Q2 2021 Stride Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to on the Stride incorporated second quarter fiscal 2021 of the earnings conference call at the time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press the star.
Then one on your telephone please be advised the today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your speaker today, the Vice President of Investor Relations Mr. Mike losses. Thank you. Please go ahead Sir.
Thank you, Jason and good afternoon, welcome the strides second quarter earnings call for fiscal year 2021.
Before we begin I would like to remind you that in addition to historical information certain comments made during this conference call. Maybe 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.
Our earnings release and of 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.
<unk> does not undertake any obligation to publicly update or revise any forward looking statements for.
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. These reports include without limitation cautionary statements made in stride 2020 annual report on form 10-K these filings.
<unk> found on the Investor Relations section of our website at Www Dot strides learning Dot com.
In addition to disclosing financial results in accordance with generally accepted accounting principles in the U S. GAAP, we will discuss certain information that is considered non-GAAP financial information.
A reconciliation of this non-GAAP financial information for the most closely comparable GAAP information was included in our earnings release and is also posted on our website the.
The call is open to the public and is being webcast. This call will be available for replay for 30 days with me on today's call is Nate Davis executive Chairman of the board.
James Roux, Chief Executive Officer, and Tim Medina, Chief Financial Officer.
Following our prepared remarks, we will answer any questions. You may have I would now like to turn the call over to our executive Chairman Mr. Nate Davis.
Thank you Mike.
Good morning, everyone I should say afternoon, and thanks for joining our call today.
There'll be three of US speaking today may take a bit longer than normal.
But we'll do our best to be directed to be concise.
With the performance as you saw on today's press release revenue was $376 $1 million in the second quarter of fiscal 'twenty, one an increase of 46% year over year.
Tied to our revenue growth adjusted operating income for the quarter was $50 $1 million of 34, 5% increase year over year.
Adjusted EBITDA for the quarter of $77 million improved 31, 6% over the same period last year.
It also debt adjusted operating income margins on a year to date basis increased from four 7% to nine 8%.
This demonstrates the tremendous leverage on our business as it grows and we believe there's even more improvement to be had over the next few years in each case, we've met or exceeded the guidance, we provided last quarter.
In addition, based on these results.
The ongoing trends, we see in our business, we're raising our full year guidance for both revenue and adjusted operating income. We now expect revenues in the range of $1 $5 billion, the $1.5 billion to $5 billion and.
Full year adjusted operating income in the range of $145 million to $155 million.
Tim will provide more color on additional details on our quarterly financial performance.
However, I first want to say.
And then I couldnt be more excited about the trends, we're seeing across this company, even with the uncertainty of the pandemic and its impact on public schools.
<unk> to believe that we have the opportunity to grow revenues.
Into fiscal year 'twenty two.
Now as I'm sure you've seen today's the last earnings call I will be chairing as CEO of stride. This is the day the board of directors and I have been working toward for quite some time.
Three years ago, when I came back into the CEO role the board and I had a new vision for this company that.
That vision was to be more aggressive about building a profitable 2 billion dollar revenue business by the midpoint of this decade.
To do that I laid out to the public of strategy around three key set of goals. These goals centered around the following areas.
Career learning growth strengthening.
The strengthening and preparing our management team for that growth and maintaining our strong core business in general education.
First career learning.
Our expansion in career learning has added more than $65 billion to our addressable market.
Not only as of this effort put us squarely in the midst of one of the fastest growing segments in education.
But it's also a bipartisan way to improve the U S economy.
A recent study by quadric shows debt at least 80% of parents, both Republicans and Democrats agree the career learning programs can help appear the American work force to contribute to the world economy and that the U S. Just invest even more in career learning this.
Of this bipartisan support clearly reduces our regulatory risk going forward.
Today, our career learning business for kindergarten through 12 grade students.
The Middle School and high school.
Livered over 90% enrollment growth for three consecutive years.
Student enrollment now tops 30000 students.
From about 2000, just three years ago.
Our initiative now supports 32 programs and schools within the reach of over 70, sorry, 60% of high school students across the nation.
And importantly, these programs have already delivered a comprehensive education that included over 7500 work based learning experiences.
And more than 2000 and certifications for students.
Studies have shown the career learning increases.
Student engagement and it reduces student dropout rates at.
That's drive even though our program is fairly new we're already seeing retention rates that are about 500 basis points higher than those in general education programs.
For that country facing of skills gap.
We're also witnessing how the adult learning market.
In career development Reskilling and Upskilling employees is an additional opportunity for us.
After careful evaluation, we made three strategic acquisitions from calendar year 2020.
It establishes our president's presence in the adult learning and corporate training markets. It for.
Further expands our addressable market as well.
The first was galvanized and the two most recent for tech elevator and metrics.
We view these again in detail because we reviewed them in our Investor day in November but in summary, galvanize continues the career and skills development for full stack higher in software engineers.
Tech elevator ads training for entry level software engineers, while also expanding our footprint into smaller and regional markets.
While med search.
Enters us into the health care education sector. The time when the world's attention is rightfully focused on the gaps in our health care industry today, the health care sector employs more than 11% of American workers and is projected to add nearly two 4 million jobs. According to the U S Bureau of Labor statistics.
As I've mentioned before these acquisitions will also provide content for our expanding our Midland High school programs for.
For instance, we have of current pilot for high school students enrolled in Colorado learning program for.
We're taking med surge of courses for EKG technology in phlebotomy.
This is just the beginning we also plan on using our acquisition to create a host of new courses for the secondary school students.
In short in just a few years, we built the career learning business that will top $250 million in revenue. This fiscal year and we are targeting at the grille to upwards of 800 million of revenue by.
By the fiscal year 'twenty five.
Again this is essentially from nothing three years ago.
The second point I want to make is about building of management team with the expertise to lead our career learning effort.
Also supporting our overall business.
This effort has included a careful succession plan that gives us flexibility to promote within it in to go outside of the company.
And to ensure that we seamlessly transition and grow over time and all of our management positions.
As part of this goal we welcomed Dr. Sean Gamat, the 25 year veteran of career education.
Sean <unk> subsequently added dedicated executives with lead partnerships. The design curriculum. The design content the conduct business planning and more of these talented individuals. This talented team has been successful at implementing innovative models of education for schools and businesses across the nation.
<unk>.
They have a depth of experience in building relationships with external commercial partners as well.
With our recent acquisitions, we've also added breadth and subject matter expertise in key verticals, such as healthcare and information technology.
And outside of the career learning, we added executives like Kevin Chavis, Esquire, Dr. Tony Bennett to bolster our already deep and strong school operations public policy and academic teams Vince.
Vince Mathis and more recently, Tim Medina added new perspective is an experienced and legal and finance teams I could go on for marketing the product development to accounting from senior leaders at first level of management to executives, we strategically created an organization that the built to scale this business.
Achieve greater and greater success.
And achieve the aggressive goals, we set out for the next five years.
Now I want to move to my third point.
While we were building the <unk> business and building the management team. We also wanted to continue growing our core education business.
Over the past three years, we've done just that.
Gary of General Education, Count date enrollments have grown more than 48%.
Even though the she is total was impacted by the pandemic I believe we would have still seen strong double digit growth over this multiyear period.
The growth alone was not our only objective our focus has been on growing enrollments, but simultaneously improving the customer experience Inc.
Increasing retention enhancing academic performance.
And I believe we seen gains on all three areas.
Just the quote a few stats our most recent survey of parents showed that 84% were satisfied with the overall education experience that's up from 76% three years ago.
Are any of withdrawal rate has dropped.
More than 350 basis points since fiscal year 2017.
On the academic front the number of schools that have met the every student succeeds act requirement have doubled since 2017.
The end of the 33 schools that are in states, where they published graduation data for the prior year.
82% of our schools schools, so graduation rate improvements on a year over year basis.
Now we still of a lot of work to do but these results paired with improved satisfaction stronger retention and increased enrollments demonstrate our operational excellence.
And fourth.
Even with the strong cash flow of our core business. We wanted to further strengthen the balance sheet to give this company and shareholders the flexibility to expand and grow.
That's why we first executed a $100 million revolving credit facility with.
With favorable terms and low interest rates.
Then we took advantage of the recent red hot financing market to edge to execute on our $420 million convertible note.
With very low interest burden that is easily serviced by the organic cash that comes out of our business.
And even though we subsequently used some of these funds to fund the cap call transaction Paydown on our revolving credit facility and acquire mid thoughts on Tech elevator. We believe we will in this fiscal year 'twenty, one with more than $400 million in cash on hand.
Now having achieved all of these goals.
One of the market to understand that.
We're now more than that charter school business that has all the regulatory risk.
No longer debt kindergarten to the 12th grade Charter school, operator, chasing the $11 billion market, we strategically grown and positioned ourselves as the industry, leading education technology and services provider.
Serving students of all ages and.
In addressable market valued in excess of $100 billion.
Instead of $11 billion.
To make this message clear we first one on the communication campaign that included partners Influencers in the federal government and state government and long term investors.
We then took the next step the rebrand our company.
From K 12 to strive.
The day at stride, we're re imagining lifelong learning is a rich deeply personal experience with great instructors at the adult and and the secondary school level. The prepares learners for the jobs of tomorrow.
I am so proud of everything we've accomplished I simply loved this company all of its people.
We've got great partners in school boards.
Meeting our students I am so proud to say that I've had a role in their success academically professionally and personally the.
<unk> that the board and I set out three years ago are well under the way.
So I see this is the perfect time to step back to my old role as executive Chairman and turn over the range of the CEO role.
I've had many partners at all levels, who helped make stride the great company. It is today.
But the most accomplished and long standing of those partners as <unk>.
True.
During my first tender tenure about seven years ago I S. James I called them and said James I need some help.
I want you to create a world class Finance organization with no accounting issues, the deficiencies of well run machine.
And to establish the financial and operational rigor across our company to ensure we could meet and beat financial guidance quarter after quarter at the quarter, which I'm proud to say we've done.
About two years ago ask James to also take on the need for our product development and information technology functions. All while he was still retaining U C F O role.
Then after Tim Medina joined as the CFO last year I ask James to take on corporate development and acquisitions marketing strategic planning customer experience and the quality initiatives that I'd started.
In every case with every function. He managed James has taken the team for the next level and it's been a major contributed to the success of the company and my vision over the years. So today I am proud to announce the my partner James Ru is the named Chief Executive Officer of Stride incorporated congrats.
Congratulations James I couldnt be more proud of him.
He is not only uniquely qualified to carry on what I created.
And what this company has been doing but to improve on it to accelerate our success and to drive even greater innovation James of the is the person who so strongly believes in innovation.
The market is going to see a company moving aggressively in that front.
And from an Investor standpoint, James will provide the consistency and reliability of someone who has been intimately involved in creating and executing what we built the stride and expanding on our success.
The board and I do not take this responsibility for secession planning lightly nor.
Nor do we make this decision without careful thought and planning.
We've worked on succession planning for three years. It was a part of our goal when I came back as CEO.
Organizational changes hiring of executives career development board of evaluations markets cans of all led us to this point.
This has been done.
For the full view of all options the board and I are unanimous in our view.
And support the James is the right person for this job.
For a complete faith in his ability to deliver shareholder value, while maintaining the students first high integrity culture.
Of our company.
I will remain executive chairman and I will assist him when he asked for my help I'll be focused on public policy in the regulatory arena.
I'll focus on corporate strategy and M&A transferring relationships with our school boards from me to James and of course, I'll be leading the board of directors and fulfilling our fiduciary responsibilities.
I have enjoyed being part of the median company, whose mission is to help learners of all ages.
The great success as <unk>.
No greater responsibility and helping young people grow and learn.
There is no greater joy and supporting learners as the achieved their career goals and their life goals.
On the end by thanking all of the stride employees for Tolerating me and for putting the in a position to help learners families schools and customers that we support.
And thanks to all of you in the Investor community for your support throughout the years as well.
Now I want to turn it over to strides new CEO.
James will James.
Thank you Nate.
To run the true.
Rest of our board on behalf of the shareholders to step into the very large shoes Natus left for me to fill.
As Nate mentioned I've worked alongside him here at stride for the past seven years plus.
As he set us up on our current strategic direction.
I have been of vocal supporter of as of the strategy.
And therefore, I do not intend to deviate course in any material way for the.
Foreseeable future.
Simply put.
Our strategy as follows.
We arent outcomes based company <unk>.
<unk> on for Larry.
And what that means for me.
We're trying to enable learners of all ages.
On the skills that will ultimately ultimately lead to a better job.
And therefore, a better financial and economic future for themselves and the families.
Now that can take many forms.
From high school training to prepare students for a job on the health care field right out of school.
Two of retired worker looking for a second for you on program programming and everything in between.
We're putting our students on a trajectory.
For some that will require ongoing training education certifications and experiences.
<unk> on that trajectory and for others.
They will leverage the skills, we provide them until well paying jobs of immediately with the opportunity for continued upward mobility.
Fundamentally to me that as his stride is.
Now how will we enable that.
We will continue to develop our leading education services platform with the <unk>.
Scale and expertise to support our growth objectives.
Over the past 20 years, our platforms have enabled over 2 million borrowers.
And I believe we can enable millions more in the coming years.
And just this past year.
Our portfolio of has helped over 1 million users.
So 20 years to get the $2 million.
And over 1 million in just the past year alone.
I think that's tremendous progress and I think we are just beginning.
So why am I so optimistic.
Well driven by nice leadership, we've spent the past few years, putting the building blocks in place to drive this acceleration.
We've launched career learning of high schools.
We've invested in adult career learning the technology and healthcare fields with the acquisitions of galvanized Tech elevator net sir.
These acquisitions are not only giving us new capabilities, but theyre platform upon which we will build scale businesses.
Serving the highest demand jobs in the country with the ability to continue to add additional competencies and skills.
For example for our Galvanizing Tech elevator platforms.
That already have served that already serve of the computer engineering and data science fields, we will build the out verticals for other high demand jobs and cyber security.
Mobile application development again, just to name a few.
We've invested in our platform Tallo that connects these new collar workers to employers.
Since our investment in Tallo 18 months ago, they have grown their user base by about 400 per cent to over one 3 million users.
We're investing on our own platform capabilities to enable real world experiences like project based learning job shadow on connecting students to industry professionals.
We've made some core investments in our data infrastructure, which I believe will enable us to serve our users even better on the future with data insights that will help guide remediate nurture and inspire the trajectory.
And we will continue to innovate as Nate said.
More of a common innovation, but by way of example.
We are enabling virtual job matches across the contract dozens of employers who are looking to fill good paying jobs with Africans, who don't necessarily need of college degree.
Okay still highlight the skills and qualifications.
Terry.
And last year, nearly 50000 direct engagements for me.
Between this community of talent on companies on tell that we are looking to fill the that we're looking to fill jobs in their company.
I will look to continue investing in new technologies products and services also let me be clear.
While we will aggressively look for investment opportunities opportunities to achieve our goals, we will be disciplined in the end of the.
Deployment of capital.
While we continue to pursue our strategic imperative and career learning.
Will also be driving long term growth on a core of general education business.
Today more than ever our country needs education alternatives to meet the diverse needs of families across the country.
While a portion of current students may choose to return to brick and mortar schools. After the pandemic is lifted.
We believe we are experience, we're experiencing a permanent shift in how families educators and legislators view of remote learning.
The fact, the recent survey by the Rand Corporation support the C. One five districts either already have or will likely adopt the virtual school are fully online option that means over 10 million K 12 students need and online learning ecosystem like the one strike price.
The parents agree that online education is the new normal.
The recent poll conducted by morning console, 71% of parents felt that all non education should be an ongoing option for students and 85% agree the school district should have an online backup plan even after students return to school.
As he mentioned is build a talented team.
And I'm very fortunate to inherit.
I will look forward to build on the strength of this team.
One key component of that strength is its diversity.
To this end before the end of the fiscal year, we plan to publish our first ever corporate sustainability report.
ESG is a top priority this year, we launched the program we stand together.
This initiative intends to foster stronger communities reached the difference is that the bias and engage others.
Current experiences than our own.
We've committed $10 million on scholarships on investment into this program and I believe not only is this the right thing to do but our shareholders and stakeholders will benefit.
Also I believe I briefly want to mention that on February 3rd we're hosting of the first National Forum on equity in education.
This is the stride led for them focused on key conversations on diversity in education and wealth of each of you to join us for this event.
Taken in total our strategy on the progress we've made to date.
I have a much larger addressable market addressable market than ever in the history of the company.
A few short years.
We've increased our market opportunity by tenfold to over 100 billion.
I believe this opportunity will support sustained growth across our business units with improved margin and the free cash flow.
I'd encourage you if you have not already to take a look at our recent investor presentation for additional color.
I am committed to those goals for our shareholders.
In closing I want to thank you again for your support and your leadership.
Nate already said this is not necessarily goodbye he will continue to serve our shareholders as executive chair.
And you will continue to be my friend and mentor.
Someone I can trust and rely on to give me direct and honest feedback and advice.
Yeah.
Can't really express how fortunate I have been to be the account made us of confidence on.
And to be able to learn from him.
From my professional and personal development over the past 15 years.
Now more for fortunate and knowing that he doesn't go away the whole way today wants me to succeed in my New role you want the company to succeed for our shareholders. Our share goal is to continue to provide the desktops for outcomes for our customers.
As possible services for our partners on the best possible returns for our shareholders.
Thank you and I look forward to meeting with many of you on my new capacity in the near future.
Now I'll hand, the call over to Tim Tim.
Thank you James and good afternoon, everyone.
We are pleased to report very strong second quarter results and raised our guidance for the third quarter and fiscal year ending in June.
First I want the draw your attention to the changes we made this past calendar year to make our business and strategy easier for investors to understand and follow up.
We included a supplemental slide deck to accompany selected financial topics covered in our quarterly earnings call scripts.
We implemented new lines of revenue aligned with the marketing markets, we are addressing including historical reporting data reconciling the old reporting with the new format.
We believe this reporting helps our stakeholders better understand performance.
Assess our future cash flows and make more informed judgments regarding the company.
We created the senior management ESG Task force and initiated ESG disclosures in our 10 Qs.
On November at Investor Day, we announced the new stride brand for several hours of presentations from the executive management team launched the new website and communicated long term forecast targets.
Making our business easier to understand and analyze will continue to be a priority in 2021.
This quarter. For example, we are upgrading of the supplemental presentation deck introduced last year with an earnings presentation. You can now find on our website to complement our earnings release in the live conference call scripts.
Now, let me turn to our financial results starting with the income statement.
Revenue for the quarter was $376 million, an increase of 46% from the prior year.
Revenue in the quarter for our general education business totaled $314 million.
A 35% improvement over the same period last year.
This increase was driven primarily by a 51% increase in full time K through 12 student enrollment, partially offset by a 10% reduction in revenue per enrollment.
Revenue for our career learning business increased nearly 150% compared with the prior year to $60 million $62 million.
This increase was driven primarily by of 131% increase in full time Middle School on high School enrollments.
We're learning revenue also includes adult learning revenue with more than $9 million of revenue from galvanize acquired on January 27, 2020.
Additionally, adult learning includes $1 6 million of revenue from Tech elevator and med search combined after the effects of purchase accounting.
Both of these businesses were acquired on November 32020.
Excluding the effects of purchase accounting tech elevator in med search generated $1 million and $2 $5 million of revenue respectively. In the month of December.
And those are EBITDA positive and generate free cash flow.
This is the fifth consecutive year that strike grew its K through 12 student enrollments. This consistent performance reflects the long term ongoing trend of greater acceptance of online learning and improving student retention rates.
The COVID-19 has been a strong tailwind for topline growth in enrollments in fiscal 2021.
Without the effect of the pandemic, we believe general education K through 12 enrollment still would have grown in the mid single digit range or higher consistent with pre pandemic levels of growth.
Furthermore, before the effect of the pandemic, we were expecting enrollment in our middle and high school career learning programs to double or more of this fiscal year consistent with the growth rates for the past several years on.
On the topic of revenue per enrollment. The current results are largely due to state budgetary pressures in the wake of COVID-19, particularly in California.
In addition, the impact of school mix was a significant factor as a substantial portion of our growth is occurring of lower funded states.
Over the longer term, we believe revenue per enrollment will continue to rise 1% to 2% in line with historical trends.
Our enrollment metrics reflect very strong retention results. This includes re registration of last year's enrollments as well as retention during the current school year.
The retention rates have improved on both K through 12 fourth grade General education.
And in the Middle and high school career learning programs.
Pre pandemic and currently during the pandemic. The career learning program continues to have a retention rate that is significantly higher than general education.
Gross margin for the quarter was 34% 60 basis points lower than the prior year, excluding the galvanize co working business, which has been the area of our business most negatively impacted by the pandemic strides overall gross margin would be 60 basis points higher than last year or about 35, 6%.
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Another factor impacting gross margin during the quarter as the <unk>.
Higher level of student material and computer costs in Q2, the normal due to the higher levels of enrollment and the timing of the shipments to students.
Now these timing issues are more smoothed out in the results for the six months ending in December.
And in fact gross profit margin for the six months period, ending December 2020 of 34, 7% is slightly higher than last year.
And as I communicated in last quarter's conference call. We expect gross margins for the full year will be higher on a year over year basis than last year.
Over the longer term, we see many opportunities for further gross margin expansion, including from growing our higher gross margin adult learning revenue.
From capturing efficiencies from automation, we are driving into our operations and from efficiencies from a digital first strategy to replace a portion of the student physical material slipped print.
Similar to my comments on gross margin.
As we scale of the career business, we expect to continue to see increased operating leverage and cost efficiencies in our SG&A cost structure.
This operating leverage in our SG&A is demonstrated in our performance for the six month period ending December 2020.
With SGA as a percentage of revenue of 28%.
Compared to 32% for the same six month period, one year ago of 400 basis point improvement.
And the three month period, ending December however, our SG&A of $91 million was 100 basis points higher as a percentage of total revenues in the second quarter one year ago. This was due.
Primarily to the timing of the adult learning acquisitions and higher compensation expenses as a percentage of revenue this quarter and FY 'twenty one versus FY 'twenty.
Now for the full year of FY 'twenty, one we do expect SG&A expense to decline as a percentage of revenue compared to last year.
Adjusted EBITDA for the quarter was $71 million compared with $54 million for the prior year driven by the higher gross profit.
Adjusted operating income for the quarter was $50 million compared with $37 million in the second quarter of fiscal 2020.
Adjusted operating income excludes stock based compensation expense and amortization of acquisition intangibles.
Stock based compensation expense for the quarter totaled $9 1 million compared with $6 $2 million for the same period last year.
We have increased the midpoint of the stock based compensation portion of our outlook by $7 million from $37 million to $44 million. This increase primarily is related to higher performance based stock compensation that will now more likely be achieved given our strong performance.
Free cash flow in the second quarter was $24 million compared to $56 million in the prior year.
This year the timing of outflows in the second quarter associated with the higher enrollments caused the positive free cash flow to be lower than in the prior year.
Due to the seasonality of higher cash outflows in the first and second quarter for school launch activities.
The timing of cash receipts later in the year, we expect to generate substantially more free cash flow in the second half of this fiscal year net during the same period last year.
We expect our full year free cash flow to be in line with our guidance.
Cash and cash equivalents on December 31, 2020 totaled $258 million.
Paired with $212 million reported at June 32020.
The increase in the cash balance is largely the result of the $348 million and proceeds of the company received from the issuance of convertible senior notes during the quarter.
Partially offset by the use of $100 million to pay down our revolving credit facility and $73 million used in cash used excuse me and cash used to acquire tech elevator and med search.
Capex for the six months ended December 31, 2020 was $24 million a decrease of $3 million from the same period one year ago.
We are investing more in the second half of this year.
Consistent with our comments last quarter, when we raised our full year capex guidance to $50 million to $60 million, which continues to be our guidance.
Our primary uses of investment capital or for capitalized software and curriculum development well.
We also are focused on integration initiatives to achieve synergies from our adult learning acquisitions.
Turning to our updated and increased guidance.
For the third quarter of fiscal 2021, the company is forecasting revenue in the range of 375 million to $385 million.
Capital expenses expenditures are expected to range between 12 and $15 million adjusted operating income is anticipated to range between $47 million and $52 million.
For the full year. The company is forecasting revenue in the range of $1 5 billion for 152 $5 billion.
Adjusted operating income is anticipated to range between $145 million and $155 million.
Capital expenditures are expected to range between $50 million on $60 million as we guided previously.
And the effective tax rate guidance for the full year also is unchanged. It is expected to range between 26% and 29% after discrete items.
And that wraps up my prepared comments for the quarter.
Before handing the call back to James of Nate.
Wanted to say thanks to each of them for the trust and confidence. They gave me last April with this opportunity.
I've enjoyed working with you tremendously.
And now James on equally excited about the next stage of strides growth in the future with you at the helm.
Now I'll hand, the call back the unit.
Hey, operator.
Have any closing remarks, we've talked long enough probably on we go straight to Q&A.
Certainly at this time as a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jeff Silber from BMO capital markets. Your line is open.
Thanks, so much.
Nate I wanted to focus first on your retirement now why are you on your board may have been working on this for some time on the.
Timing is a bit surprising, especially after your recent investor day, we talked about the long term goals and based on some of the e-mails I've been getting from some of your shareholders. I think there are surprised as well. So if you can talk a little bit about why now.
And why youre, not at least giving us some sort of transition period for the smooth. Thanks.
Yes, we've thought about that it actually was a transition period for the last six months, we have been many of the things I have been working on I wanted to complete.
James knew this was coming and I have been giving him authority and responsibility we hired Tim Medina, knowing that James is the candidate.
Knowing that we needed to put him in that position.
Well he could show what he could do but also put ourselves in a position we've had of CFO. If I was leaving right now on James the CFO and we were promoting James right now we wouldn't have a CFO behind us.
So we did that to make sure that we had backup plans on.
On a personal level the reason right now is.
I'm not going to be honest and candid with you I have reached the birthday and net birthday cakes. The twin age that I, just said I can't continue to work this kind of ours this much longer.
I'm still young enough to do it but I'm old enough to know that this is not the right. The right thing for me to be doing at this stage of my life for personal reasons on my family I want to spend more time with them. So we could have let this go on for another six months.
But I felt it was time and James is ready the board felt it was time and James is ready I felt we've put all of the steps in place the management team is strong the.
The branding is redone the acquisitions, putting us on the stage of of getting ready for career learning has done and I know some shareholders will think that we did this by surprise, but in my script I was very careful to make sure. They understood. We've been thinking about this for a while we've been planning this for a while we thought this through.
The only thing we didn't do was why didn't tell everybody that I was leaving three months ago.
But three months ago I still have work to do and so I wanted to make sure that work was getting debt.
Alright.
Understandable I really appreciate the candor.
If I can move on to the operating results, which were which were really great.
Can you give us a little bit more color what drove the beat versus your guidance.
Sure.
This is Tim primarily its the revenue expectation from the higher retention of our current enrollments.
In fact as of May.
I'm sorry go ahead go ahead.
Net.
No I was going to ask for it that also the reason for the higher than expected outlook for the year.
Yes, exactly both for the third quarter and for the the beat and for the whole year, yes.
Okay, that's great.
No it's a bit too early to talk about the fall, but I've been getting a lot of questions.
What are you seeing again I know it's early what are your expectations for your general education enrollment and just as importantly revenue per student.
And that's the very tough question, you know that we can't.
We can't give you guidance because we don't know.
I don't think there's anybody in this country that knows exactly how many vaccines are going to get done.
With the effect of the vaccine is when the Covid rate will drop when schools will open how many people decided to go back to schools and I can go on with all of the unknowns that we're all dealing with.
We still believe that we can grow and the reasons. We believe we can grow is that the career learning business.
As growing not because of Covid. It was pre COVID-19, we were experiencing the growth.
And opening up new schools, adding new content, adding adult learning that means that business is growing so that's the number one reason we think we can grow next year in the general overall and the general education space remember that we have a chance to on opportunity.
To meet all of these parents that we didn't meet before.
We will be trying to convince them to look at look at the I'm, sorry of General Education and joined our program now the in the program. We can talk to them. We can show what the program is like we can have teachers talked to them. So we have a chance to retain more of them.
We'd be trying to sell them brand, new I think thats, the winning opportunity for us to keep some of those and we're going to keep more of those than the market thinks so between of the ability to retain some because we're talking to them now the ability to grow outside of the general education. We still think there is overall growth in this company going into FY 'twenty, two but I can't I can't promise.
I can't give you guidance that says that's going to happen because there's so many unknowns so Jeff I hope that.
That's the best answer I can give at this point in time in January of 2021 as to what's going to happen in October of 2021 is just too far away for us.
Again I knew it was early but I figured I'd just ask the question all right I'll jump back in the queue. Thanks, so much.
Take care of Jeff.
Your next question comes from the line of Stephen Sheldon from William Blair. Your line is open.
Alright, Thanks, the first congrats on your retirement, although it sounds like you'll still be.
Somewhat act with the Euro and congrats to Jan Sue on I'm, taking out of the CEO role.
I guess first question I, just wanted to ask I'm, sorry on a lot about K through 12 teacher turnover trending higher broadband in the U S. I'm guessing some of that is related to burn out teaching in a remote setting with minimal resources I'm curious what you've seen in terms of teacher satisfaction on your platform and have you.
Seen any notable changes in terms of <unk>.
Hiring and retention trends within each of those.
Yeah.
We certainly have seen teachers more stressed the.
When they have had been in and other times because we took on a lot of students and we had a lot of hiring that we did but we didn't get all of the hiring done that we wanted to because there's a teacher shortage in the country. So we are seeing teachers more stressed however, surprisingly we're not seeing increased.
Increased.
The withdrawal of the teachers were not seeing.
Turnover of teachers and the reason I think we're not at least what we're hearing from the teachers is they are more prepared and our environment than they would have been if they were in the brick and mortar environment. This whole going to online remember when you come into our program doing that we've been doing this for years. So the tools are available to the teachers, yes, they have more students, but they have more.
Our tools available to them as well.
Whether it would be automated grade books or be automated rating or at the.
Things of that track the students performance, knowing what they're doing when they're on online curriculum, having on it department did supports all of their log on to having a single log on all of those little things matters of the teachers not doing network. So we're seeing tejas stressed by volume, but not stressed by the tools and so we're seeing better retention of teachers than we had in PV.
This years.
Very helpful.
And then.
Follow up questions here I just wanted to ask about the update on the potential for more states open up for fully online schools K.
Things like that.
You guys gave some metrics on on demand that we're seeing the from school districts. Just just curious what youre seeing from a conversation standpoint, what some of these types of the bed.
I guess pushback against allowing you to operate from their states previously.
Youre absolutely right, we are seeing a greater opportunity and James you may expand on this a little bit greater opportunity in.
To see states open up and what are the reasons. We're seeing that is the third new models states are looking at not the traditional let me open the charter school of don't open the charter school. The now saying how can I add on online program to an existing school district. Both of these schools are saying how can I add the online capability to the other services that the offer.
So we are seeing a number of states and was about four of five of them that we're in conversations with now we're in conversations with US just literally a year ago. They weren't even consider it now they are considering different kinds of programs.
It's not the traditional open up of a charter school of law. It's more district partnerships that we are seeing begin to open up.
Yes, I would only add Nathan.
I think the one thing for for stride that this pandemic has really I think.
Helped us struck structurally long term is I think the recognition debt online remote learning is an important component of our educational system and educational network and.
I think as Nate said theres going to be different forms of how that manifests itself, but there is I think a structural shift in this country around how we view education and that benefits all of our businesses the benefits new opportunities for us.
We're going to take on we're going to have an opportunity to innovate around that so I just I see not just in our general education business not just in our career learning not just in our K through 12 side in our adult side as well, we see tremendous adoption of online learning in our adult side businesses.
It's just there is a shift in the way education is happening in this country and I think we're well positioned to take advantage of that.
Alright, Thank you and congrats on the growth.
Thank you.
Your next question comes from the line of Alex Paris from Barrington Research. Your line is open.
Hi, guys. Thanks for taking my call first I want to offer my congratulations as well to both Nathan James made on.
On your second shifts to the role of.
The executive Chairman and James I can't think of another person better suited to the taking on the CEO role.
And then Furthermore.
Im happy to hear that no material changes and of course, our plan going forward.
I too am getting lots of questions from investors about fiscal 'twenty two.
Your Investor Day did a great job on telling why revenues are going to continue to grow through 2025, but obviously the short term as some of the stock market. We wanted to see what fiscal 'twenty, two looks like and I think I heard your answer there.
It's tough to.
It's tough to make a call on general education.
There's things you don't know at this point.
But to a certain extent career learning and potentially learning solutions.
Is going to help to offset that in fiscal 'twenty. Two are there anything did I get that right or the other things to be considered for fiscal 'twenty two.
I think there is one other thing to be considered in fiscal 'twenty. Two in addition to the retention I talked about as well and that is.
Revenue per student revenue per student this year dropped as states.
The very real budget crisis. They were all short of money the federal government to as cares Act tried its best to bolster school district, but let's face it there was less taxes coming in less people working.
In states, where even if they didn't run out of the money. They were worried they were going to run out of money and therefore, they didn't put rate increases in place.
I don't think that continues into the into FY 'twenty two.
As we as.
Body once schools to open back up there is a strong pushing this country. The fund schools better to give schools more capability to have more.
The distance learning capabilities. So they can open up to be better prepared in case. The do have sickness is to be able to open up all of those things day, it'll be a positive environment for us because they put more money in the schools. We are support of public schools. Therefore, we get better revenue per per student number two if they have models that have more of.
Online capabilities for public school district, where provider of that so again, we benefit from that so I think that's the other factor to consider that we are in the best position.
The leverage both of those.
The increase in revenue per student and increase in online programs at schools.
Let me also just add debt.
I do agree with Nate there is uncertainty I think we all know its there for what's going to happen in the balance of this school year over the summer going into next school year irrespective of that.
I think we do no debt.
Our various career oriented businesses are running on all cylinders.
On enrollments in our Middle School and high school programs.
The teams to grow we should see no abatement in growth next year.
The acquisitions that we've done around adult learning, they're all performing well we can see we continue to see great trajectory for all of them.
They have outstanding management teams, they have been able to very quickly.
Celebrate their growth through this pandemic.
So we believe our shareholders long term are going to have tremendous benefit from the career related businesses that we've entered into in the past few years. The trajectory of all of those will continue into next year I think irrespective of what happens to the pandemic and on.
I want you all to know that debt. What you just heard was changed the CEO because two years ago, Jamie the CFO would have been more conservative but now he said the rent many of those businesses he knows how to drive the business now.
I am happy to see that.
That's great and that's very helpful. Thank you so much.
And then I guess one other big picture question. This is the other question that I get frequently besides the growth in 'twenty two.
Is regulatory.
Obviously, it's a different stride, inc. Than it was three years ago of five years ago.
Roger offering.
Not just charter schools any longer.
And I realize that.
This is more of a state regulatory situations and federal but I'm wondering about your thoughts about the bite in the administration about the nominated to the Secretary of education tone at the tone of the top accounts.
And.
And then.
Very specifically in the 30 plus states that you operate in where there any significant changes in the governorships state legislatures.
Let me answer both of those so first we'll start with the second question at the state level of course, the word with turnover, but there was no material change.
It is the mix between Democratic and Republican administrations, especially in the houses in the Senate. Some of the states. There were a couple of governors that changed over but when we had a couple of governors of of a publican changeover. So there was the balance and the balance has not really changed so we don't see any material change at the state level.
As a matter of fact, we think that many of the Republican organizations want to see something that they can when they want to have a win.
One of the wins for them is to be able to say the school choice is still there.
I think that that's a positive for us because theres going to be more push to make sure that debt.
The school choices there when you look at the minority communities.
Surprisingly theres this pushing pool between between what's happening with.
With the unions and what's happening with the minority communities that want to have more choice one of the things that came out of all of the the demonstrations last year as we all know the education of the quality is something that we want to see more of that means more choice. So more organizations at the state level of pushing for that kind of choice. In addition, we look.
At the.
The secretary of Education from Connecticut, and the bite administration and we looked at at the policies and we don't see any hardened positions for school choice for against School choice.
He is relatively neutral and we looked at the assistant Secretary of education as well from San Diego, who is more tied to two unions, but but again does not have a bent against charter schools of against school choice. So we again don't see that at the federal level. We also think that the the policy office of the federal government.
<unk> is also going to make an influence some of that.
So we don't know, but we simply have not seen any signals we've met with the transition teams in.
We don't make their decisions they don't tell us all of the decisions, but clearly we're not at the top of their list Theyre not looking for US. The last point I would raise is to remember that we are not for profit colleges. It's hard because there are no other public K 12 General education companies out there. So we get lumped in with the for <unk>.
Colleges, but we're not for profit colleges, we don't provide the same kind of funding without in the same kind of kind of a loan situations that they were in so even if they were to come after some of the for profit we are not we don't own schools.
When we owned private schools, but we don't own any of the public schools, we provide a service to the public school districts.
As such.
For them to go after after our business they'd have to go off the public school districts remember that today, almost 40% of our business is now tied to public school districts. They are who authorize the schools and want the schools and theyre going to resist the federal government, telling them to close the certain kinds of school. So we don't see the regulatory risk that debt.
That maybe people are worried about that's not to say that there wont be issues, we face the always issues, we face, but we have a strong policy regulatory team that is involved with the federal government listening to them and we react when we have to we'd have been change business plans before when we have to to continue to grow and we will continue to do that we will be nimble enough to handle things.
Come our way, although we don't think there'll be very many changes negative changes that come our way I also think.
Debt we.
We have to keep.
Keep in mind that.
Only a small single digit proportion of our revenues.
Some from federal dollars.
So.
Just in terms of concentration of risk we have somewhat limited concentration of risk I think more importantly, though for me is that.
What we're our strategy really is all about and how we're going to create value for our shareholders is really about enabling jobs and careers throughout the country.
And I think thats, a pretty bipartisan issue.
And so.
From my perspective at least and I hope that this administration supports this debt.
Adding people to work is.
It is important.
And filling the millions of jobs that are unfilled right now in the highest demand areas like technology and health care is important.
And I think our mission is to help this country.
Still those jobs and it's just I just can't see any administration that would be politically against debt.
Totally agree thank you.
You both for your comments I appreciate it and good luck Kid of retirement I'm sure, we'll still see around as executive Chairman and James look forward of considering to work closely with you.
Thanks, Alex I appreciate it thanks Alex.
Can I go back to Jeff's question for a minute because you just raised what I think is.
Part of the answer to Jeff and to shareholders, who might be asking do you have the question.
Why now on what does this mean.
Part of the why now is that I'm not leaving on.
I'm moving on changing my role from being a full time CEO to being executive chairman, but I'm still here as I mentioned in my comments for James to help James in any way he needs. It once it when he asked for it.
And Havent been my partner of the continuity I think is important it was important to the board and it's important to me and I think James is fully aligned with the board so.
I'm still here I'm still involved I'll still helping where he needs. It will make all of the decisions at CEO of <unk>, but when he needs my help I'm still here.
I would also add that.
I think for us.
CEO like NATO, so involved in the business and I think he has led this company for so long, it's never going to be a good time.
And.
And I do think that Nate and the board of really carefully considered this on.
Nate has spend a lot of time, helping prepare me for this moment.
And and he is very committed to our shareholders and to our board.
For the long term so.
I really don't see this as as maybe as big a transition as maybe.
Some people may be making now to be because the strategy is not going to change as Nate said earlier, we've put in the executive team in place.
In both functional areas of business unit, leading different business units debt is as strong as it's ever been if theres any time for a leadership transition actually this is probably the time, where we're at our strength right now.
I think it's the good good to have a transition when you are at your strength. So so I actually think it's a good time.
I'm happy for <unk> next phase of life, but I'm also.
Confident that he will be standing next to me for a long time.
Well that's good to hear thank you both very much I appreciate it.
Your final question today comes from the line of Greg <unk> from Sidoti Your line is open.
Hey, Thanks for taking my question.
To me you know you have now done three acquisitions, I guess, starting with galvanize over about a 16 month period and it seems to be one of the pushback as you as the company right now are trading under the onetime sales and it looks like your acquisition targets on the private markets of roughly three times sales. So just kind of wondering how we should be thinking.
That is that because these are career oriented the adult learners and they're worth.
More than what you are trading at right now and when you mentioned earlier on the call being disciplined about targets going forward is that the wrong metrics of focus on how should we be thinking about that thanks.
Yeah, Hi, Greg I'm smiling because the number one answer to your question is we're undervalued.
That's why that's one of the things we buyer of higher because they are valued more fairly and we're not we're not value profit.
It's our job to make sure that we continue convey to shareholders the positive.
News in this company the growth factors the margin factors the cash flow, we generate the strength of the balance sheet.
But if you look at any of those metrics and compare them to anybody else, who had these kinds of financial metrics that'd be valued much higher.
And that's the somehow we've got to continue to explain to shareholders that.
The way of looking at it.
I think undervaluing this company.
In terms of the acquisitions that we purchased.
Part of it you are right is that the industries that they ran we always do comparable analysis. We do this kind of cash flow, we do comps against the previous sales. We look at forward looking growth. We look at all of the factors when we when we value of someone.
All of those values say that we paid a fair price.
So I think it is really of a matter of in the private market. Those institutions are valued a little differently. The way we are valued in the public market and we talked about some of the issues. The here. There is a worry about are we going to grow next year, there as well, what's going to happen with the regulatory environment. None of those things really are strongly.
The affecting our.
Our current financials, but the effect the worry of the shareholder about the stock price and I think they're holding us back a little bit we will continue to demonstrate strong performance and I think the market will eventually say hey, that's the company out of Uninvested and it's our job as executives to deliver that kind of performance, but there is no doubt we believe we are undervalued.
I also think that if you look at what we laid out in our investor presentation.
We've got I think a path.
With our acquisitions by the way, helping us to the metrics that Tim laid out in November two.
<unk> 2 billion of revenue plus.
Improved.
Gross margins.
The implies I think of doubling of our free cash flow from where it will be this year.
And and I think our shareholders will benefit over time and.
I think we are playing a little bit of catch up here on the share price, but when we delivered those when we deliver those consistent returns over the quarters and years to come I think our shareholders benefit.
Alright, and then I guess, just one final one.
Not the.
Jump on that but your stock on all the way down to 'twenty like you said, you're generating free cash flow of how do you view and I know in the past you've been vocal that free cash flow would be targeting acquisitions, but how would you view maybe of buyback potential at any point in time.
Authorizing some some share repurchase.
I think that if I looked at capital allocation philosophically on how we would look at things. Our first interest is always going to be investing in the business debt win so whether we're investing in in greater amounts of content.
Vesting in systems that make us more efficient and reduce our our period costs will be on investing in the core business opportunities.
We think there are more states we can go into.
Book to expand the business when the.
Specially the career learning business. So I think of investing in the core businesses is number one number two would be we still think there might be some acquisitions to be done. We don't think there are any of at least I don't think there are any debt. We will do in the next six months 12 months, we need to integrate what we've got we need to prove that it works, but down the line.
We still think they are going to be opportunities to grow inorganically as well.
I would say that between share buybacks and dividends.
I'm going to say does that lateral get me in trouble with some people.
But I'm, a candid guy suddenly be candid I would always favor.
Dividends over share buybacks share buybacks tend to be very short term benefits.
<unk>.
It's the financial game, you play dividends give shareholder return on a long term basis, you issue a dividend we have new kinds of investors that can can bind to the stock where it's showing them on the ongoing return on investment.
I would always say for dividends over share buyback of share buyback feels real good for a day or two or a month and then it does nothing for you long term so.
We would probably find our board not overly interested in share buyback, but much more interested in dividends over the long term. So that's how we view capital allocation.
<unk>.
I don't know if there's much more I can say.
No that's very helpful. I appreciate it thanks.
There are no further questions. So I'll turn the call back to management for closing remarks.
Okay.
Have talked long enough to where almost fill of person we talked for the long. So I don't think there's anything else to say I do appreciate everybody joining the call today I, especially appreciate the shareholders who hung in there with us.
Who have some faith in us and we are working hard to deliver for you. So with that I wanted one more time congratulate James <unk>.
I think James is going to do an excellent job for the shareholder base and I will be right by his side, helping them all the way so with that I. Thank everybody for your time take care.
That concludes today's conference call. Thank you everyone for joining US today you may now disconnect.
And the.
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