excluding special items.

"At Apollo Education Group, we are making good progress on our strategic plan to differentiate University of Phoenix, diversify Apollo and drive operational excellence throughout our organization," said Apollo Education Group Chief Executive Officer Greg Cappelli. "To support our strategy, we continue to innovate, roll out new and differentiated programs that lead to careers of choice, expand our footprint globally while sharing best practices to leverage our growing network and become a more efficient company."

First Quarter 2014 Results of Operations

  • Net revenue for the first quarter of fiscal year 2014 was $856.3 million, compared to $1.1 billion in the first quarter 2013.
  • University of Phoenix Degreed Enrollment was 263,000, a 17.7% decrease from the prior year first quarter, and New Degreed Enrollment was 41,700, a 22.9% decrease from the prior year first quarter.
  • Operating income for the first quarter 2014 was $169.8 million, compared to $230.9 million from the prior year first quarter. Excluding special items, operating income was $201.8 million for the first quarter 2014, compared to $238.2 million in the first quarter 2013.
  • Income from continuing operations for the first quarter 2014 was $98.9 million, or $0.87 per share, compared to $133.5 million, or $1.18 per share, in the first quarter 2013.

First quarter 2014 results included restructuring and other charges attributable to the Apollo Education Group's (the "Company") restructuring activities of $32.0 million. Excluding the special items, income from continuing operations for the first quarter 2014 was $118.7 million, or $1.04 per share, compared to income from continuing operations of $137.9 million, or $1.22 per share, for the first quarter 2013. (Special items for the first quarter 2014 and 2013 are included in the reconciliation of GAAP to non-GAAP financial information table of this press release.)

Balance Sheet and Cash Flow

As of November 30, 2013, the Company's unrestricted cash and cash equivalents and short-term marketable securities totaled $916.9 million, compared to $1.52 billion as of August 31, 2013. The decrease was primarily due to $615.9 million used for payments on borrowings, including the payment of $605.0 million borrowed under the Company's revolving credit facility, a net investment of $64.8 million in long-term marketable securities, $34.4 million for capital expenditures, and $16.9 million for share repurchases. These items were partially offset by $128.9 million of cash provided by operations.

Accounts receivable were $214.2 million as of November 30, 2013, compared to $215.4 million at August 31, 2013. As of November 30, 2013, excluding accounts receivable and the related net revenue for Apollo Global, the Company's days sales outstanding was essentially flat at 21 days, compared to 20 days at November 30, 2012.

Share Repurchases

Under its share repurchase program, the Company repurchased approximately 0.6 million shares of its common stock at a weighted average purchase price of $26.02 per share for a total cost of $15.0 million during the three months ended November 30, 2013. Subsequent to November 30, 2013, the Company used approximately $10 million to repurchase additional shares and currently has approximately $225 million available on its share repurchase authorization. There is no expiration date on the repurchase authorizations and repurchases occur at the Company's discretion.

Apollo Global, Inc.

On December 20, 2013, the Company's wholly-owned subsidiary, Apollo Global, Inc., completed its acquisition of 70% of the outstanding shares of Open Colleges Australia Pty Ltd ("Open Colleges") for a cash purchase price of approximately US$98 million, plus contingent future payments of up to approximately US$47 million (at current Australian dollar exchange rates). Open Colleges is a leader in online learning in Australia and this addition aligns with the Company's strategy to diversify globally, broadening its reach to serve adult learners in the growing Australian education and training market.

Business Outlook

The Company offers the following outlook for fiscal year 2014 based on the business trends observed during the first quarter 2014, as well as management's current expectations of future trends.

  • Net revenue of $3.0 - $3.1 billion; and
  • Operating income of $400 - $450 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 7, 2014.

Dial-In Numbers:

877-292-6888 (Domestic)
973-200-3381 (International)
Conference ID: 21105114

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 January 17, 2014.

Dial-In Numbers:

855-859-2056 (Domestic)
404-537-3406 (International)
Conference ID: 21105114

About Apollo Education Group, Inc.

Apollo Education Group, Inc. is one of the world's largest private education providers and has been in the education business since 1973. Through its subsidiaries: University of Phoenix, Apollo Global, Institute for Professional Development, Western International University and College for Financial Planning, Apollo Education Group offers innovative and distinctive educational programs and services, online and on-campus, at the undergraduate, masters and doctoral levels. Its educational programs and services are offered throughout the United States and in Latin America, Australia and Europe, as well as online throughout the world.

For more information about Apollo Education Group, Inc. and its subsidiaries, call (800) 990-APOL or visit www.apollo.edu.

Forward-Looking Statements Safe Harbor

Statements about Apollo Education Group and its business in this release which are not statements of historical fact, including statements regarding Apollo Education 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 costs and effectiveness of accelerating the enhancement of University of Phoenix educational offerings to remain competitive and to more effectively deliver a quality student experience at the right value; (iii) any adverse impact on University of Phoenix's business arising from the Notice sanction imposed by the University's principal accreditor, and any associated impact on the University's pending recertification by the U.S. Department of Education for participation in Title IV student financial aid programs; (iv) the impact of the Company's recent campus closures and other restructuring initiatives; (v) the impact of the recent operational and governance changes made to increase University of Phoenix autonomy in response to governance concerns expressed by its principal accreditor; (vi) the impact of any reduction in financial aid available to students, including active and retired military personnel, due to the U.S. government debt ceiling limitations, budget sequestration or otherwise; (vii) the impact of changes in marketing channels and other recruiting practices; (viii) the costs and effectiveness of University of Phoenix initiatives to improve student retention, improve student outcomes and demonstrate a compelling relationship between a student's education and career; (ix) 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, including changes that may be included in the reauthorization of the federal Higher Education Act and the proposed Department of Education regulations relating to gainful employment; (x) changes in University of Phoenix's business necessary to remain in compliance with U.S. federal student financial aid program regulations, including the so-called 90/10 Rule and the limitations on student loan cohort default rates, and to remain in compliance with the accrediting criteria of the relevant accrediting bodies; (xi) changes in University of Phoenix enrollment or student mix; (xii) unexpected expenses or other challenges in integrating acquired businesses, consumer or regulatory impact arising from consummation of the acquired businesses, and unexpected changes or developments in the acquired businesses, and (xiii) unexpected changes in the U.S. or global economy. 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 Education Group's Form 10-K for fiscal year 2013, which is available 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 Education Group's unaudited financial data and operating metrics for the respective periods:

                   
Degreed Enrollment(1)   New Degreed Enrollment(2)   Average Degreed Enrollment
Enrollment (rounded to hundreds) Q1 2014     Q1 2013 Q1 2014     Q1 2013 Q1 2014(3)     Q1 2013(4)
Associate's 74,300 99,100 16,300 22,900 75,300 100,900
Bachelor's 142,500 168,000 18,100 22,500 144,300 170,300
Master's 40,500 46,000 6,800 8,000 40,600 46,200
Doctoral 5,700   6,600   500   700   5,800   6,700  
263,000   319,700   41,700   54,100   266,000   324,100  
 
Revenues (in thousands) Q1 2014 Q1 2013
Degree Seeking Gross Revenues(5) $ 797,740 $ 992,274
Less: Discounts and other (62,561 ) (67,275 )
Degree Seeking Net Revenues(5) 735,179 924,999
Non-degree Seeking Revenues 8,629 9,813
Other, net of discounts 112,527   120,371  
$ 856,335   $ 1,055,183  
 
Revenue by Degree Type (in thousands)(5)
Associate's $ 178,952 $ 251,890
Bachelor's 462,096 560,806
Master's 140,062 158,891
Doctoral 16,630 20,687
Less: Discounts and other (62,561 ) (67,275 )
$ 735,179   $ 924,999  
 
Degree Seeking Gross Revenues per Degreed Enrollment(1), (5)
Associate's $ 2,409 $ 2,542
Bachelor's 3,243 3,338
Master's 3,458 3,454
Doctoral 2,918 3,134
All degrees (after discounts) 2,795 2,893

(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 (e.g., 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 the average of Degreed Enrollment for the quarters ended August 31, 2013 and November 30, 2013.
(4) Represents the average of Degreed Enrollment for the quarters ended August 31, 2012 and November 30, 2012.

(5) 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 Education Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 
As of
($ in thousands)

November 30,
2013

    

August 31,
2013

ASSETS:
Current assets
Cash and cash equivalents $ 788,130 $ 1,414,485
Restricted cash and cash equivalents 285,612 259,174
Marketable securities 128,736 105,809
Accounts receivable, net 214,225 215,401
Prepaid taxes 3,508 30,359
Deferred tax assets 52,159 60,294
Other current assets 60,733   64,134  
Total current assets 1,533,103 2,149,656
Marketable securities 108,725 43,941
Property and equipment, net 473,058 472,614
Goodwill 103,937 103,620
Intangible assets, net 132,865 132,192
Deferred tax assets 63,791 63,894
Other assets 47,551   32,030  
Total assets $ 2,463,030   $ 2,997,947  
 
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Short-term borrowings and current portion of long-term debt $ 21,214 $ 628,050
Accounts payable 64,487 73,123
Income taxes payable 37,554 --
Student deposits 309,800 309,176
Deferred revenue 223,164 213,260
Accrued and other current liabilities 283,049   346,706  
Total current liabilities 939,268 1,570,315
Long-term debt 54,567 64,004
Deferred tax liabilities 13,327 12,177
Other long-term liabilities 244,923   233,442  
Total liabilities 1,252,085 1,879,938
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value -- --
Apollo Education Group Class A nonvoting common stock, no par value 103 103
Apollo Education Group Class B voting common stock, no par value 1 1
Additional paid-in capital -- --
Apollo Education Group Class A treasury stock, at cost (3,829,960 ) (3,824,758 )
Retained earnings 5,073,968 4,978,815
Accumulated other comprehensive loss (33,827 ) (36,563 )
Total Apollo shareholders' equity 1,210,285 1,117,598
Noncontrolling interests 660   411  
Total equity 1,210,945   1,118,009  
Total liabilities and shareholders' equity $ 2,463,030   $ 2,997,947  
 
 
     

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(Unaudited)

 
Three Months Ended November 30,
      % of Net Revenue
(In thousands, except per share data) 2013     2012 2013     2012
Net revenue $ 856,335 $ 1,055,183 100.0 % 100.0 %
Costs and expenses:
Instructional and student advisory 339,679 432,150 39.7 % 40.9 %
Marketing 137,844 162,873 16.1 % 15.4 %
Admissions advisory 51,509 71,308 6.0 % 6.8 %
General and administrative 75,230 73,539 8.8 % 7.0 %
Depreciation and amortization 36,338 43,695 4.2 % 4.1 %
Provision for uncollectible accounts receivable 13,978 33,406 1.6 % 3.2 %
Restructuring and other charges 31,963 24,116 3.8 % 2.3 %
Litigation credit --   (16,850 ) -- % (1.6 )%
Total costs and expenses 686,541   824,237   80.2 % 78.1 %
Operating income 169,794 230,946 19.8 % 21.9 %
Interest income 568 549 -- % -- %
Interest expense (2,086 ) (2,042 ) (0.2 )% (0.2 )%
Other, net 807   1,799   0.1 % 0.2 %
Income before income taxes 169,083 231,252 19.7 % 21.9 %
Provision for income taxes (70,042 ) (97,512 ) (8.1 )% (9.2 )%
Net income 99,041 133,740 11.6 % 12.7 %
Net income attributable to noncontrolling interests (150 ) (245 )

(0.1

)%

-- %
Net income attributable to Apollo $ 98,891   $ 133,495   11.5 % 12.7 %
Basic income per share attributable to Apollo $ 0.87 $ 1.19
Diluted income per share attributable to Apollo $ 0.87 $ 1.18
Basic weighted average shares outstanding 113,326 112,420
Diluted weighted average shares outstanding 113,960 112,849
 
 
     

Apollo Education Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

Three Months Ended
November 30,

($ in thousands) 2013     2012
Operating activities:
Net income $ 99,041 $ 133,740
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 11,973 16,889
Depreciation and amortization 36,338 43,695
Accelerated depreciation included in restructuring 2,806 9,326
Non-cash foreign currency gain, net (1,099 ) (607 )
Provision for uncollectible accounts receivable 13,978 33,406
Litigation credit -- (16,850 )
Deferred income taxes 4,738 6,064
Changes in assets and liabilities:
Restricted cash and cash equivalents (26,438 ) (33,241 )
Accounts receivable (11,148 ) (36,349 )
Other assets (11,190 ) (6,432 )
Accounts payable (8,835 ) (11,771 )

Income taxes

64,469 82,032
Student deposits (805 ) 18,522
Deferred revenue 8,076 8,075
Accrued and other liabilities (53,007 ) (36,368 )
Net cash provided by operating activities 128,897 210,131
Investing activities:
Purchases of property and equipment (34,366 ) (27,539 )
Purchases of marketable securities (146,333 ) (14,819 )
Maturities of marketable securities 57,412   --  
Net cash used in investing activities (123,287 ) (42,358 )
Financing activities:
Payments on borrowings (615,925 ) (625,762 )
Proceeds from borrowings -- 2,176
Purchase of noncontrolling interest -- (42,500 )
Purchases of stock for treasury (16,871 ) (3,472 )
Issuances of stock 796   1,113  
Net cash used in financing activities (632,000 ) (668,445 )
Exchange rate effect on cash and cash equivalents 35   306  
Net decrease in cash and cash equivalents (626,355 ) (500,366 )
Cash and cash equivalents, beginning of period 1,414,485   1,276,375  
Cash and cash equivalents, end of period $ 788,130   $ 776,009  
Supplemental disclosure of cash flow and non-cash information:
Cash paid for income taxes, net of refunds $ -- $ 10,243
Cash paid for interest 1,891 1,906
Restricted stock units vested and released 5,113 9,496
 
 
     

Apollo Education Group, Inc. and Subsidiaries

Reconciliation of GAAP Financial Information to Non-GAAP Financial Information

(Unaudited)

 

Three Months Ended
November 30,

(In thousands, except per share data) 2013     2012
Operating income, as reported $ 169,794 $ 230,946
Restructuring and other charges 31,963 24,116
Litigation credit --   (16,850 )
Operating income, adjusted to exclude special items $ 201,757   $ 238,212  
 
Net income attributable to Apollo, as reported $ 98,891 $ 133,495
Restructuring and other charges 31,963 24,116
Litigation credit --   (16,850 )
Total special items before tax effects 31,963 7,266
Less: tax effects (12,140 ) (2,877 )
Income attributable to Apollo, adjusted to exclude special items $ 118,714   $ 137,884  
Diluted income per share attributable to Apollo, as reported $ 0.87 $ 1.18
Diluted income per share attributable to Apollo, adjusted to exclude special items $ 1.04 $ 1.22
Diluted weighted average shares outstanding 113,960 112,849

Apollo Education Group, Inc.
Investor Relations Contacts:
Beth Coronelli, 312-660-2059
beth.coronelli@apollo.edu
Erin Kelly, 602-557-3830
erin.kelly@apollo.edu
Media Contact:
Media Relations Hotline, 602-254-0086
media@apollo.edu