Stride, Inc.
Q3 2020 Earnings Call Transcript

Published: 28 Apr 2020

[Operator:]

Greetings, and welcome to the K-12 third Quarter Fiscal 2020 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Kraft, Head of Investor Relations. Thank you. Mr. Kraft, you may begin.

[Mike Kraft:]

Thank you, and good afternoon. Welcome to K12's third quarter earnings call for fiscal year 2020. Before we begin, I would like to remind you that in addition to historical information, certain comments made during this conference call may be considered forward-looking statements. These statements are made pursuant to the safe harbor provisions of the private securities Litigation Reform Act of 1995. They should be considered in conjunction with cautionary statements contained in our earnings release and the company's periodic filings with the SEC. Forward-looking statements involve risks and uncertainties that may cause actual performance or results to differ materially from those expressed or implied by such statements. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the day of this live call. K12 does not undertake any obligation to publicly update or revise any forward-looking statements.For further information concerning risks and uncertainties that could materially affect financial and operational performance and results, please refer to our reports filed with the SEC. These reports include, without limitation, cautionary statements made in K12's 2019 annual report on Form 10-K. These filings can be found on the Investor Relations section of our website at www.k12.com. In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S., or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information to the most closely comparable GAAP information was included in our earnings release and is also posted on our website. This call is open to the public and is being webcast. The call will be available for replay for 30 days. With me on today's call is Nate Davis, Chief Executive Officer and Chairman of the Board; Tim Medina, Chief Financial Officer; and James Ru, President, Corporate Strategy, Marketing and Technology.I'd like to now turn over the call to Nate. Nate?

[Nathaniel Davis:]

Thank you, Mike. Good afternoon, everyone, and thanks for joining us on our quarterly call. Such a challenging time for our country. I'm sure everybody is busy. But hopefully, you're safe and sound in your own studies as you listen to this call. I'm sure I join everyone on the call in saying that we continue to extend our thoughts and prayers to those impacted by these virus, both in the U.S. and around the world. The good news is times like this to bring us together. Everywhere I look I see goodwill and good intentions, people concerned about each other's health, both physical and emotional and everybody coming together. It's wonderful the country coming together. I'd like to get started with a brief summary of this quarter's financial results. Our new CFO, Tim Medina, will follow-up with a more detailed comments.As you saw in today's press release, revenue was $257.2 million in the third quarter of fiscal '20, an increase of 1.5% year-over-year. Our adjusted operating income for the quarter was $20.6 million and capital expenditures for the quarter were $9.5 million. Now looking at results in comparison to the guidance we provided last quarter, we beat our estimates across the board

[Timothy Medina:]

Thank you, Nate. And good afternoon to our shareholders, analysts, employees and others who are joining us on the call today. I'm very grateful to Nate and the entire board for this important opportunity. With so much change unfolding in our communities and our country, this is a unique time to serve as CFO for the market leader in online education. I'm proud to join the K12 team and our shared mission to provide a personalized learning experience for students of all ages and all backgrounds across the nation. I also am very excited about our opportunity to expand K12's leadership in the tech-enabled education market and helping lead K12's next phase of growth and value creation. I also look forward to getting better acquainted with all of you.Now I'll quickly recap our reported results. Revenue for the quarter was $257.2 million, an increase of 1.5% from last year. Adjusted operating income was $20.6 million, a decrease of 24.3%. And capital expenditures were $9.5 million, largely flat to last year. As Nate mentioned, in each case, these results beat the expectations we provided in our guidance last quarter. Our core business continues to perform well and the increased awareness of our virtual options positions us for accelerating growth over the long term. Moving to our results for the quarter. Revenue for our managed public school programs increased $5.7 million or 2.6% to $228.3 million.The growth in this business was driven by increased enrollments. Enrollments were up 2.2% year-over-year. Revenue per enrollment was largely flat, and we still believe that revenue per enrollment will be roughly flat for the full year. Institutional revenue in the quarter was $16.8 million, a decline of $4.5 million. This is in line with the trends we have previously outlined. Private pay revenues were $12.1 million, an increase of $2.8 million, mainly as a result of the Galvanize acquisition. As Nate mentioned, we believe that the Galvanize immersive boot camp and enterprise businesses will see positive trends in fiscal 2021, even in the current economic environment. The business is still targeted to be accretive to EBITDA in next year's financials.Before factoring in the operational effects of Galvanize and $0.3 million of reductions in gross profit due to purchase accounting, gross margin would have been 32.8%. Reported gross margin, including Galvanize was 30.4%, down from the second quarter. We expect full year gross margin to be 33%, plus or minus 100 basis points. Selling, general and administrative expenses, excluding the Galvanize acquisition, were $59.5 million, down $2.2 million from last year. The acquisition of Galvanize added $4.2 million in SG&A costs in the quarter, including legal expenses from the acquisition. Reported SG&A expenses were $63.7 million. Even with the acquisition, we expect full year SG&A to be relatively flat to last year, plus or minus a couple of hundred basis points. EBITDA for the quarter was $32.9 million.Adjusted EBITDA was $39 million, an improvement of $2.6 million before the effect of the Galvanize transaction. Operating income for the quarter was $14.5 million. And adjusted operating income was $20.6 million, an improvement of $2.6 million before the effect of the Galvanize transaction. The improvement in both adjusted EBITDA and adjusted operating income reflects improving trends in Managed Public Schools. Some other items to note. We ended the quarter with cash, cash equivalents and restricted cash of $151.5 million, a decrease of $61.6 million compared to the second quarter. The decrease is largely the result of our all cash purchase of Galvanize during the quarter, offset by a $100 million draw against our credit facility. In response to the COVID-19 crisis, we borrowed against our existing credit facility as a preemptive measure. We continue to be in a very strong cash position, both short-term and the fourth quarter and longer-term in fiscal '21 and beyond. Additionally, several states where we saw strong enrollment growth in fiscal 2020, like Texas, are states that typically pay all public schools after the school year ends. This may increase our accounts receivable balance and depress our free cash flow for fiscal 2020. However, I want to be clear that this is a timing issue only. We have closely and are closely following the policies of each state and all have publicly committed to continue funding their schools. Based on this timing shift, we correspondingly expect stronger free cash flow in fiscal 2021.Turning back to our results. Capitalized cost of $9.5 million for the quarter were relatively flat to last year. We continue to expect capital expenditures to be $45 million to $49 million for the year. Our effective tax rate for the quarter was 33.5%. We still expect our full year tax rate to be in the 28% to 30% range. As detailed in our press release, we are reaffirming our full year guidance from last quarter. So for the year, we're looking at revenue in the range of $1,033,000,000 to $1,040,000,000, capital expenditures of $45 million to $49 million. As just mentioned, a tax rate of 28% to 30% and adjusted operating income in the range of $48 million to $52 million.Now let me wrap up with a few final remarks. First, our core business is strong, and student retention and enrollments are both trending in a positive direction. Second, we have ramped our career readiness strategy at just the right time. In these economic times, students are looking for ways to ensure they have the right skills to enter or advance in the workforce. Both our destinations career academy and Galvanize are uniquely positioned to support that demand. Lastly, I want to reiterate that K12 is very well positioned to grow in spite of the uncertainty in the general economy. We are in a strong financial position and have a solid balance sheet with a strong cash position. States have committed to fund public schools during the crisis, and we are seeing increased demand for our services. We believe the effects of COVID-19 will be a lasting tailwind to online education and especially the K12's business model. Thank you very much for your time today, and we'll now move on to our Q&A session. Operator, we're ready to begin Q&A.

[Operator:]

[Operator Instructions]. Our first question comes from Jeff Silber with BMO Capital Markets.

[Jeffrey Silber:]

And thank you for the comments about the impact so far, potential impact going forward. I think in your prepared remarks, you mentioned that there was no -- or you didn't think there would be a funding impact for the current school year. Have you gotten into any indication about the upcoming school year for your fiscal 2021?

[Nathaniel Davis:]

Jeff, excellent question. This is Nate speaking. We have not gotten any negative or positive indications. Everything we've seen so far and everything we said, is that the Federal wants to put more money in some of their early programs and some of the later programs they're now talking about, want to put more federal funds into education. So education doesn't stop. The states have said they want to continue education, and their economies are very dependent upon kids being in full and teachers getting a salary. So all the policymakers have talked about what they need to do. Now we all know that balance by the fact that if they don't get taxes from citizens, then that reduces their budgets, and they got to take it out of transportation, health care or education or something. But so far, it looks like the federal government and the state governments are all motivated to get as much money into the education system as they can to keep it going. So we don't see any negative long-term impact today from what we know.

[Jeffrey Silber:]

Okay, great. That's helpful. Now I know it usually takes some lead time before you get permission to open up a new school. So I'm not assuming that anything that had not been in progress beforehand. I'm assuming anything you've had in progress before will obviously continue. But has there been any indication that either you could ramp up a new school fairly quickly if you weren't thinking about beforehand or maybe get a cap raise and any stake? Anything along those lines would be helpful.

[Nathaniel Davis:]

Yes. We have, Jeff. We have seen a couple of the -- not a couple. We've in a number of the school board that we've been talking to. We've said to them, we really want to be in a position to be able to help students and help your community, help your state as more students want to be safe and want to be in online tool. So a number of our partners have upped their cap so far, and we're talking to all of it. Anybody who has a cap, we're having a conversation with them about it. That issue probably will be resolved all of them within the next 60 days, all are having school board meetings over the next 60 days and be talking about it. We also see a couple of states who are who are opening their minds and beginning to talk to us about opening up schools where they weren't before. And so without giving names because I don't want to put a legislator in a position that I've said something on an earnings call where they haven't sort at the state level. I can tell you that, yes, one of the reasons I made my comments that I think this is a positive tailwind is that we have seen states come to us and say, "Hey, can we do something here? It varies to be seen that somebody will actually approve something in a short period of time, but that conversations are being had, for sure.

[Jeffrey Silber:]

Okay. Great. That's helpful. And then just one more and then I'll go back in the queue. On Galvanize, you talked about -- I think you called it the consumer versus the community business. Can you just size up the different business sizes what they have been what you had expected beforehand?

[Nathaniel Davis:]

Yes. I don't know how much detail we've disclosed before, but the community business is slightly below $20 million. And I think it'll -- as I said, shrink a bit, the community business is the largest business. It's well over $20 million. And the enterprise business is the smallest business, but the fastest growing business.

[Timothy Medina:]

Just to clarify that the community business was less than 20%. And then the remainder, the enterprise business is smaller, and the remainder is the consumer.

[Nathaniel Davis:]

Sorry, consumer on the second. Too many seats.

[Operator:]

Our next question comes from Chris Howe with Barrington Research.

[Chris Howe:]

As far as Galvanize, could you provide some color or clarity on what percentage of revenue or what percentage of enrollments was in online coating boot camp prior to the current environment where we saw the transition to online? And in light of that and in light of the current COVID-19 environment, I know you had mentioned positive EBITDA in FY '21. But any change to your prior expectation for 2020 as far as Galvanize is concerned or any slight adjustments there?

[Unidentified Company Representative:]

Yes. This is James. To your first question on the online. Before we acquired them, they were starting to Galvanize online, but less than 10% was really done online when we acquired them. The good news is that they were already on a trajectory to move more online and they've accelerated that, and they've really shown, I think, great adoption with that. So I think they're on a really good trajectory to deliver their programs online on a continued -- on an ongoing basis. But also when we get back to hopefully some sense of normalcy, they'll be delivering some blended and online versions, but the trajectory is really nice there. And your second question around just the financial projection for the year. I think as Nate said, certainly, their community business in Q4 will likely suffer the most, just for the obvious reasons that folks are less willing to go into offices. We don't see as much impact on their consumer businesses. Again, I think as Nate mentioned, that business is holding up fairly well. And if anything is exceeding our expectations. And I would say on the enterprise business, they're probably a little bit below what our original expectation is. So net-net, predominantly driven by the community business are going to be a little bit lower.

[Chris Howe:]

Great. Very helpful. And my next question, you mentioned applications were up, and you're seeing an increased overall level of interest as we head into the fall. Can you perhaps add some color as to any changes that you're making to the marketing strategy? I can imagine that given the current environment, your conversion rate should be increasing as we look forward to the fall.

[Nathaniel Davis:]

That's true. We're seeing top of the funnel more in top of the funnel, and we're seeing a better conversion rate now than we saw last year at this time. As you know, the conversion gets higher, maybe you know the conversion rate gets higher as you get towards in the enrollment season and parents are making their final decisions. But yes, we are seeing greater top of the funnel and greater conversion. These additional enrollments, what we expect to see is a lot of interest early in the season. And then we're going to see some of that tail off as schools open. So what's going to happen as brick-and-mortar is open. Some of the folks that are in the funnel right now will probably say, "Oh, my school is open, I'll go back. But we don't think all of them will. Because as our survey day, many of them are still going to be worried about, will I go back to the school and put my kid in the school where this virus is still going to be hanging around. So we expect to still see better performance and better conversions than we saw last year, but really can't predict what the absolute numbers are going to be.

[Unidentified Company Representative:]

I think I would just add that from a macro trend perspective, what we're seeing in our schools, in our enrollment center, we see, I think most of you know, a large portion of kids who come to the schools that we manage, they're sort of running away from something. And I think now, we see a lot of students -- they're running towards us. They see us as a viable alternative and from the long-term macro trend, I think, just building out awareness and viability of our product in a more mainstream way, I think that's going to carry over into the next few years.

[Nathaniel Davis:]

And also, in your comment about are we changing any marketing technique we'll have more -- 2 things we'll do this year. You'll see -- we'll have more digital and viral messages than we've ever had before, more YouTube messages, more Facebook messages. We've always done that, but we'll put more funds into that as a percentage of our overall spin than we've ever done before. And the second thing is we'll do a lot of joint marketing with organizations that have contact with school districts because we think school districts are going to want to do more with that. And then the final thing is there'll be a little bit more of what I would call image advertising this year than direct response. Direct responses when you put an add up and says, call us now. Image advertising is a little bit more explaining to people what it does. Since the market is, we think, is a little softer and more amenable to the message. We want to put a little bit more in their explaining to them what online is about because we think that will attract more people, does that help? It sure, does. Thank you for the color.

[Operator:]

Our next question comes from Stephen Sheldon with William Blair.

[Stephen Sheldon:]

First here within the increased number of applications year-over-year, can you talk some about what you've been seeing specifically for interest in Career Readiness programs. I don't know if you get into that level of specificity with families this early, but what demand trends are you seeing for at this point? Well, we look at -- we do look at that level of detail, and there are 2 ways we look at the enrollment. One are the people who come to us because they're just interested in online, and then we talk to them about whether you want to be in a regular school or your readiness school. And then there's another, what we'll call funnel of folks who came to us just because they heard about destination Clear Academy, which is our ready school.So we are seeing an increase in top of the funnel at destination store Academy. We are seeing greater conversion that we've seen last year. That funnel is still not as big as I'd like it to be, and that requires us then, I think, to make sure our advertising is geared toward messaging to folks about what career Adient is all about. We still think there's a lot of market softening in a lot of market messaging to let people know that these academies are available. Now on the flip side, the folks who came to us just for online, and I'm not really thinking about pre readiness versus NPS. We're having more conversations with them as well. And because we flushed out more career pathway that means more detail on it, more detail and business in more detail in health care, we're able to talk to them better. So we're definitely going to see an increase in the amount of a enrollments this year than last year. I can't go beyond that because the season is not over, but I can tell you directionally, we are going to see more than we had last year, we already see that.

[Timothy Medina:]

Yes, just -- I would add that we've run some early tests this season. Specifically going after and targeting Curadeau students, and we're getting a lot of traction. So I think while sort of the overall halo around our business is strong, I think the specific actions we'll take and will continue to take through the summer around career readiness, early signs is it's going to drive a lot of traction.

[Nathaniel Davis:]

An example of that would be, if you look at our destination Career Academy's website, for any school. If you look at it a year ago, it had what I might call level 1 or 2-level of information. So you adapt to the second or third page and sort of reach the end of the message. Now it's much more flushed out. There are examples of students there in more details about what the trick is like, more examples of what project-based learning is like. So there's more for the person who is investigating to understand about these categories are and therefore, more interest.

[Stephen Sheldon:]

Got it. That's helpful. And then second here, just wanted to ask what is COVID-19 meant to your FuelEd business. I know you've been giving free trials for certain offerings. But have you seen any increased inbound interest from districts or charter boards to purchase ala carte services as they move their classrooms online? Could this be kind of a better environment for that business to maybe stabilize some as we look out over the next year or so?

[Nathaniel Davis:]

The answer is yes. We have. Our tiny sales force, which we had reduced in size is now overwhelmed by the number of opportunities and the number of calls that they're getting on inbound. I really wish the COVID situation was or over, so they could travel because they're getting lots of requests for them to come present the full district. So we are seeing more and more interested in that area. And not only for Ala carte offerings, but also particularly for training their teachers in district schools and how to teach an online environment and how to put a full program in place, not just I want to buy your course. To be honest with you, we're not seeing a dramatic increase, and I want to buy an individual core. We're seeing much more increase in -- I want to understand how to run a full program. They'll obviously do their own marketing because it's their students. But how do they train their teachers, how do they monitor the performance? How do they know the students engaging all of those things that go with a full program, we're seeing a lot of requests and information about that. We're working with a number of private groups as well. Who have an inroad with many school districts. So think of the industry association for secondary principles, think of the associations for superintendents. We're trying to get in front of many of those as we can, and we may invited to give presentations there. So we can talk about what our program can be.

[Operator:]

Our next question comes from Alex Paris with Barrington Research.

[Alexander Paris:]

I have a couple, it's one kind of dovetails well with the last question asked. Within managed public schools, as I recall, 2/3 are roughly charter school board and 1/3 are school districts. And these are, you're actually running these online schools for school dishes. These wouldn't be considered charter schools. These would just be considered a division of the school district, correct?

[Nathaniel Davis:]

That's correct. You have a great memory, Alex. The numbers are right, about 2/3 are to schools and about 1/3 of our district partnerships and the district partnerships were the first ones that we went out to and said, as a partner of ours, we're going to offer you free access to content. And we'll talk to you about these programs that we can offer. So you're absolutely right, for the first part.

[Alexander Paris:]

So as your top of funnel grows from consumers and that sort of thing, this is parents looking for online alternatives, during COVID and then potentially beyond. The 1/3 of your contracts that are district partners, I would think this would have the -- COVID would have a bigger impact on these because if they have a license to do so, and they've not done so. This is not only an opportunity for them to grow their enrollment on a statewide basis, but although they have a plan B in case another pandemic god forbid would come down the road. That's exactly right. And all of the large school district partners we've talked to were the first ones to sit down with us and talk about what should be their backup plan and how should they incorporate? How should they be ready to move easily from their 100% brick-and-mortar to a more blended kind of environment. So that -- those are the first people we did talk to. Got you. And then I was going to say, and those are the ones that we're having the most successful because they know us the best. Now what they're not doing, by the way, and you would expect them not to do this because they're not saying, I'm going to shift my student away from my brick-and-mortar completely over to that online program. Instead, what you're saying is, can I set up a separate online program or for the kids in my district and a blended program for them. So it's not so much that they're going to move them over to the 100% online program. It's talking more about a blended program. For their constituents that might be better suited for an online or a blended program?

[Nathaniel Davis:]

That's right. Yes. Okay. Sort of an insurance policy. They want a continuity plan. You and I might think of it as a business continuity plan. So they're thinking about it as a business company a cool company we pay. How would they continue if the school had to close down. Given they've already got us as a partner.

[Alexander Paris:]

So I know you're giving a lot of free stuff away right now, which is the right thing to do as a good corporate citizen, but how would you check for these plan B sort of schools? It wouldn't be the same as your typical mister partnership.

[Timothy Medina:]

Yes. So Alex, the good news is, is that we've got tens of thousands of kids that are having access to our free programs now, and we're really happy with the traction we're getting. And I think just the service that we're able to provide for the communities. I think, first and foremost, that's the most important right now. I think from a pricing perspective, a lot of our products have existing pricing structures. And so obviously, there's a starting point for that. In terms of just, I'll say, the contingency planning that Nate talked about, I think the way we view pricing is a little bit fluid right now because we're not really sure exactly what's going to take hold in the marketplace. But our initial belief is, at least, is that really the clinical premium, if you think about it as an insurance product, should be fairly small because what we're really trying to do is we're trying to build consensus in the marketplace that this is a viable product. And so we don't want to create pricing barriers just to have it on the shelf for, as Nate said, for a contingency type of basis. So really, the intent is really to have a very low barrier to entry to have it on the shelf for them.

[Nathaniel Davis:]

And that competitors listen to the calls, too. So I'm not going to disclose too much here, but I would tell you that we believe, and we have looked at pricing, we have set pricing tables that clearly make -- show a difference between small school district and largest school districts. So the larger they are, the better rate per course that they get and the more ancillary services that they get. So -- and we've actually put that out to a couple of very large school issues. We had one what I'll call small to medium date ask us to bid on an entire statewide curriculum, and we haven't heard back from them yet. We had a very large city also asked us 2 actual, 2 large cities have to bid. And in all of those, we looked at a volume discount kind of basis for preprice.So we've given a lot of thoughts to those things and have given those prices to those customers already, and we'll do so again next year. We have -- by the way, I'd also mentioned in two of those conversations, especially one with one of the large cities, they asked to first what would it take, what price will we give in order to serve their students for the rest of the full year. We gave them a price. They came back and said, okay, now tell me what that price would be if I was to use your content for a year or for 2 years. So we gave them a price for that as well. Now why am I telling you that? That only says that's how school districts are thinking. Their first response was, I got to get through this spring. What would you do for me this spring. But they quickly come back and say, "Oh, yes, I've got to think about next year because what if this happens again next year. So we begin to think about pricing for next year as well.

[Alexander Paris:]

That's great. And then on the destination career academies, can you refresh my memory? I think you had 6 stood up in fiscal '18, 13 stood up in fiscal '19, '20? That might have been '19, 2021. First of all, what is your cadence for opening new DCAs? And has it changed no?

[Unidentified Company Representative:]

Alex, this is Mike. We're still looking at about 3 to 5 new ones for fiscal '21.

[Alexander Paris:]

And how many do you have right now?

[Unidentified Company Representative:]

20.

[Alexander Paris:]

20 now. Okay. And then last question, and this is -- I was just thinking with COVID, phones ringing up a hug, parents looking for alternatives for their kids. You weren't necessarily able to benefit from that given that enrollment was closed for most of the schools that you operate. Did you get any lift from your private face schools? Or did you have similar enrollment cutoffs?

[Nathaniel Davis:]

No, private pay was -- we got a very small lift there. We did get some, but we promoted a lot of it. We gave free access to Keystone for 30 days. We gave access to iCAD at a 50% discount. So we got some takes, but we had to discount it heavily. And again, the goal for us was to get exposure. We figured it was going to be late in the year. It wasn't going to be big revenue anyway. So why not just get more exposure and do the right thing for the community. So we didn't get a revenue list from private base for that, but we did get more great. Congratulations on the quarter. Thanks for the additional color. Thank you, Alex.

[Operator:]

Our next question comes from Greg Pendy with Sidoti. Just one quick question.

[Gregory Pendy:]

I think you said in the comments that -- and I could be mistaken, but selling this year? And then if so, can you just kind of remind us, I think, last year, the cadence in the second half was kind of over-indexing in the fourth quarter. So just maybe how we should be thinking about that just overall into the end of 2020?

[Timothy Medina:]

Greg, sorry. We had some problem hearing you. Can you just repeat your question quickly, we couldn't hear you very well.

[Gregory Pendy:]

Yes. Sure. So I think in your comments, you said except selling an administration to be flat year-over-year? And if so, can you just talk about how we should think about the cadence? I think last year, yet an abnormal 3Q and 4Q. I think you overspent in 4Q, if I'm not mistaken. But just kind of how should we think about that?

[Unidentified Company Representative:]

Sorry. Yes. Got you, no. So yes, you -- so if you look -- I think you're absolutely right. In Q4 of last fiscal year, our uptick in SG&A was a little bit abnormally high. We do normally have an uptick in Q4, though. So you will still see a seasonal uptick in Q4 as we start to get ready for the fall enrollment season, but it will be less than we saw in last fiscal year.

[Gregory Pendy:]

Okay. And you're expecting that line item to be flat for the year? Or it was around 300 last year. Is that correct?

[Nathaniel Davis:]

Yes. I think we expect it to be flattish year-over-year.

[Operator:]

Our next question comes from Steven Weber with Climbing Rose Capital.

[Unidentified Analyst:]

I know you've already gone over some of this, but could you just give a little more color a lot of people have felt that the virus will return in the fall and perhaps with people starting earlier than people going back earlier than we thought the probability of that happening is higher. Just how that would all play out for you? If you can just give as much color on that, as you could?

[Nathaniel Davis:]

Sure. Stephen, we haven't talked before, but I look forward to meeting you 1 day. So if unlike this spring, our schools will all be open for enrollment this fall. So any of those kinds of applications we get because schools are closed, we would be -- I'm sorry, because the brick-and-mortar schools are closed. We would be able to take all of the allocations. The only time we wouldn't be able to take them is when there is a cap by one of their boards, that the Board decided it doesn't want to take boy. But we have had those conversations with them. And told them that our recommendation is to do the right thing for the state and the right tick for the citizens in the state, which means opening up their caps and allowing more students in. But in addition to that, states may even, and this is, I think would be a big exception. I don't expect a lot of it to happen, but states might even open up schools quickly with providers like ourselves if they find that their schools are closed.But I think the biggest opportunity for us and for anybody, if, in fact, schools are not open and kids can't go back-to-school is going to be in the institutional business. That's where you would see us providing a program that they run themselves. We teach their teachers, how to teach an online environment, provide them the ability to enroll students in the curriculum of content and then let them go teach-in that environment. Now they've got to ready about how do they get disadvantaged business in rural areas to get exiting the Internet, how do everybody get a compare? They've got all some of those off. But it's clear that if they're not able to go back-to-school, they're all going to have something. They're not going to let kids sit at home and do nothing. And they're going to want their teachers to be employed.And every state is going to want that for their economy. So we think the big opportunity is in training, professional development of teachers who can learn out to teach-in an online environment, and I'll remind you that we developed an innovative program, the first of its kind in the country with Southern New Hampshire University, research-based studies and curriculum on how to engage kids and how to teach kids in an online environment. You can get a master's degree or you can get a micro certification in that. That's the kind of content and training we would take out to the market. And the second piece would be, once we've done that, helping them run that program. How do they on an ongoing basis, monitor and do the data analytics and be in the continent cricket. So I think if kids don't go back-to-school in the fall, you're going to see a tremendous focus on all the schools, putting those kinds of programs in place.

[Gregory Pendy:]

So how -- in that scenario, I'm sure you guys have sort of run models on the impact. How wide is a possible range of results, how much of an impact could that have on your finances if that scenario would unfold?

[Unidentified Company Representative:]

Yes. It's James. I think for right now, we're trying to -- clearly, it's a large opportunity for us. We think it's a structural tailwind for us. We're actually not just for going to next year, but for many years to come. But we're really not prepared at this time to give any guidance around what the fall might look like, but it's certainly a large opportunity and will certainly accelerate growth into next year.

[Operator:]

There are no further questions at this time. I would now like to turn the floor back over to Mr. Davis for closing remarks.

[Nathaniel Davis:]

Very engaging call. I really appreciate everybody asking questions and being engaged. It's probably our most engaging call. Forgive me for being longer winded than normal, I was longer winded today, but I thought you wanted to know about how COVID was impacting us. And I think Q&A proved you did want to know. So with that, I hope everybody stays safe and you following all the guidelines. Let's see if we can all get through this together. Thank you for your time today. Everybody, have a great day.

[Operator:]

Ladies and gentlemen, this concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.