Q1 2022 Perdoceo Education Corp Earnings Call
Good afternoon. Thank you for attending today's Prideaux CEO first quarter fiscal 2022 conference call. My name is Janine and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question.
Please press star one on your telephone keypad I will now pass the call over to our host David Snyder of Alpha IR Group. Please go ahead.
Thank you to Neil good afternoon, everyone and thank you for joining joining us for our first quarter 2022 earnings call.
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.
Cast replay will also be available on our site and you can always contact the Alpha IR group for Investor Relations support.
Let me remind you that this afternoon's earnings release and remarks made today include forward looking statements as defined in section 21 E of the.
The Securities Securities Exchange Act of 1934. These statements are based on assumptions made by and information currently available to pronounce your education and involve risks and uncertainties that could cause the actual future results performance prospects and opportunities to differ materially.
And those expressed in or implied by these statements.
These risks and uncertainties include but are not limited to those factors identified 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 a substitute for the most directly comparable GAAP measures.
The earnings release that accompanies today's call contains financial and other quantitative information can be discussed today as well as a reconciliation of the GAAP to non-GAAP measures.
It is available within the Investor Relations page on the company's website.
I would like to turn the call over to Todd Nelson.
Thank you Davis and good afternoon, everyone and thank you for joining us for our first quarter 2022 earnings call.
I'd like to begin by thanking our faculty student support staff and all other employees for their hard work dedication and diligence in serving and educating our students.
Overall, I'm pleased with our first quarter operating and financial results as we continue to focus on further enhancing student experiences and academic outcomes, Andrew has transitioned well into his role as CEO and together, we're excited about the educational and learning opportunities.
Academic institutions offer to prospective learners.
That said I'd like to turn the call over to Andrew to discuss the operating results and highlights from the quarter Andrew.
Yeah.
Thank you Todd.
Good afternoon to all and thank you for joining US I would also like to thank our faculty student support staff and all of our other employees for their continued dedication and educating and serving our students.
Our first quarter operating results were in line with the previously provided outlook and we continue to make progress in improving student experiences and academic outcomes.
Let me touch upon some of the key operational highlights from the quarter, which are mainly a continuation of the operating highlights we discussed during our year end call.
First as discussed last quarter, we believe that prolonged pandemic and its resulting safety measures as well as the macroeconomic and governmental responses.
Have impacted overall student engagement.
And we will continue to have a lingering impact on total student enrollments throughout 2022.
Especially as the COVID-19 ear restrictions ease and we continued to emerge from the pandemic.
During the first quarter, we continued to experience some students pause their academic programs or decide not to begin classes, which impacted the total enrollments for the end of the first quarter.
Although we are seeing marginal improvements in student engagement, we still expect total enrollments to decline for the full year as compared to the prior year.
Second beginning in the third quarter of 2021, and aided by data analytics, we made adjustments to our marketing strategies to further improve our focus on identifying prospective students.
Who are more likely to succeed at one of our universities.
We believe these adjustments will impact total student enrollments during 2022, but in the long run should further enhance student experiences retention and academic outcomes.
Now let me provide further details regarding our operating results for the quarter.
We reported first quarter net income of $32 1 million or <unk> 46 per diluted share.
While adjusted earnings per diluted share, which excludes certain significant and noncash items was 50.
Total student enrollments as of March 31, 2022 were $14, 7% lower as compared to the prior year quarter and <unk>.
Total student enrollments decreased by 13, 9% at sea to U S.
<unk> 16, 1% at the <unk> system, which we also referred to as a U S.
These declines were due to the factors previously mentioned as well as <unk> academic calendar redesign, which negatively impacted total student enrollment year over year comparability.
Changes to the marketing processes will annualize beginning with the third quarter and we are seeing marginal improvements in student engagement as students adjust to an environment, where pandemic related restrictions are winding down.
As a result, we remain cautiously optimistic and expect the rate of decline in total enrollment to show gradual improvement for the remainder of the year.
Enhancing academic outcomes and student experiences remains a top priority of our academic institutions.
To that end, we continue to support investments in our technology infrastructure, including data analytics. So that our teams can be more effective in their student support efforts.
Our technology infrastructure Advancement project is progressing well and we continue to update our mobile platform and virtual campus.
Given the competitive labor market, we are investing more in our employee recruiting resources and thus far have been maintaining appropriate staffing levels to effectively serve and educate our students.
With that said I would now like to turn the call over to Ashish for a deeper review of our operating performance for the quarter.
<unk>.
Thank you Andrew I will now review, our first quarter results and then discuss our balance sheet and 2020 to outlook.
We're 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 ear, whether youre compatibility.
First operating results for the <unk> system.
<unk> reflect the two acquisitions completed during the third quarter of last year.
Second we are adjusting for legal fees associated with certain matters.
All prior period amounts have been adjusted to maintain compatibility.
With that said, let us begin with an overview of our operating results for the first quarter of 2022 total company operating income increased by seven 6% to $43 7 million as compared to an operating income of $40 6 million.
Adjusted operating income, which excludes certain significant and noncash items and which we believe is more reflective of the underlying operating performance was $50 9 million for the first quarter, reflecting an increase of 13, 5% when compared to the prior year quarter.
This.
<unk> exceeded the high end of our outlook range for the quarter, primarily due to better than expected total enrollments that positively impacted revenue.
Yes.
Net income for the quarter was $32 $1 million.
<unk> to $38 million in the prior year quarter equating to 46 per diluted share while adjusted earnings per diluted share, which again, we believe is more indicative of the underlying operating performance was 15th.
This improvement in adjusted operating income for the quarter was primarily due to lower marketing and admissions expenses as compared to the prior year quarter.
Please note that the two acquisitions, we completed in the third quarter of 'twenty, one did not have a material impact on the adjusted operating income for the quarter.
Moving on to some more details around the first quarter of 2022 results.
Total company revenue of $183 million was <unk>, 4% lower as compared to the prior year quarter.
Revenue for the current quarter was positively impacted by the academic calendar redesign at <unk> as well as the two acquisitions, we completed in the third quarter of 2021.
As it relates to our segments.
New student enrollment as of March 31, 2008 decreased by 13, 9% ex <unk> and 16, 1% at our U S. As.
Paired to the prior year quarter.
This decline in total enrollment was expected and reflects our continued belief that enrollments have been impacted by the COVID-19, pandemic and adjustments made to our marketing processes.
While these factors may continue to impact total enrollments through 2022, we believe that once changes to our marketing processes begin to annualize with the third quarter.
And as students further adjust to an environment post COVID-19, the rate of decline in total student enrollments should gradually improve throughout 2022.
As a reminder, total enrollments do not include learners, who are participating in our non degree professional development and continuing education offerings.
First quarter revenue at <unk> was $113 1 million or six 9% higher than the prior year quarter, primarily due to the positive impact from the academic calendar redesign.
Also benefiting the current quarter was the acquisition completed in the third quarter of 2021.
Excluding these positive impacts <unk> would have experienced a decline in revenue.
Operating income of $42 million was $6 $9 million higher versus the prior year quarter due to an increase in revenue as well as lower marketing and admissions expenses.
Turning to our <unk> system.
Our revenue decreased 10, 3% to $69 5 million for the quarter, primarily due to the decrease in total student enrollments.
Operating income of $9 $5 million decreased 15, 9% compared to the prior year quarter. As a result of the decrease in revenue, which was only partially offset with decreased operating expenses.
Please note in general there is typically a lag in the impact on revenue from the changes in total student enrollment levels and as a result, we expect full year 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 partially offset the revenue decline.
Finally, we would like to note that both of our 2021 acquisitions are not expected to be material to the full year results of the company and are operating on a relatively cash neutral basis.
Moving on to corporate and other first quarter operating losses increased to $8 9 million versus $6 8 million in the prior year quarter, primarily due to increased legal fees associated with the responses to the department of education relating to loan forgiveness applications by former students.
For additional information on this matter regarding please refer to the disclosure regarding borrower defense to repayment and our 10-Q that was filed this afternoon.
Now on to income taxes for.
So the first quarter, we recorded a provision for income taxes of $11 8 million.
<unk> and an effective tax rate of 26, 8%.
The effective tax rate for the quarter was impacted by the tax effect of stock based compensation and the release of previously recorded tax reserves.
Net effect of which increased the tax rate by approximately half a percent.
Finally, we expect that for the full year 2022, our effective tax rate will be between 25, 5% and 26, 5%.
Moving to the balance sheet.
Net cash provided by operations was $22 2 million for the quarter versus $44 7 million in the prior year quarter.
We ended the quarter with $499 3 million of cash cash equivalents restricted cash and available for sale short term investments.
Please note that the timing of title for cash receipts negatively impacted operating cash flows for the current quarter.
Additionally, the first quarter included cash flow outflows related to the annual incentive compensation.
Payments in connection with a potential acquisition.
Capital expenditures and a release of escrow related to the Trident acquisition.
These items resulted in the quarter and cash balances to be essentially flat as compared to the year end 2021.
Yeah.
Capital expenditures for the first quarter were approximately $4 7 million or two 6% of revenue.
For full year 2022, we foresee capital expenditures to be approximately 2% of revenues.
Finally to our updated outlook for 2022.
Full year 2022, adjusted operating income is now expected to range between $137 million to $148 million as compared to our previously provided range of $135 million to $148 million.
This outlook reflects our beliefs that year end total student enrollments will be lower than 2021. However, the rate of decline in total enrollments will gradually improved throughout 2022.
Full year revenue will be lower than 2021, reflecting the lower total student enrollments.
Lastly, as disclosed in our Form 10-Q filed today and the 10-K filed in February of 2022.
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 any final rules could have an impact on the outlook presented above.
Adjusted earnings per diluted share is now expected to range between $1 32, and $1 44 per diluted share.
For the second quarter of 2022, we expect adjusted operating income to be in the range of $37 million to $39 million as.
Third to $42 $3 million in the prior year quarter with adjusted earnings per diluted share to range between 36, and 38 cents per diluted share versus <unk> 41 in the second quarter of 2021.
Please note that the first half of 2022 operating performance includes the revenue benefit from the academic calendar redesign at <unk>.
As well as anticipated 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.
I would like to 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 2021 with a combined initial cash consideration of approximately $57 million, which was fully funded with the companies available cash balances.
And we currently anticipate that we will complete another acquisition by the end of 2022 with a purchase price relatively similar to last year's acquisitions.
With respect to share repurchases, we repurchased <unk> 4 million shares during the quarter for approximately $3 8 million at an average price of $10 56 per share.
As of March 31, 2020 to approximately $46 2 million.
Still available under our authorized stock repurchase program.
Share repurchases will remain a part of our capital allocation strategy and we intend to pursue them when deemed appropriate based on market and other conditions.
We ask you to refer to our earnings release filed today for important information about the key assumptions and factors underlying our 2022 outlook and other expectations discussed on today's call as well as the GAAP to non-GAAP reconciliations.
With that I will turn the call back over to Andrew for his closing remarks.
Drew.
Thanks, Ashish, we are pleased with our first quarter operating results and look forward to executing on our various initiatives discussed earlier that focus on further enhancing academic outcomes and student experiences.
With that I'll turn it back over to Davis.
Yeah.
Okay.
I was on mute.
I think we will now open up.
For Q&A.
Thank you. The first question is from the line of Alex Paris with Barrington Research. Your line is open.
Hi, guys. Thanks for taking my call.
I have a few questions.
First I'll start I'll try to keep this on a top down basis.
Starting with overall demand in the environment generally.
I heard what you said about declining.
Year over year total enrollment.
Diminishing of the decline gradually throughout the year.
Yeah.
What do you attribute that to is it.
Demand inquiries applications is it easier comps is it COVID-19 way waning.
Maybe a little bit more color on the overall environment and changes that you've noted over the last three to six months say.
Sure well I think you know again the good news is is that we continue to see strong in.
Corey slow.
We've adjusted to some degree our marketing spend but.
Still the availability and the interest out there.
We have seen as we've mentioned before the show rate itself of those who have applied.
It's been a little bit softer and that's where you just see that kind of lack of student engagement at the beginning and that has started to slightly recover.
We're cautiously optimistic that will continue but Alex that's really the biggest change that we have seen.
Okay, Great and then with regard to the marketing changes.
Is it is it are you.
Spending the same dollars, you're just spending them differently, where are you spending more dollars spending less dollars.
No youre going after those students that are more likely to succeed in your programs.
Yes.
That is the last points you made were really that's been our focus some quarters. The spending is a little higher than some of the lower so it just depends.
A lot of different factors, but.
The bottom line is is we really are focused on those who have more of a propensity to two.
So and then complete the programs.
And you know as.
As we see that.
Shift over time than I could see us, suggesting it back the other direction, but right now that's been our focus because we until they have the best chance of succeeding in the program.
Given right now how student or prospective student behaviors.
This performance.
Gotcha.
In the absolute sense.
Marketing expenses higher than they used to be given this change in strategy or is it sort of just similar but redirected.
Yes sure.
Do you want to respond to that.
Yes from an overall perspective, as we pointed out marketing expenses are lower.
As compared to the comparable period and as a reminder.
Second half we will start annualizing. These so the expenses and Alex would be more comparable in the second half as compared to the last year.
Got you and then moving on.
CPU revenue benefited from the academic calendar redesign in Q1, I think you said it in your prepared comments, but we don't expect any such phenomena over the balance of the year it'll be more of a comparable starts year over year.
Ashish.
Yes, Great question, Alex I think.
Yes for the remainder of the year.
The academic calendar redesign will not have the same benefit at the same degree for the remaining quarters of the year.
As far as you mentioned about the starts are the new enrollment.
As you probably know we don't necessarily disclose our comment on new enrollments because the academic calendar redesign does tend to impact that.
So.
Ignoring those new enrollments the benefit will not apply to the same degree for the remainder of the year.
Got you.
Thank you and then I guess my last question and then I'll finish on that you mentioned the two acquisitions you made during the third quarter of last year digital crafts in Hippo education. Just wondering if you can give us a little update on how those are doing under the auspices of per dose here I know <unk> has a technology path for them.
<unk> has the ability to generate lead flow for these acquisitions how has that been.
Coming along.
Well the good news is Alex the integration has been really.
Excellent that's exactly where we would hope it would be I think it really goes to show the quality of the management teams of both of those.
New acquisitions, and so we're very pleased with that and I would just say is that overall performance it's really.
Say, a little above our expectation right now.
We hadn't anticipated again a lot of growth.
Our main goal is that.
Making sure that there's long term successful growth in the areas, where we feel the market is as needed. So right now again, it's exceeded our expectation and we're looking forward to in the future.
And this is the last one I promise, but is related within M&A, you're sort of telegraphed and I think you did at previous quarter also that you expect to do one.
Acquisition before the end of the year.
<unk>.
Orders of magnitude similar to the other acquisitions that you've made not transform not transformative type acquisitions tuck ins or bolt ons.
I was just going to ask is what gives you the confidence that you will do that.
Are you close on something.
And maybe just a little bit of an overview on what.
Valuations look like for these Ed Tech type of companies given the market sell off and its impact on Ed Tech specifically.
Yes, I mean, we we have identified the company that you know, we're obviously working towards trying to complete that as you know in our industry. It takes time to do that and Thats, where we are with that and again, we anticipate and hope that will continue smoothly.
We try to complete that before the end of the year as far as Ed Tech companies, Yes, I mean, it's what they do.
Obviously traded or are there multiple is higher for them than than those that are degree granting but.
Having said that it's not.
Although we continue to remain interested in those we also are interested in and degree program and training companies as well and they tend to not be.
Trade at the same level that.
Some of the outside companies too.
That's great. Thanks, so much I appreciate the additional color.
Thank you Alex.
Thank you Mr. Paris.
There are no additional questions waiting at this time I will now turn the conference over to Andrew for any closing remarks.
Thank you again for joining US today, we look forward to talking to you again next quarter. Thank you.
That concludes the kudos CEO first quarter fiscal 2022 conference call enjoy the rest of your day.
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