Greetings. Welcome to K12 First Quarter Fiscal 2020 Earnings Conference Call. Please note 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. You may begin.

Thank you, and good afternoon. Welcome to K12's First Quarter's Earnings Call for Fiscal 2020. Before we begin, I would like to remind you that in addition to historical information, certain comments made during this conference call may be considered forward-looking statements. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. They should be considered in conjunction with cautionary statements contained in our earnings release and the company's periodic filings with the SEC. Forward-looking statements involve risks and uncertainties that may cause actual performance or results to differ materially from those expressed or implied by such statements. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the day of this live call. K12 does not undertake any obligation to publicly update or revise any forward-looking statements. For further information concerning risks and uncertainties that could materially affect financial and operating performance and results, please refer to our reports filed with the SEC. These reports include, without limitation, cautionary statements made in K12's 2019 annual report on Form 10-K. These filings can be found on the Investor Relations section of our website at www.k12.com. In addition to disclosing financial results in accordance with Generally Accepted Accounting Principles in the U.S. or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information to the most closely comparable GAAP information was included on 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, 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, and thanks for joining us on the call. Today I want to provide you with some details on our fiscal year 2020 enrollment as well as our guidance for the full year. I'd like to start by thanking the entire K12 team for such a great year. Outside of having a large school in Georgia decide to go to self-management which, as we've previously announced, dampened our enrollment growth, this team is driving excellent progress on so many fronts. Specifically, on enrollment, our Managed Public School business grew to 122,300 students. This is an increase of 3,500 students or 2.9% year-over-year. Importantly, this marks the fourth year in a row that we've seen enrollment growth in our Managed Public Schools business. Without the impact of the GCA board decision, our enrollment growth would have been even stronger. In fact, enrollments would have increased 14,700 students instead of 3,500. And this would be up from 11,100 students in the prior year. This is an increase of more than 32% year-over-year. It's also the highest absolute enrollment growth we have posted in the last 7 years. Importantly, enrollment growth was not concentrated in one school nor in one state. We saw growth in more than 80% of the states in which we operate in fiscal '20. It's also worth noting that nearly 50% of the schools posted enrollment growth of more than 10%. And our new program in Alabama, Florida, Texas, Missouri and Ohio also helped as they comprised a little more than 1/3 of our enrollment growth. These results underscore that the enrollment growth we posted over the last few years was not a temporary phenomenon; rather they are a clear indication that the market demand for online and blended learning options continues to be robust. Now a number of factors have contributed to our enrollment growth. First, the number of families who re-registered for another year excluding GCA increased 16% year-over-year. Our continued focus on improving user experience resulted in stronger student engagement, motivation and retention. We will continue to improve in this area and maintain a culture of Students First in everything we do. Also, customer satisfaction continues to rise. Some of you may know that the Net Promoter Score is a global standard of customer satisfaction and loyalty that measures the likelihood of customers to recommend the company. K12's most recent score has risen for the third year in a row to 70% for families rating K12-powered schools. Second, lead volume hit another high point. This season, we saw an increase in lead volume of 8% to over 385,000 leads. The marketing team used a mix of online and offline marketing to drive interest in K12-powered programs. National on-air advertising has long been very effective for us given our national footprint. However, every year, we focus more and more of our marketing spend on digital online strategies. Results show that our continued focus on digital marketing generated 2.5 million unique visitors to K12's websites this year compared to 1.5 million in the prior year. Third, interest from parents and students in Career Readiness continues to grow. Enrollment in our Destination Career Academies increased to 13,500 students; this means that more than 10% of students in managed schools are in Career Readiness programs. This represents an increase of 6,400 students, a growth of 90% year-over-year. We estimate that the Career Readiness business will deliver about $90 million in revenues during fiscal year 2020. Overall, we remain confident that we can achieve revenues in the Career Readiness business of over $200 million over the next 2 to 3 years. To achieve this goal, we will continue to work with a number of school partners on new programs that will open in fiscal year '21 and beyond. We started the school year with 20 Career Readiness programs, and our target is to add 4 to 5 new programs over the next year, bringing the total to 24 to 25 schools at the start of next full year. As we've noted in previous calls and previous communications, over the next 2 to 3 years, we plan on expanding our coverage across all of the states in which we operate. At the same time, we will also look to expand our part-time programs. Those programs allow students to attend their local brick-and-mortar school while also enrolling part-time in Destinations Career Academy courses. Our target is to add 2 to 5 states that provide this kind of part-time program. We will market it directly to consumers and directly to school districts to drive enrollments. And while this initiative is in its early stages, I believe that it has the potential to drive significant growth for Career Readiness over the long term. Let's talk about Tallo. Tallo is our Career Connection partner, and they're also making great strides. Tallo ended the quarter with 580,000 users on the platform, an increase of nearly 55% year-over-year. While continuing to grow their population of student users and partners, this year Tallo is also expanding into state workforce initiatives. For example, Tallo just partnered with Ivy Tech Community College, the nation's largest accredited statewide community college system. High school and college students will discover and have access to a multitude of tech and manufacturing-related opportunities available in Indiana. Ivy Tech, along with Indiana companies like Michelin, CountryMark, Endress+Hauser and Duke Energy, will showcase their opportunities, connect with Tallo on the Tallo platform and view analytics about Tallo while using the platform. In addition, Tallo has also started a partnership with FAME, Inc. in Delaware. This partnership will create a statewide ecosystem, pulling together high schools, colleges, companies, and government agencies. FAME is one of the country's first non-profit STEM organizations with a mission to prepare and motivate students, particularly young girls and those from underserved communities, to enter college and complete a degree in STEM. As you can see, there are some very exciting things happening at Tallo this year. In addition to partnering with companies through Tallo, we're working with more than 100 partners across the nation to offer various workplace experiences for Destinations and Career Academy students. These range from job-shadowing experiences to mentorships and internships. And this is just the beginning. There is genuine excitement when we talk to companies about Career Readiness. I expect the number of partnership opportunities to continue to expand throughout the year as we educate more companies about what K12 is doing in the Career Readiness space. It's important to note that our expansion in Career Readiness will not stop with full-time and part-time public schools. We've already launched a private school focused on Career Readiness; we serve students across the nation in a parent-pay model. Our vision over time includes possible expansion even into adult learning, corporate training, and perhaps even the international market. The key takeaway is that building out a blended experiential Career Readiness program, largely for high school students right now, is just the first step. So in summary, enrollments move on par with our expectations and other than the impact of one school moving to self-management, these enrollments grew faster than any year in the past 7 years. Importantly, both K12-powered general education academies and Career Readiness programs contributed to our growth. One thing is clear: Our base is strong and getting stronger. Taking all this into account, our revenue guidance for the year is $1.02 billion to $1.035 billion. This is an increase of up to 1.9% year-over-year. If the enrollment growth trends continue along the lines of fiscal '19 and fiscal '20, where we grew more than 11,000 and 14,000, respectively, without the effect of GCA, our future revenue growth should be strong and steady. On the base of a very strong core business, we're also starting to see the benefit of entering the Career Readiness market, a market that is helping students at all levels prepare for jobs in the future. Now turning to operating income. We expect adjusted operating income in the range of $68 million to $72 million. This is an increase of up to 16% year-over-year. As I said in our last quarter, our multiyear internal plan calls for us to deliver low double-digit growth in adjusted operating income for the next few years. I believe that market demand for online and blended options combined with efficient expense management continue to make this internal plan clearly achievable. Regarding capital expenditures, we expect to invest in the range of $45 million to $49 million. This year, we will continue to spend on innovation, primarily to grow our Career Readiness capabilities and strengthen our support for teachers in our core business. Our investment in Career Readiness will include expanding the number of project-based learning courses, deepening the content for existing pathways, and expanding into new career pathways. In closing, I want to be clear that our #1 goal continues to be helping students grow in every way, especially in their academic endeavors. That means investing in teachers and in school leaders, making their learning experience more personal and engaging, building a robust Career Readiness business and leveraging the latest innovations in technology. We believe that our focus on academics and innovation, in addition to driving an efficient business model, will produce consistent growth in revenues and earnings for our shareholders. So thank you for your time today. And now I'll hand the call over to James to review our first quarter results as well as provide some additional detail on our guidance. James?

Thank you, Nate, and good afternoon. First, a recap of our reported results. Revenue for the quarter was $257.1 million, an increase of $5.8 million or 2.3% from the prior year. Our loss from operations was $19.4 million compared to $13.8 million in the prior year. And our adjusted operating loss was $13.9 million compared to $9.7 million. Capital expenditures for the quarter were $16.9 million versus $17.7 million last year. Revenues for Managed Public School Programs increased to $227.5 million or 3.2% higher than a year ago. The increase was largely a result of the 2.9% increase in student enrollments. As Nate mentioned, we're encouraged with the enrollment growth and broad-based demand we saw across the schools and states. Over 80% of the states in which we operate saw enrollment growth, and we believe that this growth reflects the ongoing macro trends of greater acceptance of online education as well as demand for our Career Readiness educational offerings. Revenue per enrollment for the quarter was largely flat. We continue to see a positive overall funding environment in fiscal '20; however, for the full year, our revenue per enrollment will be somewhat pressured by school mix. As we previously highlighted, when states open, we see revenue per enrollment that is often below average. Over time, we work with the schools we support and the states to increase per-pupil funding. This year, we are indexing a little bit more in newer states such as Texas, Florida, Missouri, and Alabama, where funding is below average. Given our mix and the current climate, we believe per-pupil funding levels will be flat plus or minus a couple of hundred basis points for the full year. In our institutional business, revenue declined 7% on a year-over-year basis. Non-managed public school program revenues declined 16.1% as a result of enrollments declining 34.5% and revenue per enrollment was up significantly in the first quarter given the mix. Our revenue decline is largely due to K12 terminating its relationship with certain programs. Specifically, we saw several schools close or have challenging operational issues due to poor compliance or general mismanagement by school operators. Unfortunately, FuelEd was a provider to some of these companies. Once we became aware of these situations, we terminated the relationships. Institutional Software and Service revenues were up 2.3% for the quarter. In total, we expect institutional revenue will be down about 15% to 18% for the full year. Private pay revenues were $8.7 million, up 4.7%. We still believe in the long-term outlook for this business and have a number of initiatives in progress to drive growth; however, these activities are early in their development and should not have an impact on current year revenues. As such, we would expect current year revenues to be largely flat to prior year. Gross margins for the quarter were 34.1%, down 260 basis points from the first quarter of last year. Margins for the quarter were pressured by some early investments in the schools to get them off to a strong start for the year. Some of these onboarding costs were one-off, and we expect full year gross margins to be about flat to the prior year plus or minus a 100 basis points. On the expense side, as we outlined last quarter, for fiscal '20, we combined selling, administrative, and other expenses with product development expenses. This means, we're only reporting a total selling, general, and administrative number going forward. For the quarter, these expenses grew by $1.1 million to $107.2 million. As we grow, we believe we will continue to have leverage in this line item. We will do this by driving automation and other operational efficiencies, and it will not detract from our investments in growth areas like Career Readiness. For the full year, we expect selling, general, and administrative expenses to be basically flattish to last year. I also want to remind you that, as with prior years, we expect a sharp sequential decline in spending in the second quarter resulting from the seasonal decline in advertising. Our EBITDA loss for the quarter was $2.2 million. Adjusted EBITDA was $3.3 million, both measures declined over last year's largely as a result of the lower gross profit for the quarter. Stock-based compensation increased $1.5 million from last year. We granted some performance-based stock compensation that will drive some higher costs this year and also introduce some potential variability in future years. We currently estimate stock-based compensation of between $24 million and $26 million for the year. Our loss from operations for the quarter was $19.4 million, and adjusted operating loss was $13.9 million. As with previous years, this loss was primarily the result of seasonal marketing enrollment expenses, which are higher in the first quarter. Profitability in the first half of the year will be lower than last year, and we will make it up in the second half of the year. As our guidance for adjusted operating income demonstrates, we still believe we will grow profitability by up to 16% year-over-year. A couple of other items to note is that we ended the quarter with cash, cash equivalents, and restricted cash of $167.4 million. This was a decline of $117.2 million compared to the fourth quarter. Though, on a year-over-year basis, our cash balance increased by $22.4 million. The first quarter decline is in line with our normal seasonal trends, and we'll expect to grow our cash balance throughout the year. CapEx, which includes curriculum and software development and infrastructure, was $16.9 million. It's a decrease of $0.8 million compared to last year, and for the year, we expect CapEx of between $45 million to $49 million. Our effective tax rate for the quarter was at 47.5% benefit compared to a 37.9% benefit in the year-ago quarter. For the full year, we expect the tax rate of between 28% and 30%. This is in line with the expectations we outlined in last quarter's call. To summarize our guidance for fiscal 2020, we are looking for revenue in the range of $1.20 billion to $1.35 billion. CapEx of $45 million to $49 million, a tax rate of 28% to 30%, and adjusted operating income in the range of $68 million to $72 million. And for the second quarter, we look for our revenue in the range of $255 million to $260 million, capital expenditures of $9 million to $11 million, and adjusted operating income in the range of $35 million to $37 million. In closing, I want to reiterate that our full year guidance is in line with the expectations we laid out last quarter. We're all excited by this underlying growth in our core business and the initial success that we are seeing in our Career Readiness business.

And your first question comes from the line of Alex Paris with Barrington Research.

This is Chris Howe filling in for Alex Paris. Congrats on the quarter. I have many questions here for you, but I'll just start off with a few then I'll hop back in the queue. Can you talk about the cost structure in the quarter, more specifically, the early investments in schools that you mentioned, to assist them with onboarding? Is that just more of a timing for expenses? Or how should we look at those investments and the return that you're seeing thus far?

Yes. We test various initiatives each year. This year, in the first quarter, we made a larger one-time investment, not due to a change in timing but rather as a unique expense. We've found that better onboarding for students leads to higher retention rates, which provides long-term financial and academic benefits. Therefore, we invested in programs designed to facilitate a smoother onboarding process for students. This is somewhat incremental and is not indicative of a shift in our overall investment strategy, and we do not anticipate a change in contributions from other quarters.

Got it, got it. Okay. And then Nate mentioned the lead volume that was strong in the quarter reaching a high point. How should we think about these leads coming in as you look at growth in 2020, about the current capacity and your ability to handle inflection?

Chris, this is Nate. Yes, I did mention that the leads have made it up to 385,000 leads this year and that's up from previous years. We have not seen a deterioration in our conversion rates on leads to applications, that's when a student applies or into a student actually entering a school. So the way to think about it is obviously is the top of the funnel; the more leads we have and keeping the conversion rates the same, the more enrollments we have. So from a capacity point of view, it does cost us a little bit more in enrollments in order to process these students if we get more leads. But on a profitability basis, the return on that investment is strong. And not only the return on investment but the incremental cost is not nearly as much as incremental students. Now some of that happens because you open up new schools and some of that happens because of the Destinations Career Academy. But we are seeing greater leads as we market these academies and market these schools.

Okay. That's helpful. And my last question is on Career Readiness. You mentioned your expectations of $90 million in revenues in 2020 and then $200 million over the next 2 to 3 years. As we look at this outlook and consider your part-time programs versus your full-time programs, how should we consider the mix as we move 2 to 3 years out in regard to revenue and margins for part-time versus full-time?

Well, I think for now the best thing to do is to treat all of the growth that we're talking about as coming from the full-time programs. The part-time programs are brand new; they're nascent. They are small at this point in time. In 2 to 5 states, and it's only a few hundred students. We started it in Wisconsin and we'll be going on to a few other states. I think from a volume point of view, you should think that all of the enrollment is coming from the full-time; we will report out next year this time, and say how well the part-time programs are doing, that's the way to think about it.

Okay. And maybe, just a bookkeeping. You mentioned the adjacent could be adult learning, corporate training and international. That's additional upside; none of that is factored into the next 2 to 3 years for Career Readiness. Is that correct?

Yes, that's correct. All of those are upside and opportunities we see in the market.

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

Congratulations on the strong fall intake. I have a few questions. Do you think that the good results are primarily due to the market becoming more comfortable with online programs? How much is attributed to market growth versus how much is your company taking share from other providers?

Yes, actually, I think that there's a couple of ways I look at that. Number 1, I think, it's really more to do with our growth in Career Readiness, that was sort of the top factor. The more we talk about it, the more people are interested in online programs. Even if they first have an initial interest in Career Readiness schools, they may find that a general education school is good for them. But I think it's more market growth because of the talk about Career Readiness than it is taking share from others. And I actually can't see yet what others are reporting. So taking share from others; I really can't see that at this point. But if I look over the last couple of years, it's not been share from others that's driving our growth; it's really been an increase in the market.

Yes. I was considering the data on leads you shared, which is helpful. Regarding conversion rates, I'm curious if you're able to determine whether the changes are due to market growth or gaining market share. Nevertheless, I think you've addressed my question, so thank you for that. My second question is about the non-managed segment. I want to clarify if the issues were entirely due to the schools' operators. Is that situation resolved, or could there still be some contentiousness regarding the termination of those contracts? Is there a chance that someone might claim that FuelEd contributed to the problems?

I can't provide specific details about the ongoing litigation, but I can share that one or two of the involved parties are being investigated by state authorities, which suggests that these issues are not related to us. We only served as a curriculum provider. All the financial management, marketing practices, and accounting methods were the responsibility of those parties. Therefore, we don't see any connection to us or any potential repercussions. I don't believe this situation will impact us in any way.

And should we assume that Q1 year-over-year trend in that segment continues for the entire year?

Yes. I mean pretty much, you're going to see that flow through the rest of the year because the enrollments that we don't get essentially from them in the beginning of the year, we're not going to bank up through the rest of the year.

James, I have a question for you. I know there’s seasonality in the cash flow, and this aligns with that, but it appears that the cash flow has significantly decreased year-over-year, and some of this seems to be related to deferred revenue. Can you clarify if there’s anything unusual happening with that? Was there possibly a timing issue with payments from any states or something similar? No. There was a little bit of timing just in Q4, actually, bleeding into Q1, but nothing structurally unusual; it was just a little bit of unfortunate timing, that's all.

Would you expect that cash flow from operations for the full year should grow in line with adjusted operating income?

Yes. That's right.

Yes. First of all, all the funding we have received to date is coming from the traditional state funding sources used by all our MPS schools. We are not accessing funds directly from consumers or any alternative sources; those remain as potential opportunities for us. As I mentioned earlier, the part-time schools represent a very small market for us, starting in just a few states. We aim to expand to five states, but it remains limited. Currently, you should note that 100% of that revenue is derived from the traditional state sources that we utilize for our MPS schools. In terms of the opportunity and our approach to capital deployment, we are starting with part-time programs. We are creating a new go-to-market strategy since this team differs from the one that develops new MPS schools. We need to engage with school districts and their funding sources, which may include innovation funding, career readiness funding, or Perkins funding. We can provide the content, and the institutional business will handle those sales. Our plan involves a completely new approach to market because these are not traditional MPS schools. If this strategy proves successful, I will explore what we can offer at the college level and for adult learners. However, those are not businesses we are currently involved in. Our goal is to build pathways and create content to present to corporations that employ many workers without college degrees, showing them the need for improved education for their workforce. We can offer expertise in programming, manufacturing, agriculture, and business courses, targeting the general employee base rather than those already holding college or advanced degrees.

Good. And if I could just one more comment, which is it's not easy to identify kind of a new market opportunity and grow that to $90 million in revenue. And the idea made sense on paper, but the fact that it's playing out, as you said, is very impressive. So just congratulations to you and the whole team on kind of laying that out and executing on it.

Thank you. It's an interesting story. We had some consultants in one time, and they told us, 'I don't know how you're going to get this done. We really don't see the path.' It's obviously working a lot better than they thought it would. So sometimes it just requires vision and focus, and I'm really proud of the team to do that. Thank you.

Our next question comes from the line of Stephen Sheldon from William Blair.

Can you discuss the current enrollments in Career Readiness? Specifically, out of the 13,500 enrollments in these programs, how many are students who have previously used your platform, and how many are new to you? I'm curious if you're attracting a different student demographic to Career Readiness compared to your existing online schools.

I'll share my perspective, James, though you might see it differently. First, Stephen, I think that most of the students entering the program now resemble those in the MPS program. We're still able to expand our market. There are many students who would never have thought about attending an online school, and we believe we can attract significantly more of them for various reasons. Currently, most of the students joining us were already interested in online education, but the career-ready aspect really motivates them to enroll; it allows them to pursue courses that align with their passions and boosts their confidence. Those who previously said they would never consider an online school are now looking into it because of the career-ready focus. I still see a lot of potential to bring in many more of these students, and we are just beginning that journey.

Yes, I would like to add that we are noticing a significant number of internal transfers, where students enrolled in regular programs are switching to career programs. We view this positively, as these career programs are more suitable for them. However, I want to emphasize what Nate mentioned; we did not excel this year in attracting new incremental students. While we improved our efforts to enroll Career Readiness students in career schools, our approach to the Career Readiness market is at a very early stage. There is considerable potential for growth in that area, and we will keep striving to enhance that for greater future success.

I want to add something regarding our marketing approach. We need to ensure that we are reaching out to new sources and channels to engage students who may not have considered online education before. While we did manage to attract some newcomers to the market, there are still channels we haven't explored yet. We utilized external resources to identify some of these channels, and we believe we can improve our efforts next year.

Got it. That's helpful. I guess in Georgia, can you maybe talk about any progress you've potentially made on getting another school open there? I think you talked last quarter about how we're going to have one open by the fall. So I guess where are you now? And what's the outlook there?

It's unlikely that we'll see a school open this coming fall; it's more likely to happen the following fall. We are currently collaborating with one board and may start working with another soon, which means we could potentially support more than one school. We have received positive signals about our initiatives, particularly in Career Readiness and blended school models, which emphasize more face-to-face interactions with students. These innovative approaches could lead to the commission approving a new school. Although we are engaging with several boards, I don't anticipate a new school opening in Georgia for the 2021 school year; it will likely be the following year. However, we are actively working with boards that are eager to collaborate with us.

Okay. Got it. And then just lastly on the 2020 guidance, it assumes roughly 13% growth at the midpoint for adjusted operating income, but as you noted, you're going to be down in the first half. And you gave some helpful expense commentary, but just wanted to ask what factors we should think about that's going to drive strong year-over-year growth in the second half. I know you have an easy comparison in the fiscal fourth quarter, but just, I guess, any color there.

Yes. As I mentioned earlier, I believe we will continue to enhance efficiency in our SG&A. However, our gross margins were slightly down compared to last year. I anticipate they will normalize to be about the same as last year as the year progresses. We are actively seeking opportunities to implement automation and efficiencies in our programs, which will impact both areas. Consequently, I expect to see positive results across the board for the remainder of the year.

Our next question comes from the line of Greg Pendy with Sidoti.

Just real quick on the non-managed public schools. Just kind of understanding now, I guess, with the contracts you've walked away from. You had a bump, I guess, in this quarter specifically on the revenue per enrollment. Is that something that's going to be sustainable throughout the year, I guess, with the mix maybe being more favorable from the contracts you've walked away from? Or is that just a one-time thing?

Yes. I think what you'll see is last year, in fiscal '19 in Q1, the non-managed revenue per enrollment was actually unusually low, which helped the comp year-over-year. So you're going to see the comp year-over-year decline dramatically. So you're going to be closer to, I'll say, flattish for the rest of the year year-over-year. But it's going to be more dramatic in Q1, but it's because of the low first quarter of last year.

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

I have a follow-up question regarding the positive enrollment growth, which may be linked to the career technical aspects. I'm curious about the challenges of choosing online education compared to traditional ground or community resources. Where have you observed the highest engagement?

Henry, you asked what encourages a student to choose our program over a traditional ground-based program. Is that correct?

Exactly, yes, yes. I'm just trying to get sort of an update as you think about sort of new growth right now.

Well, the first thing is reach. If you're in a traditional high school, you only have so many students, so you can only justify so many courses and so many teachers to teach a Career Readiness course. We can look across the state and just 5 students here, 10 students there, 3 students there; next thing you know, we rolled up a large number across the state, which justifies us providing more courses. So it's geographic reach and, therefore, a higher number of career pathways than an individual school might offer. I think many of the brick-and-mortar schools offer great programs. But with only a couple of thousand students in their school or sometimes even less, they can only offer so many programs. They can't offer IT, health care, and automotive. Because we have such reach across the state, and we're looking at larger numbers of students across the entire geography, we have the advantage of offering more program. That's really the advantage of this program that most people didn't see when we first came out with it, that we have a scale advantage most people can't reach.

Got it. Okay. And it sounds like it's like a decent chunk of that would be like hybrid partnering with more brick-and-mortar schools as well?

Well, not today. That's the future market opportunity we discussed. Right now, our focus is on full-time students in our Destinations Academy schools, where all our current revenues are generated. I mentioned that we will begin this process, having done a small pilot in Wisconsin. The response there has been positive, and we aim to expand this effort across the state. We are starting to identify partners who are interested in collaborating with us. For instance, if a school district offers several IT courses but lacks data analytics or Python programming, we can fill that gap. This presents a new market opportunity that we need to pursue.

Got it. Okay. Great. And switching gears on the political front. Warren's been sort of out campaigning against charter schools. Just wondering your thoughts on, I guess, maybe not Elizabeth Warren but the potential impact of the upcoming election and whether those kinds of changes are feasible or not.

I have some expertise in various areas, but politics isn't one of them, so I won't comment on Elizabeth Warren. However, it's important to remember that most educational funding in this country comes from local and state sources, not the federal government. Federal funds primarily support special education for disabilities and do not significantly contribute to general education. Additionally, while the federal government provides support through programs like Perkins, the majority of funding comes from state sources. Consequently, the responsibility lies with local governments, not the federal government. The federal government might attempt to ban for-profit charter schools, but we don't serve those; we focus on non-profit charter schools, with all of our boards being 501(c)(3) entities. We provide services to them, and it’s important to note that over 30% of our schools are district programs. I don’t foresee the federal government banning districts from offering online programs, as they are traditional schools in neighborhoods wanting to include an online component, which we help manage. We are not a for-profit charter operator but rather a service provider for non-profits, which is a significant distinction. Although the federal government could take actions that might negatively affect our business, we are not the primary target for regulations aimed at for-profit charters since we do not operate as one ourselves; we are an operator.

There seem to be no further questions at this time. I would like to turn the floor back over to management for any closing remarks.

Thank you, Devon. I noticed today, we had a more engaging set of questions, and I really appreciate everybody being involved, Chris, Cory, Stephen, Henry, everybody. It was nice to have an engagement with you. We are very proud of the results for this year. I thank you for spending time and ladies, spending time on the call today. So I have no other comments, and thank you.

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