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% growth 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 of payments [14] 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 compared to last year [11] - Average enrollments were slightly up to 137,000, but revenue per enrollment decreased by 3.6% due to mix [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 focused on stabilizing its platforms and enhancing customer experience, with plans to build proprietary solutions to maintain control over user experience [4][7] - The strategy includes a cautious approach to growth, prioritizing stability over aggressive enrollment increases [5][30] - The company aims to balance investments in organic growth and potential M&A transactions with share repurchases [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the primary issues from the previous fall are behind them, with significant improvements in customer support call volumes and social media sentiment [8] - The company believes it is well-positioned for a return to expected growth patterns next year based on current trends in demand 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 [15][17] Other Important Information - Capital expenditures for the quarter were $16 million, with full-year expectations unchanged at $70-$80 million [15] - The board authorized a share repurchase of up to $500 million, with $88.6 million already purchased in the second quarter [14][15] Q&A Session Summary Question: Clarification on withdrawal trends and enrollment - Management confirmed that withdrawal rates have returned to normal levels, which is positive news [20] Question: Demand characterization - Demand remains strong, with application volumes similar to last year, indicating robust organic demand [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 changes - Variations in revenue per enrollment are attributed to state and program mix, with a focus on combined revenue per enrollment for forecasting [38] Question: Gross margin adjustments - A long-term lease exit positively impacted gross margins, with a 200 basis point improvement noted [40]