Q1 2024 Stride Inc Earnings Call

Good afternoon, My name is Emma and I will be your conference operator today at this.

This time I would like to welcome everyone to the stride of first quarter fiscal 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. 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 again press to start one. Thank you Tim Casey Vice President of Investor Relations. You May begin your conference. Thank you and good afternoon welcome to <unk> first quarter earnings call for fiscal year 2024.

With me on today's call are James <unk>, Chief Executive Officer, and Don Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the strides investor relations website.

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 our Investor Relations 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 filings. Please.

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.

Following our prepared remarks, we will answer any questions Matt.

I'll now turn the call over to James.

Yes.

Thanks, Tim and good afternoon, everyone.

At stride I believe we can change the future of education.

We can provide opportunities for our customers that are desperately needed in today's evolving landscape.

The macro outlook today for trades and increasingly cloudy picture.

Economic volatility and uncertainty.

Catherine device in this in our political system that is often extremist.

Unsustainable debt levels.

Geopolitical threat just to name a few.

These are some of the macro themes our country is going through right now and it doesn't appear they will abate anytime soon.

Many of these same themes also impact our education systems and institutions.

Most Americans agree and understand that our education system is in need of repair and that our students are falling behind.

I don't think Theres any question.

We need to rethink how we approach education and ensure we are setting up the next generation for our future. We are proud to hand Yahoo.

But I do think.

That will require a fundamental change and I believe stride is positioned to change the future for our kids for our teachers and schools, our communities and our country.

I believe this change includes offering families choice in education and in our case that choices of virtual education.

That choice has saved countless thousands of families from the outcome they did not want.

And demand for our programs is growing enrollments for this fall increased 8% to almost 188000 enrollments.

Both our general education, and our career learning business group.

I think our numbers for this quarter speak for themselves record revenue record career enrollments record career revenue and except for the pandemic year, our highest profitability.

Also except for the pandemic here, our highest growth rate in the past decade.

Total revenue growth for the past few years, including at the midpoint of our range for this year.

<unk> been right around 9% a year.

Adjusted operating income at the midpoint of our range is up over 400% for fiscal year 'twenty.

Well over 50% in fiscal year 'twenty, one when we had the pandemic benefit.

Our net income will be up something like 600% from.

For fiscal year 'twenty.

Our EPS will be over $3 60, a share.

Is six times higher in fiscal year 'twenty.

Now as we returned to a sense of normalcy following the worst of the pandemic.

While our programs have continued to flourish. Unfortunately, many public school systems have largely been largely reverted back to doing exactly what they were doing pre pandemic.

I had hoped the significant learning loss and access to new educational tool with charter schools to embrace change.

And some have but far too many have not.

Parents of school age children share the same concerns about our public education.

And they are becoming more vocal about their dissatisfaction.

As a result, we're beginning to see more bipartisan efforts to expand school choice.

A recent survey showed that both Democratic and Republican voters support Gould choice by margin of more than two to one.

A poll conducted in August by Gallup demonstrates just how frustrated markets are.

Over 60% of Americans said, they are dissatisfied with the quality of K 12 education in the U S.

Conversely, while almost three quarters apparent rated their own children teachers positively. This tells me that the dissatisfaction lies in the educational system.

Not with incredible teachers in the system.

We are starting to see this widespread dissatisfaction lead to change at the legislative level and I think we're just at the beginning stages of changing the future of education.

When we ask parents why they selected a K 12 school. We're hearing they are coming to us to solve those same issues that are leading to dissatisfaction with our public schools.

Stride has always been a leading advocate for parent choice.

And I think we're starting to see more and more parents opting for score the specific needs of their child.

And that's a powerful powerful position for parents to be in.

We also see continued strength in our career programs.

Crossing 70000 enrollments this year.

While we continue to see most of these enrollments coming from our general full time virtual program funnel. We still believe there is a compelling case for parents and students to choose a career program.

And more and more Americans agree with us.

Parents and students want skills that will help them be successful in our career and they want to develop those skills earlier.

Our programs do exactly that while also helping to alleviate student loan debt pressures and very importantly, Phil the skills gap for U S employers.

We're continuing to see employers being more open to hiring based on skill rather than degree.

In fact in 2022, almost 30% of paid job postings on Linkedin omitted any degree requirements.

That's up from just over 20% four years ago.

We're also seeing support for skilled based hiring from state policymakers and governors across the country.

So far the governors of 10 states have announced initiatives to remove degree requirements from Steve jobs.

Now there is still work to be done.

Still need to drive awareness of our current programs, but the underlying drivers of demand demonstrate that we made the right decision to move into this fast growing space.

Our key objectives and strategies have momentum like never before.

As I've mentioned our guidance suggests we are prime for record revenue and profitability performance for this year.

I mentioned last year that I thought January enrollment had bottomed out and it looks like that turned out to be accurate.

We think this demonstrates the strength of our K 12, full time virtual school business and all of the indicators suggest we will continue to see strong demand for these offerings for the foreseeable future.

This also allows us to invest in other growth areas and new products. As you know we're still early in these efforts and I'm excited to share more information at our upcoming Investor day, which is going to be scheduled for November 14th here in our offices in Rosslyn, Virginia.

One of our core advantages in our ability to move and change and innovate with the needs of the marketplace.

If we are able to create a better better educational future I believe strike can be part of the solution and together we can change the future.

Now I'll turn the call over to Donna discuss our first quarter results and guidance Donna.

Thank you James.

Hey, good evening everyone.

Our strong enrollment growth. This year is a testament to the incredible work that our teams put in day in and day out.

Making sure parents and students feel supported at the beginning of the year sets them up for a strong year.

I am very proud of the work we've put in to make every student successful and our program.

Turning to our reported results for the quarter.

Revenue for the quarter it was $482 million, an increase of 13% from the first quarter of fiscal year 'twenty three.

Adjusted operating income of $14 8 million compared to an adjusted operating loss of $19 9 million in the.

The same period last year.

Earnings per share or 11%.

65 from last year.

Capital expenditures were $16 1 million down $700000 from last year.

These results reflect the return to enrollment growth following our pancreatic high.

We're starting this year with the enrollment more than 50% higher than just four years ago.

We saw growth in both our general education and career learning program.

Underscoring the continued demand for school alternatives that James outlined in his comments.

It's clear that the effects of the pandemic has had a lasting impact on the awareness and acceptance of full time virtual offering.

Returning to our quarterly results.

Real learning revenue grew 18% to $188 million.

This performance was driven by continued strong enrollment growth in our career learning program.

These programs generated $151 million in revenue with double digit enrollment and 6% revenue per enrollment growth.

Our adult learning business grew 7% to $29 9 billion.

Turning to the General Education program revenues increased over 10% to $299 3 million for the quarter.

Enrollment in Gen Ed increased four 7% from last year.

Revenue per enrollment grew seven 4%.

First quarter revenue per enrollment increases for both Gen. Ed anchor real learning was somewhat impacted by timing.

We think we will finish the year with revenue per enrollment growth around 4% to 6%.

Gross margins for the quarter was 36% up 550 basis points from last year.

We're continuing to see the positive effects from last year's efficiency effort and expect to see gross margin improvement throughout this year.

We also feel like we manage our teacher hiring well this year and that contributed to the strength in gross margins this quarter.

For the year, we expect to see gross margin improve by 200 to two once you get 50 basis points.

Selling general and administrative expenses increased 7% to 169 $6 million.

Driven by increases necessary to support its continued growth investment in new products and the impact of stock based compensation.

Stock based compensation for the quarter was $8 $4 million up from the prior year due to a timing of some long term performance goals.

We expect to finish the year with stock based compensation in the range of $28 million to $33 million.

Adjusted operating income for the quarter was $14 $8 million.

Adjusted EBITDA was $39 8 million.

Historically, the first quarter has not been a profitable quarter for us.

So the strength this year highlights the work that we've done to execute on efficiencies and improve teacher hiring.

This coupled with the strength in our enrollment set us up to be profitable every quarter. This year and demonstrates the underlying financial strength of stripes.

Returning to our quarterly results.

Interest expense for the first quarter totaled $2 1 billion.

We expect full year interest expense to be similar to last year.

Our effective tax rate for the quarter was 23, 9%.

For the full year, we believe we will finish with a tax rate in the 25% to 27% range similar to prior year.

Capital expenditures in the quarter was $16 $1 billion.

Around slightly from last year.

Free cash flow defined as cash from operations less capex was negative $151 million.

Compared to negative $160 million.

In the prior year period.

This is our normal seasonality of cash flows and relate to school boards and the onboarding of students.

We expect to see positive cash flow for the next three quarters.

We ended the quarter with cash and cash equivalents of $254 $6 million.

Turning to our guidance for the second quarter of fiscal year 2024, we are forecasting revenue in the range of $490 million to $510 million.

Adjusted operating income between 80 and $90 million.

And capital expenditures between 15 and $18 billion.

For the full year, we expect revenue in the range of $1 96 to $2 <unk> 3 billion.

Adjusted operating income between 250 $275 million.

Capital expenditures between 65 and $75 million.

And an effective tax rate between 25 and 27%.

Thank you for your time I look forward to seeing you in November when I will give more detail on the longer term financial plan now I'll turn it over to the operator for Q&A operator.

Thank you at this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.

Your first question comes from the line of Jeff Silber with BMO capital markets. Your line is now open.

Thank you so much wanted to start with the general education business. The numbers were really strong I think a lot stronger than most people had thought.

What was behind that I know the past couple of years, we've kind of seen that business.

Decline a bit and you saw a nice rebound what's different this year.

Yeah, Hey, Jeff so.

I think there's really two basic things that I would highlight.

The first is.

And I said this last year and this is a 100% on me, but I think our execution last year was not great.

And I think we improved it this year and it's a real tribute to I think some of the <unk>.

Unknown Attendee: Good afternoon.

Emma: My name is Emma and I will be your conference operator today.

Team that we brought in.

Emma: At this time, I would like to welcome everyone to the stride first quarter fiscal 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

But also some of the turnaround that the team executed that they'd.

<unk> been through a number of cycles and they were able to identify things that we could we could do better. So I think it's clearly execution.

Emma: 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, again, press the star one. Thank you.

And I think that that has a lot of legs to it still because I think while we improved execution. This year I think we keep identifying things that we could do actually a lot better.

And and I expect our execution to improve through the coming years and so I think that's still a work in progress that I think we'll see more returns from the second is and I think we've been saying this directionally for a while but.

Timothy Casey: Tim Casey, Vice-President Investor Relations, you may begin your conference. Thank you.

Timothy Casey: Good afternoon. Welcome to stride's first quarter earnings call for fiscal year 2024. With me on today's call, our James Rue, chief executive officer and Donna Blackman, chief financial officer.

We we look at our enrollment sort of in aggregate, there's a lot of sort of cross pollination cannibalization that goes on.

Timothy Casey: As a reminder, today's conference call and webcast are accompanied by presentations that can be found on the stride investor relations website. Please be advised that today's discussion of our financial results may include certain non-gap financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our investor relations 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 violence.

This year, we didn't really have a lot of new career programs and so.

I think a lot of our enrollment.

Strength overall.

Is that a testament to the fact that the market is still there for our business as a whole.

And some of the sort of nuances between general education and career Ed.

Timothy Casey: 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.

Like I said Theres, a little bit of cannibalization. There is some puts and takes here and there, but I think the overall story that the market for our types of programs, whether they're career at our general Ed remains very strong.

And we think that we've got a lot of room to run.

Okay.

Really helpful and I know typically in the first quarter. I think you had mentioned that you typically lose money and I think the bottom line strength without so.

Timothy Casey: Following our prepared remarks, we'll answer any questions you may have.

Timothy Casey: I will now turn the call over to James. Thanks, Tim.

Really surprising.

Are there any timing differences this year I know you talked about the efficiency, but did we shifted some expenses from <unk> to <unk>.

James Rhyu: Good afternoon, everyone. At stride, I believe we can change the future of education. We can provide opportunities for our customers that are desperately needed in today's evolving landscape. The macro outlook today portrays an increasingly cloudy picture, economic volatility and uncertainty, chaos and divisiveness in our political system that is often extremist, unsustainable debt levels, geopolitical threats to just to name a few. These are some of the macro themes our country is going through right now, and it doesn't appear they will update anytime soon.

No I think it's I think it's what Jane to talk about right and so it's the strength of our enrollment in the quarter is though the efficiency efforts that we put in place last year, some of which we didn't put it in until later on in the year I think it is also the timing of I think we did a really good job and our teacher hiring so are we.

We're careful not to over hire as well its not under higher so striking striking the right balance all the things that contributed to us having a strong financial results in acute in Q1, and Jeff just if I could add I think our goal as a company.

James Rhyu: Many of these same themes also impact our education systems and institutions. Most Americans agree and understand that our education system is in need of repair and that our students are following behind. I don't think there's any question that we need to rethink how we approach education and ensure we are setting up the next generation for a future we are proud to hand down to them. But I do think that will require fundamental change, and I believe stride is the position to change the future for our kids, for our teachers in schools, our communities and our country.

Scale were at now needs to be to be profitable every quarter. There is always going to be some seasonality in our business. So you'll still see a level of seasonality.

But I think at the scale, we're at at the I think as Don mentioned the efficiencies we've got.

I think our goal has got to be to be profitable every single quarter going forward.

Alright, great if I could sneak just one more in I think you said that you expect revenue per enrollment to be up 4% to 6%. This year is there a difference between gen Ed and career learning.

James Rhyu: I believe this change includes offering families choice in education, and in our case, that choice is a virtual education. That choice has saved countless thousands of families from the outcomes they did not want. And demand for our programs is growing. Enrollments for this fall increase 8% to almost 188,000 enrollments. Both are general education and are career learning business groups. I think our numbers for this course speak for themselves. Record revenue, record career enrollments, record career revenue, and except for the pandemic year, our highest profitability.

So we expect them both to be within that range, just given sort of where we were in Q1 I would expect Korea learning to growth for the full year to be on the lower end of that versus Gen. Ed just so again just based upon.

In Q1.

Okay, great. Thanks, so much.

Your next question comes from the line of Tom single Hearst with Citi. Your line is now open.

Yeah, Thanks, Jim Good evening.

James Rhyu: University. Also, except for the pandemic year, our highest growth rate in the past decade. Total revenue growth for the past few years, including at the midpoint of our range for this year, has been right around nine percent a year. Adjusted operating income at the midpoint of our range is up over 400 percent from fiscal year 20 and not well over 50 percent from fiscal year 21 when we had the pandemic benefits.

Brett.

Go ahead Doug.

Enrollment Blake this is Eric Johnson.

A quick question.

Great.

That's one.

Can you talk about whether there's any sort of volume component Greg Norman.

I mean are there any new states coming on.

Then.

In particular general Ed.

The first question.

And then with <unk>.

Question was on the sort of guidance.

James Rhyu: Our net income will be up something like 600 percent from fiscal year 20. Our EPS will be over $3.60 a share, which is six times higher than fiscal year 20. Now, as we return to a sense of normalcy following the worst of the pandemic, while our programs have continued to flourish, unfortunately many public school systems have largely revered back to doing exactly what they were doing pre-pandemic. I had hoped the significant learning laws and access to new educational tools which challenge schools to embrace change.

The 2000.

Got it.

At 11, Cherokee to smartly encroaches on the 25.

I'm sorry.

So we invest today.

But I'm just interested in whether we should infer anything from the midpoint of 24 to the ZIP code of critical.

Critical.

On the gross margin progression.

Thank you.

So I'm going to try my best to answer your question that we had a really hard time hearing you, but I think your first question was around the number of states and so we are in the same number of states in Q1 that we were in Q4 for both Gen Ed as well as for Korea learning.

James Rhyu: And some have, but far too many have not. Parents of school age children share these same concerns about our public education systems and they are becoming more vocal about their dissatisfaction. As a result, we're beginning to see more bipartisan efforts to expand school choice. A recent survey showed that both Democratic and Republican voters support school choice by margin of more than two to one. A poll conducted in August by Gallup demonstrates just how frustrated Americans are.

We've added some new programs about five new programs with Janet and four new programs for Korea.

With respect to our 2024 was sort of bumping up against our 2025, and so I think when we have our investor day.

In November it will be a good time for us to talk about where we think we will be for a long term long term perspective, we have said.

Last year every single quarter that we were confident in our 2025 revenue and AOI numbers and so that you can see the path to get there will be different but it felt really strongly that we'll get there and I think this is just indicative of.

James Rhyu: Over 60 percent of Americans said they are dissatisfied with the quality of K-12 education in the U.S. Conversely, while almost three-quarters of parents rated their own children's teachers positively, this tells me that the dissatisfaction lies in the educational system and not with incredible teachers within the system. We are starting to see this widespread dissatisfaction lead to change at the legislative level and I think we're just the beginning stages of changing the future of education.

The strength of the business and again, we had a really strong enrollment growth revenue growth in Q1, and that's impacted obviously, our full year numbers.

That's great sorry, Madison talked with my questions really appreciate that one.

Follow up adult learning sequentially was down is there anything to read into that is that seasonal or is there a little bit of.

James Rhyu: When we ask parents why they selected a K-12 school, we're hearing they are coming to us to solve those same issues that are leading to dissatisfaction with our public school system. Stride has always been a leading advocate for parent choice and I think we're starting to see more and more parents opting for a school that fits the specific needs of their child and that's a powerful position for parents to be in.

So the softness coming through from sort of end markets and tech.

Yes, so I think.

Sure.

There is something to read into that meaning that.

We have I think we have defied.

The overall market conditions around the tech.

Sector.

The tech education sector in that we've had growing profitable businesses in that space I think for for a lot longer than that.

James Rhyu: We also see continued strength in our career programs crossing 70,000 enrollments this year. While we continue to see most of these enrollments coming from our general full-time virtual program funnel, we still believe there's a compelling case for parents and students to choose a career program and more and more Americans agree with us. Parents and students want skills that will help them be successful in the career and they want to develop those skills earlier.

Most of the market has been able to do so but and you can you can sort of see I think probably across the landscape. But also you can look at sort of Google searches for this and things like that but the specific technology focus to camp business.

As a whole in this country is down significantly.

We believe we are down less.

James Rhyu: Our programs do exactly that, but also helping to alleviate student loan debt pressures and very importantly fill the skills gap for us, and employers. We'll continue to see employers being more open to hiring based on skill rather than degree. In fact, in 2022, almost 30% of paid job postings are linked in, omitted any degree requirements. That's not from just over 20% 4 years ago. We're also seeing support for skills based hiring from state policymakers and governors across the country. So far, the governors of 10 states have announced an issue to remove degree requirements from state jobs.

But there is definitely a macro headwind around that piece of our business, which just as a reminder represents.

Less than.

Was it less than 2% of our overall business. It has zero material impact on our growth prospects. It has almost negligible impact on our profitability profit or margin prospects.

Our med search.

Certificate business.

Continues to perform very well and we see sort of very long runway of growth for that business, but yes on the technology side specifically.

And a very small portion of our revenue there is a little bit of softness.

James Rhyu: Now, there's still work to be done. We still need to drive awareness of our current programs, but the underlying drivers of demand demonstrate that we made the right decision to move into the staff's growing space. Our key objectives and strategies have momentum like never before. As I mentioned, our guidance suggests we are prying for record revenue profitability performance for this year. I mentioned last year that I felt gender enrollment had bottomed out, and it looks like that turned out to be accurate.

Okay very clear thank you very much.

Okay.

Your next question comes from them.

Stephen Sheldon with William Blair. Your line is open.

Hey, James.

Matt pilot on for Stephen Sheldon. Thank you for taking my questions wanted to start with one on enrollment trends.

Can you provide a little more color on the enrollment trends, particularly when it comes to new student enrollments versus that students that re registered.

James Rhyu: We think this demonstrates the strength of our K through 12 full time virtual school business and all the indicators suggest we will continue to see strong demand for these offerings for the foreseeable future. This also allows us to invest in other growth areas and new products.

And did either of those come in differently than you would've expected.

Yes so.

Both performed well.

Our re <unk> cohort.

If you take away the pandemic here, because obviously that one year was very very anomalous.

James Rhyu: As you know, we're still early in these efforts, and I'm excited to share more information at our upcoming investor day, which is going to be scheduled for November 14th here in our offices in Western Virginia. One of our core advantages is in our ability to move and change and innovate with the needs of the marketplace.

We basically had on both sides of it near.

Near record breaking years so.

I think both continue to perform strong.

I think it speaks to one the strength of our program.

James Rhyu: If we are able to create a better better educational future, I believe stride can be part of the solution. And together, we can change the future.

<unk> is increasingly sticky with our customers.

We have worked really hard.

Donna Blackman: Now, I'll turn the call over to Donna to discuss our first quarter result in guidance. Donna. Thank you, James.

To provide.

Programs that really meet the needs of our customers at their point of need.

And.

Donna Blackman: Good evening, everyone. Our strong enrollment growth this year is a testament to the incredible works that our teams put in day in and day out. Making sure parents and students will support it as a beginning of the year, set them up for a strong year. I am very proud of the work we put in to make every student successful in our program.

Our outcomes are also improving meaning.

You can see.

Our academic outcomes, improving our state scorecard outcomes are improving and so I think all of this sort of translate our net promoter scores are high. So all this is translating into higher year over year retention.

We also see.

Donna Blackman: Turning to our report results for the quarter. Revenue for the quarter was $480.2 million, an increase of 13% from the first quarter of fiscal year 23. Adjusted operating income with $14.8 million compared to an adjusted operating loss of $19.9 million in the same period last year. Our next year for 11 cents up 55 cents from last year. Capital expenditures were $16.1 million down $700,000 from last year.

New enrollment demand continued to be very strong and I think more importantly than the strength in your enrollment demand is our ability to convert new enrollments, Inc. Also continues to improve and we learned some things in this past season about both.

Demand Gen on the new enrollment side, but also in the version that we think are going to translate into future gains. So so it's really across the board. We don't see a lot of soft spots are in either re registration withdrawal rates.

Or.

Our new enrolment trends.

And in fact, I will say one other thing now through through 24 days of this month.

Donna Blackman: These results reflect the return to enrollment growth following our pandemic highs. We're starting this year with enrollment more than 50% higher than just four years ago. We saw growth in both our general education and career learning programs. Under the scoring, the continued demand for school alternatives that James outlined in his comments. It's clear that the effects of the pandemic have had a lasting impact on the awareness and acceptance of full-time virtual offering.

If you remember last year at this time.

We said that.

While counting enrollments last year were soft our in year enrollment trends. We're looking strong that was last year. This year and again. It is only through 2004 days are actually 23 days off today's data yet, but there are 23 days.

We are outperforming last year.

So are we.

We just we see we see a lot of strength in our business, we see a lot of demand.

The one thing the pandemic.

Donna Blackman: Returning to our quarterly results, career-learning revenue grew 18% to 180.8 million dollars. This performance was driven by continued strong enrollment growth in our career-learning program. These programs generated 151 million dollars in revenue on W December, did you enrollment and 50% revenue per enrollment growth? Our adult-learning business grew 7% to 29.9 million dollars.

<unk> for our business did change a little bit that is new and a benefit to us is that families feel like they have just a lot more flexibility in their choices.

And part of that translates into families don't feel as rushed to have their kids start school actually on time as much anymore.

And we've got a lot of family situations, where that's important to them for whatever reason and we're able to meet their needs, there and theyre coming to us and increasingly through the end of year period. So so that's also really important I think that from an overall structural demand perspective going forward.

Donna Blackman: Turning to the general education programs, revenues increased over 10% to $299.3 million for the quarter. Enrollment in Gen Ed increased 4.7% from last year. Revenue per enrollment grew 7.4%. First quarter revenue per enrollment increases for both Gen Ed and career-learning was somewhat impacted by timing. We think we will finish the year with revenue per enrollment growth at around 4.6%. Gross margins for the quarter was 36% up 550 basis points from last year.

Thank you James that's Super helpful color and great to hear as well and then I had one on revenue per enrolment as well it sounds like youre expecting revenue per enrollment growth in the range of 4% to 6% for the full year and was just wondering if you could talk about some of the factors that could push the revenue per enrollment growth to either.

End of that range and if you would consider that range to be on the more conservative end of the spectrum.

Yes.

We feel comfortable with the range that we actually provided.

Little softer.

As I said in my comments, a little bit softer because Q1, the comparison year over year was an easier comparison.

Donna Blackman: We continue to see the positive effects from last year's efficiency efforts and expect to see gross margin improvements throughout this year. We also feel like we managed our teacher hiring well this year and that contributed to the strength in gross margins this quarter.

<unk> grew and we got stronger last year, and so Q1 is the easier comparison. So again, we feel good about sort of where we stand from a 4% to 6% and 46% range.

Donna Blackman: For the year, we expect to see gross margins improved by 200 to 250 basis points. Selling general and administrative expenses increased 7% to $169.6 million. Driven by increases at next third to support its continued growth, investment in new products and the impact of stock based compensation for the quarter was $8.4 million. Up from the prior year due to the timing of some long-term performance grant. We expect to finish the year with stock based compensation in the range of $28 to $33 million. Adjusted operating income for the quarter was $14.8 million. Adjusted EBIDA was $39.8 million.

Got it thank you and great quarter.

But the one thing I would go ahead.

Can you guys talk about this a lot mix, obviously plays a part in that right and so during the course of the year.

With that in year enrollment et cetera. The mix is one factor that could impact that growth number.

Understood and thank you again and great quarter.

Thank you.

Your next question comes from the line of Alex Paris with Barrington.

Your line is now open.

Hi, guys. Thanks for taking my question.

Let me add my congratulations on the very strong first quarter results and the equally strong guidance.

Question about execution, you you've mentioned it several times James in your prepared comments and part of that is uncertain marketing. What are you doing differently now versus last year or the last several years in terms of marketing that has made a difference and.

Donna Blackman: Historically, the first quarter has not been a profitable quarter for us. So the strength this year highlights the work that we've done to execute on efficiency and improve teacher hiring. This coupled with the strength and our enrollment sets us up to be profitable every quarter this year and demonstrates the underlying financial strength of strides.

And as I recall I think you brought on a new Chief marketing Officer, you have a new K 12 Dot com website.

Just maybe a little review on what Youre doing on the marketing front.

Yes, sure Alex Great question, and yes, I think.

I'm a huge believer.

In in two fundamental pillars for our business one is the macro environment.

Donna Blackman: Returning to our quarterly results entered expense for the first quarter total $2.1 million. We expect full year interest expense to be similar to last year. Our expected pass rate for the quarter was 23.9%. For the full year, we believe we will finish with a tax rate in the 25 to 27th. Smith-Range, similar to Paris. Capital expenditures in the quarter was $16.1 million, down slightly from last year.

And I think that's a tailwind.

Work in our favor for the macro environment, and our internal ability to execute and like I said last year, we did not execute well we did bring in a new chief marketing Officer Deb Hana.

He has come in.

Feet running hit the ground running.

We also have an existing set of team members.

The head of our enrollment center the head of our operations team our it group like they all contribute to.

Two a better.

Kickoff for our season this year, specifically to your question on the marketing side we.

Donna Blackman: Free cash flow defined as cash from operations, less cash ex, was negative $151 million, compared to negative $160 million and the prior year period. This is our normal seasonality of cash flows and relate to school launch and the onboarding of students. We expect to see positive cash flow for the next three quarters.

We saw some tactical things over the past several years by the way that.

I think we're always trying to figure out how to improve one is obviously there is a.

There is a structural shift macro shift away from linear TV or regular TV.

And and so we actually moved away from that channel.

Donna Blackman: We ended the quarter with cash and cash equivalent of $254.6 million.

A fair bit we didnt spend as much in that channel because it's.

Our analytics tell us its less productive.

Donna Blackman: Turning to our guidance, for the second quarter of fiscal year 2024, we are forecasting revenue in the range of $490 to $510 million, adjusted operating income between $80 and $90 million, and capital expenditures between $15 and $18 million. For the full year, we expect revenue in the range of $1.96 to $2.03 billion, adjusted operating income between $250 and $275 million.

Conversely.

Our analytics suggested that we had a lot of opportunity and just regular search engine marketing sort of Google paid search clicks add stuff.

What you do.

And refining our search terms, we've got a real Rockstar.

That runs that team for us.

<unk>.

He just he just continues to mine opportunities.

In that channel for us that are really compelling.

We're still not yet hitting all cylinders on.

Donna Blackman: Capital expenditures between $65 and $75 million, and an effective tax rate between 25 and 27%.

Is some of our social media efforts some of the incremental crude demand efforts for.

For our crude segment those things I think we can still improve upon.

Donna Blackman: Thank you for your time.

Donna Blackman: I look forward to seeing you in November when I will give more detail on the long-term financial plan.

Our enrollment center, which is we consider market and the enrollments that are part of sort of the overall marketing funnel and our enrollment center really did an incredible job looking at ways that we can improve conversion.

Emma: Now I'll turn it over to the Operator for Q&A. Operator? Thank you. At this time, I would like to remind everyone in order to ask a question, press star, followed by the number one on your telephone keypad.

The families that come to us and apply.

Want to come to us.

And sometimes we make it harder for them.

Jeffrey Silber: Your first question comes from the line of Jeff Silver with BMO capital markets. Your line is now open. Thank you so much. I wanted to start with the general education business. The numbers were really strong. I think a lot stronger than most people had thought. What was behind that? I know the past couple of years we've kind of seen that business move or decline a bit, and you saw a nice rebound. What's different this year?

Unnecessarily.

And so.

When we find ways to smooth the path for them.

They come to us and.

So we are doing.

A bunch of stuff in our enrollment center, which.

Which includes by the way self serve everybody loves to hear the words AI. So we've got some AI initiatives and the enrollment center as well that automate some things create more bespoke responses for for our families.

But like I said, we've got a long way to go so I think the.

James Rhyu: I think there's really two basic things that I would highlight. The first is, I said this last year, and this is 100% on me, but I think our execution last year was not great. And I think we improved it this year, and that's a real tribute to I think some of the team that we brought in. But also, some of the turnaround that the team executed, they've been through a number of cycles, and they were able to identify things that we could do better.

Yet your improvements that we're going to make a we've got a multiyear trajectory of improvements we're going to make.

James Rhyu: So I think it's clearly execution, and I think that has a lot of legs to it still, because I think while we improved execution this year, I think we keep identifying things that we could do actually a lot better, and I expect our execution to improve through the coming years. And so I think that's still a work in progress that I think we'll see more returns from. The second is, and I think we've been saying this direction for a while, but we look at our enrollment sort of in aggregate.

Market demand is going to continue to be strong so hopefully that answers your question.

Yes, no James is very helpful and we'll look forward to the Investor day in November thanks, very much.

Thanks.

As a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.

Pause for just any last minute questions.

There are no further questions at this time and this concludes today's conference call. Thank you for attending you may now disconnect.

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Sure.

[music].

James Rhyu: There's a lot of sort of cross-pollination cannibalization that goes on this year. We didn't really have a lot of new career programs, and so I think a lot of our enrollment strength overall is that a testament to that. The fact that the market's still there for our business as a whole, and some of the sort of nuances between general education and career ed, you know, there's like I said, there's a little bit of cannibalization.

Yeah.

[music].

James Rhyu: There's some puts and takes here and there, but I think the overall story is that the market for our types of programs, whether they're career ed or general ed remains very strong, and we think that we've got a lot of room to run.

Yes.

[music].

Donna Blackman: Okay, that's really helpful. And I know typically in the first quarter, I think, Donna, you had mentioned that, you know, you typically lose money and I think the bottom line strength with also, you know, really surprising. Were there any timing differences this year? I know you talked about the efficiency, but did we shift some expenses from one cue to two cues? Now, I think it's, I think it's what James is talking about, right?

Yes.

Sure.

Okay.

[music].

Donna Blackman: And so it's the strength of our enrollment in the quarter. It's those efficiency efforts that we put in place last year, some of which we didn't put in until later on in the year. I think it's also the timing of, I think we did a really good job at teacher hiring. So we were canceling that so over hire as well as not under hire, so striking the strike and the right balance.

Donna Blackman: All of the things that contributed to us having a strong financial results and a cue, and Jeff, just if I could add, I think our goal as a company, as a kind of scale right now needs to be, to be profitable every quarter. There is always going to be some seasonality in our business. So you'll still see a level of seasonality, but I think at the scale right and at the, I think, it's not to mention the efficiencies we've got, I think our goal has got to be to be profitable every single quarter going forward.

Donna Blackman: All right, great. If I could speak just one more in, I think he said that you expect revenue per enrollment to be up 4 to 6% this year. Is there a difference between Gen Ed and career learning? So we expected both to be within that range just given sort of where we were in Q1. I would expect career learning to growth for the full year to be on the lower end of that versus Gen Ed. Just again, just based upon what we stood with you on.

Jeffrey Silber: Okay, great. Thanks so much.

Thomas Singlehurst: Your next question comes from the line of Tom single-hurst with city. Your line is now open. Yeah, thanks very much. Good evening and congrats on the results. It's quite a couple of things. I was really in the moment, great. Thank you very much. I have a question. First of all, I'm just going to talk about whether there's a good volume component to go by and how many news groups are open and whether any news space are coming on through within, in particular, Gen Ed.

Thomas Singlehurst: That was the first question. And then the second question was on the sort of guidance that 24 guidance and another which actually just slightly encroaches on the 25 guidance. I'm going to be honest, we're going to say we're going to be invested today on the good things that never ended but I'm just interested in whether we should inspire anything from the midpoint of 24 to the midpoint of 25 in kind of a great and market progression.

Thomas Singlehurst: Thank you. So I'm going to try my best to answer your question that we had a really hard time hearing you but I think your first question was around the number of states. And so we are in the same number of states in Q1 that we were in in Q4 for both Gen Ed as well as for career learning. We've added some programs about five new programs for Gen Ed and 14 programs for career. With respect to our, I think it says, 2024, we're sort of bumping up against our 2025.

James Rhyu: And so I think when we have our investor day, in November, it will be a good time for us to talk about where we think we will be from a long term, long term perspective. And we have said, you know, last year, every single quarter that we were confident in our, you know, 2025 revenue in ALI numbers. And so that we say the path to get there will be different. But that really strongly that would get there.

James Rhyu: And I think this is just indicative of the strength of the business. And again, we had a really strong enrollment growth revenue growth in Q1. And that's impacting out of the awful year numbers. That's great. Sorry, you managed to interpret my question, so I really appreciate that.

James Rhyu: One quick follow up, adult learning sequentially was down, they don't have anything to read into that. That signal was there a little bit of sort of softness coming through from sort of end markets and tech. Yeah, so I think there is something to read into that, meaning that, you know, we have, I think we have defied the overall market conditions around the tech sector, the tech education sector in that we've had growing profitable businesses in that space, I think for, you know, for a lot longer than most of the market has, has been able to do so.

James Rhyu: But, and you can, you can sort of see, I think, probably across the landscape, but also you can, you know, look at sort of Google searches for this and things like that. But the specific technology focus bootcamp business as a whole in this country is down significantly. We believe we are down less, but there is definitely a macro headwind around that piece of our business, which just has a reminder represents less than what's less than 2% of our overall business.

James Rhyu: It has zero material impact on our growth prospects. It has almost is negligible impact on our profitability profits or margin prospects. And our med certs certificate business continues to form very well. And we see sort of very long runway of growth for that business. But yes, on the technology side specifically in a very small portion of our revenue, there is a little bit of softness. That's very clear. Thank you very much.

Steven Sheldon: Your next question comes from the moment of Steven Sheldon with William Blair. Your line is open. Hey, Jim. You have Matt Phylic on for Steven Sheldon. Thank you for taking my questions. One of the start with one on enrollment trends. Can you provide a little more color on the enrollment trends, particularly when it comes to new student enrollments versus that student that re registered. And these are those coming differently than you would have expected.

Steven Sheldon: Yeah, so both performed well. Our re-registered cohort. You know, if you take away the pandemic here because obviously that one year was very, very anomalous. You know, we basically had on both sides of it, you know, near record breaking years. And so, you know, I think both continue to perform strong. I think it speaks to one, the strength of our program is increasingly sticky with our customers. We have worked really hard to provide.

Steven Sheldon: The programs that really meet the needs of our customers at their point of need. And our outcomes are also improving, meaning you can see our academic outcomes improving our state scorecard outcomes are improving. And so I think all this sort of translate our promoter scores are high. So all this is translating into higher year over year retention. We also see new enrollment demand continued to be very strong. And I think more importantly than the strength in your enrollment demand is our ability to convert new enrollments and also continues to improve.

Steven Sheldon: And we learned some things in this past season about both demand demand on the new enrollment side, but also in the version that we think are going to translate into future gains. So, so it's really across the board. We don't see a lot of soft spots in either re registration withdrawal rates or for new enrollment trends. And in fact, I will say one of the things now through, you know, through 24 days of this month.

Steven Sheldon: If you remember last year at this time, we said that while while county enrollments last year were soft, our in year enrollment trends were looking strong. That was last year. This year. And again, it's only through 24 days or actually 23 days off today's data yet. But through 23 days, we're outperforming last year. So we just, we see, we see a lot of strength in our business. We see a lot of demand.

Steven Sheldon: I think that the one thing the pandemic structurally for our business did change a little bit that is new and a benefit to us. Is that families feel like they have just a lot more flexibility in their choices. And part of that trend leads into families don't feel as rushed to have their kids start school actually on time as much anymore. And, and we've got a lot of family situations where that's important to them for whatever reason.

Steven Sheldon: And we're able to meet their needs there and they're coming to us increasingly through the in year period. So, so that's also really important. I think that from an overall structural demand perspective going forward. Thank you, James. That's super helpful color and great to hear as well. And then had a one on revenue per enrollment as well. Sounds like you're expecting revenue per enrollment growth in the range of 4 to 6% for the full year.

Steven Sheldon: And we're just wondering if you could talk about some of the factors that could push the revenue per enrollment growth to either end of that range. And if you would consider that range to be on the more conservative end of the spectrum. So, we feel comfortable with the range that we actually provided. It's a little soft as I said in my comments a little bit softer because q1 the comparison year over year was easier comparison because the enrollment grew and we got stronger last year.

Steven Sheldon: And so q1 is easier comparison. So, we feel good about sort of where we stand from a the 4 to 6% the 4 to 6% range. George. Got it. Thank you, and the recorder. The one thing I'm going to go ahead. You're here to talk about this a lot. Mix obviously plays a part in that, right? And so do out the course of the year. What happens with that in year, enrollment, etc. The mix is one factor that can impact that number. Understood. And thank you again and great quarter. Thank you.

Alexander Paris: Your next question comes in the line of Alex Paris with Barrington. Your line is now open. Hi guys. Thanks for taking my question.

James Rhyu: And I want to add my congratulations on the very strong first quarter results and the equally strong guidance. Question about execution, you mentioned it several times, James, you know, in your prepared comments. And part of that is I'm certain marketing. What are you doing differently now versus last year or the last several years in terms of marketing that has made a difference. And you know, as I recall, I think you brought on a new chief marketing officer.

James Rhyu: You have a new k12.com website. Just maybe a little review on what you're doing on the marketing front. Yeah, sure Alex. Great question. And yeah, you know, I think I'm a huge believer in in two fundamental pillars for our business. One is the macro environment. And I think that the tailwinds work in our favor for the macro environment and our internal ability to execute. And like I said, last year we did not execute well.

James Rhyu: We did bring in a new chief marketing officer, Deb Hanna. She's come in. Feet running, hit the ground running. We also have an existing set of team members, you know, the head of our enrollment center, the head of our operations team, the RIT group, like they all contribute to a better kickoff for our season this year. Specifically to your question on the marketing side, we saw some tactical things over the past several years by the way that I think, you know, we're always trying to figure out how to improve.

James Rhyu: One is obviously there is a there's a structural shift, a macro shift away from, you know, linear TV or regular TV. And, and so we actually moved away from that channel. A fair bit. We didn't spend as much in that channel because it's our analytics tells it's less productive. Conversely, our analytics suggested that we had a lot of opportunity in just regular search engine marketing. Sort of the Google paid search clicks add stuff that you do.

James Rhyu: And refining our search terms, we've got a real rock star that runs that team for us that, you know, he just he just continues to mine opportunities in that channel for us that are really compelling. What we're still not yet hitting all cylinders on is some of our social media efforts, some of our incremental career demand efforts for, for our Chris segment those things I think we can still improve upon. Our enrollment center, which is what we consider marketing in the enrollment center part of sort of the overall marketing funnel.

James Rhyu: And our enrollment center really did an incredible job looking at ways that we can improve conversion. The families that come to us and apply they want to come to us, and sometimes we make it harder for them unnecessarily. And so when we find ways to smooth the paths for them, they come to us. And so we're doing a bunch of stuff in our enrollment center, which includes, by the way, self-serve, everybody loves to hear the words AI.

James Rhyu: So we've got some AI initiatives in the enrollment center as well that automate some things, create more bespoke responses for our families. But like I said, we've got a long way to go still. I think the trajectory of improvements that we're going to make, we've got a multi-year trajectory of improvements we're going to make and market demands going to continue to be strong. So hopefully that answers your question. Yeah, now James is very helpful.

Emma: And we'll look forward to the investor day in November. Thanks very much. Thanks. As a reminder, if you would like to ask a question, press star, followed by the number one on your telephone keypad. We'll pause for just any last moment questions. There are no further questions at this time, and this concludes today's conference call. Thank you for attending. You may now disconnect.

Unknown Attendee: Yeah.