Q3 2020 Earnings Call
Please press Star zero on your telephone keypad as a reminder, this conference is being recorded and it's now my pleasure to introduce your host my craft head of Investor Relations. Thank you Mr. graph you may begin.
Thank you and good afternoon, welcome to K 12 third quarter earnings call for fiscal year 2020.
Before we begin I'd like to remind you that in addition to historical information certain comments made during this conference call maybe considered forward looking statements.
These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1990 thought they should be considered in conjunction with cautionary statements contained in our earnings release and the company's periodic filings with the I see.
Well, we're looking statements involve risks and uncertainties that may cause actual performance for results to differ materially from those expressed or implied by such statements. In addition, this conference call contains time sensitive information that reflects managements best analysis only as of the game This last call.
Hey, 12 does not undertake any obligation to publicly update or revise any forward looking statements.
For further information concerning risks and uncertainties that could materially affect financial and operational performance and results. Please refer to our reports filed with the FCC.
These reports include without limitation cautionary statements made in K 12, 2019 annual report on form 10-K. These filings can be found on the Investor Relations section of our website at Www Dot K 12 Dot com.
In addition to disclosing financial results in accordance with generally accepted accounting principles and U.S., where gap, we will discuss certain information that is concerned considered non-GAAP financial information.
A reconciliation of non-GAAP financial information and the most closely comparable GAAP information. What's included in our earnings release and is also posted on our website.
This call is helping to the public and is being webcast the called be available for replay for 30 days.
With me on today's call It Nate Davis, Chief Executive Officer, <unk> Chairman of the Board, Tim Medina, Chief Financial Officer, and James True precedent corporate strategy marketing and technology I'd like now turn over the call today Nate.
Thank you Mike [noise].
Good afternoon, everyone. Thanks for joining us on a quarterly call.
Such a challenging time for our country I'm sure everybody is busy, but hopefully you're safe and sound.
In your own studies as you.
As you listen to this call.
I'm sure our joint everyone in the call in saying that we continue to extend our thoughts and prayers to those impacted by this virus.
Well open the U.S. and around the world.
The good news its times like this to bring US together everywhere I look I see goodwill and good intentions people concerned about each other's how both physical and emotional.
And everybody coming together, it's wonderful to see a country coming together.
I'd like to get started.
With a brief familiar with this quarter's financial results, our new CFO, Tim Medina, we'll follow up with a more detailed comments.
As you saw in today's press release revenue was $257.2 billion in the third quarter fiscal 2000, an increase of 1.5% year over year.
Our adjusted operating income for the quarter was $20.6 million.
Capital expenditures for the quarter were $9.5 million.
Now looking it results in comparison to the guidance, we provided last quarter, we beat our estimates across the board.
Revenue adjusted operating income and capital expenditures with limited impact.
Some cold 19 these numbers.
Our results underscore the ongoing strength of our core business and that's very important.
Underlying fundamentals of our core business remained strong.
Yeah. This is due in part to three factors.
First we saw student retention improved by 200 basis points.
This is last quarter.
Well some of this improvement relates to the impact to the pandemic, we saw improving retention trends even earlier in the quarter.
Last quarter, I mentioned that we had implemented steps.
To help students determine if our program was right for them early on.
And the effect of that would be to withdraw drive withdrawals up.
And retention down in second quarter fiscal 20.
But would allow for lower withdrawals better retention in third quarter and fourth quarter.
It's also noting that we saw retention improvement in all grade levels and in most of the schools we serve.
Second when getting guidance, we're setting guidance in January we anticipate a strong growth in new enrollments and that happened as we internally plant.
And third customer satisfaction with K 12 power programs is increasing.
Based on a recent parents survey all satisfaction and loyalty metrics have increased from fall 2018.
Parents satisfaction, K 12 powered school and the curriculum rose to 82%.
And the likelihood of those parents reenrolling their students topped 89%.
Both for all time highs.
More importantly ratings on nearly all key drivers of net promoter score had improved year over year to 61.
And this for puts us in line with other popular major national brands.
Importantly in our press release today, we have reaffirmed the full guidance full year guidance, we provided last quarter.
We'll have to receive questions about coded nineteens impact on our business, both short and long term I'd like to make some comments to answer that question.
The pandemic has disrupted academic plans and goals with so many students across the us.
And across the globe.
All brick and mortar schools closed in the U.S. and there was the scramble by many to figure out just how does this virtual schooling thing work.
However, the academic experience for most K 12 powered programs is essentially school as usual.
Well as usual include students with special needs and those are rural and underserved communities just as the U.S. Department of education has clarified in its guidelines.
Also for the current school year, we do not anticipate changes in funding for public schools as a result cobot 19th.
We've had communications with state authorities, we've monitored public statements by a number of policy makers.
All indications are that schools, we support will be funded and as such case was revenue for fiscal 2000 should not be negatively impact impacted.
Well the services we provide.
However, the certain school functions being curtailed this year the number of services will provide will be reduced.
An example would be that we provide in the end of year.
Sting and all schools that we support.
Leasing computers, assembling testing sites and things like that.
Well states have suspended end of your state assessments. So we cannot provide those services and therefore, we could not realize that revenue.
You may have heard us talk about terms like this such as revenue capture in previous years as such revenues from these services will be somewhat lower than anticipated. We therefore expect to achieve revenues for the full year at the lower end of our guidance range.
At the same time, depending make is also driving cost savings across our business.
When coupled with our ongoing focus on cost reductions and efficiencies prior to the pandemic.
We are realizing some cost reductions in a number of areas.
Therefore, we anticipate achieving adjusted operating income at the high end or even possibly exceeding our guidance range for the full year.
Now again this is not a changing guidance.
But just giving you more specific direction within the guidance we've already issued.
Gives me.
Let's talk about the upside to the pandemic in our business.
As I've already said its horribly unfortunate for so many people all around the world.
But we're in the business the helps schools and students in situations exactly like this.
The pandemic first started to impact brick and mortar schools. Our phones begin the ring often look we saw sharp increase in traffic on our website.
We reached nearly 1 million unique visitors to the K 12 that come website.
In February and March, which is a 49% increase year over year.
Many of those visitors filled out lead submission forms.
In fact more than 100000 lead submission forms were completed by parents in the last two months of 57% increase over the same time last year.
The majority of the increase inquiries received related to families looking for options for students to complete the current school year.
Most schools, we support well unable to accept enrollments. This late in the school year.
Due to Authorizer or local school board policies.
However.
For the schools that we're open for enrollment during this period, we've received more than 6000 applications.
More than we had last year.
Now the impact of these students.
Who were eventually enrolled.
But it's not going to have a great impact on our revenue because they were enrolled very late in the school year.
Some of the inbound inquiries how were concerned options for the next school year.
And while the enrollment season is just now starting applications have already top 14000, which is a 16% increase compared to this time last year.
At this point no one knows how many of these applications will result in student enrollments in 2021 school year.
However, we believe that some of these students will choose to stay with the program even traditional schools opened in the fall.
And also we hope some who expressed interest and investigate this choice for the spring.
Well now choose online learning for the fall.
Our company is also stepped up in support of communities that were impacted.
By the nationwide school closures.
This includes offering free online curriculum platforms training and technical assistance to students their families and to school districts.
We're also offering free webinars on best practices for teachers and families who have been thrust into an online environment for the very first time.
[noise] busy today, nearly 70000 students teachers and families have signed up for these programs in Webinars.
These efforts continue to raise interest in and awareness of the blended and online classroom.
And the K 12 his expertise in this area.
Lastly, we're also working closely with dozens of school districts on solutions that will help them educate students who are currently.
Some school districts are already using our curriculum under that 30 day free offer I mentioned.
Others are using our supplemental content such as stride in Big Universe.
Many are using a mixture of both so far more than 30000 students are being supported by these promotional programs in the current school year.
We believe a larger longer term opportunity exists as districts figure out just how they will incorporate online learning into their regular curriculum.
And into the school continuity plans.
Now I'd like to turns galvanize.
As many of you if I remember we acquired galvanize back in January.
In the core immersive boot camp and enterprise businesses galvanized moved all programs fully online in mid March.
The good news here is that the majority of the students stayed with the program.
While some of decided to defer until in person sessions resume students are committed to staying with galvanized we saw very few cancellations of new admissions.
Or students dropping from existing classes.
In their community business, which manages co working space and eight locations.
Galvanized strongly encouraged all team members to work from home and to follow CDC local health guidance you expect.
There are now there are fewer new leases in the galvanized community business given all the states have implemented work from home requirements. This caused the community business to stay flat in Q3 and will likely shrink a bit in the next quarter.
None of us can predict when things come back to normal if ever.
Well, when we'll see small businesses entering into more leases in the galvanized community business.
But while the pandemic will be a headwind to galvanizes community business in the short term, we do not feel it dampens the prospects of this total business over the long haul.
In fact, the immersive boot camp business can be counter cyclical doing recessionary like periods. When people are looking to appeal to position themselves for new jobs.
When they've been laid off for out of work.
The bottom line as we predicted Galvanizes boot camp and enterprise business can continue to deliver strong growth into fiscal 21.
In fact.
While the community business will not deliver against expectations. The consumer business is slightly exceeding exceeding our expectations at this time.
Before I leave my discussion of galvanize.
I also want to provide more detail on the impact of the acquisition.
On fiscal year 20 in fiscal year 21 financial results.
As we mentioned last quarter the adjustment to our operating income guidance for fiscal 2000 was largely result purchase accounting related to the acquisition.
Eight to 10 million of the reduction in our adjusted operating income guidance.
Related to Galvanizes negative operating income.
And so short term operational investments we plan to make.
But the remaining 11 to 12 million was related to purchase accounting adjustments.
Specifically, all assets and liabilities on galvanized the balance sheet, including deferred revenue will required by accounting standards to be recorded at fair value.
When deferred revenue is recorded at fair value. It has the effect of lowering revenue and profitability for the acquired business until the liability comes off the balance sheet.
And I promise that is the last accounting listen I'll give today.
Overall, the gross prospects for galvanized remain solid.
I'm confirming what I said last quarter.
I expect galvanize.
To deliver positive EBITDA.
In F why 21, and therefore be accretive to K 12, EBITDA enough why 21.
I just think about the impact that pandemic is having on our country in our communities and I believe it.
Be horrific.
It's a similar moment for online education. This moment will permanently changed how the general public school districts and regulators think about our business and our online education and blended education should be incorporated into ongoing learning process.
This is not just my personal opinion.
This year is informed by recent studies, we commissioned with parents of students in the kindergarten through 12 rate.
We ask them a series of questions regarding their views on online education in the post pandemic environment. This is.
What's it going to be after pandemic is over.
The results were eye opening.
88% appearance agreed that online learning should be an option for families.
In addition, more than 68% of the parents are either somewhat or very reluctant to send their students back to school with other students even after the pandemic subsides.
Prospective parents leave career readiness education is an important way for the children to learn real world skills and be prepared for future more than 30%.
Hi School parents want school options with online career readiness education offerings.
Well the short term positive impact it depends if it may be modest the K 12 current financials. The long haul long term effects, we see providing great tailwind to our business model, but nemec has is crystallized four things for us it's increased the awareness and acceptance of online options.
It's help break down the preconceived notions about online learning and highlighted the difference between a simple digital video session.
And a comprehensive online learning program with teaching and construction and measurement.
Third.
It's made school districts examine their preparedness for disasters and highlighted how online learning can be and should be a part of their ongoing plans.
Fourth with increased brand recognition for K 12.
We believe that over the long haul. These are all good trends for our business.
So in summary, our core business is strong the underlying trends are improving and shows to our results this quarter.
As we exceeded the guidance we provided.
I'll wrap up my my longer than normal comments by talking about an important organizational change it K 12.
As you may have seen in our leadership organization release, a few weeks ago. James rule has now assumed a new role.
K 12, as president corporate strategy marketing and technology.
For the past seven years as CFO James is self implement my vision of our company and more importantly.
His shoulder added responsibility as president of products and technology, while holding down the CFO job.
That's a lot to ask of anyone purse.
Now I personally hired James because in a previous life I knew all about his work ethic is intelligence his skills beyond finance and his ability to help strategically drive innovation in any business. He was involved with.
By every measure he's been instrumental part of our company's trajectory trajectory.
And a tremendous helped to me personally.
During his tenure, we've grown into a world class Education services company, and we've launched the company's entrance into career learning and adult education markets.
I've asked James to help drive even more strategy, new strategies marketing and technology expansions in a brand new what.
James will be partnering with me and leaders across the company to expand the market for K 12.
To reach new student students, who traditionally didn't or wouldn't consider online education.
From kindergarten as two adult learners.
He will also lead teams that drive the product innovation and improvements in the customer experience.
All with the goal of attracting and retaining more students.
He will also developed the marketing in the messaging to support these new expansions any less acute on mergers and acquisitions and partnering opportunities that support the growth strategy.
I'm Lucky to have someone with his depth of experience ready to step in and help me increase shareholder value.
And provide great services to our students of all ages.
James Thank you for you incredible contributions I know, you're leaving the finance organization in the financial health for K 12 in great shape.
As I already mentioned, we don't we're joined today by our new Chief Financial Officer to Medina, Tim joints, K 12, with more than three decades of financial and capital markets experience, both domestically and internationally.
He has an extensive background and accounting and operations management and strategy on a deep understanding of high growth technology sector.
Including important experienced in acquisitions.
Most recently served as executive Vice President and Chief Financial Officer PBX Communications.
And prior to his role that GBS Communications Chems served as CFO and a leadership positions at EEI conference call services into pure independent wireless one holdings.
Verizon Communications GE Corporation, and CTO Holdings.
I'm excited for some of them attempts experience and background to join the K 12 team.
So thanks, everyone for your time today I'm going to turn the call over to Jim will elaborate on the third quarter financial results Jim.
Thank you Nate and good afternoon to our shareholders analysts employees and others, who are joining us on the call today.
Very grateful to name in the entire board for this important opportunity.
Well so much change unfolding in our communities in our country. This is a unique time to serve as CFO for the market leader in online education I.
Im proud to join the K 12 team and our shared mission to provide a personalized learning experience for students of all ages and all backgrounds across the nation.
I also I'm very excited about our opportunity to expand K Twelves leadership and the tech enabled education market and helping lead K 12 next phase of growth and value creation.
Also look forward to getting better acquainted with all of you.
Now I'll quickly recap our reported results.
Revenue for the quarter was $257.2 million, an increase of 1.5% from last year.
Adjusted operating income was 20.6 million a decrease of 24.3%.
And capital expenditures were 9.5 million largely flat to last year.
As Nate mentioned in each case these results beat the expectations, we provided in our guidance last quarter.
Our core business continues.
To perform well and the increased awareness of our virtual options positions us for celebrating growth over the long term.
Moving to our results for the quarter.
Revenue for our managed public school programs increased $5.7 million or 2.6% to $228.3 million.
The growth in this business was driven by increased enrollments.
Enrollments were up 2.2% year over year.
Revenue from enrollment was largely flat and we still believe that revenue per enrollment will be roughly flat for the full year.
Institutional revenue in the quarter was 16.8 million.
A decline of $4.5 million.
This is in line with the trends we have previously outlined.
Private pay revenues were $12.1 million, an increase of $2.8 million, mainly as a result of the galvanize acquisition.
As Nate mentioned, we believed that the galvanize immersive boot camp and enterprise businesses will see positive trends in fiscal 2021, even in the current economic environment.
The business is still targeted to be accretive to EBITDA next year's financials.
Before factoring in the operational effects of galvanize and $3.3 million or reductions in gross profit due to purchase accounting gross margin would've been 32.8%.
Reported gross margin, including galvanize was 30.4% down from the second quarter.
We expect full year gross margin to be 33% plus or minus 100 basis points.
Selling general and administrative expenses, excluding the galvanize acquisition were $59.5 million down 2.2 million from last year.
The acquisition of galvanized added 4.2 million and SG in a cost in the quarter, including legal expenses from the acquisition.
Reported Esh DNA expenses were $63.7 million.
Even with the acquisition, we expect full year SGN aid to be relatively flat to last year, plus or minus a couple of hundred basis points.
EBITDA for the quarter was $32.9 million adjusted EBITDA was 39 million an improvement of $2.6 million before the effect of the galvanized transaction.
Operating income for the quarter was $14.5 billion and adjusted operating income was 20.6 million an improvement of 2.6 million before the effect of the galvanized transaction.
The improvement and both adjusted EBITDA and adjusted operating income reflects improving trends in managed public schools.
Some other items to note.
We ended the quarter with cash cash equivalents and restricted cash of $151.5 million, a decrease of 61.6 million compared to the second quarter.
The decrease is largely the result of are all cash purchase of galvanized during the quarter offset by a 100 million dollar draw against our credit facility.
In response to the Cobot 19 crisis, we borrowed against our existing credit facility as a preemptive measure.
We continue to be in a very strong cash position, both short term and the fourth quarter and longer term in fiscal 21 and beyond.
Additionally, several states, where we saw strong enrollment growth in fiscal 2020.
Like Texas, our states that typically pay all public schools after the school year assets.
This may increase our accounts receivable balance and depress our free cash flow for fiscal 2020.
However, I want to be clear that this is a timing issue only.
We have closely and are closely following the policies of each day and all have publicly committed to continue funding their schools.
Based on this timing shift, we correspondingly expect stronger free cash flow in fiscal 2021.
Turning back to our results capitalized costs of $9.5 million for the quarter were relatively flat to last year.
We continue to expect capital expenditures to be expenditures to be $45 million to $49 million for the year.
Our effective tax rate for the quarter was 33.5%.
We still expect our full year tax rate to be and the 28% to 30% range.
As detailed in our press release, we are reaffirming our full year guidance from last quarter. So for the year, we're looking at revenue and the range of 1.033 billion to 1.040 billion.
Capital expenditures of 45 million to 49 million.
As just mentioned a tax rate of 28% to 30%.
And adjusted operating income in the range of 48 million to 52 million.
Now, let me wrap up with a few final remarks.
First our core business is strong and student retention and enrollments are both trending in a positive direction.
Second we have ramped our career readiness strategy adjust the right time.
And these turbulent economic times students are looking for ways to ensure they have the right skills to enter or advance in the workforce.
Both our destinations career academies and galvanize, our uniquely positioned to support that demand.
Lastly, I want to reiterate that K 12 is very well positioned to grow in spite of the uncertain uncertainty and the general economy.
We're on a strong financial position and have a solid balance sheet balance sheet with a strong cash position.
States have committed to fund public schools during the crisis and we are seeing increased demand for our services.
We believe the effects of coded 19 will be a lasting tailwind to online education, and especially the K 12 business model.
Thank you very much for your time today, and we'll now move onto our acumen a session.
Operator, we're ready to begin today.
Thank you.
We will now be conducting a question answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question Q.
You May also press star too if you would like to remove your question from the Q.
Our participants using speaker equipment and may be necessary to pick up your handset before pressing the star Q1 moment. Please while we now poll for questions.
Okay.
Our first question comes from Jeff Silber with BMO capital markets. Please proceed with your question.
Thank you so much and thank you for the the comments about the impact so far potential impact going forward.
I think in your prepared remarks, you mentioned that there was no I think there would be funding impact for the current school year have you gotten in any indication about the upcoming school year for your fiscal 2021.
Hi, Jeff excellent question. This late speaking.
[music].
We have we have not gotten any negative.
Or positive indication.
So everything we've seen so far in everything said is that the federal government wants to put more money some of the early.
Okay grams in some of them later program. The now talking about want to put more federal funds into education, So education doesn't stop.
The state has said they want to continue education and their economies are varied that's dependent upon kids being in school and teachers getting itself. So all the policy makers as talked about what they need to do now we all know that felt by the fact that they don't get taxes.
From citizens than that reduces the budget than they got to take a lot of transportation healthcare or what's the or education or something but so far it looks like the federal government and state governments all motivated.
To get as much money into the education system that they can to keep it going so we don't see any negative long term impact today from what we know.
Okay, Great. That's helpful. No I know it usually takes some will lead time before you get permission to open up a new school. So im not assuming that you know anything that had not been in progress beforehand.
When I am assuming everything you've had a progress before going we'll obviously continue but has there been any indication that either you could ramp up in new school fairly quickly if you weren't thinking about beforehand, or maybe get a cap, resulting stake in anything along those lines would be helpful.
Yes, we have Jeff we've seen.
Couple of the not a couple of weeks in a number of the school boards that we've been talking too we've said to them.
You really want to be into position is two to.
To be able to help students and help your community help your state.
As more students want to want to be safe and want to be in this.
So a number of our our partners have upped their caps, so far and we're talking to all of that anybody who has the cap, we're having a conversation with them about it that issue probably will resolve all of them within the next it's today.
All are having school board meetings over the next 60 days and if you're talking about it. We also see a couple of states who are we're opening their minds and beginning to talk to us about opening up schools that where they weren't before.
So without giving names because I don't want to put alleged later in a position that what I've said something on an earnings call, where they havent worked the EPS to state level I can tell you that yes.
One of the reasons I made my comments that that I think this is a positive tailwind is that we have seen states come to us and say.
Can we do something here.
It varies dismissing that somebody will actually a from something in a short period of time, but that conversations have been had for sure.
Okay, Great that's helpful.
Just one more and I'll go back into queue.
Galvanized you talked about I think you called it the consumer versus the community business can you just size up the different business sizes, what they have been what you had expected beforehand.
Yes, I don't know how much detail, we've disclosed before but the community business is slightly below $20 million.
And I think it'll as I said shrink a bit the community businesses, the largest businesses, so over well over $20 million and the enterprise businesses the smallest isn't.
But the fastest growing bid.
Just to clarify that that.
Community business was less than 20, and then the remainder of the the enterprise business is smaller than they were at the rate the remainder at the consumer business.
Got it.
Mistake consumer consumer and the second too many see no worries that I got it I understand all right. Thanks, so much I get back into queue.
Thank you. Our next question comes from Chris How with Barrington Research. Please proceed with your question.
Good afternoon, everyone.
As far as.
Good afternoon.
As far as galvanize.
Could you provide some color or clarity on.
What percentage of revenue or what percentage of enrollments.
Was an online coty boot camps.
Prior to return environment, where we saw the transition to online.
And in light of that might be currency cobot 19 environments.
I know you had mentioned positive EBITDA in fiscal year 21, but any change.
To your prior expectation for 2020 as far as galvanizing is concerned or any slight adjustments there.
Yes, Hi, this is James.
So to your first question on the online.
Before we acquired them they were starting dabble in online, but less than 10% was really.
Don online when we acquired them. The good news is if they were already on a trajectory to move more online and maybe Dave accelerated that and they really shown I think great adoption with that so I think there on a really good trajectory to deliver their programs online only continued ongoing basis, but also when we get back to hopefully some sense of normal see.
There will be delivering some blood and online versus positive trajectory is really nice there.
And your second question around just the financial projection for the year I think as Nick said certainly their community business in Q4 will likely suffer the most just for the obvious reasons that folks are less willing to go into offices, we don't see as much impact on their consumer businesses agonistic as Nick mentioned that business is holding.
Fairly well and if anything is exceeding our expectations that we see on the enterprise business, they're probably a little bit below what our original expectations. So net net.
Predominately driven by the community business are going to build lower.
Great very helpful and.
My next question you mentioned applications were up.
And you're seeing an increased overall level of interest.
As we head into the fall.
Can you, perhaps add some color as to any changes that you're making to the marketing strategy I can you imagine batch.
Given the current environment your conversion rate should be increased costs, we will take fall.
That's true.
We're seeing top of funnel more and top of funnel and and we're seeing a better conversion rate now that we saw last year at this time.
As you know the conversion when it gets higher maybe you know the conversion make its higher gets the moment season, when parents are making their final decisions.
But yes, we are seeing we are seeing.
Greater top of funnel and greater conversions.
These additional.
Enrollments, what we expect to see is a lot of interest early in the season and then we're going to see some of that tail off is schools opened.
It's going to happen is as brick and mortars open some of the folks that are in the funnel right now, we'll probably see up my schools opened I'll go back, but we don't think all of them will because as ours as our survey say many of them is still going to be worried about why go back to school by kit in the school, where this by with historically been hanging out so we expect to still see better.
Once and better.
Conversions than we saw last year, but really can't predict.
What the absolute numbers are going to be.
I think I was just added.
From a macro trend perspective.
What we're seeing you know in art in our schools and our enrollment center.
We see I think most of you know a large portion of kids, who come to the schools that we manage there's there's sort of running away from something and I think now we see a lot of students they are running towards us they see us as a viable alternative and from the long term macro trend I think just building out awareness and viability.
Of our product in a more mainstream way I think thats going to carry over into the next few years.
Also in your comment about problem changing any marketing techniques will have more two things. We'll do this year you will see we'll have more digital and viral messages than we've ever had before more you to message is more Facebook messages on we've always done that but we'll put more funds into that.
As a percentage of our overall spin.
Before.
And the second thing is we will do a lot of joint marketing with organizations that have contacts with school districts. Because we will districts are going to want to do more with us.
And then the final thing is there'll be a little bit more of what I would call image advertising. This year than direct response direct response is when you put an add up that call us now image advertising a little bit more explained people what it does since the market is we think it's a little softer in more more amenable to the message we want to put a little bit more generic.
Turning to them what online about because we think that will attract will be.
That help.
But it sure does thank you for the color everyone I'll hop back in Q.
Thank you.
Our next question comes from Stephen Sheldon with William Blair. Please proceed with your question.
Hi, Thanks.
First here within the increased number of applications year over year can you talk some about what you've been seeing.
Specifically for interest and career readiness programs I don't know if you get into that level of specificity with family. This early but but what demand trends are you seeing kirker, writing at this point.
Well, we looked at we do look at at that level of detail and there are two ways. We look at the enrollment one or the people who come to us because that just interested in online and then we talk to them about whether you want to being a regular school or rewritten school and then there was another what we'll call funnel of folks who came to us.
Jeff because the heard about destination clear academies, which is are we ready school. So we are seeing an increase in top of funnel at destinations. The Academy we are seeing.
Data conversion that we've seen last year of that bundle still not as big as I'd like it to be and that requires the spin I think.
To make sure our advertising is geared toward mid messaging to folks about what career agents is all about we still think there's a lot of market softening in a lot of market messaging to let people know these categories are available.
Now on the flip side, the folks who came to US just for online.
And I'm, not really thinking about through readiness versus MBS, we're having more conversations with them as well and because the flushed out more career pathway that means more detail that IP more detail.
Business in more detail on health care, we're able to talk to them better.
So where.
We're definitely going to see an increase in the amount of DTA enrollments this year than last year.
I can't go beyond that because the seasons that over but I can tell you directionally, we're going to see more than we had last you already see that yeah, just I would add.
We've run some early test this season, specifically going after and targeting a career readiness students and we're getting a lot of traction so I think.
While sort of the overall.
Halo around our business is strong I think that specific actions will take it will continue to take through the summer around career readiness early signs as it's going to drive a lot of traction.
An example of that would be if you looked at our destinations to academies website for any school. If you looked at a year ago. It had what I might call level, one or two level of information so you'd after the second to third page in sort of reached the end of the message now it's much more flushed out there are examples of students there more details about what the quick enough.
We are examples of our project based learning is like so there's more for the for the person is investigating to understand about these kind of bizarre and therefore when interest.
Got it that's helpful.
And then second here just wanted to ask what what is cobot 19, Ben to your fuel led business I know you've been getting free trials for certain offerings, but have you seen any increase inbound interest from districts are charter boards to purchase all card services that they need their classic classrooms online can this be kind of better environment for that business to me.
Maybe.
Stabilized pump as we look out over the next year so.
The answer is yes, we have.
Our our tiny Salesforce, which we had reduced in size.
It's now overwhelmed by the number of opportunities in number of call that they're getting on the imbalance.
I really wish to cope with situation was we're over so they could travel because they're getting a lots of request for for them to come present school districts. So we are seeing more and more interested in that area and not only for our card offerings, but also particularly for training.
Their teachers.
In district schools, and how to teach in online environment and how to put a full program in place not just I want to buy you of course.
The honest with you we're not we're not seeing a dramatic increase and I want to buy an individual course, we're seeing much more increase in I want to understand how to run a full program.
Though obviously do their own marketing because it's their students, but how do they train their teachers, how do they monitor performance.
How did they know the students engaging all of those things that go with a full program. We're seeing a lot of request and information about that we're working with a number of a number of private groups as well who have an enrolled with many school districts. So think of the industry associations.
Pours secondary principles thinking the associations for superintendent.
Were trying to get in front of many of those as we can and will remain invited to get presentation. There. So we can talk about what our programs can do.
Great. Thank you.
Yeah.
Thank you. Our next question comes from Alex Paris with Barrington Research. Please proceed with your question.
Hey, guys. Thanks for taking my question, Josh most have been asked but I have a couple of until kind of dovetails well with the last question asked within managed public schools as I recall, two thirds or roughly charter School board and one third our our school districts.
And these are Oh, you're actually running these online schools for school districts. These would be considered charter schools would just be considered.
A division of the school district correct.
That's correct you have a great memory Alex.
Your numbers are right about two thirds, our charter schools and about one third a district partnerships.
And the district partnerships.
With the first one that we went out to and said as it just as a partner of ours, we're going to offer you free access to content and we'll talk to you about but these programs that we cut off so you're absolutely right over the first partners.
So as your top of funnel grows from consumers and that sort of English as parents looking for online alternatives.
During cold and then potentially beyond.
The one third of Youre kind of trips that our district partners.
This would have the koby will have a bigger impact on age because if they have a license to do show and they have not done. So this is that not only an opportunity for them to grow their enrollment on a statewide basis, but also have a plan b. It takes another pandemic God forbid would come down the road.
That's exactly right.
And all of the large school district partners, we've talked to with the first ones to sit down with us and talk about what should be there backup plan and how should they incorporate has to be ready to move easily from their 100% brick and mortar to a more blended how that kind of environment. So.
That those are the first before we did talk too.
Gotcha and then.
Sorry go ahead.
Say in those are the ones that we're having the most the most success with because they know what's the best now what they're not doing by the way it and you would expect them not to do this is not saying I'm going to shift by student away from a brick and mortar completely over to that online program instead, what you're saying, it's Ken I set up for separate online program for might with his kids in my district.
And a blended program for them. So it's not so much that they're going to move over to our 100% online program the talking more about one of the program.
For their constituents that might be better suited for an online or a blended program.
That's right.
Yeah Okay.
Sort of an insurance policy.
A continuity plan you and I might think of it is a bit business continuity plan. So they're thinking about it as a business continuity at school continuity plan, how would they continue to school led to close down.
Given they've already got us as a partner so.
No you're giving a lot of free stuff away right now were which it's the right thing to do is a good corporate tradition, but but.
How would you charge for these plan b sort of schools.
It wouldn't be the same is true your typical district partnership.
Yes, so Alex.
The good news is is that we've got tens of thousands of kids.
That having access to our free programs now and we're really happy with the traction we're getting in and I think just to service that we're able to provide for the communities I think first and foremost that's most important right now I think from a pricing perspective, a lot of our products have existing pricing structures and so obviously theres a starting point for that in terms of just I'll say that the can.
Tenancy, claiming that they talked about.
I think the way we view pricing is is a little bit fluid right now because we're not really sure exactly what's going to take hold in the marketplace, but our initial belief is at least is that really.
The clinical premium if you think about it and as an insurance products should be fairly small because what we're really trying to do is we're trying to build consensus in the marketplace. At this is a viable product and so we don't want to create pricing Barry just havent on the shelf for it made sense for continued see type of basis. So really it's the intent is really to have a very low barrier to end.
Entry to have it on the shelf for them and.
That that competitors listens to calls too so I'm not going to disclose too much here, but I would tell you that we believe and we have looked at pricing we have set pricing tables that clearly make the show difference between small school districts and largest will district. So the larger they are.
The better rate per course that they get and the more ancillary services that they get so and we actually put that out to a couple of love very large school districts. We had one what I'll call small to medium state ask us to bid on a entire statewide.
Curriculum, and we haven't heard back from them yet we had a very large city also ask us to actually two large city basket bid and all of those we looked at a volume discount kind of basis for for how we price. So we've given a lot of bought to those things and and have given those prices to those customers already and will do so again.
This year.
We have that by the way I also mentioned.
In two of those conversations, especially one with what a large cities they asked us.
First what would it take what price will be give in order to to serve their students for the rest of this full year, we gave them a price. They came back and said, okay. That's something what that price would be if I was to use your content for year over two years. So we gave them a price for that as well that was about telling you that only says that helps.
School districts to thinking there first response.
I've got to get through this this spring what would you give me the spring, but they quickly come back and say Oh, you're not going to think about next year because what if this happens again next year. So we've begun to think about pricing for next year as well.
That's great. Thanks, Thanks for that color and then.
On the on the distinguished career Academy, which can you refresh my memory I could you had.
Six stood up in fiscal 18, 13 stood up the fiscal 19.
20 area that might have a 19 2021.
First of all what is your cadence for opening new DCH and has it changed though.
Alex This is Mike we're still looking at about three to five new ones for fiscal 21.
And how many do you have right now.
20.
20, now Okay and then.
Last question initiatives.
Thinking you know with co the phones ringing off the hook parents looking for alternatives for their kids, you weren't necessarily able to benefit from that given that the enrollment was closed for most of the schools, which you operate.
Did you get any lift.
From your private pay schools or did you have similar enrollment cut offs.
Oh private pay was we got very small lift there we did get some but we we promoted a lot of it we gave free access to Keystone for 30 days.
We gave access to I cant at a 50% discount so we got them take but we had that we had the discounted heavily and again the goal for US was to get exposure. We figured it was going to be late in the year. It wasn't a big revenue anyway. So why not just get more exposure do the right thing for the community. So we didnt get a revenue this from.
I would say for that we did get more exposure.
Great well, thank you very much.
Regulations on the quarter, thanks for the additional color.
Thank you Alex.
Thank you. Our next question comes from Greg Pendy with Sidoti. Please proceed with your question.
Hi, guys.
One quick question I think you saw the in the comments that as.
And I could be mistaken, but.
Selling animal homes slothful here and if so can you just kind of remind this I think last year the cadence in the second half.
What's kind of over indexing in the fourth quarter. So just maybe how we should be thinking about.
That just overall into the end of 2020.
Hey, Greg sorry, we at some problem hearing you could you just repeat your question quickly, which we couldn't hear you very well.
Yeah sure. So I think in your comments you said.
Selling and administration would be flat year over year and if so can you just talked about how we should think about the cadence I think last year.
You had an abnormal threeq and Fourq Q. I think you overspent in Fourq here, if I'm not mistaken, but just kind of how show how should we think about that sorry, yes, I got you now.
So yes. So if you look I think you're absolutely right in Q4 of last fiscal year, our uptick in SG name was a little bit abnormally high.
We do normally have an uptick in Q4, though so you will still see a seasonal uptick in Q4.
As we start to get ready for the fall enrollment season, but it will be less than we saw in last fiscal year.
Okay, and you're expecting that line item to be flat.
For the year or.
It was around 300 last year is that correct.
Yep.
I think we expected to be flattish year over year.
Okay perfect. That's helpful. Thanks, a lot.
Okay.
Thank you. Our next question comes from Stephen Weber with climbing Rose capital. Please proceed with your question.
Hi.
I think.
Oh already gotten over time at this but could you just give a little more color.
A lot of people have felt that the virus will return.
In the fall on perhaps with.
People starting earlier then.
People going back earlier.
Certainly thought.
Rob probability of that happening is.
Yes.
Higher.
Just how that would all play out for you.
If you haven't.
Kevin as much.
Color on that as you could.
Sure Hi, Stephen how you doing.
I'm talking core, but I look forward to meeting one day.
So right way.
Hi, Thanks.
Unlike this spring our schools will all be opened for enrollment. This fall so any of those kinds of applications. We get because schools are closed we would be I'm sorry, because.
Their brick and mortar schools were closed we would be able to take all the applications. You only time, we wouldn't be able to take them is when there is a.
Cap by one of the boards at the board sides, it doesn't want to take facilities.
Well, we have had those conversations with them.
And told them.
Thats a recommendation to do the right thing for the state and the right thing or for the citizens in the state, which means opening up their caps and allow them with students in but in addition to that states may even in this is no I think would be.
Big exception I don't expect a lot of it to happened, but states might even open up schools quickly.
Providers like ourselves if they find that their schools are close, but I think the biggest opportunity for us and for anybody if in fact schools are not open and kids can't go back to school is going to be in the institutional business, that's where you would see us providing a program that they run themselves we teach there.
Their teachers, how to teach in online environment provide them the ability to enroll students in the curriculum and content and then let them go teach in that environment now they've got to worry about how to get disadvantaged students in rural areas to get access to the internet as everybody get a computer they've got to solve some of those problems, but it's.
Clear that if they are not able to go back to school, they're all going to have to do something they're not going to let kids sit at home and do nothing and they're going to want to teachers to be employed in every state I don't want that for their economy. So we think the big opportunity is in training professional development of teachers.
Who can.
Learn how to teach in online environment and I'll remind you that we developed.
And innovative program the first of its kind in the country with Southern New Hampshire University Research based studies and curriculum on how to engage kids and how to teach kids in an online environment you can get a master's degree or you can get a micro certification that that's the kind of content and training, we would tick up the market and the.
Second piece would be once we've done that helping them run that program you know how do they on an ongoing basis monitor and data analytics and be in the content per vehicle. So I think if kids don't go back to school in the fall you're going to see a tremendous focus on all the schools, putting those kinds of programs in place.
Hi.
How in that scenario.
I'm sure you guys should sort of run.
Models on.
The impact.
So.
Why is it.
You know it is.
Possible.
Ranch.
You know result, how much of an impact could that have and.
And your finances if.
If that scenario, we're not we're not unfold.
Yes.
James I think for right now we're trying to.
Clearly, it's a large opportunity for us we think it's a structural tailwind force for actually not just for going into next year, but for many years to calm.
But we're really not really not prepared this time to give any guidance around what the fall might look like but but it's certainly a large opportunity and we will certainly accelerate growth into next year.
Alright. Thank you so much guys.
Hi, Stephen take care.
Thank you.
There are no further questions at this time I would now like to turn the floor back over to Mr. Davis for closing remarks.
Very engaging call I really appreciate everybody asking questions and being engage is probably our most engaging call forgive me for being longer winded than normal I was long winded today, but I thought you wanted to know about how cold it was impacting us and I think Q and a proved you did want to know so.
With that I hope everybody stay safe and you following all the guidelines.
If we can I'll get through this together. Thank you for your time today, everybody have a great day.
Ladies and gentlemen, this concludes todays teleconference. You may now disconnect. Your lines at this time. Thank you for your participation.