Market Overview

National American University Holdings, Inc. Reports Fiscal 2018 Fourth Quarter and Year-End Results

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Company to host conference call on August 16, 2018, at 11:00 a.m. ET

Financial and Operational Highlights

  • Credit hour enrollment in NAU's online operation increased 48% during the FY 2018 fourth quarter (spring 2018 term) from the prior-year fourth quarter as the online division continues to be a major focus. Likewise, credit hour enrollments for its military and Canada divisions increased 188% and 121%, respectively, year over year.
  • Combined enrollment in graduate and doctoral programs increased 20.7% to 560 students during the FY 2018 fourth quarter from the prior-year fourth quarter.
  • Students enrolled in 53,227 credit hours in the FY 2018 fourth quarter, a 13.8% decrease from 61,771 credit hours during the prior-year fourth quarter, primarily due to a 6,126 year-over-year decrease in credit hours enrolled by teach-out students. Similarly, enrollment by total headcount decreased 15.7% from the prior-year fourth quarter, to 5,648 students as of May 31, 2018, as a result of a decrease in continuing education and undergraduate & diploma students. Continuing education enrollment numbers have steadily decreased in recent terms due to the discontinuation of NAU's workforce development initiative to allow greater focus on other long-term enrollment growth areas. Excluding these students who enrolled in one-off courses, enrollment decreased 14.4% year over year. However, credit hours per student increased to 9.4 in the spring 2018 term, compared to 9.2 in the spring 2017 term.
  • The Company closed on the Henley-Putnam University asset purchase transaction in March 2018 and continues to integrate the curriculum into its D2L platform while working to quickly and seamlessly transition students who were active in their Henley-Putnam coursework into NAU's system.
  • As previously announced on March 22, 2018, NAU has consolidated several underutilized physical locations into existing operations. NAU recently liquidated two previously closed locations through cash buy-outs (Allen, TX and Tigard, OR), will be liquidating four additional locations through lease terminations (Albuquerque East, NM; Colorado Springs North, CO; Wichita West, KS; and Watertown, SD), and has successfully signed a sub-lease for the Austin South, TX location. The Company continues to utilize remaining locations while actively looking at opportunities to reduce its operating lease obligation. Through regular monthly payments, exercise of early termination options, and buy-outs, the Company was able to reduce its operating lease obligation by $8.0 million during the year ended May 31, 2018, and anticipates continued decreases in operating lease obligation in years to come.
  • FY 2018 fourth quarter total revenue was $19.1 million, compared to $22.1 million in the prior-year fourth quarter. The Company's total academic segment revenue was $18.2 million in the FY 2018 fourth quarter, compared to $21.9 million in the prior-year fourth quarter.
  • FY 2018 fourth quarter net loss attributable to the Company was $(0.8) million, compared to $(0.9) million in the prior-year fourth quarter, primarily as a result of $3.7 million decrease in operating expenses as a result of the Company's cost-cutting initiatives aimed at better aligning costs with current enrollment levels and student needs.
  • Earnings before interest, tax, and depreciation and amortization ("EBITDA") for the FY 2018 fourth quarter increased to $0.5 million, from $0.2 million in the prior-year fourth quarter. The last time the Company achieved positive EBITDA was in the FY 2017 fourth quarter ended May 31, 2017. A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.
  • FY 2018 annual revenues were $77.2 million, compared to $86.6 million in the prior year. The Company's total academic segment revenue was $74.8 million, compared to $85.4 million in the prior year.
  • FY 2018 annual net loss attributable to the Company was $(12.2) million, compared to $(6.3) million in the prior year, primarily as a result of lower revenues, investments in strategic growth initiatives, and $2.3 million in asset impairment charges primarily related to leasehold improvements at certain consolidated locations, partially offset by lower operating expenses. Excluding the $2.3 million in impairment charges, the Company would have reported net loss attributable to the Company of $(9.9) million, versus a loss of $(12.2) million for FY 2018.
  • The May 31, 2018, balance sheet included cash, cash equivalents and investments of $5.3 million, restricted cash of $9.3 million, taxes receivable of $0.1 million, working capital deficit of $0.7 million, long-term debt of $7.2 million, and stockholders' equity of $17.0 million.

RAPID CITY, South Dakota, Aug. 15, 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-location institution of higher learning, today reported unaudited financial results for its fiscal 2018 fourth quarter and audited financial results for its fiscal year ended May 31, 2018. 

Management Commentary

Ronald L. Shape, Ed.D., President and Chief Executive Officer of the Company, stated, "We were very pleased to close on the Henley-Putnam asset acquisition in the FY 2018 fourth quarter. Following the completion of this transaction, Henley-Putnam University's distinctive curricula in the areas of intelligence, strategic security, cybersecurity, and counterterrorism studies were integrated into NAU's Henley-Putnam School of Strategic Security, housed under our College of Military Studies. We worked closely with students who were active in their Henley-Putnam coursework as of the date of closing to smoothly transition them into NAU for the spring 2018 term, and as a direct result, credit hours enrolled under the military category nearly tripled in spring 2018. We are now exploring partnerships with the military and within the private sector, which we believe will accelerate the growth of our military student population. In fact, we saw significant credit hour growth in four of our five operational drivers—undergraduate online, Canada, military, and graduate divisions. The on-ground division continues to be the one area with enrollment declines, and we continue to review additional consolidation efforts to ensure our physical locations are fulfilling a need in a local market. Organic growth of our online operation continues to be a major focus, and we achieved nearly 50% credit hour growth in that area during the spring 2018 term. To continue this positive momentum, we recently brought on a new President of Online Operations, Mr. Jerrad Tausz, who boasts 20 years of experience in strategic operations and recruitment in the higher education industry. Jerrad comes to NAU after over 15 years of work at Apollo Education Group (which operates the University of Phoenix) where he served as Chief Operating Officer from 2011 to 2016. Having served as a faculty member at the University of Phoenix for several years before working up the leadership chain, we believe Jerrad possesses the skills and firsthand experience to effectively grow NAU's online operations to its full potential."

Dr. Shape continued, "As we continue to focus on stabilizing and increasing enrollments, we remain cognizant that our costs should remain in line with current enrollment levels. As such, in early 2018, NAU made the decision to improve and expand upon the online and mobile services we offer to our students given their increasing preference for these communication methods, while consolidating underutilized on-ground operations. We have successfully liquidated some physical locations and are actively working to liquidate the others. In the interim, the University is utilizing remaining locations but, in line with the consolidations, made some additional staffing reductions in the FY 2018 fourth quarter, which will result in approximately $3 million in savings annually. As we move forward, our students remain our first priority. NAU is committed to its non-negotiables of quality academic programming and regulatory compliance, and we believe the work we have done in FY 2018 continues to position our institution for success financially and operationally in FY 2019 and beyond."

Operating Review

Enrollment Update

Total NAU student enrollment for the spring 2018 term was 5,648 students, compared to 6,703 during the prior spring term. Students enrolled in 53,227 credit hours, compared to 61,771 credit hours during the prior spring 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 May 31, 2018, and May 31, 2017, by degree level and by instructional delivery method:

    May 31, 2018
(Spring '18 Term)
  May 31, 2017
(Spring '17 Term)
    No. of
Students
  % of
Total
    No. of
Students
  % of
Total
 
Continuing Ed   59   1.0 %   170   2.5 %
Doctoral   111   2.0 %   98   1.5 %
Graduate   449   8.0 %   366   5.5 %
Undergraduate & Diploma   5,029   89.0 %   6,069   90.5 %
                     
Total   5,648   100.0 %   6,703   100.0 %
                     
    No. of
Credits
  % of
Total
    No. of
Credits
  % of
Total
 
On-Campus   4,686   8.8 %   12,209   19.8 %
Online   43,319   81.4 %   44,191   71.5 %
Hybrid   5,222   9.8 %   5,372   8.7 %
                     
Total   53,227   100.0 %   61,771   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 4.8% of the Company's revenue for the fiscal quarter ended May 31, 2018.

Fiscal 2018 Fourth Quarter Financial Results

  • Total revenue for the FY 2018 fourth quarter was $19.1 million, compared to $22.1 million in the prior-year fourth quarter. Of this amount, academic tuition revenue was $17.3 million, compared to $20.7 million in the prior-year fourth quarter, and auxiliary (bookstore) revenue was $1.0 million for the FY 2018 fourth quarter, compared to $1.1 million in the prior-year fourth quarter. 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.
  • Educational services expense for the FY 2018 fourth quarter decreased to $6.6 million, or 36.2% of total academic segment revenue, from $7.1 million, or 32.3%, in the prior-year fourth 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.
  • SG&A expenses for the FY 2018 fourth quarter decreased to $11.6 million, or 60.3% of total revenue, from $14.4 million, or 65.1%, in the prior-year fourth quarter. The percentage decrease was a direct result of the Company's cost-cutting initiatives aimed at better aligning costs with current enrollment levels and student needs.
  • Loss before income taxes and non-controlling interest for the FY 2018 fourth quarter improved to $(0.8) million, from $(1.2) million in the prior-year fourth quarter, as a result of decreased operating expenses.
  • Net loss attributable to the Company for the FY 2018 fourth quarter was $(0.8) million, or ($0.04) per diluted share based on 24.3 million shares outstanding, compared to net loss attributable to the Company of $(0.9) million, or ($0.04) per diluted share based on 24.2 million shares outstanding, in the prior-year fourth quarter.
  • EBITDA for the FY 2018 fourth quarter increased to $0.5 million, from $0.2 million in the prior-year fourth quarter. A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.
  • Adjusted EBITDA for the FY 2018 fourth quarter, which excludes loss on course development impairment, loss on lease termination and acceleration, and loss on impairment and disposition of property and equipment, was $0.9 million, compared to $1.3 million in the prior-year fourth quarter. A table reconciling Adjusted EBITDA/LBITDA to net loss can be found at the end of this release.

Fiscal 2018 Financial Results

  • Total revenues for FY 2018 were $77.2 million, compared to $86.6 million in the prior year. Of this amount, total academic segment revenue was $74.8 million, compared to $85.4 million in the prior year, 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 adjusting operation size to be in line with the needs of its student population.
  • NAU's educational services expense for FY 2018 was $26.1 million, or 35.0% of the total academic segment revenue, compared to $27.7 million, or 32.3%, in the prior year.
  • In FY 2018, SG&A expenses decreased to $56.2 million, or 72.8% of total revenues, compared to $61.6 million, or 71.2%, in the prior year. The 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 $6.3 million in FY 2018, compared to $1.7 million for the same initiatives in FY 2017.
  • Loss before income taxes and non-controlling interest for FY 2018 was $(12.3) million, compared to $(7.8) million in the prior year, primarily driven by decreased revenues offset by lower SG&A expenses.
  • Net loss attributable to the Company for FY 2018 was $(12.2) million, or $(0.50) per diluted share based on 24.2 million shares outstanding, compared to $(6.3) million, or $(0.26) per diluted share based on 24.2 million shares outstanding, in the prior year.
  • Losses before interest, tax, and depreciation and amortization ("LBITDA") for FY 2018 were $(6.9) million, compared to LBITDA of $(1.9) million in the prior year. A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.
  • Adjusted LBITDA for FY 2018, which excludes loss on course development impairment, loss on lease termination and acceleration, and loss on impairment and disposition of property and equipment, was $(4.0) million, compared to Adjusted LBITDA of ($0.8) million in the prior year. A table reconciling Adjusted EBITDA/LBITDA to net loss can be found at the end of this release.

Balance Sheet Highlights

(in millions except for percentages)   5/31/2018     5/31/2017 % Change
Cash and Cash Equivalents/Investments $ 5.3 * $ 16.2 (67.0)%
Working Capital (Deficit)   (0.7 )   11.2 N/A   
Other Long-term Liabilities   2.7     4.0 (33.0)%
Stockholders' Equity   17.0     29.9 (43.3)%
             
*Decrease in cash was primarily the result of expenditures related to lease terminations, operating loss, dividends, and the Henley-Putnam University asset purchase transaction. 
             

Conference Call Information

Management will discuss these results in a conference call (with accompanying

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