Perdoceo Education Corporation (PRDO) Q3 2019 Earnings Report, Transcript and Summary

Good day and welcome to the Q3 2019 Career Education Earnings Conference Call. All participants will be in a 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 Mr. Chris Donovan with Alpha IR. Please go ahead.

Thank you, Ashley. Good afternoon everyone and thank you for joining us for our third quarter 2019 earnings call. With me on the call today is Todd Nelson, President and Chief Executive Officer, and Ashish Ghia, Senior Vice President and Chief Financial Officer. This conference call is being webcast live within the Investor Relations section at careered.com. A webcast replay will also be available on our site and you can always contact the Alpha IR Group for investor relations support. Let me remind you that this afternoon’s earnings release and remarks made today include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on assumptions made by and information currently available to Career Education and involves risks and uncertainties that could cause actual future results, performance and business prospects, and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified in Career Education’s Annual Report on Form 10-K for the year ended December 31, 2018, and other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, the company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments or changed circumstances or for any other reason. In addition, today’s remarks refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The earnings release that accompanies today’s call contains financial and other quantitative information to be discussed today as well as the reconciliation of GAAP to non-GAAP measures, and is available within the Investor Relations page of the company’s website at www.careered.com. With that, I’d like to turn the call over to Todd Nelson, Todd?

Thank you, Chris. Good afternoon, everyone and thank you for joining us on today's call. We are pleased with our third quarter and year-to-date results that have been supported by positive operating trends. We have and we'll continue to focus on further enhancing the academic quality of our institutions while improving student experiences, retention and academic outcomes. Our operating results thus far underscore those efforts. Some key highlights for the quarter include; first, revenue was up 6.4%, primarily supported by total student enrollment growth of 6.1% with both universities contributing to this growth. Second, we are experiencing better than expected improvements in retention, a trend that has continued into the third quarter. Driven by these improvements we now expect our full year 2019 adjusted operating income and enrollment outlook to be ahead of our previously provided outlook. Ashish will provide more color on these updates during his remarks. Third, we continue to see consistent levels of prospective student interest and are being well served by our admissions and advising support centers. And although our investments have mostly annualized, we are increasingly using technology and data analytics to optimize our student enrollment, on-boarding and learning processes. Lastly, as it relates to Triton University, we are diligently working through the remaining two regulatory approvals from the higher learning commission and the Department of Education, while also planning for an efficient and effective integration into AIU that will focus on maintaining and most importantly, enhancing student experiences and academic outcomes for students from both universities. I'll further expand on some of the highlights for the quarter shortly. Ashish will then cover more details around the financials and provide and update of our 2019 outlook before I add some closing thoughts. Now, to our operating performance for the quarter. We reported net income of $18.2 million or $0.25 per diluted share. While adjusted earnings per diluted share which excludes certain significant and noncash items was $0.33 as compared to $0.25 in the prior year quarter. Adjusted operating income was $34 million, an increase of 31.7% from $25.8 million in the prior year quarter with the improvement primarily driven by revenue growth at our universities. The quarter was also benefited by the timing of certain operating expenses that Ashish will address later. Both universities contributed to this growth with total student enrollments up 6.1% supported by year-to-date new enrollment growth of 16.2% as well as improving student retention. Some initiatives and themes supporting these trends were consistent levels of processing student interest which is being well served by our efficient and effective student enrollment process and which is being increasingly supported by technology and data analytics. Also improved productivity and service levels within our admissions and advising student support centers, in part driven by tenure and increased training and development. Next, improvements in student retention and engagement that we believe is primarily driven by our student serving initiatives and investments we have made over the past few years. And lastly, the timing impact of a U.S. academic calendar redesign that positively impacted new enrollment trends in the first half of 2019. Moving to our segments, at CTU, total enrollments grew 3.2%, primarily driven by year-to-date growth in new enrollments and supported by improving student retention. Most of the operational enhancements at CTU focus on further improving student experiences retention and academic outcomes. Some of these initiatives and enhancements worth mentioning are increased staffing, training, and development within our student advising functions that further improve the support and guidance provided to our students focuses on direct personal and relevant interaction with students. Second, reporting and technology enhancements that have further enabled admissions and advising staff to customize their student outreach and engagement strategies based on specific characteristics thus providing a more meaningful and relevant interaction with our students. Next, ongoing optimization, of course, pairing and sequencing that we believe is driving better academic outcomes and student engagement. Our teams have also begun to redesign and optimize core structure and content to improve the overall classroom and learning experience. A quick comment on corporate partnerships at CTU. We continue to further support and grow our partnership program and are looking to incrementally invest in the initiative as well as we enter 2020. New partnerships and relationships take time to develop, but as previously discussed, these students have relatively higher persistence and are thus becoming a larger percentage of our overall total enrollments. Driven by the success of the various initiatives and investments and supported by consistent levels of prospective student interest for our programs we expect CTU to experience new student enrollment growth for the fourth quarter and full year 2019. Now turning to AIU. As a reminder, quarterly enrollment results at AIU can be significantly impacted by its academic calendar and the number of enrollment days in any given quarter. We've been working on optimizing the academic calendar, so that the magnitude and frequency of this calendar driven variability, is less frequent going forward. We are pleased to share for the third quarter; AIU experienced 10% growth in new enrollments, primarily driven by organic growth initiatives, which is encouraging given the academic calendar having a comparable number of enrollment days versus the prior year quarter. This demonstrates the underlying operating momentum at AIU beyond the quarterly counter-driven variability. Some of the initiatives and enhancements worth highlighting are: first, ongoing refinement and optimization of the graduate team model with the goal of enhancing experiences through a student's entire life cycle; teams are encouraged to build critical thinking in their interactions with students. There is also significant focus on training and development -- training and development that has been improving tenure on the team; continued optimization of course pairing, sequencing and course content based on student feedback; and performance with the ultimate goal to further refine our learning centric model, where there is significant focus on step-by-step learning. Finally, our financial A teams are focused on getting students financially prepared before they start school. In general, AIU is executing well against its objectives of sustainable and responsible growth and we expect new student enrollments to experience growth for the fourth quarter and full year 2019. Please also note, the academic calendar in the second half is relatively comparable to the prior year. And enrollment trends should be primarily driven by underlying organic growth initiatives and investments. Finally, a few observations regarding technology initiatives at our universities, having primarily online academic institutions serving nontraditional students including adult learners, technology is a key differentiator and enabler to serve current and prospective students. We have fully rolled out an updated version of our mobile application for both students and faculty. Overall app usage is high at both universities with an approximately 89% adoption rate. The two-way messaging app is increasingly used for communication with students on a variety of academic and related topics and students now have the ability to upload required financial, A, documentation to assist with their overall application process. We also are opportunistically looking to expand the use of artificial intelligence and machine learning supported by Google Analytics throughout a student's life cycle from orientation and on-boarding to ongoing coaching support and advising. For example our AI-based chat box, Lucy, has streamlined the process for prospective students who want to learn about our university and is able to answer questions with over 90% accuracy while continuing to learn from her interactions. We are also using machine learning and automation technologies to enhance the functionality and sophistication of our online outreach program to identify prospective students. Lastly, we continue to refine technology within the student enrollment process that customizes our outreach to prospective students based on their prior student experience and program of interest. As a result, we are seeing improved efficiency within our enrollment process and are able to more effectively provide prospective students with relevant information to help them make informed academic decisions. To summarize, both universities remain focused on student experiences, retention and academic outcomes that support the objective of sustainable and responsible growth. Overall operating performance this year has provided further reaffirmation around our strategy of prioritizing investments in student serving processes and initiatives and has given 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 our third quarter 2019 results and balance sheet as well as the 2019 outlook. Ashish?

Thank you, Todd. I will start with a review of our third quarter results and then discuss our balance sheet and updated 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. As a reminder effective June one this year we changed our segment presentation after the responsible completion of our teach outs. As such the All Other campuses segment which included these schools is no longer an operating segment. As a result residual losses associated with these closed campuses have now been included within the corporate and other category. Prior periods have been weakest to maintain comparability. Now, a quick overview of our strong third quarter results. Total company operating income was $24.3 million compared to an operating income of $19. three million. We believe adjusted operating income which excludes certain significant and non-cash items is more reflective of the underlying operating performance. Third quarter experienced strong results with this adjusted measure at $34 million growing 31.7% versus the prior year quarter. It was also above the high end of our previously provided outlook range of $26 million to $27 million. Net income for the quarter was $18.2 million or $0.25 per diluted share. While adjusted earnings per diluted share was $0.33 as compared to $0 25 in the prior year quarter. The most significant adjusting item for the quarter was a $7.1 million legal settlement related to the remaining individual arbitration claims which we collectively refer to as the Oregon arbitrations. The settlement is subject to final court approval and we expect to pay this amount in the first quarter of 2020. Please also note that the adjustments related to vacated space will continue to become smaller as we approach the tail end of the remaining leases for our closed campuses. Excluding these adjustments, the improvement in operating performance was primarily driven by revenue growth at both universities as well as reduced losses associated with our closed campuses. The quarterly performance was also benefited by approximately $2.5 million due to timing of certain operating expenses associated with employee-related insurance programs and bad debt. Some or all of which may be incurred in future quarters. I will comment more on these trends shortly. Moving on to some more details around the third quarter financials. Total company revenue increased by 6.4% to $155 million as compared to the prior year quarter. Both universities contributed to the revenue growth that has been supported by the ongoing strategic initiatives that Todd just talked as well as underlying student retention trends that further improved for the quarter. As it relates to our segments revenue at CTU was up 3.1% for the quarter relatively in line with the total enrollment growth of 3.2%. Operating income at CTU grew 14% to $29.9 million compared to $26.3 million. Absent the restructuring charges that were recorded in the prior year, operating expenses for the quarter were relatively flat with efficiencies across various student processes offsetting incremental investments in marketing. Now to AIU. Revenue increased by $6.4 million or 12.2% to $58.9 million supported by growth in underlying enrollment trends, as well as higher student retention for the third quarter. Please note that for the third quarter both revenue and enrollment days were comparable to the prior year quarter. Operating income at AIU was $7.3 million as compared to $1.1 million in the prior year quarter. Operating leverage was strong with most of the revenue growth resulting in operating income growth, while bad debt and marketing investments were the primary offset. Also note that the prior year included $1.1 million of restructuring charges related to our process reengineering initiative. A quick note on bad debt, we continue to invest resources to help students financially prepare for school and be successful in completing their programs of study. We did see sequential improvement in quarterly bad debt expense, in part, driven by improved retention and financial aid processing of our students. As previously mentioned bad debt for the quarter was positively impacted by timing issues that are typically associated with this expense. There are several factors impacting quarterly bad debt including the AIU academic calendar, cash collections Department of Education Verification Requirements and student account balances to name a few. Note that the current quarter bad debt expense was benefited by these factors and we believe these factors could continue to drive variability in future quarter bad debt expenses. In general, we are focused on managing bad debt within the overall constructs of our financial and operating framework and are making investments to support student retention and academic outcomes. I also wanted to share that the Department of Education released the 2016 cohort default rates for both our academic institutions. We are pleased to report that CTU and AIU saw a reduction of 70 basis points and 50 basis points respectively in the default rate versus 2015. Moving to enrollments. Total enrollments at CTU grew by 3.2% as of the end of the quarter primarily supported by year-to-date new enrollment growth as well as improving student retention. As expected new enrollments were relatively flat for the quarter. Please keep in mind that these results were moderated by strong performance in the comparative prior year period during which new enrollments were 9% higher as compared to the third quarter of 2017. As Todd outlined, enrollment growth at CTU was supported by consistent levels of prospective student interest that were well served by investments in the Illinois and Arizona support centers that have now mostly annualized. Also contributing to this positive performance was the continued progress and growth within our corporate partnership program. Driven by these initiatives, including improved efficiencies within our student enrollment process, we expect CTU to experience new enrollment growth for the fourth quarter and full year 2019. Total enrollments at AIU increased 11.3% for the quarter, while new enrollments were up 10% as compared to the prior year. On a positive note, the third quarter academic calendar was relatively comparable to the prior year and enrollment trends for the most part, reflect underlying organic growth. Consistent levels of prospective student interest that were well served by our graduate teams as well as improving retention trends contributed to the growth in the third quarter. Also for the fourth quarter and full year 2019, we expect new enrollments to show growth versus the prior year. To further put this in context of AIU's academic calendar and on a positive note, we expect new enrollment growth in the fourth quarter, which will also have a comparable number of enrollment days versus the prior year quarter. A quick update on Corporate and Other, this category now includes residual operating losses associated with closed campuses and reported an operating loss of $13 million in the third quarter as compared to an operating loss of $8 million. Current quarter operating losses related to closed campuses including a legal settlement of $7.1 million related to the Oregon arbitration matter. Closed campus losses for future quarters will primarily include residual expenses such as fees for legal and professional services and some occupancy related items. Corporate overhead expenses were relatively in line with the prior year. Now income taxes. We recorded a provision for income taxes of $7.7 million for the current quarter, which resulted in an effective tax rate of 29.4% for the quarter. Please note that the tax rate for the quarter was negatively impacted by 5.7% due to the $30 million FTC settlement reserve, which was mostly non-deductible and is a permanent difference for the year, the impact of which is spread across all quarters. For 2019, we expect our tax rate to be between 29% and 30.5%, which includes the impact from the partial non-deductibility of the FTC settlement. Separately, we ended 2018 with approximately $193.6 million of federal net operating loss carryforwards, 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. Moving on to our balance sheet. We ended third quarter with approximately $312 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 $82.7 million over year-end 2018 and was primarily driven by positive cash flows for our core operations offset by cash outflows related to the attorney general settlement payments of $5 million as well as residual lease obligations associated with our closed campuses. Please note that the September 30th cash balances include $30 million of restricted funds related to the FTC settlement, which was subsequently paid during October 2019. Capital expenditures were approximately $1.8 million in the third quarter as compared to $1.2 million in the prior year quarter. For the full year 2019, we foresee capital expenditures to be approximately 1% of revenue. Overall, the company is executing well against its objectives of sustainable and responsible growth with investments in student serving initiatives and technologies showing positive results. The improved performance and efficiency of our operations is allowing us to maintain and balance investments within our two universities, helping us create better experiences and academic outcomes for our students. Our goal is to maintain optimum starting levels within the student serving operations that we believe will enable us to efficiently serve prospective student interest while providing superior experiences to our current students. Finally, to our 2019 outlook. We are updating our full year 2019 outlook as follows; increasing full year adjusted operating income outlook to be in the range of $130 million to $132 million as compared to $105 million in 2018; reflecting expected growth of approximately 24% to 26% versus the prior year. This is primarily driven by the year-to-date operating performance. This outlook reflects our expectation of new enrollment growth for both universities in 2019 which we believe will lead to revenue growth at each university. For full year 2019 we expect revenue growth to be in the range of 6% to 6.5% and new enrollments to grow approximately 12% to 13% again supported by our strong year-to-date performance. Adjusted earnings per diluted share to range between $1.32 to $1.34 per diluted share versus $1.05 in 2018. For the fourth quarter, we expect adjusted operating income to be in the range of $30.2 million to $32.2 million as compared to $29.7 million in the prior year quarter. Please refer to our earnings release filed today for important key assumptions and factors underlying this outlook and other expectations discussed on today's call information about information about well as the GAAP to non-GAAP reconciliations. I will close with an important update on our capital allocation priorities. We maintain a balanced capital allocation strategy that focuses on building a strong balance sheet, while prudently investing in organic growth projects and also have committed capital to the pending acquisition of Trident University. Our ultimate goal is to effectively and efficiently deploy resources in a way that we believe will lead to increased shareholder value while further supporting and enhancing the academic quality of our institutions. With that in mind, we are pleased to announce that the company's Board of Directors have authorized he share repurchase of up to $50 million of company's common stock through the end of 2021. The strength of our balance sheet supported by stability and consistency in our operating performance gives us the confidence to consider a direct return of capital to our shareholders as part of the capital allocation strategy. With that I will turn the call back over to Todd for his closing remarks. Todd?

Thanks Ashish. We are on track to enter 2020 on a strong note. We've worked very hard to support our students as they learn and progress through their field of study. We are executing well against our overall strategy is sustainable and responsible growth which is driven by our focus on student experiences retention and academic outcomes. I believe we are well-positioned both from a competitive and operating standpoint to serve and educate current and prospective students nontraditional students including adult learners and build a leadership position in post-secondary education. I am proud of the entire Career Education team for their focus, hard work and determination that is helping drive quality academic outcomes for our students. Thank you again for joining us today and we'll now open the call for any analyst questions.

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

Hi, Todd and Ashish. How are you?

Good, good. How are you doing Alex?

Good. Thanks. Congratulations on the very strong third quarter. I couldn't find anything to criticize there. It looks like you're above my expectations on every item. Look forward to more of that going forward. I have a few questions not in order here, but I just thought to ask for an update on Trident you announced that acquisition in March, you said at the time that it was going to be closed by the end of the year. What milestones do we have to satisfy to get it closed by the end of the year? What are we waiting on? And then maybe just an overall update on how they are doing operationally in 2019?

Okay. Well again, we're still very excited about this opportunity for us. And as we mentioned really -- we're just working through the final approvals of both the Department of Education and the Higher Learning Commission which as you know, the Higher Learning Commission approval has to take place before the department is able to approve that. And our understanding is that, it should be considered shortly. You have to follow as you know the calendar that they provide. And we're hoping again for a positive outcome with that. Once that's done then it goes to the department and again we'll work through that process as quickly as we can. Obviously it's hard to say exactly when that will all take place? But we'd love to see it by the end of the year. And -- but again, it's just hard to know how long that will take. And as far as the confidentiality, we can't really comment on their performance. But I'll just say that, again -- as we were at the beginning, we continue to be very excited about them and the potential to have them as part of CEC.

Great. So I know the intention is once closed to combine the operations of Trident and AIU. And just looking at the profitability of the two universities that you own today, CTU and AIU, obviously CTU has margins at least in the most recently completed year close to 30%, while AIU in 2018 was mid-single digits. What's the difference between the two universities in terms of profitability? What's it going to take to get AIU up to the level of CTU in terms of margin performance? A – Todd Nelson: Well, that's a great question. I think our main focus has been with AIU is to obviously make sure that they have -- and we believe they have, the high-level of quality operation and academic infrastructure, as well as programs and they have that in place. And so now, again I think it's just been a matter of execution and scale. And again they have a very strong management team there. And as you know they just recently went through their HLC visit. And as – again as we've reported a positive outcome there. And again now, I believe the biggest issue will continue to be scaled. And as you can see from the prior year versus what we've reported year-to-date, you can see a nice increase. And we would, obviously, hope that that would continue. And I think their trajectory of improvement as far as their margin, we would hope to see that continue.

Yeah, definitely. I mean, it absolutely has improved. Is there any structural reason why AIU particularly integrating Trident couldn't over time move to a similar margin profile with CTU?

Well, yes there's always that possibility. And I think that one of the things that was very appealing that as you know from the profile of Trident is there are a number of graduate programs and their doctoral programs. And I think if you look at the programmatic mix that exists in AIU, I think that enhances that. And the breadth and depth of the program offerings, which I think is very appealing. So, I think it does give adds to the profile of AIU to we build continue to grow. And also as far as I think allowing them to access different markets that the current programs that AIU doesn't allow them to do that. All of which again I think the contributed to that sustainable and responsible growth.

Great. Well, you referred a few times on the call in your prepared comments to corporate partnerships. I'm wondering what our corporate partnerships as a percentage of total enrollment either for CEC in total or by University?

Alex, this is Ashish. So we did not disclose those percentages for this quarter, but what we have said is last year during our year-end call, we did say that CTU is about around that 16% range for total enrollments come from corporate partnerships and we are seeing continued progress and we hope to update on that towards our year-end call.

And I would just say one thing, we did mention is obviously we're supporting that interest with continued investment there and very encouraged by that.

Let see the culture of a corporate partnership, is it a tuition discount? Is it -- are there more than one way to be a corporate partner of a CEC University?

Yeah, I think -- yes there are multiple ways. I think the number one driving factor though is the quality of the education and the level of student services that you provide to their employees. And it may range from being listed as one of their approved universities, one of their preferred universities to accessing maybe access to their tuition reimbursement or direct billing programs to -- all the way to being an exclusive program provider for a particular program. So it really does range depending on the company but I think it all boils down to the quality of the program, which includes the faculty, the curriculum, the execution of the academic team and then augmenting that with good student services, because I think that's -- at least my experience has been over the years. That's where -- there may be a good reputation of an institution academically. But if they don't provide the level of service to their employees, it doesn't do them a lot of good. And so it's a combination of the two that I think has allowed us to have some success. And they really want to continue to invest in that going forward.

And Alex keep in mind these students do have relatively stronger retention profile versus our overall population.

And then I would assume lower student acquisition cost because of the corporate relationship and longer -- and as you said better retention, so better lifetime value from a corporate partnership student?

Yes that's correct, yes.

Got you. All right. Last question based on cash. You have a ton of it. Finished the quarter with $312 million even after the $30 million FTC settlement you're at $280 million. Based on my estimates, you're going to generate $100 million in free cash flow next year. You're going to put -- even if you executed on the entire $50 million share repurchase during 2020 and paid for Trident, cash is not really going to go down from year-end 2019 to year 2020 again based on my estimates. I'm wondering are you still interested in other inorganic growth opportunities making other acquisitions of Title IV institutions? I would assume it continues to be a buyer's market.

Yes. I mean -- first off I agree especially with your last statement, it does continue to be a buyer's market out there. I think there are a lot of quality institutions out there Title IV and also those that are education-related. And obviously I think it's very prudent to continue to look at that. But our number one goal still is to continue to invest in the organic growth. And we feel like given the current level of interest for prospective students, we're encouraged by that. Obviously Trident, which you mentioned, which is a nice addition to AIU into overall CEC. I do believe that there are other opportunities that I think it's very good for us to look at because I feel like we've developed a lot of as you know shared service functions within the institution that are -- I think really we have the capacity to serve additional students very effectively. And I believe with our academic infrastructure as well as our technology platforms. I think we -- I think we can really help serve the higher education industry. And if there are other things that we can add to CEC, I think that would be a good investment for us and that would help the overall education industry.

Well, really good. thank you very much for taking my questions and again, congratulations on the quarter.

Thanks Alex.

Thank you.

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

Hey guys. Thanks for taking my questions. Todd, I think earlier on the call you mentioned sort of the tech spend winding down. Can you just give us a big picture of sort of the lifecycle of the tech spend when you guys really kind of started to initiate ramping up the investments you've made, when it may have peaked and kind of when we've started to see a tail off?

Greg you're talking about the technology spend correct?

Correct. Yes just kind of bring us through when you guys really started putting the money behind it and kind of when it started to wind down?

I mean we continue to invest in technology. We started there about as we said a few years back that coincided with the completion of our teach-out schools and we started investing in technology. And really speaking it's an ongoing spend and we continue to invest that. So, they are not necessarily peaks and troughs in that. There is a stable level of technology spend that we continue to invest in our students. And that's what you will see that going forward.

Yes, I think it really starts at the beginning we're -- again the platform that you use to deliver the education and we continue to enhance that and we'll continue to do that. And that's an ongoing thing because the more robust and hence you can do that, I think that it helps with the retention and the outcome for the student. The second is really helping them with the on boarding process. And we've made a major investment this year in that front end technology and it allows us to be more efficient and effectively what our students provide better information more timely. And that one -- that comes more kind of in a instead of a constant that's kind of more of a stair-step type investment. We just completed again the major investment in that and probably, we'll see more of that as that occurs later next year, as we add the next level of business that we would bring into that. And then the last part is again, just the data analytics that we've invested in. Not only does that help us with prospective students, but it allows us to again much like our Intellipath platform to really fine-tune the education in a way that helps the students master the material better. And so, again those investments I don't -- I see them continuing. Again I think some of those bigger projects like our front-end those are kind of more -- over time you'll see those investments versus the study, where you have that with your learning platform as well as the data analytics technology.

And Greg keep in mind as far as the spend levels are concerned we will continue to manage those spend within the overall constructs of our financial and operating commitments and make sure that we are very opportunistically investing in capital and in technology as we go forward.

Okay, got it. That's helpful. And then just one final one, I appreciate all the color earlier on bad debt. But can you just kind of give us -- what are the key drivers that move bad debt in your -- I guess in your view I mean is it really retention? Is it sort of the financial aid? I know you're making a lot of initiatives that can impact it. But is there certain things that drive it more than others?

Well I think there's -- it is a very complex actual process because it's not only that there are things you can control and things you can't control. An example would be, for example there's a change in the level of verification of your students that the Department of Education is implementing that there's more verification that takes longer. And so that obviously would drive up that your bad debt as a percent of revenue. That's number one. I think you look at your composition of students. Again if you -- against certain programs, if doctoral, graduate programs they tend to be -- have a better, a stronger profile financially. And so as a result you probably have a little less bad debt there. So you have that affecting it. And then again, yes retention is something that obviously has an impact on it and as we continue to see retention go up that will affect it. But you have a lot of other things that aren't really impacting that. And one thing that's artificially affected ours has been the academic calendar of AIU. And over time, I think you'll see some of that variability go. But we saw good improvement this quarter. I think because of some of these other timing issues you'll see variability on a quarter-by-quarter basis. But the main commitment we have is to do what and have the really practices that are best for our students to help them get through and graduate and if that means affecting bad debt levels. I think that's the right decision to help.

Perfect. That’s helpful. Thanks a lot.

Thanks Greg.

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

Well again we thank you for joining us for the results and we look forward to speaking with you next quarter.

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