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First Education Management Corp. froze wages to avoid layoffs. Then they laid off employees and closed down an online branch in Phoenix. None of those actions, however, could stave off even more layoffs at the downtown for-profit educator.
According to multiple sources inside the company, more than 50 but fewer than 100 employees were laid off Wednesday from various locations in the city. EDMC operates its downtown headquarters, the Art Institute of Pittsburgh and online education facilities in the Strip and in Greentree.
The layoffs came the day before the company’s quarterly earnings report. According to filings with the U.S. Seurities and Exchange Commission, the company reported net quarterly revenues of $639.2 million, down more than nine percent from the same time last year. The company says the loss “was primarily driven by a 9.3% decline in April 2012 student enrollment as compared to April 2011.”
For the fiscal year the company reported a smaller loss over the previous year of 5.7 percent. Net revenues were $2.76 billion compared to $2.89 billion in 2011. Even more stark is the company’s loss in cash flow. Two years ago there was so much cash on hand that the company started a program to buy back its own stock – at a cost to date of nearly $300 million. On Thursday the company reported it had just $10.9 million cash on hand compared to $399.7 million the year before. According to its filings, EDMC paid out $210 million to issue a letter of credit with the U.S. Department of Education to allow the company continued access to federal financial aid programs.
The company also reported drops in enrollment in the fourth quarter. Overall enrollment at the company’s online and brick and mortar schools for the quarter was down nearly 11 percent over the same quarter last year. As of June 30, 2012 total enrollment across all brands – Art Institute, Argosy University, Brown Mackie College and South University was 124,600, down from 139,800 a year ago.
The online programs, where the bulk of the company’s layoffs have taken place this past year is down a whopping 19.4 percent over the same time last year. Part of those numbers are very easily attributed to a steep drop in new student enrollments of slightly more than 20 percent. None of the brands did well attracting new students. Enrollment at the Art Institutes – which has its flagship school here in Pittsburgh – is down more than 18 percent. Enrollment at Argosy is down a whopping 26.7 percent, down 21.2 percent at South and 15.9 percent at Brown Mackie.
“The current environment is unprecedented in the number of challenges that we face but at the same time offers amny positive opportunities,” outgoing CEO Todd Nelson said on Thursday’s conference call. “The primary reasons for the decline in enrollment are tuition and concerns about debt.”
Nelson said, however, that he believes EDMC will continue to be an important player in providing post-secondary education because of the quality of the product that the school provides. He pointed to gainful employment data provided by the U.S. Department of education that shows that graduates from EDMC schools earn about five percent more than graduates from similar programs at other schools.
While that can be considered an achievement, it’s certainly not one to be taken without a cautious eye. At the end of July, 5,000-page two-year audit of the for-profit education sector led by U.S. Sen. Tom Harkin labeled the for-profit sector “and abject failure.”
According to the Post-Gazette:
Issued Monday, the scathing 5,000-page document blasts the for-profit education industry for recruiting too aggressively, for spending more on marketing than teaching, for producing too few graduates, for charging significantly higher tuition than comparable public schools, for tying salaries to recruitment and for giving prospective students unrealistic impressions of potential post-graduate employment and earnings.
Students are ill-equipped to repay the loans because most fail to complete their degree programs, while others graduate to find low-paying jobs in the fields they studied, the report found.
Default rates are 22.5 percent for students at for-profit schools, compared with 9 percent for students at other schools, and their loans are typically more because tuition is higher.
An associate’s degree in web design and interactive media from the Art Institute of Pittsburgh, for example, costs $47,410, according to the report. Community College of Allegheny County offers the same degree for $6,800.
…EDMC is a rare exception, spending more on instruction than it banks as profit, according to the report. It spent $3,460 per student on instruction in 2009, while its for-profit competitors spent between $892 and $3,969. Still, EDMC spent even more on marketing than teaching: $4,158.
The company, which will release it’s annual report at the end of August, is in a current state of flux. On Aug. 15, Nelson leaves his post as CEO to become the chairman of the board, replacing longtime chair Jock McKernan, who will remain as a director. Ed West, the current chief financial officer will step into Nelson’s role as CEO.
McKernan is the former governor of Maine and husband of retiring Maine Sen. Olympia Snowe, a marriage that has also been a point of controversy for the company. Nelson, as often been the lightning rod for critics who have questioned his running of EDMC coming off his tenure as CEO at the University of Phoenix where he and the school were successfully sued for the way the school paid its frecruiters.
Additionally, EDMC is fighting a U.S. Department of Justice lawsuit over the company’s student recruiting practices. If EDMC loses the case, it might have to repay billions of dollars in federal financial aid given to its students.
And if things couldn’t get much worse, as of thise writing, the company’s stock price – which was nearly $30 a share in January – was trading at $3.14 a share.
This article appears in Aug 8-14, 2012.
My! My! Nelson spins again, “The current environment is unprecedented”. We have been here before several times. We shut down the correspondence law and psychology degrees of the 1960’s. Then we shut down what we called “back of a match pack” correspondence schools or the 70’s. They offered degrees in detective work, paralegal, writing, and drawing (you know just like EDMC). That Mr. Nelson is facing almost insurmountable fraud charges, incurred as a result of his own direction and malfeasance, is no different than those who tried to continue to place the gas tank in the back of the Pinto–for those who may look for the origin or Nader of these consumer and government fraud laws–folks did time, big fines, lost jobs, but we now have cars that rarely blow up on impact.
The tragedy is that there are enormous possibilities here. Coursera is unveiling courses at a fraction of EDMC’s cost yet with measurable subject mastery as the goal, rather than make believe hokum degrees. The good folks in these programs, however, are not taking home 40 and more million dollar annual salaries and they certainly are not funding political campaigns with the schools’ revenues. Forget regional accreditation, you can accredit a hamburger flipping training program. These are courses designed to be accepted by competitive universities–something EDMC can not deliver and following this debacle will not likely ever be able to claim.
The horrendous tragedy here, just like the Pinto, is that hundreds of thousands of students have been suckered, conned, and deprived of their invested time. The forty or so lawsuits pending against EDMC will never be able to repay those students. The executives have been caught red handed and yet show no shame that they unemployed hundreds of otherwise well intending people; these people have families, these people also live in the same economy that sucks largely due to the policies of the people that Nelson, McKernan, and West personally fund. As this continues there will be more jobs lost, more impact on the communities where these jobs were lost, and certainly no way to repair the lost trust and time of both the employees and the students.
I do not think EDMC will exist in a few years. I really don’t. They are selling a very high priced product that does not produce an ROI that is sustainable.
Their current tuition for their most popular BS program, graphic design, is $93,000. Yet, the graduate with BS degrees in design actually make LESS than those with an associates degree in design. http://www.artinstitutes.edu/CareerServices/Employers/career_stats/aip.pdf
Why any student would go to this school is beyond me. The more cost effective way would be to earn an associates degree at 10% of the EDMC cost, and transfer those credits to a real school for a BS degree. Going this route, a student could get away with 20K in debt maximum (if they worked) and have an actual degree to help them get a job.
Here is why EDMC is destined to fail:
1. Their recruiters don’t care anymore. Without being paid more to recruit more students, there is little incentive for them to go above and beyond to get the students enrolled. And deep down, they know they are selling fraud, so it’s not really in their hearts anymore. I have actually seen this first hand. I expect recruitment levels to continue to drop in all schools.
2. Students now realize that loans are not the answer. They will still seek quality education, but many of them now know a graphic design degree at EDMC is just not worth it. Sure, a few grads get gigs, but in graphic design, talent rules, and they would have gotten the gig anyways with any degree.
3. EDMC cannot raise tuition. In most cases when sales decline, a business can raise prices to make up for lost revenue. In EDMC’s case, they can’t. They are maxed out on what their tuition is, and cannot charge any more. When enrollment drops 20%, revenue will drop 20% as well. And their margins are not strong enough to make up for this hit, as they are now bleeding cash.
4. No one that works there cares anymore. They know deep down the game is up. From the PR person to the recruiter, they are just buying time until a real job comes along. Regretfully, an EDMC stint on a resume is just as bad as an EDMC degree. After layoffs all year, wage freezes, and the reality your business just dropped by 20% tends to make for a highly disengaged workforce.
5. Social Media – EDMC cannot hide behind a wall of PR cronies anymore. People know. Every one of those unemployed underemployed graduates with 100K in debt is pissed, and they are telling everyone they can about the real value of an EDMC degree.
While I hate to see any Pittsburgh company lose jobs, this is one that cannot be turned around. It was run into the ground by greedy executives who wanted to get more and more out of it, but in turn, ran it into the ground.
Seriously? Nelson thinks that the enrollment numbers are down just because students are afraid of debt? Why are some other school succeeding just fine then? The reason enrollment is down is because he came on board. The atmosphere was AMAZING at EDMC three years ago. Employees loved to work there! Students wanted to go there because of the front line employees. The atmosphere changed and made everyone HATE being there and then…. SURPRISE!… enrollment dropped. No student wants to be on the phone with an unhappy employee. Most people can’t fake being happy, nor should they be asked to. Todd Nelson needs to pull his head out of his a$$ and figure out how he can make his employees happy again? A few ideas… where did the awards for customer service go? (Most people are fueled by praise), where did the cookouts go? (Almost everyone is motivated by food!), and HEY what about a freaking Holiday/Christmas party??? Only company I have ever worked for that doesn’t do this. Sorry for the vent but if I didn’t need the money desperately or love my students so much then I would not be working here anymore.
Hey Sad Employee! I couldn’t agree more. Sometimes I think Nelson is so used to buying his own deception that he can’t tell reality when it hits him over the head. What makes this fool think that people who couldn’t pass or take SAT, ACT, and GRE exams and have inferior academic backgrounds last year would suddenly become insightful and disciplined consumers this year. West, McKernan, and Nelson are fundamentally greedy and liars they don’t have the credibility to turn anything around let alone clean up this mess. The dance is over.
Face it Nelson, West, and McKernan are an incredible find for defense lawyers. They fired a teacher for not being willing to hustle needless textbooks for them (“Teacher Fired for Refusing to Sell Unnecessary Books: Democratic Underground.com). I’ll bet pizza to pastrami that they would never even think of using one of those “graduates” from their practice in California only law school. Nelsons’ fees alone probably has funded half a dozen houses in the Bahamas for the type of lawyer that would defend him.
LAYOFFS TODAY in the Art Institutes – Chicago campus is shedding many faculty and lower lever admin. Employees told today and official announcements (email) tomorrow.
Nothing has changed at EDMC after all of the bad press about recruiting practices — enrolling homeless people, criminals, disabled vets, crazy people, mentally challenged, and welfare moms. But before admissions was only enrolling these people so they could get paid more money. Right??? The matrix is over and admssions recruiters are enrolling these same people telling them lies so they will start school because they are afraid of losing their jobs. It is just as intense as it was before if not worse. I just do not get it. They have admsiions going out and getting their own leads at guess what?? Admissions is setting up shop at the bad parts of town –outside of stores and at the homeless shelters. When will EDMC learn.
EDMC is toast. The atmosphere among amployees is so grim, people are wishing to be laid off (to get severance and qualify for unemployment). 90% of the staff are unhappy, an this year’s layoffs and no-raise announcement didn’t help. Add to that the turmoil among leadership, and it’s no wonder why upper management is stressed and taking it out on middle management. Middle management is then treating their staff like crap. The only people who are happy are those who are in with the “buddy” crowd. You know what I’m talking about… favoritism, which leads to unequal treatment o those not in the buddy crowd.
All I have to say about this is…..they suckered my daughter and myself into a debt that I will be dead before I get it paid off. They took advantage of many low-income parents(which I am one) and run credit reports to see just how much they could get out of us. I saw one thing on paper at AI and when I got my 1st payment slips I almost fainted!! They had borrowed 30,000.00 the 1st year my daughter was at AI Atlanta!!! I had no idea. My daughter transferred to AI Nashville and quit after the winter quarter. She said they taught her nothing and promised her the moon. So the guilty ones who did all the promising deserve to lose their jobs but so do all in the Admid. they are all a bunch of liars. So I’ll spend the next 10 yrs paying for what she could have learned at a Community College and gotten a Masters!!! They promise jobs these kids will never get just to milk the Federal Gov. for all the monies they can get out of low income parents. I learned my less alittle to late. So BEWARE of all AI schools. FYI AI Pitt. has been blowing up my phone all day……wonder why?
If EDMC does not lie pathologically, why do they show that they have 158,000 students on all of their releases (you know Jacqueline Muller) when they only have 108,000????? If their enrollment is dropping why does Todd Nelson and his gaggle of ass wipes plan to hawk his failing stock on BMO Capital Markets webcast?? The answer is that they lie, because they do not know what else to do and they are there to sell stock, not to offer educations. You know like Bain Capital was there to build communities (choke).
Dear Tod Todd,
Just taking note of those treasured memories. Remember when our stock was above $30.00 and solid before your got caught and now even homeless people can buy tons of it? Remember back when we had them all fooled, before all of our personal, political, and corporate shame was hung out for the world to see? Remember when Bishop Romney was going to save us all from collapse and prison?
Todd Todd, do you remember when it was so much fun to scare the immortal out of those recruiters and make them con the disadvantaged kids? Remember when Federal dollars were burning up the wires into our pockets and Goldman Sachs’ accounts? Do you remember how many of those highly talented and promising Art Institutes faculty we tossed under the bus and how we laughed when their hopeful students wrote petitions and even tried to sue us?
Remember when we could get instructors who faked credentials and who showed up drunk in class at Argosy and Brown Mackie? That was almost as much fun as lying to the Department of Education, right?
Remember when Pittsburgh and Phoenix were not ashamed to have us office in their cities?
Ah, the good old days. Almost as good as digging up gold tablets on a hillside somewhere.
Well Todd Todd, I guess that John John and I will be seeing a lot of each other at the defense table. Looks like even Amy will be there.
Yes Todd Todd it is a new year.