Apollo Group, Inc. Reports Fiscal 2009 Third Quarter Results

Apollo Group, Inc. (NASDAQ: APOL)

• First $1 billion revenue quarter on 26% year-over-year growth
• Degreed Enrollment reaches 420,700 during the third quarter, a 22% increase year-over-year
• Third quarter New Degreed Enrollment increases 23% year-over-year

Apollo Group, Inc. (NASDAQ: APOL) ("Apollo Group,” "Apollo” or "the Company”) today reported financial results for the three and nine months ended May 31, 2009.

Unaudited Third Quarter of Fiscal 2009 Results of Operations

Consolidated net revenue for the three months ended May 31, 2009, totaled $1,051.3 million, which represents a 25.9% increase over the third quarter of fiscal 2008. Contributing to the growth was a 21.8% year-over-year increase in University of Phoenix total Degreed Enrollment to 420,700. The Company reported net income for the three months ended May 31, 2009, of $201.1 million, or $1.26 per share (159.3 million weighted average diluted shares outstanding), compared to net income of $139.1 million, or $0.85 per share (163.8 million weighted average diluted shares outstanding) for the three months ended May 31, 2008.

During the third quarter of fiscal 2009, the Company repurchased approximately 7.2 million shares of its common stock at a weighted average purchase price of $61.62 per share for a total expenditure of $444.4 million (of which $38.8 million is included in accrued liabilities for repurchased shares that settled subsequent to May 31, 2009). On June 25, 2009, the Board of Directors authorized an increase of the share repurchase program to an aggregate of $500 million.

Included in the fiscal 2008 third quarter results is a pre-tax charge of $1.6 million associated with the judgment in a securities class action lawsuit. This charge was reversed during the fourth quarter of fiscal 2008 when the trial court vacated the judgment. Before giving effect to the litigation charge, net income was $140.1 million, or $0.85 per share (163.8 million weighted average diluted shares outstanding), in the third quarter of fiscal 2008. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)

"We are pleased to report a record third quarter, driven largely by continuing increases in enrollments and improved student retention at University of Phoenix,” said Co-Chief Executive Officer of Apollo Group, Chas Edelstein. "When our students succeed academically, we succeed financially and, for the first time in a quarter, Apollo surpassed the $1 billion revenue mark.”

Co-Chief Executive Officer of Apollo Group and Chairman of Apollo Global, Greg Cappelli, added, "We are also encouraged by the recent advancement of our strategic investments through Apollo Global, best demonstrated by our pending acquisition of the highly regarded BPP Holdings plc in the desirable U.K. market.”

Instructional costs and services increased by $52.6 million, or 15.1% to $400.2 million for the three months ended May 31, 2009, from $347.6 million in the three months ended May 31, 2008. As a percentage of net revenue, instructional costs and services declined 350 basis points to 38.1% versus 41.6% in the prior year’s third quarter. The improvement was predominantly due to University of Phoenix continuing to leverage its fixed costs, such as certain wages, classroom space and depreciation expense. University of Phoenix has grown its variable headcount at a slower rate than the increase in net revenue. The Company also benefited from savings due to lower negotiated contract costs in financial aid processing and other areas. This was partially offset by higher expenses, as a percentage of net revenue, at Apollo Global associated with its start-up and development and other infrastructure and support costs, as well as, a 100 basis point increase to 3.4%, as a percentage of net revenue, in bad debt expense versus the third quarter of fiscal 2008. The increases are primarily due to the increased risk of collecting aged receivables and lower collection rates on those receivables given the current economic downturn.

Selling and promotional expenses increased by $40.0 million, or 19.6%, to $243.6 million for the three months ended May 31, 2009, from $203.6 million in the three months ended May 31, 2008. As a percentage of net revenue, selling and promotional expenses declined 120 basis points to 23.2% versus 24.4% in the prior year’s third quarter. This was mainly a result of continued improvement in enrollment counselor effectiveness at University of Phoenix. Additionally, investments in marketing resulted in more effective and efficient advertising at University of Phoenix. The Company continues to invest in marketing to build greater brand identity as well as to drive and support future enrollment growth.

General and administrative ("G&A”) expenses for the three months ended May 31, 2009, increased by $10.6 million, or 17.4%, to $71.5 million, from $60.9 million in the three months ended May 31, 2008. As a percentage of net revenue, G&A expenses decreased 50 basis points to 6.8% versus 7.3% in the prior year’s third quarter. The improvement is mainly attributable to the continued leverage of relatively fixed employee compensation costs for executive management, finance and IT personnel.

Financial and Operating Metrics

Below are Apollo Group’s unaudited financial data and operating metrics for fiscal 2009.

Unaudited Nine Months of Fiscal 2009 Results of Operations

Consolidated net revenue for the nine months ended May 31, 2009, was $2.9 billion, a 25.5% increase over the comparable period of fiscal 2008. Contributing to this increase was a 20.3% increase in University of Phoenix’s average Degreed Enrollment during the nine months ended May 31, 2009, as compared to the nine months ended May 31, 2008. University of Phoenix New Degreed Enrollment during the first nine months of fiscal 2009 increased 23.7% as compared with the first nine months of fiscal 2008.

The Company reported net income of $506.8 million, or $3.15 per share, (161.0 million weighted average diluted shares outstanding), and $246.9 million, or $1.47 per share, (167.7 million weighted average diluted shares outstanding) for the nine months ended May 31, 2009, and May 31, 2008, respectively. Included in the fiscal 2008 results is a pre-tax charge of $170.0 million associated with the judgment in a securities class action lawsuit. This charge was reversed during the fourth quarter of fiscal 2008 when the trial court vacated the earlier judgment. Before giving effect to the litigation charge, net income was $350.2 million, or $2.09 per share (167.7 million weighted average diluted shares outstanding), for the nine months of fiscal 2008. (See the reconciliation of GAAP financial information to non-GAAP financial information in the tables section of this press release.)

Unaudited Balance Sheet

As of May 31, 2009, the Company’s cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $819.1 million as compared to $511.5 million as of August 31, 2008. The increase is primarily attributable to cash generated from operations, partially offset by share repurchases. Restricted cash and student deposits increased by approximately $105.5 million and $92.4 million since August 31, 2008, respectively. These increases were primarily due to increased student enrollment and to increases in Title IV funds available to students.

At May 31, 2009, accounts receivable declined to $192.6 million from $221.9 million at August 31, 2008, primarily due to improvements in processing time for the receipt of student financial aid and an increase in the allowance for doubtful accounts. Excluding accounts receivable and the associated revenue for Apollo Global, the Company’s days sales outstanding ("DSO”) declined to 24 days at May 31, 2009, as compared to 26 days at May 31, 2008, and 29 days at August 31, 2008. The decrease in DSO is primarily due to improvements in processing time for the receipt of student financial aid as well as increased net revenue.

Total deferred revenue at May 31, 2009, increased to $261.2 million from $231.2 million at August 31, 2008. The increase is seasonal in nature and consistent with the Company’s enrollment growth.

Subsequent to the quarter end, Apollo Global entered into an Implementation Agreement to acquire BPP Holdings plc ("BPP”), a U.K.-based provider of education and training to professionals in the legal and finance industries. Pursuant to the acquisition arrangement, Apollo Global will acquire all of the outstanding shares of BPP for a cash purchase price of 620 pence per share, which represents an enterprise value of approximately $540 million based upon the exchange rate on June 5, 2009. In connection with the acquisition, the Company was required to provide assurance that it has the funds to execute the transaction. As a result, the Company provided an intercompany loan to Apollo Global to fund an escrow account with $550 million to be used solely to fund the purchase price in this acquisition. The transaction is expected to close in the fourth quarter of our fiscal year 2009.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 p.m. Eastern, 2:00 p.m. Phoenix time, today, Monday, June 29, 2009. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international) and entering the conference ID number 12621070. A live webcast of this event may be accessed by visiting the Company’s website at www.apollogrp.edu. A replay of the call will be available on the website or by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international) and entering the conference ID number 12621070 until July 10, 2009.

About Apollo Group, Inc.

Apollo Group, Inc. has been an education provider for more than 30 years, providing academic access and opportunity to students through its subsidiaries, University of Phoenix, Institute for Professional Development, College for Financial Planning, Western International University, Meritus University, Insight Schools and Apollo Global. The Company's distinctive educational programs and services are provided at the high school, undergraduate, graduate and doctoral levels in 40 states and the District of Columbia; Puerto Rico; Canada; Mexico; Chile; and the Netherlands, as well as online throughout the world (data as of May 31, 2009).

For more information about Apollo Group, Inc. and its subsidiaries, call (800) 990-APOL or visit the Company’s website at www.apollogrp.edu.

Forward-Looking Safe Harbor

Statements in this press release regarding Apollo Group’s business outlook, future financial and operating results, future enrollment, and overall future strategy and plans, are forward-looking statements, and are subject to the Safe Harbor provisions created by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current information and expectations and involve a number of risks and uncertainties. Actual results may differ materially from those projected in such statements due to various factors. For a discussion of the various factors that may cause actual results to differ materially from those projected, please refer to the risk factors and other disclosures contained in Apollo Group’s previously filed Form 10-K, Forms 10-Q, and other filings with the Securities and Exchange Commission.