Education Management LLC Reports Record Fiscal 2007 Second Quarter Results
9 February 2007
Education Management LLC, one of the largest providers of post-secondary education in North America, today reported its financial results for the three months ended December 31, 2006. Net revenues rose 14.8% to $358.8 million for the second quarter of fiscal 2007 with enrollment for the Winter quarter of approximately 81,800 students, up 13.7% from the same period in the prior year.
John R. McKernan, Jr., Chairman and Chief Executive Officer of Education Management, commented, "As we continue to try to strike the right balance between consistent performance and investing in our future growth, we are pleased to report record student enrollment for our Winter start, as well as the first class at the newly-opened The Art Institute of Jacksonville."
Financial Highlights
- Revenues for the three months ended December 31, 2006 increased 14.8% to
$358.8 million, compared to $312.6 million for the same period a year
ago. This increase was impacted by a 10.8% increase in average total
student enrollment and an approximate 5% increase in tuition rates.
- For the second quarter of fiscal 2007, net income decreased to $25.4
million from $47.6 million in the prior year period due primarily to
interest expense incurred during the fiscal 2007 second quarter.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased 13.4% to $107.2 million from $94.5 million for the same period
a year ago primarily due to higher revenue and the benefit of lower
compensation expense under Statement of Financial Accounting Standards
(SFAS) No. 123( R ) offset in part by increases in marketing and
admissions expenses and incremental investments in new campuses. The
Company recorded no compensation expense under SFAS No. 123( R ) during
the second quarter of fiscal 2007 as compared to $7.0 million during the
same period in the prior year.
- At December 31, 2006, cash and cash equivalents were $155.6 million
compared to $263.3 million at June 30, 2006. There were no outstanding
borrowings on the revolving credit facility at December 31, 2006
compared with borrowings of $160.0 million at June 30, 2006.
- Cash flow from operations for the six month period ended December 31,
2006 was $102.1 million compared to $130.9 million in the prior year
period. The lower amount this fiscal year was primarily due to interest
payments on outstanding indebtedness.
- Cash paid for capital expenditures was $45.6 million, or 7.0% of
revenue, for the six months ended December 31, 2006 compared to $36.0
million, or 6.4% of revenue, for the same period in fiscal 2006.
The presentation of EBITDA does not comply with generally accepted accounting principles (GAAP). For an explanation of EBITDA and Adjusted EBITDA (used for covenant compliance) and a reconciliation to GAAP, see the Non-GAAP Financial Measures disclosures in the financial tables section below.
Student Enrollment
At the start of the current Winter quarter (third quarter of fiscal 2007), total enrollment at our schools was approximately 81,800 students, a 13.7% increase from the same time last year. Same-school enrollment (schools owned for one year or more) increased 13.1% to approximately 81,400 students. Students enrolled in fully online programs increased 102.3% to approximately 7,900 students.
2007 2006 Percentage
Winter Winter Change
Total enrollment 81,800 71,900 13.7 %
Same-school enrollment (owned for 1
year or more) 81,400 71,900 13.1 %
Students enrolled in fully online
programs 7,900 3,900 102.3 %
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 to an increased percentage of students at our schools enrolling in online and bachelor's degree programs. The first quarter is typically the lowest revenue recognition quarter due to student vacations.
Change in Ownership
On June 1, 2006, a consortium of investors acquired Education Management Corporation in a transaction valued at approximately $3.4 billion. Education Management Corporation contributed substantially all of its assets and liabilities to Education Management LLC in connection with the closing of the transaction. Periods prior to June 1, 2006 refer to Education Management Corporation, or the "Predecessor", while periods after the closing of the transaction refer to Education Management LLC, or the "Successor".
Conference Call and Webcast
Education Management will host a conference call to discuss its fiscal 2007 second quarter on Thursday, February 8, 2007 at 10:30 a.m. (Eastern Time). Those wishing to participate in this call should dial 303-262-2053 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 http://www.edmc.com.
About Education Management
Education Management (http://www.edmc.com), with over 80,300 students as of Fall 2006, is among the largest providers of post-secondary education in North America, based on student enrollment and revenue. Education Management has 74 primary locations in 24 states and two Canadian provinces. Education Management's educational institutions offer a broad range of academic programs concentrated in the media arts, design, fashion, culinary arts, behavioral sciences, health sciences, education, information technology, legal studies and business fields, culminating in the award of associate's through doctoral degrees. Education Management has provided career-oriented education for over 40 years.
Cautionary Statement
This press release may include information that could constitute forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements may involve risk and uncertainties that could cause actual results to differ materially from any future results encompassed within the forward-looking statements. 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.
FOR: Education Management LLC
COMPANY CONTACTS:
James Sober, CFA
Vice President, Finance
(412) 995-7684
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - FISCAL SECOND QUARTER
(Dollars in millions) (Unaudited)
Successor Predecessor Successor Predecessor
For the three For the six
months ended months ended
December 31, December 31,
2006 2005 2006 2005
Net revenues $358.8 $312.6 $649.3 $565.6
Costs and expenses:
Educational services 196.7 171.1 381.4 342.5
General and administrative 72.7 62.5 145.3 122.0
Amortization of intangible
assets 4.9 1.1 10.0 2.6
Total cost and expenses 274.3 234.7 536.7 467.1
Income before interest and
income taxes 84.5 77.9 112.6 98.5
Interest (income) expense,
net 43.1 (1.4) 87.1 (2.2)
Income before income taxes 41.4 79.3 25.5 100.7
Provision for income taxes 16.0 31.7 9.9 39.1
Net income $25.4 $47.6 $15.6 $61.6
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
SELECTED CASH FLOW DATA - FISCAL SECOND QUARTER
(Dollars in millions) (Unaudited)
Successor Predecessor
For the six months
ended December 31,
2006 2005
Net cash flows provided by operations $102.1 $130.9
Depreciation and amortization 44.7 34.3
Capital expenditures (a) (45.6) (36.0)
(a) represents cash paid for property and equipment, leasehold
improvements and online curriculum development
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
SELECTED BALANCE SHEET DATA - FISCAL SECOND QUARTER
(Dollars in millions) (Unaudited)
Successor Predecessor
As of December 31,
2006 2005
Cash and cash equivalents $155.6 $213.4
Current assets 258.9 296.9
Total assets 3,799.6 976.5
Revolver -- --
Current liabilities 283.9 163.6
Long-term debt (including current portion) 1,946.6 8.7
Shareholders' equity 1,288.7 754.6
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES - FISCAL SECOND QUARTER
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 (income), taxes, depreciation and amortization. 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. 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. In addition, EBITDA provides more comparability between the historical results of Education Management Corporation (Predecessor) and future results of Education Management LLC (Successor) that reflect purchase accounting and the new capital structure.
Successor Predecessor Successor Predecessor
For the three For the six
months ended months ended
December 31, December 31,
2006 2005 2006 2005
Net income $25.4 $47.6 $15.6 $61.6
Interest (income) expense, net 43.1 (1.4) 87.1 (2.2)
Provision for income taxes 16.0 31.7 9.9 39.1
Depreciation and
amortization 22.7 16.6 44.7 34.3
EBITDA $107.2 $94.5 $157.3 $132.8
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
Reconciliation of Net Income to Adjusted EBITDA for Covenant Compliance
(Dollars in millions) (Unaudited)
Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") is a non-GAAP measure used to determine our compliance with certain covenants contained in the indentures governing the notes and in our senior secured credit facilities. Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the indentures governing the notes and our senior secured credit facilities. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financing covenants.
For the twelve
months ended
December 31,
2006
Net income $34.8
Interest expense, net 98.0
Provision for income taxes 32.0
Depreciation and amortization 80.7
EBITDA 245.5
Reversal of impact of unfavorable leases (1.1)
Equity compensation expense 18.9
Transaction and advisory expense 41.7
Severance and relocation 3.0
Adjusted EBITDA - Covenant
Compliance $308.0
Source: prnewswire
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