Career Education Corporation Reports Third Quarter 2014 Results

Improved enrollment trends, continued strong profitability of the University group and execution against strategic plan key objectives positions the Company for continued progress in 2015

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

Third Quarter Highlights

  • Seventh consecutive quarter of sequential improvement in the decline of total student enrollments.
  • For the first time in over three years, Colorado Technical University (“CTU”) experienced revenue growth compared to the prior year quarter, driven by positive new student enrollment growth.
  • For the first time in over three years, Culinary Arts experienced revenue growth compared to the prior year quarter, driven by positive total student enrollment growth.
  • Revenue from ongoing operations, which excludes Transitional Schools, was down 3.9% to $219.6 million.
  • Lowered operating expenses by $26.7 million or 8.9% compared to the same quarter last year.
  • Ended the third quarter with $250.9 million in cash, cash equivalents and short-term investments and increased the borrowing capacity under the Company’s existing revolving credit facility from $70 million to $120 million with our existing lender.
  • Adjusted EBITDA from ongoing operations, which excludes Transitional Schools, improved nearly 7% to negative $15.0 million in the quarter, despite declines in revenue as compared to the prior year quarter.

“The results of our hard work to stabilize and transform Career Education were quite visible in this quarter’s results as we witnessed another period of solid sequential improvement across our organization,” said President and CEO Scott W. Steffey. “In particular our University group has delivered over $55 million in operating income over the last twelve months and is experiencing year-over-year fundamental new student growth which provides a strong base of support that anchors our future. We have reduced our operating expenses by over $84 million for the current year to date, surpassing our $75 million annual goal in just nine months. Further, we see numerous opportunities to continue to lower our cost base, while simultaneously improving our organization’s commitment to enroll, educate and place our students to succeed professionally in the future. We expect to be adjusted EBITDA positive in our ongoing operations for the fourth quarter of this year. Additionally, we will enter 2015 as a much stronger organization and we believe we are well positioned to achieve our objective of ongoing operations being adjusted EBITDA positive for the full year 2015.”

REVENUE

  • Total revenue was $227.5 million for the third quarter of 2014 compared to $244.2 million for the third quarter of 2013, a decline of 6.8%.
  • For ongoing operations, which excludes Transitional Schools, total revenue was $219.6 million for the third quarter of 2014 compared to $228.6 million for the third quarter of 2013, a decline of 3.9%, due to approximately 300 fewer total student enrollments. Both CTU and Culinary Arts grew revenue for the third quarter of 2014 as compared to the third quarter of 2013.
                   

 

   
Revenue ($ in thousands)     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
             
CTU (1) $ 82,410 $ 85,041 $ 86,920 $ 87,582 $ 82,185
AIU (2)   51,889     49,685     52,573     49,088     56,284
Total University Schools   134,299     134,726     139,493     136,670     138,469
Career Colleges 40,799 42,589 47,832 49,924 45,900
Culinary Arts   44,499     42,566     42,247     42,778     44,256
Total Career Schools   85,298     85,155     90,079     92,702     90,156
Corporate and Other   52     38     100     -     -
Total Ongoing Operations   219,649     219,919     229,672     229,372     228,625
Transitional Schools (3)   7,803     9,115     11,233     13,500     15,545
Total (4) $ 227,452   $ 229,034   $ 240,905   $ 242,872   $ 244,170

__________

(1)  

Revenue of $0.5 million, $0.7 million, $0.9 million, $1.0 million and $1.0 million for each of the sequential quarters presented above beginning with the third quarter of 2014, respectively, are attributed to a campus in the process of being closed that is still reported within the CTU segment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280 – Segment Reporting.

(2)

Revenue of $0.3 million, $0.4 million, $0.6 million, $0.7 million and $1.0 million for each of the sequential quarters presented above beginning with the third quarter of 2014, respectively, are attributed to a campus in the process of being closed that is still reported within the AIU segment in accordance with FASB ASC Topic 280 – Segment Reporting.

(3) Campuses included in our Transitional Schools segment are currently being taught out and no longer enroll new students.
(4)

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.

 

TOTAL STUDENT ENROLLMENT

  • For ongoing operations, which excludes Transitional Schools, total student enrollment decreased 0.6% as of September 30, 2014 as compared to September 30, 2013. Culinary Arts reported total student enrollment growth of 26.3% as of September 30, 2014 as compared to September 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. Total student enrollments for ongoing operations increased 8.9% sequentially from the second quarter of 2014.
                       
Total Student Enrollment     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
             
CTU (1) 19,800 19,800 20,600 20,800 20,500
AIU (2) 11,500   10,800   13,300   11,600   12,000
Total University Schools 31,300   30,600   33,900   32,400   32,500
Career Colleges 10,000 8,600 10,700 10,000 11,200
Culinary Arts 10,100   8,000   8,400   7,900   8,000
Total Career Schools 20,100   16,600   19,100   17,900   19,200
Total Ongoing Operations 51,400   47,200   53,000   50,300   51,700
Transitional Schools 1,300   1,800   2,300   2,800   3,500
Total 52,700   49,000   55,300   53,100   55,200

__________

(1)  

Total student enrollments of 100 for each of the third and second quarters of 2014 and 200 for each of the first quarter of 2014 and the fourth and third quarter of 2013 are attributed to a campus in the process of being closed that is still reported within the CTU segment in accordance with FASB ASC Topic 280 – Segment Reporting.

(2)

Total student enrollments of less than 100 for each of the third and second quarters of 2014, 100 for each of the first quarter of 2014 and fourth quarter of 2013 and 200 for the third quarter of 2013 are attributed to a campus in the process of being closed that is still reported within the AIU segment in accordance with FASB ASC Topic 280 – Segment Reporting.

 

NEW STUDENT ENROLLMENTS

  • For ongoing operations, which excludes Transitional Schools, new student enrollments increased 9.2% for the third quarter of 2014 compared to the prior year quarter. CTU, AIU and Culinary Arts each showed new student enrollment growth for the current quarter as compared to the prior year quarter. The new student enrollment growth of 14.5% for Culinary Arts is a result of timing of start dates in the prior year quarter as compared to the current year quarter. Excluding the impact of this shift in timing, new student enrollments would have declined 10.6% as compared to the prior year quarter for Culinary Arts.
                       
New Student Enrollments     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
             
CTU (1) 5,460 5,280 4,820 5,260 4,780
AIU (1) 3,300   2,010   5,900   2,520   2,880
Total University Schools 8,760   7,290   10,720   7,780   7,660
Career Colleges 3,150 1,580 2,780 1,550 3,430
Culinary Arts 4,180   1,890   2,300   2,010   3,650
Total Career Schools 7,330   3,470   5,080   3,560   7,080
Total Ongoing Operations 16,090   10,760   15,800   11,340   14,740
Transitional Schools (2) 140   80   220   170   600
Total 16,230   10,840   16,020   11,510   15,340

__________

(1)   The increase in new student enrollments for the current quarter as compared to the prior year quarter is driven by both underlying positive performance trends and the implementation of a new student orientation process in the first quarter of 2014, 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.
(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

  • Consolidated operating losses of $44.9 million for the third quarter of 2014 declined by $10.0 million compared to the third quarter of 2013.
  • For ongoing operations, which excludes Transitional Schools, operating losses improved by $11.3 million or 25.2% as compared to the prior year quarter, driven by reduced operating expenses and income recognized for a net insurance recovery of $8.6 million in the current year quarter as compared to the prior year quarter.
  • Within Career Colleges, increased asset impairment charges recorded during the third quarter of 2014 as compared to the prior year quarter drove the operating margin decline. Within Culinary Arts, favorability for the current quarter as compared to the prior year quarter was driven by higher asset impairment charges recorded during the prior year quarter.
                       
Operating (Loss) Income     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
  ($ in thousands)                      
 
CTU $ 10,698 $ 20,957 $ 14,481 $ 22,146 $ 9,615
AIU (1)   (4,194 )     (1,331 )     (3,583 )     (3,793 )     (5,930 )
Total University Schools   6,504       19,626       10,898       18,353       3,685  
Career Colleges (2) (29,908 ) (16,273 ) (13,922 ) (12,035 ) (17,242 )
Culinary Arts (3)   (12,602 )     (19,772 )     (18,046 )     (28,409 )     (23,655 )
Total Career Schools   (42,510 )     (36,045 )     (31,968 )     (40,444 )     (40,897 )
Corporate and Other (4)   2,528       (5,513 )     (11,136 )     (8,621 )     (7,561 )
Total Ongoing Operations   (33,478 )     (21,932 )     (32,206 )     (30,712 )     (44,773 )
Transitional Schools   (11,390 )     (9,642 )     (8,259 )     (12,944 )     (10,099 )
Total (5) $ (44,868 )   $ (31,574 )   $ (40,465 )   $ (43,656 )   $ (54,872 )
(1)  

Operating losses of $1.0 million, $0.9 million and $0.7 million for the third quarter of 2014, each of the quarters from the fourth quarter of 2013 through the second quarter of 2014 and the third quarter of 2013, respectively, are attributed to a campus in the process of being closed that is still reported within the AIU segment in accordance with FASB ASC Topic 280 – Segment Reporting.

(2) Asset impairment charges of $12.8 million ($0.19 per diluted share) and $2.9 million ($0.03 per diluted share) were recorded during the third quarter of 2014 and fourth quarter of 2013, respectively.
(3) Trade name impairment charges of $1.5 million ($0.02 per diluted share), $7.4 million ($0.11 per diluted share) and $10.7 million ($0.10 per diluted share) were recorded during the third quarter of 2014, second quarter of 2014 and third quarter of 2013, respectively.
(4) Income related to a net insurance recovery of $8.6 million ($0.13 per diluted share) was recorded during the third quarter of 2014.
(5)

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.

 

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 and is viewed as an important metric to how management views the business. (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, improved $1.1 million or 6.8% for the third quarter of 2014 as compared to the same quarter last year as revenue declines of $9.0 million were more than offset by reduced operating expenses.
  • Adjusted EBITDA for Transitional Schools and Discontinued Operations was negative $15.4 million, an improvement of $8.8 million as compared to the third quarter of 2013 and a $3.3 million sequential improvement compared to the second quarter of 2014. 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     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
  ($ in thousands)                      
   

Ongoing Operations:

Pre-tax loss from continuing operations $ (44,787 ) $ (31,984 ) $ (39,930 ) $ (43,458 ) $ (54,989 )
Transitional Schools operating loss 11,390 9,642 8,259 12,944 10,099
Interest (income) expense, net (120 ) (177 ) (25 ) 65 15
Loss (gain) on sale of business - - - (68 ) 39
Depreciation and amortization (1) 11,950 12,554 13,029 13,661 13,990
Stock-based compensation (1) 950 1,020 1,341 1,580 1,713
Legal settlements (1) (2) - 1,600 5,850 17,000 300
Asset impairments (1) 14,396 7,403 74 3,050 11,513
Unused space charges (1) (3) (226 ) (879 ) (606 ) (2,924 ) 1,184
Insurance recovery   (8,588 )     -       -       -       -  
Adjusted EBITDA--Ongoing Operations (4) $ (15,035 )   $ (821 )   $ (12,008 )   $ 1,850     $ (16,136 )
Adjusted EBITDA per diluted share $ (0.22 )   $ (0.01 )   $ (0.18 )   $ 0.03     $ (0.24 )
                 
Memo: Advertising Expenses (1) $ 69,875     $ 56,224     $ 69,379     $ 56,077     $ 70,936  
 

Transitional Schools and Discontinued Operations:

Pre-tax (loss) income from discontinued operations $ (2,065 ) $ (12,726 ) $ (17,993 ) $ 117,272 $ (21,712 )
Transitional Schools operating loss (11,390 ) (9,642 ) (8,259 ) (12,944 ) (10,099 )
Loss (gain) on sale of business (5) - 311 - (130,109 ) -
International Schools operating (income) loss - - - (11,434 ) 7,608
Interest (income) expense, net - - - (51 ) (21 )
Depreciation and amortization (5) 1,191 1,840 2,402 2,765 2,961
Legal settlements (2) (5) 225 - - - -
Asset impairments (5) 89 51 (7 ) 3,933 72
Unused space charges (3) (5)   (3,485 )     1,436       3,099       5,766       (3,092 )
Adjusted EBITDA--Transitional and Discontinued Operations $ (15,435 )   $ (18,730 )   $ (20,758 )   $ (24,802 )   $ (24,283 )
Adjusted EBITDA per diluted share $ (0.23 )   $ (0.28 )   $ (0.31 )   $ (0.37 )   $ (0.36 )
     
  (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) Adjusted EBITDA amounts of -$1.0 million, -$0.9 million, -$0.8 million, -$0.8 million and -$0.6 million for each of the sequential quarters presented above beginning with the third quarter of 2014, respectively, are attributed to a campus in the process of being closed that is still reported within the AIU segment in accordance with FASB ASC Topic 280 - Segment Reporting.
(5) Quarterly amounts relate to Transitional Schools and Discontinued Operations.
 

LOSS PER SHARE

  • Net loss per diluted share of -$0.71 and -$1.30 were reported for the third quarters of 2014 and 2013, respectively.
                       
Loss Per Share (shares in thousands)     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
  Loss per diluted share from continuing operations     $ (0.68 )   $ (0.50 )   $ (0.60 )   $ (1.45 )   $ (0.52 )
(Loss) income per diluted share from discontinued operations   (0.03 )     (0.19 )     (0.27 )     0.99       (0.78 )
Net loss per diluted share $ (0.71 )   $ (0.69 )   $ (0.87 )   $ (0.46 )   $ (1.30 )
Diluted shares outstanding 67,209 67,157 66,994 66,916 66,849
 

BALANCE SHEET AND CASH FLOW

  • Net cash used in operating activities increased to $101.1 million for the year to date ended September 30, 2014 compared to $77.8 million for the year to date ended September 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, as well as $6.3 million of cash payments during the current year to date related to early lease terminations.
  • Net cash used in operating activities increased to $19.9 million for the current year quarter compared to $10.9 million in the prior year quarter primarily attributed to the prior year comparison including the seasonal impact of our International cash flow of approximately $27 million. The third quarter typically contained a seasonal peak in cash collections for that business that is not reflected in current year numbers as this business was sold in the fourth quarter of last year.
                       
Cash and Cash Flow from     Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
  Operations ($ in thousands)                      
             
Consolidated Cash, Cash Equivalents and Short-term Investments (1) $ 250,900     $ 274,617     $ 315,661     $ 363,099     $ 227,515  
 
Cash Flow from Operations (2) $ (19,860 )   $ (45,865 )   $ (35,420 )   $ (7,962 )   $ (10,867 )

__________

(1)   Consolidated cash, cash equivalents and short-term investment balances are quarter end balances and include both continuing and discontinued operations.
(2) Cash flow from operations includes payments of legal settlements of $21.6 million, $5.0 million and $10.7 million during the second quarter of 2014, fourth quarter of 2013 and third quarter of 2013, respectively.
 

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, November 6, 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 38261000. 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 38261000.

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,” “continue to” 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. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions, and we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. 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. 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; changes in the real estate leasing market and the success of our efforts to lower our ongoing lease obligations; 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 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
         

September 30,
2014 (1)

December 31,
2013 (1)

 
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted $ 126,926 $ 318,468
Restricted cash 13,238 12,564
Short-term investments   110,734     31,592  
Total cash and cash equivalents and short-term investments 250,898 362,624
 
Student receivables, net 32,463 33,530
Receivables, other, net 18,516 27,336
Prepaid expenses 20,297 19,649
Inventories 5,192 6,586
Deferred income tax assets, net 3,606 3,606
Other current assets 4,719 3,445
Assets of discontinued operations   604     3,241  
Total current assets   336,295     460,017  
 
NON-CURRENT ASSETS:
Property and equipment, net 138,248 179,835
Goodwill 87,356 87,356
Intangible assets, net 29,062 40,117
Student receivables, net 4,235 5,179
Deferred income tax assets, net 10,644 10,644
Other assets, net 17,167 17,834
Assets of discontinued operations   1,029     4,063  
TOTAL ASSETS $ 624,036   $ 805,045  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 29,660 $ 24,477
Accrued expenses:
Payroll and related benefits 34,035 34,160
Advertising and production costs 25,472 17,585
Income taxes 1,506 14,994
Other 26,722 40,609
Deferred tuition revenue 60,241 59,967
Liabilities of discontinued operations   16,014     15,640  
Total current liabilities   193,650     207,432  
 
NON-CURRENT LIABILITIES:
Deferred rent obligations 70,578 77,280
Other liabilities 25,695 27,553
Liabilities of discontinued operations   28,429     37,396  
Total non-current liabilities   124,702     142,229  
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 821 819
Additional paid-in capital 604,789 600,904
Accumulated other comprehensive loss (746 ) (503 )
Retained (deficit) earnings (84,017 ) 68,658
Cost of shares in treasury   (215,163 )   (214,494 )
Total stockholders' equity   305,684     455,384  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 624,036   $ 805,045  
____________
 
(1)

During the third quarter of 2014, the Company completed the teach-out of three Transitional Schools. As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 

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

 

 

2014

% of Total Revenue

2013

% of Total Revenue

 
REVENUE:
Tuition and registration fees $ 225,626 99.2 % $ 240,261 98.4 %
Other   1,826   0.8 %   3,909   1.6 %
Total revenue   227,452     244,170  
 
OPERATING EXPENSES:
Educational services and facilities 82,892 36.4 % 90,308 37.0 %
General and administrative 161,897 71.2 % 181,688 74.4 %
Depreciation and amortization 13,070 5.7 % 15,461 6.3 %
Asset impairment   14,461   6.4 %   11,585   4.7 %
Total operating expenses   272,320   119.7 %   299,042   122.5 %
Operating loss   (44,868 ) -19.7 %   (54,872 ) -22.5 %
 
OTHER INCOME (EXPENSE):
Interest income 223 0.1 % 194 0.1 %
Interest expense (103 ) 0.0 % (209 ) -0.1 %
Loss on sale of business - 0.0 % (39 ) 0.0 %
Miscellaneous expense   (39 ) 0.0 %   (63 ) 0.0 %
Total other income (expense)   81   0.0 %   (117 ) 0.0 %
 
PRETAX LOSS (44,787 ) -19.7 % (54,989 ) -22.5 %
 
Provision for (benefit from) income taxes   1,116   0.5 %   (20,087 ) -8.2 %
 
LOSS FROM CONTINUING OPERATIONS (45,903 ) -20.2 % (34,902 ) -14.3 %
 
Loss from discontinued operations, net of tax   (2,065 ) -0.9 %   (52,162 ) -21.4 %
 
NET LOSS   (47,968 ) -21.1 %   (87,064 ) -35.7 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments - 6,474
Unrealized (losses) gains on investments   (108 )   36  
Total other comprehensive (loss) income   (108 )   6,510  
 
COMPREHENSIVE LOSS $ (48,076 ) $ (80,554 )
 
NET LOSS PER SHARE - DILUTED:
Loss from continuing operations $ (0.68 ) $ (0.52 )
Loss from discontinued operations   (0.03 )   (0.78 )
Net loss per share $ (0.71 ) $ (1.30 )
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING   67,209     66,849  
_____________
 
(1)

During the third quarter of 2014, the Company completed the teach-out of three Transitional Schools. As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 

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

 

 

2014

% of Total Revenue

2013

% of Total Revenue

 
REVENUE:
Tuition and registration fees $ 690,588 99.0 % $ 767,243 98.7 %
Other   6,803   1.0 %   10,446   1.3 %
Total revenue   697,391     777,689  
 
OPERATING EXPENSES:
Educational services and facilities 243,690 34.9 % 276,487 35.6 %
General and administrative 507,607 72.8 % 559,591 72.0 %
Depreciation and amortization 41,063 5.9 % 47,410 6.1 %
Asset impairment   21,938   3.1 %   15,668   2.0 %
Total operating expenses   814,298   116.8 %   899,156   115.6 %
Operating loss   (116,907 ) -16.8 %   (121,467 ) -15.6 %
 
OTHER INCOME (EXPENSE):
Interest income 614 0.1 % 1,199 0.2 %
Interest expense (292 ) 0.0 % (1,127 ) -0.1 %
Loss on sale of business - 0.0 % (6,973 ) -0.9 %
Miscellaneous expense   (116 ) 0.0 %   (62 ) 0.0 %
Total other income (expense)   206   0.0 %   (6,963 ) -0.9 %
 
PRETAX LOSS (116,701 ) -16.7 % (128,430 ) -16.5 %
 
Provision for (benefit from) income taxes   3,190   0.5 %   (55,964 ) -7.2 %
 
LOSS FROM CONTINUING OPERATIONS (119,891 ) -17.2 % (72,466 ) -9.3 %
 
Loss from discontinued operations, net of tax   (32,784 ) -4.7 %   (61,191 ) -7.9 %
 
NET LOSS   (152,675 ) -21.9 %   (133,657 ) -17.2 %
 
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax:
Foreign currency translation adjustments - 7,542
Unrealized (losses) gains on investments   (243 )   41  
Total other comprehensive (loss) income   (243 )   7,583  
 
COMPREHENSIVE LOSS $ (152,918 ) $ (126,074 )
 
NET LOSS PER SHARE - DILUTED:
Loss from continuing operations $ (1.79 ) $ (1.09 )
Loss from discontinued operations   (0.48 )   (0.91 )
Net loss per share $ (2.27 ) $ (2.00 )
 
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING:   67,121     66,663  
                         

 

(1)

During 2014, the Company completed the teach-out of twenty campuses; three in the third quarter of 2014. 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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
           

 

For the Year to Date

Ended September 30,

2014     2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (152,675 ) $ (133,657 )
Adjustments to reconcile net loss to net cash used in operating activities:
Asset impairment 22,006 15,708
Depreciation and amortization expense 42,966 56,619
Bad debt expense 19,107 22,028
Compensation expense related to share-based awards 3,311 5,119
Loss on sale of businesses, net 311 6,973
Loss on disposition of property and equipment 32 103
Changes in operating assets and liabilities   (36,203 )   (50,735 )
Net cash used in operating activities   (101,145 )   (77,842 )
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (131,487 ) (40,842 )
Sales of available-for-sale investments 51,540 52,485
Purchases of property and equipment (10,558 ) (16,602 )
Payments of cash upon sale of businesses (387 ) (2,525 )
Other   -     31  
Net cash used in investing activities   (90,892 )   (7,453 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 575 792
Payment on borrowings - (80,000 )
Change in restricted cash (674 ) 85,314
Payments of capital lease obligations   -     (210 )
Net cash (used in) provided by financing activities   (99 )   5,896  
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS:   121     1,518  
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (192,015 ) (77,881 )
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period 475 128,207
Less: Cash balance of discontinued operations, end of the period 2 133,098
CASH AND CASH EQUIVALENTS, beginning of the period   318,468     112,415  
CASH AND CASH EQUIVALENTS, end of the period $ 126,926   $ 29,643  
 
 
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
           
For the Quarter Ended September 30,
2014 2013
 
REVENUE:
CTU $ 82,410 $ 82,185
AIU   51,889     56,284  
Total University Schools   134,299     138,469  
 
Career Colleges (1) 40,799 45,900
Culinary Arts   44,499     44,256  
Total Career Schools   85,298     90,156  
 
Corporate and Other   52     -  
Subtotal 219,649 228,625
 
Transitional Schools (1) (2)   7,803     15,545  
Total $ 227,452   $ 244,170  
 
OPERATING (LOSS) INCOME:
CTU $ 10,698 $ 9,615
AIU   (4,194 )   (5,930 )
Total University Schools   6,504     3,685  
 
Career Colleges (1) (3) (29,908 ) (17,242 )
Culinary Arts (4)   (12,602 )   (23,655 )
Total Career Schools   (42,510 )   (40,897 )
 
Corporate and Other (5)   2,528     (7,561 )
Subtotal (33,478 ) (44,773 )
 
Transitional Schools (1) (2)   (11,390 )   (10,099 )
Total $ (44,868 ) $ (54,872 )
 
OPERATING (LOSS) MARGIN:
CTU 13.0 % 11.7 %
AIU -8.1 % -10.5 %
Total University Schools 4.8 % 2.7 %
 
Career Colleges (1) (3) -73.3 % -37.6 %
Culinary Arts (4) -28.3 % -53.5 %
Total Career Schools -49.8 % -45.4 %
 
Corporate and Other (5) NM NM
Subtotal -15.2 % -19.6 %
 
Transitional Schools (1) (2) -146.0 % -65.0 %
Total -19.7 % -22.5 %
_______________
 
(1)

The Company announced the teach-out of three additional campuses during the third quarter of 2014. As a result, prior period results have been recast to report the schools being taught out within the Transitional Schools segment.

 
(2)

During the third quarter of 2014, the Company completed the teach-out of three Transitional Schools. As a result, all current and prior periods reflect these campuses as components of discontinued operations.

 
(3)

The third quarter of 2014 expenses include $11.3 million of fixed asset impairment charges and a $1.5 million trade name impairment charge.

 
(4)

The third quarters of 2014 and 2013 expenses include an $1.5 million and $10.7 million trade name impairment charge, respectively.

 
(5) The operating income for the third quarter of 2014 includes an $8.6 million insurance recovery.
       
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)
   
For the Year to Date Ended September 30,
2014 2013
 
REVENUE:
CTU (1) $ 254,371 $ 258,504
AIU   154,147     182,518  
Total University Schools   408,518     441,022  
Career Colleges (1) (2) 131,220 147,065
Culinary Arts   129,312     134,771  
Total Career Schools   260,532     281,836  
Corporate and Other   190     -  
Subtotal 669,240 722,858
Transitional Schools (1) (2)   28,151     54,831  
Total $ 697,391   $ 777,689  
 
OPERATING (LOSS) INCOME:
CTU (1) $ 46,136 $ 42,932
AIU   (9,108 )   (1,763 )
Total University Schools   37,028     41,169  
Career Colleges (1) (2) (3) (60,103 ) (56,617 )
Culinary Arts (4)   (50,420 )   (52,809 )
Total Career Schools   (110,523 )   (109,426 )
Corporate and Other (5)   (14,121 )   (24,979 )
Subtotal (87,616 ) (93,236 )
Transitional Schools (1) (2)   (29,291 )   (28,231 )
Total $ (116,907 ) $ (121,467 )
 
OPERATING (LOSS) MARGIN:
CTU (1) 18.1 % 16.6 %
AIU -5.9 % -1.0 %
Total University Schools 9.1 % 9.3 %
Career Colleges (1) (2) (3) -45.8 % -38.5 %
Culinary Arts (4) -39.0 % -39.2 %
Total Career Schools -42.4 % -38.8 %
Corporate and Other (5) NM NM
Subtotal -13.1 % -12.9 %
Transitional Schools (1) (2) -104.0 % -51.5 %
Total -16.8 % -15.6 %
                   
 
(1)

During 2014, the Company completed the teach-out of twenty campuses; three in the third quarter. 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 Company announced the teach-out of three additional campuses. As a result, all current and prior periods reflect these campuses within the Transitional Schools segment.

 
(3)

Year to date 2014 expenses include $11.3 million of fixed asset impairment charges and a $1.5 million trade name impairment charge. Year to date 2013 expenses include $8.6 million of legal settlements and a $1.7 million trade name impairment charge.

 
(4) Year to date 2014 and 2013 expenses include an $8.9 million and $13.0 million trade name impairment charge, respectively.
 
(5) The operating income for the year to date ended September 30, 2014 includes an $8.6 million insurance recovery.
         
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)
(In thousands, except per share amounts)
                             
Adjusted EBITDA Q3 2014 Q2 2014 Q1 2014 Q4 2013 Q3 2013
                             
   

Ongoing Operations:

Pre-tax loss from continuing operations $ (44,787 ) $ (31,984 ) $ (39,930 ) $ (43,458 ) $ (54,989 )
Transitional Schools operating loss 11,390 9,642 8,259 12,944 10,099
Interest (income) expense, net (120 ) (177 ) (25 ) 65 15
Loss (gain) on sale of business - - - (68 ) 39
Depreciation and amortization (3) 11,950 12,554 13,029 13,661 13,990
Stock-based compensation (3) 950 1,020 1,341 1,580 1,713
Legal settlements (3) (4) - 1,600 5,850 17,000 300
Asset impairments (3) (5) 14,396 7,403 74 3,050 11,513
Unused space charges (3) (6) (226 ) (879 ) (606 ) (2,924 ) 1,184
Insurance recovery   (8,588 )     -       -       -       -  
Adjusted EBITDA--Ongoing Operations (2) $ (15,035 )   $ (821 )   $ (12,008 )   $ 1,850     $ (16,136 )
Adjusted EBITDA per diluted share $ (0.22 )   $ (0.01 )   $ (0.18 )   $ 0.03     $ (0.24 )
                 
Memo: Advertising Expenses (3) $ 69,875     $ 56,224     $ 69,379     $ 56,077     $ 70,936  
 

Transitional Schools and Discontinued Operations:

Pre-tax (loss) income from discontinued operations $ (2,065 ) $ (12,726 ) $ (17,993 ) $ 117,272 $ (21,712 )
Transitional Schools operating loss (11,390 ) (9,642 ) (8,259 ) (12,944 ) (10,099 )
Loss (gain) on sale of business (8) - 311 - (130,109 ) -
International Schools operating (income) loss (7) - - - (11,434 ) 7,608
Interest (income) expense, net - - - (51 ) (21 )
Depreciation and amortization (8) 1,191 1,840 2,402 2,765 2,961
Legal settlements (8) 225 - - - -
Asset impairments (8) 89 51 (7 ) 3,933 72
Unused space charges (6) (8)   (3,485 )   1,436     3,099     5,766     (3,092 )
Adjusted EBITDA--Transitional and Discontinued Operations (2) $ (15,435 ) $ (18,730 ) $ (20,758 ) $ (24,802 ) $ (24,283 )
Adjusted EBITDA per diluted share $ (0.23 ) $ (0.28 ) $ (0.31 ) $ (0.37 ) $ (0.36 )
 
                             
 
(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 ongoing operations. 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 ongoing operations, 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:
                 
Q3 2014   Q2 2014   Q1 2014   Q4 2013   Q3 2013
 
CTU $ - $ - $ (900 ) $ 1,300 $ -
Career Colleges - - - 200 300
Culinary Arts - 2,000 3,000 15,500 -
Corporate & Other - (400 ) 3,750 - -
                 
Total $ -     $ 1,600     $ 5,850     $ 17,000     $ 300  
 
(5) Asset impairments primarily relate to impairment charges within Culinary Arts of $1.5 million, $7.4 million and $10.7 million which were recorded during the third quarter of 2014, second quarter of 2014 and third quarter of 2013, respectively, and within Career Colleges of $12.8 million and $2.9 million recorded during the third quarter of 2014 and fourth quarter of 2013, respectively.
 
(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

Investors:
Alpha IR Group
Chris Hodges or Sam Gibbons
(312) 445-2870
CECO@alpha-ir.com
or
Media:
Career Education Corporation
Mark Spencer
Director, Corporate Communications
(847) 585-3802

Release Summary

Career Education Corporation Reports Third Quarter 2014 Results.

Contacts

Investors:
Alpha IR Group
Chris Hodges or Sam Gibbons
(312) 445-2870
CECO@alpha-ir.com
or
Media:
Career Education Corporation
Mark Spencer
Director, Corporate Communications
(847) 585-3802