Career Education Corporation Reports Second Quarter 2014 Results

SCHAUMBURG, Ill.--()--Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the second quarter of 2014.

Second Quarter Highlights

  • Sixth consecutive quarter of sequential improvement in the decline of total student enrollments.
  • Positive new student enrollment growth within University, driven by strong growth within CTU.
  • Total year-over-year enrollment growth of 3.9% within Culinary Arts.
  • Loss per diluted share of -$0.53 from continuing operations, which included -$0.11 and -$0.02 per diluted share of trade name impairments and legal settlement charges, respectively.
  • The Higher Learning Commission acted to continue its regional accreditation of American InterContinental University (“AIU”).
  • Adjusted EBITDA for ongoing operations improvement of $8.7 million or 73.6% compared to the same quarter last year.
  • Lowered operating expenses by $46.5 million or 15.1% compared to the same quarter last year.
  • The Company has successfully completed the teach-out of 16 of the 20 Transitional campuses planned to be closed in 2014.

“The performance of our colleges, institutions and universities is very much in line with our plans as we move further along in our turnaround strategy and some of the early changes we made to the organization begin to generate results,” said President and CEO Scott W. Steffey. “We are very pleased with our progress. The new student enrollment growth we are experiencing with our universities, the total enrollment growth within culinary arts and the sequential improvement in the rate of decline of total enrollments across the organization is consistent with our 2014 goals and positions us well for 2015. Our cash position and overall liquidity also remain strong.”

REVENUE

  • Total revenue was $229.3 million for the second quarter of 2014 compared to $259.5 million for the second quarter of 2013, a decline of 11.6%.
  • For ongoing operations, which excludes Transitional Schools, total revenue was $224.5 million for the second quarter of 2014 compared to $245.2 million for the second quarter of 2013, a decline of 8.5%, due to approximately 2,400 fewer total student enrollments.
                                 
Revenue ($ in thousands)       Q2 2014     Q1 2014     Q4 2013     Q3 2013     Q2 2013
                     
CTU $ 85,041 $ 86,920 $ 87,582 $ 82,185 $ 86,557
AIU   49,685       52,573       49,088       56,284       59,935
Total University Schools   134,726       139,493       136,670       138,469       146,492
Career Colleges 47,128 52,681 55,007 51,122 54,160
Culinary Arts   42,566       42,247       42,778       44,256       44,577
Total Career Schools   89,694       94,928       97,785       95,378       98,737
Corporate and Other   38       100       -       -       -
Total Ongoing Operations   224,458       234,521       234,455       233,847       245,229
Transitional Schools (1)   4,834       6,846       9,155       11,348       14,272
Total (2) $ 229,292     $ 241,367     $ 243,610     $ 245,195     $ 259,501

__________

(1)   Campuses included in our Transitional Schools segment are currently being taught out and no longer enroll new students.
(2)

Excludes discontinued operations, which consists of the results of operations for campuses that have ceased operations or were sold and are considered distinct operations under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205 – Presentation of Financial Statements.

 

 

TOTAL AND NEW STUDENT ENROLLMENTS

  • For ongoing operations, which excludes Transitional Schools, total student enrollments decreased 4.8% as of June 30, 2014 as compared to June 30, 2013. Culinary Arts reported total student enrollment growth of 3.9% as of June 30, 2014 as compared to June 30, 2013, as a result of the reintroduction of the Associate degree program which is a longer term program as compared to the Certificate program that was previously offered.
  • The Company expects to be total student enrollment positive year-over-year for its University and Culinary Arts segments during the second half of 2014 as a result of improving enrollment trends, including increased application volume.
  • For ongoing operations, which excludes Transitional Schools, new student enrollments increased 2.3% for the second quarter of 2014 compared to the prior year quarter.
                                 
Total Student Enrollments       Q2 2014     Q1 2014     Q4 2013     Q3 2013     Q2 2013
                     
CTU 19,800 20,600 20,800 20,500 20,400
AIU 10,800     13,300     11,600     12,000     11,600
Total University Schools 30,600     33,900     32,400     32,500     32,000
Career Colleges 9,500 11,800 11,000 12,300 10,800
Culinary Arts 8,000     8,400     7,900     8,000     7,700
Total Career Schools 17,500     20,200     18,900     20,300     18,500
Total Ongoing Operations 48,100     54,100     51,300     52,800     50,500
Transitional Schools 900     1,300     1,900     2,600     2,900
Total 49,000     55,400     53,200     55,400     53,400
 
                                 
New Student Enrollments       Q2 2014     Q1 2014     Q4 2013     Q3 2013     Q2 2013
 
CTU (1) 5,280 4,820 5,260 4,780 4,410
AIU (1) 2,010     5,900     2,520     2,880     2,110
Total University Schools 7,290     10,720     7,780     7,660     6,520
Career Colleges 1,650 3,000 1,660 3,640 1,810
Culinary Arts 1,890     2,300     2,010     3,650     2,260
Total Career Schools 3,540     5,300     3,670     7,290     4,070
Total Ongoing Operations 10,830     16,020     11,450     14,950     10,590
Transitional Schools (2) 10     -     60     390     250
Total 10,840     16,020     11,510     15,340     10,840

__________

(1)   In the first quarter of 2014, we implemented a new student orientation process, which replaced our previously provided student readiness programs; this change impacts the way we calculate new student enrollments. This internal policy change had a positive impact on 2014 new student enrollments as compared to 2013. Accordingly, the comparability of the current quarter versus the prior year quarter is impacted.
(2) Campuses within the Transitional Schools segment no longer enroll new students; students who re-enter after 365 days are reported as new student enrollments.
 
 

OPERATING (LOSS) INCOME

  • Operating losses of $33.3 million and $49.7 million were reported for the second quarters of 2014 and 2013, respectively.
  • For ongoing operations, which excludes Transitional Schools, the Company reported an operating loss improvement of $15.4 million or 38.7% as compared to the prior year quarter. Operating expenses decreased primarily as a result of lower general and administration costs, including lower advertising and legal expenses, lower student metric driven costs and lower occupancy costs, partially offset with higher asset impairment charges in the current year quarter as compared to the prior year quarter. For ongoing operations, the operating margin was -10.9 percent for the second quarter of 2014, a 540 basis point improvement compared to the second quarter of 2013.
  • Within Culinary Arts, increased trade name impairment charges and legal expenses for the second quarter of 2014 as compared to the prior year quarter drove the operating margin decline. Within Career Colleges, favorability for the current quarter as compared to the prior year quarter was driven by a prior year legal settlement expense of $8.3 million ($0.08 per diluted share).
                                 
Operating (Loss) Income       Q2 2014     Q1 2014     Q4 2013     Q3 2013     Q2 2013
($ in thousands)                                
 
CTU $ 20,957 $ 14,481 $ 22,146 $ 9,615 $ 17,062
AIU   (1,331 )       (3,583 )       (3,793 )       (5,930 )       1,021  
Total University Schools   19,626         10,898         18,353         3,685         18,083  
Career Colleges (18,836 ) (16,299 ) (15,614 ) (19,758 ) (29,960 )
Culinary Arts (1)   (19,772 )       (18,046 )       (28,409 )       (23,655 )       (17,017 )
Total Career Schools   (38,608 )       (34,345 )       (44,023 )       (43,413 )       (46,977 )
Corporate and Other   (5,513 )       (11,136 )       (8,621 )       (7,561 )       (11,050 )
Total Ongoing Operations   (24,495 )       (34,583 )       (34,291 )       (47,289 )       (39,944 )
Transitional Schools   (8,841 )       (7,308 )       (11,227 )       (9,004 )       (9,716 )
Total (2) $ (33,336 )     $ (41,891 )     $ (45,518 )     $ (56,293 )     $ (49,660 )
(1)   Trade name impairment charges of $7.4 million ($0.11 per diluted share), $10.7 million ($0.10 per diluted share) and $2.3 million ($0.02 per diluted share) were recorded during the second quarter of 2014, third quarter of 2013 and the second quarter of 2013, respectively.
(2)

Excludes discontinued operations, which consists of the results of operations for campuses that have ceased operations or were sold and are considered distinct operations under FASB ASC Topic 205 – Presentation of Financial Statements.

 

 

LOSS PER SHARE

  • Net loss per diluted share of -$0.69 and -$0.47 were reported for the second quarters of 2014 and 2013, respectively.
                                 
Loss Per Share (shares in thousands)       Q2 2014     Q1 2014     Q4 2013     Q3 2013     Q2 2013
Loss per diluted share from continuing operations       $ (0.53 )     $ (0.62 )     $ (1.48 )     $ (0.53 )     $ (0.34 )
Loss per diluted share from discontinued operations   (0.16 )       (0.25 )       1.02         (0.77 )       (0.13 )
Net loss per diluted share $ (0.69 )     $ (0.87 )     $ (0.46 )     $ (1.30 )     $ (0.47 )
Diluted shares outstanding 67,157 66,994 66,916 66,849 66,751
 
 

ADJUSTED EBITDA

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant items, as a means to understand the performance of its ongoing operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

  • Adjusted EBITDA for ongoing operations, which excludes Transitional Schools, has improved $8.7 million or 73.6% for the second quarter of 2014 as compared to the same quarter last year. Excluding certain non-cash items and legal settlements, adjusted EBITDA was -$3.1 million or -$0.05 per diluted share for the second quarter of 2014 as compared to -$11.9 million or -$0.18 per diluted share for the second quarter of 2013. This favorability is a result of continued efforts to align current cost structure with total student enrollments.
  • Adjusted EBITDA for Transitional Schools and Discontinued Operations was -$16.4 million or -$0.24 per diluted share for the second quarter of 2014 as compared to -$20.5 million or -$0.31 per diluted share for the second quarter of 2013. This favorability is a result of the completion of teach-out campus operations and continued focus on exiting lease obligations once a teach-out is complete.
                       
Adjusted EBITDA     Q2 2014   Q1 2014   Q4 2013   Q3 2013   Q2 2013
($ in thousands)                      
 
Pre-tax loss from continuing operations $ (33,746 ) $ (41,350 ) $ (45,319 ) $ (56,411 ) $ (49,300 )
Transitional Schools operating loss 8,841 7,308 11,227 9,004 9,716
Interest (income) expense, net (177 ) (25 ) 65 16 (548 )
Loss (gain) on sale of business - - (68 ) 39 222
Depreciation and amortization (1) 12,799 13,305 14,062 14,399 14,749
Stock based compensation (1) 1,020 1,341 1,580 1,713 1,631
Legal settlements (1) (2) 1,600 5,850 17,000 300 8,300
Asset impairments (1) 7,403 74 4,516 11,513 3,966
Unused space charges (1) (3)   (879 )     (606 )     (2,924 )     1,184       (612 )
Adjusted EBITDA--Ongoing Operations $ (3,139 )   $ (14,103 )   $ 139     $ (18,243 )   $ (11,876 )
Adjusted EBITDA per diluted share $ (0.05 )   $ (0.21 )   $ 0.00     $ (0.27 )   $ (0.18 )
 
Pre-tax loss from discontinued operations $ (10,964 ) $ (16,573 ) $ 119,133 $ (20,290 ) $ (16,287 )
Transitional Schools operating loss (8,841 ) (7,308 ) (11,227 ) (9,004 ) (9,716 )
Loss (gain) on sale of business (4) 311 - (130,109 ) - -
International Schools operating (income) loss - - (11,434 ) 7,608 3,659
Interest (income) expense, net - - (51 ) (22 ) (14 )
Depreciation and amortization (4) 1,595 2,126 2,364 2,552 2,818
Legal settlements (4) - - - - 1,700
Asset impairments (4) 51 (7 ) 2,467 72 -
Unused space charges (3)(4)   1,436       3,099       5,766       (3,092 )     (2,611 )
Adjusted EBITDA--Transitional and Discontinued Operations $ (16,412 )   $ (18,663 )   $ (23,091 )   $ (22,176 )   $ (20,451 )
Adjusted EBITDA per diluted share $ (0.24 )   $ (0.28 )   $ (0.35 )   $ (0.33 )   $ (0.31 )
     

(1) Quarterly amounts relate to ongoing operations, excluding Transitional Schools.

(2) Legal settlement amounts are net of insurance recoveries.

(3) Unused space charges include initial charge and subsequent accretion.

(4) Quarterly amounts relate to Transitional Schools and Discontinued Operations.

 
 

BALANCE SHEET AND CASH FLOW

  • Net cash used in operating activities increased to $81.3 million for the year to date ended June 30, 2014 compared to $67.0 million for the year to date ended June 30, 2013. This increase is driven primarily by the operating loss for the current year to date, legal settlement payments of approximately $21.6 million paid during the second quarter of 2014, net payments of income taxes and timing of other payments.
                       
Cash and Cash Flow from     Q2 2014   Q1 2014   Q4 2013   Q3 2013   Q2 2013
Operations ($ in thousands)                      
   
Consolidated Cash, Cash Equivalents, and Short-term Investments (1) $ 274,617     $ 315,661     $ 363,099     $ 227,515     $ 241,840  
 
Cash Flow from Operations $ (45,865 )   $ (35,420 )   $ (7,962 )   $ (10,867 )   $ (52,778 )

__________

(1)   Consolidated cash, cash equivalents and short-term investment balances are quarter end balances and include both continuing and discontinued operations.
 
 

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, August 7, 2014 at 10:00 a.m. Eastern time. 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 800-580-9478 (domestic) or 630-691-2769 (international) and citing code 37710667. 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. A replay of the call will also be available for seven days by calling 888-843-7419 (domestic) or 630-652-3042 (international) and citing code 37710667.

ABOUT CAREER EDUCATION CORPORATION

The colleges, institutions and universities that are part of the Career Education Corporation (“CEC”) family offer high-quality education to a diverse student population in a variety of career-oriented disciplines through online, on-ground and hybrid learning program offerings. In addition to its online offerings, Career Education serves students from campuses throughout the United States offering programs that lead to doctoral, master’s, bachelor’s and associate degrees, as well as to diplomas and certificates.

CEC’s institutions include both universities that provide degree programs through the master or doctoral level and colleges that provide programs through the associate and bachelor level. The University group includes American InterContinental University (“AIU”) and Colorado Technical University (“CTU”) – predominantly serving students online with career-focused degree programs that meet the educational demands of today’s busy adults. The Career Schools group offers career-centered education primarily through ground-based campuses and includes Briarcliffe College, Brooks Institute, Harrington College of Design, Le Cordon Bleu North America (“LCB”), Missouri College and Sanford-Brown Institutes and Colleges (“SBI” and “SBC,” respectively). Through its colleges, institutions and universities, CEC is committed to providing high-quality education, enabling students to graduate and pursue rewarding career opportunities.

A detailed listing of individual campus locations and web links to Career Education’s colleges, institutions and universities 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 “expect,” “anticipate,” “believe,” “intend,” “will,” “potential” 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; rulemaking by the U.S. Department of Education or any state and increased focus by Congress, the President and governmental agencies on for-profit education institutions; 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 “90-10 Rule” and financial responsibility and student loan default rate standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; our ability to successfully defend litigation and other claims brought against us; and changes in the overall U.S. or global 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 fiscal year ended December 31, 2013 and its subsequent filings with the Securities and Exchange Commission.

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)
     

June 30,
2014 (1)

December 31,
2013 (1)

 
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted $ 138,608 $ 318,471
Restricted cash 11,929 12,564
Short-term investments   124,080     31,592  
Total cash and cash equivalents and short-term investments 274,617 362,627
 
Student receivables, net 31,283 33,632
Receivables, other, net 9,741 27,351
Prepaid expenses 25,294 19,738
Inventories 6,040 6,641
Deferred income tax assets, net 3,606 3,606
Other current assets 3,884 3,452
Assets of discontinued operations   573     2,970  
Total current assets   355,038     460,017  
 
NON-CURRENT ASSETS:
Property and equipment, net 159,090 180,385
Goodwill 87,356 87,356
Intangible assets, net 32,253 40,117
Student receivables, net 4,494 5,181
Deferred income tax assets, net 10,644 10,644
Other assets, net 17,426 17,834
Assets of discontinued operations   1,179     3,511  
TOTAL ASSETS $ 667,480   $ 805,045  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 25,498 $ 24,500
Accrued expenses:
Payroll and related benefits 32,201 34,160
Advertising and production costs 17,001 17,585
Income taxes 2,221 14,994
Other 28,205 40,747
Deferred tuition revenue 62,219 60,070
Liabilities of discontinued operations   16,995     15,376  
Total current liabilities   184,340     207,432  
 
NON-CURRENT LIABILITIES:
Deferred rent obligations 72,259 77,599
Other liabilities 25,177 27,619
Liabilities of discontinued operations   33,077     37,011  
Total non-current liabilities   130,513     142,229  
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 821 819
Additional paid-in capital 603,656 600,904
Accumulated other comprehensive loss (638 ) (503 )
Retained (deficit) earnings (36,049 ) 68,658
Cost of shares in treasury   (215,163 )   (214,494 )
Total stockholders' equity   352,627     455,384  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 667,480   $ 805,045  
____________
 
(1)

During the second quarter of 2014, the Company completed the teach-out of eight campuses; seven within the Transitional Schools segment and one within the CTU segment. In addition, the Company sold Everblue Training Institute (Career Colleges segment) and Sanford-Brown Pittsburgh (Transitional Schools segment). As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts and percentages)
           
 
For the Quarter Ended June 30, (1)
2014

% of Total
Revenue

2013

% of Total
Revenue

 
REVENUE:
Tuition and registration fees $ 226,986 99.0 % $ 256,555 98.9 %
Other   2,306   1.0 %   2,946   1.1 %
Total revenue   229,292     259,501  
 
OPERATING EXPENSES:
Educational services and facilities 80,399 35.1 % 92,451 35.6 %
General and administrative 160,870 70.2 % 196,631 75.8 %
Depreciation and amortization 13,956 6.1 % 16,113 6.2 %
Asset impairment   7,403   3.2 %   3,966   1.5 %
Total operating expenses   262,628   114.5 %   309,161   119.1 %
Operating loss   (33,336 ) -14.5 %   (49,660 ) -19.1 %
 
OTHER (EXPENSE) INCOME:
Interest income 285 0.1 % 760 0.3 %
Interest expense (108 ) 0.0 % (212 ) -0.1 %
Loss on sale of business - 0.0 % (222 ) -0.1 %
Miscellaneous (expense) income   (587 ) -0.3 %   34   0.0 %
Total other (expense) income   (410 ) -0.2 %   360   0.1 %
 
PRETAX LOSS (33,746 ) -14.7 % (49,300 ) -19.0 %
 
Provision for (benefit from) income taxes   1,854   0.8 %   (26,528 ) -10.2 %
 
LOSS FROM CONTINUING OPERATIONS (35,600 ) -15.5 % (22,772 ) -8.8 %
 
Loss from discontinued operations, net of tax   (10,964 ) -4.8 %   (8,618 ) -3.3 %
 
NET LOSS   (46,564 ) -20.3 %   (31,390 ) -12.1 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments - 2,811
Unrealized (losses) gains on investments   (107 )   4  
Total other comprehensive (loss) income   (107 )   2,815  
 
COMPREHENSIVE LOSS $ (46,671 ) $ (28,575 )
 
NET LOSS PER SHARE - DILUTED:
Loss from continuing operations $ (0.53 ) $ (0.34 )
Loss from discontinued operations   (0.16 )   (0.13 )
Net loss per share $ (0.69 ) $ (0.47 )
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   67,157     66,751  
_____________
 
(1)

During 2014, the Company completed the teach-out of seventeen campuses; nine in the first quarter (Transitional Schools segment) and eight in the second quarter (seven within the Transitional Schools segment and one within the CTU segment). In addition, the Company sold Everblue Training Institute (Career Colleges segment) and Sanford-Brown Pittsburgh (Transitional Schools segment). As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts and percentages)
           
For the Year to Date Ended June 30, (1)

 

 

2014

% of Total
Revenue

2013

% of Total
Revenue

 
REVENUE:
Tuition and registration fees $ 465,681 98.9 % $ 530,241 98.8 %
Other   4,978   1.1 %   6,571   1.2 %
Total revenue   470,659     536,812  
 
OPERATING EXPENSES:
Educational services and facilities 162,665 34.6 % 189,093 35.2 %
General and administrative 347,292 73.8 % 380,528 70.9 %
Depreciation and amortization 28,452 6.0 % 32,452 6.0 %
Asset impairment   7,477   1.6 %   4,083   0.8 %
Total operating expenses   545,886   116.0 %   606,156   112.9 %
Operating loss   (75,227 ) -16.0 %   (69,344 ) -12.9 %
 
OTHER INCOME (EXPENSE):
Interest income 391 0.1 % 1,005 0.2 %
Interest expense (189 ) 0.0 % (918 ) -0.2 %
Loss on sale of business - 0.0 % (6,934 ) -1.3 %
Miscellaneous (expense) income   (71 ) 0.0 %   1   0.0 %
Total other income (expense)   131   0.0 %   (6,846 ) -1.3 %
 
PRETAX LOSS (75,096 ) -16.0 % (76,190 ) -14.2 %
 
Provision for (benefit from) income taxes   2,074   0.4 %   (36,356 ) -6.8 %
 
LOSS FROM CONTINUING OPERATIONS (77,170 ) -16.4 % (39,834 ) -7.4 %
 
Loss from discontinued operations, net of tax   (27,537 ) -5.9 %   (6,759 ) -1.3 %
 
NET LOSS   (104,707 ) -22.2 %   (46,593 ) -8.7 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments - 1,068
Unrealized (losses) gains on investments   (135 )   5  
Total other comprehensive (loss) income   (135 )   1,073  
 
COMPREHENSIVE LOSS $ (104,842 ) $ (45,520 )
 
NET LOSS PER SHARE - DILUTED:
Loss from continuing operations $ (1.15 ) $ (0.60 )
Loss from discontinued operations   (0.41 )   (0.10 )
Net loss per share $ (1.56 ) $ (0.70 )
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING:   67,076     66,585  
                       

 

(1)

During 2014, the Company completed the teach-out of seventeen campuses; nine in the first quarter (Transitional Schools segment) and eight in the second quarter (seven within the Transitional Schools segment and one within the CTU segment). In addition, the Company sold Everblue Training Institute (Career Colleges segment) and Sanford-Brown Pittsburgh (Transitional Schools segment). As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
          For the Year to Date

Ended June 30,

2014       2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (104,707 ) $ (46,593 )
Adjustments to reconcile net loss to net cash used in operating activities:
Asset impairment 7,521 4,123
Depreciation and amortization expense 29,825 38,235
Bad debt expense 12,409 14,042
Compensation expense related to share-based awards 2,361 3,406
Loss on sale of businesses, net 311 6,934
Loss on disposition of property and equipment 32 103
Changes in operating assets and liabilities   (29,037 )   (87,225 )
Net cash used in operating activities   (81,285 )   (66,975 )
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (121,590 ) (34,570 )
Sales of available-for-sale investments 28,726 34,485
Purchases of property and equipment (7,031 ) (10,005 )
Payments of cash upon sale of business (250 ) (2,525 )
Other   (11 )   9  
Net cash used in investing activities   (100,156 )   (12,606 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 392 565
Payment on borrowings - (80,000 )
Change in restricted cash 636 85,912
Payments of capital lease obligations   -     (210 )
Net cash provided by financing activities   1,028     6,267  
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS:   78     (1,381 )
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (180,335 ) (74,695 )
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period 472 128,207
Less: Cash balance of discontinued operations, end of the period - 102,195
CASH AND CASH EQUIVALENTS, beginning of the period   318,471     112,415  
CASH AND CASH EQUIVALENTS, end of the period $ 138,608   $ 63,732  
 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
             
For the Quarter Ended June 30,
2014 2013
 
REVENUE:
CTU (1) $ 85,041 $ 86,557
AIU   49,685     59,935  
Total University Schools   134,726     146,492  
 
Career Colleges (1) 47,128 54,160
Culinary Arts   42,566     44,577  
Total Career Schools   89,694     98,737  
 
Corporate and Other   38     -  
Subtotal 224,458 245,229
 
Transitional Schools (1)   4,834     14,272  
Total $ 229,292   $ 259,501  
 
OPERATING (LOSS) INCOME:
CTU (1) $ 20,957 $ 17,062
AIU   (1,331 )   1,021  
Total University Schools   19,626     18,083  
 
Career Colleges (1) (2) (18,836 ) (29,960 )
Culinary Arts (3)   (19,772 )   (17,017 )
Total Career Schools   (38,608 )   (46,977 )
 
Corporate and Other   (5,513 )   (11,050 )
Subtotal (24,495 ) (39,944 )
 
Transitional Schools (1)   (8,841 )   (9,716 )
Total $ (33,336 ) $ (49,660 )
 
OPERATING (LOSS) MARGIN:
CTU (1) 24.6 % 19.7 %
AIU -2.7 % 1.7 %
Total University Schools 14.6 % 12.3 %
 
Career Colleges (1) (2) -40.0 % -55.3 %
Culinary Arts (3) -46.5 % -38.2 %
Total Career Schools -43.0 % -47.6 %
 
Corporate and Other NM NM
Subtotal -10.9 % -16.3 %
 
Transitional Schools (1) -182.9 % -68.1 %
Total -14.5 % -19.1 %
_______________

 

(1)

During 2014, the Company completed the teach-out of seventeen campuses; nine in the first quarter (Transitional Schools segment) and eight in the second quarter (seven within the Transitional Schools segment and one within the CTU segment). In addition, the Company sold Everblue Training Institute (Career Colleges segment) and Sanford-Brown Pittsburgh (Transitional Schools segment). As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 
(2)

The second quarter of 2013 includes $8.3 million related to the settlement of a legal matter and a $1.7 million trade name impairment charge.

 
(3)

The second quarters of 2014 and 2013 operating loss included a $7.4 million and $2.3 million trade name impairment charge, respectively.

 

 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
             
For the Year to Date Ended June 30,
2014 2013
 
REVENUE:
CTU (1) $ 171,961 $ 176,319
AIU   102,258     126,234  
Total University Schools   274,219     302,553  
Career Colleges (1) 99,809 113,066
Culinary Arts   84,813     90,515  
Total Career Schools   184,622     203,581  
Corporate and Other   138     -  
Subtotal 458,979 506,134
Transitional Schools (1)   11,680     30,678  
Total $ 470,659   $ 536,812  
 
OPERATING (LOSS) INCOME:
CTU (1) $ 35,438 $ 33,317
AIU   (4,914 )   4,167  
Total University Schools   30,524     37,484  
Career Colleges (1) (2) (35,135 ) (44,153 )
Culinary Arts (3)   (37,818 )   (29,154 )
Total Career Schools   (72,953 )   (73,307 )
Corporate and Other   (16,649 )   (17,418 )
Subtotal (59,078 ) (53,241 )
Transitional Schools (1)   (16,149 )   (16,103 )
Total $ (75,227 ) $ (69,344 )
 
OPERATING (LOSS) MARGIN:
CTU (1) 20.6 % 18.9 %
AIU -4.8 % 3.3 %
Total University Schools 11.1 % 12.4 %
Career Colleges (1) (2) -35.2 % -39.1 %
Culinary Arts (3) -44.6 % -32.2 %
Total Career Schools -39.5 % -36.0 %
Corporate and Other NM NM
Subtotal -12.9 % -10.5 %
Transitional Schools (1) -138.3 % -52.5 %
Total -16.0 % -12.9 %
                     
 
(1)

During 2014, the Company completed the teach-out of seventeen campuses; nine in the first quarter (Transitional Schools segment) and eight in the second quarter (seven within the Transitional Schools segment and one within the CTU segment). In addition, the Company sold Everblue Training Institute (Career Colleges segment) and Sanford-Brown Pittsburgh (Transitional Schools segment). As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 
(2)

Year to date 2013 expenses include $8.3 million related to the settlement of a legal matter and a $1.7 million trade name impairment charge.

 
(3) Year to date 2014 and 2013 expenses include a $7.4 million and $2.3 million trade name impairment charge, respectively.
 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)
(In thousands, except per share amounts)
                     
Adjusted EBITDA   Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013
     
Pre-tax loss from continuing operations $ (33,746 ) $ (41,350 ) $ (45,319 ) $ (56,411 ) $ (49,300 )
Transitional Schools operating loss (2) 8,841 7,308 11,227 9,004 9,716
Interest (income) expense, net (177 ) (25 ) 65 16 (548 )
Loss (gain) on sale of business - - (68 ) 39 222
Depreciation and amortization (3) 12,799 13,305 14,062 14,399 14,749
Stock based compensation (3) 1,020 1,341 1,580 1,713 1,631
Legal settlements (3) (4) 1,600 5,850 17,000 300 8,300
Asset impairments (3) (5) 7,403 74 4,516 11,513 3,966
Unused space charges (3) (6)   (879 )   (606 )   (2,924 )   1,184     (612 )
Adjusted EBITDA--Ongoing Operations (2) $ (3,139 ) $ (14,103 ) $ 139   $ (18,243 ) $ (11,876 )
Adjusted EBITDA per diluted share $ (0.05 ) $ (0.21 ) $ 0.00   $ (0.27 ) $ (0.18 )
 
Pre-tax loss from discontinued operations $ (10,964 ) $ (16,573 ) $ 119,133 $ (20,290 ) $ (16,287 )
Transitional Schools operating loss (2) (8,841 ) (7,308 ) (11,227 ) (9,004 ) (9,716 )
Loss (gain) on sale of business 311 - (130,109 ) - -
International Schools operating (income) loss (7) - - (11,434 ) 7,608 3,659
Interest (income) expense, net - - (51 ) (22 ) (14 )
Depreciation and amortization (8) 1,595 2,126 2,364 2,552 2,818
Legal settlements (8) - - - - 1,700
Asset impairments (8) 51 (7 ) 2,467 72 -
Unused space charges (6) (8)   1,436     3,099     5,766     (3,092 )   (2,611 )
Adjusted EBITDA--Transitional and Discontinued Operations (2) $ (16,412 ) $ (18,663 ) $ (23,091 ) $ (22,176 ) $ (20,451 )
Adjusted EBITDA per diluted share $ (0.24 ) $ (0.28 ) $ (0.35 ) $ (0.33 ) $ (0.31 )
 
                     
 
(1) The Company believes it is useful to present non-GAAP financial measures which exclude certain significant items as a means to understand the performance of its core business. 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 core business, 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 and that failure to report non-GAAP measures could result in a misplaced perception that the Company's results have underperformed or exceeded expectations.
 
We believe Adjusted EBITDA allows us to compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by items we do not consider reflective of underlying operating performance. We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors and other interested parties as a measure of performance. In evaluating Adjusted EBITDA, investors should be aware that in the future we may incur expenses similar to the adjustments presented above. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it 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 our liquidity.
 
Non-GAAP financial measures when viewed in a reconciliation to corresponding GAAP financial measures, provides 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) Management assesses results of operations for ongoing operations, which excludes Transitional Schools, separately from Transitional Schools. As schools within the Transitional Schools segment are fully taught-out, these schools will be recast as components of Discontinued Operations. As a result, management views adjusted EBITDA from ongoing operations separately from Transitional Schools and Discontinued Operations to assess results and make decisions. Accordingly, Transitional Schools operating loss is added back to pre-tax loss from continuing operations and subtracted from pre-tax loss from discontinued operations.
 
(3) Quarterly amounts relate to ongoing operations, which excludes Transitional Schools.
 
(4) Legal settlement amounts are net of insurance recoveries and are recorded within the following segments:
         
Q2 2014 Q1 2014 Q4 2013 Q3 2013 Q2 2013
 
CTU $ - $ (900 ) $ 1,300 $ - $ -
Career Colleges - - 200 300 8,300
Culinary Arts 2,000 3,000 15,500 - -
Corporate & Other (400 ) 3,750 - - -
         
Total $ 1,600   $ 5,850   $ 17,000   $ 300   $ 8,300  
 
(5) Asset impairments primarily relate to trade name impairment charges within Culinary Arts of $7.4 million, $10.7 million and $2.3 million which were recorded during the second quarter of 2014, third quarter of 2013 and the second quarter of 2013, respectively, and within Career Colleges of $1.7 million during the second quarter of 2013.
 
(6) Unused space charges represent the net present value of remaining lease obligations less an estimated amount for sublease income as well as the subsequent accretion of these charges.
 
(7) The International Schools segment was sold during the fourth quarter of 2013. As such, management excludes operations from the International Schools when assessing results and trends of Transitional Schools and Discontinued Operations.
 
(8) Quarterly amounts relate to Transitional Schools and Discontinued Operations, excluding International.
 

Contacts

Career Education Corporation
Investors:
Doug Craney
Vice President, Investor Relations and Business Development
(847) 585-3899
or
Media:
Mark Spencer
Director, Corporate Communications
(847) 585-3802

Release Summary

Career Education Corporation (NASDAQ: CECO) reports operating and financial results for the second quarter of 2014.

Contacts

Career Education Corporation
Investors:
Doug Craney
Vice President, Investor Relations and Business Development
(847) 585-3899
or
Media:
Mark Spencer
Director, Corporate Communications
(847) 585-3802