ZVO - Earnings call transcript Q1 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Zovio Q1 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today Alanna Vitucci, our VP of Corporate Communications. you. Thank ahead. go Please

Alanna Vitucci

good earlier first on today www.zovio.com. website and release the XXXX was at issued and afternoon. you, quarter Zovio's earnings company's Thank is posted

President call Chief Royal, Officer. Andrew Joining and Financial today on Executive Officer; the Clark, me Founder, and Chief Kevin are

University meet make regarding and like would to new of approvals obtain our student education partnerships we enrollment programs and you be and considered ability of the that the growth, required We may some forward-looking, other all services, close remind to conversion statements Ashford XXXX financial through and planned abilities future to conditions today all regarding to including statements become our retention, and separation required on to an EBITDA, to timing education leverage commentary fiscal revenue year successfully technology growth integrate acquisitions, do our and later. our planned acquired grow so, and services companies, related ability to transition on our and to company, and guidance current ability

are statements number or uncertainties could materially subject a forward-looking or statements. by These and the from performance to differ suggested forward-looking cause results expressed of that in actual risks those to

applicable undertake these laws. these new this only date speak forward-looking presentation future securities that, events, to or forward-looking information extent obligation as the by and the of note Please statements required statements in of we no update of light to except

considered are substitute earnings supplement In U.S. measures, GAAP non-GAAP On a financial discuss you intended measures today, including measures. with these non-GAAP our not find and release, of should GAAP that, GAAP. our measures call additional the we to these be information also regarding reconciliations as will will financial results. for financial Note disclosures these certain

a on as the ended we factors as for filings, the of including for quarter to Form more the XX-Q risk earlier XXXX, year results. quarterly March the affect our report SEC refer ended that which filed XX, our well with report detailed Please Form December description XX, may XX-K on annual today, our our for SEC XXXX,

SEC of visiting the from copies section or obtain website. Investor may Relations the by You our

it Zovio's CEO, At is Andrew time, this pleasure President to Founder, Clark. and my introduce

Andrew Clark

Thank highlights some quarter, our review and to the XXXX Kevin I the our offer you, After comments. of welcome will first key earnings call. for discuss financial Kevin will After metrics. Alanna, and my concludes, I operating closing results quarter

million for the We results our share. reported and quarter million diluted per to XXXX. $XX.X Turning $X revenue of or first net income of $X.XX of

the as non-GAAP for was impairment share. quarter and diluted transaction relating impacts charges, to Act, restructuring per tax as Excluding separation CARES net conversion our $X.XX million or well of and acquisition loss $X.X XXXX costs, costs, first the

XXXX same In year. line by enrollment with prior down as first compared percentage quarter quarter was new when for the our to expectations, the of high-single-digits a

As retention of cohort XXXX basis XXX XX.X%. increased reach prior points rate March Ashford's XX, the to over annual year

remote without last ensure two safety been goes crisis, quickly to in We staff, studies. for and our their working little, leveraged platforms our employees, the States. the At United onset uncertainty strong saw learning corporate moved the we disruption ensure of saying any transitioned as our wrought of COVID-XX students students university if It the staff. with and online to and our swept health the months to have

distance has which support. quickly products moved a enable to to learning addition, complementary overnight, nearly led as In to number a ongoing conversations of offering environment out to we to the reached universities, for online them of number future get

of COVID-XX macroeconomic uncertainty, periods brought U.S. to That the in pandemic said, economy has the a near historic unlike halt.

our is standpoint. As incredibly difficult the of a and current students predicting behaviors result, from potential

standpoint. from enrollment new a that be partnerships two are and likely group's, military students and look recalibrate there impacted to retention primary to are our we most As expectations, new education enrollment

of momentum continued enrollments our of these ago. compared programs enrollments saw to approximately students of as the XX% XX% year Partnership from total total quarter, first representing during one Education nearly with We

However, broader two XX their actions of our the top of cost-cutting as partners quarter. second in early program have tuition suspended reimbursement part

the approximately even students XX% representing take of similar the today, these remainder current there our taken companies term top in our their XX actions. a not headcount the path of general have given environment. is As that partners, FTG students unease similar among Understandably, near a of or may reduce

improving. in for slowly across This disruption military second branches. was students the education initially which The addressed is by military group, process all benefits, impacted not by and our were issue the automated a approval been has

This new quarter, of a steady we inquiries. flow experienced

imbalance we Once starting However, spend. for amounts identified, hiring to largely second in an and coaches now and recruiting we and driven new coaches advisers and was which them, in enrollment process disproportionate several cohorts January, of increased have the advertising resources discovered of of and inquiries advisers quarter. by

XX%. This factors. will of number expect second by decline driven to in We XXXX new enrollment be to quarter the mid-teens a of

of environment disruption First, the of broader we and the the inquiries. to process in the to identified our the mentioned to student for quarter second, students military benefits; FTG new inefficiencies operational the related receive behavior; first impact our lastly, approval macroeconomic processing COVID-XX related on I and

partially scholarships impact our students. We Education significant to the on mitigated. are we the net group, expect experiencing be with revenue this Due the most associated Partnership with impact to

as partnerships and be Turning perform of first quarter addition some through institutional at TutorMe the continued continue pipeline Cal of new we newer remains State add continued with Fullstack Further, offerings. and well. move our Fullstack, all in Bay. Learn their solid Forbes, the to XXXX. to East optimistic to to we

shy partners the the XX. total to efforts well demand, recently of first XX given has the which TutorMe directly just added expanded been its bringing quarter, marketing to in Also, consumer the TutorMe received. new

gain continues platform content Forbes, at the consumer. for Learn as skills-based to self-paced a traction

name its platform XXX finance, just more few. leadership, As across strategy courses like a business, development, marketing, reminder, than media, categories a offers personal social to

added XXX another to have subscribed we individuals. total quarter, the first the bringing During XXXX.

bringing XX. clients to five also new have We added the total corporate

encouraged as very offering. be thus traction the far to continue underscores the by strength it the of We

the Before a I me we with turn In the update of to continue a nonbinding we we Kevin, University letter brief into work conversion. on closing. January, a June to entered announced call Ashford towards intent over let had XXXX and provide

pandemic could economic our unprecedented light However, other our the outlook the in closing business, delayed. and recent for and COVID-XX and conversion timing uncertain of developments of impacting the industry be

to turn to I call and over our review Royal Now, will results. operating the financial Kevin

Kevin Royal

Thank you, Andrew.

was key the in year. revenue operating some providing of decrease by by rates prior $XXX.X Revenue The the million in compared quarter March begin the the an offset XXXX year-over-year period primarily tuition me XX, in to for is enrollment, a and information for of ended financial increase first $XX.X to quarter year-over-year. for same related average million decline XXXX. Let partially

prior period. $X.X dollars revenue X.X% to quarter expense. and first expense revenue costs or a expense decrease of cost and and $X.X comparable quarter whereas was for lower XXXX, the $XX.X or in fairly XX.X% the compared percentage revenue The for revenue of services year-over-year, labor by first debt driven primarily X.X% costs million was compared million $XX.X XXXX were year million a Net of of the debt absolute as of For in or of comparable the million or decrease in prior instructional XX.X% in to period. of the revenue consistent were bad bad

bad of a period. revenue percentage costs spend. student increased comparable the compared in revenue Admissions, We marketing expense $XX.X and or quarter due labor meaningful advertising cost the first of advisory population. prior XX.X% debt or the were expenses experienced to decreased These improvement decreases due XX.X% FTG of $XX.X have million as of lower to XXXX revenue and million to for in for

and General for million or and stock and Fullstack the of XX.X% driven acquisitions or $X.X primarily comparable with well of compared revenue the expenses separation increase million period. relating TutorMe, revenue a comp potential cost the quarter $XX.X first $XX.X by and to the revenue percentage million of million the was the administrative conversion. to associated XXXX prior expenses $X.X as The XX.X% of as amortization were as of of of for

XXXX period $X.X due The to costs fourth the as quarter as quarter for in for first compared XXXX million of the charges to benefits prior X.X% and current wages the comparable in the for relate well or Restructuring period. and costs. reorganization severance $XX,XXX revenue, of of impairment charges QX the severance to were XXXX

we certain $XX.X income a quarter due recognized CARES tax Act, million the carried operating During the of back for allows losses to XXXX, net situations. to benefit first which be in

the effective Before the this these first quarter low items, we discrete XXXX. any was continue for for XXXX of single-digits anticipate to remainder rate trend tax of and of our

net a first compared million of Net million the diluted income or of of net share. prior for loss $X.X or of the the income was XXXX share first net per per $X.XX $X.XX of is $X for year. a to This quarter diluted quarter loss

acquisition-related for Our $X.X non-GAAP diluted excludes share, loss or million, million, diluted year. for loss of $X.X the non-GAAP a of net non-GAAP $X.X compared $X.XX for $X.X costs of impairment net and share the of net The the and loss of million, million. was quarter or XXXX quarter million, first of first the quarter loss of $X.X loss prior costs restructuring $X.XX the of first per conversion XXXX of separation to charges per and

the in XXXX. we operating $XX.X As the of had cash and to compared comparison, By period combined of cash December cash activities of of during used of million same cash the XXXX. XX, We equivalents in ended operating period $XX.X activities $X.X year-to-date during March XX, we million XXXX, used year. million, March $XX.X as million XX, prior in

was capital. the of to increase March consistent compared business $XX with was as earnings as Tuition used Grant million of quarter in balance The our increased net as cash is $XX.X accounts and receivable of operating XX, our December acquired enrollment growth as well as as primarily year-over-year activities receivables. working the first in improvements the XXXX, the change XX, driven XXXX. in in cycles million of by well The Full XXXX The in

XXXX were March expenditures note uncertainty, we period wanted results. $X.X earnings year XXXX. COVID-XX continued $X.X item uncertainty, Capital XXXX that February we earnings for as its given cannot believe we this of pandemic and to and it financial Due all operating is full the reasonably year. the fourth the on call ended our XX, to million impact withdrawing million same One will to last last compared the for quarter year-to-date on during and our I have guidance XX, provided period are estimate our

Andrew will Now, to the for call turn his over I comments. closing back

Andrew Clark

summary, Thank unprecedented times In by the you COVID-XX pandemic. Kevin. we driven are facing

behaviors robust, to in most importantly and deliver online. result, their programs somewhat are flexible today financial unpredictable face we are as employment said, and/or status. a many student That greater As continue uncertainty that

technology services march are as to we well continue we value our As long-term believe to of education we company, for conversion University business creation. Ashford towards an the as transition positioning the

operator I'll this At lines time, ask for our the phone your to questions. open

Operator

Paris the [Operator Certainly. Instructions] Alex question first from line Your Research. from Barrington comes of

line is open. Your

Alex Paris

are Hi, doing guys. well and Hope are you safe.

Andrew Clark

Thank Alex. you,

We well are. safe. doing Hope and you you are are

Alex Paris

June, it on of the what guess. the June? I I timing letter Thank of little it don't related thought I'd year? closing, towards difficult you in said, conversion I you. separation? and Where will anyway. understandable later question think in and guess do question is Yep. close on there first the you my which economy, guess be news. COVID is there of in about And throw conversion. separation Though makes the good answer, topped how conversion the next to Congrats the summer it separation, components results, you it's given and might guidance. And Certainly, puts first on we The or still expectations do driving I and a its quarter if likelihood the June credit? but this which a bit you that close question I It impact you're be to stand -- out is have

Andrew Clark

we're the first Yes. you all priority. on that focused is Thanks, Alex. Well and converting as really of noted, June in

little give and sure get well make on we rely a caution with room outside conversion. on perspective, us COVID-XX one for to a in wanted -- closing another people longer think Zovio including would of this thing the working from as of out remotely to were Ashford to an as folks an reason that ourselves some case of variety at abundance through we to and or I it take

to really convert to other than intent I certainly you want certainly around it and be are really make next that is point our a our have don't for before year, hope ever that us leeway. trying ourselves has say June. because I and just I that that want comment give this case. your the focus to case. handicap don't any this to the time believe sure be in I wouldn't none that to experienced at would reason enough to We that we be is -- of cautious,

Alex Paris

Got you.

like about the of it provide the that's around closing Where date the stand sounds related What help on due of process letter partner would credit? be to going that? So for we to COVID. than a financial the logistics concerns do the more you uncertainty diligence

Andrew Clark

change no on make really and front. So there update to no that

I don't think more that front. on But we're the to to have be that converting once we obviously there'll new I a or talk ready in announce June. about get to to again lot news where are the any hopefully place point really we

Alex Paris

Thank Okay. you.

growing complete again two primary of conversion key separation. focus So Ashford year: get and the and areas this

growing many was of or improved and was well. like it that here the first will row be it guided you up. That's take thought where given comments a COVID in south again, sounded to would again it you so speak. And in uncertainty Ashford retention. to student on prepared and where it as the the the quarter be to on quarters enrollment second retention looks brings based new your turn and in quarter now that It a So like

to so gave on Any things a the your little How conversion? interruption? QX? and regard an How You flow Any recruiting about lead good bit inquiries? partnerships color in educational typical some going with are far of update military.

Andrew Clark

Sure. Yes.

things of there. to comment lots on So

retention. with start to want I think I

was As retention you up our again. noted,

of highest the retention the last years. we've One rates in had several cohort

FTG to in driven will partnerships the that retention We enrollments XX% primarily disruption. really increase. I'm ed quarter place significant see seen we're continuing rate and have be we've a by is a second happy pleased the which that. So that really with XX%, to between and do new negative where students, view

revenue there. know those As somewhat is scholarship, and so heavily mitigated you are students offset impact the to

And to had partnerships, have no satisfaction. inquiries, university the interested how of University your students to attracting the in looking ed which of to from because things way terms the question differentiates are student in of really in about relates which back standpoint Ashford kind itself issue of we terms of

If outperform you of at of and Promoter many of all reviews any Ashford's competitors. are look online Score the high the Net actually those the university significantly

flow last fact, second inquiries. here. no some the kind seen quarter have COVID-XX -- we've it early we comes when So challenges, second caused The to in And disruption, quite three-or-so of in quarter there. But and inquiry we expect. strong in sure the especially of about to I time, really the you weeks weren't good present tell in April inquiries. seen to what we've of can performance terms early from But -- the that

in handle advisers that first the the is opportunity to of all proper Really short is as us, a staff Alex, inquiries, spoke for fell place sure the to make of those to we number enrollment I we enrollment have which coaches, and quarter.

once our since happy for former call to Really We want alumni to been who us hiring them enrollment So come return. advisers worked see back. we've and March.

it's course, approximately and student the role. have been because adviser, in that of also no laid the of had people success and off, interest XXX-or-so hiring of number then, who want come in area of we've enrollment coach And in enrollment to tremendous COVID-XX work for folks. the We're Zovio lack people

second in we And in the So is pretty half kind should and very bullish enrollment service a really of confidence quarter. right there, student what the I think that still the place me do lot a staffing because can now our area, fourth of in around be around I'm gives with of third good we strong. levels the year. interest

Alex Paris

Any I news. anything given guess, a or Or dropping like or retention and itself. the six-week for home taking uptick Any that good like in students speaks note there? -- That's like to out kids that? are the anything off, things anything that, period

Andrew Clark

see mean, an I question. great did No, Yes. we uptick.

specifically, look, uptick just to to for of settle take we a a saw number students and school and break we the can a call, Leave high Requests. drop number partnership our an when had, come temporarily time We take Now, That's can students going status student our in ed from I come said, we're high of down we the that with And, to are And hopefully, that. either students. some or back and call drop. Academic students what off back. And things decided and what FTG again, really a take these a temporary acronym is rate of had ALRs, we school.

concerned little a those week. students returned but was I So last

would carefully look high to returned watching what And a see at were we like. very that rate. so And they

quite in which close to as the not January, good surprised that but pleasantly us. saw fact, as we return In rate very

stability So I place well see student enrollment our both kind a am prior in, in the standpoint. a resources heavily-scholarshipped to April as from starting some student as shifted COVID-XX of students non-scholarship continuing from lot here of, early to of I base, taking new our out standpoint, into a retention students.

that quite channel. because I And group. it, have the fortuitous, student shifted a of bit we non-scholarshipped and resources a into in to very And as our already proved would lot luck partnership of disruption the fortunately, military had ed there be

end pretty part we've of all new that perform way enrollments actually March since, our so, of present expectations much through seen kind the And at of, day.

Alex Paris

in worsening military scholarship the to like the as new year-over-year enrollments there? sounds disruption students student related student said, much and you it the the decline is, in So pretty

Andrew Clark

processing got is military really The Yes. starting They stabilize. fixed. to the

population, feeling as about that I'm good think students. fairly I Alex,

FTG take to is population actions the in and the companies dependent uncertain ed is is think I really that group, partnership particular. continue that students one future upon

start continuing scholarship to students, get school. or stay who in lower be decide to lot percentage, appear to The either tuition school benefit a

XX that's heavily seeing of new kind more scholarshipped, or either that continuing student erratic, really XX, it's FTG to where So behavior. student student we're

the kind least in to two. here in at continuing really Although, settled the of appear students -- have week or have last

Alex Paris

you educational said, remainder of top The XX two FTG partnerships? I so QX. of that -- is XX of tuition partners suspended in And the get right? reimbursement corporate XX% Did

Andrew Clark

FTG approximately yes. comprise XX% of They Yes. the students,

Alex Paris

they're their they the that XX%, it resolved? largest Because of account in that's enrolling means said, suspending your until they're So that not for two course they because suspended, the students next are obviously, right? two

Andrew Clark

is not their components it college because Yeah. One use. not benefit to a There's kind there's pursued haven't of two employees who previously now, pursuing there. are

no there's those top the XX contributor look in a enrollments significant you COVID-XX across we've of student so I And just the new from for And say that and companies. at interest top XX group, coming those in in the out Again to the our of that decline particular would if because seen companies, uncertainty. smallest board companies. largest new

are The they that on and solution, an could two currently, that has the obviously of find students companies need pursue alternative to and did that that is or suspend benefit continue stay so impact an their, either ours they to students who need to step also until financial because employees now out they reinstated benefits college wait degree. their

Alex Paris

could to there, be jobs, them? lost therefore so just not some be going that I mean And is benefit of for their these students it the

Andrew Clark

there's the rest The the talked puzzle. two employee there. part have of there's and Yeah, – and suspended in I think there's major -- so are about hanging aspect. Like employers so there's I been we've employer is benefits. think then one employers the And learner a aspect that

uncertainty. learn they're job, got they in ironically. daycare it's concerned that kids be the Perhaps at think have near situation a employer think not or of the They're kids another employee/learner I about their more the their even job, doing have of they're uncertainties. future? they more -- have laid in I think se. they tuition been to might they're benefit they've but now about They a And of a going or has per they'll off where are set they And home. helping might be thinking online

need quite And simply a step for that time. and so they're of with period preoccupied to back

at dropping look there's So out things learner in that I contribute near-term. individual you probably variety of the to them when the think a

back folks question back? is those that will will And the And think I for to us come judge. they come when that's school. to hard

Alex Paris

students. to to that It just in said from is clear Good. enrollment XX% you student And XX% sounds the new that then quarter. of like the in be second much decline FTG

paying than So less to revenue impact is impact paying significantly students employers' maybe in tuition. coming of of half on terms half basically going of the not only their because -- back potentially be the that the those that, they're

Andrew Clark

Yeah. impact, much a an little There'll so little to it's not mean, really not a to not It's -- too going bad really as but of of it's but you're as be bit be I an bit impact there's XX%. definitely speak. thinking. maybe

impact's basis to to probably annualized, together. a thinking remember you and what put try have as smaller You quarterly that the scholarship's than model so you're going be

Alex Paris

be guess, Confirm Got it to you. What right? there? all partners. think? five How my of And online I be then, sounds I color Fullstack an to process like to guess on recruiting up now corporate had shifted As I impact that will go? that you students does new did last that question but result is adding into… of these future also have COVID. Any a students

Andrew Clark

I'm glad brought up. that Yes. you Thank you.

of – university provide to remotely. solution actually the seven provide up Fullstack, partnerships fully remote a they're partners. online many And do programs They have they there. those So they

to And that them kind they able to were pretty mitigate and in take students and they their able York so campus, do – online New had disruption. be quickly were when to put in and Chicago of and

So all for began online now. effectively program. just And recruiting national a is basically online Fullstack they right

are. Now university they wouldn't students where recruit their partners

in the partner students university have right geography. Florida they So be going for same example, a University Texas. in now not to North don't they're But recruiting

national student could. Fullstack take to So was wanted a if who online they there this in program Texas

that. so they're for currently recruiting And

program, actually for strong that nice which on We've surprise. seen demand has been early a really

crisis I never think Fullstack, one And potentially access ways engineering made a they had online aspiring cautiously offering. it's them And step back things. partners. of optimistic protects And that in so the rethink go. for how and again I has a which of they've this will about I probably their make that And university curriculum, – that think kind of kind in will national their think another way students I'm can

Alex Paris

Appreciate there. Very I’ll it well. leave color. you, additional Thank it. Andrew for the

Andrew Clark

Thanks, right, the thank to participation We'd for today's for you. like Zovio your Thank Alex. interest all of great. All in callers call today. on your and

Operator

That concludes today's call. conference

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Zovio (ZVOI) 29 Apr 202020 Q1 Earnings call transcript