Apollo Group, Inc. Reports Fiscal 2009 First Quarter Results

Apollo Group, Inc. (Nasdaq: APOL) ("Apollo Group,” "Apollo” or "the Company”) today reported financial results for the three months ended November 30, 2008.

Unaudited First Quarter of Fiscal 2009 Results of Operations

Consolidated revenues for the three months ended November 30, 2008, totaled $971.0 million, which represents a 24.4% increase over the first quarter of fiscal 2008. Total Degreed Enrollment in the first quarter grew by 18.4% year-over-year to 384,900. The Company reported net income for the three months ended November 30, 2008, of $180.4 million, or $1.12 per share (160.8 million weighted average diluted shares outstanding), compared to net income of $139.9 million, or $0.83 per share (169.3 million weighted average diluted shares outstanding) for the three months ended November 30, 2007.

"Our year-end momentum carried into the first quarter of fiscal 2009 as we continue to benefit from the significant investments we have made over the past several years and we are very pleased with our results,” said Chas Edelstein, Chief Executive Officer of Apollo Group. "We reported year-over-year operating income growth of approximately 40% on 24% revenue growth, and Degreed Enrollment reached a record 384,900 students during the quarter. While we cannot quantify the significance of the current economy on our growth, we believe we are experiencing a positive impact, and we continue to generate meaningful cash flow. Additionally, our growth is directly impacted by the efforts of our thousands of employees and faculty who are dedicated to providing great academic service and support to our students.”

Mr. Edelstein continued, "Our flagship University of Phoenix contributed significantly to our results, and we are very pleased with the continued growth in bachelor degree seeking students, which is an important market for us. In the first quarter, new degreed enrollment of bachelor students grew close to 20% over the prior year. We are making progress in our other investment areas as well including our online high school, Insight Schools and Apollo Global.”

In conclusion, Mr. Edelstein stated, "We remain optimistic about Apollo Group’s future. We have a strong balance sheet as well as solid operational and academic teams, putting us in a good position to further execute on our strategy and generate long-term shareholder value."

Instructional costs and services increased by $44.0 million, or 13.2% to $377.3 million for the three months ended November 30, 2008, from $333.3 million in the three months ended November 30, 2007. As a percentage of net revenue, instructional costs and services declined 380 basis points to 38.9% versus 42.7% in the prior year quarter. A predominant contributor to the decline was savings from lower negotiated contract costs from third-party vendors, particularly in financial aid processing where costs declined 140 basis points as a percentage of net revenue. Additionally, the Company continues to benefit from lower classroom lease expenses and depreciation as a percentage of net revenue. Bad debt expense declined 60 basis points as a percentage of net revenue, primarily due to a continued focus on front end collection efforts and improved student retention rates. As compared to the fourth quarter of fiscal 2008, bad debt expense increased 60 basis points, as a percentage of net revenue, due, in part, to the risk of collecting aged receivables given the current economic environment.

Selling and promotional expenses increased by $51.7 million, or 29.2%, to $228.6 million for the three months ended November 30, 2008, from $176.9 million in the three months ended November 30, 2007. As a percentage of net revenue, selling and promotional expenses increased 90 basis points to 23.5%, from 22.6% in the prior year’s first quarter. This was mainly a result of an 80 basis point increase in other selling and promotional expenses principally driven by increases in the Company’s corporate marketing function, including additional employees. 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 November 30, 2008, increased by $6.9 million, or 13.5%, to $58.2 million, from $51.3 million in the three months ended November 30, 2007. G&A, as a percentage of net revenue, decreased to 6.0% in the first quarter of 2009, versus 6.6% in the comparable period a year ago. The 60 basis point decline is mainly attributable to a decrease in legal costs, share-based compensation expense, and other G&A expense, somewhat offset by higher employee compensation expense, as a percentage of net revenue.

Financial and Operating Metrics

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

Unaudited Balance Sheet

As of November 30, 2008, the Company’s cash, cash equivalents, and marketable securities, excluding restricted cash, totaled $821.3 million as compared to $511.5 million as of August 31, 2008. Restricted cash and student deposits increased by approximately $58.6 million and $42.1 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 November 30, 2008, accounts receivable declined to $200.7 million from $221.9 million at August 31, 2008. Excluding accounts receivable and the associated revenue for Apollo Global, the Company’s days sales outstanding ("DSO”) declined to 26 days at November 30, 2008 as compared to 35 days at November 30, 2007, 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.

Total deferred revenue at November 30, 2008, decreased to $217.7 million from $231.3 million at August 31, 2008. The decrease is seasonal in nature and consistent with the Company’s enrollment growth.

Conference Call Information

The Company will hold a conference call to discuss these earnings results at 5:00 PM Eastern, 3:00 PM Phoenix time, today, Thursday, January 8, 2009. The call may be accessed by dialing (877) 292-6888 (domestic) or (973) 200-3381 (international). The conference ID number is 77185340. 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 at (706) 645-9291 (conf. ID # 77185340) until January 16, 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; Alberta and British Columbia, Canada; Mexico; Chile; and the Netherlands, as well as online throughout the world (data as of November 30, 2008).

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.