Q3 2019 Earnings Call
Phone. Please be advised to today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Chris Symanoskie.
President Investor Relations. Thank you. Please go ahead.
Thank you operator, good evening and welcome to American public education discussion of financial and operating results for the third quarter of 2019.
Materials that accompany today's conference call are available in the events and presentations section of our website and are included as an exhibit to our current report on form 8-K furnished with the FCC earlier today.
Please note that statements made in this conference call and in the accompanying presentation materials regarding American public education or its subsidiaries that are not historical facts, maybe forward looking statements based on current expectations assumptions estimates and projections about American public education and the industry.
Three.
These forward looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements forward looking statements can be identified by words, such as anticipate believe seek could estimate expect intend may should will and would these forward looking state.
Hunts include without limitation statements regarding expected growth expected registration and enrollments expected revenues expenses and earnings and plans with respect to recent current and future partnerships investments and initiatives, including efforts to rebuild the nursing platform as well.
Well as information technology replacements and upgrades.
Actual results could differ materially from those expressed or implied by these forward looking statements as a result of various factors, including the risk factors described in the risk factor section and elsewhere in the company's most recent annual report on Form 10-K filed with the SEC and the company's other SEC filings.
The company undertakes no obligation to update publicly any forward looking statements for any reason unless required by law, even if new information becomes available or other events occur in the future. This evening, it's my pleasure to introduce Angela Seldon, our president and CEO and Rick Sunderland, our executive Vice President and CEO .
FFO at this time I'd now like to call turn the call over to Angela Seldon Angie.
Thank you, Chris and good evening, everyone. It's a pleasure to speak with all of you.
This evening I will comment at a high level on both the recent quarter and my first impression is after 50 days about the strength and opportunities at Apiay.
This skills gap and the high cost of higher education are creating a national crisis.
Workers can no longer afford to learn the skills that employers need.
According to a Wiley education services annual survey.
64% of the 600 HR leaders surveyed said there is his skills gap in their company.
Pair that with a 1.4 trillion dollar outstanding student loan debt.
And these two forces are colliding to create unmatched opportunity for those position to provide today's workers with access to high quality flexible and career relevant degree programs and workforce training that is either affordable or debt free.
It's important for our key stakeholders to understand that my priority is to grow APC eyes core business with an emphasis on addressing this national need for affordability to Upskill America's workforce.
While the third quarter results met or slightly exceeded the company's outlook. The performance does not reflect the strong foundation and the market potential for ETP.
As we move forward our primary focus will be to grow the core business through increased learner and of course enrollments across all brands.
And to accelerate our reach to provide affordable accessible relevant and high quality post secondary education and training to new learner markets.
In the third quarter of 2019, net course registrations by new and total learners at Sep U.S. declined 5% year over year.
The decline was primarily driven by an 11.9% decline in net course registrations by new learners utilizing military tuition assistance or Ta.
The decline in net course registrations by new learners utilizing ta was largely impacted by the temporary exhaustion of Navy Ta program funds.
As previously noted the US Navy announced that T.J. benefits available to sailors. We are expected to be exhausted by the end of May and effective may 28 to 2019, the navy seized improving T. A program funds until the start of the new government fiscal year on Act.
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Aipu as anticipated that this development would result in a loss of 4300 net course registrations during the third quarter. However, actual results were better than that anticipated loss by approximately 630 net course registrations.
Net course registrations by new learners utilizing federal student aid or Fs say, we're also slightly better than expected.
That said Aipu as did experience a 7.7% decline in net course registrations by new learners utilizing FSC compared to the prior year period.
The declines were partially offset by a 9.6% increase in net course registrations by new learners utilizing veterans benefits or VA and a 5.4% increase in net course registrations by new learners utilizing cash or other sources.
I believe Aipu S. remains one of the best kept secret in higher education.
One of the key reasons I joined Apiay is to accelerate the positive impact that 80, U.S. can have on deliver hot hot delivering higher education with low debt or no debt to working adult learners.
As of May 2019, approximately 72% of the 90080 U.S. alumni graduated with no 80, U.S. incurred student loan debt.
Demonstrating leadership in our national mission to provide affordable accessible and relevant higher education to adult learners have all kinds.
In pursuit of that mission Aipu, as recently announced and increased intuition grants for active duty soldiers, who pursue undergraduate and masters level courses.
The U.S. book Grant was also extended to now include active duty military learners at the masters level.
Previously active duty learners pursuing masters level courses at Aipu S paid for their textbooks and either financed or paid out of pocket any differences between the department of defense T., a benefit and the higher per credit our cost of the graduate tuition.
We believe the new tuition grants and the extension of the book Grant May increase the number of active duty military learners at Aipu us with no out of pocket cost, especially at the masters level.
The extension of grants to benefit more military students continues to fulfill our commitment to service members and reflects our intention to expand our presence within our core military community.
Ushering in a new period of sustained enrollment growth at HCP U.S. must be supported first by leveraging aipu s. capability in our core military and military affiliated markets.
As Aipu asked was founded on the principle of assisting military learners, who face barriers to degree completion going forward, we will work to assist new learner populations with similar characteristics were able to U.S. can have meaningful impact on their success.
Historically, the message of affordability in advertising at HP U.S. has been subtle.
I believe, especially given this national conversation about rising tuition and student loan debt in higher education, there are opportunities to create large scale awareness and attract college ready students with the primary method of affordability and value.
At my direction and with the supportive ATP eyes Board of Directors. We recently began a detailed review of our operations and current market opportunities for the P.I. businesses.
With my prior experience in large scale business transformation.
These efforts may help discover and prioritize important growth areas and lead to streamline processes improve capabilities and better tools.
The recent modest tuition increase at Aipu S. The first since 2015 is intended to support new investments in academic learning and student operations.
We recently completed an evaluation of our information information technology ecosystem, which resulted in a plan to upgrade and replace our learning management system in 2020 to modernize the U.S. campus for students and faculty.
Also we intend to improve the operational effectiveness of each department and many of the major functions within the University beginning with the replacement of the CRM systems for both Aipu S and Hondros, which is already underway.
We believe this technology transformation program, which is anticipated to cost between six and $8 million in 2020.
Will enable us to better accommodate new flexible learning modalities, such as credential seekers dual degrees and custom programs for partnerships to serve new market segments improved the operational effectiveness of our enterprise and enhance the learning experience for students and faculty.
In addition to having met many enthusiastic employees at HCP U.S. During my first 50 days at Apiay I've spent time with the management team at the Hondros College of nursing visiting campus locations.
Taking with students and reviewing Hondros enrollment growth recovery plan.
As part of their comprehensive plan Hondros or HCM has taken steps to build a strong pipeline of practical nursing or pn students, which serves as the primary theater to Hondros associate degree in nursing or ATM program.
Although student enrollment at Hondros Pn program declined 9% year over year in the fourth quarter of 2019, the enrollment decline has lessened representing a dramatic improvement compared to the more precipitous decline of the last several quarters.
Overall, HCM, new and total enrollment increased by 53% and 13% sequentially or compared to the third quarter of 2019.
In addition, HCM her hondros team reported improved student retention compared to last year success with the deployment of the new Salesforce CRM software and continued progress with its new Indianapolis campus that is scheduled for opening in 2020 pending regulatory approval.
In short we're pleased with the positive momentum building at Hondros.
In summary, it isn't important priority for me to strengthen all aspects of the P.I. core business in part by unleashing the potential that currently exist within the organization.
The initiatives, we discuss today are really just the beginning of our growth story.
Yesterday was veterans day, and it was a clear reminder, about what attracted me to Apiay.
Fulfilling our mission to bring affordable accessible relevant high quality educational experiences to learners, who are driven to succeed.
Frankly, I believe Apiay is one of the best platforms available today that can continue to have a positive impact.
On providing workers access to affordable Upskilling.
And.
Have a voice in the national conversation around low debt and no debt in higher education as learners pursue their dreams of improving the lives of their families and of themselves.
It is the highest honor for me to lead a P. I do this important part of its history.
And now I will turn the call over to our CFO Rick Sunderland.
Thank you and Jane and good evening going onto page three American public education consolidated revenue for the three months ended September Thirtyth, 2019 decreased 5.1 million or 7% to 67.9 million compared to 73 million in the prior year period.
Hey, PPI segment revenue decreased 2.6 million or 4.1% to 61.2 million due primarily to the temporary exhaustion of Navy T. a program funds during the period.
HCM segment revenue decreased 2.4 million or 26.8% to 6.7 million due to a decline in student enrollment.
Total cost of expenses increased 7.1% to 70.8 million for the three months ended September Thirtyth 2019.
The results for the quarter reflect the following on a pre tax basis.
2.8 million in employee compensation costs for post employment benefits that will be payable to the Pos president upon retirement.
At 1.6 million increase in advertising costs as compared to the prior year period.
The 1.5 million noncash impairment of goodwill and 800000 in information technology costs related to the evaluation of replacement or upgrades of our technology and learning management systems, which by the way. It was approximately 400000 lower than we anticipated.
Consolidated bad debt expense for the third quarter of 2019 was 1.0 million for 1.5% of revenue compared to 1.3 million, 1.7% of revenue in the prior period.
Hey, PE guys consolidated net loss was 1.6 million or 10 cents per diluted share for the three months ended September Thirtyth 2019.
However, adjusted net income for the third quarter of 2019 was 1.8 million or 11 cents per diluted share.
Adjusted net income a non-GAAP measure excludes the 2.8 million in employee compensation costs in our APC segment, and the 1.5 million impairment of goodwill and our HCM segment as well as the applicable tax effect of the adjustments.
Our core business continues to generate strong operating cash flow cash flow from operations increased 25% to 31.9 million compared to 25.6 million in the prior year.
Accounts receivable decreased by 6.1 million compared to December 31, 2018, driven primarily by improved payment processing at the department of defense.
Total cash and cash equivalents as of September Thirtyth 2019 was approximately 210.1 million compared to 212.1 million as of December 31 2018.
Cash and cash equivalents was reduced by 27.3 million used to repurchase our common stock.
During the nine month ended September Thirtyth 2019, the company repurchased approximately 966000 shares of its common stock.
Capital expenditures for the nine months ended September Thirtyth 2019 decreased to 4.2 million compared to $5.3 million in the prior year period.
Going onto page for fourth quarter 2019 outlook.
Our outlook for the fourth quarter of 2019 is as follows.
In the fourth quarter of 2019, we expect consolidated revenue to decline between minus 7% and minus 3% year over year. The temporary exhaustion of David CAH program funds is expected to David negatively impact October 2019 revenue by approximately $400000, but we do not expect a significant.
Back in November .
However, we are unable to predict whether and to what extent. The Navy will continue to impose limitations on T. a program approvals as a result of limited funding.
The company expects diluted earnings per share to be between 35 cents and 40 cents in the fourth quarter 2019.
The consolidated outlook for earnings per share includes the impact of any share repurchases that may occur occurred during the fourth quarter of 2019.
In the fourth quarter, we anticipate spending an additional 1.0 million on our information technology upgrades and replacements and spending between approximately 6 million and 8 million in 2020, focusing on specific information technology project projects, including replacements of our learning management and customer relation.
Ship management systems.
The 1.0 million for the three months ended December 31, 2019 is included in the in Apiay outlook for the fourth quarter.
Hey, Pos total net course registrations are expected to be in the range of minus 2% to plus 2% year over year and net course registrations by new students are expected to be in the range of minus 1% to plus 3% year over year.
Hondros total enrollment decreased by 24% year over year, while new student enrollment decreased 20% compared to the fourth quarter of 2018.
Effective January one 2028, Qs will increase to action by approximately 5% for undergraduates and masters courses to support new investments in academic learning and student operations as Anthony mentioned earlier Hqs has also increased tuition and fee grants to our active duty military students.
For at both the undergraduate and graduate levels of extended the book Grant program to now include active duty military winners as a master's level.
You asked estimates that the tuition grants will apply to approximately 60% of its total net course registrations made on or after January one 2020.
We believe the new tuition grants and the extension of the book Graham will increase the number of active duty military learners at Hqs that may pursue an undergraduate graduate degree with no out of pocket costs.
We believe this will further strengthen our leadership position within military and military affiliated communities.
Now, we would like to take questions from the audience.
Operator, please open the line for questions.
Thank you at this time I would like to remind everyone in order to ask your question. Please press Star then the number one on your telephone keypad.
Our first question comes from Greg Pendy from Sidoti.
Your life Science. Thanks. Please go ahead.
Hi, Thanks for taking my question can you just kind of give us a little color on how we should think about the cadence quarterly in 2020 of the technology spend as it can be front half loaded or back half loaded or just kind of.
Distributed throughout the year. Thanks.
Yes, Hey, Greg.
I think will.
Be equally distributed across the year really.
Ramping up these activities in the fourth quarter to get a running start on January one and.
And so you'll see the spend.
Likely relatively equally distributed across the four quarters of the year.
Okay. That's helpful. And then can you just kind of give us a little bit of color on the marketing spend I think it was targeting Andreas and kind of how that played out in how you're thinking about that going forward.
Right. So there was an increase spend we reported 1.6 million.
Premier increase.
That was 1.3 at Apus and the balance at Hondros, So hondros was spending into.
We're spending into the fourth quarter.
Of course, if this were spending into the fourth quarter also.
And we did see.
The benefits you can see the sequential increase in.
Enrollment at Hondros I believe is up your students were up 53% total enrollment was up 13% at Apus you can see from our guidance.
At least mid point to the top end, we're basically zero or slightly positive.
So we're seeing.
We're seeing those benefits of course, the fourth quarter also saw the resumption of the Navy and I think as we previously reported on the second quarter call. We were talking about the potential impact of the Navy Navy was up year over year.
Through.
That may time period.
And so we're seeing strength in the in the PA and including the Navy and we expect that to continue in the fourth quarter.
That's helpful. Thanks, a lot.
Thanks, Greg.
Again to ask your question. Please press Star then the number one on your telephone keypad.
There are no further questions at this time I turn the call back over to Chris.
Sorry Symanoskie.
Thanks. Thank you operator that will conclude our call for today, we wish to thank you for listening and for your continued interest and American public education. Good evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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