Q1 2021 Perdoceo Education Corp Earnings Call
Hello, and welcome to the Q1 2021 Adelphia Education Corporation earnings Conference call and webcast all participants will be in a listen only made did you need any assistance. Please signal a conference specialist by pressing the stocky followed by theory.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to hand, the conference day, that's why attack Investor Relations. Please go ahead.
Thank you good afternoon, everybody and thank you for joining us for our first quarter 2021 earnings call with me on the call today is Todd Nelson, President and Chief Executive Officer, and Ashish Ghia Chief Financial Officer.
This conference is being webcast live within the Investor Relations section at per dose Dot Com a webcast replay will also be available on our site and you can always contact the alpha IR group for Investor Relations support.
Let me remind you that this afternoon its earnings release and remarks made today include forward looking statements as defined in section 21 E.
Of the Securities Exchange Act with 1934.
Yeah.
These statements are based on assumptions made by and information currently available to produce you education and involve risks and uncertainties that could cause actual future results performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements.
These risks and uncertainties include but are not limited to those factors identified on Protos yet its annual report on form 10-K for the year ended December 31st 2020, and subsequent filings with the Securities and Exchange Commission expense.
Except as expressly required by the securities laws. The company undertakes no obligation to update those factors or any forward looking statements to reflect future events developments or changed circumstances or for any other reason.
In addition, today's remarks refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The earnings release that accompanies today's call and finance from other quanta, Peter that information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.
And it's available within the Investor Relations page of the company's website with that I'd now like to turn the call over to Todd Nelson Todd.
Thank you Wyatt and good afternoon, and thank you for joining us on our first quarter 2021 earnings call.
Everyone is doing well.
I'd like to begin by thanking our faculty student support staff and all of our employees for their hard work and dedication and educating and serving our students.
With that said, let's get into our financial and operating results for the quarter.
We reported net income of $38 million or 43 cents per diluted share.
Adjusted earnings per diluted share, which excludes certain significant and non cash items was 44 sites.
Our first quarter results reflect year over year growth in key financial and operating metrics.
And we serve and graduated more students during the first quarter of 2021 than the first quarter of 2020.
Further as compared to year end, our balance sheet has grown stronger and we've made investments in various student serving processes and other initiatives, which I will update you on shortly.
Ashish will then get into more detail on our financial on operating results.
Total student enrollments as of March 31, 2021 were up nine 7%.
As compared to the prior year quarter end with both sea to you and are you experiencing growth.
Our CPU total students enrollments increased 12.8 per cent as we continued to experience underlying or organic growth and leverage technology to support our students.
Please keep in mind that similar to the academic calendar redesign a day or you see to you has implemented its version of an academic toller redesign beginning this quarter. This also positively impacted the reported total enrollments as of March 31, 2021 due to assessments start date on March 31, as compared to assist on start date that was on April.
In the prior year.
Hey are you total student enrollments increased 5%, primarily due to underlying organic enrollment growth note that the Trident acquisition, which closed prior to March 31st of all last year and fully reflected in the comparison.
We continue to leverage talent and share best practices with value to further enhance our students' educational experiences.
With the creation of the AI use system last year trading was able to maintain its unique academic and student experience, while benefiting from the best practices of a university system.
We believe investments in technology and student serving functions have positively contributed to student experiences a student learning.
C to you and they are you have continued to increase our student serving staff.
And leverage data analytics and technology to enhance the effectiveness of their student services to students.
Technology investments in machine learning and data analytics for the quarter are mostly a continuation from previous quarters as we expand their used across various student serving processes. We also continue to invest in our successful mobile App a C T O on American Intercontinental University.
Which has a 90 plus percent adoption rate and has become the primary source of communication with our students we regularly upgrade and enhance our app.
Function features refine our platform and make resources more convenient for students, which we believe resonates well with our adult learners.
And an update on our two initiatives before I turn the call over to Ashish a quick comment on the investments in these new initiatives that I mentioned on our last call.
Expanding corporate partnership programs and developing shorter duration programs, which we referred to as workforce development training programs.
Both of these initiatives are designed to allow students to use their employers or their own resources to complete the program with little or no debt.
We have made good progress on both of these initiatives during the quarter, we have expanded our corporate partnership team and the new hires we have made thus far should be fully trained and integrated into the second half of the year.
Our corporate partnership team identifies contacts and supports corporation.
Leveraging their tuition assistance programs to provide debt free education to their employees through one of our universities.
So you could call that although the amount paid by these students results on lower revenue per student due to the grants awarded from the applicable University recruiting marketing and support costs associated with these students are low as well and these students tend to persist at a higher rate.
Turning to work force.
<unk> training programs, we have already identified several non degree online courses that we believe will offer learning opportunities, where one can develop skills and knowledge and a specific endeavor or area of interest. Our training programs are designed to assist adult learners and obtaining additional credentials that are job focused and can help workers increased their skills.
And prepared for changes in the work force.
We expect to begin offering these programs before the end of the second quarter.
As previously mentioned Triton has already had some success with these programs and we will further leverage its expertise to expand and grow. These programs first the tried and then possibly across from the universities.
We see both of these initiatives as ways to further meet the dynamic professional and academic needs of our non traditional learners, including working adults.
With that said I'd now like to turn the call over to Ashish for a deeper review of our operating performance for the quarter Ashish.
Thank you Todd.
I'll now review, our first quarter results and then discuss our balance sheet and 2021 outlook before handing the call back to Todd for his closing remarks.
Please note that all comparisons I discuss on versus the comparative prior year period, unless otherwise stated.
Before I begin a quick reminder, about ear, where your compatibility.
Operating results from E. R. You reflect the Trident acquisition commencing on March 2nd 2020.
As a result this is the last quarter.
Year over year comparable Rudy and AI use operating performance will be impacted due to the Trident acquisition.
Also we are no longer including adjustments for any expenses related to closed campuses.
When presenting adjusted operating income or adjusted earnings per diluted share because these expenses no longer are no longer material.
All prior period amounts have been recast to maintain comparable it.
Let's start with an overview of our operating results for the first quarter of 2021 total company operating income was $46 million as compared to an operating income of $37.3 million, which is an eight 9% increase.
Adjusted operating income, which excludes certain significant and noncash items and which we believe is more reflective of the underlying operating performance came in at $44.6 million for the quarter, reflecting an increase of 11, 7% versus the prior year.
First quarter net income was $38 million or 43 cents per diluted share while adjusted earnings per diluted share was 44 cents.
This positive operating performance was primarily driven by revenue growth across both institutions, while realizing operating efficiencies within various processes, mainly due to technology enhancements.
Separately as expected COVID-19 related savings in general has started to diminish and specifically expenses related to various employee health insurance programs have started to show you on what are your increases.
Moving on to some more details are on the first quarter 2021 results.
Total company revenue was $183.6 million for the quarter, which reflects an increase of seven 4% from Han range $71 million.
As it relates to our segments first quarter revenue F. C to you was up two 2%.
$5.8 million, primarily supported by total enrollment growth.
Operating income of $36 $1 million was up four 4%, while operating expenses were only modestly higher.
Turning to me are you.
Revenue increased 15% to $77.5 million for the quarter due to the Trident acquisition as well as organic total student enrollment growth.
Operating income of $11.3 million grew 28 per cent compared to the prior year quarter.
Included in the operating income is approximately 800 zero point $8 million of expenses related to the amortization of definite life intangible assets that were established as part of the purchase price accounting related to the Trident acquisition.
A quick note on bad debt.
For the first quarter. We are pleased that total company bad debt expense as a percentage of revenue was relatively in line with the prior year.
We will continue to focus on improving student retention and the financial aid process for our students however, or quarterly fluctuations in bad debt levels are expected.
I don't want to student enrollments.
As mentioned on our last call given the academic calendar redesign first study are you and now let's see to you on.
Clearly new enrollment comparable Eddie will be impacted and then may not be fully reflective of the underlying operating performance and therefore, we are no longer reporting new student enrollments.
However, we will continue to report total student enrollments, which we believe better reflects our underlying operating performance over time.
Yes.
Total student enrollment as of March 31, 2021 grew by 12, 8% at sea to you and five per cent at ARU.
We believe these positive results reflect the investments across our student enrollment and support functions, which are allowing us to effectively serve prospective student interest.
Also as Todd mentioned.
Total student enrollments were positively impacted by the academic calendar redesign.
Moving on to corporate and other.
First quarter operating losses were relatively flat at $6 $8 million versus $6 7 million in the prior year quarter.
Lower operating losses for our closed campuses were offset by increased employee related and other corporate support expenses.
Now to income taxes.
For the first quarter, we recorded a provision for income taxes of $10 $2 million, resulting in an effective tax rate of 25 per cent.
The first quarter tax rate was benefited by 1.3 per cent for the tax effect.
On the release of previously recorded tax reserves.
Recall that we utilize all of the $109 $7 million of federal net operating loss carry forward and $5.7 million of our foreign tax credit carry forward in 2020.
During the course of 2020, one we anticipate utilizing the remaining $10.3 million of foreign tax credits to partially offset our federal tax liability.
We have also made our first quarterly tax payment in April 'twenty, 'twenty, one and expect to continue making quarterly estimated tax payments for the remainder of the year.
We further expect our 2021 effective tax rate to be between 26 per cent and 27%.
This full year estimated rate is negatively impacted by increases in tax reserves for uncertain tax positions and the tax effect of expenses that are not deductible for tax purposes.
Yeah.
Now to our balance sheet net.
Net cash provided by operations was $44 $7 million for the quarter and in line with prior year quarter.
We ended the quarter weighted with $451 million of cash cash equivalents restricted cash and available for sale short term investments.
This represents an increase of $47 million over year end 2020, and was primarily driven by positive cash flow from our University operations.
Capital expenditures for the first quarter were approximately $1 million, whereas you don't 0.6 per cent of revenue.
For the full year 2021 we foresee capital expenditures to be approximately one and a half to two per cent of revenues.
Finally, let us discuss our outlook for the remainder of the year.
Our full year adjusted operating income outlook remains unchanged in the range of $165 million to $171 million as compared to $1 $57.7 million in 2020 or.
Our expected growth of approximately four 6% to eight 4%.
And adjusted earnings per diluted share is expected to range between $1 58 in dollars 64 per diluted share versus $1 55 in 2020.
Please note that the full year outlook incorporates the increased expenses associated with our initiatives, which will be weighted towards the second half.
Yeah.
Moving on to our second quarter 2021 outlook.
We anticipate adjusted operating income to be in the range of 41 million to 42, and a half million dollars as compared to 41 and a half million dollars in the prior year quarter with adjusted earnings per diluted share.
To be in the range between 39 cents and 40 cents per diluted share.
It's 41 cents in the second quarter of 2020.
Let me conclude by commenting on our balance approach to capital allocation.
We are focused on building a strong balance sheet, which has and will continue to support our organic investments in the business.
These include investments that enhance our students experiences such as our technology initiatives and investments in our corporate partnership program and workforce development and training programs.
We plan to complement those efforts by prudently evaluating external growth opportunities such as the acquisition of high quality educational institutions on our programs.
And the direct return on capital to our stockholders.
Ultimately our goal is to deploy resources in the most effective and efficient manner that we believe will lead to increased shareholder value and allow us to continue to provide a quality education to our students.
Please refer to our earnings release filed today for important information about the key assumptions and factors underlying this outlook and other expectations discussed on today's call as well as the GAAP to non-GAAP reconciliations.
With that I will turn the call back over to Todd for his closing remarks.
Thanks, Ashish we are pleased with our first quarter operating results as we continue to focus on our strategic priorities. We look forward to executing on our various initiatives discussed earlier, while striving to improve academic outcomes and student experiences and I believe our strong balance sheet positions us well to accomplish these goals.
Thank you again for joining us today, and we will now open the line for any analyst questions.
Yeah.
Thank you we will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
Youre using a speakerphone please pick up the handset before pressing the keys to withdraw your question. Please press Star then Kay.
Your first question comes from Alex Paris from Barrington Research. Please go ahead.
Yeah.
Pardon me Alex Your line is now live.
Oh, sorry about that I was on mute. Thanks for taking my call. Good afternoon, everybody. Congratulations on a day better than expected first quarter results.
Thank you Alex.
They are a couple of questions first one I want to get out on the way Ashish is are there any anomalies to be expected in the academic calendar redesign in Q2 Q3 Q4.
Yeah. So I think that's a great question as we have said the anomalies related to the academic calendar redesign are mainly related to our new enrollments and we will not be reporting new enrollments as we have discussed Oh from a total enrollment perspective as we have said they are more reflect two on.
The underlying operating performance and the impact of the academic calendar on total enrollments is much more muted versus new enrollments. So that's that's how we're looking at it.
Okay that makes sense I guess, when we went through this with you.
The new student starts would be up.
50% on an down 50%. So again the reason for taking out the noise.
With new student starts.
Do do each period Q2 from Q4 have equivalent number of enrollment days.
Oh, no actually they they don't day enrollment days because of the academic calendar, Alex and as you alluded to it we did have a significant swings so the enrollment days won't be aligned.
They may have these variations, but like I said, we will focus on total enrollments and the impact on those enrollment days on total enrollments will be more muted.
Okay alright. Thank you. So so total enrollment is the product of new enrollment and retention how have retention trends been bearings.
And I would just say that you know Alex that they they've been steady, but obviously as we continue to you know.
The cautiously optimistic of the impact of the pandemic.
Obviously, there's things that impact of as you go into it and as we've gone through it and now as we come out of it obviously will continue to monitor that.
It's relatively uncharted territory and you know for for the industry and that will continue to monitor how that affects our current students and potential students.
And then obviously adjust operations if necessary.
Fair enough.
So.
Just so I understand the moving parts is as the economy reopens so do.
Alternative opportunities for your students and that could affect retention is that correct yep.
Thats correct and again as I said, it's it's hard at this point to really monitor that because it's too early in the process but.
As I said, we were cautiously optimistic that we will obviously if that does impact them.
You know we would book you know obviously, our effort would be to adjust any operations if necessary if or when that happens.
Fair enough. Okay. Thank you and then I'm really interested in these shorter duration programs. The workforce development programs that you're referring to are you said that you have identified a few program in areas I think he said with cash before it's in the technology space and the health care space has that continued to be true that's true.
That's correct, but there are others, who are looking at but those are where you see a lot of demand yes.
And then would these be offered through both universities or independent of the universities.
Right now again, it is true value and obviously as we learn from that and then the idea would be to also then offer them at CTO as well.
Nothing preventing us from doing them on a standalone basis, as well, but but right now they're offered through a true ARU.
And.
Uh huh.
These are not degree programs. This these would not be title for eligible programs correct.
That is correct again, you you you do have the option depending on the length of our programs are you know to to offer them a it'll always book titled forward. We chosen not to we think that again. These are very concentrated programs that allow people to reskill and upskill and at the same time with the idea of that.
Try to minimize the amount of debt that the students would need to take on.
To complete those programs.
And just order of magnitude how many programs are we talking about here five or 10 or more than that are left on them.
Five or 10, what was that Alex.
And just in terms of sheer number of programs under this work force development plan.
You have to start with with with just a handful of whether that's three to five programs are but then again you.
That would grow into as you are.
Again, as we learn through the process, but also as a demand itself kind of dictates that but our ability to develop them quickly is something that were.
We felt that we've had a lot of experience as far as the program development.
And again.
Again, they don't result in agree but they did they result in some sort of certification or a badge that can be displayed on your Linkedin page.
What are you thinking.
Well the idea would be that they lead to obviously some sort of professional certification.
And do you expect to begin offering these by the end of the second quarter.
That is correct. Yes. In fact, we've already started the process on where were starting to have enrollment has already we have not started to obviously deliver them yet, but we're we're generating enrollments already.
Oh right. So I can see these AR on the Au website for example.
Ashish correct me, if that's where they are.
Yes, and actually within the system, they will specifically be within our Triton University.
Cause I think as we had shared before Trident has already had some experience with these kind of deliverables on courses and certificate programs. So that's where we are focusing on and as Tom said eventually nothing to prevent us from operating at dollar other universities.
Okay, and then just shifting gears.
Ashish.
And on among your final comments, you were talking about capital allocation.
You, obviously have a bullet proof balance sheet, so to speak nearly a half a billion dollars in cash no debt.
Uh huh.
What are you thinking about on the M&A front.
They tried an acquisition was a homerun clearly we've had a change.
Change in administration are you looking for other total for granting institutions or programs are you looking elsewhere to diversify revenue.
And and how active are you in that M&A process today.
The good news as debt.
All of you.
And there are we feel very optimistic because of the opportunities that are out there you know the industry itself is.
It's a complex industry for someone who's new to the industry and so on.
I think the number of buyers that are be schools and training or certificate from companies.
It's relatively complex to them, whereas as we've been doing it for a long time, obviously a day the shorter duration of workforce training programs.
Interest to us because again, we see good demand there that we really aren't able to meet true there. They're all programs. We already have it are in situ as Ashish mentioned their heart or we do have already a couple of these shorter certificate programs at a tried and true, which obviously will continue to use those as well.
But then in the degree area there are excel.
Exceptional schools and I think that we could help.
Then as far as advance in the.
The sophistication of our online delivery educationally. So on produce obviously quality outcomes, which is what we're really all about and both those that are programs that are title for non term for it but again. It really is all of your book both agree on and non degree as well and again on our pass your question specifically.
We were optimistic about the number of schools and.
And what we'd refrigerants workplace training programs that are out there on the market.
Great well I appreciate that additional color. Thank you, both and I'll get back in the queue.
Thank you thanks, so much.
Thank you.
Next question comes from Dan Moore from CJS Securities. Please go ahead.
Hi, Good afternoon. This is Brendan Pops in on for Dan I'm, just wanted to ask about the the impact you expect that with the current proposals for a quote unquote free community College on your current student population as well as any impact to your growth outlook over the next three to five years.
That's a good.
Good question.
We we like I think everybody continue to you know.
Listen to what is a what we're hearing is being proposed and obviously monitoring the process of getting those things are actually in into legislation.
I think that again.
Again.
Odd students, although there was I would say some overlap.
Not a lot with us because again.
The majority of our students are working adult students that are already working on looking for the type of degree program, we have a bachelor's master's and doctoral programs those type of things So I don't.
Tim say that it wouldn't have some impact, but I don't know what kind of a lot of impact you know based on the other current markets that we serve but I think it'll be interesting to watch the process on to see if that actually happens.
It's obviously a significant cost to the taxpayers to be able to fund that and I think getting that done Oh, no. We will certainly be a significant effort, but at this point again I think as I said you know, we don't really compete against on that on a large scale. Its typically against the more of those who have.
You know the four year programs in graduate programs.
Okay.
Okay, great Yeah, It makes sense and yeah, obviously asked to you know nothing's passed yet but.
Good to hear your thoughts and and want to ask about as well year on up there on your corporate partnership channel.
Obviously, the pandemic starting to abate we have companies are certainly seem desperate for workers and Ah you're having more dialogue on on potential on opportunities and and you know is it do you think that channel is and is improving.
For the next year or two because of that.
Sure again.
Alright. Thank you for asking that question as you know with our last call last quarter. We mentioned that we are making a significant additional investment in that channel and the reason being is when we see demand we see the value there. The retention of these students are better they are.
And again, we've had you know.
As you know a significant amount of success of that in the past and so we're very optimistic with what we're seeing there are obviously, it's a longer sales process for enrollment process than you'd see in a where you're meeting individually with the students, but again, it's really a process that is.
But it's really rely on upon the amount of resources that you're willing to put into it to build those relationships and we've made that investment that she said, we will continue to make it and where we are actually very excited especially as you've come out of this pandemic.
It's very competitive from workers and obviously, that's a benefit but you know many companies.
Have or are we hope will be adding so again going forward. We do have we are optimistic about the potential there.
Yeah. It makes sense. Thank you and then just a quick quick one at the end here just yeah, you're talking you're talking on a lot about the the margin delta between a U N C to you you just go over the keys to closing that gap and in any any reasonable timeframe for that.
Well, it's hard to put a timeframe on it because again I think you know the two universities have a very similar profile in that there are there institutional accreditation similar are they.
Dips of programs there is some overlap a similarly, a price as far as tuition. So again certainly the potential is there, but again, depending on some of the strategic decisions that you make will impact the timing of that for example, if we decide to invest more heavily in certain new programs.
Uh huh.
It may take a little more time, because there's more investment on that but certainly the two institutions have a very similar profile.
Which we think obviously you know it gives them an opportunity from a margin perspective.
Okay.
Okay, great. Thank you.
Okay.
Thank you. Thank you.
Once again, if you wish to ask a question. Please press star one on your telephone keypad.
Your next question comes from Greg <unk> from Sidoti. Please go ahead.
Hey, guys. Thanks for taking my questions I'm, just you put up.
Good enrollment numbers, but just given what we're hearing and you know from some of the other.
Company companies in your industry can you talk a little bit about are you seeing any pick up on the competitive environment and maybe for you guys. You know maybe just within.
One or two of your programs within your broader program mix because it doesn't seem to be too pronounced in your enrollment numbers, but just kind of curious are there any areas or any degree that you think might be getting a little bit more competitive out there.
It's a good question, Greg very valid that not not really saying at this point in time, a big change in our competition I would say institutionally, but also at the program level.
I will say this that your programs do ebb and flow as far as those that are growing are those that are not growing depending on really what is more happening in the work force.
And the demand for those workers, if if there's more demand for technology workers than health sciences that tends to be where you see the growth if ER and that I think has more impact on our our enrollment going forward.
I think you know as I said being cautiously optimistic as we come out of the pandemic, we wanted to see how that affects us.
The student market in general.
Current students, but also potential students, but I think that obviously we.
Think again watching that and monitoring that to us is more significant and more important than than what we're seeing our competition doing again not that we don't that from a very important we just haven't seen a lot of that change as far as the competitive.
Competitive landscape.
And then I guess within that topic has there been any kind of inflationary pressures in terms of your marketing.
Yeah and costs going up just in order for marketing.
Marketing costs.
Sure Ashish feel free to comment on that but I think that's been relatively stable, but ashish anything I've missed on that no.
No I think that's fair none that we have seen so far from it.
Okay, great. Thanks, a lot.
Thank you Greg.
Yeah.
Once again, if you wish to ask a question. Please press Star then one on your telephone keypad will now Polish amendment for any further questions to come through.
Okay.
Yes.
Yeah.
Thank you there are nice set of questions at this time and this concludes our question and answer session I would now like to turn the conference back over to Mr. Nelson for any closing remarks.
We appreciate again your taking time to join our call today, and we look forward to speaking with you next quarter. Thank you.
Thank you.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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