Attached files
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| 8-K - EDUCATION MANAGEMENT CORPORATION | v183621_8k.htm |
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FOR:
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Education
Management Corporation
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COMPANY
CONTACT:
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James
Sober, CFA
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Vice
President, Finance
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(412)
995-7684
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Education
Management Corporation Reports Fiscal 2010 Third Quarter Results
Pittsburgh,
PA, May 5, 2010 — Education Management Corporation (NASDAQ:EDMC), one of the
largest providers of post-secondary education in North America, today reported
its financial results for the three months ended March 31, 2010. Net revenues
were $667.9 million, an increase of 24.7% as compared to the third quarter of
the prior fiscal year. Net income was $84.6 million, or $0.59 per diluted share.
Excluding expenses incurred in connection with (i) our repurchase of $21.4
million of our senior subordinated notes (“debt repurchase”); (ii) a recently
completed corporate restructuring; and (iii) the reversal of a material
uncertain tax position liability, net income would have been $71.7 million, an
increase of 62.4% from the quarter ended March 31, 2009, or $0.50 per diluted
share.
Todd S.
Nelson, Chief Executive Officer of Education Management, commented, “we are
pleased with this quarter’s reported results. We continue to see strong demand
for our academic programs across each of our education systems. Our success is
driven by a strong commitment to academic excellence and student and graduate
success. We strive to ensure our students learn and develop the necessary
competencies to be successful in their field of choice.”
Financial
Highlights
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·
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Net
revenues for the three months ended March 31, 2010 increased 24.7% to
$667.9 million, compared to $535.4 million for the same period a year ago.
This increase was primarily driven by a 22.4% increase in January student
enrollment.
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·
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Reported
net income for the third quarter of fiscal 2010 was $84.6 million, or
$0.59 per diluted share, compared to net income of $44.1 million, or $0.37
per diluted share, for the same period a year ago. Earnings before
interest, taxes, depreciation and amortization (EBITDA) increased 24.8% to
$170.3 million in the third quarter of fiscal
2010.
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·
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Excluding
$2.5 million of expenses related to our debt repurchase and corporate
restructuring costs of $5.7 million as well as a $17.9 million benefit
from the reversal of an uncertain tax position liability, net income for
the three months ended March 31, 2010 grew 62.4% to $71.7 million, or
$0.50 per diluted share while EBITDA increased 29.1% to $176.1 million in
the third quarter of fiscal 2010. The increase in EBITDA is primarily due
to higher student enrollment.
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·
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At
March 31, 2010, cash and cash equivalents were $472.6 million as compared
to $363.3 million at June 30, 2009. There were no outstanding borrowings
under the revolving credit facility at March 31, 2010 as compared to
$100.0 million outstanding at June 30, 2009, all of which was repaid on
July 1, 2009.
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·
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Cash
flow from operations for the nine-month period ended March 31, 2010 was
$340.2 million. Excluding
the management agreement termination fee and debt tender offer fees and
other costs paid during the second and third quarters of fiscal 2010, cash
flow from operations for the nine-month period ended March 31, 2010 was
$370.7 million compared to $314.9 million in the prior year period. This
increase in operating cash flows as compared to the prior year period was
primarily related to improved operating performance and the reduction in
interest payments resulting from the debt
repurchases.
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·
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On
a cash-basis, capital expenditures were $119.8 million, or 6.4% of net
revenues, for the nine months ended March 31, 2010 compared to $98.0
million, or 6.6% of net revenues, in the same period in the prior
year.
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Student
Enrollment
At the
start of the current April quarter, total enrollment at our schools was
approximately 139,600 students, a 22.1% increase from the same time last year.
Same-school enrollment (schools with enrollment for one year or more) increased
20.6% to approximately 137,900 students. The number of students enrolled in
fully online programs increased 49.8% to over 36,900 students.
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2010
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2009
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Percentage
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April
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April
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Change
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Total
enrollment
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139,600 | 114,300 | 22.1 | % | ||||||||
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Same-school
enrollment(1)
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137,900 | 114,300 | 20.6 | % | ||||||||
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Students
enrolled in fully online programs
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36,900 | 24,600 | 49.8 | % | ||||||||
(1)
Schools with enrollment for one year or more
Our
quarterly revenues and income fluctuate primarily as a result of the pattern of
student enrollments. The seasonality of our business has decreased over the last
several years due primarily to an increased percentage of students enrolling in
online programs, which generally experience less seasonal fluctuation than
campus-based programs. The first quarter is typically the lowest revenue
recognition quarter due to student vacations.
Fiscal
2010 Guidance – 4th
Quarter
For the
fourth quarter of fiscal 2010, net income, EBITDA and diluted earnings per share
are expected to be between $41 million and $44 million, $127 million and $132
million, and $0.29 and $0.31, respectively.
Fiscal
2010 Guidance – Annual
Capital
expenditures are projected to be approximately 7.0% of net revenues, compared to
7.5% of net revenues in fiscal 2009.
The
presentation of EBITDA, as well as the presentations excluding certain expenses,
do not comply with U.S. generally accepted accounting principles
(GAAP). For an explanation of EBITDA and EBITDA excluding expenses
related to our initial public offering (“IPO”), debt repurchase, restructuring
and tax reversal, and a reconciliation to net income, the most directly
comparable GAAP financial measure, see the Non-GAAP Financial Measures
disclosure in the financial tables section below.
Conference
Call and Webcast
Education
Management will host a conference call to discuss its fiscal 2010 third quarter
on Wednesday, May 5, 2010 at 5:00 p.m. (Eastern Time). Those wishing to
participate in this call should dial 480-629-9643 approximately 10 minutes prior
to the start of the call. A listen-only audio of the conference call will also
be broadcast live over the internet at www.edmc.com. A replay of
the conference call will be available at www.edmc.com for up to one
year.
About
Education Management
Education
Management (www.edmc.com), with
over 136,000 students as of October 2009, is among the largest providers of
post-secondary education in North America, based on student enrollment and
revenue, with a total of 98 locations in 30 U.S. states and Canada. We offer
academic programs to our students through campus-based and online instruction,
or through a combination of both. We are committed to offering quality academic
programs and continuously strive to improve the learning experience for our
students. Our educational institutions offer students the opportunity to earn
undergraduate and graduate degrees and certain specialized non-degree diplomas
in a broad range of disciplines, including design, media arts, health sciences,
psychology and behavioral sciences, culinary, fashion, business, education,
legal and information technology.
Cautionary
Statement
This
press release includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements typically
contain words such as “anticipates,” “believes,” “estimates,” “expects,”
“intends” or similar words indicating that future outcomes are not known with
certainty and are subject to risk factors that could cause these outcomes to
differ significantly from those projected. Forward-looking statements
include, but are not limited to, statements related to the Company’s future
operating and financial performance, and include statements regarding expected
enrollment, revenue, expense levels, capital expenditures and
earnings. Any such forward-looking statements involve risk and
uncertainties that could cause actual results to differ materially from any
future results encompassed within the forward-looking statements. Cautionary
statements identifying certain factors, but not all factors, that could cause or
contribute to such differences include those matters disclosed in the Company's
Securities and Exchange Commission filings. Past results of Education Management
are not necessarily indicative of its future results. Education Management does
not undertake any obligation to update any forward-looking
statements.
— Tables
to Follow —
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS – FISCAL THIRD QUARTER
(Dollars
in millions, except earnings per share) (Unaudited)
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For the three months ended
March 31,
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For the nine months ended
March 31,
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2010
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2009
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% change
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2010
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2009
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% change
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Net
revenues
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$ | 667.9 | $ | 535.4 | 24.7 | % | $ | 1,857.8 | $ | 1,491.9 | 24.5 | % | ||||||||||||
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Costs
and expenses:
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Educational
services (1)(5)
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323.1 | 268.5 | 20.4 | % | 934.1 | 787.6 | 18.6 | % | ||||||||||||||||
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General
and administrative (2)(6)
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174.5 | 129.3 | 34.9 | % | 491.6 | 370.0 | 32.9 | % | ||||||||||||||||
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Management
fees paid to affiliates (7)
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0.0 | 1.2 | n/m | 32.1 | 3.8 | n/m | ||||||||||||||||||
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Depreciation
and amortization
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30.7 | 28.8 | 6.4 | % | 88.9 | 83.0 | 7.1 | % | ||||||||||||||||
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Total
costs and expenses
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528.3 | 427.8 | 23.5 | % | 1,546.7 | 1,244.4 | 24.3 | % | ||||||||||||||||
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Income
before interest, loss on early retirement of debt and income
taxes
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139.6 | 107.6 | 29.8 | % | 311.1 | 247.5 | 25.7 | % | ||||||||||||||||
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Interest
expense, net
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27.9 | 37.4 | (25.3 | )% | 94.7 | 116.0 | (18.4 | )% | ||||||||||||||||
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Loss
on early retirement of debt (3)(8)
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2.4 | 0.0 | n/m | 47.2 | 0.0 | n/m | ||||||||||||||||||
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Income
before income taxes
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109.3 | 70.2 | 55.7 | % | 169.2 | 131.5 | 28.7 | % | ||||||||||||||||
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Provision
for income taxes (4)
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24.7 | 26.1 | (5.3 | )% | 48.6 | 48.4 | 0.5 | % | ||||||||||||||||
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Net
income
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$ | 84.6 | $ | 44.1 | 91.7 | % | $ | 120.6 | $ | 83.1 | 45.1 | % | ||||||||||||
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Diluted
earnings per share
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$ | 0.59 | $ | 0.37 | 59.5 | % | $ | 0.89 | $ | 0.69 | 29.0 | % | ||||||||||||
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Weighted
average number of diluted shares outstanding (000’s)
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143,936 | 119,770 | 135,675 | 119,769 | ||||||||||||||||||||
(1)
Includes bad debt expense of $28.0 million and $17.8 million in the three month
periods presented and $78.6 million and $52.8 million in the nine month periods
presented.
In both
the three and nine month periods, the statement of operations above includes
costs incurred in the fiscal third quarter of 2010 associated with the
restructuring and debt repurchase as well as the reversal of uncertain tax
position liabilities, as follows:
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(2)
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Restructuring
costs of $5.7 million and $0.1 million in tender offer
costs
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(3)
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Acceleration
of deferred financing fees of $0.3 million, and a premium of $2.1 million
paid to repurchase the senior subordinated
notes
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(4)
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Reversal
of $17.9 million of uncertain tax position liabilities, interest and other
indirect benefits related to the fiscal 2006
period
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In the
nine month period, the statement of operations above includes $90.5 million of
costs incurred in the fiscal second quarter of 2010 associated with the IPO and
debt repurchase, as follows:
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(5)
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Previously
deferred stock-based compensation costs of $2.2
million
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(6)
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Previously
deferred stock-based compensation costs of $13.0 million and $0.9 million
in tender offer and other costs
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(7)
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Management
agreement termination fee of $29.6
million
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(8)
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Acceleration
of deferred financing fees of $5.3 million, and a premium of $39.5 million
paid to repurchase the senior subordinated
notes
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EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
SELECTED
CASH FLOW STATEMENT DATA – FISCAL THIRD QUARTER
(Dollars
in millions) (Unaudited)
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For the nine months ended March 31,
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2010
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2009
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% change
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Net
cash flows provided by operations
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$ | 340.2 | $ | 314.9 | 8.0 | % | ||||||
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Depreciation
and amortization
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88.9 | 83.0 | 7.1 | % | ||||||||
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Capital
expenditures (1)
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(119.8 | ) | (98.0 | ) | (22.3 | )% | ||||||
(1)
Represents cash paid for long-lived assets
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
SELECTED
BALANCE SHEET DATA – FISCAL THIRD QUARTER
(Dollars
in millions) (Unaudited)
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As of March 31,
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2010
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2009
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Cash
and cash equivalents
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$ | 472.6 | $ | 525.7 | ||||
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Current
assets
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715.4 | 706.7 | ||||||
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Total
assets
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4,479.5 | 4,350.2 | ||||||
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Revolving
credit facility
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- | 180.0 | ||||||
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Other
current liabilities
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528.2 | 458.1 | ||||||
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Long-term
debt (including current portion)
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1,541.8 | 1,891.7 | ||||||
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Shareholders’
equity
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2,022.4 | 1,452.5 | ||||||
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
RECONCILIATION
OF NON-GAAP MEASURES
Reconciliation
of Net Income to EBITDA
(Dollars
in millions) (Unaudited)
Non-GAAP
Financial Measures
EBITDA, a
measure used by management to measure operating performance, is defined as net
income plus net interest expense, loss on early retirement of debt, taxes and
depreciation and amortization, including amortization of intangible
assets. EBITDA is not a recognized term under GAAP and does not
purport to be an alternative to net income as a measure of operating performance
or to cash flows from operating activities as a measure of
liquidity. Additionally, EBITDA is not intended to be a measure of
free cash flow available for management’s discretionary use, as it does not
consider certain cash requirements such as interest payments, tax payments and
debt service requirements. Management believes EBITDA is helpful in highlighting
trends, because EBITDA excludes the results of decisions that are outside the
control of operating management and can differ significantly from company to
company, depending on long-term strategic decisions regarding capital structure,
the tax jurisdictions in which companies operate and capital
investments. We also presented net income, cash flow from operations
and EBITDA after adjusting for expenses related to the IPO, debt repurchase,
restructuring and tax reversal incurred in the second and third fiscal quarters
which also are non-GAAP financial measures. Management believes that
the presentation of these adjusted measures is useful to investors because it
provides a means of evaluating the company’s performance without giving effect
to these expenses and tax reversal, which do not reflect the day-to-day
operations of the company. Management compensates for the limitations
of using non-GAAP financial measures by using them to supplement GAAP results to
provide a more complete understanding of the factors and trends affecting the
business than GAAP results alone. Because not all companies use identical
calculations, this presentation of EBITDA may not be comparable to similarly
titled measures of other companies.
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For the three months ended
March 31,
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For the nine months ended March
31,
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2010
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2009
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% change
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2010
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2009
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% change
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Net
income
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$ | 84.6 | $ | 44.1 | 91.7 | % | $ | 120.6 | $ | 83.1 | 45.1 | % | ||||||||||||
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Net
interest expense
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27.9 | 37.4 | (25.3 | )% | 94.7 | 116.0 | (18.4 | )% | ||||||||||||||||
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Loss
on early retirement of debt
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2.4 | 0.0 | n/m | 47.2 | 0.0 | n/m | ||||||||||||||||||
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Income
tax expense
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24.7 | 26.1 | (5.3 | )% | 48.6 | 48.4 | 0.5 | % | ||||||||||||||||
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Depreciation
and amortization
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30.7 | 28.8 | 6.4 | % | 88.9 | 83.0 | 7.1 | % | ||||||||||||||||
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EBITDA
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$ | 170.3 | $ | 136.4 | 24.8 | % | $ | 400.0 | $ | 330.5 | 21.0 | % | ||||||||||||
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Management
agreement termination fee
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— | — | n/m | 29.6 | — | n/m | ||||||||||||||||||
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Previously
deferred stock-based compensation costs
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— | — | n/m | 15.2 | — | n/m | ||||||||||||||||||
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Restructuring
charge
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5.7 | — | n/m | 5.7 | — | n/m | ||||||||||||||||||
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Tender
offer, legal and other costs
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0.1 | — | n/m | 1.0 | — | n/m | ||||||||||||||||||
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EBITDA
excluding expenses related to initial public offering
(IPO), debt repurchase and restructuring
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$ | 176.1 | $ | 136.4 | 29.1 | % | $ | 451.5 | $ | 330.5 | 36.6 | % | ||||||||||||
EDUCATION
MANAGEMENT CORPORATION AND SUBSIDIARIES
RECONCILIATION
OF NON-GAAP MEASURES
Reconciliation
of Net Income to Net Income Excluding Certain Expenses
(Dollars
in millions) (Unaudited)
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For the three months ended March 31,
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2010
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2009
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% change
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Net
income, as reported
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$ | 84.6 | $ | 44.1 | 91.7 | % | ||||||
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Restructuring
charge, net of tax
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3.4 | — | n/m | |||||||||
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Loss
on early retirement of Debt, net of tax
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1.6 | — | n/m | |||||||||
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Reversal
of uncertain tax position liabilities
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(17.9 | ) | — | n/m | ||||||||
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Net
income, excluding certain expenses
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$ | 71.7 | $ | 44.1 | 62.4 | % | ||||||
Reconciliation
of Cash Flow from Operations to Cash Flow from Operations
Excluding
Certain Expenses
(Dollars
in millions) (Unaudited)
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For the nine months ended March 31,
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||||||||||||
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2010
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2009
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% change
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Cash
flow from operations, as reported
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$ | 340.2 | $ | 314.9 | 8.0 | % | ||||||
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Payment
of management agreement termination fee
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29.6 | — | n/m | |||||||||
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Payment
of tender offer and other costs
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0.9 | — | n/m | |||||||||
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Cash
flow from operations, excluding certain expenses
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$ | 370.7 | $ | 314.9 | 17.7 | % | ||||||
Reconciliation
of Fiscal 2010 Guidance of Net Income to EBITDA
(Dollars
in millions, except earnings per share) (Unaudited)
Fiscal
2010 Guidance – 4th
Quarter
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For the three months ending
June 30, 2010
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||||||||
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Low End
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High End
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Earnings
per diluted share
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$ | 0.29 | $ | 0.31 | ||||
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Net
income
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$ | 41 | $ | 44 | ||||
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Net
interest expense
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$ | 28 | $ | 28 | ||||
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Income
tax expense
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27 | 29 | ||||||
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Depreciation
and amortization
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31 | 31 | ||||||
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EBITDA
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$ | 127 | $ | 132 | ||||