Good day and thank you for standing by. Welcome to the Stride Inc Fourth Quarter Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Timothy Casey. Please go ahead.

Thank you, and good afternoon. Welcome to Stride's fourth quarter earnings call for fiscal year 2021. With me on today's call are James Rhyu, Chief Executive Officer and Tim Medina, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a slide presentation that can be found on the investor relations website. Please be advised that this call may include certain non-GAAP financial measures during the discussion of our financial results. A reconciliation of these measures is provided in the earnings release issued this afternoon, which is also posted in the investors section of our website. In addition to historical information, today's 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 described in the company's latest SEC filings. The company assumes no obligation to update any forward looking statements made during this call. Following our prepared remarks, we will answer any questions you may have. I will now turn the call over to James. James?

Thank you and good afternoon. We all appreciate what a difficult year this has been. Even in the face of this incredible adversity, Stride has been able to thrive. We've only been able to do so because of the commitment of our thousands of team members. These folks have been dedicated to our customers and the families that need an alternative approach to education, now more than ever before. So I want to start by saying thank you to all of our dedicated staff. This is also a year in which the country and the world took notice of online and distance learning in a mainstream way, but the experience is not always positive. Across the country, many schools struggled with uncertainty and inconsistency for students and families, as a vacillated between online and in person instruction. Thankfully, our 20 years of experience was able to build a seamless experience for our customers. Our teachers, platforms, content and curriculum are all developed to meet this need. [Technical Difficulty] many have not embraced it. Others realize its potential if done the right way. We stand alone, having served millions of students in our online bundle. And while many schools struggled with learning loss and deteriorating test scores, our result outpaced them, in the phase of on-boarding a record number of families for our programs. I will get to how we are turning to this for in a minute. First, I am going to review some of our fiscal 2021 accomplished. By almost any measure, we had a record year, by a long-shot. We helped over a quarter of a million full time learners and millions of other users became interested in our programs. Learning loss became the norm, except in the schools we matched. No wonder the national data showed an…

Thank you, James and good afternoon, everyone. First, let me recap our reported results. Revenue for the full fiscal year 2021 was $1.54 billion, an increase of 48% over the prior fiscal year. Adjusted operating income was 161.4 million, up 160% compared to the prior year. Capital expenditures were 52.3 million, an increase of 7.3 million over last year. In each case, these results met or beat the expectations we provided in our guidance last quarter. The outperformance was primarily driven by favorable revenue for enrollment and retention. Looking ahead to fiscal 2022, it is still too early to confidently forecast our current [ph] date enrollments, for the reasons James just outline. Given where we are in the process, there remains variability around two key factors; firstly, ongoing re-registration and new enrollments and, secondly, the retention of these enrollments once school starts and through the month of September. Now here's what I can say today about fiscal year 2022. We expect to grow adjusted operating income and adjusted EBITDA year-over-year compared to our strong fiscal year 2021 results. And that is thanks to expectation of continued strong revenue growth and career learning, margin improvements and higher operating leverage. Furthermore, we believe that the increased awareness and acceptance of online and hybrid education accelerated by the COVID-19 pandemic has sustainably reset the baseline for the general education business. Therefore, we are confident that general education revenue in fiscal year 2022 will be significantly larger than it was in fiscal year 2020. As we have done in the past, we will refrain from providing guidance until we report our first quarter fiscal 2022 results in October. By that time, we will have much greater visibility into enrollments for the new school year. Returning to our results for fiscal year 2021, revenue from…

[Operator Instructions] First question comes from the line of Jeff Goldstein of Morgan Stanley.

Hey, guys, good evening. So I know in your prepared remarks, you mentioned re-registrations are performing very well. So I have to ask, are you able to put some numbers either around that or other figures that could help us better understand the trajectory of enrollments to this point; or, if not, I guess, broadly speaking, are enrollments coming in above your expectations at this point? And then when you mentioned enrollments are doing well where Delta has surged, would you characterize that as making up a majority of your enrollment base? Just trying to think overall, like additional color that you have around either enrollment trends and how Delta is affecting that really.

Hey. It is James. As we said, we're not providing any guidance right now, so really can't give you a lot more color than what we've given you. The enrollment trends, re-registration trends are very strong, we're seeing more than we've ever seen. We're not disclosing sort of new percentages. The Delta there, you can see a lot of the states that have spikes [Technical Difficulty] in places like Texas, we just see sort of unprecedented demand, very similar to what we saw last year. So we see that spike happening now. We think that a lot of people are going to have ongoing concerns about safety and we think it bodes well for the long-term prospects for business, but we're not going to provide more color right now.

Okay. No problem. I thought I would ask. And then I know a bigger focus for you recently is trying to sell more digital services on an ad hoc basis for districts that may not need a fully managed program. So I'm just curious for any update on progress there and what type of demand you're hearing from districts for those services as we enter another year of that likely as some virtual options.

Yeah, it was really good. Last year, that sort of district business, if you will, almost doubled and so we saw a lot of good business there. We continue to see a lot of interest in our pipelines. I think, at this stage in the year, our pipeline for that business is actually stronger than it's ever been. We also have states like California that are sort of mandating district sort of get ready to do some legislation there that sort of helps us and helps providers like us. And frankly, I think that that trend means that the sort of district demand trend, that's one irrespective of the pandemics is unlikely to go away because who knows what the future holds, and I think districts can't be caught flat footed going forward. And most districts just don't have the resources or skill to stand up and down programs like ours easily. And frankly, I think that they need to concentrate on the programs that they've got going. So, I think in many cases, it just makes more sense for them to outsource to somebody like us.

Alright. Thanks a lot. I appreciate the color.

Next question comes from the line of Jeff Silber of BMO Capital.

Thanks so much. Again, I appreciate that you're not providing guidance for the current year, but you did give us some indication in terms of where you expect both adjusted operating income and adjusted EBITDA to go. Can we get a little bit more color of what's driving that in our specific segments, specific leverage, anything you can help us out on would be great?

I think the biggest thing is what we sort of laid out in our Investor Day presentation, which is we think gross margins are going to improve, we think that drives great leverage in our business. And, obviously, we'll keep a line on the SG&A expenses. We're pretty confident that we can continue to grow our bottom line, irrespective of what happens here for the rest of the season.

Okay, fair enough. You had also talked about expectations for revenue per student in your general education business to grow in the current fiscal year. I think you said budgets that you've been tracking so far. I know a lot of the federal stimulus money is not directly allocated to you, but are you seeing benefits or do you expect benefits from that? And if so, will that continue beyond fiscal 2022?

Yeah, the good news and the bad news is, is that we really were not seeing much of a benefit for us. I think those dollars are, as you said, they're not really directed towards us, either directly or indirectly. We could provide some limited service, I think, in some instances, where districts may choose to allocate some of those dollars for some things that we can help them with. But we're not really seeing a big bump in that. We don't expect to see it. But the other side of that is that it's also nothing that's going to go away in future years. So, having that one-time bump for us, I don't think it's going to - would have been that meaningful anyway and we're really just focused on helping the districts that we can in any way we can, and we're not just focused on those dollars.

Okay, that's great to hear. Thanks so much.

Thank you.

Next question comes from the line of Alex Paris of Barrington Research.

Thanks for taking my questions. No one asked you any more regarding the fall but I'm glad to see that early leading indicators are positive. I wanted to say it was down this year. I noticed though, at least from the press release, it looked like it was down more [Technical Difficulty] than the general education side. What's going on there?

[indiscernible] a little more. I think it is predominantly a function of mix. A lot of our career learning programs or we have a lot of larger programs, they just happen to be in states that have slightly below average of [indiscernible] levels. I won't read too much into it, frankly, and I think that over the next several years, it'll normalize back, probably more [Technical Difficulty].

Okay, fair enough. And then specifically, during fiscal '21, California's approach to funding impacted revenue per enrollment for the full year. For example, as I recall, they did not fund incremental students, yet you served them anyway. Has California finishing the budget and what are their plans for the coming year? And how do you expect your California schools to be funded?

We do expect our enrollments to be fully funded from California in fiscal 2022 Alex.

Okay, great, and then that'll contribute to an increase in '21 [ph]?

That's correct.

Just a follow up on a prior question and comment, federal stimulus, it's not aimed at you but the school districts benefit, so would you expect a benefit to LRN in your learning solutions business as a result?

Yet I don't think we're seeing a material benefit. Of course, there could be some and - but just in the overall context of our business, they're not dollars that we will specifically chase, if you will. What we're doing is we're trying to provide programs for as many districts need that stood up either for the fall or even in an emergency situation. And we sort of leave it to the district to decide how they funded whether it's from its own [ph] dollars, federal dollars, or any other pools of money that they have. That's really, that's really up to them, and we really leave it up to them. So we don't want to get too much into how they allocate their dollars. That's the job of the districts.

Okay, fair enough. And I guess the last one I'll ask you is that I think I know the answer to this. I don't think you have any new states planned for the coming year. I appreciate the fact that you're going to open up for new Stride career preps, and you're going to expand eight, but what about new states in general?

No new states anticipated for fiscal year 2022 at this point.

Okay, that's what I thought. Thank you very much.

Thanks, Alex.

[Operator Instructions] Next question comes from the line of Stephen Sheldon of William Blair.

Hi. Thanks for the question. So it seems like the gross margin improvement is trending a bit ahead of schedule here. I just wanted to ask if you have any update on the efficiencies and the efficiency of improvements that you were - that you had in progress, such as the automation of the enrollment process that we - that you all had spoken about previously?

Sure. Well, this is the first enrollment season where a parent can on a full interaction with a human on our side, enroll their students. So that's a big plus for us [Technical Difficulty] outstanding customer satisfaction. Now, many, most [Technical Difficulty] interaction and they have some questions, etc. But that capability has been turned up entirely, Stephen, as a big example.

Okay, thank you. And then another quick one. So it seems like for the most part trends were positive in career learning with the obvious exception of Galvanize. Just curious if you could expand a little bit on what's going on there, what kind of headwinds are you seeing?

Yeah, I mean, if you may remember, the Galvanize business is really sort of three pieces. There was a direct-to-consumer piece, there's an enterprise piece, and there was a non-workforce piece around what they call a community business, a like a WeWork type of real estate business. And I think, obviously, in the past year, since the pandemic hit [Technical Difficulty] just crumbled underneath us. And so we closed the acquisition early in the first calendar quarter of last year, and then the pandemic hit sort of late in that calendar quarter. And so virtually this entire year, we were hit - our fiscal '21, we had a very, very weak community business. In addition, the pipeline in the enterprise business did not materialize in the way that we thought it would and so the enterprise business also underperformed. The consumer - they have a great consumer product, and I think that consumer product is going to continue to thrive. They place their students in a lot of the preeminent technology companies across the country. And so I think that trend is going to continue and we're going to double down on consumer business and cut out the costs from those other businesses and turn this thing around this year. And so, while it may be smaller, overall, than what we had originally expected, I still think we can put it onto a path to create a lot of value for us.

Okay. Make sense. Thank you for the questions.

Thank you.

There are no further questions at this time. Presenters, you may continue.

Great. Thanks for the call today everybody and we'll see you in October with guidance.

This concludes today's conference call. Thank you for participating. You may now disconnect.