Perdoceo Education Corp (PRDO) 2016 Q1 法說會逐字稿

Good afternoon and welcome to the first-quarter 2016 Career Education earnings conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Sam Gibbons.

Please go ahead.

Thank you, Amy.

Good afternoon, everyone, thank you for joining us. With me on the call today is Todd Nelson, President and Chief Executive Officer; A.J. Cederoth, Chief Financial Officer; and Ashish Ghia, Vice President of Finance.

This conference call is being webcast live within the Investor Relations section at www.CareerEd.com. A webcast replay will be 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. These statements are based on assumptions made by, and information currently available to, Career Education. And include risks and uncertainties that could cause actual future results, performance, business prospects and opportunities to differ materially from those expressed and/or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified in Career Education's annual report on Form 10-K for the year ended December 31, 2015, and other 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 substitute for the most directly comparable GAAP measures.

The earnings release and slide presentation which accompanies today's call, and which contain financial and other quantitative information to be discussed today, as well as the reconciliation of GAAP to non-GAAP measures, are available within the Investor Relations section at www.CareerEd.com.

So with that, I'd like to turn the call over to Todd Nelson.

Todd?

Thank you, Sam.

Good afternoon and thanks to everyone who is joining us on the call.

Before I get into the first-quarter highlights, it is my pleasure to introduce to all of you our new Chief Financial Officer, A.J. Cederoth, who has a rich background at multi billion dollar public and private companies, including those who have undergone a transition. We're thrilled to have him as part of our team and expect him to bring a lot a positive changes to the Company. Please join me in welcoming A.J. during the weeks and months ahead. A.J. will review our financial results in more detail later.

Now I will begin the review of our first-quarter results, and share some of the operating priorities at our universities that are aimed at further improving our student retention and outcomes.

Last quarter, we told you to expect continued progress in our financial and operating performance in 2016. And we're pleased to report today that first-quarter results were in line with those expectations. Consolidated adjusted EBITDA, which we believe to be a useful indicator of performance during the wind down of our teach-outs, was $13.2 million during the first quarter, compared to a loss of $11.8 million last year. This performance was primarily driven by increased revenue at our University Group, as well as across-the-board improvements in operating efficiencies that we realized as we continue to execute on the strategy we laid out last year. In fact, University Group revenue increased by 4.9% year over year; and its operating income decreased to $21.1 million, compared to $11.7 million last year.

On a positive note, University Group total enrollments increased slightly for the quarter, as compared to the prior year. New enrollments at the University Group were down 4.9% as compared to the prior year. We believe the positive results in total enrollment were due in part to our efforts to provide our students with the best possible experience. Also, we have invested in new technology, increased our faculty interaction with students, and continue to make progressive updates to our curriculum. We believe maintaining the overall level of total enrollment -- University Group enrollment -- speaks to the positive impact these investments have made on student retention.

Simultaneously, we're also working on improving our enrollment operations to make the student onboarding process more efficient and effective. Improving student experiences, both before and after they are enrolled in our programs, will help provide higher quality engagements to incoming students, which should further enhance retention and outcomes. And ultimately, increase the long-term academic and economic value of our University platform.

Moving to our Transitional and Culinary Arts segments, where serving the interests of our students has been priority of ours since we made these teach-out announcements. For the first quarter, adjusted EBITDA was negative $7 million, versus prior-year quarter of negative $23.1 million.

Now I'd like to spend a few moments discussing some of the highlights and achievements we have made across the University Group in recent months.

One of our strategic goals is to improve the efficiency of operations at both universities, with the goal of further enhancing and improving student retention and outcomes. First, we made some changes to our operating and management structure last year. And we are pleased with the operating results we are seeing thus far.

Second, through 2015, we have been able to invest approximately $5 million in developing and enhancing proprietary technology, such as our virtual learning platform, intellipath, and our mobile platform, which we believe will help students realize the full potential of our program offerings and academic platforms.

Third, within AIU, we have implemented a new student cohort advising model, which provides dedicated personal instruction and coaching to new students during their first four academic sessions. We believe this initiative is resulting in better student engagement, which should translate into improved retention.

Fourth, at CTU, we continue to build upon our Masters and Bachelors of Nursing programs. Our doctorate programs are also experiencing strong student growth. And in January we launched a third doctoral-level program at CTU, a DBA, or Doctorate of Business Administration. CTU now offers three doctoral programs: the DBA; the Doctorate of Management, which has 14 specializations; and the Doctorate of Computer Science, with five specializations.

Lastly, CTU recently received reaffirmation of the accreditation status for six of its business programs with project management concentrations from the Global Accreditation Center for Project Management Education Programs. These accreditations last for a seven-year period through July 31, 2022.

For the remainder of 2016, our goals and priorities are the same as we have outlined last quarter. We are focused on continuing to improve the market position of our universities by strengthening the breadth of our program offerings, faculty and technology, with the goal of enhancing retention and outcomes of our students. We're also focused on responsibly managing the teach-outs of our remaining Transitional and Culinary Arts campuses, to provide each of those students with the attention and resources needed to be successful in their chosen fields of work.

As we began to anniversary some of our strategic initiatives in the second half of the year, the year-over-year variances in quarterly performance will start to become more normalized. Overall, we're focused on executing our strategy and remain confident in the long-term outlook we provided last quarter, which A.J. will summarize again shortly.

With that, I will turn the time over to A.J.

Thank you, Todd.

I am excited to be here. I joined Career Education because I believe the Company has a compelling value proposition for its students and its shareholders alike. Now that I have been able to meet more of the team and start to understand the organization, I believe the building blocks are in place to execute a successful long-term strategy. So I am pleased to be part of the team.

As we review financial performance, I want to start with the results for the consolidated company.

On slide 4, we've summarized the consolidated results for Q1 and provided a comparison to the same quarter in the previous year. We will try to maintain this format throughout the presentation.

For the quarter, revenue was $198.9 million, which is down 12.4% year over year. As Todd mentioned, our University Group posted a 4.9% increase year over year. And the decline in revenue is attributed to the teach-out strategy at our Culinary Arts and Transitional Group segments.

Operating income for the quarter was positive $7 million, versus prior-year first quarter loss of $24.4 million. This can be attributed to lower operating costs as a result of our strategic initiatives. Also, as a result of our decision to teach-out Culinary Arts, we received a cost benefit from the reduction of our admission costs and marketing expenses. We expect our operating costs will continue to improve throughout the remainder of the year. However, as Todd mentioned, the year-over-year differences will start to normalize in the second half of this year as the impact of our strategic initiatives begin to anniversary.

Adjusted EBITDA performance followed a similar pattern of improvement. We ended the quarter with $189.5 million of cash, cash equivalents, restricted cash, and available-for-sale short-term and long-term investments. As was discussed on previous calls, we are carefully managing our cash.

For the quarter, cash flow from operations was negative $10.6 million, which compares favorably to negative cash flow from operations of $20.2 million for the first quarter of 2015. This improvement in cash flow was primarily attributed to lower operating costs. Capital expenditures for the quarter were less than $1 million.

Moving to slide 5, here we highlight the results of the University Group. You can see the 4.9% improvement year over year in revenue. This can be attributed, in part, to improved retention and degree mix of our students.

Overall enrollment within the University Group has improved slightly. Operating income and adjusted EBITDA, improved $9.4 million and $8.9 million, respectively, versus prior-year quarter. Again, attributed to improvement in revenue and lower operating costs, partially offset by increased reserves for bad debt expense.

Turning now to slide 6. We highlight the result of our Culinary Arts and Transitional segments, which are in teach-out. As previously mentioned, revenue declined year over year in both segments, but the overall financial performance has improved because we have effectively managed our cost structure in response to the declining student enrollment. All while supporting our students as they complete their education.

Results also benefited from the non-recurrence of a $6 million asset impairment charge that occurred in 2015. As a reminder, as the teach-out strategy progresses, revenue will continue to decline. but we will maintain our commitment to our students. The impact this has on our financials will increase as we progress towards completion.

Lastly, we wanted to update everyone on our outlook. Slide 7 is how this was displayed on the previous call, and I do not see any reason to change it. We believe we are on path to achieve the objectives as they are outlined on this page. In particular, our cash balance is in line with this outlook, and nothing material has changed regarding our expectations. Recall, the cash outlook incorporates the impacts of the teach-outs, including severance costs and lease termination costs.

This concludes my summary. For additional information, please refer to the appendix included in this presentation. There you will find a summary of the key assumptions contained within our outlook, as well as reconciliations of GAAP to non-GAAP items.

With that, I'll turn the call back over to Todd for closing remarks.

Thank you, A.J.

Looking at slide 7 in closing, FY16 is off to solid start and we are proceeding in line with our expectations. Our improved operating and financial stability continues to give us confidence to invest in our future. Our University Group is well-positioned with great leadership, strong brands and excellent programs.

With our improved stability, we're investing more time, intellectual capital, and dollars to help CTU and AIU achieve their full potential and produce better student retention and outcomes. We are on track with our teach-outs, which we will continue to responsibly manage as we support our students through the completion of their programs.

We look forward to providing you all with an update on the progress during our second-quarter call. We are maintaining our outlook of generating increases in consolidated adjusted EBITDA, as well as our cash balances in the future.

Thanks again for joining us this evening, and we appreciate your continued support of Career Education. If anyone has any questions, please contact our Investor Relations. Have a good evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.