Perdoceo Education Corporation (NASDAQ:PRDO) Q1 2024 Earnings Call Transcript

Perdoceo Education Corporation (NASDAQ:PRDO) Q1 2024 Earnings Call Transcript May 1, 2024

Perdoceo Education Corporation beats earnings expectations. Reported EPS is $0.59, expectations were $0.53. PRDO isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Perdoceo Education Corporation First Quarter 2024 Earnings Conference Call. All lines have been placed on mute all throughout the presentation to prevent any background noise. Thank you. I would like to turn the call over to Sam Gibbons, Investor Relations. Please go ahead.

Sam Gibbons: Thank you, Kathleen. Good afternoon, everyone and thank you for joining us for our first quarter 2024 earnings call. With me on the call today is; Todd Nelson, President and Chief Executive Officer; and Ashish Ghia, Chief Financial Officer. This conference call is being webcast live within the Investor Relations section at perdoceoed.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 21E of the Securities Exchange Act of 1934. These statements are based on assumptions made by and information currently available to Perdoceo 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.

These risks and uncertainties include, but are not limited to, those factors identified in Perdoceo’s most recent annual report on Form 10-K 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, developments or change 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 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’d like to turn the call over to Todd Nelson. Todd?

Todd Nelson: Thank you, Sam. Good afternoon, everyone and thank you for joining us for our first quarter 2024 earnings call. I’ll discuss some of the key highlights from the first quarter, and then Ashish will review our operating and financial performance in more detail and provide an updated outlook for the year. However, before we begin, I’d like to thank our faculty, student support staff and all other employees for their ongoing commitment and hard work and serving and educating our students. We ended 2023 on a strong note as it relates to student retention and engagement and these trends have persisted in the first quarter. As a result, the first quarter operating results came in ahead of our expectations discussed on the last earnings call, primarily due to better than expected student engagement trends.

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Q&A Session

Before we discuss first quarter results, following are some of the key observations and highlights for the quarter. We continue to experience strong levels of student retention and engagement at both CTU and AIUS, and we expect to operate at these levels through the remainder of 2024, while our faculty and student support teams remain focused on educating and serving our students. Marketing and admission spend and commensurately, prospective student inquiry generation was lower during the first quarter as compared to 2023. Aided by data analytics, we continue to adjust marketing strategies to further improve our focus on identifying prospective students who are more likely to succeed at one of our universities, as well as comply with updated expectations from various federal agencies around prospective student outreach.

We remain focused on investing in and improving processes that support our corporate engagement programs. These programs remain a focus and priority of both institutions and will continue to make necessary investments in staff and technology to further grow the programs in an efficient and effective manner. We continue to place an emphasis on investing in and utilizing technology to evaluate the academic experiences of our students and improve the efficiency and effectiveness of our institution’s academic and student support functions. We view technology as a catalyst and differentiator for us and remain committed to making selective investments that deliver a more meaningful and relevant education experience for our learners. A quick note on our operating results.

First quarter results came in ahead of our expectations. We reported first quarter net income of $39.4 million or $0.59 per diluted share, while adjusted earnings per diluted share, which excludes certain significant and non-cash items, was $0.60. From an enrollment perspective, first quarter total student enrollments grew approximately 28.5% at CTU as compared to the prior year quarter ending, primarily driven by a positive timing impact from the academic calendar. As expected and discussed on last quarter’s earnings call, AIU System experienced a decline in total enrollments in total student enrollments, which were lower by 22.9% as compared to the prior year quarter. As previously shared, AIUS had mostly reverted to normalized operations during the fourth quarter of 2023 and consistent with our expectations, experienced an approximate 30% increase in total enrollments for the first quarter as compared to the fourth quarter of 2023 low point.

Ashish will provide more details on enrollment trends later. In summary, we are pleased with the first quarter operating results and are proud of our team whose hard work and dedication are helping us drive stronger student engagement, while enhancing academic experiences across our academic institutions. With that said, I’d like to now turn the time over to Ashish for a deeper review of our operating and financial performance. Ashish?

Ashish Ghia: Thank you, Todd. I will review the first quarter results and then discuss our balance sheet and 2024 outlook before handing the call back to Todd for his closing remarks. Please note, all comparisons I discuss are versus the comparative prior year period, unless otherwise stated. Please also note, that the total enrollment numbers that I discuss or any enrollment trends that I refer to, exclude learners pursuing non-degree seeking professional development programs and degree seeking non-Title IV, self-paced programs at our universities. Let us begin with an overview of our operating results. First quarter operating income of $46.3 million was $2.9 million higher as compared to the first quarter of last year. This improvement in operating income was primarily driven by approximately $30 million in lower expenses across most functional areas that more than offset the decline in revenue.

Please note, that despite the lower student enrollments at AIU System, we have strived to maintain the faculty and student support operations relative to their enrollments at levels higher than historical norms due to AIU System’s total enrollment growth expectations, as well as our desire to continue providing quality student support services. As a result, most of the lower expenses for the quarter can be summarized in the following categories. First, lower admissions and marketing expenses due to ongoing adjustment made to prospective student inquiry generation processes, as well as to comply with updated expectations from various federal agencies around prospective student outreach. Second, rightsizing of expenses that support our portfolio of programs offering professional development, upskilling and reskilling opportunities so that we can focus on effectively and efficiently delivering academic programs that we believe will enhance the overall value proposition of our academic institutions.

Third, lower bad debt expenses supported by ongoing student loan initiatives implemented by the current administration. And fourth, lower legal expenses primarily related to borrower defense repayment applications. Adjusted operating income, which we believe is more indicative of the underlying operating performance and excludes certain significant and non-cash items, was $49.5 million as compared to $53.1 million in the prior year quarter. This was primarily due to lower revenue at our academic institutions that was only partially offset by some of the lower expenses I previously discussed. Please note, that while legal expenses related to borrower defense repayment applications, were lower during the quarter, they are excluded while calculating adjusted operating income.

Net income for the first quarter was $39.4 million or $0.59 per diluted share, compared to $34.5 billion or $0.50 per diluted share. Adjusted earnings per diluted share, which we believe is more indicative of the underlying operating performance was $0.60 as compared to $0.58. First quarter revenue of $168.3 million decreased 14% as compared to a $195.6 million in the first quarter of last year. This decrease was expected due to CTU’s academic calendar comparability, resulting in a lower number of revenue earning days during the current quarter as well as the lag impact on revenue at AIU System for the short-term operating changes made in the prior year. During the second half of 2024, CTU’s academic calendar will be relatively comparable and the lag impact on revenue at AIU System will significantly moderate.

As a result, we expect revenue in the second half of 2024 to show growth versus the prior year, with much of that growth occurring in the fourth quarter. A note on total student enrollments. Total student enrollments for CTU increased by 28.5% as of March 31st, primarily due to higher number of enrollment days for the current quarter. Please note, that ignoring the positive impact from the enrollment day comparability, total enrollments would still be positive for CTU. As expected and discussed on last quarter’s earnings call, AIU System experienced a decline in total student enrollments, which were lower by 22.9% as compared to the prior year’s quarter. Marketing and student enrollment activities had reverted to normalized levels beginning in the fourth quarter of 2023, and quarterly total enrollments were expected to show growth throughout 2024 as compared to the fourth quarter 2023 low point.

And accordingly, total enrollments for the first quarter were approximately 30% higher than the fourth quarter of 2023 low point. Now to our segment results. First quarter revenue at CTU decreased by 8.8% to $113.6 million due to the negative timing impact from fewer revenue earning days during the quarter. Operating income was $42.2 million for the quarter as compared to $43.7 million. Lower revenue was partially offset by lower expenses within admissions, marketing and bad debt. As mentioned previously, the academic calendar will have a disproportionately negative impact on revenue during the first half of the year with the second half more normalized due to a relatively comparable number of revenue days. At AIU System, first quarter revenue was $54.5 million or 23.1% lower than the prior year quarter, which was in line with our expectations due to the lag impact from operational changes we discussed last year.