Q2 2022 Perdoceo Education Corp Earnings Call
Invest in technology upgrades and maintain appropriate levels of academic and student support services that.
That we believe are positively impacting academic outcomes and student experiences.
Second quarter operating results came in ahead of our expectations.
In part.
Due to better than expected improvements in student engagement.
Overall macroeconomic and governmental responses generally wind down from the pandemic.
Let me touch upon some of the key operational highlights from the quarter.
First while student engagement continues to show progress from the pandemic era lows, we continued to see some students pause their academic programs or decide not to begin classes.
Which impacted total enrollments for the end of the second quarter.
We still expect total enrollments to be lower for the full year as compared to the prior year.
Second and as a reminder, beginning in the third quarter of 2021, we've made adjustments to our marketing processes to further improve our focus on identifying prospective students who are more likely to succeed at one of our universities.
While these adjustments will negatively impact total student enrollments during 2022 in the long run we believe they should further enhance student experiences retention and academic outcomes.
Lastly, effective July one we completed the acquisition of substantially all the assets and academic programs of California Southern University originally accredited University.
Cal Southern offers non title for online associates Bachelors Masters and doctoral degree programs with a focus primarily in psychology business management and risk management Ashish.
Ashish will provide more details around this acquisition shortly.
Now, let me touch upon some of the financial results for the second quarter.
We reported net income of $25 8 million or <unk> 37 per diluted share.
While adjusted earnings per diluted share, which excludes certain significant and noncash items was <unk> 42.
As expected total student enrollments declined in the second quarter with total student enrollments, 7% lower as compared to the prior year quarter end.
Total student enrollments decreased by 14, 5% at the AI use system and two 3% at <unk>.
Student engagement continues to improve and changes to the marketing processes will annualize beginning in the third quarter.
As a result, we expect the rate of decline in student enrollments to lesson for the remainder of the year.
During the quarter, we continued to prioritize our efforts to enhance our academic offerings and student experiences.
We are making necessary investments to upgrade our students serving technology and continuing to leverage data analytics and machine learning to provide timely and relevant and engagement with our students.
Our chat bots at AAU and CTO of one such example, and are now being used throughout the student academic cycle.
Beginning with student Onboarding, and enrollment and continuing through to students in the classroom.
We believe these investments are resulting in increased levels of engagement across our academic institutions.
In addition, we are continuing to maintain proper staffing levels to ensure our students are receiving appropriate support at all stages of their education journey.
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.
I will review our second quarter results.
And then discuss our balance sheet and updated 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 year over year compatibility.
Operating results for the <unk> system and Cte reflect the two acquisitions completed during the third quarter of 2021.
Also the recent acquisition of <unk> will be included within the operating results of the <unk> system beginning in the third quarter of 2022.
With that said, let us begin with an overview of the operating and financial results.
For the second quarter of 2022 total company operating income decreased by five 6% to $33 9 million as compared to an operating income of $36 million in the prior year quarter.
Adjusted operating income, which excludes certain significant and noncash items and which we believe is more reflective of the underlying operating performance was slightly lower at $41 9 million as compared to $42 3 million.
This result exceeded the high end of our previous outlook range.
Similarly, due to better than expected student engagement and revenue for the quarter.
Total revenue for the quarter was $167 7 million or approximately four 5% below prior year quarter, primarily driven by lower total student enrollments.
However, most of the revenue decline was offset by reduced expenses within marketing and admissions as well as lower bad debt expense.
Please note that the two acquisitions, we completed in the third quarter of 2021 did not have a material impact on the adjusted operating income for the quarter and operate on a relatively cash neutral basis.
Net income for the quarter was $25 8 million.
Compared to $26 6 million.
Equating to 37 per diluted share for both quarters.
Adjusted earnings per diluted share, which we believe is more indicators of the underlying operating performance was 42% as compared to 41.
As it relates to our segments.
Total student enrollments as of June 32022 decreased by two 3% at <unk> and by 14, 5% at AIA system as compared to the prior year quarter end.
This decline in total enrollments was expected due to the adjustments made to our marketing processes and our continued belief that student engagement in general has been impacted by the lingering COVID-19 pandemic.
However, we believe that once changes to our marketing processes annualize beginning with the third quarter and as student engagement continues to improve the rate of decline in total student enrollments should lessen in the second half of 2022.
As a reminder, total enrollments do not include students who are participating in our non degree professional development and continuing education offerings.
Second quarter revenue at <unk> was $105 million or one 5% lower than the prior year quarter, primarily primarily due to lower total enrollments at <unk>.
Additionally, please note that the current quarter includes revenue related to the acquisition completed in the third quarter of 2021, which positively impacted year over year compatibility.
Operating income of $32 million was $2 4 million lower versus the prior year quarter due to the decrease in revenue as well as amortization expenses from the prior year acquisition.
Turning to <unk> system.
Revenue was $66 9 million for the quarter, resulting in a decrease of eight 6% primarily due to lower total enrollments at <unk> system.
However, operating income of $10 7 million.
Increased 16, 4% as operating efficiencies in admissions and marketing as well as improved bad debt expense more than offset this decrease in revenue.
We would also like to remind you that there is typically a lag impact on revenue from changes in total student enrollment levels.
Therefore, we expect revenue for the second half of 2022 to be lower as compared to the second half of 2021 as well as compared to the first half of 2021, when excluding any incremental revenue from recent acquisitions.
Sure.
Having said that we will continue with our efforts to adjust various operating processes and expenses to partially offset the revenue decline while still prioritizing the overall academic experience of our students.
Moving on to corporate and other second quarter operating losses increased to $9 8 million versus $8 7 million in the prior year quarter, primarily due to increased legal fees, including those associated with the responses to the department of education relating to loan for.
Given us applications by former students as well as acquisition related expenses.
For additional information on this matter please refer to the disclosure regarding borrower defense to repayment and our 10-Q that was filed this afternoon.
Now to income taxes.
For the second quarter, we recorded a provision for income taxes of $8 $9 million, resulting in an effective tax rate of 25, 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 decreased the tax rate by approximately one 2%.
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.
As of June 30, we ended with $516 $8 million of cash cash equivalents restricted cash and available for sale short term investments as compared to $499 4 million at year end 2021.
This increase in cash as compared to year end 'twenty, one was driven by positive cash flow from operations of $54 8 million, which.
Which was partially offset with cash outflows related to advance payments for the <unk> acquisition capital expenditures and share buybacks.
Capital expenditures for the second quarter were approximately $2 million or one 2% of revenue.
For the full year 2020, we foresee capital expenditures to be approximately 2% of revenues.
Finally, I would like to discuss our updated outlook for the remainder of 2022.
Full year 2022, adjusted operating income is now expected to range between $142 million to $148 million as compared to the previously provided range of $137 million to $148 million.
This outlook reflects our continued beliefs that the recent improvement in student engagement will continue and the overall rate of decline in total student enrollments will lessen through the second half of 2022.
However year end total student enrollments will be lower than 2021.
Full year revenue, excluding the recent acquisition completed in the July of 2022 will be lower than 2021, reflecting the lower 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 various stages of negotiated rulemaking surrounding a variety of topics. While we continue to monitor these rulemaking activities any.
Operational changes undertaken this year that may be necessary as a result of any proposed or final rules could have an impact on the outlook presented above.
Adjusted earnings per diluted share is now expected to range between $1 41, and $1 48 per diluted share.
For the third quarter of 2022, we expect adjusted operating income to be in the range of 28 million to $30 million as compared to $46 3 million in the prior year quarter with adjusted earnings per diluted share to range between 28 to <unk> 30 per diluted share.
Versus <unk> 45.
Please note that the first half of 2022 operating performance includes the revenue benefit from the academic calendar redesign the CPU 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 and the comparative prior year period.
I would like to conclude by commenting on our balanced approach to capital allocation that is intended to enhance shareholder value, while maintaining adequate to investments in our academic institutions.
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.
With respect to share repurchases, we repurchased one 5 million shares for the first six months of 2022 for approximately $15 7 million at an average price of $10 59 per share.
As of June 32022, approximately $34 3 million was still available under our authorized stock repurchase program.
It is our intent to continue repurchasing shares under our program when market conditions are appropriate.
Separately as Andrew mentioned, we completed the acquisition of substantially all of the assets and academic programs of Cal Southern <unk>.
Regionally accredited University effective July one 2022.
The initial cash purchase price net of cash received is approximately $40 million.
For the trailing 12 months ended June 32022, Cal Southern had unaudited revenues of approximately $17 8 million.
Cal Southern offers non title for online associate bachelor's master's and doctoral doctoral degrees with a focus primarily in psychology business management and risk management.
Currently we do not expect the acquisition to have a material impact on the 2022 adjusted operating income.
While operating on a relatively cash neutral basis for the remainder of the year.
Sure.
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 second quarter operating results and remain focused on serving and educating our students to further enhance academic outcomes and student experiences.
Now I'll turn the call back over to Davis for any questions David.
Thank you Andrew that concludes our prepared remarks for today's call and we will now take questions and I will pass the call to our operator to provide our listeners with instructions on how to submit your questions.
Thank you Sir.
If you would like to ask a question in a star one on your telephone keypad. If for any reason you would like to remove that question istar to.
As a reminder, if youre using a speakerphone married to pick up your handset before answering your question.
Poizner briefly ask questions are registered.
Our first question comes from the line of one Alex Paris with Barrington Research Alex Your line is now open.
Great. Thank you and thank you.
For allowing me to ask a couple of questions here.
Yeah.
<unk>.
First of all.
Congrats on the beat and raise its kind of.
In the second quarter across the market and.
Particularly within the industry.
And also congratulations on the acquisition of Cal Southern.
I had a couple of follow ups with regard to that acquisition.
You say it's.
Non title for Reis.
Regionally accredited it's effective 70 122 initial purchase price of $40 million in revenues on a trailing 12 month basis of $17 8 million.
You care to give us an EBITDA estimate for that same period of time.
As you saw she said its relatively cash neutral.
<unk> do you want to add anything to Ashish. Please feel free to we're very pleased with the acquisition.
Really allows us to continue to add breadth and depth of our programs.
You mentioned regionally accredited and non title for Ashish.
Anything you want to add on that.
No I think that is correct and Alex as we disclosed here, we do not expect that to be a material number for the remainder of 2022 that is on our adjusted operating income.
Okay.
Given their name they are based in southern California, where are they headquartered.
Again, Ashish do you have any of that information.
I mean, it is in California.
But as I, we mentioned it is primarily online so the operating pretty much across all states and.
And the net is a good addition to our academic programs.
So we are very glad to have that part of our AI system.
And you mentioned psychology business management and risk management in that order is that the order of importance are the order.
The most significant programs.
Yes.
Significant.
Yes, psychology being the largest ships.
Gotcha.
Any reason, they're not title for.
Participants not that that's a bad thing thats actually kind of a good thing these days, but I'm just curious on why they've chosen not to participate in those programs.
No.
It's by choice and as far as the being any other reason I think to your point I think it's.
Again, not accessing titled floor, I think it's a good opportunity for hopefully to keep the amount of debt that they accumulated in student loans. So the minimum.
And.
How does their tuition stack up against <unk> or CPU and just orders of magnitude.
Cost per credit hour that sort of thing.
Yes, yes, it is very comparable Alex there right, they're very comparable to two but we operate <unk>.
Got you alright, thank you.
And then.
Moving on.
Just a big picture question about the overall demand environment. Obviously this quarter's results were a little bit better than expected, though still down year over year, you talked about some improvements in student engagement you were talking about that last quarter.
As well in.
Any changes.
And any momentum to speak about coming out of the quarter was June better than may better than April or.
Whatever color you can give there would be helpful.
Sure.
Inquiry generation, we continue to feel good about that.
So there's again.
Those potential students are out there.
As we've said before we've adjusted to some degree our marketing efforts there to maximize.
Again, when we feel it's benefiting the students the most potential students.
And as we said we're there have been some suits are delayed they are starting with their programs.
Because again, we feel like some of the after effects of the pandemic, but we're optimistic that that rate of decrease should start to improve.
And then with the new marketing strategy being Anniversaried here in the current quarter, we should think about that from a.
Top of the funnel perspective first of all youre going to have.
More comparable marketing dollars year over year going forward in the third and fourth quarters.
But also you should have a similar top of funnel because one of the.
One of the objectives of the marketing strategy change list too.
Attract.
Students that are more likely to succeed which.
Results mathematically in a smaller number.
So.
Am I thinking about that right.
Yes.
That's correct anything Ashish you want to add to that.
Yes, so Alex two things Youre, absolutely correct in terms of compatibility of the expenses. So the expenses will be comparable in the second half and then and then to your point.
It is focused on students that are more likely to succeed but even that is comparative to prior year. So I would not necessarily comment in terms of whether theyre bigger or smaller, but both expenses and the student metrics are comparable and as we continue to gain efficiencies within our system, we should see improvements there.
Sure.
Okay and then.
That's all I have I'll take my other questions offline. Thank you so much and congratulations on the quarter and on the acquisition.
Thanks, Thanks, Alan Thank you.
Thank you for your question Sir.
There are currently no more questions registered at this time I would like to pass the conference back over to management for any final closing remarks.
Alright. Thank you again for joining US today, we look forward to speaking with you again next quarter. Thank you.
Yes.
That concludes today <unk> Education Corporation second quarter earnings Conference call. Thank you for your participation you may now disconnect your line.
Okay.