Q1 2023 Stride Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by.
Welcome to the Stride, Inc. First quarter fiscal 2023 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.
He would like to withdraw your question again press Star one. Thank you Tim Casey Vice President of Investor Relations you May begin your conference.
Thank you and good afternoon, welcome to <unk> first quarter earnings call for fiscal year 2023.
With me on today's call are James Roux, Chief Executive Officer, David Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the <unk> Investor Relations website.
Please be advised that todays discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website.
In addition to historical information. This call May also involve forward looking statements. The company's actual results could differ materially from any forward looking statements due to several important factors as described in the company's latest SEC filings. These statements are made on the basis of our views and assumptions regarding future events and business performance at the time, we make them.
And the company assumes no obligation to update any forward looking statements made during this call.
Following our prepared remarks, we will answer any questions. You may have I will now turn the call over to James James.
Thank you Tim and good afternoon, everyone.
The world has been volatile to say the least these past few years with many companies reeling from the impact of that volatility.
When the Covid pandemic first hit we're coming off a decade of strong economic growth a long bull market, historically low inflation interest rates and unemployment.
In a relatively peaceful global environment.
Fast forward a couple of years and we've experienced not one but two stock market corrections.
Almost double digit inflation.
Interest rates that have tripled.
Heightened global tensions.
Amid all of this turmoil there is one constant that gives me optimism.
The resilience and Genuity and resolve of America and in particular, it's younger generations.
In this environment for us to continue to provide opportunities for this country to prosper we need to ensure we are adapting to an increasingly diverse and evolving world.
I believe part of that evolution is changing how we think about education.
We need to focus our younger generations on skills and tools that will help them succeed in the digital world.
And this requires rethinking some of the norms that we've held dear for generations.
The model strike has built an online incur learning has taught us a lot about some of the vulnerabilities in our education system.
First and foremost we need to begin treating our customers like customers.
We should be listening to them and innovating to meet them at their point of need.
And those customers extend beyond the students to include the families teachers and employers who went on power the next generation and build on America's legacy.
And as we have listened to our customers a few key themes emerge.
Students and parents need more options, not just online and brick and mortar programs, but options around what our children learn how they learn and even when they learn.
Teachers continue to be the backbone of each child's education, even as the role of a teacher's evolving.
And in many teachers are reeling from the stresses of the pandemic and questioning their role in education.
So we need to find ways to further support and enable them.
Students are also telling us that they learn in different ways than their parents did.
They want more say in what they learn.
And they want their education to be practical and digital.
They want technology infused throughout the experience and they want that technology to be on par with the technology. They use in their everyday lives.
Over the past several years the rollout of our career learning programs has tried to address some of this feedback.
Our programs deliver in demand career certifications for students in middle and high school.
We saw that employers were struggling to hire talent with the right hard and soft skills and we knew we could help.
In 2018, we enrolled less than 2000 students in these nascent programs.
This year, we have over 60000 students in these programs and we're just now starting to get enough scale to really have an impact on the talent gap.
While it is still only a small fraction of our 2030 goal to have more than 100000 graduates from our career learning programs, we are making good progress.
Additionally, the pandemic has exacerbated both the need we see in the marketplace and our resolve to deliver on our programs.
Employers still struggling to identify recruit and hire skilled workers. Numerous studies have confirmed that these challenges and demonstrate the importance of our career learning programs.
We offer programs that teach real skills that are in high demand in the current environment and we will be in high demand for years to come.
Computer and it related jobs will continue to drive a digital economy.
Healthcare positions are expected to add 26 million jobs by 2030.
We will be part of training these future employees.
And investment in our career programs achieved a significant step forward this fall.
We launched the pilot of our new career platform that provides what our customers have been asking for it.
And all inclusive solution for career education.
The platform lead students through personalized career exploration to help them decide which career paths may be right for them.
They are directed to self paced training to develop the skills they need to be successful.
And they are able to obtain industry recognized certifications and use these skills and certifications to access internship and job opportunities.
That seamless customer journey from exploration to job provides a new paradigm for students to succeed.
And the best part is that we intend to make this free to all students.
No more college debt.
The platform also help schools and districts solve their own set of challenges.
Schools believe that preparation for the workforce is the number one measure of success for their programs and.
90% of school districts say that career learning is their top priority.
75% of school districts are considering outsourcing their career there any options.
With our platform schools don't have to increase spending as we are offering this to school districts at no cost.
Given the current staffing challenges and desire to recruit skilled staff, we can monetize the platform replacement and recruiting fees.
Players are already condition to pay.
This means that schools can address their challenges without budget impact students can get the training and certification they need at no cost to them and employers can access highly skilled and certified employees without increasing HR budgets.
Win for everyone involved.
We've already received some extremely positive feedback from our pilot withstand major metro areas to Russell District.
In addition to our fast growing middle and high school business, our adult learning business is growing at over 25% a year.
We are now on a run rate of over $100 million.
And on pace to hit $200 million over the next several years.
In each of our product lines will grow this year for the first time.
We're also investing in both our professional development and tutoring platforms that tutoring platform will match students with certified Usa's teachers.
So not tutors on the other side of the world.
We want to enable the teachers right here in the U S to earn more.
And speaking of teachers, we realize that we can also help with the teacher shortage problems plaguing many school districts in our country.
Over the summer, we rolled out a teacher shortage hybrid solution that can supplement districts local teachers.
We continue to provide more and more tools for teachers to help them be more efficient and effective.
We just completed our first gaming series using the Minecraft game to provide lessons in history geography and science.
This and other co curricular offerings are growing at an exponential pace.
Our art and photography contest are drawing interest from tens of thousands of entries.
Just a few thousand.
Last year.
Our esports leagues and programs just completed a summer school programs that was oversubscribed, many times over and now counts tens of thousands of users.
By listening to our customers. We've delivered these programs and shown the ability to dramatically improve retention compared to pre pandemic levels.
Our new enrollment controls are at all time lows and we welcomed our largest cohort of re registration this fall.
It's all about focusing on our customers and their outcomes.
That include more job placements than ever and stronger academic outcomes as well.
We all know about the learning loss that most schools experienced during the pandemic.
That has been written about extensively this week.
Well over the past two years the programs. We manage has seen improving graduation rates improved course pass rates, increasing retention rates and positive increases in EAA reading math science and social studies.
So our model has proven itself in the face of the pandemic.
And parents and students continue to demand more choice in their education.
70% of parents want schools to offer multiple learning mode, including in person online and hybrid options.
Our school districts are starting to move away from offering more choice that they offered during the pandemic.
In January 2020% to 40% of public schools offering full time remote instruction, but by June of this year that number had dropped to 33% and Meanwhile, only 10% of public schools offer a hybrid option.
Okay.
Drive will continue to offer parents and students multiple options for their education and the landscape appears to be supporting us.
Over just the past two years 20 states have started to expand voucher type programs. This is a great start, but we believe more can be done to allow families to attend their preferred school.
While our general education enrollments have fallen more than we'd hoped much of that is because families are embracing our career programs.
But we can still do a better job and attracting a broader range of new families to our programs in both career education and general education.
And while over enrollments are up around 40% from pre pandemic levels. Our revenue is up over 70% and operating income is up over 500%.
So we have demonstrated an ability to scale extremely profitability, while also investing in innovation at the same time.
Now for this fiscal year, just like last year we.
We said our intent is to grow in our first quarter results and full year guidance indicates we will.
While enrollments overall are lower we are finding ways to make up for that shortfall with other products and growth vectors.
And we think general education enrollments have probably bottomed out at these levels and the other growth areas will continue which sets us up for longer term trajectory of growth in.
In addition in spite of the tremendous pressures, we're feeling from inflation.
We're finding ways to be more efficient and find more leverage in our business.
On both the top and bottom lines our guidance range. This year is a little larger than most because we see opportunity in year to find ways to improve our results. So.
So we believe you will see that improvement as the year progresses, and we will narrow in our guidance range accordingly.
One early example is that our enrollment numbers since September 30.
Pre pandemic October is a month that see the deterioration in enrollments.
That trend returned last fall.
But so far this October we have seen net increase in enrollments.
As you May remember last year, we saw in your demand as measured by application volumes be 20% to 30% higher than the previous year.
While so far this year, we are seeing application volumes several percentage points higher than even last year.
And in year, new enrollment volumes for the first few weeks of October our more than 20% higher than last year, and well over 50% higher than pre pandemic levels.
So ultimately our goal for the year will be to continue to expand on the top line growth and aim to achieve a basically flat year over year, adjusted operating income plus or minus a few percent and longer term. We remain committed to the 2025 targets. We previously communicated given the range of products and services, we're putting in the market.
But that we were not aware of when we set our original 2025 targets I see the opportunity to create even greater value for our customers and stakeholders than when we issued them.
It's the incredible people and the strikes me D that make all of this possible from educators to administrators. There is no more passionate and dedicated team in the industry and we are still at just the beginning of our journey does disrupt the education system.
More to come. Thank you so much for your time today and now I'll pass the call over to our CFO Donna Blackrock Donna.
Thank you James and good afternoon, everyone.
I want to start by thanking all of the strides employees for another successful launch in enrollment season is always impressive to me that we can enroll in onboard hundreds of thousands of students onto our platform.
Know how important it is for students and families to have a smooth start to the school year.
I think all of the strike teachers administrators and support staff for their hard work.
Now turning to our reported results.
Revenue for the quarter was $425 2 million, an increase of 6% over the same period last year.
Adjusted operating loss of $19 9 million.
It was down compared to last year.
And capital expenditures were $16 8 million.
An increase of one 4 million over last year.
Korea lines strong enrollment growth coupled with increases in revenue per enrollment delivered another quarter of revenue growth for Stryker.
General education enrollments and revenue decline, but remain above pre pandemic levels.
These results demonstrate what we have been saying for the past two years stride will emerge from the pandemic as a stronger company with a fast growing career and adult learning business and a solid core general education business.
Overall career learning revenue for the first quarter increased 63% to.
153 $5 million.
Driven by strength in Middle and high school career enrollment and adult learning growth rate.
Career learning Middle and high school revenues were $125 $5 million.
Enrollment for Middle and high School reached 61, 6847% increase from last year.
We are incredibly impressed with the continued enrollment growth in the city.
And believe it will be a growth driver for many years to come.
Revenue per enrollment for the quarter was $2029.
Up 22%.
Some of this strength is timing related and we anticipate finishing the year up 7% to 10%.
Adult learning also continued to show strong gains with $28 million in revenue.
Up 24% from last year.
This business is on track to achieve over 30% growth year over year for the full year.
General education revenue decreased to $271 7 million.
Or 11%.
This was due to a decline in enrollment from our pandemic time.
Gen Ed enrollment decreased to $112 3000.
Almost 2000 enrollments from pre pandemic levels.
It is important to note that even with the agenda decline, our overall enrollment including career learning up significantly from before the pandemic.
We believe that as we've expanded our career learning options some of the students and families who would otherwise have chosen jeanette have optical career learning offerings.
The decline in gym, Ed enrollment is somewhat offset by an increase in revenue per enrolment of 2216 up 18% from last year.
Similar tick of realigning the strength in revenue per enrollment was partially timing and we would expect to finish the year up 7% to 10%.
Gross margins for the quarter was 35%.
<unk> 110 basis points compared to the first quarter of 2022.
As with last year.
We expect a normal seasonal pattern in our spending and profitability this year.
However, as we mentioned last quarter, we do think it will be some tightening of our gross margins for the full year.
Given inflationary pressure, which I will discuss more shortly we believe we could see a reduction of up to 200 basis points for our full year gross margin.
Selling general and administrative expenses for the quarter were $158 4 million up.
$25 million from last year.
The increase in SG&A.
Really driven by higher costs associated with the marketing and enrollment as well as increases in our adult businesses as they continue to scale.
Stock based compensation expense for the quarter was $5 5 million.
For last year, even though the timing of stock based grants tied to our career learning business.
We expect fiscal year 2023 stock based compensation expense increased marginally from last year in the range of 20% to $25 million.
Adjusted operating loss for the quarter was $19 9 million.
Adjusted EBITDA was $3 million.
Profitability for the quarter was impacted by increased marketing expenses as well as earlier future hiring.
As we anticipated inflation has driven up our costs faster than revenue per enrollment funding increases.
Inflation has impacted all companies and we are not immune.
Last quarter, we are fully funding teacher and that salary increases because it is important to have instructional consistency.
We made these decisions even in the face of increasing materials and marketing expenses, because we believe it is the right thing for the company and the long term.
But we're not just standing idly by.
Continuing to drive efficiencies throughout the company by finding scale across our nationwide footprint and increasing materials three courses.
Moreover, we are in a strong financial position and we remain committed to investing in our new products.
These initial investments will ensure market fit through pilot programs and drive early awareness and we believe the investment will deliver long term growth opportunities.
So while we expect to see a decline in both gross and operating margins. This year. We believe we will be able to offset these declines during the year through ongoing efficiency efforts.
However, there is still work to be done and we will need to execute on these efficiency efforts to continue to drive margin improvement in the year.
I want to emphasize that we still believe we can achieve our 2025 target.
Inflationary pressures and a looming potential recession will make it a challenge, but we strongly believe we are up for the task.
And improving funding environment.
<unk> and career and adult learning new products and a return to moderate growth in Gen. Ed enrollment position us for success in the years ahead.
So while we may achieve the targets in a slightly different way than we originally anticipated.
Believe there are ample opportunities for us to meet and exceed our original target.
Interest expense for the first quarter totaled $2 million.
We expect full year <unk> expense to be between seven and $9 million.
Our effective tax rate for the quarter was 25%.
For the full year, we believe we will finish with a tax rate in the 27% to 29% range similar to prior years.
Diluted loss per share was <unk> 54.
Capital expenditures in the quarter totaled $16 8 million.
Up one $4 million from last year.
As you can see from our guidance, we will continue to invest behind our new more mainstream products. This year.
We believe these products will expand our addressable market and expect them to impact growth in the coming years.
Free cash flow in the first quarter defined as cash from operations less capex was negative $160 million as compared to negative $146 9 million.
In the prior year period.
This is our normal seasonality of cash flows and relate to school launch and Goldman and Onboarding of new students.
As is typical we expect to see positive cash flow for the next three quarters.
We ended the quarter with cash and cash equivalents of $194 $5 million.
Our strong cash position allows us to continue to invest in organic growth opportunities.
Turning to our guidance for the second quarter of the fiscal year 2023, we are forecasting revenue in the range of $435 million to $465 million adjust.
Adjusted operating income between 70, and $80 million and capital expenditures between 17 and $20 million.
For the full year, we forecast.
Revenue in the range of $1 71 to $1 79 billion.
Adjusted operating income between 160 and $190 million.
Capital expenditures between 70 and $80 million.
And an effective tax rate between 27 and 29%.
To summarize we anticipate another year of growth with dry driven by strong career in adult learning results.
While short term margins have been pressured by inflation and investments in new products. We are still in a strong financial position with an excellent balance sheet.
We believe our shift towards career learning six years ago has set us up for long term success.
We are also excited about the next few years as we begin to see how our new product succeed in the market.
Thank you for your time now I'll turn it over to the operator for Q&A operator.
At this time, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Jeff Silber with BMO capital markets. Your line is open.
Thank you so much.
The focus of the call was mostly on career learning I completely understand it but I'm going to start with general education.
Obviously, the enrollment decline.
It's pretty surprising at least to us should we get into a little bit more color. There did you lose any contracts or is it more of a competitive issue.
Any color on that would be great.
Yes, I think.
So.
First of all.
I think that the general enrollment sort of bottomed out and if you look pre pandemic, where our general education businesses that sort of around those pre pandemic numbers. So we feel pretty good that it's bottomed out at this level.
We certainly see.
The return to school.
Post pandemic, having an impact I think we see some.
Fatigue in the marketplace around the online learning.
And and we see some sort of increased competition from local brick and mortar schools, having said all that I also think that our execution.
Summer could have been better and so I think it's a combination of factors.
But overall I think we see overall demand in the market for online education, continuing to increase post pandemic.
And I think that we probably did lose a little bit of market share and I think that's on us to improve.
But I think the overall market for us continues to improve and I think the overall market opportunity in both general education and career learning.
He is going to continue to improve so.
I think that we've got we've got some work to do to improve our execution, but I think the markets are for us and I think that.
We got a we got to execute better.
So let me just dig into those comments just a little bit maybe we can talk about some of the execution can you give us some examples of things that you might need to improve.
Yeah, I mean, I think <unk>.
For example.
We went into this year I think less clear about the messaging, we were putting into the market post pandemic.
We also had a number of situations.
Throughout the country that either a teacher strike or.
Or uncertainty around the school situations, where we could have been more localized and how we communicated.
With a certain market. So I think part of it is really just adapting better to being a national footprint player, but having more localized messaging because the reality is we're.
Particularly with the pandemic the sensitivities.
Around school options in school choice have become very localized and I think that a lot of what our messaging needs to do is to actually drive into that local residents as opposed to sort of the national.
Cookie cutter, if you will approach.
In our comments like that some of the reasons why you think.
<unk> may have bottomed out do you think there could be room for some improvement if you do improve the execution next year.
And I'll give you even a couple of examples very recently, which is <unk>.
<unk>.
Which I sort of referred to in our in my remarks.
But just in the past it's.
It's been 24 days I guess.
The information that we've got since.
Since the quarter end, we see we.
We actually see improvement in the numbers.
Excluding sort of the pandemic year.
October is generally a time where.
We bring on a lot of enrollments in the fall and then we do see some attrition through October into November and we actually have gained enrollments in October so I think little by little our execution is starting to improve but I think that the circumstances around.
Education continued to work in our favor in that I think.
Parents and customers.
They continue to look for options and they continue to be I think be disappointed with the options that they are getting in some of our brick and mortar districts and I think we continue to be a good viable option. So.
So I do think that there is evidence that suggests that even in the past few weeks that we've got some room some upside here in year and going into next year.
Okay, great. Thanks for the color I'll jump back in the queue.
Yes.
Your next question comes from the line of Greg <unk> with Morgan Stanley . Your line is open.
Hey, Thanks for taking my question I mean.
Sorry to kind of double down on this but.
Why is this the new baseline in G&A, because I mean, you mentioned a couple of things that there is competition from brick and mortar and brick and mortar knows how to do this now.
There's also and you mentioned this in your remarks as well.
Some cannibalization.
Middle and high school, so I mean, I guess, what gives you such confidence that.
This is the new baseline going forward.
Well I guess, the first thing I would say is that.
I think the general public and most customers would disagree with you that brick and mortar has figured this out.
I think at least from all of the information research.
Studies that we can see and find in fact, most brick and mortar schools have not secreted al and theres not a lot of fast satisfaction with the progress from brick and mortar schools that are out there. So I think thats. The first data point and I think you see brick and mortar schools somewhat retreating from even putting an emphasis on.
Their ability to do virtual programs. So some of them still have programs, but you see I think some of the retreat in the emphasis on those programs. I think you also are going to start seeing a little bit more emphasis on outsourcing some of those programs because I think they realize that they're just not.
They're not going to be good at it so.
The other I think the other piece of the comments there I think we are seeing some cannibalization.
So.
I think that while there is cannibalization.
I think just.
The strength in what we're seeing this fall in terms of the pipeline does tell us I think that there is probably a bottoming out here and I think uncertainty in the marketplace tends to work in our favor and I think that the.
Ongoing continued continued uncertainty in the marketplace. There are some new variance of the virus.
Seeing spikes because of that so I just think that the.
The uncertainty that is happening in the marketplace works in our favor and I'm just not sure that we've been saying now for two years that thats going to go away and we really haven't seen that go away. So.
So we think that this is probably a point at which we've got a floor underneath us, but I think it's a fair question and I think we'll see.
Okay, that's very helpful. Thanks.
I want to talk about that.
Operating income margin guidance, because I mean, it sounds like you need a couple of things.
It has to happen to get that and maybe that's wrong correct me, but can you talk about a couple of things you talked about.
In year revenue acceleration, you talked about gaining efficiencies on the expense line throughout the year.
I guess I mean do those have to happen to meet your guidance or is that is that just upside.
Yes, I do think it actually has to we have we have work to do.
<unk>.
I don't think its a slam dunk, but here's what I would say and this is just historical framing is that I think in the 10 years that I've been with the company.
We have yet to miss guidance.
And so I think we tend to put guidance out that we feel even if we have still work to do we still we feel comfortable in our ability to execute against that and so.
I think we feel pretty good and I mentioned in my comments our goal, which is also within the range of our guidance.
Is to be flat plus or minus a couple percent on adjusted operating income so and thats above the mid point. So I think we're shooting for above the mid point and.
We're working hard every data to make sure that we drive the cost structure to achieve that.
Okay, Great and then help me maybe maybe this is a sort of a.
Ignorant question, but I mean, you have a pretty big step down and kind of overall enrollments, but.
Do you have a pretty big step up in some of your teacher costs and you had a pretty big teacher base last year. So I mean I guess.
I mean was there no kind of mark to market and teachers I mean, how do you kind of assess that internally are you sort of overstaffed and Janet or the allocated somewhere else and I know you have some sort of.
Other areas, where you want to.
Sort of monetize those teachers with school districts, maybe that's the answer but maybe kind of help me.
<unk> kind of filled the gaps there.
Yes, I think it's a little bit of a mix. We certainly are investing in certain places but also.
Which is a little bit of a nuance that may be not everybody's aware of but.
Oftentimes when we get funding increases those funding increases come with pre prescribed.
Costs associated with them often at zero margin to us.
And so.
There is some of that is at play here that we're sort of forces the wrong way, but safe the way that the funding works is that we have to spend against it and so there's a mix of that in there as well as I think just we are investing in certain things.
I do think that we were fully staffed in most years, where actually we go into the year a little bit understaffed.
This year, we wanted to make sure we were fully staffed so I think as a number of things at play there.
Okay, great. Thanks.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad.
Your next question comes from Tom single Horse with Citi. Your line is open.
Okay.
Good evening, it's Tom here from Citi. Thanks for taking the question.
Apologies I missed the beginning so.
I'm, sorry, if I am covering ground I just wanted to understand.
Firstly, just sort of checking the development the general ledger enrollment.
<unk> trend.
Cool I think that the full year you talked about.
Relatively robust.
Our survey work in terms of sort of indicating that.
Enrollment would be.
And resilient I suppose the question there.
I was was that.
Did that just turned out not to be the case in the survey work didn't work, who yeah coming back to your points about execution do you think that was enough to sort of take the showing of just interested in sort of.
Exactly yes.
Whether it was a function of you guys know.
Executing a 100% or whether that's generally been a pullback in sort of industry level demand.
And in that context, I was interested in something that fits in.
Okay.
That links to revenue per enrolment because they indicated.
That had been sort of revenue mix.
Quarter to that virtual schools business led by.
Enrollments were relatively weak, but the average revenue per student was very favorable I was wondering whether there was anything sort of underlying that explain that sort of thing.
Jaws effect.
But those are the two questions. Thank you.
Yes, I mean, I think for sure.
We have also much like Pearson.
I think our business probably mixed similarly to them that we've got some revenue.
Revenue per enrollment strength.
It's due both to the overall funding environment, but also to the mix. So I think there is sort of both components there.
And so I think it's probably fairly similar I think up to your earlier your first part of the question.
<unk>.
Last year, we saw in the year demand.
Be very strong relative to the prior year.
And I think we continue to tell people that on our earnings calls.
When we got into the summer season.
We didn't see that in year strength translate as much in the summer season, and I do think that some of that was execution. Some of that was a little bit of sort of coins fatigue that people have had around enrolling for some of these programs, but I think the overall market continues to grow while the overall market continues to grow and so.
I think what we saw is.
A little bit of a softness I think in our execution.
And we're talking.
Several thousand enrollments can push us down.
A few percent to down 8% right. So it's not a huge swing we have to have for us to be down 8%. So.
So I think that it's a combination of factors, but I definitely think that some of the execution play into it and I think that the market continues to be robust for these programs and I think the behaviors we're seeing.
Historically, a lot of the behaviors of families. We saw were.
Happens sort of between.
Fourth of July and Labor day, and we're seeing now some of the behavior shift to more in year behaviors.
And I think what we early indications are is that families. I think want to believe that sort of the default should be to go back into their brick and mortar School district, and I think when they go back in and sometimes they realize it oh things haven't changed things haven't improved or not meeting.
The needs that I have as a customer and so therefore, they look for new options September into October and I think again for the at least small sample size of the first several weeks of this.
Sort of post count a season post Q1 season, we're seeing some relative strength, even above and beyond last year, where we saw some strength and well above pre pandemic levels and Thats why I think we might see consumer behavior shift a little bit into season.
From relative to pre pandemic levels, we're seeing a much higher level of demand than we did.
Pre pandemic.
Perfect and then one follow up.
Because it's okay.
I suppose the cyclicality of the.
Second career learning business that I'm really talking about the auto lending business in particular, the sort of institutional sort of offering.
Even within.
Galvanized.
Should we be worried at all about.
Who'd organizations.
<unk>.
Coming more circumspect about.
Sort of procuring.
<unk>.
Brazil selling tools.
In this environment or do you think that will remain robust.
Well I think that.
Yes, Im sorry, Im sorry, I thought you were finished.
Do you think it will remain with us despite the macro challenges.
Yes, I think the good news bad news for Us is that.
Within the context of our adult businesses, we didn't have a material amount of that enterprise side business. We.
When we did some of these acquisitions, we were actually pretty bullish that that would materialize. They didn't and so therefore I think the risk of the macro trends working against US. There is just mitigated by the fact that we just didn't have material amount of business there as it turns out.
What we are seeing is.
Still some healthy opportunity on the enterprise side for those businesses.
I think as companies try to figure out what their staffing and hiring needs are particularly in the technology space technology tends to be prioritized and.
There is still I think is a lot of demand that employers don't know how to fill appropriately and so I think theres still is a lot of opportunity there for us, but it's just not material enough one way or the other to impact us too much at this stage.
Alright, thank you.
Yes.
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Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.
Yeah.
Hi team. This is actually Matt pilot on for Stephen Sheldon.
To start I was wondering if you can talk about.
What drove the increase in SG&A expense relative to the prior year sounds like higher marketing costs is driving some of that but any additional detail would be helpful and as a second part how should we think about SG&A looking ahead over the next several quarters.
Yes, I think this is the higher SG&A, it's really a function of two things I think you captured one piece of it which is.
I think the marketing expense did tick up a little bit for us, but I think theres inflation I think thats. The big story right now is you've got inflation across the board in almost every cost item that we've got and.
I think Thats I don't know Dan if you had any of them, but I think thats, where the two the two big drivers.
I would sort of address the timing of hiring.
Had some had some impact on our numbers, but with respect to SG&A I think the inflation on not only the marketing, but also on the salary and wages and I sort of think about the rest of the year I would think about that increase being more in line with inflation.
Got it that's helpful. Thank you.
And then switching gears here.
Application to enrollment conversion rates been trending relative to your expectation and if you could what are some of the underlying forces driving those trends.
Yes, I think what we see.
We see from all of that should start from the top of the funnel you get traffic.
Traffic converts to lead lead first one application application for its to enrollment and I think what we're seeing is is actually strong conversion rates and improving conversion rates and what we see in our in our enrollment center is that.
Families have.
Better appreciation and understanding of the programs that we're offering.
So therefore, they are converting at higher rates and we saw that improve during the pandemic through the pandemic and now sort of we see that sustained level because the family still they have that appreciation understanding.
What the programs are and why they may or may not be a good fit for their needs and so we are seeing higher conversion rates all through the final including application to enrollment and we're seeing that pretty on a pretty sustained level.
Great. Thank you.
Okay.
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Okay.
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