Corinthian Colleges, Inc.
(Nasdaq:COCO) reported financial results today for the second
quarter ended December 31, 2013. The results for the quarter were
above the Company's previous guidance range for diluted earnings
per share, and fell below guidance for new student enrollment and
revenue. (Guidance is for continuing operations only and excludes
impairment, facility closing and severance charges. In the second
quarter the Company recorded $1.9 million in severance charges.)
"During the second quarter we continued to focus on student
outcomes and initiatives to improve operational efficiency," said
Jack Massimino, Corinthian's chairman and chief executive officer.
"Student retention trends are stable-to-improving, and graduate
placement trends are tracking closely with last year for the
majority of programs. In operations, we further reduced our expense
structure to align with our current and anticipated student
population."
"New student enrollment remains challenging, reflecting general
market conditions as well as internal factors," Massimino said.
"Our total new student enrollment declined more than expected in
the second quarter compared with the same quarter last year,
primarily driven by a higher-than-expected decline in new online
students," Massimino said.
"To help strengthen enrollment processes for online programs, we
implemented new workforce management technology and made numerous
other business process improvements. We continue to implement a new
academic model for online students, and it has already begun to
improve student engagement and retention. In addition, we are in
the process of optimizing marketing and admissions expenditures to
reflect current online student population trends. This initiative
is expected to further reduce new enrollments in our online
programs in the second half of the fiscal year, but we believe the
reduction in revenue will be more than offset by cost savings.
"During the second quarter we completed the transition to an
in-house system for certain lead-management functions, and we are
seeing a gradual improvement in the timeliness of prospective
student inquiries delivered to our ground and online programs. When
the full benefits of the in-house system are realized, we believe
it will be more efficient and effective than the outside vendor
used previously.
"In the third quarter we expect total new enrollments to
decline, primarily due to reductions in marketing and admissions
expenditures for online programs and general market conditions,"
Massimino said. "In the ground schools, we expect new enrollment
growth to be flat."
Comparing the second quarter of fiscal 2014 with the
same quarter of the prior year: (Note: results are for
continuing operations only, and exclude impairment, facility
closing and severance charges unless otherwise stated.)
- Net revenue was $369.9 million versus $406.1 million, a
decrease of 8.9%.
- Total student population at December 31, 2013 was 77,584 versus
87,250 at December 31, 2012, a decrease of 11.1%.
- New student enrollments totaled 19,760 versus 23,074, a
decrease of 14.4%.
- Operating income was $14.1 million, compared with operating
income of $17.8 million, which excludes $1.9 million in severance
charges in Q2 14.
- Income from continuing operations (after tax) was $4.6 million,
compared with income from continuing operations of $6.6 million,
excluding severance charges in Q2 14.
- Net income was $0.2 million, which includes a $1.1 million
severance charge, and a loss from discontinued operations of $3.3
million, compared with a net loss of $0.1 million, which included a
loss from discontinued operations of $6.6 million.
- Earnings per share from continuing operations were $0.05,
versus diluted earnings per share of $0.08, excluding a severance
charge of $0.01 per share in Q2 14.
Financial Review
Impairment, facility closing and severance charges
- During Q2 14 we recorded a charge of $1.9 million. The
charge was primarily related to severance expenses associated with
workforce reductions.
Educational services expenses were 60.0% of
revenue in Q2 14 versus 60.6% in Q2 13. The decrease was primarily
due to a decrease in bad debt and compensation, partially offset by
lower facility utilization. Bad debt was 3.6% of revenue in Q2 14
versus 4.2% of revenue in Q2 13.
Marketing and admissions expenses were 27.0% of
revenue in Q2 14 versus 24.6% in Q2 13. The increase is primarily
due to incremental costs associated with bringing certain lead
management services in-house and lower conversion rates.
General and administrative expenses were 9.3%
of revenue in Q2 14 versus 10.4% in Q2 13. The decrease was
primarily due to continued cost savings measures.
The operating margin was 3.8% in Q2 14 versus
4.4% in Q2 13, excluding severance charges in Q2 14.
Cash and cash equivalents totaled $32.8 million
at December 31, 2013, compared with $46.6 million at June 30,
2013.
Debt and capital leases (including current
portion) totaled $76.6 million at December 31, 2013, compared with
$139.1 million at June 30, 2013.
Cash flow from operating activities was $74.0
million in the first half of FY 14, versus $102.1 million in the
same period of the prior year. The decrease is primarily due to a
decrease in income before depreciation and amortization and a
decrease in cash provided by working capital.
Capital expenditures were $25.8 million in the
first half of FY 14, versus $18.1 million in the same period last
year.
Regulatory Update
Multi-state AG Inquiry – As previously reported
in a Form 8-K, the Company was notified by the Iowa Attorney
General's office that it is leading an investigation by thirteen
Attorneys General into the Company's business practices. The
Company has received Civil Investigative Demands ("CIDs") from most
of those states that are substantially similar. The Iowa
Attorney General's office indicated that it will be the primary
point of contact with the Company on behalf of all of the states
involved in the investigation. The CIDs seek documents and
answers to interrogatories related to the students recruited from
the various states; organizational information; tuition, loan and
scholarship information; lead generation activities; enrollment
qualifications for students; complaints; accreditation; completion
and placement statistics; graduate certification and licensing
results; and student lending activities, among other matters. The
Company is aware that three other companies in the for-profit
education sector have received similar CIDs. The Company intends to
cooperate with the investigation.
Department of Education – In January 2014, the
Company received a letter from the Department of Education (ED)
regarding several matters. The letter indicated that ED had
provisionally approved several of the Company's institutions due
for recertification and approved a merger of institutions (OPEIDs)
in Florida. However, ED denied many of the Company's pending new
program applications and mandated that all of the Company's
institutions request and receive ED's prior approval for any new
locations and programs. ED also requested additional information
from the Company for the purpose of ascertaining that the Company
and its institutions have the administrative capability to comply
with Title IV requirements. The letter stated that ED is taking the
above-referenced actions as a result of concerns about on-going
government investigations of the Company and certain instances when
the Company had "admitted falsifying" placement, attendance and/or
grade information. The Company disputes ED's characterization that
the Company admitted wrongdoing, but plans to cooperate with ED in
its review. The Company believes ED is referencing isolated
instances over a four-year period when the Company detected
erroneous information, took corrective action and reported its
findings to regulatory authorities.
CFPB – As previously reported in an 8-K, the
company received a "Notice and Opportunity to Respond and Advise"
(NORA) letter from the Consumer Financial Protection Bureau (CFPB)
in December 2013. The NORA letter states that the CFPB Office of
Enforcement is "considering recommending" that the CFPB take legal
action against the Company. If such action is brought, the Office
of Enforcement expects to allege that the Company violated the
Consumer Financial Protection Act of 2010, 12 U.S.C. §5536, as it
relates to the student lending programs offered to Corinthian
students. The NORA process allows the company to submit a written
statement setting forth any reasons of law or policy why the
Company believes the CFPB should not take legal action against it.
The Company submitted its response to the NORA letter on January
13, 2014. We continue to believe that our acts and practices
relating to student loans are lawful. A fact sheet relating to the
Company's lending program can be found on the company website at
http://investors.cci.edu.
California Attorney General Complaint – As
previously disclosed in a Report on Form 8-K, on
October 10, 2013 the California Attorney General (CAG) filed a
civil complaint against the company. The Company is vigorously
defending itself against this lawsuit, and filed its response to
the CAG's allegations in the San Francisco Superior Court of
California on November 12, 2013. A copy of the court filing and a
summary can be found on the company website at
http://investors.cci.edu.
Student Lending Update
Over the past several quarters, we have been taking steps to
reduce our reliance on third-party gap financing, which is
currently used by approximately 40% of our students. Toward that
end, we are expanding the use of short-term, cash pay programs in
our ground schools and we have developed a price reduction plan for
select programs and markets. In addition, we have been in
discussions with ASFG, LLC ("ASFG", which has since been renamed
Campus Student Funding, LLC), our third-party student lender, to
structure a new non-recourse lending program. We have been unable
to reach agreement with ASFG on terms acceptable to both parties,
and ASFG has indicated that it intends to stop funding loans for
our students under the current program. We have begun to solicit
other prospective lenders through a request-for-proposal (RFP)
process, and to date three potential lenders have expressed
interest in receiving the RFP, including ASFG. Once ASFG stops
funding loans for our students under the current program, we plan
to reinstitute our company-financed Genesis loan program until a
replacement program can be implemented. We expect the RFP
process to take 60-90 days.
Guidance
The following guidance is for continuing operations and excludes
any one-time charges.
|
|
|
|
Time Period |
Revenue |
Diluted EPS |
Total New
Student Growth |
Q3 14 |
$350 - $360 million |
$0.04 - $0.06 |
(9)% - (11)% |
FY 14 |
n/a |
$0.10 - $0.12 |
n/a |
Conference Call Today
We will host a conference call today at 12:00 pm Eastern Time,
to discuss second quarter results. The call will be open to
all interested investors through a live audio web cast at
www.cci.edu (Investors/Events & Presentations.) The call will
be archived on www.cci.edu after the call. A telephonic playback of
the conference call will also be available through February 12,
2014. The playback can be reached by dialing (800) 585-8367 and
using passcode 31059952.
About Corinthian
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 107 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
initiatives to improve performance of our online programs,
including the optimization of marketing and admissions
expenditures; our expectation regarding our new in-house system for
certain lead management services; our ability to align expenses
with our current and anticipated student population; our ability to
find a new third-party lender[s] to provide gap financing for our
students; 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: the company's effectiveness in
its regulatory and accreditation compliance efforts; the outcome of
ongoing reviews and inquiries by accrediting, state and federal
agencies, including ED, various attorneys general, and the CFPB;
the outcome of pending litigation against the company, including
the civil complaint filed by the California Attorney General; the
CFPB's determination regarding enforcement action against the
company; risks associated with variability in the expense and
effectiveness of the company's advertising and promotional efforts;
increased competition; 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.
Corinthian Colleges,
Inc. |
(In thousands, except
per share data) |
|
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|
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|
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|
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|
Consolidated Statements of Operations
(Unaudited) |
|
|
|
|
|
For the three months
ended |
For the six months
ended |
|
December
31, |
December
31, |
|
2013 |
2012 |
2013 |
2012 |
|
|
|
|
|
Net revenues |
$ 369,905 |
$ 406,070 |
$ 734,863 |
$ 808,107 |
Operating expenses: |
|
|
|
|
Educational services |
221,880 |
245,981 |
448,978 |
489,372 |
General and administrative |
34,232 |
42,284 |
76,603 |
85,233 |
Marketing and admissions |
99,704 |
99,960 |
200,904 |
197,666 |
Impairment, facility closing,
and severance charges |
1,862 |
-- |
5,516 |
760 |
Total operating expenses |
357,678 |
388,225 |
732,001 |
773,031 |
|
|
|
|
|
Income from operations |
12,227 |
17,845 |
2,862 |
35,076 |
|
|
|
|
|
Interest income |
111 |
158 |
221 |
355 |
Interest expense |
(654) |
(1,213) |
(2,460) |
(2,505) |
Other expense, net |
(5,806) |
(6,163) |
(11,843) |
(10,407) |
Pre-tax income (loss) from continuing
operations |
5,878 |
10,627 |
(11,220) |
22,519 |
Provision (benefit) for income
taxes |
2,367 |
4,070 |
(4,628) |
8,654 |
Income (loss) from continuing operations |
3,511 |
6,557 |
(6,592) |
13,865 |
Loss from discontinued operations, net of
tax |
(3,319) |
(6,625) |
(8,170) |
(12,354) |
Net income (loss) |
$ 192 |
$ (68) |
$ (14,762) |
$ 1,511 |
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Income (loss) per common share -- Basic: |
|
|
|
|
Income (loss) from continuing
operations |
$ 0.04 |
$ 0.08 |
$ (0.08) |
$ 0.16 |
Loss from discontinued
operations |
(0.04) |
(0.08) |
(0.09) |
(0.14) |
Net (loss) income |
$ -- |
$ -- |
$ (0.17) |
$ 0.02 |
|
|
|
|
|
Income (loss) per common share --
Diluted: |
|
|
|
|
Income (loss) from continuing
operations |
$ 0.04 |
$ 0.08 |
$ (0.08) |
$ 0.16 |
Loss from discontinued
operations |
(0.04) |
(0.08) |
(0.09) |
(0.14) |
Net (loss) income |
$ -- |
$ -- |
$ (0.17) |
$ 0.02 |
|
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|
|
|
Weighted average number of common shares
outstanding: |
|
|
|
|
Basic |
87,135 |
85,797 |
86,863 |
85,641 |
Diluted |
88,162 |
86,548 |
86,863 |
86,363 |
|
|
|
|
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|
December 31, |
June 30, |
|
|
|
2013 |
2013 |
|
|
Cash and cash equivalents |
$ 32,823 |
$ 46,596 |
|
|
Receivables, net (including long term notes
receivable) |
$ 150,174 |
$ 167,141 |
|
|
Current assets |
$ 236,245 |
$ 288,604 |
|
|
Total assets |
$ 1,003,586 |
$ 1,028,745 |
|
|
Current liabilities |
$ 299,466 |
$ 251,246 |
|
|
Total debt and capital leases |
$ 76,574 |
$ 139,085 |
|
|
Total liabilities |
$ 445,080 |
$ 457,903 |
|
|
Total stockholders equity |
$ 558,506 |
$ 570,842 |
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CONTACT: Investors:
Anna Marie Dunlap
SVP Investor Relations
714-424-2678
Media:
Kent Jenkins
VP Public Affairs Communications
202-682-9494
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