Good day, and welcome to the Q1 2019 Career Education Earnings Conference Call and Webcast. All participants are in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to hand the conference over to Mr. Chris Donovan with Alpha IR. Please go ahead.

[Audio Gap] first quarter 2019 earnings call. 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 and/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, 2018, 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 that accompany today's call contains financial and other quantitative information to be discussed today as well as the reconciliation of GAAP to non-GAAP measures, and is available within the Investor Relations page on the Company's website at www.careered.com. With that, I'd like to turn the call over to Todd Nelson. Todd?

Thank you, Chris. Good afternoon, everyone, and thank you for joining us on today's call. We started 2019 on a strong note, with first quarter financial and operating metrics showing year-over-year growth and coming in ahead of our previously provided outlook. Momentum within our operating processes remains encouraging, and we are executing well against our objective of sustainable and responsible growth. Some key highlights for the quarter include First, revenue for the quarter was up 6.6%, with both universities contributing to this growth, resulting in operating income growth of 46% and an operating margin of 19%. Second, looking beyond the impact of the academic calendar redesign, we believe university new enrollment growth was the strongest it has been in over 5 years. Third, based on encouraging trends through the first quarter of 2019, including the consistent levels of student interest for our programs and the industry in general, we have incrementally invested in further optimizing our onboarding and enrollment processes. Lastly, we're excited about the potential acquisition of Trident University International, and are now focusing on our efforts on planning and integration, while working through necessary regulatory approvals. I'll further expand on some of the highlights for the quarter shortly. Ashish will then cover more details around the financials and provide an update of our 2019 outlook before I add some closing thoughts to end the call. First quarter 2019 was a strong quarter, driven by the positive momentum that carried over from 2018. We reported net income of $24.8 million or $0.35 per diluted share. While adjusted earnings per diluted share, which excludes certain significant and noncash items, was $0.36 per diluted share as compared to $0.28 in the prior year quarter. Adjusted operating income was $33 million as compared to $25.9 million in the prior year quarter, with…

Thank you, Todd. I will start with a review of our first quarter results, and then discuss our balance sheet and 2019 outlook before handing the call back to Todd for his closing remarks. All comparisons are versus the comparative prior year period, unless otherwise stated. Before I begin, let me point out a change in our segment presentation effective 1/1/2019. With the responsible completion of our teach-outs, the all other campuses segment, which included these schools is no longer an operating segment. As a result, residual office associated with these closed campuses will now be included within the corporate and other category. Prior periods have been recast to maintain comparability. Now to our results. First quarter delivered a solid start to the year with total company operating income of $30 million, an improvement of 46% as compared to an operating income of $20.5 million. Adjusted operating income, which excludes certain significant and noncash items, is more reflective of the underlying operating performance. This measure was $33 million for the quarter, which was 27.5% higher versus the prior year and above the high-end of our outlook range of $30.5 million to $32 million. Net income for the quarter was $24.8 million and earnings per diluted share was $0.35, while adjusted earnings per diluted share was $0.36. This improvement in operating performance was primarily driven by revenue growth at both universities as well as reduced losses associated with our closed campuses. Offsetting these positives were costs associated with ongoing investments in technology and student-serving processes and initiatives as well as increased bad debt expense. Now some more specific around our quarter financials. Total company revenue increased 6.6% to approximately $158 million as compared to the prior year quarter. This growth was driven by positive student enrollment trends at both universities that…

Thanks, Ashish. We've entered 2019 with good momentum, and we're very proud of the hard work and contributions of the entire Career Education team in supporting our successful transformation to a responsible growth company. Key takeaways as we continue to execute in 2019. First, overall operating metrics and trends are positive. Second, we will continue to balance our operating and financial commitments with investments in student-serving processes and initiatives. Third, there'll be a strong focus on technology and academic delivery as key differentiators and enablers of growth. And finally, we'll continue to invest capital and resources to increase shareholder value, while working to enhance overall student experiences, retention and academic outcomes. Thanks, again, for joining us today. And we'll now open the call for any analyst questions.

[Operator Instructions] Your first question comes from Alex Paris from Barrington Research. Please go ahead.

This is Chris Howe sitting in for Alex Paris. Congrats on the solid quarter.

Hi Chris.

I have several questions here. But I guess, starting off with margin expectation. When I look at AIU versus CTU, there is a variance there, a difference in margins, 13.7% in AIU, 30.6% at CTU. As we look at for your outlook for this year and even beyond, how should we look at margin expansion opportunities here, whether it relates to your technology investments or changes in pricing or other initiatives that you have in place or are in progress currently?

Yes. Well, the good news is on this is that we're seeing good progress with AIU and their margin expansion. One of the things that does need to be taken into consideration is to some degree is scale. For example, if you look at the academic infrastructure needed for an AIU versus CTU, it's very similar despite the fact that CTU is twice the size of AIU. And that's just -- it's a necessary process you need to go through for, I believe, to have academically staff correctly. And so that's one. The second is that we've been also investing in, which is being displayed by their faster growth right now, in growth, which also takes a little bit of -- also suppresses margin, but in time, our feeling is that AIU has the potential to have margin expansion and some point in time be more similar to CTU.

Great. That's very helpful. And then shifting here to some of my other questions. Ashish highlighted capital allocation and your goals for that moving forward. As we look at the success that you're having in your Illinois and Arizona centers, for perspective, are there other states or territories that would have the same attractive characteristics as far as the talent pool and could be an additional center in the future to support your growth? Or in other words, are Illinois and Arizona, are those centers enough to move you toward your organic goals for 2022?

Good question. And a couple of pieces to answer to your question. First is that we do still feel there is plenty of opportunity for increased staff in Arizona. The profile, the type of folks that are there, given the history of a lot of university that have had advisement centers there. So there is a good labor pool. And so we feel comfortable certainly for the next several years, there's plenty of opportunity to grow and meet our needs there. And we do have plans, as we said in the past, continue to expand there. Having said that, we also have identified other states as well where we actually have a presence. Just to name a couple, both in Georgia as well as Colorado. We look to both of them as potential down the road. But in the short run, the level of qualified candidates to hire as we expanded in Arizona is our main focus as well as we're continuing to see good traction with hiring of quality enrollment and advising staff here in Illinois as well.

It's very helpful. And then my last question is in regard to corporate partnerships in CTU. You mentioned mid- to high-single-digit enrollment growth. For corporate partnerships, should we think along the same lines? Or will that grow even faster? And how should we think about their contribution to the mix in 2019?

It's a very good question. And it's not a necessarily a straight-line increase because it is a smaller percentage of our total overall student body, you could expect that to possibly grow at different times faster as a total, not necessarily an aggregate numbers, but as a total percentage of the overall student enrollment. And so we've invested in that significantly in CTU. We've -- not as longer period of time been investing in AIU. And so we really look to that to be a -- continue to be a significant contributor to our growth. But the short answer is, it is -- as a percentage, it's growing faster than the other, simply because it's a smaller base.

Okay. And I do have one more question. You had mentioned the analytics that you're investing in. For my perspective, where are you in the development of that as far as early innings, middle innings, late innings as far as -- what's the potential there to gain further depth for your analytics in converting students?

Sure. Chris, we're right in the middle. Right in the middle. We're very pleased with what we've seen thus far. But we're just literally starting to see some of the benefit. But, yes, I would say right in the middle.

That's all I have for right now. Thank you for taking my questions.

Thank you.

Your next question comes from Peter Appert with Piper Jaffray. Please go ahead.

Thanks. Good afternoon. So this might be for Ashish. I'm trying to understand better the seasonality of the business, Ashish. And in particular, I guess 2 things, one, can you share with us the change in number of enrollment days for the third and fourth quarter on a year-to-year basis? Actually, that would be the starting point.

Well, that's a great question, Peter. For now, we have not -- consistently with our past practice, what we do is we typically push it over the next quarter out. And so what we have laid out is for the next quarter, we have 16% less enrollment days at AIU. And if you recall, what we have said in the past is, we continue to optimize the calendar to make sure that these variations continue to become less and less. So for now we are working toward that. And as we sit here today, for Q2 specifically, we expect -- we do know that we have approximately 16% less enrollment days.

And then Peter, I would just add to that. One other things we talked a little bit about at the Investor Day was we've been working toward smoothing that out going forward. It's still going to take some time to where that becomes a quarter-over-quarter -- year-over-year by those same quarters that they will be more similar in days. But we're not there yet. But as I said, we talked a little bit about that at the Investor Day that I think -- we do understand -- we would like that as well. But as I said, right now we're getting there as quick as we can.

And then Peter, just to, again, call out here is, even with this nuances on the calendar, as our outlook states, we do expect new enrollment growth for the full year at AIU even beyond the nuances of this calendar.

And then, I mean I guess related to that, just thinking about the guidance. If I take the 2Q guidance, the 1Q actual, I think just back-of-the-envelope calculations, I may have this wrong, but I think, it would imply that the second half earnings would be below what you did in the first half. I know there is some seasonality, but also potentially below 1 year ago. So any thoughts on that, Ashish?

I mean, sure. So that's a great point, Peter. But the whole concept here is about the balance. As you know, as we continue to find incremental opportunities, we will invest in our students. We will invest in the business for the long term. So it is part of this whole balance that we talk about. And as you know, from the momentum we've had and the trends that we're seeing, we are encouraged by that. And so we will continue to invest in the business. So without going specifically into the quarters and the ranges at this point, we found it prudent and appropriate to hold our full year outlook. And then as we get more details, we will continue to update that.

Okay. And then lastly, I understand you're moving the residual campus losses into corporate expense because the number's, obviously, gotten quite small. But any estimate, Ashish, you can share in terms of how big the shutdown cost -- the residual shutdown cost should look over the next few quarters?

Yes. I think in the last call, Peter, we said that approximately in 2018, our adjusted losses for the teach-out groups was about $10 million. And in the last call, we said that for 2019, we expect that to be approximately half. So I think that's a good range to work with. And keep in mind, most of those costs are, as we said, are legacy legal matters and some residual occupancy costs. So that's the nature of the costs.

Got it. And Todd, would you call out anything in terms of programmatic areas of interest? I mean, the starting enrollment performance has been obviously improved significantly. What a great momentum in the business. So anything that you would call out in terms of new program offerings, specific programmatic offerings or other things to help us just better understand what's driving the performance?

Yes. The good news is Peter, is that we've had pretty across-the-board good enrollment trends. And so we haven't -- having said that, it doesn't mean that we are not continuing to -- we haven't called any out, by the way, but we are continuing to develop and identify more programs. But right now because of the strength across the board, we haven't really -- this particular quarter had a lot of development in that area. One other things that we have a high interest level of with Trident was because of the number of doctoral programs they have. So obviously we're keenly focused on graduate programs right now. Going forward, we think that's an opportunity for some expansion for us.

Thank you. Your next question comes from Greg Pendy with Sidoti. Please go ahead.

Hey guys, thanks for taking my question. I just wanted to dig into the corporate partnerships. And I think you shared with us at the Analyst Day some of the increased corporate grants. And just kind of curious, what type of year-over-year bump do you see when you see some of your larger corporate partnerships maybe increase their grant? And how much does that kind of fuel the overall sort of corporate enrollment growth?

Well, I think the bump typically is incremental as you have more students. It's not necessarily on a year-over-year increase on the size of the discount or the scholarship that's given. It's really more a function of when you're adding more people at that particular company, you tend to see that go up. But other than that, Ashish, I don't know for sure if it's just...

And from a discount or a grant perspective, Greg, once the relationship is developed, we don't typically see much changes in the grants. So once the grant is there, typically, we don't see corporations changing that or we changing that for the corporations.

We would certainly consider if it was asked, it is just not asked that often, but the reason it goes up in total amount is simply because you have more students that are taking advantage of it.

Got it. That's helpful, thanks.

That concludes our question-and-answer session. I would like to turn the conference back over to Mr. Todd Nelson for any closing remarks.

We just appreciate you, again, joining us and look forward to giving you an update next quarter. Thank you.