Market Overview

National American University Holdings, Inc. Reports Fiscal 2018 Second Quarter and Six Months Results

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Financial and Operational Highlights

  • Combined enrollment in graduate and doctoral programs increased 11.7% to 524 students during the FY 2018 second quarter (fall 2017 term) from the prior-year quarter.

  • Primary focus remains on stabilizing and increasing enrollment; credit hours enrolled for the fall 2017 term came in above previously provided expectations due to switch to monthly starts and improved marketing efforts.

  • Students enrolled in 59,081 credit hours in the FY 2018 second quarter, a 3.9% decrease from 61,451 credit hours during the prior fall term. Enrollment by total headcount decreased 13.8% from the prior-year period, to 6,241 students as of November 30, 2017, as a result of a decrease in continuing education and undergraduate & diploma students.

  • The Company filed its FY 2017 annual Title IV Compliance Report with the U.S. Department of Education during the FY 2018 second quarter and is pleased to report that its independent auditors identified no findings of noncompliance.

  • NAU signed a transfer agreement with Zenith Education Group to provide degree completion opportunities for approximately 800 students.

  • The Company expects to close the Henley-Putnam University asset purchase transaction in early 2018.

  • FY 2018 second quarter total revenue was $20.0 million, compared to $22.0 million in the prior-year period. The Company's total academic segment revenue was $19.4 million in the FY 2018 second quarter, compared to $21.7 million in the prior-year period.

  • FY 2018 second quarter net loss attributable to the Company was $(3.8) million, compared to $(0.8) million in the prior-year period, primarily as a result of decreased revenue on lower enrollment, investments in strategic growth initiatives, and $1.0 million in asset impairment charges primarily related to leasehold improvements at certain locations, as well as increased operating expenses related to condominium sales.

  • Balance sheet at November 30, 2017, included cash and cash equivalents and investments of $8.7 million, taxes receivable of $2.3 million, working capital of $4.4 million; no outstanding lending debt; and stockholders' equity of $21.4 million.

RAPID CITY, S.D., Jan. 03, 2018 (GLOBE NEWSWIRE) -- National American University Holdings, Inc. (the "Company") (NASDAQ:NAUH), which through its wholly owned subsidiary operates National American University ("NAU" or the "University"), a regionally accredited, proprietary, multi-campus institution of higher learning, today reported unaudited financial results for its fiscal 2018 second quarter and six months ended November 30, 2017.

Management Commentary

Enrollment
Ronald L. Shape, Ed.D., President and Chief Executive Officer of the Company, stated, "In the fall 2017 term, we began accepting students on a monthly basis, versus our previous practice of quarterly starts. The monthly starts had a positive impact on enrollment during the period, and we were pleased to see the year-over-year growth in our graduate and doctoral enrollments. We welcomed a new cohort of doctoral candidates in Texas during the fall term and are looking to launch an additional cohort in Ohio in the spring 2018 term. As a result of the monthly starts and students continuing to take advantage of the NAU Tuition Advantage plan, credit hours enrolled during the fall term came out to over 59,000, exceeding our previously provided projections. These factors had a positive impact on our top line, which helped to offset the effect of lower overall enrollment headcount."

Opportunities with Other Institutions
Dr. Shape continued, "We are in active discussions with institutions that are looking to transfer or teach out students that could provide us with opportunities to leverage our existing infrastructure and brand recognition to assist students in their educational goals. In this regard, we recently signed a transfer agreement with Zenith Education Group whereby NAU is working to provide approximately 800 students with degree completion opportunities. We believe this will have a positive impact on our enrollments in the current winter term.

"Following a successful visit from the Higher Learning Commission (‘HLC') in early November with regards to our planned acquisition of the assets of Henley-Putnam University, we maintain our expectation to close the transaction in early 2018, pending final approval from the HLC and other regulatory and accrediting bodies."

Recent Operating Initiatives Expected to Generate $1.5 Million in Savings
Dr. Shape concluded, "As we mentioned in our last earnings report, we have observed that our working adult student population has increasingly shown a propensity for NAU's online course delivery format. Given this trend, we are identifying ways in which we can build up and better support our students through our Distance Learning division. To support this effort, we have fully launched a second online enrollment center in Kansas City, Missouri, to expand upon our existing online operations in Rapid City, South Dakota. At the same time, we continue to look to optimize our ground operations. We have made efforts to cut costs over the past several quarters to bring our expenses in line with our revenues and current enrollment levels. In December, we made leadership and oversight consolidations that will result in approximately $1.5 million in savings. Taken all together, we expect the decisions made over the past few months to help the Company move toward generating positive cash flow while positioning NAU for long-term growth in a rapidly changing educational environment. Throughout this process, we remain committed to our students and their needs, making sure our academic programs and support systems adhere to the quality standard they have come to expect from NAU."

Operating Review

Enrollment Update

Total NAU student enrollment for the fall 2017 term was 6,241 students, compared to 7,240 during the prior fall term. Students enrolled in 59,081 credit hours, compared to 61,451 credit hours during the prior fall term. The current average age of NAU's students continues to be in the mid-30s, with those seeking undergraduate degrees remaining the highest portion of NAU's student population.

The following is a summary of student enrollment at November 30, 2017, and November 30, 2016, by degree level and by instructional delivery method:

 
    November 30, 2017
(Fall '17 Term)
  November 30, 2016
(Fall '16 Term)
    No. of
Students
  % of
Total
    No. of
Students
  % of
Total
 
Continuing Ed   15   0.2 %   300   4.1 %
Doctoral   101   1.6 %   110   1.5 %
Graduate   423   6.8 %   359   5.0 %
Undergraduate & Diploma   5,702   91.4 %   6,471   89.4 %
                     
Total   6,241   100.0 %   7,240   100.0 %
                     
    No. of
Credits
  % of
Total
    No. of
Credits
  % of
Total
 
On-Campus   8,180   13.8 %   8,254   13.4 %
Online   45,124   76.4 %   48,478   78.9 %
Hybrid   5,777   9.8 %   4,719   7.7 %
                     
Total   59,081   100.0 %   61,451   100.0 %
                     

Financial Review

The Company, through its wholly owned subsidiary, operates in two business segments: academics, which consists of NAU's undergraduate, graduate, and doctoral education programs and contributes the primary portion of the Company's revenue; and ownership in and development of multiple apartments and condominium complexes from which it derives sales and rental income. The real estate operations generated approximately 3.0% of the Company's revenue for the quarter ended November 30, 2017.

Fiscal 2018 Second Quarter Financial Results

  • Total revenue for the FY 2018 second quarter was $20.0 million, compared to $22.0 million in the same period last year. Academic tuition revenue was $18.5 million, compared to $20.3 million in the prior-year period. Auxiliary (bookstore) revenue was $0.9 million for the FY 2018 second quarter, compared to $1.4 million in the prior-year period. This decrease in academic revenue was primarily a result of a decrease in enrollment, which was partially offset by the new NAU Tuition Advantage plan that was approved by NAU's board of governors in November 2016 and became effective in March 2017.

  • For the FY 2018 second quarter, educational services expense was $6.4 million, or 33.0% of total academic segment revenue, compared to $6.5 million, or 30.0%, for the FY 2017 second quarter. Educational services expense specifically relates to academics, and includes salaries and benefits of faculty and academic administrators, costs of educational supplies, faculty reference and support material and related academic costs.

  • During the FY 2018 second quarter, SG&A expenses decreased to $15.3 million, or 76.5% of total revenue, from $15.4 million, or 70.2%, in the prior-year period. This percentage increase was primarily a result of fixed costs on a decreasing revenue base and additional expense to launch new programs and transfer programs for closing institutions. Expenses related to growth initiatives such as the College of Military Studies, Canada enrollments, and the new online enrollment center totaled $1.3 million in the FY 2018 second quarter, compared to $0.4 million for the same initiatives in the prior-year quarter.

  • Loss before income taxes and non-controlling interest for the FY 2018 second quarter was $(3.7) million, compared to $(1.1) million in the same period last year, primarily as a result of decreased revenue on lower enrollment, as well as increased operating expenses related to condominium sales and $1.0 million in asset impairment charges primarily related to leasehold improvements at certain locations.

  • Net loss attributable to the Company for the FY 2018 second quarter was $(3.8) million, or ($0.16) per diluted share based on 24.2 million shares outstanding, compared to net loss attributable to the Company of $(0.8) million, or ($0.03) per diluted share based on 24.1 million shares outstanding, in the prior-year period, as a result of the reasons mentioned above and a $0.5 million reduction in benefit from income taxes.

  • Losses before interest, tax, and depreciation and amortization ("LBITDA") for the FY 2018 second quarter were ($2.3) million, compared to EBITDA of $0.3 million in the prior-year period. A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.

Fiscal 2018 Six Months Financial Results

  • Total revenues for the first six months of FY 2018 were $39.8 million, compared to $43.1 million in the prior-year period. The total academic segment revenue was $38.7 million, compared to $42.5 million in the prior-year period, as a result of the decrease in enrollment. The Company continues to execute on its strategic plan, which includes growing enrollments at its current existing locations by investing in new program development and expansion, academic advisor support, and student retention initiatives, while right-sizing operations to be in line with the needs of its student population.

  • NAU's educational services expense for the first six months of FY 2018 was $13.3 million, or 34.4% of the total academic segment revenue, compared to $13.0 million, or 30.5%, in the prior-year period.

  • During the first six months of FY 2018, SG&A expenses decreased to $30.8 million, or 77.4% of total revenues, compared to $31.9 million, or 74.0%, in the prior-year period.

  • Loss before income taxes and non-controlling interest for the first six months of FY 2018 was $(7.8) million, compared to loss before income taxes and non-controlling interest of $(4.2) million in the prior-year period, primarily as a result of decreased revenues offset by lower SG&A expenses.

  • Net loss attributable to the Company during the first six months of FY 2018 was $(7.6) million, or $(0.31) per diluted share based on 24.2 million shares outstanding, compared to net loss attributable to the Company of $(2.8) million, or $(0.12) per diluted share based on 24.1 million shares outstanding, in the prior-year period.

  • LBITDA for the first six months of FY 2018 were $(5.0) million, compared to LBITDA of $(1.2) million in the prior-year period.  A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.
           
Balance Sheet Highlights          
(in millions except for percentages)   11/30/2017   5/31/2017 % Change
Cash and Cash Equivalents/Investments $ 8.7* $ 16.2 (46.2) %
Working Capital   4.4   11.2 (61.3) %
Other Long-term Liabilities   3.1   4.0 (23.2) %
Stockholders' Equity   21.4   29.9 (28.6) %
           

*Decrease in cash was primarily the result of expenditures related to lease terminations, operating loss, the dividends, and the construction of Arrowhead Apartments.

Conference Call Information

Management will discuss these results in a conference call (with accompanying presentation) on Thursday, January 4, 2018, at 11:00 a.m. ET.

The dial-in numbers are:
(877) 407-9078 (U.S.)
(201) 493-6745 (International)

Accompanying Slide Presentation and Webcast
The Company will have an accompanying slide presentation available in PDF format at the "Investor Relations" section of the NAU website at http://investors.national.edu. The presentation will be made available 30 minutes prior to the conference call.  In addition, the call will be simultaneously webcast over the Internet via the "Investor Relations" section of the NAU website or by clicking on the conference call link: http://national.equisolvewebcast.com/q2-2018.  

About National American University Holdings, Inc.
National American University Holdings, Inc., through its wholly owned subsidiary, operates National American University, a regionally accredited, proprietary, multi-campus institution of higher learning offering associate, bachelor's, master's, and doctoral degree programs in technical and professional disciplines. Accredited by the Higher Learning Commission, NAU has been providing technical and professional career education since 1941. NAU opened its first campus in Rapid City, South Dakota, and has since grown to multiple locations in several U.S. states. In 1998, NAU began offering online courses. Today, NAU offers degree programs in traditional, online, and hybrid formats, which provide students increased flexibility to take courses at times and places convenient to their busy lifestyles.

Forward Looking Statements
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the Company's business. Statements made in this release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this release and are based on current beliefs and expectations and involve a number of assumptions. These forward-looking statements include outlooks or expectations for earnings, revenue, expenses or other future financial or business performance, strategies or expectations, or the impact of legal or regulatory matters on business, results of operations or financial condition. Specifically, forward-looking statements may include statements relating to the future financial performance of the Company; the ability to continue to receive Title IV funds; the growth of the market for the Company's services; expansion plans and opportunities; consolidation in the market for the Com

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