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01/10 16:38
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong enrollment growth and increased revenue, yet issues with platform implementation led to higher withdrawals and no in-year enrollment growth. Positive cash reserves and adjusted EBITDA are offset by negative free cash flow and declining gross margins. The Q&A reveals management's vague responses on guidance and platform fixes. Given the company's market cap, these mixed signals suggest a neutral stock price movement in the short term.
Revenue $620.9 million, up 13% from the first quarter of last year. The increase was driven by strong demand for core offerings.
Adjusted Operating Income $81.1 million, an increase of almost $23 million or 39%. This was due to enrollment growth and improvements in operating margins.
Adjusted Earnings Per Share $1.52, up $0.43 or 39.4% from last year. This reflects profitability strength driven by enrollment growth and operating margin improvements.
Capital Expenditures $21.7 million, up $6.9 million from last year. This increase is attributed to investments in the business, including platform rollouts.
Total Enrollments Up 11.3% from last year, setting a record for the number of students served as families seek educational alternatives.
Career Learning Revenue $241.5 million, up more than 21% from last year. Career learning enrollments grew 20% to 110,000.
General Education Revenue $363.1 million, up over 10% from last year. Enrollment growth was 5.2% to 137,700 students.
Total Revenue Per Enrollment $2,388, up 3.7% from last year. This was supported by a positive funding environment, though state mix and timing had some impact.
Gross Margin 39%, down 20 basis points from last year. The decline was due to continued investments in the business and additional expenses related to platform rollouts.
Selling, General and Administrative Expenses (SG&A) $173.1 million, up 3% from last year. SG&A as a percent of revenue is expected to decrease compared to last year.
Stock-Based Compensation $10.2 million, an increase of $1.8 million from last year. The increase is largely due to the impact of a long-term performance grant.
Adjusted EBITDA $108.4 million, up roughly 29%. This was driven by enrollment growth and operating margin improvements.
Free Cash Flow Negative $217.5 million compared to negative $156.8 million in the prior year period. This reflects typical seasonality related to school launch and onboarding of students.
Cash, Cash Equivalents, and Marketable Securities $749.6 million at the end of the quarter.
ELA tutoring for second and third graders: Stride has rolled out free ELA tutoring for second and third graders to ensure foundational skills in reading, writing, and communication.
Enrollment growth: Total enrollments increased by 11.3% year-over-year, with Career Learning enrollments growing 20% to 110,000 and General Education enrollments growing 5.2% to 137,700 students.
Revenue growth: Revenue for the quarter was $620.9 million, up 13% from the previous year. Career Learning revenue grew over 21%, and General Education revenue grew over 10%.
Platform upgrades: Stride invested in upgrading its learning and technology platforms with third-party industry-leading systems, though the implementation faced challenges, leading to higher withdrawal rates and lower conversion rates.
Operational income and profitability: Adjusted operating income increased by 39% to $81.1 million, and adjusted EBITDA grew by 29% to $108.4 million.
Focus on quality over quantity: Stride limited enrollment growth in some areas to focus on running high-quality programs and improving execution.
Long-term investments: Investments in technology and systems are expected to support long-term growth despite short-term challenges.
Enrollment Growth: The company fell short of internal expectations for enrollment growth despite achieving a 10%-15% increase. Strategic decisions to upgrade technology platforms and focus on high-quality programs limited short-term growth, resulting in 10,000 to 15,000 fewer enrollments. This is expected to restrict in-year enrollment growth.
Technology Platform Implementation: The implementation of new learning and technology platforms did not go smoothly, leading to poor customer experiences, higher withdrawal rates, and lower conversion rates. Additional expenses are anticipated to address these challenges.
Gross Margin Impact: Gross margins are expected to decline compared to FY '25 due to ongoing investments in the business and additional expenses related to platform rollout challenges.
Revenue Per Enrollment: Revenue per enrollment is expected to remain flat compared to FY '25 due to state funding mix and timing issues.
Cash Flow: Free cash flow was negative $217.5 million for the quarter, following typical seasonality but higher than the prior year's negative $156.8 million.
Enrollment Growth: The company expects in-year enrollment growth to be muted compared to previous years due to challenges with platform implementation and a strategic focus on high-quality programs. However, long-term enrollment growth is expected to benefit from these investments.
Revenue Guidance: For the second quarter of 2026, revenue is expected to range between $620 million and $640 million. For the full fiscal year 2026, revenue is projected to be between $2.480 billion and $2.555 billion.
Adjusted Operating Income: For the second quarter of 2026, adjusted operating income is expected to range between $135 million and $145 million. For the full fiscal year 2026, adjusted operating income is projected to be between $475 million and $500 million.
Capital Expenditures: Capital expenditures for the second quarter of 2026 are expected to range between $15 million and $18 million. For the full fiscal year 2026, capital expenditures are projected to be between $70 million and $80 million.
Gross Margin: Full-year gross margins are expected to decline compared to FY 2025 but remain above FY 2024 levels.
Stock-Based Compensation: Full-year stock-based compensation is expected to range between $41 million and $44 million.
Effective Tax Rate: The effective tax rate for the full fiscal year 2026 is expected to range between 24% and 25%.
Long-Term Financial Goals: Despite short-term challenges, the company remains on track to achieve its FY 2028 financial goals.
The selected topic was not discussed during the call.
The earnings call highlights strong enrollment growth and increased revenue, yet issues with platform implementation led to higher withdrawals and no in-year enrollment growth. Positive cash reserves and adjusted EBITDA are offset by negative free cash flow and declining gross margins. The Q&A reveals management's vague responses on guidance and platform fixes. Given the company's market cap, these mixed signals suggest a neutral stock price movement in the short term.
The earnings call presents strong financial performance with impressive growth in adjusted operating income and revenues across segments. Despite some concerns in Adult Learning, the overall outlook is optimistic with strategic investments in tutoring and AI. The Q&A reveals no major risks, and the management's positive guidance, along with a well-maintained financial health, supports a positive sentiment. With a market cap of around $3 billion, the stock is likely to react positively, leading to a 2% to 8% increase in the stock price over the next two weeks.
The earnings call reveals strong financial performance with record enrollments and increased revenue, supported by a raised guidance. Despite some regulatory and enrollment constraints, the company shows growth in career learning and maintains a low dependency on federal funding. The Q&A session does highlight some uncertainties, but overall, the sentiment is positive. With a market cap of around $3 billion, the stock is likely to react positively, with a predicted movement of 2% to 8% over the next two weeks.
The company's financial performance is strong, with significant revenue and earnings growth, improved margins, and increased guidance. Despite some concerns about enrollment funnel challenges and adult learning revenue, overall sentiment is positive. The market cap suggests a moderate reaction, likely in the 2% to 8% range, supported by strong financial metrics and optimistic guidance.
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