Stride Inc (LRN) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 K12 Inc. earnings conference call. My name is Grant and I will be your operator for today. At this time all participants are in listen-only mode. We will connect a question-and-answer session towards the end of this conference. (Operator Instructions).

As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Ms. Christi Parker, Vice President of Investor Relations. Please proceed.

Thank you, and good morning. And welcome to K12 first-quarter fiscal 2013 earnings conference call. Before we begin, the Company would like to remind you that statements made during this conference call that are not historical facts may be considered forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially early from those expressed or implied.

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 issues that could materially affect financial performance related to forward-looking statements, please refer to our filings with the SEC. These files can be found on the Investor Relations section of our website at www.K12.com.

In addition to disclosing results in accordance with generally accepted accounting principles in the US, 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 on our website for 60 days.

With me on today's call is Ron Packard, Founder and Chief Executive Officer; Harry Hawks, Chief Financial Officer; and Tim Murray, President and Chief Operating Officer.

Following our prepared remarks, we will answer any questions you may have. I would now like to turn the call over to Ron.

Good morning and welcome to K12's first year -- fiscal year 2013 earnings call. Our financial performance this quarter was in line with our expectations with revenue of $221.1 million, an increase of $27.8 million over the first quarter of last year, driven primarily by solid growth in our Corporate Managed Public Schools business. This quarterly performance has increased our comfort with meeting our previous announced annual guidance.

I would like to start off this morning by again welcoming students, teachers in all 33 of our states including the new schools we are very excited to have opened this year in Florida, Iowa, New Mexico and New Jersey.

We are working hard and making substantial investments to recruit and train the workforce of the 21st century teachers and develop the products, processes, and operational infrastructure to meet the needs of a growing, increasingly diverse student base. This year, we hired and trained over 750 new full- and part-time certified teachers having received approximately 30 applications for every teaching job.

With a total of over 4,500 full- and part-time teachers delivering K12 curriculum, we believe we have the finest group of teachers in the country. And we can't thank them enough for their significant contributions as K12 continues to lead the technology-driven transformation of education to individualized learning.

I would also like to welcome an important addition to our Board of Directors. The former governor of Michigan, John Engler, joined us on October 22 and we are very excited about his involvement in the Board and his business and leadership experience Mr. Engler brings to our Company.

Now, I would like to make some brief comments on the elections. First I would like to congratulate President Obama on his reelection. Secretary Duncan has done a fantastic job over the past four years advancing things like common core, school choice, innovation and education, and we look forward to additional progress over the next four years. He has always been an innovator since he first became CEO of Chicago schools and helped create in partnership with K12 one of the nation's first hybrid schools. That school, which is managed by K12, was recently named one of Chicago's best high schools by Chicago magazine.

We are also quite excited by several other election results. It was especially encouraging to see that the voters of Georgia overwhelmingly supported an amendment to allow charter schools in the state. This is a significant milestone for educational liberty. There were several other additional positive developments Tuesday that we believe should help advance K12's mission of providing expanded learning options for students.

During the first quarter this year, enrollment in our Managed Public Schools grew by more than 14% over last year with average student enrollments for the quarter of approximately 122,000 students, 15,000 students more than last year's first quarter. The largest source of new students continues to be referrals from other students and their parents which is the best indication we are delivering value for students. High parent and student satisfaction drives recommendations and is one of the most important measures of success internally and we are proud to serve an increasing number of children across our business lines.

For the 2013 school year, we released 41 new courses in and 59 customized courses for various states. Our curriculum now includes 155 full year K-8 courses and 540 high school courses. We continue to innovate and to focus on learning efficiencies, academic outcome and remediation so we can better serve the increasing number of students who come to K12 behind grade level, as well as the districts with whom we partner with to offer remediation, advanced courses and curriculum that would otherwise not be available to their student populations.

K12 continues to push forward with innovation and technology-based education. With the acquisition of inside schools previously, K12 began to manage specialized schools for at-risk students and we are working diligently to open more of these at-risk schools. These specialized schools will allow us to customize the entire offering including curriculum, systems, teachers and social services for these children so that we can deliver even more value to them. These specialized schools may also increase our growth rate as millions of students are at risk in seeking equality educational solution.

Our mission remains to deliver an outstanding and decisive education program for each of the more than 100,000 full-time students, enabling them to pursue their dreams and become whatever they would like to be in life. Without our highly skilled teachers and staff, this simply would not be possible.

Turning now to the outlook for fiscal year 2013, this quarter puts us on path to achieve the annual guidance we announced on our call in mid-October. We anticipate that revenues will be between $840 million and $870 million and EBITDA will be between $107 million and $115 million. For the second quarter of fiscal year 2013, we estimate that revenues will be between $205 million and $215 million and EBITDA will be between $30 million and $33 million. EBITDA for the second quarter will be significantly higher than the first quarter because of the normal seasonality of our business that results from the second quarter having three full months of school in all of our states as well as significantly lower recruiting enrollment expenses than in the first quarter.

It is important to point out that last year we did not see the normal seasonal increase in the second quarter because of unanticipated funding issues that happened in the second quarter of last year.

For example, without those unprecedented reductions of $8 million, EBITDA last year would have grown from $21.2 million to $29.2 million. If our EBITDA this year were to grow by about $8 million, it would take us to $32 million for the second quarter this year which is in the range of our guidance.

Now I'll turn the call over to our CFO, Harry Hawks.

Thank you, Ron. Good morning to everyone participating in our call and webcast and a special K12 shout out to our mid-Atlantic and Northeast friends still coping with the effects of last week's Hurricane Sandy and this week's Nor'easter.

This morning we are reporting first-quarter results that are in-line with our plans for fiscal 2013 -- revenue of $221.1 million, an increase of $27.8 million or 14.4%. EBITDA of $24.3 million, an increase of $3 million or 14.1%. Operating income of $8.7 million of $400,000 increase. Net income of $4.4 million, a $200,000 decrease. In addition, this morning we are providing our second-quarter outlook for revenue of $205 million to $215 million and for EBITDA of $30 million to $33 million. Both metrics are in-line with consensus estimates for each posted to First Call as of last night.

Based upon our reported results for Q1, and our outlook for Q2, we are also reaffirming our full-year guidance for fiscal 2013 previously given on October 17 reaffirmed by Ron just a few minutes ago and provided again in this morning's press release. In anticipation of some of your questions, let me address a few topics that frequently come up in our ongoing dialogue with many of you.

First, the slower growth rate in Managed Public School enrollment this quarter and this year. As we mentioned, in our guidance call on October 17, enrollment growth in 2012 benefited from the effects of our acquisitions, a greater number of enrollments from new states, and a larger contribution from increased caps. Once again as we previously stated, if we isolate and then compare same school organic growth, we added 10,500 students this year versus 9,500 last year, growth rates of 14% and 15% respectively. As we look forward, we are focused on quality of enrollment growth where we have significantly fewer unfunded students.

Second, the negative comparative revenue performance in institutional business. This innovative business has several different kinds of business relationships with school districts and institutions. One aspect of those different kinds of business relationships is a perpetual license transaction, which we sometimes do. Perpetual license transactions occur in a very uneven pattern throughout the year and that is distorting the period over period comparison this quarter. Normalizing, we would actually see 6% growth rather than 6% decline. We have great confidence in growth in that business segment, that line of business this year.

Next, the seasonal build up in accounts receivable. As is our normal seasonal pattern, our accounts receivable substantially increase this quarter. The increase of $98 million this quarter as compared to our June 30 year end is in line with our expectations although DSOs have -- or excuse me, days sales outstanding or aging, in other words -- have increased slightly by a few days due to mix. A year ago the accounts receivable increase in Q1 was $118 million, giving effect to the acquisition of the Kaplan Insight Schools.

As is also our normal seasonal pattern, this investment in growth related working capital impacts the GAAP cash from operations as reported in our statement of cash flows.

Next, the seasonal drawdown on cash. Consistent with the foregoing comment about investment in working capital, we also routinely draw down on cash in Q1 to fund that investment in growth working capital. For example, the $37 million drawdown this quarter compares to about a $60 million drawdown in the comparative period last year. Once again, last year impacted by the Kaplan transaction. With a cash balance of about $108 million, our liquidity remains excellent.

Next, the impact of depreciation and amortization on operating income growth in relation to EBITDA growth. From fiscal 2010 to fiscal 2012, depreciation and amortization more than doubled from around $26 million to about $58 million largely as a result of acquisition-related purchase accounting. Our guidance for the year of $60 million to $65 million compares to $58 million last year, the trend clearly slowing down. However, the increase in Q1 of about $2.7 million is a higher variance than we expect in subsequent quarters.

Furthermore, our stated goal of slowing the rate of growth of capital expenditures will also contribute to a slowing growth in depreciation and amortization as we go forward.

Next, the decrease in product development expenses in the quarter. As a reminder, at K12, this expense line is actually comprised of two very important functions, product or in other words curriculum development and software development, both staffed and led by very talented people here at K12. The $2 million decrease is a function of two things. Capitalization rate, which is influenced by project specific factors and a decrease in system implementation expenses year over year. Total cash spend is actually up year over year, reflecting continued investment in strategically important assets.

Next, the tax provision is higher than statutory rates and higher than our annual guidance. Yes. That is correct this period. However we have reaffirmed our annual guidance for tax provision so it can be expected that some quarters throughout the rest of the year will be less than the full provision. If indeed Q1 had a tax provision at our annual expected rate EPS would have been approximately $0.02 higher at about $0.13 per share.

Certainly I have not preempted all of your questions, so now would be a good time for Ron, Tim, and me to respond to your questions and comments. Operator, please open the call for Q&A.

(Operator Instructions). Suzi Stein.

Good morning. It is Thomas Allen filling in for Suzi. Can you give us an update on your thoughts around the web acquisition? Thanks.

Sure, be happy too. We are still -- our option was extended to December 31 and we are currently still in due diligence on that. So we are not ready to comment on whether we will move forward. Just to remind you, we have several options we can increase our interest up to 51% or we could potentially could put it back to them at an 8% return to us and we are evaluating that. But I will say that the web continues to grow and perform well in this period.

Great. And then, it's been about a year since [Pearson] bought Connections. Now that it's been a little time, can you give us an update on how they are operating and if they are doing anything differently than what they were doing before? Thanks.

Sure. We don't notice that much, that many things different in the virtual category business. I think they are now put into Pearson so we don't see what they do so much. But we haven't seen significant changes in what they do in that business. I think they are potentially doing more sales to school districts. But we don't see a lot of changes other than we know they opened up five hybrid schools this fall.

Again if I could get one last one in. Just on the unfunded students and thinking about the comp a little more, it seems to me that if there is a cutoff date that after that date you don't get funding for new students, anymore, it would mean that the drag builds up over the course of the last year. So kind of back half comps will be easier. Is that the right way to think about it or is the window of funded versus non-funded relatively small so the impact all begins in 1Q and is relatively even for the year?

It is different by state. Depends upon whether there is a single count date or multiple count dates. This year versus last year a couple of our schools in states have actually gone to a multiple count date. So I think if I am answering your question correctly in terms of comps, we would expect the unfunded number later this year to be, if you will, better meaning less in the second half of the year than the first, then last year. If I understood (multiple speakers).

So, the impact of having more unfunded students was more -- was felt more in the second half of last year than the first half? Right?

It does indeed occur throughout the year, but yes this year we will do better in the back half of the year than we did last year on that specific question.

Great. Thank you.

Sara Gubins.

Good morning. First question. The revenue per student in a managed segment was up nicely this quarter. Could you talk about what was driving that?

Certainly. I think the previous question is probably the appropriate introductory comment there. And that being the -- we have an improvement in the what we call the capture, revenue capture. In other words, less unfunded students and then once you go past that into some of the other nuances, it just becomes mixed by state and things such as that. Also, within that business segment, we have an expanding business in our Flex school and hybrid school areas. And so there is indeed some revenue mix going on.

But as we commented on the October 17 call, there are a number of factors such as that that allow us to have revenue growth greater than the enrollment growth this year, which is different than last year.

Okay, second question. Could you provide an update on your margin initiatives and how they are progressing so far?

Let me comment on that. As we think about operating leverage, our approach is two-pronged. What can we do now and what can we do to focus on those areas of the business where we have high transaction volumes where we can see opportunity to reduce unit costs? So a unit cost approach. On the what can we do now the most obvious place for us to focus is on for procurement and purchasing. If we look back at 2012, we spent over $300 million in procurement. By the way did that in lots of small increments, some 27,000 plus purchases.

So what have we done there? The first step was to look at our many to one relationships with some of those vendors and consolidate them so that we can leverage our purchasing power and bring rates down.

Second is just brute force price negotiation with our vendors.

Third, we have been enforcing SLAs quite frankly. We seem to be bringing some of our vendors along into performance levels in a 7 by 24 operation and they haven't been performing. And so where they have not we have looked for some relief and help achieve that.

And then last of course is, we've talked about on previous calls about our implementation of an ERP system. We have implemented much of the process reengineering but not all in the so-called procure to pay business process and we are seeing some benefits there.

In the areas of unit cost, there are four areas that we are focused on. We are looking at all aspects of the value chain from a cost per enrollment perspective.

Secondly, as we have previously said, we added over 1,000 employees last year and so we are looking at all of the costs associated with employee-related transactions using Oracle, HRIS, etc., to reduce the unit cost there.

Third, we are looking at the materials and logistics part of our business. I think many of you probably know we shipped over six million items in this past couple of months. We shipped over 80 tons of materials to our students, over 400,000 deliveries, and so there's lots of opportunity over the longer term through supply-chain automation and other ways of looking at that business process to be able to achieve efficiencies.

And then the fourth area that where we again had very high volume and so see an opportunity to reduce unit costs is in our call centers where we are currently processing over 0.5 million calls per year. So we are looking at process, technology, training of the team, etc., to reduce unit costs.

So in sum, what we can do today is focused on procurement and purchasing. What we see unfolding over future quarters is volume increases and our initiatives takehold is the unit cost-based approach to reducing cost in those processes I just mentioned.

Great. Thank you. And then last question, Ron, any comments on the new state pipeline particularly now after the elections? You sounded relatively optimistic. I'm wondering if anything is looking more likely over the next six to 12 months?

Well yes, as you know I tend not to talk about prospective states, but I will say just the following the results of the elections in several of the states were very favorable for K12 with regard to potentially opening a new school and in other cases increasing the enrollment cap. So we were actually quite pleased with the results in several other states on Tuesday night.

Okay. Thank you.

Jeff Meuler.

Good morning. Could you talk a little bit more about the more project -- or more development projects qualifying for capitalization, capitalizing the costs? Was that something specific to this quarter because of the projects you're working on or should we expect a fairly sizable decline on a full-year basis in project development expense at least as it runs through the P&L?

Well, just to be clear and as it relates to when and if and how a project is capitalized, capitalization is a -- if you will, an output not an input, and it is based on the number of different factors. A whole lot of rigor goes into it, and so there's no standard capitalization rate that applies to all periods all years. It is a function of timing of a specific project. Some projects carry over multiple periods. Some are shorter in duration, etc., etc.

So having provided that context, I would say that we would expect there to be a slower growth rate in that expense line for this year.

But you would still expect the absolute dollars of project development expense on your income statement to be up year over year in 2013, just at a slower growth rate?

Yes. That is correct.

And then could you just talk a little bit more about the institutional license sales that was impacting this quarter and if it is just lumpiness and you are still doing license sales, but maybe they came through a little bit like this quarter or heavy in the year ago period? And then also just generally on the institutional business, even if you adjust for the factor, 6% growth is quite a bit below what you historically have been doing there even on an organic basis. So if you could just address that, please.

Let me comment on both those points. First, on the lumpiness issue, we will continue to sell perpetual licenses where that is what the customer wants to buy. It is not our lead offering. And so, we would expect to continue to see lumpiness going forward on a quarter over quarter basis. We do not have any perpetual license sales in this first quarter. We do see some in our pipeline going forward. So on a year-over-year comparison it was a factor.

The other thing that I would say that will make GAAP-based comparisons challenging this year is there are other factors going on as we compare the institutional business on a year-over-year basis. One of the acquisitions we made was on a billing arrangement where we bill those customers three times a year. And as you can imagine we have to work customer by customer to move that to a monthly billing basis so that is going to make comparisons challenging.

As an operating person, I don't operate the business on a GAAP basis. We think about it on a cash basis. And so we judge the momentum of the business on a non-GAAP cash basis, if you will.

And to the point of opportunity, perhaps I could just step back for a moment and talk about what this business really is. This is a business where we are targeting bringing a continuum of solutions where our strategy is to be a full-service solution provider to the students who will likely never choose to come into a permanent virtual academy. And so the law of large numbers says this is where the opportunity in the long term is. And unlike many of our competitors who are coming to market with very narrow point solutions, our strategy is to be a full-service provider.

In the last quarter we announced, and I think we spoke about it on one of the earlier calls, the introduction of a new product platform called PEAK, which allows us to look at a customer and address what is becoming an increasingly complex set of challenges. Customers out in the district said they are buying curriculum from many fragmented players and the challenge is the more of those vendors and point solutions they have, they have to measure performance and judge performance at the student level, not at the vendor level. And so they are increasingly looking for a vendor who will integrate together the various solutions that are being provided to a student so that the district can report compliance, measure progress of the districts and at the student level or at the school level.

That is the opportunity we are chasing. And some of the challenges that we're seeing right now is just customers are adopting that value proposition as you would expect at a different rate. We have got some customers who are already intrigued by the value proposition and talking about a full outsourcing solution. We have others who are interested in just buying curriculum, curriculum plus hosting plus instruction, integrated curriculum plus hosting plus instruction, etc., etc.

And so again, our approach is to have a -- given the cost structure of a national sales force we have to have a solution set that is broad enough and will drive up high enough revenue per sale to cost justify that salesforce. And so we will take a long-term approach to building up that business.

Now let me conclude by just talking to the question of momentum.

When I look at the size of our salesforce this year versus last year we are up about 1.5 times. When I look at the funnel, the pipeline generation, we are up 3.5 times over what we were last year. And the average value of those opportunities is getting bigger and so we look at those kinds of metrics and they indicate to us building momentum, the 6% growth that Harry mentioned on a normalized basis if I subsegment that business, there are several that are growing in the high double-digit growth rates. And so we are comfortable that this is the right long-term opportunity, but we also understand there will be some lumpiness quarter by quarter.

That's helpful. Finally for me, could you talk about what the -- I guess, the beginning of your churn and intake has been like a month or two into the school year and how the initial turnover as compared to prior years?

Actually we don't give a lot of details on that, but I will say a couple of things on it. You know we measured intensely from October 1 on it's been relatively stable to what it was in past years. In the initial from the call center, improvement enroll to actually October 1 it was actually slightly higher. Higher than it was a year earlier. So we saw a slight increase in that.

I would also add long term we expect as this year the high school mix grew relatively similar to the K-8 mix. In the past year high school grew dramatically faster than the K-8 mix. So high school tends to have a higher return rate or lower retention than K-8 does. So as that mix naturally goes up over time if high school continues to grow faster, we will see given even with K-8 and high school both stable, we will see slight upticks in that kind of withdrawal rate because high school for graduation as well as the fact that it has slightly higher return rates.

Kelly Flynn.

Couple of questions. Thanks for all of the color on the organic growth rates. I just want to clarify a couple of things on that front. For last year, can you just tell us what the enrollment growth rate was just excluding the acquisitions? Not excluding anything else?

Hang on a minute. We don't have that at our figure tips, so I will get it for you. Let's see last year we in Q1 we -- let me clarify and make sure I'm answering the right question. Is this Q1 this year versus Q1 last year? I have got Q1 information in front of me here.

That's fine, yes.

Q1 last year we reported 35% growth in enrollment, but we also acquired some enrollment and so the total enrollment growth with the acquired growth was 42%. Of that 35% growth, however, if you will, organic quite a bit of it, this is what I will have to segment and supplementally get back to you on. That included growth from new states and that also included growth from cap increases.

So if you try to normalize the same state growth, so to speak, which is a comment we were making on October 17 was that the 14% growth this year compares to 15% growth last year but the absolute or total growth was 35% with another 6% acquired. Am I answering your question?

Yes, not really. I think I will have to talk about it in more detail off-line.

Let me just ask a couple -- it a few other ways. The number of students from new states added in fiscal '13 the number you guys just reported October versus last year from new states I had 800 this year versus 3,300 last year. Is that right?

That sounds about right. Yes.

And for same thing about cap increases. I had 6,200 from cap increases this year versus 8,200 last year. Is that right?

That sounds about right. We will verify with you offline but that sounds about right.

Okay and then just switching gears, I know you talked about the Georgia victory, so to speak. Can you just kind of translate that to some extent into the numbers? Is that a material event for this year and how should we think about that order of magnitude as far as the benefits it yields to K12?

I am not prepared to comment on the specifics or the order magnitude but I will say that that was very significant event for K12. Not only the future but potentially this year, but certainly in the future it was a very significant event for K12.

And then lastly, wasn't there somebody on the ballot in North Carolina? Can you address that, maybe I missed it (multiple speakers).

There's nothing on the ballot in North Carolina. I think the Governor-elect in North Carolina is very much in favor of educational freedom so I think in that way North Carolina was a positive development.

Okay. Perfect. Thank you.

Jeff Silber.

When you give guidance for the second quarter it implies a sequential decline in revenues from what you just reported in the first quarter. Can you just remind us about the seasonality now that you have these different segments, which of those three segments will we see this seasonal decline?

Well, first off let me clarify that the pattern you see is normal. It is not a negative. So your takeaways should not be that that's negative. That is our normal pattern, that Q2 is less than Q1. And that is a pattern that has played out over many years. So it is indeed normal in our -- the seasonality of our business. In terms of individual lines of business, we have not broken out guidance by line of business.

Yes, and by the way, as a reminder we talked about this before, that in Q1, one of the reasons Q1 is higher than Q2 is there are certain elements of the business that we are in that occurs in Q1 such as materials and student computers and things like that that distort, so to speak, the first quarter and second quarter normally would come down. In terms of once again we've not given guidance by line of business or by the three pillars, but we would just say it this way that what we are looking at in Q2 2013 versus Q2 2014, we are expecting growth in all three lines of business.

Let me ask the question another way. I'm sorry, Harry. Just in looking last year it looks like you had a big drop in the institutional business between Q1 and Q2 in terms of GAAP revenues, relative to the other segments. Should we just expect something similar this year?

For institutional, yes. Q2 versus Q1 last year was in decline. But this year, not so much. So.

But we don't expect to see the same thing significant decline in institutional business quarter -- Q1 to Q2 to Q1 that we saw last year.

Great. That's all I needed on that. Let me shift gears a little bit. You alluded to Hurricane Sandy and then the Nor'easter we've seen up here in the Northeast. Can you tell us, one, was there any impact in your business because of that? And two, let's say a school had to close for a week or so and you don't make up those days. Do you lose funding or are you paid on a daily basis?

It depends a lot, Jeff, on the state. The way states fund, there are states that pay on a daily basis. There are states that fund you by as you know by count dates. So our schools and systems despite the fact that we are located in an area that was affected by Sandy and we didn't have issues so our schools were always up. They don't go to sleep. And any student in an affected state and you know as you know we other than Newark Flex, we do not have a virtual school in the heart of where Sandy really did the most damage. But as long as you have access to a phone line, our schools would be up all through this disaster.

Yes, that was my question. A lot of people lost power and couldn't get access to the Internet.

Well, there is something still dial-up. But if you have a phone line you can do it. So we have been through a lot of these things and our schools stay up. And in most cases, a lot of our attendance is done not where you have to be there on Monday, but you might have to do five days a week or so many days in a month, right? So it is very easy for kids if they were out Monday and Tuesday to go to school Saturday and Sunday.

Okay, great. All right. That is very helpful. Thanks so much.

That's the beautiful part about our business is when there are disasters like this our schools don't stop.

Trace Urdan.

Good morning. My question about California, I think when you guys gave guidance for the full year, you could not have necessarily been planning for Proposition 30 to go through. I have to figure that has got to be a reasonably big deal for funding purposes. Is that just money that you will put in the bank against other contingencies or how should we think about that?

I would think of it this way. Proposition 30 greatly reduces the probability that we will see funding reductions that will see in California. So we have not updated any of our guidance reflecting Proposition 30, but generally obviously that is favorable if California doesn't see funding decreases.

Thanks, Ron.

You have no further questions at this time. (Operator Instructions). Joe Janssen.

Yes, it is Joe Janssen, filling in for Alex Paris. Trace actually just stole my question, but maybe just -- I know I am the last one in the queue here. Maybe you could comment real quick I know you gave a lot of information on the guidance call regarding your certified teachers and percentages in the system. Maybe just a quick comment on Seminole County. Was that enough data? Is that internal review closed or is that still outstanding?

We have done the internal review and had our own external investigator in with regard to Seminole. And nothing has changed. The reports came out that we used all certified teachers. The Florida IG report has not come out and there's really been no information, new information to report on that.

We are also still in the process of auditing our, we call, centralized teaching banks which is a bank of teachers -- a group of teachers that we teach individual courses with, with thousands of districts across the country. And we are still undergoing that internal review.

Great. Thank you.

You have no further questions at this time. I would now like to turn the call over to Ron Packard for closing remarks.

Great. I would like to just highlight some upcoming dates. On November 14, we will be presenting at the JPMorgan Ultimate Services Investor Conference and December 4, we are representing at the UBS Annual Global Meeting and Communications Conference. We also anticipate in the end of November or early December we will be releasing our Annual Academic Report to talk about how we measure the academic performance of our students and give a lot of information on the academic performance of our individual schools.

I look forward to seeing all of you at the upcoming conferences. Thank you.

Thank you for your participation in today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect. Have a good day.