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

Company to host conference call on January 4, 2018, at 11:00 a.m. ET

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.”

/EIN News/ -- 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 Company’s services generally; and other statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. These forward-looking statements involve a number of known and unknown risks and uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by those forward-looking statements. Other factors that could cause the Company’s results to differ materially from those contained in its forward-looking statements are included under, among others, the heading “Risk Factors” in the Company’s Annual Report on Form 10-K, which the Company filed on August 4, 2017, and in its other filings with the Securities and Exchange Commission.  The Company assumes no obligation to update the information contained in this release.

Contact Information:
National American University Holdings, Inc.
Dr. Ronald Shape
605-721-5220
rshape@national.edu

Investor Relations Counsel
The Equity Group Inc.
Carolyne Y. Sohn
415-568-2255
csohn@equityny.com

Adam Prior
212-836-9606
aprior@equityny.com

   
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES  
                   
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME  
FOR THE THREE MONTHS AND SIX MONTHS ENDED NOVEMBER 30, 2017 AND 2016          
(In thousands, except share and per share amounts)                  
                   
    Three Months Ended   Six Months Ended  
    November 30,   November 30,  
      2017       2016       2017       2016    
REVENUE:                  
Academic revenue   $ 18,494     $ 20,276     $ 36,684     $ 39,714    
Auxiliary revenue     931       1,414       1,975       2,808    
Rental income — apartments     358       293       700       591    
Condominium sales       235         -          455         -     
                   
Total revenue       20,018         21,983         39,814         43,113    
                   
OPERATING EXPENSES:                  
Cost of educational services     6,411       6,497       13,311       12,965    
Selling, general and administrative     15,308       15,425       30,816       31,907    
Auxiliary expense     652       1,054       1,393       2,103    
Cost of condominium sales     191       -       427       -    
Loss on lease termination     -       -       362       -    
Loss on disposition of property       1,036          -          995          6     
                   
Total operating expenses       23,598          22,976          47,304          46,981     
                   
OPERATING LOSS       (3,580 )       (993 )       (7,490 )       (3,868 )  
                   
OTHER INCOME (EXPENSE):                  
Interest income     29       27       49       49    
Interest expense     (208 )     (214 )     (417 )     (428 )  
Other income — net       43          32          87          69     
                   
Total other expense       (136 )       (155 )       (281 )       (310 )  
                   
LOSS BEFORE INCOME TAXES     (3,716 )     (1,148 )     (7,771 )     (4,178 )  
                   
INCOME TAX BENEFIT (EXPENSE)       (56 )       406          185          1,397     
                   
NET LOSS     (3,772 )     (742 )     (7,586 )     (2,781 )  
                   
NET INCOME  ATTRIBUTABLE TO NON-CONTROLLING INTEREST       (5 )       (10 )       (19 )       (27 )  
                   
NET LOSS ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY  HOLDINGS, INC. AND SUBSIDIARIES     (3,777 )     (752 )     (7,605 )     (2,808 )  
                   
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX                  
Unrealized (losses) gains on investments, net of tax benefit (expense)       1          (9 )       (5 )       (5 )  
                   
COMPREHENSIVE LOSS ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. $     (3,776 )   $     (761 )   $     (7,610 )   $     (2,813 )  
                   
Basic net loss attributable to National American University Holdings, Inc.   $ (0.16 )   $ (0.03 )   $ (0.31 )   $ (0.12 )  
Diluted net loss attributable to National American University Holdings, Inc.   $ (0.16 )   $ (0.03 )   $ (0.31 )   $ (0.12 )  
Basic weighted average shares outstanding     24,219,884       24,148,355       24,200,096       24,131,231    
Diluted weighted average shares outstanding     24,219,884       24,148,355       24,200,096       24,131,231    
                   


     
NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES    
       
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET      
AS OF NOVEMBER 30, 2017 AND CONDENSED      
CONSOLIDATED BALANCE SHEET AS OF MAY 31, 2017      
(In thousands, except share and per share amounts)      
  November 30,   May 31,
    2017       2017  
ASSETS       
CURRENT ASSETS:      
Cash and cash equivalents $ 5,123     $ 11,974  
Available for sale investments $ 3,566     $ 4,183  
Student receivables — net of allowance of $843 and $1,195 at November 30, 2017      
and May 31, 2017, respectively $ 2,934     $ 2,895  
Other receivables $ 253     $ 458  
Income taxes receivable $ 2,303     $ 2,301  
Prepaid and other current assets $ 1,298     $ 1,649  
Total current assets $ 15,477     $ 23,460  
Total property and equipment - net $ 28,929     $ 31,318  
OTHER ASSETS:      
Condominium inventory $ 190     $ 621  
Land held for future development $ 229     $ 229  
Course development — net of accumulated amortization of $3,454 and $3,322 at      
November 30, 2017 and May 31, 2017, respectively $ 1,086     $ 1,111  
Deferred income taxes $ 9     $ -  
Other $ 730     $ 853  
Total other assets $ 2,244     $ 2,814  
TOTAL $ 46,650     $ 57,592  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Current portion of capital lease payable $ 355     $ 331  
Accounts payable $ 3,305     $ 3,076  
Dividends payable $ -     $ 1,094  
Income taxes payable $ 131     $ 113  
Deferred income $ 1,975     $ 1,691  
Accrued and other liabilities $   5,355     $   5,906  
Total current liabilities $   11,121     $   12,211  
DEFERRED INCOME TAXES $   -      $   194  
OTHER LONG-TERM LIABILITIES $   3,081     $   4,010  
CAPITAL LEASE PAYABLE, NET OF CURRENT PORTION $   11,056     $   11,237  
COMMITMENTS AND CONTINGENCIES      
STOCKHOLDERS' EQUITY:      
Common stock, $0.0001 par value (50,000,000 authorized; 28,649,663 issued and      
24,310,482 outstanding as of November 30, 2017; 28,557,968 issued and 24,224,924      
outstanding as of May 31, 2017) $ 3     $ 3  
Additional paid-in capital $ 59,206     $ 59,060  
Accumulated deficit $ (15,317 )   $ (6,622 )
Treasury stock, at cost (4,339,181 shares at November 30, 2017 and 4,333,044      
shares at May 31, 2017) $ (22,494 )   $ (22,481 )
Accumulated other comprehensive loss, net of taxes - unrealized loss      
on available for sale securities $   (9 )   $   (4 )
Total National American University Holdings, Inc. stockholders' equity $   21,389     $   29,956  
Non-controlling interest $ 3     $ (16 )
Total stockholders' equity $   21,392     $   29,940  
TOTAL $   46,650     $   57,592  
       

The following table provides a reconciliation of net loss attributable to the Company to EBITDA/LBITDA:

               
    Three Months Ended
November 30,
    Six Months Ended
November 30,
   
    2017       2016       2017       2016    
    (dollars in thousands)    
Net Loss attributable to the Company   $ (3,777 )     $ (752 )     $ (7,605 )     $ (2,808 )  
Income attributable to non-controlling interest     5         10         19         27    
Interest Income     (29 )       (27 )       (49 )       (49 )  
Interest Expense     208         214         417         428    
Income Tax Benefit (Expense)     56         (406 )       (185 )       (1,397 )  
Depreciation and Amortization     1,234         1,291         2,440         2,597    
                                 
EBITDA (LBITDA)   $ (2,303 )     $ 330       $ (4,963 )     $ (1,202 )  
 

EBITDA/LBITDA consists of income attributable to the Company, less income from non-controlling interest, plus loss from non-controlling interest, minus interest income, plus interest expense (which is not related to any debt but to the accounting required for the capital lease), plus income taxes, plus depreciation and amortization. The Company uses EBITDA/LBITDA as a measure of operating performance. However, EBITDA/LBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing its operating performance, investors should use EBITDA/LBITDA in addition to, and not as an alternative for, income as determined in accordance with GAAP. Because not all companies use identical calculations, the Company’s presentation of EBITDA/LBITDA may not be comparable to similarly titled measures of other companies and is therefore limited as a comparative measure. Furthermore, as an analytical tool, EBITDA/LBITDA has additional limitations, including that (a) it is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments; (b) it does not reflect changes in, or cash requirements for, its working capital needs; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA/LBITDA does not reflect any cash requirements for such replacements, or future requirements for capital expenditures or contractual commitments. To compensate for these limitations, the Company evaluates its profitability by considering the economic effect of the excluded expense items independently as well as in connection with its analysis of cash flows from operations and through the use of other financial measures.

The Company believes EBITDA/LBITDA is useful to an investor in evaluating its operating performance because it is widely used to measure a company’s operating performance without regard to certain non-cash expenses (such as depreciation and amortization) and expenses that are not reflective of its core operating results over time. The Company believes EBITDA/LBITDA presents a meaningful measure of corporate performance exclusive of its capital structure, the method by which assets were acquired and non-cash charges, and provides us with additional useful information to measure its performance on a consistent basis, particularly with respect to changes in performance from period to period.

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