-- Revenue increases 12.2% year-over-year
-- Degreed enrollments increase 12.2% year-over-year
-- Operating margin of 27.7%
-- Board of directors approves up to $500 million in share
repurchase
PHOENIX--(BUSINESS WIRE)--June 28, 2007--Apollo Group, Inc.
(Nasdaq: APOL) ("Apollo Group" or the "Company") today reported fiscal
2007 financial results for the third quarter ended May 31, 2007. The
Company also announced that its Board of Directors ("Board")
authorized the repurchase of up to $500 million of Apollo Group Class
A common stock. Under the program the Company may repurchase shares
from time to time on the open market or in privately negotiated
transactions. Apollo Group management will determine the timing and
number of shares repurchased.
Third Quarter Fiscal 2007 Results of Operations
Net income was $131.4 million, or $0.75 per diluted share (174.6
million weighted average shares outstanding), compared to $131.5
million, or $0.75 per diluted share (174.5 million weighted average
shares outstanding) for three months ended May 31, 2007 and 2006,
respectively. Before giving effect to share based compensation expense
and special items of $16.5 million in the third quarter of 2007 and
$6.8 million in the third quarter of 2006, earnings per fully diluted
share were $0.81 in the third quarter of 2007, as compared to $0.78 in
the third quarter 2006. (See the reconciliation of Generally Accepted
Accounting Principles ("GAAP") financial information to non-GAAP
financial information in the tables section of this press release.)
Consolidated revenues for the three months ended May 31, 2007,
totaled $733.4 million, which represents a 12.2% increase over the
third quarter of fiscal 2006. Total degreed enrollments grew by 12.2%
year-over-year to 311,100.
Commenting on the quarter, Brian Mueller, president of Apollo
Group, Inc., said, "Our fiscal third quarter is showing promising
signs that the investments we made over the last 18 months are paying
off. We are very pleased with the improvement we are seeing in
enrollment and revenue growth, as well as in our operating margin. The
continued progress is driven by further productivity improvements from
new enrollment hires, enhanced retention strategies, efficiencies in
our advertising spend and our branding campaign. New Degreed
Enrollments increased 21.2% year-over-year. We are proud to have
achieved double-digit revenue growth due to our strong enrollments and
continued improvement in retention. As a reminder, over the long-term,
we remain committed to our goal of mid-to-high single-digit revenue
growth and low double-digit annual operating income and free cash flow
growth."
Mueller continued, "Our liquidity and cash flow for the quarter
were strong. As a result of this and other value considerations, we
have increased the size of our existing share repurchase program to up
to $500 million."
Instructional costs and services increased 13.1% or $37.3 million
to $321.0 million, in the three months ended May 31, 2007, as compared
to the three months ended May 31, 2006, primarily resulting from
increases in employee-related expenses due to the higher enrollment
numbers as well as an increase in bad debt expense which, as discussed
last quarter, is primarily the result of a shift in the Company's
student mix. As a percentage of revenue instructional costs and
services were 43.8% versus 43.4% a year ago.
Selling and promotional expenses increased by $24.7 million to
$162.9 million, a 17.9% increase, in the three months ended May 31,
2007, from the three months ended May 31, 2006, primarily resulting
from increases in the number of enrollment counselors and an increase
in advertising expenditures for both the Company's internet-based
advertising campaign as well as the launch of a national televised
branding campaign. As a percentage of revenue, selling and promotional
expenses were 22.2% versus 21.1% a year ago.
General and administrative ("G&A") expenses increased by $15.7
million to $46.1 million, a 51.6% increase, in the three months ended
May 31, 2007, from the three months ended May 31, 2006. As a
percentage of revenues, G&A was 6.3% as compared to 4.7% in the prior
year quarter. Before giving effect to special items primarily related
to stock option investigation and restatement costs of $7.6 million,
G&A expenses were $38.5 million in the three months ended May 31,
2007, or 5.2% of revenues.
Financial and Operating Metrics
Apollo Group reported the following financial data and operating
metrics for the three months ended May 31, 2007 and 2006.
Selected Financial Data and Operating Metrics
Q3 2007 Q3 2006
--------- ---------
Revenues (in thousands)
--------------------------------------------------
Degree Seeking Gross Revenues (1) $717,142 $634,288
Less: Discounts (24,693) (22,201)
--------- ---------
Degree Seeking Net Revenues (1) 692,449 612,087
Single Course/ Continuing Ed Revenues (1) 6,680 6,826
Other (2) 34,263 34,484
--------- ---------
$733,392 $653,397
========= =========
Revenue by Degree Type (in thousands) (1)
--------------------------------------------------
Associates $164,807 $99,050
Bachelors 367,331 357,111
Masters 171,715 167,675
Doctoral 13,289 10,452
Less: Discounts (24,693) (22,201)
--------- ---------
$692,449 $612,087
========= =========
Degreed Enrollment (1) (3)
--------------------------------------------------
Associates 98,600 63,600
Bachelors 141,400 145,200
Masters 66,200 64,500
Doctoral 4,900 3,900
--------- ---------
311,100 277,200
========= =========
Degree Seeking Gross Revenues per Degreed
Enrollment
--------------------------------------------------
Associates $1,671 $1,557
Bachelors 2,598 2,459
Masters 2,594 2,600
Doctoral 2,712 2,680
All degrees (after discounts) 2,226 2,208
New Degreed Enrollments (1) (4)
--------------------------------------------------
Associates 31,300 21,500
Bachelors 20,000 20,500
Masters 10,500 9,000
Doctoral 600 500
--------- ---------
62,400 51,500
========= =========
(1)Represents information for UPX and Axia College only.
(2)Represents revenues from IPD, CFP, WIU (excluding Axia college
which is included in (1) ), Insight Schools and other.
(3)Represents individual students enrolled in our degree seeking
programs that attended a course during the quarter and did not
graduate as of the end of the quarter (includes Axia students
enrolled in WIU or UPX) (rounded to hundreds).
(4)Represents individual students enrolled in our degree seeking
programs that attended a course during the quarter but did not
attend a course in the last 12 months (includes Axia students
enrolled in WIU or UPX) (rounded to hundreds).
Nine months of Fiscal 2007 Results of Operations
Net income attributed to Apollo Group common stock was $305.7
million, or $1.75 per diluted share, (174.6 million weighted average
shares outstanding), compared to $339.1 million, or $1.92 per diluted
share, (176.8 million weighted average shares outstanding) for the
nine months ended May 31, 2007 and 2006, respectively.
Total consolidated revenues for Apollo Group for the nine months
ended May 31, 2007 were $2.0 billion, an 8.5% increase over the nine
months of fiscal 2006. Average quarterly degree enrollments grew by
10.3%.
Balance Sheet
As of May 31, 2007, the Company's cash and marketable securities,
excluding restricted cash, was $690.1 million as compared to $408.7
million as of August 31, 2006. Days sales outstanding ("DSOs")
decreased from 37 days last quarter to 36 days as of May 31, 2007, yet
increased from 32 days at August 31, 2006. Deferred tuition revenue
increased 10.1% to $150.0 million between May 31, 2007, and August 31,
2006.
Stock Option Grants
On June 27, 2007, the Company's Compensation Committee of the
Board of Directors approved a grant of options to purchase
approximately 4.1 million shares of the Company's Class A common stock
and approximately 0.3 million restricted stock units to be granted
three business days after the release of the Company's third quarter
2007 financial results. This excludes any option grants made during
the third quarter of 2007.
Conference Call Information
The Company will hold a conference call to discuss these earnings
results at 5:00 PM Eastern, 2:00 PM Pacific, today, Thursday, June 28,
2007. The call may be accessed by dialing (877) 292-6888 (domestic) or
(706) 634-1393 (international). The conference ID number is 4135730. A
live webcast of this event may be accessed by visiting the Company's
website at: www.apollogrp.edu. A replay of the call will be available
on the website or at (706) 645-9291 (conf. ID # 4135730) until July 6,
2007.
2007 Annual Shareholder Meeting
Apollo Group, Inc. will hold its 2007 Annual Meeting of the
holders of Class A Common Stock on August 16, 2007. The meeting will
take place from 9:00 AM to 10:00 AM, Arizona time, in the Shaffer
Conference Center on the Second Floor of the Company's principal
executive offices located at 4605 East Elwood Street, Phoenix,
Arizona. Class A shareholders of record as of the close of business on
June 22, 2007 are entitled to receive notice of the Annual Meeting.
Forward-Looking Safe Harbor
Statements in this press release regarding Apollo Group's business
outlook, future financial and operating results, and overall future
prospects, as well as statements regarding the future effect of Apollo
Group's restatement of historical financial statements, the
anticipated amount of additional expenses and related matters, 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 results may differ materially from those
projected in such statements due to various factors. For a discussion
of the various factors that may cause actual results to differ
materially from those projected, please refer to the risk factors and
other disclosures contained in Apollo Group's previously filed Form
10-K, Forms 10-Q, and other filings with the Securities and Exchange
Commission.
About Apollo Group, Inc.
Apollo Group, Inc. has been an education provider for more than 30
years, operating the University of Phoenix, the Institute for
Professional Development, the College for Financial Planning, Western
International University and Insight Schools. The Company offers
innovative and distinctive educational programs and services from high
school through college level at 260 locations in 40 states, Puerto
Rico, Alberta, British Columbia, the Netherlands, and Mexico, as well
as online, throughout the world.
For more information about Apollo Group, Inc. and its
subsidiaries, call (800) 990-APOL or visit Apollo on the company
website at: www.apollogrp.edu.
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
For the Three Months For the Nine Months
Ended May 31, Ended May 31,
---------------------------------------------
2007 2006 2007 2006
---------- ---------- ----------- -----------
($ in thousands, except
per share amounts)
Revenues:
Tuition and other, net $733,392 $653,397 $2,009,871 $1,852,620
---------- ---------- ----------- -----------
Costs and expenses:
Instructional costs and
services 321,050 283,710 910,244 809,349
Selling and promotional 162,901 138,195 485,276 390,413
General and
administrative 46,069 30,416 139,198 118,816
---------- ---------- ----------- -----------
Total costs and expenses 530,020 452,321 1,534,718 1,318,578
---------- ---------- ----------- -----------
Income from operations 203,372 201,076 475,153 534,042
Interest income and
other, net 8,530 4,437 21,940 12,421
---------- ---------- ----------- -----------
Income before income
taxes 211,902 205,513 497,093 546,463
Provision for income
taxes 80,464 74,059 191,443 207,341
---------- ---------- ----------- -----------
Net income $131,438 $131,454 $305,650 $339,122
========== ========== =========== ===========
Earnings per share
attributed to Apollo
Group common stock:
Basic income per share $0.76 $0.76 $1.77 $1.94
========== ========== =========== ===========
Diluted income per share $0.75 $0.75 $1.75 $1.92
========== ========== =========== ===========
Basic weighted average
shares outstanding 173,188 172,817 173,165 174,808
========== ========== =========== ===========
Diluted weighted average
shares outstanding 174,620 174,453 174,588 176,770
========== ========== =========== ===========
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
As of
-----------------------
May 31, August 31,
($ in thousands) 2007 2006
----------- -----------
Assets:
Current assets
Cash and cash equivalents $627,974 $309,058
Restricted cash 284,993 238,267
Marketable securities, current portion 21,443 45,978
Accounts receivable, net 179,551 160,583
Deferred tax assets, net, current portion 50,962 32,622
Other current assets 20,532 16,424
----------- -----------
Total current assets 1,185,455 802,932
Property and equipment, net 347,722 328,440
Marketable securities, less current portion 40,645 53,692
Goodwill 31,029 16,891
Deferred tax assets, net, less current portion 69,399 53,131
Other assets 26,074 27,919
----------- -----------
Total assets $1,700,324 $1,283,005
=========== ===========
Liabilities and Shareholders' Equity:
Current liabilities
Accounts payable $38,088 $61,289
Accrued liabilities 98,411 73,513
Current portion of long-term liabilities 21,818 23,101
Income taxes payable 76,798 47,812
Student deposits 297,342 254,130
Current portion of deferred revenue 149,665 135,911
----------- -----------
Total current liabilities 682,122 595,756
Deferred revenue, less current portion 357 384
Long-term liabilities, less current portion 73,413 82,492
----------- -----------
Total liabilities 755,892 678,632
----------- -----------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value - -
Apollo Group Class A nonvoting common stock, no
par value 103 103
Apollo Group Class B voting common stock, no
par value 1 1
Additional paid-in capital - -
Apollo Group Class A treasury stock, at cost (1,040,809) (1,054,046)
Retained earnings 1,986,735 1,659,349
Accumulated other comprehensive loss (1,598) (1,034)
----------- -----------
Total shareholders' equity 944,432 604,373
----------- -----------
Total liabilities and shareholders' equity $1,700,324 $1,283,005
=========== ===========
Apollo Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
May 31,
-------------------------
2007 2006
------------ ------------
($ in thousands)
Cash flows provided by (used in) operating
activities:
Net income $305,650 $339,122
Adjustments to reconcile net income to net
cash provided by operating activities:
Share based compensation 40,766 18,052
Excess tax benefits from share based
compensation (2,290) (16,763)
Depreciation and amortization 54,000 48,810
Amortization of marketable securities
discounts and premium, net 152 841
Provision for uncollectible accounts
receivable 83,303 72,238
Deferred income taxes (34,843) (9,478)
Changes in assets and liabilities:
Accounts receivable, net (102,271) (49,118)
Other assets (5,276) 2,431
Accounts payable and accrued
liabilities (15,640) 6,553
Income taxes payable 29,045 16,115
Student deposits 43,212 12,725
Deferred revenue 13,727 (8,483)
Other liabilities (3,073) 4,928
------------ ------------
Net cash provided by operating activities 406,462 437,973
------------ ------------
Cash flows provided by (used in) investing
activities:
Additions to property and equipment (38,338) (43,611)
Purchase of land and buildings related to
new headquarters building (32,072) (35,266)
Purchase of Insight Schools, net of cash (15,079) -
Purchase of marketable securities
including auction rate securities (969,460) (921,952)
Maturities of marketable securities
including auction rate securities 1,008,861 1,088,052
(Increase)/decrease in restricted cash (48,697) 10,620
Purchase of other assets - (1,686)
------------ ------------
Net cash provided by (used in) investing
activities (94,785) 96,157
------------ ------------
Cash flows provided by (used in) financing
activities:
Repurchase of Apollo Group Class A common
stock - (514,931)
Issuance of Apollo Group Class A common
stock 5,278 25,691
Cash paid for cancellation of vested
options - (6,331)
Excess tax benefits from share based
compensation 2,290 16,763
------------ ------------
Net cash provided by (used in) financing
activities 7,568 (478,808)
------------ ------------
Currency translation loss (329) (525)
------------ ------------
Net increase in cash and cash equivalents 318,916 54,797
Cash and cash equivalents, beginning of
period 309,058 137,184
------------ ------------
Cash and cash equivalents, end of period $627,974 $191,981
============ ============
Supplemental disclosure of non-cash investing
activities
Credits received for tenant improvements $3,406 $11,639
Purchases of property and equipment
included in accounts payable $5,772 $5,340
Apollo Group, Inc. and Subsidiaries
Detailed Expense Tables
For the Three Months Ended May 31, 2007
% of Revenues
--------------------
Instructional
costs and For the Three Months For the Three Months
services Ended May 31, Ended May 31, % Change
-------------------------------------------------------
2007 2006 2007 2006 2007 vs. 2006
--------- -------- ---------- --------- -------------
($ in millions)
Employee
compensation
and related
expenses $106.1 $97.4 14.5% 14.9% 8.9%
Faculty
compensation 62.7 54.8 8.5% 8.4% 14.4%
Classroom lease
expenses and
depreciation 50.9 48.9 6.9% 7.5% 4.1%
Other
instructional
costs and
services 45.2 39.8 6.2% 6.1% 13.6%
Bad debt
expense 34.3 24.5 4.7% 3.7% 40.0%
Financial aid
processing
costs 16.7 13.5 2.3% 2.1% 23.7%
Share based
compensation 5.1 4.8 0.7% 0.7% 6.3%
--------- -------- ---------- ---------
Instructional
costs and
services $321.0 $283.7 43.8% 43.4% 13.1%
========= ======== ========== =========
% of Revenues
--------------------
Selling and
promotional For the Three Months For the Three Months
expenses Ended May 31, Ended May 31, % Change
-------------------------------------------------------
2007 2006 2007 2006 2007 vs. 2006
--------- -------- ---------- --------- -------------
($ in millions)
Enrollment
advisors'
compensation
and related
expenses $80.2 $63.7 10.9% 9.8% 25.9%
Advertising 66.7 56.9 9.1% 8.7% 17.2%
Other selling
and
promotional
expenses 15.1 16.9 2.1% 2.5% -10.7%
Share based
compensation 0.9 0.7 0.1% 0.1% 28.6%
--------- -------- ---------- ---------
Selling and
promotional
expenses $162.9 $138.2 22.2% 21.1% 17.9%
========= ======== ========== =========
% of Revenues
--------------------
General and
administrativeFor the Three Months For the Three Months
expenses Ended May 31, Ended May 31, % Change
-------------------------------------------------------
2007 2006 2007 2006 2007 vs. 2006
--------- -------- ---------- --------- -------------
($ in millions)
Employee
compensation
and related
expenses $18.6 $12.3 2.6% 2.0% 51.2%
Share based
compensation 2.9 1.4 0.4% 0.2% 107.1%
Legal, audit,
and corporate
insurance 3.1 4.4 0.4% 0.7% -29.5%
Administrative
space and
depreciation 5.2 5.5 0.7% 0.8% -5.5%
Other general
and
administrative
expenses 16.3 (1) 6.8 2.2% 1.0% 139.7%
--------- -------- ---------- ---------
General and
administrative
expenses $46.1 $30.4 6.3% 4.7% 51.6%
========= ======== ========== =========
(1) Includes $7.7 million in costs related to the stock option
investigation and restatement offset by $0.1 million non-cash fair
value adjustment for stock options modified for former employees.
Apollo Group, Inc. and Subsidiaries
Detailed Expense Tables
For the Nine Months Ended May 31, 2007
% of Revenues
---------------
Instructional For the Nine For the Nine
costs and Months Ended Months Ended
services May 31, May 31, % Change
-------------------------------------------------------
2007 2006 2007 2006 2007 vs. 2006
----------------------- --------------- -------------
($ in millions)
Employee
compensation
and related
expenses $315.2 $275.9 15.8% 14.9% 14.2%
Faculty
compensation 173.8 157.3 8.6% 8.5% 10.5%
Classroom lease
expenses and
depreciation 152.8 142.7 7.6% 7.7% 7.1%
Other
instructional
costs and
services 126.3 113.5 6.3% 6.1% 11.3%
Bad debt
expense 83.3 72.2 4.1% 3.9% 15.4%
Financial aid
processing
costs 45.9 39.0 2.3% 2.1% 17.7%
Share based
compensation 12.9 8.7 0.6% 0.5% 48.3%
--------- -------- ------- -------
Instructional
costs and
services $910.2 $809.3 45.3% 43.7% 12.5%
========= ======== ======= =======
% of Revenues
---------------
Selling and For the Nine For the Nine
promotional Months Ended Months Ended
expenses May 31, May 31, % Change
-------------------------------------------------------
2007 2006 2007 2006 2007 vs. 2006
----------------------- --------------- -------------
($ in millions)
Enrollment
advisors'
compensation
and related
expenses $235.1 $183.1 11.7% 9.9% 28.4%
Advertising 204.2 162.8 10.2% 8.8% 25.4%
Other selling
and
promotional
expenses 43.0 43.2 2.1% 2.3% -0.5%
Share based
compensation 3.0 1.3 0.1% 0.1% 130.8%
--------- -------- ------- -------
Selling and
promotional
expenses $485.3 $390.4 24.1% 21.1% 24.3%
========= ======== ======= =======
% of Revenues
---------------
General and For the Nine For the Nine
administrative Months Ended Months Ended
expenses May 31, May 31, % Change
-------------------------------------------------------
2007 2006 2007 2006 2007 vs. 2006
----------------------- --------------- -------------
($ in millions)
Employee
compensation
and related
expenses $50.4 $64.6 (4) 2.4% 3.5% -22.0%
Share based
compensation 24.9 (1) 8.1 1.2% 0.4% 207.4%
Legal, audit,
and corporate
insurance 9.1 10.0 0.5% 0.6% -9.0%
Administrative
space and
depreciation 15.6 16.0 0.8% 0.9% -2.5%
Other general
and
administrative
expenses 39.2 (2)(3) 20.1 2.0% 1.1% 95.0%
--------- -------- ------- -------
General and
administrative
expenses $139.2 $118.8 6.9% 6.4% 17.2%
========= ======== ======= =======
(1) Includes $12.1 million in stock option modifications for former
employees.
(2) Includes $13.0 million in costs related to the stock option
investigation and financial statement restatement.
(3) Includes $2.7 million non-cash fair value adjustment for stock
options modified for former employees.
(4) Includes $26.0 million in severance paid to former CEO.
Reconciliation of GAAP financial information to non-GAAP financial
information
For the Three Months For the Nine Months
Ended May 31, Ended May 31,
---------------------- --------------------
2007 2006 2007 2006
---------- --------- --------- --------
(in millions, except per
share amounts)
Net income as reported $131.4 $131.5 $305.7 $339.1
Reconciling items:
Share based
compensation 8.9 6.8 40.8 18.1
Special items 7.6 (1) - 15.7 (2) 26.0 (3)
---------- --------- --------- --------
16.5 6.8 56.5 44.1
Less tax effects (6.5) (2.7) (22.4) (17.5)
---------- --------- --------- --------
10.0 4.1 34.1 26.6
---------- --------- --------- --------
Net income adjusted to
exclude share based
compensation expense
and special items $141.4 $135.6 $339.8 $365.7
========== ========= ========= ========
Diluted weighted average
shares outstanding 174.6 174.5 174.6 176.8
========== ========= ========= ========
Diluted income per share
adjusted to exclude
share based
compensation expense
and special items $0.81 $0.78 $1.95 $2.07
========== ========= ========= ========
(1) The $7.6 million charge for the three months ended May 31, 2007
represents fees related to the stock option investigation and
restatement ($7.7 million), partially offset by a non-cash fair value
adjustment for stock options modified for former employees ($0.1
million).
(2) The $15.7 million charge for the nine months ended May 31, 2007
represents fees related to the stock option investigation and
restatement ($13.0 million) as well as a non-cash fair value
adjustment for stock options modified for former employees ($2.7
million).
(3) The $26 million charge for the nine months ended May 31, 2007
represents severance charged in connection with the resignation of
the Company's former CEO.
CONTACT: Investor Relations Contact:
ICR
Allyson Pooley, 310-954-1100
apooley@icrinc.com
or
Apollo Group, Inc.
Janess Pasinski, 480-557-1719
janess@apollogrp.edu
Press Contact:
Ayla Dickey, 480-557-2952
ayla@apollogrp.edu
SOURCE: Apollo Group, Inc.
