Perdoceo Education Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 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 Pedro Serra at Education

Speaker 1

Seo Education Corp.

Operator

First Quarter 2024 Earnings Conference Call. All lines have been placed on mute all throughout the presentation to prevent any background noise. Thank you. I would now like to turn the call over to Mr. Sam Gibbons, Investor Relations.

Operator

Please go ahead, sir.

Speaker 2

Thank you, operator. Good afternoon, everyone, and thank you for joining us for our Q2 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 predociored.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 2

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 PRODOCIO'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 2

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 3

Thank you, Sam. Good afternoon, everyone, and thank you for joining us for our Q2 2024 earnings call. I'll discuss some key business highlights through the Q2. Ashish will review our operating and financial performance in more detail and discuss our 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.

Speaker 3

We ended the first half of twenty twenty four on a strong note as it relates to student retention and engagement. As a result, 2nd quarter operating results came in ahead of our expectations discussed on the last earnings call, partially due to better than expected revenue results. Let me now review some of the key observations and general business highlights. We continue to experience high levels of student retention and engagement at both CTU and AIUS with student retention at multiyear highs. Our faculty and student support teams remain dedicated to educating and serving our students, and we anticipate that retention should continue to trend at these levels through the remainder of 2024.

Speaker 3

Quarter year to date marketing and admissions spends and commensurately prospective student inquiry generation was lower during the Q2 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 and adapt with updated expectations from various federal agencies around prospective student outreach. We are also focused on enhancing the processes that support our corporate engagement programs. These programs are a key priority for our academic institutions and we'll continue to invest in staff and technology to grow them efficiently and effectively. The Board of Directors just approved an 18.2% increase in the quarterly per share dividend amount of $0.13 per share payable on September 23, 20 excuse me, September 13, 2024.

Speaker 3

This marks the first increase since our inaugural dividend payment on September 15, 2023. Additionally, we continue to place an emphasis on utilizing technology to evaluate the academic experiences for our students and improve the efficiency and effectiveness of our institutions support student functions. We view technology as a catalyst and differentiator for us to remain committed to making selective investments that deliver more meaningful and relevant education experience for our learners. Lastly, earlier this month, we were pleased to announce a definitive agreement to acquire the University of St. Augustine for health sciences.

Speaker 3

The university offers quality graduate health science degrees, primarily in physical therapy, occupational therapy, speech language and therapy and nursing, as well as continuing education programs. This acquisition marks Perdocio's foray into health sciences and will further support and grow the diversification of our academic program offerings. Prodoso is expected to pay $142,000,000 to $144,000,000 in net cash at the time of closing. For the full year 2023, the university had revenues of approximately $170,000,000 operating income of approximately $35,000,000 and serve roughly 4,500 graduate and postgraduate students. Perdozio expects the transition to be immediately accretive to the company's adjusted operating income beginning in 2025.

Speaker 3

A quick note on operating results. 2nd quarter results came in ahead of our expectations. We reported 2nd quarter net income of $38,400,000 or $0.57 per diluted share, while adjusted earnings per diluted share, which excludes certain significant and non cash items, was $0.60 as compared to our outlook of $0.57 to $0.59 From a student enrollment perspective, total enrollments for the quarter end grew 14.7% at CTU as compared to the prior year quarter end, driven by a positive timing impact of the academic calendar as well as growth in corporate engagement programs. As previously discussed, AIUS reverted to normalized operations during the Q4 of 2023 and consistent with our expectations, the rate of decline in quarterly total enrollments have continued to moderate through the Q2. Note, AIU's total enrollment decline for the 2nd quarter was 18.2% as compared to a decline of 22.9% for the Q1 of 2024.

Speaker 3

Ashish will provide more details on these trends momentarily. In summary, we're pleased with the 2nd quarter operating results. I'm proud of our team's hard work and dedication. Our faculty and student support teams are working tirelessly to provide current and prospective students with quality academic and learning experiences with the goal of improving overall student retention and academic outcomes. With that said, I'd now like to turn the time over to Ashish for a deeper review of our operating and financial performance.

Speaker 3

Ashish?

Speaker 1

Thank you, Todd. I will review the Q2 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 student 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 1

Net income for the quarter 2nd quarter was $38,400,000 or $0.57 per diluted share compared to $54,700,000 or $0.80 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 $0.61 2nd quarter operating income of $46,000,000 was $2,100,000 lower as compared to the prior year quarter. Adjusted operating income, which we believe is more indicative of the underlying operating performance and excludes certain significant and non cash items was $50,900,000 for the 2nd quarter as compared to $55,200,000 As expected, revenue for the quarter was lower by $19,800,000 which was mostly offset with $17,700,000 of lower expenses. This expected decrease in revenue was primarily due to the prior year operational changes at AIU System as well as changes being made within our professional development offerings at CTU. Operating expenses during the Q2 were lower within marketing, admissions and bad debt as well as lower legal expenses related to the Board of Defense to repayment applications.

Speaker 1

Additionally, we also realized cost savings from rightsizing processes and operations that support our professional development offerings at CTU as we focus on delivering academic programs more effectively and efficiently and investing in student processes that we believe will further enhance the overall value proposition of our academic institutions. Please also note that while legal expenses related to borrower defense repayment applications were lower during the quarter, they are excluded when calculating adjusted operating income. Overall, on a year to date basis, total operating expenses were $48,000,000 lower as compared to the prior year, while revenue was $47,200,000 lower. 2nd quarter revenue of $166,700,000 decreased 10.6% as compared to $186,600,000 in the prior year quarter. This revenue decline was expected and partially due to the lag impact on revenue at AIU System from operating changes made in the prior year.

Speaker 1

For the second half of twenty twenty four, CTU's academic calendar will remain relatively consistent and the delayed impact on revenue at AIU System will significantly lessen. As a result, we expect revenue to grow in the 4th quarter, which will mostly offset the expected decline in the 3rd quarter. A note on student enrollments. Total student enrollments at CTU increased by 14.7% as of June 30 as compared to the prior year quarter end, driven by a positive timing impact from year to date enrollment day comparability versus prior year as well as growth in our corporate engagement programs. Please note, ignoring this positive impact from the year to date enrollment day comparability, we believe total enrollments as of June 30 would still show growth for CTU.

Speaker 1

At AIU System, total student enrollments at June 30 as expected were lower by 18.2% versus the prior year quarter end. As a reminder, marketing and student enrollment activities have reverted to normalized levels beginning the Q4 of 2023 and we expect to show further progress towards achieving total enrollment growth with enrollments expected to be relatively flat from the 3rd quarter and experienced double digit growth by year end. Now to our segment results. 2nd quarter revenue at CTU decreased by 5.4 percent to $112,800,000 primarily due to changes within our professional development offerings. Revenue days were also lower for CTU's degree programs.

Speaker 1

However, growth in corporate engagements and high levels of student retention and engagement mostly helped offset the impact from lower revenue days. Operating income was $42,900,000 for the quarter as compared to $40,500,000 Lower expenses within admissions and marketing as well as rightsizing of the cost structure to align with the simplified professional development offerings more than offset the decline in revenue. At AIU Systems, 2nd quarter revenue was $53,700,000 or 19.9 percent lower than the prior year quarter, which was in line with our expectations due to the continuing lag impact from the operational changes we discussed last year. Operating income was $12,900,000 versus $17,100,000 in the prior year quarter as the revenue decline was only partially offset with lower operating expenses. Please note that some of this expense or expense favorability will reverse in the second half as AI system maintains normalized operations.

Speaker 1

Moving on to corporate and other, the operating loss for the Q2 was $9,800,000 as compared to $9,400,000 in the prior year quarter. The increase was primarily due to costs associated with M and A activity, partially offset by lower legal fees associated with the borrower defense to repayment applications. Now to income taxes. For the Q2, we recorded a provision for income taxes of $14,600,000 which reflects accruals for the federal and state corporate net income tax, resulting in an effective tax rate of 27.5%. The effective tax rate for the quarter reflects favorable discrete items related to the tax effect of stock based compensation and the release of previously recorded tax results as well as the tax effect of certain M and A expenses, which are considered non deductible for tax purposes.

Speaker 1

As a result, we now expect our full year 2024 effective tax rate to be between 26.5% 27.5%. Now to our balance sheet and liquidity. For the year to date ended June 30, 2024, net cash flow from operations were $93,000,000 versus $66,200,000 in the prior year to date. The increase in year to date cash flows from operations was primarily driven by timing differences between the cash inflows related to our academic session start date as compared to revenue earned from those sessions. We ended the quarter with $675,200,000 of cash, cash equivalents, restricted cash and available for sale short term investments.

Speaker 1

This represents an increase of approximately $71,000,000 since the end of last year. Through the year to date ended June 30, we have returned $21,400,000 of cash to our shareholders in the form of dividend payments and share repurchases and paid approximately $25,000,000 in estimated federal and state income taxes. Capital expenditures for the 2nd quarter were approximately $800,000 or 0.5 percent of revenue. As a reminder, for full year 2024, we foresee capital expenditures to be approximately 1.5 percent of revenues. Before I share the updated outlook, let me take a minute to discuss capital allocation.

Speaker 1

Today, we are pleased to announce that consistent with our dividend policy and commitment to make it an increasing part of our capital allocation strategy, On July 31, the Board of Directors approved an 18.2% increase in the quarterly per share dividend to $0.13 per share for the Q2 2024, which will be payable on September 13, 2024 to the holders of record of Produlcea's common stock at the close of business on September 1, 2024. 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 continue to expect that quarterly dividend payments will be an integral and growing part of our balanced capital allocation strategy. Now let me spend a minute to review some details regarding our agreement to acquire St. Augustine.

Speaker 1

Brudosio is expected to pay approximately $142,000,000 to $144,000,000 in net cash at the time of closing for 100 percent ownership, which includes an estimate for cash, debt and working capital based on the closing balance sheet. Note that the deal has been negotiated on a debt free cash free basis and the net cash payment at closing could vary from the above range based on actual working capital adjustments. As Todd mentioned, we expect the acquisition to be immediately accretive to our adjusted operating income beginning 2025. Our balanced 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 1

Based on better than expected performance in the first half, we now expect full year 2024 adjusted operating income to range between $179,000,000 $190,000,000 as compared to the previously provided range of $175,000,000 to $190,000,000 and the 2023 adjusted operating income of $174,900,000 Adjusted earnings per diluted share is expected to range between $2.13 $2.25 versus $2.10 in 2023. For the Q3 of 2024, we expect adjusted operating income to be in the range of $45,000,000 to $47,000,000 as compared to $47,200,000 in the prior year quarter with adjusted earnings per diluted share to range between $0.52 $0.54 per diluted share versus $0.64 in the Q3 of 2023. This outlook reflects our current beliefs that high levels of student retention and engagement we experienced over the past few quarters partly supported by the positive impact from various federal student aid initiatives will continue to proceed through the remainder of 2024. Full year revenue at CTU is expected to be lower than 2023, primarily due to simplification of our professional development offerings. Full year 2024 revenue days for CTU's degree programs will be lower as compared to the prior year.

Speaker 1

However, growth in our corporate engagement programs and high levels of student retention and engagement is expected to more than offset the impact from lower revenue days and also support total enrollment growth for year end 2024. At AIU System, revenue is expected to be below 2023 levels due to the lag impact from 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 and engagement, we expect total student enrollments to experience double digit growth versus the prior year end as we exit the year and AI U. S. System to be able to mostly offset the lag impact from the 2023 operational changes by year end and in fact experienced revenue growth in the Q4.

Speaker 1

As a general reminder, CTU'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 or direction. On a full year basis, CTU will have lower revenue earning days in 2024, which disproportionately impacted the first half of twenty twenty four when compared to the prior year. Also the lag impact from lower pigment total enrollments at AIU System more acutely impacted the first half of twenty twenty four. Finally, the second half of twenty twenty three included certain one time non recurring charges related to our previous acquisitions. As disclosed in our most 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 1

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 selective 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. We will also continually evaluate the size and resources of our academic institutions or product 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 1

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

Speaker 3

Thank you, Ashish. In closing, I'm proud of the way our company executed through the Q2 of 2024 and I'm pleased with the progress we are continuing to expect into the second half of the year. Our academic institutions remain focused on serving and educating our students and our investments will continue to prioritize student experiences and academic outcomes. Upon completion, the acquisition of St. Augustine will further enhance Perdocio's overall value proposition with 3 separate quality academic institutions providing a broad spectrum of post secondary educational offerings.

Speaker 3

I'd like to thank all of our students and staff once again for their ongoing hard work and dedication. Thank you for joining us.

Operator

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

Powered by Quartr
Earnings Conference Call
Perdoceo Education Q2 2024
00:00 / 00:00