Hello, and welcome to the Q1 2021 Perdoceo Education Corporation Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to hand the conference over to Wyatt Turk, Investor Relations. Please go ahead.

Thank you. Good afternoon, everybody, and thank you for joining us for our first quarter 2021 earnings call. With me on the call today is Todd Nelson, President and Chief Executive Officer, and Ashish Ghia, Chief Financial Officer. This conference is being webcast live within the Investor Relations section at perdoceoed.com. A webcast replay will also be available on our site, and you can always contact the Alpha IR Group for Investor Relations support.

Thank you, Wyatt. Good afternoon, and thank you for joining us on our first quarter 2021 earnings call. I hope everyone is doing well. I'd like to begin by thanking our faculty, student support staff and all our employees for their hard work and dedication in educating and serving our students. With that said, let's get into our financial and operating results for the quarter. We reported net income of $30.8 million or $0.43 per diluted share, while adjusted earnings per diluted share, which excludes certain significant and noncash items was $0.44. Our first quarter results reflect year-over-year growth in key financial and operating metrics. And we served and graduated more students during the first quarter of 2021 than the first quarter of 2020. Further, as compared to year-end, our balance sheet has grown stronger, and we made investments in various student serving processes and other initiatives, which I will update you on shortly. Ashish will then get into more detail on our financial and operating results. Total student enrollments as of March 31, 2021 were up 9.7% as compared to the prior year quarter end, with both CTU and AIU experiencing growth. At CTU, total student enrollments increased 12.8% as we continued to experience underlying organic growth and leverage technology to support our students. Please keep in mind that similar to the academic calendar redesign at AIU, CTU has implemented its version of an academic calendar redesign beginning this quarter. This also positively impacted the reported total enrollments as of March 31, 2021, due to a session start date on March 30, as compared to a session start date that was in April in the prior year.

Thank you, Todd. I will now review our first 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 reflect the Trident acquisition commencing on March 2, 2020. As a result, this is the last quarter where year-over-year comparability in AIU's operating performance will be impacted due to the Trident acquisition. Also, we are no longer including adjustments for any expenses related to closed campuses when presenting adjusted operating income or adjusted earnings per diluted share because these expenses are no longer material. All prior year period amounts have been recast to maintain comparability. Let's start with an overview of our operating results. For the first quarter of 2021, total company operating income was $40.6 million as compared to an operating income of $37.3 million, which is an 8.9% increase. Adjusted operating income which excludes certain significant and noncash items, and which we believe is more reflective of the underlying operating performance, came in at $44.6 million for the quarter, reflecting an increase of 11.7% versus the prior year. First quarter net income was $30.8 million or $0.43 per diluted share, while adjusted earnings per diluted share was $0.44. This positive operating performance was primarily driven by revenue growth across both institutions while realizing operating efficiencies within various processes, mainly due to technology enhancements. Separately, as expected, COVID-19-related savings, in general have started to diminish. And specifically, expenses related to various employee health insurance programs have started to show year-over-year increases.

Thanks, Ashish. We are pleased with our first quarter operating results as we continue to focus on our strategic priorities. We look forward to executing on our various initiatives discussed earlier, while striving to improve academic outcomes and student experiences, and I believe our strong balance sheet positions us well to accomplish these goals. Thank you again for joining us today, and we will now open the line for any analyst questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from Alex Paris from Barrington Research. Please go ahead. Pardon me, Alex, your line is now live.

Sorry about that, I was on mute. Thanks for taking my call. Good afternoon, everybody. Congratulations on the better than expected first quarter results.

Thank you, Alex.

I have a couple of questions. First one I want to get out of the way, Ashish is, are there any anomalies to be expected in the academic calendar redesign in Q2, Q3, Q4?

Yes. So I think that's a great question. As we have said, the anomalies related to the academic calendar redesign are mainly related to our new enrollments and we will not be reporting new enrollments as we have discussed. From a total enrollment perspective, as we have said, they are more reflective of the underlying operating performance, and the impact of the academic calendar on total enrollments is much more muted versus new enrollments. So that's how we are looking at it.

Okay. That makes sense. I guess when we went through this with AIU, the new student starts would be up 50% and down 50%. So again, the reason for taking out the noise with new student starts. Do each period, Q2 through Q4 have equivalent number of enrollment days?

No. Actually, they don't. The enrollment days, because of the academic calendar, Alex, and as you alluded to it, we did have significant swings. So the enrollment days won't be aligned. They may have these variations. But like I said, we will focus on total enrollments and the impact on those enrollment days on total enrollments will be more muted.

Okay. Fine. Thank you. So total enrollment is the product of new enrollment and retention. How have retention trends been faring?

Well, and I would just say that, Alex, they've been steady but obviously as we continue to be cautiously optimistic of the impact of the pandemic. Obviously, there's things that impact it as you go into it, and as we've gone through it and now as we come out of it. Obviously, we'll continue to monitor that. It's relatively uncharted territory for the industry. But we'll continue to monitor how that affects current students and potential students and then obviously adjust operations if necessary.

Fair enough. So I understand the moving parts is as the economy reopens, so do alternative opportunities for your students, and that could affect retention? Is that correct?

Yes. That's correct. And again, as I said it's hard at this point to really monitor that because it's too early in the process. But as I said, we're cautiously optimistic. But we'll - obviously, if that does impact them, we would - obviously, our effort would be to adjust any operations, if necessary, if and when that happens.

Fair enough. Okay. Thank you. And then I'm really interested in these shorter duration programs, the workforce development programs that you're referring to. You said that you have identified a few program areas. I think you've said in the past before, it's in the technology space and the healthcare space. Does that continue to be true?

That's correct. There are others we're looking at but those are where you see a lot of demand. Yes.

And then would these be offered through both universities or independent of the universities?

Right now, again, it is through AIU. And obviously, as we learn from that and then the idea would be to also then offer them at CTU as well. There's nothing preventing us from doing them on a standalone basis as well. But right now, they're offered through AIU.

And because these are not degree programs, these would not be Title IV eligible programs, correct?

That is correct. Again, you do have the option depending on the length of programs to offer them eligible for Title IV, but we've chosen not to. We think that, again, these are very concentrated programs that allow people to reskill, upskill and at the same time, with the idea to try to minimize the amount of debt that the students would need to take to complete those programs.

And just order of magnitude, how many programs are we talking about here? Five or 10 or more than that or less than that?

Five or ten, what was that, Alex?

Just in terms of sheer number of programs under this workforce development plan?

It starts with just a handful, whether that's three to five programs. But then again, you - that would grow into as you - again, as we learn through the process, but also as demand itself kind of dictates that. But our ability to develop them quickly is something that we feel that we've had a lot of experience as far as program development.

And again, they don't result in degree but do they result in some sort of certification or a badge that could be displayed on your LinkedIn page? What are you thinking?

Well, the idea would be that they lead to, obviously, some sort of professional certification.

And you expect to begin offering these by the end of the second quarter?

That is correct. Yes. In fact, we've already started the process, and we're starting to have enrollments already. We have not started to obviously deliver them yet, but we're generating enrollments already.

Great. So I can see these on the AIU website, for example?

Ashish, correct me, that's where they are.

Yes. And actually, within the system, they will specifically be within our Trident University. Because I think as we had shared before, Trident has already had some experience with these kind of deliverables in courses and certificate programs. So that's where we are focusing on. And as Todd said, eventually, nothing to prevent us from offering at our other universities.

Okay. And then just shifting gears, Ashish, among your final comments, you were talking about capital allocation. You obviously have a bulletproof balance sheet, so to speak, nearly $0.5 billion in cash, no debt. What are you thinking about on the M&A front? The Trident acquisition was a home-run. Clearly, we've had a change in administration. Are you looking for other Title IV granting institutions or programs? Are you looking elsewhere to diversify revenue? And how active are you in that M&A process today?

The good news is that like it's all of the above. And there are - we feel very optimistic because of the opportunities that are out there. The industry itself is - it's a complex industry for someone who's new to the industry. And so I think the number of buyers that - of these schools and/or training or certificate companies, it's relatively complex, for them as us we've been doing it for a long time. Obviously, the shorter duration or workforce training programs are of great interest to us because, again, we see good demand there that we really aren't able to meet through there are programs we already have at AIU and CTU. As Ashish mentioned, we do have already a couple of the shorter certificate programs at Trident, which obviously will continue to use those as well. But then in the degree area, there are exceptional schools that I think that we could help them as far as advance and the sophistication of their online delivery educationally. So it'll produce, obviously, quality outcomes, which is what we're really all about, and both those that are programs that are Title IV or non-titled IV. But again, it really is all of the both degree and non-degree as well. And again, to answer your question specifically, we are optimistic about the number of schools and what we'd refer to as workplace training programs that are out there in the market available.

Great. Well, I appreciate that initial color. Thank you both and I'll get back in the queue.

Thank you.

Thanks, Alex.

Thank you. Your next question comes from Dan Moore from CJS Securities. Please go ahead.

Hi. Good afternoon. This is Brendan Popson on for Dan. Just wanted to ask about the impact you expect with the current proposals for quote-unquote free community college on your current student population as well as any impact to your growth outlook over the next three year to five years?

Good question. We like, I think everybody, continue to listen to what is - what we're hearing is being proposed and obviously monitoring the process of getting those things actually into legislation. I think that, again the community college students, although there is, I would say, some overlap, but not a lot with us because again the majority of our students are working adult students that are already working and looking for the type of degree programs we have - bachelors, masters, doctoral programs, those types of things. So I don't - I can't say that it wouldn't have some impact, but I don't know that it would have a lot of impact based on other current markets that we serve. But I think it will be interesting to watch the process and to see if that actually happens to - obviously, a significant cost to the taxpayers to be able to fund that. And I think getting that done will certainly be a significant effort. But at this point, again, I think, as I said, we don't really compete against them on a large scale. It's typically against more of those who have the four-year programs and graduate programs.

Okay. Great. Yes, makes sense. And obviously, as to - nothing's passed yet, but good to hear your thoughts. And I wanted to ask about as well your - an update on your corporate partnership channel. Obviously, the pandemic's starting to abate, and we have companies certainly seem desperate for workers. Are you having more dialogue on potential opportunities? And do you think that channel is improving for the next year or two because of that?

Sure. Again, thank you for asking that question. As you know, with our last call, last quarter, we mentioned that we are making a significant additional investment in that channel. And the reason being is, one, we see demand, we see the value there, the retention of these students are better. And again, we've had, as you know a significant amount of success of that in the past. And so we're very optimistic with what we're seeing there. Obviously, it's the longer sales process or enrollment process than you'd see in where you're meeting individually with the students. But again, it's really a process that is - it's reliant upon the amount of resources that you're willing to put into it to build relationships, and we've made that investment. As Ashish said, we will continue to make it. And we are actually very excited, especially as you come out of this pandemic, and it's very competitive for workers. And obviously, that's a benefit that many companies have or we hope will be adding. So again, going forward, we do have - we're optimistic about that, our potential there.

Yes, makes sense. Thank you. And then just a quick one to end here. Just - you're talking a lot about the margin delta between AIU and CTU. Can you just go over the keys to closing that gap and any reasonable timeframe for that?

Well, it's hard to put a timeframe on it because, again, I think the two universities have a very similar profile and that their institutional accreditation is similar. The types of programs, there is some overlap, similarly priced as far as tuition. So again certainly the potential is there, but again, depending on some of the strategic decisions that you make, will impact the timing of that. For example, if we decide to invest more heavily in certain new programs at AIU, it may take a little more time because there's more investment in that. But certainly, the two institutions have a very similar profile, which we think obviously gives them an opportunity from a margin perspective.

Great. Thank you.

Thank you.

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

Hi guys. Thanks for taking my questions. Just - you put up good enrollment numbers, but just given what we're hearing from some of the other companies in your industry, can you talk a little bit about, are you seeing any pick up on the competitive environment? And maybe for you guys, maybe just within one or two of your programs within your broader program mix because it doesn't seem to be too pronounced in your enrollment numbers, but just kind of curious. Are there any areas or any degrees that you think might be getting a little bit more competitive out there? Thanks.

That's a good question, Greg, very valid. Not really seeing, at this point in time, a big change in our competition, I would say, institutionally, but also at the program level. I will say this that programs do ebb and flow as far as those that are growing or those that are not growing, depending on really what is more happening in the workforce and the demand for those workers. If there's more demand for technology workers than health sciences that tends to be where you see the growth. And that, I think has more impact on our enrollment going forward. I think as I said, being cautiously optimistic, as we come out of the pandemic, we want to see how that affects the student market in general for current students, but also potential students. But I think that, obviously, we - I think again, watching that and monitoring that to us is more significant and more important than what we're seeing our competition doing. Again, not that we don't - that's something very important. We just haven't seen a lot of that change as far as the competitive landscape.

And I guess within that topic, have there been any kind of inflationary pressures in terms of your marketing costs going up just in order for marketing costs?

Sure. Ashish, feel free to comment on that. But I think, that's been relatively stable. But Ashish, anything I missed on that?

No, I think that's fair. None that we have seen so far, Greg.

Okay, great. Thanks a lot.

Thank you, Greg.

Thank you. Thank you. There are no further questions at this time. And this concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Nelson for any closing remarks.

We appreciate, again, you taking time to join our call today. We look forward to speaking with you next quarter. Thank you.

Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.