Zovio Inc
Q2 2021 Earnings Call Transcript

Published: 28 Jul 2021

[Operator:]

Good afternoon, and welcome to Zovio's Second Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Vickie Schray, Executive Vice President, Chief External Affairs Officer. Please go ahead.

[Vickie Schray:]

Thank you, and good afternoon. Zovio's second quarter 2021 earnings release was issued earlier today and is posted on the company's website at www.zovio.com. Joining me on the call today are George Pernsteiner, Interim CEO, Office of the CEO and Board Chair; Chris Spohn, Executive Vice President of Operations and Office of the CEO; and Kevin Royal, Executive Vice President, Chief Financial Officer.

[George Pernsteiner:]

Thank you, Vicky. And welcome to our second quarter 2021 earnings call. Starting with our results for the second quarter 2021 we delivered revenue and other revenue of $69.2 million and incurred a net loss of $4 million or a loss of $0.12 per diluted share. Excluding non-GAAP items our non-GAAP net loss for the second quarter of 2021 was $800,000 or a loss of $0.02 per diluted share. Last quarter we discussed the enrolment headwinds we faced at UAGC as a result of the new brand as well as the longer term impact of the COVID pandemic similar to many higher education institutions. According to the persistence and retention report recently issued by the National Student Clearinghouse Research Center new enrolment of college students in the United States particularly of first-time students and students underrepresented in higher education. Students of color those from low income backgrounds and older students continue to show overall decline.

[Chris Spohn:]

Thank you, George. We continue to advance our Zovio Growth segment while at the same time enhancing our robust and flexible offering for the university partners in the University Partners segment. These efforts are creating value and we believe they position us well to drive enhanced performance over the long-term with a differentiated and flexible value proposition that spans the student life cycle. We are meeting the growing needs of our current and future partners both at the undergraduate and graduate level especially in engaging working adults and historically under represented students. Our growth segment which includes our subsidiaries Fullstack and TutorMe has continued to perform well. In the second quarter of 2021, Zovio Growth delivered revenues at $6.9 million, growing 39.3% for the quarter year-over-year. These services that Fullstack and TutorMe provide enhances Zovio’s ecosystem to support learners education and career aspirations by building on our existing capabilities to meaningfully serve higher education institutions, bridge the education to employment gap, help enterprises upscale and educate their employees. We have the opportunity to be a premier player in a large evolving and growing industry. And Zovio Growth is a critical piece of that strategy. Our track record of innovation will allow us to offer services to our university partners. That span the student journey and support the best possible outcomes. Further demonstrating the strength of our growth segment, TutorMe was honored in early June as a Double Gold Stevie Award Winner in the 2021 American Business Awards. In addition, during the second quarter of 2021 TutorMe continue to execute new partnership agreements from universities to corporations to school districts bringing their total partnership count to over 250% an increase of 230% year-over-year. In the second quarter, total customer and partner hours usage increased over 120% year-over-year maintaining the strong momentum we have seen in recent quarters. Fullstack also added new partners during the quarter and leverage new partnerships that came online. In the second quarter, Fullstack added Cleveland State University to its roster to bring accelerated tech skills training to Ohio. As well as the University of Texas, Dallas and the University of New Mexico. We are excited about the opportunities these universities have to offer. As the end of the second quarter this brings Fullstack to 16 new partnerships since the acquisition in April of 2019. In addition we launched a data analytics bootcamp which has been well-received.

[Kevin Royal:]

Thank you, Chris. Before I begin, as a reminder our business model period-over-period has shifted significantly as a result of our transition to an education technology services company in December 2020. As such for comparability purposes, in addition to providing the GAAP results for the second quarter of the prior year, I will be highlighting certain related pro forma amounts for that period.

[Operator:]

Your first question comes from the line of Alex Paris with Barrington Research. Your line is open.

[Alex Paris:]

Hi guys, thanks for taking my questions. I think I'll start first with the University Partners segment and UAGC specifically. We talked a lot about it on the Q1 call and since. And specifically since, you've talked about a shift in prospective students coming from the West Arizona, California, Texas and away from the south which was Ashford University's source of significant enrollment. You said that these students are taking longer to make a decision but conversion rates are higher. There were more inquiries at the graduate level as opposed to undergraduate. There were positive early signs and then specifically in military, you're starting to see some improvement there as well. This is all said on the last call and in the conference appearance since. I was wondering if you can update the current state of the UAGC efforts?

[George Pernsteiner:]

Yeah, we’re and thanks for the question Alex. We're still seeing that shift in geography in terms of the inquiries that are coming through. The conversion continues to hold strong and that's a good something to feel good about from an operational cadence. With respect to the military, we, I think, have done some good things to continue to message to the military with the new brand. And I think that’s having, having play well operationally. So, all the things that we provided in the last quarter, we’re still to see, seeing those trends. And having as the market shifts a little bit, our ability then to sort of calibrate from a training standpoint allows us to better service those demographics. And we're starting to see that.

[Alex Paris:]

Great. And then again, on the last call I think you said that April new enrollments were down 25% year over year at UAGC but you were seeing some signs of stabilization. In your prepared comments, you said that, that stable that, you've seen a stabilization but it's been in a little bit lower level than you had expected or hoped. Could you give us a little bit more color there may be on May and June?

[George Pernsteiner:]

Yeah. We, we, again continue to see stabilization more than we've seen when the last earnings call that we had. And so, that's, that's good. And I think that's part of our ability to be able to speak to the new brand and to build that relationship with our partner in, University of Arizona Global Campus. All those things are very positive. In fact, we had in July, as I referenced, we had an in-person summit really to map out a number of very strong, new enrollment and growth initiatives. Well, it's too early to give you specifics on that. We came out of that meeting both of us, feeling very good about the work that we've done. And we've got some short-term initiatives that will begin to play in the market here very soon. And we've got some longer-term initiatives but it was a very productive meetings, I think that was the stronger sentiments from both sides.

[Alex Paris:]

So when you say stabilization you're just saying it's not as bad as negative 25% right or you're getting closer to zero but certainly not growing yet at this point?

[George Pernsteiner:]

That's correct, Alex probably closer to 20% decline versus the 25% and recently we are seeing stabilization in our total enrollment.

[Alex Paris:]

And that's a function of improved continuation of students and fewer graduations?

[George Pernsteiner:]

It's a function of obviously adding new enrollments to the mix. It's a function of increased persistence and you know working with students that even drops and getting them back to re-entry. So there's a number of moving parts there that drive our total enrollment. Those all are -- are either stabilized or in some areas some showing some slight -- slight improvement.

[Alex Paris:]

Okay. Good. It sounds like there's a lot you can't talk about yet at this stage on UAGC, but you say, you're -- how would you qualitatively you know put it? You're more encouraged than you were three months ago about the prospects for UAGC?

[George Pernsteiner:]

Yeah. I would -- I think that would be a good way to frame the relationship. I think we’re -- we haven't been in a bad place. I think we're in a better place today and -- and I think that summit meeting I think it bodes on both sides a great deal of you know service to help grow the business both on the new enrollment and total enrollment side.

[Alex Paris:]

Okay. Good. And then while still on university partnerships, you have the smaller deal, the midsize school you can't give the name yet. I think it was your hope at the outset of the year that you'd have a one to three such additional contracts this year. Do you still, is that still the target?

[George Pernsteiner:]

Yeah I think we're going optimistic, you know but again you know some of these things take a little bit longer. So but I think we've got I think an attractive pipeline that looks, that looks -- looks good.

[Alex Paris:]

Okay. Thank you and then, and so I have the updated guidance, the, the, the. When do you think it'd be in a position to give 2022 guidance? 2022 guidance?

[George Pernsteiner:]

So I think given that the budget cycles that we're on that we more likely than not Alex we’ll not provide that guidance until the our third quarter call in late October early November at the earliest. And depending on our visibility that could push out until our, our fourth quarter call in the February timeframe.

[Alex Paris:]

All right. I would encourage you to give us some sort of targets, goals, don't call it guidance, but give us some sort of idea. And you know if we're going to we're in the valley here and we're looking to the other side to whatever extent you can help us there looking to the other side, we'd appreciate it. And then I guess the last quick question is, cash, you discuss cash. How $8 million came out of restricted cash in the second quarter another couple million to go between now. What do you expect cash to be at yearend?

[George Pernsteiner:]

I think the latest forecast that we're looking at is roughly $40 million as of the end of the calendar year.

[Alex Paris:]

Okay, so that's kind of unchanged from the last quarter which is good.

[George Pernsteiner:]

That's correct.

[Alex Paris:]

Okay great. Thank you. That answers my questions for now. I'll get back in the queue.

[Operator:]

Your next question comes from the line of Thierry Wuilloud with Water Tower Research. Your line is open.

[Thierry Wuilloud:]

Yes good afternoon, Chris and Kevin you've covered quite a bit on the call and we But I think you mentioned in terms of the cost saving you're going from $40 million annualized to $60 million annualized. Is that correct?

[George Pernsteiner:]

That is correct, Thierry.

[Thierry Wuilloud:]

Okay. And then you mentioned meeting with a UAGC are there any plan of action that you could share with us maybe as a some qualitative or some illustration of the kind of things that you think you can do?

[George Pernsteiner:]

Just a high level Thierry. I think we focused on two areas. One what can we do to continue from an initiative standpoint. Continue to sort of drive in a good way new enrollment. And so there was a lot of good conversation around that area. The second area was around persistence of our existing students. What things can we continue to give students and support them where they're at in their student journey lifecycle. And we've got a number of things mapped out. I think here soon we've been able to provide a little more insight into what those are. Again as I said some of these will take place pretty quickly and then some of these take a little longer time but I think those messages that and give you a little more insight as to the specifics of what those are and how impactful that will be.

[Thierry Wuilloud:]

Okay. In terms of the help you are getting from University of Arizona of helping UAGC, any color you can give at this point?

[George Pernsteiner:]

No, not at this point, Thierry. I think we, we, we work on building that relationship with UAGC and obviously UAGC has that relationship with the University of Arizona. So, it's in that vein that we're continuing to open up a dialogue where there's opportunities for, for improvement in various areas. And we'll continue to work in that spirit. I think there's, I think the point I would make that there is an open dialogue between the University of Arizona Global Campus obviously in Zovio and the University of Arizona so that's a healthy and that's a good thing from which to build on.

[Thierry Wuilloud:]

Okay. And then on the fourth stack you mentioned you’ve had a new program. So, we have cyber, cyber security and data analytics and, there's a third program too, right?

[George Pernsteiner:]

Yes. We have the one. I think it was the boot camp, the data analytics. Yeah. These are newer, newer programs that we're putting out into the market that are resonating with certain audiences. So, that's one, just off late, that is really, has done quite well.

[Thierry Wuilloud:]

Okay. So, when you have a new partner, do you usually start with the full menu or you start with cyber security and then you add on?

[George Pernsteiner:]

You know it's, it's a great question. It really, it just depends on the university partner in terms of what they want you know a partner, perhaps a LSU is more looking at a full suite of offerings where other schools are looking at more of a -- of a limited you know programmatic list. So it just really depends on where they're at in that space and some maybe start a little on a smaller scale, some are a little more robust and it -- just there's -- there's you know I wouldn't say there's no rhyme or reason, but it just varies by -- by university partner in terms of what they're looking for. But I think you know that initial part of whatever program or programs or programs we watch you know getting -- getting them up and running and successful allows us I think build on that.

[Thierry Wuilloud:]

Okay. And then maybe a last household question for Kevin. So we're going to be cash -- we're going to generate cash in the second half of the year. Did I -- I think I understood that correctly right?

[George Pernsteiner:]

That is correct. Yeah.

[Thierry Wuilloud:]

Okay. So we'll go from $20 -- $37 million to over $40 million or so in -- or cash -- in total cash or is the $40 million cash in restricted or just unrestricted -- unrestricted cash.

[George Pernsteiner:]

Its unrestricted cash, Thierry.

[Thierry Wuilloud:]

Okay. Okay. Great. Thank you very much.

[Operator:]

Your next question comes from the line of Greg Gibas with Northland Securities. Your line is open.

[Greg Gibas:]

Hey, guys. Thanks for taking the questions. If I can follow-up on the military side, we think about your efforts to or I guess that you're taking to remediate some of the branding related issues that you've had with them following the branch change. How close I guess would you say we are to rebuilding that brand image? And do you expect to see any long-term impacts there? Would you say we're kind of halfway to recovering military interests, just trying to gauge where we stand today?

[George Pernsteiner:]

I think it's hard to say whether we're halfway there probably there or quarter of the way there. I think what's good is the fact that the steps that we've taken to I think re-solidify working with the military has started. I think our ability to message our brand, our new brand to the military has started and I think we're starting to see some of those dividends paid. I mean we still have some headwinds if you will. But the fact that I think we're in a slightly better place with the military and we have something to build on, I think it gives us some optimism in the future.

[Greg Gibas:]

And you know if I could touch on the Walgreens partnership too, seems like you UAGC’s scholarship partnership with Bayer is a pretty nice way to accelerate interest with a new group of these nationwide employees. I was just wondering you know if you could talk a little bit more about your thoughts there and if you're seeing additional opportunities with other corporate partnerships and if so, when some of those might materialize?

[George Pernsteiner:]

Yeah. We've got a very I think healthy pipeline in the work with our corporate team. We continued that area of our business continues to do very well. We've got I can't reference them now but we've got some other very marquee if you will of corporations that we're currently in dialogue with. And I think those are going to come to fruition here fairly soon but I think you know the Walgreens was a good step I think we did a good job with them and I think we can leverage that experience that we've had to be able to take that message on to both other larger medium sized corporation. So it's a -- I think it's a good step in the right direction.

[Greg Gibas:]

Okay great. Regarding the $40 million in cash savings this year 2021 and then that turning into kind of equating to $60 million savings on an annual basis. Could you just walk us through a little bit more specifically where those savings are coming from?

[George Pernsteiner:]

Sure a lot of the savings are in taking a look at the company and really eliminating administrative functions that are not needed as we've transitioned to an educational technology company. So we had some leftover functions from being a -- we’re profit education company. We certainly dealt with that. We dealt with a lot of duplication as it related to some of our student facing functions. So we were able to reduce cost in our operation area which is clearly our largest area of spending without having an impact that we provide an impact on the services that we provide to the University of Arizona global campus. And then we just we really delve in and we really turned back costs some things that we may have relied on others and outsourced in the past. We brought in-house and we're handling ourselves.

[Greg Gibas:]

Great. Yeah that's helpful, Kevin. I guess last one for me it seems like Fullstack and TutorMe partnerships in terms of the admissions are tracking really well relative to your full year expectations and I appreciate the update too on kind of your longer term look on Zovio growth as a whole for the foreseeable future that is. And I guess I just wanted to ask if there's maybe any trends or changes to customer demand for those two offerings whether it's positive or negative? And then also I guess regarding full-stack launching of the data analytics like you talked about recently, I understand if you want to be specific but you expect to launch maybe new programs that might garner additional interest in the foreseeable future?

[George Pernsteiner:]

Yeah. I think being in tune with what the, what the market needs are is important. And, and so I think we've got a good, good sense working with our university partners in terms of what programs they're looking to build. And I think an important part of our growth strategy will be continue to provide programs and products that resonate with the consumers, right, in terms of how the markets are growing and shifting. And we've got to be aligned with that and in some ways be on the front edge to make sure that we're providing things at the time that's needed and be able to support them and make sure that we're constantly updating the curriculum. So, it's relevant to the workplace.

[Greg Gibas:]

Great. Thanks, guys. Appreciate it.

[Operator:]

There are no further questions at this time. I would like to turn the call back over to Chris Spohn for any closing remarks.

[Chris Spohn:]

Great. Again, we'd like to thank all of today's callers for their interest in Zovio. And we thank you for your participation on the call today. Thank you.

[Operator:]

This concludes today’s conference call. Thank you all for participating. You may now disconnect.