Mike Kraft - VP, Finance & Communications and Corporate Treasurer Nathaniel Davis - CEO & Executive Chairman James Rhyu - EVP & CFO.

Sou Chien - BMO Capital Markets Corey Greendale - First Analysis Securities Corporation Christopher Howe - Barrington Research.

Greetings, and welcome to K12's First Quarter Fiscal 2019 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Kraft, Head of Investor Relations..

Thank you, and good afternoon. Welcome to K12's first quarter earnings conference call for fiscal year 2019. 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 2018 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; and James Rhyu, Chief Financial Officer and President of Product and Technology. Following our prepared remarks, we will answer any questions you may have. I'd like to now turn the call over to Nate.

Nate?.

Thank you, Mike. Good afternoon, everyone, and thanks for joining us on the call today. It's always great to have an earnings call when our business is doing so well. Every executive love to talk about their business when it's growing, exceeding expectations and when your future prospects are so attractive.

And that's the case for our core Managed Public School results for this quarter. Our fiscal year '19 count date enrollment and our new initiatives such as career readiness line of business, STEM Premier and Modern Teacher are all doing well. We're well into the implementation and integration of our strategic expansion efforts.

Along with expansion yet to come, our goal is to efficiently use our strong balance sheet to deliver consistent revenue and profitability growth for the long term. So with that as a backdrop, I'll focus the remainder of my remarks today. On our fiscal year 2019 count date enrollments as well as our financial guidance for the year.

At the end of the first quarter of fiscal year 2019, enrollments in our Managed Public Schools business, or you may hear me refer to it as MPS, reached 118,800, a 6.9% increase year-over-year. Now this is a third year in a row of increasing year-over-year gains in MPS enrollment.

In addition, I'm really proud to highlight that this is the strongest enrollment growth we've posted in six years. In addition, we saw an increased interest in our career readiness initiative. After initial enrollment in our Managed Public Schools, over 5,000 students we moved into career readiness programs as well.

The growth we're seeing in enrollments is the result of a number of factors. First, the number of families that we registered for another year in a program increased year-over-year. In fact, it was our highest rate of reregistering students in more than seven years of this internal measure.

Second, lead volume for new families increased by 13% year-over-year. The marketing team used a higher mix of direct online digital tactic to drive increased awareness for our school partners. Importantly, growth isn't driven just by opening 1 or 2 new schools or new states.

We saw enrollment growth in nearly 85% of the states in which we operate in fiscal year '19. And in fact, the majority of the schools we support posted enrollment gain. More than half the schools increased enrollment by more than 5%, we say that again, more than half of the schools increased enrollment by more than 5%.

I'm happy to tell you, this is an across-the-board success. The net of this that are based it's strong and growing, and at the same time, interest of parents and students in career readiness is also increasing. Our career readiness effort is now being led by 25-year veteran of career education, Dr. Shaun McAlmont.

His team includes a dedicated executive for partnerships, another dedicated executive for designing curriculum and content and another for marketing and business planning.

And each of these individuals has been successful in implementing innovative models of educations for schools of businesses around the nation, or they've been -- had experience in building relationships with external commercial partners.

Team is building a broad national footprint of career-readiness courses, pathways to job and partnerships with industry in a higher education. They're also overlaying project-based learning to help students prepare for the challenging workplace.

Our curriculum would be built using both internally developed and best-in-class externally available content, including content created by corporate partnerships to meet the specific hiring needs.

We will also include a variety of third-party partnerships that allow students to have a hands-on of virtual business experience in the form of internships and mentorships.

While we are still at the early stage of the business, we're moving fast to be the leader in career education at the high school level with the ability to serve many adult learners as well. We're very excited about the initial results.

In the near term, as in FY '20, our career readiness schools and programs should be driving a major portion of this year's students -- those year's student enrollment growth for K12 partner schools.

Overall, our enrollment performance was a result of multi-faceted efforts that resulted in the highest enrollment growths for our partner school we've had in years. That said, we haven't forgotten about serving new states like Missouri, which passed legislation this year to allow online school options statewide.

Overall, the potential for blended and online enrollment growth looks bright for many years to come. Now based on the strength of this enrollment performance, our revenue guidance for the year is $1 billion to $1.01 billion. This will be a revenue increase of between 9% and 10% year-over-year.

Much like enrollment, this is the highest revenue growth we will deliver in the past six years. In addition to the strong enrollment performance, some of this revenue growth is coming from improved revenue per enrollment.

We are anticipating a revenue per enrollment growth of 46%, and this is primarily a result of increased enrollment in states like Ohio, Pennsylvania, California, as well as other variables. In other words, school mix is driving much of our increased revenue per enrollment.

Now turning to our institutional business, FuelEd, we're leveraging the Modern Teacher investment. That investment will allow us to shift from being a content center to a trusted adviser. As a trusted adviser, we will connect school districts to digital learning tools that help students and teachers.

I discussed a plan on the fourth quarter call, so I'm going to repeat all the same information. But as noted on that call, we will see revenues decline during this transition. Already included in the guidance for total K12 revenues, increasing by $82 million to $92 million is a decline of 12% to 15% in institutional revenues.

While we are disappointed in the institutional performance, it does not change our long-term view of the prospects of this business. Turning to overall company profitability. Adjusted operating income is expected to be in the range of $56 million to $60 million. It's an increase of more than 20% year-over-year.

This income improvement comes from both revenue growth and proactive management of our cost structure. That means evaluating expenses and expenditures and reallocating funds to our career readiness initiatives, and to continue to fund programs that address student academics, including teacher tools and training.

I'd also like to highlight that we're working closely with our new partners, STEM Premier, integrating newer platform into our career readiness program and into other partnerships we established. This is unique opportunity for K12. Over the next few years, we expect the number of students with access to the STEM Premier platform to more than double.

Therefore, you should look to us to continue to invest in the career readiness business in fiscal '20 and beyond. Now with all these investments and growth plans already factored into adjusted operating income, we expect free cash flow to grow about 20% year-over-year as well.

That means we will be a -- in a strong position to invest in organic growth of our business while also having a balance sheet to allow us to pursue M&A opportunities. Now regarding capital expenditures. Our investment this year will be in the range of $47 million to $50 million.

The possible increase in capital over FY '18 CapEx levels will primarily be to innovate our career-ready content and will be somewhat offset by less licensing fees for courses we currently source externally.

On closing, I want to be clear that our number one mission is to help students reach their full potential to inspire teaching and personalized learning. We are proud of the achievements of our partner schools, but we fully recognize there is more work to be done to improve student outcomes. Every student is unique.

Our job is to find ways to work with each student and personalize their experience to maximize their growth. As we look forward, we're keenly focused on building a company that will deliver revenue and earnings growth for the long term.

That strategy includes in maintaining the strong financial performance of our Managed Public Schools, and now building a robust career readiness business as well.

Coupled with improvements in FuelEd and more investments like what we did with STEM Premier and Modern Teacher, we will have transitioned from just managing public schools to becoming a diverse, stronger and growing education services company for the broad portfolio of assets, growing assets. Thank you so much for your time today.

Now I'd like to hand the call over to James Rhyu our CFO, and President of Products and Technology.

James?.

Thank you, Nate, good afternoon, everybody. As I previously mentioned, the new revenue recognition standards became effective for us this year, and will have the effect of flattening up quarterly revenues over the year, but not significantly impact us on a full year basis.

We can still see some in-year fluctuations as the revenue progresses -- as the year progresses driven by changes in the school mix, revenue capture, enrollment levels, as well as other factors. We have provided fiscal '18 pro forma revenue and adjusted operating income in our press release for your reference.

I will only be discussing our reported results today. Revenue for the quarter was $251.3 million, an increase of 9.8% from last year. Revenue for Managed Public School programs increased $32 million or 17%, $220.5 million. As Nate mentioned, Managed Public School enrollments grew 6.9% to 118,800 students, and revenue per enrollment rose 9.4%.

We're excited about the broad-based demand we're seeing for our programs and the resulting enrollment growth we delivered this year. As Nate mentioned, 85% of our state grew enrollments this year, and we saw increased demand across virtually all of our states, only tampered by some schools that have caps or other restrictions that limit growth.

We believe that this demand reflects the on growing macro trends have greater acceptance of online education. Revenue per enrollment grew 9.4% for the quarter, and as Nate mentioned, our mix this year contributed as we saw strong demand and pace for funding is at or above average, and we expect full year revenue per enrollment to increase 4% to 6%.

In our institutional business, revenue declined 26.5% on a year-over-year basis. Non-Managed Public School program revenues declined 33.5% versus prior year, primarily due to timing of revenue recognition. On a full year basis, we think this will be down closer to 15%, plus or minus a few percent.

Revenue per enrollment on a full year basis is also likely to be down around 10%, plus or minus a couple of percent driven by mix. Keep in mind, K12 does not manage the marketing enrollment services for many of our institutional customers.

Institutional Software and Service revenues declined 17.6% as a result of softer sales, as Nate already detailed, we're actively investing and transforming this business, including upgrading our marketing, sales and business development teams, we believe our new approach coupled with our investment in Modern Teacher will help drive long-term growth in this business.

Private Pay revenues were $8.3 million, which was down $1.4 million from the year ago quarter. And this decrease year-over-year was largely the result of timing due to the new revenue recognition standards. We believe that this business will grow this year albeit modestly. Gross margins were 36.7%, up slightly from the first quarter of last year.

For the year, we see gross margins as flattish, plus or minus a couple 100 basis points. Declines in our Institutional Business pressure our margins, which we're working to manage and mitigate. We also continue to actively invest behind our service offerings to the schools that we serve.

Selling, administration and other expense increased 6.5% for the quarter to $102.6 million, increase is largely the result of higher enrollment levels driving higher acquisition cost. However, on a per enrollment basis, we were actually more efficient, we saw acquisition cost per enrollment declined by over 10% on a year-over-year basis.

And for the full year, we expect selling, administrative and other expenses to be flat, plus or minus couple of hundred basis points, largely driven by investments in our career readiness business. Product development cost were $3.5 million, up from $2.9 million last year.

We expect these costs to be approximately $10 million, plus or minus $1 million for the year. Our CapEx plus product development cost as a percentage of revenue will be flat compared to last year. EBITDA for the quarter was $4.8 million and adjusted EBITDA was $8.8 million.

Both measures improved by almost $2 million to $3 million over last year, largely as a result of our increased revenue and improved margin. We expect stock-based compensation expense will be approximately $16 million to $18 million this year, which is lower than any of the previous 4 years.

Our operating loss was $13.8 million, which is $4 million better than the first quarter of last year. Adjusted loss from operations was $9.7 million compared to $14.7 million loss in the prior year. As of previous years, the loss is primarily seasonal as marketing enrollment expenses are higher in the first quarter.

Some other items to note, we ended the quarter with cash, cash equivalents and restricted cash of $145 million, a decline of $88.1 million compared to the fourth quarter. However, on a year-over-year basis, our cash balance remains fairly flat.

Over the past 12 months, we invested over $15 million in Modern Teacher and STEM Premier, and we repurchased $27 million of our shares. The decrease in the quarter is the result of normal seasonal trends, and we would expect to see our cash balance increase throughout the year.

CapEx, which includes curricular and software development and infrastructure was $17.7 million, an increase of $2.2 million compared to last year. This increase is largely due to the timings of payments and will not impact our expectations for the full year. We expect CapEx for the full year to be between $47 million and $50 million.

Our effective tax rate for the quarter was 37.9% benefit compared to a 53.4% benefit in the year ago quarter. To summarize our guidance for fiscal '19, we are looking for revenue in the range of $1 billion to $1.10 billion. Capital expenditures of $47 million to $50 million. A tax rate of 25% to 30%.

Adjusted operating income in the range of $56 million to $60 million. And for upcoming second quarter, we're looking for revenue in the range of $250 million to $255 million, capital expenditures of $11 million to $13 million and adjusted operating income in the range of $35 million to $38 million.

This quarter and a full year guidance indicates we continue to strengthen the core while diversifying the company through building our career readiness business. Thank you for your support, and now I'll hand the call back over to Nate.

Nate?.

Thank you, James. And I should thank all of the people in the organization who are helping us deliver great results to shareholders. So with that, Jeremy, back to you, we can take Q&A at this point..

[Operator Instructions]. Our first question comes from the line of Corey Greendale from First Analysis..

First question I have, obviously, more focused on the career readiness opportunity.

What would you suggest from our point of view? How can we kind of track that, given the increasing importance? What metrics or what measures should we be asking about or looking at to say this is working as expected or not?.

Thanks for the question and thanks for the congratulations. Corey, I think the first thing similar to our Managed Public Schools business is that we will be looking at enrollments. So we'll start talking to you about enrollments. As I mentioned today, over 5,000 students moved over to this program.

We're going to do the same things all throughout the year. And then going into next year, we plan to have an ability to report to you the incremental students that we'll be bringing on. So you'll see the core business grow and then on top of that TT will grow.

Second thing will be looking at the number of new programs that we open up, just kind of significant effort to trying to open up more programs. We are at 13 now and I want to open up more. So we'll be reporting on that throughout the year. You should see most of that happen now over some time in the spring.

The winter will be a relatively quiet period because we will be into conversations with people. It's really the spring when we'll start announcing new schools..

Okay, that's helpful and appreciate the data as it goes along. In terms of the -- you said there was a strong reregistration results. So two questions.

Is there any way of quantifying that relative to past years? And secondly, interested particularly what the effect was in Ohio and people who registered late last year from the ECOT shutdown, what the experience was in reregistering them for the new school year?.

Yes. So let me start with Ohio and tell you I -- we did not -- some of the students who enrolled in Ohio at the end of last year did not come back, but the majority did. And we don't report the detailed numbers by student. But I can tell you over 50% of the students that enrolled came back.

They did find our program to be a little more rigorous than the program they'd left. We got a lot of feedback about that and actually I'm proud of that because they found that we were -- we really are focused on doing a great job with the students.

So we did see several thousand increase in enrollment in Ohio just because of the students that enrolled and then reenrolled with us. So that was a couple of thousand if you look back from the spring time all the way to now.

In terms of the rereg rate, I don't think we've ever disclosed that, James?.

Yes, I think we picked up a couple a few hundred basis points improvement in rereg but Ohio was a factor, as Nate mentioned, but it was fairly broad base as well. So I don't want to diminish the importance of Ohio because it was important. But I also don't want to diminish the fact that sort of the overall network effect has on improving our rereg..

So it's just based on the numbers you ran through. Nate, it sounds like excluding the Ohio effect, total managed enrollment growth would have been in the 5% range, like there was a couple of hundred basis point benefit from ECOT.

Does that sound about right?.

It's probably a little bit less than that because remember, what Nate mentioned was the number of students we got sort of coming into last year, but then there's only a percentage who are -- end up rereging. So it's a little bit less than that..

Got it. And by the way, James, you said that the cost for enrollment was a bit down like 10%..

Yes..

First of all, is that -- the way you look at that, is that only for new students or does that incorporate kind of the reregistration in itself?.

That's for new acquisition..

Our next question comes from the line of Henry Chien from BMO Capital Markets..

It's Henry. Just nice job and also wanted to ask a little bit more about enrollment, I guess, expectations for the upcoming year. So I appreciate the top line guidance. Just kind of curious how you're thinking about the MPS enrollments.

I'm assuming sort of the strong trend to continue but if you have any other color that you could share in terms of the drivers? Whether it's new school openings or improvements or retention or anything, just to kind of understand the outlook there..

Well, I think it was, as James mentioned, efficiency in how we did the enrollment season. A lot of work went into planning and using digital better. And I think that we will see some improvement in retention throughout the year, but not like we did last year. I think we were up something like 300 basis points last year.

We won't see that kind of increase, but we will see an improved -- we continue to focus on retention. The leaders of that business and I have a regular review that we go through all of the actions we can do to retain more students and treat our families better. So I think we're going to see retention improve. It helps us.

Also as I mentioned we'll be focusing more on counseling students who, we believe, will be better served in career readiness so moving over to career readiness kind of campaigns.

And what I mean by that is, they you look at their electives, and we try to get them into programs that will help them stay in school and help them be more engaged in school. And I think that will also help us with our average enrollment. So I look at the average enrollment processes.

You saw about two years ago a significant improvement in average enrollments during the year. You'll see that continue probably not as big a change as you saw last year.

Does that help you?.

Yes, no, that helps.

And it's just in terms of just new school openings is -- I think you mentioned Oregon and Texas, and is that sort of still on the table? And just in light of the elections coming up, are there any particular states that you're watching carefully, where there could be like a meaningful impact in terms of the regulatory environment?.

Well, let's see. I want to make sure I clear something up. The enrollment improvement we have through this year was not really due to new schools in new states. It was primarily just organic growth within the existing schools. So I don't think that new states and new enrollments will help.

We are going to work with the folks in Missouri to try to get some kind of program started there. But for right now, that's not really going to be the difference in our enrollment, the difference was organic growth.

In terms of the elections, there will always be some time when the elections poses a challenge for us because somebody will want to cut funds to the kind of schools that we support. And there'll also be, by the way, the opposite. The elections should be positive for us and somebody will want to see more options for students in their state.

So I'm not anticipating anything that changes our guidance. I'm not anticipating anything that worries us relative to guidance. I think we will see some changes. Most of the elections when they happen, the first thing you're going to spend time on is not going to be education budget. Honestly, they got other bigger issues to tackle.

So if we see any of those pressures, they may affect FY '20. I don't think we're going to see a significant impact in FY '19..

And Henry, just one clarification on Texas. I think we have previously mentioned that we switched one of our partners in Texas. And I think -- we, the team did a really fantastic job of sort of that transition. And well, in any transition, you have a little bit of shrink happen.

The team's really, I think, kept a really stable environment in Texas, and we couldn't be thrilled with our new partner down there. We think it's going to be a really great relationship and poised to grow over the years so..

Yes, and so when I made the comment that not new schools, that's a switch of partners, but not really a new school. We look at that as students, and the program we had in Texas looks very much same old than new, just happens to be an underlying partner change. So it's not really driven by new schools in the states at this point..

Got it, okay.

And yes, just to confirm the outlook for '19 is, I guess, just primarily organic growth, not assuming any, I guess, significant school openings or anything like that?.

Correct. And just to be clear. Just to reiterate something that Nate said, last year, because of the situation in Ohio, you saw an unusual second half of the year growth. You will not likely see that repeat..

Got it..

That's already factored to the guidance. To be 100% clear, the guidance factors that already..

[Operator Instructions]. Our next question comes from the line of Chris Howe from Barrington Research..

I have a question just in regard to retention. You have mentioned some of the successes you're seeing, such as the increased lead volume, the reregistration. And just following up on a previous question.

How would you assess your retention now versus where it was a couple of years ago? And how much room is there to grow? I think you mentioned about this year, but just how we should look at retention moving forward..

Well, we have a chart. When you draw the chart on one year and you say 300 basis points doesn't sound like a lot. We actually have a chart that looks over about 57 years. When you look at that chart, it's made a dramatic difference, multipoint, couple of thousand basis point improvement over that period of time.

And again, I think we will not see 1,000 basis point kind of improvement in one year. We'll continue to see maybe a couple hundred basis points each year. But over a multiyear period, that has a significant impact on our program. So I'm pretty happy with it.

And part of this is going to be moving to the Destinations academies as we do a better job of helping the students understand are they college-bound, if they're college-bound, are they two year college bound, are they military bound, are they headed for a job, and making sure that we structure our program to what they need.

I think we'll continue to see better retention. So I think retention still has a way to go. I still think we will continue to improve it every year. I just thought we set expectations there's not going to be 1,000 basis points in a year. Though it'd be a couple of hundred each year. It might be 100 one year, 150 another year, 200 another year.

But every single year, we have a focus on how we provide better services to our families, and how do we make sure we've given them the tools that will allow them to stay with this program longer. And I think it's working..

Great. And I had a few more questions. The next one is just in regard to the Institutional Business. I know your long-term view is unchanged.

Can you perhaps share some more color on the different marketing initiatives that you mentioned, the different improvements that you're making in that side of the business? And I know it's a little bit further out, but what you're seeing as far as international opportunities right now..

Okay. Well, first the FuelEd business. In the FuelEd business, probably the most significant change is that we do think we can compete in what's called state adoption. Not a lot of them, but few million dollars' worth of state adoptions over the next few years.

We think that the content and curriculum that we've developed is as more schools and more states go to digital adoption, that we can play in the digital adoption market. If it was all paper, generally, we would not be a participant. But now that they move into more digital, we think there's some of that we could do.

I wouldn't call it a huge market, but I call it a market opportunity. Second thing is, this thing we've called Modern Teacher. It's a company that we've invested in a partner that we have and their job is to help school districts move from the traditional classroom environment to a more digital classroom environment.

Everything from how do you measure it, how do you train teachers, how do you provide them with more digital tools, that whole transformation is a process they go through.

And as they go through that process with their customers, the one key thing they'll put up on all of their platforms and their tools is you can buy license content from K12, from FuelEd. And so that's another way that we will improve the sales in that organization.

And finally, these things that we have in nonmanaged schools, there are school districts that want to have online schools for their school districts, just within their school districts, to pull students back from home school to pull students who are sick, who have -- who may not want to go to school because they've got -- I don't know, it could be a bullying situation or could be an advanced learning situation.

In any of those, they want to have this online school. And so with Modern Teacher, we're finding more prospects who might want to do that. So all of those things will factor in to the change that we're making in FuelEd and how they find leads and how they make sales. That all takes time, of course.

You have to talk to a lot of people for a period of time, get them to open a new school, to buy your content, to help go through that digitization process, which is why we believe this year will still be a decline, but you will start to see it grow after that. So that's some of the changes we're making there. You asked about International.

I can't preannounce any deals in International. There's nothing to announce right now. I can only tell you that there's at least three partners internationally that we're talking to, who want us to provide them with dual credit kind of curriculum.

So the student in -- especially in Asia, that's probably the largest market, think of China and other countries in Asia, where there's students who want to be able to come to U.S. universities. And as they do, we can provide them with a U.S. diploma and U.S. content to help supplement their attractiveness to U.S. universities.

And we have several partners doing that. I think I mentioned in previous calls, Royal Beijing was one of our partners that was already signed up. It will be a deal similar to that in a couple of these countries. In one case, we're working directly with the Ministry of Education.

In another case, we're working with private -- with a private investor -- a private equity firm in that country who owns some schools. So again, these things take time. And so that's why I'm very careful not to give you guidance to say these are affecting our near-term financial results.

These were all business development opportunities that we're involved in.

Does that help, Chris?.

That helps a lot..

Our next question comes from the line of Corey Greendale from First Analysis..

So I have one question for James and I have one question about James, which is if I heard might -- I might have misheard but I think there were like an additional title for James.

Does that -- did your responsibilities change, James?.

Let me handle that for James because, yes, I added some responsibilities to James. He's been doing such a great job. He's been a partner of mine in these past six years. And I added to his responsibility the Product Development role, which is all of our technology and curriculum development as well as information technology.

So all of the technology parts of our business are reporting to James, and that's why his title with that is as President of Products and Technology..

Well, congratulations, James. That said, not a traditional combination, CFO and Head of Technology.

Is that -- maybe can you just give us like an overall state of the management team? Like is that a -- is that going to stay that way? Does that push in the future, like shift in direction or additional people you're looking to add?.

It's going to stay that way. And James has a set of -- a unique set of skills. He has had IT department and product development organizations working for him before in previous lives. He very much dives into the technology and has helped me look at our road map for the future over the last few years. So I think it was a natural progression inside K12.

Yes, the way to think about our management structure is, I have -- and I'm going to give you maybe too much information here, forgive me for this. But I have way too many direct reports, maybe six months ago. I think the number was above 10, and I just felt like it's made more sense for me to consolidate some of that under people.

So the primary roles in addition to HR and legal would be somebody running our Managed Public Schools, that's Kevin Chavous, somebody to run our key initiative on CGE, that's Zosimov Galmont [ph]. And then the marketing and some of those smaller business units, like FuelEd, continue to report directly to me.

So think of it as simply an internal consolidation and fewer direct reports for me, and giving some of our executives greater responsibility as I think they have stepped up..

So James, you have to -- like with one sentence asks for more funding for technology and then the next sentence proud of yourself why you can't approve that..

And his peers all say, wait a minute, Nate, isn't this going to be unfair he gets to give his own department funding and not others?.

Right..

The question I had for James was, it sounds like you're saying essentially like 606 is not a huge issue one way or the other.

But I just want to clarify that there's no significant impact of 606 on the changes we're seeing in revenue per enrollment in Q1?.

So actually, there are and, particularly in the nonmanaged revenue per enrollment, it has a negative impact in Q1..

Any way of giving us some ballpark of what would have been an ex 606?.

I'm sorry a ballpark of what?.

What the change in revenue per enrollment in nonmanaged would've been excluding the 606 impact?.

Yes, I mean, excluding, you'd be down in the 10% to 15% range as opposed to down in the 30 plus percent range, so a little more than half of the change. And on a full-year basis, I think that revenue per enrollment is going to be sort of down in that sort of 10%, 12%, 14% range.

So that's why I say, for this quarter, you have this sort of exacerbated impact of the revenue recognition on a revenue per enrollment for the nonmanaged..

[Operator Instructions]. It seems there are no more questions at this time, and I'd like to turn the call back to management for closing remarks..

Once again, I want to thank everybody for joining us today, and I think it was Corey who mentioned that -- maybe it was Chris who mentioned that we are putting a lot more focus on this career readiness opportunity.

I would only reiterate that it prepares them, the students that we have, for jobs and continuing education, military, but the key difference between us and others is that we're bringing it down to high school level.

Traditionally, it's postsecondary work, where kids start to get some of this education and we think that many kids will benefit from having this at the high school level. We'll also have capability to serve some adult learners. So I wanted you to know that we did a lot of market research, and I think it's a natural addition to what we already do.

And I think it's beginning to work. So I do appreciate all of you spending some time listening to us today and hope everybody has a great day. Thank you..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..