Q3 2021 Perdoceo Education Corp Earnings Call

Results performance business prospects and opportunities to differ materially from those expressed in or implied by those statements.

These risks and uncertainties include but are not limited to those factors identified in those heels annual report on Form 10-K for the year ended December 31, 2020, and subsequent filings with the Securities and Exchange Commission, except as expressly required by the securities laws. The company undertakes no.

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 measure there.

<unk> release that accompanies today's call contains financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP.

GAAP to non-GAAP measures is available within the Investor Relations page of the company's website with that I would like to turn the call over to Todd Nelson Todd.

Thank you Wyatt and good.

Good afternoon, everyone and thank you for joining us on our third quarter of 2021 earnings call.

I'd like to begin by thanking our faculty students sports stuff in all of our employees for their hard work dedication and diligence in serving and educating our students.

In General we were pleased with our third quarter results during which we made adjustments to our marketing and admissions expenses, while continuing to prioritize resources for technology and relevant student support processes that we believe enhance student experiences retention and academic outcomes for.

For the quarter, we reported net income of $27 8 million or <unk> 39 per diluted share.

While adjusted earnings per diluted share, which excludes certain significant and noncash items was <unk> 45.

It was also a busy quarter on the acquisition front.

We completed two acquisitions digital crafts, which closed on August 2nd and more recently Hippo education, which closed on September 10th.

Digital crowd provides individuals' an opportunity in the technology area through Reskilling and Upskilling courses within the areas of web development web design in cycle security.

People education as a provider of continuing medical education and exam preparation for medical professionals. These two recent acquisitions have significantly expanded our non degree portfolio of professional development and continuing education offerings.

Supported by our existing University operations. We believe these businesses will have several opportunities to grow the revenue.

Ashish will provide more details around these acquisitions shortly but for now let us go back to our operating results.

Based on our corporate partnerships programs at both institutions and as previously mentioned C to use enhanced corporate partnership team is fully in place and is already engaged with employers to leverage their tuition assistance programs and provide a debt free education to their employees.

But that said total student enrollments at September 32021 decreased by <unk>, 9% compared to our September 30.

The prior year at.

At <unk> total student enrollments increased seven 5%, primarily due to its academic calendar redesign as a reminder, Cte you implemented a redesigned version of its academic calendar in early 2021, similar to what you implemented a few years ago.

Total student enrollments decreased by 11, 6%. We believe this decline was attributable to the factors I discussed earlier. Additionally, Trident University, which primarily serves active duty military affiliated student populations continued to be impacted by the transition of the army education and registration portal and the subsequent technology.

Nickel challenges with the portal Triton is working with student individually to minimize confusion or uncertainty.

Turning the call over to seize on I'll touch briefly on investments in technology and other student facing functions our investments in machine learning and data analytics for the third quarter was largely a continuation from previous quarters.

As we further expand their use across academics and advising functions. We also began a multi year projection to implement enhancements to our student technology infrastructure during this quarter.

This includes several upgrades for mobile phone platform and virtual campus as well as the redesign of our digital tool sets and technology that are utilized by our faculty and student support teams to serve and educate students throughout their academic lifecycle.

We're confident that these upgrades will further enhance student experiences, especially for a non traditional adult learners, while driving efficiencies within the business.

But that said I would now like to turn the time over to Ashish for a deeper review of our operating performance in quarter Ashish.

Thank you Todd.

I will now review, our third quarter results, and then discuss our balance sheet capital allocation and 2021 outlook before handing the call back to Todd for his closing remarks.

Note that all comparisons I discuss are versus the comparative prior year period, unless otherwise stated.

Sure.

Adjusted earnings per diluted share, which again, we believe is more reflective of the underlying operating performance was 45 for the quarter as compared to 35 cents.

The improvement and adjusted operating income for the quarter was primarily due to the revenue increase at <unk> as well as lower marketing and admissions expenses as compared to the prior year, which more than offset lower revenues at AAU as well as increased employee related health care expenses.

Now for some additional details surrounding or third quarter of 2021 results.

Perfect.

This full year estimated rate is negatively impacted by the tax effect of stock compensation.

Increases in tax reserves for uncertain tax positions and the tax effect of expenses that are not deductible for tax purposes.

Now to our balance sheet and liquidity.

Year to date net cash provided by operating activities was $1 $44 2 million versus $137 8 million in the prior year.

This increase was primarily driven by revenue growth at both <unk> and <unk> for the current year to date.

We ended the quarter with $481 million of cash.

Cash equivalents restricted cash and short term investments.

This represents an increase of approximately $76 million over year end 2020.

Key drivers of cash through the third quarter work.

Adjusted earnings per diluted share is now expected to range between $1 60, and $1 63 versus $1 56 in 2020.

This updated full year 2021 outlook implies fourth quarter adjusted operating income to be in the range of 33 5 million to $36 5 million as compared to $41 3 million in the prior year quarter with adjusted earnings per diluted share for the fourth quarter to range between 30 and 33 cents per diluted.

<unk> share versus <unk> 40 in the fourth quarter of 2020.

Let me conclude by commenting on our balanced approach to capital allocation.

We continue to focus on maintaining a strong balance sheet and adequate liquidity, while investing in organic projects such as new academic programs at our universities and evaluating diverse strategies to enhance stockholder value, including acquisitions and share repurchases.

We completed two acquisitions during the quarter with a combined initial cash consideration of approximately $58 million, which was fully funded with companies available cash balances.

We are pursuing additional acquisition opportunities similar in size to these two current two two and currently anticipate that we will complete another acquisition by the end of 2022.

With respect to share repurchases the Companys current stock repurchase program.

Commitment to serving students in educating students.

We believe that investments in our student technology infrastructure as well as our focus on serving in educating students will further enhance student experiences retention and academic outcomes.

Excited about our acquisitions this quarter and look forward to further integrating them within their institutions. Thank.

Thank you again for joining us today, and we now look forward to opening the line for any analyst questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And our first question comes from Alex Paris of Barrington Research. Please go ahead.

Hi, guys. Thanks for taking my questions.

Hi, Alex.

So first off Todd you made some comments about you're making adjustments to marketing and admissions and student support and stuff I have to admit it won't connect quickly for me I was wondering if you could kind of.

Go over that again, and and then I have a few follow up questions along that seamless.

Because you bring up the fact that that it could impact enrollment.

Because of these changes there's lots of other things impacting enrollment right now, which I'll get to with the my follow up question, if I if I might.

Sure absolutely yeah.

<unk> seen this and also with several other education providers.

Providers.

With some of the I think the headwinds that have been created by the pandemic in particular the amount of <unk>.

Stimulus dollars other things available to students.

What we've seen is there has been as some of our students a delay in their decision, making about when to actually start class and so obviously, we thought the best thing to do since we saw that was to you know to adjust some of our marketing expenses in that for that particular category of students, but as we continue to see how.

As we said we started to see some positive signs in the September October starts and we'll continue to watch that and if we feel there's that opportunity we would we'd probably start investing in that again, but for now that was the adjustment that we're talking about.

And what does that specifically is it micro targeting Ah so you're spending your marketing dollars another way or in other ways or is it increasing the absolute dollars or both.

Yeah, I mean, it's well basically it's looking at the dollars in there.

Profile of students are and where you feel youre, making the best investment given.

Again, you know how those students are performing and then as far as the same thing going forward. If you know we feel that those are performing better than we'd want to invest more in those areas.

Gotcha.

And does this does this mean, there's going to be a ramp up in marketing spending in the fourth quarter year over year or not necessarily.

Yeah, not necessarily I think again, one of the things that we're very.

I'm proud of is our that part of our organization our ability to adjust and adapt quickly depending on what we're seeing you know going on in the external market.

And so but that doesn't necessarily mean that at all but we would certainly adjust if need be.

Okay, and then softness in enrollment generally.

You know we talk about the effects of the pandemic delaying decisions for your new perspective students. It also I think I heard you say, it's sort of increases are a result in some increases in students stopping out not necessarily dropping out, but but but taking a semester off is that right.

Yeah.

Yeah, you know what what's happened is it again.

Your students your current students and potential students yeah, you know different external things are happening in their lives as far as where they are financing other things. They may delay that decision to start with as we've said before we've continued to see a good inquiry flow as well as application flow, but the actual show later.

The decision to actually start attending class we've.

We've seen softness in that and then also.

Some of those reinsurers and continuing students are taking a little bit of time on the good news is with our model.

It's not necessarily an entire semester, just may be a course or two or something like that.

Gotcha.

And were there any fields of study are at either a U R. C. T. You are both that were particularly hard hit or or some certain program standing out on the positive side.

No I think no not necessarily I think we saw several that you know.

It can seem very consistent than others, but a little bit softer, but not not anything that really was outstanding.

Okay, and then AAU was down part of that was Trident and their military exposure due to the army technology portal for tuition assistance.

Having some troubles and we've heard that from others in this space also.

C to you was up on the other hand, but but you attribute that to the academic calendar redesign question is would see T. You also have been down had it not been for the academic calendar redesign this quarter.

I don't know Ashish do you any do you have any information on that.

So while we have not explicitly calculate it that yes. It is impacted by the calendar redesign positively and beyond that a substantial portion is attributable to the calendar redesign. It is very hard to say exactly what would have happened without that.

You should contribute a substantial portion to the calendar redesign.

Fair enough.

Thank you for giving us some revenue information on digital crafts in Hippo.

Or are you I know these are small Ed tech companies privately held.

What do they look like in terms of profitability at a breakeven and they produce EBITDA.

Or or do they take away from EBITDA at this stage.

She used you want to go ahead and comment on that because I think you have that information.

So while we as you said, Alex we have given some revenue information, we have not necessarily giving any EBIDTA information on these now for the most part as you can imagine these are small in size. So the EBITDA does not have any material impact or is not material to our overall operations at least for it.

Your 2021.

But I think.

I would only say that there are at least their cash flow neutral or slightly positive.

Sure, Yes, it's about cash flow neutral that is correct.

Okay, and then I'm kind of coming up towards the end of my questions here.

Our guidance assumptions you know based on the guidance that you just provided for the fourth quarter Oh, you before I get to their you did so much better on operating income our.

Adjusted operating income and adjusted EPS in the third quarter.

Yet your guidance for the fourth quarter is.

Probably equally below you know my estimates are where there is some pull forward of revenues there.

How should I think about that.

So just any color you can add to that.

Yes, so Alex a few things here first is on the on the outlook or the guidance.

As he said the <unk> revenue, which was a big contributor for Q3 was positively impacted by the calendar redesign so theres always some timings.

Some quarters for that perspective, and then second as we said fourth quarter as we pointed out was an implied outlook. We had an original outlook range and you know historically tool we try to give a full year outlook within the range and we try to deliver and hopefully get beyond the outlook, but those those are the two.

They kind of callout for the fourth quarter outlook.

And then just the last unrelated question.

Do you does your guidance that's implied for the fourth quarter.

Uh huh.

Benefit from any academic calendar redesign issues in the fourth quarter.

So are we.

So in terms of the fourth quarter no. The academic calendar. So Cte you as the academic calendar redesign there'll always be some lingering effects each quarter.

E I use academic calendar is a little more stable right now so I would say for the most part the fourth quarter will be less impacted with the academic calendar as compared to the third quarter, which was positively impacted.

Okay. That's great. Thank you for answering my questions and I'll get back in the queue.

Thanks, Alex.

The next question comes from Dan Moore of CJS Securities. Please go ahead.

Hi, Good afternoon. This is brendan on for Dan.

Just wanted to ask on a stickiness and retention rates of the new students and then Bren assistant pandemic began is there any discernible difference side, good or bad compared to your initial retention rates for new students are compared to the two or three years.

Prior to the pandemic.

Ashish do you want to comment on that.

So in terms of the students that we are getting and we have not seen any material difference in terms of the students that are coming in prior to the pandemic post pandemic, but as Todd and I pointed out in general we are seeing students.

Take a pause from their academic programs and they're not necessarily their students who start before or after but in general because of everything going on we do see sort of taking a pause.

But as we've also said that you know we are cautiously optimistic and we do see some initial optimism on trends in the most recent months.

Okay, Great and then I'm looking at just your cash obviously it continues to build I'm just how much is enough in your view and then what's the what's the downside of being more aggressive yeah for returning cash to shareholders are you mainly focused on M&A.

Yeah, well I think you know again that's it.

Our view of it is that as we talked about on the earlier remarks and that is that you know.

From an acquisition point of view, there's very good opportunities. We also feel that buybacks are also a good option for us and that's going to be you know for the time being our strategy going forward.

Yeah.

Okay.

Okay, and then lastly, just on the mentioned the you know all the focus on the 90 10 rule right now following the recent acquisitions and could you comment on where C. T. U N E. R. U R and relates relates to those thresholds on a on a pro forma basis.

No we cant, but it's the best thing to do is again look make sure that you look at our KN <unk> whatever you have there, but that's not something that we typically provided.

Prospectively.

Okay, great. Thanks.

Right.

This concludes our question and answer session I would now like to turn the conference back over to Todd Nelson for closing remarks.

Again, we want to thank you for joining us for this quarter and we look forward to speaking again with you next quarter. Thank you.

Thank you.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.