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Article Excerpt
OPERATOR: Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Education Management fiscal 2009, first quarter earnings call. During today's presentation all parties are in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, November 13, 2008 I would now like to turn the conference over to our host, Jim Sober, please go ahead.
JIM SOBER, VP, FINANCE, EDUCATION MANAGEMENT CORPORATION: Thank you, operator. Good morning everyone and welcome to Education Management's first quarter fiscal year 2009 conference call.
With me this morning is Jock McKernan, Executive Chairman, Todd Nelson, President and Chief Executive Officer, and Ed West, Executive Vice President and Chief Financial Officer. As has been publicly announced Education Management Corporation the indirect parent of Education Management L.L.C. filed a registration statement with the Securities and Exchange Commission in December 2007, in connection with a proposed initial public offering of its common stock. The registration statement has not yet become effective and the securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This conference call shall not constitute an offer to sell or solicitation of an offer to buy any securities. In accordance with SEC rules regarding permissible communications by issuers during the registration process we will not make any comment regarding the proposed initial public offering or the registration statement. During today's conference call we will begin with some opening comments and follow that with a question and answer session. Before turning the call over to Jock for his opening comments, I would like to remind everyone that the cautionary statement included in last nights earnings release pertains to today's call. Jock?
JOCK MCKERNAN, EXECUTIVE CHAIRMAN, EDUCATION MANAGEMENT CORPORATION: Thank you, Jim. Welcome to our fiscal 2009 first quarter earnings call. As you can see from our release we had another strong quarter. Even with the uncertainty in the student lending market, we continue to make great progress on our long-term growth strategy in investing in new program roll-out, new locations, new delivery models and online. This quarters strong topline growth was a result of good enrollment growth across all of our education systems resulting in our crossing the 100,000 students enrollment mark. Students enrolled in fully online programs grew by more than 50% over last year.
In addition to the three new campuses we opened in June, we have now enrolled students in The Art Institute in Raleigh-Durham and the Brown Mackie in Tulsa, Oklahoma. Further, we have maintained our focus on enrolling new or existing programs across our campuses. During the first quarter we have rolled out 89 programs at additional locations including the new Masters Program in Industrial Organizational Psychology at Argosy University. During the first quarter Brown Mackie College rolled out six more bachelors programs to their campuses, bringing the number of bachelor programs introduced at Brown Mackie campuses over the past year to 24.
Finally we now offer 45 fully online programs from diploma to doctorate across our three education systems which offer online programs, including the addition of an Associates Degree in Kitchen and Bath Design at The Art Institute Online at The Art Institute of Pittsburgh. We are also pleased that even in this difficult economy we continue to experience strong demands for our graduates as evidenced by our graduate outcomes. We measure those outcomes six months after graduation so the last quarters results are for those who are employed as of the ends of September are for graduates in the quarter ended last March and we are pleased that approximately 90% of the available graduates were employed in their fields of study or related fields of study with an average signing salary of over $30,700. Now I'll turn the call over to Todd to discuss the quarters results in more detail as well as give more color on our October start.
TODD NELSON, PRESIDENT, CEO, EDUCATION MANAGEMENT CORPORATION: Thanks, Jock, we are pleased to report in addition to our strong financial performance excellent enrollment growth for our recent October start which as Jock mentioned crossed the 100,000 student milestone. We saw this demand across all of our education systems and our diverse portfolio of academic programs with continued good growth at the bachelor's degree levels and graduate programs which account for nearly two thirds of our total enrollment. In addition to growth in our traditional Art and Design Programs which represent 61% of our student body this program added diversity has allowed to us experience strong growth in the high demand health sciences programs as well as business, behavioral science and education.
Further we believe the high quality and breadth of our academic program offerings, as well as our committment to students and graduate success are very attractive to potential students and provide consistent demand during both favorable and challenging economic times. Total enrollment for the recent October start was over 110,800 students versus 95,900 students last year, an increase of 15.6%. Excluding ten locations that are less than a year old same-school enrollment increased 13.4%, totaling 108,700 students. Students enrolled in fully online programs across our three online educational systems grew just over 50% to approximately 19,500 students.
Lastly I'd like to say that we couldn't could to make positive progress addressing challenges related to student lending and mitigating the impact on our students. I'm very proud of the hard work, focus, and dedication of our staff at our schools ensuring that our students receive the funding they need to achieve their educational goals. With that I will turn the call over to Ed to discuss our financials in detail. Ed?
ED WEST, EVP, CFO, EDUCATION MANAGEMENT CORPORATION: Thank you, Todd. In my comments, I will go over revenue, expenses, EBITDA, review selected balance sheet, cash flow, CapEx information, and certain credit ratios, and then I'll go over some general comments on private loans. For the first quarter ended September 30, revenues were up $434.2 million, up 20% versus prior year. This was drive by a 16.6% growth in students and approximate 5% increase in average tuition rates which is partially offset by a change in the mix. The growth in online students relative to our entire system was a contributor to a change in mix. Total expenses versus prior year were up 21.6% to $401.4 million.
Looking at a few of the expense categories, educational services were up 23.3% to $253.5 million. The increase was mainly a result of volume driven staffing needs, wage increases, bad debt and growth in rents. Bad debt expense represented 4.1% as a percent of revenues for the quarter, up 1.5 percentage points from last year. As we mentioned over the last two quarters we expected bad debt expense to go up due to the state of the economy and our increased financial aid support for students.
Rent expense was up 18% chiefly due to the expansions and normal increases that exist in campuses, increased housing rent to support student housing growth and new campuses. As a matter of interest our total rent expense for the Company was $36.5 million for the first quarter. General and administrative expenses were up 26.2% to $121.3 million versus the prior year quarter. This increase was largely due to investments made in the marketing and admission areas. Marketing and admissions expense represented 24.2% as a percentage of revenue versus 22.1% in the prior year period. The increase over prior year was driven by growth in admissions across the systems and investments in new campus locations.
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