Stride(LRN) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the second quarter was $631.3 million, an increase of nearly 8% from the second quarter of fiscal year 2025 [10] - Adjusted operating income rose to $159 million, up $23.4 million or 17% year-over-year [10] - Adjusted EPS increased to $2.50, reflecting a 13% rise from the previous year [10] - Adjusted EBITDA reached $188.1 million, up 17% [10] - Gross margin for the quarter was 41.1%, up 30 basis points from last year [12] - Free cash flow was $75.9 million, down from $208.6 million last year due to timing issues with payments [13] Business Line Data and Key Metrics Changes - Total enrollments for the second quarter were 248.5 thousand, up 7.8% year-over-year [11] - Revenue from Career Learning programs grew 29% to $275.6 million, driven by a 17.6% increase in enrollment [11] - General Education revenue declined 3.6% to $341.4 million, with average enrollments slightly up but revenue per enrollment down 3.6% [11] Market Data and Key Metrics Changes - The company noted a generally positive state funding environment, although some impacts from state and program mix are anticipated [11] - The company expects to finish the year flattish compared to last year due to these factors [11] Company Strategy and Development Direction - The company is focusing on stabilizing its platforms and enhancing customer experience, with a goal of maintaining control over user experience through proprietary solutions [4][6] - The strategy includes investing in new platforms to replace outdated systems while ensuring a degree of control over operations [6] - The company aims for stability rather than aggressive growth this year, prioritizing long-term success over short-term gains [5][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that primary issues from the previous fall are resolved, as evidenced by reduced customer support calls and improved social media sentiment [7][8] - The company is optimistic about returning to expected growth patterns next year based on current demand trends and customer experience [8] - Management reaffirmed full-year revenue guidance of $2.480-$2.555 billion, with adjusted operating income expected between $485-$505 million [14][16] Other Important Information - The board authorized a share repurchase of up to $500 million, with $88.6 million already purchased in the second quarter [13][14] - Capital expenditures for the year are expected to be between $70-$80 million, unchanged from prior guidance [16] Q&A Session Summary Question: Clarification on enrollment and attrition trends - Management confirmed that withdrawal rates have returned to historical norms, indicating stabilization in attrition [20] Question: Demand characterization - Demand remains strong, with application volumes similar to last year, despite less aggressive marketing efforts [22] Question: School and program relations post-issues - Partners expressed frustration but also faith in the company's ability to resolve issues, indicating a shared mission [25] Question: Enrollment growth potential in the third quarter - Management is taking a cautious approach to growth, prioritizing long-term stability over immediate enrollment increases [30] Question: Revenue per enrollment analysis - Variations in revenue per enrollment are attributed to state and program mix, with a focus on combined revenue metrics [36] Question: Gross margin adjustments - A long-term lease exit positively impacted gross margins by approximately 200 basis points [40]