Perdoceo Education Corporation (NASDAQ:PRDO) Q4 2022 Earnings Call Transcript February 23, 2023
Operator: Good afternoon. Thank you for attending today’s Perdoceo Education Corporation Fourth Quarter and Full Year 2022 Earnings Conference Call. My name is Hannah, and I will be your moderator for today’s call. All lines will be muted during the presentation follow of the call. I would now like to pass the conference over to our host Davis Snyder with Investor Relations. Please go ahead.
Davis Snyder: Thank you. Good afternoon everyone and thank you for joining us for our fourth quarter 2022 earnings call. With me 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 of perdoceoed.com. A webcast replay will also be available on our website, 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 results developments or changed circumstances or for any other reasons. 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 Andrew Hurst. Andrew?
Andrew Hurst: Thank you Davis. Good afternoon everyone and thank you for joining us for our fourth quarter and full year 2022 earnings call. I would like to begin by thanking our faculty, student support staff, and all other employees for their commitment and hard work while serving and educating our students. 2022 was another year of operational excellence, during which we executed well against our primary objectives of enhancing student experiences, retention and academic outcomes. Let’s start with some of the key takeaways and highlights from the fourth quarter and full year 2022. We experienced meaningful improvements in student retention and engagement in the second half of 2022, as compared to the first half. We believe that the first half of 2022 was still being affected by the lagging impact of the pandemic and the related macroeconomic policies.
Adjustments we’ve made to our marketing processes are now fully annualized and have allowed us to identify prospective students, who are more likely to succeed at one of our academic institutions. We continue to make additional changes to our marketing processes to further enhance and support the improvements we have made on the student retention and engagement front. We saw continued growth within our corporate partnership program especially at CTU. During 2022, we further increased the size of our corporate partnership team, and they are successfully engaging with employers to leverage their tuition assistance programs and provide a debt-free education to their employees. Finally in December 2022, we completed the acquisition of Coding Dojo.
Coding Dojo is focused on providing professional development upskilling and reskilling opportunities within software and technology-related areas. We are excited to welcome the Coding Dojo team and Ashish will provide more details on this acquisition in his prepared remarks. Now to our financial results. Fourth quarter results came in ahead of our expectations. We reported net income of $16 million or $0.23 per diluted share while adjusted earnings per diluted share, which excludes certain significant and noncash items was $0.31 a quick note on total enrollments. At CTU total enrollments increased by 2%, as compared to the prior year-end. At AIUS, total student enrollments decreased by 10.8% as compared to prior year-end. As expected, the rate of decline at AIUS moderated from the 16.1% decline we experienced at the end of the first quarter of 2022.
For both our academic institutions, these enrollment metrics were partially supported by improved student engagement and retention, especially in the second half of 2022. A few other highlights, before I turn the call over to Ashish. Prospective student interest has remained consistent and we are further optimizing our enrollment processes to effectively manage the ever-changing environment of identifying prospective students. As discussed on previous calls, technology is an enabler and a differentiator for us. Leveraging data analytics and machine learnings, our student support staff have strived to provide current and prospective students with a more targeted, relevant and meaningful experience throughout their academic journey, from admissions and enrollment to classroom learning and interaction and ultimately through graduation.
During the year, we also redesigned our learning management system, providing a more intuitive student experience. We continue to update our mobile app and have further optimized our chatbots, supporting a more effective, efficient and round-the-clock interaction with our students. Overall, 2022 was a year marked with continued commitment to operational excellence, as our faculty and student support teams remain focused on delivering quality education to current and prospective students. With that said, I would now like to turn the call over to Ashish for a deeper review of our operating performance. Ashish?
Ashish Ghia: Thank you, Andrew. I will review the full year and fourth quarter results and then discuss our balance sheet and 2023 outlook, before handing the call back to Andrew for his closing remarks. Please note, all comparisons I discuss are versus the comparative prior year period, unless otherwise stated. Before I begin, a quick reminder about year-over-year comparability. Financial results for the AIU System and CTU reflect the four acquisitions that have been completed since the third quarter of 2021, including the most recent acquisition which was completed on December 1, 2022. Also, total enrollment numbers that I discuss or any enrollment trends that I refer to, exclude learners participating in non-degree-seeking and professional development programs, as well as degree-seeking non-Title IV self-paced programs at our universities.
With that said, let us begin with an overview of our operating results. For the full year 2022, operating income decreased 13%, to $129.6 million. Adjusted operating income, which excludes certain significant and non-cash items, was $164 million, or 6.6% lower as compared to the prior year. This decline in adjusted operating income was primarily due to nonrecurring investments at our academic institutions made during the fourth quarter in human capital and marketing, as well as other operating processes. Commensurately, for the fourth quarter, adjusted operating income of $32.4 million was 22.9% lower, as compared to the prior year quarter and adjusted earnings per diluted share was $0.31, as compared to $0.40 for the prior year quarter. Please note, the full year adjusted operating income of $164 million exceeded our latest outlook range of $157 million to $160 million, primarily due to better-than-expected student retention and engagement in the fourth quarter.
Net income for the year was $95.9 million, compared to $109.6 million, equating to $1.39 per diluted share. Adjusted earnings per diluted share, which, again, we believe, is more indicative of the underlying operating performance, was down approximately 4.1% to $1.63. Full year revenue was $695.2 million, as compared to $693 million, while revenue in the fourth quarter increased by 10.2% to $176.1 million. Both institutions experienced gradual improvements in student retention and engagement throughout the year. Please also note, that the year-over-year revenue comparability was positively impacted by the academic calendar redesign as well as acquisitions completed in 2021 and 2022 that were not part of the full comparative prior year period.
Excluding these benefits revenue would have been lower at both institutions for the quarter as well as full year. As it relates to our segments, total student enrollments for CTU increased by 2% as of year end, while the AIU System ended the year approximately 10.8% lower. Growth in total enrollments at CTU was primarily driven by growth in our corporate partnership program. Total student enrollments declined at AIUS, but as previously mentioned the rate of decline during the fourth quarter has moderated from declines experienced in the first half. In general, improvement in student retention and engagement experienced during the second half of the year has helped offset some of the enrollment decline experienced in the first half. Fourth quarter revenue at CTU was $108.4 million or 13.1% higher than the prior year quarter, while the full year revenue increased by 2.7% to $419.6 million.
Operating income of $34.1 million for the quarter was $1.6 million lower versus the prior year quarter, while full year operating income decreased by 4.6% to $141.6 million. At AIUS fourth quarter revenue was $67.4 million or 5.9% higher than the prior year quarter, while full year revenue decreased by 3.1% to $274.5 million. Operating income of $3.5 million during the quarter was $6.8 million lower versus the prior year quarter, while full year operating income decreased by 14.9% to $33.3 million. The declines in operating income at both CTU and AIUS were primarily due to the non-recurring investments discussed above and were partially offset with efficiencies within marketing and student enrollment processes. As previously discussed excluding the positive impact on year-over-year revenue comparability from the academic calendar redesign and the acquisitions, revenue would have been lower at both academic institutions.
But we ended the year on a high note as it relates to student retention and engagement partly aided by the positive impact from various student loan initiatives. And as we enter 2023, we expect to operate at those improved levels. Moving on to Corporate and Other. Operating losses for the quarter and year were $14.9 million and $45.3 million, respectively. These losses were higher than the comparative prior year period primarily due to increased legal fees including those associated with acquisition efforts and the responses to the Department of Education relating to loan forgiveness applications by former students. Please refer to the disclosures regarding borrower defense to repayment in our 10-K that was filed this afternoon for additional information on this matter.
Now turning to income taxes. For the fourth quarter, we recorded a provision for income taxes of $8.5 million. This resulted in an effective tax rate of 34.7% bringing our annual tax rate to 28.6%. The effective tax rate for the quarter was negatively impacted by approximately 9.1% as a result of the establishment of a full valuation allowance against the deferred tax asset related to an equity investment, increases in tax reserves for uncertain tax positions and the tax effect of expenses that are not deductible for income tax purposes, which on a relative basis collectively represented a higher percentage of the quarterly earnings. The full year tax rate was also negatively impacted by the establishment of a valuation allowance on select combined state net operating loss carryforwards and the tax effect of stock compensation.
Finally, we expect that for the full year 2023, our effective tax rate will be between 25.5% and 26.5%. Now to our balance sheet and liquidity. For the full year 2022, cash flow from operations was $148.2 million versus $191.1 million in the prior year. We ended the year with $518.2 million of cash, cash equivalents, restricted cash and short-term investments. This represents an increase of approximately $18.8 million over year-end 2021. Key drivers of cash for the year were: positive cash flows from our academic institutions, which were partially offset by, cash outflows related to $28.9 million of income tax payments, $23.1 million of share repurchases, $12.6 million of capital expenditures and $84.3 million related to the two acquisitions during 2022.
For 2022 capital expenditures were $12.6 million compared to $10.5 million in the prior year. For full year 2023, we expect capital expenditures to be approximately 1% to 2% of revenues as we continue to invest in our technology infrastructure upgrade. Now let us discuss our outlook for 2023. We expect the full year adjusted operating income to range between $150 million and $170 million. This compares to the adjusted operating income of $164 million in 2022. This outlook reflects our current beliefs that recent improvements in student retention and engagement, partly supported by the positive impact from various student loan initiatives implemented by the current administration will continue to persist into 2023. Full year revenue will be higher than 2022, reflecting the benefits from recent acquisitions and the academic calendar redesign at CTU as well as underlying organic improvement in student retention and engagement.
Adjusted earnings per diluted share, is expected to range between $1.63 and $1.85 versus $1.63 in 2022. For the first quarter of 2023, we expect adjusted operating income to be in the range of $51 million to $53 million as compared to $50.9 million in the prior year quarter, with adjusted earnings per diluted share to range between $0.55 and $0.57 per diluted share versus $0.50 in the first quarter of 2022. As disclosed in our Form 10-K filed today, the Department of Education has recently gone through and is going through additional negotiated rule-making processes while also updating interpretations and guidance surrounding various other topics. While we continue to monitor and evaluate these rule-making initiatives as well as new or updated guidance coming from the department any operational changes undertaken to ensure compliance with the department’s rules and interpretations could have an impact on the outlook presented above.
Our 2023 outlook also assumes ongoing investments in technology, data analytics academics and student support processes. We believe these investments have been successful in positively impacting academic outcomes and student experiences. We will also continue to increase the size of the corporate partnership team at CTU and make selective investments in our recent acquisitions as they integrate within our academic institutions. I would like to conclude by commenting on our balanced approach to capital allocation that is intended to enhance shareholder value while maintaining appropriate levels of student-serving 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 2.1 million shares in 2022 for approximately $23.1 million at an average price of $11.02 per share. As of December 31, 2022, approximately $26.8 million was still available under our authorized stock repurchase program. It is our intent to continue repurchasing shares under our program when market and other conditions are appropriate. And with respect to acquisitions, we continue to explore acquisition opportunities that further extend the depth and breadth of our educational and academic offerings. Speaking of which, let us take a minute to discuss the acquisition of Coding Dojo which was completed in December of 2022. Coding Dojo is an education technology company providing upskilling and reskilling opportunities in technology and various computer programming languages.
Since 2013, Coding Dojo has been educating students using its unique three-stack approach and providing graduates with the ability to learn new technology and programming languages. The initial cash consideration was approximately $53 million. Additionally, there is a contingent consideration payable over two years if certain performance metrics are met. For the year ended 2022, Coding Dojo had unaudited revenues of approximately $35 million, and we expect to be at least cash flow neutral for 2023. Please refer to our earnings release filed today for important information about the key assumptions and factors underlying the discussion from 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.
Andrew?
Andrew Hurst : Thank you, Ashish. In closing, I am proud of the way our company executed throughout 2022 and I am pleased with the momentum we have following the fourth quarter. Going forward, our academic institutions remain focused on serving and educating students, and our investments will continue to prioritize student experiences and academic outcomes. I would like to once again thank all of our students and staff for their ongoing hard work and dedication. Thank you for joining us today, and we look forward to speaking with you next quarter.
End of Q&A: That concludes today’s Perdoceo Education Corporation fourth quarter and full year 2022 earnings conference call. Thank you for your participation. You may now disconnect your lines.
