SANTA ANA, Calif., Feb. 1, 2011 /PRNewswire/ -- Corinthian Colleges,
Inc. (Nasdaq: COCO) reported financial results today for the second
quarter ended December 31, 2010.
The results for the second quarter met or exceeded guidance
for revenue and earnings per share and fell slightly below guidance
for new student enrollment. (Previous guidance excluded all
one-time charges. The company took a $206.0 million impairment, facility closing and
severance charge in the second quarter, detailed under the
Financial Review section of this release.)
"During the second quarter we completed an executive leadership
transition and sharpened our focus on student outcomes, employee
development, and financial performance," said Jack Massimino, Corinthian chairman and chief
executive officer. "In the area of outcomes, we continue to
review our programs to ensure that students are well-served in
terms of completion, placement and value proposition. In
keeping with past practice, we plan to either fix or eliminate
programs that do not meet our standards."
"As expected, the rate of new student enrollment growth declined
in the second quarter," Massimino said. "This decline is
primarily the result of our decision to stop enrolling
ability-to-benefit (ATB) students as of September 1, 2010. Negative industry
publicity and uncertainties in the regulatory environment also
played a role in the decline, as did a systems conversion in the
Online Learning Division, which temporarily slowed that unit's
growth.
"We expect the loss of new ATB students and industry conditions
to have a negative impact on student enrollment through at least
the balance of the current fiscal year," Massimino said. "In
addition, we expect the elimination of programs that are not
meeting student outcome standards to reduce enrollment in the near
term. However, inquiries from prospective students increased
in the second quarter compared with the same quarter last year.
Based on current demand, we expect to grow enrollment over
the long term."
"One of our main priorities is to align expenses with our
existing and projected student population," Massimino continued.
"Toward that end, in the third quarter we plan to reduce the
workforce by approximately four percent. The majority of
people impacted by these layoffs have already been notified.
Combined with other efficiencies, we expect the layoff to
result in annualized savings of $60
million."
"We continue to actively monitor proposed changes in federal
regulation and take steps to reduce our risk," Massimino said.
"For example, we have invested heavily in cohort default
management, and we are seeing a marked improvement in default
trends. Given the information currently available, we believe
that defaults under the Department of Education's two-year
measurement no longer pose a significant risk to the company."
Comparing the second quarter of fiscal 2011 with the same
quarter of the prior year (Note:
The following comparisons are on an "as reported"
basis):
- Net revenue was $482.8 million
versus $414.3 million, up 16.5%.
- Total student population at December 31,
2010 was 105,498 versus 93,152 at December 31, 2009, an increase of 13.3%. On
a pro forma basis, including the Heald student population at both
December 31, 2010 and December 31, 2009, the total student population
decreased 0.5%.
- Total new students were 26,831 versus 29,156, a decrease of
8.0%. On a pro forma basis, including Heald's new students in
both Q2 10 and Q2 11, new student growth declined 17.7%.
Excluding the impact of the loss of ATB students, pro forma
new student growth declined by 1.3%.
- After giving effect to an impairment, facility closing and
severance charge of $206.0 million
("charge"), the operating loss was $173.2
million, compared with operating income of $64.8 million. Excluding the charge,
operating income was $32.8
million.
- Net loss was $163.7 million,
including the charge, compared with net income of $39.4 million. Excluding the charge, net
income was $19.1 million.
- Diluted loss per share was ($1.94) versus diluted earnings per share of
$0.44. Excluding the charge,
diluted earnings per share were $0.23.
Financial Review
Impairment, facility closing and severance charge –
During the second quarter, we took a charge against earnings of
$206.0 million. Of the total,
$203.6 million was a non-cash charge
resulting from an impairment test which indicated that all
goodwill, with the exception of goodwill associated with the
Heald College acquisition, was
impaired. We believe the reduction in fair market value has
resulted from continuing uncertainty related to the potential
impact of new and pending regulations, particularly the proposed
“gainful employment” rule. These factors have had a sustained
negative impact on our stock price and thus on the fair value of
certain reporting units.
In addition to the impairment charge, we also recorded a charge
for severance payments in the amount of $2.4
million.
Educational services expenses were 60.0% of revenue in Q2
11 versus 53.6% in Q2 10, the result of higher compensation and bad
debt, and new campus facility costs.
Bad debt expense was 6.5% of revenue in Q2 11 versus 5.8%
in Q2 10. The increase was primarily due to a delay in the
timing of financial aid packaging related to the transition of our
third party processor to the federal direct loan program.
Marketing and admissions expenses were 22.0% of revenue
in Q2 11 versus 19.4% in Q2 10. The increase is primarily the
result of higher compensation costs, higher advertising costs, and
higher costs per new student enrollment.
General and administrative expenses were 11.2% of revenue
in Q2 11 versus 11.4% in Q2 10.
The operating margin (excluding the charge) was 6.8% in
Q2 11 versus 15.6% in Q2 10. The decrease is the result of
declining enrollment in the Everest ground schools, increased
compensation costs, and expenses associated with our new campuses.
Cash and cash equivalents totaled $40.9 million at December
31, 2010, compared with $209.4
million at June 30, 2010.
Long term debt and capital leases (including current
portion) totaled $232.2 million at
December 31, 2010, compared with
$314.3 million at June 30, 2010.
Cash flow from operations was $4.0
million in the six months ended December 31, 2010, versus $126.9 million in the six months ended
December 31, 2009. The decline
in cash flow is primarily related to the decline in our net income
and the timing of cash payments and receipts related to working
capital.
Capital expenditures were $65.8
million in the first six months of fiscal 2011, versus
$30.9 million in the first six months
of fiscal 2010. The increase is primarily the result of new
campuses.
Regulatory Update
Improvement in Cohort Default Rates – We are
seeing positive trends in the area of cohort default rates.
We previously expected up to three of our OPEIDs to exceed
the Department of Education's (ED) 25% default threshold for three
consecutive years under ED's two-year methodology, which could have
resulted in a loss of federal funding for those OPEIDs. Given
the trend data now available, we believe that none of our OPEIDs
will exceed the required thresholds under ED's two-year measurement
methodology. This improvement is driven by our progress with
the 2010 cohort, which is now expected to have no institutions over
the 25% threshold under the two-year method. We believe that
our progress with the 2010 cohort of students will substantially
reduce our risk as we transition to ED's new three-year CDR
measurement methodology beginning in fiscal 2012.
We believe that our positive CDR trends are the result of three
main factors: 1) our substantial investment in cohort default
management over the past 18 months; 2) stabilization in the wake of
structural changes in student lending and the transition to direct
lending; and 3) the increased participation of loan servicers in
default management.
Compliance with 90/10 Rule – The federal 90/10 Rule
("Rule") requires that no more than 90% of our revenue (on a cash
basis) be derived from Title IV sources. The Rule is applied
to individual OPEIDs ("institutions"), of which we have 49.
As a result of recent increases in Title IV funding limits,
the percentage of our revenue on a cash basis derived from Title IV
funds increased significantly in fiscal years 2009 and 2010.
The Higher Education Opportunity Act of 2008 (the "HEOA")
provided a temporary change in the method of calculating the Rule
which reduced the impact of Title IV funding increases and made it
easier to maintain compliance with the Rule. Using the temporary
90/10 calculation, the Company as a whole derived approximately
81.9% of its U.S. revenue from Title IV programs in fiscal 2010,
and none of our institutions exceeded the 90% threshold.
Without the temporary relief provided by this modified
calculation, approximately 89.8% of our net U.S. revenues would
have been derived from federal Title IV programs in fiscal 2010,
and 42 of our 49 institutions would have exceeded the 90%
threshold.
We expect all of our OPEIDs to be able to comply with the Rule
in the current fiscal year. When the first portion of 90/10
relief under the HEOA expires in fiscal 2012, we must substantially
increase tuition pricing to ensure that our institutions remain
below the 90% threshold. (An increase in tuition prices above
the applicable limits for Title IV loans and grants effectively
creates a funding gap that requires students to obtain other
sources of funding to pay for the remaining tuition balance.
This has the effect of reducing the overall percentage of
revenue from Title IV sources.)
To remain in compliance with the 90/10 Rule in fiscal 2012, we
plan to implement a tuition price increase in the third and fourth
quarters of fiscal 2011. Price increases will be calculated
individually for each OPEID and are expected to average 12%.
We do not believe that substantial price increases are in the
best interests of our students, and such increases may conflict
with the intent of ED's proposed "gainful employment" rule. If the
90/10 Rule is subsequently modified in a favorable manner through
legislation, we plan to reduce the price increases to reflect that
benefit on a prospective basis.
We are continuing to educate members of Congress and ED about
the negative consequences of the 90/10 Rule, and believe that the
most effective solution is a fundamental change in the Rule itself.
However, there is no assurance that Congress will act on the
Rule in a manner that is timely or favorable to our students or
institutions.
Guidance
The following guidance excludes one-time charges:
|
|
Time
Period
|
Revenue
|
Diluted
EPS
|
New Student
Growth
|
|
Q3
11
|
$462 - $472
million
|
$0.20 -
$0.22
|
(15%) –
(17%)
|
|
|
|
|
|
|
|
Conference Call Today
We will host a conference call today at 12:00 p.m. Eastern Time (9:00 a.m. PT), to discuss second quarter results.
The call will be open to all interested investors through a
live audio web cast at www.cci.edu (Investor Relations/Webcasts
& Presentations) and http://www.companyboardroom.com/
www.streetevents.com. The call will be archived on www.cci.edu
after the call. A telephonic playback of the conference call
will also be available through 5:00 p.m.
ET, Tuesday, February 8, 2011.
To hear the replay, dial (888) 286-8010 (domestic) or (617)
801-6888 (international) and enter pass code 56538849.
About Corinthian Colleges
Corinthian is one of the largest post-secondary education
companies in North America. Our
mission is to change students' lives. We offer diploma and degree
programs that prepare students for careers in demand or for
advancement in their chosen fields. Our program areas include
health care, business, criminal justice, transportation technology
and maintenance, construction trades and information technology. We
have 122 Everest, Heald and WyoTech campuses, and also offer
degrees online. For more information, go to
http://www.cci.edu/.
Certain statements in this press release may be deemed to be
forward-looking statements under the Private Securities Litigation
Reform Act of 1995. The company intends that all such
statements be subject to the “safe-harbor” provisions of that Act.
Such statements include, but are not limited to, those
regarding our beliefs and expectations regarding our decision to
downsize the organization to align with lower enrollment; our
ability to grow enrollments over the long term; our ability to
manage student outcomes; the potential impact of pending federal
regulation, particularly the proposed “gainful employment” rule;
our future cohort default rates; our ability to remain in
compliance with the federal 90/10 Rule; and the statements under
the heading “Guidance” above. Many factors may cause the
company's actual results to differ materially from those discussed
in any such forward-looking statements or elsewhere, including:
potential negative effects from our decision to discontinue
enrolling ATB students; the uncertain outcome of the Department of
Education’s rule making and recently promulgated rules andpending
inquiries by the Senate HELP committee, either or both of which
could result in changes in federal regulation and legislation as
well as changes in the manner in which we conduct our business; the
company’s effectiveness in its regulatory and accreditation
compliance efforts; the Company’s potential inability to manage the
default rates of its students on their federal student loans; the
outcome of ongoing reviews and inquiries by accrediting, state and
federal agencies; the outcome of pending litigation against the
company; risks associated with variability in the expense and
effectiveness of the company’s advertising and promotional efforts;
the uncertain future impact of the company’s new student
information system and the company’s new financial aid processing
system ; potential increased competition; bad debt expense or
reduced revenue associated with requesting students to pay more of
their educational expenses while in school; the potential inability
or failure of the company to employ underwriting guidelines that
will limit the risk of higher student loan defaults and higher bad
debt expense; changes in general macroeconomic and market
conditions (including credit and labor market conditions, the
unemployment rate and the rates of change of each such item); and
the other risks and uncertainties described in the company's
filings with the U.S. Securities and Exchange Commission. The
historical results achieved by the company are not necessarily
indicative of its future prospects. The company undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.-looking statements, whether as a result of new
information, future events or otherwise.
Corinthian
Colleges, Inc.
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
three months ended
|
|
|
For the six
months ended
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
2010
|
|
2009
|
|
|
2010
|
|
2009
|
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
482,794
|
|
$
414,308
|
|
|
$
984,538
|
|
$
802,779
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Educational services
|
|
289,640
|
|
221,874
|
|
|
575,407
|
|
436,887
|
|
|
General and
administrative
|
|
54,015
|
|
47,341
|
|
|
109,733
|
|
86,805
|
|
|
Marketing and
admissions
|
|
106,322
|
|
80,295
|
|
|
210,521
|
|
160,399
|
|
|
Impairment, facility closing,
and severance charges
|
|
205,989
|
|
-
|
|
|
205,989
|
|
-
|
|
Total operating
expenses
|
|
655,966
|
|
349,510
|
|
|
1,101,650
|
|
684,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss ) income from
operations
|
|
(173,172)
|
|
64,798
|
|
|
(117,112)
|
|
118,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (income)
|
|
(188)
|
|
(351)
|
|
|
(421)
|
|
(651)
|
|
Interest expense
|
|
2,018
|
|
832
|
|
|
4,163
|
|
1,336
|
|
Other (income)
expense
|
|
(1,229)
|
|
(1,351)
|
|
|
(1,807)
|
|
(2,510)
|
|
Pre-tax (loss) income from
operations
|
|
(173,773)
|
|
65,668
|
|
|
(119,047)
|
|
120,513
|
|
(Benefit) provision for income
taxes
|
|
(10,061)
|
|
26,267
|
|
|
11,556
|
|
48,198
|
|
Net (loss) income
|
|
$
(163,712)
|
|
$
39,401
|
|
|
$ (130,603)
|
|
$
72,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
(1.94)
|
|
$
0.45
|
|
|
$
(1.52)
|
|
$
0.83
|
|
|
Diluted
|
|
$
(1.94)
|
|
$
0.44
|
|
|
$
(1.52)
|
|
$
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
84,390
|
|
87,625
|
|
|
86,169
|
|
87,444
|
|
|
Diluted
|
|
84,390
|
|
88,624
|
|
|
86,169
|
|
88,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Consolidated Balance
Sheet Data
|
|
|
|
|
|
December
31,
|
|
June
30,
|
|
|
|
|
|
2010
|
|
2010
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
40,890
|
|
$
209,419
|
|
Receivables, net (including long
term notes receivable)
|
|
$
179,908
|
|
$
163,495
|
|
Current assets
|
|
$
270,671
|
|
$
437,722
|
|
Total assets
|
|
$
1,059,965
|
|
$ 1,389,420
|
|
Current liabilities
|
|
$
221,802
|
|
$
297,311
|
|
Long-term debt and capital
leases (including current portion)
|
|
$
232,155
|
|
$
314,259
|
|
Total liabilities
|
|
$
517,834
|
|
$
698,386
|
|
Total stockholders'
equity
|
|
$
542,131
|
|
$
691,034
|
|
|
|
|
|
|
|
|
Contacts:
|
|
|
|
|
Investors:
|
Media:
|
|
|
Anna Marie Dunlap
|
Kent Jenkins
|
|
|
SVP Investor
Relations
|
VP Public Affairs
Communications
|
|
|
714-424-2678
|
202-682-9494
|
|
|
|
|
SOURCE Corinthian Colleges, Inc.