Stride, Inc. Q1 FY2025 earnings call

• K-12 marks its 25th anniversary, having served over 3 million families and students in 25 years, with a focus on providing customer choice in education. - The company reported record enrollments for Q1, an 18.5% year-over-year growth. - Revenue for Q1 was $551.1 million, up 15% from Q1 FY 2024. Adjusted operating income was $58.4 million, up 295% from last year. Diluted earnings per share were $0.94, up $0.83 from last year. - Gross margin was 39.2%, up 320 basis points from last year. - For the full year, expected gross margins to improve by 100 to 200 basis points compared to FY 2024. SG&A expenses totaled $168.5 million, in line with last year but expecting a slight increase for the full year. Stock-based compensation for the quarter was $8.4 million, with full year expected to be in the range of $34 million to $39 million. Adjusted EBITDA was $83.9 million, up 111%. Free cash flow was negative $156.8 million compared to negative $151.5 million in the prior year period.

In Q1 FY 2025, Stride's revenue was $551.1 million, up 15% from Q1 FY 2024. Adjusted operating income was $58.4 million, an increase of $43.6 million or 295% from last year. Diluted earnings per share were $0.94, up $0.83 from last year. Capital expenditures in the quarter were $14.8 million, down $1.3 million from last year. Career Learning middle and high school revenue for the quarter was $198.9 million, up more than 30% from last year, with enrollments growing 30.4% to 91,700. General Education revenue grew 10% to $329.4 million on enrollment growth of 11.3% to 130,900 students. Adult Learning revenue for the quarter was $22.8 million, down from last year, impacted by the slowdown in software development products. Gross margin for the quarter was 39.2%, up 320 basis points from last year.

• Second quarter of fiscal year 2025: Forecasting revenue in the range of $560 million to $580 million, adjusted operating income between $115 million and $125 million, and capital expenditures between $13 million and $15 million. - Full year FY 2025: Expecting revenue in the range of $2.225 billion to $2.3 billion, adjusted operating income between $395 million and $425 million, capital expenditures between $60 million and $65 million, and an effective tax rate between 24% and 26%.

• Loss of ESSER funding is a headwind to revenue per enrollment this year, but positive funding environment offsets some; expect revenue per enrollment to finish flattish to down slightly. - Political and regulatory uncertainty related to education choice could impact the business.

Q: Jason Tilchen asks about drivers of strong demand, use cases, states, marketing spend A: James Rhyu says demand is broad-based, driven by organic word-of-mouth, not significantly impacted by marketing spend changes.

Q: Jeff Silber asks about ESSER funding impact on revenue and profit, schools at risk A: James Rhyu says ESSER impact on revenue last year was less than 3%, immaterial to profit. No significant schools lost, set up well for future demand.

Q: Gregory Parrish asks about enrollment drivers, margin impact, non-profit schools A: James Rhyu says demand is the main driver. Donna Blackman talks about gross margin improvement due to leverage, SG&A discipline. James Rhyu respects clients' decisions regarding non-profit schools, no providence over them.

Q: Alex Paris asks about guidance, Career Learning programs, ESSER funds A: Donna Blackman says guidance doesn't factor new states but includes cap increases. James Rhyu says no additional Career Learning programs this fiscal year, may open some next year. James Rhyu says hard to comment on ESSER funds distribution to clients.

Q: Tom Singlehurst asks about second order impact of ESSER, intra-year enrollment growth A: James Rhyu says no material impact on business from ESSER second order. Continues to see strong demand, but guidance not based on in-year growth trend yet.

Q: Pat McIlwee asks about Career Learning growth, state expansion A: James Rhyu says Career Learning growth linked to grade level demand. State expansion is multiyear, efforts underway but no new states in FY 2025.