Q4 2021 Perdoceo Education Corp Earnings Call
Good evening and thank you for attending today's per dose Education Corporation fourth quarter 2021 earnings Conference call. My name is Joanna and I will be your moderator all lines will be muted during the presentation portion of the call with an opportunity for questions and.
The answer is that the it if you'd like to ask a question. Please press star one on your telephone keypad I would now like to pass the conference over to try host David Snyder with Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for our fourth quarter and full year 2021 earnings call.
With me on the call today is Todd Nelson Executive Chairman, Andrew Hurst, President and Chief Executive Officer, and Ashish Ghia Chief Financial Officer.
This conference call is being webcast live within the Investor Relations section at <unk> Dot com.
A webcast replay will also be available on our site and you can always contact the Alpha IR group.
As it relates to support.
Let me remind you that this afternoon's earnings release and remarks made today.
Include forward looking statements as defined in section 21 of the Securities Exchange Act of 1934.
Statements are based on assumptions made by and information currently available to <unk> education.
All risks and uncertainties that could cause actual future results performance.
<unk> 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 in <unk> annual report on Form 10-K for the year ended December 31 2021.
Subsequent filings with the Securities and Exchange Commission.
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 contains financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures and is available within the Investor Relations page of the company's website.
With that I'd like to turn the call over to Todd Nelson Todd.
Thank you Davis.
Good afternoon, everyone and thank you for joining us for our fourth quarter and full year 2021 earnings call.
I'd like to begin by thanking our faculty student support staff and all our employees for their hard work dedication and diligence in serving and educating our students 'twenty 'twenty. One was another good year during which we prioritize resources for academic operations and technology enhancements.
While adjusting our operating processes to support and educate our students as they adapted to the challenges presented by the pandemic.
We're also pleased with the two acquisitions completed in the second half of 2021, which expanded our institutions portfolio.
Non degree professional development and continuing education offerings.
Supported by our existing University operations, we believe these businesses have significant opportunities for growth.
I'd also like to welcome Andrew Hurst to todays call as our new President and CEO .
And who is an industry veteran with almost four decades of experience, including over seven years at <unk> I've had the pleasure of working with Andrew for a long time and look forward to working with him going forward.
Now to our operating results.
Fourth quarter net income was $24 $5 million or 35 cents per diluted share.
Adjusted earnings per diluted share, which excludes certain significant and noncash items was <unk> 40.
During the quarter, our teams continued to refine and adjust marketing and admissions processes.
While maintaining their focus on student experiences retention and academic outcomes.
Let me quickly touch upon some of the key takeaways and highlights from the fourth quarter and full year 2020 one.
First as discussed last quarter, we believe the prolonged pandemic and its resulting safety measures as well as the macroeconomic and governmental responses has impacted overall student engagement.
During the year, we experienced some student pause their academic programs to decide.
Or do you decide not to begin classes and we believe this will have a lingering impact on total student enrollments during 2022.
However, we did experience marginal improvements in student engagement during the fourth quarter and remain cautiously optimistic that those improvements will continue through 2022, two beginning in the third quarter and aided by data analytics, we made adjustments to our marketing strategies to further improve our focus on identifying prospective.
And so are more likely to succeed at one of our universities. We believe these adjustments along with the enrollment trends I just discussed will impact total student enrollment during 2022.
However in the long run we believe these marketing adjustments will further enhance student experiences retention and academic outcomes.
And then lastly, the leadership team did an excellent job in managing overall expenses.
Funding in part to recent student enrollment levels, while continuing to prioritize resources for our student serving functions.
With that I'd like to turn it over to Andrew to discuss some of the operating trends at our academic institutions Andrew.
Thank you Todd I'm excited to be stepping into my new role at <unk> and I strongly believe that our goal to serve and educate students, including nontraditional adult learners.
Our academic institutions have strong and experienced leadership teams that are focused on enhancing student experiences and.
And academic outcomes.
With that said total student enrollments at December 31, 2021 decreased by five 4%.
As compared to the prior year end.
At CCU.
Total student enrollments increased by 4% as compared to the prior year and.
Primarily due to its academic calendar redesign.
As a reminder, <unk> implemented a redesigned version of its academic calendar and early 2021.
Similar to what <unk> implemented a few years ago.
At the AI use system total student enrollments decreased by 13, 3% as compared to the prior year and we.
We believe this decline was attributable to the factors Todd discussed earlier.
Additionally, active duty military affiliated student populations experienced a decline in total student enrollments, which.
Which we believe is due to the lingering impacts from the transition of the Army education and administration portal and the subsequent technical challenges with the portal.
As well as the cancellation of in person events at military basis as a result of the COVID-19 pandemic.
A few other operational updates before I turn the call over to Ashish.
Growing the corporate partnership program remains a key priority at both institutions.
And as previously mentioned Cpus enhanced corporate partnership team is fully in place and engaging with employers to leverage their tuition assistance programs and provide a debt free education to their employees.
On the academic front.
Our universities maintained their full time at adjunct faculty staffing levels.
<unk> redesigned over 400 courses during the year and our <unk> adaptive learning maps were also enhanced for improved student engagement via mobile devices.
These maps are essentially tailored paths for each student to navigate learning content and their courses.
On the technology front.
Technology is an enabler and a differentiator for us.
We continued to invest in our students and faculty mobile apps.
And with an approximate 95% adoption rate. The messenger feature is now a principal source of communication with students on a variety of academic related topics.
During the third quarter, we began a multiyear project to enhance our student technology infrastructure, which included several upgrades to our mobile platform and virtual campus.
This project remains on track and we are confident that these upgrades will further enhance student experiences while driving efficiencies within the business.
Finally, an update on the CTO ground campuses I am pleased to announce that <unk> recently completed the build out of their new home campus in Colorado Springs.
And we will gradually welcome students back to campus next month.
Also our <unk> ground campuses began gradually welcoming students back during 2021 and are now offering substantially all classes in person with the option to attend virtually.
With that said I would now like to turn the call over to Ashish for a deeper review of our operating performance in the quarter Ashish.
Thank you Andrew and welcome again.
I will review the full year and fourth quarter results and then discuss our balance sheet and 2022 outlook before handing the call back to Andrew for his closing remarks.
Please note that all comparisons I discuss are versus the comparative prior year period, unless otherwise stated.
Before I begin a quick reminder, about Europe what are your compatibility.
First operating results for the <unk> system reflects the digital craft acquisition commencing on August <unk> 2021.
And the operating results for <unk> reflect the Hippo acquisition.
<unk> on September 10, 2021.
Second as previously discussed we no longer include adjustments for any expenses related to closed campuses when presenting adjusted operating income or adjusted earnings per diluted share because these expenses are no longer material.
Third we are also adjusting for legal fees associated with certain matters. All prior year period amounts have been adjusted to maintain compatibility.
With that said, let us begin with an overview of our operating results.
For the full year 2021, operating income increased four 3% to $149 million.
We believe adjusted operating income, which excludes certain significant and noncash items is more reflective of the underlying operating performance.
This measure was.
$75 5 million.
Exceeding our latest outlook range of 167 $270 million and reflecting an increase of 10, 4% versus the prior year.
The improvement versus our outlook range was primarily driven by lower bad debt expense as well as some nonrecurring reductions in occupancy related expenses.
Net income for the year was $9 6 million.
Compared to $124 3 million.
Equating to $1 55 per diluted share.
Please recall that the prior year included a $16 million tax benefit related to a previously recorded valuation allowance against the portion of our foreign tax credit carryforward supported by an overall domestic loss account balance.
Adjusted earnings per diluted share, which again, we believe is more indicative of the underlying operating performance was up approximately 9% to $1 70.
This improvement in adjusted operating income for the year was primarily due to lower marketing and admissions expenses as compared to the prior years as well as improved bad debt expense.
Please note that the two acquisitions, we completed in 2021 did not have a material impact on the adjusted operating income for the year.
Overall, we ended the year on a positive note with the fourth quarter adjusted operating income of $42 million.
Versus $41 $3 million and adjusted earnings per diluted share of <unk> 40.
In line with prior year.
Now for some additional details surrounding our 2021 results.
For the full year total company revenue was $693 million, which reflects an increase of approximately 8% from $6 $87 $3 million.
For the fourth quarter revenue decreased by six 6% to $1 $59 9 million with both institutions experiencing a decline.
As discussed earlier.
Student enrollments have been impacted by the COVID-19, pandemic as well as changes to our marketing processes and we expect these factors to continue impacting total student enrollments through most of 2022.
Please note there is typically a lag impact on revenue from changes in total student enrollments.
As a result, we expect 2022 revenue to be lower as compared to 2021.
Having said that we will continue with our efforts to adjust various operating processes and expenses to align with overall revenue and enrollment trends.
As it relates to our segments total student enrollments for CTO increased by 0.4% as of the year and while the system ended the year approximately 13, 3% lower.
Please note that the enrollment comparability at Cte was positively impacted by the academic calendar redesign.
As a reminder, total student enrollments do not include students participating in our non degree professional development and continuing education offerings.
Safety was fully our revenue increased by 0.8% to $408 5 million.
While operating income increased by seven 2% to $148 $5 million.
The <unk> systems full year revenue increased by 0.7% to $283 4 million, while operating income increased by 27% to $39 1 million.
For both segments the growth in revenue was primarily due to the acquisitions, while lower operating expenses supported the improvement in operating income.
Moving on to corporate and other.
Operating losses for the quarter were $11 $4 million and $38 6 million respectively.
These losses were higher than the comparative prior year period and were mainly due to the incurrence of legal fees associated with the acquisition efforts and the responses to the department of education relating to loan forgiveness applications by former students.
Please refer to the disclosures regarding forward defense to repayment and our 10-K that was filed this afternoon for additional information on this matter.
Now turning to income taxes for the fourth quarter, we recorded a provision for income taxes of $10 3 million.
This resulted in an effective tax rate of $29 6 million up 21, 6%, bringing our annual tax rate to 26, 4%.
The effective tax rate for the quarter was negatively impacted by approximately 340 basis points due to the tax effect of stock compensation.
The full year tax rate was 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 income tax purposes.
Finally, we expect that for the full year 2022.
Our effective tax rate will be between 25, 5% and 26, 5%.
Now to our balance sheet and liquidity.
For the full year 2021 cash flow from operations was $191 1 million versus $180 million in the prior year.
We ended the year with $499 4 million of cash cash equivalents restricted cash and short term investments.
This represents an increase of approximately $89 million over year end 2020.
Key drivers of cash for the year were.
Positive cash flows from our institutions.
Which were partially offset by cash outflows related to.
$23 $2 million of income tax payments $25 $3 million of share repurchases 10, $5 million of capital expenditures and $57 $1 million related to the two acquisitions.
For 2021 capital expenditures were $10 5 million compared to $9 8 million in the prior year.
For the full year 2022, we expect capital expenditures to be approximately 2% of revenues as we continue to invest in the technology infrastructure upgrade and complete the relocation relocation of the Colorado Springs down campus at Cte.
Now, let us discuss the outlook for 2022.
We expect full year 22, adjusted operating income to range between $135 million and $148 million.
This compares to the adjusted operating income of $175 5 million in 2021.
This outlook reflects our current beliefs that <unk>.
Excluding any positive impact from the calendar redesign.
Total student enrollments will be lower than 2021.
However, the rate of decline in total student enrollments will gradually improved throughout 2022.
Full year revenue will be lower than 2021, reflecting lower total student enrollments.
As Todd mentioned student enrollments have been impacted by the pandemic related issues as well as changes to our marketing processes.
Lastly, as disclosed in our Form 10-K filed today the department of education is going through a negotiated rulemaking process surrounding various topics.
While we continue to monitor these rulemaking initiatives any operational changes undertaken that may be necessary. As a result of the final rules are going to have an impact on the outlook presented above.
Now for the full year adjusted earnings per diluted share.
The adjusted earnings per diluted share is expected to range between $1 28.
$1 42 versus $1 70 in 2021.
Now for the quarter.
For the first quarter of 2022.
We expect adjusted operating income to be in the range of $48 million to $50 million as compared to $44 9 million in the prior year quarter with adjusted earnings per diluted share to range between 47, and <unk> 49 per diluted share versus <unk> 44 in the first quarter of 2021.
This first quarter of 2022 outlook reflects a benefit from the academic calendar redesign at <unk> as well as lower operating expenses compared to the prior year.
These benefits will not apply to the same degree for the remainder of the year.
As a result, adjusted operating income for the second half will be lower as compared to the first half of the year.
Yes.
Finally, 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 in particular technology related initiatives.
Which are designed to benefit our students and evaluating diverse strategies to enhance stockholder value.
Including acquisitions and share repurchases.
We completed two acquisitions during the year with a combined initial cash consideration of approximately $57 million, which was fully funded with companies available cash balances.
We are pursuing additional acquisition opportunities similar in size to these two and currently anticipate that we will complete another acquisition by the end of 2022.
With respect to share repurchases, we have substantially completed our $50 million share buyback authorization with a total of approximately $47 million worth of our stock repurchased since the beginning of the program in 2019.
The current program will expire on February 28, 2022.
And we are pleased to announce that our board of directors has authorized a new $50 million share repurchase program, which commenced this march one 2022.
Share repurchases will.
We will remain a part of our capital allocation strategy and we intend to pursue them when deemed appropriate based on market and other conditions.
Please refer to our earnings release filed today for important information about the key assumptions and factors underlying this discussion from today's call as well as the GAAP to non-GAAP reconciliations.
With that I'll turn the call back over to Andrew for his closing remarks Andrew.
Thank you Ashish in closing I am proud of the company, we have built and the opportunities that lie ahead of us while the evolving regulatory environment may present near term challenges our academic institutions remained focused on serving and educating students and our investments will continue.
To prioritize student experiences and academic outcomes.
I would like to thank all of our students and staff for their ongoing hard work and dedication this year.
We will now open the line for analyst questions selenium.
Yes.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by Keith.
Again to ask a question for Scott.
As a reminder.
Speaker phone, please remember to pick up your handset before asking your question. We will talk to you briefly ask questions are registered.
Our first question comes from Alex Paris with Barrington Research. Please proceed.
Hi, guys. Thanks for taking my questions Andrew.
Congratulations on the new position and I look forward to working with you.
Thank you Alex.
I'm going to get a couple of regulatory questions out of the way since you brought it up.
Yeah.
The 10-K, you talk about negotiated rulemaking, which is ongoing and we're aware of that.
What are your thoughts there in terms of bringing it up first of all.
Are you seeing anything there that you are concerned with obviously.
Theyre looking at gainful employment Theyre looking at.
Uh huh.
Creating some regulations to wrap around the 90 10 law.
Maybe just a little color there an overview on what youre seeing what youre thinking.
Sure.
Thanks, Ross Yeah, we obviously continue to monitor that very closely.
If you look at the list of topics I think we're mostly to be expected.
As far as where it eventually ends it's obviously difficult so.
You know, they're continuing with their meetings and then what will happen as though they will put out a potential rule that's open for public comment.
And then that goes through a lengthy process in them.
Again, eventually would know what the new rule would be.
But as far as anything specific about 90, 10 or gainful employment again difficult to tell as you know we had one rule and gainful employment with the Obama administration that are different with the Trump administration. So.
Obviously, we'd be expecting some changes going forward, but at this point, it's just too early to tell what that would amounts.
Got you.
Also.
With regard to the borrowers defense to repayment and the legal fees that you've been accruing you talked a little bit about it last fall when you like many others in this space got a request for information from.
From the department of Education.
Any update there I mean.
How many students are they looking at looking at.
Can you just provide some color there.
Sure again, I think probably the best information, we just refer to the 10-K on that Alex.
A lot of stuff as you follow what's going on in the industry.
Again.
Is that a lot of things happening every school is a little different but I would just recommend again. The 10-K is probably the best source of that detailed information.
Fair enough I will look at that.
The.
You mentioned.
The issues and the challenges with the army.
Technology platform for tuition assistance.
Have things improved there I know there was clearly an impact during 2021 is it functioning normally by the fourth quarter or is it functioning normally now.
All right.
No I would not say that I think again, we've tried to find ways to work with it as is and and hope to see that improve going forward, but.
Again at this point its certainly not as efficient as it was.
Got you.
The.
The marketing changes that you made we talked a little bit about this on the third quarter.
And it was your expectation that combined with the macroeconomic COVID-19 related issues could have a negative impact on student recruiting in the short run, but it should improve things in the long run.
What are you doing there and how is that going.
Two parts.
The answer one is as it relates to depend on again difficult.
To know.
How long the impact there as I said, we're cautiously optimistic we're seeing.
Some improvement in student engagement, but that's something we have to continue to watch.
And as far as really any impact beyond that.
Again, I think any of those guests as far as how long that would go.
How long that would go on.
And what was the second part of your question Alex.
The marketing initiatives that you've embarked down to target those students that would be most likely to be successful in.
That would have a short term measure and enrollment are we seeing that.
What are you doing there specifically.
Thank you again.
Really focused on the technology applications, we have data analytics to find those students we feel would have the most of.
Opportunity to succeed in the programs and again there is some short term impact on that.
But as far as our feeling is that in time that would increase the amount of.
So those people who are successful on the programs and the outcomes there as far as the total impact on enrollment.
This point, it's just too early to tell.
Got you.
And then I think Ashish you mentioned with regards to total student enrollment throughout 2022.
It'll start off negative in the fourth quarter was negative in the aggregate.
And.
So I would ask you just from a cadence of the quarters.
Ashish, where does it bottom and does it inflect positive before the end of the year I realize it'll be negative for the full year, but.
I think you said it.
Total sooner or it will be lower at the end of the year versus at the beginning of the year, but that the rate of decline should diminish as we move forward is that correct.
That is absolutely correct Alex.
Yes that is absolutely correct Alex.
Total student enrollments will be lower as I've mentioned, but the rate of decline will gradually improve.
As Todd was talking about the marketing initiatives, they start to lapse and Alex to your earlier question.
Second half is where we may see some of the benefits of the marketing strategies.
And that is what will contribute to that gradual improvement in total enrollments.
Got you alright.
Alright, well thank you for that.
My last question any updates on digital crafts in Hippo, they've been with you now for.
Six months or so at least digital kras has been I realize it did not have a material impact on operating income but.
And actually one of them digital crafts as part of AAU and Hippo is part of <unk>.
That's correct, yes, we're actually the the more we're getting to know about them and work with them. The more impressed with the potential for growth they have great management teams and.
As we look at the potential market, it's very exciting to see where that could.
Where that could go but as you said, it's too early at this point to have much of a material impact.
But again the deeper we get into the deeper we are impressed with.
Or what their opportunity to grow.
Great well, thanks for that additional color I appreciate it I'll go back in the queue.
Thanks, Alex.
Thank you Mr. Paris.
There are no additional questions waiting at this time, so I'll pass the conference back to Andrew Hirsch Alright. Thank you have a little marks.
Hi.
Thank you Linda and thank everyone for joining us today, we look forward to talking with you next quarter.
Thank you.
Thank you.
That concludes the pre dose Education Corporation fourth quarter 2021 earnings Conference call. Thank you for your participation you may now disconnect your line.
Okay.
Okay.