Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the American Public Education, Inc. reports first quarter 2020 results conference call.
This time, all participants are in the listen only mode.
After the speakers presentation, there will be a question and answer session.
The ask the question during the session you'll need to press star one on your telephone.
Please be advised the 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, Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you operator, good evening and welcome to American public education discussion of financial and operating results for the first quarter of 2020.
Materials that accompany today's conference call are available in the events and presentations section of our web site 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 then the accompanying presentation materials regarding American public education, where its subsidiaries that are not historical facts, maybe forward looking statement based on current expectations assumptions estimates and projections about American public education.
And the industry.
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 it seek could estimate expect intend may should will and wood.
These forward looking statements include without limitation statements regarding expected gross registrations enrollments revenues expenses earnings and plans with respect to recent.
Current and future initiatives, including marketing initiatives.
Efforts to stabilizing grow Hondros college of nursing and expectations related to its profitability.
And information technology replacements and upgrades.
Furthermore, these forward looking statements include without limitation.
Maintenance regarding investments and partnerships and the future impacts of.
And the company's response to the coated Nike and pandemic.
Actual results could differ materially from those expressed or implied by these forward looking statements as a result of various factors, including risks related to cope with 19 pandemic and the risk factors described in the risk factor section and elsewhere in the company's most recent annual report on form 10-K.
And quarterly report on form 10-Q filed with the SMC as well as 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 CEO and Rick Sunderland, our executive Vice President and CFO.
At this time I'll turn the call over to Angela Seldon Angie.
Thank you Chris good evening everyone.
Ill begin todays call by reviewing our first quarter results at our APC, U.S. and Hondros, which are in line with our expectations and largely unaffected by the cobot 19 pandemic.
I will share highlights regarding positive momentum across both APC U.S. and hondros in the second quarter of 2020.
We will discuss the activation of our business continuity plan in response to covert 19, and the minimal impact Kobin 19 has had on our Q2 2020 result.
Finally, since the way, we all work learn and interact with one another is being shape, perhaps permanently by the effects of that Corona virus outbreak I will discuss how apiay is responding to increased demand for both online education.
And pre licensure nursing education.
Opportunities that we could not have foreseen just a few months ago.
We're moving to page three first quarter results and priorities.
In the first quarter up 2020 total net course registrations at 80, U.S. increased 1% year over year and net course registrations by new students were essentially flat compared to the prior year period.
Furthermore, net course registrations by new students at 80, U.S. increase year over year in most primary funding category.
Net course registrations by new students utilizing tuition assistance for T.J. increased 1.8% year over year.
In fact, we experienced a year over year increase in net course registrations by new students from each branch of the military except for the Navy, which continues to impose limitations on T. a course approval.
Net course registrations by new students utilizing veterans benefits or V.A. increased 1.5%.
And net course registrations by new students using cash and other sources increased 1.3% compared to the prior year period.
New students using federal student aid or Fsh had net course registrations declined 5.6% year over year.
We believe the increase in registration among active duty military is driven in part by the launch of the Am you Freedom Grant, which was effective January 120, 20, which extended our textbook and tuition grant to military students at the masters level.
We plan to continue building on our strengths in the military military affiliated and veteran communities and working toward our goal of further increasing the number of military and military affiliated learners with minimal or no out of pocket costs at A.M. you.
The technology modernization project at 80 U.S. remains on track with our stated goal of completing our migration to a new learning management system or LMS by early 2021.
Thus far we have successfully transition nearly 60 courses and over 100 sections Ivan 1700, 50 unique courses.
Represent representing more than 1700 registrations to the new LMS with no unscheduled downtime.
Due to feedback regarding the new cloud based next generation online campus has been overwhelmingly positive.
We plan to gradually accelerate the rollout each month using our newly adopted agile methodology.
This summer we also plan to further expand the functionality and integration of our CRM system sales force with other systems, which we believe will further improve our end to end student experience.
[noise] improved student persistence rates today to U.S. combined with our new marketing messaging and our new technology capabilities have given us a confidence to increase our investment in marketing to drive greater awareness and grow our student population, including among military affiliated.
And non military communities.
We've also continued to develop new programs that we believe our attractive to working professionals speaking advancement in todays digital economy.
The U.S. plans to launch a new via in data science.
Yes in computer science, and an Emmy D in higher Education administration.
As well as 10, new associates degree for enrollment starting in July.
Now we moved to Hondros.
I'm very pleased to report on the enrollment turnaround at Hondros College of nursing.
As a result, we credit in large part to the efforts of its hard working faculty and associates.
For the three months ending June 30, as 2020, new student enrollment increased 56% year over year, a spring term record for new student enrollment.
Total student enrollment increased 14% year over year, driven by new student enrollment and improvements in retention.
And its most recent interim report to add has.
Hondros Accrediting agency Hondros reported that every program at every campus met or exceeded the accreditation requirements for a 70% retention rate.
Hi, Ross management team remains optimistic about reaching profitability by the fourth quarter of 2020. This profitability target includes the startup costs for the new Indianapolis campus, which opened for classes in April 2020.
These numbers are substantial considering the incredible changes occurring at Hondros in the last six weeks.
As the covert 19 crisis has demonstrated our country need even more nurses on the front lives.
On the front line saving lives.
In response to the stay at home orders in Ohio, beginning in Q2, Hondros moved nearly all of its courses online and move that was accomplished in a short five weeks Hondros leadership team leveraging the online expertise to VAPI U.S.
Migrated curriculum online and train faculty on the new online learning modality.
Significantly accelerating this transition.
Most of Hondros course content has shifted to online learning and campuses are generally close.
Additionally, because hondros qualifies as an essential services under this pandemic students have access to in person advising and to certain labs and other hands on portions of the curriculum that are required to be held in person.
Opened portions of the campuses are regularly sanitized using rigorous hygiene protocols all staff and students are required to undergo at health screening and follow CDC guidelines prior to entering the campus.
Well, our nation's path to post cobot 19 conditions is uncertain I believe that 80, U.S. and hondros are providing a much needed sense of normalcy in the lives of most learners.
Page for our Kobin 19 response.
Our team executed our business continuity plan with excellence in an uncertain environment rapidly transitioning the 80, U.S. 80, I and Hondros enterprises to work from home, while simultaneously addressing increased demand for online learning and pre licensure nursing program.
Our primary concern have fan and remain the health and safety of our students and our employees.
To support our employees, we have implemented several hardship leave and flexible scheduling policies.
We send our thoughts to those affected by the virus and recognize the selfless dedication of our nation's doctors nurses first responders and frontline workers, many of whom our alumna of our institutions.
[noise] 80, U.S. recently announced momentum 2020.
Earmarking up to $20 million and scholarship funds to help bridge the gap for up to 20000 visiting undergraduate students who studies have been interrupted by college closures or other disruptions due to cold at 19.
This scholarship offers a 50% discount for those eligible visiting students who start courses with 80 U.S. in May through August 2020.
Given our regional accreditation by the higher learning Commission students can evaluate the likelihood of credit transfer in collaboration with their home institutions.
Our 80 U.S.I.T. Department was well prepared for this crisis with its critical services functions largely operating successfully under conditions, a full remote working and high student demand.
And our 80 U.S. learning platform is robust with the capacity to support. The addition of thousands more new and returning students.
Looking ahead, our leadership team is evaluating the eventual phased in remote opening of our administrative offices.
Prioritizing the health and safety of workers as our primary consideration.
We are actively working to establish a timeline.
80, I had substantial liquidity with $197 million in cash and equivalents at March 31, 2020, and no long term debt 60 years of strong free cash flow and conservative financial and risk management.
We have made it a priority to increase our communication with employees some of whom are working remotely for the first time.
And with students many of whom may be experiencing new personal challenges.
Despite these new challenges 80, U.S. experienced the lowest course drop rate since 2002.
Our new and returning students.
We believe that covert 19 crisis has increased demand for our mine higher education and nursing programs, most learners, including active duty military are experiencing stay at home orders.
Travel restrictions or other disruptions, making online education and attractive option.
While the era of home confinement, and social distancing is temporary traditional campus operations may not fully resuming the fall and the difficult job market is likely to persist for some time.
With the heritage of more than 25 years as a leader in online it education.
You asked is uniquely positioned to help a wide variety of learners affordably and without interruption.
Similarly, Hondros college of nursing with its newly online programs and limited in person coursework is well positioned to help in the healthcare crisis by continuing to advance new nurses to the front lines.
Our second quarter guidance reflects the increased demand for our online courses and nursing programs.
The increase in 80, U.S. appears to be strongest among veterans and active duty military.
Our belief is that net course registrations in the second quarter at 80, U.S. are being positively impacted by one our decision to provide the am you freedom Grant to military service members at the Masters level.
Two increased marketing to elevate our affordability message.
And three increased demand for online program brought on by Cobot 19.
We believe that enrollment demand at Hondros is driven by successful execution of its enrollment recovery plan.
And the nursing shortage.
As well by increased interest in students looking out to service profession in part inspired by the pandemic.
We believe that the long term strategic initiatives at 80, U.S. and Hondros are beginning to have a positive impact on stabilizing and growing enrollment.
As we've mentioned before it is our top priority to grow 80 E. <unk> core businesses with an emphasis on addressing the national need for an adult learning platform. We're learners have all background can obtain the skills they need to maximize the return on each learners educational investment.
We intend to achieve this goal by building on our core competencies in online in nursing education, focusing on military veterans communities developing new flexible courses modernizing our technology and elevating our brand message of maximizing learned a return on educational investment.
With uplifting purpose driven story.
As I stated at the beginning of our call. The pandemic has created an unexpected opportunity to amplify both the 80, U.S. and hondros value propositions to students, namely affordability flexibility and quality of our student services and academic experiences while fulfilling our social mission.
This increased awareness in our programs represent an opportunity for us to further broaden referrals in support of sustained long term enrollment growth once the crisis subsides.
As I said to our employees at the start of the pandemic. This truly is our time to shine.
In service to others.
No more than ever learners are counting on up so their studies can proceed without interruption.
Our employees have truly reason to be occasion, having recognized early on but this crisis may also be a defining moment for our organization I think each and every one of them for their creativity and dedication.
No I now I will turn the call over to our CFO Rick Sunderland.
Thank you Angie and good evening evening, everyone on the page five first quarter 2020 financial summary.
American public education consolidated revenue for the three months ended March 31, 2020 increased 1.6% to 74.6 million compared to 73.4 million in the prior year period.
Segment revenue increased 1.4 million or 2.1% to 67.1 million as a result of higher net course registrations, primarily for military students utilizing TJ and the impact of the January one twoish an increase.
Hey, Jim segment revenue decreased 8.2 million for 2.7% to 7.5 million as a result of lower total student enrollment.
In the first quarter total cost of expenses decreased year over year by 0.2% to 71.9 million as compared to the prior year period.
In the prior year period, we recorded a 5.9 million pretax noncash impairment of goodwill in our HCM segment.
The decrease in costs and expenses for the three months ended March 31, 2020 was primarily due to no impairment of goodwill in our HCM segment in the current year period, partially offset by increased advertising costs and technology costs in our APC segment.
Consolidated instructional costs and services expenses increased approximately 1.3 million to 29.2 million and as a percentage of revenue increased to 39.2% compared to 38.0% in the prior period.
The increase is primarily due to an increase in employee compensation costs in our APC segment.
Selling and promotional expenses increased approximately 3.2 million to 18.2 million and as a percentage of revenue increased to 24.4% of revenue compared to 20.5% in the prior period.
Increase is primarily the result of an increase in advertising costs in our APC Guy and a chance segments and an increase in employee compensation costs in our APC segment.
Advertising costs increased 2.3 million and our APC segment and point 2 million in our HCM segment as compared to the prior year period.
General and administrative expenses increased approximately 1.9 million to 21.0 million and as a percentage of revenue increased to 20, 28.1% from 26.0% in the prior year period.
Increase in general and administrative expenses was primarily due to an increase in employee compensation costs and professional fees in our APC segment.
The current year period includes point 9 million in information technology costs in our APC segment related to replacements and upgrades to our information technology systems, including the rollout of our new learning management and customer relationship management systems.
Consolidated bad debt expense was 1.0 million or 1.3% of revenue in the first quarter of 2020 compared to 1.0 million or 1.4% of revenue in the prior period.
Depreciation and amortization expenses decreased approximately point 8 million to 3.3 million and as a percentage of revenue decreased to 4.5% of revenue from 5.5% in the prior period.
Operating income for the first quarter of 2020 decreased by 1.3 million to 2.7 million compared to operating income of 1.4 million in the prior year period.
The three month period ended March 31, 2019 includes a 5.9 million pretax noncash impairment of goodwill and our ATM segment.
HM segment expenses in the first quarter of 2020 include approximately $150000 of startup costs related to the opening of its Indianapolis campus.
Consolidated net income for the quarter was 2.4 million or 16 cents per diluted share compared to net income of 1.0 million or six cents per diluted share in the prior year period.
Total cash and cash equivalents as of March 31, 2020 were approximately 196.8 million compared to 202.7 million as of December 31, 2009 team.
Cash from operations for the quarter increased 46% to 11.5 million compared to 7.9 million in the prior period.
Capital expenditures for the first quarter of 2020 were approximately 1.9 million compared to 1.6 million in the prior period.
Going on page six second quarter 2020 outlook.
Our outlook for the second quarter of 2020 is as follows at HP U.S. total net course registrations are expected to increase between 6% and 10% year over year net course registrations by new students are expected to increase between 8% and 12% year over year.
At Hondros total enrollment increased by 14% year over year, while new student enrollment increased 56% compared to the second quarter of 29 team.
In the second quarter of 2020, we expect consolidated revenue to increase between 8% and 12% year over year with year over year increases in both our Apiay NHL segments.
The company expects diluted earnings per share to be between 20 cents and 25 cents in the second quarter of 2020.
The consolidated consolidated outlook for second quarter earnings per share includes the following items, which we generally view as important investments in our gross growth initiative number one.
Year over year 1.3 million increase in advertising expense to further drive registrations growth and a few us.
The growth in new and returning registrations gives us confidence to support elevating our selling and promotional expense by 10 to 15 million in the in the full year 2020 as compared to 29 team.
Number two approximately 1.8 million and costs associated with our technology modernization projects as we mentioned last quarter, we anticipate the full year cost of the technology modernization project to be between six and 8 million in 2020 of which approximately 80% is related to implementation.
We are pleased by the expected growth in net course registrations at a Pos to date the increase in demand for courses is being driven by student utilizing TJ and V.A. as well as by those utilizing cash and other sources to fund their tuition with no apparent negative impact from coded 19 further.
A more our decision to increased tuition grants to military service members at the Masters level and our increased investment in marketing two important elements of our long term strategic plan appear to be having a positive impact.
We're excited about the enrollment turnaround at Hondros, we believe the return to enrollment growth is the result of this of the successful and ongoing execution of the enrollment recovery plan as well as possibly increased interest in nursing as a result of coven 19.
In short we're excited about the possibilities for near term and long term growth at both Aipu Apus and Hondros now we would like to take questions from the audience.
Operator, please open the line for questions.
Certainly as a reminder to ask a question you will need to press star one on your telephone withdraw your question press the pound or Heskey. Please standby only compiled the Q and a roster.
Your first question comes from the line of Henry Chen with BMO. Your line is open.
Hi, Hi, everyone. Good afternoon about that.
I wanted to congrats on the degree turnaround and growth metrics I was wondering if you could.
Maybe provide a little more color in terms of what you're seeing maybe from the data or from.
Or otherwise internal metrics of what drove that growth, that's that's sort of carrying into into twoq as well.
Maybe attributed to the Kobe versus marketing or any other Wally maybe look at it.
Sure Henry Thanks, that's correct.
Yes. Thank you.
So really the three elements I believe were outlined and Angies.
Section of the of the.
The presentation and.
Really all are contributing to the success number one.
Increasing the grant to our graduate military students.
And extending what was previously limited to the undergraduate population the book Grant.
Has really had a favorable impact.
What it means is for our military T. a student.
All military th students may go to May get a degree without any out of pocket costs.
And I'd say, maybe because they're just a very small.
A number of course, whether its course materials that they would have to pay out of pocket.
For but but up almost in totality with the book grant and by increasing the tuition Grad all those t. students attend and congratulate with no out of pocket costs.
The second is the increase in advertising and marketing.
We are seeing improved lead flow and our conversion rates.
I have been as good as they've ever been so that's really driving new student.
Growth and then as Andy said in her presentation, we're seeing an excellent retention and so the quality mix is being maintained that's something we've worked on hard.
For a long time, and so it's driving both new student as well as returning student registrations and finally for all the reason stated.
We do think.
For students to go online quality affordable very flexible accessible all the attributes that we've held.
I get both it primarily also in T.A. area or is it like expanding beyond like military population.
Yeah. So two parts of that so it's really hard to draw fence around any individual element right. They're all interrelated, so not really parsing that down among the three.
We continue to see strength in the military so yes, we're seeing.
That extend the results we reported for the first quarter are extending.
Into the second quarter as it relates to the military.
Okay. Thanks, so much.
Congrats.
Thank you.
Okay. If he would like to ask a question press star one on your telephone.
Your next question comes from the line of Greg Pendy with Sidoti Your line is open.
Hi, guys. Thanks for taking my questions.
Just first of all on the marketing just to the year is there anything noticeable just in terms of the channels your marketing through any changes on that or is it just been pretty much going through.
The same kind of channels that you've been marketing in the past, but with the more value focused message and kind of the increase spend.
Hi, Greg its Angie Great question. Thank you is you can imagine our marketing team had begun the pivot really in the first part of March on many of the channels that had historically been a good yield for us we're no longer relevant.
And consequently, a we had really three different.
Channels three different levers that we had to focus on number one redirecting the spend that we had already a plan to attribute to more on ground.
Hi, I'm channels to direct those two other pay lead sources, primarily digital and social.
The generation sources. So that was number one number two we actually accelerated a marketing dollars that we had intended to spend in the back half to the year include some of that forward in order to be able to take advantage of what we saw to be an opportunity for us, particularly on the U.S.
Side.
To begin to get the word out about our our online education as an alternative to those students who are suffering a setback as a result of their campuses closing and then number three in conjunction so that would basically be part of what was already in our financial plan for 2020 just.
Redirected and then pulled forward in order to take advantage of the circumstances. The number three was the increase spend amount, which we did continue to execute against the plans around micro segments that we believe.
Can be specifically positively impacted by additional marketing investment in that was the plan that we had put in place and discussed in the last earnings call in we continue to execute against that.
That's very helpful. And then I guess just one final one just on Hondros is there any disruption in terms are there any sort of risers residency like requirements in terms of graduating for certain.
Kind of course is lets students would be taken that might be disruptive given everything that's going on at the hospitals.
A great question to two important developments, we think at Hondros, the first of which was the on ground.
Campus directors and our academic Deans worked in conjunction with the Ohio Board of nursing to allow our students who we're supposed to be sitting for a the the end KLAX certification to licensure tests. However.
The testing centers were closed so our team work with the Ohio Board of nursing to allow those students to become practitioners and have an opportunity to sit in the future for those tests and so we were able to get our students who had just graduated out into the workplace.
To help with this pandemic situation backend in all the other course work that we have in front of US currently we have evaluated each component of the course work and have determined which parts of that coursework need to be conducted inane.
On ground setting.
What we're doing is we're basically splitting up the lab time across the students in cohorts of less than six people alternating dazed and alternating times a day such that we adhered to social distancing guidelines.
And so we have really focused on making sure that we follow those guidelines, but at the same time for those labs that require.
Specific to Monster Bull.
Mastery of the and the critical nursing skills that we still offer the students is gateway to be able to move forward and their coursework.
That's helpful. Thanks, congratulations on the quarter.
Thank you. Thank you.
No no further questions at this time I will turn the call back over to Mr. Symanoskie.
Thank you operator that will conclude our call for today, we wish to thank you for listening and for your continued interest in American public education.
Have a great evening bye bye.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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