Q4 2021 Zovio Inc Earnings Call
Learning some companies are providing tutoring support as an employee benefit while educational institutions from K 12 districts to higher education, our leveraging tutor me, which provides on demand too.
<unk> $4 7 million online resources to ensure their students have support when and where they need it.
Tutor me continue to execute new partnership agreements during the fourth quarter with universities corporations and school districts.
The tutor me total partnership Count is now over 330.
In the fourth quarter total customer and student usage continue to increase year over year with over 27000 students tutored in the quarter.
At the end of 2021 full stack has added a total of 19, new University partnerships since the close of the acquisition, including the University of Pittsburgh, which was signed in the fourth quarter.
Full stack currently partners with over 600 companies, which actively participate and recruitment events and share job openings with our students helping them to secure meaningful jobs after graduation.
Approximately 1400 companies have hired full stack graduates.
In addition, full stack continues to expand its curriculum, adding both data analytics and developer operations as part of our portfolio of University powered boot camps.
Further in partnership with the New York City Department of small business services.
Full stack helped to launch the data analysts training accelerator.
A no cost training program that aims to equip eligible new Yorkers with high demand skills.
These are just a few of the great things happening in full stack Academy and we remain excited for what lies ahead for our clients and team.
Given the opportunities and challenges ahead of US we believe it's important to take into consideration the interest of all of our stakeholders, including our shareholders.
As a result, we are exploring strategic alternatives, including potential divestitures, which we believe will unlock the greatest opportunity for value creation.
In parallel we are advancing a turnaround plan aimed at stabilizing and growing new and total enrollment at <unk>.
As a result, we do not believe it would be prudent to provide guidance for fiscal year 2022 at this time.
In the coming months I will talk in more detail about our strategy.
What you can expect in terms of our performance and the progress we are making with strategic options for the company.
Well it changes sometimes challenging we will work tirelessly to ensure we are serving the interest of all of our stakeholders.
With that I will turn the call over to Kevin Royal to review, our financial and operating results.
Thank you Randy.
For the fourth quarter of 2021 revenue was $54 8 million compared to $93 1 million for the same period in the prior year.
The decrease is primarily due to the shift to the Ed Tech business model as well as lower average enrollment partially offset by an increase in <unk> growth segment revenues.
As a reminder, our business model shifted significantly as a result of the <unk> sale on December one 2020.
As such for comparability purposes.
In addition to providing the GAAP results to the prior year I will be highlighting certain related pro forma amounts for that period.
On a pro forma basis revenues for the fourth quarter of 2020 are estimated to be 77 4 million.
Technology and academic services for the fourth quarter of 2021 were 17 million or 31% of revenue compared to $19 6 million or 21% of revenue for the comparable prior year period.
Expenses in this category as well as for 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 revenues as compared to the corresponding period in the prior year.
On a pro forma basis. These expenses for the fourth quarter of 2020 were estimated to be $18 4 million or 23, 8% of revenue.
Counseling services and support costs for the fourth quarter of 2021, or $20 6 million or <unk> 37, 6% of revenue.
<unk> to $25 5 million or 27, 3% of revenue for the comparable prior year period on.
On a pro forma basis. These expenses for the fourth quarter of 2020 were estimated to be $24 5 million or 31, 7% of revenue.
Marketing and communication expenses for the fourth quarter of 2021 were $16 7 million or 35% of revenue compared to $21 6 million or 23, 2% of revenue for the comparable prior year period.
On a pro forma basis. These expenses for the fourth quarter of 2020 were estimated to be $21 1 million or 27, 3% of revenue.
General and administrative expenses for the fourth quarter of 2021 were $9 9 million or 18% of revenue compared to $10 9 million or 11, 8% of revenue for the comparable prior year period on.
On a pro forma basis. These expenses for the fourth quarter of 2020 were estimated to be $10 3 million or.
Or 13, 3% of revenue.
We did not have any university related expenses for the fourth quarter of 2021 compared to $16 7 million or 17, 9% of revenue for the comparable prior year period.
These expenses represent two months of costs related to the university prior to the sale in the fourth quarter of 2020.
We had legal expense charges for the fourth quarter of 2021 of $14 3 million. These charges represent the additional amount necessary to fully accrue the judge's ruling and the California Attorney General matter.
There were no such legal expenses for the prior year period.
We did not have any restructuring and impairment charges in the fourth quarter of 2021 as compared to $1 4 million in the fourth quarter of the prior year.
The restructuring and impairment charges in the fourth quarter of the prior year related primarily to the termination of a contract.
In the prior year, we also recorded $54 8 million as a loss on transaction in the fourth quarter for the transaction completed with the University of Arizona Global campus in December 2020.
We did not have any such charges in the fourth quarter of 2021.
The net loss for the fourth quarter of 2021 was $23 6 million or a loss of <unk> 71 per diluted share compared with net loss of $57 2 million or a loss of $1 75 per diluted share for the same period in the prior year, which includes the loss on the.
<unk> noted above.
Excluding the legal expense charges acquisition costs certain stock compensation other non-GAAP charges and related tax impacts the non-GAAP net loss for the fourth quarter of 2021 was $7 7 million.
Or a loss of 23 per diluted share compared to a non-GAAP net income of <unk> 9 million or income of <unk> <unk> per diluted share for the same period in the prior year.
Regarding the full year results revenue for the year ended December 31, 2021 was $263 million compared with revenue of $397 1 million for the year ended December 31 2020.
On a pro forma basis revenues for the full year 2020 are estimated to be $296 4 million.
Net loss for the full year ended December 31, 2021 was $42 3 million or diluted loss per share of $1 27, compared with net loss of $49 million or diluted loss per share of $1 53 for the year ended December 31 2020.
Excluding the legal charges separation transaction costs restructuring costs acquisition costs certain stock compensation other non-GAAP charges and related tax impacts the non-GAAP net loss for the year ended December 31, 2021 was $15 8 million or.
Loss of 47 per diluted share.
Compared with non-GAAP net income of $8 6 million or income of 27 per diluted share for the year ended December 31 2020.
Income tax benefit for the full year ended December 31, 2021 was 129000.
Our effective tax rate before discrete items for 2021 was low single digits and we anticipate this trend to continue in 2022.
The company used $15 4 million of cash in operating activities. During the year ended December 31, 2021 by comparison the company generated $25 3 million of cash in operating activities. During the same period in 2020.
The decrease in cash provided by operations is due to the increase net loss year over year, excluding the loss on the sale of the University to University of Arizona Global campus.
Capital expenditures for the 12 months ended December 31, 2021 for $1 4 million as compared to $3 $2 million in the comparable period last year.
As of December 31, 2021, the company had combined cash and cash equivalents of $28 3 million as compared to $35 5 million.
December 31 2020.
In addition, today, we also announced we closed at $31 $5 million three year term loan with Blue Torch capital.
At this time I will ask our operator to open the phone lines for your questions.
And as a reminder that is star.
One if you would like to ask a question.
We will pause for a moment to compile the Q&A roster.
And our first question will come from Terry <unk> with watercolor research.
Please go ahead.
Good afternoon, Randy and Kevin how are you.
Okay.
Well on the Centuri and nice to hear your voice.
Great.
Some of the questions you've kind of already said.
You might not be able to comment.
I still try a few that I think maybe you'll be able to comment.
We'll see where that goes.
The liquidity, Kevin you mentioned any chosen the relief $28 2 million and you also said that you accrued $14 million of that.
California judgments, whether the 28 million is after the company would have fully accrued for that judgment is that correct.
Yes, yes, it is but the $14 million Terry is a noncash item its Sam.
Simply just expense in the period and so it did not have an impact on cash for the fourth quarter.
Okay. Okay.
I see.
Nice to see the additional.
Capital Radio, we're able to doing that in that context, how do you see it.
<unk> been leading that there were discussions of USA taking over uhm.
Any comment on that we did have an impact on your relationship with that we do in <unk>.
Terry I'll share my perspective.
And in conversations with.
Paul <unk> and President Robbins on on the topic. They are both very excited about the integration of UA JC.
Into the University of Arizona.
Our.
My personal perspective of working with both of those leaders.
And daily with Paul is I think it's very exciting in terms of the future for the University of Arizona Global campus. The support that they receive from the University of Arizona, and I think it only strengthens that as they move forward with their strategic plan. So.
Find it very exciting in terms of our relationship.
The work that we do every day to support Uhm see no it doesn't change anything or our client as <unk> and <unk>.
We have.
972 people, who wake up every day to serve them.
And the students that they serve so that.
The perspective, I would share with you Terry.
Okay.
The.
Obviously as you said 2021 was a challenging year.
Youre doing things on your end to try to improve results.
<unk> is a modification of the contract with UGC one of the things you're looking at or that is not.
<unk> solutions in terms of.
Having better results in 2022.
Well Terry.
As you would expect of me, having met and in my early days that I would complete.
Deep root cause analysis of the enrollment decline in 2021 I was here for a mere three weeks, but it didn't take long to see that 2021 was a challenging year.
And.
And the comments I made earlier it was a transition year for this company Silvio moving to be in Ed Tech services company and it was a transition year for UHC, becoming a new university and putting together, a really strong management team and mission and purpose and values and so there was a lot going on we also had a seat.
Youll transition so.
Founder and CEO , Andrew Clark He completed at the end of the first quarter as you know and and the board conducted an exhaustive search and I started.
At the first week of December . So you have three three transitions going on and I think all of that led to certainly I'll speak to Silvio.
There was some poor execution.
In a market issue poor execution in terms of the things that needed to be addressed.
Terms have been growing growing and enrollment and <unk>.
Supporting students all the way through to their graduation, so with that root cause analysis completed.
Swiftly a set of initiatives I've put in place a new leadership team.
That I am confident in and they lead with compliance principles and values and students first I'm optimistic about what lies ahead for <unk> and our support for them in terms of their enrollment.
So the master contract with UGC does any major New York.
Thanks, Doug the things under your control, Ken Ken can improve the situation.
Where we start that as you look at what you can control.
Having.
A fair amount of outsourcing contract experience.
Days with IBM both IPO.
Contracts and business process outsourcing contracts, we do both for UA GC, it's not unusual when you have a 10 year or in this case, a 15 year contract that doesn't require some revisiting from time to time, but.
That's not that's not where I start I don't start with you both contract out of the drawer and you say that's the problem you look at how do you align with the goals of your clients and you address the root causes of what.
Was the result of enrollment decline in 2021, and we're encouraged so far is where we are here to talk about 2021, not Q1 of this year, but we're encouraged with with what we're experiencing together.
Great.
<unk>.
You used to I think last year, you were giving some kind of long term growth guidance for Silvio growth, obviously that those two segments.
We've continued to perform very well.
Yeah.
Expectations changed in terms of the long term growth potential there or any color you can give us on those two businesses going forward.
Hi, Terry it's Kevin Youre, referring to the guidance that we gave that we expect.
Okay with that.
Five year period that when we gave the guidance, we expected growth annual growth of 30% per year.
Yes, yes.
Yes.
While we're not giving overall guidance that that is still very much in line with the trajectory of the revenue for those businesses combined.
Okay.
That's good to hear I also saw the.
Postbank announcements, India any color you can give us I mean that looks like potentially very large market for for full stack. It is a large market it's a market.
Where we are licensing a portion of our curriculum to a company that's got a broad reach in India.
We're excited we don't see it as.
While there will be revenue in calendar 2022.
It will be less than 10%, but we.
As that market develops we think it will be very exciting and that same partner will.
We will be taking us into other geographies as well.
Great.
Thank you for the comments and I look forward to.
To the hard work in 2022 and better results.
Terry.
Our next question will come from Alex Paris, with Barrington Research.
Please go ahead.
Hi, guys. Thanks for taking my.
Call and my questions.
Between year overview in Terry's questions, you've covered a lot of it but I have a few more I'd like to dig into if that's okay with you.
Obviously, a tough transition year in 2021.
Your fourth quarter results were in line with my estimates, though still down year over year that sort of thing Zalviso growth continued to perform above my expectations. So I'd like to dive a little deeper into University partners.
It was a little over a year ago early December when the transaction was completed.
I think there were some initial positive growth, but it turned negative pretty quickly.
Can you talk about.
The performance of new student enrollment for example throughout 2021 I think at one point last year, maybe it was the first quarter you said new student starts were down.
Along the lines of about 25% year over year, and then sequentially each of the following quarters. It got a little less negative.
But still negative year over year, what can you say it has that trend.
<unk> into the fourth quarter and into 2022.
Yeah. Unfortunately, Alex we did have.
Huff.
Fourth quarter.
Just overall I think we had told you we expected new.
New enrollment.
Given given guidance, we expected new enrollment to be down around 25% it's down.
It was down about 22% year over year.
And then total enrollment did better than that but total enrollment came in at about 19% down year over year.
Gotcha and I.
And I know, you're not talking about the first quarter or going forward I think the comps get easier as we move into 2022, and the and the deliberate actions you've taken to improve process and management.
Would you expect without giving specific guidance improvement.
Enrollment metrics.
New enrollment as well as retention going forward.
Continued improvement.
Yes, so with the changes that were made Alex we are we're very encouraged.
We'll see we're projecting.
Positive trends in new enrollment, we think it will take a take a little bit of time to translate into total enrollment, but we.
We are.
Expecting that new enrollment.
Will be positive on a year over year basis.
As soon as when midyear.
Q1 later in the year, what's your tire.
Midyear midyear okay. Good.
And then.
Can we talk a little bit about the credit agreement and then the lawsuit.
Maybe start with the lawsuit first in early March you had a negative outcome could have been worse, the California Attorney General is looking for not only $100 million with certain injunctions I don't think you've got to get the penalty was $22 4 million there were no injunctions.
That I know of.
And you've asked for a new trial.
Or a vacating of the judgment.
What's behind that what are your thoughts about the ruling what can you say obviously.
Ongoing legal thing but.
When should we know about the.
Request for a new trial and if you don't get that.
Request granted do you appeal then.
Okay.
Alex It's Randy.
I will share just a couple of points of view so.
No surprise to you.
It's disappointing the judge's decision was disappointing.
I'll give you my perspective on where the disappointment.
Really hard and that's for the management team and the employees of the company. So we have a new management team in place. We have if you go look.
If you look today and you looked at the employee roster Theres a lot of new employees, if you will.
I look at today and compare that to even 2017.
And as you pointed out I think it will.
Based on the way you are describing there was there was no evidence of any any problems or wrongdoing. After 2017. So if you look at that and say well that's a positive but.
We just don't have a lot of things here too.
How have the employees understand they work for a good company.
That this is a matter that dates back a long time ago, and so you want them to keep their churn up in shoulders back and do a great job everyday or the University of Arizona Global campus and and most importantly, the students. They serve just a very dedicated.
Dedicated to serving our students.
Now if you if.
If you look at our perspective on.
Silvio in Ashford and how did we act.
A long time.
Long time ago, certainly before.
Too much I don't know anything about this.
But studied upon it and and and believe that that the team acted appropriately.
And Thats the practices complied at all times with California law.
All in all again very dated matter.
You pointed out correctly, we did.
A motion asking the judge to reconsider and modify the decision and in that schedule that is scheduled for may 13th so.
One can be hopeful that.
So we could we.
We could get one or the other of those those matters.
Those outcomes.
If that doesn't happen Alex.
Just to review what our options are.
<unk>, which does include appealing the decision to the California appellate court.
And then there's a part of me that when its something like this but struggling to employees of today is you want to get it behind the company.
No.
We will look at that in the future.
Sure sure with you how I think about it as a CEO of this company.
Great that's helpful and then.
So we'll stay tuned on.
That.
And then the credit agreement.
$31 5 million.
With Blue Torch, LIBOR plus 9%.
I think oftentimes with financial companies like that there is some upfront payments and that sort of thing.
Kevin what should we expect in terms of impact to the P&L or charges in the <unk>.
Second quarter probably.
Yes.
Correct, Alex there is an upfront fee and that will get amortized over the term of the loan. So when you take a look at.
From an expense standpoint, you've got the quarterly interest plus the amortization of that upfront fee. The combination of the two will be an impact of about $900000 per quarter.
Okay.
<unk>.
And then I guess last but not least in this venue.
The strategic review and what what's the thought process. There what are you considering I think theres been speculation about selling one or both of the zalviso growth businesses theres been much speculation about selling the entire company. If that was what was in the best interest of shareholders. So what are you thinking there and whats the timeline there.
Big picture Alex.
Sure.
I mentioned in my comments, we're going to look at all the strategic alternatives that include divesting.
We lead three businesses the largest one <unk>.
And you are very familiar with Tudor meaningful stack Academy. So we're going to look at all three businesses and and look at the alternatives. We're very serious about it otherwise I wouldn't have commented on it today on this earnings call and we're going to look at it.
With with a sense of urgency.
In terms of what's best for the company all of the stakeholders.
Including our shareholders. So we did we did just on to me.
Pointed out is that we did.
Retain an investment banker and so that's one indication of taking that.
Seriously.
Yeah.
Yeah.
Okay Gotcha.
Just real quick.
Thank you.
<unk>.
We plan to end the call ready, but.
Those businesses have performed nicely.
We realize that with the trading value of our stock today that the value of those two businesses, it's not not showing up in our market cap itself.
Just want to acknowledge that.
Yes.
Sure.
Pretty clear.
Yeah. So that's it I appreciate that overview and good luck on 2022 and emerging from this transition Europe , a stronger company.
Alex Thanks for joining us today.
And that will conclude our question and answer questions I will now turn the call back to you tell Neil for any closing remarks.
Thank you we'd like to thank all of today's callers for your interest in Silvio and for your participation on the call today and now it's time to get back to work.
Yeah.
And this will conclude today's call you may now disconnect.
[music].
Yeah.