|Apollo Group, Inc. Reports Fiscal 2010 First Quarter Results|
|PHOENIX, Jan 07, 2010 (BUSINESS WIRE) -- Apollo Group, Inc. (NASDAQ: APOL) ("Apollo Group," "Apollo" or the "Company") today reported financial results for the three months ended November 30, 2009.
"We are pleased with our first quarter results and continued enrollment growth, particularly among our core bachelor's programs," said Apollo Group Co-Chief Executive Officer and Apollo Global Chairman Greg Cappelli. "We remain committed to providing access to high-quality education, while ensuring that only students who have a reasonable chance to succeed enroll in our institutions."
Apollo Group Co-Chief Executive Officer Chas Edelstein, added, "We have recently received an important recertification of University of Phoenix's Program Participation Agreement and have successfully resolved some significant uncertainties. In addition, University of Phoenix published its second Academic Annual Report, demonstrating our commitment to championing accountability and transparency in academics."
Unaudited First Quarter of Fiscal 2010 Results of Operations
Consolidated net revenue for the three months ended November 30, 2009, totaled $1,270.3 million, which represents a 30.8% increase over the first quarter of fiscal 2009. Contributing to the growth in the first quarter was an 18.4% year-over-year increase in University of Phoenix total Degreed Enrollment to 455,600 as well as $88.7 million in revenue from recently acquired BPP Holdings. The Company reported net income attributable to Apollo Group for the three months ended November 30, 2009, of $240.1 million, or $1.54 per share (156.0 million weighted average diluted shares outstanding), compared to net income attributable to Apollo Group of $180.4 million, or $1.12 per share (160.8 million weighted average diluted shares outstanding) for the three months ended November 30, 2008.
The first quarter of fiscal 2010 results contain a tax benefit of $11.4 million resulting from the settlement of disputed tax issues with the Internal Revenue Service. Excluding this special item, net income attributable to Apollo Group for the three months ended November 30, 2009, was $228.7 million, or $1.47 per share, compared to net income attributable to Apollo Group of $180.4 million, or $1.12 per share for the three months ended November 30, 2008. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)
In the first quarter of fiscal 2010, BPP's operations contributed $88.7 million to revenue and increased earnings per share by approximately $0.04. (See the supplemental schedule detailing BPP's financial results and those of Apollo Group excluding BPP for the first quarter of fiscal 2010 in the tables section of this press release.)
Instructionalcosts and services increased by $152.2 million, or 40.3% to $529.5 million for the three months ended November 30, 2009, compared to the three months ended November 30, 2008. As a percentage of net revenue, instructional costs and services increased 280 basis points to 41.7% versus 38.9% in the prior year's first quarter. The increase, as a percentage of revenue, was predominantly due to the addition of BPP, as its cost structure is more heavily weighted towards instructional costs and services. The increase was also due to higher bad debt expense which, as a percentage of revenue, grew 130 basis points to 4.9% in the first quarter of fiscal 2010 versus 3.6% in the first quarter a year ago. BPP's operations favorably impacted overall bad debt expense as a percentage of revenue by 40 basis points in the first quarter of fiscal 2010. The higher bad debt expense, as a percentage of revenue, is primarily a result of lower collection rates on aged receivables, due in part, to the economic downturn, as well as a continued shift in University of Phoenix's student mix to a higher percentage of students in associate degree programs. Partially offsetting the increase in instructional costs and services was continued leverage of the Company's fixed costs including classroom space.
Selling and promotional expenses increased by $46.9 million, or 20.5%, to $275.5 million for the three months ended November 30, 2009, compared to the three months ended November 30, 2008. A substantial portion of the increase resulted from investments in the Company's non-internet long-term branding initiatives. As a percentage of net revenue, selling and promotional expenses declined 180 basis points to 21.7% versus 23.5% in the prior year's first quarter. The reduction, as a percentage of revenue, was less when excluding the impact of BPP's operations in the first quarter of fiscal 2010. The remaining decrease as a percentage of revenue was mainly a result of continued improvement in enrollment counselor effectiveness at University of Phoenix.
General and administrative ("G&A") expenses increased by $14.2 million, or 24.4%, to $72.4 million, for the three months ended November 30, 2009, compared to the three months ended November 30, 2008. As a percentage of net revenue, G&A expenses declined 30 basis points to 5.7% versus 6.0% in the prior year's first quarter. The decrease is mainly attributable to a reduction of share-based compensation expense, as a percentage of revenue. BPP's operations had little impact on G&A expenses as a percentage of net revenue in the first quarter of fiscal 2010.
The Company's effective tax rate for the first quarter of fiscal 2010 was 38.4%. The decrease versus a year ago is principally attributable to the tax benefit of $11.4 million resulting from the settlement of disputed tax issues with the Internal Revenue Service.
Financial and Operating Metrics
Below are Apollo Group's unaudited financial data and operating metrics for the first quarter of fiscal 2010 versus the prior year period.
Unaudited Balance Sheet
As of November 30, 2009, the Company's cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $924.8 million as compared to $987.8 million as of August 31, 2009. The decrease is primarily attributable to repayments on the Company's outstanding debt, largely offset by cash generated from operations. Restricted cash increased by $37.8 million compared to August 31, 2009, primarily due to increased student enrollment. Student deposits decreased by $11.5 million compared to August 31, 2009, due to increased student enrollment at the University of Phoenix which was more than offset by a reduction in student deposits at BPP due to the timing of course starts.
At November 30, 2009, accounts receivable increased to $341.0 million from $298.3 million at August 31, 2009. Excluding accounts receivable and the associated revenue for Apollo Global, the Company's days sales outstanding ("DSO") increased to 32 days at November 30, 2009, consistent with August 31, 2009, and compared to 26 days at November 30, 2008. The increase in DSO versus a year ago is due to certain operational changes that cause an increase in the Company's accounts receivable balance, as well as increases in gross accounts receivable due to lower collection rates on aged receivables.
Total deferred revenue at November 30, 2009, increased to $377.1 million from $333.0 million at August 31, 2009. The increase is principally due to increased student enrollment at University of Phoenix and the timing of course starts at BPP.
Total debt outstanding (including short-term borrowings and the current portion of long-term debt) decreased by $396.3 million to $192.8 million at November 30, 2009, from $589.1 million at August 31, 2009. The decrease is due to the repayment of US denominated borrowings on the Company's $500 million credit facility.
U.S. Department of Education Program Review
On December 31, 2009, University of Phoenix received the Department of Education's Program Review Report, which is a preliminary report of the Department's findings from its February 2009 program review of University of Phoenix's policies and procedures involving Title IV programs. The report contains six findings and one concern. The Company believes its liability resulting from the findings will be approximately $1.5 million. In addition, the Department's regulations require certain institutions to post a letter of credit where a preliminary program review report cites untimely return of unearned Title IV funds for more than 10% of the sampled students. Absent relief from this requirement, the University of Phoenix will be required to post by January 30, 2010, a letter of credit in the amount of approximately $125 million.
Conference Call Information
The Company will hold a conference call to discuss these earnings results at 5:00 PM Eastern, 3:00 PM Phoenix time, today, Thursday, January 7, 2010. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international) and entering the conference ID number 45413704. 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 by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international) and entering the conference ID number 45413704 until January 15, 2010.
About Apollo Group, Inc.
Apollo Group, Inc. is one of the world's largest private education providers and has been in the education business for more than 35 years. The Company offers innovative and distinctive educational programs and services both online and on-campus at the high school, undergraduate, masters and doctoral levels through its subsidiaries: University of Phoenix, Institute for Professional Development, College for Financial Planning, Western International University, Meritus University, Insight Schools and Apollo Global. The Company's programs and services are provided in 40 states and the District of Columbia; Puerto Rico; Canada; Latin America; and Europe, as well as online throughout the world (data as of November 30, 2009).
For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company's website at www.apollogrp.edu.
Forward-Looking Safe Harbor
Statements in this press release which are not statements of historical fact, including statements regarding Apollo Group's business outlook, future financial and operating results, future enrollment, and overall future strategy and plans, 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.
Use of Non-GAAP Financial Information
This press release and the related conference call contain non-GAAP financial measures, which are intended to supplement, but not substitute for, the most directly comparable GAAP measures. Management uses, and chooses to disclose to investors, these non-GAAP financial measures because (i) such measures provide an additional analytical tool to clarify the Company's results from operations and help to identify underlying trends in its results of operations; (ii) as to the non-GAAP earnings measures, such measures help compare the Company's performance on a consistent basis across time periods; and (iii) these non-GAAP measures are employed by the Company's management in its own evaluation of performance and are utilized in financial and operational decision-making processes, such as budgeting and forecasting. Exclusion of items in our 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 than we do, limiting their usefulness as a comparative measure across companies.
SOURCE: Apollo Group, Inc.
Apollo Group, Inc., Phoenix