Thank you for standing by. My name is Jael and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride 4th Quarter Fiscal Year 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, just press star 1 again. I would now like to turn the conference over to Tim Casey, VP of Investor Relations. You may begin.

Thank you, and good afternoon. Welcome to Stride's fourth quarter and year-end earnings call for fiscal year 2025. With me on today's call are James Rue, 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 will 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 earnings release and latest sec filings including our most recent annual report on form 10k and subsequent violence 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. Following our prepared remarks, we will answer any questions you may have. Now, I'll turn the call over to James. James?

Thanks, Tim, and good afternoon, everyone. We recently celebrated our 25th year anniversary and continue to see record demand for the products and services we pioneered a quarter century ago. In a rapidly evolving world, our focus is on how we can best serve customers and the market over the next 25 years. First, some highlights from this year that reinforce our market leadership. We were named one of America's best mid-sized companies by time. We were named 2024 Company of the Year by Big Awards for Business, hosted by the Business Intelligence Group, and Best EdTech Company by the Global EdTech Awards. We received two Golden Stevie Awards, one for our game-based curriculum and one for our virtual learning solution. We were awarded Digital Education Awards, Digital Game-Based Learning Product of the Year, and named the Digital Education Institution of the Year. We are one of the largest employers of teachers and education staff in the country, offering choice for teachers as well as families. And in a country where more teachers are leaving the profession than entering and where there is a persistent national teacher shortage, We have managed to grow and provide an outlet for teachers who are looking for something different than the traditional system can provide them. But all of this pales in comparison to the record numbers of families and students we're able to serve. So how can we build on this momentum and also prepare for the next 25 years? The good news is that macro trends around our core business continue to be positive. Demand for school choice is growing, and our customers and potential customers continue to choose us in record numbers. Given where we are, less than 50% through our anticipated enrollment season, we can already see, if current trends continue, that we will once again achieve double-digit enrollment growth this fall. And we're continuing to invest in new products and services. this will both benefit our core business but also give us new market opportunities to pursue for example over the past year our tutoring business hosted over 100 000 sessions in this upcoming school year we are going to offer dedicated tutoring for all second and third graders focused on the core skill of reading we also continue to invest in our career platform and programs with an emphasis on in building a community of resources that offer practical trajectories. And of course, everybody's talking about AI. We are proceeding with our cautious but ambitious approach to enable the use of AI in our programs in a responsible and impactful manner. I said a couple of years ago that we are not going to play into the hype around AI, but rather focus on foundational areas and technologies that we can leverage for better customer outcomes and experiences. And we are continuing down that path, both in partnership with other providers, as well as through proprietary investments that we can leverage our core strengths. We're excited about what the next 25 years hold for us and how we can deliver on tomorrow's education today. Thank you. Now over to Donna.

Thanks, James, and good afternoon. As James discussed, we had another strong year, driven by strong demand and the continued momentum in the school choice market. Full-year revenue of $2.4 billion was up 18% from last year. We continue to see the benefits of our scale coupled with improvements in marketing, which drove adjusted operating income of $466.2 million, up nearly 60% from last year. Our team served more than 240,000 students and families this year, and I am incredibly proud of what we have accomplished. And as I look at the trends we're seeing for the upcoming school year, I see more opportunities I'll talk a little bit more about next year momentarily, but I want to first provide more detail on our results for FY 2025. Career learning and middle and high school revenues worth $876.3 million, up 35%. Full-year enrollments totaled $96.3,000, up 33%. General education revenue was $1.45 billion, up 12%. Enrollments in general education for the year totaled $137.7,000, up 13%. Total revenue per enrollment was $9,677, up to slightly from last year. Throughout the year, state mix had an impact on our overall revenue per enrollment, but the strong fourth-quarter results meant we finished the year relatively flat. For FY26, we see some states holding funding flat, while others are increasing funding. So overall, we see a fairly positive funding environment. Additionally, we do not anticipate any material impact on our revenue per enrollment from changes at the federal level. As with any year, revenue per enrollment may be also impacted by state mix and yield. While it's still early in the year, given the current environment, we expect full-year FY26 revenue per enrollment to be relatively flat to up slightly from FY25. Gross margins for the year were 39.2% of 180 basis points. As we mentioned last quarter, there's a balance between continuing to invest in the business and improving gross margins. For FY26, we anticipate making investments in our products and services as we seek to continuously improve the experiences for our students. Therefore, we expect gross margins to continue to grow, but at a slower pace than we've seen in the past two years. Selling general and administrative expenses were $524.3 million, up 2% from last year. We will continue to keep our SG&A spending in check, and we expect to see strong operating leverage out of a business going forward. Stock-based compensation for the year was $36.8 million, up $5.3 million from last year. As you saw in our press release, we booked a one-time non-cash impairment charge of $59.5 million related to our galvanized business.

This chart is associated with two aspects of the business.

First, $27.3 million is a pull forward of lease expenses associated with our co-working business, which has never recovered from the COVID pandemic. And $32.2 million is a trade name write-down due to the continued IT software business decline, which we've previously discussed. Given the one-time nature of this charge, we have excluded this from our adjusted profit metrics. For the year, adjusted operating income was $466.2 million, up nearly 60% from last year, and adjusted EBITDA was $571 million, up 46% from the prior year. Diluted net income per share totaled $5.95, up 27% from last year. As I mentioned last quarter, we're introducing a new metric this quarter, adjusted earnings per share, in order to give investors a better sense of the ongoing operational performance of the business. Similar to our other adjusted metrics, adjusted earnings per share excludes stock-based compensation, amortization of intangible assets, and any one-time adjustments. Additionally, the metric nets out the tax impact of these adjustments and includes the impact of the shares we expect to receive from the cap call transaction associated with our convertible notes. We believe this new metric will also help investors better understand the net impact of the convertible notes on our earnings per share. For the full year, our adjusted earnings per share was $8.10, up 48%, compared to $5.49 in FY24. A reconciliation of adjusted EPS is provided in the earnings release and the presentation accompanying our webcast. Our effective tax rate for FY25 was 24.4%. Capital expenditures were $60 million for the year. Free cash flow, which we defined as cash from operations, less capex was $372.8 million, up $155.6 million from last year. We finished the year with cash, cash equivalents, and marketable securities of just over $1 billion. This year was another record year for stride with continued strong revenue and profitability growth. And while it's still early in the enrollment season, given that historically all of us in September are our busiest month, We are on track for another year of strong growth in FY26. And as we've done in the past, we'll wait until the first quarter earnings to provide formal enrollment guidance. However, I'd like to add a little color to the comments James made about our anticipated enrollment growth for the first quarter. Based on our latest data, we expect year-over-year enrollment growth to be in the range of 10% to 15% in the first quarter. It's still early in August, and we will need to continue to execute against what we believe is a strong market trend. A few additional notes for FY26. These analyses for next year should be in line with FY25. SG&A as a percent of revenue should continue to decrease marginally, while CapEx as a percent of revenue is anticipated to be relatively flat. stock-based compensation will increase slightly from this year and interest expense and the tax rate should be in line with FY25. Thanks so much for your time today, and I'll turn the call back over to the operator for your questions. Operator?

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Jeff Silber of BMO Capital Markets. Your line is open.

Thanks so much for that correction and congratulations on the quarter and the strong year. I was wondering if we can just talk about fiscal 26. Really appreciate you giving us at least some framework of what you're expecting. You talked about the 10 to 15 percent potential enrollment growth in the first quarter, and I think you've caveated that with saying if current trends continue. So can we just talk about what current trends you're talking about and where you are seeing that strength, what's driving that 10 to 15 percent expectations?

Yeah, hey, Jeff. Yeah, I mean, I think we've been pretty consistent that, you know, we sort of view demand as application volumes as a proxy for demand and so when we see early funnel activity i.e demand strong we're really talking about applications you know and i think applications have been a much more proven indicator of demand for us it's much more reliable you know it does require some level of sort of increased effort than just clicking a button you know so families tend to convert higher. You know, we're not yet, I think, 50 percent through what we anticipate the season to be. So it is a little bit early. But I think those demand indicators, they look strong year over year. They look strong. And so we're pretty bullish that these trends should hold up and, you know, and we'll have a strong fall. All right. That's really helpful.

My follow off, just regarding either new contracts or lost contracts. I know there was some noise out of New Mexico, but you issued a press release last night. So maybe we can get some specific color in terms of what's going on there. And are there any other major changes that we should be aware of for the upcoming fiscal year, both positive and negative? Thanks.

Yeah, no other major changes for the fiscal year. As we've said before, I'm not aware of a business that from time to time doesn't have some client turnover. Ours is no different. I think what I see at least is the strength of our franchise is such that we did have an unfortunate actually incident in New Mexico So, you know, where the partner we had didn't turn out to be kind of the partner, I think, that we expected. And, you know, we quickly were able to build a pipeline of new potential partners. And, you know, it all came together pretty quickly where we got a couple of new districts signed up with us. So I think it sort of speaks more to the strength of our franchise really than, you know, any disappointment we have. Because, again, I think just in any business, it's impossible to have 100 percent client retention. And so, you know, we're going to experience that from time to time. And I think the strength of our franchise will largely be able to overcome that and we'll be able to continue to build and grow. And, you know, New Mexico is an amazing state. It's got a very, very unique population that I think our programs are uniquely beneficial in serving. And I think, again, going back to the strength of our franchise, what we found overwhelmingly is that the families who were with the program last year that we managed have migrated over to our new programs as opposed to staying with the legacy program that they are still trying to run. So, you know, I think the customers have really spoken that they prefer our program and our approach and our franchise than, you know, than what got left behind. And I think that really speaks to the strength of our programs.

All right. Appreciate the caller. Thanks so much.

Your next question comes from the line of Greg Parrish of Morgan Stanley. Your line is open.

Hey, thanks. Congrats on the results. And thanks for all the color heading into next year. I think I wanted to start with your long-term framework, especially on operating income. You've outperformed your targets and essentially hit them already. But thinking about the 10%, 20% framework, now that you've exceeded your plan and you've rebased the margin higher, I guess the question is, does that get harder from here to grow operating income at twice the rate of revenue? And then thinking about next year, more specifically, is EBIT growth 2X revenue growth? Is that still the right target when thinking about next year? Thanks.

Yeah, I think in any business, obviously, it gets harder the bigger scale you get. Just mathematically, I think it gets harder to 2X your revenue growth. I think that we've set pretty ambitious targets in the past, over the past several years, and we've beaten those targets. I think we need to take a fresh look, though. As Donna said, the expansion and our gross margin is likely to regulate a little bit here this year and going forward. So as she said, I don't think we're going to continue to see the type of gross margin expansion, which I think disproportionately helps that 10 and 20 model. So sure, it's going to get a little bit tougher. I also think that as long as we can continue to grow the way we have and the market continues to have the kind of demand that we see, our investors should be very pleased if we do something that's, you know, if it's 10 and 18, I think that's a pretty darn good outcome.

And, you know, we're going to take fresh look this year at uh you know at uh our planning and um and we'll provide some updates uh you know either later uh later this uh fiscal year or soon thereafter great that's helpful um and then maybe come back to funding there's one question on the fourth quarter number i think um the career learning the 4q number was pretty strong i think that's sort of a true up for the year um maybe help us understand you know where that came in better than expected i don't know there's anything to call out um and then maybe bigger picture heading into 26 i mean a lot of noise out there all the federal funding and sort of district facing uncertainty and state budgets

etc maybe kind of just flesh out what you're saying i know you called out your expect expectation for flat but um maybe just kind of uh anything to call out from your conversations with states thanks Yeah, with respect to Q4, you know, you hear me talk more about overall revenue per enrollment as opposed to bringing it out from general ed versus career learning, because it really sometimes depends on what the mix is like from between general ed and career learning. So I don't typically focus so much on whether it's a general ed or career. What I would say is that, kind of reiterate what I said in my prepared remarks, that we sort of continue to see strength throughout the course of the year. We thought we would have some softness as we did relative to mix, but as the year progressed, those numbers started to improve. And so we ended the year certainly higher as the year progressed. we did have some some favorable funding as it relates to some growth funding and some completion funding that happened in that happened in q4 as well but it's overall strong performance and both general ed and career learning and with respect to the funding environment as I said in my prepared remarks the funding environment looks favorable we have some states that are planning to increase while some are remaining remaining flat and so overall we think it's going to be a positive funding environment for 2026. And as it relates to at the federal level, we don't expect that to have any significant impact on our funding for 2026.

I think the good news for us on the funding side is in addition to everything Donna outlined, our partners, given the strength of the funding environment, their financial profiles also continue to improve so you know i think just there's a lot of um uh residual benefit of having the kind of environment that we're we're having because our partners have strong balance sheets um and uh in and that obviously accrues to the to the customers that they're serving and so i think just it's a it's a very healthy environment for the overall sector for us to be in And and as Donna said, you know, the federal side of this stuff, you know, again, everything said this before, everything that I think we can see is that there is not any negative repercussion of any of the actions that we can see so far that the federal government's taking. and, you know, we're supportive of what we see that they are doing in that they are focusing on school choice for families in this country, which we believe is the right thing.

Great. That's very helpful, caller. I'll pass it off. Thank you very much and congrats on the quarter.

Your next question comes from the line of Jason Tilchen of Canaccord Genuity. Your line is open.

Good afternoon. Thanks for taking my questions. First thing, I just wanted a bit of a follow-up on the comment that was made earlier regarding some of the, maybe the slower pace of gross margin expansion next year. Maybe if there's anything you could share on where some of those investments and products and services will be focused on, how they could benefit the student or teacher experience, and then more broadly sort of what are some of the other notable opportunities for cost savings here over the near term?

Yeah, you know, I think, I don't know, somebody will correct me on the exact numbers, but, you know, four or five years ago when I took the job, our gross margins were hovering in the 33 and change percentile, and now we're pushing 40. And I think that's just a very significant improvement that we've made. All the while, we've tried to balance that with ongoing investments in the programs themselves. This year specifically, we're doing something I think I mentioned that's going to be a little unusual, which is we are offering tutoring services, high dosage tutoring services to all second and third graders, specifically targeting the one thing that you hear repeatedly within education, which is kids need to learn by the third grade. And if they can learn to read by the third grade, then they can learn other things, right? And that's really what we're targeting is getting kids to learn to read by the third grade. And that's not an insignificant investment we're making to do that. You know, we're going to see and monitor how effective it is. But as Donna said, that doesn't mean, by the way, we're indicating any contraction in margin or finding other ways to fund it. But it just does mean that the expansion is probably, going to abate a little bit. I think that the area where we have ongoing opportunity is the same area that the rest of corporate America is talking about. I think there's a lot of efficiency that can be gained in adopting technologies like AI. AI is not the only one, but there are a lot of different technologies that we can adopt that make our operations more efficient. And I think we're going to continue to pursue those as well.

Yeah, remind me, we grew 180 basis points in first margin this year, 220 basis points last year and some of the additional, you know, investments that we're going to be making to not only just improve the help with the students in terms of their outcomes with their tutoring, but also investing in some of the engagement work we're doing. You've heard us talk about our K-12 zone and investing and operating that as well.

Very helpful. One quick follow-up, if I may, the adult learning business showed a little bit of stabilization in Q4. The decline there was much lower than in the first three quarters of the year. Just wondering if you could share anything about the transition that's ongoing there and anything else you're seeing from the demand environment for those platforms.

Yeah, like, listen, this has been just a miss on our part. It's been a disappointment. I don't think there's really any way to sugarcoat it. Um, the, obviously the markets turned against us a little bit specifically in the technology area, but, you know, I think overall in this, um, we've actually made some changes here in the past couple of months. Um, I think that, uh, the demand side of it, particularly on the healthcare, uh, continues to be an opportunity for us. We need to execute better, uh, than we have. And, uh, I think there was an opportunity for us to execute better and, uh, and still, uh, get some value out of these things. But certainly on the tech side, you know, we haven't executed well, and the demand side has sort of turned against us. It's not a great story for us, and, you know, we just have to do better there.

Great. Very helpful. Thank you.

Your next question comes from the line of Alex Paris of Barrington Research. Your line is open.

Hi, guys. Thanks for taking my questions, and congrats on the strong finish to the year. I just wanted to follow up a little bit about the lost contracts, gained contracts that we started the Q&A section with. It was late May that news broke that the Gallup-McKinley School District terminated their contract. I think that was around 4,000 students, so it was not insignificant. And again, you know, some years you lose them, some years you gain new contracts. And then, you know, roughly two months later, you announced this big multi-district deal, also in the state of New Mexico. I just wonder if I can get a little bit more color there. You said a few interesting things. Number one, parents that had students at Gallup McKinley have moved over to Destinations Career Academy of New Mexico, if I understood that correctly. I'm wondering, you know, what's the magnitude there? And then the second and related question is, was this Destinations Career Academy already up and running? Because I think you noted that there was 3,000 students there in the press release.

Yeah, so let me try to unpack this here a little bit. When we encountered the difficulties with the Gallup-McKinley School District, we were uncertain about how those families were going to be able to continue in a program, period. We didn't have enough information sort of broadly, whether it was going to be ours or theirs or whatever. And so we made a decision to offer those families a spot in a comparable private academy in New Mexico. Uh, and our view of it was, is that, um, we were going to invest in those families, irrespective of sort of whatever contractual outcome happened, because it was important to us to make sure that we protected those families. Um, our team did an amazing job in securing these contracts. And, uh, and so, you know, those families now have, I'll say a, a more secure home, if you will, in a similar environment, if you will, that they were previously in. But we did make an offer, and that would have been an investment on our part for these families. It also, by the way, ensured teachers that we employed in New Mexico were able to retain their jobs, which was also important to us, which we also made that decision at potentially investment on our part. Now it's all worked out, but we made that decision before we knew it was going to work out because it was the right thing to do for the families and for the teachers in that state. And we stood by them. And I think that they're now standing by us. You know, but it was, it was dicey. It was difficult. We were not sure that we were going to secure a new set of agreements. You know, shout out to the districts that signed up with us. I think, you know, they worked very quickly and diligently as well. So thank you to them. And, you know, I think we've all got the same goals in mind here, which is to ensure seamless educational opportunities for those families. And that's, we've been able to come together and provide that. And we're very grateful for that opportunity to serve those families.

So that's great. So the 3,000 students already enrolled for the upcoming fall term, did they come from Gallup McKinley or were they already existing students that you were serving during fiscal 25?

They largely came from the previous program. There are some new students in there as well. But, you know, if you think about it you take you start with your 4 000 number that you started with well you know there's a a bunch of students that either will naturally attrit or graduate or whatever and uh you know we go through every year a re-registration process with with the schools and um you know the vast vast vast majority of families who have re-registered have re-registered into this program so who's left at Gallup-McKinley, or is the Gallup-McKinley program closing? We can't speak on their behalf. We have no idea. All we know is that the families have spoken to us, and they overwhelmingly want to continue in our program. I have no idea what's going on with them. That's for them to decide. But I know what we can control is that we want to continue to support the families in New Mexico We made a commitment to do so. We wanted to continue to support the teachers in New Mexico. We made a commitment to do so. We backed up our commitment, and we were very fortunate and we're very grateful to have our new partners in New Mexico.

So last point about that. And just to put it in perspective, if I'm right on that 4,000 number, it's only 4,000 of 234,000 from a financial perspective, from a stock market perspective. So that was a 4,000 hole that we were going to have to overcome, but it looks like that we're not going to have to overcome that anymore, given that the families have spoken and they've registered at the Destination's Career Academy of New Mexico, which is your operated site, correct?

Correct. We anticipate no hold of fill. And yes, you have the numbers directionally right. You know, it would have been something probably less than two percent of the total that we would have, you know, in theory had at risk. But, you know, but we feel pretty confident that, you know, New Mexico is a really strong demand state. We see a lot of demand in that state. We think we think we're going to continue to perform very well in that state. and we think that the families have really recognized Dutch as the premier operator in that state.

Well, that's great. That's really good news. And then I guess just the last question I'll ask you, and I'll get back into the queue, is was there anything from the one big beautiful bill that applies to your business, either positively or negatively?

Well, I think I have to be honest, I haven't dissected the one big beautiful bill probably in its entirety sufficiently. You know, I think that the, you know, sort of the overall corporate tax regime is looks to be generally favorable to most companies. I suspect that that's also going to be generally favorable to us. You know, I think, generally speaking, the the line, you know, not just from the the tax bill, but the general line this administration is taking is a line of support for school choice. So I suspect that if there are things in that bill that impact us, it would be along the lines of school choice, it would be relatively favorable. You know, so I just, you know, again, putting politics aside, I just I think that an administration that favors school choice and favors parental choice and wants to put the voice of the of the families first. That is very much aligned with our mission. And so, you know, I just, I think I give a lot of kudos to the administration that's willing to put families first. And I think that aligns with this company's view as well to make sure that we're putting the families first.

Thank you so much. Appreciate it.

And again, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from line is Stephen Sheldon of William Blair. Your line is open.

Hi, team. You have Pat McElwee on for Steven this evening. Congratulations on another great year. My first question, James, just to elaborate on your commentary surrounding enrollments, I wanted to ask how much of this persistently strong enrollment trend you've seen that you would attribute to greater shifts in demand for this type of offering versus more company-specific changes you've made to your marketing strategy, word of mouth referral, or anything else we should be thinking about there?

Yeah, it's a really interesting question. And, you know, we've obviously we've tried to understand the market dynamics ourselves as well. And I think it's fortunately, I think it's combination. You know, one of the benefits, I think, of scale is, you know, you have increasing word of mouth, increasing awareness. We recently did some awareness studies. And, you know, I think our brand is really resonating and the awareness of our brand is increasing. So I think those are all trending in a positive way. You know, I talk to families all the time and, you know, almost to a T, almost every family I speak to tells me a story about how they referred other families to our programs. You know, so it's certainly that has had some – given us some positive momentum. I think we also cannot deny the fact that the overall market demand seems to be growing and increasing. Every survey, our own data suggests that families are increasingly looking for alternatives and increasingly looking for options. and in, you know, in increasing numbers that leads them to us or an option like us. I do think that we have been executing pretty well. And so therefore, maybe disproportionately, maybe we're picking up a little higher, you know, proportion of those of that increase in demand. But but I think it's a combination of those things. And I think, you know, again, I talked about our franchise and I think, you know, as we continue to execute well, and as we continue to make investments in our customers, I think we believe it'll pay long-term dividends for the franchise. Okay.

Thank you. That's helpful. And then on the tutoring front, it sounds like you've seen some really nice early acceptance of that offering. And you mentioned that you plan to continue scaling that offering this year. So I just wanted to ask if you could provide an update on how you're thinking about the monetization potential you see for that business and what the timing of that might look like?

Yeah, so just to be clear, we offer that platform both, quote unquote, internally, you know, to the programs that we're managing, as well as externally. It's getting, you know, in the external, if you will, market, you know, that's sort of a market rate they're going to pay And it gets monetized in the normal way. You know, I think that our business has a couple of unique characteristics that distinguish us in the marketplace that we know both districts and states are increasingly honing in on. One is we're staffed with certified teachers. That's important. We also, it's all, you know, it's, you know, certified teachers in the U.S. and it's a wholly U.S.-owned company. And I think in some states that's becoming increasingly important. And so that gives us some distinguishing characteristics. And so we're seeing traction not just with the programs that we manage, but also with other districts. A number of states are supporting sort of tutoring and, you know, depending on the state, you know, some states are putting dollars behind it. Some states are sort of advocating for it. And we think that that trend is going to continue because we do see, you know, tutoring does give measurable academic gains for kids. And, you know, we're also investing in the platform itself such that, you know, the tutors have access to better technology, more materials. Obviously, you know, we're looking at ways that we can infuse AI appropriately into our academic models, including tutoring. And so, you know, all those things and all those investments over time, I think, will provide more efficient means of tutoring, better teacher tools, better tutor experiences, et cetera. So I think there's good traction here that we're starting to see, and I expect it would continue over the next few years.

Okay. Thanks for that caller, James. And congratulations.

Thank you. Your next question comes from a line of Gausshi Sri of Singular Research. Your line is open.

Thank you. Can you hear me? Can you guys hear me?

Hello?

We can hear you. First time caller. Congratulations on your results. First time caller, long time listener. What are the operational regulatory or partner constraints currently that limits your ability to convert the demand into incremental enrollments? If you can talk about how much you had to quantify on how many applicants you might have to underway. Is there any initiatives that will increase your addressable seat capacity next year?

Yeah, so the constraints, they tend to be on, I'll say, sort of multiple levels. So I think right at the end there, you probably addressed one of the constraints. And, you know, there are programs that we manage that have some kind of structural constraint, whether it's a cap or, you know, our partner doesn't want to exceed a certain limit of enrollments for some reasons. You know, sometimes we purposefully regulate the enrollments because we want to ensure, you know, we operate under certain state standards or state, you know, frameworks. And so, you know, we want to make sure that we're getting the best outcome for the longevity of the program and things like that. So, you know, there's a lot of there's a lot of factors that will go into sort of an accountability standard in a state or something like that, you know. And then there's just this sort of the operational. I'll say conversion metric, if you will, of funnel conversion metrics that, you know, you know, improve the lead conversion rate to an application and the application conversion rate to enrollment. You know, and a lot of that has to do with just sort of the operational mechanics of contacting families and how easy to make the application process for them and ensuring that they're not overburdened with document requirements and things like that. And so, you know, we look to improve the customer experience at all levels while also focusing on the outcomes. And there's a little bit of a, you know, balance here that we're always striking. We've been able to really make those improvements over the last several years such that we see – we sort of have a line of sight into the fact that, you know, we know if we do certain things and pull certain levers, we're going to improve our outcomes. But, again, it's always a balance, and so we continue to try to optimize that balance. And I think we've been doing a pretty good job, and I think we have, you know, room to continue improving, though.

Okay. Thank you. So on the enrollment per revenue per growth in the curious learning segment, kind of outpacing the general ed, is this sustainable? What are the kind of mixed pricing or state formula changes that will allow it to persist?

One of the comments I made earlier is when I'm looking at the revenue per enrollment, I am looking at it combined, gen ed and career. It's not as if the funding is different for gen ed versus career. It really is a matter of mix. So when I talk about the funding environment for next year looking favorable, I am speaking about it in general in total for career learning versus and general education. And so not looking at one versus the other. And so that difference really, really depends on what the mix is. where we're growing from a career learning standpoint, where we're growing from a general, gen ed standpoint.

Gotcha. And under the adult learning, given its size now, and would you consider selling or winding it down or aggressively overhauling it? I mean, what are the KPIs are you using to measure B2B transition progress?

Yeah, I think, listen, I mean, it's overall, it's not a material part of our business. We do think it can generate incremental value. We're not a seller right now of that business. We see some of the operational things that we haven't executed well against, and we think we can do better. And so we're focused on just operating that business better every day, and I think we will see improvement over time. But it's not a drag, you know what I mean? And it hasn't proven to be a distraction. And so, you know, I think as long as it's not a drag and it's not a distraction and we think there's value to be created there for our shareholders, we're going to continue to try to operate it better.

Thank you. We've reached time for questions. This now concludes today's conference call. We thank you for your participation.

You may now disconnect.