Good day and welcome to the Perdoceo Education Corporation fourth quarter 2020 earnings conference call and webcast. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Wyatt Turk. Please go ahead, sir.

Thank you. Good afternoon everyone and thank you for joining us for our fourth quarter and full year 2020 earnings call. With me on the call today is Todd Nelson, President and Chief Executive Officer and Ashish Ghia, Chief Financial Officer.

Thank you Wyatt. Good afternoon and thank you for joining us today. Before I get started, I would like to offer my sincerest thoughts and well wishes to all those who have been impacted by the global pandemic. The health and well-being of our students, faculty, employees, and communities remains our top priority as we continue to serve and educate our students. The pandemic and the resulting social distancing requirements have further reinforced and validated the benefits of online learning and I believe that our primarily online universities and programs are resonating well with prospective learners. We have seen increased adoption of online learning and both students and their academic institutions are seeing the benefit of the real-time engagement, learning, and flexibility that comes with online learning. These benefits are especially valuable for nontraditional learners, including working adults.

Thank you Todd. I will review the full year and fourth quarter results and then discuss our balance sheet and 2021 outlook before handing the call back to Todd 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. Operating results for AIU now reflect the Trident acquisition, commencing on March 2, 2020.

Thanks Ashish. In summary, our 2020 results show our steadfast commitment to the success of our students and sustainable and responsible growth. Our priorities for 2021 remain largely the same. We will continue to invest in our academic institutions and focus on positively impacting retention and academic outcomes across our universities. I would like to thank all of our employees, faculty, and students for their hard work and dedication this year. We will now open the line for any analyst questions.

And our first question today will come from Daniel Moore with CJS Securities. Please go ahead.

Thank you. And good afternoon, Todd and Ashish. Thanks for taking the questions.

You bet.

I wanted to start with new enrollment trends, clearly strong across both institutions. Can you delineate, I know it's hard but how much of the pandemic impacting demand for online programs from a macro sense is driving that versus your internal investments in technology, AI, recruiting, retention, et cetera? I know it's difficult but any color on that would be helpful.

Sure. Thank you. Yes, it is a combination of both. We continue to see, as we said in our earlier remarks that we continue to see good interest. And I think that, again, the viability and the necessity of quality online education has helped improve the demand. So second, yes, I think as Ashish mentioned, we have been more effective in our technology and other applications that allow us to better serve our students. And I think it helps them in their decision-making process. So again, hard to quantify how much. But I think, again, the strong demand in particular has probably had more of an immediate impact. But both have contributed.

That's helpful. And looking forward guidance, it is usually typically conservative, obviously. But how much of an increase in investment spending in those areas? You just talked about tech, data analytics, academics, student experiences. How do we think about either in dollar terms or percentage terms year-over-year increase in investment spend that's embedded in the 2021 guide?

Sure. And if we can, I can have Ashish respond to the second part. But yes, we felt like again based on demand and based on where we feel that interest is, that it was worthy of investing more significantly than we have in the past, especially in certificates or shorter duration programs and also in our corporate partnerships. We are seeing good demand and we want to take advantage of that. But to do that, you have to take more investment than it has in the past. And that has some impact on your outlook because you are investing for the future. Ashish, I don't know if you want to add anything to that?

No, I think that's spot on. I think we have incorporated those investments around our outlook. And as we have consistently said, these investments are a little bit heavier this year compared to previous years because of the specific opportunities that we have identified to further serve our students. We haven't given any specifics into the quantum of dollars of investments. But they are incorporated in the outlook. And as always, we will continue to balance and make sure that we have the appropriate investments for the long term for our students.

Helpful. Maybe sneak one more in. Cash flows were exceptional, obviously over $180 million in cash flow from ops. Then you give a little guide on the CapEx side, so probably that will tick a little higher. But just from the cash flow from operations perspective, can you talk about the puts and takes and how should we think about 2021 versus 2020?

Ashish, you want to take that?

Sure. From a cash flow from operations, I think as you said, it was $180 million this year. Keep in mind, there were some timing related items that positively impacted that $180 million for the current year. So it's about $39 million to $40 million was timing for this year. But on a regular basis, there were no unique items in our cash flow. We do have CapEx at 1.5% and 2%. We had the Trident acquisition this year. And we also had some share repurchases in the first half. So beyond that, there is nothing unique in terms of our cash flows. There are no significant lease liabilities on our balance sheet. So I think cash flow should have pretty much normalized trends once you account for some timing differences.

Perfect. That's helpful. Congrats on a great quarter, obviously. And I will jump back in queue with any follow-ups. Thank you.

You bet. Thank you.

And our next question will come from Alex Paris with Barrington Research. Please go ahead.

Hi guys. Congratulations on the earnings beat, yet again. I got on the call late. I apologize. I am juggling a couple of calls tonight. But I was wondering what you had said about corporate initiatives and what impact that had on enrollment and revenue per student and EBITDA in the fourth quarter, specifically, but in 2020 in general?

So I will really just talk about it at a high level first. What we are finding is, again, there is strong interest at both CTU and AIU. As we said before, CTU has had more time to develop the process to work effectively with the students. And so again, as we said, it was at CTU approximately 20% of our students are now those types of students. And AIU is a smaller percentage but it is growing. And that really worked, Alex. It is giving us the confidence to continue to invest in that. And as a result, I think that we are hoping that this year we will see some positive enrollment in both of those. As far as the other part of the question, I don't know, Ashish, do you want to respond to that or add anything to that?

Sure. As far as on the revenue per student, Alex, as we have said, the revenue per student on a quarterly basis will continue to fluctuate. But by and large, as we do add more corporate partnerships, obviously, the revenue per student is lower but please recall and keep in mind that those students typically have better retention and the cost associated to serve those students is typically lower. So those are the two things to keep in mind.

So less revenue per student, but the same or more EBITDA per student? Is that how I should think of it?

We don't necessarily talk in terms of EBITDA per student. But in the long term basis, yes, not immediately because those students do have a longer life, if you will, and they retain better. So yes, over the long term that is correct.

Okay. Great. And then I got to ask this question since the last call. There had been no, it was shortly after the election, let's put it that way. So I understand we have some nominations. Miguel Cardona as Secretary of Education. James Kvaal as Under Secretary. I asked you think question three months ago and I am wondering if you have any additional thoughts?

Well, again, we don't know a lot about them. We have read about their backgrounds and they both seem like obviously very experienced and have good backgrounds and we really do look forward to working with them or the folks within the department that we typically have worked more closely with in the past. So we are looking forward to that. Again, we continue to watch for any information that's available to see if there are any changes, if and when that would happen and what those would be. But at this point, again they seem to be very dedicated people to education, as are we and really do look forward to working with them.

Good. I am glad to hear that. And we did cover this topic on the last call. So I won't go into any further detail there. I guess for the last question for me just a few cats and dogs here. The AIU campuses, the CTU campuses, are they open again? I know they are small as a percentage.

Yes, it is small. At AIU, we have started that on a limited basis and we are excited to have that. And as of this point, Ashish, correct me if I am wrong, I know because we are getting close. But we haven't done that yet at CTU. But plans to move forward pretty soon on that as well.

That's correct.

Good. And then I have some questions about the initiatives that you are going to, the additional spending this year investing in areas like data analytics and so on. I am sure you talked about that before I got on the call. So we can talk about that on a follow-up call. Thank you.

Thank you Alex.

And our next question will come from Greg Pendy with Sidoti. Please go ahead.

Hi guys. Thanks for taking the questions. I just wanted to dig a little bit into just the margin differential at AIU versus CTU? I think we talked about higher corporate partnership might be one of the things given it's a higher EBITDA at CTU. But can you just kind of discuss maybe what over the next couple years now that you have Trident, so have gained some scale at AIU, what are some of the drivers that might be able to drive the margins closer towards closing that gap towards CTU? And then in addition, I know the student experiences your main priority at AIU, but just given the way you are structuring Trident as part of AIU, is that going to hamper the margins over the long term?

Sure. Great questions, Greg. And first, from our perspective, the top priority is really the student experience. But having said that, AIU, we believe, has the potential to have margins similar to CTU. But it's really more focused on, again, if they are growing at a faster pace, they tend not to have as much margin as you would expect a growth company versus one that's more flat. Second is scale. And again, because we do invest heavily in our academic infrastructure and you may have the same infrastructure for a student body that is significantly larger, again, because of the way they govern their structure, just for academic institutions. So as AIU grows, its margin should increase. And as far as adding Trident to that, again in fact, if anything, we think that that actually, and one of the reasons that we did that is, again it will allow them to increase the breadth and depth of their programs which would again allow us to better serve the demand of potential students that we are receiving. So again, it takes time to get that. But I certainly feel it has the potential to be similar to that. But again, the biggest factor, Greg, is scale and then obviously the time once you hit that for that to then materialize.

Got it. That's helpful. Thanks a lot.

Thank you.

Thank you.

And our next question is a follow-up from Daniel Moore with CJS Securities. Please go ahead.

Thank you again. I was just hoping you could give a little bit more detail on the types of certificate and shorter duration programs you tend to invest in?

Yes. And I think shorter duration is a better way to characterize them. But these programs really are, you find that there are a lot of students in particular in technology and in healthcare that want to again have a specific skill, reskilling, upskilling to allow them to advance in because there's job opportunities there. And many of them already have a degree or again, they see an opportunity that really requires the skill set versus some of the general education associated with that. And we have again, with curriculum and our faculty we feel we can provide excellent, both curriculum and faculty for them to get the information they need to do that. But again, several different areas, but in particular those two areas is where we have seen a significant demand.

And do you anticipate the funding mix being any different in those areas than the mix of AIU, CTU today?

I am not sure, Dan, what you mean by the funding?

The source of obviously, the ultimate source of revenue.

So corporate versus? Again, that's a good question. We think it will come from both. I think there will be those who are looking to change jobs or get a job in a particular field. And so it probably would come from the student. And there are those that are within the organization that offer tuition benefits that would help them as they advance their skills. So we don't know the combination, we don't know the percentage of combination, but we feel that it will come from both.

Okay. And lastly for me, just an update on capital allocation priorities. Obviously, cash continues to build rapidly. Are share buybacks back on the table or might they be? And in terms of M&A, are you seeing more opportunities like Trident out there?

Well, first, I think that's always something that's there if we feel it's the right thing to do for the organization. But again, I think with the opportunities that are out there, especially as we go into a new administration, we want to make sure that our strategy in an acquisition area is consistent with what or if there are going to be any types of changes. But I think hopefully that will develop soon or quickly as it has in prior administrations. And I think that then obviously depends would impact any type of buyback strategy you would have. But again, the priority really is to focus on those things that we do well, which is educating students.

Understood. Thanks and look forward to the next update. I appreciate it.

Thanks Dan.

Thank you.

And this will conclude our question-and-answer session, also concluding today's call. We would like to thank you for attending today's presentation. And at this time, you may now disconnect your line.