Perdoceo Education Q1 2024 Earnings Call Transcript

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May 1, 2024

There are 4 speakers on the call.

Operator

Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Purdue Education Corporation First Quarter 2024 Earnings Conference Call. All lines have been placed on mute all throughout the presentation to prevent any background noise. Thank you.

Operator

I would now like to turn the call over to Sam Gibbons, Investor Relations. Please go ahead.

Speaker 1

Thank you, Kathleen. Good afternoon, everyone, and thank you for joining us for our Q1 2024 earnings call. With me on the call today is Todd Nelson, President and Chief Executive Officer and Ashish Ghia, Chief Financial Officer. This conference call is being webcast live within the Investor Relations section at perdocied.com. A 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 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 Perdocio Education 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 Perdocio's most recent annual report on Form 10 ks 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 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. With that, I'd like to turn the call over to Todd Nelson. Todd?

Speaker 2

Thank you, Sam. Good afternoon, everyone, and thank you for joining us for our Q1 2024 earnings call. I'll discuss some of the key highlights from the Q1 and then Ashish will review our operating and financial performance in more detail and provide an updated outlook for the year. However, before we begin, I'd like to thank our faculty, student support staff and all other employees for their ongoing commitment and hard work in serving and educating our students. We ended 2023 on a strong note as it relates to student retention and engagement and these trends have persisted in the Q1.

Speaker 2

As a result, Q1 operating results came in ahead of our expectations discussed on the last earnings call, primarily due to better than expected student engagement trends. Before we discuss 1st quarter results, following are some of the key observations and highlights for the quarter. We continue to experience strong levels of student retention and engagement at both CTU and AIUS, and we expect to operate at these levels through the remainder of 2024, while our faculty and student support teams remain focused on educating and serving our students. Marketing and admission spend and commensurately prospective student inquiry generation was lower during the Q1 as compared to 2023. Aided by data analytics, we continue to adjust marketing strategies to further improve our focus on identifying prospective students who are more likely to succeed at one of our universities, as well as comply with updated expectations from various federal agencies around prospective student outreach.

Speaker 2

We remain focused on investing in and improving processes that support our corporate engagement programs. These programs remain a focus and priority of both institutions and will continue to make necessary investments in staff and technology to further grow the programs in an efficient and effective manner. We continue to place an emphasis on investing in and utilizing technology to evaluate the academic experiences of our students and improve the efficiency and effectiveness of our institution's academic and student support functions. We view technology as a catalyst and differentiator for us and remain committed to making selective investments that deliver a more meaningful and relevant education experience for our learners. A quick note on our operating results.

Speaker 2

1st quarter results came in ahead of our expectations. We reported 1st quarter net income of 39 $400,000 or $0.59 per diluted share, while adjusted earnings per diluted share, which excludes certain significant and non cash items, was 0.60 dollars From an enrollment perspective, 1st quarter total student enrollments grew approximately 28.5% at CTU as compared to the prior year quarter, ending primarily driven by a positive timing impact from the academic calendar. As expected and discussed on last quarter's earnings call, AAU System experienced a decline in total enrollment enrollments, total student enrollments, which were lower by 22.9% as compared to the prior year quarter. As previously shared, AIUS had mostly reverted to normalized operations during the Q4 of 2023 and consistent with our expectations experienced an approximate 30% increase in total enrollments for the Q1 as compared to the Q4 of 2023 low point. Ashish will provide more details on enrollment trends later.

Speaker 2

In summary, we are pleased with the Q1 operating results and are proud of our team whose hard work and dedication are helping us drive stronger student engagement while enhancing academic experiences across our academic institutions. With that said, I'd like to now turn the time over to Ashish for a deeper review of our operating and financial performance. Ashish?

Speaker 3

Thank you, Todd. I will review the Q1 results and then discuss our balance sheet and 2024 outlook before handing the call back to Todd for his closing remarks. Please note all comparisons I discuss are versus the comparative prior year period unless otherwise stated. Please also note that the total enrollment numbers that I discuss or any enrollment trends that I refer to exclude learners pursuing non degree seeking professional development programs and degree seeking non Title IV self paced programs at our universities. Let us begin with an overview of our operating results.

Speaker 3

1st quarter operating income of $46,300,000 was $2,900,000 higher as compared to the Q1 of last year. This improvement in operating income was primarily driven by approximately $30,000,000 in lower expenses across most functional areas that more than offset the decline in revenue. Please note that despite the lower student enrollments at AIU System, we have strived to maintain the faculty and student support operations relative to their enrollments at levels higher than historical norms due to AIU Systems total enrollment growth expectations as well as our desire to continue providing quality student support services. As a result, most of the lower expenses for the quarter can be summarized in the following categories. First, lower admissions and marketing expenses due to ongoing adjustment made to prospective student inquiry generation processes as well as to comply with updated expectations from various federal agencies around prospective student outreach.

Speaker 3

2nd, rightsizing of expenses that support our portfolio of programs offering professional development, upskilling and reskilling opportunities so that we can focus on effectively and efficiently delivering academic programs that we believe will enhance the overall value proposition of our academic institutions. 3rd, lower bad debt expenses supported by ongoing student loan initiatives implemented by the current administration. And 4th, lower legal expenses primarily related to borrower defense repayment applications. Adjusted operating income, which we believe is more indicative of the underlying operating performance and excludes certain significant and non cash items was $49,500,000 as compared to $53,100,000 in the prior year quarter. This was primarily due to lower revenue at our academic institutions that was only partially offset by some of the lower expenses I previously discussed.

Speaker 3

Please note that while legal expenses related to borrower defense repayment applications were lower during the quarter, they are excluded while calculating adjusted operating income. Net income for the Q1 was $39,400,000 or $0.59 per diluted share compared to $34,500,000 or $0.50 per diluted share. Adjusted earnings per diluted share, which we believe is more indicative of the underlying operating performance was $0.60 as compared to $0.58 1st quarter revenue of $168,300,000 decreased 14% as compared to a $195,600,000 in the Q1 of last year. This decrease was expected due to CTU's academic calendar comparability resulting in a lower number of revenue earning days during the current quarter as well as the lag impact on revenue at AIU System for the short term operating changes made in the prior year. During the second half of twenty twenty four, CTU's academic calendar will be relatively comparable and the lag impact on revenue at AIU System will significantly moderate.

Speaker 3

As a result, we expect revenue in the second half of twenty twenty four to show growth versus the prior year with much of that growth occurring in the Q4. A note on total student enrollments. Total student enrollments for CTU increased by 28.5% as of March 31, primarily due to higher number of enrollment days for the current quarter. Please note that ignoring the positive impact from the enrollment day comparability, total enrollments would still be positive for CTU. As expected and discussed on last quarter's earnings call, AIU System experienced a decline in total student enrollments, which were lower by 22.9% as compared to the prior year's quarter.

Speaker 3

Marketing and student enrollment activities had reverted to normalized levels beginning in the Q4 of 2023 and quarterly total enrollments were expected to show growth throughout 2024 as compared to the Q4 2020 low point. And accordingly, total enrollments for the Q1 were approximately 30% higher than the Q4 of 2023 low point. Now to our segment results. First quarter revenue at CTU decreased by 8.8 percent to $113,600,000 due to the negative timing impact from fewer revenue earning days during the quarter. Operating income was $42,200,000 for the quarter as compared to $43,700,000 Lower revenue was partially offset by lower expenses within admissions, marketing and bad debt.

Speaker 3

As mentioned previously, the academic calendar will have a disproportionately negative impact on revenue during the first half of the year with the second half more normalized due to a relatively comparable number of revenue days. At AIU System, 1st quarter revenue was $54,500,000 or 23.1% lower than the prior year quarter, which was in line with our expectations due to the lag impact from operational changes we discussed last year. Operating income of $9,300,000 was $2,700,000 lower compared to the prior year quarter as most of the revenue decrease was offset with lower operating expenses. Please note that some of this operating leverage will reverse in the second half if AI system maintains normalized operations. Moving on to corporate and other, operating loss for the quarter was $5,200,000 or $7,200,000 lower as compared to the prior year quarter.

Speaker 3

This improvement was primarily driven by lower legal expenses. Now to income taxes. For the Q1, we recorded a provision for income taxes of $13,400,000 which reflects accruals for federal and state corporate net income tax resulting in an effective tax rate of 25.4%. The effective tax rate for the quarter was positively impacted by discrete items for the tax effect of stock based compensation and the release of previously recorded tax reserves, which decreased the effective tax rate by approximately 2.5%. Finally, we expect our full year 2024 effective tax rate to be between 25.5% 26.5%.

Speaker 3

Now to our balance sheet and liquidity. For the Q1, net cash flows from operations were $54,500,000 versus $4,600,000 in the prior year quarter. The increase in cash flows from operations was primarily driven by the timing of the academic calendar and the session start dates. We ended the quarter with $642,400,000 of cash, cash equivalents, restricted cash and available for sale short term investments. This represents an increase of approximately $38,300,000 since the end of last year.

Speaker 3

Additionally, during the quarter, we returned $14,000,000 to shareholders in the form of quarterly dividends and share repurchases. Capital expenditures for the Q1 are approximately $1,200,000 or 0.7 percent of revenue. As a reminder, for the full year 2024, we foresee capital expenditures to be between 1% to 2% of revenues. Before I share the updated outlook, let me take a minute to discuss capital allocation. We are pleased to announce that consistent with our dividend policy, on May 1, the Board of Directors approved the 1st quarter dividend payment of $0.11 per share payable on June 15, 2024 to the holders of record of Prodoso's common stock at the close of business on June 1, 2024.

Speaker 3

Future quarterly dividend payments are expected to be paid out of free cash flows 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 and expect the Board to review the current quarterly dividend amount per share this fall. Separately, during the Q1 of 2024, we repurchased approximately 400,000 shares at an average purchase price of $17.60 for a total of $6,800,000 Moving forward, we expect share repurchases to remain a meaningful part of our balanced approach to long term capital allocation. Our capital allocation strategy also prioritizes investments in organic projects, in particular technology related initiatives designed to benefit our students and maintaining a strong balance sheet, while also evaluating diverse strategies to enhance stockholder value including acquisitions. Now let us discuss our outlook for 2024.

Speaker 3

Based on better than expected performance in the Q1, we expect full year 2024 adjusted operating income to now range between $175,000,000 $190,000,000 as compared to the previously provided range of $170,000,000 to $190,000,000 and the 2023 adjusted operating income of $174,900,000 Adjusted earnings per diluted share is expected to range between $2.11 $2.27 versus $2.10 in 2023. This outlook reflects our current beliefs that the high levels of student retention engagement we experienced over the past few quarters partly supported by the positive impact from various Federal Student Aid initiatives will continue to persist through the remainder of 2024. Full year revenue at CTU is expected to be lower than 2023 due to the academic calendar comparability at CTU resulting in the lower revenue dates for the current year. Please also note that if we were to ignore this comparability impact, revenue for CTU would show growth versus 2023. We also expect CTU to experience total enrollment growth for the year end 2024, primarily driven by high levels of student retention and engagement as well as continued growth from the corporate engagement programs.

Speaker 3

At AIU System, revenue is expected to be below 2023 levels due to the lag impact of lower beginning total enrollments. As AI system continues to operate with normalized levels of marketing and admissions, while also experiencing strong levels of student retention engagement, we expect the following: the revenue decline at AIU System will moderate each subsequent quarter during the 2024. In the Q4, we expect AIU System to experience revenue and enrollment growth as compared to the Q4 of 2023. And for each quarter we expect AIU System to post double digit enrollment growth as compared to the year end 2023. For the Q2 of 2024, we expect adjusted operating income to be in the range of $48,000,000 to $50,000,000 as compared to $55,200,000 in the prior year quarter with adjusted earnings per diluted share to range between $0.57 $0.59 per diluted share versus $0.61 in the Q2 of 2023.

Speaker 3

As a reminder, CQ's academic calendar may impact the comparability of revenue earning days and enrollment results in any given quarter year, but not necessarily in the same magnitude and direction. On a full year basis, CTU will have lower revenue earning days in 2024, which will disproportionately impact the first half of twenty twenty four when compared to the prior year. Also, the lag impact from lower beginning total enrollments at AIU System will have a larger impact on the first half of twenty twenty four. As a result, we expect the first half adjusted operating income from 2024 to be lower as compared to the first half of twenty twenty three, while the second half is expected to show growth as compared to 2023. As disclosed in our more recent Form 10 ks, the Department of Education has recently gone through and continues to go through additional negotiated rulemaking processes while also updating interpretations and providing new guidance on various other topics.

Speaker 3

While we continue to monitor and evaluate these rulemaking initiatives as well as new or updated guidance coming from the department, any further operational changes that are necessary to ensure compliance with department's rules and interpretations could have an impact on the outlook I just presented. Our 2024 outlook also assumes ongoing investments in technology, data analytics, academics and student support processes. We believe these investments have been successful in positivity impacting academic outcomes and student experiences. We'll also continue to increase the size and resources of our institutions' corporate engagement teams. Please refer to our earnings release filed today for important information about the key assumptions and factors underlying this discussion from today's call as well as the GAAP to non GAAP reconciliations.

Speaker 3

With that, I will turn the call back over to Todd for his closing remarks. Todd? Thank

Speaker 2

you, Ashish. In closing, I'm proud of the way our company executed through the Q1 of 2024 and I'm pleased with the progress we are bringing into the new year. Our academic institutions remain focused on serving and educating students and our investments will continue to prioritize student experiences and academic outcomes. I'd like to thank all of our students and staff once again for their ongoing hard work and dedication. Thank you again for joining us and we look forward to speaking again next quarter.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Perdoceo Education Q1 2024
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