Q3 2019 Earnings Call
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Ed Goodwin SVP Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon, everyone and welcome to choose third quarter 2019 earnings conference call on the call, we have chip Paucek, our CEO and all algae our CFO .
The only chipping Paul's remarks.
Good question, our press release issued after the close of the market and posted on our website, where this cold being simultaneously webcast.
Statements made on this call include forward looking statements regarding our financial and operating results you educational offerings student and University demand and other matters.
Savings are subject to risks uncertainties and assumptions.
Please refer to the press release and the risk factors and documents, we filed with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.
During today's call will discuss non-GAAP financial measures, which we believe are useful supplemental measures of twos performance.
non-GAAP measures should be considered in addition to not as a substitute for or in isolation from GAAP results.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results earnings press release.
Investor Relations page of our website.
The webcast of this replay this call will be available for the next 90 days our company website under the Investor relations like with that let me hand, it over to Jeff. Thanks, Ed.
Do you was founded on the believed that the great University can and will will remain a powerful engine for social and economic stability in the digital age.
Partnerships fuel that engine.
Enable universities to sustainably meet the growing demand for higher education by developing a diverse portfolio of online and blended offerings that are relevant to the evolving needs of lifelong learners.
Do you remains a partner of choice for top universities, which is evident in our tremendous progress over the past quarter.
We watch over 30, new offerings and maintained our high bar of student retention across the portfolio.
The trilogy integration is progressing nicely.
We've realigned the organization to better serve students and our partners drive efficiency and position to you for the market is going.
Great New executives join the team.
We're set up from on a profitable growth driving to free cash flow.
Our original believe remains as Trues it as it was back in 2008 as more universities launch digital offerings.
You proposition of our partnership model is stronger than ever.
Who is uniquely positioned to capitalize on this powerful secular tailwind based on our 11 year track record of successfully working with University partners.
With the arrival of new CFO , Paul Lalji, we're introducing a new structure for these calls.
I'll begin with a review of our strategy.
Then I'll provide an overview of our performance in the segments this quarter, including the highlights of the success, we're having with the trilogy acquisition and integration status.
Then I'll give an overview of our operation.
Finally, I'll turn it over to Paul will walk you through our results with more detail and commentary.
Let's start with reaffirming our strategy.
We partner with top tier universities and expand our relationship with each of our clients.
Through our comprehensive to U.S. platform, we build deliver and support World class digital education offerings that meet market demand and drive strong student outcomes.
And we scale enrollment for those offerings.
Well not jumping off spot, let's get into our segments and how we're driving the business.
Our Grad program segment had a strong quarter revenue was 103.4 million up 15% compared to third quarter 2018.
Growth was driven by the scaling a more recent launches and offset somewhat by the rightsizing of our older programs in particular, our legacy social work program, which is not new news.
We believe there is a solid trajectory for the segment and Paul will give you more detail and how to think about our revenue ramp.
Top tier universities demand programs that have the highest quality preserve academic integrity and foster brand affiliations, which is why they consistently choose to you as their partner.
This quarter, we launched 15, new degree program offerings student retention in the segment was 82%.
And as a leading indicator of future performance, we have a number of pipeline wins to highlight.
Shortly after our last earnings call, we're not announced our first undergraduate programs.
Bachelor data science and business analytics, with our partner LSC and the University of London.
The program has been slotted to launch in fall 2020, and we'll have a total tuition of roughly $25000.
Total.
Now, let's see has been operating this program as a correspondents based agree with strong demand, but chose to partner with to you to increase engagement and scale the program.
Notably, it's the first Grad program to come to us through gets more decline, which validates our belief that our comprehensive offerings can be leveraged across the partner base.
This quarter, we also announced a new top tier University in a brand new vertical.
Rochester Institute of Technology will launch architecture on line.
This program will have a strong sustainability focus and will prepare graduates to enter the modern field of architecture on the way to becoming license architects.
We're breaking new ground once again with our first program in the architecture vertical where they're very few online options.
We also announced another licensure program with one of our largest University partners, a master social work with Syracuse University, which is slotted to launch in the fall 2021.
The de just notable it shows were able to slot new programs well into the future.
We have a deep mode and are winning overall in the large market for licensure type programs, which often require clinical placements of some time, including social work speech psychology, mental health counselling and others.
We're seeing double digit enrollment growth in these programs.
Our competitors are underpenetrated in these disciplines with some notable ones not choosing not to play here.
I have a hard time competing with us in licensure.
Finally, we're making progress our exclusive panned University partnership with you NC Chapel Hill will have more to say here soon.
So to summarize the Grad program segment performed well this quarter driven by strong growth from our newer launches we had a number of pipeline wins, signing and university partner and adding new offerings at existing partners.
We continue to execute against as we continue to execute against our strategy will drive long term growth and profitability in this segment.
And the alternative credential segment revenue was 50.4 million up 192% compared to third quarter 2018, primarily due to the addition of trilogy.
Sure of course is also contributed to growth outperforming our expectations. In fact, many short courses are hitting all time highs on student volume.
There are also a number of pipeline wins to cover.
On the short course side, we're winning with some of the most recognizable brands in the world, including MIT, LSC, Oxford, Yale and Stanford.
These brands drive improved enrollments.
Also importantly, we made significant progress aligning faculty to short courses.
We slot at a number of new courses with global brands. We believe we're positioning for strong performance in 2020.
On the boot camp side, there are plenty of wins to highlight.
We launched a number of boot camps in data cyber web development and digital marketing.
In addition, we signed three new universities to launch boot camps in 2020, which well announce when we began marketing those offerings.
I'm, particularly excited about our new boot camp subject, fintech, which rolled out to Colombia and rice.
The Fintech pilot is one of the best starts we've seen in a new boot camp subject.
You gain skills for a wide variety of fintech roles, including creating block chains building deep learning neural networks, using tensorflow and creating predictive models for stock prices with Python and Jupiter notebooks, it's really something.
Our boot camp offerings, the most compelling in the market.
The World These technology talent and we believe the great University can provide in tandem with to you.
The tie to industry here is real our relationships with enterprise allow us to continue offering the most relevant technical content, it's a massive opportunity to reach scale and upscale the workforce.
The integration of trilogy is well underway.
We've already integrated back office functions, such as finance HR comps intact, and we're starting to see some of those cost benefits.
We've also integrated the University relations team and they are already beginning to cross sell to the 26 universities, who originally trilogy, Clive and selling boot camps into our existing universe declines.
The fact that we're landing and expanding across a broader set of universities validates our M&A strategy and further bolsters our position.
Trilogy is still young company, but we're also starting to rationalize their spending and cost structure, some of which need greater discipline, particularly on the marketing side.
Gration will help us achieve better margin.
To summarize the alternative credential segment delivered strong results in pipeline wins and the integration of trilogy is proceeding nicely.
Turning to our operations, we're driving towards profitability and positive free cash flow, while streamlining decision, making as we continue to invest in quality, we're taking a closer look at improving the efficiency of our operations.
We realigned our work structure, adding managing directors for each product line.
We also recently merged two of the largest departments at the company our admissions and our student support teams. This isn't a French many universities are now taking.
Additionally, we combine two distinct program experienced teams that work directly with our partners. So the restructuring helps us improve the student experience the university experience and the efficiency of our operations.
With disciplined cost management and focused execution behind working capital initiatives, we expect to drive improved cash flow progression companywide.
Paul will play a key role in this.
Turning to the team.
Our strong culture has resulted in high employee retention over the years and that continued to be the case this quarter.
I'm proud to work with an incredible group of mission driven people, who put students and our University partners first.
We also had three talented executives join our team.
We added achieve learning officer, Leann show, who came to us from trilogy with two decades of industry experience.
Spend five years, the chief product officer Pearson prior to joining trilogy in that same role.
We also brought on a new chief marketing officer, Jennifer AWG degrees, but came to us from CE, where she was CMO the past three years.
Jennifer spent over a decade at time, Warner where she led a multi platform consumer strategy for some of the most iconic and successful media brands in the world.
Both let me add in Jennifer will report the COO Mark Chernus.
Most importantly, I'm honored to have palsy by my side.
I will be a fantastic partner for me in running the business given his extensive experience as part of the New Star Senior management team.
Paul Jennifer and Lou yen, not only bring a passion for our mission to eliminate the macro in higher education. They also further strengthened the diversity of the leadership team at to you.
To conclude I believe the great University remains a powerful engine for social and economic mobility.
And we remain the partner best suited to help bring them into the digital age and in doing that drive long term value for shareholders.
With that I'll hand, it off the Paul to discuss the financials.
Thanks, Jeff and good afternoon, everyone.
Let me start off by saying, how thrilled I am to be into two UTI.
I join to you because it is a mission based.
And leading put my has a leading position in the transformational market segment.
I see two you leading the way and capitalizing on the opportunity to offer high quality online education for the best educational institutions in the world.
Forward to making an impact as we focus the company on scalable growth and free cash flow generation.
So use performance this quarter reflects strong topline growth important pipeline when.
The progress made on integrating our recent acquisitions and relentless focus on organizational efficiency.
I'll start with a discussion of revenue followed by a discussion of costs and how I think we can drive efficiencies then touch on the balance sheet before finishing up a discussion of guidance.
Revenue for the quarter totaled $153.8 million up 44% from last year.
And the graduate program segment revenue grew 15% over the third quarter of last year.
You may recall, we previously disclosed that there were headwind and our largest program.
Excluding the impact of that program revenue into graduated segment would have grown 25%.
We also told you last quarter that we were seeing pressure across some of our older programs.
Many of those programs have grown to be far larger than our original expectations.
While they remain relatively large many are coming down in size.
And I'm happy to say it at our new cohort are scaling extremely well.
But this into perspective for 35 programs launched between 2015 and 2018 year over year revenue in the third quarter was 54%.
The 15% graduate segment revenue growth was driven by a 25% increase in full course equivalents or FC ease.
This was partially offset by decrease in revenue per se of 8% driven by two main factors.
One is an increase in a number of scholarships, which helps increase access to education, we account for scholarships on a contra revenue item.
The other is the extremely strong growth in some of our newer unless expensive programs, which helped drive rep drive growth in FC east that shifts in mix reduces revenue per se.
We don't set tuition of any of our programs. It is important to provide offerings across the pricing spectrum.
Students will choose the option that works best for them and we are well positioned to meet a variety of student's needs.
Yeah, I'll turn to credential segment revenue grew 192% within which includes $29.2 million of revenue from the trilogy acquisition.
On an organic basis revenue in this segment grew 23%.
This growth was driven by 65% increase in FCD.
And 98% growth in revenue per se.
Keep in mind that the cost of the boot camp as much higher than that of a short code.
So you should expect to see revenue per FC continued to show strong increases until we lap the trilogy acquisition.
Let's look at cost and expenses.
Net loss for the quarter was $141.1 million with cost and expenses totaling $288.8 million up $131.2 million versus the third quarter of 2018.
The increase includes a $70.4 million noncash goodwill impairment charge.
The $9.9 million operating costs for trilogy acquisition.
$6.6 million in restructuring related expense and $2.5 million.
Integration and transaction costs.
Excluding these items the underlying operating costs to do 26% our $30.6 million. This increase was primarily driven by increased spend on direct marketing personnel and personnel related expenses.
On investments in our technology platform to support the launch programs across our product offerings.
Let me spend a few moments on the noncash goodwill impairment charge.
The sustained decline in our stock price during the third quarter presented a triggering event, that's warranted goodwill impairment review.
We performed Erie view as of September one 2019.
And that resulted in a 70.4 million dollar impairment charge, because the carrying value of the trilogy reporting unit exceeded its fair value.
Looking at cost and expenses on a sequential basis, excluding impairment restructuring and trilogy operating expenses, there was actually a 2.8% sequential decline in the underlying costs.
But this into perspective, and a third quarter of 2018 expenses showed a sequential decline of half a percent.
Adjusted net loss for the core totaled $26.2 million, an adjusted EBITDA loss was $10.7 million.
Both measures showed a larger law and the third quarter last year, primarily driven by incremental operating costs from the trilogy acquisition and additional costs from launching new programs.
I'd like to share some color on how I'm thinking about driving towards profitability. After my first few weeks it to you.
As chip said, we provide the highest quality of service how great universities build support and deliver digital education at scale.
His work because of the investments we make in our partners.
Since starting here it has become clear that we can continue to deliver to seem high level of service to our customers, while driving efficiencies across the business.
Some of these initiatives have already started.
The restructuring action reduce costs by 800000 in the quarter.
And should reduce run rate cost by $11 million to $12 million annually.
Plus I.
I believe that the way, we organized our teams position us to serve our customers more efficiently.
We're going to be more discipline in the programs we see like.
How are we deploy investment capital to develop and market those programs.
My focus will be on ensuring that we only spend money on things that drive desired outcomes.
For example, I see opportunities for efficiency in how we build courses and market certain programs and I believe we will drive leverage and support functions as the business continues to scale.
The trilogy business is strategically aligned with our mission.
As Jim pointed out it clearly positions us to winans them adds a number of incredible University partners.
And helps us maintain our leadership position and digital education.
But it is clear that there is considerable opportunities to operate more efficiently as we complete the integration of trilogy and build towards smarter growth and sustained profitability.
Now for a discussion at the balance sheet.
As of September Thirtyth, 2019, cash and cash equivalents totaled $154.1 million, a decrease of $64.6 million from June thirtyth.
64.6 million dollar decrease from the June quarter was primarily driven by use of cash from operations of $37.7 million.
An $18.5 million in additions of Amortizable intangible assets related to content and delivery.
Accounts receivable at the end of the quarter totaled $84.8 million compared to $71.6 million at the end of the June 2019 quarter.
We expect this balance to come down in the fourth quarter and schools pay off their fault harm balances before year end.
Long term that was $253.5 million an end of the corner.
It's fully related to our term loan facility maturing in May 2024.
As I think of cash going forward, we're going to optimize the mix of programs. We launched on the launch cadence based on the demand from our partners as well as the economic returns and cash flow profiles for each of the program.
And we will continue to drive operational efficiencies.
So even though we're still in our 2020 planning process, we expect to enhance our liquidity position by reducing the rate of quarterly cash usage.
I would also note that going forward free cash flow will be a metric that we will focus on in our disclosures in our discussions importantly results, we will be fine free cash flow as net cash used in that in operating activities net capital expenditures and excluding restructuring fame.
Since uncertain identified non ordinary course payments.
Now for a discussion of guidance.
Given where we R&D year, we have high visibility in our revenue for the remainder of the year and when coupled with strong leading indicators such as Fcs enrollment.
And pipeline wins, we have confidence to increase our revenue for 2019.
We now expect revenue to range between 570 in $575 million representing growth of 39% the midpoint of the range.
We are increasing our guidance for net loss, which we now expect to be between $238.8 million.
$232.8 million due to the impairment restructuring and integration charges.
We're not changing our guidance for adjusted EBITDA loss, which is expected to be between 20 $822 million.
This guidance reflects the timing of certain operating expenses that moved from the third quarter to the fourth quarter.
This is why we did not increase our adjusted EBITDA guidance more substantially for full year.
Before we leave guidance, let me comment on 2020.
Well I recognize that on prior third quarter earnings call. We gave guidance preview for the following year I do not plan in doing this going forward as it is my practice the CFO to complete the budgeting cycle for the year before issuing guidance.
Having said that we do have strong leading indicators and as such we expect to see the business trajectory are for the second half of 2019 continue into 2020.
So to summarize we haven't leadership position in a huge markets with strong secular tailwinds.
Our board.
Management team believes that we have the right strategy underwrite business configuration to drive profitable growth and long term shareholder value.
The market we serve.
That is the global online higher education markets as defined by Holland, and Q is a 30 billion dollar market with a projected 14% compounded annual growth rate from 2018 to 2025.
And as you've seen from our growth rates, we're growing faster on a consolidated basis and on a segment basis.
As we focus on optimizing program launches and operational efficiencies.
We expect to deliver increased long term.
Due to our shareholders.
Before we turn to our question and answer session I ask that you focus your questions today on our third quarter results and go forward strategy, which are to subjects of today's call.
We are aware of a media report regarding one investors view of our company.
We welcome to perspective of shareholders no we will not be addressing that report on this call.
And with that operator, please open the line for questions.
Okay.
Yes.
Okay.
Operator.
Ladies and gentlemen to ask question you will need to press the wanted to start and the one key touched on telephone to withdraw your question. Please press the pound.
Please standby.
You anyway.
And our first question coming from the line I'm spreads.
Your line is open.
Excellent. Thank you so much chip congrats on a good quarter, a nice to see some stability in the business and a warm welcome to Paul's, Jennifer and Louisiana as well.
Chip. Thank you branch and for sure you mentioned that you continue to see plenty of growth opportunities with both business segments, but are also becoming more disciplined on expenses as you would just for the new competitive environment.
How do you think about balancing growth covers cost savings between each segment.
Any insight into how we should think about revenue growth for DGP and alternative credentials for this year in next.
Thanks, Brad So I would say four out when we think about across the segments, where we are focused on our ROI C and how we think about returning how we think about profitable growth and the best use of cash.
Across both segments, we think.
The alternative credential segment clearly from a strategic standpoint is.
Where universities are going to need to boost their offerings and candidly. The stem category is something that you really can't expand into without an opportunity like trilogy without.
The boot camp offering and the tide is industry. The trilogy brings to to use. So we will continue to expand the portfolio I mean, just to frame. It for you when we IPO. The company, we had six partners and 10 Grad degrees and today, we have 72 partners and over 300 offerings.
So just thinking about that 10 degrees to over 300 offerings across a whole variety of different.
Types of subjects and we include we continue to expand that today. So I think the discipline that we need to bring the table is just to continue to to be as strong as possible picking the best programs and driving the best opportunity for both student outcomes and for the company.
Our our alternative credential segment as part of that now at the same time I think you can see that Paul provided.
The segment and we were pleased with.
The Grad program segment when you've got.
Our one of our legacy programs declining our largest program.
And are still able to see 15% growth in that segment and without that one program you would've seen 25% growth and then on top of that the 2015 to 2018 programs grew at 54% you're talking about still very strong offerings that are growing not owned.
Early above the rest of the overall opium segment, but online education overall, we are still.
At the top of growth expectation. So we're we're pretty pleased with the quarter and we look forward to.
Giving you more detail at our Investor day, which to be clear, we will do as early as possible.
In the new calendar year, and we'll be back to this community with a more specific data as we get closer.
Thanks, It makes perfect sense and maybe just a quick follow up can you share any feedback you've received on your zero interest deferred tuition plan with Simmons and might we expect to see other programs jumping onboard as well thanks.
Yes, we thought that was.
The one of the first times that we've seen across all of higher AD that anyone has offered a deferred tuition program and what I love about it is it aligns our university partner with the long term outcome of the student as in the student.
The first half of the tuition in the nursing program until they have graduated from the program and they're in a job with a minimum floor and.
There is no interest.
At all in the program. So I do believe it's driving down the cost of education overall.
We're excited about rolling it out it's an early pilot to be clear.
And so but we do expect to have an another another announcement shortly from another university that was particularly interested in rolling it out to to their students. So we think its.
It shows where our scale can really benefit not just our university partners, but the world.
Student body. So we think it's a great opportunity.
Awesome, Thanks for taking my questions.
Our next question coming from the line, Jeff with Baird. Your line is open.
Yes, Thanks chip, hoping you could talk more broadly about I guess price elasticity on the student side and how it impacts CAC and your economic model just with the I guess picking up off the last question the zero interest.
Deferred tuition and and the other two data points from the call the increase scholarships and the outsized growth. So just would love your thoughts on price elasticity and how it impacts your financial model. Thanks.
Well.
Clearly over as we provide greater value to the student we do think conversion improved so it's all about the value proposition. We've always played at the premium to the market. That's no surprise the largest cost to graduate education is the opportunity cost to the loss income at the same time as we start to think about various prices vary.
His line and different types of certification across a much broader spectrum of what is now we are a much bigger company than we were in back in 2014 across many different segments and one of things I thought was notable about the quarters, you've got obviously average FC He came down in Grad, but average FC He went way up and alternative credential.
Why because we've got programs start as inexpensively as a thousand dollars with short course, and we have programs that go all the we have to $150000 on the degree side.
Overtime, we need to have price points across the entire spectrum, we need to offer students options to further their educational goals, whether they're looking for skills attainment from something like a short.
Of course to learn how to use AI in their job or something like.
A doctor physical therapy, which is like a three year life change or.
So there are certain disciplines like licensure, where were up double digits enrollments and I do think we're building a pretty deep mode. Those require more credit. So inherently those tend to have a higher costs. There are certain things like stem offerings, where on the stem side, you know candidly, if we hadn't gone down the path assure courses and boot camps.
We'd be at a very significant competitive disadvantage to the rest of space, that's where we need to be is.
Lower priced faster options for stem.
But at the same time drive quality like I do feel like something that has not been talked about enough is.
We are we are driving the kind of quality universities respond to quality of the content itself quality of the student body.
Alternately quality of the student outcome most importantly.
And I thought interestingly this quarter.
It was it was right after our last call, but we announced the London School of economics with our first undergraduate program.
Now, let's see really got on board after having an incredibly high quality experience in the short course business with excellent enrollments in which students are now like literally physically at times coming to LSC four in person immersions because they experienced a really high quality short course, what do think that happens across all.
With higher Ed and then they got excited about what improved engagement and retention could do for a legacy program that they've been offering all over the world.
And we think it's a huge opportunity for us going forward and we've got a launch period for 2020, so lot going on there and a lot of opportunities for to you to continue pursuing quality at scale.
And what do you do the graduate programs are the undergrad programs at lower price points do you make up for it with.
Lower CAC and door increased scale, but the target financial model still hope thanks.
Yes, I mean, if you're if you start thinking about the as we scale programs to a much larger size and we had larger expectations for those programs clearly the students on the most outer ring end up.
From just purely from that perspective and up.
Being more expensive.
So I think having good geographic balance having reasonably sized expectations.
Working working with our partners to identify the best opportunities for a full investment program and we'll talk more about that overtime.
As we develop more models for our University partners.
To drive new program growth.
It's all about the sort of combination of.
The ROI C and the quality, we can achieve for our partners and we think.
We think we're on the right track here.
Okay. Thanks chip.
Okay.
Our next question coming from the line of course.
Personnel.
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Good afternoon.
So.
Focused on the efficiency a topic.
A couple of questions on the the program marketing sales for the first is to the extent it makes sense to sort of intentionally a decrease came out your spending in some programs that are already in place what kind of constraints are in place are there any contractual.
Constraints on lowering that or for problems have been like launch in last few years do you have some and any cases performance requirements you need to meet certain enrollment thresholds or anything like that that artificially constrained where you can do on that front.
So here's what I'd say Corey is appreciate the question. We first of all on as just the general practice going forward.
We're two large of a company with too many offerings.
To be talking about any individual university or any individual contract. We're just not going to do it it's not wise for the company if not why so the relationships with that said in general that's not a concern.
Okay and question maybe for for Paul which is.
Two part question I understand and applaud the focus on efficiency given the fact that into graduate program business. There is a two year sales cycle.
How does that affect how much and how quickly you can.
Perfect no change to make things more efficient on the program and marketing side and secondly, I just wanted to clarify your comment about.
Early in the 2020 planning process, but.
Lowering the quarterly burn it I just wanted to understand how are you not giving guidance. If any are you, suggesting that free cash flow in 2020 should be less negative than it is in 2019.
So a couple of things let me, let me start off by providing a framework of how we will look at the programs. We launch in the coming years and going forward, we want to look at it from three perspective, we want to look at it from an ROI fee perspective, we want to look at it from a cash flow perspective, and we want to look at it from a quality perspective, so essentially we going to choose.
We're going to select programs and the timing of program launches. So that we can choose programs that are.
Reaching our our ROI see targets that we have we want to make sure we optimize our cash flows and we want to make sure. We maintained the quality of the programs. If we think of it from that perspective that as we get into 2020 in 2021, we will.
Launched a programs that are most impactful.
Our financials, particularly our free cash flow and our profitability measures that's point number one.
A point point point number two.
The measures that you've seen us taken in the third quarter, whether it's the restructuring charge that we've taken whether it has the integration of the trilogy business or whether it is the alignment of the organization. We are doing that with an eye towards improving our free cash flow performance as we get into next year and going forward.
So I think I so.
Maybe you're just not asking the question yet but are ready to answer the question about but is it fair to say you will plan and away that you would expect free cash will be less negative in 2020 than it yes, absolutely, yes, we intend to have free cash flow.
As a dilution to our to our cash balance the less and less as we go through the quarters and we would we will come back to you at a specific timing on when it will be accretive.
The answer is absolutely yes, good well thank you for the clarity I appreciate it.
Our next question coming from the line of Stephens children with William Blair. Your line is open.
Good afternoon, and appreciate all the additional detail this quarter.
What I wanted to ask a little bit more on the scholarship front, you've been talking about that more frequently which which I think it's a great great initiative.
Can you maybe you can help frame how much you paid out in scholarships. This quarter did that help with broader won all conversion and then how are you thinking about spend on scholarships as we look forward.
So I guess I would say.
We're not at a point, where we're going to get into any additional detail around how we deploy scholarships.
Not only from the standpoint of.
Just.
Yes.
We've given quite a bit additional qual additional clarity on this call, but also just from a competitive standpoint.
We do believe it's part of our strategy. It is clear that lower prices drive conversion and the most successful students have a lot of option. That's just a reality across all of our segments I would say, notably in the campus space.
In the professional programs in particular, you've seen it be very tough sledding for campus programs right now in professional programs given.
Something that we're getting our arms around the impact the economy.
Is having a very significant impact on campus programs overall and our professional programs are really holding their own where we are still seeing growth. So at the you know at various stages of a student journey scholarship becomes really important when they're high quality students and we have high quality programs. So high quality students are a factor.
Got it is it offered to both.
Both to existing students and to those that are.
Right and that's why just not going to get into additional detail around scholarship.
Okay. That's her.
And then just as we think through kind of program launches for next year and just with the ones that have been announced so far so far is there any way to roughly spraying what type of capital commitment you'll need to get those programs up and running this point.
Just.
Specifics dismissed.
Anyway to frame it.
So let me let me see if I can take a stab at this one.
As I I've gotten up to speed hair and start looking at how we're going to plan for next year I mean, I mentioned to Threed. The three pieces that we look at we look at our hurdle rate, we look at the cash flow commitments and we look at the quality to programs. If we take 2019 as an example doing back at the envelope, Matt We launched about 19 programs.
And at an average of back at the envelope math about $5 million of cash usage.
If we if we think of 2020, we will absolutely want to launch programs in a way that allows us though.
Beat that have a better performance on the profitability measure. So we can pick a number it's not going to be 19, but it's going to be something that allows us to reduce the expenditures that we spend that on a year to date spend we can we can look at 70 $75 million that we've spent so far so if we think of that and that on a on a basis for next year. We can we can.
Think of numbers back at the envelope around 10 that allows us to optimize that that's point number one point number two we do have the business has grown we now have the short course business. The alternative credentials segments that are more capital light. If you will so we do have the alternative of launching programs across.
The spectrum not only in the Greg the degree segments, but also in the alternative credential segment, which allows us to optimize our performance on an annual basis and if I can jump in Paul I would add.
Yes.
We were very fortunate and excited to bring Paul in as our new CFO .
And candidly, we're fortunate to have it happened quickly.
And Paul has been with US a month and I think it's pretty impressive on his that that you've been here a month and he's this engaged in where the business is going and getting a real perspective on us going forward.
With that said, we will provide a lot of additional detail on how we think about ROI C and capital allocation at our Investor day, and as I said earlier. It is our goal to have that as early as possible in.
The new year, we just need a little bit more time for Paul to get through his process and.
We're off to a great start here.
Great. Thank you very much.
Our next question coming from the line Jeff.
Capital markets. Your line is open.
Thanks, So let's just to follow up that last question Paul.
You had mentioned and forgive me if I'm, putting words in your mouth, but it does look we're going to have fewer program launches next year than in 2019 would we also expect the cost or the cash burn for each program launch to be less as well based on some of the efficiency.
Focus that you have.
The short answer is yes, and and we will we we'll redeploy capital spend in some of the capital spend until some of the more capital light programs in the alternative credential segment, but the bottom line as we are going to look across the portfolio applying to three the framework I mentioned earlier and then opt.
I might have the performance.
And it makes it clear just to be clear, Jeff and we're not at a point, yet where weve.
Got are ready to present, our plan in terms of what next year looks like specifically, but we'll get there soon.
I understand I appreciate that and I'm apologizing for asking this question, but unfortunately I cut out towards the end of the call. When you started to talk about some of the media speculation about the activists I'm not going to ask about a specific investor, but having somebody or affirms like this involves does it at least maybe change your mind.
Said about either pursuing strategic alternatives or other options. Thanks.
Jeff we're not going to comment on speculation or media reports related to the company.
We are focused on creating value for shareholders through creating long term value for our partners and students.
Yes.
Okay fair enough. Thanks.
Our next question coming from the line of Ryan Macdonald from Needham and company. Your line is open.
Hi, good afternoon, and thanks for taking my questions Chip I'll start with you you know it's great to see the strong results in trilogy, particularly with the additional University ads can you talk about what you're seeing in terms of demand environment from students in that and that business and then how price sensitive do you expect that market to be now that we're beginning to see other vendors like check.
With its think full acquisition talking about lowering prices for its boot camp offerings.
Well, so I feel like.
It is encouraging to see as following our announcement of.
Of of our acquisition of trilogy.
Many others in the space sort of.
Bumping into the space validating this is a bit where the puck is going I would tell you are.
Our business with trilogy is.
You know is at a scale and doing it with University partners in a way that no one else in the in the market is doing.
We think the University partners are huge win from that perspective.
To be clear.
It is running above our expectations.
We have now that we're integrating the business we have found that there are.
Theres some real efficiencies we can gain.
As we originally integrated our marketing of gets smarter, our marketing competency into get smarter we found.
A lot of success in not only improving scale, but also improving efficiency and we see the same thing indicates a trilogy. We do think there's quite a bit of expense on the marketing side that we will improve.
And on top of that we did pull back a little bit their online offering.
Because we obviously have lot of experience doing online and are excited to relaunch that.
Here in 2020, and we think Thats, a really big opportunity and then finally in a future call. We will talk about the enterprise opportunity. We just didnt have time.
This call will talk about that more at our Investor day, but we do think enterprises a channel is a real part of both our short course, and our boot camp business and we do think even has a role on the grad side.
With degrees, particularly with our LLC degree.
Got it and then just a quick follow up on and the Grad program business. You know, it's great to see the first announced program between to you in key past during the quarter I guess, given the commentary around limiting cash burn next year as we launch programs. How should we think about the role that that a to you in Chile or to you in key past partnership plays in.
Terms of additional program launches moving forward.
We're we're excited about key path, we think they're a great business, we've gotten to know them.
Even more since the announcement as you would expect we were thrilled to have our first one.
There are certainly more to come we do think more flex flexible partnership options.
Our a reality of where we're going.
We think that there are variety of ways, we can offer smaller programs.
They are still really high quality and keep path is very much part of that story.
So we'll provide more color overtime.
The reality is a combination of sort of ROI C and quality.
And I do think ultimately.
Steve firing in the TV key path are doing a great job and we're excited about the strategic relationships so more options for high quality programs.
And more flexible approaches to the market is something you will hear a lot more about.
Our upcoming Investor day.
Great. Thank you very much.
Our next question coming from the line George Tong with Goldman Sachs. Your line is dolphin.
Good evening. This is Blake on for George Thanks for taking my question.
Given the evolving competitive landscape discussed last quarter, how should we think about your steady state program sizes going forward.
300, 500, previously, but how do you see that range trending overtime and related to that you do you continue to expect to see high 30% margins for cohorts older than four years or what we see that trend down a bit at some of the smaller sized program stage.
So the latter is fairly easy we still believe we've got a great strong margin business in the.
In the Grad side and that doesn't change obviously as we've discussed in the path. We have seen the overall size of the largest programs come down as we talked about in this call just the impact of one program to growth in the segment from 25.
15 that was a very significant.
One of our business, but just to give you. An example of the sort of development of the business is.
When we were at IPO The company, we had 10 programs.
10 degree programs.
Today, we have 300 plus offerings across a variety of different product types, but how that's relevant to your question is at the time, we IPO, 69% of our revenue came from one client.
And today, we have one client above 10% that same client only one so revenue concentration risks risk has come way down in the company and so this is all about the diversifying the business and overtime.
You know we're focused on driving quality for our partners with the best return on capital, we can and approaching the market with enough flexibility that.
Solve the long term needs of the University and drive high quality student outcomes and that's.
That's our story so.
I wanted to as we end the call. That's our last question operator I wanted to.
Thank palsy for his arrival and we're excited to.
Get out on the road and.
Look forward to talking to everyone in more detail over the next couple of weeks.
Thank you ladies and gentlemen, this kind of today's conference call. Thank you for participating you may now disconnect.
Everyone have a great.
Oh.