Q2 2022 Stride Inc Earnings Call
Speaker 5: Ladies and gentlemen, thank you for standing by, and welcome to Stride, Inc.'s second quarter fiscal 2022 earnings call. All lines have been placed on mute to prevent any background noise.
Ladies and gentlemen, thank you for standing by and welcome to Stride, Inc. Second quarter fiscal 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
Speaker 6: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Tim Casey, Vice President, Investor Relations. You may begin your conference. Thank you and good afternoon. Welcome to STRIDE's second quarter earnings call for fiscal year 2022. With me on today's call are James Ruh, Chief Executive Officer, and Tim Medina, Chief Financial Officer.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again.
Thank you Tim Casey Vice President Investor Relations you May begin your conference. Thank you and good afternoon, welcome to <unk> second quarter earnings call for fiscal year 2022.
With me on today's call are James Liang, Chief Executive Officer, Tim Medina, Chief Financial Officer.
Speaker 6: As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the Stride Investor Relations website.
As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the stride Investor Relations website.
Speaker 6: Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on the Investors section of our website. In addition to historical information, this call may also involve forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to several important factors as described in the company's latest SEC file.
Please be advised that todays discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon. It can also be found on the investors section of our website <unk>.
In addition to historical information. This call May also involve forward looking statements. The company's actual results could differ materially from any forward looking statements due to several important factors as described in the company's latest SEC filings.
Speaker 6: These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them, and the company assumes no obligation to update any forward-looking statements made during this call.
Statements are made on the basis of our views and assumptions regarding future events and business performance at the time, we make them and the company assumes no obligation to update any forward looking statements made during this call.
Speaker 6: Following our prepared remarks, we'll answer any questions you may have. I will now turn the call over to James. James?
Following our prepared remarks, we will answer any questions you may have.
I'll now turn the call over to James James.
Thank you and good afternoon, everyone.
Speaker 7: As I enter my second year as CEO , I wanted to reflect on this past year and provide some insight into what I see for our future.
As I enter my second year as CEO I wanted to reflect on this past year and provide some insight into what I see for our future.
Environmentally here some observations.
Speaker 7: Unfortunately, the COVID pandemic continues to wreak havoc even as vaccines have become widely available.
Unfortunately, the Covid pandemic continues to wreak havoc, even as vaccines have become widely available.
Speaker 7: and there continues to be significant disruptions and uncertainty to K-12 learning.
And there continues to be significant disruptions and uncertainty to K 12 learning.
American workers are quitting their jobs at record high levels with more than $4 3 million public sector workers, putting in November 2021 alone.
Speaker 7: more than 4.3 million public sector workers quitting in November 2021 alone.
Speaker 7: The national teacher shortage continues to be acute and issues within school districts across the country make getting back to normal that much more difficult.
The national teacher shortage continues to be acute and issues with in school districts across the country make getting back to normal that much more difficult.
Speaker 7: As a nation, we continue to politicize issues that should not be political, and education, unfortunately, continues to be one of those areas.
As a nation, we continued to politicize issues that should not be political education. Unfortunately continues to be one of those areas.
Speaker 7: And employers and employees are settling into the work-from-home trend, with estimates showing that almost one-third of all workers were remote at the end of 2021.
And employers and employees are settling into the work from home trend with estimates showing that almost one third of all workers will remote at the end of 2021.
Yeah.
Speaker 7: This environment will continue to cause uncertainty across many sectors of our economy.
This environment will continue to cause uncertainty across many sectors of our economy.
Speaker 7: We already see rising inflation and interest rates and continued disruption in the supply chain.
We already see rising inflation and interest rates and continued disruption in the supply chain.
Yeah.
Speaker 7: I believe Stride is well positioned in this environment to continue to thrive by providing solutions that meet the varied demands of our time.
I believe stride is well positioned in this environment to continue to thrive.
By providing solutions that meet the varied demands of our times.
Speaker 7: People of all ages are searching out more educational choice and flexibility and they are seeking training options to prepare them for economically sustainable careers.
People of all ages are searching out more educational choice and flexibility and they are seeking training options to prepare them for economically sustainable careers.
Speaker 7: Meanwhile, employers are looking for well-trained workers to fill the nearly 11 million job openings in the U.S.
Meanwhile, employers are looking for well trained workers to fill the nearly 11 million job openings in the U S.
The last April I've said that I believe stride would grow through the pandemic.
Speaker 7: Now last April , I said that I believed Stride would grow through the pandemic.
Speaker 7: that I believe the pandemic has created a longer term structural opportunity for us. And my belief is stronger now.
And then I believe the pandemic has created a longer term structural opportunity for us.
And my belief is stronger now than it has ever been.
Speaker 7: One aspect of our culture that helps us is our continued focus on outcome.
One aspect of our culture that helps US is our continued focus on outcomes.
Speaker 7: Regardless of what area or discipline, we need to ensure that our students and company are achieving the outcomes we expect. We recently sent out a survey to our alumni.
Regardless of what area or discipline, we need to ensure that our students and company are achieving the outcomes we expect.
We recently sent out a survey to our alumni to hear what they think.
The results demonstrated.
Speaker 7: that what we are doing can have an incredibly positive impact on their lives.
That what we are doing can have an incredibly positive impact on their lives.
Speaker 7: Ninety-four percent of those surveyed believe their online school experience was a success.
94% of those surveyed believe their online school experience was a success.
92% believed that they benefited academically from their online school experience.
Speaker 7: 92% believe that they benefited academically from their online school experience.
Speaker 7: And 82% feel that they are on the path towards their desired career. And I believe we are just getting started.
82% feel that they are on the path towards their desired career.
And I believe we are just getting started.
Another area I had been focused on is innovation.
Speaker 7: More than 20 years ago, Stride was one of the first education technology companies to enable students to learn online.
More than 20 years ago stride was one of the first education technology companies to enable students to learn online now.
Speaker 7: Now, millions of students later, we must continue to innovate to drive outcomes and reach more learners.
Now millions of students later, we must continue to innovate to drive outcomes and reach more learners.
Speaker 7: To that end, we're continuing to develop new products that will expand our market opportunity and ensure we remain at the forefront of education technology. We are investing behind our digital first
To that end, we're continuing to develop new products that will expand our market opportunity and ensure we remain at the forefront of education technology.
We are investing behind our digital first curriculum.
Our career platform and.
Speaker 7: enrichment programs like eSports, and our professional development platform, among other initiatives.
Enrichment programs like E sports and our professional development platform among other initiatives.
Speaker 7: This fall, we should have some additional exciting news on how we are progressing.
This fall we should have some additional exciting news on how we are progressing we.
Speaker 7: We have an amazing team with an incredible amount of experience in education and technology, and I want to ensure we are leveraging that for bigger, more mainstream opportunities.
We have an amazing team with an incredible amount of experience and education and technology and I want to ensure we are leveraging that for bigger more mainstream opportunities.
Speaker 7: We published our first ESG report in June , outlining the four cornerstones of our approach.
We published our first ESG report in June outlining the four cornerstones of our approach.
Expanding lifelong learning options.
Speaker 7: supporting racial and socioeconomic equity and inclusion.
Supporting ratio and socioeconomic equity and inclusion.
Speaker 7: fostering transparent leadership, governance, and professional development, and contribute.
Foster and transparent leadership governance and professional development.
And contributing to a more sustainable world.
Speaker 7: We've done some great work already in these areas and are going to continue our focus.
We've done some great work already in these areas and are going to continue our focus.
Speaker 7: I encourage all our investors to read the report and the supplemental update we published in November .
I encourage all our investors to read the report and a supplemental update we published in November .
Speaker 7: And looking forward, we anticipate publishing yearly updates on the great progress we will be making.
And looking forward, we anticipate publishing yearly updates on the great progress, we will be making.
Speaker 7: It's also been just over a year since we acquired MedCerts and TechElevision.
It's also been just over a year since we acquired met <unk> and Teck elevator.
Speaker 7: TechElevator is growing at over 30% and continues to be on pace to hit both its financial and strategic goals.
Tech elevator is growing at over 30% and continues to be on pace to hit both his financial and strategic goals.
Speaker 7: Similarly, MedCert's revenue has grown over 50 percent and is far exceeding our business case assumptions.
Similarly, net search revenue has grown over 50% and is far exceeding our business case assumptions.
Okay.
Speaker 7: Strategically, we've been able to leverage these businesses to grow our overall career initiative.
Strategically we have been able to leverage these businesses to grow our overall care initiatives.
Speaker 7: This year we introduced to much success a pilot enabling high school students to take MedCerts certificate programs.
This year, we introduced to much success pilot, enabling high school students to take Med search certificate programs.
Speaker 7: These businesses are run by innovative leaders and remain well positioned in their respective markets to continue to grow. And the macro environment remains very positive for continued demand for software development and allied healthcare training.
These businesses are run by innovative leaders and remain well positioned in their respective markets to continue to grow.
And the macro environment remains very positive for continued demand for software development and Allied healthcare training.
In November 2020, we outlined our five year financial targets, which we continue to believe we are well on pace to achieve.
Speaker 7: In November 2020, we outlined our five-year financial targets, which we continue to believe we are well on pace to achieve.
Speaker 7: Underlying all these assumptions is our strong belief that the COVID pandemic has structurally changed the demand for strides off.
Underlying all of these assumptions is our strong belief that the COVID-19 pandemic has structurally changed the demand for strides offerings.
Speaker 7: we continue to see positive demand characteristics across our office.
We continue to see positive demand characteristics across our offerings.
Speaker 7: Over the past several months, since our county, applications to our managed programs have trended up almost 30% from last year.
Over the past several months since our county applications to our managed programs has trended up almost 30% from last year.
Speaker 7: And today, we sit at enrollment levels higher year over year across our managed programs after starting the year down 3%.
And today, we sit at enrollment levels higher year over year across our managed programs after starting the year down 3%.
Speaker 7: Many have predicted since the inception of the pandemic that the increased demand for our programs would be temporary.
Many have predicted since the inception of the pandemic that the increased demand for our programs would be temporary.
Speaker 7: Well, after almost two years and demand remaining strong, I'm not convinced the opposite isn't true and that demand will continue to swell.
Well after almost two years and demand remaining strong.
Convinced the opposite isn't true.
That demand will continue to swell.
Speaker 7: The pandemic also demonstrated that the U.S. needs to be more open to educational options for families.
The pandemic also demonstrated that the U S needs to be more open to educational options for families.
And we're now having conversations with states and school districts that even two years ago would not have been possible.
Speaker 7: and we're now having conversations with states and school districts that even two years ago would not have been possible.
Speaker 7: So we've increased demand from families and a more receptive educational system.
So we've increased demand from families and a more receptive educational system.
Speaker 7: both of which we believe put us on a trajectory to achieve our fiscal 25 target.
Both of which we believe put us on a trajectory to achieve our fiscal 'twenty five targets.
Speaker 7: In our general education business, we are targeting fiscal year 25 revenue of 1.25 to 1.4 billion dollars.
And our general education business, we are targeting fiscal year 'twenty five revenue of one to five to one 4 billion.
A few themes will drive this growth.
Speaker 7: first and foremost, overall demand characteristics that I just mentioned.
First and foremost overall demand characteristics that I just mentioned.
Well, we used to believe the penetration curve for our programs flattened out around 2% to 3% of the student population.
Speaker 7: While we used to believe the penetration curve for our programs flattened out around 2-3% of the student population.
Speaker 7: There is growing evidence that we have hit an inflection point up the S-curve and penetration may begin to climb to upwards of 10 to 15 percent.
Growing evidence that we have hit an inflection point up the S curve and penetration may begin decline to upwards of 10% to 15%.
Speaker 7: Second, increasing the number of programs in states that offer our stride-powered solutions. While our recent focus has been on growing career learning programs in states, the pandemic and resulting demand for educational options has led many schools and states to be more open to full-time virtual programs.
Second increasing the number of programs in the states that offer our stride powered solutions.
While our recent focus has been on growing career learning programs and states the pandemic and resulting demand for educational options has led many schools in states to be more open to full time virtual programs.
Speaker 7: In fact, we know today that we will be opening a program in at least three new states this fall.
In fact, we know today that we will be opening a program and at least three new states. This fall.
And third the economic and political landscape for the pandemic has produced recognizes the need for our programs one easy macro trend. We now is putting the wind at our backs in the work is the work from home trend.
Speaker 7: And third, the economic and political landscape for the pandemic has produced recognizes the need for our programs. One easy macro trend we know is putting the wind at our backs is the work from home trend.
Speaker 7: The ability for families to logistically manage virtual learning for their children because they are at home creates significant long-term upside for our business.
The ability for families to logistically manage virtual learning for their children because they are at home create significant long term upside for our business.
Speaker 7: In our career learning business, many of these same characteristics will allow us to achieve $650 to $800 million in revenue by fiscal 2025.
And our career learning business. Many of the same characteristics will allow us to achieve $650 million to $800 million in revenue by fiscal 'twenty five.
Speaker 7: This is a market that is still in its early stages, and we believe there is significant growth ahead. We continue to hone our messaging to ensure that parents and students understand the value proposition of our career programs so we can tap into the incremental audience for career learning.
This is a market that is still in its early stages and we believe there is significant growth ahead.
We continue to own our messaging to ensure that parents and students understand the value proposition of our career programs. So we can tap into the incremental audience for career learning.
We also have our adult learning businesses, which we anticipate will reach at least $140 million to $150 million in revenue by fiscal 2025.
Speaker 7: We also have our adult learning businesses, which we anticipate will reach at least $140 to $150 million in revenue by fiscal 2025.
Speaker 7: These businesses are well-positioned to train the workforce of today and tomorrow while helping current workers get the training they need to achieve their career goals.
These businesses are well positioned to train the workforce of today and tomorrow, while helping current workers get the training they need to achieve their career goals.
Speaker 7: These two businesses should drive our ability to achieve close to $2 billion plus in revenue and $250 to $350 million in adjusted operating income within the next four years. We believe there's potential upside to that.
These two businesses should drive our ability to achieve close to 2 billion plus in revenue and to $250 million to $350 million and adjusted operating income within the next four years.
And we believe there is potential upside to that.
With a new product revenue that is not in these goals.
Speaker 7: As I mentioned earlier, this is an area where I think we can innovate and make some serious inroads.
As I mentioned earlier this is an area, where I think we can innovate and make some serious inroads.
Speaker 7: We have an incredible core of assets from which we can launch innovative and mainstream products.
Have an incredible core of assets from which we can launch innovative and mainstream products.
Speaker 7: One easy example, in March of this year, we will be introducing our professional development to a broader audience through an inaugural Stride Promising Practices Conference that will be open to everyone.
One easy example in March of this year, we will be introducing our professional development to a broader audience through an inaugural stride promising practices conference that will be open to everyone.
Speaker 7: The theme for the conference is Career Readiness Education. It will be held virtually and will be free for all teachers, administrators, counselors, and families.
The theme for the conferences career readiness education, it will be held virtually and will be free for all teachers administrators counselors and families.
Speaker 7: Our professional development experts will share best practices in teacher effectiveness, student socialization, leadership, and special programs.
Our professional development experts will share best practices and teacher effectiveness students socialization leadership and special programs.
Speaker 7: We'll also have an exhibitor hall that will feature our education partners, and we will share a demonstration of Stride's platform and content.
We will also have an exhibitor hall that will feature our education partners and we will share demonstration of strides platform and content.
Speaker 7: We hope that this conference can help improve the education of students across the country.
We hope that this conference can help improve the education of students across the country.
Speaker 7: And finally, as we turn the calendar to 2022, I am grateful for the dedicated teachers and employees who remain focused on students in the midst of many distractions. Thank you all for what you do.
And finally, as we turn the calendar to 2022 I am grateful for the dedicated teachers and employees, who remain focused on students in the midst of many distractions. Thank you all for what you do.
I hope everyone remains safe and thank you for the time today now I'll pass the call over to Tim Tim.
Speaker 8: I hope everyone remains safe and thank you for the time today. Now I'll pass the call over to Tim. Tim? Thank you, James, and good afternoon, everyone.
Thank you James and good afternoon, everyone.
First let me recap our reported results.
Speaker 8: Revenue for the quarter was $409.5 million, an increase of 9% from the same period last year.
Revenue for the quarter was $409 $5 million, an increase of 9% from the same period last year.
Adjusted operating income was $60 7 million up $10 $6 million or 21% from last year's second quarter.
Speaker 8: Adjusted operating income was $60.7 million, up $10.6 million or 21% from last year's second quarter.
Speaker 8: And capital expenditures were $14.2 million, an increase of $3.4 million over last year.
And capital expenditures were $14 2 million, an increase of $3 4 million over last year.
Speaker 8: We exceeded the revenue and profitability guidance we provided last quarter. We continue to see strong demand for our general education and career learning programs.
We exceeded the revenue and profitability guidance, we provided last quarter.
We continue to see strong demand for our general education and career learning programs.
Speaker 8: We believe this demonstrates that families value our virtual programs and are choosing us even when other options are available.
We believe this demonstrates that families value our virtual programs and are choosing us even when other options are available.
Speaker 8: And as I will outline later, we are increasing our revenue and profitability guidance because of this strong demand.
As I will outline later, we are increasing our revenue and profitability guidance because of the strong demand.
Returning to our results for the second quarter in more detail.
Speaker 8: Returning to our results for the second quarter in more detail.
Speaker 8: Revenue from our general education business was down just slightly to $313.2 million.
Revenue from our general Education business was down just slightly to $313 2 million.
Speaker 8: This is due primarily to the expected decline in enrollments offset by an increase in revenue per enrollment.
This is due primarily to the expected decline in enrollments offset by an increase in revenue per enrollment.
Speaker 8: General Ed enrollments were 145.6 thousand, down from last year's COVID-19 impacted results of more than 161,000 enrollments.
General that enrollments were $145 6000.
Down from last year's Covid impacted results of more than 161000 enrollments.
Speaker 8: Revenue per enrollment in general ed increased 11% from the second quarter last year.
Revenue per enrollment in general it increased 11% from the second quarter last year.
Speaker 8: We continue to see favorable funding and for the full year, we expect to see revenue per enrollment that is substantially higher than our fiscal 2021 results.
We continue to see favorable funding and for the full year, we expect to see revenue per enrollment that is substantially higher than our fiscal 2021 results.
Speaker 8: Career learning revenue was $96.3 million, up 55% from the second quarter of last year.
Career learning revenue was $96 3 million up 55% from the second quarter of last year.
Speaker 8: This was driven by growth in stride career prep enrollments and growth in our adult learning business.
This was driven by growth in stride career prep enrollments and growth in our adult learning business.
Middle and high school career learning revenue was $75 3 million up 47% from last year.
Speaker 8: Middle and high school career learning revenue was $75.3 million, up 47% from last year. This was driven by a 38% increase in enrollments and a 7% increase in revenue for enrollment.
This was driven by a 38% increase in enrollments and a 7% increase in revenue per enrollment.
Speaker 8: Like our general education business, we expect our revenue per enrollment in our STRIDE career prep program to improve significantly over last year.
Like our general Education business, we expect our revenue per enrolment in our stride career prep programs to improve significantly over last year.
Adult learning revenue was $21 million.
Speaker 8: We acquired MedServe and TechElevator mid-second quarter last year, so our results next quarter should give a better year-over-year comparison for organic growth.
We acquired net served in tech elevator mid second quarter last year. So our results next quarter should give a better year over year comparison for organic growth.
Speaker 8: Gross margins for the quarter were 36 percent, an increase of 160 basis points compared to last year.
Gross margins for the quarter were 36% an increase of 160 basis points compared to last year.
Speaker 8: As we said last quarter, we've returned to a more seasonal pattern for our cost of revenue.
As we said last quarter, we have returned to a more seasonal pattern for our cost of revenue.
Speaker 8: Selling general and administrative expenses were $90.6 million, essentially flat from the prior year period.
Selling general and administrative expenses were $90 6 million essentially flat from the prior year period.
Speaker 8: We expect that SG&A expense for the year will be in line with last year as we've continued to focus on efficiencies and automation in our business.
We expect that SG&A expense for the year will be in line with last year as we've continued to focus on efficiencies and automation in our business.
Speaker 8: Stock base compensation was $0.6 million for the quarter.
Stock based compensation was zero point $6 million for the quarter.
Speaker 8: This was well below our expectations, and we now expect that we will finish the year with stock-based compensation in the range of $20 to $22 million.
This was well below our expectations and we now expect that we will finish the year with stock based compensation in the range of $20 million to $22 million.
Speaker 8: Adjusted operating income for the quarter was $60.7 million, above the top end of our guidance from last quarter. Adjusted EBITDA was $80 million.
Adjusted operating income for the quarter was $60 7 million above the top end of our guidance from last quarter.
Adjusted EBITDA was $82 7 million.
Speaker 8: As expected, we're beginning to see increases in our profitability in line with a return to a more normal seasonal pattern of expenses than we had in last fiscal year's quarterly trend.
As expected, we're beginning to see increases in our profitability in line with the return to a more normal seasonal pattern of expenses than we had in last fiscal year's quarterly trends.
Speaker 8: Our effective tax rate for the quarter was 28 percent.
Our effective tax rate for the quarter was 28%.
Speaker 8: We now think that we will finish the year with a tax rate in the 27 to 30 percent range.
We now think that we will finish the year with a tax rate in the 27% to 30% range.
Speaker 8: Capital expenditures in the quarter totaled $14.2 million, up $3.4 million from the second quarter last year.
Capital expenditures in the quarter totaled $14 2 million up $3 4 million from the second quarter last year.
Speaker 8: We continue to invest in new products which we believe will expand our addressable market, allow us to become a more mainstream, consumer-focused company, and generate higher margins.
We continue to invest in new products, which we believe will expand our addressable market allow us to become a more mainstream consumer focused company and generate higher margins.
Okay.
Speaker 8: Fee cash flow was $105.7 million, up from $23.8 million last year.
Free cash flow was $105 7 million up from $23 8 million last year.
Speaker 8: This increase is tied to revenue growth and the timing of our receipts.
This increase is tied to revenue growth and the timing of our receipts.
Speaker 8: We expect to see positive cash flow for the rest of the fiscal year.
We expect to see positive cash flow for the rest of the fiscal year.
Okay.
Speaker 8: We finished the quarter with cash and cash equivalents of $257 million. Now turning to our guidance.
We finished the quarter with cash and cash equivalents of $257 million.
Now turning to our guidance.
For the third quarter of fiscal year 2022.
Speaker 8: We are guiding to revenue in the range of $405 to $415 million.
We are guiding to revenue in the range of $405 million to $415 million.
Speaker 8: Adjusted operating income between 60 and 65 million
Adjusted operating income between 60 and $65 million.
Speaker 8: and capital expenditures between $15 and $18 million.
And capital expenditures between 15 and $18 million.
Speaker 8: For the full year, we are raising revenue and profitability guidance.
For the full year, we are raising revenue and profitability guidance.
Speaker 8: We expect revenue in the range of $1.62 to $1.64 billion, up from $1.56 to $1.60 billion previously.
We expect revenue in the range of 162 to $1 64 billion up from 156 to $1 six zero billion previously.
Speaker 8: Adjusted operating income between $175 million and $185 million up from $165 million to $180 million previously.
Adjusted operating income between 175, and $185 million up from $165 million to $180 million previously.
Speaker 8: Capital expenditures between $65 and $75 million.
Capital expenditures between 65 and $75 million.
Speaker 8: and an effective tax rate between 27 and 30 percent.
And an effective tax rate between 27% and 30%.
Speaker 8: Thank you for your time today. I'll turn the call back to the operator. Operator?
Thank you for your time today, I'll turn the call back to the operator operator.
Speaker 5: At this time I would like to remind everyone in order to ask a question please press star followed by the number one on your telephone.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad and.
Speaker 5: And your first question comes from Jeff Silber with BMO Capital Markets. Your line is open.
And your first question comes from Jeff Silber with BMO capital markets. Your line is open.
Speaker 9: Thank you so much. You kind of opened up talking about next year when you talked about the potential three new states for Gen Ed, so let me focus on that. I know it's probably too early for any enrollment indicators, but if you can give us a little bit more color on those three new states, if you're willing to give us enrollment indicators, that'll be great. And then also, I'm just wondering what you're thinking for the funding environment for next year. Thanks.
Thank you so much.
He kind of opened up talking about next year when you talked about the potential three new states for Gen. Ed So let me focus on that.
I know, it's probably too early for any enrollment indicators, but if you can give us a little bit more color on those three new states, if you're willing to give up enrollment indicators that'll be great. And then also I'm just wondering what youre thinking for the funding environment for next year. Thanks.
Speaker 7: Yeah, thanks for the question, Jeff. I think so. We've got three. I think we've got at least three new states.
Yeah. Thanks for the question, Jeff I think so we've got three I think we've got at least three new states.
Speaker 7: For sure, Georgia, which is sort of in the public domain already, New Hampshire, I think, which is also in the public domain, and West Virginia, also in the public domain, also, I think, set up for the fall. I think the enrollment, we know for sure, long-term, Georgia has incredible enrollment demand.
For sure.
At Georgia, which is sort of in the public domain already.
New Hampshire, I think which is also in the public domain.
And in West Virginia also in the public domain also I think set up for the fall.
I think the enrollment.
We know for sure long term, Georgia has incredible.
Enrollment demand.
Speaker 7: In the short term, our arrangement there will be under a cap.
In the short term.
Our our arrangement there will be under a cap so.
Speaker 7: And so we will not be able to meet all the demand in that state, but I think long term it presents a tremendous opportunity for us.
So we will not be able to meet all the demand in that state, but I think long term it presents a tremendous opportunity for us.
Speaker 7: The other states obviously are a little bit smaller, but I think they're states that we've worked hard to get and are really good, important states for us, and I think they represent also just an increasing...
The other states, obviously Olympics smaller but.
I think our state that.
We've worked hard to get and are really good important states for us and I think they represent also just an increase.
Speaker 7: in the openness of states that previously may not have been open to us to really have meaningful conversations. And I think the road not past that and the years past that also look good. So I think without giving specific numbers, but I think that just the trajectory looks pretty strong and the ability for us to continue to open new states in the coming
And the openness of states that previously may not have been open.
To us to really have meaningful conversations and I think the roadmap passed out into the years past that also look good so I think without giving specific numbers, but I think that just the trajectory looks pretty strong and the ability for us to continue to open new states in the coming years looks pretty good.
Speaker 9: That's great. And I'm sorry, did you address the general funding environment for next year? Oh, I'm sorry, Jeff. The general funding environment is...
That's great and I'm, sorry did you address the general funding environment for now I'm, sorry, Jeff the general market environment.
Speaker 7: continues to be, I think, strong. We don't see...
<unk> continues to be I think strong.
We don't see.
Speaker 7: At the state level, a lot of headwinds. I think you'll continue to see tailwinds around funding. I think the
At the state level.
A lot of headwinds I think you'll see you'll continue to see a tailwind around funding I think.
The.
The thing that I would.
Speaker 7: it's not even a caution, you'll see tailwinds, but I think there's pockets in the education sector in grades K through 12 where districts are really sort of awash in money and that's flowing to some of our education maybe peers. That sort of flood of money that's gone from the federal government down, that probably is not going to give us a huge lift next year in funding, but I think the general environment remains.
It's not even a cautious youll see tailwind, but theres I think theres pockets in the education sector in grades K 12, where districts are really sort of a washington money and and Thats flowing to some of our education, maybe peers that that sort of sort of a flood of money. That's gone from the federal government down that pipe is not.
Going to give us.
Huge lift next year.
In funding, but I think the general environment remains very strong.
Speaker 9: Okay, great. And I think last quarter you talked about some issues in terms of finding teachers. I'm just wondering if we can get an update on that, how that's going and what you see going into next year. Thanks. Yeah, so the national teacher shortage remains an issue across the country. It's not just it's not just us.
Okay, Great and I think last quarter you talked about.
Some issues in terms of finding teachers I'm just wondering if we can get an update on that how that's going and what you see going into next year. Thanks, Yes. So the national teacher shortage remains an issue across the country not just it's not just us we see this across the entire landscape of the U S.
Speaker 7: you know, across the entire landscape of the U.S. It is.
Is.
Speaker 9: I think this year we found an equilibrium now.
I think this year, we found it so I would say an equilibrium now.
Speaker 9: And here, now that we're in January , I think we work hard all year round to get teachers. I think we've got a good process now, or approach now, to access.
In here now that we're in January .
We worked hard all year round to get teachers I think we've got a good process now.
Our approach now to accelerate our hiring going into next fall. So that hopefully we will actually get ahead of it more than we did this past year. So I think we won't experience the type of restriction that the shortage imposed upon us. This year next year. So I think that will be alleviated somewhat but I do think there.
Speaker 9: Hiring going into next fall so that hopefully we will actually get ahead of it more than we did this past year So I think we won't experience the type of restriction that the shortage imposed upon us this year Next year, so I think that will be alleviated somewhat, but I do think the shortage will will
The shortage will continue into next year.
Speaker 9: into next year, you know, we see a lot of teachers that are actually leaving the profession altogether. We see that, I think, less so in our programs because I think there's less controversy surrounding sort of the teacher environment within programs like ours, but certainly across the nation we see actually teachers leaving the profession altogether. I think the long-term macro trend, though, for teachers works in our favor because the landscape...
We see a lot of teachers that are actually leaving the profession altogether, we said that I think less so in our programs because I think theres less controversy surrounding sort of a teacher environment within programs like ours, but certainly across the nation, we see actually teachers, leaving the profession altogether I think the long term macro trend, though for teachers works in our favor because the law.
Landscape.
Educators are going into the profession are there more.
Speaker 9: tune with and skewing more towards being digital natives and being, I think, more aligned with online education. That works in our favor. I think as teachers in school districts, Brick and Mortar school districts.
Now in tune with and skewing more towards.
Being digital natives and being I think more align with online education that works in our favor I think as teachers and school districts brick and mortar school districts increasingly become I think disenchanted with their school districts that also gives us opportunity.
Speaker 9: increasingly become, I think, disenchanted with their school districts. That also gives us opportunity. Our teacher satisfaction remains very high, so I don't think it works the other way around. So I think the general trend for our teacher shortage as a nation remains intact, but I think the trends for us specifically will improve here going into next year. Okay. That's great.
Our teacher satisfaction remains very high so I don't think it works the other way around so I think the general trend for our teacher shortage as a nation remains intact, but I think the trends for us specifically, we'll improve here going into next year.
Okay, that's great to hear I'll jump back in the queue. Thanks, so much.
Speaker 5: Your next question comes from Stephen Sheldon with William Blair. Your line is open.
Your next question comes from Stephen Sheldon with William Blair. Your line is open.
Hey, Thanks for taking my questions.
Speaker 5: On the, you know, the enrollment numbers here looked really, really solid. So, we'd love to just get some more color on what you saw, especially in the last few weeks, in terms of retention rates for the start of the new semester and whether you saw any notable benefit from new students maybe signing up for the first time this semester. So, maybe just high-level commentary on retention rates and new enrollment trends for the second half of this fiscal year. All right. Thanks everyone.
On the <unk> the enrollment numbers here look really really solid so would love to just get some more color on what you saw especially in the last few weeks in terms of retention rates for the start of the new semester and weather whether.
Whether you saw any notable benefit from new students may be signing up for the first time. This semester. So so maybe just high level commentary on retention rates and new enrollment trends for the second half of this fiscal year.
Yeah.
So <unk>.
Retention rates.
<unk>.
Speaker 9: we saw last year, I think unexpectedly to a lot of us.
We saw last year.
I think unexpectedly to a lot of us.
Speaker 9: retention rates that were better than.
Retention rates that were better that.
Prior years, and I think there was.
Speaker 9: And I think there was an assumption last year that retention would actually get worse once brick-and-mortar schools reopened and kids would leave our programs and go there. And we've seen this year that our retention rates remain.
And assumption last year that retention would actually get worse once schools with brick and mortar schools reopen in kids would go back to just leave our program to go there.
And we've seen this year that our retention rates remain improved against pre pandemic levels similar to last year. So they're not there's not another step function change improvement from last year, but they remain improved to pre pandemic levels. So I think retention is.
Speaker 7: improved against pre-pandemic levels. Similar to last year, so they're not, you know, there's not another step function change improvement from last year, but they remain improved to pre-pandemic levels. So I think retention is a good news story for us.
Good news story for US and continues into this year to be a strong story for us I think for new enrollments the trend that we're seeing and it's.
Speaker 7: into this year to be a strong story for us. I think for new enrollments, the trend that we're seeing, and it's, you know.
Speaker 7: I mentioned a little bit in my comments, but since we announced our count date.
As I mentioned, a little bit in my comments, but.
Since we announced our county.
Back in October .
Speaker 9: Enrollment for enrollment demand for our programs is up actually.
Enrollment for <unk>.
Enrolment demand for our programs is up actually.
Speaker 7: This morning I was looking, it's up, it's actually a little north of 30%, the applications are up a little north of 30%, and it just remains very strong. We see, we continue to see strength in the demand side of this equation. We see customers really looking for alternatives, and I think they see that we're a very viable alternative in many cases.
This morning, I was looking at is up it's actually a little north of 30% applications were up a little north of 30%.
<unk>.
It just remains very strong we see we continue to see strength in the demand side of this equation, we see customers really.
Looking for alternatives and I think they see that we are a very viable alternative in many cases.
Speaker 9: Um, you know, and, uh, as we stand today here, you know, on January 25th, actually year over year, our enrollments now have surpassed last year.
And.
As we stand today here.
On January 25th actually year over year, our enrollments now have surpassed last year.
Speaker 7: So, you know, again, just from all fronts, we see the demand side of the equation.
So.
Just from all fronts, we see the demand side of the equation continuing to improve now reported numbers you see are obviously from last quarter and a blended across the quarter and we started out the year down 3%. So the reported numbers look different but as we stand here today year over year, we have surpassed.
Speaker 9: Now, the reported numbers you see are obviously from last quarter, and they're blended across the quarter. And we started out the year down 3%, so the reported numbers look different. But as we stand here today, year over year, we have surpassed.
Speaker 9: last year's number. So I think the new enrollment trends and the retention trends, they continue to remain strong. The demand side of the equation continues to remain robust. We see no abating of that, at least as far as we can see from the data we see for our product and service.
Last year's number so I think the new enrollment trends in our retention trends that continued to remain strong the demand side of the equation continues to remain robust we see no abating of that at.
At least as far as we can see from the data, we see for our products and services.
Speaker 10: Got it. That's great to hear and really helpful. And then, I guess, as a follow-up, I know it's a small business, but what can you share about what you're seeing in the institutional business? How has that been performing relative to your expectations, and how are you thinking about the growth potential there as we think about the next few years?
Got it that's great to hear and really helpful.
And then I guess as a follow up I know, it's a <unk>.
Mall business, but what can you share about what you're seeing in the institutional business. How has that been performing relative to your expectations and how are you thinking about the growth potential there as we think about the next few years.
Speaker 9: So I think the institutional business over the next few years is really going to surprise a lot of people on the upside. We struggle with that business. We've had fits and starts. We've had issues around our sales teams and things like that. I think now we see with I think we have the smallest sales team we've had pretty much in the history of this company and we see order of magnitude the largest pipeline we've ever built.
So I think the institutional business over the next few years is really going to surprise a lot of people on the upside.
We struggled with that business, we've had fits and starts we've had issues around our sales teams and things like that I think now we.
C.
So I think we have the smallest sales team we've had pretty much in the history of this company and we see order of magnitude the largest pipeline we've ever built.
Speaker 7: So I think the demand side of this equation is strong, and I think you're gonna see that our offerings in the market are just gonna get stronger. We're gonna put some new products into the market in the fall, over the next couple of years. That's gonna be able to really capture some digital...
So.
I think the demand side of this equation is strong and I think youre going to see that our offerings in the market are just going to get stronger we're going to put some new products into the market in the fall over the next couple of years, that's going to be able to really capture some digital digital.
Speaker 7: trends in education in K-12. And I think we're really going to make some inroads in our institutional business. I think it's going to be a winner for us long term.
Trends in education, and K 12, and I think we're really going to make some inroads on our institutional business I think it is going to be a winner for us long term.
It's great to hear thanks for taking my questions.
Speaker 5: As a reminder, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad.
As a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker 5: and your next question comes from Tom Singlehurst with Citi. Please go ahead.
And your next question comes from Tom <unk> with Citi. Please go ahead.
Speaker 11: Yes, good evening, it's Tom here from City. Thanks for sending the question and congrats on the results. A couple of, I suppose, sort of moral questions.
Yes, good evening.
From Citi. Thanks for taking the question and.
That's on the result.
A couple of.
Okay.
We will have a question.
Speaker 11: First one, revenue per enrollment. I just wanted to understand, and this is just betraying a slight lack of knowledge on my part, but...
First one revenue could.
Sort of enrollment I am just wanted to understand.
But trying to flatten lack of knowledge on my part.
Speaker 11: just understand whether there's a sort of seasonality to those figures and can you go over again what your expectations are for the full year? Because I missed that in Tim's commentary, so that would be the first question.
Just understand whether that's just sort of seasonality.
Can you guys were again.
For the full year.
I missed that commentary so that will be the first question.
Speaker 11: And the second one, I'm interested...
<unk>.
On the second one.
Once again this is a point on disclosure.
Speaker 11: once again, this is a point on disclosure. I think you mentioned there's still a bit of a sort of an M&A sort of anniversary impact on the growth rate for the pure adult learning revenue. Can you...
Mentioned, that's still a bit of a sort of.
And then I took the anniversary impact on the growth rate.
Adult learning that can you.
Just give us the pure underlying revenue growth I know you mentioned the impact to emanate.
Speaker 11: underlying revenue growth. I know you mentioned the impact of M&A but just whether there's a proper underlying number that we could focus on. That would be a great question.
Whether that's the proper underlying number.
So that would be great.
Speaker 8: questions, Scott, if that's okay. Great. Sure, Tom. Well, I'll start with the second question. This is to Medina.
Good question Scott.
Sure Tom.
I'll start with the second question. This is Tim Medina.
Speaker 8: What we said in our prior call that I would still repeat here is that we expect the adult learning business overall to approach $100 million for the year. We would still say that, and so rather than giving you a year of your comp, I would just say that if you take that into account, that that would suggest a Q3 and a Q4 that's going to have very strong, completely organic growth year over year. On the first question, the...
What we said in our prior call that I would still repeat here is that we expect the adult learning business overall to approach $100 million for the year.
We would still say that.
So rather than giving you a year over year comp I would just say that.
Take that into account that that would suggest a Q3 to Q4, that's going to have very strong completely organic growth year over year on the first question.
The.
On the revenue per enrollment.
Speaker 8: What we also have said is that we expect revenue per enrollment this year to not just be higher than FY21, but actually go all the way back.
We also have said is that we expect revenue per enrollment this year to not just be higher than FY 'twenty, one, but actually go all the way back to FY 'twenty, one and if that surpass FY 'twenty FY 'twenty excuse me level. So.
Speaker 8: to FY 21, in fact, surpass FY 20, excuse me, level. So to surpass the pre-pandemic levels that we saw in FY 20, Tom. So we will continue to say that.
We surpassed the pre pandemic levels that we saw in FY 'twenty, Tom So we will continue to say that.
Speaker 8: that we expect a full rebound back to even above FY 20 for both career learning and general enrollment. No particular seasonality.
That we expect a full rebound back to even above FY 'twenty for both career learning and general enrollment no particular seasonality.
Speaker 8: The way our numbers come in, really, we may have some...
The way ours.
Our numbers come in really we may have some when we do have any adjustments in our estimates Tom there is sort of a year to date effect, sometimes that will cause some quarter to quarter anomalies, but there really is no particular seasonality that I would highlight at this time.
Speaker 8: When we do have any adjustments in our estimates, Tom, there is sort of a year-to-date effect. Sometimes that will cost from quarter to quarter.
Speaker 9: anomalies, but there really is no particular seasonality that I would highlight at this time. One thing I would add is our most recent acquisitions, TechElevator and MedCert.
I would add is our most recent acquisitions tech elevator in med surge.
I think as Tim mentioned, they continue to perform very well against the acquisition plan there both organically growing north of 25% year over year, So I mean.
It's very strong growth, we've got great leaders in those businesses, they're doing a fantastic job about continuing to grow those businesses finding opportunities to expand and and they have been.
Tremendous strategic assets as leaders across stride and so we continue to be very very bullish.
Speaker 9: across stride, and so we continue to be very, very bullish.
Speaker 10: on those acquisitions and we think they're going to just pay off for our shareholders.
On those acquisition and we think theyre going to just pay off for our shareholders and states.
Speaker 11: Perfect, and that leads on to the next question, which is on, well, there's actually going to be two questions on cash flow, but I'll start with the second part of that, which is, given you mentioned M&A, Ben, I'm surprised you guys haven't done more transactions of a bolt on nature. I mean, I'm just interested in whether that's just.
Okay.
The next question, which is on.
Well actually it can be two questions on cash flow, but I'll start with the.
With the second part of that which is giving you mentioned M&A and I'm surprised you guys haven't done more.
More transactions of a bolt on nature.
Just interested in whether that's just.
Speaker 11: just the way it is and the pipeline's relatively forward, is that sort of delay since the last deal, is that a sort of conscious delay that you know is there for a reason?
What is the pipeline going into the fourth is that the.
The last deal does that is that.
Conscious delay.
Yes.
Absolutely.
Speaker 9: I think there's no delay. We have a very active pipeline of deals that we look at.
Yes.
And then.
Yes sure Tim.
I think there is no delay we have a very active pipeline of deals that we look at.
I think valuations within our sector in the public markets, they've really trended down in the private markets, where a lot of the deals that we would look at.
Speaker 10: within our sector in the public market.
Speaker 10: they've really trended down in the private markets where a lot of the deals that we would look at. I don't think they've trended down as much. I mean, in fact, I think there's a recent deal in
I don't think they've trended down as much and in fact I think there is a recent deal in sort of a public company in the education space I would tell them they announced recently a deal to sell a piece of their business.
Speaker 10: of a public company in the education space at Helen. They announced recently a deal to sell a piece of their business.
Speaker 10: That I think was sort of indicative of some of the private market valuations that you'll still see and I think we want to be You know, I think we want to be
That I think was sort of indicative of some of the private market valuations that you will still see and I think we want to be I think we want to be.
Speaker 10: responsible deployers of our capital, and when we do it, we want to do it at valuations that we feel like warrant that deployment of capital, and so while there are some strategically interesting assets in the space right now, particularly on the career side, that we might otherwise think about, I think we'll only do it when the valuation equation makes right for us and our shareholders.
Responsible deploys of our capital and when we do we want to do an evaluation that we feel like.
Warrant that deployment of capital and so.
While there are there are some strategically interesting assets in the space right now, particularly on the <unk> side that we might otherwise think about I think we will only do it when the valuation equation makes right for us and our shareholders and we just haven't found that equation med certain tech elevator.
Speaker 10: And we just haven't found that equation. MedCerts and TechElevator, I think that equation made a lot of sense. We got strategic value out of it. We got great leadership out of it. They continue to perform well. And if we can find more deals like that, we'll do it.
I think that equation made a lot of sense, we got strategic value out of it we've got great leadership out of it they continue to perform well.
And if we can find more deals like that will continue to pursue them.
Alright, yes, I'm sorry.
Speaker 11: Very clear. And one very final one for Tim on working capital. I mean, obviously, in the first quarter, relatively big working capital outflow, which I think is normal.
Number one.
Tim on working capital I mean, obviously in the first quarter relatively big working capital outflow, which I think is.
No.
Speaker 11: you know, should we expect a fairly big working capital inflow across the balance of the year?
Should we expect any big working capital inflow.
Yes.
Yes that is correct, we expect to have strong free cash flow in Q3, and Q4 driven by good inflows of working capital.
Speaker 8: Yes, that is correct. We expect to have strong free cash flow in Q3 and Q4 driven by good inflows of working capital.
Thanks very much.
Okay.
Speaker 5: As a reminder, if you would like to ask a question at this time, please press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile any remaining questions.
As a reminder, if you would like to ask a question at this time. Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile any remaining questions.
Okay.
Speaker 5: There are no further questions at this time. This concludes today's conference call, and thank you for your participation. You may now disconnect.
There are no further questions at this time. This concludes today's conference call and thank you for your participation you may now disconnect.
Okay.
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