Career Education Corporation Reports Results for Second Quarter 2016

Operating income of $17.3 million versus prior quarter operating loss of $19.9 million, driven by better than expected execution of strategic initiatives

SCHAUMBURG, Ill.--()--Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the second quarter and year to date ended June 30, 2016. The Company also updated its 2016 year end cash and consolidated adjusted EBITDA outlook.

Second Quarter Consolidated Results:

  • Revenue of $182.6 million for the quarter as compared to $216.8 million in the prior year quarter, with the decline driven by teach-out campuses
  • Net income improved to $11.8 million as compared to the prior year quarter net loss of $20.7 million
  • Consolidated adjusted EBITDA of $25.6 million compared to negative $4.3 million in the prior year quarter (see reconciliation of GAAP to non-GAAP items attached to this press release)
  • Cash flow generated from operations was $16.7 million, compared to cash usage of $6.4 million in the prior year quarter

Year to Date Consolidated Results:

  • Net income improved to $14.9 million as compared to the prior year net loss of $45.6 million
  • Operating expenses decreased by $130.8 million as compared to the prior year driven by continued execution on strategic initiatives
  • Consolidated adjusted EBITDA improved to $38.8 million as compared to negative $16.1 million in the prior year (see reconciliation of GAAP to non-GAAP items attached to this press release)
  • As of June 30, 2016, cash, cash equivalents, restricted cash and available-for-sale short-term and long-term investments, net of borrowings, was $208.8 million

Key Business Highlights:

  • University Group revenue increased by 3.0 percent versus the prior year quarter
  • University Group operating income increased by 25.0 percent to $36.8 million compared to the prior year quarter, primarily driven by increased revenue and improved efficiency of operations
  • University Group total enrollments increased by 1.0 percent as compared to the prior year
  • Organization has committed incremental investments to various student-serving operations to further its goal of improving student retention and outcomes
  • Total student enrollment at our Transitional and Culinary Arts campuses is trending better than estimated

“Strong student retention across most of our institutions, better than estimated total student enrollment at our teach-out campuses, and continued efficiency and stability at our University Group, resulted in another quarter of improvement in year-over-year operating performance,” said Todd Nelson, President and Chief Executive Officer. “This improvement in our operating performance has enabled us to make incremental investments in various student-serving areas of operations, which we believe will positively impact student experiences in the future. For the remainder of this year, we are focused on optimizing our operating processes with the goal of further enhancing student retention and outcomes. As a result of the positive trends we have been experiencing, we are updating our year end cash and adjusted EBITDA outlook we provided last quarter, and are committed to continue executing against our ongoing initiatives.”

REVENUE

For the quarter and year to date ended June 30, 2016, total revenue was $182.6 million and $381.5 million, respectively, representing a decrease of 15.8 percent and 14.0 percent, respectively, compared to total revenue of $216.8 million and $443.8 million for the quarter and year to date ended June 30, 2015, respectively. Total revenue for the University Group was $142.3 million and $287.3 million for the quarter and year to date ended June 30, 2016, respectively, representing an increase of 3.0 percent and 3.9 percent, respectively.

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

Revenue ($ in thousands)

2016 2015 (Decrease) 2016 2015 (Decrease)
CTU $ 91,736 $ 86,174 6.5 % $ 183,702 $ 171,301 7.2 %
AIU   50,608   52,024 -2.7 %   103,581   105,090 -1.4 %
Total University Group 142,344 138,198 3.0 % 287,283 276,391 3.9 %
Corporate and Other     39 -100.0 %     78 -100.0 %
Subtotal 142,344 138,237 3.0 % 287,283 276,469 3.9 %
Culinary Arts (1) 29,998 42,048 -28.7 % 68,621 86,760 -20.9 %
Transitional Group (1)   10,284   36,543 -71.9 %   25,608   80,613 -68.2 %
Total $ 182,626 $ 216,828 -15.8 % $ 381,512 $ 443,842 -14.0 %
 
(1)   Teach-out campuses included in the Transitional Group no longer enroll new students. The Culinary Arts campuses were announced for teach-out during December 2015 and ceased enrolling new students in January 2016.
 

TOTAL AND NEW STUDENT ENROLLMENTS

As of the end of the second quarter of 2016, total student enrollments for the University Group were 31,600, compared to 31,300 as of the prior year quarter end, primarily driven by improved student retention at CTU and new enrollment growth at AIU. New student enrollments for the University Group were 7,630 and 17,260 for the quarter and year to date ended June 30, 2016, respectively, compared to new enrollments of 7,950 and 18,080 for the quarter and year to date ended June 30, 2015, respectively.

    As of June 30,
        Increase

Total Student Enrollment

2016 2015 (Decrease)
CTU   21,200   20,600   2.9 %
AIU   10,400   10,700 -2.8 %
Total University Group   31,600   31,300 1.0 %
Culinary Arts 5,000 7,800 -35.9 %
Transitional Group   1,600   7,000 -77.1 %
Total   38,200   46,100 -17.1 %
 
    For the Quarter Ended     For the Year to Date Ended
June 30, June 30,
        Increase         Increase

New Student Enrollments

2016 2015 (Decrease) 2016 2015 (Decrease)
CTU   5,080   5,670   -10.4 %   9,850   10,710   -8.0 %
AIU   2,550   2,280 11.8 %   7,410   7,370 0.5 %
Total University Group   7,630   7,950 -4.0 %   17,260   18,080 -4.5 %
Culinary Arts (1) 60 1,450 -95.9 % 990 3,490 -71.6 %
Transitional Group (1)   20   830 -97.6 %   80   2,660 -97.0 %
Total   7,710   10,230 -24.6 %   18,330   24,230 -24.3 %
 
(1)   Teach-out campuses within the Transitional Group and Culinary Arts no longer enroll new students, effective upon their teach-out announcement; students who re-enter after 365 days are reported as new student enrollments. For Culinary Arts, teach-outs announced in December 2015 were effective beginning after the January 2016 new enrollment.
 

OPERATING INCOME (LOSS)

For the quarter and year to date ended June 30, 2016, operating income was $17.3 million and $24.3 million, respectively, representing an improvement of 186.9 percent and 154.8 percent compared to an operating loss of $19.9 million and $44.3 million for the quarter and year to date ended June 30, 2015, respectively. Total University Group operating income increased to $36.8 million and $58.0 million for the quarter and year to date ended June 30, 2016, respectively, representing an increase of 25.0 percent and 40.8 percent, respectively.

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

Operating Income (Loss) ($ in thousands)

2016 2015 (Decrease) 2016 2015 (Decrease)
CTU $ 29,970 $ 24,263   23.5 % $ 49,207 $ 38,879   26.6 %
AIU   6,838   5,174 32.2 %   8,745   2,287 282.4 %
Total University Group 36,808 29,437 25.0 % 57,952 41,166 40.8 %
Corporate and Other   (5,761 )   (7,036 ) 18.1 %   (11,573 )   (12,896 ) 10.3 %
Subtotal 31,047 22,401 38.6 % 46,379 28,270 64.1 %
Culinary Arts (1) 361 (10,560 ) 103.4 % 3,467 (10,317 ) 133.6 %
Transitional Group (2)   (14,118 )   (31,733 ) 55.5 %   (25,577 )   (62,203 ) 58.9 %
Total $ 17,290 $ (19,892 ) 186.9 % $ 24,269 $ (44,250 ) 154.8 %
 
(1)   Asset impairment charges of $9.7 million were recorded during the second quarter of 2015.
 
(2) Asset impairment charges of $7.7 million were recorded during the year to date 2015, $1.7 million of which was recorded during the second quarter of 2015.
 

NET INCOME (LOSS)

Net income was $11.8 million for the quarter ended June 30, 2016 as compared to a net loss of $20.7 million in the prior year quarter, an improvement of 157.1 percent. For the year to date ended June 30, 2016, net income was $14.9 million representing an improvement of 132.6 percent as compared to net loss of $45.6 million for the prior year to date.

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 operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

As shown in the table below, adjusted EBITDA for the University Group and Corporate was $34.3 million and $54.5 million for the quarter and year to date ended June 30, 2016, respectively, representing an increase of 29.4 percent, or 7.8 million, and 44.0 percent, or $16.7 million, respectively, as compared to the prior year periods. Adjusted EBITDA for the Transitional Group, Culinary Arts and discontinued operations improved to negative $8.7 million and negative $15.7 million for the quarter and year to date ended June 30, 2016, respectively, representing an improvement of 71.8 percent and 71.0 percent, respectively, as compared to the prior year periods.

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

Adjusted EBITDA ($ in thousands)

2016   2015 2016   2015

University Group and Corporate:

Income (loss) from continuing operations (1) $ 12,624 $ (20,003 ) $ 15,714 $ (44,532 )
Provision for (benefit from) income taxes 4,620 (747 ) 8,755 (958 )
Transitional Group pre-tax loss 14,014 32,624 25,330 63,094
Culinary Arts pre-tax (income) loss (362 ) 10,532 (3,469 ) 10,282
Interest income, net (2) (184 ) (52 ) (212 ) (50 )
Depreciation and amortization (2) 2,777 3,956 5,880 8,317
Stock-based compensation (2) 847 530 1,391 1,470
Asset impairments (2) 237
Unused space charges (2) (3)   (54 )   (348 )   855   208

Adjusted EBITDA--University Group and Corporate

$ 34,282 $ 26,492 $ 54,481 $ 37,831
 
Memo: Advertising Expenses (2) $ 32,585 $ 34,258 $ 76,551 $ 84,845
 

Transitional Group, Culinary Arts and Discontinued Operations:

Loss from discontinued operations (1) $ (785 ) $ (720 ) $ (864 ) $ (1,072 )
Benefit from income taxes from discontinued operations (470 ) (517 )
Transitional Group pre-tax loss (14,014 ) (32,624 ) (25,330 ) (63,094 )
Culinary Arts pre-tax income (loss) 362 (10,532 ) 3,469 (10,282 )
Interest income, net (4) (1 ) (2 )
Loss on sale of business (4) 917 917
Depreciation and amortization (4) 2,425 3,231 5,891 5,582
Legal settlements (4) (166 ) 1,319
Asset impairments (4) 11,372 17,391
Unused space charges (3) (4)   3,802   (2,305 )   1,694   (4,729 )
Adjusted EBITDA--Transitional, Culinary Arts and Discontinued Operations $ (8,681 ) $ (30,827 ) $ (15,659 ) $ (53,968 )
Consolidated Adjusted EBITDA $ 25,601 $ (4,335 ) $ 38,822 $ (16,137 )
 
(1)   Income (loss) from continuing operations and loss from discontinued operations make up the components of net income (loss) as reflected on the Company’s condensed consolidated statements of income (loss) and comprehensive income (loss).
 
(2) Amounts relate to the University Group and Corporate.
 
(3) Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income as well as the subsequent accretion of these charges.
 
(4) Amounts relate to Transitional Group, Culinary Arts and discontinued operations.
 

BALANCE SHEET AND CASH FLOW

Net cash provided by operating activities for the quarter and year to date ended June 30, 2016 was $16.7 million and $6.0 million, respectively, representing an improvement from cash usage of $6.4 million and $26.6 million for the quarter and year to date ended June 30, 2015, respectively. The Company’s continued focus on improving operating efficiencies within the University Group and the inherent economics at the onset of a teach-out associated with the LCB campuses resulted in an improvement in cash usage.

As of June 30, 2016 and December 31, 2015, cash, cash equivalents, restricted cash and available-for-sale short-term and long-term investments, net of borrowings totaled $208.8 million and $201.0 million, respectively.

  As of June 30,     As of December     Increase

Consolidated Cash ($ in thousands)

2016 31, 2015 (Decrease)
Consolidated Cash, Cash Equivalents, Restricted Cash and

Available-For-Sale Short-Term Investments

$ 201,460 $ 231,641   -13.0 %
Available-For-Sale Long-Term Investments (1) 7,374 7,374 0.0 %
Short-term borrowings (2)     38,000 -100.0 %
Consolidated Cash, Cash Equivalents, Restricted Cash

and Available-For-Sale Short-Term and Long-Term

Investments, net of Borrowings (1)

$ 208,834 $ 201,015 3.9 %
 
(1)   Available-for-sale long-term investment balances are included within non-current other assets on the Company’s condensed consolidated balance sheets.
 
(2) Cash, cash equivalents, restricted cash and available-for-sale short-term investment balances as of December 31, 2015 include $38.0 million of restricted cash related to cash-collateralized borrowings under the Credit Agreement.
 

OUTLOOK

Career Education Corporation revised its consolidated adjusted EBITDA and year end cash outlook, in order to incorporate recent trends of improved student retention across most of its institutions, better than estimated total enrollments at its teach-out campuses and continued efficiency in University operations. The Company now expects the following results, subject to the updated key assumptions identified below:

  • Consolidated adjusted EBITDA to improve in 2016 as compared to 2015 and to be positive, to remain flat in 2017 as compared to 2016, and to increase in 2018 as compared to 2017
  • End of year cash, cash equivalents, restricted cash and available-for-sale short-term and long-term investments, net of any borrowings, as reported on the consolidated balance sheets of approximately $160 million to $170 million for the year ending December 31, 2016, approximately $140 million to $155 million for the year ending December 31, 2017, and then to increase for the year ended December 31, 2018

Forward looking adjusted EBITDA expectations are estimated on a basis consistent with adjusted EBITDA calculations presented in the reconciliation of GAAP to non-GAAP items attached to this press release. Net income, which is the most directly comparable GAAP measure to consolidated adjusted EBITDA, may not follow the same trends as discussed in our outlook above because of adjustments made for unused space charges that represent the present value of future remaining lease obligations of vacated space less an estimated amount for sublease income as well as income taxes, depreciation, amortization, asset impairment charges, interest income, interest expense and stock compensation. The adjusted EBITDA and cash outlook provided above for 2016 and beyond are based on the following key assumptions and factors, among others: (i) flat-to-modest total enrollment growth within the University Group while achieving the intended University Group efficiencies, (ii) teach-outs to progress as expected and performance consistent with current trends, (iii) achievement of recovery rates for the Company’s real estate obligations and timing of any associated lease termination payments consistent with the Company’s historical experiences, (iv) right-sizing of the Company’s corporate expense structure to serve primarily online institutions, (v) no material changes in the legal or regulatory environment and excludes legal settlements, regulatory settlements and any impact of new or proposed regulations, and (vi) consistent working capital movements in line with historical operating trends and potential impacts of teach-out campuses on working capital in line with expectations. Although these estimates and assumptions are based upon management’s good faith beliefs regarding current events and actions that may be undertaken in the future, actual results could differ materially from these estimates.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Wednesday, August 3, 2016 at 5:30 p.m. Eastern time to discuss its second quarter and year to date 2016 results. Interested parties can access the live webcast of the conference call and the related presentation materials at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 844-378-6484 (domestic) or 412-542-4179 (international). Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. An archived version of the webcast will be accessible for 90 days at www.careered.com in the Investor Relations section of the website.

ABOUT CAREER EDUCATION CORPORATION

Career Education’s academic institutions offer a quality education to a diverse student population in a variety of disciplines through online, campus-based and hybrid learning programs. Our two universities – American InterContinental University (“AIU”) and Colorado Technical University (“CTU”) – provide degree programs through the master’s or doctoral level as well as associate and bachelor’s levels. Both universities predominantly serve students online with career-focused degree programs that are designed to meet the educational demands of today’s busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intellipath™ adaptive learning platform that allow students to more efficiently pursue earning a degree by receiving course credit for knowledge they can already demonstrate. Career Education is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

A listing of individual campus locations and web links to Career Education’s institutions can be found at www.careered.com.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as “believe,” “will,” “expect,” “estimate,” “continue,” “trend” 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; increased competition; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; our ability to achieve anticipated cost savings and business efficiencies; rulemaking by the U.S. Department of Education or any state or accreditor and increased focus by Congress, the President and governmental agencies on, or increased negative publicity about, 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 gainful employment, 90-10, financial responsibility and administrative capability standards prescribed by the U.S. Department of Education), as well as applicable accreditation standards and state regulatory requirements; the impact of management changes; 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, 2015 and its subsequent filings with the Securities and Exchange Commission.

 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 
  June 30,   December 31,
2016   2015
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted $ 49,663 $ 66,919
Restricted cash 1,375 49,821
Restricted short-term investments 9,610 -
Short-term investments   140,812   114,901
Total cash and cash equivalents, restricted cash and short-term investments 201,460 231,641
 
Student receivables, net 27,502 31,618
Receivables, other, net 781 5,194
Prepaid expenses 16,160 14,380
Inventories 2,107 3,353
Other current assets 1,537 2,523
Assets of discontinued operations   159   254
Total current assets   249,706   288,963
 
NON-CURRENT ASSETS:
Property and equipment, net 48,574 58,249
Goodwill 87,356 87,356
Intangible assets, net 8,900 9,300
Student receivables, net 3,333 3,958
Deferred income tax assets, net 130,188 137,716
Other assets 16,043 16,562
Assets of discontinued operations   8,694   8,811
TOTAL ASSETS $ 552,794 $ 610,915
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ - $ 38,000
Accounts payable 13,831 25,906
Accrued expenses:
Payroll and related benefits 32,120 38,789
Advertising and production costs 10,325 11,788
Income taxes 1,600 1,061
Other 24,701 24,082
Deferred tuition revenue 37,398 40,112
Liabilities of discontinued operations   9,376   13,067
Total current liabilities   129,351   192,805
 
NON-CURRENT LIABILITIES:
Deferred rent obligations 39,152 45,927
Other liabilities 23,192 25,197
Liabilities of discontinued operations   6,940   9,376
Total non-current liabilities   69,284   80,500
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 834 830
Additional paid-in capital 612,449 610,784
Accumulated other comprehensive loss (330 ) (880 )
Accumulated deficit (42,668 ) (57,518 )
Cost of shares in treasury   (216,126 )   (215,606 )
Total stockholders' equity   354,159   337,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 552,794 $ 610,915
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts and percentages)

 
  For the Quarter Ended June 30,
  % of     % of
Total Total
2016 Revenue 2015 Revenue
REVENUE:    
Tuition and registration fees $ 181,432 99.3 % $ 215,747 99.5 %
Other   1,194 0.7 %   1,081 0.5 %
Total revenue   182,626   216,828
OPERATING EXPENSES:
Educational services and facilities 58,062 31.8 % 73,064 33.7 %
General and administrative 102,072 55.9 % 145,171 67.0 %
Depreciation and amortization 5,202 2.8 % 7,113 3.3 %
Asset impairment   0.0 %   11,372 5.2 %
Total operating expenses   165,336 90.5 %   236,720 109.2 %
Operating income (loss)   17,290 9.5 %   (19,892 ) -9.2 %
OTHER INCOME (EXPENSE):
Interest income 301 0.2 % 224 0.1 %
Interest expense (116 ) -0.1 % (170 ) -0.1 %
Loss on sale of business 0.0 % (917 ) -0.4 %
Miscellaneous (expense) income   (231 ) -0.1 %   5 0.0 %
Total other expense   (46 ) 0.0 %   (858 ) -0.4 %
PRETAX INCOME (LOSS) 17,244 9.4 % (20,750 ) -9.6 %
Provision for (benefit from) income taxes   4,620 2.5 %   (747 ) -0.3 %
 
INCOME (LOSS) FROM CONTINUING OPERATIONS 12,624 6.9 % (20,003 ) -9.2 %
Loss from discontinued operations, net of tax   (785 ) -0.4 %   (720 ) -0.3 %
NET INCOME (LOSS)   11,839 6.5 %   (20,723 ) -9.6 %
 
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments (97 )
Unrealized gain (loss) on investments   131   (43 )
Total other comprehensive income (loss)   34   (43 )
COMPREHENSIVE INCOME (LOSS) $ 11,873 $ (20,766 )
 
NET INCOME (LOSS) PER SHARE - BASIC and DILUTED:
Income (loss) from continuing operations $ 0.18 $ (0.29 )
Loss from discontinued operations   (0.01 )   (0.02 )
Net income (loss) per share $ 0.17 $ (0.31 )
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic   68,368   67,893
Diluted   69,015   67,893
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts and percentages)

 
  For the Year to Date Ended June 30,
  % of     % of
Total Total
2016 Revenue 2015 Revenue
REVENUE:    
Tuition and registration fees $ 379,217 99.4 % $ 441,438 99.5 %
Other   2,295 0.6 %   2,404 0.5 %
Total revenue   381,512   443,842
OPERATING EXPENSES:
Educational services and facilities 119,600 31.3 % 147,958 33.3 %
General and administrative 225,635 59.1 % 308,844 69.6 %
Depreciation and amortization 11,771 3.1 % 13,899 3.1 %
Asset impairment   237 0.1 %   17,391 3.9 %
Total operating expenses   357,243 93.6 %   488,092 110.0 %
Operating income (loss)   24,269 6.4 %   (44,250 ) -10.0 %
OTHER INCOME (EXPENSE):
Interest income 566 0.1 % 384 0.1 %
Interest expense (352 ) -0.1 % (332 ) -0.1 %
Loss on sale of business 0.0 % (917 ) -0.2 %
Miscellaneous expense   (14 ) 0.0 %   (375 ) -0.1 %
Total other income (expense)   200 0.1 %   (1,240 ) -0.3 %
PRETAX INCOME (LOSS) 24,469 6.4 % (45,490 ) -10.2 %
Provision for (benefit from) income taxes   8,755 2.3 %   (958 ) -0.2 %
 
INCOME (LOSS) FROM CONTINUING OPERATIONS 15,714 4.1 % (44,532 ) -10.0 %
Loss from discontinued operations, net of tax   (864 ) -0.2 %   (1,072 ) -0.2 %
NET INCOME (LOSS)   14,850 3.9 %   (45,604 ) -10.3 %
 
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments 96
Unrealized gain on investments   454   152
Total other comprehensive income   550   152
COMPREHENSIVE INCOME (LOSS) $ 15,400 $ (45,452 )
 
NET INCOME (LOSS) PER SHARE - BASIC and DILUTED:
Income (loss) from continuing operations $ 0.23 $ (0.66 )
Loss from discontinued operations   (0.01 )   (0.01 )
Net income (loss) per share $ 0.22 $ (0.67 )
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic   68,261   67,714
Diluted   68,627   67,714
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
  For the Year to Date
Ended June 30,
2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,850 $ (45,604 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Asset impairment 237 17,391
Depreciation and amortization expense 11,771 13,899
Bad debt expense 14,769 9,138
Compensation expense related to share-based awards 1,391 1,470
Loss on sale of business, net 917
(Gain) loss on disposition of property and equipment (238 ) 3
Changes in operating assets and liabilities:   (36,733 )   (23,809 )
Net cash provided by (used in) operating activities   6,047   (26,595 )
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (93,689 ) (33,707 )
Sales of available-for-sale investments 58,330 36,051
Purchases of property and equipment (1,970 ) (4,994 )
Proceeds on the sale of assets 3,400
Payments of cash upon sale of businesses   (62 )   (2,018 )
Net cash used in investing activities   (33,991 )   (4,668 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 278 939
Payment on borrowings (38,000 ) (10,000 )
Change in restricted cash   48,446   9,500
Net cash provided by financing activities   10,724   439
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS:   (36 )   258
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (17,256 ) (30,566 )
CASH AND CASH EQUIVALENTS, beginning of the period   66,919   93,832
CASH AND CASH EQUIVALENTS, end of the period $ 49,663 $ 63,266
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

 
  For the Quarter Ended June 30,
2016   2015
REVENUE:  
CTU $ 91,736 $ 86,174
AIU   50,608   52,024
Total University Group 142,344 138,198
Corporate and Other     39
Subtotal 142,344 138,237
Culinary Arts 29,998 42,048
Transitional Group   10,284   36,543
Total $ 182,626 $ 216,828
 
OPERATING INCOME (LOSS):
CTU $ 29,970 $ 24,263
AIU   6,838   5,174
Total University Group 36,808 29,437
Corporate and Other   (5,761 )   (7,036 )
Subtotal 31,047 22,401
Culinary Arts 361 (10,560 )
Transitional Group   (14,118 )   (31,733 )
Total $ 17,290 $ (19,892 )
 
OPERATING MARGIN (LOSS):
CTU 32.7 % 28.2 %
AIU   13.5 %   9.9 %
Total University Group 25.9 % 21.3 %
Corporate and Other NM NM
Subtotal 21.8 % 16.2 %
Culinary Arts 1.2 % -25.1 %
Transitional Group   -137.3 %   -86.8 %
Total   9.5 %   -9.2 %
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)

 
  For the Year to Date Ended June 30,
2016   2015
REVENUE:  
CTU $ 183,702 $ 171,301
AIU   103,581   105,090
Total University Group 287,283 276,391
Corporate and Other     78
Subtotal 287,283 276,469
Culinary Arts 68,621 86,760
Transitional Group   25,608   80,613
Total $ 381,512 $ 443,842
 
OPERATING INCOME (LOSS):
CTU $ 49,207 $ 38,879
AIU   8,745   2,287
Total University Group 57,952 41,166
Corporate and Other   (11,573 )   (12,896 )
Subtotal 46,379 28,270
Culinary Arts 3,467 (10,317 )
Transitional Group   (25,577 )   (62,203 )
Total $ 24,269 $ (44,250 )
 
OPERATING MARGIN (LOSS):
CTU 26.8 % 22.7 %
AIU   8.4 %   2.2 %
Total University Group 20.2 % 14.9 %
Corporate and Other NM NM
Subtotal 16.1 % 10.2 %
Culinary Arts 5.1 % -11.9 %
Transitional Group   -99.9 %   -77.2 %
Total   6.4 %   -10.0 %
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)

(In thousands)

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

Adjusted EBITDA

2016   2015 2016   2015

University Group and Corporate:

Income (loss) from continuing operations (2) $ 12,624 $ (20,003 ) $ 15,714 $ (44,532 )
Provision for (benefit from) income taxes 4,620 (747 ) 8,755 (958 )
Transitional Group pre-tax loss 14,014 32,624 25,330 63,094
Culinary Arts pre-tax (income) loss (362 ) 10,532 (3,469 ) 10,282
Interest income, net (3) (184 ) (52 ) (212 ) (50 )
Depreciation and amortization (3) 2,777 3,956 5,880 8,317
Stock-based compensation (3) 847 530 1,391 1,470
Asset impairments (3) 237
Unused space charges (3) (5)   (54 )   (348 )   855   208

Adjusted EBITDA--University Group and Corporate (6)

$ 34,282 $ 26,492 $ 54,481 $ 37,831
 
Memo: Advertising Expenses (3) $ 32,585 $ 34,258 $ 76,551 $ 84,845
 

Transitional Group, Culinary Arts and Discontinued Operations:

Loss from discontinued operations (2) $ (785 ) $ (720 ) $ (864 ) $ (1,072 )
Benefit from income taxes from discontinued operations (470 ) (517 )
Transitional Group pre-tax loss (14,014 ) (32,624 ) (25,330 ) (63,094 )
Culinary Arts pre-tax income (loss) 362 (10,532 ) 3,469 (10,282 )
Interest income, net (7) (1 ) (2 )
Loss on sale of business (7) 917 917
Depreciation and amortization (7) 2,425 3,231 5,891 5,582
Legal settlements (4) (7) (166 ) 1,319
Asset impairments (7) 11,372 17,391
Unused space charges (5) (7)   3,802   (2,305 )   1,694   (4,729 )
Adjusted EBITDA--Transitional, Culinary Arts and Discontinued Operations (6) (8) $ (8,681 ) $ (30,827 ) $ (15,659 ) $ (53,968 )
Consolidated Adjusted EBITDA $ 25,601 $ (4,335 ) $ 38,822 $ (16,137 )
 
(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 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 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, provide 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) Income (loss) from continuing operations and loss from discontinued operations make up the components of net income (loss). A reconciliation of these components for the quarters and years to date ended June 30, 2016 and June 30, 2015 is presented below:
 
  For the Quarter Ended     For the Year to Date Ended
June 30, June 30,
2016   2015 2016   2015
Income (loss) from continuing operations $ 12,624 $ (20,003 ) $ 15,714 $ (44,532 )
Loss from discontinued operations   (785 )   (720 )   (864 )   (1,072 )
Net income (loss) $ 11,839 $ (20,723 ) $ 14,850 $ (45,604 )
 
(3)   Amounts relate to the University Group and Corporate.
 
(4) Legal settlement amounts are net of insurance recoveries.
 
(5) Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income as well as the subsequent accretion of these charges. These charges relate to exiting leased space as the Company continues to right-size the organization and therefore are not considered representative of ongoing operations.
 
(6) Management assesses results of operations for the University Group and Corporate separately from the Transitional Group and Culinary Arts. As the Transitional Group and Culinary Arts have been announced for teach-out, management views these operations as not reflective of the ongoing business. As a result, management views adjusted EBITDA from the University Group and Corporate separately from the remainder of the organization, to assess results and make decisions. Accordingly, the Transitional Group and Culinary Arts pre-tax income (losses) are added back to income (loss) from continuing operations and subtracted from loss from discontinued operations.
 
(7) Amounts relate to the Transitional Group, Culinary Arts and discontinued operations.
 
(8) Adjusted EBITDA amounts for Culinary Arts separate from the Transitional Group and discontinued operations include:
 
  For the Quarter Ended     For the Year to Date Ended
June 30, June 30,
2016     2015 2016     2015
Pre-tax income (loss) $ 362 $ (10,532 ) $ 3,469 $ (10,282 )
Depreciation and amortization 1,265 3,226
Legal settlements 775
Asset impairments 9,687 9,687
Unused space charges   2,960   (982 )   4,503   (1,359 )
Adjusted EBITDA for Culinary Arts $ 4,587 $ (1,827 ) $ 11,198 $ (1,179 )
 

Contacts

Investors:
Alpha IR Group
Sam Gibbons or Chris Hodges
(312) 445-2870
CECO@alpha-ir.com
or
Media:
Career Education Corporation
(847) 585-2600
media@careered.com

Release Summary

Career Education Corporation Reports Results for Second Quarter 2016

Contacts

Investors:
Alpha IR Group
Sam Gibbons or Chris Hodges
(312) 445-2870
CECO@alpha-ir.com
or
Media:
Career Education Corporation
(847) 585-2600
media@careered.com