LRN - Earnings call transcript Q2 2018

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Operator

Greetings and welcome to the K12 Second Quarter Fiscal 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. to VP conference of like host to now Kraft, Mike Finance. would turn over the your I Please go ahead.

Mike Kraft

XXXX. Thank you conference year earnings KXX’s second and good afternoon. call Welcome for to quarter fiscal

release remind Before Harbor you information, we comments this forward-looking be during call made would to statements begin, like made certain that considered contained Litigation addition the Act pursuant of earnings be to I Private in should statements cautionary in historical Securities Reform the may considered conference to filings in of periodic with provisions and conjunction SEC. the company's with Safe and our XXXX the

risks involve those statements or or results may differ and Forward-looking cause expressed actual statements. performance uncertainties that such implied from materially by to

management's this as the to forward-looking In addition, this call. conference live publicly any call undertake reflects analysis day update of best contains any of statements. does that time-sensitive not KXX revise obligation or only information

concerning performance XXXX website including can section affect cautionary on uncertainties on information the found SEC, made that without further please and XX-K. These our reports Form Relations with Report be the materially at our KXX's in results, of to www.kXX.com. and statements Investor could risks filed For operating Annual limitation and filings financial refer

With for on Executive is being Stuart be call is and information on today's website. non-GAAP Udell, disclosing considered In the financial James Officer. or Principles most in information. call GAAP, and call included with reconciliation to is me results the Rhyu, to available financial XX open in addition is the is information will Generally posted and was public A Chief to this The also U.S., information closely days. certain we our release accordance in Accepted financial non-GAAP that our for Accounting comparable replay will Officer, GAAP Chief of earnings Financial discuss webcast. This

over the to to I’d Following remarks, questions you have. may turn any prepared now our answer call like Stuart. we will Stuart?

Stuart J. Udell

afternoon Good on joining call Mike. thanks and for us the today. Thanks

the performance as the lower was a managed guidance decline for adjusted results be with quarter public in managed largely result Both Revenue in of result in especially positive X.X% selling year-over-year not decrease institutional and provided. school with in a XX.X% line operating to Year-over-year during a are year-over-year as our execution income offset slightly million, adjusted revenue million, declined we Our of enrollment it increased operating public year-over-year. for X.X% the needed X.X% revenue and for schools of quarter the were $XX.X by of performance lower was Institutional sales as last decrease effective income business. solidly summer's revenues year-over-year being enrolment. our $XXX.X season.

in for We our outlook remain guidance are now year. through year quarter expectations third with and original suggests the our our halfway as the line

flow Our executing climate. and these performing and drive by and and all academic strategic best against school that With last to over consistent academic continues of priorities believe and partner regard outcomes, priorities increasing by focus of innovation, We best research our in of from cash set diversification. instruction, curriculum school in implementation. the our the team to executing school school areas in expectations driving the and two, revenue rooted a year growth areas initial student fidelity recession, laser framework focused excellence partners are across well assessment, on creates comprehensive on long-term such school outcomes, rollout academic year as This practices curriculum, practices framework will shareholder free we of on the high after value long-term. our of

XX XXX basis year-over-year. saw semester in We the by form six the through further of first passing school that solid drive and the partner XXX for long-term. driving over we year support will foundation In increased to that preliminary these improvement a for our the believe schools framework to helped fact grades course games rates points academic

I'm company student the semester. and that wide levels our In are the thanks to student streamlining excited improved second ramping boarding see the a of strong and including to fast retention effort share family and at to process beginning start beginning especially efforts terms the we of up on retention

levels. we Specifically retention student XXXX about to fiscal talked back improving

student to achieved even better. on fiscal we We XXXX in we and are help us believe a currently will trajectory retention which return potentially levels

the also these family growing several program Continued retention launched fingers year a the student retention. next keep of better this population. execution to sentiment on of and and first ultimately to throughout with programs enter pilot and programs pulse student's in our understand We're on us leveraging key student school student we've engagement to allow the may drivers year check

retention still long-term. lots there the do work over I'm improvements on While delivering and towards path of obviously student short to is the we're both in right confident

integrating hard and building at which highly are product more adaptive and curriculum solution teams This are the ultimately product offerings KXX curriculum practice adaptive year will allow students our work performance. into differentiate time school truly Stride's public will we that Our marketplace. engaging drive targeted in practice managed

language, focusing platform English are a of we're long-term. lastly areas the assessed and efforts consistency We math, the technology holistic and costs across And to on drive development continuing catalogue, to also arts over reduced upgrade overhead our on science. platforms strategy executing course subject

Thus towards seven offerings. enrollment expansion hard education working of bring presence total career doubled. has we market seven far new in our our academies nearly still added through technical diversifying XXXX to fiscal the XXXX five programs these In to are academies. We the

demand. modest are encouraged still we While enrollment by numbers absolute the are the early

career for we on the of school academies expanding are focusing quarter number destinations This next year.

one prevention support premise early the today. academies from known Importantly most effective is seven the dropout of results in place that strategies CTE the

more academies are even one just of basis we solve students continuing also reason retaining career of students keenly CTE and program, take destinations will and who operating enrolled problems to basis. that at seeing rate our future the more gap the driving we're while be hundred attracting and retaining improved our points. on are talked America's focused free full rates. efficient in most also an of students course that cash flow about is one improved withdrawal process structured in helping is by on CTE our better an optimistic Management both in skills For investment improvements one market. job the business time one students several Furthermore around decisions capital

range. stock evidenced were our have declined quarter compensation and expenses year-over-year million about results As at outlays our this $X by bottom of excluding guidance based capital operating by the

fiscal continue process decisions over business and for to the components build for believe achieve further are from at actually Overall for buy our more be careful with more improve objectives operating us We versus And model to fiscal efficient midyear and to leverage and we delivering up financial development we long-term. operational a make perspective less. a product need will cash flows beyond. for XXXX to we set are we where XXXX right and

a Klein NYC Bob's the business. and passion NYC led for support Bob KXX Academy by hand New before school an your relevant groundbreaking importance systems a in Board here call Mayor who to same Now program Board attention Bloomberg. at of of Bob to along acumen principals become to I brings types soul empower joining mention helping training, a field Academy, sustainable the and of the that to the and Leadership made to the to nonprofit Bob and Michael bold and then we first, I over recruiting, our York his with to is leadership wealth of Chief independent of comprise in developing strong all two City Schools about Knowling want James the announcement efforts of us Chancellor wanted education implementation. things; Directors. all corporation Joel draw the of CEO of business heart the with students most innovative comprehensive, developed KXX. level the and and an Founding leaders, experience passion Officer believer to the him motivates created development approach financial Leadership the Through aspiring Executive I

We are Board Bob very KXX excited join to Knowling have of Directors. the

school ECOT help School learned the of another aware mid last In semester to its in look serve larger calls phone of year group XXth. and in a charter a as Board current only is reviewing students the impact has the Second, for the small will displaced authorizer largest fiscal as the this that they are next The closure ECOT represent To decision. of of working Insight school partner we note very Ohio our possible Ohio governing of January our year. in non-renewal on we be date we families year Ohio large with not of this who The that teachers of many serve families students for school evening enrollments we renewing financial State. and closed students Ohio ahead. portion you as and by in this partner wake On said forward are governing no the a board Ohio want to the formally many existing and received the in have thousands virtual school from have Insight year. alternatives will options to ECOT Ohio.

call will third strong. will the partners believe James. of net-net I offer your our as quite quarter over much James to quarter very virtual support. through Thanks the education well now and level forward services we considering guidance. for demand Going to results overall the ECOT second review Ohio hand we situation in for be as

James Rhyu

Thanks Stuart. Good afternoon everybody.

we results down of In school last student by expenditures prior million met was year, some year, a was guidance in XXX.X declines enrollments the results. want full case and with by exceeded year. January managed year last million X.X% X.X in driven XXX.X million that income revenue of to compared rest mix. increase moment. In programs guidance last of and last recap due declining expectations X.X institutional I'll in each more increased feel than of to the which Revenue million our were our declining provided X.X was the year. enrolment at quarter offset revenue quarter. lower positive our our Revenue a This the I for our seen year. per we public lower million signs from quickly these business capital have adjusted end X.X% from however well revenue guidance is for million First in enrolments which result XXX.X comfortable operating a the for in the to million bodes to the performance discuss X or Overall already XX.X

of first of Stuart as our standpoint proactive some the mentioned semester However, as result improvement the ramped the we see up in retention few past begin programs mix are an of the couple we third see January to over enrollment we've set of improving From we as second weeks in in quarter. a beginning years.

remained the stems quarter X.X% from We And enrolment will continue and to more levels first strong improve. a indexing push time interest activities weeks result bit programs the through the newer softer per largely January. is quarter. somewhat mix. decline enrolments the instead that invest student enrolment process and through of this working but per as revenue enrolment. in of mix enrollment of of below decreased average seen these believe we've school January December This into states Revenue the during in That was more continue over backlog retention to

and decline Additionally revenue fourth third per we quarter second enrolment in perspective seasonal a often the quarters. and see increase sequentially from

the revenue year largely of Non-managed declined quarter. revenue year-over-year We programs expectations includes enrolment XX.X% declining on basis. we which versus enrolment decreased institutional year-over-year outlined school revenues continue year software enrolments a on business and line declining full and which XX.X% as public services, last non-managed expect our to as revenue institutional public our a a X.X%. result last XX.X% both to per In flat be with well is basis as program per in

and experienced softer as we Some of outlined of sales of and XX.X% to the at our Stuart this a as results. last customers revenues which contributing the quarter's at larger season softness decline. enrollment services declined have mentioned beginning result software is Institutional

results clearly satisfied and are working turn to with We these around. not this

points and year. institutional are million Our bullish revenues the Gross to basis is versus margins basis were XX.X% poor. down flat due in of In execution in XXX XXXX the a the compared to margins prospects that million full XXX while administrative, revenues for largely points has anticipate last the year ago. other from pay we we year we XX Selling, sales we this our year. business mix last past revenues to ago basis quarter private remain over look period. which fiscal below last as On be a expenses business, about continue increased long-term to X.X on year for flat the highlighted been year to lower slightly were

million have compensation compensation. were testing expect decline our overall which full performance and quarter. driving Product operating long-term may potential compensation compensation still the quarter than was or However, lower some as million a controls strong performance result EBITDA year, of income or of development consistent based we in for X.X in is as a incremental across with of last XX.X XX.X year operating including lower operating XX was of based take lower X year, XX.X stock quarter judicious in $XX stock compared adjusted to continues approximately may down was to based stock based to we as was XX% to the X.X net now cost additional last million that XX.X last for was happen million of million Management was or indicated million expenses stock The last million million increase focused XX.X stock in on testing expenses as organization. EBITDA result income the X.X based second or XX% million declined business. occur. leverage operating well. compared We very increase X results being over give million Adjusted year. a based lower than year. largely last million that This CAPEX in the million the the about be X.X% investments quarter

second where some to line our to other equivalents would in and items, the we with see we throughout cash and Turning ended a trends expect curriculum million balance cash CAPEX XXX.X normal one quarter which million, increase and rest of infrastructure development was million and of X.X the seasonal the with last X.X compared of of year. quarter software the includes decrease year. to

meaningful so product We continue unit make lower are cost. to at doing investments but

increasing have So innovation we couple and investments while years lowered CAPEX past actually is the over our and continue. output will

Our quarter for of X.X% well influenced this tax be as year's for XXXX beneficial. our legislation. legislation new will and by the The on outlook the was largely rate tax the was result fiscal impact heavily as primary

you junior each. since As the former we federal tax struck aware KXX for to rate corporations XX%, up however, tax well rate operates on on a the and are new the was months end reduced of six rate

fiscal XXXX be for will the statutory XX%. So rate

rates to In that offset will pay overseas tax our the addition we deferred a also be taxes re-measuring by lower earnings. able off take benefit was somewhat this quarter at some on which liability will

or percent. rate for impact new a the very or should year's based a will a of and So excluding XX% a an And fiscal we year of basis benefit fall have year's minus around around in compensation, few percent. next plus as XX% year full we legislation tax on the we will preliminary to effective this stock to get look all plus minus likely rate next few

item know a we for this as guidance next would One in provide wanted Of to new course accounting year is just you more standard update October. like there to inspect. we on I more update revenue sure I'm we'll you recognition as

revenue KXX we this in standard. We For expect to implementing progress and our by this full on the year standard. adopt unaffected year. for We're largely will making accounting fiscal next evaluating new new good July beginning be

likely to dollars. we of a year, see of several the to will first of However, millions from few quarter tens likely shift rest the the some revenue

year this be. impacted going on fazing is wanted We be to full know at but I not that to the might will provide you throughout more year year next let the but guidance least

back Let revenue to operating million capital call Thank me X million guidance third for over and XXX in of to upcoming XX our the and in of quarter, to I XXX range XX million, million. the through the hand now will million range adjusted expenditures you Stuart. summarize income million, of the XX

Stuart J. Udell

and Thanks appreciate any that take might you questions have. that happy be we to James, would

Operator

[Operator Instructions].

Our question. Alex from your Parrish Please Barrington Research. first with comes from question proceed

Christopher Howe

for Alex Howe afternoon, is in Parrish. Chris Good this sitting

Stuart J. Udell

Hey Chris.

Christopher Howe

to going, first seeing this, question what last execution in far so improving a had resect in just to off strategy you update going I the to you're an regards mentioned had Hey, quarter, on the regards it's FuelEd, a forward? how

Stuart J. Udell

in sales might as institutional sales well an three you when cycle entry Sure, imagine of a you kind reasonably points the long are to are There it's cycles. year.

call can stuff implement new it semester You at can sell you the in school and year, are January, the there smaller second of opportunities. beginning summer school programs the

team, entry by new General on when sorry that back back reorganize the started May We've a have you weeks President Ryan We the up putting last revamping new of So new on in that team. help any in really we of few points or our Vice sales sales, announced Senior kind Sean recently from those as team Manager over Vice ground program. of business. in to say the President brought I the I'm to Marketing, came

would of I to think our So channels footings doing align very job but and products our markets getting we're and targeted opportunities. how say we're still I articulating good

So next do we by to school take what thing, into doing is yet expect going we really there year corrected that will the discipline doing have around the hold. but situation. that have We right certainly we're see

Christopher Howe

quarter one State? past board quarter follow-up very thank saw just and caps for so if which That's I any you helpful, caps, were you. this to and in safe what imposed in And have regards this lifted

Stuart J. Udell

have don't the managed to that throughout the of of sort -- listing We much capital we caps. year. levels don't I really No, year in

varieties. different be know you in complicated the all it's caps -- If that sense can of

level, at versus overall elementary level. grade some at are some high band school are school levels, are Some at

year, we're we changes. time. this demand announce general at as serve for to next major in where for is look see higher programs demand increasing but cost strong looking we can we no to always do so we We push into what think but So nothing our

Christopher Howe

much, now. you Thank so I'll in queue hop for the back

Stuart J. Udell

Chris. Thanks

Operator

Our question. next First your from Greendale question Please comes Analysis. with Corey proceed with

Corey Greendale

noise, of good a follow offline Ohio. airport Thank in can there's lot afternoon. don’t to background tell questions an on couple want up I'm a but I you, anyone, I so aggravate me,

how well serve and on a would all to a fully you students students you many the sense, they first So in you some you that that there you give primer can us of for limit of like ECOT, the them? in of on funding thought as number can terms just Ohio, is take take works you will how just so give are us midyear portion quick serving the funded be you can

Stuart J. Udell

the they're only Ohio You a part school bet. the hand Virtual students the I on or that -- in board to significant willing take we question the first challenging really of very stepped in pleased has that it's governing operator with on James. conversations based say then situation. forward State over take no and are State think the to State very the to there more Thanks in cast because Corey and the would I'll There funding say is Academy,

As you students in were might ECOT. there have press seen XX,XXX the at

we ten days in received I have thousands calls. so of As phone already mentioned or

are meaningful of call looking that students options. So a portion who for

of out may has there preview time teachers we the to frankly stepped brick player that us. Some but so reaching some were likely to mortar ECOT prepare and will schools, to back for was the time up. most go Since of had from the part it's closure virtual major to a go ECOT much been lots and we've and other some

on. staff been your support up to taking services. this quality and We've So of gets we've been anticipation question able ramp in of students able staff, teaching about

to the Virtual So be continue we deliver we'll from that for. perspective known a able great Academy to services is think Ohio quality

question funding James. will to that I your over Regarding turn

James Rhyu

we Yeah, funding model. hey funding, rata right in question the essentially Corey. pro -- a Obviously Ohio model the around the is funding

depends funding we for will engagement school get So the the we like and that. kids. will on It Ohio that attendance things get and manage

they just an and with that there's mid the because all up. that automatic so ramp at not we over that given funding often it's turmoil transferring up see a kids a stuff they're slightly might kids rate mid-year fund in ramping lower are coming the year So as

general for funding year answer the -- serve the So we the come that will is them. but half

Corey Greendale

-- you guidance? have former Very realize can give in fluid QX I helpful us those and contribution but included students the ECOT situation, your you any from

James Rhyu

the not we imagine fluid, with contemplate think range necessarily is came we -- in we're will has a I reality that guidance necessarily So, so can because weekend how big that been of the what as doesn't together past this many don't actually is us. this and could know weekend enroll calls putting yet you had QX happen as it

QX of actual it's impact or hard predict what be. for to very year So the balance would the

too it -- early So to it's really was bake in. just it

Corey Greendale

if of coming couple on and down, maybe also I its kind up is and flow tell I could seems James down, it you know the going expenses if for could is what Okay, moving cash free from flow -- around focused there? on one question just but the you us the part working just like are mentioned on cash capital you ops you

James Rhyu

Yeah, sure, on the up could pick good that. -- so quickly

capital has negative gotten So, us. working little bit on a say yes,

have behind gotten DSO's little on bit Our a us.

But, issue not payment I'd things we for timing, and some a large working of that say logistics. but DSO I which long-term just and work think not couple us. through structural of a are like funding, driven a those issue customers have to expect issue a We and through largely that

Corey Greendale

be? appreciate some you Okay, of impact will tax and what sense can tax rate I guidance of cash us the the on reform, the impact give flow

James Rhyu

some the and and a for that fairly is in over Yes, -- pages got tax directionally nuances should still the digest. things it's be we've next positive collection of in so sort the that effective depreciation benefits this movement both the year to of thousand other year nuanced month it it and past rates with like to

also I get this perspective positive this sort year. cash but flow a say And for SEC positive their from know for everybody arms may given think likely you to generically year. the really I'd of that for a So next around year

Corey Greendale

Thank Okay, I will turn it over. you.

Operator

Instructions]. [Operator

from Our Please next Capital BMO comes from your Markets. question question. Silber Jeff proceed with

Jeffrey Silber

so you much. Thank

about a Just a the than Ohio, student mix than average, your average revenue how that is of on Ohio your students, one question per impacts? perspective basis higher given more lower from influx

Stuart J. Udell

than whole just bit It of average capture like it but is than the although on said higher element a might I students average. is higher a little as average transition bit little statewide

Jeffrey Silber

Got year enter population, you this about growing if said hopefully mean you up could it, okay XX, continue Stuart it and June in that be I sure you'll potentially as mean exactly, said but what think you you and does next a you I school not explain that I'm prepared year-over-year, to could then remarks the if be XXXX was improve talking with when think we helpful? does retention were it'll that just of if it

Stuart J. Udell

to comp Yeah, over should versus I is we're will. QX if look essentially, upon what year-over-year -- to it think the students a school we you comp year-over-year try larger hoping see you at just year. that QX if gives for reregister if next us look at comps, hope of you to And the base to year-over-year the see we which expand

Jeffrey Silber

QX Got quarter population when the about are of talking enrollment? QX the and and say it end you you and

Stuart J. Udell

Correct.

Jeffrey Silber

market's a just while, you're gives you then I the shifting one, have this or leadership, that, the confidence know an thank institutional the it the that that wanted in follow Okay, I side. on to that don't you. new what you that if about issue bringing clarify just not up got you for has away execution, is for And from can it, one been be product, maybe right just talk you sales mean would you great?

Stuart J. Udell

the sure, considerably. lots first of first, think we've products. I'd augmented courseware that actually so what product we say set out historically built call have I had I all of We

year, is bag. and two have product We half the expand the Stride, which the LTS expand helps in Big We Universe brought did year acquisition a bag. a product or acquisition recently also last the in

lower offer priced bit. to the So it supplemental help allows bag some products to a us out round little

that product of While have about from terms we're bullish we else still certainly just in comprehensiveness, really believe class our what perspective breadth world aggregate we very one is no set have language programs. a

social TTE and course have all We core grades got K the of math, studies XX. through science, from English, programs, of

So when we are, a and bundles don't our coupled think with issue. just being possibilities as the about significant see product we what the service set

terms So leadership. really of generally speaking sales and in look of execution towards we leadership in terms

James Rhyu

also organization would that performance us the our one maybe indicators prime Jeff for sales outstanding I I is tell of in you had within one pockets. actually we of think that

us haven't it well. that got tried be sold, that things So And like sales can that tells worked that, products enough. just Insight we've done on and we consistently we've have experimentation that really

for that this pockets points the So we if can well have strong performance greater we actually to of bode do consistently at scale business. should it

Jeffrey Silber

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

Operator

reached I turn call the back and the question-and-answer would like end have for closing management remarks. to to gentlemen and session the we of Ladies

Stuart J. Udell

for Well from this attention I again to doing in look support want Take days care. to your forward and thank and questions. everyone XX We about now.

Operator

today's concludes This conference.

disconnect you participation. your this may lines at your time. for Thank You

Stride (LRN) 25 Jan 182018 Q2 Earnings call transcript