Q4 2019 Earnings Call

Time, all participants are any listen only mode. After the speakers presentation. There will be a question and answer session to ask your question. During the session. You want me to press Star one on your telephone if you require any further assistance. Please press star zero.

No actually I hand, the conference over to your speaker today, well into the to treat Vice President of corporate communications. Thank you. Please go ahead.

Thank you and good afternoon, they'll be as fourth quarter and full year 2019 earnings release was issued earlier today and is posted on the company website at Www Zoghbi O dotcom.

Joining me on the call today, or Andrew Clark, founder, President and Chief Executive Officer, and Kevin Royal Chief Financial Officer.

We would like to remind you that some of the statements. We make today, maybe considered forward looking including statements regarding new enrollment growth student retention education partnerships and other programs and services our ability to meet all required conditions and obtain all required approvals to close and the planned separation and conversion.

Ashford University.

And it's timing impact our ability to transition to become an education technology services company.

Our ability to grow through acquisition, our ability to successfully integrate and leverage acquired companies future revenue growth EBITDA financial unrelated guidance commentary regarding fiscal year 2020 and later.

These forward looking statements are subject to a number of risks and uncertainties that could cause actual performance results to differ materially from those expressed in or suggested by the forward looking statements.

Please note that these forward looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward looking statements in light of new information or future events, except to the extent required by applicable securities laws.

On the call today, we will also discuss certain non-GAAP financial measures in our earnings release, you will find additional disclosures regarding these measures, including reconciliations of these measures with U.S. GAAP.

Note that these non-GAAP financial measures are intended to supplement GAAP financial information and should not be considered as a substitute for GAAP results.

Please refer to our FCC filings, including our annual report on form 10-K for the year ended December 31st 2019, which we filed with the FCC earlier today for a more detailed description of the risk factors that may affect our results.

They obtain copies when the FCC or by visiting the Investor Relations section of our website.

At this time it is my pleasure to introduce Dobias founder President and CEO Andrew Clark.

Thank you a lot and welcome to the Soviets fourth quarter and full year 2019 earnings call.

All today, Kevin and I will discuss our 2019 result.

Well as other business development.

After our remarks, we will open the call to your questions.

As we have said many times 2019 was a transitional year for Zalviso as we made progress on the conversion of Ashford to eight not for profit entity and reposition Silvio for the long term as an education technology services company.

In January we announced a significant milestone in which we entered into a nonbinding letter of intent with Ashford university's not for profit entity or eight you NFP on December 30 F 2019.

We very much leaves the conversion and separation is the right path to accomplish our objectives to serve all of our stakeholders imports in place long term protections for students to make the choices. They deem most appropriate for themselves as they embark on a path to higher education.

In addition to pursuing the planned conversion of Ashford, we're optimizing the profitability of our core business.

Which included executing a number of actions in the second half of 2019 that will deliver substantial cost savings.

These actions were focused on three primary areas.

First implementing new processes to improve our overall operational efficiency at both Savio and Ashford, which resulted in the need for fewer resources internally.

Second maintaining a very disciplined tight control on marketing and general and administrative expenses.

And third significantly improving bad debt expense through a combination of enhance collection efforts and a more favorable mix of full tuition grants students were collection efforts are more consistent.

As such we continue to expect the cumulative savings for 2020 from these actions will total 60 to 65 million.

Long term our strategy to reposition the business as an education technology services company continues to be centered on three main pillars.

First deliver education services that meet the diverse and large scale needs of educational institutions and corporate enterprises.

Second capitalize on middle market opportunities through enhanced programs and services and building our capabilities and third expand or skills to employment offerings to empower learners to better connect with in demand jobs.

During 2019, we made substantial progress on these pillars by partnering with higher education institutions and employers to deliver innovative personalized solutions to help learners achieved their aspirations.

In addition, full stack interior me our key contributors to this strategy.

With regard to full stack, we added several new partnerships during 2019, including the University of North, Florida, The University of San Diego Division of professional and continuing education.

Most recently, we partnered with Louisiana State University to offer cyber security and web development certificates through the universities digital and continuing education Division.

Further our partnership with the University of San Diego Watch, a new full time and part time Web development program earlier this month with an expected official cohort launch in the second floor.

We're pleased with the development of full snacks institutional pipeline I remain optimistic as we enter 2020.

With more than 70 partner schools tutor me continues to be a welcome to addition to our ecosystem.

In the fourth quarter, we added two new institutional partnerships, Oregon State University and St Mary's College of California.

We're also gaining traction with learn at force.

As a reminder, learning for us as a technology platform that has self paced skills based content, where the consumer.

Its platform offers more than 800 courses across categories like business Finance marketing personal development leadership, social media strategy just to name a few.

Currently we have a total of 12 corporate clients and over 2000 individuals who have subscribed since we launched our subscription program in August.

While this growth has been built up with a small base. We're encouraged by the traction thus far as it underscores the strength of the offerings.

With that let me quickly run through our fourth quarter 2019 results.

For the fourth quarter 2019, we reported revenue of 96.3 million and that loss of 23 million in a resulting diluted loss per share of 76 cents.

Excluding fourth quarter restructuring and impairment charges of 13.6 million.

Separation transaction costs, a point 9 billion and acquisition costs up 2.4 million as well as related tax effect, our non-GAAP diluted loss per share was 15 cents.

Early this week, we announced Ashford University received approval from the Department of Veterans Affairs.

Serving as the California State approving agency.

On their application to the state of California, where the retroactive effective date.

July one 2019.

The V. approval includes the majority of Ashfords current programs and includes four new stem programs.

The 20 programs that were not approved by the BA did not represent a significant number of students and will not result in a material impact to ashfords total enrollment.

We're working closely with the VA to complete the final administrative steps in the approval process to include a review of the effective programs and the veteran students currently enrolled.

For the fourth quarter 2019, the decline in new enrollment was less than expected and was down as a percentage by low single digits when compared to the same quarter prior year.

As of December 30, Onest 2019, Ashford annual cohort retention increased 150 basis points over the prior year to reach 60.4%.

Our education partnership programs continue to flourish as well.

As of December 30, Onest 2019, the enrollment in the education partnership programs represented approximately 32% total enrollments compared to approximately 22% of total enrollments as of one year ago.

New enrollments in the education partnership program represented approximately 31% of new enrollment in the fourth quarter of 2019.

Further new enrollment in the Forbes business School, specifically grew nearly 7% with total enrollment in the Forbes business School as of December 30, Onest, approximately 44% versus 42% in the prior year period.

To support and sponsorship up their employees by our corporate partners is a testament to the strength and quality of the programs offered through Ashford University.

The growth in our education partnership programs continues to outperform our expectations and has resulted in improvements in our cash revenues from non title for sources.

These programs can provide debt free education to the employees of our corporate partner companies. During the year ended December 31st 2019, Ashford University derived 72.4% of its cash revenues from title for program funds respectively.

While there is growing debate over the appropriate amount and institution derives from federal funds. If we were to add all of the Gi Bill and T.A. benefits to the calculation as some lawmakers are now calling for.

Ashfords rate would still be below the proposed 85 15 right.

From a zoghbi of financial standpoint, as a reminder, an increase in this education partnership student population as a percentage of the total student population lowers net revenue, which is the dynamic we will continue to experience as this program gross.

We are in a great position as we enter the year as we have streamlined our core business invested in the right technologies in the face of an evolving education technology landscape and have made great strides on laying a strong foundation for Ashford University as we pursue its conversion.

Nonprofit status.

As a result, we believe there is significant value to be created for our stakeholders now I will turn the call over to Kevin Royal to review, our financial and operating results.

Thank you Andrew for the fourth quarter of 2019 revenue was 96.3 million compared to 94.7 million for the same period in the prior year.

The increase was primarily due to the additional revenue days intuition increase partially offset by higher STG scholarships due to a higher mix of MTG students and more courses as being taken by these students as well as lower average weekly enrollment year over year.

Sure.

As of December 31, 2019, total student enrollment was 34722 compared to 38153 as of December 31 2018.

For the fourth quarter 2019, instructional cost and services were 51.3 million or 53.3 person revenue compared to 51.6 million or 54.5% a revenue for the comparable prior year period.

The slight decrease in the fourth quarter as a percentage of revenue was primarily due to lower headcount.

Bad debt expense for the fourth quarter of 2018 was 5.7 million or 6% of revenue compared to 3.5 million or 3.7% of revenue for the comparable prior period.

The increase in bad debt expense in the fourth quarter was primarily due to operational issues, which have been addressed.

Admissions advisory and marketing expenses for the fourth quarter 2018 for 36.1 million or 37.5% of revenue compared to 38.8 million or 40.9% of revenue for the comparable period.

These costs decreased as a percentage of revenue due to lower headcount and lower advertising spend.

General and administrative expenses for the fourth quarter, 2019 were 16.6 million or 17.2% or revenue compared to 14 million or 14.7% of revenue for the comparable period <unk>.

The increase in dollars and as a percentage of revenue was primarily driven by additional cost associated with the Ashford conversion and separation as well as higher professional fees.

We recorded 13.6 million of restructuring and impairment charges in the fourth quarter 2019, as compared to 4 million in the fourth quarter the prior year.

The restructuring and impairment charges in the fourth quarter of 2019 related primarily to severance goodwill.

Impairment and relocation expense.

Net loss for the fourth quarter, 2019 was 23 million or a loss of 76 cents per diluted share compared with net loss of 13.4 million or a loss of 49 cents per diluted share for the same period in the prior year.

The non-GAAP net loss to the fourth quarter 2019 was 4.5 million or a loss of 15 cents per diluted share compared to a non-GAAP net loss to 6.2 million or a loss of 23 cents per diluted share for the same period in the prior year.

Regarding the full year results revenue for the full year ended December 31, 2019 was 417.8 million.

Paired with revenue of 443.4 million for the year ended December 31 2018.

Similar to the quarter decrease is primarily due to lower average weekly enrollment year over year.

Net loss for the full year ended December 31, 2019 was 54.8 million or diluted loss per share of $1.86 compared with net income of 4.6 million our diluted net income per share of 17 cents.

For the year ended December 31 2018.

Non-GAAP net loss for the year ended December 31, 2019 was 13.9 million or non-GAAP diluted loss per share 47 cents compared with non-GAAP net income of 13 million or non-GAAP diluted income per share of 47 cents for the.

A year ended December 31 2018.

Income tax benefit for the full year ended December 31, 2019 was 800000.

Which primarily related to discrete tax benefits.

The company used 46.1 million of cash in operating activities. During the 12 months ended December 31 2019.

By comparison, the company's 7.6 million of cash and operating activities. During the same period in 2018.

Capital expenditures for the 12 months ended December 31, 2019 were 31 million as compared to 2.6 million in the comparable period last year.

The increase in 2019 was primarily due to our new headquarters facility in Chandler, Arizona.

As of December 31, 2019, the company had combined cash cash equivalents of six to 9.3 million.

As compared to 166.3 million as of December 31, 2018.

Turning to our outlook given the letter of credit and the plan conversion. We are reaffirming our full year 2020 guidance that was provided during her call in January.

As a reminder, we believe it is most appropriate to look at 2020, <unk> first half versus the second half viewpoint using a June one closing date.

We are also including guidance for the first quarter of 2020, as the core who will be impacted by seasonality.

For the first quarter of 2020, which includes three months or projected consolidated financial results, we expect to deliver revenues in the range from 95 to 98 million.

Adjusted EBITDA in the range of negative 2 million to breakeven or adjusted EBITDA margins of approximately negative 2% to breakeven.

Adjusted EPS in the range of negative 15 to negative seven cents per share.

Ending cash in the range of 74 to 76 million.

For the first half.

2020, which includes five months of consolidated financial and one month Soviet post conversion, we expect to deliver revenues in the range of 187 to 193 million.

Adjusted EBITDA in the range of six to 11 million or adjusted EBITDA margins of approximately 3% to 6%.

Adjusted EPS in the range of six to 22 cents and ending cash in the range of 49 to 54 million.

For the second half of 2020, which represents Zalviso post conversion, we expect to deliver revenues in the range of 145 to 149 million.

Adjusted EBITDA in the range of 11 to 15 million or adjusted EBITDA margins of approximately 8% to 10%.

Adjusted EPS in the range of 24 to 33 cents.

And ending cash in the range of 69 to 74 million.

As a result for the full year 2020, we expect revenues in the range of 332 million.

To 342 million.

Adjusted EBITDA in the range of 17 to 26 million or adjusted EBITDA margins of approximately 5% to 8%.

And adjusted EPS in the range of 30 to 56 cents.

With regard to new enrollment our financial guidance for the year assumes a range of negative high single digits, new enrollment at the low end to flat new enrollment at the high end.

Further new enrollment in the first quarter is expected to be down mid to high single digits.

While second quarter, new enrollment is expected to be flat to down mid single digits.

For 2020, we continue to anticipate normal capital expenditure levels and as a result would expect in 2020 with unrestricted cash on hand in the range of 69 to 74 million.

Contemplated in this guidance is letter of credit that is required by the U.S. Department of education.

And while we're in the early stage of discussions we have indications that the total cost associated with securing this financing will be in the range of 18% to 22% on an annual basis.

Now I will turn the call back over to Andrew for his closing comments.

Thank you Kevin as we've said many times, while we repositioned savio as an education technology services company, we remain focused on ensuring Ashford University has a strong foundation to support its long term sustainability and success.

We have a clear strategy in place to be a best in class Education Technology services company that will leverage our core strengths, while applying our technologies and capabilities to priority market needs, including recruitment retention and on learner experience, we believe through the execution of our strategic priorities.

And continued investments, we will create long term growth and meaningful value for all our stakeholders.

At this time I'll ask our operator to open the phone lines for your questions.

Certainly at this time, if you like to ask your question. Please press star from the number one on your telephone keypad.

Your first question comes from the line of Alex Paris from Barrington Research. Your line is open.

After their guys.

Hey, Alex.

Glad to have the transition year behind us and looking forward optimistically to 2020.

Jumping right into it a new student enrollment better than expected in the fourth quarter. The decline was less than we had thought we thought to be until mid single digit deployment is in the low single digits point.

What have you done differently to.

Resulting which opened an improvement in new student enrollments sequentially from the third quarter.

Yes, sure I'm happy to answer the question and you're a little muffled on our end Alex.

So.

When.

One of the important things I think Alex to understand is that.

We reduced the number of enrollment advisors.

Bye.

Approximately 46 person that back in the in the third quarter and.

On a year over year basis, So Q3 of 19 to Q3 of 18.

Yet.

And that reduction on a year over year basis increased to about a 50%.

In the fourth quarter.

So were we have half of the workforce.

Got a too I think the question you're asking that is.

Actually recruiting almost an equal number of new enrollments as the workforce for the same quarter in the prior year, which tells you that theres a dramatic gain going on in terms of.

Our efficiencies, which we would attribute to our digital marketing strategy our analytics.

And some reorganization that was done in the middle of last year around.

Around our admissions group.

And so.

As we guided before we thought we'd be down negative mid single digits. Oh, we were pleasantly surprised that we were only down negative low single digits.

But you can see.

From what I, just described that we're having a dramatic gain and productivity and why all of that's important as you as you round the corner into 20.

And you think about 20.

We.

We annualize that change in the workforce.

In the middle of 2020, and so that workforce is effectively very similar in the back half of the year.

And in the first half of the year, we still have some pretty significant gains.

In that 50% range in terms of 50% fewer enrollment advisers.

And so that's why.

We guided the way we did around negative new enrollments in the first quarter because again, we're doing a lot more with a lot less but we're a I'm uncertain to kinda you know how much more.

In terms of gains will continue to get.

Out out of that workforce and then we lapped that workforce in the second half the year. So then it's it's very comparable and you expect to have kind of similar year over year numbers.

Does that help answer your question.

Yeah without a doubt it and why you didn't comment on new student enrollment growth in second half.

Oh, it's I would think it'd be reasonable to assume increase productivity increase efficiency easier comps that you're setting yourself up for probably another new enrollment growth in Q3 in Q4 to get you to kind of flat for the full year.

Yes, we you'll recall, we said last year that we expect you know flat new enrollment growth for 2020, and that's still our view.

In fact always had the view that we would have a negative new enrollment growth quarter in the first quarter.

And potentially maybe in the second quarter, although it could be flat to two too I think.

Mid single low.

Mid single digits.

But in the back half of the year, we actually seeing it be being equal to or maybe slightly better than.

The prior year and of course, it would have to be a little bit better for us to be a flattening enrollments for the full year.

Gotcha I remember I recall, you guys talking maybe on the second quarter, but definitely in the third quarter about changes to the first course.

How have those changes been received and Oh.

What can you tell us about them.

So they've been received well I can tell you that the matriculation rates, which is what we look closely at I understand if the improvements in the curriculum are having a difference that does have improved on a year over year basis, which I also would attribute a little bit to kind of our surprise ups.

Side, and and our negative new enrollments for the fourth quarter, we're continuing.

University in concert with Zalviso is continuing to make further enhancements to the course.

So I wouldn't say that they're done but the ones that they made initially if of or we've already seen.

Hey, a a positive impact.

Great shifting gears $60 million to $65 million and expect to cost savings and 20 over 19.

Where does that come on in terms of line items instructional costs and services.

Marketing or do you know across all three is one more than the other or is it kind of equally dispersed.

So Alex it is across all three we spend more money in a instructional costs and services. So a disproportionate amount of the labors savings will fall. There. We also have roughly $8 million in facilities savings year over year and.

So that's spread over the three.

As well and then you know a fair amount of consulting travel.

You know other miscellaneous type expenses that would fall over all three categories.

And then I think at one point, Kevin you said that some of the changes that you implemented in second quarter. For example, second quarter 2000, and make it should yield savings of $8 million in 19, excluding any charges associated with that or did you realize those savings that you're correct.

We yes, we certainly did.

Okay, and then and then we have.

In terms of year over year kind of 65 up to 65 million additional savings versus 2019.

And as that equally spread over the four quarters.

Yes.

Would be I mean, it's not you know, it's not perfect, but I guess, it's fine to think about it that way.

Okay.

And then I think you had forecast on Q3 called that that these.

ER cost reductions would result in an $11 million restructuring charge and if you had a $13.6 million restructuring truck was the difference goodwill impairment.

No there were a bit more reductions than what we had originally plan once the reduction.

As was completed.

Does that mean more savings or is that included in the 60 to 65 million rather.

No. That's included in the in the number that we just came out on this call yeah.

Okay then.

Then last question.

Can you give me some sort of laid the yet you know I'm impressed with the performance of both full stack interior me during 2000 and they came in your first Europe ownership of these most notably I think you're up to four institutional relationships.

Full stack.

Most recently been Ellis you.

Can you give us an idea on revenue and profit contribution of each of those businesses falls to Tudor me.

Learner globes, either actual in 2000, and the team or some sort of estimate for 2020.

Yeah, that's a not information that weve disclosed in the past Alex Yes, we don't break them out separately, but but I will say Alex we are very pleased with both of those acquisitions as you mentioned full stack Scott for University partners and I know.

There are several others are that are in the pipeline than I would expect.

Announcements on probably in the first quarter.

And tutor me has done a fantastic I think it had approximately 40 University partners is above 70 now.

And so we're really pleased with how they're doing.

Okay.

And then.

Last question for now I guess.

Given that you've received all the approvals for conversion separation.

Are you able or have you been out they're presenting your Ed Tech services offerings to new colleges and universities at this point.

I think the short answer is no.

No we havent been out there in a a formal capacity presenting those we continue to field.

Informal and interest from people that are curious about our capabilities and how we might be able to help them a you know our too.

Number one objectives and goals are our first the conversion of the University.

And second a return to new enrollment growth for the University.

And really once we have both of those things completed what should happen here in the first half of the year I would anticipate us.

Taking a more diligent approach to business development in the back half of the year, meaning formally reaching out and cultivating a beginning to cultivate potential clients.

And could you remind us.

You might.

Who you might focus your marketing efforts on in that respect what types of colleges and universities are there any other types of partners you're contemplating for these services.

Well it kind of all depends if we're talking about providing technology and services to universities that are pursuing online degree programs for their adult student population I think we're interested in strong kind of regional brands that already have.

Yes.

A kind of university population of call it kind of seven to 12000 students and and want to meaningfully grow that that population.

In the adult students online.

Obviously, if its full stack or twod or me.

It's a it's a different.

Profile institution.

I will tell you that there's an ecosystem, there where we're able to utilize.

Relationships, a tutor me or full sack has to make introductions.

Not for Zalviso on the degree online offering side and vice versa, as we're making inroads we can share those opportunities with those other subsidiaries.

Okay, great well, that's very helpful. I appreciate the additional color guys. Thank you.

Thank you Alex.

There are no further questions at this time I turn the call back over to Mr. Clark for any closing comments.

Thank you we'd like to thank all today's callers for your interest in Savio and for your participation on the call today.

That concludes today's conference call you may now disconnect.

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