Stride Inc (LRN) 2016 Q4 法說會逐字稿

Greetings and welcome to the K12 fiscal 2016 fourth quarter earnings results conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Mike Kraft, Vice President of Finance. Thank you, sir. You may begin.

Thank you, and good morning. Welcome to K12's fourth quarter earnings call for fiscal year 2016. 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 made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and 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 date 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 including, without limitation, cautionary statements made in K12's 2016 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 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 for 30 days.

With me on today's call is Stuart Udell, Chief Executive Officer; and James Rhyu, Chief Financial Officer. Following our prepared remarks, we will answer any questions you may have. I would like to now turn the call over to Stuart. Stuart?

Thanks, Mike. Good morning everyone and thanks for joining us on the call today. As noted in our release issued this morning, we ended fiscal 2016 with revenue for the year declining 8% year-over-year to $872.7 million. Operating income for the year was $13.9 million, declining $4.5 million from the prior year. Excluding the net impact of the settlement with the California Attorney General, operating income would have been $21 million. Capital expenditures were $71.2 million for the year. The majority of CapEx went towards upgrading our technology platform and curriculum to dramatically improve the student online learning experience.

Notably, we produced $50.6 million in free cash flow and ended the year with nearly $214 million in cash. We achieved this while investing $20 million for the acquisition of LTS last quarter. These results adjusted for the impact of the settlement are in line with the guidance we gave you last fall. Performance for each quarter and for the full year consistently met or beat the guidance we provided.

Now, let me turn to some commentary on business operations for the year. First, in our managed public school programs, we continue to execute on our objective to improve student retention. We ended the fourth quarter with student enrollment almost equal with the quarter -- with the year ago quarter. The improvement equates to more than a 150 basis point increase in our in-year student retention rate. This reduction was not the result of a single event, but part of a multiyear effort to attract and retain students who are most likely to succeed in an online environment.

As part of this effort, we continue to invest in our Students First portfolio of programs. This year, we rolled out these programs to 19 schools representing about 50% of all students attending our partner school. The programs encompass the entire student experience from onboarding to personalized outreach, to academic and support services for struggling students, to surveys to gauge satisfaction.

Our goal was to further improve retention and academic results, thereby also improving the long-term economics of our business. Schools that participated in these Students First programs shows marked improvement in student engagement and retention. Student engagement is a critical element toward achieving student academic success. We will continue to invest in Students First with plans to roll out to another 20 schools next year. This will allow us to reach approximately 90% of all students who attend managed public school programs with this innovative set of services.

This year, we also succeeded in expanding the number of K12 Managed Public Schools. We grew out existing presence with six new schools in five states, including Alabama, Nevada, Michigan, Indiana, and Virginia. These schools will serve a wide array of students from at risk populations to dual credit and early college program. At the same time, we have been pursuing blended school opportunities. Our new blended school offering has met with immediate success with two new programs opening in Maine and Nebraska in the upcoming school year.

With all of these new schools, we will work closely with Boards to determine specific enrollment targets based on the objectives for that school. Our partners are serious about running high quality charter schools and want to attract students who are well suited to be successful in their program.

Moving forward, we will continue to work with school boards to open new schools in states that do not yet have a virtual school option, as well as expand our footprint in states where we already have a presence. As you know, this business development process is often a multiyear effort. So we will keep you informed of progress as things develop.

Overall, we expect to continue to see solid demand for full-time online programs with managed programs being a core part of K12's business for the long-term. Before we release our 2016 academic report, I also wanted to take the opportunity today to correct an error regarding the academic gains we reported using Scan Tron test results for math and reading two years ago, and as reflected in the 2015 academic report. Specifically, for school year 2013-2014, we have recalculated those results by including gain scores falling within the standard error of measurement.

With this correction, it remains the case that K12 students overall mean gain exceeded the overall Scan Tron norm group mean gain in reading and math, although by a smaller margin than originally reported. If gain scores falling within the standard error of measurement had been included in the analysis for school year 2013-2014 and the calculation methodology otherwise remained the same, K12 student's mean gain would have exceeded the Scan Tron norm group's mean gain in grades four through nine in reading and in grades three through ten in math.

However, K12's gains would not have exceeded the Scan Tron norm group in grades three and in grade ten for reading and would not have more than doubled the norm group gains in grades six, seven, and nine in reading, and nine in math as we had previously stated during our earnings call on October 30, 2014.

K12's precise performance relative to the Scan Tron norms in math and reading for school year 2013-2014 will be published in our 2016 annual academic report. That report will be published within the next month and as you'll see, in addition to presenting the above results, it will also present some further refinements to our methodology.

Now, second, as school districts continue to adopt online schools and services into the classroom, we continue to see demand for the full catalog of Fuel Ed course offerings, from basal curriculum in AP courses to credit recovery and ELL. A perfect example is the breadth of opportunity for Fuel Ed solutions is with a new school district partner in California. This particular school district will be making a full complement of Fuel Ed courses available to several thousand students this fall. The idea is to provide every student access to whatever they need, whenever they need it, including core curriculum electives and supplemental resources. We will even be providing adult education options as well as support for students requiring credit recovery.

When we asked this customer what their motivation was behind their adoption of Fuel Education, they responded, why wait to see a kid fail before we do something about it. We certainly hear the same from many of the districts we serve across the country.

In addition, as I mentioned on the conference call last month, Fuel Ed has expanded its contractual relationship with the Agora Cyber Charter School in Pennsylvania. Starting this school year, Agora will once again be receiving marketing services, enrollment management, middle school programs, and hardware and technical support from K12. The enhancement of our relationship with Agora points to the value K12 plays in delivering a seamless online experience for students, and we look forward to serving the student teachers and administrators of the Agora School.

Fuel Ed is also expanding its full-time school footprint. This year, we will be opening new programs for district partners in Colorado, Washington, Arkansas, Ohio, New Jersey, Pennsylvania, and Alabama. Looking ahead, we are excited about the prospects for Fuel Ed over the long-term. Fuel Ed remains a business development priority for K12 and we will seek to continue to grow Fuel Ed, both organically and inorganically.

Third, we made targeted investments in our systems architecture to better engage students and improve the online learning experience across all of our businesses. This includes expanding the use of our new online platform to middle schools, which we rolled out to high schools during the 2015-2016 school year. The platform takes the online learning experience to an entirely new level by empowering students, teachers, and leaning coaches to access what they need, when they need it, and also allows us to operate more seamlessly on mobile platforms. Importunately, it will help teachers drive better academic outcomes with instant access to actionable student data.

Now, aside from the sheer technical lift, implementation of a new system on this scale is an enormous change management effort. Over a two-year period, we will have rolled out the new platform to more than 75,000 students, families, and teachers in more than 70 schools. By any measure, this is a huge feet and a laudable effort.

Importantly, we continue to invest in our next generation curriculum that will provide new rich and interactive courses for the upcoming school year. The new curriculum, which we call Summit, is rich, engaging, and highly intuitive and adaptive in response to learners' needs. We will continue to invest in this new modular and scalable curriculum over the next several years.

Fourth, we brought career technical education or CTE to market. These programs allow students to pursue a distinct career pathway based on the national career cluster model. Students can work towards earning one more industry recognized certifications from a pool of 18 certification options, most of which are stackable, meaning that they can be used towards future learning pathways.

We believe CTE has enormous potential to add to the skilled trade workforce in this country, as well as better prepare many graduating students for post-secondary education. For the upcoming school year, we will be launching five new CTE schools or programs with partners in Wisconsin, Nevada, Colorado, Utah, and South Carolina. Fuel Ed has also introduced these programs to school districts and has seen immediate demand. Dozens of school districts have already purchased courses and are planning to offer these CTE programs this fall.

Now, in summary, we clearly met or exceeded the financial and operational goals we set for the year. Our managed public school programs are improving. Student retention, revenue for enrollment, and importantly, academic outcomes are all heading in a positive direction. From a school development standpoint, in total we have worked with school boards to open 13 new schools or programs across 11 states. Our institutional business continues to hold great potential for growth. School districts are reevaluating how they deliver their academic programming to meet the needs of the ever-growing digital education revolution. Districts are leveraging digital content to provide original coursework, supplement classroom instruction, address homebound constituencies, and even replace traditional textbooks.

Our acquisition of LTS enhances our product set and diversifies our technology platform. LTS's Stride Academy fills a gap in skills practice, assessment, and test readiness across all grades and subject areas, and does so in an engaging gamified environment. We've also expanded our business into new areas. CTE has enormous potential to educate students who may not have had the ability to persist in a traditional classroom and to fill this nation's need for more relevant and skilled workers. Our technical and product teams have delivered significant upgrades to our curriculum and infrastructure. Our Summit curriculum and new learning management platforms are poised to enhance our speed to market and flexibility in providing effective learning solutions for schools, districts, families, and students in the years to come.

We have a strong balance sheet with $214 million in cash and virtually no debt. This puts us in a strong position to capture strategic opportunities while investing in the organic growth of our business. Overall, I believe K12 is well positioned to continue to innovate for the benefit of students and teachers across our nation in search of transformative learning experiences. I trust you can see why we are so excited about K12's long-term growth prospects.

Thanks very much for all of your support this year and I look forward to a great year in fiscal 2017. I will hand the call over to James. James?

Thank you, Stuart and good morning everybody. Let me start with our reported results. Revenue for the quarter declined 6.1% from the year ago quarter to $221.3 million. For the year, revenue was $872.7 million, down 8% from fiscal 2015. For the quarter, operating income was $510,000 compared to an operating loss of $16.3 million in the year ago quarter. For the year, operating income was $13.9 million compared to $18.4 million for the fiscal 2015.

As you saw in our press release, our operating income for the quarter and the year included a settlement with the state of California, resolving all claims related to the Attorney General inquiry. The Company took a net charge during the fourth quarter related to the settlement of $7.1 million. This is comprised of $2.6 million in settlement payments, $6 million to defray the cost to taxpayers for the Attorney General's expenses, and $1.5 million of insurance reimbursements.

Excluding this cost, we would have reported operating income of $7.6 million for the quarter and $21 million for the year. This is in line with our guidance for the quarter and for the year. For comparison purposes, if we looked at 2015, excluding the $28.4 million in charges recorded in the fourth quarter of that year, our fiscal 2015 operating income would have been $8.9 million for the fourth quarter and $43.7 for the year.

I'm going to exclude the impact of the settlement and the investigation cost for this year and the charges booked in 2015 when talking about expected profitability numbers. This should provide you with a clearer picture of the underlying trends in our business.

Revenue for the quarter was $221.3 million, a decrease of 6.1% versus the year ago quarter. For the full year, revenue was $872.7, which represents an 8% decrease over the prior year. Revenues were primarily impacted by the change in the Agora contract. Excluding the loss of Agora, revenues would have risen approximately 8% and 4% for the quarter and year respectively. The pro forma revenue growth in the quarter was largely driven by increases in our managed public schools programs and our institutional business, Fuel Ed. On full year basis, we saw growth across all segments of our business.

Revenue from managed public school programs fell almost 8.9% for the quarter and 11.9% for the full year. Enrollment similarly fell 9.6% and 10.2% respectively. Revenue per enrollment saw a more muted impact as revenue per enrollment actually increased for the quarter by 0.8% and fell by 1.9% for the full year.

Underlying these losses, we saw strong increases in full year revenue per enrollment of over 6% when excluding the impact of Agora. The revenue per enrollment trends involve a combination of factors, including school mix, improved funding in some states, and other variables.

School mix is an important level for us as we optimize in states where the funding and contractual environments work in our favor and where our school board partners agree. However, as we look forward, we are cautious about both the overall environment and the opportunities to improve mix. For fiscal year 2017, some of the growth opportunities Stuart discussed are in states where the funding levels are below average. While a short-term challenge, we see this as a long-term opportunity where we can work with those states to provide funding for online students that is at least comparable to the overall market.

This approach is consistent with our historical practice of entering states where the economics don't begin favorably but improve over time. We continue to believe that the overall funding environment will remain positive. However, increases may be more modest in comparison to the trends we've seen in the past few years.

Excluding Agora, we've seen full year average enrollments almost flat to the prior year despite starting the year with account date enrollment almost 4% lower than the previous year. So as Stuart mentioned, our investments in in-year retention and programs are bearing fruit.

Moving on to our institutional business, which includes both the non-managed public schools programs as well as our international, software, and services line, revenue grew 30.8% for the quarter and 23.3% for the year. The gains in non-managed programs were largely the result of a shift in the Agora contract going from managed to non-managed. Institutional software and services revenue increased 8.7% for the year. The revenue growth here is not consistent from quarter-to-quarter, however we are encouraged by the progress we are making to structurally set this business up for long-term growth.

For non-managed programs, full year revenue per enrollment increased over 5% and was basically flat for the quarter. This was directly attributable to the Agora agreement, which Stuart mentioned we are expanding in both term and scope starting in fiscal year 2017. We are also looking at the enrollment side of our institutional business to ensure we maximize profitability and not enrollments. We may do some printing of contracts that could impact enrollments going into next year to enhance the profitability of our portfolio.

In our private paying international businesses, revenues declined 23.5% to $9.9 million for the quarter but rose 1.1% to $47.1 million for the full year. As we mentioned last quarter, we have shut down our operations in the UK and the declines in the quarter are largely as a result of that change. For the year, our UK operations consisted of approximately $10 million in revenue. This was a money-losing venture that we saw no clear path to either sustained growth or profitability. So for next year, this business is going to shrink on a reported basis giving a loss to the UK revenue. However, we do see some interesting opportunities in the private pay space and we will be pursuing them in the coming year.

Gross margins were 35.3% in the quarter as compared to 33.2% in the year ago quarter. This is in line with our typical seasonal trends for the first quarter. For the year, gross margins were 37.4% compared to 36.9% in the fiscal year 2015. Year-over-year increases for both the quarter and the year relate to the positive revenue per enrollment figures we have seen throughout the year.

Selling, administrative, and other expenses increased 1% for the full year and 6.8% for the quarter, excluding the impact of the settlement charges this year and charges for last year. So we basically managed these costs flat for the year.

Product development expenses for the quarter were $1.1 million compared to $4.3 million in the prior year. For the year to date declined 30% to $10.1 million. The decrease in the quarter and the year are largely attributable to a shift in resources to capital initiatives and away from maintenance oriented, non-capitalizable projects. On a pro forma basis, again excluding the impact of the California AG Settlement in the fourth quarter, operating income was $7.6 million for the quarter and $21 million for the year. These amounts are in line with the guidance we have provided throughout the year.

Now, let's turn to some other items. We ended the quarter with cash and equivalents of $214 million, which is an increase of $18.1 million from the prior year. This is after investing approximately $20 million in the LTS acquisition. The strength of our cash position is largely a result of our strong receivable management and timing of some cash tax payments.

CapEx as we have historically defined it, which includes curriculum and software development, computers, and infrastructure, was $71.2 million for the year versus $76.5 million in the previous year. We saw $6.1 million increase in investment for software and curriculum development, offset by reductions in property equipment and computer lease costs.

I also want to note a change that we will be making in our reported CapEx for fiscal 2017. Historically, we have defined CapEx to include curriculum and software development, infrastructure, and computer lease costs. When our computer lease costs were $20 million or $30 million it made sense to include this in our calculation. However, with improvements to our reclamation process and the decline in per unit costs, computer related expenses are now about $10 million and as such, we will begin to report CapEx in a more traditional manner, including just software, and curriculum development, and infrastructure costs. This will also provide an easier comparison to other company's investment profiles.

Our tax rate for the year was 35.7%, which was in line with our guidance.

And before handing the call back to Stuart, I want to touch on two other items. First, beginning next quarter, we're going to expand our quarterly (inaudible) by providing some additional profitability metrics such as adjusted EBITDA and adjusted operating income. We believe this will aid investors to better understand our underlying results without the impact of non-cash stock-based compensation charges. Since we have instituted some performance-based compensation, it is increasingly difficult to predict the exact time to expect on some of these grants.

Second, I want to again remind everybody that we will not be providing a separate guidance release and conference call this fall with our enrollment count date. We will report both actual enrollment and Q1 results at the same time at the end of October. We will also provide full year guidance at that time as well. I'll now hand the call back over to Stuart. Stuart?

Thanks, James. Donna, we'd be pleased to answer any questions.

(Operator Instructions) Our first question is coming from Corey Greendale of First Analysis. Pleased proceed with your question.

You guys really have got a nice end to the year. So I mostly had a few numbers questions. So first of all, is LTS -- I assume that's in the institutional software (inaudible); is that right?

Yes, that's correct, Corey. It is -- since we closed late in the year, it was really immaterial. As you know, the way the accounting works is deferred revenue gets written off in (inaudible) like that. So it was really immaterial in both revenue and profit for the year.

Okay. So you kind preempted my next question, which is the improvement in growth and institutional software was not driven by LTS. So can you just comment on kind of the change in the trend there and whether you think the better growth is sustainable?

So correct, it is not really attributable to LTS. We think of the growth in our institutional and software and services business will continue to be a little bit lumpy, but I think Stuart mentioned we're investing behind it both organically and inorganically. I think we're going to continue to see growth into next year and beyond. But we're not really, I think, ready to put a precise sort of range of that growth right now.

Both the sales and structure our sales organization to support better growth moving forward.

What percent of that business is now annual subscriptions versus more site licenses?

Within institutional software and services, we'll do almost half of annual license business now.

Great. And then there are a couple things that, James, you talked about relatively briefly. I just wanted to follow up on, the point about funding levels that in newer states in 2017 being below average. So should our expectation be that revenue per enrollment (inaudible) should be down next year? Or are you saying lower growth?

I actually don't think they'll be down, Corey. But we've had some pretty, I think, heady growth in revenue per enrollment over the past few years. I just want to be careful that I think the overall environment continues to be positive, but given just that mix, we will sort of mix a little bit into some of these -- Stu mentioned a number of states like Alabama, things like that, where those states just do have slightly lower than average revenue per enrollment.

So I still think we'll get some gains. I just think it will be much more muted as compared to the past few years.

And of course we've had success historically entering these states and improving the per people funding over time. So that's of course something we'll be working hard to try to accomplish.

Understood. And then I think you also said something briefly about doing some things to increase profitability versus enrollment. Could you just -- hopefully you know what I'm referring to, but could you just elaborate on that?

As you know, in our non-managed side of our business, we have an enrollment side of that business as well. And we have I think increasing -- we're increasingly looking at our portfolio, just as we have consistently over the past couple of years. We closed out the UK this year. We've done it more in sort of a structural level like the UK business. I think we're going to continue to dive deeper down at the contract level and things like that, and just make sure that we're not adding enrollments for enrollment sake, because I think we have contracts that probably are unprofitable for us. And I think the topline enrollment number is not what we should be shooting for. We should be shooting to improve profitability overall.

So if that is in the non-managed enrollment side of the business, if that is somewhat going to compromise the enrollment numbers, we'd rather take that. We want to improve retention. We want to talk about ensuring that our marketing for those programs is efficient. So I think there's a number of things involved in that, but it's not just -- just like the managed business, it's not enrollment for enrollment's sake. In the non-managed business, it's not enrollment for enrollment's sake. It's also to look at profitability, retention, efficiency, those kinds of things as well.

Okay. And on the non-managed, is it -- can you give -- and I apologize if you gave this already -- some sense of what the increase in what you're doing for Agora, what the impact of that financially will be in fiscal 2017 versus 2016?

Yes, so sorry, we haven't given that -- we're still working through. Agora, it is obviously a fluid situation. It's somewhat unique. It will be a positive. It's hard to size at this point because we actually don't know what the enrollments are going to look like. And because we haven't managed those enrollments for a while, everything from re-enrollments or re-registration through the next year and the arc of enrollments through the summer and the fall, it's still uncertain.

So I think there's a fairly big range on what that Agora improvement could be. So I think at this point, it's a little early to give any guidance on that.

Okay. And one last one from me and I at least have to try to ask this. As we're going into the next school year, any sort of preliminary indications of how the enrollment season is going?

No, it's still very early. We're not even halfway into the season. It's very early still in our trajectory.

We'll certainly talk about enrollments on the first quarter call.

I get it. I'm just contractually obligated to ask. All right, great. Talk to you soon. Thanks.

Thank you. Our next question is coming from Jeff Silber of BMO Capital Markets. Please proceed with your question.

Thank you. My contract makes me follow-up from Corey's questions. In terms of the new schools that you cited coming up next fall, are there any caps we need to be aware of? Or are they going to be typical new schools in terms of first year of enrollments?

There are no caps on many of those schools. I believe that three have caps in place, or four of the 13 have caps in place.

And can you just remind me what the typical enrollment is per school in the first year?

I think Jeff, you've got to remember in a number of those schools are in states where we already operate and so the -- normally, in a state like a North Carolina, which was just virgin territory for us in the first year, this past year. We have a three or four year trajectory of growth that will go into the thousands, right. And you also remember North Carolina is also capped. That cap does allow us to go over a three to five year period, upwards of 5,000 enrollments.

So that would be a typical trajectory, right, in a state like North Carolina. Maine, differently, right, is a much smaller state, much smaller enrollments. We only had a few hundred there. But in many of the schools that Stuart mentioned, where we already have an existing school, the growth trajectories are much smaller than, say, like the North Carolina.

So there's no typical, as you know, but there would be more in the hundreds range than in the thousands range, certainly.

Okay. From an upcoming elections impact, I know it really depends on each state and sometimes each local district. Anything at a high level that we need to look out for in some of the states you're operating in or some of the states you might be entering?

Well, I certainly think that this is a state level business. So we're not particularly concerned about the federal election. The ESSA framework reinforces that this is a state business effectively. So we don't really -- we're business as usual.

So nothing on the agenda in terms of new caps coming on board or caps being taken off?

No, not that we're -- the only thing, Jeff, I think which is -- the caps are the caps meaning that the states set them. There's all publicly available information. But you also have to remember, we work with our boards and we really -- the boards often run schools where they impose caps as well because they want to make sure growth doesn't get out of hand, we run very strong academic programs, et cetera, et cetera. We can sort of build into our growth the infrastructure and the teachers, et cetera.

So for us at least, I think the structural caps by the state are one component. The boards and working with the boards and, you know, they have often not hard and fast caps. They give us some guidance ranges. Sometimes they say, hey, let's look at it during the course of the year as well. There's economics behind end of year as well.

So it is very, very fluid but I think that there is, in general, across the board. I don't think we're currently worried about the election year having a big cap issue for us. And so I don't know that that's really the issue.

Okay. That's helpful. And I know you're not giving official guidance for next year. But can you tell us what we should be expecting for our capital expenditures budget and how will the new disclosure on CapEx compare to fiscal year 2016? So for example, if you were disclosing CapEx the way you are going forward in the year that just ended, what was the number in fiscal 2016? Thanks.

Yes, so good question, Jeff. So what it will do is going forward, the CapEx number -- well, sorry, yes. We're not giving guidance for next year but I would tell you, if you look at the trajectory over the past few years, we've sort of been in that 70 to 75 range. This year, the 71 would have actually been sort of down 61, 62 range. On that basis, I don't think that we're looking to dramatically increase CapEx levels in next year or years beyond.

Okay. Fantastic. Thanks so much.

(Operator Instructions) Our next question is coming from Alex Paris from Barrington Research. Please proceed with your question.

Good morning. This is Chris Howe sitting for Alex Paris. Can you comment on how the integration of LTS and the Core Stride Academy is going so far compared to your internal expectations? And when would we be able to see a meaningful impact from this? In other words, when do you see it being a driver within the software and services?

Sure. So far, the integration has gone very well. We've done a fair bit of work around marketing and sales integration. The teams are working well. We've done a fair bit of cross training. Of course, we're really entering a new sales year, sales cycle. So we haven't seen huge returns yet, although we've had certainly some nice deals happen along the way. So that's been good.

From an operational perspective, we've maintained our little operation down in Arkansas and are communicating very closely with the team. We also have engaged in a collaborative product road map. So some of the work around adaptation and gamification that's been done at LTS over the years has already been shared and integrated with our core business.

We've also done some fun little products. So for instance, we launched in very short order a little -- a gaming and coding academy in Ohio on a pilot basis over the summer and had about 45 kids engaged in that program. So we're starting to really kind of share the tools across the business in a lot of ways. But generally going, the integration has gone very, very well.

In terms of driving meaningful impact, we'll be -- we've kind of trained up our inside sales team. We think this is a great product, a great kind of point purchase product at the price levels it's at and certainly expect to see significant increases in adoption over time.

I think one thing just to keep in mind is fiscal year 2017 specifically, again, just because of the way the accounting works on the deferred revenue when we acquired the business, we really won't see any meaningful contributions to profitability certainly in 2017. And even the revenue impact gets muted, again, all sort of through the accounting of it, not through the underlying business trends. So I think starting in fiscal year 2018, though, assuming the business grows, I think as Stuart indicated, you will see some more meaningful growth in 2018 out of that. But it's fairly muted in 2017 because of the accounting impact.

The other thing I'll just say is we like LTS as a product entre because it's not only because of its price point, but it covers all grade levels, all subjects. And that's helped us expand the conversation for our sales team in the Fuel Education organization.

Thank you for the additional color. That's very helpful. And my next question in regard to Learn Bot for Families, if you would be able to provide some general overview on this product and what it exactly could mean for expanding your portfolio within the math skills arena.

I think I mentioned a little bit earlier that we see some interesting thing is the private pay side of the business and Learn Bot for Families, which is a consumer product, it really falls within our private pay business.

We think that we have some really interesting assets that translate really well into the consumer market and with very minimal investment, we think we can pivot some of those into the consumer market. Learn Bot is one of those that we've done an early pivot on. It's being used internally throughout some of our managed schools as well. And so we see both sort of internal use as well as that consumer product. But this literally was launched within the past few months. It's early days of traction and again, very little investment.

So I think that consumer piece of the business, some of these digital assets we will continue to see as we test the market on whether those consumer assets can gain some traction.

The other benefit of launching a consumer version of Learn Bot is particularly in the math area that helps us avoid some summer slide and it's a way to, we hope over time as we experiment, improve retention on a year-over-year basis.

Thank you. And one last one from me. It may be too early to provide, but what kind of cash flow impact are you anticipating from the investments in Summit?

I think from a cash flow basis, for fiscal 2016 at least, we invested a lot of money in Summit in 2016 getting ready for the 2017 launch. And it was sort of just built into the overall CapEx numbers, and I think our CapEx, as I said, we don't anticipate any dramatic increases in CapEx though. I don't think that there's a -- I don't think that the trajectory of CapEx is going to change much and therefore the trajectory of our cash flow shouldn't be impacted dramatically from Summit either.

Thank you.

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank you for spending time with us today. We look forward to talking to you on the first quarter call about enrollment and guidance. And until then, enjoy the summer.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.