[August 06, 2015]

Career Education Corporation Reports Results for the Second Quarter 2015

Career Education Corporation (NASDAQ: CECO) today reported operating and financial results for the second quarter of 2015.

Business Highlights:

• Increased University Group revenue by 2.6 percent year-over-year to $138.2 million, driven by increased total enrollments
• Increased University Group operating income by 50.0 percent year-over-year to $29.4 million, driven by ongoing cost discipline and modest total student enrollment growth
• 2015 operating expenses for continuing operations remain in line with the Company's expectations and were lowered by $25.9 million, excluding severance charges of $12.6 million
• Adjusted EBITDA was $26.6 million for the University Group and Corporate, an improvement of 36.3 percent or $7.1 million as compared to the prior year quarter
• Adjusted EBITDA for the Transitional Group and Discontinued Operations improved to ($30.8) million, compared to ($39.1) million in the same quarter last year, as a result of continued progress in executing legacy teach-outs, reducing lease obligations and benefits from the accretive nature of the Career College teach-outs announced in early May
• Pleased to welcome experienced education industry executive Todd Nelson as President & CEO, effective August 12, 2015

Chairman and Interim CEO Ron McCray commented, "Our core University assets continued to perform very well during the quarter driven by modest total enrollment growth and our commitment to providing high-quality educational experiences to our students. Further, our cost discipline initiatives were quite evident in our performance during the second quarter as the University Group's operating income increased approximately 50%. This improved business performance will allow us to expand and incrementally invest in our predominantly online University platform in the future. For example, we were very pleased this past quarter to announce that American InterContinental University (AIU) has received approval for its new Master of Education (M.Ed.) degree programs focused on Elementary and Secondary Education."

BUSINESS TRANFORMATION UPDATE

In May 2015, Career Education announced that the Company would teach out its Sanford-Brown institutions and pursue strategies to divest or teach-out the remaining institutions within the former Career Colleges group. As part of the process to focus its resources on the University Group, the Company also announced that it was taking actions to better align its corporate overhead and streamline operations in order to make the University Group more efficient and effective in supporting its students.

Transformation Highlights:

• Company continues to make progress against its strategy to divest and/or teach-out its remaining Career Colleges. Excluding restructuring charges, the Company expects these actions to be accretive to 2015 results. In addition to other initiatives, the Company has
  • Initiated teach-outs at the 15 Sanford-Brown campuses, including Sanford-Brown Online
  • Completed the sale of Brooks Institute in June 2015
  • Signed a purchase agreement for Missouri College and initiated the divestiture process for Briarcliffe College
• Sale process for Le Cordon Bleu ("LCB") campuses continues, and a number of prospective buyers have initiated due diligence processes; Company expects to execute an agreement by year end
• Company remains on track to generate flat-to-modest total student enrollment growth within the University Group over time
• Updated restructuring charges for the teach out and divestiture initiatives, which are now expected to total $32 to $38 million, compared to the original projection of $40 to $50 million
  • Recorded approximately $12.6 million for severance and related costs during the second quarter, which are expected to be paid through 2018
  • The Company expects to record an additional $20 million - $25 million of aggregate charges associated with exiting lease obligations as campuses cease operations through 2018, with cash payments continuing through 2023
• Based on the Company's analysis and the key assumptions referenced below, Adjusted EBITDA⁽¹⁾ from the Transitional Group and Discontinued Operations, excluding our LCB campuses⁽¹⁾ is now estimated to be approximately ($100) million in 2015 and ($85) million in 2016
• Transformation strategy is expected to remove approximately $375 million in operating expenses⁽¹⁾ by the end of 2018 compared to annualized second quarter 2015 operating expenses (including discontinued operations and excluding asset impairments). Key drivers of this expense reduction will be
  • Completion of the teach-out/divestiture of Transitional Group and LCB
  • Right-sizing of corporate overhead to serve primarily online institutions
  • Achievement of greater operating efficiencies within the core University Group

McCray concluded, "The strategic actions that we began implementing during the quarter were transformational. As a result of these decisions, and based on the assumption that our divestitures will be completed by early 2016 while maintaining flat-to-modest total enrollment growth within our University Group, we expect total company operating margins to increase to mid-single digits in 2016 as we continue to make progress toward competitive operating margins. Furthermore, we expect to not only maintain a cash, cash equivalents and investment balance above $190 million in 2015, we expect that balance to remain stable in 2016 and to grow in 2017 and beyond as a result of the accretive nature of this transformation. We believe Career Education has a long and prosperous future ahead of it, and we look forward to sharing our success with our students, employees and shareholders as we execute against our strategic plan.

"We also look forward to the addition of Todd Nelson as our next CEO, whom we recently announced will be joining us on August 12. We strongly believe that he is the best leader to execute the remaining steps of this transformation while positioning the Company for long-term success."

⁽¹⁾ The estimates provided above for future Transitional Group and Discontinued Operations Adjusted EBITDA (excluding LCB) and company-wide operating expense reductions are based on the following key assumptions and factors, among others: (i) flat-to-modest total enrollment growth within the University Group over time, (ii) teach-outs and divestitures to occur as planned and performance consistent with historical experience, (iii) signed purchase agreement for LCB by year end and transaction closed by early 2016, (iv) achievement of projected rates of recovery for our real estate lease obligations which are consistent with historical experience, (v) right-sizing of our Corporate expense structure to serve primarily online institutions, (vi) no material changes in the legal or regulatory environment, and (vii) consistent working capital trends as compared to historical results. All projections for 2016 and beyond assume a completed sale of our LCB campuses. Although these estimates and assumptions are based upon management's good faith beliefs regarding current events and actions that we may undertake in the future, actual results could differ from these estimates.

REVENUE

For the second quarter of 2015, total revenue was $174.8 million, a 6.1 percent decrease from $186.2 million for the second quarter of 2014. Total revenue for the University Group was $138.2 million for the second quarter of 2015 compared to $134.7 million for the second quarter of 2014, an increase of 2.6 percent. Adjusting for changes related to accounting for withdrawn students that occurred in the fourth quarter of 2014, revenue increased 3.9 percent for the current quarter as compared to the prior year quarter for the University Group.

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TOTAL AND NEW STUDENT ENROLLMENTS

For the second quarter of 2015, total student enrollments for the University Group were 31,300, which increased 2.3 percent as compared to the prior year quarter. New student enrollments for the University Group were 7,950, an increase of 9.1 percent as compared to the prior year quarter due to growth at Colorado Technical University (CTU). This increase was also partially attributable to a change in the methodology used to calculate new student enrollments at AIU beginning in the second quarter of 2014 related to cancelled student enrollments. Excluding the impact of this change, new student enrollments within the University Group increased by 2.4 percent during the second quarter as compared to the prior year quarter.

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OPERATING (LOSS) INCOME

For the second quarter of 2015, operating loss of $9.3 million improved 17.1 percent compared to an operating loss of $11.3 million in the prior year quarter. Total University Group operating income increased to $29.4 million from $19.6 million in the prior year quarter, an increase of 50.0 percent. This increase in operating income was primarily driven by ongoing cost improvement initiatives, which were partially offset by increased administrative expense as a result of general corporate overhead no longer being allocated to the LCB campuses which are held for sale, therefore increasing the percentage allocated to the University Group.

ADJUSTED EBITDA

The Company believes it is useful to present non-GAAP financial measures, which exclude certain significant items, as a means to understand the performance of its operations. (See tables below and the GAAP to non-GAAP reconciliation attached to this press release for further details.)

For the second quarter of 2015, Adjusted EBITDA for the University Group and Corporate increased $7.1 million compared to the prior year quarter, driven by increased revenue and continued cost reduction initiatives. Adjusted EBITDA for the Transitional Group and Discontinued Operations was ($30.8) million for the second quarter of 2015, compared to ($39.1) million in the prior year quarter. This favorability is a result of the completion of teach-out campus operations and continued focus on reducing lease obligations once a teach-out is complete.

BALANCE SHEET AND CASH FLOW

Net cash used in operating activities improved to $6.4 million for the second quarter of 2015, compared to $45.9 million in the prior year quarter. The current quarter operating cash usage included the cash receipt of $14.0 million for an income tax refund. The prior year quarter cash usage included $21.6 million of payments related to legal settlements. The Company continues to expect to end 2015 with over $190 million in total cash, cash equivalents, restricted cash and short-term and long-term investments.

Capital expenditures decreased to $1.6 million during the quarter ended June 30, 2015, compared to $3.6 million for the quarter ended June 30, 2014.

As of June 30, 2015 and June 30, 2014, cash, cash equivalents, restricted cash and short-term and long-term investments totaled $204.1 million and $282.0 million, respectively.

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CONFERENCE CALL INFORMATION

Career Education Corporation will host a conference call on Friday, August 7, 2015 at 10:00 a.m. Eastern time. Interested parties can access the live webcast of the conference call and the related presentation materials at www.careered.com in the Investor Relations section of the website. Participants can also listen to the conference call by dialing 888-317-6016 (domestic) or 412-317-6016 (international). Please log-in or dial-in at least 10 minutes prior to the start time to ensure a connection. An archived version of the webcast will be accessible for 90 days at www.careered.com in the Investor Relations section of the website.

ABOUT CAREER EDUCATION CORPORATION

Career Education's academic institutions offer a high-quality education to a diverse student population in a variety of disciplines through online, on-ground and hybrid learning programs. Our two universities - American InterContinental University ("AIU") and Colorado Technical University ("CTU") - provide degree programs through the master's or doctoral level as well as associate and bachelor's levels. Both universities predominantly serve students online with career-focused degree programs that meet the educational demands of today's busy adults. AIU and CTU continue to show innovation in higher education, advancing new personalized learning technologies like their intellipath™ adaptive learning platform that allow students to more efficiently move toward earning a degree by receiving course credit for knowledge they can already demonstrate. Career Education is committed to providing high-quality education that closes the gap between learners who seek to advance their careers and employers needing a qualified workforce.

A listing of individual campus locations and web links to Career Education's institutions can be found at www.careered.com.

Except for the historical and present factual information contained herein, the matters set forth in this release, including statements identified by words such as "expect," "estimate," "believe," "will," "anticipate," "continue," "on track," "position us" and similar expressions, are forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on information currently available to us and are subject to various assumptions, risks, uncertainties and other factors that could cause our results of operations, financial condition, cash flows, performance, business prospects and opportunities to differ materially from those expressed in, or implied by, these statements. Except as expressly required by the federal securities laws, we undertake no obligation to update or revise such factors or any of the forward-looking statements contained herein to reflect future events, developments or changed circumstances, or for any other reason. These risks and uncertainties, the outcomes of which could materially and adversely affect our financial condition and operations, include, but are not limited to, the following: declines in enrollment; the success of our initiatives to divest our LCB culinary arts campuses and remaining Career College institutions, which could be impacted by the level of buyer interest and related valuations, required regulatory approvals, the various factors noted in this paragraph, among other things; negative trends in the real estate market which could impact the costs related to teaching out campuses and the success of our initiatives to reduce our real estate obligations; our ability to achieve anticipated cost savings and business efficiencies; rulemaking by the U.S. Department of Education or any state and increased focus by Congress, the President and governmental agencies on for-profit education institutions; our continued compliance with and eligibility to participate in Title IV Programs under the Higher Education Act of 1965, as amended, and the regulations thereunder (including the gainful employment and financial responsibility standards prescribed by the U.S. Department of Education), as well as national and regional accreditation standards and state regulatory requirements; the impact of management changes; our ability to successfully defend litigation and other claims brought against us; and changes in the overall U.S. or global economy. Further information about these and other relevant risks and uncertainties may be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and its subsequent filings with the Securities and Exchange Commission.

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