Q3 2021 Zovio Inc Earnings Call
Hi.
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Good afternoon, again and welcome to <unk> third quarter 2021 earnings Conference call. Today's call is being recorded at this time I would like to turn the call over to <expletive> Shri Executive Vice President Chief External Affairs Officer. Please go ahead.
Ed.
Yeah.
Thank you and good afternoon.
<unk> third quarter 2021 earnings release was issued earlier today and is posted on the company's website at www Dot Stelvio Dot com.
Joining me on the call today are George current diner interim CEO office of the CEO and Board Chair, Chris Barnes Executive Vice President of operations and office of the CEO and Kevin Royal Executive Vice President Chief Financial Officer.
We would like to remind you that some of the statements. We make today may be considered forward looking including statements regarding University partners and other programs and services, our ability to grow through acquisition or otherwise our ability to successfully integrate and leverage acquired company.
Future revenue growth EBITDA.
Financial and related guidance and commentary regarding the remainder of fiscal year 2021 and later.
These forward looking statements are subject to a number of risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward looking statements.
Please note that these forward looking statements speak only as of the date of this presentation and we undertake no obligation to update these forward looking statements in light of new information or future events.
To the extent required by applicable securities laws.
On the call today, we will also discuss certain non-GAAP financial measures in our earnings release, you will find additional disclosures regarding these measures, including reconciliations of these measures with U S. GAAP.
Note that these non-GAAP financial measures are intended to supplement GAAP financial information and should not be considered as a substitute for our GAAP results.
Please refer to our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2020, as well as our quarterly report on Form 10-Q for the quarter ended September 32021, which we filed with the SEC earlier today for a more.
More detailed description of the risk factors that may affect our results.
You may obtain copies from the SEC or by visiting the Investor Relations section of our website.
At this time it is my pleasure to introduce our interim CEO George Kurtz diner.
Thank you Vicky and welcome everyone to our third quarter 2021 earnings call.
Starting with our results for the third quarter 2021, we had revenue and other revenue of $62 2 million.
And incurred a net loss of $5 2 million.
Or a loss of 16 <unk> per diluted share.
Excluding non-GAAP items, our non-GAAP net loss for the third quarter of 2021 was $4 million or a loss of 12 cents per diluted share, which was impacted by higher than expected legal and marketing costs.
While revenues were in line with our expectations overall, we are striving to achieve improved performance as we move forward that said, we believe our guidance remains intact for the full year, which Kevin will discuss in more detail shortly.
During the third quarter, new enrollment at the University of Arizona Global campus remain challenging however, as a result of a number of initiatives we put into place we saw student retention stabilize.
As we mentioned last quarter, we brought the leaders of Silvio in UA Juicy together for a two day in person Senate to develop and approve initiatives to increase enrollment and support strong student outcomes.
That event was successful as together as partners, we outlined a clear path to enhance new enrollment.
And improve student outcomes.
Our plan is centered on three primary areas first expanding the university's grant in aid programs to help enable current students to continue their studies to re enroll students who had stopped out and to Reengage military students chicken increasing enrollment of new students which includes greater.
And more targeted outreach to the military where historically, we have been particularly strong further building the <unk> brand and finding more corporate and academic partners and third maintaining our commitment to superior student outcomes through Upskilling and stackable credentials.
While it remains early days for these programs, we are working collaboratively and aggressively with UA GC to drive results.
Fact, we will be coming together again soon to evaluate and refine each area of focus as well as to develop new initiatives to drive continued success.
<unk> long term strategy remains unchanged, we are bringing education opportunities to learners, where they are to do this we will deliver education services that meet the diverse needs of universities employers and learners. In addition, we are enhancing our programs and services.
And we are expanding our skills to employment offerings to empower learners to better connect with in demand jobs.
We are excited for what the future holds for Zalviso and our ability to play an important role in enabling learners to advance their educational goals.
Let me provide an update on our search for Zalviso as next Chief Executive Officer.
Our CEO search committee has narrowed the focus to a few candidates and we believe we will have an update soon we have been impressed by the quality and caliber of the individuals who have expressed interest in joining us as we work to set the company on a growth trajectory to deliver shareholder value for many years to come.
With that let me turn the call over to Chris born to run through the highlights for the quarter.
Thank you George.
Our Zilvia growth segment, which includes our subsidiaries full stack in tutor me has continued to perform well.
In the third quarter of 2021, Zilvia growth delivered revenues of $7 million.
Growing 14% for the quarter year over year.
The services that full stack in tutor me provide enhanced <unk> ecosystem to support learners education and career aspirations by building on existing capabilities to meaningfully serve in higher education institutions bridge, the education to employment gap and help enterprises up.
Skill and educate their employees.
Further demonstrating the strength of our Zalviso growth segment tutor me was named one of the winners of the two.
Tech and learning 2021.
<unk> tools for back to school.
Second learning launched their new awards of Excellence program to identify the most impressive products and solutions for all learning environments to help students parents and teachers.
We are thrilled to have two to me recognizing this capacity as it underscores the strength of our offering.
In addition, during the third quarter of 2021, <unk> continued to execute new partnership agreements from universities and corporations to school districts.
Bringing their total partnership count to over 300, an increase of over 70% year over year.
In the third quarter total customer partner hours usage increased over 27% year over year.
Maintaining the strong momentum we have seen in recent quarters.
Full stack also added new partners during the quarter.
And leverage new partnerships that came online.
In the third quarter.
Full stack added Utah State University.
To bring tech training boot camps specializing in coding cyber security data analytics and Dev ops to the state.
The live online, Utah State Tech boot camps will equip students with the skills needed to fill well paying and demand tech jobs in the region.
We're excited about the opportunities these universities have to offer.
As of the end of the third quarter. This brings full stack to 17, new partnerships. Additionally in early September full stack announced a partnership with security Advisory Alliance to create the full stack Cyber Advisory Board, which is focused on advancing full stacks.
Cyber security curriculum.
Two uniquely qualified graduates per entry level cyber security jobs building, the technical and soft skills that cyber employers seek in today's evolving landscape.
At the start of the year, we had outlined our expectations for new partnerships for both tutor me and full stack in total year to date through the end of the third quarter for tutor me, we added over 100, New partners and full stack, we added five new partners.
Our outlook, Brazil via growth remained strong with the pipeline for both groups continuing to grow.
Turning to our University partners segment, as George mentioned UA Juicy enrollment in the third quarter remained challenged but in line with what we had anticipated.
That said our retention has improved year over year, which tells us that students that are finding UA GC or those students. We believe will be most successful.
Our relationship with <unk> continues to mature with leaders of both organizations focused on the initiatives that will drive enrollment advanced programs and support strong student outcomes. We believe we have a strong action plan and common goals to advance that relationship.
<unk> remains well positioned as we bring a clearly differentiated offering to our clients. We have a robust platform of technology and services that institutions corporations and learners clearly value.
And we will set the stage for diversified growth.
We continue to build an attractive pipeline of opportunities with institutions as many are seeing the value to enhance and student engagement improve the likelihood of student success through our services now I will turn the call over to Kevin Royal to review, our financial and operating results.
Thank you Chris.
Looking at the results of the quarter revenue and other revenue for the third quarter of 2021 was $62 2 million compared to $102 2 million for the same period in the prior year.
The decrease on a GAAP basis is primarily related to the divestiture of Ashford University and the shift to the Ed Tech business model as well as lower average enrollment partially offset by an increase in the <unk> growth segment revenues as a reminder, our business model.
<unk> significantly as a result of the <unk> sale in December 2020.
As such for comparison purposes. In addition to providing the GAAP results to the prior year I will be highlighting certain related pro forma amounts for the period.
On a pro forma basis revenues for the third quarter of 2020 were estimated to be $82 million.
For the third quarter of 2020 loan technology and academic services were $16 5 million or 26, 5% through revenue compared to $19 1 million or 18, 7% of revenue for the comparable quarter of the prior year.
Expenses in this category as well as for the other main income statement line items discussed below are lower overall on an absolute basis due to cost reduction efforts and lower related activity levels, but higher as a percentage of revenues due to the lower revenue.
News as compared to the corresponding period in the prior year.
On a pro forma basis. These expenses for the third quarter of 2020 were estimated to be $18 2 million or 22, 7% of revenue.
Counseling services and support for the third quarter of 2021 were $20 4 million or 32, 8% of revenue compared to $24 7 million or 24, 1% of revenue for the comparable prior period.
On a pro forma basis. These expenses for the third quarter of 2020 were estimated to be $23 8 million or 29, 7% revenue.
Marketing and communication expenses for the third quarter of 2021 were $21 1 million or 33, 9% of revenue compared to $23 3 million or 22, 8% revenue for the prior year.
On a pro forma basis. These expenses for the third quarter of 2020 were estimated to be $22 9 million or 28, 6% of revenue.
General and administrative expenses for the third quarter of 2021 were $9 million or 14, 5% of revenue.
Impaired to 11 4 million or 11, 2% of revenue for the comparable prior period.
On a pro forma basis. These expenses for the third quarter of 2020 were estimated to be $10 6 million or 13, 3% of revenue.
We did not have any university related expenses for the third quarter 2021, as compared to $22 9 million or 22, 4% of revenue for the prior year period.
These expenses represent cost related to the university prior to the sale in December 2020.
Restructuring and impairment charges for the third quarter of 2021 were <unk> 3 million or 5% of revenue as compared to <unk> 2 million or 2% of revenue for the prior year period.
During the third quarter of 2021, we recorded an income tax expense of 59000.
Our effective tax rate before discrete items for the third quarter of 2021 was low single digits and we anticipate this trend to continue for the remainder of the year.
As a result net loss for the third quarter of 2021 was $5 2 million or net loss of <unk> 16 per diluted share.
This is compared to net income of $1 1 million or net income of <unk> <unk> per diluted share for the third quarter of the prior year.
Our non-GAAP net loss for the third quarter of 2021 was 4 million or a loss of <unk> 12 per diluted share compared to the non-GAAP net income of $2 9 million or income of nine cents per diluted share for the third quarter of the prior year.
The non-GAAP net loss for the third quarter of 2021 excludes restructuring and impairment of <unk> 3 million separation and conversion costs of $1 million acquisition costs of <unk> 5 million and other non-GAAP cost of <unk> 4 million.
As of September 32021, we had unrestricted cash and cash equivalents of $31 6 million as compared to $35 5 million as of December 31 2020 in.
In addition, we had restricted cash of $9 8 million at September 32021, as compared to $20 million at December 31, 2020.
We expect that approximately $2 million of the restricted cash amount will become unrestricted during the remainder of 2021.
There was $11 6 million of cash used in operating activities. During the year to date period ended September 32021 by.
By comparison, we had $20 1 million of cash provided by operating activities. During the same period in the prior year.
The year over year change in the cash provided by operating activities was primarily driven by the decrease in earnings partially offset by changes in the working capital accounts.
Capital expenditures for the year to date period ended September 32021 were $1 2 million as compared to $2 6 million for the same period last year.
<unk> growth in 2021 from a revenue perspective, we anticipate the segment's revenues to grow approximately 30% year over year and anticipate generating an EBITDA loss of between $6 million to $8 million in 2021.
This planned investment will decrease consolidated EBITDA margins in the near term and longer term. We expect this segment to grow at least 30% annually through 2025 and be profitable beginning in 2023.
Throughout the year, we took actions to reduce our cost structure to more appropriately align it with both our revenue expectations and the nature of our new business. Our total year to date cost reduction efforts will yield approximately $60 million in annualized savings going forward when compared to <unk>.
<unk> planned spending levels.
For 2021, we continue to expect total consolidated <unk> revenues to be in the range of 265 to 275 million and non-GAAP EBITDA to be breakeven to slight loss.
At this time I will ask our operator to open the phone lines for your questions.
Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad again to ask a question simply press star one on your telephone keypad.
Yes.
And your first question comes from Alex Paris from Barrington Research. Your line is now open.
Hey, guys. Thanks for taking my call.
Totally.
Couple of follow up questions based on what you said in your prepared comments.
I'm glad to see retention improve at <unk>.
I'd like to dive a little bit more into new enrollment you said it was challenged I'm wondering what color you can offer beyond that.
For example was it.
Was there a sequential improvement in the year over year decline.
And.
When when might it.
That's positive.
The.
To answer the latter part.
Alex.
Again, we've talked about this before on prior calls.
We are seeing incremental gains on new enrollment.
You go back and look at the prior three quarters and compare each of the quarters.
We're seeing improvements.
On the downstream effect the conversions in those things that we measure and we monitor and look at to gauge.
Yeah.
Performance continually to improve they're not where we quite need them to be but there are there is.
Again, theres a stronger momentum.
That builds a little level of confidence as we look out.
In the next quarter.
Got you so just to be clear.
The greatest decline.
Earlier in the year.
And there was a sequential improvement in that year over year decline in Q2 and Q3.
Yes.
Great.
And then.
Another question, which is begging for guidance when do you think.
Based on your summit meeting based on some of the things that you put into place. When do you think that we will start seeing new student enrollment growth.
I know this takes some time I wouldn't expect it before mid next year, but I was wondering if you could offer any color on that.
Yeah.
Yes, Alex.
As you said.
We have not provided guidance on our remarks.
In our remarks, George alluded to the fact that.
We're seeing good progress on the CEO search and we would like to have the new CEO on board before we provide guidance for 2022.
Okay, great and that kind of leads me into my next question Andrew.
Clark the former CEO of the company in late March it's been six seven months. Since then I would assume that we're getting close to the end, which is what you suggested in your.
The overview comments do you think we'll have a new CEO named before year end.
That is my hope.
I know that the committee has narrowed the focus to a very few candidates.
And we're very pleased with the quality and caliber of those individuals.
But.
As in any kind of personnel action.
Until it's done it's not done so I'm very hopeful, but that's as much as I can.
Could say.
Great No that's fine I appreciate that.
And then.
Back on new student enrollment.
Or just enrollment in general it <unk> military has been a historic strength of Ashford University, and obviously the brand change.
It had some impact on that.
Workflow I suppose.
Hmm.
Whats going on with the military now and secondarily have you had any negative impact from the challenges that the army has had with their tuition assistance portal other companies in this space have talked about that.
Yes I'll.
I'll take the latter first Alex.
<unk> experience.
The army impact has probably been about the same as the other.
Institutions have experienced with respect to the military and you mentioned that at one point with the Ashford brand, we had a very strong <unk>.
<unk> shipped in a very strong brand in connection with.
With the military.
We had started now providing.
Marketing, where we haven't done that in prior to begin to reach out to that particular channel and we're starting to see.
A little bit of a resurgence in that in that line with the military.
There's a couple of things that are I think preventing us to go a little more.
Little stronger I think we're hoping to get those resolved just as you go through some of the compliance stuff, but we're seeing.
We're seeing a re engagement with as a result of some of the steps that we've taken we've add some additional resources from a recruitment side to help facilitate that new volume that's coming in.
And we anticipate that growing stronger.
In the coming quarters.
That's great and then final question for me.
Given the fact that you produced positive cash flow in the third quarter as you would expect seasonally.
And.
And given that you expect another couple of million to come out of restricted cash into cash and equivalents by yearend is your year end.
Comfort level still about $40 million in cash and cash equivalents.
Yes, Alex we're still comfortable with that level.
Great well, thank you I'll get back in the queue.
Thank you.
Thank you. Your next question comes from the line Terry Your line is now open coming from water Tower research.
Yes, good afternoon.
Kevin and Chris and George.
Okay.
All of the questions I had but.
Is there some seasonality on <unk> growth, maybe a little bit.
Different or can you give us any color there.
You are on track for the 30% growth you guided to but.
But that particular quarter growth.
But again any seasonality or is it just.
With business.
Always completely Ethan.
Yeah.
Yes, Terry Thanks for the question. So there is seasonality in the growth business in particular as you can imagine with Tudor me the summer months tend to be slower. So we are on track for our growth projections and they will have a very strong.
Q4.
Yeah.
Okay, that's good to hear.
<unk>.
Over the last 18 months or so we've talked about the impact of Covid on your business on students and so on with <unk> with <unk>.
Vaccination this year end.
And there'll be more experience in this new environment I was just wondering if you had any.
Any kind of general color you could give to us in terms of.
How it's affecting.
Enrollment.
Student interest still appetite for enrolling so on just some more thoughts on the impact.
Colby on your business.
Looking at from a staffing standpoint.
No we.
We're pretty much in the same cadence that we have been for some times, we have a sort of a hybrid work environment, where we have staff coming in and taking advantage of the off especially here in Arizona.
With respect to new student enrollment and retention.
We've seen about the same level of engagement as a result of Covid I think we saw a little softening, which students and parents challenge going back to school, but I think that was just sort of a week or two.
People are getting to a regular routine.
But as you know.
As we've said we've seen.
A slight uptick in student retention.
And that's been great and we've also seen a little bit of an uptick on reentry. Those students that have dropped that have decided to come back to reengage in and work toward completing their degree so.
We will continue to monitor as everybody is.
Al Pandemics affecting business operations, how expecting.
Prospective students and making decisions.
Okay, and then finally, you gave us a bit of color on re engaging with the military.
And the city.
We talked earlier this year about some geographical challenges and so on.
<unk>.
If you if we go beyond mainly to Danny.
Thank you that you've learned that you're doing differently.
Okay.
Positively impacting the enrollment going forward.
Yes, there is one we just rolled out so we've done some work with the military one of the ones that we've done to put us more competitive carry with.
The graduate level military as we've reduced the cost per credit and I think that is.
That's just recently happened here and that has put us I think.
In a more competitive light in terms of the other institutions at work with the military. So we're it's early we're about three weeks and give or take here with that but.
We anticipate that's going to bode well for the military those looking to get an advanced degree beyond their bachelors degree.
Great Okay.
That does it for me thank you.
Thank you.
Thank you. Your next question comes from Greg <unk> from Northland Securities. Your line is now open.
Hey, good afternoon, guys. Thanks for taking the question.
Perfect.
Wondering if you're still seeing.
Any changes or shifts in geographic interest Nathan.
Based on region, or if that's kind of stabilized or if theres any new trends on that front.
Great. Good question, we've talked to that a little bit as we've said we've seen <unk>.
Geographic shift from prospective students.
The West, Arizona, which would certainly make sense because of the new name.
And a little bit in California.
Nevada, and some in Texas so.
There is that shift that we've seen is about in the steady state we haven't seen it spike beyond.
Initial spike that we had when we launched the new brand so were.
We will continue to monitor that and make sure as we look at.
People go about making decisions of where they want to go to school make sure that we're aligned with.
Students geographically, so we're addressing their needs and things that are important to them.
Great I appreciate the color there.
If I could follow up on the retention comments.
With <unk> in particular, I think you said it stabilized and then it sounds like was.
Improved sequentially and then you also talked about improving year over year.
Just trying to I guess understand the degree of that improvement.
<unk>.
Pretty pretty notable sequentially or year over year.
Just from a strategic standpoint.
And are working with.
Our partner <unk>.
They have taken some steps with.
I think some of their faculty right too.
And sort of meet students, where they are especially those that might be struggling and at risk and I think there are some initiatives that Dave.
No they've deployed that have been very helpful.
<unk>.
And our academic services we.
We.
Look at.
Our contact strategy that we tweak and adjust now and then to continue to identify.
Students that are at risk at most risk right with the fact that we can't get to all of them and we've made some adjustments on that over this past quarter and that has helped with our drop percentage. So we've seen an improvement on that so were retaining more students and then we've done some calibration as well on the reentry side that I alluded to earlier that.
Looking at students on when they have stepped out of the program.
The best time, and how should we engage with them to get them back on track working toward their degree. So I think a combination of those three things.
<unk>.
Served our students well and consequently that has spoke to a better retention effort.
Okay, Great last one from me on that there'll be a growth business.
Wondering if youre seeing any positive or negative changes in interest or demand there for either pulling back or do you mean.
It seems like.
Or an acceleration of <unk>.
New partners, but I.
I think you had 50 at the end of last quarter and now you are over 300 so.
Is that.
Confirming the acceleration and any comments on demand or interim.
I think we.
We continue to have I think a very good pipeline in both of those areas.
And so I think we're going to close out the quarter.
It sort of meeting what we had stated.
As stated previously and I think as we roll into 'twenty. Two I think we've got some good momentum to build on that so we've had success in those areas and I think we expect it to continue to have the same success.
Okay. Thank you.
Thank you and that concludes today's call I will now turn the call over to the presenters for any closing remarks.
That what wed like to thank all of todays callers for their interest in Silvio and for your participation in today's call. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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