Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the third quarter and year to date ended September 30, 2017.

University Group and Corporate (Ongoing Operations) Third Quarter Highlights:
  • Total enrollments increased 2.5 percent as compared to the prior year partially driven by an increase in new enrollments of 5.8 percent for the current quarter as compared to the prior year quarter
  • Operating income of $23.6 million for the current quarter as compared to the prior year quarter operating income of $16.2 million, a 45.9 percent increase primarily driven by operating efficiencies within the University Group as well as improving enrollment trends
  • Revenue of $141.5 million for the current quarter as compared to revenue of $139.5 million in the prior year quarter, with the increase partially driven by growth in total and new enrollments

3 rd Quarter Consolidated Results:
  • Operating income of $4.5 million for the current quarter as compared to an operating loss of $0.7 million for the prior year quarter
  • Revenue of $145.0 million for the current quarter as compared to revenue of $167.6 million for the prior year quarter, with the decline expected and driven by the continued progress toward teach-out completion of the Transitional Group and Culinary Arts campuses
  • Ended the quarter with $175.9 million in cash, cash equivalents, restricted cash and available-for-sale short-term investments, which represents a $3.9 million increase as compared to the second quarter of 2017

"We continued to experience better than expected enrollment trends and operating efficiencies during the third quarter, and are on track to close 2017 ahead of our initial expectations for the year," said Todd Nelson, President and Chief Executive Officer. "Much of the momentum we are experiencing in the quarter is related to the success of initiatives we implemented throughout the year to pursue sustainable and responsible growth, including investments in technology and student support processes. We remain encouraged by the level of student engagement, retention and outcomes we are experiencing, and we expect to see continued enrollment growth in the fourth quarter of 2017."

REVENUE

For the quarter and year to date ended September 30, 2017, total revenue was $145.0 million and $453.3 million representing a decrease of 13.5 percent and 17.4 percent, respectively, compared to total revenue of $167.6 million and $549.1 million for the quarter and year to date ended September 30, 2016, respectively. The decrease was primarily driven by declining revenues within the Transitional Group and Culinary Arts segments. The Culinary Arts segment completed its teach-out as of September 30, 2017 and the remaining eight Transitional Group campuses will complete their teach-outs through 2018.

Total revenue for the University Group was $141.5 million and $427.2 million representing an increase of 1.4 percent and 0.1 percent, respectively, for the quarter and year to date ended September 30, 2017 as compared to the respective prior year periods.
   
For the Quarter Ended September 30, For the Year to Date Ended September 30,
        Increase         Increase

Revenue ($ in thousands)
2017 2016 (Decrease) 2017 2016 (Decrease)
CTU $ 91,319 $ 90,921   0.4 % $ 276,558 $ 274,623   0.7 %
AIU   50,150   48,542 3.3 %   150,618   152,123 -1.0 %
Total University Group 141,469 139,463 1.4 % 427,176 426,746 0.1 %
Corporate and Other     NM     NM
Subtotal 141,469 139,463 1.4 % 427,176 426,746 0.1 %
Culinary Arts (1) 2,367 21,369 -88.9 % 19,302 89,990 -78.6 %
Transitional Group (1)   1,150   6,793 -83.1 %   6,839   32,401 -78.9 %
Total $ 144,986 $ 167,625 -13.5 % $ 453,317 $ 549,137 -17.4 %
(1)   Teach-out campuses included in the Transitional Group no longer enroll new students. The Culinary Arts campuses completed their teach-outs as of September 30, 2017.
 

TOTAL AND NEW STUDENT ENROLLMENTS

As of the end of the third quarter of 2017, total student enrollments for the University Group were 32,700, compared to 31,900 as of the prior year quarter end representing a 2.5 percent increase.
     
As of September 30,
        Increase

Total Student Enrollments
2017 2016 (Decrease)
CTU   21,600   21,400   0.9 %
AIU   11,100   10,500 5.7 %
Total University Group   32,700   31,900 2.5 %
Culinary Arts (1) 3,500 NM
Transitional Group   200   1,100 NM
Total   32,900   36,500 -9.9 %
   
For the Quarter Ended September 30, For the Year to Date Ended September 30,
        Increase         Increase

New Student Enrollments
2017 2016 (Decrease) 2017 2016 (Decrease)
CTU (2)   5,980   5,390   10.9 %   16,170   15,240   6.1 %
AIU (2)   3,100   3,190 -2.8 %   11,020   10,600 4.0 %
Total University Group (2)   9,080   8,580 5.8 %   27,190   25,840 5.2 %
Culinary Arts (1) NM 990 NM
Transitional Group (3)     10 NM     90 NM
Total   9,080   8,590 5.7 %   27,190   26,920 1.0 %
(1)   Culinary Arts campuses completed their teach-outs as of September 30, 2017.
 
(2) New student enrollments were impacted by a change to how the Company records certain cancelled students which began in the third quarter of 2016. There is no impact to the third quarter of 2017 as both the current year quarter and the prior year quarter are calculated on the same basis. However, excluding the impact of this change, new student enrollments for the year to date ended September 30, 2017 as compared to the prior year to date would have increased 4.0 percent for CTU, decreased 0.9 percent for AIU and increased 2.0 percent for the University Group.
 
(3) Teach-out campuses within the Transitional Group no longer enroll new students; students who re-enter after 365 days are reported as new student enrollments.
 

OPERATING INCOME (LOSS)

For the quarter and year to date ended September 30, 2017, the Company recorded operating income of $4.5 million and $23.4 million, respectively, compared to operating loss of $0.7 million and operating income of $23.6 million for the quarter and year to date ended September 30, 2016, respectively. Total University Group and Corporate operating income of $23.6 million and $70.0 million for the quarter and year to date ended September 30, 2017, respectively, increased 45.9 percent and 11.9 percent as compared to the respective prior year periods.
   
For the Quarter Ended September 30, For the Year to Date Ended September 30,
    Increase     Increase

Operating Income ($ in thousands)
2017 2016 (Decrease) 2017 2016 (Decrease)
CTU $ 27,565 $ 21,486   28.3 % $ 78,649 $ 70,693   11.3 %
AIU   2,256   291 675.3 %   7,987   9,036 -11.6 %
Total University Group 29,821 21,777 36.9 % 86,636 79,729 8.7 %
Corporate and Other   (6,199 )   (5,587 ) -11.0 %   (16,595 )   (17,160 ) 3.3 %
Subtotal 23,622 16,190 45.9 % 70,041 62,569 11.9 %
Culinary Arts (14,027 ) (1,801 ) NM (25,039 ) 1,666 NM
Transitional Group   (5,056 )   (15,095 ) 66.5 %   (21,578 )   (40,672 ) 46.9 %
Total $ 4,539 $ (706 ) 742.9 % $ 23,424 $ 23,563 -0.6 %
 

ADJUSTED OPERATING INCOME (LOSS)

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant and non-cash items, as a means to understand the performance of its operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

As shown in the table below, adjusted operating income for the University Group and Corporate was $26.2 million and $77.7 million for the quarter and year to date ended September 30, 2017, respectively. Adjusted operating loss for the Transitional Group and Culinary Arts was $10.8 million and $31.8 million for the quarter and year to date ended September 30, 2017, respectively.

     
For the Quarter Ended September 30,   For the Year to Date Ended September 30,

Adjusted Operating Income (Loss)
2017   2016 2017   2016

University Group and Corporate:
Operating income (1) $ 23,622 $ 16,190 $ 70,041 $ 62,569
Depreciation and amortization (1) 2,605 2,594 7,695 8,474
Asset impairments (1) 237
Unused space charges (1) (2)         1,118
Adjusted Operating Income --

University Group and Corporate (1)
$ 26,227 $ 18,784 $ 77,736 $ 72,398
 
Increase (Decrease) 39.6 % 7.4 %
 

Transitional Group and Culinary Arts:
Operating loss (3) $ (19,083 ) $ (16,896 ) $ (46,617 ) $ (39,006 )
Depreciation and amortization (3) 977 2,621 3,673 8,512
Unused space charges (2) (3)   7,347   4,983   11,158   14,123
Adjusted Operating Loss --

Transitional and Culinary Arts (3)
$ (10,759 ) $ (9,292 ) $ (31,786 ) $ (16,371 )
 
Increase (Decrease) -15.8 % -94.2 %
(1)   Amounts relate to the University Group and Corporate.
(2) Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income.
(3) Amounts relate to the Transitional Group and Culinary Arts.
 

BALANCE SHEET AND CASH FLOW

Net cash provided by operating activities was $5.1 million compared to net cash provided by operating activities of $9.7 million for the quarters ended September 30, 2017 and 2016, respectively. For the year to date ended September 30, 2017, net cash flows used in operations was $29.1 million as compared to net cash provided of $16.3 million for the year to date ended 2016.
   
For the Quarter Ended September 30, For the Year to Date Ended September 30,
        Increase       Increase

Selected Cash Flow Items
2017 2016 (Decrease) 2017 2016 (Decrease)
Net cash provided by (used in) operating activities $ 5,139 $ 9,697   -47.0 % $ (29,107 ) $ 16,264   -279.0 %
Capital expenditures $ 1,280 $ 1,382 -7.4 % $ 3,426 $ 3,352 2.2 %
 

As of September 30, 2017 and December 31, 2016, cash, cash equivalents, restricted cash and available-for-sale short-term investments totaled $175.9 million and $207.2 million, respectively.

OUTLOOK

The substantial completion of the teach-outs and continued execution against its strategy has provided the Company further visibility related to its 2017 operating results. As a result, the Company is providing an update to its previous outlook for adjusted operating losses related to its teach-out operations and for ending cash balances for 2017. The Company currently expects the following results, subject to the updated key assumptions identified below (see the GAAP to non-GAAP reconciliation for adjusted operating income (loss) attached to this press release for further details):
  • University Group and Corporate adjusted operating income in the range of $100 to $105 million for the full year 2017, compared to $89 million in 2016.
  • New and total student enrollment growth at both Universities in the fourth quarter of 2017, primarily driven by our ongoing initiatives and investments in student support operations, including our Phoenix admissions and advising centers as well as the academic calendar redesign at AIU.
  • Adjusted operating loss for the Transitional Group and Culinary Arts segments in the range of $40 million to $45 million in 2017, compared to adjusted operating loss of $30 million in 2016, and in the range of $10 million to $15 million in 2018 as the Company winds down the remaining eight teach-out campuses.
  • End of year cash, cash equivalents, restricted cash and available-for-sale short-term investments, net of any borrowings, as reported on the consolidated balance sheets of approximately $160 million to $165 million for the year ending December 31, 2017, and expected to increase in 2018.

Operating income (loss), which is the most directly comparable GAAP measure to adjusted operating income (loss), may not follow the same trends as discussed in the outlook above because of adjustments made for unused space charges that represent the present value of future remaining lease obligations for vacated space less an estimated amount for sublease income as well as depreciation, amortization, asset impairment charges and significant legal settlements. The operating income (loss) and adjusted operating income (loss) and cash outlook provided above for 2017 and 2018 are based on the following updated key assumptions and factors, among others: (i) prospective student interest in the Company's programs continues to trend in line with recent experiences, (ii) modest total enrollment growth within the University Group, (iii) availability and retention of qualified personnel for ongoing investments in our student support operations, (iv) achievement of recovery rates for the Company's real estate obligations and timing of any associated lease termination payments consistent with the Company's historical experiences, (v) no material changes in the legal or regulatory environment and excludes legal and regulatory liabilities which are not probable and estimable at this time, and any impact of new or proposed regulations, including the "borrower defense to repayment" regulations and the gainful employment regulation and any modifications thereto, and (vi) consistent working capital movements in line with historical operating trends and potential impacts of teach-out campuses on working capital in line with expectations. Although these estimates and assumptions are based upon management's good faith beliefs regarding current events and actions that may be undertaken in the future, actual results could differ materially from these estimates.

CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Thursday, November 2, 2017 at 5:30 p.m. Eastern time to discuss its third quarter and year to date 2017 results. Interested parties can access the live webcast of the conference call and the related presentation materials at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 844-378-6484 (domestic) or 412-542-4179 (international). Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. An archived version of the webcast will be accessible for 90 days at www.careered.com in the Investor Relations section of the website.

ABOUT CAREER EDUCATION CORPORATION

Career Education's academic institutions offer a quality education to a diverse student population in a variety of disciplines through online, campus-based and blended learning programs. The Company's two universities - American InterContinental University ("AIU") and Colorado Technical University ("CTU") - provide degree programs through the master's or doctoral level as well as associate and bachelor's levels. Both universities predominantly serve students online with career-focused degree programs that are designed to meet the educational demands of today's busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intelli path™ adaptive learning platform. Career Education is committed to providing quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

A listing of individual campus locations and web links to Career Education's institutions can be found at www.careered.com.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as "believe," "will," "expect," "estimate," "continue," "on track," "outlook," "trend" and similar expressions, are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on information currently available to us and are subject to various assumptions, risks, uncertainties and other factors that could cause our results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise such factors or any of the forward-looking statements contained herein to reflect future events, developments or changed circumstances, or for any other reason. These risks and uncertainties, the outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: declines in enrollment or interest in our programs; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the gainful employment, 90-10, financial responsibility and administrative capability standards prescribed by the U.S. Department of Education), as well as applicable accreditation standards and state regulatory requirements; the impact of recently issued "defense to repayment" regulations and any modifications thereto; rulemaking by the U.S. Department of Education or any state or accreditor and increased focus by Congress and governmental agencies on, or increased negative publicity about, for-profit education institutions; our ability to successfully defend litigation and other claims brought against us; the success of our initiatives to improve student experiences, retention and outcomes; the ability of our new student admissions and advising centers in Phoenix, Arizona, to achieve anticipated operating performance; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; our ability to achieve anticipated cost savings and business efficiencies; increased competition; the impact of management changes; and changes in the overall U.S. economy. Further information about these and other relevant risks and uncertainties may be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and its subsequent filings with the Securities and Exchange Commission.
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)
 
  September 30,   December 31,
2017   2016
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, unrestricted $ 16,276 $ 49,507
Restricted cash 789 1,375
Restricted short-term investments 7,070 8,597
Short-term investments   151,803   147,681
Total cash and cash equivalents, restricted cash and short-term investments 175,938 207,160
 
Student receivables, net 21,134 22,825
Receivables, other, net 996 929
Prepaid expenses 8,769 14,446
Inventories 991 1,868
Other current assets 1,112 817
Assets of discontinued operations   171   148
Total current assets   209,111   248,193
 
NON-CURRENT ASSETS:
Property and equipment, net 33,278 40,512
Goodwill 87,356 87,356
Intangible assets, net 7,900 8,500
Student receivables, net 2,622 3,055
Deferred income tax assets, net 147,990 158,272
Other assets 7,018 7,608
Assets of discontinued operations   5,922   6,105
TOTAL ASSETS $ 501,197 $ 559,601
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,780 $ 10,099
Accrued expenses:
Payroll and related benefits 31,646 41,203
Advertising and production costs 10,732 10,253
Income taxes 1,898 1,830
Other 35,127 69,244
Deferred tuition revenue 22,401 28,364
Liabilities of discontinued operations   6,434   8,219
Total current liabilities   120,018   169,212
 
NON-CURRENT LIABILITIES:
Deferred rent obligations 16,253 30,713
Other liabilities 23,384 31,751
Liabilities of discontinued operations   2,156   6,422
Total non-current liabilities   41,793   68,886
 
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 843 835
Additional paid-in capital 619,483 613,325
Accumulated other comprehensive income (loss) 144 (258 )
Accumulated deficit (63,745 ) (76,230 )
Cost of shares in treasury   (217,339 )   (216,169 )
Total stockholders' equity   339,386   321,503
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 501,197 $ 559,601
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts and percentages)
 
  For the Quarter Ended September 30,
  % of     % of
Total Total
2017 Revenue 2016 Revenue
REVENUE:    
Tuition and fees $ 144,408 99.6 % $ 166,819 99.5 %
Other   578 0.4 %   806 0.5 %
Total revenue   144,986   167,625
OPERATING EXPENSES:
Educational services and facilities 37,788 26.1 % 51,393 30.7 %
General and administrative 99,077 68.3 % 111,723 66.7 %
Depreciation and amortization   3,582 2.5 % 5,215 3.1 %
Total operating expenses   140,447 96.9 %   168,331 100.4 %
Operating income (loss)   4,539 3.1 %   (706 ) -0.4 %
OTHER INCOME (EXPENSE):
Interest income 474 0.3 % 334 0.2 %
Interest expense (114 ) -0.1 % (117 ) -0.1 %
Miscellaneous income   196 0.1 %   10 0.0 %
Total other income   556 0.4 %   227 0.1 %
PRETAX INCOME (LOSS) 5,095 3.5 % (479 ) -0.3 %
Provision for income taxes   1,597 1.1 %   21 0.0 %
 
INCOME (LOSS) FROM CONTINUING OPERATIONS 3,498 2.4 % (500 ) -0.3 %
Loss from discontinued operations, net of tax   (476 ) -0.3 %   (186 ) -0.1 %
NET INCOME (LOSS)   3,022 2.1 %   (686 ) -0.4 %
 
OTHER COMPREHENSIVE INCOME, net of tax:
Foreign currency translation adjustments 105 47
Unrealized gain on investments     370
Total other comprehensive income   105   417
COMPREHENSIVE INCOME (LOSS) $ 3,127 $ (269 )
 
NET INCOME (LOSS) PER SHARE - BASIC and DILUTED:
Income (loss) from continuing operations $ 0.05 $ (0.01 )
Loss from discontinued operations   (0.01 )  
Net income (loss) per share $ 0.04 $ (0.01 )
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic   69,082   68,460
Diluted   70,865   68,460
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

(In thousands, except per share amounts and percentages)
 
  For the Year to Date Ended September 30,
  % of     % of
Total Total
2017 Revenue 2016 Revenue
REVENUE:    
Tuition and fees $ 451,292 99.6 % $ 546,036 99.4 %
Other   2,025 0.4 %   3,101 0.6 %
Total revenue   453,317   549,137
OPERATING EXPENSES:
Educational services and facilities 114,367 25.2 % 170,993 31.1 %
General and administrative 304,158 67.1 % 337,358 61.4 %
Depreciation and amortization 11,368 2.5 % 16,986 3.1 %
Asset impairment   0.0 %   237 0.0 %
Total operating expenses   429,893 94.8 %   525,574 95.7 %
Operating income   23,424 5.2 %   23,563 4.3 %
OTHER INCOME:
Interest income 1,328 0.3 % 900 0.2 %
Interest expense (340 ) -0.1 % (469 ) -0.1 %
Miscellaneous income (expense)   489 0.1 %   (4 ) 0.0 %
Total other income   1,477 0.3 %   427 0.1 %
PRETAX INCOME 24,901 5.5 % 23,990 4.4 %
Provision for income taxes   11,143 2.5 %   8,776 1.6 %
 
INCOME FROM CONTINUING OPERATIONS 13,758 3.0 % 15,214 2.8 %
Loss from discontinued operations, net of tax   (1,273 ) -0.3 %   (1,050 ) -0.2 %
NET INCOME   12,485 2.8 %   14,164 2.6 %
 
OTHER COMPREHENSIVE INCOME, net of tax:
Foreign currency translation adjustments 368 143
Unrealized gain on investments   34   824
Total other comprehensive income   402   967
COMPREHENSIVE INCOME $ 12,887 $ 15,131
 
NET INCOME PER SHARE - BASIC and DILUTED:
Income from continuing operations $ 0.20 $ 0.22
Loss from discontinued operations   (0.02 )   (0.01 )
Net income per share $ 0.18 $ 0.21
 
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic   68,897   68,328
Diluted   70,660   68,889
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
 
  For the Year to Date Ended September 30,
2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,485 $ 14,164
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Asset impairment 237
Depreciation and amortization expense 11,368 16,986
Bad debt expense 21,516 23,201
Compensation expense related to share-based awards 3,616 2,251
Deferred income taxes 10,282 7,373
Gain on disposition of property and equipment (438 )
Changes in operating assets and liabilities:   (88,374 )   (47,510 )
Net cash (used in) provided by operating activities   (29,107 )   16,264
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investments (202,050 ) (137,755 )
Sales of available-for-sale investments 199,340 99,718
Purchases of property and equipment (3,426 ) (3,352 )
Proceeds on the sale of assets 3,600
Payments of cash upon sale of businesses     (62 )
Net cash used in investing activities   (6,136 )   (37,851 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,548 581
Payment on borrowings (38,000 )
Payments of employee tax associated with stock compensation   (1,170 )   (550 )
Net cash provided by (used in) financing activities   1,378   (37,969 )
 
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS:   48   (150 )
 
NET DECREASE IN CASH AND CASH EQUIVALENTS (33,817 ) (59,706 )
CASH AND CASH EQUIVALENTS, beginning of the period   50,882   116,740
CASH AND CASH EQUIVALENTS, end of the period $ 17,065 $ 57,034
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)
 
  For the Quarter Ended September 30,
2017   2016
REVENUE:  
CTU $ 91,319 $ 90,921
AIU   50,150   48,542
Total University Group 141,469 139,463
Corporate and Other    
Subtotal 141,469 139,463
Culinary Arts 2,367 21,369
Transitional Group   1,150   6,793
Total $ 144,986 $ 167,625
 
OPERATING INCOME (LOSS):
CTU $ 27,565 $ 21,486
AIU   2,256   291
Total University Group 29,821 21,777
Corporate and Other   (6,199 )   (5,587 )
Subtotal 23,622 16,190
Culinary Arts (14,027 ) (1,801 )
Transitional Group   (5,056 )   (15,095 )
Total $ 4,539 $ (706 )
 
OPERATING MARGIN (LOSS):
CTU 30.2 % 23.6 %
AIU   4.5 %   0.6 %
Total University Group 21.1 % 15.6 %
Corporate and Other NM NM
Subtotal 16.7 % 11.6 %
Culinary Arts NM -8.4 %
Transitional Group NM NM
Total   3.1 %   -0.4 %
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES
UNAUDITED SELECTED SEGMENT INFORMATION

(In thousands, except percentages)
 
  For the Year to Date Ended September 30,
2017   2016
REVENUE:  
CTU $ 276,558 $ 274,623
AIU   150,618   152,123
Total University Group 427,176 426,746
Corporate and Other    
Subtotal 427,176 426,746
Culinary Arts 19,302 89,990
Transitional Group   6,839   32,401
Total $ 453,317 $ 549,137
 
OPERATING INCOME (LOSS):
CTU $ 78,649 $ 70,693
AIU   7,987   9,036
Total University Group 86,636 79,729
Corporate and Other   (16,595 )   (17,160 )
Subtotal 70,041 62,569
Culinary Arts (25,039 ) 1,666
Transitional Group   (21,578 )   (40,672 )
Total $ 23,424 $ 23,563
 
OPERATING MARGIN (LOSS):
CTU 28.4 % 25.7 %
AIU   5.3 %   5.9 %
Total University Group 20.3 % 18.7 %
Corporate and Other NM NM
Subtotal 16.4 % 14.7 %
Culinary Arts NM 1.9 %
Transitional Group NM NM
Total   5.2 %   4.3 %
 
CAREER EDUCATION CORPORATION AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ITEMS (1)

(In thousands, unless otherwise noted)
 
  For the Quarter Ended September 30,     For the Year to Date Ended September 30,
ACTUAL ACTUAL

Adjusted Operating Income (Loss)
2017   2016 2017   2016

University Group and Corporate:
Operating income (2) (3) $ 23,622 $ 16,190 $ 70,041 $ 62,569
Depreciation and amortization (3) 2,605 2,594 7,695 8,474
Asset impairments (3) 237
Unused space charges (3) (4)         1,118
Adjusted Operating Income --

University Group and Corporate (5)
$ 26,227 $ 18,784 $ 77,736 $ 72,398
 
 

Transitional Group and Culinary Arts:
Operating loss (2) (6) $ (19,083 ) $ (16,896 ) $ (46,617 ) $ (39,006 )
Depreciation and amortization (6) 977 2,621 3,673 8,512
Unused space charges (4) (6)   7,347   4,983   11,158   14,123
Adjusted Operating Loss --

Transitional and Culinary Arts (5)
$ (10,759 ) $ (9,292 ) $ (31,786 ) $ (16,371 )
 
   
For the Second Half July-December 31, For the Year Ended December 31,
ACTUAL   OUTLOOK ACTUAL   OUTLOOK

Adjusted Operating Income (Loss)
2016 2017 2016 2017   2018

University Group and Corporate:
Operating income (2) (3) $ (1,662 ) $43 - $48M $ 44,717 $90 - $95M Growth vs 2017
Depreciation and amortization (3) 5,284 ~5M 11,164 ~10M 2017 levels
Asset impairments (3) None Assumed 237 None Assumed
Unused space charges (3) (4) 16 None Assumed 1,134 None Assumed
Significant legal settlements (3)   32,000 None Assumed   32,000 None Assumed
Adjusted Operating Income --

University Group and Corporate (5)
$ 35,638 $48 - $53M $ 89,252 $100 - $105M Growth vs 2017
 
 

Transitional Group and Culinary Arts:
Operating loss (2) (6) $ (54,951 ) ($31 - $36M) $ (77,061 ) ($59 - $64M) ($15 - $20M)
Depreciation and amortization (6) 5,692 ~1M 11,583 ~4M -
Asset impairments (6) 927 None Assumed 927 None Assumed
Unused space charges (4) (6)   25,579 ~11M   34,719 ~15M ~5M
Adjusted Operating Loss --

Transitional and Culinary Arts (5)
$ (22,753 ) ($19 - $24M) $ (29,832 ) ($40 - $45M) ($10 - $15M)
(1)   The Company believes it is useful to present non-GAAP financial measures which exclude certain significant and non-cash items as a means to understand the performance of its operations. As a general matter, the Company uses non-GAAP financial measures in conjunction with results presented in accordance with GAAP to help analyze the performance of its operations, assist with preparing the annual operating plan, and measure performance for some forms of compensation. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company's historical results and to provide estimates of future performance.
 
The Company believes adjusted operating income (loss) allows it to analyze and assess its ongoing operations and compare current operating results with the operational performance of other companies in its industry because it does not give effect to potential differences caused by items it does not consider reflective of underlying operating performance, such as unused space charges and significant legal reserves. In evaluating adjusted operating income (loss), investors should be aware that in the future the Company may incur expenses similar to the adjustments presented above. The presentation of adjusted operating income (loss) should not be construed as an inference that the Company's future results will be unaffected by expenses that are unusual, non-routine or non-recurring. Adjusted operating income (loss) has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for net income (loss), operating income (loss), or any other performance measure derived in accordance and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of liquidity.
 
Non-GAAP financial measures, when viewed in a reconciliation to corresponding GAAP financial measures, provide an additional way of viewing the Company's results of operations and the factors and trends affecting the Company's business. Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding financial results presented in accordance with GAAP.
 
(2) Operating income for the University Group and Corporate and operating loss for the Transitional Group and Culinary Arts make up the components of operating income (loss). A reconciliation of these components for the quarters and years to date ended September 30, 2017 and 2016 is presented below:
 
  For the Quarter Ended September 30,   For the Year to Date Ended September 30,
ACTUAL ACTUAL
2017   2016 2017   2016
Operating income for University Group and Corporate $ 23,622 $ 16,190 $ 70,041 $ 62,569
Operating loss for Culinary Arts and Transitional   (19,083 )   (16,896 )   (46,617 )   (39,006 )
Operating income (loss) $ 4,539 $ (706 ) $ 23,424 $ 23,563
(3)   Amounts relate to the University Group and Corporate.
 
(4) Unused space charges represent the net present value of remaining lease obligations for vacated space less an estimated amount for sublease income. These charges relate to exiting leased space as the Company continues to right-size the organization and therefore are not considered representative of ongoing operations.
 
(5) Management assesses results of operations for the University Group and Corporate separately from the Transitional Group and Culinary Arts. As the Transitional Group and Culinary Arts campuses have been announced for teach-out or have been taught out, management views these operations as not reflective of the ongoing business. As a result, management views adjusted operating income from the University Group and Corporate separately from the remainder of the organization, to assess results and make decisions.
 
(6) Amounts relate to the Transitional Group and Culinary Arts.
 

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