Career Education Corporation Reports Results for Third Quarter 2016

11/03/2016

Company Release - 11/3/2016 4:05 PM ET

Operating income for the University Group improved for the current quarter as compared to the prior year quarter

SCHAUMBURG, Ill.--(BUSINESS WIRE)-- Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the third quarter and year to date ended September 30, 2016.

Third Quarter Consolidated Results:

Revenue of $167.6 million for the quarter as compared to $203.5 million in the prior year quarter, with the decline driven by teach-out campuses
Net loss of $0.7 million compared to prior year quarter net loss of $45.2 million
Consolidated adjusted EBITDA of $4.8 million compared to $2.7 million in the prior year quarter (see reconciliation of GAAP to non-GAAP items attached to this press release)

Year to Date Consolidated Results:

Net income improved to $14.2 million as compared to the prior year net loss of $90.8 million
Operating expenses decreased by $210.0 million as compared to the prior year driven by continued execution on strategic initiatives
Consolidated adjusted EBITDA improved to $43.6 million as compared to negative $13.4 million in the prior year (see reconciliation of GAAP to non-GAAP items attached to this press release)
As of September 30, 2016, cash, cash equivalents, restricted cash and available-for-sale short-term investments, net of borrowings, was $217.8 million

University Group Highlights:

Total student enrollment growth of 1.6 percent as compared to the prior year
Revenue increased by 2.5 percent versus the prior year quarter
Operating income increased by 7.2 percent to $21.8 million compared to the prior year quarter, primarily driven by increased revenue at CTU
Student retention continues to improve as investments in various student-serving operations help enhance overall student retention and outcomes

“Increased student retention at our University Group and responsible execution of our teach-out campuses marked another quarter of improved operating performance. We are encouraged by the modest total enrollment growth at the University Group and are making meaningful progress towards our goal of responsible growth, sustained profitability and cash generation,” said Todd Nelson, President and Chief Executive Officer. “We will continue to make investments in various student serving areas of our operations to further enhance student retention and outcomes and focus on improving operating efficiencies across all our businesses. 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.”

REVENUE

For the quarter and year to date ended September 30, 2016, total revenue was $167.6 million and $549.1 million, respectively, representing a decrease of 17.6 percent and 15.2 percent, respectively, compared to total revenue of $203.5 million and $647.3 million for the quarter and year to date ended September 30, 2015, respectively. The decrease was driven by declining revenues within the teach-out segments. Total revenue for the University Group was $139.5 million and $426.7 million for the quarter and year to date ended September 30, 2016, respectively, representing an increase of 2.5 percent and 3.5 percent, respectively, driven by total enrollment growth within CTU.

	For the Quarter Ended September 30,							For the Year to Date Ended September 30,
Revenue ($ in thousands)	2016		2015		Increase (Decrease)			2016		2015		Increase (Decrease)
CTU	$	90,921	$	85,433		6.4	%	$	274,623	$	256,734		7.0	%
AIU		48,542		50,688		-4.2	%		152,123		155,778		-2.3	%
Total University Group		139,463		136,121		2.5	%		426,746		412,512		3.5	%
Corporate and Other		—		39	NM				—		117	NM
Subtotal		139,463		136,160		2.4	%		426,746		412,629		3.4	%
Culinary Arts ⁽¹⁾		21,369		41,410		-48.4	%		89,990		128,170		-29.8	%
Transitional Group⁽¹⁾		6,793		25,914		-73.8	%		32,401		106,527		-69.6	%
Total	$	167,625	$	203,484		-17.6	%	$	549,137	$	647,326		-15.2	%

(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 third quarter of 2016, total student enrollments for the University Group were 31,900, compared to 31,400 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 8,580 and 25,840 for the quarter and year to date ended September 30, 2016, respectively, compared to new enrollments of 8,450 and 26,530 for the quarter and year to date ended September 30, 2015, respectively.

	As of September 30,
Total Student Enrollments	2016		2015		Increase (Decrease)
CTU		21,400		20,600		3.9	%
AIU		10,500		10,800		-2.8	%
Total University Group		31,900		31,400		1.6	%
Culinary Arts		3,500		9,200		-62.0	%
Transitional Group		1,100		5,200		-78.8	%
Total		36,500		45,800		-20.3	%

	For the Quarter Ended September 30,							For the Year to Date Ended September 30,
New Student Enrollments	2016		2015		Increase (Decrease)			2016		2015		Increase (Decrease)
CTU ⁽¹⁾		5,390		5,470		-1.5	%		15,240		16,180		-5.8	%
AIU ⁽¹⁾		3,190		2,980		7.0	%		10,600		10,350		2.4	%
Total University Group⁽¹⁾		8,580		8,450		1.5	%		25,840		26,530		-2.6	%
Culinary Arts ⁽²⁾		—		3,290	NM				990		6,780	NM
Transitional Group⁽²⁾		10		510	NM				90		3,170	NM
Total		8,590		12,250		-29.9	%		26,920		36,480		-26.2	%

(1)		New student enrollments were positively impacted by a change to how the Company records certain cancelled students. Excluding the impact of this change new student enrollments would have decreased 4.8 percent for CTU, increased 2.3 percent for AIU and decreased 2.2 percent for the University Group for the quarter ended September 30, 2016 as compared to the prior year quarter. For the year to date September 30, 2016, new student enrollments would have decreased 6.9 percent for CTU, increased 1.1 percent for AIU and decreased 3.8 percent for the University Group, as compared to the prior year to date.
(2)		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 September 30, 2016, the Company recorded an operating loss of $0.7 million and operating income of $23.6 million, respectively, representing an improvement of 98.4 percent and 126.7 percent compared to operating losses of $44.0 million and $88.2 million for the quarter and year to date ended September 30, 2015, respectively. This improvement was driven by $33.4 million of impairment charges recorded in the prior year quarter, completion of teach-out campuses and increased revenue within CTU. Total University Group operating income increased to $21.8 million and $79.7 million for the quarter and year to date ended September 30, 2016, respectively, representing an increase of 7.2 percent and 29.7 percent, respectively.

	For the Quarter Ended September 30,									For the Year to Date Ended September 30,
Operating Income (Loss) ($ in thousands)	2016			2015			Increase (Decrease)			2016			2015			Increase (Decrease)
CTU	$	21,486		$	18,616			15.4	%	$	70,693		$	57,495			23.0	%
AIU		291			1,695			-82.8	%		9,036			3,982			126.9	%
Total University Group		21,777			20,311			7.2	%		79,729			61,477			29.7	%
Corporate and Other		(5,587	)		(8,040	)		30.5	%		(17,160	)		(20,936	)		18.0	%
Subtotal		16,190			12,271			31.9	%		62,569			40,541			54.3	%
Culinary Arts ⁽¹⁾		(1,801	)		(33,195	)		94.6	%		1,666			(43,512	)		103.8	%
Transitional Group⁽²⁾		(15,095	)		(23,065	)		34.6	%		(40,672	)		(85,268	)		52.3	%
Total	$	(706	)	$	(43,989	)		98.4	%	$	23,563		$	(88,239	)		126.7	%

(1)		Asset impairment charges of $43.1 million were recorded during the year to date 2015, $33.4 million of which was recorded during the third quarter of 2015.
(2)		Asset impairment charges of $7.7 million were recorded during the year to date 2015.

NET INCOME (LOSS)

Net loss of $0.7 million was recorded for the quarter ended September 30, 2016 as compared to a net loss of $45.2 million in the prior year quarter, an improvement of 98.5 percent. For the year to date ended September 30, 2016, net income was $14.2 million representing an improvement of 115.6 percent as compared to net loss of $90.8 million for the prior year to date. The prior year quarter and year to date included $33.4 million and $50.8 million, respectively, of asset impairment charges.

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 $19.3 million and $73.8 million for the quarter and year to date ended September 30, 2016, respectively, representing an increase of 18.6 percent, or $3.0 million, and 36.3 percent, or $19.7 million, respectively, as compared to the prior year periods. Adjusted EBITDA for the Transitional Group, Culinary Arts and discontinued operations worsened to negative $14.6 million and improved to negative $30.2 million for the quarter and year to date ended September 30, 2016, respectively, representing a worsening of 7.1 percent and an improvement of 55.3 percent, respectively, as compared to the prior year periods.

	For the Quarter Ended September 30,						For the Year to Date Ended September 30,
Adjusted EBITDA ($ in thousands)	2016			2015			2016			2015
University Group and Corporate:
(Loss) income from continuing operations ⁽¹⁾	$	(500	)	$	(44,691	)	$	15,214		$	(89,223	)
Provision for (benefit from) income taxes		21			35			8,776			(923	)
Transitional Group pre-tax loss		14,869			23,724			40,199			86,818
Culinary Arts pre-tax loss (income)		1,709			33,171			(1,760	)		43,453
Interest (income) expense, net ⁽²⁾		(215	)		7			(427	)		(43	)
Depreciation and amortization⁽²⁾		2,594			3,454			8,474			11,771
Stock-based compensation⁽²⁾		860			983			2,251			2,453
Asset impairments ⁽²⁾		—		—				237			—
Unused space charges ^{(2) (3)}		(16	)		(385	)		839			(177	)
Adjusted EBITDA--University Group and Corporate	$	19,322		$	16,298		$	73,803		$	54,129

Memo: Advertising Expenses ⁽²⁾	$	45,301		$	46,194		$	121,852		$	131,039

Transitional Group, Culinary Arts and Discontinued Operations:
Loss from discontinued operations ⁽¹⁾	$	(186	)	$	(544	)	$	(1,050	)	$	(1,616	)
Benefit from income taxes from discontinued operations		(109	)	—				(626	)		—
Transitional Group pre-tax loss		(14,869	)		(23,724	)		(40,199	)		(86,818	)
Culinary Arts pre-tax (loss) income		(1,709	)		(33,171	)		1,760			(43,453	)
Interest income, net ⁽⁴⁾		(2	)	—				(4	)		—
Loss on sale of business⁽⁴⁾		—			715			—			1,632
Depreciation and amortization ⁽⁴⁾		2,621			2,508			8,512			8,090
Legal settlements ⁽⁴⁾		—		—				—			1,319
Asset impairments⁽⁴⁾		—			33,446			—			50,837
Unused space charges^{(3) (4)}		(308	)		7,174			1,386			2,445
Adjusted EBITDA--Transitional, Culinary Arts and Discontinued Operations	$	(14,562	)	$	(13,596	)	$	(30,221	)	$	(67,564	)
Consolidated Adjusted EBITDA	$	4,760		$	2,702		$	43,582		$	(13,435	)

(1)		(Loss) income 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 September 30, 2016 was $9.7 million and $15.7 million, respectively, representing an improvement from cash provided of $5.6 million and cash usage of $21.0 million for the quarter and year to date ended September 30, 2015, respectively. The Company’s continued focus on improving operating efficiencies within the University Group and the discontinuation of marketing and advertising costs related to our teach-outs contributed to the improvement in cash flow from operations.

As of September 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 $217.8 million and $201.0 million, respectively.

Consolidated Cash ($ in thousands)	As of September 30, 2016		As of December 31, 2015		Increase (Decrease)
Consolidated Cash, Cash Equivalents, Restricted Cash and Available-For-Sale Short-Term Investments	$	217,784	$	231,641		-6.0	%
Available-For-Sale Long-Term Investments ⁽¹⁾		—		7,374		-100.0	%
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⁾	$	217,784	$	201,015		8.3	%

(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 outlook for 2016 and 2017 consolidated adjusted EBITDA and year end cash, cash equivalents, restricted cash and short-term investments, net of borrowings, in order to incorporate recent stronger than expected performance and working capital trends. The Company now expects the following results, subject to the updated key assumptions identified below:

Consolidated adjusted EBITDA will significantly improve in 2016 versus 2015. In 2017, consolidated adjusted EBITDA will again significantly improve as compared to 2015 but will trend below 2016 due to expenses associated with the completion of the teach-out campuses and then will increase in 2018 as these expenses are eliminated.
End of year cash, cash equivalents, restricted cash and available-for-sale short-term investments, net of any borrowings, as reported on the consolidated balance sheets of approximately $180 million to $190 million for the year ending December 31, 2016, and approximately $160 million to $170 million for the year ending December 31, 2017.

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 cash and adjusted EBITDA 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 and regulatory liabilities and any impact of new or proposed regulations, including the “defense to repayment” regulations issued in November 2016 and the gainful employment regulation, 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 Thursday, November 3, 2016 at 5:30 p.m. Eastern time to discuss its third 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. The Company’s 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. 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; 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 recently issued “defense to repayment” regulations; 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 ability to successfully defend litigation and other claims brought against us; 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; increased competition; the impact of management changes; 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)

	September 30, 2016			December 31, 2015
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted	$	55,659		$	66,919
Restricted cash		1,375			49,821
Restricted short-term investments		9,597			-
Short-term investments		151,153			114,901
Total cash and cash equivalents, restricted cash and short-term investments		217,784			231,641

Student receivables, net		25,457			31,618
Receivables, other, net		876			5,194
Prepaid expenses		12,695			14,380
Inventories		1,829			3,353
Other current assets		954			2,523
Assets of discontinued operations		176			254
Total current assets		259,771			288,963

NON-CURRENT ASSETS:
Property and equipment, net		45,213			58,249
Goodwill		87,356			87,356
Intangible assets, net		8,700			9,300
Student receivables, net		3,128			3,958
Deferred income tax assets, net		130,343			137,716
Other assets		8,328			16,562
Assets of discontinued operations		8,634			8,811
TOTAL ASSETS	$	551,473		$	610,915

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	-		$	38,000
Accounts payable		16,000			25,906
Accrued expenses:
Payroll and related benefits		33,075			38,789
Advertising and production costs		17,041			11,788
Income taxes		1,730			1,061
Other		25,599			24,082
Deferred tuition revenue		30,342			40,112
Liabilities of discontinued operations		7,004			13,067
Total current liabilities		130,791			192,805

NON-CURRENT LIABILITIES:
Deferred rent obligations		35,664			45,927
Other liabilities		24,133			25,197
Liabilities of discontinued operations		5,862			9,376
Total non-current liabilities		65,659			80,500

STOCKHOLDERS' EQUITY:
Preferred stock		-			-
Common stock		835			830
Additional paid-in capital		613,611			610,784
Accumulated other comprehensive income (loss)		87			(880	)
Accumulated deficit		(43,354	)		(57,518	)
Cost of shares in treasury		(216,156	)		(215,606	)
Total stockholders' equity		355,023			337,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	551,473		$	610,915

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,
	2016			% of Total Revenue			2015			% of Total Revenue
REVENUE:
Tuition and registration fees	$	166,819			99.5	%	$	202,179			99.4	%
Other		806			0.5	%		1,305			0.6	%
Total revenue		167,625						203,484
OPERATING EXPENSES:
Educational services and facilities		51,393			30.7	%		74,888			36.8	%
General and administrative		111,723			66.7	%		133,177			65.4	%
Depreciation and amortization		5,215			3.1	%		5,962			2.9	%
Asset impairment		—			0.0	%		33,446			16.4	%
Total operating expenses		168,331			100.4	%		247,473			121.6	%
Operating loss		(706	)		-0.4	%		(43,989	)		-21.6	%
OTHER INCOME (EXPENSE):
Interest income		334			0.2	%		164			0.1	%
Interest expense		(117	)		-0.1	%		(170	)		-0.1	%
Loss on sale of business		—			0.0	%		(715	)		-0.4	%
Miscellaneous income		10			0.0	%		54			0.0	%
Total other income (expense)		227			0.1	%		(667	)		-0.3	%
PRETAX LOSS		(479	)		-0.3	%		(44,656	)		-21.9	%
Provision for income taxes		21			0.0	%		35			0.0	%

LOSS FROM CONTINUING OPERATIONS		(500	)		-0.3	%		(44,691	)		-22.0	%
Loss from discontinued operations, net of tax		(186	)		-0.1	%		(544	)		-0.3	%
NET LOSS		(686	)		-0.4	%		(45,235	)		-22.2	%

OTHER COMPREHENSIVE INCOME, net of tax:
Foreign currency translation adjustments		47						—
Unrealized gain on investments		370						81
Total other comprehensive income		417						81
COMPREHENSIVE LOSS	$	(269	)				$	(45,154	)

NET LOSS PER SHARE - BASIC and DILUTED:
Loss from continuing operations	$	(0.01	)				$	(0.66	)
Loss from discontinued operations		—						(0.01	)
Net loss per share	$	(0.01	)				$	(0.67	)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and Diluted		68,460						67,961

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 September 30,
	2016			% of Total Revenue			2015			% of Total Revenue
REVENUE:
Tuition and registration fees	$	546,036			99.4	%	$	643,617			99.4	%
Other		3,101			0.6	%		3,709			0.6	%
Total revenue		549,137						647,326
OPERATING EXPENSES:
Educational services and facilities		170,993			31.1	%		222,846			34.4	%
General and administrative		337,358			61.4	%		442,021			68.3	%
Depreciation and amortization		16,986			3.1	%		19,861			3.1	%
Asset impairment		237			0.0	%		50,837			7.9	%
Total operating expenses		525,574			95.7	%		735,565			113.6	%
Operating income (loss)		23,563			4.3	%		(88,239	)		-13.6	%
OTHER INCOME (EXPENSE):
Interest income		900			0.2	%		548			0.1	%
Interest expense		(469	)		-0.1	%		(502	)		-0.1	%
Loss on sale of business		—			0.0	%		(1,632	)		-0.3	%
Miscellaneous expense		(4	)		0.0	%		(321	)		0.0	%
Total other income (expense)		427			0.1	%		(1,907	)		-0.3	%
PRETAX INCOME (LOSS)		23,990			4.4	%		(90,146	)		-13.9	%
Provision for (benefit from) income taxes		8,776			1.6	%		(923	)		-0.1	%

INCOME (LOSS) FROM CONTINUING OPERATIONS		15,214			2.8	%		(89,223	)		-13.8	%
Loss from discontinued operations, net of tax		(1,050	)		-0.2	%		(1,616	)		-0.2	%
NET INCOME (LOSS)		14,164			2.6	%		(90,839	)		-14.0	%

OTHER COMPREHENSIVE INCOME, net of tax:
Foreign currency translation adjustments		143						—
Unrealized gain on investments		824						233
Total other comprehensive income		967						233
COMPREHENSIVE INCOME (LOSS)	$	15,131					$	(90,606	)

NET INCOME (LOSS) PER SHARE - BASIC and DILUTED:
Income (loss) from continuing operations	$	0.22					$	(1.32	)
Loss from discontinued operations		(0.01	)					(0.02	)
Net income (loss) per share	$	0.21					$	(1.34	)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		68,328						67,798
Diluted		68,889						67,798

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

	For the Year to Date Ended September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	14,164		$	(90,839	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Asset impairment		237			50,837
Depreciation and amortization expense		16,986			19,861
Bad debt expense		23,201			15,526
Compensation expense related to share-based awards		2,251			2,453
Loss on sale of business, net		—			1,632
Gain on disposition of property and equipment		(438	)		(10	)
Deferred income taxes		7,373			—
Changes in operating assets and liabilities:		(48,060	)		(20,463	)
Net cash provided by (used in) operating activities		15,714			(21,003	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments		(137,755	)		(64,056	)
Sales of available-for-sale investments		99,718			69,436
Purchases of property and equipment		(3,352	)		(7,926	)
Proceeds on the sale of assets		3,600			2,272
Payments of cash upon sale of businesses		(62	)		(4,125	)
Net cash used in investing activities		(37,851	)		(4,399	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock		581			1,082
Payment on borrowings		(38,000	)		(10,000	)
Change in restricted cash		48,446			9,250
Net cash provided by financing activities		11,027			332

EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:		(150	)		178

NET DECREASE IN CASH AND CASH EQUIVALENTS		(11,260	)		(24,892	)
CASH AND CASH EQUIVALENTS, beginning of the period		66,919			93,832
CASH AND CASH EQUIVALENTS, end of the period	$	55,659		$	68,940

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

	For the Quarter Ended September 30,
	2016			2015
REVENUE:
CTU	$	90,921		$	85,433
AIU		48,542			50,688
Total University Group		139,463			136,121
Corporate and Other		—			39
Subtotal		139,463			136,160
Culinary Arts		21,369			41,410
Transitional Group		6,793			25,914
Total	$	167,625		$	203,484

OPERATING INCOME (LOSS):
CTU	$	21,486		$	18,616
AIU		291			1,695
Total University Group		21,777			20,311
Corporate and Other		(5,587	)		(8,040	)
Subtotal		16,190			12,271
Culinary Arts		(1,801	)		(33,195	)
Transitional Group		(15,095	)		(23,065	)
Total	$	(706	)	$	(43,989	)

OPERATING MARGIN (LOSS):
CTU		23.6	%		21.8	%
AIU		0.6	%		3.3	%
Total University Group		15.6	%		14.9	%
Corporate and Other	NM			NM
Subtotal		11.6	%		9.0	%
Culinary Arts		-8.4	%		-80.2	%
Transitional Group		-222.2	%		-89.0	%
Total		-0.4	%		-21.6	%

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

	For the Year to Date Ended September 30,
	2016			2015
REVENUE:
CTU	$	274,623		$	256,734
AIU		152,123			155,778
Total University Group		426,746			412,512
Corporate and Other		—			117
Subtotal		426,746			412,629
Culinary Arts		89,990			128,170
Transitional Group		32,401			106,527
Total	$	549,137		$	647,326

OPERATING INCOME (LOSS):
CTU	$	70,693		$	57,495
AIU		9,036			3,982
Total University Group		79,729			61,477
Corporate and Other		(17,160	)		(20,936	)
Subtotal		62,569			40,541
Culinary Arts		1,666			(43,512	)
Transitional Group		(40,672	)		(85,268	)
Total	$	23,563		$	(88,239	)

OPERATING MARGIN (LOSS):
CTU		25.7	%		22.4	%
AIU		5.9	%		2.6	%
Total University Group		18.7	%		14.9	%
Corporate and Other	NM			NM
Subtotal		14.7	%		9.8	%
Culinary Arts		1.9	%		-33.9	%
Transitional Group		-125.5	%		-80.0	%
Total		4.3	%		-13.6	%

CAREER EDUCATION CORPORATION AND SUBSIDIARIES UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS ⁽¹⁾ (In thousands)

	For the Quarter Ended September 30,						For the Year to Date Ended September 30,
Adjusted EBITDA	2016			2015			2016			2015
University Group and Corporate:
(Loss) income from continuing operations ⁽²⁾	$	(500	)	$	(44,691	)	$	15,214		$	(89,223	)
Provision for (benefit from) income taxes		21			35			8,776			(923	)
Transitional Group pre-tax loss		14,869			23,724			40,199			86,818
Culinary Arts pre-tax loss (income)		1,709			33,171			(1,760	)		43,453
Interest (income) expense, net ⁽³⁾		(215	)		7			(427	)		(43	)
Depreciation and amortization⁽³⁾		2,594			3,454			8,474			11,771
Stock-based compensation⁽³⁾		860			983			2,251			2,453
Asset impairments ⁽³⁾		—		—				237			—
Unused space charges ^{(3) (5)}		(16	)		(385	)		839			(177	)
Adjusted EBITDA--University Group and Corporate ⁽⁶⁾	$	19,322		$	16,298		$	73,803		$	54,129

Memo: Advertising Expenses ⁽³⁾	$	45,301		$	46,194		$	121,852		$	131,039

Transitional Group, Culinary Arts and Discontinued Operations:
Loss from discontinued operations ⁽²⁾	$	(186	)	$	(544	)	$	(1,050	)	$	(1,616	)
Benefit from income taxes from discontinued operations		(109	)	—				(626	)		—
Transitional Group pre-tax loss		(14,869	)		(23,724	)		(40,199	)		(86,818	)
Culinary Arts pre-tax (loss) income		(1,709	)		(33,171	)		1,760			(43,453	)
Interest income, net ⁽⁷⁾		(2	)	—				(4	)		—
Loss on sale of business⁽⁷⁾		—			715			—			1,632
Depreciation and amortization ⁽⁷⁾		2,621			2,508			8,512			8,090
Legal settlements ^{(4) (7)}		—		—				—			1,319
Asset impairments⁽⁷⁾		—			33,446			—			50,837
Unused space charges^{(5) (7)}		(308	)		7,174			1,386			2,445
Adjusted EBITDA--Transitional, Culinary Arts and Discontinued Operations ^{(6) (8)}	$	(14,562	)	$	(13,596	)	$	(30,221	)	$	(67,564	)
Consolidated Adjusted EBITDA	$	4,760		$	2,702		$	43,582		$	(13,435	)

(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.
		The Company believes adjusted EBITDA allows it to compare current operating results with corresponding historical periods and with the operational performance of other companies in its industry because it does not give effect to potential differences caused by items it does not consider reflective of underlying operating performance, such as teach-out campuses. In evaluating adjusted EBITDA, investors should be aware that in the future the Company may incur expenses similar to the adjustments presented above. The presentation of adjusted EBITDA should not be construed as an inference that the Company’s future results will be unaffected by expenses that are unusual, non-routine or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and it should not be considered 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 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)		(Loss) income from continuing operations and loss from discontinued operations make up the components of net (loss) income. A reconciliation of these components for the quarters and years to date ended September 30, 2016 and September 30, 2015 is presented below:

	For the Quarter Ended September 30,						For the Year to Date Ended September 30,
	2016			2015			2016			2015
(Loss) income from continuing operations	$	(500	)	$	(44,691	)	$	15,214		$	(89,223	)
Loss from discontinued operations		(186	)		(544	)		(1,050	)		(1,616	)
Net (loss) income	$	(686	)	$	(45,235	)	$	14,164		$	(90,839	)

(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 September 30,						For the Year to Date Ended September 30,
	2016			2015			2016		2015
Pre-tax (loss) income	$	(1,709	)	$	(33,171	)	$	1,760	$	(43,453	)
Depreciation and amortization		1,232			—			4,458		—
Legal settlements		—			—			—		775
Asset impairments		—			33,446			—		43,133
Unused space charges		(793	)		209			3,710		(1,150	)
Adjusted EBITDA for Culinary Arts	$	(1,270	)	$	484		$	9,928	$	(695	)

View source version on businesswire.com: http://www.businesswire.com/news/home/20161103006656/en/

Investors:
Alpha IR Group
Sam Gibbons or Chris Hodges
(312) 445-2870
[email protected]
Or
Media:
Career Education Corporation
(847) 585-2600
[email protected]

Source: Career Education Corporation

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