Q2 2023 Perdoceo Education Corporation Earnings Call

Thank you for standing by my name is Jordan and I'll be your conference operator today.

At this time I'd like to welcome you to the her Do-si-do Education Corporation Conference call.

At this time all lines have been placed on mute to prevent any background noise should you require any assistance press star followed by zero on your telephone keypad and an operator will come on line and assist you. Thank you Davis such Snyder you may begin your conference.

Okay.

Thank you Jordan.

Good afternoon, everyone and thank you for joining us for our second quarter 2023 earnings call with me on the call today, Todd Nelson Executive Chairman, Andrew Hurst, President and Chief Executive Officer, and Ashish Ghia.

<unk> financial officer.

This conference call is being webcast live with them within the Investor Relations section after Doshi L E D Dot com.

A webcast 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 of the Securities Exchange Act of 1934.

These statements are based on assumptions made by and information currently available to you.

So education and involve risks and uncertainties that could cause actual future results performance business prospects and opportunities to differ materially from those expressed in or implied by these statements.

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, 2022, and 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.

Elements 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 direct to the 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 the reconciliation of the GAAP to non-GAAP measures and is available within the Investor Relations page of the company's website.

With that I would like to turn the call over to CEO , Andrew Hurst Andrew.

Thank you Davis and good afternoon to everyone joining us on this call.

I'd like to begin by thanking our faculty.

Student support staff and all our other employees for their continued dedication and educating and serving our students.

Second quarter operating results came in ahead of our expectations.

Merrily due to further improvements in student retention and engagement.

As our faculty and student support teams continue to focus on improving academic outcomes and student experiences.

We believe this ongoing improvement in student retention and engagement is supported by the various operating changes and student initiatives undertaken over the past few years.

A quick recap of some of the key ones include.

Prospective student outreach and admissions changes that focus on enrolling students that we believe will be more likely to succeed at one of our academic institutions.

As well as other enrollment process changes that allow us to better serve and onboard new learners.

The more meaningful inefficient way.

Second investments to upgrade our student serving and support technology, while continuing to leverage data analytics and machine learning that enable more timely and relevant engagement with our students.

Third pandemic era governmental responses in other federal aid initiatives simplified processes for students to receive the financial support needed to continue their education.

Leading to higher retention and engagement.

And finally sequential growth experienced in our corporate partnership programs as our institutions continue to work with corporations that sponsor tuition assistance programs to provide a debt free education for their employees.

Now.

Let me provide further details regarding our operating results for the quarter.

We reported second quarter net income of $54 7 million or 80 cents per diluted share.

While adjusted earnings per diluted share, which excludes certain significant and noncash items was 61 cents.

A quick note on total enrollments.

In general enrollment metrics for both our academic institutions were supported by improved student engagement and retention.

At <unk> total student enrollments remained relatively flat as compared to the prior year quarter.

A negative timing impact due to the academic calendar redesign was mostly offset by underlying underlying organic enrollment growth due to improved student retention as well as continued growth in our corporate partnership program.

Additionally, we are pleased to announce that on July 21, 2023, the higher learning Commission informed to you that it acted at its meeting on July 17th 2023 to continue to use accreditation.

With its next reaffirmation of accreditation scheduled for 2030 to 2033.

At a O U S. Total student enrollments decreased by 14, 2% as compared to the prior year quarter, driven by operational changes made in prospective student admissions outreach and enrollment processes.

Ashish will provide more color on these results in his prepared remarks.

Finally on the technology front, we remain committed to investing in and upgrading our technology to further enhance academic experiences for our students.

We believe technology is an enabler and a differentiator for us and we will continue to leverage data analytics and machine learning to provide our students with a more relevant and meaningful experience.

Over the past two years, we've committed to various investments in this area and we'll continue to invest as appropriate through the remainder of 2023.

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 Ashish.

Thank you Andrew.

I will now review our second quarter results.

And then discuss our balance sheet and 2020 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.

Financial results for the <unk> system and to reflect the two acquisitions that were completed by the academic institutions in July and December of 2022, respectively.

Also total enrollment numbers that I discuss or any enrollment trends that I referred to exclude <unk> participating in non degree seeking and professional development programs, adding degree seeking non title for self based programs at our universities.

With that said, let us begin with an overview of our operating results.

For the second quarter of 2023 total company operating income increased by 41, 7% to $48 1 million as compared to operating income of $33 $9 million.

Adjusted operating income, which excludes certain significant and noncash items.

And which we believe is more indicators of.

Our underlying operating performance was $55 $2 million, reflecting an increase of 31, 5% when compared to the prior year quarter.

This result came in above the high end of our outlook range for the quarter, primarily due to better than expected student retention at our universities.

Net income for the quarter was $54 $7 million compared to $25 8 million in the prior year quarter.

Waiting to 80 per diluted share while adjusted earnings per diluted share was <unk> 61 as.

As compared to 42 cents.

Okay.

Yeah.

I would like to point out that the second quarter GAAP earnings per diluted share were benefited by a one time noncash gain related to the sale of certain le cordon Bleu trademarks unrelated items.

As a reminder, while the teach out of the culinary schools was completed during 2018, we still retain certain trademark rights for North America.

On June 32023, we closed the sale of those rights in exchange for one 8 million shares of <unk> common stock.

<unk> in a noncash gain of $22 1 million or approximately 20% per diluted share net of tax.

Since the shares received as consideration in the sale are now held as treasury shares by the company.

The underlying economics of this transaction essentially reflect a stock repurchase of one 8 million shares.

Please also note that since this transaction was completed at the end of the quarter.

The diluted shares used to compute EPS for the quarter and year to date do not reflect the accretive nature of this transaction in terms of reducing the share count for EPS calculations.

Moving on to some more details around the second quarter 2020 results.

Total company revenue of $186 6 million was 11, 3% higher as compared to the prior year quarter, primarily driven by revenue growth at <unk>.

In addition to improving retention at both academic institutions that year over year revenue comparable <unk> was positively impacted by the academic calendar redesign of CPU as well as acquisitions completed in 2022 that were not part of the full comparative prior year period.

As it relates to our segments.

Total enrollments as of June 32023 remain relatively flat at CDU and decreased 14, 2% at AIG system as compared to the prior year quarter.

At CDU, improving certain retention and continued growth in total enrollments for corporate partnerships were offset by the negative impact from the academic calendar redesign.

The decrease at AIG system is primarily due to the operational changes and adjustments made during the current year with and prospective student admissions outreach and enrollment processes.

These changes and adjustments have been undertaken to ensure compliance with anticipated or final regulatory changes.

However, we expect these processes at AIA system will revert to normalized levels of operations in the fourth quarter.

Okay.

Second quarter revenue at <unk> was her in $19 3 million or 18, 7% higher than prior year quarter.

This increase was driven by a great organic growth in total student enrollments as well as higher revenue days due to the academic calendar redesign.

Operating income for the quarter increased to $40 5 million as compared with $33 million as revenue growth was partially offset by investments in academics and other student support areas as well as our recent acquisition.

Turning to AIA system.

Revenue was essentially flat for the quarter at $67 1 million.

Excluding the positive impact from the 2022 acquisition, our revenue would have been lower primarily due to the operation operational changes referenced about.

Operating income for the quarter increased to $17 1 million.

As compared to $10 $7 million.

Due to reduced operating expenses during the quarter.

Overall, we ended the quarter on a high note as it relates to certain retention and engagement at both our academic institutions, partly aided by the positive impact from the federal student aid initiatives.

Moving on to corporate and other second quarter operating loss was $9 4 million as compared to an operating loss of $9 8 million in the prior year quarter.

Legal fees, primarily associated with responses to the department of education relating to loan forgiveness applications by former students were lower for the current quarter.

Please refer to the disclosures regarding borrower defense to repayment in our 10-K that was filed earlier this year for additional information on this matter.

Now to income taxes for the second quarter. We recorded we recorded a provision for income taxes of $19 $9 million, which incorporates the accruals for federal and state corporate net income tax, resulting in an effective tax rate of 26, 7%.

Also included in the provision for income taxes was a one time discrete tax expense of $5 3 million.

Related to the gain on sale of the Le Cordon Bleu trade name.

Excluding the impact of this discrete item the effective tax rate for the quarter would have been 27, 8%.

Finally, we expect that for full year 2023, our effective tax rate will be between 26, five and 27, 5%.

Yeah.

Moving to the balance sheet.

For the second quarter net cash flow from operations was $61 6 million versus $32 6 million in the prior year quarter.

While year to date cash flow was $66 2 million.

Versus $54 8 million.

We ended the quarter with $578 $1 million of cash cash equivalents secret cash and available for sale short term investments, which was approximately $60 million higher versus year end 2022.

Capital expenditures for the second quarter were approximately $1 7 million or zero, 0.9% of revenue for.

For the full year 2023, we foresee capital expenditures to be approximately one 5% of revenue.

Before I share the updated outlook.

Let me discuss an update on our balanced approach to capital allocation.

The board of directors of per dose.

<unk> inaugural quarterly cash dividend payment, marking a significant milestone for the company.

The inaugural quarterly cash dividend and an amount equal to <unk> 11 per share will be payable on September 15, 2023 to the holders of record of <unk> common stock at the close of business on September one 2023.

To provide context on an annualized basis. This quarterly dividend represents roughly 20% of our 2022 free cash flows.

Future quarterly dividend payments are expected to be paid out of the free cash flow for the relevant year subject to board approval and the Companys available retained earnings financial condition and other relevant factors.

Subject to the requirements mentioned above we expect quarterly dividend payments will be an integral and growing part of our balanced capital allocation strategy, which also prioritizes investments in organic projects.

In particular technology related initiatives designed to benefit of our students and maintaining a strong balance sheet.

Separately the company stock repurchase program, which was set to expire on September 32023 has been extended to September 32024.

Turning to our updated outlook for 2023.

We have raised the full year adjusted operating income to range between $165 million and $172 million as.

Paired to the previously provided range of $153 million to $170 million.

Further adjusted earnings per diluted share is expected to range between $1 85, and $1 92 versus $1 63 in 2022.

This outlook reflects our current beliefs that <unk>.

Improvements in certain retention, partly supported by the positive impact from various federal student aid initiatives <unk> implemented by the current administration will continue to persist through 2023.

Prospective student admissions outreach and enrollment processes at AIG system will revert back to normalized levels of operations in the fourth quarter.

Full year revenue is expected to be slightly higher than 2022, reflecting the benefits from recent acquisitions and the academic calendar redesign at <unk> as well as underlying organic improvement in student retention and engagement.

However reported total enrollment at the end of 2023, I expect it to be lower as compared to year end 2022, primarily due to the academic calendar redesign at <unk> as well as the operational changes that have been or will be undertaken at AIG system to ensure compliance with any anticipated or final.

Rules.

As disclosed in our 10-K filed in February the Department of Education has recently gone through and is going through additional negotiated rule, making processes surrounding various topics some of which went into effect on July one of this year.

We continue to monitor and evaluate this rulemaking initiatives in energy related guidance coming from the department.

Any further operational changes undertaken by our academic institutions.

Ensure compliance with any anticipated or final rules could have an impact on the outlook presented above.

For the third quarter of 2023, we expect adjusted operating income to be in the range of $43 million to $45 million as compared to $38 7 million in the prior year quarter with adjusted earnings per diluted share to range between $48 50 per diluted share versus <unk> 39 in the third.

Quarter of 2022.

Please note that the third quarter outlook includes a positive impact from the academic calendar comparable body at CDU, while the fourth quarter will have a negative impact on quarterly revenue.

Our 2023 outlook also assumes ongoing investments in technology data analytics academics and student support processes.

We believe these investments have been successful and positively impacting student experiences.

We will also continue to increase the investments in our corporate partnership Tina CPU and make selective investments in our recent acquisitions as they further integrate within our academic institutions.

We ask you to refer to our earnings release filed today for important information about the key assumptions and factors underlying our 2020 outlook and our expectations discussed on today's call as well as a GAAP to non-GAAP reconciliations.

With that I will turn the call back over to Andrew for his closing remarks Andrew.

Thanks, Ashish, we are pleased with our second quarter operating results and the efforts of our institutions to educate our students. Thank you again for joining us today.

Okay.

This concludes today's conference call you may now disconnect.

Okay.

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