Bottom line, Career Education (CECO) is dependent on student enrollments for income. CECO's enrollments are declining faster than its stated forecasts. CECO's cash position continues to erode and regulators require a reserve in order to enroll new students. This conflict between enrollment trends and cash requirements presents a significant challenge to CECO's future in the medium to long term.
The bullet points on CECO
· Enrollments 2011 decline 18%, decline 2012 23%, expected decline 2013 25%.
· CFO O'Sullivan predicted 2% decline for 2013 in '12 Q4 and '13 Q1 conference calls. (O'Sullivan is a newly minted internal promotion without previous CFO experience.)
· CEO Steffey refuses to confirm enrollment projections for '13 in '13 Q2 conference call.
· Department Of Education requires cash assets to be held in reserve adequate to "teach-out" existing students in case of financial crisis. If CECO has less cash on hand than will be required to "teach-out" currently enrolled students, CECO will not be allowed to enroll students for Federal Financial Aid. (Currently +70% of students use Financial Aid, this restriction may be assumed to be catastrophic to CECO investors)
· Steffey addresses this issue in '13 Q2 conference call, "Lastly, I want to mention that we continue to evaluate our options to access capital understanding that maintaining a sufficient financial responsibility ratio with the Department of Education is critical as we continue our turnaround strategy."
· Importantly, the Cash Equivalents: Dec 31 2012 $402,313M, June 31 2013 $241,834M
CECO operates in a market space that is being in-filled with competition like Western Governor's University and virtually all non-profit Universities. The important points of CECO are not past performance but current competitive landscape and regulatory action. The online based for-profit University model is being ruthlessly co-opted by non-profits in search of budget expansions. This levels the playing
