Q1 2020 Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to through you incorporate a 20 body first quarter earnings call.
Aside all participants are in I listen only mode. Later, we will conduct a few any session and instructions will be given at that site.
I would now like to turn the call over to Mr., Ed Goodwin Senior Vice President Investor Relations, Sir the floor is yours.
Thank you operator.
Can you never want welcome to choose first quarter 2020 earnings conference call on call me, a chip paucek or CEO and Paul algae, our CFO.
Following chip impose prepared remarks, we'll take questions. This cold being simultaneously webcast on our website, where you can find their press release, which was issued after that goes in the market.
Well there on his presentation webcast replay of this call will be available for the next 90 days for a company website under the Investor Relations.
Statements made on this call include forward looking statements regarding our financial and operating results impacted the koby Nike pandemic do educational offerings student and University demand and other matters.
These statements are subject to risks uncertainties and assumptions.
Any forward looking statements made on this call reflect our analysis of today as of today and we had no plans were duty to update.
Did you pretty earnings press release, and the risk factors described the documents we filed with Securities Exchange Commission.
Your annual report on form 10-K for the New ended December 31st 2019, and our most recent quarterly report on form 10-Q for information on risk.
And he and assumption that may cause actual results to differ materially from being set forth in Saturday.
In addition, during today's call will discuss non-GAAP financial measures, which we believe are useful supplemental measures that you.
Non-GAAP measures should be considered in addition to you and not as a substitute for more in isolation from capitalism.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results earnings press release and on the Investor Relations page of our website with that let me give it a richer.
Thanks, Ed I hope, everyone has been STPP healthy and holding up as well as possible during these unprecedented times.
It's clearly challenging for all companies to deal with the Cobot Nike endemic and to you is no exception with that said we're in the midst of witnessing a paradigm shifting moment for online education from which I believe two you will emerge substantially stronger.
In some ways right now where the epicenter of what higher education is dealing with.
The last four weeks have been intense for the business.
As Colin ranking was beginning here in the U.S. do you have to decide whether to hold our investor day, we did it virtually an went well as the pandemic continue to unfold, we successfully completed a convertible debt offering.
In the context in the context of conducting an offering in this rapidly evolving and unpredictable environment. We provided strong preliminary first quarter results and with your guidance.
Paul and his team has done a great job, adding liquidity to the balance sheet in a tricky capital markets environment, while providing a more robust capital structure and enhancing our financial flexibility.
That's a big win for all of our stakeholders.
Before going into more detail on our results and our business outlook I want to reiterate our strategy and priorities.
Even with significant disruptions across the globe our strategies on change we partner with top tier universities to build Deliberant support World class digital education offerings that drive strong student outcomes.
In light of the pandemic, our financial priorities, our unwavering, we're focused on driving our market leading position accelerating the growth of the company and driving towards free cash flow and profitability.
On the rest of today's call I'll address how our business performed in the first quarter.
Provide an overview of the trends were beginning to see in our business that we expect to continue.
Oh with detail on some of the solutions were offerings universities in response to the cobot Nike pandemic.
I'll, then turn it over to Paul who will walk you through our results with more detail and commentary.
Starting with our first quarter results, which were quite strong.
Revenue grew 44% year over year 275.5 million driven by performance in the graduate segment and the addition of trilogy, which we acquired in May 2019.
The graph segments exceeded our expectations with revenue growth of 14%.
Two point acceleration over last quarter.
As we described to you at Investor Day. This was again driven by the scaling of programs launched over the last three years.
On the bottom line, we came in significantly above our expectations for adjusted EBITDA loss of 4.3 million for the quarter.
[noise] outperformance was driven by cost controls implemented last year as well as lower costs due to our teams working remotely.
This quarter, our teams delivered strong topline growth accelerating organic growth was strong bottom line performance only to be I've done my Unlevered free cash flow usage and it's the lowest it's been for six quarters.
We performed exceptionally well.
Our results for January and February exceeded our expectations due to the flexibility and variability of our expense base and the resilience of our business model, we were well situated to adjust as social distancing was enacted.
The impact of the Kobin, making pandemic on higher education, and our business has continued to evolve week by week, even day by day.
And we like where we sit today our business is fully operational our programs our online.
And each day brings greater clarity through the data we're seeing throughout the entire business.
Yeah. This most recent movements in the business our confidence is increasing in the longer term impact.
As part of this I want to present, some early conclusions as to what we think this impact might be.
First we also witnessed how close to 19 created an urgent need for every university to move their programs online.
This rushed to remote learning happened almost overnight.
Core product offerings and new solutions.
The need to deliver truly high quality online programs not just remote live lectures at a time in universities are facing unprecedented financial constraints and challenges makes our traditional full investment model, even more compelling invaluable.
Can call this already.
Say that three or four weeks ago, but it's now a parent.
Expect to announce our next undergraduate program shortly.
Second we expect to see increasing student demand for quality online offerings.
The data here is early but our finals are filling and converting currently at higher rates than before the pandemic.
Historically to higher education market has been negatively correlated to the overall state of the economy, There's a long history do.
We've seen some prognosticators question publicly whether this recession could be different for higher education.
Based on some leading indicators in our business that had been <unk> historically correlated with future demand, we believe that universities with robust online learning offerings, we'll see counter cyclical demand.
While it's still in early days in the Grand scheme of things, we expect that this trend will increase over time.
Notably prospective students have been easier to get in touch with and had been more receptive to engaging in substantive conversations.
Other interesting tidbit, while the initial stages of coded 19 costs some demand increases on the boot camp side. The last several weeks have shown even greater conversion as online options became the norm.
Clearly as to you is seen as long history students want online learning even in the boot camp space. We think that this move to online for boot camps will not be temporary.
Third.
Online learning becomes the norm now and into the fall, we believe that prospective students will increasingly view online programs as attractive alternatives to campus space programs.
Oh, the will matter here and when done right as our recent Gallup study groups online can be as good or even better than the campus. We expect that overtime, a great percentage a greater percentage of total students will enrolling online programs, both degrees and alternative credentials than what we've seen in the past.
Fourth.
We're seeing advertising costs decrease during this time, we have no idea how long this will continue but it is allowing us to drive positive enrollments for our clients right when they need it most.
One example are undergraduate program is seeing double digit increases in volume on a daily basis.
We believe that the launch of these high quality on undergrad online offerings, which occurred right before the outbreak are now meeting an even bigger need in the market.
Before I turn it over to Paul I also want to highlight some of the new solutions were offering based on the trends we've heard from our partners.
There's no Backrow pro where we provide retraining to our University partners campus based faculty aren't best practices for successful online teaching.
These efforts continue to raise interest in an awareness of our high quality learning platform and are significant expertise in this area.
Expected this offering will become even more important as the universities in faculty figure out their plans for the fall and how to build online into their go forward strategy.
Then there studio in a box or modified course production approach, which the last faculty were to record asynchronous content directly from their home with the right tools and virtual assistance from a two you course designer.
We've also deployed to new solutions to U.O.S. essential and plus he's provide a lighter deployment of to us and enable continuity and quality for existing and new University partners in preparation for the fall.
They do not yet no how many of these deployments we will have we expect to offer these on a c. or revenue share basis, depending on the interest of the client.
Will provide more information on future calls, but it's going well.
Finally, we increase pipeline opportunities in mind I want to be clear, we are still focused on continuing our drive to profitable revenue growth.
As we gain clarity on these new opportunities will provide more clarity to all of you.
I want to make sure you're aware that regardless of the broader opportunities that we're being careful in our decisions.
To conclude.
<unk> one results even in light of the covert 1910 down.
For much of our portfolio, there was little or no disruption to operations and through team effort and extraordinary collaboration all too you powered offerings remain up and running and continue to enroll new students I'd like to thank our partners in employees for the dedication they've shown over the past two months to use have been incredible even the they've all been remote it makes me very proud.
The covert 19 pandemic, creating urgent need forever University to up it's game on online education, and we are uniquely positioned to help them meet this increasing meet.
With that I'll turned over to Paul.
Thanks, Chip and get afternoon, everyone.
I'd like to start by saying that the fundamentals of our business are strong.
We had a good first quarter in the face of the corporate 19 pandemic with execution of business continuity plans limiting disruption.
We recently issued $380 million and convertible notes.
Which lowered our cost of capital, while giving us increased liquidity and financial flexibility.
And we continue to see strength and our University pipeline as the World response to the crisis wherever and an excellent position to be a solution for our University partners and their students in a variety of ways.
On this call I'll go over our results for the quarter in more detail.
US our recent capital raised then give some color on how we're thinking about the rest of the year.
Now I'd like to go through the results for the quarter.
Revenue for the first quarter totaled $175.5 million, a 44% increase from $122.2 million.
Organic revenue growth was 15% an acceleration of two percentage points.
From last quarter, driven primarily by strength undergrad segment.
And the graduate program segment revenue grew 14%.
Over the first quarter of last year.
This was driven by a 16% increase in full of course equivalent.
Partially offset by or 2% decline in revenue for F.C.E. year over year.
Revenue for F.C., he was essentially flat versus last quarter.
For the first quarter revenue in the alternative Prudential segment total $57 million, which includes $35.4 million from trilogy.
<unk> for the segment, we're up 66% while revenue for F.C. He was up 90%.
Short course revenue increase 20 per cent, but program launched in the past year contributing nicely to growth.
Let's look at cost and expenses.
Total operating expense for the quarter came in at $229.4 million, a 56% year over year tree.
So little marketing and sales expense grew 29% year of a year.
In response to covert 19, we spent less than we had originally plan, which speaks volumes that a variable nature of our marketing spend.
Looking forward, we continue to adjust our marketing spend on what we're seeing in the market with a goal of spending that efficient marketing frontier.
And that's lost for the quarter with $60.1 million compare to net loss of $21.6 million for the first quarter of 2019.
This was driven in part by an incremental $11.3 million and stock based compensation due to changes in our compensation structure, an additional headcount from trilogy.
There was also an incremental $9.4 million and amortization of acquired intangible assets related to the trilogy acquisition.
Adjusted in that lost for the quarter totaled $21.3 million when adjusted for $20.9 million in stock based compensation $10.8 million in amortization of acquired intangible assets.
As well as certain on ordinary course item.
Now for discussion of the balance sheet.
We ended the quarter with a cash balance of $157.5 million, a decrease of $32.4 million from $189.9 million at the end of the December quarter.
This decrease was primarily driven by use of cash from operations of $9.9 million and cap x. of $18.2 million as well as cash interest payments of $4.9 million.
Unlevered free cash flow for trailing 12 months was a youth $58.5 million 821.7 million dollar improvement from the December quarter.
This highlights our commitment to drive towards positive free cash flow and puts US ahead of our initial plan.
This performance was driven by more efficient use of networking capital and we expect this improvement to continue.
Accounts receivable was $75.4 million at the end of this quarter up $41.7 million from the end of 2019.
This is typical for us in the first quarter.
The seasonal increase in accounts receivable in the first quarter relative to last year.
Is due to the timing of the academic calendar.
Of note, 86% of the accounts receivable balances Kern.
This increase in A.R. is offset by a 23.8 million dollar increase in accounts payable and accrued expenses.
And a 21 million dollar increase in deferred revenue from last quarter as we continue to manage networking capital.
I'd end up the first quarter, we had outstanding long term that of $254.1 million.
Principally related to our term loan facility, which had a maturity of May 2024.
We recently issued $380 million in five year convertible notes with the coupon of 2.25%.
Including the over allotment option, which is expected to close tomorrow.
We have since repaid all outstanding amounts on there are a terminal one with the remaining net proceeds going towards purchasing it kept call and funding networking capital and other general corporate purposes.
We are fortunate to execute them this opportunistic financing, which offers us and number of benefits.
Paired to determine loan.
It reduces our annual cash interest expense by around $11 million.
It eliminates restrictive covenants.
It extends the maturity date to 2025 and it enhances our financial flexibility.
We are well funded to execute against our strategic priorities as we view or a capital allocation decisions through the lens of balancing growth returning invested capital and cash generation.
Now for discussion of how we were thinking about the rest of the year.
We're in an unprecedented environment with uncertainty about the future progression of the covert 19 pandemic.
Actions taken.
By the government and how they <unk> they would respond to the pandemic. What this means for the economy in the coming months.
Prudent thing to do in this environment is to maintain or disciplined approach to managing capital and expenses. We have continued to constrain any unnecessary spending and tighten or use of cash even further without impacting growth.
This will give us the greatest possible strategic and financial flexibility in this environment, the <unk> our market leading position.
While our first quarter results showed a strength of our business given the environment that were in it is not possible of it reasonable accuracy to estimate the positive or negative impact of the pandemic on our 2020 financial performance.
That n. in connection with our convertible offering we have withdrawn or financial guidance sort of fiscal year, and we intend to defer providing you guidance until there is a clearer outlook under duration and magnitude of the pandemic.
The summarized we got off to a strong started a year building on the momentum from the fourth quarter of last year.
We successfully shifted to working from home without disruption.
And we are helping our partners lead the way for online education going forward.
Especially well positioned to help because we came into this pandemic as a market leader with momentum we are investing and we are well capitalised.
$175.5 million in revenue adjusted EBITDA loss of $4.3 million Unlevered free cash flow usage of $17.6 million for the quarter and and improved capital structure. We are proud of our team for delivering such strong results.
And we are confident that they will continue to make a sprout.
And with that.
You just take your questions operator.
<unk>.
If you have any questions that.
Right right then run on the touch tone telephone.
Your first growth to come <unk>.
Okay.
Great. Thank you so much guys [noise].
Excuse me you know I I know this isn't earnings call, but I just want to start by acknowledging how fantastic. Your mission is an especially how you're helping the world. During the current crisis I I think it's just really really important to say that.
Thank you Brad.
Yeah, you are quite well couldn't it's you and I've got a question.
Yeah go ahead.
Yeah No. Please you go ahead.
I just it's been an unbelievable six weeks I will tell you you know we'd been.
No. We we really I feel like we are a microcosm a little bit of what's happening in higher Ed and you know everything from our yeah, L.P.A. program, where you've got people on the front lines to our nursing programs to our public health programs you know you've got.
It does it it is super motivating to the to the employees and it should be.
You know very proud of the work they're doing thank you for saying that.
For sure I I really mean, it I had a question for you chip and a quick follow up her Paul So so chip in an earlier press release, you mentioned the companies began developing solutions to enable continuity for universities on campus and online efforts in the fall can you expect.
And on this a little bit more and and how we should think about this from a monetizations standpoint, as well as new partner relationships.
Well you know we have we have 73 partners. So there's a lot to do just within our partner base. So the first step was just to make sure everybody was up and running and doing as well as possible and that's why we rolled out the training and all that for the fall. We think by the next call will be able to give a better estimate as to what the new solutions will look like.
How there'll be structured so two O.S. essential <unk> as we're calling it is you know we we think does allow the company to potentially open the door to some new University partners and it's it's a combination of our technology and our support and.
We've had a really good response to it. Unfortunately, you know as you know this is a rapidly evolving and not much time has passed so we're not yet at a point, where we can give you too much clarity on exactly how many schools and what it looks like.
But you know we we do you think it's a different model than the J. curve that you see in the investment programs now separately, what's also become clear and this this part we can say strongly is that pipeline for our existing model will will increase because of this we're being careful and thoughtful about what we.
Choose to do and as a company we have not made a decision to increase the number of sort of traditional investment based model programs that will run yet, but there's no doubt demand has picked up I think the pandemic has sort of multi dimensional impact to our partners and it's clear that the investment model will.
Being more demand so Brad I think by the time to get to the next call will have a lot more to say schools are in the decision making period in terms of how they're going to handle fall a studio in a box is pretty interesting because I.
I think the notion of what people really need right now, it's a little bit less about the technology technology is enabling function, but it's the pedagogical the expertise of how to drive high quality online instruction and how to do it in an environment, where you can't go to a studio easily and so very proud of the innovation that's occurred there we've got.
A bunch of these being deployed right now and we really like what it means for the company go forward, but you know in the short term we're thinking much more about just how to support the schools not necessarily you know focused on the financial benefits of it. We do you think long term will have great financial benefits, but net net we.
You know, we're thinking more about the people user relationships. We've had for very long time and you know in some cases, we've had quite a bit of inbound the folks that are interested in us helping them figure out how to build something positive going forward. So it's just been an extraordinary you know four to six weeks and you know, we obviously had the <unk>.
Process so.
<unk> no shortage of activity going on here that I will tell you.
Thanks Chip it all makes a lot of sense and maybe just for Paul does the the convertible no transaction and in particular upsizing initial deal in any way changed the way you're thinking about program launches or future investments. Thanks.
You know Brad one of the main things we wanted to we set out to do here at the beginning of the year is to give ourselves flexibility we want to focus on on positive cash flows we want to focus on positive eat it and we want it to ensure that we had the financial flexibility this transaction.
Allowed us to do that.
I mean I listed some of them right I mean, we visit them for you. The first one is financial Covenant. The second one is 11 million savings on free cash if you will because we're not going to pay that much of interest expense anymore. It does it does give us the Latin food. However, all of this is governed by the framework that we outlined back into fourth quarter of 90.
Which is we're going to manage by R.Y.C., we going to choose and select the programs as we optimize cash and are we going to do it for the same quality that our our partners of a custom receiving from US that bottom line is we want a set of set ourselves up as well as possible to do as many as we can if.
The opportunity presents itself, but they have to fit our mould of what we're trying to accomplish as a company. Once were disciplined I think we will have the flexibility to increase skate and see if we need to.
Makes sense, thanks, very much Paul Thanks for taking my questions.
Your next question comes in the line Yep, So based on the email capital markets airline is open.
Thanks, So much chip I think you might have alluded to this in your early or respond, but I'm. Just curious in terms of types of the conversation that you're having with University partners either of the ones that are your current partner as for potential partners. What are they looking for near term what are they looking for longer term.
You know I mean, Jeff so something we've been doing that you know first of all I would say in in in sick you know in four weeks, we've had more chancellor probosced President CFPO conversations than we hadn't 12 years I I don't think that's an overstatement, it's been extraordinary and you know one of the things we've been doing is we've.
Or the the the the President of Art program Management group of our of our partner relationships. Andrew Harmelin has been hosting these social hours that that are fascinating. It's just Andrew and you know a variety of a really cross sort of functional group of you know the president's in probosced that wouldn't normally be.
In a room together you know from a variety of different types of our partners you know being state schools, you know elite private institutions Liberal Arts schools and.
It's been really something you know this is a a moment in time, where I do feel like we have a point of view about what's going on across higher AD that I think it's pretty unique because of the broad sort of scope of our of our partner base and.
You know they definitely are looking for solutions to help drive quality online you know I think everybody recognizes what happened in the fall won't cut it down to go forward basis, and so there is some but not for the fall I'm sorry for the spring. So there is some short you know shorter term need.
In terms of just getting.
Higher quality online course up and running and and really <unk>. That's about the Pentagon, that's about being intentional about learning outcomes with each lesson and you know it's not just about sort of a remote zoom lecture I think we've all become you know we're all in zoom meeting I presume meeting and you know, creating a high end.
Gauging environment is of course zooms, great partner bars, and you know we're thrilled to have them as a as a partner, but you've got to drive a higher quality overall online learning experience. So that's been one conversation and then you know we have engaged just really over the last couple of weeks on sort of the you know more forward looking.
Whether this last this how long this last in the current state. We obviously all will start to get out of the <unk> you know the the immediate stage of the pandemic, where we can have some you know get back to offices in schools, and but schools to give them credit.
Or dealing with not only something unprecedented but you can <unk> what I think is happening right. Now is the pure hybridization of all online of all higher education. This is the hybridization up high red overnight.
And people see the need for it.
And you know I do feel genuinely blessed to be you know in the seat that we're in right now we are at the.
Sort of crux of the whole thing and we're we're really well positioned.
Right now the the kids just delivering for the partners and you know I would say of course, you know the first stage is just making sure that that everybody's in a good place everybody's healthy and that our employees, we start with our employees, but as you move through this it also became very clear to me is C.E.O. to our executive team too.
Our board that we have a massive responsibility right now to deliver for these schools right when they need it most and not just to deliver for them for next week, but to think about this over a multi year period and how we can be uniquely beneficial if you think about it me.
Some people, saying higher education won't get counter cyclical benefit <unk>, we can already throw that out the window <unk> that super clear U.M. high quality online programs based on what's happened in the last.
Just two weeks they demand is going to go up but those that were saying that we're saying is because of the alternative credentials well.
We're one of the only companies that offers boot camps short courses and we've got a decade plus track record of doing this so I just feel like this all happened.
We are the company that needs to be there and is being there for our partners. So you're hearing maybe some sense of personal responsibility that we deliberately folks at this moment and I'm proud to tell you that we do feel that we are delivering.
Right well, let me just central down a little bit further <unk> you alluded to this a little bit earlier do you think you're going to see more demand on the undergraduate side I know, we've already had strong demand undergraduate side, but is that an area. We think will have further penetration.
Yes, as a result of this one of the things that has happened is you will hear us very soon announce our second undergrad program.
You know we we we are we will get the announcement out as soon as we can we do you think there is real demand for undergrad and we're very pleased with the initial results of our first undergrad program, which obviously was done before any of US had heard of Corona virus. So happens to be a good timing, but you know.
Thoughtful plan as to how to drive a high quality online undergrad experience has been well underway. It to you now for a long time, and that's becoming certainly more relevant now I think what what we wanted to make sure we emphasized to this community.
Is that you know <unk> that doesn't mean that were you know sort of throwing out the window. All the things. We said you over the last nine months about how we're thinking about our investments and how we're thinking about guiding accompanies financial picture. So we have to be able to balance the agenda, but there is no doubt to answer your question directly that demand is up.
Great. Thanks, so much.
The next question come from <unk> airline is open then.
Hi, Great to hear everybody's places in happy to hear your all I'm, saying well chip I wanted to start a with a question for you around the competitive environment out. There are you seeing anything from your competitors are any shifting the landscape.
Like it's happened here for the past several years that you think is worth pointing out at this time.
You know I mean, I I I guess I would say I I think we're uniquely positioned.
From a competitive standpoint, you know you've got this.
Career Kirkland continuum that we have the sort of breath of the offerings that I, just don't think anybody else Lily halls and combine that with.
You know when when you look at what happened with remote learning.
You know what's interesting that probably <unk> you know we had past 700000 wide classes.
Like it we've done this.
Scaled the I don't think anybody else has and you know our Gallup study I thought was real interesting because you know we we did you get for the invest to the virtual invest today.
And you know it it should put a nail and the coffin of any question whether online can be as good as the campus. If you do it right. It's really good and we know how to do it right and so you know from.
From a competitive standpoint, we do you feel like quality is going to continue the matter here.
So the idea is higher education should be blended in connected it should be you know the hybrid is is real and we're good at that and I feel like the.
You know.
We we haven't had 10 seconds to think about competition in the last six weeks that I will tell you. So it's a it's it's sort of just back to our.
Conversations with our partners in terms of how to support them and you know we are excited that it does look like what will come out of this is a broader partner base.
Well some thank you that's really helpful. Champ <unk> chipped this might be for you or for Paul I'll, Let you guys decide.
But I'm just wondering I think really great that you you discuss on this call balancing.
You know positive free cash flow with the need to invest with these partners. That's such a critical time in in the world and it was such an opening for distance learning how do you think about potentially balancing adding more new grad or under grad programs and the five we we were discussing.
Most recently about if you really do you see a windows opportunities for spikes and demand in my in my opinion. It. It. It you know those those are worse schooling ask her so I'm wondering how your balancing thinking about free cash flow positive being positive with also the need to.
You know really take advantage of this opening for distance learning.
Let me, let me see if I can start off here and and chip chip can jump in after look at at at the end that today I think <unk>. We we have we provide a.
Benefit to society here in the offerings that that we provide.
At the same time you know we are we are in an environment, where these things are needed that society will benefit is needed. So to some extent we have to balance with an eye towards we are needed society needs system, we have to be there for them during that period of time at the same time I think we can <unk> you know.
We were talking internally today.
Bout various opportunities and one of the questions was should we say, yes or should we say no and I said, there's a third answer the third answer is we can say, yes, but it's about how we say yes. What this yes means does it look and feel like one of our normal programs does it look and feel like something different so so it.
We are in the process of looking at everything through the framework of returning invested capital. We're looking at it from the perspective of how do we optimize the cash and liquidity position that we have and at the same time, how do we fulfill our duty to society, because they're looking for us and at this time of.
So it it is a balance across the three and I think opportunities are not gonna wait for US I think we have to take advantage of opportunities when they present themselves. So I think we will lean towards helping.
Just as we can and as quickly as we can because I think we're in a position to do so, particularly with the capital structure flexibility to with that we just got ourselves in the last month or so.
Awesome Fantastic, that's very very helpful. I appreciate that Paul.
Thanks.
Your next question comes from the line, if we see Joe Louis F.M.B.A. Davidson airline is open.
Again, Oh. Thank you so much for taking my question to here first <unk> wanted to ask you know the.
<unk> being virtual obviously, I'm almost environment and some of the dialing back of advertising. So I. Just how are you thinking about you know sales and marketing efficiency from here and especially if we think about optimizing the model for the balance of grow up in profitability on the other question was just in in terms of.
Thinking about payments from University partners any color that you can provide in in terms of our our our their university quite and looking for expansion on payment terms, a restructuring or a a or anything like that makes sense.
So on the second one easy answer, but that's not been an issue on the first I would say.
The you.
You know.
As Paul mentioning his script you know we are pushing the benefit of lower advertising costs to drive towards the official frontier of these individual marketing funnels in individual marketing opportunities and effectively what that means is you know our partners needles right. Now you know that you're talking about significant dislocations things like inter.
National students in each of these universities and so the fact that were very clearly up and running the fact that you know even our boot camps, which was the one part of our business that was physical now not only are they on line, but you know they might always be online because it's going really really well so that is importance to the partners.
So you know where we are pushing forward aggressively right now because we can you know we're open and these are strong high quality options for people and I, but also say options that can help people you don't have more productive life. Once they graduate you know like right now the reskilling opportunity.
The boot camp side has never been more needed I mean, you're talking about people but.
You know with the number of.
Dislocations for for individuals in terms of the unemployment rate. We think it you know this is a moment in time, where people neither re scale. So so we are.
Continuing to drive.
Outcomes and obviously the marketing as part of that and you know we're using this opportunity to you know create a sort of more robust funnels for this for the University partners not less.
Right on top of thank you so much.
<unk> bands from watched open having their own is open.
Yeah, Hi, Thanks for take my questions. This afternoon chip one to ask a question on on a different topic in subject. It's about your portfolio of our products and services.
Really it's about the future and capitalizing on the elevated lead flow that you're saying so can you share with thoughts how you plan to cross out to these students and learners <unk> the to your universe here from different front doors I know, it's early here, but I'm just wondering if you're seeing any monetizations synergies with a three different product or.
Offerings you know for example, you're seeing a short course stewed on maybe continuing on the yeah curriculum signing up for the boot camp or the D.G.P. business fan just was with hope you could just provide a little more color into the strategy around that and that sounds like you are seen from early attraction then I have a follow up for Paul. Thanks, Yes. We are we are.
Definitely we think the value of share across the portfolios very significant we think the value of the content across the portfolios significant we have more schools that are embedding technical training into their various programs we think.
That overtime offering technical training for credit is really appealing.
And clearly from a marketing synergy standpoint, you know I think people do forget that when we when we acquired get smarter a couple of years ago, you had a pretty small overall course space and you know now we're getting to the point, where we've got a broader portfolio of individual courses.
And so you obviously can't can't cross so when there's not a lot crossville and now that we've got more options for people. The C.C.C. is pretty fluid some people enter the career curriculum continuum.
Because there are they graduated from high school and they want to go right to learn to become a coder and then they eventually may take a short or some people like me might progress from Undergrads, who eventually a masters degree and I might need a black chain course, because I'm not entirely sure. What it is you know you've got different people entering a different stages and it just creates an opportunity for us.
To to meet the student where they are and to provide that learning experience to the student that was big part of the reason that we actually acquired the two companies. We did so early days still on share, but it's it's attractive.
And then Paul the follow up question that I had it's maybe a follow up on earlier question, but maybe I'll just ask is a little bit differently tactic way you know when you when you scrubbed and looked over the cost structure of the business, where did you see the most opportunity to kind of cut back to protect cash flows. Thanks.
I mean, I think there are a couple of the things. We we have some natural levers as we think of the integration of the three businesses over time as we continue to bring together get smarter trilogy and traditional to you that was one of the things that we started doing mid.
Way through last year, and we saw a lot of that type of savings as we got into the fourth quarter, but those happens to be runway runrate savings, meaning they continue on build upon themselves over time. In addition to that as we become a larger company, having centralize picture month, and sourcing and doing things in a centralized fashion and benefiting from volume.
Scale those types of things or to traditional things that we've put in place. So far that are getting us that type of of of synergies that we expect to see as we move forward and then in today's environment as we go through working from home, we see the benefits of P.N.E. travel travel type savings.
And our technology platform, our technology bailed, how do we below technology consistently across the three offerings and then marketing as we bring the marketing teams together and think about while we may not have one marketing algorithm that goes across all three of our offerings. We can at least have a consistency.
Of methodology, a consistency of the way of doing business things like that so we're seeing benefits also in that environment and as we as we sit here today and look forward into 20 and 2020 as as as chip alluded to in has prepared remarks, we are seeing lower costs per leads to that is giving.
Some benefits into marketing side. However, we will spend on the marketing side because at the end the day. The marketing side is is more driven on governed by the marketing frontier and it's more governed by yielding conversion, but those are some of the areas. You know where we are still we have several plans our chief operate.
Thing office, and Mark Chernus spends time with the organizational structure. The organizational design, how we do things we're not building accompanied to cut costs were building an organization to operate efficiently efficiently and <unk> serve our partners better suited to students can have a better experience and if we continue.
Refine the organizational design and how we do things then we will we will generate efficiency through that and it becomes more sustainable type of of cost structure. So those are some some of the areas that I touched on there and I think we will continue to see this type of efficiency as we go through time.
I appreciate the color and that was real helpful. Thanks, Paul.
And that's the question <unk> phone from Goldman Sachs airline is open to.
Hi, Thanks, Good afternoon, you talked a bit about marketing costs that are decreasing in the current environment and just over all the more thoughtful approach to launching programs that have a higher order like see which overtime should have.
Positive implications for free cash flows can you discuss your broader expectations for free cash for performance and What'd you might expect to break even.
Yeah, So I mean, I think if we.
Let me speak of this from two components you know on our fourth quarter call I talked about you know or or a goal was to have a crossover somewhere midway through 2021. The first half of 2021 meeting crossing over to a quarter, where we are cash flow a creative versus use of cash.
In that particular period, and then probably until the next calendar year to have a full year of free cash flow positive.
The performance we had this quarter you know I would break down to performance in three components I mean.
Part of it as the cost savings and the activities than that Mark in his organization or or leading in the company. But then we have also to component of.
Lack of travel and other savings around working remotely things like that if we split those two things I would say we have a real sustainable improvement in the free cash flow that we saw this quarter and that puts US ahead of plan. So I am I'm, providing a response.
On that is more aligned with the things we sat freak of it because in this environment that were in it's harder for me to predict when this is going to end what the top line is going to be like water to new opportunities what are some <unk>. Some of the impact if any that is negative on how long that is going to last so.
It's hard for me to predict and this current environment, but like what I can sit to you. The trends are looking good given what we delivered in the first quarter here and we have no reason to doubt that that will not continue as we go through the year.
Got it very helpful. And then just stepping back broadly you know you mentioned that the pandemic can have both positive and negative impact on the business can you just elaborate on the factors that could cause the growth of <unk>. So the downside factors I know boot camps, where previously thought to be a risk now it could potentially be an opportunity placements undergrad side also.
Another swing factor. So can you may be elaborate on some of the things that you do see as downside risks to growth.
Right. So an example of something that we had to do into one is immersions are physical moments, where student goes to to meet together with their classmates somewhere in the world very often on campus, but not always so there's a lot of global Immersions and you know before <unk>. The only time, we ever sort of had a moment, where we lost.
We lost revenue from an emerging that got cancelled was you might have remembered in Mexico City had that huge earthquake. There was actually quite a large immersion for one of our partners that was there and it got cancelled like urgent and we had to deal with that an obvious that was lost revenue.
So we had we had some immersions in Q1 that we just couldn't replace the there was no option of replacing though they did was urging can we had to cancel them and that was that so we had that impact and Q1.
But obviously deliver Q1, even with that impact what's good about the emergence go forward is that the students tend received their credit in a variety of different ways not just from virtual emergence, but from a additional classes that can fill about credit Floyd.
Placements is another one where there is there is some potential impacts from placements once good placement credit can be replaced with other types now that work that's been done here, it's be awesome like the partners did a variety of virtual policemen. So you know in in in our support programs. You you have virtual field practical things where people are.
Where students are with faculty live in a zoom room and they are live with an activity is portraying somebody that has a particular condition and it's actually really good because when the student is is with a faculty member. They can learn in a way that is harder to do when they're actually in the field with that live person who might have returned from the war.
P.T.S.D. and you see these faculty jumped in these incredible moments, where there really hitching like life at some point, obviously, if you're in a program like <unk> you have to go to deliver the babies and so you can push the physical part towards the end of their placement and at the end of the day that that's true that needs to be done something now.
What's been positive is you know as an example are you L.D.A. program, we've been able to keep placements running the entire time. During this so when placements were cancelled in a particular spot because of what was going on with the pandemic, we were able to replace somebody.
And you know I get a tremendous shout out to our place in team for that because it's been stressful, but it's really worked and I do you think that as the world does come to some form of normal you know the types of places where people are being placed.
Actually are more likely to be a emergency designation more likely to be open or open quicker than other things. So we think we can mitigate that impact pretty well and you'd you'd mentioned George Bootcamps. You know when this first happened we did see a dip in demand and you know we're kind of in the opposite stage now we're seeing you know.
<unk> that's become.
Positive and I I you might have heard me mentioned in my prepared remarks that you know we weren't online with all the boot camps and to to give our boot camp team.
When this happened R.C.O. very focused on okay. We gotta get everything maybe you don't always be camps on line and Greg <unk> or managing director for Bootcamps got everything online in five days later, you know, it's all online and I will tell you what's happened since is not only hi satisfaction, but a broader.
Catchment area for the boot camp and.
We think that that is something that's really more likely to to be something that sticks around with us. So you know obviously, it's early days, but it's positive so far so they're clearly impacts no but once we got through in in some ways to sort of urgent trying to figure out the world toilet paper stage, where you know you were.
Dealing with the basic necessities and have gotten into a period, where people have a little bit more time on their hands, it's clear that things like our short courses are gonna be and have you demand. So.
Excited about what the opportunities lie ahead, so they come from.
Very helpful. Thank you.
Lack of goodness I said I would have turned to call over it tends to keep okay.
<unk>.
Thank you operator, I would just end the call with a shout out to the two huge all over the world, whether you're in Cape town or you're in London, or you're in L.A. or here in the D.C. area or in our Denver, or New York offices, or you're one of the three to 400 people that we have remote.
Or the instructors that are working on behalf of our students in our short courses in our Bootcamps incredibly proud of the work you've done and we very much appreciate as you dealt with the complexities and the daily ups and downs of what is just a crazy moment in our society and one that has its own stress as a human being.
Net net I incredibly proud of what you have done so thank you very much and we look forward to seeing or investors out in on the virtual road.
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