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Career Education Corporation (CECO) Q4 2018 Earnings Conference Call Transcript

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Career Education Corporation  (NASDAQ: CECO)
Q4 2018 Earnings Conference Call
Feb. 20, 2019, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Fourth Quarter 2018 Career Education Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Chris Donovan with the Alpha IR Group. Please go ahead.

Chris Donovan -- Investor Relations

Thank you, Andrea. 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 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 securities law, 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 reasons.

In addition, today's remarks refer to non-GAAP financial measures, which are intended to supplement but not substitute 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 GAAP to non-GAAP measures, are available within the Investor Relations page of the company's website at careered.com.

With that, I'd like to turn call over to Todd Nelson. Todd?

Todd Nelson -- President and Chief Executive Officer

Thank you, Chris. Good afternoon, everyone, and thank you for joining us on today's call. We're pleased to end 2018 on a strong note. Some key highlights for the year are: Fourth quarter and full year operating income almost doubled and adjusted operating income came in at the high-end of our outlook range. We ended the year with a strong balance sheet and our full year cash flow from operations is as strong as it's been in seven years. Momentum within our key operating metrics and processes remain strong and makes both universities to continue growing in 2019. Ongoing investments in technology and student serving processes remain key initiatives to enhance student retention and academic outcomes and drive sustainable and responsible growth into 2019 and beyond. I'll further expand on some of the successes from the year and Ashish will then take and make a few more interesting -- more information on details around the financials and 2019 outlook, before I provide some closing thoughts at the end of the call.

For the year ended 2018, we've reported net income of $55.2 million or $0.77 per diluted share, while adjusted earnings per diluted share, which excludes certain significant items, are $1.05. Full year adjusted operating income was $105.2 million as compared to $66.8 million in the prior year with the improvement primarily driven by the completion of our teach-out strategy and strong operating performance within the University Group. Student retention experiences -- retention and experiences and academic outcomes remain the primary focus across all of our operating and support teams. And I believe that we are well positioned both from a competitive and operating standpoint to serve and educate current and perspective students who are primarily adult learners.

Enrollment trends at CTU and AIU continue to experience growth, primarily driven by the incremental investments made and increased operating efficiencies achieved within our student onboarding and application processes. These events consistently supported by perspective student interest for our programs, while our fourth quarter enrollment metrics were impacted by the calendar timing at AIU. Overall, we are firmly executing against our objective of sustainable and responsible growth.

At CTU, total enrollments grew to 2.3% for the year, primarily supported by new enrollment growth of 7.1% for the quarter and 6.7% for the year. In fact, CTU ended the year with 23,600 new student enrollments, the highest it has been in seven years. We believe this growth in enrollments is primarily attributed to the following drivers. First, even though investments in our admissions and advising centers have started maturing, we're seeing a strong increase in productivity at both our Illinois and Arizona student support centers. This is due to ongoing onboarding and student outreach initiatives, improved tenure of our personnel, and enhanced training and development. Based on this performance, we see further opportunity for incremental investments.

Second, demand across the industry remains encouraging and the effectiveness of our student inquiry and application process to serve that demand is the strongest it has been in years.

Lastly, introduction of new programs and nursing, customized onboarding and student outreach for masters and doctorate programs and progress within our corporate alliance partnerships has led to an increase in student enrollments in these areas.

Supporting these drivers are ongoing operational enhancements that we believe will improve student experiences, promote learning and ultimately led to improved student retention and academic outcomes. Our teams are fully engaged in improving and enhancing the student experience throughout their lifecycle.

CTU has continued to increase its focus on training and development, while streamlining its submissions and advising structure to better serve our students. There are weekly department and team meetings to discuss the progress toward building a productive engagement with each new student. With some IT enhancements, we are able to customize our student orientation and outreach support based on the degree level and prior college experience, making it more effective and specific.

Finally, we were excited to launch our student engagement and retention analytics tool in the fourth quarter and hope to share any relevant updates over the next few quarters.

Driven by the success of the various initiatives and investments I just discussed and supported by consistent levels of perspective student interest for our programs, we expect CTU to again experience new student enrollment growth in 2019 versus the prior year and execute firmly against its objective as sustainable and responsible growth.

Now turning to AIU. Total student enrollments of AIU ended 6.3% lower for the year, primarily driven by a 31% decrease in new student enrollments for the quarter. Please note that the new enrollments for the fourth quarter were negatively impacted by approximately 39% lower enrollment base for the quarter, a direct impact of the academic calendar we design.

As discussed, during previous calls, the calendar redesign at AIU and specifically the number of enrollment days in any given quarter has a significant impact on the new enrollments for that quarter. Excluding the quarterly variability, we believe AIU actually experienced new student enrollment growth for the quarter -- for the fourth quarter, which was partially drove -- which partially drove the 6.5% increase in revenue for the quarter.

Contributing to this student enrollment growth is the admissions and advising center in Arizona, which continues to improve its execution around the student inquiry and application processes. Investments in our Arizona center will fully mature starting next quarter. But similar to CTU, we believe improved tenure and execution of our graduate teams and consistent levels of perspective student interest for our programs will continue to drive new student enrollment growth at AIU. We expect AIU to show a significant increase in new student enrollments for the first quarter as compared to the prior year, primarily driven by the academic calendar redesign. This growth will more than offset the decline from the fourth quarter and is also expected to contribute to new enrollment growth for 2019.

Looking past this quarterly variability, momentum and key operating metrics continues to progress well with overall performance trending positively as compared to the prior year. This growth can be attributed to the following drivers. First, increased efficiency and execution across all of our admissions and advising centers, including Arizona, recall that AIU will not fully annualize the benefits from these investments until the first quarter of 2019. In general, staffing at our admissions and advising centers is up approximately 18% compared to the prior year and overall prospective student interest for the program remains positive.

Number two, improvements within our student onboarding and orientation process, due to optimization of our graduate teams outreach strategies, these cross-functional teams consisting of admissions, advising and financial aid have incrementally enhanced their outreach and engagement efforts based on what we have learned from the past sessions.

Number three, optimization of our core sequencing and redesign of course content to promote better learning and engagement and create a learner-centric model. Classroom navigation, including content and related study materials, is simplified and easily accessible via a hyperlink with significant focus on step-by-step learning versus assignment completion.

And four, graduate teams have shared accountability for serving students and are focused on improving student experiences before they start school, providing a differentiated student onboarding and orientation process, facilitating completion of the financial aid process and continuing to provide support to students as they work toward graduating in their field of study. Overall, AIU is executing well against its objectives of sustainable and responsible growth, and we expect new student enrollments to experience growth for the first quarter and full year 2019.

Let me quickly comment on key technology investments that have enabled and supported some of the student serving processes and initiatives discussed above. First, we continue to roll out additional courses under our intellipath format, which has increased faculty engagement and student participation while allowing our faculty members to visualize how each student learns and interacts with the study materials.

Second, we have implemented all modules within the student engagement and predictive retention analytics tool at CTU and advisors are now better able to proactively reach out to the right student at the right time reinforcing positive behaviors, while also being proactive with the most relevant intervention and support where needed.

Third, we implemented a new student contact center technology that is significantly more efficient and effective in serving prospective students and providing them with a customized experience as they explore our program offerings and courses and evaluate our universities as their choice for education.

Lastly, we continue to develop and enhance our overall mobility capabilities and roll out new features, the latest being the two-way messenger feature, that is fully implemented across both universities. In general, mobile app usage is high with approximately 88% adoption and the two-way messenger continues to grow as a communication and an engagement channel with over 150,000 student interactions registered in the month of January alone.

To conclude, both universities have experienced sustainable and responsible growth during 2018. These trends have provided reaffirmation around our overall strategy of prioritizing student serving processes and initiatives, while giving us the necessary financial and operating confidence to continue investing in our universities.

With that, I'd like to hand the call over to Ashish for a more detailed review of 2018 results, the balance sheet as well as 2019 outlook. Ashish?

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Thank you, Todd. I will start with a review of our full year and fourth quarter results, 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.

For the full year 2018, total company operating income was $71.3 million, an improvement of approximately 109% as compared to $34.1 million. Adjusted operating income, which exclude certain significant and non-cash items, is more indicative of the underlying core operating performance. This measure came in at $105.2 million for the year, which was at the high-end of our outlook range of $101 million to $106 million, and grew approximately 57% versus the prior year.

Net income for the year was $55.2 million and diluted EPS was $0.77, while adjusted diluted EPS, which again is more indicative of underlying operating performance, was $1.05. This improvement in operating performance versus the prior year was primarily driven by the completion of the teach-out strategy and growth within our University Group. Offsetting these were costs for ongoing investments in technology and student-serving processes and initiatives. Overall, we ended the year on a strong note with fourth quarter adjusted operating income of $29.7 million and cash flow from operations of $38.7 million.

Before I go into the segment details, let me quickly review two of the adjusting items for the fourth quarter. First, we recorded a $5 million settlement charge as part of the agreements with the Attorney Generals from 48 states and the District of Columbia. This concludes the previously disclosed multistate inquiries ongoing since Jan of 2014. Second is a $2.6 million non-cash charge to adjust sublease and other occupancy cost assumptions made in conjunction with previously recorded unused space charges related to closed campuses. Please note that we are near the tail-end of our teach-out related contractual lease obligations with under $11 million remaining through 2021. A majority of these obligations have already been expensed through the end of 2018.

Excluding our teach-outs, adjusted operating income for the University Group and Corporate was $115 million for 2018. The full year performance was 8.6% higher versus the prior year and is consistent with our overall objective of sustainable and responsible growth. These increases were primarily driven by full year revenue growth at both universities offset by investments in student serving processes and initiatives.

Moving on to the individual segments. Fourth quarter University Group revenue increased by 2. 2% to $145.5 million with full year revenue up 2%. This increase was partially driven by positive momentum in student enrollment wins that have been supported by the strategic initiatives that Todd discussed above. Revenue at CTU was flat for the quarter, while AIU's revenue increased by $3.1 million or 6.5%.

Focusing on CTU. New enrollments were up 6.7%. Total enrollment grew by 2.3% and revenue was up by 1.2%. Operating income at CTU increased $2.4 million or 2.2% versus the prior year, driven by revenue growth which was partially offset by investment in student serving processes and initiatives. As Todd outlined, this growth is primarily driven by investments at our Illinois and Arizona student support centers supported by consistent levels of prospective student interest for our programs. Also contributing to this positive performance was the continued progress and growth we are experiencing within our corporate partnership program. Driven by these initiatives and trends, we expect CTU to again experience new enrollment growth for the full year 2019.

A quick comment on revenue per student at CTU, which was below prior year. As previously discussed we are experiencing an increasing mix of students through corporate partnerships that are awarded higher grants from the university to offset their tuition costs. However, these students do have lower application and support costs and we are seeing increased persistence for these students versus our overall population.

Moving on to AIU. Full year revenue increased $6.7 million or 3.4% versus the prior year with fourth quarter revenue growth accelerating to 6.5% or $3.1 million. AIU also saw strong operating leverage during the quarter with operating income of $4.6 million as compared to $0.4 million in the prior year. Also contributing to this performance were operating efficiencies, primarily related to the process reengineering efforts offset by ongoing student serving technology and investments.

Total student enrollments at AIU decreased 6.3% for the year, driven by an approximate 31% decline in new student enrollments for the quarter. Please note that there were 39% less enrollment days in the fourth quarter and recall that the academic calendar redesign at AIU, specifically the number of enrollment days in any given quarter, has a significant impact on the new enrollments for that quarter. Excluding this variability, we believe AIU actually experienced new enrollment growth for the fourth quarter, which also partially drove the 6.5% revenue growth.

As Todd noted, we expect AIU to experience significant growth in new enrollments for the first quarter of 2019. In addition to the ongoing investments in student serving processes and initiatives, this growth will be driven by a 60% increase in enrollment days for the quarter. We expect this new enrollment growth to more than offset the decline from the fourth quarter and also contribute to new enrollment growth for full year 2019.

Please do note that any calendar-driven variability in quarterly enrollment trends does not materially impact quarterly revenue trends, which are still primarily driven by our underlying operating performance and the number of revenue earning days during the quarter.

A quick comment on our investment philosophy. We consistently evaluate and optimize our operating processes with the ultimate goal of serving students in the most efficient and effective way. We are also cognizant of our operating costs and look for ways to reallocate resources that are in the best interest of our students as evident by our process reengineering efforts in the third quarter.

To that point, please keep in mind that a substantial portion of these identified operating efficiencies as well as recoveries, such as the $2.5 million for past claims that we've discussed during the second quarter call, were committed to incremental investments in student serving operations that Todd mentioned earlier. In fact, on average, staffing for our universities was up approximately 7% versus the prior year and for 2019 we will continue to incrementally invest in areas that we believe will enhance overall student retention and academic outcomes.

Moving on to our teach-outs. As of year-end, we have completed all teach-outs. We reported full year adjusted operating loss of just under $10 million and expect these losses to be approximately 50% lower into 2019. These 2019 losses, primarily reflect estimated legal fees for legacy legal matters as well as some residual expenses associated with the closed schools. Please note that beginning 2019 we will not have teach-outs as a reportable segment and all expenses associated with closed schools will be reflected within corporate and other.

Income taxes. For the quarter, we recorded a provision of -- for income tax of approximately $7 million. This resulted in an effective tax rate of 33.5% for the quarter, which was negatively impacted by 5.7% due to the multistate AG settlement expense of $5 million, which is not deductible for tax purposes. For the full year, we recorded a tax provision of $18.6 million with an effective tax rate of approximately 25%. The full year tax rate was impacted unfavorably by approximately 1.4% due to the permanent difference related to the nondeductibility of the multistate AG settlement. Also keep in mind that our tax rates are typically impacted by discrete items such as release of tax reserves, the tax effects of stock-based compensation and adjustments to increase state deferred tax assets.

For 2019, we expect our tax rate to be between 24% and 25% with the first quarter being the lowest quarterly rate for the year.

Separately, we ended the year with approximately $194 million of federal net operating loss carry forwards, which are available to offset future taxable income. As a result, specifically as it relates to 2019, we do not expect to pay any federal income taxes.

Now, let me spend a few minutes reviewing our balance sheet. We ended the quarter with $229 million of cash, cash equivalents, restricted cash and available-for-sale short-term investments, which will be referred to as cash balances for the remainder of today's discussion. This represents an increase of approximately $49 million over the year-end 2017 and was primarily driven by positive cash flow from our university operations. Partially offsetting these were cash outflows related to our teach-out campuses and payments associated with legal settlements. As previously noted, we expect to see continued growth in our operating cash flows due to the completion of our teach-outs, further strengthening our balance sheet.

Net cash provided by operations was $38.7 million during the quarter. This was the highest quarterly result in seven years and was primarily driven by growth within our university operations and lower teach-out obligations. Full year net cash flow provided by operations was $57 million as compared to net cash used of $21.8 million. Included in the cash flows from operations this year are payments of approximately $17.1 million related to significant legal settlements.

Capital expenditures were $6.7 million for the full year 2019 and we foresee capital expenditures to range in the -- to range 1% to 2% of revenues. Overall, company is executing well against the objectives of sustainable and responsible growth with investments in student serving initiatives and technology showing positive results. The improved performance and efficiency of our operations is allowing us to incrementally invest within our two universities, helping us to create better experiences and academic outcomes for our students.

Finally, let us discuss the growth outlook for 2019. Please refer to slide three for details. Our outlook consists of the following: $114 million to $119 million in total company adjusted operating income as compared to $105.2 million in 2018, which reflects 8% to 13% growth. Keep in mind, this outlook also reflects the 2019 teach-out related expense I referenced earlier. This is consistent with our overall objective of sustainable and responsible growth that balances our operating and financial goals with our commitments to improve student experiences, retention and academic outcomes.

We expect adjusted diluted EPS to range between $1.11 and $1.15 per share versus $1.05 in 2018. Driving this outlook is our expectation of new enrollment growth for both universities in 2019, which we believe will translate to revenue growth for each. For the first quarter of 2019, we expect adjusted operating income to be in the range of $30.5 million to $32 million, and adjusted diluted EPS to be in the range of $0.30 to $0.32. Please refer to slide four for important information about key assumptions and factors underlying this outlook and other expectations discussed on today's call.

As a reminder, due to the decrease in our balance sheet obligations associated with our teach-out campuses, we expect more of our operating income dollars to result in positive operating cash flows. With this anticipated cash generation, let me quickly touch upon our strategy around capital allocation. We have focused on building a strong balance sheet, while prudently investing in organic growth projects. As we further build our cash balances, we will also evaluate inorganic strategies, including the acquisition of quality educational institutions and programs and continue to pursue optimal capital allocation strategies that are in the best interest of our students and other stakeholders. All this while emphasizing organic student serving investments at our universities and maintaining adequate liquidity.

With that, I will turn the call back over to Todd for his closing remarks. Todd?

Todd Nelson -- President and Chief Executive Officer

Thanks, Ashish. 2018 completed a multiyear transformation of our organization as we successfully closed out several legacy legal matters as well as responsibly completed our teach-out obligation to our students. We entered 2019 with strong momentum in our key operating metrics and with a clear vision and strategy to serve and educate our students and provide them with the necessary support and tools as they work toward graduation. Our balance sheet will grow stronger and we will allow -- which will allow us to execute against our strategy to drive sustainable and responsible growth by making appropriate long-term investments in our universities. Demand across the industry remains encouraging, driving incremental investment throughout the year to support and serve that interest. Our teams continue to innovate and collaborate to adapt to the ever-involving regulatory environment.

Also please note that on April 11th our management team will be hosting an Investor Day in New York City. Institutional investors and analysts are encouraged to attend and we will webcast that event for the rest of our key stakeholders. We plan to provide a general overview of our business, as well as discuss the long-term operating strategies for both universities. We hope you'll be able to join us.

With that, I'd like to open up the call for any analyst questions. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Alex Paris of Barrington Research. Please go ahead.

Alexander Paris -- Barrington Research -- Analyst

Hi, guys. Congratulations on the strong finish to 2018 and kind of closing the books on the multiyear reorganization.

Todd Nelson -- President and Chief Executive Officer

Thank you.

Alexander Paris -- Barrington Research -- Analyst

I have a couple of questions, mostly related to guidance, I guess. First off, the calendar redesign, the AIU new student decline was expected. I think you covered that pretty well in the call that you had 39% fewer enrollment days and you are forecasting 60% more enrollment days year-over-year in Q1. I'm curious about the cadence of the balance of the year. Can you kind of give us some color on which quarters are going to be the tough comps due to the calendar?

Todd Nelson -- President and Chief Executive Officer

Well, we -- we haven't really given an outlook on that, but we do as we said, I feel like that we are positioned well for growth for the year. Obviously some variability in quarters, but we're continuing to work with the calendar to try to smooth that out, but obviously Q1 will be -- there will be a big positive variance there, but for the year we feel -- given the outlook, it looks like it will be positive for 2019.

Alexander Paris -- Barrington Research -- Analyst

Okay. And then specifically for Q1 to the extent you had a significant decline due to the calendar redesign in fourth quarter, you say that the increase in the first quarter is going to more than offset that. Does that mean it's going to grow more than 30.8% or the student shortfall will be more than made up for in units -- in people, in students in Q1?

Ashish Ghia -- Senior Vice President and Chief Financial Officer

So, Alex, not necessarily on a percentage basis, but that is correct. The number of students will offset the decline from Q4.

Alexander Paris -- Barrington Research -- Analyst

Okay. Then your guidance on full year adjusted operating income, $114 million to $119 million, does that contemplate margin expansion year-over-year?

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Yes. I mean, it does contemplate some margin expansion and, as Todd mentioned, we always try to balance between investments and our commitments. And keep in mind also, Alex, that $114 million to $119 million also includes certain residual teach-out expenses that I referenced earlier.

Alexander Paris -- Barrington Research -- Analyst

Okay. I appreciate it. And then, moving on, the charges for unused space and severance and legal, which was substantial over the years, including 2018. I think you kind of touched on this, but we should assume those will be less going forward?

Ashish Ghia -- Senior Vice President and Chief Financial Officer

I mean, we can't specifically comment on that. But, as we have said, these significant legal settlements and charges -- unused space charges, for sure, should be less going forward, because we have basically wound our teach-outs down. So, yes, those should be definitely less going forward.

Alexander Paris -- Barrington Research -- Analyst

Okay. And then just give us all (technical difficulty) the continued incremental investments in student facing technology and that sort of thing, does that come through the P&L or is that a capital expenditure?

Todd Nelson -- President and Chief Executive Officer

Well, the technology, again, that's capital expenditure, but the students facing adding up people, whether it's enrollment counselors, academic counselors, financial counselors, that type investment, that's more an OpEx.

Alexander Paris -- Barrington Research -- Analyst

Okay. And then lastly and broadly on M&A, inorganic growth strategies. Can you give us some color on what you're looking for there? I'm assuming it's another regional university, maybe online-focused. Maybe give us an idea on the size of something that you might be contemplating or at least a target -- what are the ranges that you're interested in looking at? Would you lever up in that time or will these be more bud-sized transactions?

Todd Nelson -- President and Chief Executive Officer

It's a good question. I mean with the financial performance of our company as well as a lot of the services that -- and processes that we've developed, they lend themselves very well to other educational institutions. And so -- then given our financial strength, I think that is very wise usage of some of our cash to look for those. And you said part of it, high-quality, regionally accredited institutions of the types that we would look to, those that we feel like those services and expertise and the management team that we have, assembled, that we can enhance their ability to provide a quality education. And, obviously, with the anticipation, we'd hope to be able to provide a growth opportunities for them as well, especially on the online delivery format if there's an opportunity to obviously enhance the breadth and depth of our programs, the degree levels, as well as the programmatic offerings that would be big -- a priority of ours as well. And, yes, as we said before, we continue to be very active and looking at those types of opportunities. But other than that we haven't really given any other information.

Alexander Paris -- Barrington Research -- Analyst

Okay. Well, I appreciate the additional color, Todd, Ashish. Thanks very much for your time.

Todd Nelson -- President and Chief Executive Officer

Thanks, Alex.

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Greg Pendy of Sidoti. Please go ahead.

Greg Pendy -- Sidoti & Co. -- Analyst

Hi, guys. Thanks for taking my question. I just had a brief one. I think you mentioned during the call, intellipath, the format there. Can you just -- is there any way you can get us -- how -- what is the percent penetration that you're using intellipath at? And I guess since it is sort of an investment company that you guys have invested in, how does that work if you were to allocate more capital to build out that platform? How does that work, I guess, since you own a percentage of the company? Thanks.

Todd Nelson -- President and Chief Executive Officer

Right. well, a couple of things. One is -- and by the way, Greg, you or anyone else, would like, we'd be happy to also do a demonstration for you. It's really impressive -- we use the expression adaptive learning platform, others refer to it in different ways, but it really does help you fine-tune the education for the students and allows the faculty to better fine-tune their teaching toward those students and it's really an impressive technology and something that -- it does take time to integrate across all the programs. I mean, every year, we budget to continue to spread that through more additional courses. And, obviously, as far as our investment in the actual company itself, we haven't invested in that -- and -- additionally for some time, but that's -- that would not be necessary for us to do that to continue to expand that into more of our curriculum. Having said that, it's a very, very impressive company.

Greg Pendy -- Sidoti & Co. -- Analyst

Great. That's helpful. And then just, I guess, on the capital allocation, I know M&A on the forefront is always something that would make sense, but how are you thinking about -- I mean, cash is growing, the legal overhang has been settled and, I guess, you have your teach-outs nearly complete, how are you thinking in terms of other forms of capital allocation in terms of a dividend or potentially a buyback?

Todd Nelson -- President and Chief Executive Officer

Greg, I think, the three overarching strategies we still want to continue the demand we're experiencing, we want to continue to invest in that organic growth is our top priority. The next obviously would be as you mentioned, which is really M&A area and we feel that there are some very appealing targets. And then, obviously, the third aspect or the third leg of that would be looking at whether it's buybacks or dividends that if we feel that is right at that right time it would certainly be something we can set out.

Greg Pendy -- Sidoti & Co. -- Analyst

Great. And then just one final one, you mentioned demand across the industry is healthy. Is there any particular programs that stand out, you think, more than others or is that pretty broad-based?

Todd Nelson -- President and Chief Executive Officer

Well, it's interesting, because it does somewhat ebb and flow. I mean you do see it in some areas, obviously the health sciences area always seems to be positive. I think part of that is based on the shortage of quality programs that are available, but also you continue to see robust demand in our business and management programs and I think the main thing there is to have a very effective product development process, because some of those programs come in and out of, I guess, popularity quite quickly, but the core programs that we continue to see pretty steady demand in those areas.

Greg Pendy -- Sidoti & Co. -- Analyst

Great. Thanks a lot.

Todd Nelson -- President and Chief Executive Officer

Thanks, Greg.

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Thanks, Greg.

Operator

(Operator Instructions) And our next question will come from Peter Appert of Piper Jaffray. Please go ahead.

Kevin Estok -- Piper Jaffray -- Analyst

Hey, guys. This is actually Kevin Estok in for Peter Appert.

Todd Nelson -- President and Chief Executive Officer

How are you?

Kevin Estok -- Piper Jaffray -- Analyst

So my -- good. How you're doing?

Todd Nelson -- President and Chief Executive Officer

Good.

Kevin Estok -- Piper Jaffray -- Analyst

So my first question has to do with pricing strategies at both schools in 2019. I guess, I'm wondering -- so between these two schools, I guess, how might the strategy differ and at CTU we'd be -- see a little bit of contraction on a per student basis and maybe flat for AIU, or how should we think about that?

Ashish Ghia -- Senior Vice President and Chief Financial Officer

I mean, from a pricing perspective, as we said for CTU, you -- I've made a comment around revenue per student, that is because of our growing corporate partnerships. So as that population continues to grow, you might see a little bit of RPS decline at CTU, but keep in mind that cohort of students have significantly higher persistence versus our general population. And...

Todd Nelson -- President and Chief Executive Officer

Unless marketing depends (ph) associate with our...

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Correct. And then as far as AIU goes, I think there should be -- there is no -- their progress is pretty stable and I don't see any significant variances in terms of pricing for AIU.

Kevin Estok -- Piper Jaffray -- Analyst

Okay. Thank you. And second question actually, Ashish, you mentioned this, you said -- so just correct me if I'm wrong, but you said that in 2019 basically the cost associated with teach-outs would be about half the size in 2018?

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Yes. So for 2018 on an adjusted basis the teach-out losses were approximately $10 million and in 2019 they will be half of that $10 million. That's right.

Kevin Estok -- Piper Jaffray -- Analyst

Okay, great. Thank you.

Operator

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

Todd Nelson -- President and Chief Executive Officer

We thank you again for joining us and we look forward to speaking with you again after next quarter. Thank you.

Operator

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

Duration: 42 minutes

Call participants:

Chris Donovan -- Investor Relations

Todd Nelson -- President and Chief Executive Officer

Ashish Ghia -- Senior Vice President and Chief Financial Officer

Alexander Paris -- Barrington Research -- Analyst

Greg Pendy -- Sidoti & Co. -- Analyst

Kevin Estok -- Piper Jaffray -- Analyst

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