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Career Education Corporation Reports Results for Second Quarter and Year to Date 2018

SCHAUMBURG, Ill.--(BUSINESS WIRE)--

Operating income increased 68.6% as compared to the prior year to date

University Group new student enrollments increased 7.0% as compared to the prior year quarter

Career Education Corporation (CECO) today reported operating and financial results for the second quarter and year to date ended June 30, 2018.

 

SECOND QUARTER AND YEAR TO DATE 2018 RESULTS

 
Total Company   Operating income of $31.8 million for the current year to date increased 68.6 percent as compared to the prior year to date
Operating income of $11.3 million for the current quarter compared to prior year quarter operating income of $9.1 million
Ended the quarter with $190.1 million in cash, cash equivalents, restricted cash and available-for-sale short-term investments
       
 
University Group and

Corporate

Operating income of $50.3 million for the current year to date increased 8.4 percent supported by a revenue increase of 1.4 percent to $289.6 million as well as efficiency in our advertising expense
Operating income of $23.5 million as compared to $23.3 million in the prior year quarter
Revenue of $141.8 million increased 3.2 percent as compared to $137.4 million in the prior year quarter
       
 
University Group Key Metrics New student enrollments increased 7.0 percent versus the prior year quarter
Total student enrollment decreased 2.8 percent versus the prior year quarter but is expected to show growth during the third quarter driven by the timing impact of the AIU academic calendar redesign
       
 

Teach-Outs

Operating loss of $12.2 million as compared to $14.2 million in the prior year quarter, with the improvement primarily driven by substantial completion of the teach-outs
Three campuses with approximately ten students remain as of June 30, 2018 with all programs of study expected to be completed by the end of 2018
       

“We finished the first half with good momentum in key operating metrics, driven by organic investments aimed at improving student onboarding and learning experiences,” said Todd Nelson, President and Chief Executive Officer. “Given our positive momentum we will continue to pursue further investments in technology and student-serving processes and initiatives. Overall, we are taking a measured approach to balance our objectives of responsible and sustainable growth with our commitments to improve student experiences, retention and academic outcomes and we remain confident in the long-term academic value proposition of our Universities.”

REVENUE

For the quarter and year to date ended June 30, 2018, total revenue was $142.0 million and $290.1 million representing a decrease of 2.9 percent and 5.9 percent, respectively, compared to total revenue of $146.2 million and $308.3 million for the prior year quarter and year to date ended June 30, 2017. The decrease was primarily driven by declining revenues within our teach-out campuses. As of June 30, 2018, there are three campuses remaining to complete their teach-outs during 2018.

Total revenue for the University Group was $141.8 million and $289.6 million representing an increase of 3.2 percent and 1.4 percent, respectively, for the quarter and year to date ended June 30, 2018 as compared to the prior year periods.

   
For The Quarter Ended June 30, For the Year to Date Ended June 30,
Revenue ($ in thousands) 2018     2017    

Increase
(Decrease)

2018     2017    

Increase
(Decrease)

CTU $ 93,266 $ 91,204   2.3 % $ 187,873 $ 185,239   1.4 %
AIU   48,579   46,215 5.1 %   101,700   100,468 1.2 %
Total University Group 141,845 137,419 3.2 % 289,573 285,707 1.4 %
Corporate and Other     NM     NM
Subtotal 141,845 137,419 3.2 % 289,573 285,707 1.4 %
All Other Campuses (1)   191   8,803 -97.8 %   528   22,624 -97.7 %
Total $ 142,036 $ 146,222 -2.9 % $ 290,101 $ 308,331 -5.9 %
(1)   Campuses included in All Other Campuses are in the process of being taught out or have completed their teach-out as of June 30, 2018. Previously, these campuses were reported within two segments, the former Transitional Group and Culinary Arts segments.
 

TOTAL AND NEW STUDENT ENROLLMENTS

For the second quarter of 2018, new student enrollments for the University Group increased 7.0 percent as compared to the prior year quarter. The increase in new student enrollments was positively impacted by investments in student-serving processes, including our admissions and advising centers in Arizona as well as the academic calendar redesign within AIU.

   
As of June 30,

Total Student Enrollments

2018     2017    

Increase
(Decrease)

CTU   21,700   21,000   3.3 %
AIU   10,000   11,600 -13.8 %
Total University Group   31,700   32,600 -2.8 %
All Other Campuses (1)   10   1,000 NM
Total   31,710   33,600 -5.6 %
   
For The Quarter Ended June 30, For the Year to Date Ended June 30,

New Student Enrollments

2018     2017    

Increase
(Decrease)

2018     2017    

Increase
(Decrease)

CTU   5,460   5,160   5.8 %   10,720   10,190   5.2 %
AIU   3,260   2,990 9.0 %   5,650   7,920 -28.7 %
Total University Group   8,720   8,150 7.0 %   16,370   18,110 -9.6 %
 

(1) All Other Campuses no longer enroll new students.

 

OPERATING INCOME (LOSS)

For the quarter and year to date ended June 30, 2018, the Company recorded operating income of $11.3 million and $31.8 million, respectively, compared to operating income of $9.1 million and $18.9 million for the quarter and year to date ended June 30, 2017, respectively. The University Group and Corporate recorded operating income of $23.5 million and $50.3 million for the quarter and year to date ended June 30, 2018, respectively, an increase of 1.0 percent and 8.4 percent as compared to the respective prior year periods.

   
For The Quarter Ended June 30, For the Year to Date Ended June 30,

Operating Income ($ in thousands)

2018   2017  

Increase
(Decrease)

2018   2017  

Increase
(Decrease)

CTU $ 27,116 $ 28,064   -3.4 % $ 54,301 $ 51,084   6.3 %
AIU   (1,585 )   1,075 -247.4 %   2,551   5,731 -55.5 %
Total University Group 25,531 29,139 -12.4 % 56,852 56,815 0.1 %
Corporate and Other (1)   (2,000 )   (5,847 ) 65.8 %   (6,542 )   (10,396 ) 37.1 %
Subtotal 23,531 23,292 1.0 % 50,310 46,419 8.4 %
All Other Campuses   (12,228 )   (14,188 ) 13.8 %   (18,478 )   (27,534 ) 32.9 %
Total $ 11,303 $ 9,104 24.2 % $ 31,832 $ 18,885 68.6 %
(1)   Corporate and Other benefitted from a recovery of $2.5 million for past claims recorded during the current quarter and year to date.
 

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 $26.8 million and $56.1 million for the quarter and year to date ended June 30, 2018, respectively. Adjusted operating loss for All Other Campuses was $3.0 million and $6.4 million for the quarter and year to date ended June 30, 2018, respectively.

       
For The Quarter Ended June 30,   For the Year to Date Ended June 30,

Adjusted Operating Income (Loss)

2018   2017 2018   2017

University Group and Corporate:

Operating income $ 23,531 $ 23,292 $ 50,310 $ 46,419
Depreciation and amortization 2,085 2,559 4,552 5,090
Unused space charges (1)   1,213   -   1,213   -
Adjusted Operating Income --

University Group and Corporate

$ 26,829 $ 25,851 $ 56,075 $ 51,509
 
Increase (Decrease) 3.8 % 8.9 %
 

All Other Campuses

Operating loss $ (12,228 ) $ (14,188 ) $ (18,478 ) $ (27,534 )
Depreciation and amortization 18 1,317 133 2,696
Unused space charges (1) 3,198 1,654 2,447 3,811
Significant legal settlements   5,970   -   9,461   -
Adjusted Operating Loss --

All Other Campuses

$ (3,042 ) $ (11,217 ) $ (6,437 ) $ (21,027 )
 
Increase (Decrease) 72.9 % 69.4 %
(1)   Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income. As terminations or subleases for leased spaces occur, estimated amounts may be reversed or increased.
 

BALANCE SHEET AND CASH FLOW

Net cash provided by operating activities was $3.7 million compared to net cash provided by operating activities of $4.8 million for the quarters ended June 30, 2018 and 2017, respectively. For the year to date ended June 30, 2018, net cash flows provided by operating activities was $14.8 million as compared to net cash used of $34.2 million for the year to date ended June 30, 2017.

   
For The Quarter Ended June 30, For the Year to Date Ended June 30,

Selected Cash Flow Items

2018     2017    

Increase
(Decrease)

2018     2017  

Increase
(Decrease)

Net cash provided by (used in) operating activities $ 3,658 $ 4,807   -23.9 % $ 14,754 $ (34,246 )   143.1 %
Capital expenditures $ 1,377 $ 1,411 -2.4 % $ 2,737 $ 2,146 27.5 %

As of June 30, 2018 and December 31, 2017, cash, cash equivalents, restricted cash and available-for-sale short-term investments totaled $190.1 million and $180.1 million, respectively.

OUTLOOK

The Company currently expects the following results, subject to the key assumptions identified below (see the GAAP to non-GAAP reconciliation for adjusted operating income (loss) attached to this press release for further details):

Financial Outlook:

  • Full year 2018 - total company:
    • Operating income in the range of $74.5 million to $81.5 million
    • Adjusted operating income in the range of $99.0 million to $106.0 million in line with previously provided outlook
  • Third quarter 2018 - total company:
    • Operating income in the range of $21.0 million to $22.5 million
    • Adjusted operating income in the range of $23.5 million to $25.0 million
  • Year end 2018 cash, cash equivalents, restricted cash and short-term investments (“cash balances”) to be in the range of $215 million to $220 million, updated to include the impact of legal settlements recorded during the second quarter of 2018.
  • Operating income and adjusted operating income for the total company to grow in 2019 as compared to 2018 and our ending cash balances for 2019 to increase as compared to 2018.

University Group Outlook:

  • CTU
    • New student enrollments for the third quarter of 2018 are expected to increase as compared to the prior year quarter.
  • AIU:
    • New and total student enrollments for the third quarter of 2018 are expected to significantly increase as compared to the prior year quarter.
    • Third quarter and full year revenue growth for 2018.

Operating income (loss), which is the most directly comparable GAAP measure to adjusted operating income (loss), may not follow the same trends stated 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), enrollment, revenue and cash outlook provided above for 2018 and 2019 are based on the following key assumptions and factors, among others: (i) prospective student interest in the Company’s programs continues to trend in line with recent experiences, (ii) initiatives and investments in student-serving operations continue to positively impact enrollment trends within the University Group, (iii) no material changes in the current legal or regulatory environment, and excludes legal and regulatory liabilities and other related impacts which are not probable and estimable at this time, and any impact of new or proposed regulations, including the “borrower defense to repayment” and gainful employment regulations and any modifications thereto, and (iv) no material changes in the estimated amount of compensation expense that could be impacted by changes in the Company’s stock price. 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 Wednesday, August 1, 2018 at 5:30 p.m. Eastern time to discuss its second quarter and year to date 2018 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® 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 University Group campus locations and web links to these 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,” “outlook,” “remain” 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 academic outcomes; the ability of our student admissions and advising centers in Arizona to achieve anticipated operating performance; 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, 2017 and its subsequent filings with the Securities and Exchange Commission.

     
 

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 
June 30, December 31,
2018 2017
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted $ 33,175 $ 18,110
Restricted cash 789 789
Restricted short-term investments 4,570 5,070
Short-term investments   151,571   156,178
Total cash and cash equivalents, restricted cash and short-term investments 190,105 180,147
 
Student receivables, net 24,992 18,875
Receivables, other, net 1,948 1,163
Prepaid expenses 10,957 7,722
Inventories 914 1,112
Other current assets 1,607 1,319
Assets of discontinued operations   171   382
Total current assets   230,694   210,720
 
NON-CURRENT ASSETS:
Property and equipment, net 30,829 33,230
Goodwill 87,356 87,356
Intangible assets, net 7,900 7,900
Student receivables, net 2,334 2,548
Deferred income tax assets, net 91,443 98,084
Other assets 6,649 5,673
Assets of discontinued operations   1,585   1,585
TOTAL ASSETS $ 458,790 $ 447,096
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,297 $ 8,515
Accrued expenses:
Payroll and related benefits 22,895 32,910
Advertising and production costs 9,945 9,245
Income taxes 1,762 2,185
Other 33,834 31,233
Deferred revenue 23,050 22,897
Liabilities of discontinued operations   3,125   5,701
Total current liabilities   105,908   112,686
 
NON-CURRENT LIABILITIES:
Deferred rent obligations 14,827 15,277
Other liabilities 15,138 22,143
Liabilities of discontinued operations   -   785
Total non-current liabilities   29,965   38,205
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 851 843
Additional paid-in capital 624,869 621,008
Accumulated other comprehensive loss (356 ) (164 )
Accumulated deficit (81,874 ) (108,127 )
Treasury stock   (220,573 )   (217,355 )
Total stockholders' equity   322,917   296,205
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 458,790 $ 447,096
 
 

CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

(In thousands, except per share amounts and percentages)

 
 
For The Quarter Ended June 30,
2018   % of

Total

Revenue

  2017   % of

Total

Revenue

REVENUE:    
Tuition and fees $ 141,344 99.5 % $ 145,507 99.5 %
Other   692 0.5 %   715 0.5 %
Total revenue   142,036   146,222
OPERATING EXPENSES:
Educational services and facilities 30,290 21.3 % 36,406 24.9 %
General and administrative 98,340 69.2 % 96,836 66.2 %
Depreciation and amortization   2,103 1.5 %   3,876 2.7 %
Total operating expenses   130,733 92.0 %   137,118 93.8 %
Operating income   11,303 8.0 %   9,104 6.2 %
OTHER INCOME (EXPENSE):
Interest income 742 0.5 % 464 0.3 %
Interest expense (106 ) -0.1 % (113 ) -0.1 %
Miscellaneous (expense) income   (135 ) -0.1 %   253 0.2 %
Total other income   501 0.4 %   604 0.4 %
PRETAX INCOME 11,804 8.3 % 9,708 6.6 %
Provision for income taxes   2,940 2.1 %   5,045 3.5 %
 
INCOME FROM CONTINUING OPERATIONS 8,864 6.2 % 4,663 3.2 %
Loss from discontinued operations, net of tax   (113 ) -0.1 %   (377 ) -0.3 %
NET INCOME   8,751 6.2 %   4,286 2.9 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments (168 ) 222
Unrealized gain on investments   108   11
Total other comprehensive (loss) income   (60 )   233
COMPREHENSIVE INCOME $ 8,691 $ 4,519
 
NET INCOME (LOSS) PER SHARE - BASIC:
Income from continuing operations $ 0.13 $ 0.0null