Education Management LLC Reports Fiscal 2007
Fourth Quarter and Full Year Results
PITTSBURGH, Aug. 22 /PRNewswire/ -- Education Management LLC, one of the
largest providers of post-secondary education in North America, today reported
its financial results for the three months and twelve months ended June 30,
2007. For the fourth quarter of fiscal 2007, net revenues rose 19.1% to $347.7
million from the fourth quarter of fiscal 2006. For the twelve months ended June
30, 2007, net revenues rose 16.5% to $1,363.7 million from fiscal 2006 net
revenues with net income of $32.2 million.
Todd S. Nelson, President and Chief Executive Officer of Education
Management, commented, "During our recent July start, we had double digit
enrollment growth over last July for our campus-based schools and 125% growth
online. Our results are a direct result of strong performance of our dedicated
faculty and staff across our schools, and the investments we have made in our
business over the last year which are now contributing to student and revenue
growth."
On June 1, 2006, a consortium of private investors acquired Education
Management Corporation in a transaction valued at approximately $3.4 billion
(the "Transaction"). Education Management Corporation (the "Predecessor")
contributed substantially all of its assets and liabilities to Education
Management LLC (the "Successor") in connection with the closing of the
Transaction. In this press release, the results for the fourth quarter of fiscal
2006 are the combined results of the Predecessor for the two month period ended
June 1, 2006 and the Successor for the one month period ended June 30, 2006,
while the fiscal 2006 results are the combined eleven and one month periods
ended June 1, 2006 and June 30, 2006, respectively.
Financial Highlights
-- Net revenues for the three months ended June 30, 2007 increased 19.1% to
$347.7 million, compared to $292.0 million for the same period a year
ago. For the twelve months ended June 30, 2007, net revenues rose 16.5%
to a record $1,363.7 million, compared to $1,170.2 million for the
comparable twelve-month period last year. This increase resulted from a
12.7% increase in average total student enrollment and an approximate 5%
increase in tuition rates during the twelve months ended June 30, 2007.
-- For the fourth quarter of fiscal 2007, net loss improved from $21.2
million in the prior year period to a net loss of $1.0 million due
primarily to costs incurred related to the Transaction in the prior year
period. Earnings before interest, taxes, depreciation and amortization
(EBITDA) increased to $64.4 million from $7.3 million for the same period
a year ago. This increase was the result of improved performance and the
year over year reduction in expenditures associated with equity
compensation, transaction costs and advisory fees of $49.1 million.
-- For fiscal 2007, net income was $32.2 million as compared to $80.7
million in fiscal 2006. The decrease from fiscal 2006 was primarily
associated with increased interest expense associated with indebtedness
incurred in connection with the Transaction. Fiscal 2007 EBITDA increased
to $318.9 million from $221.0 million for the same period a year ago.
This increase was the result of improved performance and the year over
year reduction in expenditures associated with equity compensation,
transaction costs and advisory fees of $68.5 million.
-- At June 30, 2007, cash and cash equivalents were $250.7 million compared
to $263.3 million at June 30, 2006. There were outstanding borrowings of
$90.0 million on the revolving credit facility at June 30, 2007 compared
with borrowings of $160.0 million at June 30, 2006.
-- Cash flow from operations for the twelve month period ended June 30, 2007
was $179.4 million compared to $279.3 million in the prior year period.
The lower amount in the current fiscal year is primarily the result of
higher interest expense related to the indebtedness incurred in
connection with the Transaction.
-- Cash paid for capital expenditures was $96.1 million, or 7.0% of net
revenues, for the twelve months ended June 30, 2007 compared to $65.6
million, or 5.6% of net revenues, for the same period in fiscal 2006. We
expect capital expenditures during fiscal 2008 to be approximately 8 to
9% of net revenues.
-- In June 2007, we completed the acquisition of two schools in Tucson, AZ
-- Chaparral College and Tucson Design College -- totaling approximately
400 students combined. These schools will be included within our existing
Brown Mackie College and Art Institutes education systems.
The presentation of EBITDA and Adjusted EBITDA does not comply with U.S.
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 July quarter (first quarter of fiscal 2008),
total enrollment at our schools was approximately 78,700 students, a 19.6%
increase from the same time last year. Same-school enrollment (schools owned for
one year or more) increased 18.4% to approximately 77,900 students. Students
enrolled in fully online programs increased 125.8% to approximately 10,400
students.
2007 2006 Percentage
July July Change
------ ------ ----------
Total enrollment 78,700 65,800 19.6%
Same-school enrollment
(owned for 1 year or more) 77,900 65,800 18.4%
Students enrolled in fully
online programs 10,400 4,600 125.8%
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
at our schools enrolling in online programs. The first quarter is typically the
lowest revenue recognition quarter due to student vacations.
Conference Call and Webcast
Education Management will host a conference call to discuss its fiscal 2007
fourth quarter and year end results on Thursday, August 23, 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 78
primary locations in 25 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.
COMPANY CONTACTS:
James Sober, CFA
Vice President, Finance
(412) 995-7684
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - FISCAL FOURTH QUARTER
(Dollars in millions) (Unaudited)
Successor Combined Successor Predecessor
For Period Period Period
the from from from
three April 1, June 1, April 1,
months 2006 2006 2006
ended, through through through
June 30, June 30, June 30, May 31,
2007 2006 2006 2006
------- ------- ------ -------
Net revenues $ 347.7 $ 292.0 $ 74.4 $ 217.6
Costs and expenses:
Educational services 212.6 193.6 64.7 128.9
General and
administrative 89.2 108.6 26.0 82.6
Amortization of
intangible assets 4.4 2.2 1.7 0.5
Total cost and
expenses 306.2 304.4 92.4 212.0
Income (loss) before
interest and income
taxes 41.5 (12.4) (18.0) 5.6
Interest (income)
expense, net 40.4 13.1 14.1 (1.0)
Income (loss) before
income taxes 1.1 (25.5) (32.1) 6.6
Provision (benefit) for
income taxes 2.1 (4.3) (12.4) 8.1
Net loss $ (1.0) $ (21.2) $ (19.7) $ (1.5)
Note: certain prior year amounts have been reclassified to conform to the
current year's presentation
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - FISCAL YEAR
(Dollars in millions) (Unaudited)
Successor Combined Successor Predecessor
For Period Period Period
the from from from
twelve July 1, June 1, July 1,
months 2005 2006 2005
ended, through through through
June 30, June 30, June 30, May 31,
2007 2006 2006 2006
--------- --------- ------ ---------
Net revenues $ 1,363.7 $ 1,170.2 $ 74.4 $ 1,095.8
Costs and expenses:
Educational services 801.6 714.5 64.7 649.8
General and
administrative 314.4 299.3 26.0 273.3
Amortization of
intangible assets 19.3 5.7 1.7 4.0
Total cost and
expenses 1,135.3 1,019.5 92.4 927.1
Income (loss) before
interest and income
taxes 228.4 150.7 (18.0) 168.7
Interest (income)
expense, net 169.1 8.8 14.1 (5.3)
Income (loss) before
income taxes 59.3 141.9 (32.1) 174.0
Provision (benefit)
for income taxes 27.1 61.2 (12.4) 73.6
Net income (loss) $ 32.2 $ 80.7 $ (19.7) $ 100.4
Note: certain prior year amounts have been reclassified to conform to the
current year's presentation
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
SELECTED CASH FLOW DATA - FISCAL YEAR
(Dollars in millions) (Unaudited)
Successor Combined Successor Predecessor
For Period Period Period
the from from from
twelve July 1, June 1, July 1,
months 2005 2006 2005
ended, through through through
June 30, June 30, June 30, May 31,
2007 2006 2006 2006
------- ------- ------- -------
Net cash flows
provided by (used in)
operations $ 179.4 $ 279.3 $ (22.4) $ 301.7
Depreciation and
amortization 90.5 70.3 7.4 62.9
Capital
expenditures (a) (96.1) (65.6) (7.7) (57.9)
(a) Represents cash paid for property and equipment, leasehold improvements
and online curriculum development
EDUCATION MANAGEMENT LLC AND SUBSIDIARIES
SELECTED BALANCE SHEET DATA - FISCAL YEAR
(Dollars in millions) (Unaudited)
As of June 30,
2007 2006
------- -------
Cash and cash equivalents $ 250.7 $ 263.3
Current assets 388.4 403.2
Total assets 3,949.0 3,945.4
Revolver 90.0 160.0
Current liabilities 408.8 437.3
Long-term debt (including current portion) 1,939.9 1,950.0
Shareholders' equity 1,311.1 1,282.8
EDUCATION MANAGEMENT LLC 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 (income), taxes, depreciation
and amortization. Management compensates for the limitations of 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 results of Education Management LLC
(Successor) that reflect purchase accounting and the new capital structure.
FISCAL FOURTH QUARTER
Successor Combined Successor Predecessor
For Period Period Period
the from from from
three April 1, June 1, April 1,
months 2006 2006 2006
ended, through through through
June 30, June 30, June 30, May 31,
2007 2006 2006 2006
------ ------- ------- ------
Net loss $ (1.0) $ (21.2) $ (19.7) $ (1.5)
Interest (income)
expense, net 40.4 13.1 14.1 (1.0)
Provision (benefit)
for income taxes 2.1 (4.3) (12.4) 8.1
Depreciation and
amortization (a) 22.9 19.7 7.4 12.3
EBITDA $ 64.4 $ 7.3 $ (10.6) $ 17.9
(a) includes non-cash charges related to fixed asset impairments and
write-offs
FISCAL YEAR
Successor Combined Successor Predecessor
For Period Period Period
the from from from
twelve July 1, June 1, July 1,
months 2005 2006 2005
ended, through through through
June 30, June 30, June 30, May 31,
2007 2006 2006 2006
------ ------ ------- -------
Net income (loss) $ 32.2 $ 80.7 $ (19.7) $ 100.4
Interest (income)
expense, net 169.1 8.8 14.1 (5.3)
Provision (benefit)
for income taxes 27.1 61.2 (12.4) 73.6
Depreciation and
amortization (a) 90.5 70.3 7.4 62.9
EBITDA $ 318.9 $ 221.0 $ (10.6) $ 231.6
(a) includes non-cash charges related to fixed asset impairments and
write-offs
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
financial covenants.
For the twelve
months ended
June 30,
2007
------
Net income $ 32.2
Interest expense, net 169.1
Provision for income taxes 27.1
Depreciation and amortization (1) 90.5
EBITDA 318.9
Reversal of impact of unfavorable leases (2) (1.7)
Transaction and advisory expense (3) 5.4
Severance and relocation (4) 3.9
Adjusted EBITDA - Covenant Compliance (5) $ 326.5
(1) Includes non-cash charges related to fixed asset impairments and
write-offs.
(2) Represents non-cash reduction of lease costs due to the amortization of
$7.3 million of unfavorable lease liabilities resulting from fair value
adjustments required under purchase accounting as part of the
Transaction.
(3) Represents legal and professional services costs as a result of the
Transaction. Also includes $5.0 million of advisory fees incurred under
a management advisory agreement with certain of our investors.
(4) Represents severance and relocation expenses incurred during the twelve
months ended June 30, 2007.
(5) As defined in the Credit and Guaranty Agreement, dated June 1, 2006; the
Indenture, dated June 1, 2006 governing the 8 3/4% Senior Notes due
2014; and the Indenture, dated June 1, 2006 governing the 10 1/4% Senior
Subordinated Notes due 2016.