Perdoceo Education Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 2, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Bardesh, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Badercio Education Incorporation Third Quarter 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Thank you.

Operator

I will now hand the call over to David Snyder with Investor Relations. You may begin your conference.

Speaker 1

Thanks, Bhavish. Good afternoon, everyone, and thank you for joining us for our Q3 2023 earnings call. With me on the call today is Todd Nelson, Executive Chairman Andrew Hurst, President and Chief Executive Officer and Ashish Kia, Chief Financial Officer. This conference call is being webcast live within the Investor Relations section at badocioed.com. Webcast replay will also be available on our site, and you can always contact the Alpha IR Group for Investor Relations support.

Speaker 1

Let me remind you that this afternoon's earnings release and the remarks made today include forward looking statements as defined in Section 21E of the Securities Exchange Act of 1934. These statements are based on assumptions made by and information currently available to Badosio Education and involve risks and uncertainties that could cause actual future results to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified in PDOSIO's annual report on Form 10 ks for the year ended December 31, 2022, and subsequent filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, The company undertakes no obligation to update those factors or any forward looking statements to reflect future events, developments or changed circumstances or for any other reason. In addition, today's remarks refer to non GAAP financial measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures.

Speaker 1

The earnings release that accompanies today's call contained financial and other quantitative information to be discussed today as well as a reconciliation of GAAP to non GAAP measures and is available within the Investor Relations page of the company's website. With that, I would like to turn the call over to CEO, Andrew Hirst. Andrew?

Speaker 2

Thank you, Davis, and good afternoon to everyone joining us on this call. I would like to begin by saying thank you to our faculty, student support staff and all our other employees for their continued dedication in educating and serving our students. Q3 operating results exceeded our internal expectations as we experienced further improvements in student retention and engagement. We have continued to execute on our operational priorities and remain focused on further improving student experiences and academic outcomes. Let me review some of the key operational highlights and updates from the quarter.

Speaker 2

1st, Student retention and engagement has continued to improve at our academic institutions. An increasing percentage of our enrollments are benefiting from the operational adjustments we've implemented to refine our student enrollment and marketing procedures, enabling them to have a better chance of being successful at one of our academic institutions. 2nd, we also continue to invest in and leverage technology to enhance academic experiences for our students and improve the efficiency and effectiveness of various student support functions. We are exploring various ways where we can apply generative AI to back office operations as well as student support processes and the online classroom. We continue to view technology as a catalyst and differentiator for us and are committed to further investing in it to provide a more meaningful and relevant educational experience for our learners.

Speaker 2

Finally, in the Q3, We continue to experience further growth in our corporate partnership program as our teams support organizations around the country to provide debt free education and training to their employees. Now let me provide a quick overview of our operating results for the quarter. We reported 3rd quarter net income of $41,300,000 or $0.62 per diluted share. While adjusted earnings per diluted share, which excludes certain significant and non cash items, was $0.64 Overall, we are pleased with the quarterly results and expect to end the year on a high note as it relates to student retention and engagement. With that said, I would now like to turn the call over to Ashish for a deeper review of our operating performance for the quarter.

Speaker 2

Ashish?

Speaker 3

Thank you, Andrew. I will now review our Q3 results and then discuss our balance sheet and 2023 outlook before handing the call back to Andrew for his closing remarks. Please note all comparisons I discuss are versus the comparative prior year period unless otherwise stated. Before I begin, a quick reminder about year over year comparability. Financial results for CTU reflect the acquisition that was completed in December of 2022, while AIU System results by now comparable versus the prior year quarter.

Speaker 3

Additionally, total enrollment numbers that I discuss or any enrollment trends that I refer to exclude learners participating in non degree seeking professional development programs and in degree seeking non Title IV self paced programs at our universities. With that said, let us begin with an overview of our operating results. For the Q3 of 2023, total company operating income increased by 46.9% to $43,100,000 as compared to operating income of $29,300,000 for the prior year quarter. Adjusted operating income, which excludes certain significant and non cash items and which we believe is more indicative of our underlying operating performance was $47,200,000 for the 3rd quarter, reflecting an increase of 22.1% when compared to the prior year quarter. This result came in above the high end of our outlook range previously outlook range primarily due to student retention and engagement at our academic institutions continuing to perform better than our expectations.

Speaker 3

Net income for the quarter was $41,300,000 or $0.62 per diluted share as compared to $22,100,000 for $0.32 per diluted share in the prior year quarter, while adjusted earnings per diluted share was $0.64 as compared to $0.39 for the prior year quarter. Please also note that the diluted shares used to compute EPS for the quarter and the year to date now reflect the creative nature of the LCB trademark sale, which ultimately had the effect of reducing our outstanding share count. Moving on to some more details around the Q3 2023 results. Total company revenue of $179,900,000 was 6.8% higher as compared to the prior year quarter, driven by revenue growth at CTU. In addition to improving student retention trends, the year over year revenue comparability was positively impacted by the academic calendar redesign in CTU, as well as the acquisition completed in 2022 that was not part of the full comparative prior year period.

Speaker 3

As it relates to our segments, Total student enrollments as of September 30, 2023 were relatively flat at CTU. Improving student retention and continued growth in total enrollments from corporate partnerships were offset by a negative timing impact of the academic calendar redesign. Total student enrollments at AIU System decreased 34.2% as compared to the prior year quarter. This decrease was expected due to the short term operational changes at AIU System that were discussed during the prior quarter's earnings call. These operational changes and adjustments were made within prospective student admissions, outreach and enrollment processes and were undertaken early in the year to ensure compliance with anticipated or final regulatory changes.

Speaker 3

While they were necessary, we are pleased to share that as planned, marketing and admissions teams have begun to revert to normalized levels of operations in the Q4 and commensurately as compared to the Q4, we expect AIU System to experience significant total enrollment growth in subsequent quarters. 3rd quarter revenue at CTU was $120,600,000 or 23.6 percent higher than the prior year quarter, primarily due to a positive timing impact from the academic calendar redesign and the 2022 acquisition as well as growth in our underlying organic enrollments. Operating income for the quarter increased to $34,500,000 as compared to $31,500,000 as revenue growth was partially offset with increased expenses in academics and other student support areas as well as for our recent acquisitions. Turning to AIU System. Revenue decreased 16.1 percent to $59,200,000 for the quarter, driven by the decrease in total student enrollments.

Speaker 3

Operating income for the quarter increased to $15,600,000 as compared to $9,600,000 as lower operating expenses, primarily within admissions and marketing, more than offset the decrease in revenue. Overall, we ended the quarter on a high note as it relates to student retention and engagement at both our academic institutions, partly aided by the positive impact from federal student aid initiatives. Moving on to corporate and other, 3rd quarter operating loss was $7,000,000 as compared to an operating loss of $11,800,000 in the prior year quarter. Legal fees primarily associated with responses to the Department of Education relating to loan forgiveness applications by former students World War for the current quarter. Please refer to the disclosures regarding borrower defense repayment in our 10 ks that was filed earlier this year for additional information on this matter.

Speaker 3

Now to income taxes. For the Q3, we recorded a provision for income taxes of $6,800,000 resulting in an effective tax rate of 14.1%. The effective tax rate for the current quarter was impacted by a $4,500,000 favorable discrete adjustment related to the recognition of the tax benefits associated with the previously disclosed prior year ordinary loss attributable to a subsidiary, which decreased the effective tax rate for the quarter by 9.3%. Additionally, the current quarter effective tax rate reflects the impact of provision to return tax credit adjustments, The Tax Effect of Stock Compensation and the release of other previously recorded tax reserves, the combination of which reduce the effective tax rate by 0.8%. Finally, we expect that for the full year 2023, Our effective tax rate will be between 22.5% 23.5%.

Speaker 3

Moving to the balance sheet. For the Q3, net cash flow from operations was $32,600,000 versus $52,900,000 in the prior year quarter, while year to date cash flow was $98,800,000 versus $107,600,000 We ended the quarter with $603,700,000 of cash, cash equivalents, restricted cash and available for sale short term investments, which was approximately $85,500,000 higher versus year end 2022. Capital expenditures for the Q3 were approximately $1,200,000 for 0.7 percent of revenue. For full year 2023, we foresee capital expenditures to be approximately 1% of revenues. Before I share the updated outlook, let me take a minute on capital allocation.

Speaker 3

During last quarter's call, we announced our inaugural quarterly dividend that was paid in September 2023. Today, we are pleased to announce that consistent with our dividend policy, the Board of Directors have approved Q3 2023 dividend payment of $0.11 per share payable on December 15, 2023 to the holders of record of Perdocio's common stock at the close of business on December 1, 2023. To provide context, on an annualized basis, this quarterly dividend represents roughly 20% of our trailing 12 month free cash flows. Future quarterly dividends are expected to be paid out of the free cash flow for the relevant year, subject to Board approval and the company's available retained earnings, financial condition and other relevant factors. Subject to the requirements just mentioned, we expect quarterly dividend payments will be an integral and growing part of our balanced capital allocation strategy, which also prioritizes investments in organic projects, in particular technology related initiatives designed to benefit our students and maintaining a strong balance sheet.

Speaker 3

We will also continue to evaluate diverse strategies to enhance stockholder value, including acquisitions and share repurchases. Turning to our updated outlook for 2023. We are again raising Our full year adjusted operating income outlook to now range between $171,000,000 $174,000,000 as compared to the previously provided range of $165,000,000 to $172,000,000 Further, adjusted earnings per diluted share is expected to range between $2.03 $2.06 versus $1.63 in 2022. This outlook reflects our current beliefs that improvements in student retention, partly supported by the positive impact from various student aid initiatives implemented by the current administration will continue to persist through the remainder of 2023. Full year revenue is expected to be higher than 2022, reflecting the benefits from recent acquisitions and the academic calendar redesign of CTU as well as the underlying organic improvements in student retention and engagement.

Speaker 3

AIU Systems reported total enrollments at the end of 2023 are expected to be lower as compared to year end 2022 due to the operational changes that were undertaken at AIUS to ensure compliance with any anticipated or final regulatory changes. However, reported total enrollments at CTU are expected to be higher than 2022 despite a negative impact from the academic calendar redesign signifying underlying organic growth. For the Q4 of 2023, We expect adjusted operating income to be in the range of $15,500,000 to $18,500,000 as compared to $32,400,000 in the prior year quarter with adjusted earnings per diluted share to range between $0.21 $0.24 per diluted share versus $0.31 in the Q4 of 2022. Let me take a minute to provide some necessary details and context around the 4th quarter's expected performance. 4th quarter revenue is expected to exhibit an inflated decline, which is not reflective of the underlying operating performance.

Speaker 3

Revenue will decline at CTU due to the academic calendar redesign and its timing impact on revenue days in the Q4. At AIU System, the operational changes discussed earlier and the resulting lower total enrollments have negatively impacted revenue with the peak impact on revenue and total enrollments to be felt in the Q4. As operations revert to normalized levels in the Q4, we expect AIU Systems' total enrollments and revenue in subsequent quarters to show significant growth as compared to the Q4. Our 2023 outlook also assumes ongoing investments in technology, data analytics, academics and student support processes. We believe these investments have been successful in positively impacting academic outcomes and student experiences.

Speaker 3

We will also continue to increase the size of the corporate partnership staff and may make selective investments in our recent acquisitions as they further integrate within our academic institutions. We ask that you refer to our earnings release filed today for important information about the key assumptions and factors underlying our 2023 outlook and other expectations discussed on today's call as well as the GAAP to non GAAP reconciliations. With that, I will turn the call back over to Andrew for his closing remarks. Andrew? Thanks, Ashish.

Speaker 2

We are pleased with our Q3 operating results and look forward to executing on our various initiatives discussed earlier that focus on further enhancing academic outcomes and student experiences. Thank you again for joining us today.

Operator

Thank you. This does conclude today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Perdoceo Education Q3 2023
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