Question-and-Answer Session
Operator
(Operator Instructions) Your first question and that’s coming from Kevin
Doherty – Bank of America Merrill Lynch.
Kevin Doherty – Bank of America Merrill Lynch
Just wanted to get a sense at what point should you start to really leverage your existing cost structure? I guess recognizing that you still have some hiring needs around some of the support services for the start growth and just trying to get a sense maybe more broadly speaking about the relationship between your capacity utilization and then your margins going forward.
Eugene S. Putnam, Jr.
I didn’t quite catch the first part, the leverage with our cost structure. Could you repeat that part?
Kevin Doherty – Bank of America Merrill Lynch
I’m just trying to get a sense of when we should start seeing some more leverage from your existing cost structure? I know you’ve obviously been bringing on some more support staff but how should we just think about that going forward? Traditionally there’s been that tight relationship between the utilization and your margins and any reason that relationship shouldn’t continue to trend going forward?
Eugene S. Putnam, Jr.
I think on the first part as far as leveraging our existing cost structure I think you’re starting to see that now. We have stopped ramping up the hiring at least of the sales force notwithstanding what Kim said about the potential to hire additional people to improve and accelerate the financial aid process. We’re kind of where we need to be from a sales force perspective at this point in time.
That has been where the lack of leverage has been coming from as we make that investment prior to the kids starting. If you assume that they’re fully staffed now and give them a quarter for the new ones to be up and running, those contracts that they put on the books tend to start on average within one to two quarters. So I would say just from the current cost perspective you should see some fairly meaningful leverage late second, third quarter.
As far as the second part of that question the relationship between capacity utilization and margins, in the past when we were approaching high 70s, low 80% capacity utilization we were running peak margins in the high to upper teens. That can still happen but the big driver of that is really how do we get to that higher capacity utilization. Do we get there by improving the show rate?
- To read the full transcript on Seeking Alpha, click here »
