Apollo Group Inc. (APOL), one of the world’s largest private education providers, reported net revenues of $1070.3 million in the second quarter of fiscal 2010, compared to $869.5 million in the year-earlier quarter – an increase of 23.1%. The increase in the revenues was primarily due to a 15.3% year-over-year increase in total Degreed Enrollment in University of Phoenix and $53.6 million in revenue from recently acquired BPP Holdings, an U.K. based provider of education and training services.
Net income for the quarter was $103.2 million or 67 cents per share, compared to $128.8 million or 79 cents per share in the year-ago period. The decrease in year-over-year quarterly earnings was mostly due to one-time non-recurring pre-tax charges of $44.5 million related to a securities class action lawsuit. Excluding the one-time items, Apollo reported net income of $130.1 million or 84 cents per share during the quarter vis-à-vis $128.8 million or 79 cents per share in the year-earlier quarter.
Instructional costs and services increased to $517.3 million during the quarter, from $364.4 million in the year-ago quarter, primarily due to the acquisition of BPP, as its cost structure is more skewed towards instructional costs and services. Apollo also reported higher bad debt expense for University of Phoenix, which increased 280 basis points during the quarter to 6.9% (as a percentage of revenue) versus 4.1% in the year-earlier quarter.
The increase in bad debt expense was mainly attributable to lower collection rates, which declined due to the prolonged economic downturn, and increase in receivables from students enrolled in associate’s degree programs. Consequently, Apollo is gradually shifting its focus in student enrollments towards bachelor degree level students who have a reasonable chance to succeed than the associate degree students.
Selling and promotional expenses increased 17.3% during the quarter to $263.5 million. The increase was mostly due to higher investments in non-internet long-term branding initiatives of the University of Phoenix. General and administrative expenses also increased 3.7% year-over-year to $72.0 million. At quarter end, Apollo had cash and cash equivalents of $660.8 million, compared to $968.2 million in the year-earlier quarter. The decrease in liquidity was primarily due to the repayment of debt and utilization of cash for share repurchases. During the quarter, Apollo repurchased 3.4 million shares at $59.61 each for a total of $200 million. At quarter end, approximately $800.0 million remained available under the share repurchase authorization. Total debt decreased by $413.0 million to $176.1 million during the quarter, largely due to the repayment of the $500 million credit facility.
With continued transition phase of the business, Apollo expects net revenues of $1.3 billion during fiscal 2010 third quarter with earnings of approximately $1.55 per share.
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