Perdoceo Education Corporation (PRDO) Q3 2020 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Perdoceo Education Corporation 3Q '20 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Wyatt Turk. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us for our Third Quarter 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, 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 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, 2019, and subsequent 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 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 the 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?

Thank you, Wyatt. Good afternoon, everyone, and thank you for joining us today on our call. I hope you and your families and friends are all staying well. We remain focused on the health and well-being of our students, faculty, employees and communities. We continue to refine our remote learning and service environments, which we believe provide a safe way for our students and employees to remain focused on the core task of educating and learning. I'm proud of the entire Perdoceo team for their commitment and dedication to educating and serving our students during these difficult times. The pandemic has further reinforced and validated the value proposition of online learning, and I believe that our primarily online universities and programs are resonating well with prospective learners. We continue to make targeted investments within our student support processes. And as evidenced by our quarterly results, are executing well against our objective of sustainable and responsible growth. Now let's discuss the quarter. We are pleased with our third quarter operating performance, which reflect our ongoing focus on student support and enrollment processes as well as our continued prioritization of initiatives that we believe positively impact academic outcome and student experiences. Key highlights for the quarter on a year-over-year basis included: first, enrollment growth across both CTU and AIU, reflecting consistent levels of prospective student interest for our online programs, which was well served by our admissions and advising functions. Second, year-over-year growth in revenue and operating income. Third, decreased investments to support remote work arrangements and upgrade our data center to further enhance the security, stability and capacity of our IT infrastructure. Fourth, further developing and applying our AI technology across a student's academic life cycle, which enables us to efficiently serve prospective students as well as customize our outreach and engagement with current students to help them stay and succeed in school. Fifth, the integration of Trident with AIU continue to progress, and we have been mindful to maintain the unique Trident name, academic model and experience while realizing efficiencies within back-office support functions. Overall, we are pleased with the broad range of educational programs, offerings and resources brought by the Trident acquisition. Now to our operating performance for the third quarter. We reported net income of $39.9 million or $0.51 per diluted share, while adjusted earnings per diluted share, which excites certain significant noncash items, was $0.35. Adjusted operating income was $36.6 million, a 7% increase over the prior year quarter and was primarily attributed to the revenue growth for the quarter. Additionally, both CTU and AIU contributed to enrollment growth with total student enrollment as of September 30, 2020, up 17.2%, supported by new student enrollment growth for the quarter of 17.5%. Investments in technology and student support initiatives are aimed at further refining our enrollment process for prospective students while customizing our outreach to current students. We believe these investments and initiatives have positively impacted academic outcomes and student experiences. In addition to these organic growth initiatives, the Trident acquisition also contributed to the enrollment growth for the quarter. At CTU, total student enrollments increased 4.8% for the quarter, supported by new student enrollment growth of 5.2%. This student enrollment growth at CTU was supported by: first, robust training and increased tenure across our admissions and advising functions, which further improved the efficiency of our enrollment process that assist prospective students to be better prepared for school. Second, our unique advising model, which helps us evaluate student grades and progress on a regular basis, providing for prompt and differentiated outreach to students. Third, extensive usage of the 2-way chat function in the mobile app and continued investments in technology and AI, which are supporting student retention. And last, growth in corporate partnerships. A quick comment on corporate partnerships. We continue to invest in the corporate partnership program at CTU. In general, these partnerships take time to develop, but students participating in these programs typically experience higher retention over the course of the program. Overall, we are pleased with the progress we have made in this area, and we will continue to make the necessary investments to support this initiative. Driven by the success of various initiatives and investments and supported by consistent levels of prospective student interest, we expect CTU to experience new and total student enrollment growth in the fourth quarter as compared to the prior year quarter. Now on to AIU. Effective today, AIU implemented a university system model. The American InterContinental University System, which we will refer to as the AIU system or simply AIU. The AIU system is comprised of 2 universities, our legacy American InterContinental University and Trident University International. The system structure provides a new framework for both to continue to serve their unique student populations while benefiting from the best practices of the university system. Trident's unique academic model and its masters and doctor programs will continue with the AIU system, providing a diversification of educational learning models and programs to better serve students' needs. AIU's system model has no impact on our financial statements and consistent with previous quarters in 2020. The AIU segment will encompass the operation of American InterContinental University and Trident University. However, because of Trident's unique academic model, some statements we make regarding AIU's methods and processes will not be applicable to Trident operation as part of the AIU system. As it relates to AIU's operating performance, total student enrollment as of the end of the quarter increased 37.7%, supported by new student enrollment growth of 29.4% for the quarter. These results were positively impacted by the Trident acquisition as well as organic growth that reflects consistent levels of prospective student interest. As a reminder, the academic calendar of AIU, excluding Trident, has often impacted year-over-year enrollment comparability. However, as previously shared, there was a comparable number of enrollment base in the third quarter versus the prior year quarter. And thus, no impact on year-over-year enrollment comparability. We expect the same fourth quarter and full year. From an operating perspective, AIU continues its student-centric approach that focuses on proactive student engagement across all aspects of a student's academic lifestyle. Consistent with its student-centric approach, AIU regularly test various methods to enhance student retention and engagement. Admission counselors are supporting students from the time they register for school through the end of their first session. We believe this will help our new learners transition to a school environment and ultimately lead to better academic success. Teams are also testing and evaluating a student retention model that is backed by data analytics and predictive modeling, which uses student characteristics such as previous education experience, degree preferences, transfer credit, et cetera. The model is expected to provide timely information about students that enables a targeted intervention, which may benefit the student's academic success. Overall, we are pleased with AIU's operating performance and expect to see growth in AIU's new and total student enrollments for the fourth quarter as compared to last year. To conclude, I'm very proud to be a part of the Perdoceo team, who have undertaken various measures and precautions to continue delivering on their commitment to student support and education. We are executing well despite these challenging times, and we believe our operating results reflect our commitment to educating and serving our students. I'd like to now hand the call over to Ashish for a more detailed review of our third quarter and year-to-date 2020 results, balance sheet and 2020 outlook. Ashish?

Thank you, Todd. I will review the third quarter 2020 results and then discuss our balance sheet and 2020 outlook before handing the call back to Todd for his closing remarks. All comparisons are versus the comparative prior year period unless otherwise stated. Before I begin, 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 third quarter results. Revenue increased by 9.1% to $169.1 million as compared to the prior year quarter. Operating income for the quarter was $32.1 million, increasing 32% as compared to $24.3 million. We believe adjusted operating income, which excludes certain significant and noncash items is more reflective of the underlying operating performance. This measure increased to $36.3 million for the quarter as compared to $34 million. Net income was $39.9 million or $0.56 per diluted share. While adjusted earnings per diluted share, which we believe is more reflective of the underlying operating performance was $0.35 per share. Let me quickly comment on one of the adjusting items for the quarter as it relates to earnings per share. During the current quarter, we released a foreign tax valuation allowance in the amount of $16 million, which benefited the GAAP earnings per share by $0.22 for the quarter. I will provide more details on this EPS adjustment further in my remarks. Back to adjusted operating income for the quarter. The improvement versus prior year was primarily due to revenue growth at both CTU and AIU, which reflects underlying enrollment growth that was well supported by our student-serving operations. Also benefiting our third quarter results versus the prior year was the Trident acquisition as well as COVID-19-related savings associated with reduced employee insurance expenses, occupancy-related expenses, travel and events. Partially offsetting these positives were incremental investments in marketing and student-serving functions, costs associated with performance-based stock compensation and increased bad debt expense, which I will discuss more in a minute. Now to our segment results. Revenue at CTU was up $2.9 million or 3.1% to $99 million for the quarter, reflecting underlying enrollment growth while operating income was $33 million as compared to $29.9 million in the prior year quarter. From an expense perspective, CTU continued to be diligent in prioritizing expenditures on student support initiatives, increased expenses within marketing and student-serving functions, were partially offset with cost efficiencies achieved across various administrative processes and reduced expenses associated with pandemic-related savings. At AIU, revenue increased 18.9% to $70 million for the quarter, supported by the Trident acquisition. Operating income for the quarter was $5.5 million as compared to an operating income of $7.3 million in the prior year quarter. Increased marketing expense to serve prospective student interest as well as bad debt expense negatively impacted the current quarter operating income. Note that the prior year bad debt was positively impacted by timing factors often associated with this expense. Also impacting the quarter was amortization of definite life intangibles that were established as part of the purchase price accounting related to the Trident acquisition. A quick note on bad debt. Year-to-date bad debt expense for the company as a percentage of revenue was slightly higher than prior year. We continue to invest resources to help students financially prepare for school so that they are more likely to complete their program of study. While we still expect quarterly fluctuations, we are pleased with what we perceive as the stabilization of bad debt expense based on the current year-to-date results. I also wanted to share that the Department of Education released the 2017 cohort default rates for both Colorado Technical University and American InterContinental University. We are pleased to report that both saw a reduction of 30 basis points and 40 basis points, respectively, in their default rates versus the 2016 cohort. This is the second consecutive year of improvement in the CDRs. Moving on to student enrollments. Total student enrollments at CTU grew by 4.8%, supported by new enrollment growth of 5.2% as compared to the prior year quarter. As Todd mentioned, enrollment growth at CTU was supported by consistent levels of prospective student interest that were well served by improved efficiency within our enrollment process. Looking forward, we expect new and total enrollments at CTU to grow in the fourth quarter and for the full year 2020. Total student enrollments at AIU were up 37.7% with new enrollments increasing 29.4% for the 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 third and fourth quarter as well as for the full year 2020, the academic calendar for American InterContinental University is relatively comparable to the respective periods in 2019, with a consistent number of revenue and enrollment days for each period. With that said, we expect to see growth in new and total student enrollments for the fourth quarter and for the full year as compared to the respective prior year periods. A quick update on Corporate and Other, which includes residual operating losses associated with closed campuses. Operating losses associated with closed campuses were $0.4 million in the current quarter versus $8.2 million in the prior year quarter. The prior year quarter included a legal settlement charge of $7.1 million for the Oregon arbitration matter. Excluding operating losses associated with closed campuses, Corporate and Other costs increased primarily due to recognition of performance-based stock compensation expenses. Now on to income taxes. We recorded a benefit from income taxes of $7.2 million for the third quarter. During the quarter, we reevaluated the need for a valuation allowance against the portion of our foreign tax credit carryforward supported by an overall domestic loss account balance. Based on the 2020 year-to-date taxable income and the expectation of continued profitability, we now expect to utilize this portion of the foreign tax credit carryforward. To further elaborate, we anticipate utilizing all of the $109.7 million of federal net operating loss carryforwards in 2020. And will then also be able to utilize the $16 million of our foreign tax credit carryforward by 2021. The release of this valuation allowance benefited our current quarter tax rate by 49%. Without assuming any further material benefit related to the tax effect of stock-based compensation, or the release of tax reserves, we expect our 2020 tax rate to be between 15% and 15.5%. Separately, this full year estimated tax rate is negatively impacted due to increases in tax reserves and the tax effect of expenses that are not deductible for tax purposes. Based on the above, while we still do not expect to pay any federal income taxes for 2020, we do anticipate paying estimated federal income taxes beginning with the first quarter of 2021. Moving to the balance sheet. We ended the quarter with $367.7 million of cash, cash equivalents, restricted cash and short-term investments, which will be referred to as cash balances for the remainder of today's discussion. This cash balance represents an increase of $73.6 million over year-end December 31, 2019. Year-to-date positive cash flows from university operations were partially offset with cash outflows related to the Trident acquisition, payments related to the settlement of Oregon arbitration matter, annual and long-term incentive payments and share repurchases. Capital expenditures were approximately $4 million in the third quarter as compared to $1.8 million in the prior year quarter. Capital expenditures for the current quarter included investments to support remote work arrangements as well as upgrades to our data center to further enhance the cybersecurity protection, stability and capacity of our IT infrastructure and learning platforms. For the full year 2020, we continue to expect capital expenditures to be approximately 1.5% of revenues. Also note that we completed the acquisition of substantially all of the assets of Trident University International on March 2 this year, and we made the final payment of $5.7 million during the quarter. That completes our financial obligation with the final purchase price of $43.8 million, of which $4 million remains in escrow to secure indemnification obligations of the seller after closing. Finally, our 2020 outlook. Please note that the outlook assumes no material impact to the fourth quarter operating results from the COVID-19 pandemic. Again, an assumption based on our experiences to date. Full year 2020 outlook is as follows. We are updating our adjusted operating income outlook to be in the range of $154 million to $155.5 million as compared to $134.3 million in 2019 and our previous outlook of $151 million to $155 million. Adjusted earnings per diluted share is to be in the range of $1.51 to $1.53 per share versus $1.37 in 2019. In terms of our fourth quarter outlook. The fourth quarter outlook is based on expected enrollment growth at both CTU and AIU. The company expects adjusted operating income to be in the range of $35.2 million to $36.7 million versus $34.6 million in the prior year quarter. And adjusted earnings per diluted share to be in the range of $0.34 to $0.35 versus $0.33 in the prior year quarter. Let me conclude by commenting on our balanced approach to capital allocation. We are focused on building a strong balance sheet while prudently evaluating organic and inorganic projects and also returning capital to our shareholders. As we further build our cash balances, we will continue to evaluate inorganic strategies, including the acquisition of high-quality educational institutions or programs, while emphasizing organic student-serving investments at our universities and maintaining adequate liquidity. Ultimately, our goal is to deploy resources in the most effective and efficient manner that we believe will lead to increased shareholder value. Please refer to our earnings release filed today for important information about key assumptions and factors underlying this outlook and other expectations discussed on 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?

Thanks, Ashish. Well, we're on track to finish the year with strong performance. Student experiences and academic outcomes remain our priority as we continue to operate during the uncertainty of the pandemic. Education for adult learners is more important now than ever, and our investments in student experiences, retention and academic outcomes are allowing us to responsibly grow our business. Thanks again for joining us today, and we will now open the call for any analyst questions.

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

I just wanted to congratulate you on another earnings beat and raise. Very busy day for education earnings today. We had Laureate and Strayer this morning. Perdoceo, Grand Canyon, Adtalem tonight. So we got in here a little bit.

Busy day.

What's that?

I say it's busy day for you guys.

Yes. Yes. So I wanted to talk to you about revenue, revenue per student and your corporate initiatives. Earnings beat, but revenues were a little shy of consensus. Of course, you don't give guidance on revenue, you give guidance on earnings and you tapped that. So I'm assuming that revenue per student came into play here versus my estimate. And I'm further assuming that, that has something to do with success on your corporate initiatives. Could you talk a little bit about that?

Absolutely. No, you're spot on, Alex. And as you know, as you build a budget for the year, we -- our corporate partnerships, our corporate students are ahead, I would say, significantly where we thought they would be. The dynamic of that is they -- yes, they generate less revenue per student. Their EBITDA is actually a little bit higher, again, because you don't have the level of marketing costs associated with that and the retention is better. And so yes -- not October. I think it's simply that simple. Obviously, as we go into next year's budget, it will be -- obviously, we'll have more experience on that. But it's actually -- even though, again, you suffer a little bit on a revenue per student, it's actually better for the overall EBITDA of the company. But more importantly, the retention of those students. And so yes, that is the bulk of it right there. Yes.

Great. And then just a follow-on on that particular question. Can you size it for us in any way either now or annually, for example, what percentage of your enrollment comes from these corporate partnerships, either by university or in the aggregate?

Yes. I think, in particular, for next year, we'll have a better feel for that to be able to possibly do both AIU and CTU. Last quarter -- Ashish, I don't have that number in front of me. But we gave that percentage for CTU for corporate students, it was up over 20% -- what percent was that?

Yes. I think what we have disclosed is as of December 2019, we typically do it on an annual basis, Alex. We have about 19% of our total enrollments come from these corporate partnerships at CTU. And obviously, they continue to grow, as we have indicated.

And you didn't give AIU, but should I assume that, that is a lesser number?

Yes.

Actually, we did give AIU, and that is a lesser number. That is at 5.5-ish percent, again as of December 31, 2019. But keep in mind, AIU did start that program a little bit later than CTU. So we continue to ramp that up, and we are seeing good progress there, too.

And I'd say that for this year, we've seen significant growth percentage wise there, and we hope to see that continue.

Great. And then here's just a big picture question, given that we're all kind of focused on Fox News and CNN right now about the election. Todd, given your many years in the industry through many different administrations, both democratic and republican. What are your thoughts of the impact of a Biden win on your industry and then on Perdoceo, specifically? How have you positioned yourself? So I guess that's my first question.

Yes. That's an absolutely appropriate question. And what I've learned over, well, several decades, as you know, in this industry, is the key to having a successful education company is to always stay focused regardless of what administration is in the White House or who's in control of Congress. Is the focus on outcomes, student outcomes and a quality education. And that's really what we have tried to do. Certainly since I've been here and that existed before, but we've really tried to enhance that. As you listen to our calls over the last several years, that's been a major focus of ours. And so we feel that we're very -- we're stronger from an outcomes and quality than we even were several years ago. And then so we're going to continue to focus on that. Second is, whenever there's a change in administration, having, I believe, a strong balance sheet is very important. And the reason being is if you do need to make an adjustment because of something a new administration may do that's a little different than the other, the ability to invest in whatever is necessary for that to happen. So again, as you know, I believe our balance sheet is one of the stronger balance sheets in the industry. And so again, in addition to our quality and outcomes in the balance sheet. And then a very robust compliance program. And the reason that's so important, again, because that typically tends to be where, if there is a criticism, that tends to be where it comes. And as you know, with our agreements with the FTC and the multistate AG agreement, we have very robust compliance programs. And so those 4 things are really, again, the major focus. We've been in that way. I think we're excited to work with whatever administration is there, whoever is in the department because, again, I feel like we're -- we provide a very needed service. We're, again, about these types of outcomes and strength in a way that allows us to hopefully adjust to whatever that is. It's hard to tell what a second Trump administration or Biden administration, what direction they may take. But if you're focused on the right things, I think, your ability to meet that need that's out there, you're better positioned to do that.

Great. That's good color. I got a couple of specifics within that, too. A couple of things that experts are saying that Biden -- Department of Education might focus on is implementing some of the things that were originally implemented under Obama that had been reascended under Trump, one of which would be gainful employment. My question there would be how did your programs at CTU and AIU stack up against the prior version of gainful employment? And then I have a follow-up.

Sure. Well, unfortunately, obviously, I don't have that information right in front of me. But again, back then, when it first was under the Obama administration, the first -- as you know, a regulatory change there. We went through the process. And if there were any programs that we felt would not, in any way, meet that test, we then stopped enrolling students in that. So that was a very key thing. And we've not started reenrolling in any program that we felt would not have passed that. Now several years are past. So again, you need to watch that very carefully. But that was a key decision on our part to not start those programs that we felt would not bode well under that. Now having said that, they didn't -- as you know, they didn't reascend. They just -- the Trump administration, they redid it. And so that will be in place until the other. And we feel, obviously, we're welcome in compliance with that. And certainly, we'll -- whatever -- if there is a change there, we'll certainly address that. But that's our view of it is, again, you can only go maybe on what was happening in the prior administration and try to base what you're doing on that, should there be a return to that. If it's different than -- I guess, we'll see. But every other university that falls under that would be faced with the same situation.

Excellent. Yes, as I recall, you eliminated programs like culinary, for example. And you were preparing for a Hillary administration 4 years ago, and you never changed back. You never reinstituted these programs or anything. So presumably, you're in good compliance with -- on a go-forward basis as well.

Always, Alex, absolutely. But again, you -- obviously, we'll have to wait and see. But that's why back to what I was saying earlier. By focusing on quality education, good outcomes, investing in student services, we would hope anyway that, again, those programs we do provide are really benefiting the student. And would hope any administration would be focused on what is good for the students versus maybe some political agenda or something like that.

Your next question come from Dan Moore from CJS Securities.

It's Brendan from CJS on for Dan. I just want to ask about the -- I guess your sense at this stage regarding the overall COVID impact on student enrollment. And I guess try to break out your crystal ball and what you think maybe could be any longer-term effects?

Yes. Really, a very good question because, again, with a lot of the numbers of cases going up across the country, I think it's certainly unknown about when we'll actually see it completely under control. So having said that, one of the things that has been very encouraging for us -- and again, it's very, very saddened by what's happened. But is -- what we're encouraged by is we're able to really provide that quality education that produces good outcomes for these students in this type of an environment. As you know, we've had much experience in providing quality online education, I think one of the challenges a lot of universities, and certainly, those of us with either children or grandchildren in a K-12 environment where they tried to transition into an online delivery, it was not very high quality. It was usually just some platform where they tried to offer what they did in the classroom online. And that has not produced the good quality or outcomes necessary to provide a good education. And so our ability to do that with years and years of experience has really been helpful. And as a result, as we've mentioned, we've had very consistent student interest as far as potential students. We've also had -- as you can see from our enrollment numbers, we've had success there because I think we're really meeting a need that's out there for these students. They're looking for quality education to help protect themselves. So that when things do go back to normal, that they'll be in a better position to either get a better job or a promotion or those type of things, which is a reason, we -- our students, adult students are who are -- most of them in a degree completion mode. And so again, we've -- you see from our enrollment numbers that there's -- I believe that's a reflection of demand, but it's also a reflection of -- we do a nice job by educating these students, providing them with quality education. I think where you feel the impact of COVID is probably a little bit in retention and a little bit in maybe some bad debt because, again, many of your students are still facing the same challenges that others do as far as making ends meet, having to be at home, potentially watching children while they're trying to work at home. And so those things come into plan. So we spent some time on the earlier part of the call talking about some of the things that we're doing to really enhance and improve retention and help our students. And if we can be more helpful in any area to help them be successful to stay in class and graduate, that's our focus. And so again, I think we've seen good results across the board. But I would say the only potential negative -- or the negative impact or any potential going forward really is probably more so along, again, your ability to help those students from a retention point of view.

Yes. And on that topic of retention, and you guys have talked about it some earlier in the call. I mean have you had to increased spending meaningfully on student retention? How would you describe that just because of the pandemic? And then if you could speak to any meaningful costs, specifically in Q3, that may have been elevated and obviously...

I'll let Ashish comment as far as direct costs associated with that. But where we saw -- some investment would be, obviously, in our ability to have our employees have the correct technology and tools necessary to work from home. There were some investment in that and the transition. But really, that's been seamless, pretty seamless, I should say, and relatively moderate cost. But as far as any retention efforts, those retention efforts are something that are ongoing with our organization. So we've budgeted those regardless. What we're just seeing is that tweaking some of those because some of their reasons for having to stop out are a little different. And so our ability to address that sometimes takes more investment in student advisement, those type of things. But really, the cost -- most of the costs associated was getting our workforce working from home. And I don't know, Ashish, if you had anything to add on that or not.

No, I think that's spot on. There were 2 categories, work from home, as Todd alluded to and the retention per se, it's an ongoing initiative. We continue to invest in data analytics retention tools. So it's not directly related to anything to a pandemic. But that's something that we obviously index on a regular basis to support our students.

Okay. And then also kind of on this topic with the online portion that obviously, you guys can transition to. It transition pretty well and they're essentially 100% online. Do you see -- longer term, what do you -- I guess what do you see in terms of campus locations and the need for those? And is there any opportunity to consolidate space? Or what's your view on that?

Yes. Actually, a really good question. Let me just maybe talk about space for a second. I think where there is some opportunity from a cost saving perspective, is less -- I mean there's a little bit as it comes to our online -- we have -- as you know, we only have 4 campuses there. But where you do see some potential cost savings is consolidation of your space for employees because there's -- what we found is that a large percentage of our employees are actually -- we've seen some improvement in productivity. We've also been discussing with their managers. There are many of those that would prefer to continue to work from home. And since we've upgraded the technology, I do think, over time, we will see our real estate costs going down. Again, we don't want to get too aggressive to begin with. But we just -- we see that as a real opportunity for us. Now as far as students go, we do have a few programs that we have started to offer back on ground, and we've had some success with that. And we'll continue to go slowly at that. Some programs are just offered better there. We really didn't have any plans to be opening additional on-ground campuses. So that really hasn't altered our strategic direction or our outlook that way. I do believe, going forward, if there's some opportunity there, it's not saying we wouldn't, but we just didn't have any plans. And so that really -- it hasn't altered our projections there at all.

We have time for 1 further question. Please go ahead, Greg Pendy from Sidoti.

Just -- I know there were some swings, I think you had a difficult -- or an easy -- I'm sorry, difficult compare on bad debt and whatnot. But can you just talk a little bit about -- are there any cost synergies you're seeing within the AIU segment now that you're scaling up the number of students via Trident?

Yes, Greg. Actually, a great question. In fact, that's -- we haven't had a lot of discussion about that. But one of the real exciting things that has happened over the last several months is we have found Trident to be even a better partner than what we thought. We found that their employees, especially in the military and corporate area are very, very experienced. Their programs are very conducive to that type of a student. And so we think going forward, there will be some consolidation. I think -- I don't know that we'd necessarily, in any way, reduce employees, but I think our -- we probably would need to add fewer employees because of our ability to utilize some of their talent there. And second is that as we -- obviously, as you look at -- from a technology point of view, from a -- those corporate departments, we have seen some savings there. And obviously, we will see some more. But I would just say, again, the most meaningful synergy is, I think that in time, it will really boost our -- both our corporate partnerships as well as our ability to serve more effectively the military.

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

Well, thank you again for joining us. We appreciate you taking the time and look forward to talking with you at the end of fourth quarter. Thank you very much.

Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.