Q1 2020 Earnings Call
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Welcome to the strategic Education first quarter 2020 earnings call I'll now turn the call over three spoke eat manager Investor Relations for strategic Education was Lucky. Please go ahead.
Thank you good morning, everyone and welcome to strategic Educations conference call in which we will discuss first quarter 2020 result.
With us today to discuss results are Robert Silberman Executive Chairman, Carl Mcdonald, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer.
Following remarks, we will open the call for questions.
Please note that this call may include forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995, such statements are based on current expectations and are subject to a number of assumptions uncertainties and risks that strategic education has identified and.
Today's press release that could cause actual results to differ materially.
Further information about these and other relevant uncertainties, maybe found in strategic education. Most recent annual report on form 10-K.
The 10-Q to be filed and other filings with the Securities and Exchange Commission as well as strategic education, future 8-K, 10-Q's and 10-K's.
Copies of these filings and the full press release are available for viewing on the website that strategic education dotcom.
Now I'd like to turn the call over to Rob Rob. Please go ahead.
Thank you trees and good morning, ladies and gentlemen.
As you can see from today's earnings release as she I had a particularly strong first quarter.
However, as we are speaking to you. This morning for the first time since the mandated economic shutdown to combat the Corona virus pandemic.
I'd like in my remarks today to refocus our shareholders on some basic first principles about our enterprise before asking Carlin Dan to comment more specifically on our recent operational and financial results as well as our future plans and outlook.
First let's see I use the steward of two well respected regionally accredited working adult focus universities Strayer University and Capella University.
As fully online universities, both institutions are uniquely prepared to operate successfully in a pandemic affected world.
Second as T.I.s long term value has been and always will be ultimately defined by the academic success of our students and how that success translates into the professional success of our alumni.
Therefore, as the stewards of your invested capital the performance of our students and alumni is always our first concern.
Third Sci has been and we'll continue to be run on a very stable financial basis, we have a fortress balance sheet with over $500 million in cash and an available undrawn $250 million revolver and no debt.
Our operating and financial model allows us to fully fund first rate academic programs with the potential wide variation in student enrollment while constantly investing in our academic outcomes as well as providing a conservative but steady financial dividend to our shareholders.
Fourth because of that financial strength, neither strayer University, nor Capella University will seek or accept supplementary financial resources from the federal government to deal with the impact of the Corona virus pandemic. Instead, we are providing to our students from our own financial resources equivalent sums.
Were authorized by the federal government in student financial assistance by the recently passed Cares Act. We're also making our technologies in academic resources available free of charge to other academic institutions to help them deal with this crisis. Indeed, we want to be as helpful. As we can during this crisis not just to our own students but to.
The educational community as a whole.
Fifth as a management team, which has led this enterprise for nearly 20 years, we have seen and prospered through a number of different macroeconomic cycles. We know from experience that a significant and persistent decline in labor force participation rates will temporarily and negatively affect our student enrollment, particularly from.
Our corporate sponsored students.
However, our academic and financial model has proven over time to be stable enough to withstand wide variations in student enrollment.
We of course have no idea how long the corona virus mandated locked down and subsequent recession will last but we're confident that by maintaining our focus on the academic success of our students our institutions will prosper over the long term in all cycles.
And finally before I turn it over to Carl I want to say on behalf of our entire board of directors, how grateful we are to the Sci community, including our executive team, our faculty and our staff for all their extraordinary efforts on behalf of our students over these last two months call. Thank you Rob good morning, everyone.
At the outset I'd like to note that the company's first quarter financial results, which we reported this morning were more than 90% complete prior to the widespread outbreak of cobot 19, and therefore reflect virtually no impact from the current healthcare crisis crisis and current economic downturn.
Obviously, we were very pleased with those first quarter results, but as Dan will cover them in more detail momentarily I intend to focus my comments on Sci is cobot 19 response to date as well as to provide some visibility for our owners into our current business trends.
And I'd like to begin this morning by outlining FDIC response to co bid 19.
See I his primary focus since the outbreak of Cobot 19 has been on the health and wellbeing of our employees and our students.
We moved quickly and aggressively to implement alternative business continuity strategies in the first week of March well before either national or state guidance ordered such moves.
These measures included mandating, 100% work from home for our staff as well as canceling all in person gatherings for our students such as commencement ceremonies, capellas doctoral residencies and strayer university's on ground classes, which account for only 5% of Strayer University class seats.
That was for the spring academic term, which started a couple of weeks ago.
During that same week in March the company also modified its sick pay and time off policy to provide unlimited time off with uninterrupted pay for every Sci employ.
The company has not nor do we plan to furlough any employees as a result of cobot 19.
We are however, reducing operating expenses, where possible purely as a precautionary step.
These measures include pausing new campus openings.
Implementing a temporary external hiring freeze except for critical faculty members deferring other non essential capex and reduced executive compensation.
For our students we implemented on a preemptive basis temporary changes to some of our policies with the expectation that many of our students may experience some financial hardship during this mandated economic locked down.
These measures included waving drop fees, extending deadlines to withdraw from courses and discounting some tuition is needed.
For example, given capellas concentration and health care and nursing, creating a scholarship for nurses to assist them should they decide to enroll.
The company is also working with some corporate partners to be more flexible on corporate reimbursement arrangements.
Turning now to an update on current business conditions.
First and most importantly, both strayer and Capella university's are fully functioning and have had no interruptions and nor do we expect any disruptions given the unique structure of our business model, which can be delivered by our staff remotely and consumed by our students remotely we've seen very little changes in our workforce productivity.
And to date, we have not seen higher levels of students dropping withdrawing from classes failing to re register for upcoming terms beyond what we would normally expect to see during this time of a quarter.
For modeling purposes, we forecast the temporary cobot 19 relief measures I described for our students will result in a roughly 3% reduction in revenue per student for the second quarter versus roughly flat revenue per student we talked about at our Investor Day last November.
And in terms of the second quarter, leading demand related metrics that we track on a daily basis, which includes visits to our various web sites digital search trends inquiries for more information coming to the university as well as applications for new enrollment.
Have changed somewhat.
Capellas trends across these categories began to decline and in some cases sharply during mid March in early April, but if since recovered and are now tracking at levels above prior year.
Stringers, leading indicators have remained relatively stable and strong for the past eight weeks essentially staying well above last year's targets on a quarter to date basis, what portion of this demand translates into new student enrollment for either University remains to be seen as we're still early in the quarter across both universities we have.
Also seen some reduction in employer sponsored new students, which we attribute to the current economic downturn.
We estimate that approximately 50% of our second quarter results were locked in prior to cobot 19 restrictions due to the fact that many of our students Register for class. This weeks in advance from the start of the term.
And while we never give guidance given the unprecedented nature of this government mandated economic shutdown, we would like to share with our owners what we're seeing in terms of potential second quarter results.
And based on the conditions, we are seeing today, we would expect the following results in the following ranges for the second quarter.
Enrollment growth of somewhere between zero and 4% revenue per student down approximately 3%.
Which with the lead yield flat to slight growth in revenue with flat to slightly reduced operating expenses, yielding mid single digit growth in net income and earnings per share.
In addition to supporting our own students.
The company has also mobilizing its expertise tools and technologies to assist other parts of the education community that may be struggling during this crisis.
We have made all courses on Sofia, our consumer based learning platform, which has ace certified college level courses free to the general public until at least July 30, Onest 2020.
And since introducing this free offer more than 45000 people have register for more than 100000 courses as people complete these courses and transfer them back to their primary institution. They can dramatically lower the remaining cost of their degree programs.
Secondly, Sci is moving quickly to assist the nations HBC use who may not have the capability to provide instruction to their students as a result of cobot 19th.
Sci is offering to allow any student from an affected HPC EU to enroll in either strayer or capella free of charge and with no expense to their home HPC use school.
The students can then transfer earn credits back to their home institution once a resumed instruction.
Third the company is building the necessary technological tools to assist other post secondary education institutions to provide their courses online and at scale and given our view that most if not all colleges and universities will both want and need to have a robust online capability post Kuvan night.
Team, we see these investments, which we expect to be in the low single million dollar range as an important new capability for Sci over the long term.
Our focus on this I should note will only be on technology, and instructional support and will not extend to marketing admissions or enrollment for other institutions.
And finally, the company is making its universities available for public school districts, whose high schools may be struggling in the wake of the sudden shift to a 100% online learning.
This would be done through a do enrol dual enrollment where the student would continue to be enrolled in their high school as well as either strayer or Capella University.
Courses that are successfully completed can then be used to fulfill high school graduation requirements as well as earning college credit.
Presently we expect no material adverse financial impact as a result of any of these offers to assist other institutions and Furthermore, as Rob as mentioned with our fortress balance sheet and two strong financially secure universities. We have no need for have not asked for and will not accept any supplementary federal cobot.
Teen related financial assistance, we will however be providing financial assistance to Strayer University students, who are already enrolled in a ground class for the spring academic term when we cancel those classes and move to them entirely online.
This aid will be in the form of scholarship to reduce their tuition and we estimate the total impact to be approximately $1.5 million.
In addition, we have earmarked another $1 billion to assist employees experienced financial hardships as a result of cobot 19.
Notwithstanding these incremental operating expenses and based on our ability to reduce operating expenses elsewhere. We expect total 2020 operating expenses to be roughly flat with the prior year.
Our current approach, which I outlined this morning reflects sci desire to be as helpful. As possible not just to our students, but also to the broader education community. We believe it is highly likely that online learning broadly and online degree instruction, specifically will be even better positioned to serve the nation post.
At 19, and we further believe Sci will remain at the forefront in innovating digital instruction.
And finally I would like to extend my thanks to all of my colleagues at Sci for their tremendous resilience and ongoing mission driven focus to serve our students and with that I'd like Dan to run through our first quarter financial results Stan Thank you Carl and good morning, everyone.
Before I start I wanted to point out that effective Q1 2020, we consolidated what was previously our non degree segment into the Strayer Capella segments.
Oracle numbers have been adjusted accordingly, so year over year comparisons are consistent.
I also want to remind everyone that our earnings release references as reported or GAAP results and adjusted results, which are non-GAAP. The adjusted numbers exclude charges and expenses that are nonrecurring and or related to our merger with capella.
Moving onto our Q1 results revenue for the first quarter of 2020 grew 7.6% to 265.3 million compared to 246.5 million in 2019, a reflection of strong enrollment growth at both Capella and Strayer University's.
New and total enrollment at Capella grew 17% and 4%, respectively, while strayer, new and total enrollment grew 7% and 11% respectively.
We held year over year, adjusted operating expense growth to 2%, which drove 31% growth in adjusted operating income and adjusted operating margin expansion of 420 basis points for the quarter, our bad debt expense for the first quarter was 4.2% of revenue compared to 5% for the same period in 2019 I.
Thanks for the quarter includes an additional reserve we are taking in anticipation of the impact of some of the payment flexibility measures Carl referred to earlier.
Adjusted earnings per share for the first quarter grew 27% slightly lower than operating income growth due to lower investment income in a slightly higher tax rate compared to Q1 2019, our investment income will continue to decline year over year through the balance of 2020 due to significantly lower interest rates.
We expect our adjusted effective tax rate for the second quarter and full year 2020 to be approximately 28.5% moving to the balance sheet and cash flow, we generated 68.7 million and cash from operations during the quarter compared to $58.7 million. During the first quarter of 2019 ended the quarter with 506.3.
Million dollars of cash cash equivalents in marketable securities no debt in 250 million of available credit on our revolver.
Capital expenditures for the first quarter were 14.3 million compared to $8.8 million for the same period in 2019. The increase in Capex was partially driven by the carryover of several projects from the fourth quarter of last year.
For the full year 2020, we now expect capital expenditures to be at the lower end of our previous estimate.
Between 40, and 45 million Rob.
Thank you Dan. Thank you Carl lot of material to digest, but the operator, we're happy to answer any questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your Touchtone telephone. If your question has been answered you were similar yourself from the Q. Please press the balance sheet.
First question comes from Jeff Silber BMO capital markets.
Thank you so much my apologies I got on a little bit late first of all of led here all doing well and really appreciate what you do in for the industry your students and employees.
You mentioned that the impact on corporate partnerships I was wondering we could you talk a little bit about that what exactly you're seeing our companies just cutting it off of a reducing the number of employees that making available to them anything you can tell us would be great.
Sure Good morning, Jeff.
We're not yet seeing any corporate partners, eliminating or suspending or pausing tuition benefits, we haven't seen that.
In a small number of cases.
We have had corporate partners proactively reach out to us and ask for some flexibility on payment arrangements.
Which would be clearly a minority of our overall corporate partnerships.
And as I said in my prepared remarks, we have seen across several corporate partners a reduction and what we would expect to be a normalized level of new student enrollment, which again, we attribute to the sharp economic downturn, the unemployment situation in the country and so forth.
Okay, Great that's helpful.
A little bit of color on some of the demand trends you're seeing now I just want to focus on one I think you had mentioned that capella saw initially sharp drop.
But that is somewhat normalized and then any reason for that sharp drop the grow aware.
No.
We monitor.
All of this information on a daily basis, and we tend to smooth the data.
Sort of on a rolling 14 day average basis, so that we don't overreact to any one day.
And in early March Capella as early indicators, which are mostly things like web visits inquiries began to decline quite sharply.
But then about four weeks later reverse that trend entirely.
And started growing again on a double digit basis year over year.
In both capella in straight or are you seeing I don't know if you have this granularity different types of students either looking for different programs than you were beforehand, or maybe more undergrad versus grad again any color would be great.
Well, we haven't seen a change in the type of student coming to either University recognizing that students that capella are different than students at strayer for exactly what you just said strayer being predominantly undergraduate capella being predominantly graduate but the inquiries that we're getting are consistent with the types of students that previously would enroll at either of those universities.
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Okay, Great and then just one more quick alignment and forgive me you mentioned this at the beginning of the call that I Miss from a capital allocation perspective.
Has anything changed in your mind, when you've got a strong cash balance I'm, just curious what you're focusing on there. Thanks.
Nothing's really changed.
Jeff with the exception that as we saw the economies start to shut down I think we.
Appropriately have become a little more conservative in terms of thinking about capital deployment.
We don't know how long this downturn is going to last we think.
That if it lasts for an extended period it would have a negative impact on our particularly our new student enrollment.
Turning that before.
So we've got a healthy dividend, which will continue.
And other than that we're going to continue to look to allocate our capital in the most.
Value enhancing highest return way that we can.
Okay, great I'll jump back into queue. Thanks, so much thanks, Joe.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your touched on telephone.
Our next question comes from Alex Paris, with Barrington Research.
Hi, guys.
Congratulations on the quarter.
Among all the information you just gave US one think piqued my interest.
I never think strictly interest, but below I wanted to ask you about.
In terms of your coded response, you are assisting other educational institutions to provide.
Online courses at scale, it's a low single digit usually in dollar cost you in the near term you think its a.
Good idea could result in some business opportunities down the road on presuming.
Can you give us a little bit more color on that in my understanding that correctly.
Sure Hey, Alex.
The company had already pre coded started an effort to partner with historically black colleges and universities, which would include online enablement for them as well as.
Gifting various sci technologies for their use so we had had that work stream underway for probably 18 months.
When cobot 19 surfaced.
The management team when we just survey what's likely to.
How is the world's going to look post post cobot 19, it's pretty clear that.
Both the popularity and the legitimacy of online instruction, something we've always known and believed and will be more broadly accepted across the country and we felt the other thing that is likely to be true is that many institutions are going to struggle to get online.
And so having already been focused on it with HPC use it was not that much of an additional stretch to think through how we might be able to help other institutions. Similarly.
Our technology stack today is not presently set up to host multiple other universities, but it's also not not that heavier lift to be able to acquire those capabilities, which is why we estimate.
The investment to build these capabilities isn't isn't the low single million dollar range.
Yeah.
And it's something that we have our team focused on we don't have a really specific update other than this other than to say on a macro basis. We expect the demand for online enablement help will be great and that it's something that we feel like we'd be quite good at.
So right now you are being a good corporate citizen and a good educational citizen in helping out HSBC and it just views and.
And other institutions it could turn into a business, though is what I'm asking down the road.
Clearly it could you know we don't know when that is that the basis for us making the investment is to position the company.
To be able to both help other institutions and to build what could become as you've noted an entirely new business segment for us in the short term during this crisis. Our our focus is just to do whatever we can do to be helpful.
As I said in my prepared remarks, and particularly for HPC use we're doing it at the company's cost.
Even though we don't expect any material adverse financial impact and doing it.
And as we build these capabilities and get into a more normalized reopening of the economy and into 20, Twond 2021, and et cetera, then I think there will be an opportunity to help other institutions and a very cost effective way given that we see with our productivity tools and other things that we have a cost advantaged business model already.
Right I agree 100%.
Just a couple of other quickies to follow up on Jeffs capital allocation question. What are your thoughts with regard to M&A I think given it was always potential particularly as.
As make clear by the merger with Capella couple of years ago.
In the scope I think I know the answered my question before answering it before asking it but what are your thoughts about M&A in the near and intermediate and longer term.
Alex it's Rob in the near term, it's rather and practical.
We probably wouldn't do a lot of M&A in situations, where we can't send people to go take a look at.
Assets and facilities.
And people.
In the intermediate long term it's.
On our stack of potential allocation of capital.
At but generally below reinvestment in our own universities and improving the academic outcomes of our own students.
And.
But we're always looking and so I would say, it's virtually nonexistent in the near term and.
A lower but distinct priority in the intermediate long term.
Good. Thank you for the answer and then the last one ban.
Just a.
You talked about moving the boot camps into the straight or segment.
And you restated the year ago number what about.
Providing to the street, some restated segment data going back for the last.
You are two or a quarter or something like that.
Well, Alex prior to last year it was really.
It was already embedded in that.
In the.
The Strayer result, so 2018 of course was messy because of the merger. So 2019 is really the only meaningful year, where we had that data we've already.
We can go back to the full four quarters of 2019, and I think we will as we progress forward, but for now it's it's going to be in the queue that we filed today.
Restated.
Okay got you. So we'll just get Q2 Q3 Q4 of 19 as you report the same quarters of 20 going forward correct.
Okay.
Good well. Thank you all very much appreciate it thank you Alex.
And I'm not showing any further questions at this time electro the call back over to ROE.
Thank you operator, and thank very much ladies and gentlemen.
I want to assure you that we are socially distant here more than eight feet away from each other.
And as Carl mentioned were well suited for working remotely.
But were reachable if you have questions. Please.
Give danna call and he can set up other communications.
And I look forward to speaking to you again at the end of the second quarter call in July thanks, very much.
Ladies and gentlemen, does conclude todays presentation. You may now disconnect have a wonderful to.
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Welcome to the Street Education first quarter 2020 earnings call I will now turn the call laboratories Lucky matter for customer relations first of trees education. That's what would you. Please go ahead.
Thank you good morning, everyone and welcome to strategic Educations conference call in which we will discuss fourth quarter 2020 result.
With us today to discuss results are Robert Silberman Executive Chairman, Carl Mcdonald, President and Chief Executive Officer.
Daniel Jackson, Executive Vice President and Chief Financial Officer.
Following remarks, well open the call for questions.
Please note that this call may include forward looking statements made pursuant to the safe Harbor provision with a private Securities Litigation Reform Act.
I was 1995 the statements are based on current expectations are subject to a number of assumptions uncertainties and risks that strategic education has identified in today's press release that could cause actual results to differ materially.
Further information about these and other relevant uncertainties, maybe found in strategic education. Most recent annual report on form 10-K.
The 10-Q to be filed and other filings with the Securities and Exchange Commission as well as strategic education future KC 10-Q's, and 10 case.
Copies of these filings in the full press release are available for viewing on the web site at strategic education Dot com.
Now I'd like to turn the call over to Rob Rob. Please go ahead.
Thank you Terry and good morning, ladies and gentlemen.
You can see from today's earnings release S. T. I had a particularly strong first quarter. However, as we are speaking to you. This morning for the first time since the mandated economic shut down to combat the Corona virus pandemic I wouldn't like in my remarks today to refocus our shareholders on some basic first principles about our enterprise before.
Asking carlin, Dan the comment more specifically on our recent operational and financial results as well as our future plans and outlook.
First let's see I used the steward of two well respected regionally accredited working adult focus universities Strayer University at Capella University.
As fully online universities, both institutions are uniquely prepared to operate successfully in a pandemic affected world.
I can.
See eyes long term value has been and always will be ultimately defined by the academic success of our students and how that success translates into the professional success of our alumni.
Therefore, as the stewards of your invested capital the performance of our students and alumni is always our first concern.
Third Sci has been and we'll continue to be run on a very stable financial basis, we have a fortress balance sheet with over $500 million in cash and an available undrawn $250 million revolver and no debt.
Our operating and financial model allows us to fully fund first straight academic programs, what the potential wide variation in student enrollment walk constantly investing in our academic outcomes as well as providing a conservative but steady financial dividend to our shareholders.
Fourth because of that financial strength, neither strayer University, nor Capella University will seek or except supplementary financial resources from the federal government to deal with the impact of the Corona virus pandemic. Instead, we are providing into our students from our own financial resources equivalent sounds as though.
Our authorized by the federal government and student financial assistance by the recently passed cares Act.
We're also making our technologies in academic resources available free of charge to other academic institutions to help them deal with this crisis. Indeed, we want to be as helpful. As we can during this crisis not just to our own students, but to the educational community as a whole.
Fifth as a management team, which has led this enterprise for nearly 20 years, we have seen and prospered through a number of different macro economic cycles, we know from experience that a significant and persistent decline and labor force participation rates will temporarily and negatively affect our student enrollment, particularly from our.
Corporate sponsored students.
However, our academic and financial model has proven over time to be stable enough to withstand wide variations in student enrollment.
We of course have no idea how long the crown virus mandated locked down and subsequent recession will last but we're confident that by maintaining our focus on the academic success of our students or institutions will prosper over the long term and all cycles.
And finally before I turn it over to Carl I want to say on behalf of our entire board of directors, how grateful we are to the Sci community, including our executive team, our faculty and our staff for all their extraordinary efforts on behalf of our students over these last two months call. Thank you Rob good morning, everyone at.
The outset I'd like to note that the company's first quarter financial results, which we reported this morning were more than 90% complete prior to the widespread outbreak of Kobin 19, and therefore reflect virtually no impact from the current health care cries crisis and current economic downturn.
Obviously, we were very pleased with those first quarter results, but it's Dan will cover then in more detail momentarily I intend to focus my comments on Etsy ice cold in 19 response to date as well as to provide some visibility for our owners into our current business trends.
And I'd like to begin this morning by outlining S.T.I.s response to co bid 19.
Let's see how his primary focus since the outbreak of Cobot night team has been on the health and wellbeing of our employees and our students.
We moved quickly and aggressively to implement alternative business continuity strategies in the first week of March well before either national worst state guidance ordered such moves.
These measures included mandating, 100% work from home for our staff as well as canceling all in personal gatherings for our students such as commencement ceremonies capella doctoral residencies and strayer university's on ground classes, which account for only 5% of Strayer University class seats.
That was for the spring academic term, which started a couple of weeks ago.
During that same week in March the company also modified its sick pay and time off policy to provide unlimited time off with uninterrupted pay for every Sci employ the company has not nor do we plan to furlough any employees as a result of cobot night team.
We are however, reducing operating expenses, where possible purely as a precautionary step.
These measures include pausing new campus openings.
Implementing a temporary external hiring freeze except for critical faculty members.
Offering other non essential capex and reduced executive compensation.
For our students we implemented on a preemptive basis temporary changes to some of our policies with the expectation that many of our students may experience some financial hardship during this mandated economic locked down.
These measures included waving dropped fees extending deadlines to withdraw from courses and discounting some tuition is needed.
For example, given capellas concentration that health care and nursing, creating a scholarship for nurses to assist them should they decide to enroll.
The company has also working with some corporate partners to be more flexible on corporate reimbursement arrangements.
Turning now to an update on current business conditions.
First and most importantly, both strayer and Capella university's are fully functioning and have had no interruptions, nor do we expect any disruptions given the unique structure of our business model, which can be delivered by our staff remotely and consumed by our students remotely we've seen very little changes in our workforce productivity.
And today, we have not seen higher levels of students dropping withdrawing from classes failing to re register for upcoming terms beyond what we would normally expect to see during this time of a quarter.
For modeling purposes, we forecast the temporary cobot 19 relief measures I described for our students will result in a roughly 3% reduction in revenue per student for the second quarter versus roughly flat revenue per student we talked about at our Investor Day last November.
And in terms of the second quarter, leading demand related metrics that we track on a daily basis, which includes visits to our various web sites digital search trends inquiries for more information coming to the university as well as applications for new enrollment.
Have changed somewhat.
Capellas trends across these categories began to decline and in some cases sharply during mid March in early April but since recovered and are now tracking at levels above prior year.
Stringers, leading indicators have remained relatively stable and strong for the past eight weeks essentially staying well above last year's targets out a quarter to date basis, what portion of this demand translates into new student enrollment for either University remains to be seen as we're still early in the quarter across both universities we have.
Also seeing some reduction in employer sponsored new students, which we attribute to the current economic downturn.
We estimate that approximately 50% of our second quarter results were locked in prior to cope with 19 restrictions due to the fact that many of our students register for classes weeks in advance from the start of a term.
And why we never give guidance given the unprecedented nature of this government mandated economic shutdown, we would like to share with our owners what we're seeing in terms of potential second quarter results.
Based on the conditions, we are seeing today, we would expect the following results in the following ranges for the second quarter.
Enrollment growth of somewhere between zero and 4% revenue per student down approximately 3%.
Which would lead yield flat to slight growth in revenue with flat to slightly reduced operating expenses, yielding mid single digit growth in net income and earnings per share.
In addition to supporting our own students.
The company has also mobilizing its expertise tools and technologies to assist other parts of the education community that may be struggling during this crisis.
We have made all courses on Sofia, our consumer based learning platform, which has ace certified college level courses free to the general public until at least July 30, Onest 2020.
Incense introducing this free offer more than 45000 people have register for more than 100000 courses as people complete these courses and transfer them back to their primary institution. They can dramatically lower the remaining cost of their degree programs.
Secondly, etsy eyes, moving quickly to assess the nation's HBC use who may not have the capability to provide instruction to their students as a result of cobot 19.
See I is offering to allow any student from an effect at H.B.C. you to enroll in either strayer or capella free of charge and with no expense to their home HPC use school.
The students can then transfer earn credits back to their home institution once it resumed instruction.
Third the company is building the necessary technological tools to assist other post secondary education institutions to provide their courses online and at scale and given our view that most if not all colleges and universities will both want and need to have a robust online capability post coven 90.
I mean, we see these investments, which we expect to be in the low single million dollar range as an important new capability for Sci over the long term.
Our focus on this I should note will only be on technology, and instructional support and will not extend to marketing admissions or enrollment for other institutions.
And finally, the company is making its universities available for public school districts, whose high schools, maybe struggling in the wake of the sudden shift to 100% online learning.
This would be done through a do enroll dual enrollment where the student would continue to be enrolled in their high school as well as either strayer or Capella University.
Forces that are successfully completed can then be used to fulfill high school graduation requirements as well as earning college credit.
Presently we expect no material adverse financial impact as a result of any of these offers to assist other institutions and Furthermore, as Rob as mentioned with our fortress balance sheet and two strong financially secure universities. We have no need for have not asked for and will not accept any supplementary federal covert.
19 related financial assistance, we will however be providing financial assistance to Strayer University students, who are already enrolled in a ground class for the spring academic term when we cancel those classes and moved to them entirely online.
This aid will be in the form of a scholarship to reduce their tuition and we estimate the total impact to be approximately $1.5 million.
In addition, we have earmarked another $1 billion to assist employees experience financial hardships as a result of cobot 19.
Notwithstanding these incremental operating expenses and based on our ability to reduce operating expenses elsewhere. We expect total 2020 operating expenses to be roughly flat with the prior year.
Our current approach, which I outlined this morning reflects FC eyes desire to be as helpful. As possible not just to our students, but also to the broader education community. We believe it is highly likely that online learning broadly and online the degree instruction, specifically will be even better position to serve the nation post close.
Good night team and we further believe FC I will remain at the forefront in innovating digital instruction.
And finally I would like to extend my thanks to all of my colleagues at Sci for their tremendous resilience and ongoing mission driven focus to serve our students and with that I'd like Dan to run through our first quarter financial results. Then thank you Carl and good morning, everyone.
Before I start I wanted to point out that effective Q1 2020, we consolidated what was previously our non degree segment into the Strayer Capella segments.
Oracle numbers have been adjusted accordingly, so year over year comparisons are consistent I also want to remind everyone that our earnings release references as reported or GAAP results and adjusted results, which are non-GAAP. The adjusted numbers exclude charges and expenses that are nonrecurring and or related to our merger with capella.
Moving on to our Q1 results revenue for the first quarter of 2020 grew 7.6% to 265.3 million compared to 246.5 million in 2019, a reflection of strong enrollment growth at both Capella and Strayer Universitys.
In total enrollment at Capella grew 17% and 4% respectively, while strayer, new in total enrollment grew 7% and 11% respectively.
We held year over year, adjusted operating expense growth to 2%, which drove 31% growth in adjusted operating income and adjusted operating margin expansion of 420 basis points for the quarter, our bad debt expense for the first quarter was 4.2% of revenue compared to 5% for the same period in 2019.
Bad debt expense for the quarter includes an additional reserve we are taking in anticipation of the impact of some of the payment flexibility measures Carl referred to earlier.
Adjusted earnings per share for the first quarter grew 27% slightly lower than operating income growth due to lower investment income in a slightly higher tax rate compared to Q1 2019, our investment income will continue to decline year over year through the balance of 2020 due to significantly lower interest rates.
Expect our adjusted effective tax rate for the second quarter and full year 2020 to be approximately 28.5%.
Moving to the balance sheet and cash flow, we generated 68.7 million and cash from operations during the quarter compared to 58.7 million. During the first quarter of 2019 ended the quarter with 506.3 million of cash cash equivalents in marketable securities no debt and $250 million of available credit on our revolver.
Capital expenditures for the first quarter were 14.3 million compared to 8.8 million for the same period in 2019. The increase in Capex was partially driven by the carryover of several projects from the fourth quarter of last year.
For the full year 2020, we now expect capital expenditures to be at the lower end of our previous estimate.
Between 40, and 45 million Rob.
Thank you Dan. Thank you Carl lot of material to digest, but the operator, we're happy to answer any questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your touched on telephone. If your question has been answered you were similar result from the Q. Please press the balance sheet.
First question comes from Jeff Silber BMO capital markets.
Thank you so much my apologies I got on a little bit late.
I'll, let here all doing well and really appreciate what you do and for the industry are students and employees.
You mentioned that the impact on corporate partnerships I was wondering we can talk a little bit about that what exactly are seeing our companies just cutting it off are they in reducing the number of employees that making available to them anything else would be great.
Sure Good morning, Jeff.
We're not yet seeing any corporate partners, eliminating or suspending or pausing tuition benefits, we haven't seen that.
In a small number of cases, we have had a corporate partners proactively reach out to us and ask for some flexibility on payment arrangement.
Which would be clearly a minority of our overall corporate partnerships.
And as I said in my prepared remarks, we have seen across several corporate partners a reduction in what we would expect to be a normalized level of new student enrollment, which again, we attribute to the sharp economic downturn, the unemployment situation in the country and so forth.
Okay, Great that's helpful.
A little bit of color on some of the demand trends you're seeing now I just want to focus on one I think you had mentioned that capella saw initially sharp drop.
But that is somewhat normalized and then any reason for that sharp drop the grow era.
No.
We monitor.
All of this information on a daily basis, and we tend to smooth the data.
Sort of on a rolling 14 day average basis, so that we don't overreact to any one day.
And in early March Capellas early indicators, which are mostly things like web visits inquiries began to decline quite sharply.
But then about four weeks later reverse that trend entirely.
And started growing again on a double digit basis year over year.
In the book Capella in stray or are you seeing I don't know if you have this granularity different types of students either looking for different programs than you were beforehand, or maybe more undergrad versus grad again any color would be great.
Well, we haven't seen a change in the type of student coming to either University recognizing that students that capella are different than students at strayer for exactly what you just said strayer being predominantly undergraduate capella being predominantly graduate but the inquiries that we're getting are consistent with the types of students that previously would enroll at either of those universities.
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Okay, Great and then just one more quick violent and forgive me you mentioned this at the beginning of the call that I Miss from a capital allocation perspective.
Has anything changed in your mind, you got a strong cash balance I'm, just curious what you're focusing on there. Thanks.
Nothing's really changed.
Jeff with the exception that as we saw the economies start to shut down I think we.
Appropriately have become a little more conservative in terms of thinking about capital deployment.
We don't know how long this downturn is going to last we think.
That if it lasts for an extended period it would have a negative impact on our particularly our new student enrollment.
Seeing that before.
And so we've got a healthy dividend, which will continue.
And.
Other than that we're going to continue to look to allocate our capital in the most.
The value enhancing highest return way that we can.
Okay, great I'll jump back into queue. Thanks, so much thanks, Jeff.
Again, ladies and gentlemen, if you have a question or comment at this time. Please press the star them a one key on your touched on telephone.
Our next question comes from Alex Paris, with Barrington Research.
Hi, guys.
Congratulations on the quarter.
Among all the information you just gave US one thank piqued my interest.
Thank you my interest, but below I wanted to ask you about.
In terms of your call that are slides you are assisting other educational institutions to provide.
Online courses at scale, it's a low single digit million dollar cost you in the near journey It gets a.
Good idea could result in some business opportunities down the road on presuming.
Can you give us a little bit more color on that in my understanding that correctly.
Sure Hi, Alex.
The company had already pre coded started an effort to partner with historically black colleges and universities, which would include online enablement for them as well as.
Gifting various sci technologies for their use so we had had that work stream underway for probably 18 months.
When cobot 19 surfaced.
The management team when we just survey what's likely to.
How is the world's going to look BPO post cobot 19, it's pretty clear that.
Both the popularity and the legitimacy of online instruction, something we've always known and believed and will be more broadly accepted across the country and we felt the other thing that is likely to be true is that many institutions are going to struggle to get online.
And so having already been focused on it with HBC use it was not that much of an additional stretch to think through how we might be able to help other institutions. Similarly.
Our technology stack today is not presently set up to host multiple other universities, but it's also not not that heavy of a lift to be able to acquire those capabilities, which is why we estimate.
The investment to build these capabilities as it is in the low single million dollar range.
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And it's something that we have our team focused on we don't have a really specific update other than this other than to say on a macro basis. We expect the demand for online enablement help will be great and that it's something that we feel like we'd be quite good at.
So right now you're being a good corporate citizen in a good.
Educational citizen in helping out HSBC and it just views and.
And other institutions it could turn into a business, though is what I'm asking down the road.
But clearly it could we don't know when that is that the basis for us making the investment is to position the company.
To be able to both help other institutions and to build what could become as you've noted an entirely new business segment for us in the short term during this crisis. Our our focus is just do whatever we can do to be helpful.
As I said in my prepared remarks, and particularly for HPC is we're doing it at the company's cost.
Even though we don't expect any material adverse financial impact and doing it.
And as we build these capabilities and get into a more normalized reopening of the economy and into 20, Twond 2021, and et cetera, then I think there will be an opportunity to help other institutions in a very cost effective way given that we see with our productivity tools and other things that we have a cost advantage business model already.
Right I agree 100%.
Just a couple of other quickies.
Follow up on Jeffs capital allocation question, what are your thoughts with regard to M&A I think evident was always potential particularly as.
As make clear by the merger with Capella couple of years ago.
In this call, but I think I know the answered my question before answering it before asking it but what are your thoughts about M&A in the near and intermediate and longer term.
Alex it's Rob in the near term, it's rather and practical.
We probably wouldn't do a lot of M&A in situations, where we can't send people to go take a look at.
Assets and facilities.
And people.
In the intermediate long term it.
On our stack of potential allocation of capital.
And but generally below reinvestment in our own universities and improving the academic outcomes of our own students.
And.
But we're always looking and so I would say, it's virtually nonexistent in the near term and.
A a lower but god distinct priority in the intermediate long term.
Good. Thank you for the answer and then the last one band.
This does.
You talked about moving the boot camps into the straight or segment.
And you restated the year ago number what about.
Providing to the street, some restated segment data going back for the last.
You are two or a quarter or something like that.
Well, Alex prior to last year that was really.
It was already embedded in the in the.
Strayer results. So 2018 of course was messy because of the merger so 2019.
Really the only meaningful year, where we had that data and we've already.
We can go back to the full four quarters of 2019, and I think we will as we progress forward, but for now it's it's going to be in the queue that we filed today.
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Restated.
Okay got you. So we'll just get Q2 Q3 Q4 of 19 as you report the same quarters of 20 going forward correct.
Okay.
Good well. Thank you very much appreciate it thank you Alex.
And I'm not showing you further crosses at the top electro call back over to ROE.
Thank you operator, and thank very much ladies and gentlemen.
I want to assure you that we are socially distant here more than eight feet away from each other.
And as Carl mentioned were well suited for working remotely.
But were reachable if you have questions. Please.
Give dan a call he can set up other communications.
And I look forward to speaking to you again at the end of the second quarter call in July thanks, very much.
Ladies and gentlemen, does conclude todays presentation. You may now disconnect have a wonderful day.