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Operator: 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 Perdoceo Education Corporation Conference Call. [Operator Instructions] Thank you. Davis Snyder, you may begin your conference.

Davis Snyder: 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 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 at perdoceoed.com.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 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 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 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?

Andrew Hurst: Thank you, Davis. And good afternoon to everyone joining us on this call. I would like to begin by thanking our faculty, student support staff and all our other employees for their continued dedication in educating and serving our students. Second quarter operating results came in ahead of our expectations, primarily 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, who 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 in a more meaningful and efficient 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 and 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 $0.80 per diluted share.

While adjusted earnings per diluted share, which excludes certain significant and noncash items, was $0.61. A quick note on total enrollments. In general, enrollment metrics for both our academic institutions were supported by improved student engagement and retention. At CTU, 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 organic enrollment growth due to improved student retention as well as continued growth in the corporate partnership program. Additionally, we are pleased to announce that on July 21, 2023, the Higher Learning Commission informed CTU that it enacted at its meeting on July 17, 2023 to continue CTU’s accreditation with its next reaffirmation of accreditation scheduled for 2032, 2033.

At AIUS, 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 2 years, we have 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?

Ashish Ghia: Thank you, Andrew. I will now review our second quarter results and then discuss our balance sheet and 2023 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 comparability. Financial results for the AIU System and CTU 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 refer to exclude learners participating in non-degree-seeking and professional development programs and in degree seeking, non-titled for self-pace 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 indicative 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, equating to $0.80 per diluted share, while adjusted earnings per diluted share was $0.61 as compared to $0.42.

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 and related items. As a reminder, while the teach-out of the culinary schools was completed during 2018, we still retained certain trademark rights for North America. On June 30, 2023, we closed the sale of those rights in exchange for 1.8 million shares of Perdoceo common stock, resulting in a noncash gain of $22.1 million or approximately $0.24 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 1.8 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 2023 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 CTU. In addition to improving retention at both academic institutions, the year-over-year revenue comparability was positively impacted by the academic calendar redesign at CTU 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 student enrollments as of June 30, 2023, remain relatively flat at CTU and decreased 14.2% at AIU System as compared to the prior year quarter. At CTU, improving student retention and continued growth in total enrollments for corporate partnerships were offset by the negative impact from the academic calendar redesign. The decrease at AIU System is primarily due to the operational changes and adjustments made during the current year within 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 AIU System will revert to normalized levels of operations in the fourth quarter.

Second quarter revenue at CTU was $119.3 million or 18.7% higher than prior year quarter. This increase was driven by 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 to $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 AIU System. Revenue was essentially flat for the quarter at $67.1 million. Excluding the positive impact from the 2022 acquisition, revenue would have been lower, primarily due to the operational changes referenced above. 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 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 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 onetime discrete tax expense of $5.3 million related to the gain on sale of the Le Cordon Bleu tradename. 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 26.5% and 27.5%. 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, restricted 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 0.9% of revenue. For the full year 2023, we foresee capital expenditures to be approximately 1.5% of revenue. Before I share the updated outlook, let me discuss an update on our balanced approach to capital allocation. Today, the Board of Directors of Perdoceo declared an inaugural quarterly cash dividend payment, marking a significant milestone for the company. The inaugural quarterly cash dividend in an amount equal to $0.11 per share will be payable on September 15, 2023, to the holders of record of Perdoceo’s common stock at the close of business on September 1, 2023. To provide context, on a non-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 company’s 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 our students and maintaining a strong balance sheet. Separately, the company’s stock repurchase program, which was set to expire on September 30, 2023, has been extended to September 30, 2024. 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 compared 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 belief that improvement in student retention partly supported by the positive impact from various federal student aid initiatives implemented by the current administration will continue to persist through 2023. Prospective student admissions, outreach and enrollment processes at AIU 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 CTU as well as underlying organic improvement in student retention and engagement. However, reported total enrollments at the end of 2023 are expected to be lower as compared to year-end 2022, primarily due to the academic calendar redesign at CTU as well as the operational changes that have been or will be undertaken at AIU 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 1 of this year. We continue to monitor and evaluate these rule-making initiatives and any related guidance coming from the department. Any further operational changes undertaken by our academic institutions to 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 $0.48 and $0.50 per diluted share versus $0.39 in the third quarter of 2022.

Please note that the third quarter outlook includes a positive impact from the academic calendar comparably at CTU, 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 in positively impacting student experiences. We will also continue to increase the investments in our corporate partnership team at CTU 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 2023 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. Andrew?

Andrew Hurst: 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.

End of Q&A: This concludes today’s conference call. You may now disconnect.+