Exhibit 99.1
EDUCATION MANAGEMENT CORPORATION REPORTS FISCAL 2006 SECOND QUARTER EPS OF
$0.62
-- INCREASES FISCAL 2006 EPS GUIDANCE BY $0.08 --
PITTSBURGH, Feb. 8 /PRNewswire-FirstCall/ -- Education Management
Corporation (Nasdaq: EDMC) today reported its financial results for the second
quarter ended December 31, 2005. For the quarter, net revenues increased 13.3%
to $312.6 million and net income grew 20.3% to $47.6 million, or $0.62 per
diluted share. Effective July 1, 2005, the Company adopted the fair value
recognition provisions of FASB Statement No. 123(R) ("SFAS 123(R)"),
"Share-Based Payment," using the modified-prospective transition method, under
which no restatement of prior periods is made for the fair value recognition of
compensation cost. The adoption of this standard has a significant impact on the
comparability of the results of operations for the Company. If the Company had
adopted SFAS 123(R) using the retrospective method and restated the second
quarter of fiscal 2005, net income for the second quarter of fiscal 2006 would
have increased 36.3% over the prior year period.
John R. McKernan, Jr., EDMC's Vice Chairman and Chief Executive Officer,
commented, "Through good management of our expenses and the dedication of our
employees, the Company had a strong second quarter. As a result, we are raising
our full year earnings per share guidance to $1.54 while continuing to invest in
our future as evidenced by moving our online operations into a new 40,000 square
foot facility in Pittsburgh, the hiring of additional admissions
representatives, and the opening of two new Art Institutes in Indianapolis, IN
and San Bernardino (Inland Empire), CA."
Financial Highlights
- Revenues for the three months ended December 31, 2005 increased 13.3% to
$312.6 million, compared to $275.8 million for the same period a year
ago. Revenue growth in the second quarter of fiscal 2006 resulted from a
9.5% increase in total student enrollment and an approximate 5% increase
in tuition rates. Total enrollment at the start of the Fall quarter was
72,471 students compared to 66,179 students for the same period last
year.
- Second quarter income before interest and taxes (operating income) rose
19.6% to $77.9 million from $65.1 million for the same period a year ago.
The consolidated operating margin improved 130 basis points to 24.9%. The
improvement in consolidated operating margin was due in part to lower bad
debt, salaries and rent expense as a percentage of revenue that was
partially offset by higher advertising expense. On a proforma basis after
giving effect to stock compensation expense under SFAS 123(R) for the
quarter ended December 31, 2004, income before interest and taxes
(operating income) increased 34.9% to $77.9 million from $57.7 million,
resulting in consolidated operating margin improvement of approximately
400 basis points to 24.9% from 20.9%.
- The Company's effective tax rate was 39.9% for the second quarter of
fiscal 2006, as compared to 39.0% recorded in the comparable quarter of
the prior year. The effective tax rate was higher primarily due to a
reduction in tax reserves recorded in the 2005 second quarter related to
a favorable resolution of a tax audit.
- Net income for the quarter grew 20.3% to $47.6 million, or $0.62 per
diluted share, compared to $39.6 million, or $0.53 per diluted share, in
the year ago period. On a proforma basis after giving effect to stock
compensation expense under SFAS 123(R) for the quarter ended December 31,
2004, net income would have been $34.9 million, or $0.47 per diluted
share and would have increased 31.9% in the second quarter of fiscal 2006
(see table below labeled "Reconciliation of Non-GAAP Financial
Measures").
- At December 31, 2005, the Company had cash and cash equivalents of $213.4
million as compared to $29.2 million at December 31, 2004. Cash flow from
operations for the six-month period ended December 31, 2005 was $132.7
million compared to $80.5 million last fiscal year. Higher cash flow
compared to the same period in the prior year was primarily due to the
growth in net income and positive working capital changes.
- Capital expenditures were $34.6 million, or 6.1% of revenue for the first
half of fiscal 2006, compared to $40.6 million, or 8.3% of revenue, last
year.
Student Enrollment
At the start of the current winter quarter (third quarter of fiscal 2006),
total enrollment at EDMC's schools was 71,911 students, an 8.8% increase from
the same time last year. Same-school enrollment (schools owned for one year or
more) increased 8.5% to 71,753 students. Campus-based enrollment includes
students at Brown Mackie Colleges in Dallas and Fort Worth, Texas that
discontinued accepting new enrollments in August 2005. There were a total of 80
students at these two schools during the current winter quarter compared to 423
in the prior year period. At the start of the current winter quarter, excluding
students at Brown Mackie Colleges in Dallas and Fort Worth, total enrollment and
same-school enrollment at EDMC's schools increased 9.4% and 9.1%, respectively.
Students taking 100% of their coursework online increased 60.9% to 4,447
students.
2006 2005 %
Winter Winter Change
-------- -------- --------
Total enrollment 71,911 66,103 8.8%
Same-school enrollment
(owned for 1 year or more) 71,753 66,103 8.5%
Students taking 100% of their
coursework online 4,447 2,763 60.9%
The Company's quarterly revenues and income fluctuate primarily as a result
of the pattern of student enrollments. Student enrollment at the Art Institute
schools has typically peaked in the fall (fiscal year second quarter), when the
largest number of recent high school and college graduates traditionally begin
post-secondary education programs. The first quarter is typically the lowest
revenue recognition quarter due to student vacations. The seasonality of the
Company's business has decreased over the last several years due to an increased
percentage of students at the Company's schools enrolling in bachelor's and
graduate degree programs.
Share-based Payment
Effective July 1, 2005, the Company adopted the fair value recognition
provisions of SFAS 123(R), "Share-Based Payment," using the modified-
prospective transition method. Under that transition method, compensation cost
recognized during the second quarter of fiscal 2006 includes (a) compensation
cost for all share-based payments granted prior to, but not fully vested as of
July 1, 2005, based on the grant date fair value estimated in accordance with
the original provisions of FASB Statement No. 123, and (b) compensation cost for
all share-based payments granted subsequent to July 1, 2005, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). The adoption of SFAS 123(R) resulted in $5.1 million of share-based
payment expense in the quarter ended December 31, 2005. In addition, an
incremental $1.7 million of restricted stock expense, which is generally
accounted for similarly under APB No. 25 and SFAS 123(R), was also recognized in
the quarter ended December 31, 2005.
Because the Company adopted SFAS 123(R) using the modified prospective
method, results for periods prior to June 30, 2005 have not been restated which
affects the comparability of results.
Business Outlook
The Company estimates that enrollment growth will be in the high single
digits for the Spring term (fourth quarter of fiscal 2006) but somewhat lower
than the Winter term. For the third quarter and 2006 fiscal year, the Company
projects revenue growth in the range of 12-13% and 13-14%, respectively.
Reflecting the impact of SFAS 123(R), the Company estimates diluted EPS of $0.48
and $1.54 for the third quarter and fiscal year, respectively. For the full
fiscal year ending June 30, 2006, the Company anticipates an effective tax rate
of 39.4% and capital spending of approximately 7.5 to 8.0% of revenue.
Conference Call with Management
Education Management will host a conference call to discuss its fiscal 2006
second quarter results on Thursday, February 9, 2006 at 10:30 a.m. (Eastern
Time). Those wishing to participate in this call should dial 303-262-2054
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
www.edmc.com.
Education Management Corporation (www.edmc.com) is among the largest
providers of private post-secondary education in North America, based on student
enrollment and revenue. EDMC has 72 primary campus locations in 24 states and
two Canadian provinces. EDMC's education 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. EDMC has provided career-oriented education for over
40 years.
Statements in this press release that relate to future results and events,
including statements about EDMC's anticipated financial and operating
performance, are forward-looking statements within the meaning of the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks, uncertainties and assumptions, which change
over time. Forward-looking statements speak only as of the date they are made
and EDMC does not undertake any obligation to update these forward- looking
statements. Actual results could differ materially from those anticipated in the
forward-looking statements, and future results could differ materially from
EDMC's historical performance. Factors that could cause or contribute to such
differences include: general economic, political and industry conditions; the
Company's effectiveness in its regulatory compliance efforts; the effects of
extensive and changing regulations on the Company's business; changing market
needs and technology; the Company's ability to add and integrate new schools and
grow its online programs; increased competition; the Company's ability to
recruit and retain key personnel; and other matters disclosed in the Company's
Securities and Exchange Commission filings, including the Company's Annual
Report on Form 10-K.
--Tables to Follow--
EDUCATION MANAGEMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(unaudited)
For the three months For the six months
ended December 31, ended December 31,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net revenues $ 312,611 $ 275,808 $ 565,596 $ 489,402
Costs and expenses:
Educational services 171,096 157,412 342,497 308,237
General and administrative 62,533 51,629 121,975 98,161
Amortization of intangible assets 1,130 1,657 2,617 3,423
234,759 210,698 467,089 409,821
Income before interest and taxes 77,852 65,110 98,507 79,581
Interest (income) expense, net (1,444) 260 (2,148) 983
Income before income taxes 79,296 64,850 100,655 78,598
Provision for income taxes 31,667 25,270 39,074 30,865
Net income $ 47,629 $ 39,580 $ 61,581 $ 47,733
Diluted earnings per share $ 0.62 $ 0.53 $ 0.80 $ 0.64
Weighted average number of diluted
shares outstanding (000's): 76,673 75,315 76,586 75,127
Selected Cash Flow Data (Unaudited):
For the three months For the six months
ended December 31, ended December 31,
--------------------------- ---------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net cash flows provided by
(used in) operations $ (38,461) $ (42,155) $ 132,705 $ 80,545
Depreciation and amortization 17,412 14,256 34,301 28,751
Capital expenditures (19,018) (22,438) (34,600) (40,575)
Selected Consolidated Balance Sheet Data (Unaudited):
As of December 31,
---------------------------
2005 2004
------------ ------------
Cash and cash equivalents $ 213,449 $ 29,222
Receivables, net 43,660 47,883
Current assets 296,863 116,731
Total assets 976,454 756,184
Current liabilities 163,606 147,463
Long-term debt (including current portion) 8,739 5,585
Shareholders' investment 754,573 588,585
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Dollars in thousands, except per share amounts)
EDMC makes use of certain non-GAAP financial measures in evaluating the
Company's results to enhance comparability between previously reported
periods. The non-GAAP measure, "net income, including the impact of stock
compensation expense", is reconciled with GAAP net income for the three
month and six month periods ended December 31, 2004, in the table below.
For the three months For the six months
ended December 31, ended December 31,
--------------------------- ---------------------------
2005 (a) 2004 2005 (a) 2004
------------ ------------ ------------ ------------
GAAP Net Income $ 47,629 $ 39,580 $ 61,581 $ 47,733
Add: Share-based employee
compensation expense included
in reported net income, net of
tax, for the periods ended
December 31, 2004 - 166 - 318
Deduct: Total share-based employee
compensation expense determined under
SFAS 123(R), net of tax, for the
periods ended December 31, 2004 - (4,801) - (9,004)
Net income, including the impact of
share-based compensation expenses $ 47,629 $ 34,945 $ 61,581 $ 39,047
Earnings per share:
Basic--as reported $ 0.63 $ 0.54 $ 0.82 $ 0.65
Basic--including the impact of
share-based compensation expense n/a $ 0.47 n/a $ 0.53
Diluted--as reported $ 0.62 $ 0.53 $ 0.80 $ 0.64
Diluted--including the impact of
share-based compensation expense n/a $ 0.47 n/a $ 0.52
(a) Results for the three and six month periods ended December 31, 2005
include an additional $6.8 and $12.8 million, pre-tax, respectively, of
share-based compensation expense due to the adoption of SFAS 123(R).
The Company adopted SFAS 123(R) on July 1, 2005 using the modified
prospective method, which resulted in the recognition of stock compensation
expense in the statement of income during the three and six months ended
December 31, 2005 without corresponding charges in the prior year periods. The
Company believes that presenting diluted earnings per share, including the
impact of stock compensation expense for the three and six month periods ended
December 31, 2004, is an additional measure of performance that investors can
use to compare operating results between reporting periods. Due to the increased
comparability, management of the Company uses this information in evaluating the
Company's results of operations and believes that this information may also
provide investors better insight in evaluating the Company's earnings
performance in comparison to the prior year periods.
COMPANY CONTACTS:
James Sober, CFA
Vice President, Finance
(412)995-7684
SOURCE Education Management Corporation
-0- 02/08/2006
/CONTACT: James Sober, CFA, Vice President, Finance of Education
Management Corporation, +1-412-995-7684/
/Web site: http://www.edmc.com/
(EDMC)