Good day and welcome to the Career Education Corporation's First Quarter Earnings Conference Call and Webcast. All participants will be in listen only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Sam Gibbons, Investor Relations. Mr. Gibbons, the floor is yours sir.

Thank you, Mike. Good afternoon, everyone, and thank you for joining us. With me on the call today is Todd Nelson, President and Chief Executive Officer; and Ashish Ghia, Senior Vice President and Chief Financial Officer. This conference call is being webcast live within the Investor Relations section at careered.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. These statements are based on assumptions made by and information currently available to Career Education and involve risks and uncertainties that could cause actual future results, performance and 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 Career Education's Annual Report on Form 10-K for the year ended December 31, 2017, and other 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 and slide presentation, which accompany today's call, and which contain financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures, are available within the Investor Relations section at careered.com. So with that, I'd like to turn the call over to Todd Nelson. Todd?

Thank you, Sam. Good afternoon, everyone, and thank you for joining us on today's call. I'll begin with a review of the first quarter operating results that were highlighted with positive momentum in key operating metrics, which also contributed to adjusted operating income coming in ahead of our expectations. Ashish will then provide some more details around the financials and outlook before I provide some closing remarks at the end of the call. Please keep in mind that for the remainder of today's discussion, references to ongoing operations represents results from the University Group and Corporate. All comparisons are versus the comparative prior year period unless otherwise stated. The Education industry remains one of the biggest sectors of our economy, and post-secondary enrollments are expected to see modest growth over the next few years. This combined with the positive momentum entering 2018 will support our objectives to drive sustainable and responsible growth. We believe that the acceptance of online education is accelerating and the use of data and technology to serve students and enhance learning outcomes is becoming an important competitive advantage. In that context, approximately 90% of our students are online, 75% of them use the mobile app and 40% of our courses are now augmented by intellipath, our personalized learning platform. In fact, we continue to focus on further differentiating our educational offerings and leveraging technology to enhance learning, increase depth and breadth of program offerings and build corporate partnerships. 2018 is off to a good start with our first quarter adjusted operating income of $25.9 million compared to $15.8 million in the prior year, which reflects an improvement of approximately 63%. Income growth and cash generation continue to accelerate and are further supporting our investments in student-serving processes and initiatives. At CTU, new enrollment for the first…

Thank you, Todd. Today, I will start with a review of our first quarter results and then discuss our balance sheet and outlook before handing the call back to Todd for his closing remarks. For the quarter just ended, total company operating income was $20.5 million, an improvement of 110% as compared to an operating income of $9.8 million. This improvement in performance was primarily driven by reduced operating costs at teach-out campuses and continued efficiency within our marketing and advertising efforts. Operating income from University Group and Corporate was $26.8 million in the first quarter, an improvement of 15.8% as compared to an operating income of $23.1 million. Adjusted operating income was $29.2 million, an improvement of 14% as compared to $25.7 million in the prior year. This improvement is primarily driven by efficiency in our marketing cost, which was partially offset by our ongoing investments in student support staffing across our admissions and advising centers. In fact, staffing at our universities is up sequentially from the previous quarter, while any marketing and advertising efficiencies will be more muted in future quarters. These factors may drive some quarterly variability in our performance from ongoing operations, but we remain confident in our full year outlook provided last quarter. First quarter University Group revenue declined by 0.4% to $147.7 million as compared to the prior year. CTU experienced revenue growth of $0.6 million, driven by continued improvements in retention and growth in new enrollments. This was offset by AIU revenue decline of $1.1 million, primarily driven by one less revenue day in the quarter versus the prior year. Moving to enrollments. For the quarter just ended, total enrollments at CTU grew by 2.8%, supported by new enrollment growth of 4.6% as well as improving retention trends. Ongoing initiatives and investments in…

Thanks, Ashish. We have entered 2018 from a position of strength and are continuing to execute against our objectives to drive sustainable and responsible growth. Key takeaways as we continue to execute in 2018 and beyond are: first, overall operating metrics and trends are in line with our expectations. Two, we will continue to accelerate our investments in student-serving processes and initiatives; three, there will be a strong focus on technology and academic quality as key enablers of growth; and finally, our teach-outs are substantially complete, and I wanted to take a moment to thank our faculty and staff, who have worked tirelessly to provide a quality education for our students. To wrap up, our operating performance is allowing and encouraging us to accelerate growth and investments in technology enhancements that will align our universities with the long-term demand trends we expect to see in post-secondary education. We are taking a measured approach to balance our objectives of effective and efficient student services with our financial and operating commitments and remain confident in the long-term academic value proposition of our universities and our position in post-secondary education. Thank you, again, for joining us today, and we'll now open the call for any analyst questions.

Hey, thank you, sir. [Operator Instructions] The first question we have will come from Peter Appert with Piper Jaffray.

Thank you, good afternoon. So Todd, a couple of things; one, can you help me better understand the sort of the arithmetic between the disconnect, between enrollment performance and revenue performance at AIU in the quarter, right? Enrollment is down 13%, revenue is down 2%. Obviously, it's not just a function of tuition price increases, so what's the disconnect?

Sure. Well, it's not really a disconnect. It's what it is, is that, it is the timing of when I start actually the number of days that you have that contribute to a start doesn't mean that you are not recognizing revenue on your total enrollment during that period of time. And so - although you - again, as we've said, we expect it based on that timing, you would see a large drop in new enrollment that should be, as we said, bouncing back in Q2 and Q3.

Okay. And then how about, sort of the operating metrics, Todd, for AIU in terms of inquiry volumes, conversion rates? Were they impacted at all by these calendar changes?

Well, the good news is as we mentioned in the script is that there are - we continue to see good demand for both CTU and AIU. So our ability to generate increases, we still feel very good about that. What we have done based on that, Peter, is we continued to add enrollment staff. Obviously, as you add enrollment staff at a higher rate than you have in the past, it dilutes a little bit your - I would say, your conversion rate slightly because you have newer enrollment counselors who are coming up to speed. And you saw some of that obviously in the last quarter. Going forward, again, because of the level of now tenure of those enrollment counselors, we're feeling very good about that. And we're seeing, in particular, the productivity in, now, two Arizona advisement centers as you see, we mentioned we've added the second one because of the success there. You're seeing those productivity levels coming up. So we're, as I said, encouraged that gives us some momentum going into Q3 - Q2 and Q3.

Got it. And Todd, I think, you've talked about this in past quarters. As you're getting to this meaningful positive inflection and free cash flow and teach-out losses, obviously, are dramatically diminished, you're in a pretty advantageous position from a capital standpoint. Talk about, please, the - how you're thinking about capital initiatives? How important M&A is on a go-forward basis to the strategy?

Sure, thanks, Peter. A good question. First, our goal was to really get our balance sheet stronger, which I feel like we have done that. And then, obviously, the organic growth opportunities and initiatives have been our key focus and will be. I mean, again, we're continuing to feel we have demand - a positive demand for both AIU and CTU. We need to take advantage of that. It obviously is something we do very well, and we feel very cost-effectively and so that still is a key part of our strategy. Don't feel like we're done with that yet, and so we're going to continue to invest in that. I think the next step would be to find a way to leverage the things that we - some of the things we do well, which is - again, we feel that our front-end process is effective. We feel we have a good back-office, and we also do feel that we do a good job with our - the quality of our education producing outcomes. And so the ability to - if the right opportunity presents itself to look at an additional brand, one that again we would be very selective and certainly in no hurry to do that, but that would be something that we would, I think, look at beyond that. And beyond that, again just continuing to balance the need for a strong balance sheet as well as being very cognizant of providing a good return on the capital that we have.

Thank you and then last question. I think, Todd, both you and Ashish mentioned the potential for variability in the quarterly results this year. I'm just wondering if you can give us any incremental color in terms of just short term? Is there anything plus or minus in the June quarter we should be focused on that could be put or take in terms of performance?

From an overall corporate perspective or overall company perspective, no, not necessarily. But obviously, on the university segment, you have some timing based on the ramp-up of your enrollment staff as it compared to the prior year and the level of productivity. So it puts a little bit of pressure on the second quarter of the University and ongoing. But again, we see that as we go - as we said, we reaffirmed our annual outlook, the year's outlook. It doesn't really - on a four quarter basis, it doesn't become problematic. Just there are - there is some variability in that second quarter.

Got it, understood. Great, thank you.

Thanks, Peter.

[Operator Instructions] Next we have Greg Pendy of Sidoti.

Hey guys, thanks for taking my questions. Just two questions, first I just wanted to confirm, did you say that tax rate was going from 23% to 26%? And does that compare to - was it previously 26% to 30%?

Yes, it is going from 23% to 26% and the last effective tax rate for 2017, obviously, was influenced because we had our - the adjustment for our deferred write-offs due to the new Tax Act. But the new tax rate is 23% to 26%, at least, that's what we anticipate.

Okay. And then the second question. I think, earlier in the call, you mentioned that 40% in the classes, right now, are being - are using intellipath. Is there any color on where you see that going? Where that trend is going? And any kind of metrics we should be thinking about? Is that impacting anything within the business?

Well, again, I think that the thing that it affects the most is the long-term positive impacts on the universities, because it provides, we believe, a better education for the students and better outcomes. It's hard to measure the impact financially in the short run. I think in the long run, it has a positive impact, but it really is on the quality of the education. And we're big fans of that, and we're going to continue to invest in it and increase the percentage, number of courses that have intellipath in it. But as I said, it really is - in the short run, it's the benefit of the student. And in the long run, again, benefits the overall outcomes of the institution. And I think it's the right business decision as well.

Okay. And then just, I guess, one final one. I guess, just within enrollment trends, are you seeing any kind of - I think, you said this was third quarter in a row you're seeing CTU enrollment trends in the right direction. Is there any certain programs that are standing out or trends that you're seeing within that?

Well, I would say, not necessarily. I mean, you've always see ebbs and flows within the programs, but one of the things that we continue to be encouraged by is the number of corporate students they have, students that are being recruited from programs where we have relationships with those companies. And we feel good about where that's going. And again, just overall good execution across-the-board at CTU from the generation of inquiries, through the handling of admissions process, and then the back-end of making sure that they're working hard to retain those students.

That's helpful, thanks a lot.

Thanks Greg.

Well, this will conclude our question-and-answer session. I would now like to turn the conference call back over to Mr. Todd Nelson for any closing remarks. Sir?

Thank you, again, for joining our call today, and we look forward to giving you an update next quarter. Thank you.