Exhibit 99.1
FOR: Education Management Corporation
COMPANY CONTACTS:
James Sober, CFA
Vice President, Finance
(412) 995-7684
EDUCATION MANAGEMENT CORPORATION REPORTS FISCAL 2006 THIRD QUARTER EPS OF $0.52
Pittsburgh, PA, May 2, 2006 -- Education Management Corporation (NASDAQ:EDMC)
today reported its financial results for the third quarter ended March 31, 2006.
For the quarter, net revenues increased 13.8% to $312.5 million and net income
grew 17.9% to $40.4 million, or $0.52 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 third quarter of fiscal 2005, net income for the third quarter
of fiscal 2006 would have increased 32.8% over the prior year period.
John R. McKernan, Jr., EDMC's Vice Chairman and Chief Executive Officer,
commented, "We are pleased with our strong third quarter results. Due to the
strength of our wide-range of program offerings and an improving marketing and
admissions effort, we were able to exceed our enrollment expectations."
The Company previously announced the execution of a definitive agreement to be
acquired by Providence Equity Partners and Goldman Sachs Capital Partners in a
transaction valued at approximately $3.4 billion. Under the terms of the merger
agreement, the private investors will acquire all of EDMC's outstanding shares
of common stock for $43.00 per share in cash. The Company will hold a special
meeting of its shareholders at 10:00 a.m. Eastern time on Thursday, May 25,
2006, to vote on the proposed acquisition.
FINANCIAL HIGHLIGHTS
o Revenues for the three months ended March 31, 2006 increased 13.8% to
$312.5 million, compared to $274.6 million for the same period a year
ago. Revenue growth in the third quarter of fiscal 2006 resulted from
an 8.8% increase in total student enrollment and an approximate 5%
increase in tuition rates. Total enrollment at the start of the Winter
quarter was 71,911 students compared to 66,103 students for the same
period last year.
o Third quarter income before interest and taxes (operating income) rose
16.5% to $64.6 million from $55.5 million for the same period a year
ago. The consolidated operating margin improved 48 basis points to
20.7% due in part to lower salaries and bad debt expense as a percent
of revenue. Additionally, audit expenses were lower compared to last
year as a result of efficiencies realized in the second year operating
under Sarbanes-Oxley Section 404 requirements. These improvements were
partially offset by additional investment in advertising and
non-recurring transaction costs of approximately $3.6 million related
to the proposed purchase of the Company by a private equity group.
Operating income results for the prior year third quarter reflected a
charge of $3.8 million for a cumulative lease accounting adjustment.
o On a proforma basis after giving effect to stock compensation expense
under SFAS 123(R) for the quarter ended March 31, 2005, income before
interest and taxes (operating income) increased 23.3% to $68.4 million
from $55.5 million, resulting in consolidated operating margin
improvement of approximately 168 basis points to 21.9% from 20.2%.
o Bad debt expense was 1.9% of revenue as compared to 2.6% of revenue in
the prior year period due to improved collections of accounts
receivable, primarily due to alternative loan funding.
o The Company's effective tax rate was 39.6% for the third quarter of
fiscal 2006, as compared to 38.6% recorded in the comparable quarter
of the prior year. The effective tax rate for the quarter was higher
primarily due to a favorable return to provision adjustment for fiscal
2004 that was recorded during the third quarter of fiscal 2005 as well
as non-deductible transaction costs associated with the pending
acquisition of the Company by a private equity group. The rate
increase related to these items was offset in part by the reversal of
valuation allowances against Canadian deferred tax assets related to
net operating loss carry-forwards that resulted from conforming the
inter-company transfer pricing arrangement between the Company's U.S.
and Canadian operations to the business operations in Canada.
o Net income for the quarter grew 17.9% to $40.4 million, or $0.52 per
diluted share, compared to $34.2 million, or $0.45 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
March 31, 2005, net income would have been $30.4 million, or $0.40 per
diluted share and would have increased 32.8% in the third quarter of
fiscal 2006 (see table below labeled "Reconciliation of Non-GAAP
Financial Measures").
o Expenses related to the proposed transaction reduced reported earnings
per share by $0.04 and $0.05, respectively, for the quarter and nine
months ended March 31, 2006.
o At March 31, 2006, the Company had cash and cash equivalents of $394.0
million as compared to $177.1 million at March 31, 2005 due to higher
cash flow from operations, improved collections and lower capital
expenditures.
o Cash flow from operations for the three-month period ended March 31,
2006 was $189.0 million compared to $176.0 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.
o Capital expenditures were $48.9 million, or 5.6% of revenue for the
first nine months of fiscal 2006, compared to $53.5 million, or 7.0%
of revenue, last year.
STUDENT ENROLLMENT
At the start of the current Spring quarter (fourth quarter of fiscal 2006),
total enrollment at EDMC's schools was 69,775 students, an 8.7% increase from
the same time last year. Same-school enrollment (schools owned for one year or
more) increased 8.3% to 69,521 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 22
students at these two schools during the current Spring quarter compared to 383
in the prior year period. At the start of the current Spring quarter, excluding
students at Brown Mackie Colleges in Dallas and Fort Worth, total enrollment and
same-school enrollment at EDMC's schools increased 9.3% and 8.9%, respectively.
Students taking 100% of their coursework online increased 55.6% to 4,796
students.
2006 2005 %
SPRING SPRING CHANGE
-------- -------- --------
Total enrollment 69,775 64,179 8.7%
Same-school enrollment (owned for 1 year or more) 69,521 64,179 8.3%
Students taking 100% of their coursework online 4,796 3,082 55.6%
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 third 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 $1.8 million of share-based payment expense
in the quarter ended March 31, 2006. In addition, an incremental $2.2 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 March 31, 2006.
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
For the fourth quarter of fiscal 2006, the Company projects revenue growth of
approximately 13%. Further, the Company anticipates fourth quarter diluted
earnings per share of $0.20, which reflects an estimated impact of $0.04 per
share due to expenses associated with the proposed acquisition by Providence and
Goldman and $0.03 per share due to equity compensation expense under SFAS
123(R). For the full fiscal year ending June 30, 2006, the Company anticipates
an effective tax rate of 39.6% and capital spending of approximately 7.0% of
revenue.
The Company's earnings per share guidance for the fourth quarter does not
include the material impact of SFAS 123(R) expense from the vesting of
restricted stock and stock options that would occur and be recorded in the
fourth quarter if the Company's shareholders approve the transaction at the
special shareholder meeting to be held on May 25, 2006. Also, the estimate does
not include the substantial additional transaction fees that would be borne by
the Company subject to and upon consummation of the transaction. The Company
anticipates that the transaction will close in June or July of 2006, subject to
the approval of the transaction by the Company's shareholders, the receipt of
approvals from certain state authorizing agencies and accrediting agencies and
the satisfaction of certain other conditions.
CONFERENCE CALL WITH MANAGEMENT
Education Management will host a conference call to discuss its fiscal 2006
third quarter results on Tuesday, May 2, 2006 at 10:30 a.m. (Eastern Time).
Those wishing to participate to this call should dial 303-262-2055 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 71 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 NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net revenues $ 312,533 $ 274,599 $ 878,129 $ 764,001
Costs and expenses:
Educational services 178,382 166,605 520,879 474,842
General and administrative 68,686 50,880 190,661 149,041
Amortization of intangible assets 841 1,647 3,458 5,070
----------- ----------- ----------- -----------
247,909 219,132 714,998 628,953
----------- ----------- ----------- -----------
Income before interest and taxes 64,624 55,467 163,131 135,048
Interest (income) expense, net (2,176) (276) (4,324) 707
----------- ----------- ----------- -----------
Income before income taxes 66,800 55,743 167,455 134,341
Provision for income taxes 26,442 21,517 65,516 52,382
----------- ----------- ----------- -----------
Net income $ 40,358 $ 34,226 $ 101,939 $ 81,959
=========== =========== =========== ===========
Diluted earnings per share $ 0.52 $ 0.45 $ 1.33 $ 1.09
=========== =========== =========== ===========
Weighted average number of diluted shares
outstanding (000's): 77,123 75,718 76,762 75,237
SELECTED CASH FLOW DATA (Unaudited):
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------------- --------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net cash flows provided by (used in) operations $ 189,010 $ 176,031 $ 321,715 $ 256,576
Depreciation and amortization 16,231 16,173 50,532 50,474
Capital expenditures (14,290) (12,935) (48,890) (53,510)
SELECTED CONSOLIDATED BALANCE SHEET DATA (Unaudited):
AS OF MARCH 31,
-----------------------
2006 2005
---------- ----------
Cash and cash equivalents $ 394,017 $ 177,094
Receivables, net 41,558 54,533
Current assets 480,397 269,102
Total assets 1,159,164 945,363
Current liabilities 293,145 259,543
Long-term debt (including current portion) 5,084 5,412
Shareholders' investment 808,003 627,485
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 period ended
March 31, 2005, in the table below.
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------- -------------------------
2006(a) 2005 2006(a) 2005
----------- ---------- ----------- -----------
GAAP Net Income $ 40,358 $ 34,226 $ 101,939 $ 81,959
Add: Share-based employee compensation expense
included in reported net income, net of tax, for
the periods ended December 31, 2004 - 157 - 475
Deduct: Total share-based employee compensation
expense determined under SFAS 123(R), net of
tax, for the periods ended December 31, 2004 - (3,994) - (12,998)
----------- ----------- ----------- -----------
Net income, including the impact of share-based
compensation expenses $ 40,358 $ 30,389 $ 101,939 $ 69,436
=========== =========== =========== ===========
Earnings per share:
Basic-- as reported $ 0.53 $ 0.46 $ 1.35 $ 1.11
Basic-- including the impact of share-based
compensation expense n/a $ 0.41 n/a $ 0.94
Diluted-- as reported $ 0.52 $ 0.45 $ 1.33 $ 1.09
Diluted-- including the impact of share-based
compensation expense n/a $ 0.40 n/a $ 0.92
(a) Results for the three and nine month periods ended March 31, 2006include an
additional $4.0 and $17.3 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 nine months ended March 31, 2006
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 nine month periods ended March 31, 2005,
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.