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Apollo Group Shares Tumble on Lower Revenues | Equity Strategies


17 October 2012 | Education | Apollo Group Inc.

Apollo Group Shares Tumble on Lower Revenues

Apollo Group revenues fall 11% in Q4 prompting the share price to fall 24.1%, a new low.

Apollo Group, Inc. today reported financial results for the three months and fiscal year ended August 31, 2012.

  • Net revenue of $996.5m  for fourth quarter 2012 (2011 Q4: $1,120m), down 11% and $4.253bn for fiscal year 2012 (2011: $4.7bn) down 9%.
  • Earnings per share attributable to Apollo for fourth quarter 2012 of $0.47 per share (2011 Q4: $1.39 per share) and $3.22 per share for fiscal year 2012 (2011: $4.01 per share) 
  • University of Phoenix Degreed Enrollment at 328,400 and New Degreed Enrollment in the fourth quarter at 52,800
  • Initiatives to re-engineer business processes and refine the delivery structure, including a University of Phoenix ground location realignment, expected to reduce annual operating expenses by at least $300 million by 2014

This past year, we have made great strides in executing on our strategy to differentiate University of Phoenix, diversify Apollo Group, and refine our business processes and delivery structure to be more efficient and effective, while providing a world-class student experience,” said Apollo Group Chief Executive Officer and Apollo Global Chairman Greg Cappelli. “As we build the university of the future, our priority is to connect education to careers for our students, helping them achieve their desired academic and life outcomes.”

Unaudited Fourth Quarter Fiscal Year 2012 Results of Operations

Net revenue for the fourth quarter of fiscal year 2012 totaled $996.5 million, a decline of 11.0% due principally to lower University of Phoenix enrollment, partially offset by selective tuition price and other fee changes. For the quarter, University of Phoenix Degreed Enrollment decreased 13.8% to 328,400 and new enrollments decreased 13.7% compared to the fourth quarter of fiscal year 2011. The decline in new enrollments was due to changing regulatory requirements, an improving job market, robust competition and a volatile economy.

In the fourth quarter of 2012, the company’s Associates Degree revenue was $237.7 million, down 26% year on year; Bachelor’s Degree revenue was $560.4 million, down 3.5%, Master’s Degree revenue declined 13% to $152.2 million and Doctoral Degree revenue was $21.7 million, down 8.1%.

Adjusted operating margins (excluding restructuring and other charges) were 10% in the quarter, down from just over 20% in 2011. Apollo had cash and cash equivalents of $1.28 bn as of August 31, 2012 (2011: $1.57bn).

On October 12, 2012, the company bought the remaining 14.4% non-controlling ownership in Apollo Group from The Carlyle Group for $42.5 million in cash, in addition of a contingent payment based on the performance of BPP until August 31, 2017.

The company intends to re-design its programs to increase the employability of its students. Also the company is coordinating with 2,000 other companies to educate their workforces. The company says it is receiving good response from this channel.

The company has issued the net revenue guidance range of $3.65 to $3.80 billion for 2013. The company expects new degreed enrollment growth to become positive some time in 2013. Adjusted operating income is expected to be in the range of $525 to $575 million in 2013. 


​The problems at Apollo have been well documented. The recession continues to place pressure on Federal education budgets and deter young people from taking on debt for courses which do not guarantee better jobs and higher salaries. Competition from more affordable not-for profit educational providers and low cost distance learning companies are hurting the largely campus based for profit companies, such as Apollo. The risk of adverse changes to the regulatory regime also weigh heavily on the Company. Apollo's shares have now fallen by 75% since 2009 and trade on a price earnings multiple of around 8.0x.

It is rare to find a company generating mid-teen operating margins, returns on tangible assets in excess of 20% and with low gearing, valued so cheaply. The Company has guided a 15% fall in revenues in 2013 (worse case) and a 23% fall in operating profits (worse case). Operating margins are anticipated to fall slightly to just below 15% helped by cost cutting and returns on tangible assets are anticipated to drop from an impressive 30% to 23.5% in 2013.  

Although, Apollo is still delivering impressive financial performance metrics, the threat comes from falling enrollments and the threat of regulatory changes. The closure of almost half of its campus and the increasing emphasis on online distance learning suggest the Company is committed to the revolution necessary to safeguard its future.

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