Q2 2024 Stride Inc Earnings Call

January 23, 2024

Ladies and gentlemen, thank you for standing by I would like to welcome everyone to the Striding conference call. At this time all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question answer session. If you'd like to ask a question. During this time simply press the star followed by the number one on your telephone keypad, if you'd like to withdraw your question. Please press the star.

Ladies and gentlemen, thank you for standing by. I would like to welcome everyone to the Striding Conference.

At this time, all lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the number 1 on your telephone keypad.

Followed by the one once again.

Thank you. I will now hand the call over to Mr. Tim Casey, Vice President of Corporate Development and Investor Relations. You may begin your conversation.

Thank you I will now hand, the call over to Mr. Tim Casey Vice President of corporate development and Investor Relations May begin your conference.

Timothy Casey: Thank you and good afternoon. Welcome to Strive's second quarter earnings call for fiscal year 2021.

Thank you and good afternoon, welcome to <unk> second quarter earnings call for fiscal year 2021.

Timothy Casey: With me on today's call are James Rhyu, Chief Executive Officer, and Donna Blackman, Chief Financial Officer.

Speaker Change: On today's call are <unk>, Chief Executive Officer, and Don Blackman, Chief Financial Officer.

Timothy Casey: As a reminder, today's conference call and webcasts are accompanied by a presentation that can be found on the Stride Investor Relations.

A reminder, today's conference call and webcast are accompanied by a presentation that can be found on the <unk> Investor Relations website.

Speaker Change: 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 and can also be found on our Investor Relations website.

Timothy Casey: Please be advised that today's discussion of our financial results may include certain non-GAAP financial.

Timothy Casey: A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our investor list.

Timothy Casey: 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 filing.

Speaker Change: 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.

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.

Speaker Change: These statements are made on 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.

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

Speaker Change: Following our prepared remarks, we will answer any questions.

Timothy Casey: I'll now turn the call over to James.

Speaker Change: I'll now turn the call over to James.

James Jeaho Rhyu: Thanks, Tim. Good afternoon.

James: Thanks, Tim and good afternoon.

James: In November during our Investor day, we discussed the opportunities for our business and laid out our strategy to deliver what we believe will be market leading returns.

James Jeaho Rhyu: In November, during our Investor Day, we discussed the opportunities for our business and laid out our strategy to deliver what we believe will be marketable.

James: I discussed how increasing uncertainty volatility and chaos in our country has and will continue to increase demand for our offerings.

James Jeaho Rhyu: I discussed how increasing uncertainty, volatility, and chaos in our country has and will continue to increase demand for our office.

James Jeaho Rhyu: Our second quarter results speak for themselves and demonstrate the macro trends are behind us.

James: Our second quarter results speak for themselves and demonstrate the macro trends are behind us.

James Jeaho Rhyu: Our strategy is beginning to play out.

James: Our strategy is beginning to play out.

James Jeaho Rhyu: and we are executing this.

James: And we are executing better.

James Jeaho Rhyu: The year began with some uncertainty regarding the trends we might see in the year.

The year began with some uncertainty regarding the trends we might see in year <unk>.

James Jeaho Rhyu: and the volatility over the past.

James: Given the volatility over the past few years.

James: We have been convinced that the market has moved in our direction and that we were not going to fall back to pre pandemic levels.

James Jeaho Rhyu: We've been convinced that the market has moved in our direction.

James Jeaho Rhyu: and that we were not going to fall back to pre-pandemic levels

James Jeaho Rhyu: but there still remained the question of whether we could surpass those pandemic outcomes.

James: But there still remains a question of whether we can surpass those pandemic highs.

James: Well, we ended the second quarter with 196, 5000 enrollments or an all time record.

James Jeaho Rhyu: Well, we ended the second quarter with 196.5 thousand enrollments for an all-time record.

James Jeaho Rhyu: for passing our pandemic level high.

I think our pandemic level highs.

James Jeaho Rhyu: We saw enrollment growth in both our career learning and general education programs.

We saw enrollment growth in both our career learning and general Education program and strength in both new enrollment and retention.

James Jeaho Rhyu: strengths in both new enrollment and

James Jeaho Rhyu: We have the largest cohort of new in-year enrollments that we've ever had.

James: We have the largest cohort of new in your enrollment that we've ever seen.

James: And Americans continue to believe that school choice is good for the education system.

James Jeaho Rhyu: and Americans continue to believe that school choice

James: A recent poll Bayou got released this fall showed.

James Jeaho Rhyu: A recent poll by YouGov released this fall shows

James Jeaho Rhyu: 84% support giving every child in the U.S. the ability to attend the public school in their state that best meets their needs regardless.

James: 84% support, giving every child in the USB ability to attend the public school in their state that best meets their need regardless of where they live the results are clear and it's what we've been hearing for years.

James Jeaho Rhyu: The results are clear.

James Jeaho Rhyu: and what we've been hearing from you.

James Jeaho Rhyu: Parents want choice.

James: One choice.

James Jeaho Rhyu: We want to be able to choose a school that will meet the unique needs of their child.

James: I want to be able to choose a school that will meet the unique needs of their child.

James: They want to be able to change their child's future.

James Jeaho Rhyu: They want to be able to change their childhood.

James: I also continue to report that support our move into the career learning space.

James Jeaho Rhyu: I also continue to see reports that support our move into the career learning

James Jeaho Rhyu: This fall, freshman enrollment in four-year institutions for 18 to 20-year-olds.

James: This fall freshman enrollment in four year institutions for 18 to 20 year old declined by five 2%.

James Jeaho Rhyu: were all declined by 5.3%.

James: And the reason for this decline was at this age group is increasingly choosing to enroll in community college or certificate programs.

James Jeaho Rhyu: And the reason for this decline was that this age group is increasingly choosing to enroll in community college

James Jeaho Rhyu: Students are explicitly looking for short-term programs that have a direct connection to the world.

James: With our exports have been looking for short term programs that have a direct connection to the workforce.

James Jeaho Rhyu: While we're still working on driving incremental demand to our career programs, data like this supports our decision to focus on certificates and career pathways in fast-growing in-demand universities.

James: While we're still working on driving incremental demand to our current programs data like this supports our decision to focus on certificates and career pathways.

James: It's growing in demand careers.

James: Students in our programs and graduate high school, knowing they've got the skills to go directly into the workforce or to choose to attend a postsecondary institutions.

James Jeaho Rhyu: Students in our programs can graduate high school knowing they've got the skills to go directly into the workforce or to choose to attend a post-secondary.

James Jeaho Rhyu: There's also continuing support for our new products.

James: There is also continuing support for our new products.

James: In November I outlined our K 12, tutoring product along with some of the demand drivers that support our entrance into the market.

James Jeaho Rhyu: In November, I outlined our K-12 tutoring product along with some of the demand drivers that support our entrance into the market.

James: Ah study out of Texas showed that take or Tuesday, who received individual virtual tutoring during last school year, demonstrating higher reading test scores by year end.

James Jeaho Rhyu: A study out of Texas showed that K-2 students who received individual virtual tutoring during last school year demonstrated higher reading test scores by year end.

James Jeaho Rhyu: and Virginia launched a statewide high dosage tutoring

James: In Virginia, Washington statewide high dosage tutoring effort part of a $400 million investment in education to recover from academic clients.

James Jeaho Rhyu: are all part of a $400 million investment

James Jeaho Rhyu: to recover from academic.

James Jeaho Rhyu: We know that our tutoring offerings

James: We know that our <unk> offering using state certified teachers can be part of the solution to the nation's learning loss and helped drive student success.

James Jeaho Rhyu: The state-certified teachers can be part of the solutions to the nation's learning loss and help drive students' education.

James: Taken together I remain as excited about strides adobe to change the future for students as I ever have been.

James Jeaho Rhyu: Taken together, I remain as excited about STRIVE's ability to change the future for students as I ever have.

James: The market.

James Jeaho Rhyu: The market conditions are ripe for an innovator like Stride to continue to drive student success across multiple markets.

Conditions are right for an innovator like stripe to continue to drive student success across multiple markets.

James: This call marks the end of my third year as CEO.

James Jeaho Rhyu: This call marks the end of my third year at CEO.

James Jeaho Rhyu: and as we continue to achieve new enrollment and financial

James: And as we continue to achieve new enrollment and financial records.

James Jeaho Rhyu: We still see a long runway.

James: Still see a long runway in front of us.

James: A couple of highlights I would like to point out since I was appointed CEO.

Speaker Change: A couple of highlights I'd like to point out since I was appointed.

James: Gross margins are on pace to expand 300 basis points plus or minus.

Speaker Change: Gross margins are on the

Speaker Change: Thank you for joining us.

Speaker Change: Trailing 12-month reported EPS and reported operating costs are both up three times.

Trailing 12 month reported EPS and reported operating income are both up three times.

Speaker Change: levels prior to my appointment.

The levels prior to my appointment as CEO.

James: We've got the right team in place and are executing against the strategy that we've previously outlined.

Speaker Change: We've got the right team in place.

Speaker Change: executing against the strategy that we previously outlined.

Speaker Change: Thank you, and I will now turn the call over to Donna. Donna?

Speaker Change: Thank you and I will now turn the call over to Donna Donna.

Donna: Thanks, James and good evening.

Donna Blackman: Thanks, James, and good evening.

Donna Blackman: I know James already discussed our enrollment numbers, but I think it's important to put it in

Donna: I know James has already discussed our enrollment numbers, but I think it's important to put it into perspective. It was just two quarters ago that we were fielding questions about whether we could return to year over year enrollment growth following the pandemic and now we're talking about exceeding tended in the past.

Donna Blackman: It was just two quarters ago that we were fielding questions about whether we could return to year-over-year enrollment growth following the pandemic, and now we're talking about exceeding.

Donna: This speaks to the resiliency of our offerings and a sustained demand for alternative educational options.

Donna Blackman: This speaks to the resiliency of our offerings and the sustained demand for alternative education.

Donna Blackman: We are proud to be able to give families a choice.

Donna: We are proud to be able to give family a choice.

Donna Blackman: and we believe that the trends point to a long-term growth in our

Donna: And we believe that the trend toward our long term growth in our business.

Donna: All of that have resulted in the first quarter in our history that we achieved over half a billion dollars in revenue.

Donna Blackman: All of that have resulted in the first quarter in our

Donna Blackman: that we achieved over a half a billion dollars

Donna: And we've updated our revenue guidance for the full year, such that now exceed $2 billion.

Donna Blackman: and we've updated our revenue guidance.

Speaker Change: Thank you for joining us.

Donna: At the midpoint.

Donna: Turning to our quarterly results.

Speaker Change: turn into our quality results.

Donna: We reported revenue of $504 9 million.

Speaker Change: We report a revenue of $504.9 million

Speaker Change: An increase of 10% from the second quarter of fiscal year.

Donna: An increase of 10% from the second quarter of fiscal year 'twenty three.

Speaker Change: adjusted operating income of $94.9 million.

Donna: Adjusted operating income of $94 9 million.

Speaker Change: Up from $76.3 million, or $24.5 million,

Donna: Up from $76 3 million or 24% from the same period last year.

Speaker Change: from the same period.

Donna: Earnings per share of $1 54.

Speaker Change: Earnings per share of $1.54.

Speaker Change: up 35%.

Donna: Up 35 cents.

Donna: From last year.

Speaker Change: and capital expenditures of $12.7 million.

Donna: And capital expenditures of $12 $7 million down slightly year over year.

Speaker Change: Down slightly, year one.

Donna: Korea regarding middle and high school revenue grew 7% to $165 1 million.

Speaker Change: Career learning, middle and high school revenue grew 7% to $165.1 million.

Speaker Change: This performance was driven by enrollment growth of 9% year-over-year.

Donna: This performance was driven by enrollment growth of 9% year over year.

Speaker Change: somewhat offset by a slight decline in revenue.

Donna: Somewhat offset by slight decline in revenue per enrollment.

Donna: During the quarter enrollments grew over 3000, continuing the in year enrollment growth trends, we saw last year.

Speaker Change: During the quarter, enrollments grew over 3,000, continuing the in-year enrollment growth trends we saw last year.

Donna: And our General Education program revenue was $313 9 billion.

Speaker Change: In our general education program, revenue was $313.9 billion.

Speaker Change: up 14% from last year.

Donna: Up 14% from last year.

Speaker Change: This strength was also driven by continued enrollment growth

Donna: This strength was also driven by continued enrollment growth in the quarter.

Speaker Change: with enrollments finishing the quarter up 5.4 thousand from the end of September.

Donna: Enrolment, finishing the quarter up $5 4000 from the end of September and average enrollment growth of 9% from last year.

Speaker Change: and average enrollment growth of 9% per month.

Speaker Change: Revenue Per Enrollment for Gen Ed increased increase.

Donna: Revenue per enrollment for Gen Ed increased 8%.

Donna: We continue to see strength in funding for education, and while we saw some timing impacts in our career learning revenue per enrollment, we still expect to finish the year with revenue per enrollment growth of between four and 6%, but both lines of business.

Speaker Change: We continue to see strength in funding for education Thank you

Speaker Change: And while we saw some tiny impacts in our career learning revenue per enrollment, we still expect to finish the year with revenue per enrollment growth of between 4% and 6% for both lines.

Speaker Change: Our adult learning business revenue declined $4 million to $25.9 million.

Donna: Our adult learning business revenue declined $4 million to $25 9 million.

Donna: On the weakness in our tech business, we discussed previously.

Speaker Change: on the weakness in our tech business we discussed previously.

Speaker Change: Ned Church continues to perform well.

Donna: Net search continues to perform well with growth in that business did not fully offset the declines in our boot camp.

Speaker Change: growth in that business did not fully offset the declines in our

Donna: Gross margins for the quarter was 39, 8%.

Speaker Change: Gross margins for the quarter were 39.8%.

Speaker Change: of 270 basis points from last year.

Donna: Up 270 basis points from last year.

Donna: We're still seeing the effects of the efficiency effort, we put into place last year and continue to implement.

Speaker Change: We're still seeing the effects of the efficiency efforts we've put into place last year.

Speaker Change: and continue to apply.

Donna: Given the timing of the impact last year, we don't expect gross margin increases to be a strong year over year in the second half.

Speaker Change: Given the timing of the impact last year, we don't expect gross margin increases to be as strong year over year in the second half.

Donna: We still expect to see gross margins improved by 200 to 250 basis points for the full year.

Speaker Change: We still expect to see gross margins improve by 200 to 250 basis points for the fall.

Speaker Change: Selling general and administrative expenses increased 15% to $116.9 million.

Selling general and administrative expenses increased 15% to $116 9 million.

Donna: Stock based compensation for the quarter was $7 $6 million.

Speaker Change: Stock-based compensation for the quarter was $7.6 million.

Speaker Change: We now expect to finish the year with stock-based compensation in the range of $29 to $33.

Donna: We now expect to finish the year with stock based compensation in the range of 29% to $33 million.

Speaker Change: Adjusted operating income for the quarter was $94.9 million.

Donna: Adjusted operating income for the quarter was $94 9 million.

Speaker Change: up 24% from last year.

Donna: Up 24% from last year.

Speaker Change: adjusted EBITDA was 118.3 million.

Donna: Adjusted EBITDA was $118 $3 million.

Speaker Change: and just expense for the quarter was $2 million.

Donna: Interest expense for the quarter was $2 million.

Speaker Change: Our effective tax rate for the quarter was $24.9 billion.

Donna: Our effective tax rate for the quarter was 24, 9%.

Speaker Change: and diluted earnings per share for the quarter was $1.50.

Donna: And diluted earnings per share for the quarter was $1 54.

Donna: Turning to our balance sheet and cash flow.

Speaker Change: Turning to our balance sheet and cash.

Donna: Capital expenditures for the quarter was $12 $7 million.

Speaker Change: Capital expenditures for the quarter were $12.7 million.

Speaker Change: Down slightly from left.

Donna: Down slightly from last year.

Speaker Change: Free cash flow, defined as cash from operations less capex, was $160.6 million.

Donna: Free cash flow defined as cash from operations less Capex was $160 6 million.

Speaker Change: up $13.2 million from the priority of

Donna: Up $13 2 million.

Donna: From the prior year period.

Donna: We finished the quarter with cash and cash equivalents of $364 4 million.

Speaker Change: We finished the quarter with cash and cash equivalents of $354.4 million.

Based on the strength of our enrollment we are raising our full year revenue and profit guidance.

Speaker Change: Based on the strength of our enrollment, we are raising our full-year revenue and profit

Speaker Change: and we now expect revenue in the

Donna: And we now expect revenue in the range of $1 99 to $2 4 billion.

Speaker Change: of 1.99 to $2.04 billion.

Speaker Change: adjusted operating income between $265,000 and $285,000.

Donna: Adjusted operating income between $265 million to $85 million.

Speaker Change: Capital expenditures between 60 and 65%.

Donna: Capital expenditures between 60 and $65 million.

Donna: And an effective tax rate between 25 and 27%.

Speaker Change: and an effective tax rate between $25 and $25.

Speaker Change: For the third quarter, we are forecasting revenue in the range of $500 to $520 million.

Donna: For the third quarter, we are forecasting revenue in the range of $500 million to $520 million.

Speaker Change: adjusted operating income between 85 and 95 million.

Adjusted operating income between 85, and $95 million and capital expenditures between 14 and $17 million.

Speaker Change: and capital expenditures between 14 and 17 years.

Operator: Ladies and gentlemen, thank you for standing by.

Operator: I would like to welcome everyone to the Striding Conference.

Speaker Change: Thank you for your time.

Operator: At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the number 1 on your telephone keypad. Thank you.

Speaker Change: Thank you for your time and now I'll turn it over to the operator for Q&A operator.

Speaker Change: Now I'll turn it over to the operator.

Speaker Change: Operator

Operator: Thank you. At this time I would like to remind our teleconference participants in order to ask a teleconference question please press the star followed by the number one on your telephone

Speaker Change: Thank you at this time I would like to remind our teleconference participants in order to ask a teleconference question. Please press the star followed by the number one on your telephone keypad.

Operator: We will pause for just a moment to compile the Q&A.

Speaker Change: So just a moment to compile the Q&A roster.

Operator: I will now hand the call over to Mr. Tim Casey, Vice President of Corporate Development and Investor Relations. You may begin your conversation.

Thank you, and good afternoon.

Speaker Change: Our first question for today comes from the line of Greg Parrish from Morgan Stanley. Please go ahead with your question.

Speaker Change: Our first question for today comes from the line of Greg Parish from Morgan Stanley. Please go ahead with your question.

Welcome to Strive's second quarter earnings call for fiscal year 2021. With me on today's call are James Rhyu, Chief Executive Officer, and Donna Blackman, Chief Financial Officer. As a reminder, today's conference call and webcasts are accompanied by a presentation that can be found on Stride Investor Relations. 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 our investor list. In addition to historical information, this call may also involve forward-looking statements.

Greg Parrish: All right, thank you. Congrats on another strong quarter. I guess we'll start with margin. Really good expense management again. You unpacked the margin beat. Is there anything to call out on the expense management side where you were able to outperform your expectation going into the quarter?

Greg Parish: Alright, thank you.

Speaker Change: Congrats on the.

Greg Parish: Strong quarter, I guess, let's start with margin really good expense management again.

Greg Parish: Unpack the margin beat is there anything to call out on the expense management side, where you're able to outperform your expectation going into the quarter.

Greg Parrish: And then related, if you continue on the trajectory, there's upsides of the full year, at least the way I look at it. So is there anything timing related or any reason why the back half margin won't be quite as strong as second quarter?

Greg Parish: And then related if you continue on the trajectory there is upside to the full year at least the way I look at it so is there anything timing related.

Greg Parish: Or any reason why the back half margin won't be quite as strong second quarter.

Greg Parrish: So on a gross margin, some of the things that we talked about last year, we are continuing to do this year. One of the things you heard me talk about last quarter, just the timing of when we did teacher hiring had an impact on our margins. We did a much better job with that hiring process, the material that we send out, using more digital, using innovation and technology, using our size and scale. All the things that we talked about, we continue to do that. And as you might recall, you know, I spent a lot of time talking about gross margins last year, and I said the changes we were making were structural changes, and that still holds true. In terms of the rest of the year, the year-over-year comparison won't be as favorable, one, because some of those efforts we put into place, we put into place, you know, later in the year. So from a comparison perspective, you won't see that. And then also in Q4, we typically have more. Sort of school-level costs, like state testing and some restricted funding that we have to spend in Q4. And so that's where you might see Q4 gross margins typically not as high as you might see in Q2 and Q3.

Speaker Change: Sure so on gross margin.

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 filing. 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. Following our prepared remarks, we'll answer any questions. I'll now turn the call over to James.

Speaker Change: And we talked about last year. We are we are continuing to do this year one of the things you heard me talk about last quarter, just the timing of when we to teacher hiring had an impact.

Speaker Change: On our margins, but they have a much better job with that hiring process at the materials that we send out using more digital using innovation and technology using our size and scale all of the things that we've talked about we're continuing to do that and as you might recall I spent a lot of time talking about gross margins last year and I said the changes we were making.

Thanks, Tim.

Good afternoon. In November, during our Investor Day, we discussed the opportunities for our business and laid out our strategy to deliver what we believe will be marketable.

Speaker Change: Actual changes and that still holds true.

Speaker Change: In terms of the rest of the year.

I discussed how increasing uncertainty, volatility, and chaos in our country has and will continue to increase demand for our office space. Our second quarter results speak for themselves and demonstrate the macro trends are behind us. Our strategy is beginning to play out, and we are executing this. The year began with some uncertainty regarding the trends we might see in the year and the volatility over the past. We've been convinced that the market has moved in our direction and that we were not going to fall back to pre-pandemic levels, but there still remained the question of whether we could surpass those pandemic outcomes. Well, we ended the second quarter with 196.5 thousand enrollments for an all-time record, passing our pandemic level high.

Speaker Change: The year over year comparison won't be as favorable one because some of those.

Speaker Change: Of course, we put into place and put into place later and later in the year. So from a comparison perspective, you won't see that and then also in Q4, we typically have more sort of school level costs like state testing.

Speaker Change: Some restricted funding that we have to spend in Q4, and so that's where you might see Q4 gross margin is typically not as high as you might see.

In Q2 and Q3.

Speaker Change: Okay, great. Thank you that's all.

Speaker Change: Okay, great. Thank you. That's helpful. I guess it sounds like you ended at 196. So everything was trending positive throughout the quarter. So I think I know the answer. But I think we're asking this quarterly now. But so far, 23 days in January, we're seeing similar trends. So it sounds like and I think third quarter, it's harder to add students into the second quarter. But this thing's still trending upwards, it seems through January here so far.

Speaker Change: Paul.

Speaker Change: I guess it sounds like you ended at 196, so everything was trending positive throughout the quarters.

Speaker Change: I know the answer but.

Speaker Change: I think were asking this quarterly now, but so far 23 days in January were seeing similar trends. So it sounds like and I think third quarter, it's harder to add students entered the second quarter, but at the same still trending upwards. It seems through January here so far.

We saw enrollment growth in both our career learning and general education programs, strengths in both new enrollment and retention. We have the largest cohort of new in-year enrollments that we've ever had, and Americans continue to believe that school choice. A recent poll by YouGov released this fall shows 84% support giving every child in the U.S. the ability to attend the public school in their state that best meets their needs regardless. The results are clear, and what we've been hearing from you. Parents want choice. We want to be able to choose a school that will meet the unique needs of our children. They want to be able to change their own childhood. I also continue to see reports that support our move into career learning. This fall, freshman enrollment in four-year institutions for 18 to 20-year-olds declined by 5.3%. The reason for this decline was that this age group is increasingly choosing to enroll in community college. Students are explicitly looking for short-term programs that have a direct connection to the world.

Speaker Change: Yes, and I think we're not going to talk about the specifics of January today, but.

Speaker Change: Yeah, I mean, I think we're not going to talk about the specifics of January today, but yeah, January so far looks pretty good. I think what you said is right, meaning it's harder. There's just less spots even open in Q3. A lot of the enrollment windows actually shut down in the quarter, so the ability to even add kids sort of closes during the quarter. But I think just from a funnel perspective, we continue to like what we see.

But yes January so far looks pretty good.

Speaker Change: What you said is right, meaning it's harder there is less spot even open in Q3, a lot of the enrollment when does actually shut down in the quarter. So.

Speaker Change: The ability to even add kids sort.

Speaker Change: Sort of closes during the quarter.

Speaker Change: But I think just from a funnel perspective.

Speaker Change: We continue to like what we see.

Okay fair enough.

Speaker Change: Okay, fair enough. And then I'm going to ask you about adult learning. I know it's a small, it's 5-6% of revenue. Last quarter I talked a little bit about macro headwinds, but it seems like, I don't know, did something shift in the quarter or was there sort of a big client loss or anything to call out there? And then I guess how long does this kind of last for? Maybe it's just macro dependent, but when do you expect this to get back to how it was growing in the past?

Speaker Change: And then I'm going to ask you about adult learning I know, it's a small it's five 6% of revenue.

Speaker Change: Last quarter, I talked a little bit about macro headwinds, but it seems like I don't know if theres something shipped in the quarter or was there sort of a big.

Speaker Change: The client loss or anything to call out there and then.

Speaker Change: I guess, how long does this kind of last quarter, maybe it's just macro dependent but when do you expect us to get back to how it is growing in the past.

Speaker Change: Yes, I think.

Speaker Change: Yeah, I mean, I think...

Speaker Change: The macro headwinds continue. I think you'll see that across the industry.

Speaker Change: The macro headwinds continue I think youll see that across the industry.

Speaker Change: So I don't think we're we're immune to what's happening across the industry and from from an adult learning perspective, I think that.

Speaker Change: So I don't think we're immune to what's happening across the industry and from.

While we're still working on driving incremental demand for our career programs, data like this supports our decision to focus on certificates and career pathways in fast-growing, in-demand universities.

Speaker Change: From an adult learning perspective.

Speaker Change: I think that.

Speaker Change: Certainly through the rest of the year I would expect the headwinds to continue.

Speaker Change: Certainly through the rest of the year, I would expect the headwinds to continue.

Speaker Change: Next year, I think we have to see, we're excited. I think the difference with our business, the adult learning than the industry or sort of the broader industry, if you will, is our, we're a little bit of a tell-two cities. We have the technology-based stuff, the bootcamp stuff, which again, macro headwinds. I think everybody's going to see that. Everybody is seeing that. But we have our healthcare side, which continues to perform well, and as that continues to grow and we think perform well, at some point, it'll offset, I think, any declines in the other side. So, whether that's next year or not remains to be seen, but I don't think either way, it won't be a material impact up or down for next year.

Students in our programs can graduate high school knowing they've got the skills to go directly into the workforce or choose to attend post-secondary. There's also continuing support for our new products.

Speaker Change: Next year I think we have to see.

We're excited I think the difference with our business the adult learning than the industry youre sort of the broader industry. If you will is.

In November, I outlined our K-12 tutoring product along with some of the demand drivers that support our entrance into the market.

Speaker Change: Is our we're a little bit of a tale of two cities. We have the technology based stuff the boot camp stuff, which again macro headwinds I think everybody is going to see that everybody is seeing that.

A study out of Texas showed that K-2 students who received individual virtual tutoring during last school year demonstrated higher reading test scores by year end, and Virginia launched a statewide high dosage tutoring program are all part of a $400 million investment to recover from academic. We know that our tutoring offerings, and state-certified teachers can be part of the solutions to the nation's learning loss and help drive students' education. Taken together, I remain as excited about STRIVE's ability to change the future for students as I ever have. The market conditions are ripe for an innovator like Stride to continue to drive student success across multiple markets.

Speaker Change: But we have for our healthcare side, which continues to perform well.

Speaker Change: And as that continues to grow and we think performed well.

Speaker Change: At some point it'll offset I think any declines in the other side. So whether that's next year or not remains to be seen but.

Speaker Change: I don't think.

Speaker Change: Either way it won't it won't be a material impact up or down for next year.

Speaker Change: Alright fair enough. Thank you very much congrats again.

Speaker Change: All right, fair enough. Thank you very much. Congrats again.

Speaker Change: Thank you. Our next question comes from the line of Jeff Silber from BMO Capital markets. Please go ahead with your question.

Speaker Change: Thank you. Our next question comes from Jess Silber from BMO Capital Markets. Please go ahead with your question.

Jeffrey Marc Silber: Thank you so much. We wanted to focus on the different segments. I'm going to start with general education. I know you have not broken out this as a separate segment for too many years, but kind of looking back historically, I think this is the first year we've seen sequential enrollment growth in gen ed between the first quarter and the second quarter. I know you cited some improvements in retention, but if we can get a little bit more color, it was actually a nice surprise.

Jeffrey Marc Silber: Thank you so much I wanted to focus on the different segments I'm going to start with general education, I know you have not broken it out this.

This call marks the end of my third year at CEO, and as we continue to achieve new enrollment and financial goals, we still see a long runway. A couple of highlights I'd like to point out since I was appointed. Gross margins are on the, Thank you for joining us. Trailing 12-month reported EPS and reported operating costs are both up three times from levels prior to my appointment. We've got the right team in place, executing against the strategy that we previously outlined. Thank you, and I will now turn the call over to Donna.

Jeffrey Marc Silber: This is a separate segment for too many years, but kind of looking back historically I think this is the first year, we've seen sequential enrollment growth in Gen. Ed between the first quarter in the second quarter. I know you cited some improvements in retention, but if we can get a little bit more color. It was actually a nice surprise there.

Speaker Change: Yeah, I think generally speaking,

Speaker Change: Yes, I think <unk>.

Speaker Change: Generally speaking.

Speaker Change: We did find a sequential improvement that is, I think you're right, generally speaking, Q1 to Q2 in almost every year, we'll see a decline. A lot of that happens just because, you know, the September period, the end of Q1, we get, you know, a little bit of actually a push of enrollments because a lot of families sort of...

We did.

Speaker Change: We did find sequential improvement that is I think you are right generally speaking Q1 to Q2. It almost every year, we will see a decline a lot of that happens just because.

Speaker Change: The September period at the end of Q1, we get.

Donna?

Thanks, James, and good evening. I know James has already discussed our enrollment numbers, but I think it's important to put this in. It was just two quarters ago that we were fielding questions about whether we could return to year-over-year enrollment growth following the pandemic, and now we're talking about exceeding.

Speaker Change: Yeah, a little bit of actually a push of enrollments because a lot of families.

Speaker Change: Sort of.

Speaker Change: adjust, if you will, what they're trying to do in September. And many of those adjustments sort of come to us, you know, and then you sort of have this tail off in October and November and then into December. Obviously, we were able to reverse that for this year sequentially. And I think part of it's just we had strong execution. I think it remains to be seen whether there's a macro trend here for future years or not.

Speaker Change: Adjust if you will what theyre trying to do in September and many of those adjustments sort of come to US and then as you sort of have this tail off.

Speaker Change: October and November and then into December.

Speaker Change: Obviously, we.

This speaks to the resiliency of our offerings and the sustained demand for alternative education. We are proud to be able to give families a choice, and we believe that the trends point to long-term growth in our All of that has resulted in the first quarter of our company, where we achieved over a half a billion dollars, and we've updated our revenue guidance. Thank you for joining us, and turning into our quality results.

Speaker Change: We were able to.

Speaker Change: Reverse that for this year sequentially.

Speaker Change: And I think part of it just we had strong execution I think it remains to be seen whether there is a macro trend here.

Speaker Change: For future years or not we.

Speaker Change: We definitely see improved executions.

Speaker Change: We definitely see improved execution.

Speaker Change: So I think that helped contribute

Speaker Change: So I think that helped contribute to.

Speaker Change: to a stronger second quarter. You know, we see, you know, funnel metrics like conversion and things like that continue to improve. And I think that's really our execution, which is improving. I think we still have a ways to go to continue improving it. But I just – there's not enough data that we can see, I think, that would suggest that the sequential trend is a macro sort of ongoing tailwind Q1 to Q2.

Speaker Change: Two.

Speaker Change: To a stronger second quarter.

Speaker Change: We see.

Speaker Change: Funnel metrics like conversion and things like that continuing to improve so and I think thats really our execution, which is improving.

We report a revenue of $504.9 million, an increase of 10% from the second quarter of fiscal year, adjusted operating income of $94.9 million, up from $76.3 million, or $24.5 million, from the same period. Earnings per share of $1.54, up 35%, and capital expenditures of $12.7 million.

Speaker Change: I think we still have a ways to go to continue improving it.

Speaker Change: But there.

Speaker Change: Theres not enough data that we can see I think that would suggest that the sequential trend is a macro sort of ongoing tailwind Q1 to Q2.

Speaker Change: Okay. That's helpful. I appreciate it if I could move on to career learning and let me focus on Middle High School.

Speaker Change: Okay, that's helpful. I appreciate it. If I can move on to career learning and let me focus on middle high school. Although we did see growth on a year-over-year basis, the growth did slow. Again, we don't have a lot of historical data, but I think it's the first time that we've seen single-digit year-over-year growth in that segment. So it looks like it did slow. Can we talk about what was going on there?

Speaker Change: Although we did see growth on a year over year basis. The growth did slow again, we don't have a lot of historical data, but I think it's the first time that we've seen single digit year over year growth in that segment.

Speaker Change: So it looks like it did slow can we talk about what was going on there.

Although down slightly year one, career learning, middle, and high school revenue grew 7% to $165.1 million. This performance was driven by enrollment growth of 9% year-over-year, somewhat offset by a slight decline in revenue. During the quarter, enrollments grew by over 3,000, continuing the in-year enrollment growth trends we saw last year. In our general education program, revenue was $313.9 billion, up 14% from last year. This strength was also driven by continued enrollment growth, with enrollments finishing the quarter up 5.4 thousand from the end of September and average enrollment growth of 9% per month. Revenue Per Enrollment for Gen Ed increased by increase.

Speaker Change: Yes, I mean I think.

Speaker Change: Yeah, I mean, I think...

Speaker Change: Well, you know, single digit, we're in the nine plus percent range. So like, yes, I mean, single digit.

Speaker Change: Well you singled that you were in the nine plus percent range. So yes Daphne.

Speaker Change: Single digit.

Speaker Change: We've got, I think, a business that's starting to scale. We have a business that now, in some respects, it's the same store comp because we're not adding a whole lot of new programs.

Speaker Change: Yes.

Speaker Change: We've got I think a business is starting to scale.

Speaker Change: We have a business that.

Speaker Change: Now.

Speaker Change: Some respects.

Speaker Change: The same store comp because we're not adding a whole lot of new programs.

Speaker Change: And, you know, I think for the year, we'll probably still be, we'll still probably average out into a double digit growth.

Speaker Change: I think for the year will probably still be you will still probably average out into a double digit growth.

Speaker Change: And, you know, so I think that's for us, I think that's, you know, if we continue it, that sort of low double digit career growth, we're going to be pretty happy. But, you know, there's a little bit of mix. There's a little bit of, you know, we're talking on the margin here. And, you know, the difference between 9 plus percent and 10 percent, you know, is a few hundred kids, several hundred kids. So we're talking on the margins here, I think, a little bit.

Speaker Change: And so.

Speaker Change: So I think that's for US I think that's.

Speaker Change: If we continue at that sort of low double digit career growth, we're going to be pretty happy.

Speaker Change: But theres a little bit of mix is a little bit.

Speaker Change: We're talking on the margin here.

Speaker Change: The difference between 9% and 10%.

Speaker Change: As a few hundred kids several hundred kids. So we're talking on the margins here I think a little bit.

Speaker Change: Yeah, I was actually referring to revenue. So I know, you know, you have revenue for students, you know, there's a little pressure there. So that's okay. No worries.

Speaker Change: Yes, I was actually referring to revenue. So I know you have revenue per student.

We continue to see strength in funding for education. Thank you. And while we saw some tiny impacts in our career learning revenue per enrollment, we still expect to finish the year with revenue per enrollment growth of between 4% and 6% for both lines. Our adult learning business revenue declined $4 million to $25.9 million due to the weakness in our tech business we discussed previously. Ned Church continues to perform well, growth in that business did not fully offset the declines in our Gross margins for the quarter were 39.8%, 270 basis points from last year. We're still seeing the effects of the efficiency efforts we put into place last year and continue to apply. Given the timing of the impact last year, we don't expect gross margin increases to be as strong year over year in the second half.

Speaker Change: Sure there so.

Speaker Change: That's okay no worries.

Speaker Change: Thank you Adrianne.

Speaker Change: Your answer to that is valid as well. Okay, I'll jump in. Thank you.

Speaker Change: Answer to that is valid as well okay.

Speaker Change: I will jump off thanks, so much thanks.

Speaker Change: Thanks.

Speaker Change: As a reminder if you'd like to ask a question please press the star followed by the one on your

Speaker Change: As a reminder, if you'd like to ask a question. Please press the star followed by the one on your telephone to cancel this request. Please press the star followed by the SEC.

Speaker Change: To cancel this request, please press the star.

Speaker Change: Our next question comes from the line of Stephen Sheldon from William Blair. Please go ahead with your question.

Speaker Change: Our next question comes from the line of Stephens Sheldon from William Blair. Please go ahead with your question.

Stephen Hardy Sheldon: Hey, thanks for taking my questions and really nice results here once again.

Steven Sheldon: Hey, Thanks for taking my questions and really nice results here once again.

Stephen Hardy Sheldon: I wanted to start with something that I've been getting asked about a lot more from investors. I think I'm sure you guys have too. But what does the opportunity look like to take your career learning solutions into local school districts? I think you've piloted some programs like that before where students take their core classes in person locally and then take their electives online in your career learning program.

Steven Sheldon: I wanted to start with something that I've been getting asked about a lot more for investment I think I'm sure you guys have to bid.

Steven Sheldon: What does the opportunity look like to take your career learning solutions into local school district. So thank you.

Steven Sheldon: Highlighted some programs like that before where students take their core classes in person locally and then take there electus online and your crude learning programs.

Stephen Hardy Sheldon: Do you think it's a larger opportunity to pursue in the next few years, and what could that mean to you?

Steven Sheldon: Do you think it's a larger opportunity to pursue in the next few years and what could that mean to your Tam.

We still expect to see gross margins improve by 200 to 250 basis points for the fall. Selling, general, and administrative expenses increased 15% to $116.9 million. Stock-based compensation for the quarter was $7.6 million. We now expect to finish the year with stock-based compensation in the range of $29 to $33. Adjusted operating income for the quarter was $94.9 million, up 24% from last year; adjusted EBITDA was 118.3 million, and just expense for the quarter was $2 million. Our effective tax rate for the quarter was $24.9 billion, and diluted earnings per share for the quarter was $1.50. Turning to our balance sheet and cash, capital expenditures for the quarter were $12.7 million. Down slightly from left. Free cash flow, defined as cash from operations less capex, was $160.6 million, up $13.2 million from the prior year. We finished the quarter with cash and cash equivalents of $354.4 million. Based on the strength of our enrollment, we are raising our full-year revenue and profit estimates, and we now expect revenue in the range of $1.99 to $2.04 billion, adjusted operating income between $265,000 and $285,000. Capital expenditures between 60 and 65%, and an effective tax rate between $25 and $25.

Speaker Change: Yeah, so I think the short answer is, is it a larger opportunity? Yes.

Yes, So I think the short answer is is it a larger opportunity yes.

Speaker Change: um

Speaker Change: I think part of the

Steven Sheldon: I think part of the.

Speaker Change: uh

Steven Sheldon: Part of the issue is going to be.

Speaker Change: Part of the issue is going to be just with the way that...

Just with the.

Steven Sheldon: The way that <unk>.

Speaker Change: Districts across the country will embrace change.

Steven Sheldon: Districts across the country, we will embrace change.

Speaker Change: um

Speaker Change: Our strategy I think does present an opportunity to get into those districts with our career learning program. We will do it in a multi-pronged way, meaning one is we will offer them literally the same program that we give our virtual students.

Steven Sheldon: Our strategy I think does present, an opportunity to get into those districts without career learning program.

Speaker Change: We'll do it.

Speaker Change: In a multi pronged way meeting.

Speaker Change: One is we will offer them literally the same program that we give our virtual students.

Speaker Change: Which I think can be compelling for some districts. We'll also take a little bit of a platform strategy and offer a sort of

Which I think can be compelling for some districts will also.

Take a little bit of a platform strategy.

Speaker Change: And.

Speaker Change: Sure.

Speaker Change: Offer.

Speaker Change: Sort of.

Speaker Change: Right.

Speaker Change: A little bit of a light solution, if you will, through our TALA platform that will allow for districts to do a little bit more self-serve. It'll be a little bit more teacher light. It'll be less

Speaker Change: A little bit of a light solution. If you will through our tallo platform that will allow for <unk>.

Speaker Change: Districts to do a little bit more self serve it'll.

Speaker Change: It'll be a little bit more teacher light it'll be less.

Speaker Change: sort of instructor-led, etc. But it will still offer them what we think will be a best-in-class platform solution for career learning at the high school level. So that is, I mean, we're probably in a beta phase of that upgrade to our platform. I don't think just given the selling cycle, you'll see much traction for this coming fall just because the selling season for districts is sort of going to get behind us pretty quickly. But I would expect us to be able to offer it a little bit more robustly in the following fall from a platform perspective. But I think the short answer to your original question is, yeah, it does offer us a good longer-term opportunity. I just don't think we're going to see it in the next 12 months.

Speaker Change: Sort of instructor led et cetera.

Speaker Change: But it will still offer them what we.

Speaker Change: We think will be a best in class platform solution for career learning at the high school level.

Speaker Change: So that is I mean, we're probably in a beta phase of that upgrade to our platform.

Speaker Change: I don't think just given the selling cycle youll see much traction for this coming fall just because the selling season for a district is sort of going to get behind us pretty here pretty quickly.

Speaker Change: But I would expect us to be the off rate a little bit more robustly in the following fall from a platform perspective, but I think the short answer to your original question is yes. It does it does offer us a good longer term opportunity I, just don't think we're going to see it in the next 12 months.

Speaker Change: Got it makes a lot of sense.

Speaker Change: God, it makes a lot of sense.

Speaker Change: Then just quickly on the career learning, the revenue per enrollment.

Speaker Change: And then just quickly on the career learning the revenue per enrollment.

Speaker Change: And then apologies if I missed this but was that mainly lower due to the mix of students by state anything else to call out there in terms of that contract in a bit year over year I know that the comp. There was also pretty difficult and then Don I think you reaffirmed expectations for revenue per student enrollment to be 4% to 6%.

Speaker Change: And apologies if I missed this, but with that made me lower do the mix of students by state, anything else to call out there in terms of that contracting a bit year over year? I know that the comp there was also pretty difficult. And then, Donna, I think you reaffirmed expectations for revenue per student or enrollment to be 4% to 6% consistent with what you talked about last quarter. Are trends there kind of coming in as you would have expected so far this year?

Speaker Change: Consistent with what we talked about last quarter are trends that are kind of coming in as you would've expected so far this year.

Speaker Change: And so I'll answer part of the second one first. Yes, we expect our revenue per enrollment for Gen Ed and career to be up 4% to 6%. Will you see a decline in the career for this quarter? Yes, partly due to mix. As you know, overall, our revenue per enrollment with Gen Ed and career combined was up over 5%. You may recall that last year in this quarter, we talked about some of the upside that we saw in the revenue per enrollment for career was due to timing. So this is just the offset of that that makes for a tougher comparison.

Speaker Change: And so I'll answer part of the second one first yes, we expect.

Speaker Change: Our revenue per enrollment for Gen, Ed and career to be up 4% to 6%.

Speaker Change: Do you see a decline in the career for this quarter, yes, partly due due to mix as you know overall.

Speaker Change: Sure.

Our revenue per enrollment with Gen, Ed and Korea combined was up over 5% you may recall that last year in this quarter, we talked about some of the upside that we saw and the revenue per enrollment for Korea was due to timing. So this is just the offset of that.

It makes for a tougher comparison.

Speaker Change: Got it. Yeah, it makes sense.

Speaker Change: Got it it makes sense.

Speaker Change: And then just last one.

Speaker Change: And then just the last one.

Speaker Change: Maybe just when do you think you could start building a separate marketing funnel for the career learning programs I know this isn't something you've done historically, but.

Speaker Change: When do you think you'd start building a separate marketing funnel for the career learning program? I know this isn't something you've done historically, but you've talked about it more as an opportunity. Has that started yet? And if not, when could that become a bigger initiative?

Speaker Change: But you've talked about it more as an opportunity has that started yet and if not when could that become a bigger initiatives.

Speaker Change: Yeah, I'll say in some respects, we've had fits and starts with it already.

Speaker Change: I think that this is an area where, unfortunately, we have not executed well. I'd actually say we've executed poorly.

Speaker Change: I think that this is an area, where unfortunately, we have not executed well I'd say I should say, we actually have executed poorly.

For the third quarter, we are forecasting revenue in the range of $500 to $520 million, adjusted operating income between 85 and 95 million, and capital expenditures between 14 and 17 years. Thank you.

Speaker Change: I do think it's an opportunity and I think we will make some investments for this coming fall season in incremental enrollments around career. Remains to be seen if we can be successful. But we definitely think it's a very significant opportunity. We definitely believe that

Speaker Change: I do think it's an opportunity.

Speaker Change: And I think we will make some investments for this coming fall season in incremental enrollments around career remains to be seen if we can be successful, but we definitely think it's a very significant opportunity we definitely believe that.

Speaker Change: Part of our issue has been around execution, and we will definitely make some investments in that direction for this fall.

Operator: Now I'll turn it over to the operator.

Speaker Change: Part of our issue has been around execution, and we will definitely make some investments.

Operator: Operator, Thank you. At this time, I would like to remind our teleconference participants that in order to ask a teleconference question, please press the star followed by the number one on your telephone. We will pause for just a moment to compile the Q&A. Our first question for today comes from the line of Greg Parrish from Morgan Stanley.

Speaker Change: In that direction.

For this fall.

Speaker Change: Got it.

Speaker Change: Got it. Well, thanks again for the time and congrats on the results.

Speaker Change: Thanks, again for the time and congrats on the results.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: As a final reminder, if you'd like to ask a question today. Please press the star followed by the one on your telephone.

Speaker Change: As a final reminder, if you would like to ask a question today, please press the star followed by the one on your screen.

Speaker Change: Our next question comes from the line of Alex Paris from Barrington Research. Please go ahead with your question.

Speaker Change: Our next question comes from the line of Alex Paris from Barrington Research. Please go over the question.

Please go ahead with your question. All right, thank you.

Alex Paris: Hi, everyone. Thanks for taking my questions. Also, I'd like to add my congratulations on the beat and raise for the quarter. I just had a couple of questions. First of all, I wanted to ask about the press release that you put out last week regarding MedCerts. It looked like you did a big new contract with Virginia State University. Can you expand on that a little bit? And then just talk about the MedCerts business.

Alex Paris: Hi, everyone. Thanks for taking my questions also add my congratulations on the beat and raise for the quarter.

Congratulations on another strong quarter. I guess we'll start with margin. Really good expense management again. You unpacked the margin beat. Is there anything to call out on the expense management side where you were able to outperform your expectations going into the quarter? And then, related, if you continue on this trajectory, there's upsides for the full year, at least the way I look at it. So is there anything timing-related or any reason why the back half margin won't be quite as strong as the second quarter?

Speaker Change: I just had a couple of questions first of all I wanted to ask about.

Speaker Change: The press release that you put out last week regarding med search.

Speaker Change: It looks like you did a big new contract with Virginia State University.

Speaker Change: Can you.

Expand on that a little bit and then just talk about the <unk> business.

Alex Paris: Overall, what sort of growth rates are we experiencing? I know you don't give granular detail on it, but orders of magnitude perhaps.

Speaker Change: Overall, what sort of growth rates are we experiencing.

Speaker Change: I know you don't give granular detail on it but.

Speaker Change: Orders of magnitude perhaps.

Speaker Change: Yeah, I mean, I think, okay, so when we bought the MedCerts asset, whatever, three years ago, it was a predominantly B2C business.

Speaker Change: Yes, I mean, I think okay, so well.

When we bought the med <unk> asset whatever three years ago.

So on the gross margin, some of the things that we talked about last year, we are continuing to do this year. One of the things you heard me talk about last quarter, just the timing of when we did teacher hiring had an impact on our margins. We did a much better job with that hiring process, the material that we send out, using more digital, using innovation and technology, using our size and scale. All the things that we talked about, we continue to do that. And as you might recall, I spent a lot of time talking about gross margins last year, and I said the changes we were making were structural changes, and that still holds true. In terms of the rest of the year, the year-over-year comparison won't be as favorable, one, because some of those efforts we put into place, we put into place, you know, later in the year. So from a comparison perspective, you won't see that. And then also, in Q4, we typically have more. Sort of school-level costs like state testing and some restricted funding that we have to spend in Q4.

Speaker Change: It was a predominantly BDC business.

Speaker Change: And.

Speaker Change: And it still is, by the way, today, predominantly a B2C business. I think what we see is that that B2C part of the business is – it continues to be very attractive, continues, I think, to have a lot of opportunity to grow. But I think the B2B side of it is –

Speaker Change: And it still is by the way today predominantly <unk> business I think what we see is that that.

Speaker Change: B to C.

Speaker Change: Part of the business is it continues to be very attractive continues I think to have a lot of opportunity to grow but I think the b to b side of it.

Speaker Change: <unk>.

Speaker Change: is in some ways, it's just going to have more legs to it. It's, I think, a bigger market opportunity. Actually, I think they're better, easier clients in a lot of respects to manage on a B2B basis. And so we think that the B2B side is going to be long-term larger than the B2C side of the business.

Speaker Change: In some ways, it's just going to have more legs to it.

Speaker Change: A bigger market opportunity actually I think they're better easier clients and a lot of respects to manage on a on a <unk> basis and so.

Speaker Change: We think that the <unk> side is going to be long term larger than the BBB.

Speaker Change: The BDC side of the business.

Speaker Change: No.

Speaker Change: I think that means I think we could double the business over the next several years just by growing the B2B side of the business. I think that would imply some double-digit growth rate, long-term growth rate on that business. Even at that rate, it's not going to be a major contributor to the overall company anytime soon, but we are very bullish about our opportunities in that space.

Speaker Change: I think.

Speaker Change: That means I think we could double the.

Speaker Change: The business over the next several years just by.

Growing the <unk> side of the business I think that would imply some double digit growth rate long term growth rate on that business.

Speaker Change: Even at that rate, it's not going to be a major contributor to the overall company anytime soon but we are very bullish.

Speaker Change: <unk>.

Speaker Change: There are opportunities in that space.

Speaker Change: And is the Virginia State contract the biggest or the first in this B2B effort? Not the biggest nor the first. I think it's a university. I think it was University of New England or some other university, but not the biggest nor the first. I think, you know, we don't have dozens yet, but, you know, I think we're making a lot of good progress with a lot of good conversations. So I think, you know.

Speaker Change: And then as the Virginia state contract the biggest or the first in this b to b effort.

And so that's where you might see Q4 gross margins typically not as high as you might see in Q2 and Q3.

Speaker Change: We're not.

Okay, great.

Speaker Change: Not the biggest nor the first.

Thank you.

Speaker Change: I think it's <unk>.

That's helpful. I guess it sounds like you ended up at 196. So everything was trending positive throughout the quarter, so I think I know the answer. But I think we're asking this quarterly now. But so far, 23 days in January, we're seeing similar trends. So it sounds like, and I think the third quarter, it's harder to add students into the second quarter. But this thing's still trending upwards, it seems through January here so far.

Speaker Change: The University I think it was the university of new England, or some other university, but not the biggest nor the first I think.

We don't have dozens yet, but I think we're.

Speaker Change: We're making a lot of good progress with a lot of good conversations so I think.

Speaker Change: A lot of good traction, a lot of good early traction.

Speaker Change: A lot of good traction a lot of good early traction.

Speaker Change: Great, it's good to hear. And then the other and related question is about tutoring. You know, you talked about it in your prepared comments a little bit, James. You've said in the past, you know, among your new products, this is one of the ones that you're most excited about. It addresses learning losses. It has AI components as well. Anything to report there in terms of wins and go to market?

Speaker Change: Great. That's good to hear and then the other and related question is about tutoring.

Speaker Change: You about it in your prepared comments a little bit James.

Speaker Change: You've said in the past.

Yeah, I mean, I think we're not going to talk about the specifics of January today, but yeah, January so far looks pretty good. I think what you said is right, meaning it's harder. There are just fewer spots even open in Q3. A lot of the enrollment windows actually shut down in the quarter, so the ability to even add kids sort of closes during the quarter. But I think, just from a funnel perspective, we continue to like what we see.

Speaker Change: Among your new products. These are this is one of the ones that you're most excited about it addresses learning losses. It has AI components as well anything to report there in terms of.

Speaker Change: Wins.

Speaker Change: Go to market.

James Jeaho Rhyu: Yeah, I mean, I think...

Speaker Change: Yes, I think.

James Jeaho Rhyu: one is uh we have we've had a couple of nice wins um you can go there's a public sort of announcement or a press release uh there's a district uh called Pulaski I think district in Virginia um and uh we didn't I don't even know that I I didn't know that they were going to do this maybe somebody in my organization did but uh they released there's like a YouTube video or something out there on it there's a press release uh they made a big deal about how our platform helped

Speaker Change: One is.

We have we've had a couple of nice wins.

Okay, fair enough. And then I'm going to ask you about adult learning. I know it's small, it's 5-6% of revenue. Last quarter I talked a little bit about macro headwinds, but it seems like, I don't know, did something shift in the quarter or was there sort of a big client loss or anything to call out there? And then I guess how long does this kind of last for? Maybe it's just macro-dependent, but when do you expect this to get back to how it was growing in the past?

Speaker Change: You can go with Theres, a public sort of done.

Speaker Change: <unk> press release, Theres, a district called Pulaski I think district in Virginia.

Speaker Change: And we didn't I don't even know that I didn't know that they were going to do this maybe somebody my organization did but.

Speaker Change: They released there's like a Youtube video or something out there on it there was a press release.

They've made a big deal about how our platform helped.

James Jeaho Rhyu: with their learning loss.

Speaker Change: With their learning loss.

James Jeaho Rhyu: And, you know, you can't, those kind of testimonials, you know, particularly when we didn't even know or ask.

Speaker Change: <unk>.

Speaker Change: You can't you don't.

Speaker Change: Kind of testimonials.

Unnamed Speaker: Yeah, I mean, I think... The macro headwinds continue. I think you'll see that across the industry. So I don't think we're immune to what's happening across the industry, and from an adult learning perspective, I think that Certainly through the rest of the year, I would expect the headwinds to continue. Next year, I think we have to see. We're excited. I think the difference with our business, adult learning compared to the industry or sort of the broader industry, if you will, is that we're a little bit of a tell-two cities.

Speaker Change: Particularly when we didn't even know were asked.

James Jeaho Rhyu: Uh, completely on.

Completely on.

James Jeaho Rhyu: Um,

Unprompted by Us.

James Jeaho Rhyu: unprompted by us, I think bodes well for the long-term prospects for that business.

Speaker Change: I think bodes well for the long term.

Speaker Change: Prospects for that business.

Speaker Change: Got you. So just to be clear, you're in the market with this product right now?

Speaker Change: Got you.

Speaker Change: To be clear you are in the market with this product right now yes.

Speaker Change: Yes, we are in the market with this product. We're also, we think for next year, we're going to have a pretty good upgrade to the product, which is going to embed more AI elements into it. But yes, we're in market today.

Speaker Change: Yes, we are in the market with this product were also.

Speaker Change: We think for next year, we're going to have a pretty good upgrade to the product.

Speaker Change: Which is going to embed more AI elements into it but but yes, we are in market today.

Speaker Change: Great. Thank you. That'll do for now.

Speaker Change: Great. Thank you that'll do it for now thanks.

Unnamed Speaker: We have the technology-based stuff, the bootcamp stuff, which again, macro headwinds. I think everybody's going to see that. Everyone is seeing that.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Thank you ladies and gentlemen, we have no further questions. At this time, we will conclude today's conference call. We thank you for participating and you may now disconnect.

Speaker Change: Thank you ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. We thank you for participating and you may now dismiss.

Unnamed Speaker: But we have our healthcare side, which continues to perform well, and as that continues to grow and we think perform well, at some point, it'll offset, I think, any declines in the other side.

Speaker Change: © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon

Speaker Change: [music].

Unnamed Speaker: So, whether that's next year or not remains to be seen, but I don't think either way it won't have a material impact, up or down, for next year.

Speaker Change: Sure.

Speaker Change: [music].

All right, fair enough.

Thank you very much.

Congrats again.

Thank you.

Our next question comes from Jess Silber from BMO Capital Markets. Please go ahead with your question. Thank you so much. We wanted to focus on the different segments. I'm going to start with general education. I know you have not broken out this as a separate segment for too many years, but kind of looking back historically, I think this is the first year we've seen sequential enrollment growth in general education between the first quarter and the second quarter. I know you cited some improvements in retention, but if we can get a little bit more color, it was actually a nice surprise. Yeah, I think generally speaking. We did find a sequential improvement that is, I think you're right. Generally speaking, Q1 to Q2 in almost every year, we'll see a decline.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Okay.

Okay.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: [music].

A lot of that happens just because, you know, the September period, the end of Q1, we get, you know, a little bit of a push for enrollment because a lot of families sort of... adjust, if you will, what they're trying to do in September. And many of those adjustments sort of come to us, you know, and then you sort of have this tail off in October and November and then into December. Obviously, we were able to reverse that for this year, sequentially. And I think part of it's just that we had strong execution. I think it remains to be seen whether there's a macro trend here for future years or not. We definitely see improved executions. So I think that helped contribute to a stronger second quarter.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: [music].

You know, we see funnel metrics like conversion and things like that continue to improve. And I think that's really our execution, which is improving. I think we still have a ways to go to continue improving it. But I just – there's not enough data that we can see, I think, that would suggest that the sequential trend is a macro sort of ongoing tailwind from Q1 to Q2. Okay, that's helpful. I appreciate it. If I can move on to career learning and let me focus on middle high school, although we did see growth on a year-over-year basis, the growth did slow. Again, we don't have a lot of historical data, but I think this is the first time that we've seen single-digit year-over-year growth in that segment.

Speaker Change: © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon

Speaker Change: Okay.

[music].

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Mhm.

Speaker Change: [music].

So it looks like it did slow. Can we talk about what was going on there? Yeah, I mean, I think... Well, you know, single digit. We're in the nine plus percent range. So, like, yes, I mean, single digit. We've got, I think, a business that's starting to scale. We have a business that, in some respects, is now the same store comp because we're not adding a whole lot of new programs. And, you know, I think for the year, we'll probably still be, we'll still probably average out into double digit growth. And, you know, so I think that's for us. I think that's, you know, if we continue it, that sort of low double digit career growth, we're going to be pretty happy. But, you know, there's a little bit of a mix. There's a little bit of, you know, we're talking on the margin here. And, you know, the difference between 9 plus percent and 10 percent is a few hundred kids, several hundred kids.

Speaker Change: Yes.

Speaker Change: Okay.

Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: [music].

Unnamed: Capital expenditures, 14, and 17.

So we're talking on the margins here, I think, a little bit. Yeah, I was actually referring to revenue. So I know, you know, you have revenue for students. There's a little pressure there. So that's okay. No worries. Your answer to that is valid as well. Okay, I'll jump in. Thank you.

Operator: Thank you for your time. Now I'll turn it over to the operator, operator. Thank you. At this time, I would like to remind our teleconference participants, in order to ask a teleconference question, please press the star followed by the number 1 on your telephone. We'll pause for just a moment to compile the Q&A. Our first question for today comes from the line of Greg Parrish from Morgan Stanley. All right, thank you.

Thanks.

Operator: As a reminder, if you'd like to ask a question, please press the star followed by the one on your screen. To cancel this request, please press the star.

Yes.

Greg Parrish: Congratulations on another strong quarter. I guess we'll start with margin, really good expense management. Again, you unpacked the margin beat. Is there anything to call out on the expense management side?

Speaker Change: Yes.

Our next question comes from the line of Stephen Sheldon from William Blair.

Please go ahead with your question. Hey, thanks for taking my questions and giving really nice results here once again. I wanted to start with something that I've been getting asked about a lot more from investors. I think I'm sure you guys have too. But what does the opportunity look like to take your career learning solutions into local school districts? I think you've piloted some programs like that before where students take their core classes in person locally and then take their electives online in your career learning program. Do you think it's a bigger opportunity to pursue in the next few years, and what could that mean to you? Yeah, so I think the short answer is, is it a bigger opportunity? Yes, um, I think part of the, uh, part of the issue is going to be just the way that... districts across the country will embrace change. Our strategy, I think, does present an opportunity to get into those districts with our career learning program. We will do it in a multi-pronged way, meaning one is that we will offer them literally the same program that we give our virtual students.

James Jeaho Rhyu: Were you able to outperform your expectations going into the quarter? And then, related, if you continue on this trajectory, there's upsides for the full year, at least the way I look at it. So is there anything timing-related or any reason why the back half margin won't be quite as strong in the second quarter? So, on the gross margin, some of the things that we talked about last year, we are continuing to do this year. One of the things you heard me talk about last quarter, just the timing of when we did teacher hiring had an impact on our margins, but we did a much better job with that hiring process, the material that we send out, using more digital, using innovation and technology, using our size and scale, all the things that we talked about. We continue to do that.

James Jeaho Rhyu: And as you might recall, I spent a lot of time talking about gross margins last year, and I said the changes we were making were structural changes, and that still holds true. In terms of the rest of the year, the year-over-year comparison won't be as favorable, one because some of those efforts we put into place were put into place, you know, later in the year, so from a comparison perspective, you won't see that. And then also, in Q4, we typically have more sort of school-level costs, like state testing and some restricted funding that we have to spend in Q4, and so that's where you might see Q4 gross margins not be as high as you might see in Q2 and Q3. Okay, great. Thank you.

Which I think can be compelling for some districts. We'll also take a little bit of a platform strategy and offer a sort of, A little bit of a light solution, if you will, through our TALA platform that will allow for districts to do a little bit more self-serve. It'll be a little bit more teacher-led. It'll be less sort of instructor-led, etc.

Unnamed: That's helpful. I guess it sounds like you ended up at 196. So everything was trending positive throughout the quarter. So I think I know the answer, but I think we're asking this quarterly now, but so far, 23 days in January, we're seeing similar trends. So it sounds like, and I think third quarter, it's harder to add students into the second quarter, but this thing's still trending upwards. It seems so far through January here so far.

But it will still offer them what we think will be a best-in-class platform solution for career learning at the high school level. So that is, I mean, we're probably in the beta phase of that upgrade to our platform.

I don't think, just given the selling cycle, you'll see much traction this coming fall just because the selling season for districts is sort of going to get behind us pretty quickly. But I would expect us to be able to offer it a little bit more robustly in the following fall from a platform perspective. But I think the short answer to your original question is, yeah, it does offer us a good longer-term opportunity. I just don't think we're going to see it in the next 12 months. God, it makes a lot of sense. Then, just quickly, on career learning, revenue per enrollment. And apologies if I missed this, but with that made me lower the mix of students by state. Anything else to call out there in terms of that contracting a bit year over year?

James Jeaho Rhyu: Yeah, I think we're not going to talk about the specifics of January today. But, yeah, January so far looks pretty good. I think what you said is right, meaning it's harder. There's just fewer spots even open in Q3.

Unnamed: A lot of the enrollment windows actually shut down in the quarter. So the ability to even add kids sort of closes during the quarter, you know, but I think just from a funnel perspective, we continue to like what we see. Okay, fair enough. And then I'm gonna ask you about adult learning. I know it's a small amount, it's five, six percent of revenue. Last quarter, I talked a little bit about macro headwinds, but it seems like, I don't know, did something shift in the quarter or was there sort of a big client loss or anything to call out there? And then I guess how long does this kind of last for?

I know that the comp there was also pretty difficult. And then, Donna, I think you reaffirmed expectations for revenue per student or enrollment to be 4% to 6%, consistent with what you talked about last quarter. Are trends there kind of coming in as you would have expected so far this year? And so I'll answer part of the second one first. Yes, we expect our revenue per enrollment for Gen Ed and career to be up 4% to 6%. Will you see a decline in the career for this quarter? Yes, partly due to mix. As you know, overall, our revenue per enrollment with Gen Ed and career combined was up over 5%.

James Jeaho Rhyu: Maybe it's just macro-dependent, but when do you expect this to get back to how it was growing in the past? Yeah, I think... The macro headwinds continue. I think you'll see that across the industry. So I don't think we're immune to what's happening across the industry and from an adult learning perspective. I think that, certainly through the rest of the year, I would expect the headwinds to continue.

You may recall that last year in this quarter, we talked about some of the upside that we saw in the revenue per enrollment for career was due to timing. So this is just the offset of that that makes for a tougher comparison. Got it. Yeah, it makes sense. And then just the last one. When do you think you'd start building a separate marketing funnel for the career learning program?

Unnamed: Next year, I think we have to see, we're excited. I think the difference with our business, the adult learning than the industry, or sort of the broader industry, if you will, is that we're a little bit of a tale of two cities. We have the technology-based stuff, the boot camp stuff, which again, macro headwinds, I think everybody's going to see that, everybody is seeing that. But we have our healthcare side, which continues to perform well. And as that continues to grow, and we think it performs well, you know, at some point, it'll offset, I think, any declines in the other side. So whether that's next year or not will remain to be seen. But, you know, I don't think either way it won't have a material impact, up or down, for next year. All right, fair enough. Thank you very much.

I know this isn't something you've done historically, but you've talked about it more as an opportunity.

Has that started yet?

And if not, when could that become a bigger initiative? Yeah, I'll say in some respects, we've had fits and starts with it already. I think that this is an area where, unfortunately, we have not executed well. I'd actually say we haven't executed well. I do think it's an opportunity, and I think we will make some investments for this coming fall season in incremental enrollments around career. It remains to be seen if we can be successful. But we definitely think it's a very significant opportunity. We definitely believe that part of our issue has been around execution, and we will definitely make some investments in that direction this fall. Got it. Well, thanks again for the time and congrats on the results.

Jeffrey Marc Silber: Congratulations. Thank you. Our next question comes from Jess Silber from BMO Capital Markets. Please go ahead with your question. Thank you so much.

James Jeaho Rhyu: We wanted to focus on the different segments, so I'm going to start with general education. I know you have not broken out this as a separate segment for too many years, but kind of looking back historically, I think this is the first year we've seen sequential enrollment growth in Gen Ed between the first quarter and the second quarter. I know you cited some improvements in retention, but if we can get a little bit more color, it was actually a nice surprise. Yeah, I think, generally speaking. We did find a sequential improvement that is, I think you're right, generally speaking, from Q1 to Q2, almost every year we'll see a decline. A lot of that happens just because the September period, the end of Q1, we get a little bit of a push for enrollment because a lot of families adjust, if you will, what they're trying to do in September. And many of those adjustments sort of come to us, you know, and then you sort of have this tail off in October and November and then into December. Obviously, we were able to reverse that for this year, in sequence.

Operator: As a final reminder, if you would like to ask a question today, please press the star followed by the number on your screen.

Alex Paris: Our next question comes from the line of Alex Paris from Barrington Research. Please go over the question. Hi, everyone. Thanks for taking my questions. Also, I'd like to add my congratulations on the beat and raise for the quarter. I just had a couple of questions.

Alex Paris: First of all, I wanted to ask about the press release that you put out last week regarding MedCerts. It looked like you got a big new contract with Virginia State University.

Alex Paris: Can you expand on that a little bit? And then just talk about the MedCerts business? Overall, what sort of growth rates are we experiencing? I know you don't give granular detail on it, but orders of magnitude, perhaps. Yeah, I mean, I think, okay, so when we bought the MedCerts asset, whatever, three years ago, it was a predominantly B2C business. And it still is, by the way, today. I think what we see is that the B2C part of the business continues to be very attractive, and continues, I think, to have a lot of opportunity to grow. But I think the B2B side of it is, in some ways, it's just going to have more legs.

James Jeaho Rhyu: And I think part of it is that we had strong execution. I think it remains to be seen whether there's a macro trend here for future years or not, but we definitely see improved execution. So, I think that helped contribute to a stronger second quarter.

Alex Paris: It's, I think, a bigger market opportunity. Actually, I think they're better, easier clients in a lot of respects to manage on a B2B basis. And so we think that the B2B side is going to be, in the long term, larger than the B2C side of the business. I think that means we could double the business over the next several years just by growing the B2B side of the business. I think that would imply some double-digit growth rate, long-term growth rate, for that business. Even at that rate, it's not going to be a major contributor to the overall company anytime soon, but we are very bullish about our opportunities in that space. And is the Virginia State contract the biggest or the first in this B2B effort?

Unnamed: We see funnel metrics like conversion and things like that continuing to improve. And I think that's really our execution, which is improving. I think we still have a ways to go to continue improving it. But there's not enough data that we can see, I think, that would suggest that the sequential trend is a macro sort of ongoing tailwind from Q1 to Q2. Okay, that's helpful. I appreciate it.

Unnamed: If I could move on to career learning and let me focus on middle high school, although we did see growth on a year-over-year basis, the growth did slow. Again, we don't have a lot of historical data, but I think it's the first time that we've seen single-digit year-over-year growth in that segment, so it looks like it did slow.

Alex Paris: Not the biggest nor the first.

Alex Paris: I think it's a university.

Alex Paris: I think it was the University of New England or some other university, but not the biggest nor the first. I think, you know, we don't have dozens yet, but, you know, I think we're making a lot of good progress with a lot of good conversations. So I think, you know. A lot of good traction, a lot of good early traction. Great, it's good to hear. And then the other and related question is about tutoring. You know, you talked about it in your prepared comments a little bit, James. You've said in the past that, among your new products, this is one of the ones that you're most excited about. It addresses learning losses. It has AI components as well. Anything to report there in terms of wins and going to market?

James Jeaho Rhyu: Can we talk about what was going on there? Yeah, I mean, I think, Well, you know, single digit. We're in the nine plus percent range. So like, yes, I mean, single digit. You know, we've got, I think, a business that's starting to scale. We have a business that, you know, now, in some respects, it's a same store comp because we're not adding a whole lot of new programs. And I think for the year, we'll still probably average out into double-digit growth. And, you know, so I think that's, for us, I think that's, if we continue it, that sort of low double-digit career growth, we're going to be pretty happy. But, you know, there's a little bit of a mix.

Alex Paris: Yeah, I mean, I think.., one is uh we have we've had a couple of nice wins um you can go there's a public sort of announcement or a press release uh there's a district uh called Pulaski I think district in Virginia um and uh we didn't I don't even know that I I didn't know that they were going to do this maybe somebody in my organization did but uh they released there's like a YouTube video or something out there on it there's a press release uh they made a big deal about how our platform helped with their learning loss. And, you know, you can't, those kind of testimonials, you know, particularly when we didn't even know or ask. Uh, completely on.

Unnamed: There's a little bit of, you know, we're talking on the margin here. And, you know, the difference between 9 plus percent and 10 percent is a few hundred kids, several hundred kids. So we're talking on the margins here, I think, a little bit.

Alex Paris: Um, unprompted by us, which bodes well for the long-term prospects of that business. So just to be clear, you're in the market for this product right now? Yes, we are in the market for this product. We're also, we think for next year, we're going to have a pretty good upgrade to the product, which is going to embed more AI elements into it. But yes, we're in the market today. Great. Thank you. That'll do for now.

Unnamed: Yeah, I was actually referring to revenue. So I know, you know, you have revenue per student, you know, there's a little pressure there. That's okay, no worries.

Operator: Your answer to that is valid as well. Okay, I'll jump back to you, thanks. Thanks. As a reminder, if you'd like to ask a question, please press the star followed by the number on your screen. To cancel this request, please press the star.

Operator: Thank you ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. We thank you for participating and you may now dismiss. © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon © transcript Emily Beynon, © transcript Emily Beynon

Stephen Hardy Sheldon: Our next question comes from the line of Stephen Sheldon from William Blair. Please go ahead with your question. Hey, thanks for taking my questions and giving really nice results here once again. I wanted to start with something that I've been getting asked about a lot more for investment. I think, I'm sure you guys have to, but what does the opportunity look like to take your career learning solution into local school districts? I think you've piloted some programs like that before where students take their core classes in person locally, and then take their electives online and your career learning program. Do you think there's a larger opportunity to pursue in the next few years, and what could that mean? Yeah, so I think the short answer is, is it a larger opportunity? Yes, but I think part of the, Part of the issue is going to be just the way that

James Jeaho Rhyu: Districts across the country will embrace change. Our strategy, I think, does present an opportunity to get into those districts with our career learning program. We will do it in a multi-pronged way, meaning one is we will offer them literally the same program that we give our virtual students, which I think can be compelling for some districts. We'll also take a little bit of a platform strategy and offer a sort of a little bit of a light solution, if you will, through our TALA platform that will allow districts to do a little bit more self-serve. It'll be a little bit more teacher light.

James Jeaho Rhyu: It'll be less sort of instructor-led, et cetera, but it will still offer them what we think will be a best-in-class platform solution for career learning at the high school level. Um, so that is, I mean, we're probably in the beta phase of that upgrade to our platform. I don't think, just given the selling cycle, you'll see much traction this coming fall, just because the selling season for districts is sort of going to get behind us pretty, pretty quickly. But I would expect us to be able to offer it a little bit more robustly in the following fall, uh, from a platform perspective. But I think the short answer to your original question is, yeah, it does offer us a good longer-term opportunity. I just don't think we're going to see it in the next 12 months. God, it makes a lot of sense.

Unnamed: Then just quickly on career learning, the revenue per enrollment. Apologies if I missed this, but what that made me lower, the mix of students by state, anything else to call out there in terms of that contracting a bit year over year? I know that the comp there was also pretty difficult.

Unnamed: And then Donna, I think you reaffirmed expectations for revenue per student or enrollment to be four to six percent, consistent with what you talked about last quarter. Are trends there kind of coming in as you would have expected so far this year? And so I'll answer part of the second question first.

James Jeaho Rhyu: Yes, we expect our revenue per enrollment for Gen Ed and Career to be up four to six percent. Will you see a decline in the Careers business this quarter? Yes, partly due to MIX.

James Jeaho Rhyu: As you know, overall, our revenue per enrollment with Gen Ed and Career combined was up over five percent. You may recall that last year at this quarter, we talked about some of the upside that we saw in the revenue per enrollment for Career was due to timing. So this is just the offset of that that makes for a tougher comparison.

Unnamed: Got it. Yeah, it makes sense. And then just the last one.

James Jeaho Rhyu: Maybe just, when do you think you'd start building a separate marketing funnel for the career learning programs? I know this isn't something you've done historically, but you've talked about it more as an opportunity. Has that started yet, and if not, when could that become a bigger initiative? Yeah, I'll say in some respects, we've had fits and starts with it already.

James Jeaho Rhyu: I think that this is an area where, unfortunately, we have not executed well; I'd actually say we've executed poorly. I do think it's an opportunity, and I think we will make some investments this coming fall season in incremental enrollments around career. It remains to be seen if we can be successful, but we definitely think it's a very significant opportunity. We definitely believe that... Part of our issue has been around execution, and we will definitely make some investments in that direction this fall. I got it.

Stephen Hardy Sheldon: Well, thanks again for your time and congratulations on the results. As a final reminder, if you'd like to ask a question today, please press the star followed by the 1 on your screen. Our next question comes from Alex Parris from Barrington Research; please go over the question. Hi everyone, thanks for taking my questions. Also, add my congratulations on the beat and raise for the quarter.

I just had a couple of questions. First of all, I wanted to ask about the press release that you put out last week regarding MedCerts. Looked like you did a big new contract with Virginia State University. Can you expand on that a little bit? And then just talk about the MedCerts business, overall, what sort of growth rates are we experiencing, you know, without, I know you don't give granular detail on it, but orders of magnitude, perhaps. Yeah, I mean, so when we bought the MedCerts asset, whatever, three years ago, it was a predominantly B2C business, and it still is, by the way, today, predominantly a B2C I think what we see is that the B2C part of the business continues to be very attractive, and continues, I think, to have a lot of opportunity to grow, but I think the B2B side of it is, in some ways, it's just going to have more legs.

It's, I think, a bigger market opportunity. Actually, I think there are better, easier clients in a lot of respects to manage on a B2B basis. And so we think that the B2B side is going to be, in the long term, larger than the B2C side of the business. I think that means we could double the business over the next several years just by growing the B2B side of the business. I think that would imply some double-digit growth rate, long-term growth rate, for that business.

James Jeaho Rhyu: You know, even at that rate, it's not going to be a major contributor to the overall company anytime soon, but we are very bullish about our opportunities in that space. And is the Virginia State contract the biggest or the first in this B2B effort? Not the biggest nor the first. I think it's a university. I think it was the University of New England or some other university, but not the biggest nor the first.

James Jeaho Rhyu: I think, you know, we don't have dozens yet, but, you know, I think we're making a lot of good progress with a lot of good conversations. So I think, you know, we have a lot of good traction, a lot of good early traction. Great, it's good to hear. And then the other and related question is about tutoring.

Unnamed: You know, you talked about it in your prepared comments a little bit, James, you said in the past that among your new products, this is one of the ones that you're most excited about. It addresses learning losses. It has AI components as well.

James Jeaho Rhyu: Anything to report there in terms of wins and going to market? Yeah, I mean, I think one is, we've had a couple of nice wins, you can go, there's a public sort of announcement or press release, there's a district called Pulaski, I think it's in Virginia. And we didn't, I don't even know that, I didn't know that they were gonna do this. Maybe somebody in my organization did it, but they released it. There's like a YouTube video or something out there about it.

James Jeaho Rhyu: There's a press release. They made a big deal about how our platform helped, and you know you can't help but those kind of testimonials, particularly when we didn't even know we were asking, um, unprompted by us, you know, I think bodes well for the long-term prospects of that business. Got you. So just to be clear, you're in the market for this product, right? Yes, we are in the market with this product. We're also, we think for next year, we're going to have a pretty good upgrade to the product, which is going to embed more AI elements into it. But yes, we're in the market today.

Great. Thank you. That'll do for now. Thank you ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. We thank you for participating and you may now... ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Chien, Jeffrey Silber, Corey Greendale, Nathaniel Davis, James Rhyu, Steven Sheldon, Harsh Patel Chien, Jeffrey Silber, Corey Greendale, Nathaniel Davis, Stephen Sheldon, Harsh Patel Chien, Jeffrey Silber, Corey Greendale, Nathaniel Davis, Stephen Sheldon, Harsh Patel Chien, Jeffrey Silber, Corey Greendale, Nathaniel Davis, Stephen Sheldon, Harsh Patel Chien, Jeffrey Silber, Corey Greendale, Nathaniel Davis, Stephen Sheldon, Harsh Patel Chien, Jeffrey Silber, Corey Greendale, Nathaniel Davis, Stephen Sheldon, Harsh Patel, ?Outro Music?

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