James Rhyu: I mean, obviously, there’s a ton of different reasons why kids are leaving. What we’re hearing from families, I think particularly post pandemic, I think, continues to be sort of a simple premise that I’ll summarize in a sort of, I think, a simplistic way, although it’s really a lot of different reasons driving it, which is that I think school districts, in spite of the experiences they had in the pandemic I think, are still struggling to treat their family like customers to listen to the feedback that they’re getting from them that they got during the pandemic, et cetera. I think families we’re expecting in many cases, for districts to hear them maybe a little bit more clearly through the pending post pandemic. And I think when they solve the districts reverting back to pretty much status quo, i.e., pre-pandemic type of everything.
A lot of the feedback that we get is that’s been disappointing for many families. Obviously, not all families, but there are increasing numbers of families who I think want something different. And I think the pandemic sort of ignited a little bit of maybe an enthusiasm for parents to really go out and explore something different. And I think that the in-year demand that we keep seeing is really that sort of tension between parents expectations during the school year for what they see in their districts and then they come to us. And I think that we’ve talked about our NPS scores, I think, are pretty robust. And so I think that they find that we offer them something that’s just a little more flexible it sort of meets in at their point of need a little bit more.
So I think that’s sort of generically — I mean, there’s so many situations, whether it’s safety-related or academically related or courseware related, but I think that’s sort of the general theme of it.
Greg Parrish: And then thinking about next year, and clearly, this year was kind of unprecedented the way enrollments have come in coming out of the pandemic. But how do you go about capturing these students in the summer that maybe are kind of on the fence and last year defaulted back the brick and mortar, but clearly, the demand is still there. So how do you go about sort of capturing them before the clear starts?
James Rhyu: Yes. I think it goes along sort of the same theme in the sense that we’re right now, we’re reaching out to families out next fall and very specifically reaching out to them talking to them about things that we’ve heard them say. We’ve heard them say that they want more socialization. We’re talking to them about some of the programs that we’re going to be instituting for the fall around socialization. We’re going to be trialing new ways of letting the students communicate with each other. So I think what we’re trying to do is listen to what our customers are saying, build in improvements to our programs and then proactively reaching back out and saying, “Hey, listen, we’ve heard you and we’re making these improvements.” And we’ll do that.
We’ve already started doing that for the fall. We’ll do that through the summer. We’ve done it now for a couple of years. I think we continue to see improvements in retention rates because of it. And so I think we just continue to do that and really listen to our customers and listen to what they want and try to meet their needs as best as we can. And I think that just continues to promote stronger and stronger retention for us.
Greg Parrish: I just want to ask about the broader funding environment. And thank you, Donna, for the color on revenue per enrollment to finish this year. But I just want to think about sort of high level how to think about funding for next year?
James Rhyu: I think high level, I sort of often talk about sort of the generic heat map that we have around the U.S. for funding. And our generic sort of the heat map that we see funding across the U.S. continues to be largely green. There’s one or 2 sort of yellow red spots, but by and large, it continues to be green. So I think that’s consistent with what we’ve said long term that we believe the funding environment continues to be strong and certainly within the range of 1% to 2% average funding increase across the board.
Operator: Your next question comes from the line of Alex Paris with Barrington Research. Your line is now open.
Alex Paris: Congrats on the quarter. And James, based on the momentum of the year-to-date period, I think you said in your prepared comments that you’re cautiously optimistic that enrollment can increase next year. First off, is that correct? And then second, I think I heard you just say revenue per enrollment should be positive along the long-term trends of 1% to 2%. And then similarly, I heard Donna say gross margin’s flat next year. Would gross margins expand given those metrics rising enrollment positive funding?
Donna Blackman: Let me jump in real quick. I want to make a clarify something. Whenever some or gross margin, it’s flat gross margins this year, flat versus last year. I want to add that point of clarity.
James Rhyu: Let me sort of try to take this to growth. Yes. Listen, I think I’ve said this for each of the past 2 years, our intent is to grow every year. And we’ve grown revenue in each of the past 2 years that I’ve said that. I think I was a little bit more specific in my comments today that our intent is to grow enrollment for next year. The early indicators look good for us. I think last year, we did deal with some execution issues. I think that we’re improving our execution. So I have optimism based on the facts and circumstances I understand I can see today that we have an ability to grow enrollments in the fall. As I said, we’re still less than 10% into the season. So a lot can change. But based on what I can see and what our plans are and our intent is, it’s to grow enrollment.
The funding environment — so rate per enrollment is somewhat of a proxy, but remember, mix and all these other things come into play. I was referring to the funding environment that sort of overall across the landscape of programs that we serve. The funding environment continues to be positive by and large, again, one or 2 outliers, but by and large, continues to be positive, and we would expect on average, that funding to be 1% to 2% higher long term. And the — I think the view of next year, at least of that is consistent with that sort of long-term view based on everything we know today.
Alex Paris: So with positive new enrollment positive funding leverage of fixed cost, is there room for gross margins to experience in fiscal ’24?
James Rhyu: Well, here’s — I think what I would say is that I think without getting specific gross margin targets because a lot of that plays into our mix because sometimes if we mix into certain schools that have higher ratio or lower ratio requirements or things like that, there’s a lot of play without knowing the mix, it’s hard to say. What I do think, though, is that it does come into play in terms of adjusted operating income leverage. So I do think that the more we can grow enrollments and the funding environment stays strong that I think it translates into better leverage for our profitability for sure.
Donna Blackman: And also from an efficiency standpoint, as James noted, are structural, right? And so we’ll continue that into next year as well.
Alex Paris: Great. And then just a big picture question with regard to marketing. Marketing must have changed over the last three years pre-COVID versus post-COVID. Pre-COVID, I think it was a missionary sale to some extent. How has it changed? And what’s your go-to market now? Has it changed notably?
James Rhyu: Yes. It’s a great question. And I think the short answer is yes, it has changed. I think it’s changed in both messaging and tactics, meaning, I think you’re right. I think — I probably didn’t use these words, but that sort of missionary messaging, I think, is a pretty good description of a lot of how we did go to market or we have gone to market. And I think a lot of that still can apply. What I think we’ve honed in tactics are that we — there are several broad themes that seem to resonate but within those broad themes, there are a lot of very specific tactics that also resonate and a lot of different messages within those themes. So one theme of safety, by the way. Safety is a theme that resonates with a lot of families.
That could be a bullying message, that could be a gun violence message, there could be — there’s a lot of messages within that. But themes like that. And so while I think we were going for some of that more sort of sentimental messaging previously. I think we’re trying to hone in to a more specific message these days and the tactics around that around whether it’s social media or digital marketing as opposed to sort of the broader — maybe broader media TV type messaging as well. Those tactics are shifting as well. And we’re finding them to be pretty effective for us. So it’s both the messaging and the tactics.
Operator: Your next question comes from the line of Tom Singlehurst with Citi. Your line is now open.
