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Corinthian Colleges Reports FY14 Third Quarter Results

(May 06, 2014)

SANTA ANA, Calif., May 6, 2014 (GLOBE NEWSWIRE) -- Corinthian Colleges, Inc. (Nasdaq:COCO) reported financial results today for the third quarter ended March 31, 2014. The results for the quarter were below our previous third quarter guidance ranges for new student enrollment, revenue, and diluted earnings per share, owing primarily to weather-related school closures. (Guidance is for continuing operations only and excludes impairment, facility closing and severance charges and the deferred tax asset valuation allowance.)



"The company continues to face a number of challenges which have combined to decrease new student enrollments, reduce revenue and pressure margins significantly," said Jack Massimino, Corinthian's chairman and chief executive officer. "During the third quarter we embarked on a new, major round of cost reductions and operational restructuring to further align expenses with a lower student population, and those efforts are continuing into the fourth quarter. We restructured Everest U.S. ground school operations, increased advertising efficiencies, and eliminated or renegotiated a number of purchasing and professional services contracts. We also continued to streamline student financial aid processing, which is expected to further reduce duplication and inefficiency while maintaining high service levels for students. Cost reductions implemented since January total approximately $125 million on an annualized basis."



"New student enrollment growth remains challenging, reflecting general market conditions as well as internal factors," Massimino said. "In the third quarter, our total new student enrollment declined more than expected compared with the year-ago quarter, primarily the result of temporary school closures associated with severe winter weather," Massimino said.


"As previously reported, in January we reduced marketing and admissions expenditures for our online programs to better align with current online student population trends. As expected, this initiative reduced new enrollments and revenue, and the reduction in revenue was more than offset by cost savings. We continue to invest in additional full-time online instructors and academic management with the goal of improving student engagement and retention."




"During the third quarter we reduced pricing for diploma programs at certain Everest schools to help improve affordability and access for students and increase new enrollments. In addition, we continue to see an improvement in the timeliness of prospective student inquiries delivered to our schools and online programs via our new in-house system. When the system is optimized, we believe it will be more efficient and effective than the outside vendor used previously."



"In the fourth quarter we expect total new enrollments to decline compared with the same period of the prior year, primarily due to the reductions in marketing and admissions expenditures for online programs and general market conditions," Massimino said.



"In light of current market and regulatory conditions, our Board has authorized management to retain an investment banking firm to help the company explore strategic alternatives and enhance shareholder value," Massimino said.



Comparing the third quarter of fiscal 2014 with the same quarter of the prior year: (Note: results described below are for continuing operations only, and exclude severance charges in both time periods and a deferred tax asset valuation allowance of $71.3 million recorded in Q3 14, unless otherwise stated.)




  • Net revenue was $349.8 million versus $395.9 million, a decrease of 11.7%.


  • Total student population at March 31, 2014 was 74,498 versus 86,297 at March 31, 2013, a decrease of 13.7%. The average student population was 76,407, down 12.4%.


  • New student enrollments totaled 22,853 versus 26,288, a decrease of 13.1%.


  • Operating income was $11.2 million, compared with operating income of $15.3 million, excluding severance charges in both time periods.


  • Income from continuing operations (after tax) was $2.4 million, compared with income from continuing operations of $4.8 million, excluding severance charges in both time periods, and the deferred tax valuation allowance in Q3 14.


  • Net loss on a total operations basis was $79.6 million, including $4.6 million in severance charges, and a loss from discontinued operations of $6.2 million; and a deferred tax asset valuation allowance of $76.5 million, compared with a net loss of $1.0 million, including severance charges of $0.8 million and a loss from discontinued operations of $5.1 million.


  • Earnings per share from continuing operations were $0.03, versus diluted earnings per share of $0.06, excluding severance charges of $0.05 per share in Q3 14 and $0.01 per share in Q3 13, and the deferred tax valuation allowance of $0.81 per share in Q3 14.



Financial Review



Deferred tax asset valuation allowance – During Q3 14, we recorded a $71.3 million non-cash charge related to continuing operations and a $5.2 million charge related to discontinued operations to establish a valuation allowance related to certain of our deferred tax assets. In assessing the need for the allowance we considered evidence that the deferred tax asset would be realized. We are establishing the allowance primarily because we expect to be in a three-year cumulative loss position at June 30, 2014, including both continuing and discontinued operations. (The expected three-year cumulative loss is driven solely by the loss in discontinued operations.) As a result of recording the non-cash allowance, we expect our tax provision to be approximately $2.5 million in the fourth quarter.



In addition, the recording of the allowance puts us in noncompliance with certain of our bank debt covenants, and we are currently seeking a waiver of the events of default and certain amendments from the banks in our syndicated credit facility. Although no assurance can be given that we will be able to reach final agreement with our lenders, we currently expect to receive the waiver and execute the amendments before we file our Q3 14 Report on Form 10-Q later this month.



Impairment, facility closing and severance charges - During Q3 14 we recorded a charge of $7.7 million. The charge was primarily related to severance expenses associated with workforce reductions.



Educational services expenses were 59.4% of revenue in Q3 14 versus 60.3%in Q3 13. The decrease was primarily due to lower bad debt expense. Bad debt was 2.7% of revenue in Q3 14 versus 3.4% of revenue in Q3 13.



Marketing and admissions expenses were 26.2% of revenue in Q3 14 versus 25.5% in Q3 13. The increase is primarily due to incremental costs associated with bringing lead management services in-house and lower conversion rates.



General and administrative expenses were 11.2% of revenue in Q3 14 versus 10.4% in Q3 13. The increase is due to the reduction in revenue.



The operating margin was 3.2% in Q3 14 versus 3.9% in Q3 13, excluding severance charges in both periods.



Cash and cash equivalents totaled $28.0 million at March 31, 2014, compared with $46.6 million at June 30, 2013.



Debt and capital leases (including current portion) totaled $100.8 million at March 31, 2014, compared with $139.1 million at June 30, 2013.



Cash flow from operating activities was $54.6 million in the nine months ended March 31, 2014, versus $128.8 million in the same period of the prior year. The decrease is primarily due to a decrease in net income and a decrease in cash provided by working capital. The decrease in working capital is due to a lower student population and a decrease in cashflows associated with the ASFG student lending program of approximately $14 million.



Capital expenditures were $35.9 million in the nine months ended March 31, 2014, versus $28.6 million in the same period last year.



Regulatory Update



Massachusetts Attorney General Complaint – As previously disclosed in a Report on Form 8-K, on April 3, 2014the Massachusetts Attorney General (MA AG) filed a civil complaint against the Company and one of its subsidiaries. The Company had been cooperating with the MA AG's investigation since April 2011, and plans to vigorously defend itself against this lawsuit. The Company has provided additional information with respect to this complaint and facts about its Massachusetts campuses on the Company website at http://investors.cci.edu.



Multi-state AG Inquiry – As reported in an 8-K on January 24, 2014,the Company was notified by the Iowa Attorney General's office that it is leading an investigation by 13 Attorneys General into the Company's business practices. In April, the Iowa AG notified the company that three additional states – Colorado, Hawaii and New Mexico, had joined the multi-state investigation, bringing the total to 16 states. The Company continues to cooperate with the investigation.



Student Lending Update



Over the past several quarters, we have been taking steps to reduce our reliance on third-party gap financing, which has historically been used by approximately 40% of our students. Toward that end, we have implemented tuition price reductions for certain diploma (certificate) programs in select markets and expect to implement additional price reductions beginning in June. In the first half of fiscal 2015, we also plan to expand our offering of short-term, cash pay programs in our ground schools.



In addition, as previously reported, we are soliciting prospective lenders through a request-for-proposal (RFP) process, and to date several companies have completed the RFP and are in the due diligence phase. We expect to complete the RFP process by the end of June. During the RFP process, we have reinstituted our company-financed Genesis loan program until a replacement program can be implemented. Subject to negotiating acceptable terms with a potential buyer(s), we intend to sell the majority of loans generated by our loan program prior to the end of the current fiscal year. If successful, a sale of of these loans will help offset the cash flow impact of funding the loans ourselves.



Guidance



The following guidance is for continuing operations and excludes any one-time charges.





















 

Time Period

Revenue

Diluted EPS

Total New Student Growth

Q4 14

$340 - $350 million

$0.11 - $0.13

(16)% - (18)%


Conference Call Today



We will host a conference call today at 12:00 pm Eastern Time, to discuss third 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 May 13, 2014. The playback can be reached by dialing (800) 585-8367 and using passcode 21067100.



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: reductions in tuition pricing as a vehicle for increasing new enrollment growth; improving the performance of our online programs through reductions in marketing and admissions expenditures and investments in additional full-time instructors and academic management; our expectation that our new in-house inquiry-management system will be more efficient and effective than the previous external vendor; 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; our ability to obtain a waiver from our bank debt syndicate related to the events of default caused by the deferred tax asset valuation allowance; our ability to identify a buyer and reach acceptable terms to sell the Genesis loans originated since the ASFG arrangement ended; 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 complaints filed by the California and Massachusetts Attorneys 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); the uncertainty of counterparty decisions in the waiver of events of default in the credit agreement and the potential sale of Genesis loans; 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)

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

 

Three Months Ended

Nine Months Ended

 

March 31,

March 31,

 

2014

2013

2014

2013

NET REVENUES 

 $ 349,751

 $ 395,885

 $ 1,084,614

 $ 1,203,992

OPERATING EXPENSES:

 

 

 

 

Educational services 

 207,796

 238,573

 656,774

 727,946

General and administrative 

 39,097

 41,013

 115,700

 126,246

Marketing and admissions 

 91,701

 100,997

 292,605

 298,662

Impairment, facility closing and severance charges 

 7,676

 1,279

 13,192

 2,039

Total operating expenses 

 346,270

 381,862

 1,078,271

 1,154,893

INCOME FROM OPERATIONS 

 3,481

 14,023

 6,343

 49,099

Interest income 

 102

 154

 323

 509

Interest expense 

 (970)

 (1,336)

 (3,430)

 (3,841)

Other expense, net 

 (6,330)

 (6,353)

 (18,173)

 (16,761)

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 

 (3,717)

 6,488

 (14,937)

 29,006

Provision for income taxes 

 69,637

 2,435

 65,009

 11,089

INCOME (LOSS) FROM CONTINUING OPERATIONS 

 (73,354)

 4,053

 (79,946)

 17,917

LOSS FROM DISCONTINUED OPERATIONS, net of tax provision 

 (6,244)

 (5,073)

 (14,414)

 (17,426)

NET INCOME (LOSS) 

 $ (79,598)

 $ (1,020)

 $ (94,360)

 $ 491

INCOME (LOSS) PER SHARE—BASIC:

 

 

 

 

Income (loss) from continuing operations 

 $ (0.84)

 $ 0.05

 $ (0.92)

 $ 0.21

Loss from discontinued operations 

 (0.07)

 (0.06)

 (0.16)

 (0.20)

Net income (loss) 

 $ (0.91)

 $ (0.01)

 $ (1.08)

 $ 0.01

INCOME (LOSS) PER SHARE—DILUTED:

 

 

 

 

Income (loss) income from continuing operations 

 $ (0.84)

 $ 0.05

 $ (0.92)

 $ 0.21

Loss from discontinued operations 

 (0.07)

 (0.06)

 (0.16)

 (0.20)

Net income (loss) 

 $ (0.91)

 $ (0.01)

 $ (1.08)

 $ 0.01

Weighted average number of common shares outstanding:

 

 

 

 

Basic 

 87,507

 86,065

 87,075

 85,780

Diluted 

 87,507

 87,097

 87,075

 86,616

 

The accompanying notes are an integral part of these condensed consolidated financial statements, which we expect to file later this month.

 

 

 

 

 



























































































































































































































































CORINTHIAN COLLEGES, INC.

(In thousands)

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

 

 

March 31,

June 30,

 

2014

2013

 

 

 

ASSETS

 

 

CURRENT ASSETS:

 

 

Cash and cash equivalents 

 $ 28,033

 $ 46,596

Accounts receivable, net 

 66,913

 76,170

Student notes receivable, net 

 22,328

 23,971

Deferred income taxes 

 5,191

 28,961

Prepaid expenses and other current assets 

 73,869

 109,650

Assets held for sale 

 175

 3,256

Total current assets 

 196,509

 288,604

PROPERTY AND EQUIPMENT, net 

 221,031

 226,996

OTHER ASSETS:

 

 

Goodwill 

 205,593

 205,593

Other intangibles, net 

 180,133

 180,800

Student notes receivable, net 

 71,163

 67,000

Deposits and other assets 

 86,936

 54,732

Deferred income taxes 

 4,772

 5,020

TOTAL ASSETS 

 $ 966,137

 $ 1,028,745

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

CURRENT LIABILITIES:

 

 

Accounts payable 

 $ 57,953

 $ 25,239

Accrued expenses 

 117,091

 113,741

Prepaid tuition 

 95,979

 104,396

Current portion of capital lease obligations 

 225

 803

Current portion of long-term debt 

 200

 4,101

Liabilities held for sale 

 2,933

 2,966

Total current liabilities 

 274,381

 251,246

LONG-TERM CAPITAL LEASE OBLIGATIONS, net of current portion 

 10,698

 11,389

LONG-TERM DEBT, net of current portion 

 89,684

 122,792

DEFERRED INCOME TAXES 

 56,169

 16,036

OTHER LONG-TERM LIABILITIES 

 54,324

 56,440

COMMITMENTS AND CONTINGENCIES

 

 

STOCKHOLDERS' EQUITY:

 

 

Common Stock, $0.0001 par value:

 

 

Common Stock, 120,000 shares authorized: 93,817 shares issued and 87,643 shares outstanding at March 31, 2014 and 92,357 shares issued and 86,183 shares outstanding at June 30, 2013 

 9

 9

Additional paid-in capital 

 263,395

 258,830

Treasury stock 

 (56,368)

 (56,368)

Retained earnings 

 271,738

 366,098

Accumulated other comprehensive income 

 2,107

 2,273

Total stockholders' equity 

 480,881

 570,842

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 

 $ 966,137

 $ 1,028,745

 

The accompanying notes are an integral part of these condensed consolidated financial statements, which we expect to file later this month.

 

 

 
































































































































































































































CORINTHIAN COLLEGES, INC.

(In thousands)

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

Nine Months Ended

 

March 31,

 

2014

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

Net income (loss) 

 $ (94,360)

 $ 491

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Depreciation and amortization 

 42,076

 49,488

Stock based compensation 

 4,490

 5,006

Deferred income taxes 

 64,126

 — 

Loss on disposal of assets 

 188

 1,097

Impairment charge 

 2,666

 2,446

Changes in assets and liabilities:

 

 

Accounts receivable, net 

 9,633

 17,321

Student notes receivable, net 

 (2,521)

 8,543

Prepaid expenses and other assets 

 13,225

 7,423

Accounts payable 

 32,492

 48,759

Accrued expenses and other liabilities 

 (7,306)

 (20,111)

Prepaid tuition 

 (8,148)

 10,305

Other long-term liabilities 

 (2,004)

 (1,958)

Net cash provided by operating activities 

 54,557

 128,810

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

Payments for capital expenditures 

 (35,940)

 (28,625)

Payments made in connection with business acquisitions, net of cash acquired 

 — 

 (11,612)

Net cash used in investing activities 

 (35,940)

 (40,237)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

Proceeds from borrowings on long-term debt 

 235,067

 50,994

Principal repayments on capital lease obligations and long-term debt 

 (266,904)

 (166,390)

Proceeds from borrowing under student notes receivable sale agreements 

 — 

 8,683

Repayments on borrowing under student notes receivable sale agreements 

 (6,222)

 (11,613)

Proceeds from exercise of stock options and employee stock purchase plan 

 1,032

 1,103

Net cash used in financing activities 

 (37,027)

 (117,223)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 

 (153)

 24

NET DECREASE IN CASH AND CASH EQUIVALENTS 

 (18,563)

 (28,626)

CASH AND CASH EQUIVALENTS, beginning of period 

 46,596

 72,525

CASH AND CASH EQUIVALENTS, end of period 

 $ 28,033

 $ 43,899

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

Cash received (paid) during the period for:

 

 

Income taxes 

 $ 26,724

 $ 8,525

Interest paid 

 $ (1,801)

 $ (1,913)

 

The accompanying notes are an integral part of these condensed consolidated financial statements, which we expect to file later this month.

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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