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Edited Transcript of PRDO.OQ earnings conference call or presentation 24-Feb-21 10:30pm GMT

·30 min read

Q4 2020 Perdoceo Education Corp Earnings Call HOFFMAN ESTATES Mar 3, 2021 (Thomson StreetEvents) -- Edited Transcript of Perdoceo Education Corp earnings conference call or presentation Wednesday, February 24, 2021 at 10:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ashish R. Ghia Perdoceo Education Corporation - Senior VP & CFO * Todd S. Nelson Perdoceo Education Corporation - Chairman, President & CEO ================================================================================ Conference Call Participants ================================================================================ * Alexander Peter Paris Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst * Daniel Joseph Moore CJS Securities, Inc. - MD of Research * Gregory R. Pendy Sidoti & Company, LLC - Consumer Analyst * Wyatt Turk ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, and welcome to the Perdoceo Education Corporation Fourth Quarter 2020 Earnings Conference Call and Webcast. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to Wyatt Turk. Please go ahead, sir. -------------------------------------------------------------------------------- Wyatt Turk, [2] -------------------------------------------------------------------------------- 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. This conference call is being webcast live within the Investor Relations section at perdoceoed.com. A webcast replay will also be available on our site. 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 of 1934. These statements are based on assumptions made by and information currently available to Perdoceo Education and involve risks and uncertainties that could cause actual future results, performance, 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 Perdoceo's annual report on Form 10-K for the year ended December 31, 2020, and subsequent filings with the Securities and Exchange Commission. Except as expressed or 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 to the most directly comparable GAAP measures. The earnings release that accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures and is available within the Investor Relations page of the company's website. With that, I'd like to turn the call over to Todd Nelson. Todd? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thank you, Wyatt. Good afternoon, and thank you for joining us today. Before we get started, I'd like to offer my sincerest thoughts and well wishes to all those who have been impacted by the global pandemic. The health and wellbeing of our students, faculty and employees and communities remains our top priority as we continue to serve and educate our students. The pandemic and the resulting social distancing requirements has further reinforced the validity 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 benefits of the real-time engagement, learning and flexibility that comes with online learning. These benefits are especially valuable for nontraditional learners, including working adults. Now to our operating results. Fourth quarter operating results marked a solid year and end of 2020, and the multiyear progress has further validated our strategy of investing in student learning, technology and student serving processes, which we believe positively impact academic outcomes and student experiences. Some highlights for the fourth quarter and full year include: all of our students are taking classes online and are being well served by our employees who transitioned to remote work during the first half of last year. Both our students and employees are well supported by our scalable and innovative technology infrastructure. Prospective student interest for our programs has remained strong, and we continue to make investments in technology, data analytics and student support processes. On the academic front, our universities hired additional faculty members, ending the year with more full-time and adjunct faculty than they have had for several years. CTU and AIU have redesigned over 500 courses during the year and made updates to adaptive learning maps. These maps are essentially tailored task for each student that allows them to monitor their progression through our academic programs. As discussed previously, technology is an enabler and a differentiator for us. We continue to invest in our student and faculty mobile app, and with an approximate 95% adoption rate, the messenger feature is now a principal source of communication with students on a variety of academic-related and other topics. Students are now to open their intellipath classes in the app and can also tech support -- and also reach tech support as well as other learning materials such as third-party books and library resources directly from the app. Further, our use of artificial intelligence technology is enabling us to provide students with a more targeted and relevant experience, and we continue to expand its use and explore its applications throughout our student platforms. We have also improved the efficiency and effectiveness of our student recruiting process to identify and attract respect to students that we believe are more likely to succeed in one of our academic programs. We believe these initiatives will lead to better academic outcomes and student experiences. Turning to our Trident acquisition. The acquisition of the assets of Trident University International and the subsequent creation of American InterContinental University system were major milestones in 2020. By incorporating Trident University as part of AIU, we were able to diversify our offerings, specifically with graduate level programs, while maintaining the unique student experience from each university. We are very pleased with how this is working, and we'll continue to leverage talent and share best practices to further enhance our students' educational experiences. Before turning the call over to Ashish, I would like to touch briefly on our investment strategy for 2021. Supporting our objective of sustainable and responsible growth, we will continue to make investments in technology, data analytics, academics and student support processes. We believe these investments have been successful in positively impacting academic outcomes and student experiences. Given the success of these ongoing investments and enabled by a strong balance sheet, we are planning additional investments to expand our corporate partnership team as well as introduce shorter duration programs. First, we intend to invest incremental resources across our universities to further support and grow our corporate partnership efforts. Note that over the past few years, we have had significant success in this area. And as of December 31, approximately 20% of our total student enrollments at CTU come from these partnerships. Second, we intend to further develop and grow shorter duration programs. The pandemic has not only supported a migration to online learning, but has also created significant demand for upskilling and reskilling. Learners are looking for ways to elevate their skills without long-term commitment of time and incurring debt, and we believe our shorter duration programs would allow them to do that. Trident has already had some success with these programs, and we will further leverage its expertise to expand and grow these programs first at Trident and then possibly across our other universities. Regarding the current political and regulatory landscape, as with any new administration, we are closely monitoring the new appointees in various education roles and the policies that are being considered. Our focus is and will continue to be on educating and providing support to our students so that they learn, stay in school and complete their academic program. We look forward to working with the new administration as we continue to serve and educate students to help them fulfill their academic goals. With that said, I would like now to turn the time over to Ashish. Ashish? -------------------------------------------------------------------------------- Ashish R. Ghia, Perdoceo Education Corporation - Senior VP & CFO [4] -------------------------------------------------------------------------------- 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. Now for an overview of our operating results. For the full year 2020, total company operating income increased 65.3% to $142.9 million as compared to an operating income of $86.5 million. We believe adjusted operating income, which excludes certain significant and noncash items, is more reflective of the underlying operating performance. This measure came in at $159 million for the year, exceeding our latest outlook range of $154 million to $155.5 million and reflecting an increase of 18.4% versus the prior year. Net income for the year was $124.3 million or $1.74 per diluted share, while adjusted earnings per diluted share, which again, we believe is more indicative of the underlying operating performance, was up 13.9% to $1.56. Excluding legal settlements, this improvement in operating performance was primarily a result of enrollment growth at both CTU and AIU, the acquisition of Trident University, reduced legal fees and reduced expenses associated with our closed campuses. Partially offsetting these items were ongoing investments in marketing, academics and other student serving functions. Note that for 2019 and 2020, we have been adjusting for certain expenses related to our closed campuses. As of the end of 2020, substantially all of the leases for our closed campuses have ended and expenses associated with these closed campuses will be immaterial moving forward. As a result, for 2021, we will no longer include adjustments for any expenses related to closed campuses when presenting adjusted operating income or adjusted earnings per diluted share. I will further address this later in my prepared remarks. Overall, we ended the year on a good note with fourth quarter adjusted operating income of $40.2 million versus $34.6 million and adjusted earnings per diluted share of $0.39 versus $0.33. Moving on to some more details around the 2020 results. Total company revenue was $687.3 million for the year, which reflects an increase of 9.5% from $627.7 million, with fourth quarter revenue up 8% versus the prior year quarter. As it relates to our segments, full year revenue at CTU was up 3.4% to $405.5 million for the year, supported by increased student enrollments. Full year operating income of $138.5 million was up 27.5%. Excluding the prior year settlement expense of $18.6 million, operating income would have grown by $11.3 million or 8.9%, primarily driven by revenue growth. Operating expenses were higher as a result of increased investment in marketing and student support processes. Turning to AIU. Revenue increased 19.5% to $281.4 million for the year as a result of the Trident acquisition and student enrollment growth. Full year operating income of $30.8 million was up 87.8% versus the prior year. But excluding the $11.4 million legal settlement expense recorded in the prior year, operating income would have been up 10.8%. For the fourth quarter, operating income increased 9.6% versus the prior year. Included in the operating income is approximately $0.8 million for the quarter and $2.8 million for the year related to the amortization of definite life intangible assets that were established as part of the purchase price accounting related to the Trident acquisition. A quick note on bad debt. For the full year, total company bad debt expense as a percentage of revenue was relatively in line with the prior year. While we continue to expect quarterly fluctuations in bad debt levels, we are pleased with the stabilization in this area as we focus on improving student retention and the financial aid process for our students. Now let me spend a few minutes on student enrollments. Total student enrollments at CTU grew by 4.2% for the year, primarily supported by new enrollment growth of 7.4% for the full year and 3.6% for the fourth quarter. We believe these positive results reflect the investments across our student enrollment and support functions, which are allowing us to effectively serve the prospective student interest we are experiencing. Total student enrollments at AIU increased 39.2% for the year, supported by new enrollment growth of 37.3% for the full year and 54.8% for the fourth quarter. The positive impact of the Trident acquisition as well as underlying organic growth contributed to the enrollment increase versus the prior year quarter. Please note that for the fourth quarter as well as for the full year 2020, the academic calendar for American InterContinental University was relatively comparable to the respective periods in 2019 with a consistent number of revenue and enrollment days for each period. Staying with the academic calendar, we believe that the academic calendar redesign at AIU has been well received by students and faculty. Recall that the academic calendar redesign was intended to improve student experiences and engagement by strategically placing breaks between sessions and providing more opportunities for students to continue with their academic programs. With that in mind, we are now redesigning CTU's academic calendar beginning with the first quarter of 2021, similar to how we previously redesigned AIU's calendar. As a result, this may impact year-over-year comparability of revenue and enrollment days at CTU. I will talk more about this while discussing the 2021 outlook. Now moving on to Corporate and Other, which includes residual operating losses associated with closed campuses. Operating losses for the year were $26.4 million versus $38.6 million in the prior year, with the improvement primarily driven by reduction in operating losses at closed campuses. The prior year also included a legal settlement charge of $7.1 million for the Oregon arbitration matter. Now to income taxes. For the fourth quarter and full year, we recorded a provision for income taxes of $9.8 million and $22.5 million, respectively. This resulted in an effective tax rate of 26.6% and 15.3% for the quarter and the full year, respectively. Recall that the full year tax rate was positively impacted by the release of approximately $16 million of a previously recorded valuation allowance against a portion of our foreign tax credit carry forward, supported by an overall domestic loss account. To further elaborate, we expect to utilize all of the $109.7 million of federal net operating loss carry forward and $5.7 million of foreign tax credits in 2020 and the remaining $10.3 million of our foreign tax credit carryforward in 2021 to partially offset 2021's federal tax liability. As a result, while we did not pay any federal income taxes for 2020, we do anticipate paying estimated federal income taxes beginning with the first quarter of 2021. Separately, we expect our 2021 tax rate to be between 25.5% and 26.5%. This full year estimated rate is negatively impacted by increase in tax reserves and the tax effect of expenses that are not deductible for tax purposes. Now to our balance sheet. Net cash provided by operations was $180 million for the year as compared to cash provided of $73.1 million for the prior year. We ended the quarter with $410.4 million of cash, cash equivalents, restricted cash and available for sale short-term investments. This represents an increase of $116.2 million over year-end 2019 and was primarily driven by positive cash flows from our university operations. Some of the key uses of cash in 2020 include the Trident acquisition for approximately $39.8 million, payments related to the settlement of the Oregon arbitration matter, annual and long-term incentive payments, share repurchases and capital expenditures. Speaking of capital expenditures, capital expenditures were approximately $9.8 million for the year, as compared to $5.2 million in the prior year. For full year 2021, we foresee capital expenditures to be approximately 1.5% to 2% of revenues. Finally, let us discuss our outlook for the full year 2021, which incorporates the additional investments that Todd discussed earlier. Also, as discussed, operating activity related to closed campuses will be immaterial going forward. As a result, we will not include any adjustments for closed campuses when calculating adjusted operating income and adjusted earnings per diluted share for 2021 and 2020, and the 2020 amounts will also be presented on a similar basis to maintain comparability. This revised approach is reflected in our outlook below and in today's earnings release. With that said, our outlook for 2021 consists of the following. Full year adjusted operating income outlook to be in the range of $165 million to $171 million as compared to $157.7 million in 2020, reflecting expected growth of approximately 4.6% to 8.4% versus the prior year. This outlook reflects our expectation of total enrollment growth for both institutions in 2021. Adjusted earnings per diluted share to range between $1.58 and $1.64 per diluted share versus $1.55 in 2020. For the first quarter of 2021, we expected adjusted operating income to be in the range of $43 million to $44 million as compared to $39.9 million in the prior year quarter, with adjusted earnings per diluted share to be in the range between $0.42 and $0.43 per diluted share versus $0.41 in the first quarter of 2020. Finally, a comment on new student enrollments. Given the academic calendar redesign, first at AIU and now at CTU, quarterly new enrollment comparability will be impacted and may not be reflective of the underlying operating performance. As a result, we will no longer report new student enrollments and will focus our discussion on total student enrollments. We believe total student enrollment continues to reflect our focus on enhancing student experiences, retention and academic outcomes as well as our underlying operating performance and enrollment growth. Let me conclude by spending a few minutes on our balanced approach to capital allocation. We are focused on building a strong balance sheet while prudently evaluating organic and inorganic opportunities and also returning capital to stockholders. We will continue to focus on maintaining adequate liquidity while evaluating inorganic strategies, including the acquisition of high-quality educational institutions or programs and investing in student-serving initiatives and academic programs at our universities. Ultimately, our goal is to deploy resources in the most effective and efficient manner that we believe will lead to increased shareholder value and allow us to continue to provide a quality education to our students. Please refer to the earnings release filed today for important information about the key assumptions and factors underlying this discussion from today's call as well as the GAAP to non-GAAP reconciliations. With that, I will turn the call back over to Todd for his closing remarks. Todd? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [5] -------------------------------------------------------------------------------- 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'll continue to invest in our academic institutions and focus on positively impacting retention and academic outcomes across our universities. I'd like -- now 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. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And our first question today will come from Daniel Moore with CJS Securities. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [2] -------------------------------------------------------------------------------- I wanted to start with new enrollment trends, clearly strong across both institutions. Can you delineate, I know it's hard, but how much 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. -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [3] -------------------------------------------------------------------------------- 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. The second, yes, I think as Ashish mentioned, we've been more effective in our technology and other applications that I think 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. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [4] -------------------------------------------------------------------------------- That's helpful. And looking forward, guidance is usually typically conservative, obviously, but how much of an increase in investment spending in those areas, we just talked about tech data analytics, academics, student experiences. How do we think about the -- either dollar terms or percentage terms year-over-year increase in investment spend that's embedded in the '21 guide? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [5] -------------------------------------------------------------------------------- Sure. And if we can, I can have Ashish respond on that second part. But yes, we felt like, again, based on demand and based on where we feel the interest is that it was worthy of investing at a more significant rate than we have in the past, especially in certificate or shorter duration programs and also in our corporate partnerships. We're seeing good demand and we want to take advantage of that. But to do that, yes, it does take more investment than it has in the past. And that, yes, that has some impact on your outlook because you're investing for the future. Ashish, I don't know if you want to add anything to that? -------------------------------------------------------------------------------- Ashish R. Ghia, Perdoceo Education Corporation - Senior VP & CFO [6] -------------------------------------------------------------------------------- No, I think that's spot on. I think we have incorporated those investments in our outlook. And as we have consistently said, we -- 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 as to the quantum of dollars of investments. But they are incorporated in the outlook. And as always, we'll continue to balance and make sure that we have the appropriate investments for the long-term for our students. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [7] -------------------------------------------------------------------------------- Helpful. Maybe sneak one more in. Cash flow was exceptional, obviously, over $180 million in cash flow from ops. Then you gave a little guide on the CapEx side, so probably that will tick a little higher. But just from a cash flow from operations perspective, can you talk about the puts and takes? And how should we think about 2021 versus 2020? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [8] -------------------------------------------------------------------------------- Ashish, do you want to comment... -------------------------------------------------------------------------------- Ashish R. Ghia, Perdoceo Education Corporation - Senior VP & CFO [9] -------------------------------------------------------------------------------- Sure. I think -- 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 were positively impacted in 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's nothing unique in terms of our cash flows. There's 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. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- And our next question will come from Alex Paris with Barrington Research. -------------------------------------------------------------------------------- Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [11] -------------------------------------------------------------------------------- Congratulations on the earnings beat yet another. I got on the call late, I apologize. I'm 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? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [12] -------------------------------------------------------------------------------- Sure. Let me just talk about it at a high level, first. What we're finding is, again, that there is strong interest at both CTU and AIU. As we've said before, CTU has had more time to develop the process to work effectively with our students. And so again, as we said, it was at CTU approximately 20% of our students are now those types of students. And AIU, it's a smaller percentage, but it is growing. And that really what, Alex, is giving us the confidence to continue to invest in that. And as a result, I think that we're hoping that this year will be -- we'll 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? -------------------------------------------------------------------------------- Ashish R. Ghia, Perdoceo Education Corporation - Senior VP & CFO [13] -------------------------------------------------------------------------------- Sure. And as far as the -- 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 2 things to keep in mind. -------------------------------------------------------------------------------- Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [14] -------------------------------------------------------------------------------- So less revenue per student, but the same or more EBITDA per student? Is that how I should think about? -------------------------------------------------------------------------------- Ashish R. Ghia, Perdoceo Education Corporation - Senior VP & CFO [15] -------------------------------------------------------------------------------- I mean we don't necessarily talk in terms of EBITDA per student, but on a 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. -------------------------------------------------------------------------------- Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [16] -------------------------------------------------------------------------------- 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. Since then, we've had some nominations. Miguel Cardona as Secretary of Education, James Kvaal as Under Secretary. I asked you this question 3 months ago. I'm wondering if you have any additional thoughts. -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [17] -------------------------------------------------------------------------------- Well, again, we don't know a lot about them. We've read about their backgrounds, and they both seem like, obviously, very experienced and 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're looking forward to that. Again, we continue to watch for any information that's available to see if there are any changes of -- if and when they would happen, and what those would be. But at this point, again, we're -- they seem to be very dedicated people to education as are we and really do look forward to working with them. -------------------------------------------------------------------------------- Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [18] -------------------------------------------------------------------------------- Good. I'm 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 the last question for me, just a few cats and dogs here. Is -- the AIU campuses, the CTU campuses, are they open again? I know they are small as a percentage but... -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [19] -------------------------------------------------------------------------------- Yes, it is small. We have -- at AIU, we have started that on a limited basis, and we're excited to have that. And as of this point, Ashish correct me if I'm wrong, I know because we're getting close, but we haven't done that yet at CTU, but plans to move forward pretty soon on that as well. -------------------------------------------------------------------------------- Ashish R. Ghia, Perdoceo Education Corporation - Senior VP & CFO [20] -------------------------------------------------------------------------------- That is correct. -------------------------------------------------------------------------------- Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [21] -------------------------------------------------------------------------------- Good. And then I have some questions about the initiatives that you're going to -- the additional spending this year, investing in areas like data analytics and so on. I'm sure you talked about that before I got on the call. So we can talk about that on a follow-up call. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- And our next question will come from Greg Pendy with Sidoti. -------------------------------------------------------------------------------- Gregory R. Pendy, Sidoti & Company, LLC - Consumer Analyst [23] -------------------------------------------------------------------------------- I just wanted to dig a little bit into just the margin differential at AIU versus CTU. I think we talked about a 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 of years now that you have Trident. So you've 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? Then in addition, I know the student experience is your main priority at AIU. But just given the way you're structuring Trident as part of AIU, is that going to hamper the margins over the long term? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [24] -------------------------------------------------------------------------------- Sure. Great questions, Greg. And first, from our perspective, yes, the top priority is really the student experiences. But having said that, AIU has -- we believe, has the potential to have margins similar to CTU. But it's really more focused on -- again, if there they're growing at a faster pace, they tend to not have as much margin, as you'd 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 -- again, that's just -- so again, the way the governance structure exists for academic institutions. So as AIU grows, it will -- its margin should increase. And as far as adding Trident to that, again, we don't -- in fact, if anything, we think that, that actually -- and one of the reasons that we did that is, again, it would allow them to increase the breadth and depth of their programs which would again allow us to serve better the demand of potential students that we're 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. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- And our next question is a follow-up from Daniel Moore with CJS Securities. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [26] -------------------------------------------------------------------------------- I was just hoping you could give a little bit more detail on the types of certificate and shorter duration programs, you tend to -- you intend to invest in. -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [27] -------------------------------------------------------------------------------- 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 health care, that want to, again, have the specific skill, reskilling, upskilling to allow them to advance them 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 our curriculum, our faculty, we feel we can provide excellent both curriculum and faculty for them to get the information they need to do that. And -- but again, several different areas, but in particular, those 2 areas is where we've seen significant demand. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [28] -------------------------------------------------------------------------------- And do you anticipate the funding mix being any different in those areas than the mix of AIU/CTU today? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [29] -------------------------------------------------------------------------------- I'm not sure, Greg, let me just put it down by -- what you mean by the funding and then there was the... -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [30] -------------------------------------------------------------------------------- Just the source of -- obviously, the ultimate source of revenue. -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [31] -------------------------------------------------------------------------------- Corporate versus -- yes. I mean, 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 organizations 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 would come from both. -------------------------------------------------------------------------------- Daniel Joseph Moore, CJS Securities, Inc. - MD of Research [32] -------------------------------------------------------------------------------- Okay. And lastly for me, just 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? -------------------------------------------------------------------------------- Todd S. Nelson, Perdoceo Education Corporation - Chairman, President & CEO [33] -------------------------------------------------------------------------------- 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, we'll -- that will develop soon or quickly as it has in prior administrations. And I think that then obviously depend -- would impact your -- if -- any type of buyback strategy that you would have. But again, the priority is -- it really is, is the focus on those things that we do well, which is educating students. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- And this will conclude our question-and-answer session. Also, concluding today's call. We'd like to thank you for attending today's presentation. And at this time, you may now disconnect your lines.