Education Management Corporation's CEO Discusses F4Q12 Results - Earnings Call Transcript

Education Management Corporation (EDMC)

F4Q12 Earnings Call

August 09, 2012 09:00 am ET

Executives

Jim Sober - VP Finance

Todd Nelson - CEO

Ed West - President & CFO

Analysts

Gary Bisbee - Barclays

Reza Vahabzadeh - Barclays

Jeff Volshteyn - JPMorgan

Bob Craig - Stifel Nicolaus

Suzi Stein - Morgan Stanley

Brandon Dobell - William Blair

Corey Greendale - First Analysis

Kelly Flynn - Credit Suisse

Jeff Silber - BMO Capital Markets

Trace Urdan - Wunderlich Securities

Sara Gubins - Bank of America Merrill Lynch

Jeff Meuler - Robert W Baird

Presentation

Operator

Good day and welcome to the Education Management Corporation's fiscal 2012 fourth quarter earnings call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please also note this event is being recorded. I would now like to turn the conference over to Jim Sober, Vice President of Finance. Please go ahead sir.

Jim Sober

Thank you, operator. Welcome to Education Management's fiscal 2012 fourth quarter earnings call. With me on the call today are Todd Nelson, Chief Executive Officer; who will succeed Jock McKernan as Chairman of the Board of Directors effective August 15, 2012, and Ed West, currently President and Chief Financial Officer, who will become the company’s new Chief Executive Officer. Following our opening remarks, we will begin the question-and-answer session.

During the session we ask that you please limit yourself to one question and not more than one follow-up question to ensure that we can respond to the many participants on today’s call.

Before turning the call over to Todd for his opening comments, I'd like to remind everyone that information presented on this call contains forward-looking statements. These forward-looking statements include, but are not limited to, statements about our future plans and our future financial and operating performance.

Actual results might differ materially from those contained in the forward-looking statements. Additional information containing factors that could cause actual results to differ materially are set forth in the cautionary statement included in the earnings release. Todd?

Todd Nelson

Thanks, Jim. Welcome to our fiscal 2012 fourth quarter earnings call. On today's call, I'll provide an update of our business operations, and Ed will review the fourth quarter results, cover several operational topics and provide our guidance.

Having worked in the post secondary education industry for close to 25 years, I can say that the current environment is unprecedented in the numerous challenges in place, but at the same time offers many positive opportunities.

For the past three years, we’ve seen net employment levels that this country not experience since early 1980s. The pervasive high employment while initially a tailwind has become a significant barrier to higher education as individuals find it more challenging to fund their education given the difficult job market.

The drop off in enrollments is not confined to the proprietary sector alone, but also includes the nonprofit sector as well. The primary reasons for the decline in enrollment are tuitions and concerns about debt according to the American Association of Collegiate Registrars and Admissions Officers and other higher education officials.

That said there is still a critical need for higher education in this country to meet the skilled demand for the marketplace. According to Georgetown University Center on Education and the Workforce, by 2018 the number of jobs requiring an associates or higher degree are expected to grow by 17 million, while those not requiring higher education are expected to decrease by several million jobs.

Furthermore the United States which is number 16 out of the 36 countries measured by the organization for Economic Co-operation and Development in the number of adults aged 25 to 34 with at least an associate’s degree needs to significantly grow its post secondary education workforce in order to stay competitive with the global marketplace.

So going forward, although post secondary education faces many significant challenges, we see significant opportunities for education providers to deliver quality education for their students. Despite these challenges, we are pleased with the success our graduates have in the job market for graduation.

Based on the Gainful Employment Program data provided by the Department of Education for completers, from fiscal years 2007 and 2008, the graduates from our programs in calendar year 2010 are an approximately 5% more on average than the graduates from all other institutions measured that offer the same programs.

We believe this illustrates the value we bring to our students and graduates to help them succeed in their chosen careers. With approximately 325,000 alumni and nearly 125,000 students currently enrolled, we are proud of the difference we make in the lives of our students.

While the operating environment continues to be challenging, our financial and operational results with our fiscal fourth quarter were generally in line with expectations. As you noticed from our earnings release, we have modified our student enrollment as well as new student enrollment disclosures to include our four reportable segments. The Art Institutes, Argosy University, Brown Mackie College, and South University which Ed will touch on later.

For our recent July start, we had enrollment of approximately 124,600 students, a decrease of 10.8% over the prior-year period. Students enrolled at fully online programs at The Art Institutes of Pittsburgh online division, Argosy University and South University decreased 19.4% from last year to 31,000 students representing about 25% of the total student population.

Further new students for the three-months period ended June 30, 2012 which is typically our smallest enrollment period decreased by approximately 20% over the prior-year period to 21,400 students. During the fourth quarter of fiscal 2012, we rolled out over 40 programs across schools, not currently offering them, bringing the total programs rolled out during fiscal 2012 to over 250.

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