Perdoceo Education Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 3, 2023

There are 4 speakers on the call.

Operator

At this time, I'd like to welcome you to the Reducio Education Corporation Conference Call. Prevent any background noise, an operator will come online and assist you. Thank you. Davis Snyder, you may begin your conference.

Speaker 1

Thank you, Jordan. Good afternoon, everyone, and thank you for joining us for our Q2 2023 earnings call. With me on the call today is Todd Nelson, Executive Chairman Andrew Hurst, President and Chief Executive Officer and Ashish Ghia, Chief Financial Officer. This conference call is being webcast live within the Investor Relations section atprodocioad.com. A webcast replay will also be available on our site, and you can always contact the Alpha IR Group for Investor Relations let me remind you that this afternoon's earnings release and remarks made today include forward looking statements as defined in Section 21E of the Securities Exchange Act of 1934.

Speaker 1

These statements are based on assumptions made by and information currently available to we are ready for the Q and A session and involve risks and uncertainties that could cause actual future results, performance, business prospects and opportunities 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 PRODUCIO'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. The earnings release that accompanies today's call contains financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non GAAP measures and is available within the Investor Relations page of the company's website.

Speaker 1

With that, I would like to turn the call over to CEO, Andrew Hurst. Andrew?

Speaker 2

Thank you, Davis, and good afternoon to everyone joining us on this call. I would like to begin by thanking our faculty, student support staff and all our other employees for their continued dedication in educating and serving our students. 2nd quarter operating results came in ahead of our expectations, primarily due to further improvements in student retention and engagement, as our faculty and student support teams continue to focus on improving academic outcomes and student experiences. We believe this ongoing improvement in student retention and engagement is supported by the various operating changes And student initiatives undertaken over the past few years. A quick recap of some of the key ones include prospective student outreach and admissions changes that focus on enrolling students that we believe will be more likely to succeed at one of our academic institutions as well as other enrollment process changes that allow us to better serve and onboard new learners in a more meaningful and efficient way.

Speaker 2

2nd, investments to upgrade our student serving and support technology, While continuing to leverage data analytics and machine learning that enable more timely and relevant engagement with our students. 3rd, pandemic era governmental responses and other federal aid initiatives simplified processes for students to receive the financial support needed to continue their education, leading to higher retention And finally, sequential growth experienced in our corporate partnership programs as our institutions continue to work with corporations The sponsor tuition assistance programs to provide a debt free education for their employees. Now, let me provide further details regarding our operating results for the quarter. We reported 2nd quarter net income of $54,700,000 or $0.80 per diluted share, while adjusted earnings per diluted share, which excludes certain significant and non cash items was $0.61 A quick note on total enrollments. In general, enrollment metrics for both our academic institutions were supported by improved student engagement and retention.

Speaker 2

At CTU, total student enrollments remained relatively flat as compared to the prior year quarter. A negative timing impact due to the academic calendar redesign was mostly offset by underlying organic enrollment growth due to improved student retention as well as continued growth in the corporate partnership program. Additionally, we are pleased to announce that on July 21, 2023, the Higher Learning Commission informed CTU That it had acted at its meeting on July 17, 2023 to continue CTU's accreditation With this next reaffirmation of accreditation scheduled for 2,032,000 and 33. At AIUS, Total student enrollments decreased by 14.2% as compared to the prior year quarter, driven by operational changes made in prospective student admissions, outreach Ashish will provide more color on these results in his prepared remarks. Finally, on the technology front, we remain committed to investing in and upgrading our technology to further enhance academic experiences for our students.

Speaker 2

We believe technology is an enabler and a differentiator for us and we will continue to leverage data analytics and machine learning to provide our students with a more relevant and meaningful experience. Over the past 2 years, we've committed to various investments in this area we'll continue to invest as appropriate through the remainder of 2023. 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. Ashish?

Speaker 3

Thank you, Andrew. I will now review our 2nd quarter results and then discuss our balance sheet and 2023 outlook before handing the call back to Andrew for

Speaker 2

his closing remarks.

Speaker 3

Please note that 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 the AIU System and CTU reflect the 2 acquisitions that were completed by the academic institutions in July December of 2022, respectively. Also, total enrollment numbers that I discuss For any enrollment trends that I refer to exclude learners participating in non degree seeking and 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 Q2 of 2023, total company operating income increased by 41.7 percent to $48,100,000 as compared to operating income of $33,900,000 adjusted operating income, which excludes certain significant and non cash items and which we believe is more indicative our underlying operating performance was $55,200,000 reflecting an increase of 31.5% when compared to the prior year quarter, this result came in above the high end of our outlook range for the quarter, primarily due to better than expected student retention at our universities.

Speaker 3

Net income for the quarter was $54,700,000 Compared to $25,800,000 in the prior year quarter equating to $0.80 per diluted share, While adjusted earnings per diluted share was $0.61 as compared to $0.42 I would like to point out that the 2nd quarter GAAP earnings per diluted share were benefited by a onetime non cash gain related to the sale of certain Le Cordon Bleu trademarks and related items. As a reminder, while the teach out of the culinary schools was completed during 2018, we still retain certain trademark rights for North America. On June 30, 2023, we closed the sale of those rights in exchange for 1,800,000 shares of Perdocio common stock, resulting in a non cash gain of $22,100,000 or approximately $0.24 per diluted share net of tax. Since the shares received as consideration in the sale are now held as treasury shares by the company, the underlying economics of this transaction essentially reflect our stock repurchase of 1,800,000 shares. Please also note that since this transaction was completed at the end of the quarter, the diluted shares used to compute EPS for the quarter and year to date do not reflect the accretive nature of this transaction some more details around the Q2 2023 results.

Speaker 3

Total company revenue of $186,600,000 was 11.3% higher As compared to the prior year quarter, primarily driven by revenue growth at CTU. In addition to improving retention at both academic institutions, the year over year revenue comparability was positively impacted by the academic calendar redesign at CTU As well as acquisitions completed in 2022 that were not part of the full comparative prior year period. As it relates to our segments, total student enrollments as of June 30, 2023 remain relatively flat at CTU And decreased 14.2 percent at AIU System as compared to the prior year quarter. At CTU, Improving student retention and continued growth in total enrollments for corporate partnerships were offset by the negative impact from the academic calendar redesign. The decrease at AIU System is primarily due to the operational changes and adjustments made during the current year within prospective student admissions, outreach and enrollment processes.

Speaker 3

These changes and adjustments have been undertaken to ensure compliance with anticipated or final regulatory changes. However, we expect these processes at AIU System we'll revert to normalized levels of operations in the 4th quarter. 2nd quarter revenue CTU was $119,300,000 or 18.7 percent higher than prior year quarter. This increase was driven by a great organic growth in total student enrollments as well as higher revenue days due to the academic calendar redesign. Operating income for the quarter increased to $40,500,000 as compared to 33 $1,000,000 as revenue growth was partially offset by investments in academics and other student support areas as well as our recent acquisition.

Speaker 3

Turning to AIU System. Revenue was essentially flat for the quarter at $67,100,000 excluding the positive impact from the 2022 acquisition, revenue would have been lower, primarily due to the operational changes referenced above. Operating income for the quarter increased to $17,100,000 as compared to $10,700,000 due to reduced operating expenses during the quarter. 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 the federal student aid initiatives. Moving on to Corporate and Other.

Speaker 3

2nd quarter operating loss was $9,400,000 as compared to an operating loss of $9,800,000 in the prior year quarter. Legal fees primarily associated with responses to the Department of Education relating to loan forgiveness applications by former students were lower 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. Now to income taxes. For the Q2, we recorded a provision for income taxes of $19,900,000 which incorporates the accruals for federal and state corporate net income tax, resulting in an effective tax rate of 26.7%.

Speaker 3

Also included in the provision for income taxes was a one time discrete tax expense of $5,300,000 Related to the gain on sale of the Le Cordon Bleu Tradename. Excluding the impact of this discrete item, the effective tax rate for the quarter would have been 27.8%. Finally, we expect that for full year 2023, our effective tax rate will be between 26.5% 27.5%. Moving to the balance sheet. For the 2nd quarter, net cash flow from operations was $61,600,000 versus $32,600,000 in the prior year quarter, while year to date cash flow was $66,200,000 versus $54,800,000 We ended the quarter with $578,100,000 of cash, cash equivalents, restricted cash and available for sale, short term investments, which was approximately $60,000,000 higher versus year end 2022.

Speaker 3

Capital expenditures for the Q2 were approximately $1,700,000 or 0.9 percent of revenue. For the full year 2023, we foresee capital expenditures to be approximately 1.5% of revenue. Before I share the updated outlook, let me discuss an update on our balanced approach to capital allocation. Today, the Board of Directors of Perdocio declared an inaugural quarterly cash dividend payment, marking a significant milestone for the company. The inaugural quarterly cash dividend in an amount equal to $0.11 per share will be payable on September 15, 2023 to the holders of record of PRODOCIO's common stock at the close of business on September 1, 2023.

Speaker 3

To provide context on an annualized basis, this quarterly dividend represents roughly 20% of our 2022 free cash flows. Future quarterly dividend payments 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 mentioned above, 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. Separately, the company's stock repurchase program, which was set to expire on September 30, 2023 has been extended to September 30, 2024. Turning to our updated outlook for 2023.

Speaker 3

We have raised the full year adjusted operating income to range between $165,000,000 $172,000,000 as compared to the previously provided range of $153,000,000 $170,000,000 Further, adjusted earnings per diluted share is expected to range between $1.85 1.92 Versus $1.63 in 2022. This outlook reflects our current beliefs that improvements in student retention, partly supported by the positive impact from various federal student aid initiatives implemented by the current administration will continue to persist through 2023. Prospective student admissions, outreach and enrollment processes at AIU System will revert back to normalized levels of operations in the 4th quarter. Full year revenue is expected to be slightly higher than 2022, reflecting the benefits from recent acquisitions And the academic calendar redesign at CTU as well as underlying organic improvement in student retention and engagement. However, reported total enrollments at the end of 2023 are expected to be lower as compared to year end 2022, Primarily due to the academic calendar redesign of CTU as well as the operational changes that have been or will be undertaken at AIU System to ensure compliance with any anticipated or final rules.

Speaker 3

As disclosed in our 10 ks filed in February, the Department of Education has recently gone through and is going through additional negotiated rulemaking processes surrounding various topics, some of which went into effect on July 1 this year. We continue to monitor and evaluate these rulemaking initiatives any related guidance coming from the department, any further operational changes undertaken by our academic institutions to ensure compliance with any anticipated or final rules could have an impact on the outlook presented above. For the Q3 of 2023, we expect adjusted operating income to be in the range of $43,000,000 to $45,000,000 as compared to $38,700,000 in the prior year quarter with adjusted earnings per diluted share to range between $0.48 $0.50 per diluted share Versus $0.39 in the Q3 of 2022. Please note that the 3rd quarter outlook includes a positive impact from the academic calendar comparable body at CTU, while the Q4 will have a negative impact on quarterly revenue. Our 2023 outlook also assumes ongoing investments in technology, data analytics, academics and student support processes.

Speaker 3

We believe these investments have been successful in positively impacting student experiences. We will also continue to increase the investments in our corporate partnership team at CTU and make selective investments in our recent acquisitions as they further integrate within our academic institutions. We ask you to 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?

Speaker 2

Thanks, Ashish. We are pleased with our 2nd quarter operating results And the efforts of our institutions to educate our students. Thank you again for joining us today.

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Earnings Conference Call
Perdoceo Education Q2 2023
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