Q3 2020 Universal Technical Institute Inc Earnings Call
Good day, everyone and welcome to U.T.I.s third quarter fiscal year 2020 earnings conference call.
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At this time all participants are in listen only mode and after today's prepared remarks, we'll open the lines for questions.
As a reminder, today's conference call is being recorded a replay of the call will be available at Www Dot you T. I M Dot edu or through September 6th 2020 by dialing 412317, 0088 or 877.
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At this time I'd like to turn the conference over to Miss Jody Kent, Vice President of Communications and public Affairs for Universal Technical Institute. Please go ahead.
Hello, and thanks for joining us with me today, our Ceos your own grant and CFO Troy Anderson during the call today, we'll update you on our fiscal third quarter 2020 business highlights our financial results and our vision for the future. Then we will open the call for your question.
Before we begin we must remind everyone that except for historical information today's call may contain forward looking statements as defined by section 21 any of the Securities Exchange Act of 1934 and section 27 Am The Securities Act of 1933 I'll refer you to today's news release for you guys comments on that.
Topic, the Safe Harbor statement in the release also applies to everything discussed during this conference call. During today's call were for will refer to adjusted operating income or loss adjusted EBITDA and adjusted free cash flow, which are non-GAAP measures adjusted operating income or loss is income or loss from operations.
Adjusted for items that affect trends and underlying performance from year to year and are not consider normal recurring cash operating expenses.
Adjusted EBITDA is net income or loss before interest expense interest income income taxes, depreciation amortization and adjusted for items not considered as part of the company's normal recurring operations.
Adjusted free cash flow is net cash provided by are used in operating activities less capital expenditures adjusted for items not considered as part of the company's normal recurring operations management uses adjusted operating income in loss adjusted EBITDA and adjusted free cash flow as performance measures internally and those will be the figures discussed.
On today's call.
Starting with a third quarter of fiscal 2019 and through fiscal 2020, We will report operating metrics such as student application starts excluding our Norwood, Massachusetts campus as we have shared previously Norwood stopped accepting new student applications in the second quarter of fiscal 2019, and the campus was fully clear.
Posed in July 2020, so we believe it is appropriate to exclude its impact. It has now my pleasure to turn the call to Jerome Grant.
Thank you Jody good afternoon, everyone and thank you all for joining US today I want to begin today's call by thanking all our yutai team members for their heroic efforts. These past months on behalf of our students and communities as we continue to manage through this difficult environment.
Despite the many pandemic driven challenges we face we continue to provide the highest quality industrial line technical training for which we are known I.
I believe that the educational offerings and credentials that yutai provides to its students.
Our even more valuable than ever right now, especially in the face of record unemployment across the nation.
As the single largest provider of transportation technicians in the country utilize graduates service trucks that deliver groceries and essential supplies keep empty police and fire department fleets operating repair and maintain equipment and essential industries, including healthcare energy and manufacturing.
We are proud that yutai graduates keep America moving forward.
Since we were able to resume our lab work on our campuses in late May in into July with graduated over 1300 students and we're seeing strong demand from employers.
Placement rates continue to be in excess of 80% for our graduates with the 2019 Grad core cohort now at 82% and increasing.
Those are impressive numbers, but they don't do justice to what Yutai education is delivering to our graduates once such graduate as a gentleman by the name of Corey.
Cory had two courses in four weeks left in his diesel program when the pandemic hit.
He was one of the students who made the transition from our purely in person education model to a blend of online learning and hands on instruction using CDC safety guidelines.
To use the cares act emergency grant to help support themselves and stay in screw school. During this time and graduated from our Avondale, Arizona campus at the end of June.
Core he told US it spent the last five years working in his own words in debt and jobs going nowhere and that without yutai, you'd probably still being one of those jobs trying to make ends meet or more likely out of work altogether due to the pandemic.
He says he pursued a diesel training because he knew there would always be need for people to work on diesel trucks and equipment and his experience is proving him right.
Well more than 40 million Americans have applied for unemployment in the wake of the pandemic.
Corey was higher immediately upon graduation, and now at 23 years old makes more than $23 an hour in his entry level jobs at a machinery company in Portland, Oregon.
Core story is not an isolated one it speaks to the power of our programs and industry partnerships and the work we've done to continue to provide a safe quality education that delivers for our students.
We're also continuing to move forward on a number of important strategic and operational fronts alongside the critical investments in actions, we're taking to manage through the pandemic.
In addition to advancing our online portion of our new blended education model, we expanded our welding program to a new campus. This quarter completed our headquarters relocation and finished the teach out and closure of our Norwood campus ahead of schedule.
As a company we continue to invest in our students facilities and partnerships.
We are especially focused on supporting our students through this period of uncertainty and economic hardship. We've worked closely with students who circumstances have become unpredictable and encouraged them to take leaves as absences or low ways, rather than simply withdrawing, particularly given the many job opportunities that are available for.
Our graduates now and in the nation's recovery.
We've also been actively distributing cares that funding created through the higher education relief fund to provide much needed direct financially to our students.
Ensuring that our students have to support they need to stay in school is Paramount and these emergency grants have and will continue to cover living and other expenses for those facing financial difficulties and challenges during the disruption of the health crisis.
We are grateful to the US Congress and the department of education for supporting our students in their time of need and we appreciate the opportunity to facilitate this process to date, we've delivered over $13.6 million directly to more than 8700 students and the program and outreach continues in addition, we.
Recognize the acute need for many students to have the adequate technology infrastructure for the online portion of our blended learning model to make the transition easier and more seamless we're now providing laptops to all incoming students and those students with more than four core cycles remaining.
All eligible students should have one of these devices by the end of August and we expect to continue to distribute them free of charge to new students going forward.
In total we've earmarked almost $23 million a few T.I.s cares fund allocation to be delivered directly to students in both cash and equipment.
We also continue to invest in and evolve our new blended learning education model to better serve our students the feedbacks and very positive and now that all of our campuses are open for students to complete their hands on labs were seeing high levels of engagement.
As of the end of July over 90% of the enroll students are active and this number is increasing with each core cycle, 40% of those students have now fully caught up on their hands on labs with another 47% in progress. The majority of those meeting just one or two more labs to catch up.
This leaves 13% still pending in terms of in person lab engagement.
While we're very encouraged by this progress we're finding that a number of our students are balancing their desire to complete their education with cobot 19 safety concerns work demands and other personal matters. These students are setting their own pace for their catch up process, which is the elongating the programs and requires us.
To revise the recognition of their tuition revenue accordingly.
We've accelerated the transportation the transformation of our marketing and admissions program during the pandemic.
Quickly moving shift our admissions model, which prior to cobot 19 was almost exclusively face to face and we're now connecting with students and parents through online meetings virtual tours and other virtual events.
Our admissions reps have told us that a substantial theres a substantial increase in the number of people that want to chalk and meet with us virtually.
With respect to marketing, we're continuing to invest aggressively and our digital and social platforms and are seeing improved effectiveness and productivity as well as significant savings media inquiries are up double digits year on year, and we saw accelerating trends across the quarter and through July.
In times of economic hardship, we have found that the interest and need for skilled technicians across the transportation industry and other markets for our students remains strong.
One sided this is that our fourth quarter enrollments. So far are running above our pre pandemic targets for the period and right now the enrollments for 2021 are accelerating.
However, despite the strong interest we are seeing I do want to remind investors and analysts that this recessionary environment, which does generally help our business is a very different setting than we saw in 2008 in 2009, the great recession.
This pandemic induced recession will provide us with many opportunities, but they're also numerous unique challenges that our students instructors and company must navigate until we're on the other side of this crisis.
These challenges or rate limit or is in the short term, but most of which will be turned into positive going forward.
Results for the third quarter reflect the mixture of cross currents I, just summarized strong and growing interest in our programs combined with the challenges of adapting and shifting our educational delivery model in this environment.
Let me briefly touch on a few high level results of the quarter and Troy can cover these in more detail in his prepared remarks.
New student starts were up 8.4% year over year and contracts for the quarter grew 20% year over year as we experienced acceleration through the quarter. In these metrics July results indicate that these trends are continuing into the fourth quarter.
However, our show rate in the quarter did decline year over year as we have previously noted aloe ways were well above historical levels. Following the need to spend in person classes at the end of Q2.
As a result total revenues decreased 31.3% versus the prior year quarter to $54.5 million. Our net loss was 13.3 million an adjusted EBITDA was an $8.8 million loss.
Now it's critical to note our results for the quarter, particularly revenue are subject to important timing effects as we managed through the period with our students. The resumption of labs later in the third quarter variability in student progression through the catch up process and revised graduation dates all effect when we.
Can recognize revenue, but it's important to note that this is merely a shift in when this revenue gets recognized and not a loss of opportunity.
Case in point, we deferred approximately $11 million in revenue out of Q3 to better align the recognition of revenue with when students will complete the curriculum.
This revenue will be fully realized over the coming quarters.
As I've indicated already our focus is to sports students and be flexible as possible through the period as a result of this approach. We believe we mitigated a significant number of student withdraws that would have resulted from the pandemic. This posture will ultimately allow the vast majority of the students enrolled to complete their.
Vacation and go on to successful careers in many essential industries, we serve.
Despite all the changes challenges and actions we've taken during this unprecedented time period, we continue to move forward on the initiatives and strategic actions, we had in place and we're considering prior to covert 19, the strategic direction. We previously outlined in conjunction with our successful capital raise in February.
Remains in place and we continue to pursue the growth and diversification initiatives that form the foundation of this strategy.
These include program expansions and extensions, where appropriate new campus locations as needed and selective acquisitions, when they meet our financial criteria and demonstrate a clear fit to our business.
During the quarter, we successfully launched our new welding program at our Houston campus and are on track to open our next location in long Beach campus. This month.
Interest in these programs is gaining momentum and we're excited to expand this program to our loyal Illinois campus just outside of Chicago in early calendar year 2021.
We also recently announced two additions to our leadership team in support of the company's work to accelerate its growth.
Our Fesperman joined the company in the newly created role of senior Vice President Chief Commercial Officer, while Sonia Mason has been named our senior Vice President and Chief Human Resource Officer. These additions help round out the new and dynamic leadership team that we built at yutai over the past year, putting in place the all.
Additional strength to help us deliver on Yutai significant potential.
We're also evaluating cost efficiency opportunities in the future as we look to adopt and advance changes that we've already made to create the blended learning environment.
This management team is excited about the bright future and the opportunities ahead, where we're also focused and determined to support our students our team members and their families. As we all managed through these challenging times.
I'd now like to turn the call over to Troy for a deeper discussion of our financials and student metrics after which I'll return to provide some closing thoughts Troy.
Thank you throw before I get into the details of our results for the quarter. Let me begin with a review of the five key variables related code 19 that can impact our business and that we discussed on our call 90 days ago.
Five variables are timing of students resuming hands on labs that are campuses timing of students returning from elway's engagement of students in the online curriculum potential cost recoveries in the carrier bag in post cobot 19 student demand.
First the timing of resuming hands on labs that are cancels.
The safely open our campuses, we modified the lab designs to meet the health and safety guidelines established by the CDC and state local jurisdictions.
Throughout May and June we resumed last at all our campuses with the exception of our Bloomfield, New Jersey, Kansas, which was brought back online on July Onest.
As of the end of July we had 87% of our active students caught up on their labs. We are in process of catching up and we are actively working with the remaining 13% we're still only participating in the online portion of the curriculum.
Keep in mind that getting suited to return to on campus lab work is a process that takes several items into account.
For example, almost half our students relocate their respective campuses. Thus travel is due to housing are important factors. These students.
Also as Jerome mentioned, even after students return to campus, we are seeing variability in their pace completing their catch up lapse.
Second the timing of students returning from Alloa phase.
Approximately 91% you guys students are acted as at the end of July versus 75% in early may at the time of our last earnings call.
For comparison this time last year, 95% of our students were accurate so within a few points, but more normalized layering.
This metric has been trending positively with each sequential quarter cycle.
For the remaining students on La most are currently scheduled to return in August but throughout the past few months, we've seen students shift their return dates they and their families reassess their individual situation.
The third metric we are falling as the continued engagement as students need online curriculum.
In late March we transitioned over 8000 students into our online curriculum during the quarter as students returns mellow ways. Most of them initially return into the online curriculum before resuming on campus labs.
Additionally, most of the 1800, new students you started during the quarter also started directly into our electrical prior to beginning at versus last our kids.
For the potential cost recovery opportunities associated with the care that in higher education of urgency relief funds or hurt.
In the third quarter, we incurred $5.9 million costs that are eligible for recovery with the her funds.
We intend to allocate the remaining unused funds to offset additional costs and investments needed to support our students completing their education.
Most of which we expect will be incurred in the fourth quarter fiscal 2020.
Lastly, Q4, and postcode 19 student demand.
As demonstrated by the items I just covered our business was certainly affected by the disruption caused by coded 19 in the quarter.
However, we believe this crisis also represents an opportunity for us to meet what we expect to be increased demand by incoming students for our technical training programs.
We see evidence of this demand in our media leads which showed double digit year over year growth that accelerated throughout the quarter and in July.
And when looking at our enrollments, which for Q4 now exceed our pre Cobas 18 goal and for alkali 21 are already pacing ahead of what we saw at this time last year, albeit we're still very early in the process.
Now, let me cover the specifics of our third quarter skewed metrics and financial results.
New student starts were 1824 in the third quarter, an increased 8.4% year over year aided by an additional start versus the prior year quarter.
The growth was driven equally by military and high school channels.
Interesting note on military with pandemic quarantines at our transition to virtual interactions, we had better access to military personnel and success converting into starts.
We did see a year over year decline and adult starts during the quarter for the first time since F 18.
Which reflected pandemic concerns and delayed decision due to federal unemployment stimulus.
Scheduled to roll into Q3 were 20.2% higher the Q3 last year and were partially offset by a show rate decline of 400 basis points in the quarter.
The lower show rate, along with higher postponements throughout the quarter reflected overall mixed emotions regarded to covert 18 situation.
We have put even more emphasis on student engagement throughout all of the steps of the enrolled show profitable.
To ensure students and their families have all the information and support they need to begin their education that Utica.
However, we will likely continue seeing show rate variability and higher postponements in the near term as a result Kobe seat.
Average suit is for the quarter were down 8.3% year over year. However, we ended the third quarter was 9774 active students an increase of 3.3% versus the prior year quarter.
And approximately 2400 more accurate students that at the end of the second quarter, which shows the significant positive movement on elway returns lots of which occurred in June.
Active students assists increased to approximately 9900 students at the end of July.
With another 100 students on la will only need to complete the remaining hands on labs graduate from the program.
There are currently approximately 800 other students on la versus 500, the same time last year again, a much more favorable compare versus 90 days ago.
Revenue for the quarter was $54.5 million 24.6 million or 31.1% decrease in the prior year quarter.
Year over year variance was driven by roughly $13 million for the decrease in the average student population due primarily to the other ways and lower revenue per student in the quarter.
The remaining variance is driven primarily by revenue we differ due to three timing variables when students resumed their on campus labs.
Student pacing through the online curriculum and lab catch a process once they return.
Students, who are scheduled to graduate late March through September and have delayed graduation date as a result, as the campus closures in the catch up process upon reopened.
As a reminder, we recognize revenue ratably over the term of our programs as any extension of the time needed to complete the program resulted in us spreading the revenue over longer period.
In total we deferred approximately $11 million for Q3 for students who have extended their programs the recent above.
As a result, we are now recognizing revenue separately based upon the completion of the online portion of the curriculum in the lab portion.
I want to reemphasize the revenue impacts we sold the quarter primarily related to the timing of when we recognize revenue for students not lost revenue.
Operating expenses in the quarter decreased by 14.1% versus the prior year quarter to 68.3 billion.
Education services expenses were down 24.2% year over year, while SDMA was down 2.4% year over year.
Importantly, also known as the quarter over quarter decrease of 18% and total operating expenses, which increased 20% when you exclude occupancy costs that are largely fixed.
This reflects significant reductions in labor costs variable campus expenses contract labor travel and other costs.
This also includes a decrease in advertising costs of 2.5 million sequentially.
400000 year over year, largely from our shift to digital and lower TV spend.
This decline is impressive considering the significant increase in media, driven inquiries and illustrates improve effectiveness or digital marketing strategy.
On the labor side in April we furloughed, approximately 280 employees largely in our campus operations and we gradually Balkan back during the remainder of the quarter in July as we resumed in person last at our campuses and overall student activity increase.
We ended the quarter with approximately 1590 total employees a decrease of 90 employees through June of last year and 55 from the end of the last quarter.
As I mentioned earlier and you'll see in our disclosures, we incurred approximately $5.9 million encoded 19 related expenses from labor costs to create and enhance our online curriculum and to transition back to CDC compliant campus labs and also for software in computer equipment masks Plexiglas dividers. This.
Second supply the cleaning services and other related expenses to ensure safety, it's implements social distancing our campuses.
We recorded a credit to offset these expenses and a related receivable for the institutional per funds granted under the cares.
We plan to do all these funds in the department of education in the fourth quarter.
Net loss for Q3 was 13.3 million translating the basic and diluted EPS loss of 45 cents. We had 32.6 million common shares outstanding as of the ended the quarter.
Essentially unchanged from the last quarter.
Q3 that loss compared to a net loss of point $4 million in the prior year quarter.
Also provide a quick update on the income tax benefit of approximately $11 million that we reported last quarter.
Resulting from net operating loss carry back revisions with as a care them.
We have already applies to the approximately $4 million refund associated with the 2018 in oil carry them.
And expect to receive it in the fourth quarter.
Given recent guidance from the IRS regarding the processing of the 2019 in oil carry that we now expect to receive the remaining $7 million refunds in fiscal 2021.
Adjusted operating loss for the quarter was $12.3 million compared to a loss of point 3 million in the prior year quarter.
Adjusted EBITDA loss of 8.8 million in Q3 compared to adjusted EBITDA of 4.5 million in the prior year quarter.
Both the Fytwenty at equity 19 figures reflect adjustments for costs associated with the north campus closures.
We maintained our strong balance sheet with available liquidity of 91.5 million as of June 30, which includes $60 million cash and cash equivalents 31.5 billion a short term held to maturity securities.
Our diligence and managing our cash utilization in the quarter resulted in a total cash use of approximately 27 million, which correlates to the lower end of the scenario outlined at our last earnings call.
Operating cash use year to date through June was 10.1 million and compares to operating cash use at 7.1 million to the prior year period.
Adjusted free cash flow reflects the use of 16.2 million.
Year to date through the third quarter, an increase of 9 million versus the prior year.
Year to date Capex was 7.2 million of 1.9 billion versus the prior year, primarily due to our incremental welding program investments.
Now, let me briefly speak or real estate footprint optimization effort.
As it pertains to the to the third quarter and our adjusted results, we already see the benefits of the Norwood closure, which is now complete we will we will begin seeing them in our operating results in the fourth quarter.
We expect to save approximately 1.3 million an annual cost savings from our headquarters relocation and downsizing that was successfully completed in June.
We are in active discussions with various landlord as we seek longer term opportunities for consolidation and rightsizing across our campus footprint.
We are close to a final the on one of our remaining legacy campuses for a major downsizing and rate reduction.
And have begun planning in negotiations on others than a total could yield significant EBITDA benefits starting in FY 2002, with some potential benefited EPS by 21.
Absent major setbacks in the macro cobot 18 environment. We are confident we can continue making progress normalizing the remaining student loan ways and working through the timing dynamics at student lab catch ups and student progression through the curriculum over the coming quarters.
These factors are not fully in our control.
While we still are not in a position to get definitive guidance Directionally, we will likely see revenue declined on a year over year basis for the full year fiscal 2000 flooding.
That said, we will continue working to minimize impact on profitability and cash flow as we manage through the situation.
Again, these are only directional assets and should not be considered guidance.
Finally, our teams highly focused on student retention and curriculum progression facilitating safe operations on our campuses and delivering the quality education, along with positive outcomes for our students.
While we're navigating through the timing dynamics, we have outlined in the near term. The Kobin 19 disruption is also given us the opportunity to build a more efficient educational platform that will benefit our students and support our ability to execute on our long term growth agenda.
Like to take a moment to take all of our U.S yacht employees for their hard work and resilience.
Our team's ability to effectively navigate and period of uncertainty as a testament to their dedication to our students into the long term objectives of our organization that ill turn the call back over to Jerome.
Thank you Troy.
To summarize the outlook for our business is bright and we're seeing significant growing interest in our highly valued programs across the country yet as I mentioned, some caution is warranted as the health emergency and economic recession, we're battling our way through is very unusual.
It doesn't look much like past economic downturns.
Adjusting to the cobot 19 environment and managing through its ups and downs passed and we will continue to test all of US yet we're continuing to move our business model forward, we're making key investments in our core propositions are programs and our talent.
We're not in a bunker nor are we retreating from the opportunity that offers the future period returns, we're continuing to engage our prospective students via new pathways in methods and they are responding.
We're continuing to innovate with respect to our educational delivery model in ways that support us today, but also opened new opportunities in the future.
We are adapting everyday to the changes occurring in the market and business environment and have demonstrated that we can operate effectively given the present turbulence.
We are proud that these adaptations in improvements that we have made and we'll make have made a stronger yutai today and a yutai better position for the future. Our business remains resilient, we continue to make meaningful improvements our financial position is solid and clearly superior to many of our can.
Temporaries.
Finally, the academic and employment proposition, we offer is more valuable than ever to students potential employers and industry partners I want to thank you all for your time and attention. This afternoon and I'll now turn the call over to the operator for Q in a operator.
We will now begin the question and answer session to ask this question you May Press Star then one on your Touchtone phone.
If you're using your phone please pick up their handsets before pressing the keys to.
Withdraw your question. Please press Star then tail.
This time, we will pause momentarily to assemble our roster.
The first question will come from Eric Martinuzzi of Lake Street.
Thanks, gentlemen, I wanted to dive into the revenue for the the June quarter, I see specifically call out the primary driver.
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The decrease here being the higher number of students on leave of absence due to covert 19 crisis and then the timing of students progressing through the lab makeup process.
As we kind of jump back in time, two to three months ago, there was an expectation.
Maybe not an expectation or guidance, but just to scenario that you laid out that said you know what maybe we can maybe we can be as good as 29 team, obviously thats no longer in the cars and I'm just wondering.
At what point in.
So from 90 days ago through to the ended the quarter did you guys come to that realization and what were the primary drivers.
Yes. Thanks for the question, Eric I'll point to a few things in the relative to that scenario I would say the ela ways.
Pointed out in my comments, we saw the most progressing on that in the month of June.
So that was on the back ended the quarter, we did start opening our campuses.
Throughout may and June but several of those were related may and at the beginning of June. So there was a timing element I would attribute to that and then really that the primary element be the revisiting of.
The revenue recognition in light of the student progression through the labs.
So some students remaining in the online curriculum and delaying coming in for last other suit is only doing lance and not doing the online curriculum, while they get caught up so there were a number of different dynamics that we saw really that we didnt have good insight due until we frankly, we're rolling up the quarter and had gotten far enough along in the process with all.
All of our campuses that we had a good data on that that to revisit so that 11 million dollar deferral, which again will be recognized as those students complete their lab work.
Over Q4, some will go into Q1, depending upon the again the individual students preferences, but that would be obviously the biggest piece of that driver.
Okay, and then given we've got all the campuses open now shifting from Q3 into Q4 is it an oversimplification on my part projecting the revenue for the year to just take that shortfall in Q3.
And take down my my full year estimate by the amount of that shortfall.
Well, where again, we're not in a position to did guide.
But clearly progressing from Q3 into Q4, we talked about the progress on yellow ways. We got the engagement with the students on the last we have a big start quarter.
Q4, and more than half our starts.
You know arrive in the fourth quarter that brings into revenue uplift over Q3. So there are number of variable we would.
I have to see how the quarter plays out, but we would not.
We expect a deferral like we saw in Q3, although we could still has some residual deferral. So when you layer all those things together and clearly Q4 should look better in Q3, but I can't really theories specifically on what a number would be.
Okay and then last question for me on though it sounds like there was a moment during the the rolling up of the numbers, where you guys had to make a management decision about revenue recognition help me understand the puts and takes there on this $11 million deferral.
Yes, really breaks down into into three pieces that Eric.
Theres.
I tried to call that out in my comments. They are some students have not yet engaged in a makeup flat so they're still in active suited they're progressing in the online curriculum, but they're campus has now been opened for one to going on three months to some of the early was and they have not yet come in for.
Relapses.
Those suit is essentially what we've done split the revenue.
The fifth deeper on average.
For a student that will recognize revenue based on the progressing in the online curriculum, but until they come in for their last we will not recognize the other 50%. We also have students who are in that make up labs, but they paused on the yield on the online curriculum, while they're doing their makeup labs again.
Now we're talking about half the curriculum not a full earnings student and then we have students who are delayed graduations and we've had to spread revenue out over a longer period of time associated with those students.
Because there are graduating they passed all other tables was closed or past.
They can't make today because of the makeup process. So all three of those cohorts frankly, it's kind of roughly a third as the third about 11 million.
And they all have a little bit of different dynamic associated with them.
But broadly speaking as we've taken the revenue in and bifurcated between the lab work versus the online curriculum and try to align the timing accordingly.
Okay I understand thanks for taking the questions.
If you.
Your next question comes from Alex Paris, with Barrington Research.
Hi, guys. Thanks for taking my questions.
Sure.
So first off.
I mean I am.
Happy to see all the campuses opening open again with the last one opening early last month.
Just looking at your National campus Network, you obviously have.
A significant exposure in California, Arizona, Texas, and Florida on one or a wondering with the researchers corona virus in those fake had there been any.
Has there been any.
Reversals on social distancing rules or things affecting campus operations.
Personal.
No, they're having just to be straightforward.
In a significant portion of our campuses when during the opening period we were.
Yes determined to be an essential service in the state and therefore that essential stir service status serves us as we as any other.
Minor closedowns may happen through the process, but we havent had any.
Increase that effect and we continue to move forward.
And then along those same line.
A typical clap that youd.
Rather, which it with a 27 at the world.
Student teacher ratio.
And obviously due to CDC recommendations and that sort of thing you down Q 10 to one which is really nine to one I guess.
Are there some states where that is then expanded.
Or is that pretty much just nine to one everywhere.
That's a great question, Alex actually revised CDC guidelines are less focused on the.
10 people in a room and more focused on social distancing and so we have expanded our densities into the teens on most of our most of our campuses bye.
Using larger facilities spreading out the equipment use of plexiglas between workstations and things along those lines. So we really don't have any campuses only operating at nine to one anymore.
What we're really have been focusing on is.
How can we best utilize the space to increase the class density in order to accelerate the catch up period and also.
And able to account and being able to accommodate the the the large fourth quarter start numbers that that we have traditionally.
And then.
Moving on.
Your your curriculum that delivered 50, 50, 50% classroom, 50% labs.
Obviously.
You had said previously that the classroom portion 50% is is today, 50%.
Line, 60% in the classroom is that the plan going forward, even won't let me handle that theme and think.
Let me let me let me.
Put a little alteration on that yeah, our core auto diesel curriculum is about 50% classroom student in the classroom with their colleagues and instructor either demonstrating something or helping them understand concepts and the other 50% has always been and continues to be hands on in the labs working.
On.
Working at a workstation.
Doing their mastery skills.
The online portion of our curriculum is the entire classroom experience not 50% of the classroom experience and we currently have no plans to return to in classroom experience with though with that 50%.
All the students who are enrolled now in August students as were as we move forward will be experiencing the 50% of the curriculum the classroom online, but they will get every bit of a hands on they always got in our labs under CDC compliant.
Standards and so does that address your question.
Yeah, absolutely and so that if that implies.
A significant in expansion in your capacity throughout your National campus network going forward while.
In the short term while were while we're working through the pandemic pre vaccinations and all the rest of that it's giving us the opportunity to spread our labs out into spaces that previously were classrooms of course, not our live engine laughs, but other labs that students have we've we've grab space that previously was classroom space. So that we could spread this.
Students out and get our class densities of so in the short term wild while we continue to work through social distancing and work through the crisis. Most of the excess space is being is being brought together in that rebound, but I think you know down the line as as the world Normalizes your onto.
An opportunity.
Absolutely and then.
Last question I guess side.
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In the past to that the incremental contribution margin for an additional student is in excess of 60%, maybe 60% to 70% you ahead of the past under this new blended model going forward.
Should we assume that once we get back to normal the interim incur incremental contribution margin would be higher.
Yes, we have a destroy the.
We have gone through I would say what that long term model fully realize is as Jerome was just.
Talking about there, but our thinking would be that theres opportunity to drive better better margin opportunity as we go forward with the biggest piece clearly.
Softer efficiency would be a component of that but but real estate optimization, which is.
A little bit more of something that take time to work through but but certainly there should be opportunities as we go forward too.
Ulster that margin profile.
Great well, thanks for the additional color I appreciate it.
Turning to UL. Thank you.
The next question will come from Boston rolled out of Canaccord.
Hi, Thanks for taking my questions.
In previous quarters, you've talked about.
Different channels in which you attract new students can you give a little update on those and can you also speak specifically to the high school channel and how that's being impacted by a school year that basically ended in the midst of the pandemic.
Yes, Thats great question awesome, Thanks for asking.
Number one as far as 2020 is concerned.
The lions share of the.
Enrollment in recruitment for the high school actually from the high school channeling actually completes in the month of February and March by then as you probably can imagine students have decided what they're going to do in the next fall and they've moved on to two other things and so the number of enrollments we get out of the high School channel. After March 15th does Act.
Actually quite small enrollments for that year and so our ratios. This year are relatively the same as as they work as we're talking about the increased enrollment we've seen since the pandemic hit it is.
More heavily weighted to the adult population as defined by people, who are a year or two out of high school into their mid Twentys.
Which makes a lot of sense given the unemployment rate for that population is quite high and so a lot of the interest we've seen in March April and May is coming out of what we would call. The adult population that said, we've got a very solid plan going into this next school year, assuming that most schools will be virtue.
Tool for somewhere to some time to come and we've really pivoted the way we're looking at our presentations in high schools virtual presentations et cetera, we've begun our outreach to councilors and department shares who are looking for content to bring into their virtual environment and we believe that.
We're going to be able to operate.
Although virtually at the same scale, we are operating in the past.
Got it Thats really helpful.
My second question is.
How much was spent on advertising and do you think.
The pandemic will permanently change how you spend on ads across the channels, our or are things expected to bounce back to the same.
TV digital other split you had before.
No.
So.
In the quarter, we spend about $9 million on advertising now what the pandemic does change our mix right.
Sports went off of TV.
The affinity channels were playing re runs from years and years and years ago and so we took a significant portion of the investment we had planned to make into TV out of out of the channel, we're starting to bring that back into the channel as long as the.
Live sports has begun to to come back in.
But but we've also sort of altered our mix around social media.
Within unemployment rate as high as it is for 18 to 24 year old males. One of the places you're seeing a lot of those people.
Hanging out is you know in social media and Instagram snap chat.
Tick Tock, Facebook and so we've seen quite an up tick through the social media channels.
From Matt that demographic.
I think our ratios will somewhat normalized but but some of that really has to do with the sustainability of of live programming over the next number of months.
Okay. Thanks, very much for taking my questions.
Sure. Thanks. Thanks.
Our next question will be from Raj Sharma of B. Riley.
Hi, Good afternoon, guys. Thanks for taking my questions.
Europe, Russia.
Right.
And you will my first question is on the deferment of remain just wanted to understand.
Also part of this is the displaced revenue the other part is.
As the displace revenues on the other ways. The other part is the revenue this being deferred.
What do you think you could recognize and all of this is not lost revenue I understand you will you would recover lakes what are the chances that you would cover.
All of it.
By Q1.
Yes arises Troy good question in the dynamics are.
Different again by there's there's kind of three to see cohorts within there.
I would expect most of that to have.
Completed.
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By Q1.
The students essentially as they do their retail on their latter due to catch ups on their labs will recognize that 50% of revenue as we deferred theirs.
A third of that again as a group of students right now we have not engaged.
In in on campus flat they are active in the online curriculum, they're progressing in the online curriculum. We have obviously regular interaction with them from this new destructor perspective.
That's that's a group that they have to get comfortable being in the in the environment coming in into the group setting et cetera, Thats, probably that the tail end of the group. The group. That's just the delayed graduation in Ella's is likely mostly a Q4 you may be some of that trickle into Q1, depending upon some of the.
The campus timing and then and then the group that is just they're only very are pacing through the labs differently than we designed the process needs are taking longer.
They couldn't get a lab at the time they wanted they didn't want to they wanted to take assessing off.
That type of thing or they're only doing the lab portion of the curriculum. They stopped doing the online until they get caught up with the last again, we're only getting half revenue associated with those again I would expect most of that they come in Q4, but let somebody go into Q1. What's important is it's also displacing the Q4 revenue you wouldn't expect.
It is because thats student is.
Doing that lab instead of doing other curriculum right.
For those particular students and same with the online student. So it is not necessarily additive that sort of pushes all the revenue.
To the right at that.
So is it fair to assume that you would let's say recognized 90% of most of it in Q4 and some of it would be pushed out because they couldnt graduate on time or because they couldnt finish.
I think we'll probably high yes, I would say 90, probably high but but with more than 50%.
Okay, and Didnt I wanted to understand how much of.
So now the campuses that opened our open the social distancing in place you have low is coming into a direction most of them are active.
Is it how much of this timing is.
Sort of reticence on the part of the students versus your ability to get them.
It will all willing today.
Right.
It will all willing today would you be able to get them through.
Plas and so can you can you help me on that you can give some color on that.
Uh huh.
What is going on in.
And does it relate.
You know clearly its kobin impact, but what is.
What is causing the students to delay.
Well sure activity.
Sure Let me let me.
Let me your you asked two questions there whether it is the lion's share the of of the delay due to reticence answer to that is yes, right. I think we're all reading day in day out about college students returning to campuses and how parents are feeling about that and how the environment is affecting it.
Especially with sort of the roller coaster of.
The lock down having cases at a certain level them spiking when people, especially young people are out on their own doing a lot of things and now it's in many of these states, it's getting to sort of a new normal level of where they are so reticence really does to fit very largely into the factor growth of.
Students engagement weather.
Coming off of the online platform into the labs or their initial show rate for starting their classes in in this time period. So.
Thats absolutely the case.
Your second question was if it everybody wanted to catch up.
Could we make that happen the answer to US is yes, if everybody wanted to catch up we absolutely could make that happen yet the challenge around that is as we told you in our last report we had our labs open and continue to have them open from seven in the morning until midnight to do that the.
The catch up work and that continues on some of our locations where catch up is still going on the other issue associated with that also has to do with the students' lives the that when they I have a job that goes from three to 11, so I must be in the morning, or I have a job that goes from seven until three so.
I must be in the afternoon and so.
Thinking that we could utilize our full capacity to satisfy everyone is a bit of an overstatement based on student's ability to schedule when they can come in versus when we have availability for that but go ahead.
Got it.
My next question is on the show rates Tonight, I see that being worse and do you see there were some 400 basis points do you expect them to kind of stayed like this through Q1 Q4.
Yes, thanks destroy the.
We will see some pressure on show rate in Q4.
We've seen a bit in July on the start we add in July.
We have another start coming up here this Monday.
There are three weeks in certainly debate the big Big ones really are coming up here in August and September and it's the same conversation as the return to lab and the low at right fit right. It's the same exact same conversations do I start or do I wait and you know, it's frankly pretty easy to just wait.
Yes, Theres no penalty there is no restock see we're happy to slot in the next spot. So we've seen both students to.
I missed postponements as well so the only every screen a someone who doesn't show and postponement is this the postponement actually call. This had decided today I want to change might start date, the person who doesn't show just didnt tell US ahead of time, and we're still trying to work with them to see it we can get them back into another spot.
Down the road, so we've seen uptick and all of those and again, they're all related to the same variables, yes, and a couple that couple of.
Well I'll give you couple half full notions on this number is number one we're working day in day out with the students who are in the glide path to come to come to school to look for flexible ways for them to be able to engage both digitally from a distance standpoint.
And.
Coming into the labs at at a much more flexible fashion than we've been able to do in the past thats going to bring more people in and these are learning experiences we have through a pandemic about how we need to engage with the students to to make them comfortable fit their time frames et cetera. That's one thing that I think is helping us in the fourth quarter as we move forward.
The second thing that's helping us in the fourth quarter, which I mentioned in my speech is that we're outpacing our expectations for enrollments for the fourth quarter and we're continuing to write enrollments for the fourth quarter adult students, who are unemployed can start pretty quickly and so.
The mitigating factors to the erosion of the show rate are.
The Cup is filling more full with more enrollments and where we've learned a lot to work more flexibly with students about engagement.
Got it thank you.
Ill get offline.
Thanks, Rob Yes.
This concludes our question and answer session I'll turn the call back over to Mr. Jerome Grant if there's any closing remarks.
Well I don't have any closing remarks, I gave you too right before that I want to thank you all for your time as Troy and I have always made it very clear to our partners in the investment community and analysts.
Our doors and phones are open for conversations we look forward to discussing this more deeply with you.
We once again want to want to reiterate that that we see.
Right and growing future here and we thank you all for the time you've taken in year supported Yutai, Thanks and have a great afternoon. Thank you.
The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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