Career Education Corporation Reports Results for First Quarter 2014

05/08/2014

Company Release - 5/8/2014 8:00 AM ET

SCHAUMBURG, Ill.--(BUSINESS WIRE)-- Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the first quarter of 2014. Highlights from the first quarter of 2014 include:

Fifth consecutive quarter of sequential improvement in the decline of total student enrollments at its ongoing institutions, inclusive of new student enrollment growth within University.
Approximately $13.2 million of higher advertising investments for its ongoing academic institutions in the first quarter of 2014 compared to the fourth quarter of 2013. This partly contributed to greater cash outflows for the quarter compared to the fourth quarter of 2013, but is intended to reinforce the improving enrollment picture.
A 32 percent improvement in the rate a prospective student converts to a new student application.
A 7 percent decrease in new student acquisition costs at its ongoing institutions.

“We’re off to a good start in 2014 as we remain focused in our efforts to transform the company,” said President and CEO Scott W. Steffey. “I am energized by our progress in the first quarter. We announced the consolidation of brands within our Career Schools segment, a critical component in stabilizing our ground-based institutions. We believe that our ongoing operations are trending toward being EBITDA positive in the fourth quarter of this year, excluding unique items. We are rebuilding this organization with student success always at the core of our decisions and we’re beginning to see the results of our strategy taking hold.”

Career Education reported total revenue of $243.1 million, and a net loss of $58.1 million, or -$0.87 per diluted share, for the first quarter of 2014 compared to total revenue of $284.5 million and net loss of $15.2 million, or -$0.23 per diluted share, for the first quarter of 2013.

CONSOLIDATED RESULTS

Quarter Ended March 31, 2014

Total revenue was $243.1 million for the first quarter of 2014, a 14.5 percent decrease from $284.5 million for the first quarter of 2013. The decline is largely due to approximately 4,400 fewer total student enrollments in its ongoing institutions, which excludes Transitional Schools, in the first quarter of 2014 compared to the first quarter of 2013. In addition, the Transitional Schools segment accounted for 4.1 percent of the decrease in revenue.
Operating losses of $47.9 million and $25.0 million were reported for the first quarters of 2014 and 2013, respectively. Higher operating losses in the first quarter of 2014 as compared to the first quarter of 2013 were primarily attributed to the current year quarter reporting lower total student enrollments and $6.8 million in legal settlement expenses net of anticipated insurance recovery. The operating margin was -19.7 percent for the first quarter of 2014 and -8.8 percent for the first quarter of 2013.
The loss from continuing operations for the first quarter of 2014 was $47.4 million, or -$0.71 per diluted share. For the first quarter of 2013, the loss from continuing operations of $19.8 million, or -$0.30 per diluted share, included a $6.7 million ($0.10 per diluted share) loss related to the sale of the American InterContinental University campus in London, England which is reported in other income (expense).

CONSOLIDATED CASH FLOWS AND FINANCIAL POSITION

Cash Flows

Net cash used in operating activities increased to $35.4 million for the quarter ended March 31, 2014 compared to $14.2 million for the quarter ended March 31, 2013. This increase is driven primarily by the operating loss for the current year to date and net payments of income taxes.

Capital expenditures decreased to $3.5 million for the quarter ended March 31, 2014, from $4.1 million for the quarter ended March 31, 2013. Capital expenditures represented 1.4 percent and 1.2 percent of total revenue of continuing and discontinued operations during the quarters ended March 31, 2014 and 2013, respectively.

Financial Position

As of March 31, 2014 and December 31, 2013, cash and cash equivalents and short-term investments totaled $315.5 million and $362.9 million, respectively.

TOTAL STUDENT ENROLLMENTS AND NEW STUDENT ENROLLMENTS

Total Student Enrollments

Total student enrollments by reportable segment as of March 31, 2014 and 2013 were as follows:

		As of March 31,		% Change
		2014	2013	2014 vs. 2013
Total Student Enrollments
	CTU	20,600	21,500	-4%
	AIU	13,300	15,500	-14%
	Total University Schools	33,900	37,000	-8%
	Career Colleges	11,800	12,900	-9%
	Culinary Arts	8,400	8,600	-2%
	Total Career Schools	20,200	21,500	-6%
	Subtotal	54,100	58,500	-8%
	Transitional Schools	1,600	5,100	-69%
	Total	55,700	63,600	-12%

New Student Enrollments

New student enrollments by reportable segment for the quarters ended March 31, 2014 and 2013 were as follows:

		For the Quarter Ended March 31,		% Change
		2014	2013	2014 vs. 2013
New Student Enrollments
	CTU ⁽¹⁾	4,820	4,900	-2%
	AIU ⁽¹⁾	5,900	5,510	7%
	Total University Schools	10,720	10,410	3%
	Career Colleges	3,000	3,200	-6%
	Culinary Arts	2,300	2,810	-18%
	Total Career Schools	5,300	6,010	-12%
	Subtotal	16,020	16,420	-2%
	Transitional Schools ⁽²⁾	10	590	NM
	Total	16,030	17,010	-6%

_____________

(1)		In the first quarter of 2014, we implemented a new student orientation process which replaced our previously provided student readiness programs. This change impacts how we calculate a new student enrollment. Accordingly, 2013 new student enrollments for CTU and AIU have been recast to reflect this change in methodology. The adjustments necessary to recast historical new student enrollment data require the exercise of management's judgment.

(2)		Campuses within the Transitional Schools segment no longer enroll new students; students who re-enter after 365 days are reported as new enrollments.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, May 8, 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 37065289. 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 37065289.

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 or 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 “anticipate,” “believe,” “expect,” “intend,” “beginning to,” “project,” “trend,” “will,” “potential” and similar expressions, are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on information currently available to us and are subject to various assumptions, risks, uncertainties and other factors that could cause our results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise such factors or any of the forward-looking statements contained herein to reflect future events, developments or changed circumstances, or for any other reason. These risks and uncertainties, the outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: declines in enrollment; rulemaking by the U.S. Department of Education and increased focus by Congress, the President and governmental agencies on for-profit education institutions; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the “90-10 Rule” and financial responsibility and student loan default rate standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; our ability to successfully defend litigation and other claims brought against us; and changes in the overall U.S. or global economy. Further information about these and other relevant risks and uncertainties may be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and its subsequent filings with the Securities and Exchange Commission.



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

		March 31, 2014 ⁽¹⁾			December 31, 2013 ⁽¹⁾

	ASSETS
CURRENT ASSETS:
	Cash and cash equivalents, unrestricted	$	264,188		$	318,761
	Restricted cash		12,948			12,564
	Short-term investments		38,326			31,592
	Total cash and cash equivalents and short-term investments		315,462			362,917

	Student receivables, net		31,582			34,498
	Receivables, other, net		18,331			27,437
	Prepaid expenses		20,328			20,218
	Inventories		6,329			6,723
	Deferred income tax assets, net		3,606			3,606
	Other current assets		4,492			3,468
	Assets of discontinued operations		523			1,150
	Total current assets		400,653			460,017

NON-CURRENT ASSETS:
	Property and equipment, net		170,573			182,000
	Goodwill		87,356			87,356
	Intangible assets, net		39,850			40,117
	Student receivables, net		4,758			5,204
	Deferred income tax assets, net		10,644			10,644
	Other assets, net		26,258			17,853
	Assets of discontinued operations		1,406			1,854
TOTAL ASSETS		$	741,498		$	805,045

	LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
	Accounts payable	$	29,640		$	24,615
	Accrued expenses:
	Payroll and related benefits		31,198			34,172
	Advertising and production costs		22,297			17,599
	Income taxes		603			14,994
	Other		51,039			41,083
	Deferred tuition revenue		55,251			60,914
	Liabilities of discontinued operations		15,418			14,055
	Total current liabilities		205,446			207,432

NON-CURRENT LIABILITIES:
	Deferred rent obligations		78,104			80,496
	Other liabilities		27,593			27,619
	Liabilities of discontinued operations		32,225			34,114
	Total non-current liabilities		137,922			142,229

STOCKHOLDERS' EQUITY:
	Preferred stock		-			-
	Common stock		820			819
	Additional paid-in capital		602,440			600,904
	Accumulated other comprehensive loss		(531	)		(503	)
	Retained earnings		10,515			68,658
	Cost of shares in treasury		(215,114	)		(214,494	)
	Total stockholders' equity		398,130			455,384
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	741,498		$	805,045
____________

(1)	During the first quarter of 2014, the Company completed the teach-out of the following Sanford-Brown campuses: Austin, Collinsville, Cranston, Dearborn, Grand Rapids, Indianapolis, Portland, Tinley Park and Trevose. As a result, all current and prior periods reflect these campuses as components of discontinued operations.


CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts and percentages)


			For the Quarter Ended March 31,⁽¹⁾
						% of Total					% of Total
			2014			Revenue		2013			Revenue

REVENUE:
	Tuition and registration fees		$	240,071		98.8	%	$	279,910		98.4	%
	Other			3,034		1.2	%		4,540		1.6	%
		Total revenue		243,105					284,450

OPERATING EXPENSES:
	Educational services and facilities			86,078		35.4	%		102,757		36.1	%
	General and administrative			189,780		78.1	%		189,597		66.7	%
	Depreciation and amortization			15,052		6.2	%		16,969		6.0	%
	Asset impairment			67		0.0	%		157		0.1	%
		Total operating expenses		290,977		119.7	%		309,480		108.8	%
Operating loss				(47,872	)	-19.7	%		(25,030	)	-8.8	%

OTHER INCOME (EXPENSE):
	Interest income			106		0.0	%		245		0.1	%
	Interest expense			(81	)	0.0	%		(706	)	-0.2	%
	Loss on sale of business			-		0.0	%		(6,712	)	-2.4	%
	Miscellaneous income			622		0.3	%		7		0.0	%
		Total other income (expense)		647		0.3	%		(7,166	)	-2.5	%

PRETAX LOSS				(47,225	)	-19.4	%		(32,196	)	-11.3	%

Provision for (benefit from) income taxes				220		0.1	%		(12,402	)	-4.4	%

LOSS FROM CONTINUING OPERATIONS				(47,445	)	-19.5	%		(19,794	)	-7.0	%

(Loss) income from discontinued operations, net of tax				(10,698	)	-4.4	%		4,591		1.6	%

NET LOSS				(58,143	)	-23.9	%		(15,203	)	-5.3	%

OTHER COMPREHENSIVE LOSS, net of tax:
	Foreign currency translation adjustments			-					(1,743	)
	Unrealized (losses) gains on investments			(28	)				1
		Total other comprehensive loss		(28	)				(1,742	)

COMPREHENSIVE LOSS			$	(58,171	)			$	(16,945	)

NET LOSS PER SHARE - DILUTED:
	Loss from continuing operations		$	(0.71	)			$	(0.30	)
	(Loss) income from discontinued operations			(0.16	)				0.07
	Net loss per share		$	(0.87	)			$	(0.23	)

DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING				66,994					66,428
_____________

(1)	During the first quarter of 2014, the Company completed the teach-out of the following Sanford-Brown campuses: Austin, Collinsville, Cranston, Dearborn, Grand Rapids, Indianapolis, Portland, Tinley Park and Trevose. During 2013, the Company completed the sale of its International Segment and the teach-out of SBI Landover, SBC Milwaukee and IADT Schaumburg. As a result, all current and prior periods reflect these campuses as components of discontinued operations.

CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	For the Quarter Ended March 31,
	2014			2013

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(58,143	)	$	(15,203	)
Adjustments to reconcile net loss to net cash used in operating activities:
Asset impairment		67			157
Depreciation and amortization expense		15,431			19,295
Bad debt expense		5,852			6,702
Compensation expense related to share-based awards		1,341			1,775
Loss on sale of business		-			6,712
Loss on disposition of property and equipment		26			94
Changes in operating assets and liabilities		6			(33,729	)
Net cash used in operating activities		(35,420	)		(14,197	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments		(29,810	)		(13,540	)
Sales of available-for-sale investments		14,320			13,465
Purchases of property and equipment		(3,468	)		(4,077	)
Payments of cash upon sale of business		-			(1,947	)
Other		-			(1	)
Net cash used in investing activities		(18,958	)		(6,100	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		196			304
Payment on borrowings		-			(80,000	)
Change in restricted cash		(384	)		86,470
Payments of capital lease obligations		-			(74	)
Net cash (used in) provided by financing activities		(188	)		6,700

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS:		10			(3,194	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(54,556	)		(16,791	)
DISCONTINUED OPERATIONS CASH ACTIVITY INCLUDED ABOVE:
Add: Cash balance of discontinued operations, beginning of the period		182			127,925
Less: Cash balance of discontinued operations, end of the period		199			114,428
CASH AND CASH EQUIVALENTS, beginning of the period		318,761			112,697
CASH AND CASH EQUIVALENTS, end of the period	$	264,188		$	109,403



CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION
(In thousands, except percentages)

	For the Quarter Ended March 31,
	2014			2013

REVENUE:
CTU	$	87,031		$	90,209
AIU		52,573			66,299
Total University Schools		139,604			156,508

Career Colleges		53,040			59,786
Culinary Arts		42,246			45,938
Total Career Schools		95,286			105,724

Corporate and Other		100			-
Subtotal		234,990			262,232

Transitional Schools ⁽¹⁾		8,115			22,218
Total	$	243,105		$	284,450

OPERATING (LOSS) INCOME:
CTU	$	14,186		$	15,912
AIU		(3,583	)		3,146
Total University Schools		10,603			19,058

Career Colleges		(17,150	)		(15,003	)
Culinary Arts		(18,046	)		(12,137	)
Total Career Schools		(35,196	)		(27,140	)

Corporate and Other		(11,136	)		(6,368	)
Subtotal		(35,729	)		(14,450	)

Transitional Schools ⁽¹⁾		(12,143	)		(10,580	)
Total	$	(47,872	)	$	(25,030	)

OPERATING MARGIN (LOSS):
CTU		16.3	%		17.6	%
AIU		-6.8	%		4.7	%
Total University Schools		7.6	%		12.2	%

Career Colleges		-32.3	%		-25.1	%
Culinary Arts		-42.7	%		-26.4	%
Total Career Schools		-36.9	%		-25.7	%

Corporate and Other		NM			NM
Subtotal		-15.2	%		-5.5	%

Transitional Schools ⁽¹⁾		-149.6	%		-47.6	%
Total		-19.7	%		-8.8	%

_____________

(1)		During the first quarter of 2014, the Company completed the teach-out of the following Sanford-Brown campuses: Austin, Collinsville, Cranston, Dearborn, Grand Rapids, Indianapolis, Portland, Tinley Park and Trevose. As a result, all current and prior periods reflect these campuses as components of discontinued operations.

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

Source: Career Education Corporation

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