NAUH National American University Holdings Inc (QB)

Company to host conference call on August 16, 2018, at 11:00 a.m. ET

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-location institution of higher learning, today reported unaudited financial results for its fiscal 2018 fourth quarter and audited financial results for its fiscal year ended May 31, 2018. 

Management Commentary

Ronald L. Shape, Ed.D., President and Chief Executive Officer of the Company, stated, “We were very pleased to close on the Henley-Putnam asset acquisition in the FY 2018 fourth quarter. Following the completion of this transaction, Henley-Putnam University’s distinctive curricula in the areas of intelligence, strategic security, cybersecurity, and counterterrorism studies were integrated into NAU’s Henley-Putnam School of Strategic Security, housed under our College of Military Studies. We worked closely with students who were active in their Henley-Putnam coursework as of the date of closing to smoothly transition them into NAU for the spring 2018 term, and as a direct result, credit hours enrolled under the military category nearly tripled in spring 2018. We are now exploring partnerships with the military and within the private sector, which we believe will accelerate the growth of our military student population. In fact, we saw significant credit hour growth in four of our five operational drivers—undergraduate online, Canada, military, and graduate divisions. The on-ground division continues to be the one area with enrollment declines, and we continue to review additional consolidation efforts to ensure our physical locations are fulfilling a need in a local market. Organic growth of our online operation continues to be a major focus, and we achieved nearly 50% credit hour growth in that area during the spring 2018 term. To continue this positive momentum, we recently brought on a new President of Online Operations, Mr. Jerrad Tausz, who boasts 20 years of experience in strategic operations and recruitment in the higher education industry. Jerrad comes to NAU after over 15 years of work at Apollo Education Group (which operates the University of Phoenix) where he served as Chief Operating Officer from 2011 to 2016. Having served as a faculty member at the University of Phoenix for several years before working up the leadership chain, we believe Jerrad possesses the skills and firsthand experience to effectively grow NAU’s online operations to its full potential.”

Dr. Shape continued, “As we continue to focus on stabilizing and increasing enrollments, we remain cognizant that our costs should remain in line with current enrollment levels. As such, in early 2018, NAU made the decision to improve and expand upon the online and mobile services we offer to our students given their increasing preference for these communication methods, while consolidating underutilized on-ground operations. We have successfully liquidated some physical locations and are actively working to liquidate the others. In the interim, the University is utilizing remaining locations but, in line with the consolidations, made some additional staffing reductions in the FY 2018 fourth quarter, which will result in approximately $3 million in savings annually. As we move forward, our students remain our first priority. NAU is committed to its non-negotiables of quality academic programming and regulatory compliance, and we believe the work we have done in FY 2018 continues to position our institution for success financially and operationally in FY 2019 and beyond.”

Operating Review

Enrollment Update

Total NAU student enrollment for the spring 2018 term was 5,648 students, compared to 6,703 during the prior spring term. Students enrolled in 53,227 credit hours, compared to 61,771 credit hours during the prior spring 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 May 31, 2018, and May 31, 2017, by degree level and by instructional delivery method:

		May 31, 2018(Spring ’18 Term)					May 31, 2017(Spring ’17 Term)
		No. of Students		% of Total			No. of Students		% of Total
Continuing Ed		59		1.0	%		170		2.5	%
Doctoral		111		2.0	%		98		1.5	%
Graduate		449		8.0	%		366		5.5	%
Undergraduate & Diploma		5,029		89.0	%		6,069		90.5	%
Total		5,648		100.0	%		6,703		100.0	%
		No. of Credits		% of Total			No. of Credits		% of Total
On-Campus		4,686		8.8	%		12,209		19.8	%
Online		43,319		81.4	%		44,191		71.5	%
Hybrid		5,222		9.8	%		5,372		8.7	%
Total		53,227		100.0	%		61,771		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 4.8% of the Company’s revenue for the fiscal quarter ended May 31, 2018.

Fiscal 2018 Fourth Quarter Financial Results

• Total revenue for the FY 2018 fourth quarter was $19.1 million, compared to $22.1 million in the prior-year fourth quarter. Of this amount, academic tuition revenue was $17.3 million, compared to $20.7 million in the prior-year fourth quarter, and auxiliary (bookstore) revenue was $1.0 million for the FY 2018 fourth quarter, compared to $1.1 million in the prior-year fourth quarter. 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.
• Educational services expense for the FY 2018 fourth quarter decreased to $6.6 million, or 36.2% of total academic segment revenue, from $7.1 million, or 32.3%, in the prior-year fourth 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.
• SG&A expenses for the FY 2018 fourth quarter decreased to $11.6 million, or 60.3% of total revenue, from $14.4 million, or 65.1%, in the prior-year fourth quarter. The percentage decrease was a direct result of the Company’s cost-cutting initiatives aimed at better aligning costs with current enrollment levels and student needs.
• Loss before income taxes and non-controlling interest for the FY 2018 fourth quarter improved to $(0.8) million, from $(1.2) million in the prior-year fourth quarter, as a result of decreased operating expenses.
• Net loss attributable to the Company for the FY 2018 fourth quarter was $(0.8) million, or ($0.04) per diluted share based on 24.3 million shares outstanding, compared to net loss attributable to the Company of $(0.9) million, or ($0.04) per diluted share based on 24.2 million shares outstanding, in the prior-year fourth quarter.
• EBITDA for the FY 2018 fourth quarter increased to $0.5 million, from $0.2 million in the prior-year fourth quarter. A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.
• Adjusted EBITDA for the FY 2018 fourth quarter, which excludes loss on course development impairment, loss on lease termination and acceleration, and loss on impairment and disposition of property and equipment, was $0.9 million, compared to $1.3 million in the prior-year fourth quarter. A table reconciling Adjusted EBITDA/LBITDA to net loss can be found at the end of this release.

Fiscal 2018 Financial Results

• Total revenues for FY 2018 were $77.2 million, compared to $86.6 million in the prior year. Of this amount, total academic segment revenue was $74.8 million, compared to $85.4 million in the prior year, 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 adjusting operation size to be in line with the needs of its student population.
• NAU’s educational services expense for FY 2018 was $26.1 million, or 35.0% of the total academic segment revenue, compared to $27.7 million, or 32.3%, in the prior year.
• In FY 2018, SG&A expenses decreased to $56.2 million, or 72.8% of total revenues, compared to $61.6 million, or 71.2%, in the prior year. The 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 $6.3 million in FY 2018, compared to $1.7 million for the same initiatives in FY 2017.
• Loss before income taxes and non-controlling interest for FY 2018 was $(12.3) million, compared to $(7.8) million in the prior year, primarily driven by decreased revenues offset by lower SG&A expenses.
• Net loss attributable to the Company for FY 2018 was $(12.2) million, or $(0.50) per diluted share based on 24.2 million shares outstanding, compared to $(6.3) million, or $(0.26) per diluted share based on 24.2 million shares outstanding, in the prior year.
• Losses before interest, tax, and depreciation and amortization (“LBITDA”) for FY 2018 were $(6.9) million, compared to LBITDA of $(1.9) million in the prior year. A table reconciling EBITDA/LBITDA to net loss can be found at the end of this release.
• Adjusted LBITDA for FY 2018, which excludes loss on course development impairment, loss on lease termination and acceleration, and loss on impairment and disposition of property and equipment, was $(4.0) million, compared to Adjusted LBITDA of ($0.8) million in the prior year. A table reconciling Adjusted EBITDA/LBITDA to net loss can be found at the end of this release.

Balance Sheet Highlights

(in millions except for percentages)		5/31/2018			5/31/2017	% Change
Cash and Cash Equivalents/Investments	$	5.3	*	$	16.2	(67.0)%
Working Capital (Deficit)		(0.7	)		11.2	N/A
Other Long-term Liabilities		2.7			4.0	(33.0)%
Stockholders’ Equity		17.0			29.9	(43.3)%
*Decrease in cash was primarily the result of expenditures related to lease terminations, operating loss, dividends, and the Henley-Putnam University asset purchase transaction.

Conference Call Information

Management will discuss these results in a conference call (with accompanying presentation) on Thursday, August 16, 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/q4-2018.  

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-location 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 location in Rapid City, South Dakota, and has since grown to multiple locations in various states throughout the United 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 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	Adam Prior
415-568-2255	212-836-9606
csohn@equityny.com	aprior@equityny.com

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE  LOSS
FOR THE THREE MONTHS AND YEAR ENDED MAY 31, 2018 AND 2017
(In thousands, except share and per share amounts)
		Three Months Ended								Year Ended
		May 31,								May 31,
		2018				2017				2018				2017
REVENUE:
Academic revenue		$	17,278			$	20,723			$	70,885			$	80,595
Auxiliary revenue			955				1,133				3,885				4,832
Rental income — apartments			355				287				1,404				1,160
Condominium sales			362				-				817				-
Other real estate income			193				-				193				-
Total revenue			19,143				22,143				77,184				86,587
OPERATING EXPENSES:
Cost of educational services			6,601				7,063				26,146				27,657
Selling, general and administrative			11,550				14,411				56,183				61,639
Auxiliary expense			662				783				2,741				3,477
Cost of condominium sales			282				-				709				-
Loss on course development impairment			-				-				286				-
Loss on lease termination and acceleration			-				285				362				285
Loss on impairment and disposition of property and equipment			473				759				2,258				767
Total operating expenses			19,568				23,301				88,685				93,825
OPERATING INCOME (LOSS)			(425	)			(1,158	)			(11,501	)			(7,238	)
OTHER INCOME (EXPENSE):
Interest income			13				25				76				102
Interest expense			(218	)			(211	)			(846	)			(850	)
Other (expense) income — net			(167	)			126				(72	)			209
Total other expense			(372	)			(60	)			(842	)			(539	)
LOSS BEFORE INCOME TAXES			(797	)			(1,218	)			(12,343	)			(7,777	)
INCOME TAX (EXPENSE) BENEFIT			(36	)			296				232				1,550
NET LOSS			(833	)			(922	)			(12,111	)			(6,227	)
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST			(16	)			(9	)			(50	)			(48	)
NET LOSS ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY  HOLDINGS, INC. AND SUBSIDIARIES			(849	)			(931	)			(12,161	)			(6,275	)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized gains (losses) on investments, net of tax benefit (expense)			0				0				4				(2	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC.		$	(849	)		$	(931	)		$	(12,157	)		$	(6,277	)
Basic net loss attributable to National American University Holdings, Inc.		$	(0.04	)		$	(0.04	)		$	(0.50	)		$	(0.26	)
Diluted net loss attributable to National American University Holdings, Inc.		$	(0.04	)		$	(0.04	)		$	(0.50	)		$	(0.26	)
Basic weighted average shares outstanding			24,290,404				24,177,979				24,239,888				24,154,541
Diluted weighted average shares outstanding			24,290,404				24,177,979				24,239,888				24,154,541

NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31, 2018 AND 2017
(In thousands, except share and per share amounts)
		May 31,				May 31,
		2018				2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	5,324			$	11,974
Available for sale investments			-				4,183
Student receivables — net of allowance of $587 and $1,195 at May 31, 2018 and May 31, 2017, respectively			2,893				2,895
Other receivables			563				458
Income taxes receivable			105				2,301
Prepaid and other current assets			1,552				1,649
Total current assets			10,437				23,460
Total property and equipment - net			25,228				31,318
OTHER ASSETS:
Restricted certificates of deposit			9,250				-
Condominium inventory			512				621
Land held for future development			414				229
Course development — net of accumulated amortization of $3,577 and $3,322 at May 31, 2018 and May 31, 2017, respectively			1,841				1,111
Goodwill			363				-
Other intangibles — net of accumulated amortization of $22 and $0 at May 31, 2018 and May 31, 2017, respectively			207				-
Other			555				853
Total other assets			13,142				2,814
TOTAL		$	48,807			$	57,592
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease payable		$	380			$	331
Current portion of long-term debt			800				-
Accounts payable			1,991				3,076
Dividends payable			-				1,094
Income taxes payable			70				113
Deferred income			3,758				1,691
Accrued and other liabilities			4,090				5,906
Total current liabilities			11,089				12,211
DEFERRED INCOME TAXES			0				194
OTHER LONG-TERM LIABILITIES			2,688				4,010
CAPITAL LEASE PAYABLE, NET OF CURRENT PORTION			10,857				11,237
LONG-TERM DEBT, NET OF CURRENT PORTION			7,200				0
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value (50,000,000 authorized; 28,685,195 issued and 24,344,122 outstanding as of May 31, 2018; 28,557,968 issued and 24,224,924 outstanding as of May 31, 2017)			3				3
Additional paid-in capital			59,305				59,060
Accumulated deficit			(19,873	)			(6,622	)
Treasury stock, at cost (4,341,073 shares at May 31, 2018 and 4,333,044 shares at May 31, 2017)			(22,496	)			(22,481	)
Accumulated other comprehensive loss, net of taxes - unrealized loss on available for sale securities			0				(4	)
Total National American University Holdings, Inc. stockholders' equity			16,939				29,956
Non-controlling interest			34				(16	)
Total stockholders' equity			16,973				29,940
TOTAL		$	48,807			$	57,592

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

		Three Months EndedMay 31,								Year EndedMay 31,
		2018				2017				2018				2017
		(dollars in thousands)
Net Loss attributable to the Company		$	(849	)		$	(931	)		$	(12,161	)		$	(6,275		)
Income attributable to non-controlling interest			16				9				50				48
Interest Income			(13	)			(25	)			(76	)			(102		)
Interest Expense			218				211				846				850
Income Tax (Benefit) Expense			36				(296	)			(232	)			(1,550		)
Depreciation and Amortization			1,065				1,229				4,642				5,086
EBITDA (LBITDA)		$	473			$	197			$	(6,931	)		$	(1,943		)
Loss on course development impairment			-				-				286				-
Loss on lease termination and acceleration			-				285				362				285
Loss on impairment and disposition of property and equipment			473				854				2,258				862
Adjusted EBITDA (LBITDA)		$	946			$	1,336			$	(4,025	)		$	(796		)

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. Adjusted EBITDA/LBITDA consists of EBITDA/LBITDA plus loss on disposition of property. However, neither EBITDA/LBITDA nor Adjusted EBITDA/LBITDA is a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing its operating performance, investors should use EBITDA/LBITDA and Adjusted EBITDA/LBITDA in addition to, and not as alternatives for, income as determined in accordance with GAAP. Because not all companies use identical calculations, the Company’s presentation of EBITDA/LBITDA and Adjusted 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 and Adjusted EBITDA/LBITDA have additional limitations, including that (a) they are not intended to be a measure of free cash flow, as they do not consider certain cash requirements such as tax payments; (b) they do 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 and Adjusted EBITDA/LBITDA do 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 and Adjusted EBITDA/LBITDA to be useful to an investor in evaluating its operating performance because they are 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 and Adjusted EBITDA/LBITDA present meaningful measures 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.