The Apollo Education has admitted that it has failed to meet expectations set in terms of profit and revenue for the third quarter of fiscal year 2015. During the 3rd quarter Apollo Education Group Inc. Earnings Call, Apollo Education Group, Inc.’s Interim CFO Joe D’Amico has revealed that in the third quarter, the revenue earned was only $682 million. This puts them about $8 million short of their minimum outlook of $690 million. Moreover, it shows that the revenue has decreased by 14%.
Because of what has happened, Apollo Education Group has also found itself revising its outlook for the rest of fiscal year 2015. Instead of expecting their net revenue to fall within $2.63 billion to $2.68 billion, they are now forecasting it to be between $2.6 billion and $2.62 billion. Moreover, the outlook for its operating income, with the exclusion of special items, has been reduced rather sharply to a range of $190 million to $200 million instead of $200 million to $230 million. This, as D’Amico says, is due largely to a poor outlook with regard to student enrollment and retention.
As far as enrollments and retentions go, the Apollo Group has put focus on its University of Phoenix. In fact, Apollo Education Group, Inc. CEO Greg Cappelli has referred to this university as their “primary asset” despite the challenging times.
The third quarter did not work out so well for the University of Phoenix as D’Amico reported that its enrollment of new students went down by 13.3%, equivalent to about 29,400 students. Meanwhile, total degree enrollments was just at 206,900, reflecting a decline of 14%. In addition, they are expecting that fiscal year 2015 will end with the university having about 195,000 to 200,000 students.
Furthermore, CNN Money has also found that the University of Phoenix had let go of as much as 900 employees since September. Put another way, that comes out to roughly three workers being terminated every day. However, CNN has also learned that the only employees affected were those who served non-classroom positions, including those who worked in admissions and financial services. Professors were reportedly not affected by the recent cycle of layoffs at all.
During the earnings conference call, Cappelli has also stated a not-so-grim outlook for the University of Phoenix. According to him, 2014 actually saw the introduction of a risk-free period for freshmen. Before that, they had also “implemented responsible borrowing tools and calculators beginning in the spring of 2011 to make the cost of college transparent to prospective students and to encourage students to make smart financial choices.”
Such initiatives were not without cost as Cappelli explains, “Now, I mention some of these things because, while they were clearly appropriate, there’s no doubt these initiatives also took a toll on our operating and financial performance during the period, a period where the reputation at the University of Phoenix was tarred by the broader environment and damaged in the public eye. Looking over the landscape today there are multiple examples of educational institutions either in serious jeopardy or literally going out of business. It’s clear how important it was to take the bold steps we did, which allows us to be a more respected institution today.” Moreover, the university has also managed to lower its student cohort default year by nearly 30%.
Cappelli has also introduced several plans for the university that includes removal of associate degree programs that have lower retention rates as well as consolidating start dates to give incoming students more time to prepare. Moreover, the university is also focused on “developing enhanced capabilities in the areas of student self service, including financial aid, academic planning, scheduling, and the application process.”
When it comes to enrollments, Cappelli is quick to admit that things may get worse before they get better. He remarked, “We’re initially modeling about 150,000 total students at the end of FY16. That’s about 50,000 students less than FY15, which we then expect to stabilize in 2017 and grow thereafter.”
Meanwhile, Barrons reports that shares for Apollo Education went down by 17%. Moreover, benzinga has learned that the Bank of America has downgraded Apollo Education from Netural to Underperform while lowering it stock price target from $20 to $14.