Career Education Corporation Reports Third Quarter 2014 Results

Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the third quarter of 2014.

Third Quarter Highlights

• Seventh consecutive quarter of sequential improvement in the decline of total student enrollments.
• For the first time in over three years, Colorado Technical University (“CTU”) experienced revenue growth compared to the prior year quarter, driven by positive new student enrollment growth.
• For the first time in over three years, Culinary Arts experienced revenue growth compared to the prior year quarter, driven by positive total student enrollment growth.
• Revenue from ongoing operations, which excludes Transitional Schools, was down 3.9% to $219.6 million.
• Lowered operating expenses by $26.7 million or 8.9% compared to the same quarter last year.
• Ended the third quarter with $250.9 million in cash, cash equivalents and short-term investments and increased the borrowing capacity under the Company’s existing revolving credit facility from $70 million to $120 million with our existing lender.
• Adjusted EBITDA from ongoing operations, which excludes Transitional Schools, improved nearly 7% to negative $15.0 million in the quarter, despite declines in revenue as compared to the prior year quarter.

“The results of our hard work to stabilize and transform Career Education were quite visible in this quarter’s results as we witnessed another period of solid sequential improvement across our organization,” said President and CEO Scott W. Steffey. “In particular our University group has delivered over $55 million in operating income over the last twelve months and is experiencing year-over-year fundamental new student growth which provides a strong base of support that anchors our future. We have reduced our operating expenses by over $84 million for the current year to date, surpassing our $75 million annual goal in just nine months. Further, we see numerous opportunities to continue to lower our cost base, while simultaneously improving our organization’s commitment to enroll, educate and place our students to succeed professionally in the future. We expect to be adjusted EBITDA positive in our ongoing operations for the fourth quarter of this year. Additionally, we will enter 2015 as a much stronger organization and we believe we are well positioned to achieve our objective of ongoing operations being adjusted EBITDA positive for the full year 2015.”

REVENUE

• Total revenue was $227.5 million for the third quarter of 2014 compared to $244.2 million for the third quarter of 2013, a decline of 6.8%.
• For ongoing operations, which excludes Transitional Schools, total revenue was $219.6 million for the third quarter of 2014 compared to $228.6 million for the third quarter of 2013, a decline of 3.9%, due to approximately 300 fewer total student enrollments. Both CTU and Culinary Arts grew revenue for the third quarter of 2014 as compared to the third quarter of 2013.

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TOTAL STUDENT ENROLLMENT

• For ongoing operations, which excludes Transitional Schools, total student enrollment decreased 0.6% as of September 30, 2014 as compared to September 30, 2013. Culinary Arts reported total student enrollment growth of 26.3% as of September 30, 2014 as compared to September 30, 2013, as a result of the reintroduction of the Associate degree program which is a longer term program as compared to the Certificate program. Total student enrollments for ongoing operations increased 8.9% sequentially from the second quarter of 2014.

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NEW STUDENT ENROLLMENTS

• For ongoing operations, which excludes Transitional Schools, new student enrollments increased 9.2% for the third quarter of 2014 compared to the prior year quarter. CTU, AIU and Culinary Arts each showed new student enrollment growth for the current quarter as compared to the prior year quarter. The new student enrollment growth of 14.5% for Culinary Arts is a result of timing of start dates in the prior year quarter as compared to the current year quarter. Excluding the impact of this shift in timing, new student enrollments would have declined 10.6% as compared to the prior year quarter for Culinary Arts.

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OPERATING (LOSS) INCOME

• Consolidated operating losses of $44.9 million for the third quarter of 2014 declined by $10.0 million compared to the third quarter of 2013.
• For ongoing operations, which excludes Transitional Schools, operating losses improved by $11.3 million or 25.2% as compared to the prior year quarter, driven by reduced operating expenses and income recognized for a net insurance recovery of $8.6 million in the current year quarter as compared to the prior year quarter.
• Within Career Colleges, increased asset impairment charges recorded during the third quarter of 2014 as compared to the prior year quarter drove the operating margin decline. Within Culinary Arts, favorability for the current quarter as compared to the prior year quarter was driven by higher asset impairment charges recorded during the prior year quarter.

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 ongoing operations and is viewed as an important metric to how management views the business. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

• Adjusted EBITDA for ongoing operations, which excludes Transitional Schools, improved $1.1 million or 6.8% for the third quarter of 2014 as compared to the same quarter last year as revenue declines of $9.0 million were more than offset by reduced operating expenses.
• Adjusted EBITDA for Transitional Schools and Discontinued Operations was negative $15.4 million, an improvement of $8.8 million as compared to the third quarter of 2013 and a $3.3 million sequential improvement compared to the second quarter of 2014. This favorability is a result of the completion of teach-out campus operations and continued focus on exiting lease obligations once a teach-out is complete.

LOSS PER SHARE

• Net loss per diluted share of -$0.71 and -$1.30 were reported for the third quarters of 2014 and 2013, respectively.

BALANCE SHEET AND CASH FLOW

• Net cash used in operating activities increased to $101.1 million for the year to date ended September 30, 2014 compared to $77.8 million for the year to date ended September 30, 2013. This increase is driven primarily by the operating loss for the current year to date, legal settlement payments of approximately $21.6 million paid during the second quarter of 2014, as well as $6.3 million of cash payments during the current year to date related to early lease terminations.
• Net cash used in operating activities increased to $19.9 million for the current year quarter compared to $10.9 million in the prior year quarter primarily attributed to the prior year comparison including the seasonal impact of our International cash flow of approximately $27 million. The third quarter typically contained a seasonal peak in cash collections for that business that is not reflected in current year numbers as this business was sold in the fourth quarter of last year.

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CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, November 6, 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 38261000. 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 38261000.

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 and 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 “expect,” “anticipate,” “believe,” “intend,” “will,” “continue to” 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. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions, and we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. 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. 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 or any state 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; changes in the real estate leasing market and the success of our efforts to lower our ongoing lease obligations; 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.