Stride, Inc.

Greetings and welcome to K-12 Fourth Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Mike Kraft, Head of Investor Relations. Thank you. You may begin.

Thank you and good afternoon. Welcome to K-12's fourth quarter and year-end earnings conference call for fiscal year 2020. Before we begin, I would like to remind you that in addition to historical information, certain comments made during this conference call may be considered forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. They should be considered in conjunction with cautionary statements contained in our earnings release and the company's periodic filings with the SEC. Forward-looking statements involve risks and uncertainties that may cause actual performance or results to differ materially from those expressed or implied by such statements. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the day of this live call. K-12 does not undertake any obligation to publicly update or revise any forward-looking statements. For further information concerning risks and uncertainties that could materially affect financial and operational performance and results, please refer to our reports filed with the SEC. These reports include, without limitation, cautionary statements made in K-12's 2020 annual report report on Form 10-K. These filings can be found on the investor relations section of our website at www.k12.com. In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information to the most closely comparable GAAP information was included in our earnings release, and it's also posted on our website. This call is open to the public and is being webcast. The call will be available for replay for 30 days. With me on today's call is Nate Davis, Chief Executive Officer and Chairman of the Board, and Tim Medina, Chief Financial Officer. Following our prepared remarks, we will answer any questions you may have. I'd like to now turn the call over to Nate. Nate?

Thank you, Mike. Good afternoon, everyone, and thanks for joining us on the call today. It's year-end, so my comments will be a little longer than normal, but I wanted to give you a complete picture of the year in review and the direction we're headed. First, on behalf of my entire team here at K-12, I'd like to begin by extending my thoughts and prayers to those of you who are suffering and have experienced loss because of the coronavirus pandemic. Throughout my talk today, I'll cover where our business has been hurt by the pandemic and also how it's drawn more customers to our technology and services. So let's get started. I'm pleased to report that K-12 ended fiscal year 2020 with a strong financial performance for both the quarter and the year. We met or beat our guidance across the board for revenue, adjusted operating income, and capital expenditures. As most of you know, we are now seeing increased interest in online school options across the nation. and we expect to see even stronger trends as we enter FY21. For our fiscal year 2020, revenue was $1,040,000,000. Keep in mind that those revenues were largely driven by enrollment trends before the pandemic hit. That's because due to state laws and policies by authorizers and local school boards, many K-12-powered schools were restricted from taking new enrollment late in the school year just as the pandemic hit the country. Therefore, the fiscal 20 impact on our revenues was very small. However, we do anticipate a more significant revenue growth in FY21, which I will discuss in a few moments. Turning to profitability, adjusted operating income for the year was $56.1 million. Excluding the impact of galvanized acquisition, adjusted operating income would have been $74.1 million, an increase of more than 19% year over year. It's worth noting that the 74.1 million would have beat our original guidance for the full year of 68 to 72 million. This shows the strength and predictability of our core business. Our adjusted operating income growth was driven both by revenue growth, as well as by ongoing focus on cost reduction and operating efficiency. I also want to note the capital expenditures for the year came in at a lower end of our guidance range, as we do every year, Our investments focus on improving the user experience, enhancing teacher tools, and strengthening student engagement. Some key investments include a new mobile learning management system for the kindergarten to fifth grade learners, an adaptive algorithm that gauges and adjusts the student's reading level and matches them to appropriate text, and new courses for our career pathway. Importantly, we also migrated most customer-facing applications to Amazon Web Services or AWS. This change in particular supports our efforts to scale our business in a more cost-effective way as we ramp up enrollment and expand our business in the coming year. And finally, we ended the year with a strong liquidity position. Our cash, cash equivalent, and restricted cash was $213.3 million a year in. Now this balance includes both the drawdown of $100 million of our revolving credit facilities, and the use of $165 million for the purchase of Galvanize. So we enter fiscal year 21 with our revenue and adjusted operating income increasing, the capacity across our business to support high enrollment growth, a career learning business reaching even more of the addressable market, and funding for a long-term growth initiative. As I noted a minute ago, our results underscore the strength of the core of our business, and the continued demand for blended and online learning options. More than 100,000 students in K-12 powered schools completed this school year on schedule with little interruptions. We saw over 8,000 new students graduate from high school this year, bringing the total number of students who graduated from a K-12 powered high school to more than 50,000. Importantly, we ended the year with student retention rates at our highest level ever. Over the past three years, we've improved student retention by 550 basis points. Now, to put that in perspective, improved retention equates to more than $100 million in revenue that would have been lost over this three-year period. It also had the effect of lowering marketing costs for enrollment. Our entire team is really proud of these numbers. But I have to tell you, our team also knows we have to continue to improve and we have to deliver great service. That's especially important the larger than ever number of new students coming into our program this coming year. The pandemic has driven more parents and families to explore online learning options, more school districts to use online learning, and more policymakers to understand the value of an online learning option in their state. Starting with consumers, a recent poll conducted by Morning Consult showed that 71% of parents felt that online education should be an ongoing option for students. even after the pandemic subsided. As for school districts, more and more of them now plan to use online learning as an alternative to in-person classes. One such school district is Miami-Dade County Public Schools, a district we've had a relationship for more than a decade. With Superintendent Carvalho and his staff guidance, K-12 will provide customized services, including curriculum, assessment tools, teacher training, and data management. This will ensure a strong start to the new year for both educators and Miami-Dade's more than 270,000 students that will serve. Teachers already employed by Miami-Dade will combine their great teaching with our technology and expertise to provide high-quality instruction in a safe environment. This allows Miami-Dade to retain both teacher jobs and the all-important existing student-teacher relationship. In alignment with their existing learning goals, Miami Dade public school teachers and administrators can also customize the online curriculum we're providing, including core subjects and hundreds of electives. This shows the flexibility of the K-12 technical platform. We're thrilled to support Superintendent Carvalho and the innovative solution he and his team have designed. This is just one example of how a large school district can rise to meet the unprecedented challenges school closures caused by the COVID-19 pandemic. We're working with other school districts on their own customized solutions for the fall as well. And we stand ready to support schools and school districts of any size during this critical time. This quarter, we also continue to make our products available for free on a trial basis. To date, more than 200,000 families, teachers, students, and schools have signed up for these programs and webinars. This is more than twice the number who took advantage of it last quarter. We believe this outreach, the public discussion around online schooling, our own marketing efforts, have all increased the number of families who are looking at enrolling their students in our schools this fall. In the fourth quarter of our fiscal year, we saw lead volumes in enrollment applications rising more than 50% compared to the same period last year. Now, we caution that it's still too early to know how many of the applications will result in final school enrollment for the 2021 school year. With many parents still finalizing their students' plans, we can't be sure of how much of this interest will translate into a final enrollment. That being said, we believe that many of the families who have begun the enrollment process will complete the enrollment process for the fall. And a little later, I'm going to give you even more quantitative understanding of our current enrollment status. With the potential for significant increases in enrollment, we're taking steps to prepare for the upcoming school year. This includes proactively hiring 1,300 incremental teachers and education staff members, building additional service capacity, buying thousands of new student computers, and stocking offline materials so that they're ready to go when students enroll. And most importantly, we're focused on ensuring families have an outstanding academic experience when they enroll in the K-12 Power Program, with early start programs, welcoming programs, and other ways of reaching their teachers and their administrators. Now I'd like to turn to our Career Learning Office. This year we hit a significant milestone. We ended the year with revenues of $107 million, inclusive of Gallaudet. This is an increase of 115% year over year. In a little more than three years, We've built a comprehensive and innovative approach to career learning that serves more than 13,000 students this past year and posted more than $100 million in revenue. We believe that career learning increases our addressable market by more than tenfold and will be a driver for revenue growth and profitability in years to come. Our nation has approximately 15 million high school students. Our market surveys show that over 12% of these students will consider full-time online public schools, and their parents also concurred that they would consider full-time online public schools. And it's the schools that combine traditional core academics, such as math and English, with online career readiness education. And other statistics reinforce our belief in the long-term growth potential for this system. For example, research conducted by Burning Glass Technologies over the last 90 days shows that 56% of job openings required less than a four-year college degree. Our career learning program for both secondary students and adults closely aligns with this market demand and today's tech-first job market. So a quick commentary on some of their accomplishments in this area over the last 12 months. First, we opened Destination of Career Academies, or DCAs as you might hear me say, in New Mexico, Kansas, Missouri, and Wyoming. And it brings the total number of DCAs to 24 for the start of this school year. Additionally, we expanded programs into middle school grades in seven schools, allowing students to get a jump start on career exploration and what career learning is all about. In total, more than 9 million students across the nation now have access to our career learning options. Over the next two to three years, we plan on expanding our coverage across all of the states that we serve public schools in. Secondly, we enrolled 16 new project-based, I'm sorry, we rolled out 16 new project-based learning courses in subjects like entrepreneurship, marketing, healthcare, and computer literacy, just to name a few. This learning approach keeps students more engaged and makes classes more collaborative. We're also seeing a link between increased DCA student engagement and retention. At the end of the year, student retention in DCA programs was nearly 10% better than in their non-DCA counterparts. While there are many factors that contributed to change, this kind of change is significant. For some time, we speculated that DCA experience would help to further engage and retain students at a higher rate, and we're now seeing the results of our efforts. Third, an important part of the career learning program involves opportunities for students to explore careers through exposure to industry experts. This includes chat delivered on the NetPress virtual platform. This opportunity complements real-world work experiences in the form of job shadowing and internships. In fact, K-12's annual Job Shadow Week, which is only in its second year, had over 2,500 student participants this year, and that's up from just a few hundred last year. Companies like Google, Salesforce, Google's subsidiary YouTube, the Motion Picture Association of America, all connected with students from across the country, exposing them to the professional skills and expertise they'll need to succeed. Fourth, our Career Learning Networking Department, TALO. They reached a significant milestone as they surpassed 1 million talent users on their platform. That's almost double the number of users the platform compared to a year ago. This quarter, TALO also saw colleges and universities turn to them as an alternative to the in-person recruiting initiative that got canceled because of COVID. TALO is now serving new partners ranging from Texas Tech University and the Medical University of South Carolina to smaller specialized schools like the College of Creative Services and Creative Studies in Detroit. However, the TALO proposition is, it's just more than just adding students and partners. It's about how these constituencies are leveraging the platform. During the past year, TALO made more than 180 direct engagements what we call matches, between institutions seeking students for scholarships or jobs to TALO members who are looking for those scholarships and jobs. Again, this is just the beginning. In the future, I see even more growth opportunities and new applications for the platform as part of our career learning experience. And finally, a valuable new part of our career learning business is Galvanize. Market demand for software engineers and data scientists continues even during this pandemic. In the same burning glass technologies research I mentioned earlier, more than 27% of recent job openings across a diverse set of industries are IT related. The Immersive Bootcamp from Galvanize continues to be 100% live, but it's now online rather than in-building. And while students have selected to defer, some students have selected to defer their admissions until in-building classes have resumed, the focus on remote learning has expanded our potential student population. One example is the recently announced part-time data science program, which is available nationwide. This online program provides the same curriculum, program structure, and quality as Galvanize's full-time program, but over a 30-week time frame instead of an intensive 12-week full-time program. Our hope is that working parents, veterans, and anyone who wants to keep their current job and keep their current earnings while they're going on with their learning, can take advantage of this program. On the enterprise side of Galvanize's business, we've seen corporate opportunities slow down. There's corporations, workers working from home, and they're not willing to spend as much money in these tight liquidity times. So in this market, the enterprise market has slowed and will remain that way until concerns about COVID-19 subside. But even during the market stall due to COVID, we've had recent wins, large wins. For instance, USAA, T-Mobile, and Ally Financial have hired Galvanize to upskill portions of their IT talent base. In addition, Galvanize has not limited its enterprise efforts to the U.S. This quarter, Galvanize's team addressed interest in companies in Germany, Mexico, Saudi Arabia, Pakistan, and India. As the economy begins to recover, we believe we'll continue to see increased interest from enterprises across the globe. As you might imagine, the community business is the other part of Galvanizer's business that has been slowed by COVID. As we said before, publicly, the community business will not deliver on expectations in the short term. Due to COVID-19 mandated restrictions, general worker concerns, many workers simply will not be back in fiscal offices at the numbers they used to, and that's to be expected. However, we believe that Galvanizer's immersive boot camps for consumers can and will continue to deliver strong growth if we're confident in Galvanize's business prospects over the long term. Now, before I leave my discussion on Galvanize, I want to briefly mention one other milestone. For the spring semester, we plan to roll out our first high school course based on Galvanize's content. In just six months after the acquisition, we've completed the course design. This is a core synergy from this acquisition. A key differentiator for our career learning business is to be able to use galvanized content at the high school level. We're planning to create additional courses at the high school level using the galvanized personnel and galvanized expertise. As I've outlined today, we're building on a strong year, and we're looking even stronger growth next year and over the long term. The early indicators for FY21 are all positive. Enrollment growth is increasing, and we're seeing increased interest in K-12 solutions. But I want to be clear here. Our managed public schools have already enrolled 150,000 students as of last week. That's a 23% increase so far from the 122,000 enrollments we posted the first quarter of fiscal 20. Traditionally, the final weeks of the enrollment season drive even more enrollment. With about eight weeks remaining in this year's enrollment season, we expect to be fairly distant. Now, it's still unclear when the pandemic will subside. It's unclear what student retention rates will be. It's unclear what the effect of state budget allocations for education might have on pupil reimbursement rates. But even with all these unknowns, we believe we are positioned and well positioned to deliver percentage growth well into the double digits in both revenue and adjusted operating income in fiscal 21. Keep in mind this is only a statement of enrollment growth so far to date, as of last week, and not formal guidance for the coming year. As we do every year, we will provide formal guidance for the fiscal year in late October when we announce first quarter earnings. Okay, I'm getting close to closing. I warn you this is going to be long because it's the end of the year and there's a lot to say. To wrap it up, we've always maintained distance learning technology is a key to the way education will be delivered in the future. It happened at the corporate level. It happened at the college level. And it's at the grade school level as well. Our company is clearly no longer just a kindergarten to 12th grade general education platform provider. We're positioned to be a leader and an innovator in this space across different age groups and different applications. We're in the right market at the right time with the right experience and technology to take advantage of a large addressable market. There is increased awareness and acceptance of online and blended options. School districts are embracing online learning. Many districts now understand the need for blended and distance learning technical platforms and are out buying them, not only for their short-term needs, but on an ongoing basis. Corporations are partnering with us, not only to hire these students, but to use our services to upskill and reskill their software engineering and data science departments. It all bodes well for us in fiscal 21, but also for the long-term future as well. We're successfully transitioning this company from an education platform to an education platform that drives lifelong learning. Let me end my comments by briefly mentioning the role we play as educators in this turbulent time that surrounds systemic racism and blatant disregard for the welfare of some minorities, particularly Black people in parts of our country. We have a role to play. And I hope you saw our announcement around social and environmental responsibility. Our board, our management team, and all of our employees represent the kind of diversity that I think all companies should display. We announced even more scholarships, law enforcement pathways, a national forum on educational equal access, a commitment to more diversity in our teacher ranks. We've dedicated employee teams to each of these initiatives and giving them time off to pursue these community activities. Please take a look at our website for more information about our commitment in this area. We so strongly believe it's important that everybody in our organization is committed to racial equality. Everyone, thank you again for your time today. Now I'll hand the call over to Tim, who will elaborate on fourth quarter and four-year financial results. Tim?