APOLLO EDUCATION GROUP INC Apollo Education Group, Inc. (NASDAQ: APOL) today reported financial results for the three months and fiscal year ended August 31, 2014, with fourth quarter revenue of $709.7 million and diluted earnings per share from continuing operations of $0.29 per share, or $0.34 per share excluding special items.
“In 2014, we made significant progress on our ambitious plans to differentiate the University of Phoenix, diversify Apollo Education Group, and build a more efficient organization,” said Greg Cappelli, Chief Executive Officer, Apollo Education Group. “Our teams worked to realign the University of Phoenix around our distinct college-based strategy, expanded the Apollo Global network to now serve students on six continents, while maintaining a healthy balance sheet with ample capital to deploy our long-term strategic plan.”
Fourth Quarter 2014 Results of Operations
Apollo Education Group (“the Company”) reported net revenue for the fourth quarter 2014 of $709.7 million, compared to $836.4 million for the fourth quarter 2013. Fourth quarter 2014 University of Phoenix New Degreed Enrollment was 38,600, down 5.9% from fourth quarter 2013, and Degreed Enrollment decreased 13.2% to 233,500, compared to the same period from the prior year. Operating income for the fourth quarter 2014 was $42.0 million, compared to $38.6 million from the prior year fourth quarter. Income from continuing operations attributable to Apollo Education Group for the fourth quarter 2014 was $32.0 million, or $0.29 per share, compared to $23.9 million, or $0.21 per share from the prior year fourth quarter.
Excluding special items, operating income was $56.7 million for the fourth quarter 2014, compared to $104.5 million for the fourth quarter 2013, and income from continuing operations attributable to Apollo Education Group for the fourth quarter 2014 was $37.2 million, or $0.34 per share, compared to $65.4 million, or $0.58 per share, for the fourth quarter 2013. (Special items for the fourth quarter 2014 and 2013 are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)
Fiscal Year 2014 Results of Operations
Net revenue for fiscal year 2014 was $3.0 billion, compared to $3.6 billion in the prior year, representing a 16.8% decrease. University of Phoenix Average Degreed Enrollment for fiscal year 2014 was 251,500, a 16.5% decrease from the prior year, and Aggregate New Degreed Enrollment was 146,700, down 15.2% from the prior year. Operating income was $339.0 million, compared to $434.4 million from the prior year. Income from continuing operations attributable to Apollo Education Group was $215.9 million, or $1.92 per share, compared to $253.1 million, or $2.23 per share in fiscal year 2013.
Excluding special items, operating income was $446.9 million for fiscal year 2014, compared to $606.8 million in fiscal year 2013, and income from continuing operations attributable to Apollo Education Group for fiscal year 2014 was $277.3 million, or $2.46 per share, compared to $361.7 million, or $3.19 per share, for fiscal year 2013. (Special items for fiscal year 2014 and 2013 are included in the reconciliation of GAAP to non-GAAP financial information tables of this press release.)
Balance Sheet and Cash Flow
As of August 31, 2014, the Company’s unrestricted cash and cash equivalents and short-term marketable securities totaled $1.4 billion, compared to $1.5 billion as of August 31, 2013. The decrease was primarily attributable to $172.7 million of share repurchases (which includes $13.0 million of share repurchases for tax withholding requirements on restricted stock units), $119.5 million for acquisitions, $100.7 million for capital expenditures, a net investment of $43.9 million in long-term marketable securities, and $36.7 million of net payments on borrowings. These items were partially offset by $375.9 million of cash provided by operations.
Total debt outstanding (including short-term borrowings and the current portion of long-term debt) decreased $35.0 million to $657.1 million as of August 31, 2014. Subsequent to August 31, 2014, the Company repaid the $585.0 million drawn on its principal revolving credit facility.
Institute for Professional Development
During the fourth quarter 2014, Apollo Education Group sold assets of its subsidiary Institute for Professional Development, resulting in recognizing an immaterial gain on sale. The Company sold the business primarily due to recent operating losses and limitations on its ability to further develop and expand the domestic business. Institute for Professional Development’s operating results are presented as discontinued operations for all periods presented.
Business Outlook
The Company offers the following outlook for fiscal year 2015 based on the business trends observed during the fourth quarter of fiscal year 2014, as well as management’s current expectations of future trends.
- Net revenue of $2.80 to $2.85 billion; and
- Operating income of $300 to $325 million, excluding the impact of special items.
The Company also provides the following outlook for the first quarter of fiscal year 2015.
- Net revenue of $720 to $730 million; and
- Operating income of $70 to $75 million, excluding the impact of special items.
Conference Call Information
The Company will hold a conference call to discuss these earnings results at 8:30 a.m. (ET), 5:30 a.m. (PT), today, Tuesday, October 21, 2014.
Dial-In Numbers:
877-292-6888 (Domestic)
973-200-3381 (International)
Conference
ID: 95220674
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 October 28, 2014.
Dial-In Numbers:
855-859-2056 (Domestic)
404-537-3406 (International)
Conference
ID: 95220674
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: Apollo Global, College for Financial Planning, University of Phoenix, and Western International University, 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 Europe, Australia, Latin America, Africa and Asia, as well as online throughout the world.
For more information about Apollo Education Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company’s website at www.apollo.edu.
Apollo Education Group, Inc. and Subsidiaries | |||||||||||||||||
Condensed Consolidated Statements of Income | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months Ended
| Year Ended
| ||||||||||||||||
(In thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
Net revenue | $ | 709,666 | $ | 836,358 | $ | 3,024,178 | $ | 3,635,924 | |||||||||
Costs and expenses: | |||||||||||||||||
| Instructional and student advisory | 322,604 | 366,307 | 1,301,004 | 1,561,568 | |||||||||||||
| Marketing | 148,654 | 163,142 | 557,649 | 641,784 | |||||||||||||
| Admissions advisory | 56,121 | 56,721 | 215,196 | 253,319 | |||||||||||||
| General and administrative | 70,718 | 91,297 | 287,884 | 326,908 | |||||||||||||
| Depreciation and amortization | 39,051 | 38,179 | 150,575 | 161,733 | |||||||||||||
| Provision for uncollectible accounts receivable | 15,822 | 16,232 | 53,819 | 83,798 | |||||||||||||
| Restructuring and other charges | 23,267 | 67,330 | 85,343 | 197,022 | |||||||||||||
| Litigation charge (credit) | 775 | (1,400 | ) | 13,900 | (24,600 | ) | |||||||||||
| Contingent consideration (credit) charges and acquisition costs, net | (9,336 | ) | — | 19,837 | — | ||||||||||||
Total costs and expenses | 667,676 | 797,808 | 2,685,207 | 3,201,532 | |||||||||||||
Operating income | 41,990 | 38,550 | 338,971 | 434,392 | |||||||||||||
| Interest income | 610 | 470 | 2,230 | 1,913 | |||||||||||||
| Interest expense | (1,930 | ) | (2,671 | ) | (7,914 | ) | (8,745 | ) | |||||||||
| Other (loss) income, net | (1,177 | ) | 1,596 | (547 | ) | 2,407 | |||||||||||
Income from continuing operations before income taxes | 39,493 | 37,945 | 332,740 | 429,967 | |||||||||||||
| Provision for income taxes | (8,697 | ) | (14,219 | ) | (121,324 | ) | (176,457 | ) | |||||||||
| Income from continuing operations | 30,796 | 23,726 | 211,416 | 253,510 | |||||||||||||
| Loss from discontinued operations, net of tax(1) | (2,226 | ) | (2,330 | ) | (6,618 | ) | (4,545 | ) | |||||||||
| Net income | 28,570 | 21,396 | 204,798 | 248,965 | |||||||||||||
| Net loss (income) attributable to noncontrolling interests | 1,213 | 155 | 4,506 | (439 | ) | ||||||||||||
| Net income attributable to Apollo | $ | 29,783 | $ | 21,551 | $ | 209,304 | $ | 248,526 | |||||||||
| Earnings (loss) per share - Basic: | |||||||||||||||||
| Continuing operations attributable to Apollo | $ | 0.29 | $ | 0.21 | $ | 1.94 | $ | 2.25 | |||||||||
| Discontinued operations attributable to Apollo(1) | (0.02 | ) | (0.02 | ) | (0.06 | ) | (0.05 | ) | |||||||||
| Basic income per share attributable to Apollo | $ | 0.27 | $ | 0.19 | $ | 1.88 | $ | 2.20 | |||||||||
| Earnings (loss) per share - Diluted: | |||||||||||||||||
| Continuing operations attributable to Apollo | $ | 0.29 | $ | 0.21 | $ | 1.92 | $ | 2.23 | |||||||||
| Discontinued operations attributable to Apollo(1) | (0.02 | ) | (0.02 | ) | (0.06 | ) | (0.04 | ) | |||||||||
| Diluted income per share attributable to Apollo | $ | 0.27 | $ | 0.19 | $ | 1.86 | $ | 2.19 | |||||||||
| Basic weighted average shares outstanding | 109,364 | 113,105 | 111,354 | 112,712 | |||||||||||||
| Diluted weighted average shares outstanding | 110,839 | 113,740 | 112,610 | 113,285 | |||||||||||||
(1) Institute for Professional Development’s operating results are presented as discontinued operations for all periods presented.
Apollo Education Group, Inc. and Subsidiaries | ||||||||||
Condensed Consolidated Balance Sheets | ||||||||||
(Unaudited) | ||||||||||
| As of August 31, | ||||||||||
| ($ in thousands) | 2014 | 2013 | ||||||||
ASSETS | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 1,228,813 | $ | 1,414,485 | ||||||
| Restricted cash and cash equivalents | 224,135 | 259,174 | ||||||||
| Marketable securities | 187,472 | 105,809 | ||||||||
| Accounts receivable, net | 225,398 | 215,401 | ||||||||
| Prepaid taxes | 34,006 | 30,359 | ||||||||
| Deferred tax assets | 83,871 | 60,294 | ||||||||
| Other current assets | 58,855 | 64,134 | ||||||||
| Total current assets | 2,042,550 | 2,149,656 | ||||||||
| Marketable securities | 87,811 | 43,941 | ||||||||
| Property and equipment, net | 435,733 | 472,614 | ||||||||
| Goodwill | 259,901 | 103,620 | ||||||||
| Intangible assets, net | 189,365 | 132,192 | ||||||||
| Deferred tax assets | 37,335 | 63,894 | ||||||||
| Other assets | 40,240 | 32,030 | ||||||||
Total assets | $ | 3,092,935 | $ | 2,997,947 | ||||||
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY | ||||||||||
| Current liabilities: | ||||||||||
| Short-term borrowings and current portion of long-term debt | $ | 609,506 | $ | 628,050 | ||||||
| Accounts payable | 63,907 | 73,123 | ||||||||
| Student deposits | 280,562 | 309,176 | ||||||||
| Deferred revenue | 225,818 | 213,260 | ||||||||
| Accrued and other current liabilities | 363,607 | 346,706 | ||||||||
| Total current liabilities | 1,543,400 | 1,570,315 | ||||||||
| Long-term debt | 47,590 | 64,004 | ||||||||
| Deferred tax liabilities | 22,674 | 12,177 | ||||||||
| Other long-term liabilities | 233,942 | 233,442 | ||||||||
Total liabilities | 1,847,606 | 1,879,938 | ||||||||
| Commitments and contingencies | ||||||||||
| Redeemable noncontrolling interests | 64,527 | — | ||||||||
| Shareholders’ equity: | ||||||||||
| Preferred stock, no par value | — | — | ||||||||
| Apollo Class A nonvoting common stock, no par value | 103 | 103 | ||||||||
| Apollo Class B voting common stock, no par value | 1 | 1 | ||||||||
| Additional paid-in capital | — | — | ||||||||
| Apollo Class A treasury stock, at cost | (3,936,607 | ) | (3,824,758 | ) | ||||||
| Retained earnings | 5,143,949 | 4,978,815 | ||||||||
| Accumulated other comprehensive loss | (27,320 | ) | (36,563 | ) | ||||||
| Total Apollo shareholders’ equity | 1,180,126 | 1,117,598 | ||||||||
| Noncontrolling interests | 676 | 411 | ||||||||
Total equity | 1,180,802 | 1,118,009 | ||||||||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 3,092,935 | $ | 2,997,947 | ||||||
Apollo Education Group, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(Unaudited) | ||||||||
| Year Ended August 31, | ||||||||
| ($ in thousands) | 2014 | 2013 | ||||||
| Operating activities: | ||||||||
| Net income | $ | 204,798 | $ | 248,965 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Share-based compensation | 42,819 | 49,462 | ||||||
| Excess tax benefits from share-based compensation | (1,285 | ) | (17 | ) | ||||
| Depreciation and amortization | 150,575 | 161,733 | ||||||
| Accelerated depreciation and impairments included in restructuring | 7,580 | 62,267 | ||||||
| Loss on asset dispositions and write-offs, net | 556 | 8,190 | ||||||
| Non-cash foreign currency loss, net | 957 | 220 | ||||||
| Provision for uncollectible accounts receivable | 53,819 | 83,798 | ||||||
| Deferred income taxes | (13,912 | ) | (29,517 | ) | ||||
| Changes in assets and liabilities, excluding the impact of acquisitions and business dispositions: | ||||||||
| Restricted cash and cash equivalents | 37,233 | 59,160 | ||||||
| Accounts receivable | (61,435 | ) | (103,369 | ) | ||||
| Prepaid taxes | (2,890 | ) | (3,985 | ) | ||||
| Other assets | 6,072 | (19,514 | ) | |||||
| Accounts payable | (11,950 | ) | (1,775 | ) | ||||
| Student deposits | (30,738 | ) | (52,587 | ) | ||||
| Deferred revenue | 657 | (39,091 | ) | |||||
| Accrued and other liabilities | (6,949 | ) | 54,108 | |||||
Net cash provided by operating activities | 375,907 | 478,048 | ||||||
Investing activities: | ||||||||
| Purchases of property and equipment | (100,666 | ) | (119,348 | ) | ||||
| Purchases of marketable securities | (319,079 | ) | (208,878 | ) | ||||
| Maturities of marketable securities | 188,276 | 65,074 | ||||||
| Acquisitions, net of cash acquired | (119,454 | ) | — | |||||
| Other investing activities | 606 | (1,500 | ) | |||||
Net cash used in investing activities | (350,317 | ) | (264,652 | ) | ||||
Financing activities: | ||||||||
| Payments on borrowings | (627,822 | ) | (636,387 | ) | ||||
| Proceeds from borrowings | 591,131 | 610,236 | ||||||
| Share repurchases | (172,709 | ) | (9,537 | ) | ||||
| Share reissuances | 1,793 | 3,867 | ||||||
| Purchase of noncontrolling interests | (893 | ) | (42,500 | ) | ||||
| Excess tax benefits from share-based compensation | 1,285 | 17 | ||||||
| Other financing activities | (4,143 | ) | — | |||||
| Net cash used in financing activities | (211,358 | ) | (74,304 | ) | ||||
| Exchange rate effect on cash and cash equivalents | 96 | (982 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | (185,672 | ) | 138,110 | |||||
| Cash and cash equivalents, beginning of year | 1,414,485 | 1,276,375 | ||||||
| Cash and cash equivalents, end of year | $ | 1,228,813 | $ | 1,414,485 | ||||
| Supplemental disclosure of cash flow and non-cash information: | ||||||||
| Cash paid for income taxes, net of refunds | $ | 161,163 | $ | 201,055 | ||||
| Cash paid for interest | 7,657 | 7,869 | ||||||
| Restricted stock units vested and released | 37,430 | 27,054 | ||||||
| Credits received for tenant improvements | 1,131 | 6,049 | ||||||
| Capital lease additions | — | 3,500 | ||||||
Apollo Education Group, Inc. and Subsidiaries | |||||||||||||||
Segment Data and University of Phoenix Operating Metrics | |||||||||||||||
(Unaudited) | |||||||||||||||
| Three Months Ended August 31, |
Year Ended August 31, | ||||||||||||||
| (In thousands, except enrollment data) | 2014 | 2013 | 2014 | 2013 | |||||||||||
| Net revenue: | |||||||||||||||
| University of Phoenix | |||||||||||||||
| Degree seeking gross revenues(1) | $ | 661,029 | $ | 824,766 | $ | 2,840,946 | $ | 3,525,669 | |||||||
| Less: Discounts and other | (62,202 | ) | (66,378 | ) | (251,954 | ) | (267,215 | ) | |||||||
| Degree seeking net revenues(1) | 598,827 | 758,388 | 2,588,992 | 3,258,454 | |||||||||||
| Other revenues | 13,471 | 13,286 | 43,957 | 46,010 | |||||||||||
| Total University of Phoenix | 612,298 | 771,674 | 2,632,949 | 3,304,464 | |||||||||||
| Apollo Global | 77,756 | 46,164 | 338,008 | 275,768 | |||||||||||
| Other | 19,612 | 18,520 | 53,221 | 55,692 | |||||||||||
Net revenue | $ | 709,666 | $ | 836,358 | $ | 3,024,178 | $ | 3,635,924 | |||||||
| Operating income (loss): | |||||||||||||||
| University of Phoenix | $ | 82,909 | $ | 113,673 | $ | 488,217 | $ | 579,670 | |||||||
| Apollo Global | (22,557 | ) | (32,285 | ) | (74,189 | ) | (59,936 | ) | |||||||
| Other | (18,362 | ) | (42,838 | ) | (75,057 | ) | (85,342 | ) | |||||||
Operating income | $ | 41,990 | $ | 38,550 | $ | 338,971 | $ | 434,392 | |||||||
University of Phoenix Enrollment Data: | |||||||||||||||
| Degreed Enrollment(2) | 233,500 | 269,000 | |||||||||||||
| Average Degreed Enrollment(3) | 251,500 | 301,100 | |||||||||||||
| New Degreed Enrollment(4) | 38,600 | 41,000 | |||||||||||||
| Degree seeking net revenues per degreed enrollment | $ | 2,565 | $ | 2,819 | |||||||||||
| (1) Represents revenue from tuition and other fees for students enrolled in University of Phoenix degree programs or certificate programs of at least 18 credits in length with some course applicability into a related degree program. | |||||||||||||||
| (2) 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. | |||||||||||||||
| (3) Represents the average of quarterly Degreed Enrollment from the beginning to the end of the respective fiscal years. | |||||||||||||||
| (4) 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. | |||||||||||||||
Apollo Education Group, Inc. and Subsidiaries | ||||||||||||||||
Reconciliation of GAAP Financial Information to Non-GAAP Financial Information | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Consolidated Financial Information Reconciliation | Three Months Ended August 31, | Year Ended August 31, | ||||||||||||||
| (In thousands, except per share data) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Operating income | $ | 41,990 | $ | 38,550 | $ | 338,971 | $ | 434,392 | ||||||||
| Income from continuing operations before income taxes | $ | 39,493 | $ | 37,945 | $ | 332,740 | $ | 429,967 | ||||||||
| Provision for income taxes | $ | 8,697 | $ | 14,219 | $ | 121,324 | $ | 176,457 | ||||||||
| Effective income tax rate | 22.0 | % | 37.5 | % | 36.5 | % | 41.0 | % | ||||||||
| Net income attributable to Apollo | $ | 29,783 | $ | 21,551 | $ | 209,304 | $ | 248,526 | ||||||||
| Loss from discontinued operations, net of tax | 2,226 | 2,330 | 6,618 | 4,545 | ||||||||||||
| Income from continuing operations attributable to Apollo | $ | 32,009 | $ | 23,881 | $ | 215,922 | $ | 253,071 | ||||||||
| Diluted income per share from continuing operations attributable to Apollo | $ | 0.29 | $ | 0.21 | $ | 1.92 | $ | 2.23 | ||||||||
| Special items: | ||||||||||||||||
| Restructuring and other charges | $ | 23,267 | $ | 67,330 | $ | 85,343 | $ | 197,022 | ||||||||
| Litigation charge (credit) | 775 | (1,400 | ) | 13,900 | (24,600 | ) | ||||||||||
| Contingent consideration (credit) charges and acquisition costs, net | (9,336 | ) | — | 19,837 | — | |||||||||||
| Gain related to foreign indirect taxes following resolution with tax authority(1) | — | — | (11,173 | ) | — | |||||||||||
| Special items before income taxes | 14,706 | 65,930 | 107,907 | 172,422 | ||||||||||||
| Less: income tax effects of special items | (9,554 | ) | (24,368 | ) | (36,373 | ) | (63,842 | ) | ||||||||
| Tax benefit from Internal Revenue Service settlement | — | — | (10,176 | ) | — | |||||||||||
| Special items, net of income tax | $ | 5,152 | $ | 41,562 | $ | 61,358 | $ | 108,580 | ||||||||
| Excluding special items: | ||||||||||||||||
| Operating income | $ | 56,696 | $ | 104,480 | $ | 446,878 | $ | 606,814 | ||||||||
| Income before income taxes | $ | 54,199 | $ | 103,875 | $ | 440,647 | $ | 602,389 | ||||||||
| Provision for income taxes | $ | 18,251 | $ | 38,587 | $ | 167,873 | $ | 240,299 | ||||||||
| Effective income tax rate | 33.7 | % | 37.1 | % | 38.1 | % | 39.9 | % | ||||||||
| Income from continuing operations attributable to Apollo | $ | 37,161 | $ | 65,443 | $ | 277,280 | $ | 361,651 | ||||||||
| Diluted income per share from continuing operations attributable to Apollo | $ | 0.34 | $ | 0.58 | $ | 2.46 | $ | 3.19 | ||||||||
(1) This gain is included in instructional and student advisory on the Company’s Condensed Consolidated Statements of Income. In fiscal year 2013, the Company recognized a charge of $10.7 million for the foreign indirect tax assessment that was not classified as a special item.
Apollo Education Group, Inc. and Subsidiaries | |||||||||||||||||
Reconciliation of GAAP Financial Information to Non-GAAP Financial Information | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Apollo Global Financial Information Reconciliation | Three Months Ended August 31, | Year Ended August 31, | |||||||||||||||
| ($ in thousands) | 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Apollo Global operating loss | $ | (22,557 | ) | $ | (32,285 | ) | $ | (74,189 | ) | $ | (59,936 | ) | |||||
| Depreciation and amortization | 11,747 | 7,027 | 38,168 | 25,982 | |||||||||||||
| Restructuring and other charges | 707 | 1,954 | 6,091 | 6,053 | |||||||||||||
| Contingent consideration (credit) charges and acquisition costs, net | (9,844 | ) | — | 18,990 | — | ||||||||||||
| Gain related to foreign indirect taxes following resolution with tax authority(1) | — | — | (11,173 | ) | — | ||||||||||||
| Adjusted Apollo Global Operating Loss(2), (3), (4) | $ | (19,947 | ) | $ | (23,304 | ) | $ | (22,113 | ) | $ | (27,901 | ) | |||||
(1) In fiscal year 2013, the Company recognized a charge of $10.7 million for the foreign indirect tax assessment that was not classified as a special item.
(2) Excluding losses from Open Colleges, Adjusted Apollo Global Operating Loss would have been approximately $15 million and $6 million during the three months and year ended August 31, 2014, respectively.
(3) Open Colleges’ educational offerings generally extend beyond one year and the associated revenue is recognized over the contractual period that students are provided access to complete their program, or the time period it takes students to complete their program, as applicable. However, Open Colleges’ operating costs are period costs that are expensed as incurred and a substantial portion are incurred before, or soon after, the students begin their programs. Accordingly, as a result of Open Colleges’ rapid growth, service model, and cost structure, Apollo Global’s operating results are negatively impacted in the near term. However, these factors do not have the same adverse impact on cash flows generated from Open Colleges. Additionally, Apollo Global’s deferred revenue has increased substantially from approximately $50 million as of August 31, 2013 to $127 million as of August 31, 2014, and this amount is expected to continue to increase, perhaps rapidly, as Open Colleges continues to grow.
(4) Apollo Global’s subsidiaries experience seasonality associated with the timing of when courses begin, exam dates, the timing of their respective holidays and other factors. These factors have historically resulted in lower adjusted operating results in the second and fourth quarters because of lower net revenue, particularly for BPP, and due to BPP’s relatively fixed cost structure. The following summarizes the Adjusted Apollo Global Operating Income (Loss) for the respective periods in fiscal year 2014:
| Three Months Ended | |||||||||||||||||||
| ($ in thousands) | November 30,
|
February 28,
|
May 31,
|
August 31,
| |||||||||||||||
| Apollo Global operating income (loss) | $ | 2,217 | $ | (40,004 | ) | $ | (13,845 | ) | $ | (22,557 | ) | ||||||||
| Depreciation and amortization | 6,359 | 9,007 | 11,055 | 11,747 | |||||||||||||||
| Restructuring and other charges | 1,263 | 304 | 3,817 | 707 | |||||||||||||||
| Contingent consideration charges (credit) and acquisition costs, net | — | 12,997 | 15,837 | (9,844 | ) | ||||||||||||||
| Gain related to foreign indirect taxes following resolution with tax authority | — | — | (11,173 | ) | — | ||||||||||||||
Adjusted Apollo Global Operating Income (Loss) | $ | 9,839 | $ | (17,696 | ) | $ | 5,691 | $ | (19,947 | ) | |||||||||
Use of Non-GAAP Financial Information
The Company’s non-GAAP financial measures 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 and Apollo Global’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.
Adjusted Apollo Global Operating Income (Loss) represents Apollo Global’s operating income (loss) excluding depreciation and amortization and certain items that the Company believes provides a meaningful indicator of operating performance across time periods principally due to the impact of acquisitions.
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 University of Phoenix initiatives to improve student retention, improve student outcomes and demonstrate a compelling and cost effective relationship between a student’s education and career; (iii) 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 and state authorization; (iv) 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; (v) the impact of the Company’s restructuring initiatives; (vi) the impact of the operational and governance changes made to increase University of Phoenix autonomy in response to governance concerns expressed by its principal accreditor; (vii) the impact of any reduction in financial aid available to students, including active and retired military personnel, due to the U.S. government deficit reduction proposals, debt ceiling limitations, budget sequestration or otherwise; (viii) the impact of changes in marketing channels and other recruiting practices; (ix) 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; (x) changes in University of Phoenix enrollment or student mix; (xi) 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 (xii) 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 2014, and other filings with the Securities and Exchange Commission which are available at www.apollo.edu.
