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Stride, Inc. (LRN) Q4 2023 Earnings Call Transcript

Stride, Inc. (LRN)

Q4 2023 Earnings Conference Call

Company Participants

Timothy Casey - VP of IR

James Rhyu - CEO

Donna Blackman - CFO

Conference Call Participants

Jeff Silber - BMO Capital Markets

Greg Parrish - Morgan Stanley

Stephen Sheldon - William Blair

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Stride, Inc. Fourth Quarter Fiscal 2023 Earnings Call. [Operator Instructions]

Tim Casey, Vice President of Investor Relations, you may begin your conference.

Timothy Casey

Thank you, and good afternoon. Welcome to Stride's fourth quarter earnings call for fiscal year 2023. With me on today's call are James Rhyu, Chief Executive Officer; and Donna Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the Stride Investor Relations website.

Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website. In addition to historical information, this 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 as described in the company's latest SEC filings. These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them, and 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?

James Rhyu

Thanks, Tim, and good afternoon, everyone. The past few years have brought change and disruption to how people live, work, entertain and learn, among other things. There is no doubt to me, however, as these challenges and opportunities present themselves, core primary education will remain key to our society.

The latest disruption seems to be generative AI and how it will change every aspect of our lives and all facets of the economy, including education. But we must also recognize that change is a constant and I believe the best organizations embrace change. I believe that this iteration of change will have a massive impact on our industry. First and foremost, I think we need to appreciate that K-12 education as we know it today will not be going away anytime soon. In fact, I think AI has the ability to transform K-12 education in a very positive way that will enable our students to accelerate and personalize their learning in ways we have dreamed about but not really achieved previously.

For example, when we consider the training and education required to become a computer engineer, well, maybe we should be teaching some of those skills in high school but not in terms of computer programming, but instead in terms of navigating the functional output of the code that AI will provide for them. Since Stride was founded over 20 years ago, it has been at the forefront of personalized learning for students. And AI has the ability to personalize student feedback, assessments and content at the individual level like nothing before.

AI-powered content can provide customized lessons to students based on their learning style and free up teachers to spend more time with students and less time on administrative tasks. And giving teachers more time to actually teach will allow them to spend individual time with students and provide a human connection. The relationships that teachers build with students are incredibly important for student outcomes, and AI-powered learning will allow those to flourish. Ultimately, I believe that giving teachers an incredible AI toolkit will be beneficial for both students and teachers.

So how does Stride fit into the developing AI landscape? For starters, we are embracing AI, both for internal efficiency gains as well as for external customer-facing products. We don't have any announcements to make today. The landscape of AI is quickly evolving, and we want to be sure to take a measured and long-term approach and not just hop on the bandwagon for headlines' sake. We will provide a more in-depth view on how we are approaching AI at an upcoming Investor Day.

We do need to recognize a couple of things in our approach. First is that students and teachers will be adopting generative AI regardless of what the establishment stance is. Recent surveys already confirm this. Our job will be to ensure that we provide interactive learning experiences that build up the durable skills students will need to adapt to the evolving demands of the marketplace. Ensuring we prepare students with the skills they can take with them through their entire careers is incredibly important.

We've already been applying AI internally to supplement many of the ongoing efficiency efforts we've talked about before. We believe we can continue to increase productivity and automate many of the routine administrative tasks for both teachers and corporate employees. We will also continue to improve the user experience with AI-powered chatbots while removing friction in our admission and enrollment funnel. It should also allow us to generate content from assessments to practice materials to full courses much faster than previously.

We will begin to roll out additional personalized learning tools to further strengthen student outcomes. We can use AI-powered programs to track progress and intervene earlier when a student is struggling. This will allow us to provide personalized learning at greater scale and real time, resulting in stronger student outcomes. Teachers will remain core to our offerings. While AI is good at following instructions and completing tasks, you need teachers to foster creativity and develop critical thinking skills. Teachers can encourage students to explore new ideas, solve problems, use data, create models and provide mentorship in ways AI cannot.

Now I also want to talk about our improved operations and execution from this year and the results that demonstrate the success we've had. It was a record year for us on a number of fronts. We had record revenue, adjusted operating income and adjusted EBITDA. We topped $700 million in Career Learning revenue, including more than $100 million in our adult learning business, both records. We had our best in-year retention ever. We saw more demand in-year than ever before, finishing the year with more enrollments than we started with for the first time in our over 20-year history.

Our earnings per share was also a record at almost $3 per share. While we really talk about EPS, we trade at a P/E ratio in the low teens. For a company that is growing near double digits for multiple years, has a very attractive future growth profile and TAM, we believe that is a fairly low multiple and represents a great value. These results reinforce our belief that families view us as an option when they feel like their current school's not delivering what they need. And increasingly, families now recognize that they have a choice when it comes to their child's education and they are choosing us. And when families come to us, they remain incredibly satisfied. I've mentioned our Net Promoter Score previously. And this year, we achieved a Net Promoter Score of 68 for our schools. Of all of our achievements, our Net Promoter Score might be the one I'm most impressed with. It shows that our efforts are translating to a more satisfied customer. And all of these metrics indicate we are delivering for our customers, and they have led to improving in-year retention, which is at its highest level ever.

We also won some incredible awards for our business and content this year. We won the EdTech Breakthrough Award for Online Education Solutions Provider of the Year. We captured a bronze Stevie Award from the American Business Awards for our Minecraft Worlds! education product and a gold Stevie for MedCerts' human anatomy course. We were also shortlisted for EdTech Company of the Year by Global Business Tech Awards. And the list goes on. On top of all the accolades we receive, we continue to launch innovative partnerships and programs across our schools. ...

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