Nobel Learning Communities, Inc. F3Q10 (Qtr End 03/27/10) Earnings Call Transcript

Nobel Learning Communities, Inc. F3Q10 (Qtr End 03/27/10) Earnings Call Transcript
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Nobel Learning Communities, Inc. (NLCI)

F3Q10 (Qtr End 03/27/10) Earnings Call Transcript

May 5, 2010 5:00 pm ET

Executives

Tom Frank – SVP & CFO

George Bernstein – President & CEO

Lee Bohs – SVP of Corporate Development

Analysts

Jon Braatz – Kansas City Capital

Mark Mandell – Convergent Fund Management

Presentation

Operator

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Good day, everyone, and welcome to the Nobel Learning Communities Conference. As a reminder, today’s conference is being recorded. And at this time I would like to turn things over to Tom Frank, Chief Financial Officer. Please go ahead.

Tom Frank

Except for historical information discussed today, the information in this conference call consists of forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties are discussed in the Company’s filing with the SEC, and listeners are encouraged to read the risk factors therein.

These statements are based only on management’s knowledge and expectations on the date of this call. The Company undertakes no obligation to update any forward-looking statements made during this call to reflect events or circumstances that may arise after this call.

During this conference call, the Company will present financial information both in accordance with United States Generally Accepted Accounting Principles and also on a non-GAAP basis, including EBITDA and adjusted EBITDA, which is a non-GAAP financial measure. Please refer to the financial summary in the Company’s press release for information reconciling non-GAAP financial measures to comparable GAAP financial measures.

George, you may proceed.

George Bernstein

Good afternoon, everyone, and welcome to the Nobel Learning Communities third quarter fiscal year 2010 conference call. I am George Bernstein, President and CEO of Nobel Learning, and I am joined on our call this afternoon by Tom Frank, Senior Vice President and Chief Financial Officer, and Lee Bohs, Senior Vice President of Corporate Development.

During our prepared remarks this afternoon I’d like to provide you with some highlights on our quarter and update you on the momentum we’ve built coming through the tail end of the economic downturn. Tom will then present a more detailed review of our financial performance.

Nobel Learning reported earnings of $1.2 million, or $0.11 per fully diluted share for the third quarter of fiscal 2010, including a $0.01 per share charge for discontinued operations. For the first time in Company history, quarterly revenues exceeded $60 million, with third quarter revenues of $60.2 million.

Compared to the third quarter of last year, revenues grew 5.7% this quarter, a sequential acceleration in our growth rate from 5% for the second quarter. We’ve now grown revenue in 20 of the last 21 quarters.

On a cash flow basis, third quarter adjusted EBITDA was $5.5 million, while over the trailing 12 months ending with the March quarter, we’ve generated $17.8 million of adjusted EBITDA. Given our improving momentum, we believe this represents the bottom of the trough of our trailing 12 months EBITDA and that we will see improvement beginning in the fourth quarter of fiscal 2010. Let me repeat that, we believe our trailing 12-month EBITDA is unlikely to fall below the current quarter’s trailing 12-month $17.8 million.

During the economic downturn we experienced significant erosion in our comparable school enrollments. That trend appears to have shifted as we are now gaining students at an accelerating rate on a year-over-year basis. During the third quarter, the year-over-year improvement in net enrollment was materially better than in the second quarter. As a result, for the second consecutive quarter, comparable school year-over-year revenue improved on a sequential basis. In the third quarter comp school revenue was down 3.9%, a 90 basis point improvement compared to the second quarter. This sequential improvement was actually somewhat better, down only 2.5% when you remove the effect of a tuition increase implemented at the start of the fiscal 2009 third quarter.

Considering we are now beginning to lap some weak year-ago enrollments, we are very encouraged by our progress and the opportunity for even better performance, going forward. Our comparable school enrollment increase in the March quarter was driven by both cylinders of our enrollment engine: a reduction in student withdrawals and an increase in new starts.

Keep in mind that comparable school enrollment is a cumulative effect of the prior 12 months and withdrawals. The biggest impact on comparable school enrollment occurred during the September 209 back-to-school enrollment period when we most acutely felt the impact of the deteriorating economy and rising unemployment. So, even with the progress we achieved this year, total enrollments remain off our peaks of fiscal 2008.

Steady comparable school enrollment gains show our momentum has clearly shifted. In addition to solid net enrollment gains, enquiries for our school programs are improving nicely for both near term and next fall enrollments. In addition to the energy level behind our growth initiatives, we are applying equal effort to efficiency and productivity enhancements that will improve the leverage in our model. Our objective is to improve our operating leverage so that future returns from given levels of school occupancy are greater than those previously achieved at the same occupancy levels.

We are also pleased with the progress of our strategic initiatives. The Laurel Springs School, our K-12 college prep online educational platform is now fully integrated, meeting expectations and providing significant contribution to our revenue, gross profit, and EBITDA. Since taking ownership, we’ve been heavily engaged in developing opportunities to leverage Laurel Springs School curriculum into new growth markets such as our program to introduce online learning in Korea. There is strong international demand for a degree from a U.S. high school with quality accreditation where the degree is widely recognized at the U.S. university level. We believe this model has substantial international opportunities and we are involved in several discussions, which we hope to be able to announce over the next few months.

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