SCHAUMBURG, Ill.--(BUSINESS WIRE)--
Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the third quarter and year to date ended September 30, 2017.
University Group and Corporate (Ongoing Operations) Third Quarter Highlights:
- Total enrollments increased 2.5 percent as compared to the prior year partially driven by an increase in new enrollments of 5.8 percent for the current quarter as compared to the prior year quarter
- Operating income of $23.6 million for the current quarter as compared to the prior year quarter operating income of $16.2 million, a 45.9 percent increase primarily driven by operating efficiencies within the University Group as well as improving enrollment trends
- Revenue of $141.5 million for the current quarter as compared to revenue of $139.5 million in the prior year quarter, with the increase partially driven by growth in total and new enrollments
3rd Quarter Consolidated Results:
- Operating income of $4.5 million for the current quarter as compared to an operating loss of $0.7 million for the prior year quarter
- Revenue of $145.0 million for the current quarter as compared to revenue of $167.6 million for the prior year quarter, with the decline expected and driven by the continued progress toward teach-out completion of the Transitional Group and Culinary Arts campuses
- Ended the quarter with $175.9 million in cash, cash equivalents, restricted cash and available-for-sale short-term investments, which represents a $3.9 million increase as compared to the second quarter of 2017
“We continued to experience better than expected enrollment trends and operating efficiencies during the third quarter, and are on track to close 2017 ahead of our initial expectations for the year,” said Todd Nelson, President and Chief Executive Officer. “Much of the momentum we are experiencing in the quarter is related to the success of initiatives we implemented throughout the year to pursue sustainable and responsible growth, including investments in technology and student support processes. We remain encouraged by the level of student engagement, retention and outcomes we are experiencing, and we expect to see continued enrollment growth in the fourth quarter of 2017.”
REVENUE
For the quarter and year to date ended September 30, 2017, total revenue was $145.0 million and $453.3 million representing a decrease of 13.5 percent and 17.4 percent, respectively, compared to total revenue of $167.6 million and $549.1 million for the quarter and year to date ended September 30, 2016, respectively. The decrease was primarily driven by declining revenues within the Transitional Group and Culinary Arts segments. The Culinary Arts segment completed its teach-out as of September 30, 2017 and the remaining eight Transitional Group campuses will complete their teach-outs through 2018.
Total revenue for the University Group was $141.5 million and $427.2 million representing an increase of 1.4 percent and 0.1 percent, respectively, for the quarter and year to date ended September 30, 2017 as compared to the respective prior year periods.
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | |||||||||||||||||||||||
| Increase | Increase | |||||||||||||||||||||||
|
Revenue ($ in thousands) |
2017 | 2016 | (Decrease) | 2017 | 2016 | (Decrease) | ||||||||||||||||||
| CTU | $ | 91,319 | $ | 90,921 | 0.4 | % | $ | 276,558 | $ | 274,623 | 0.7 | % | ||||||||||||
| AIU | 50,150 | 48,542 | 3.3 | % | 150,618 | 152,123 | -1.0 | % | ||||||||||||||||
| Total University Group | 141,469 | 139,463 | 1.4 | % | 427,176 | 426,746 | 0.1 | % | ||||||||||||||||
| Corporate and Other | — | — | NM | — | — | NM | ||||||||||||||||||
| Subtotal | 141,469 | 139,463 | 1.4 | % | 427,176 | 426,746 | 0.1 | % | ||||||||||||||||
| Culinary Arts (1) | 2,367 | 21,369 | -88.9 | % | 19,302 | 89,990 | -78.6 | % | ||||||||||||||||
| Transitional Group (1) | 1,150 | 6,793 | -83.1 | % | 6,839 | 32,401 | -78.9 | % | ||||||||||||||||
| Total | $ | 144,986 | $ | 167,625 | -13.5 | % | $ | 453,317 | $ | 549,137 | -17.4 | % | ||||||||||||
| (1) | Teach-out campuses included in the Transitional Group no longer enroll new students. The Culinary Arts campuses completed their teach-outs as of September 30, 2017. | |
TOTAL AND NEW STUDENT ENROLLMENTS
As of the end of the third quarter of 2017, total student enrollments for the University Group were 32,700, compared to 31,900 as of the prior year quarter end representing a 2.5 percent increase.
| As of September 30, | ||||||||||||||
| Increase | ||||||||||||||
|
Total Student Enrollments |
2017 | 2016 | (Decrease) | |||||||||||
| CTU | 21,600 | 21,400 | 0.9 | % | ||||||||||
| AIU | 11,100 | 10,500 | 5.7 | % | ||||||||||
| Total University Group | 32,700 | 31,900 | 2.5 | % | ||||||||||
| Culinary Arts (1) | — | 3,500 | NM | |||||||||||
| Transitional Group | 200 | 1,100 | NM | |||||||||||
| Total | 32,900 | 36,500 | -9.9 | % | ||||||||||
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | |||||||||||||||||||||||
| Increase | Increase | |||||||||||||||||||||||
|
New Student Enrollments |
2017 | 2016 | (Decrease) | 2017 | 2016 | (Decrease) | ||||||||||||||||||
| CTU (2) | 5,980 | 5,390 | 10.9 | % | 16,170 | 15,240 | 6.1 | % | ||||||||||||||||
| AIU (2) | 3,100 | 3,190 | -2.8 | % | 11,020 | 10,600 | 4.0 | % | ||||||||||||||||
| Total University Group (2) | 9,080 | 8,580 | 5.8 | % | 27,190 | 25,840 | 5.2 | % | ||||||||||||||||
| Culinary Arts (1) | — | — | NM | — | 990 | NM | ||||||||||||||||||
| Transitional Group (3) | — | 10 | NM | — | 90 | NM | ||||||||||||||||||
| Total | 9,080 | 8,590 | 5.7 | % | 27,190 | 26,920 | 1.0 | % | ||||||||||||||||
| (1) | Culinary Arts campuses completed their teach-outs as of September 30, 2017. | |
| (2) | New student enrollments were impacted by a change to how the Company records certain cancelled students which began in the third quarter of 2016. There is no impact to the third quarter of 2017 as both the current year quarter and the prior year quarter are calculated on the same basis. However, excluding the impact of this change, new student enrollments for the year to date ended September 30, 2017 as compared to the prior year to date would have increased 4.0 percent for CTU, decreased 0.9 percent for AIU and increased 2.0 percent for the University Group. | |
| (3) | Teach-out campuses within the Transitional Group no longer enroll new students; students who re-enter after 365 days are reported as new student enrollments. | |
OPERATING INCOME (LOSS)
For the quarter and year to date ended September 30, 2017, the Company recorded operating income of $4.5 million and $23.4 million, respectively, compared to operating loss of $0.7 million and operating income of $23.6 million for the quarter and year to date ended September 30, 2016, respectively. Total University Group and Corporate operating income of $23.6 million and $70.0 million for the quarter and year to date ended September 30, 2017, respectively, increased 45.9 percent and 11.9 percent as compared to the respective prior year periods.
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | |||||||||||||||||||||||
| Increase | Increase | |||||||||||||||||||||||
|
Operating Income ($ in thousands) |
2017 | 2016 | (Decrease) | 2017 | 2016 | (Decrease) | ||||||||||||||||||
| CTU | $ | 27,565 | $ | 21,486 | 28.3 | % | $ | 78,649 | $ | 70,693 | 11.3 | % | ||||||||||||
| AIU | 2,256 | 291 | 675.3 | % | 7,987 | 9,036 | -11.6 | % | ||||||||||||||||
| Total University Group | 29,821 | 21,777 | 36.9 | % | 86,636 | 79,729 | 8.7 | % | ||||||||||||||||
| Corporate and Other | (6,199 | ) | (5,587 | ) | -11.0 | % | (16,595 | ) | (17,160 | ) | 3.3 | % | ||||||||||||
| Subtotal | 23,622 | 16,190 | 45.9 | % | 70,041 | 62,569 | 11.9 | % | ||||||||||||||||
| Culinary Arts | (14,027 | ) | (1,801 | ) | NM | (25,039 | ) | 1,666 | NM | |||||||||||||||
| Transitional Group | (5,056 | ) | (15,095 | ) | 66.5 | % | (21,578 | ) | (40,672 | ) | 46.9 | % | ||||||||||||
| Total | $ | 4,539 | $ | (706 | ) | 742.9 | % | $ | 23,424 | $ | 23,563 | -0.6 | % | |||||||||||
ADJUSTED OPERATING INCOME (LOSS)
The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant and non-cash items, as a means to understand the performance of its operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)
As shown in the table below, adjusted operating income for the University Group and Corporate was $26.2 million and $77.7 million for the quarter and year to date ended September 30, 2017, respectively. Adjusted operating loss for the Transitional Group and Culinary Arts was $10.8 million and $31.8 million for the quarter and year to date ended September 30, 2017, respectively.
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | |||||||||||||||
|
Adjusted Operating Income (Loss) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
|
University Group and Corporate: |
||||||||||||||||
| Operating income (1) | $ | 23,622 | $ | 16,190 | $ | 70,041 | $ | 62,569 | ||||||||
| Depreciation and amortization (1) | 2,605 | 2,594 | 7,695 | 8,474 | ||||||||||||
| Asset impairments (1) | — | — | — | 237 | ||||||||||||
| Unused space charges (1) (2) | — | — | — | 1,118 | ||||||||||||
|
Adjusted Operating Income --
University Group and Corporate (1) |
$ | 26,227 | $ | 18,784 | $ | 77,736 | $ | 72,398 | ||||||||
| Increase (Decrease) | 39.6 | % | 7.4 | % | ||||||||||||
|
Transitional Group and Culinary Arts: |
||||||||||||||||
| Operating loss (3) | $ | (19,083 | ) | $ | (16,896 | ) | $ | (46,617 | ) | $ | (39,006 | ) | ||||
| Depreciation and amortization (3) | 977 | 2,621 | 3,673 | 8,512 | ||||||||||||
| Unused space charges (2) (3) | 7,347 | 4,983 | 11,158 | 14,123 | ||||||||||||
|
Adjusted Operating Loss --
Transitional and Culinary Arts (3) |
$ | (10,759 | ) | $ | (9,292 | ) | $ | (31,786 | ) | $ | (16,371 | ) | ||||
| Increase (Decrease) | -15.8 | % | -94.2 | % | ||||||||||||
| (1) | Amounts relate to the University Group and Corporate. | |
| (2) | Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income. | |
| (3) | Amounts relate to the Transitional Group and Culinary Arts. | |
BALANCE SHEET AND CASH FLOW
Net cash provided by operating activities was $5.1 million compared to net cash provided by operating activities of $9.7 million for the quarters ended September 30, 2017 and 2016, respectively. For the year to date ended September 30, 2017, net cash flows used in operations was $29.1 million as compared to net cash provided of $16.3 million for the year to date ended 2016.
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | |||||||||||||||||||||||
| Increase | Increase | |||||||||||||||||||||||
|
Selected Cash Flow Items |
2017 | 2016 | (Decrease) | 2017 | 2016 | (Decrease) | ||||||||||||||||||
| Net cash provided by (used in) operating activities | $ | 5,139 | $ | 9,697 | -47.0 | % | $ | (29,107 | ) | $ | 16,264 | -279.0 | % | |||||||||||
| Capital expenditures | $ | 1,280 | $ | 1,382 | -7.4 | % | $ | 3,426 | $ | 3,352 | 2.2 | % | ||||||||||||
As of September 30, 2017 and December 31, 2016, cash, cash equivalents, restricted cash and available-for-sale short-term investments totaled $175.9 million and $207.2 million, respectively.
OUTLOOK
The substantial completion of the teach-outs and continued execution against its strategy has provided the Company further visibility related to its 2017 operating results. As a result, the Company is providing an update to its previous outlook for adjusted operating losses related to its teach-out operations and for ending cash balances for 2017. The Company currently expects the following results, subject to the updated key assumptions identified below (see the GAAP to non-GAAP reconciliation for adjusted operating income (loss) attached to this press release for further details):
- University Group and Corporate adjusted operating income in the range of $100 to $105 million for the full year 2017, compared to $89 million in 2016.
- New and total student enrollment growth at both Universities in the fourth quarter of 2017, primarily driven by our ongoing initiatives and investments in student support operations, including our Phoenix admissions and advising centers as well as the academic calendar redesign at AIU.
- Adjusted operating loss for the Transitional Group and Culinary Arts segments in the range of $40 million to $45 million in 2017, compared to adjusted operating loss of $30 million in 2016, and in the range of $10 million to $15 million in 2018 as the Company winds down the remaining eight teach-out campuses.
- End of year cash, cash equivalents, restricted cash and available-for-sale short-term investments, net of any borrowings, as reported on the consolidated balance sheets of approximately $160 million to $165 million for the year ending December 31, 2017, and expected to increase in 2018.
Operating income (loss), which is the most directly comparable GAAP measure to adjusted operating income (loss), may not follow the same trends as discussed in the outlook above because of adjustments made for unused space charges that represent the present value of future remaining lease obligations for vacated space less an estimated amount for sublease income as well as depreciation, amortization, asset impairment charges and significant legal settlements. The operating income (loss) and adjusted operating income (loss) and cash outlook provided above for 2017 and 2018 are based on the following updated key assumptions and factors, among others: (i) prospective student interest in the Company’s programs continues to trend in line with recent experiences, (ii) modest total enrollment growth within the University Group, (iii) availability and retention of qualified personnel for ongoing investments in our student support operations, (iv) achievement of recovery rates for the Company’s real estate obligations and timing of any associated lease termination payments consistent with the Company’s historical experiences, (v) no material changes in the legal or regulatory environment and excludes legal and regulatory liabilities which are not probable and estimable at this time, and any impact of new or proposed regulations, including the “borrower defense to repayment” regulations and the gainful employment regulation and any modifications thereto, and (vi) consistent working capital movements in line with historical operating trends and potential impacts of teach-out campuses on working capital in line with expectations. Although these estimates and assumptions are based upon management’s good faith beliefs regarding current events and actions that may be undertaken in the future, actual results could differ materially from these estimates.
CONFERENCE CALL INFORMATION
Career Education Corporation will host a conference call on Thursday, November 2, 2017 at 5:30 p.m. Eastern time to discuss its third quarter and year to date 2017 results. Interested parties can access the live webcast of the conference call and the related presentation materials at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 844-378-6484 (domestic) or 412-542-4179 (international). 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.
ABOUT CAREER EDUCATION CORPORATION
Career Education’s academic institutions offer a quality education to a diverse student population in a variety of disciplines through online, campus-based and blended learning programs. The Company’s two universities – American InterContinental University (“AIU”) and Colorado Technical University (“CTU”) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Both universities predominantly serve students online with career-focused degree programs that are designed to meet the educational demands of today’s busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intellipath™ adaptive learning platform. Career Education is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.
A listing of individual campus locations and web links to Career Education’s institutions can be found at www.careered.com.
Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as “believe,” “will,” “expect,” “estimate,” “continue,” “on track,” “outlook,” “trend” 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 or interest in our programs; 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 gainful employment, 90-10, financial responsibility and administrative capability standards prescribed by the U.S. Department of Education), as well as applicable accreditation standards and state regulatory requirements; the impact of recently issued “defense to repayment” regulations and any modifications thereto; rulemaking by the U.S. Department of Education or any state or accreditor and increased focus by Congress and governmental agencies on, or increased negative publicity about, for-profit education institutions; our ability to successfully defend litigation and other claims brought against us; the success of our initiatives to improve student experiences, retention and outcomes; the ability of our new student admissions and advising centers in Phoenix, Arizona, to achieve anticipated operating performance; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; our ability to achieve anticipated cost savings and business efficiencies; increased competition; the impact of management changes; and changes in the overall U.S. 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 year ended December 31, 2016 and its subsequent filings with the Securities and Exchange Commission.
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
|
(In thousands) |
||||||||
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents, unrestricted | $ | 16,276 | $ | 49,507 | ||||
| Restricted cash | 789 | 1,375 | ||||||
| Restricted short-term investments | 7,070 | 8,597 | ||||||
| Short-term investments | 151,803 | 147,681 | ||||||
| Total cash and cash equivalents, restricted cash and short-term investments | 175,938 | 207,160 | ||||||
| Student receivables, net | 21,134 | 22,825 | ||||||
| Receivables, other, net | 996 | 929 | ||||||
| Prepaid expenses | 8,769 | 14,446 | ||||||
| Inventories | 991 | 1,868 | ||||||
| Other current assets | 1,112 | 817 | ||||||
| Assets of discontinued operations | 171 | 148 | ||||||
| Total current assets | 209,111 | 248,193 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | 33,278 | 40,512 | ||||||
| Goodwill | 87,356 | 87,356 | ||||||
| Intangible assets, net | 7,900 | 8,500 | ||||||
| Student receivables, net | 2,622 | 3,055 | ||||||
| Deferred income tax assets, net | 147,990 | 158,272 | ||||||
| Other assets | 7,018 | 7,608 | ||||||
| Assets of discontinued operations | 5,922 | 6,105 | ||||||
| TOTAL ASSETS | $ | 501,197 | $ | 559,601 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 11,780 | $ | 10,099 | ||||
| Accrued expenses: | ||||||||
| Payroll and related benefits | 31,646 | 41,203 | ||||||
| Advertising and production costs | 10,732 | 10,253 | ||||||
| Income taxes | 1,898 | 1,830 | ||||||
| Other | 35,127 | 69,244 | ||||||
| Deferred tuition revenue | 22,401 | 28,364 | ||||||
| Liabilities of discontinued operations | 6,434 | 8,219 | ||||||
| Total current liabilities | 120,018 | 169,212 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Deferred rent obligations | 16,253 | 30,713 | ||||||
| Other liabilities | 23,384 | 31,751 | ||||||
| Liabilities of discontinued operations | 2,156 | 6,422 | ||||||
| Total non-current liabilities | 41,793 | 68,886 | ||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock | - | - | ||||||
| Common stock | 843 | 835 | ||||||
| Additional paid-in capital | 619,483 | 613,325 | ||||||
| Accumulated other comprehensive income (loss) | 144 | (258 | ) | |||||
| Accumulated deficit | (63,745 | ) | (76,230 | ) | ||||
| Cost of shares in treasury | (217,339 | ) | (216,169 | ) | ||||
| Total stockholders' equity | 339,386 | 321,503 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 501,197 | $ | 559,601 | ||||
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | ||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND | ||||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
|
(In thousands, except per share amounts and percentages) |
||||||||||||||||
| For the Quarter Ended September 30, | ||||||||||||||||
| % of | % of | |||||||||||||||
| Total | Total | |||||||||||||||
| 2017 | Revenue | 2016 | Revenue | |||||||||||||
| REVENUE: | ||||||||||||||||
| Tuition and fees | $ | 144,408 | 99.6 | % | $ | 166,819 | 99.5 | % | ||||||||
| Other | 578 | 0.4 | % | 806 | 0.5 | % | ||||||||||
| Total revenue | 144,986 | 167,625 | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Educational services and facilities | 37,788 | 26.1 | % | 51,393 | 30.7 | % | ||||||||||
| General and administrative | 99,077 | 68.3 | % | 111,723 | 66.7 | % | ||||||||||
| Depreciation and amortization | 3,582 | 2.5 | % | 5,215 | 3.1 | % | ||||||||||
| Total operating expenses | 140,447 | 96.9 | % | 168,331 | 100.4 | % | ||||||||||
| Operating income (loss) | 4,539 | 3.1 | % | (706 | ) | -0.4 | % | |||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest income | 474 | 0.3 | % | 334 | 0.2 | % | ||||||||||
| Interest expense | (114 | ) | -0.1 | % | (117 | ) | -0.1 | % | ||||||||
| Miscellaneous income | 196 | 0.1 | % | 10 | 0.0 | % | ||||||||||
| Total other income | 556 | 0.4 | % | 227 | 0.1 | % | ||||||||||
| PRETAX INCOME (LOSS) | 5,095 | 3.5 | % | (479 | ) | -0.3 | % | |||||||||
| Provision for income taxes | 1,597 | 1.1 | % | 21 | 0.0 | % | ||||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS | 3,498 | 2.4 | % | (500 | ) | -0.3 | % | |||||||||
| Loss from discontinued operations, net of tax | (476 | ) | -0.3 | % | (186 | ) | -0.1 | % | ||||||||
| NET INCOME (LOSS) | 3,022 | 2.1 | % | (686 | ) | -0.4 | % | |||||||||
| OTHER COMPREHENSIVE INCOME, net of tax: | ||||||||||||||||
| Foreign currency translation adjustments | 105 | 47 | ||||||||||||||
| Unrealized gain on investments | — | 370 | ||||||||||||||
| Total other comprehensive income | 105 | 417 | ||||||||||||||
| COMPREHENSIVE INCOME (LOSS) | $ | 3,127 | $ | (269 | ) | |||||||||||
| NET INCOME (LOSS) PER SHARE - BASIC and DILUTED: | ||||||||||||||||
| Income (loss) from continuing operations | $ | 0.05 | $ | (0.01 | ) | |||||||||||
| Loss from discontinued operations | (0.01 | ) | — | |||||||||||||
| Net income (loss) per share | $ | 0.04 | $ | (0.01 | ) | |||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||
| Basic | 69,082 | 68,460 | ||||||||||||||
| Diluted | 70,865 | 68,460 | ||||||||||||||
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | ||||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND | ||||||||||||||||
| COMPREHENSIVE INCOME | ||||||||||||||||
|
(In thousands, except per share amounts and percentages) |
||||||||||||||||
| For the Year to Date Ended September 30, | ||||||||||||||||
| % of | % of | |||||||||||||||
| Total | Total | |||||||||||||||
| 2017 | Revenue | 2016 | Revenue | |||||||||||||
| REVENUE: | ||||||||||||||||
| Tuition and fees | $ | 451,292 | 99.6 | % | $ | 546,036 | 99.4 | % | ||||||||
| Other | 2,025 | 0.4 | % | 3,101 | 0.6 | % | ||||||||||
| Total revenue | 453,317 | 549,137 | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Educational services and facilities | 114,367 | 25.2 | % | 170,993 | 31.1 | % | ||||||||||
| General and administrative | 304,158 | 67.1 | % | 337,358 | 61.4 | % | ||||||||||
| Depreciation and amortization | 11,368 | 2.5 | % | 16,986 | 3.1 | % | ||||||||||
| Asset impairment | — | 0.0 | % | 237 | 0.0 | % | ||||||||||
| Total operating expenses | 429,893 | 94.8 | % | 525,574 | 95.7 | % | ||||||||||
| Operating income | 23,424 | 5.2 | % | 23,563 | 4.3 | % | ||||||||||
| OTHER INCOME: | ||||||||||||||||
| Interest income | 1,328 | 0.3 | % | 900 | 0.2 | % | ||||||||||
| Interest expense | (340 | ) | -0.1 | % | (469 | ) | -0.1 | % | ||||||||
| Miscellaneous income (expense) | 489 | 0.1 | % | (4 | ) | 0.0 | % | |||||||||
| Total other income | 1,477 | 0.3 | % | 427 | 0.1 | % | ||||||||||
| PRETAX INCOME | 24,901 | 5.5 | % | 23,990 | 4.4 | % | ||||||||||
| Provision for income taxes | 11,143 | 2.5 | % | 8,776 | 1.6 | % | ||||||||||
| INCOME FROM CONTINUING OPERATIONS | 13,758 | 3.0 | % | 15,214 | 2.8 | % | ||||||||||
| Loss from discontinued operations, net of tax | (1,273 | ) | -0.3 | % | (1,050 | ) | -0.2 | % | ||||||||
| NET INCOME | 12,485 | 2.8 | % | 14,164 | 2.6 | % | ||||||||||
| OTHER COMPREHENSIVE INCOME, net of tax: | ||||||||||||||||
| Foreign currency translation adjustments | 368 | 143 | ||||||||||||||
| Unrealized gain on investments | 34 | 824 | ||||||||||||||
| Total other comprehensive income | 402 | 967 | ||||||||||||||
| COMPREHENSIVE INCOME | $ | 12,887 | $ | 15,131 | ||||||||||||
| NET INCOME PER SHARE - BASIC and DILUTED: | ||||||||||||||||
| Income from continuing operations | $ | 0.20 | $ | 0.22 | ||||||||||||
| Loss from discontinued operations | (0.02 | ) | (0.01 | ) | ||||||||||||
| Net income per share | $ | 0.18 | $ | 0.21 | ||||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||
| Basic | 68,897 | 68,328 | ||||||||||||||
| Diluted | 70,660 | 68,889 | ||||||||||||||
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | ||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
|
(In thousands) |
||||||||
| For the Year to Date Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 12,485 | $ | 14,164 | ||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Asset impairment | — | 237 | ||||||
| Depreciation and amortization expense | 11,368 | 16,986 | ||||||
| Bad debt expense | 21,516 | 23,201 | ||||||
| Compensation expense related to share-based awards | 3,616 | 2,251 | ||||||
| Deferred income taxes | 10,282 | 7,373 | ||||||
| Gain on disposition of property and equipment | — | (438 | ) | |||||
| Changes in operating assets and liabilities: | (88,374 | ) | (47,510 | ) | ||||
| Net cash (used in) provided by operating activities | (29,107 | ) | 16,264 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of available-for-sale investments | (202,050 | ) | (137,755 | ) | ||||
| Sales of available-for-sale investments | 199,340 | 99,718 | ||||||
| Purchases of property and equipment | (3,426 | ) | (3,352 | ) | ||||
| Proceeds on the sale of assets | — | 3,600 | ||||||
| Payments of cash upon sale of businesses | — | (62 | ) | |||||
| Net cash used in investing activities | (6,136 | ) | (37,851 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock | 2,548 | 581 | ||||||
| Payment on borrowings | — | (38,000 | ) | |||||
| Payments of employee tax associated with stock compensation | (1,170 | ) | (550 | ) | ||||
| Net cash provided by (used in) financing activities | 1,378 | (37,969 | ) | |||||
| EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH | ||||||||
| AND CASH EQUIVALENTS: | 48 | (150 | ) | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (33,817 | ) | (59,706 | ) | ||||
| CASH AND CASH EQUIVALENTS, beginning of the period | 50,882 | 116,740 | ||||||
| CASH AND CASH EQUIVALENTS, end of the period | $ | 17,065 | $ | 57,034 | ||||
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | ||||||||
| UNAUDITED SELECTED SEGMENT INFORMATION | ||||||||
|
(In thousands, except percentages) |
||||||||
| For the Quarter Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| REVENUE: | ||||||||
| CTU | $ | 91,319 | $ | 90,921 | ||||
| AIU | 50,150 | 48,542 | ||||||
| Total University Group | 141,469 | 139,463 | ||||||
| Corporate and Other | — | — | ||||||
| Subtotal | 141,469 | 139,463 | ||||||
| Culinary Arts | 2,367 | 21,369 | ||||||
| Transitional Group | 1,150 | 6,793 | ||||||
| Total | $ | 144,986 | $ | 167,625 | ||||
| OPERATING INCOME (LOSS): | ||||||||
| CTU | $ | 27,565 | $ | 21,486 | ||||
| AIU | 2,256 | 291 | ||||||
| Total University Group | 29,821 | 21,777 | ||||||
| Corporate and Other | (6,199 | ) | (5,587 | ) | ||||
| Subtotal | 23,622 | 16,190 | ||||||
| Culinary Arts | (14,027 | ) | (1,801 | ) | ||||
| Transitional Group | (5,056 | ) | (15,095 | ) | ||||
| Total | $ | 4,539 | $ | (706 | ) | |||
| OPERATING MARGIN (LOSS): | ||||||||
| CTU | 30.2 | % | 23.6 | % | ||||
| AIU | 4.5 | % | 0.6 | % | ||||
| Total University Group | 21.1 | % | 15.6 | % | ||||
| Corporate and Other | NM | NM | ||||||
| Subtotal | 16.7 | % | 11.6 | % | ||||
| Culinary Arts | NM | -8.4 | % | |||||
| Transitional Group | NM | NM | ||||||
| Total | 3.1 | % | -0.4 | % | ||||
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | ||||||||
| UNAUDITED SELECTED SEGMENT INFORMATION | ||||||||
|
(In thousands, except percentages) |
||||||||
| For the Year to Date Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| REVENUE: | ||||||||
| CTU | $ | 276,558 | $ | 274,623 | ||||
| AIU | 150,618 | 152,123 | ||||||
| Total University Group | 427,176 | 426,746 | ||||||
| Corporate and Other | — | — | ||||||
| Subtotal | 427,176 | 426,746 | ||||||
| Culinary Arts | 19,302 | 89,990 | ||||||
| Transitional Group | 6,839 | 32,401 | ||||||
| Total | $ | 453,317 | $ | 549,137 | ||||
| OPERATING INCOME (LOSS): | ||||||||
| CTU | $ | 78,649 | $ | 70,693 | ||||
| AIU | 7,987 | 9,036 | ||||||
| Total University Group | 86,636 | 79,729 | ||||||
| Corporate and Other | (16,595 | ) | (17,160 | ) | ||||
| Subtotal | 70,041 | 62,569 | ||||||
| Culinary Arts | (25,039 | ) | 1,666 | |||||
| Transitional Group | (21,578 | ) | (40,672 | ) | ||||
| Total | $ | 23,424 | $ | 23,563 | ||||
| OPERATING MARGIN (LOSS): | ||||||||
| CTU | 28.4 | % | 25.7 | % | ||||
| AIU | 5.3 | % | 5.9 | % | ||||
| Total University Group | 20.3 | % | 18.7 | % | ||||
| Corporate and Other | NM | NM | ||||||
| Subtotal | 16.4 | % | 14.7 | % | ||||
| Culinary Arts | NM | 1.9 | % | |||||
| Transitional Group | NM | NM | ||||||
| Total | 5.2 | % | 4.3 | % | ||||
| CAREER EDUCATION CORPORATION AND SUBSIDIARIES | |||||||||||||||||
|
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1) |
|||||||||||||||||
|
(In thousands, unless otherwise noted) |
|||||||||||||||||
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | ||||||||||||||||
| ACTUAL | ACTUAL | ||||||||||||||||
|
Adjusted Operating Income (Loss) |
2017 | 2016 | 2017 | 2016 | |||||||||||||
|
University Group and Corporate: |
|||||||||||||||||
| Operating income (2) (3) | $ | 23,622 | $ | 16,190 | $ | 70,041 | $ | 62,569 | |||||||||
| Depreciation and amortization (3) | 2,605 | 2,594 | 7,695 | 8,474 | |||||||||||||
| Asset impairments (3) | — | — | — | 237 | |||||||||||||
| Unused space charges (3) (4) | — | — | — | 1,118 | |||||||||||||
|
Adjusted Operating Income --
University Group and Corporate (5) |
$ | 26,227 | $ | 18,784 | $ | 77,736 | $ | 72,398 | |||||||||
|
Transitional Group and Culinary Arts: |
|||||||||||||||||
| Operating loss (2) (6) | $ | (19,083 | ) | $ | (16,896 | ) | $ | (46,617 | ) | $ | (39,006 | ) | |||||
| Depreciation and amortization (6) | 977 | 2,621 | 3,673 | 8,512 | |||||||||||||
| Unused space charges (4) (6) | 7,347 | 4,983 | 11,158 | 14,123 | |||||||||||||
|
Adjusted Operating Loss --
Transitional and Culinary Arts (5) |
$ | (10,759 | ) | $ | (9,292 | ) | $ | (31,786 | ) | $ | (16,371 | ) | |||||
| For the Second Half July-December 31, | For the Year Ended December 31, | |||||||||||||
| ACTUAL | OUTLOOK | ACTUAL | OUTLOOK | |||||||||||
|
Adjusted Operating Income (Loss) |
2016 | 2017 | 2016 | 2017 | 2018 | |||||||||
|
University Group and Corporate: |
||||||||||||||
| Operating income (2) (3) | $ | (1,662 | ) | $43 - $48M | $ | 44,717 | $90 - $95M | Growth vs 2017 | ||||||
| Depreciation and amortization (3) | 5,284 | ~5M | 11,164 | ~10M | 2017 levels | |||||||||
| Asset impairments (3) | — | None Assumed | 237 | None Assumed | ||||||||||
| Unused space charges (3) (4) | 16 | None Assumed | 1,134 | None Assumed | ||||||||||
| Significant legal settlements (3) | 32,000 | None Assumed | 32,000 | None Assumed | ||||||||||
|
Adjusted Operating Income --
University Group and Corporate (5) |
$ | 35,638 | $48 - $53M | $ | 89,252 | $100 - $105M | Growth vs 2017 | |||||||
|
Transitional Group and Culinary Arts: |
||||||||||||||
| Operating loss (2) (6) | $ | (54,951 | ) | ($31 - $36M) | $ | (77,061 | ) | ($59 - $64M) | ($15 - $20M) | |||||
| Depreciation and amortization (6) | 5,692 | ~1M | 11,583 | ~4M | - | |||||||||
| Asset impairments (6) | 927 | None Assumed | 927 | None Assumed | ||||||||||
| Unused space charges (4) (6) | 25,579 | ~11M | 34,719 | ~15M | ~5M | |||||||||
|
Adjusted Operating Loss --
Transitional and Culinary Arts (5) |
$ | (22,753 | ) | ($19 - $24M) | $ | (29,832 | ) | ($40 - $45M) | ($10 - $15M) | |||||
| (1) | The Company believes it is useful to present non-GAAP financial measures which exclude certain significant and non-cash items as a means to understand the performance of its operations. As a general matter, the Company uses non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of its operations, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company’s historical results and to provide estimates of future performance. | |
| The Company believes adjusted operating income (loss) allows it to analyze and assess its ongoing operations and compare current operating results with the operational performance of other companies in its industry because it does not give effect to potential differences caused by items it does not consider reflective of underlying operating performance, such as unused space charges and significant legal reserves. In evaluating adjusted operating income (loss), investors should be aware that in the future the Company may incur expenses similar to the adjustments presented above. The presentation of adjusted operating income (loss) should not be construed as an inference that the Company's future results will be unaffected by expenses that are unusual, non-routine or non-recurring. Adjusted operating income (loss) has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for net income (loss), operating income (loss), or any other performance measure derived in accordance and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of liquidity. | ||
| Non-GAAP financial measures, when viewed in a reconciliation to corresponding GAAP financial measures, provide an additional way of viewing the Company’s results of operations and the factors and trends affecting the Company’s business. Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding financial results presented in accordance with GAAP. | ||
| (2) | Operating income for the University Group and Corporate and operating loss for the Transitional Group and Culinary Arts make up the components of operating income (loss). A reconciliation of these components for the quarters and years to date ended September 30, 2017 and 2016 is presented below: | |
| For the Quarter Ended September 30, | For the Year to Date Ended September 30, | |||||||||||||||
| ACTUAL | ACTUAL | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating income for University Group and Corporate | $ | 23,622 | $ | 16,190 | $ | 70,041 | $ | 62,569 | ||||||||
| Operating loss for Culinary Arts and Transitional | (19,083 | ) | (16,896 | ) | (46,617 | ) | (39,006 | ) | ||||||||
| Operating income (loss) | $ | 4,539 | $ | (706 | ) | $ | 23,424 | $ | 23,563 | |||||||
| (3) | Amounts relate to the University Group and Corporate. | |
| (4) | Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income. These charges relate to exiting leased space as the Company continues to right-size the organization and therefore are not considered representative of ongoing operations. | |
| (5) | Management assesses results of operations for the University Group and Corporate separately from the Transitional Group and Culinary Arts. As the Transitional Group and Culinary Arts campuses have been announced for teach-out or have been taught out, management views these operations as not reflective of the ongoing business. As a result, management views adjusted operating income from the University Group and Corporate separately from the remainder of the organization, to assess results and make decisions. | |
| (6) | Amounts relate to the Transitional Group and Culinary Arts. | |
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