Stride, Inc. (LRN) Earnings Call Transcript & Summary

Hello, everyone. I'm Mike Lawson, Vice President of Investor Relations. On behalf of the entire management team, it's my pleasure to welcome you today to the Stride 2020 Investor Day. Before we begin, I'd like to encourage all of you to review our safe harbor information. It's also available on our website and our public filings with the SEC. A couple of housekeeping items. Today's presentation can be found on our brand-new website, www.investors.stridelearning.com. And we'd ask that you please submit your questions throughout the day via the Q&A submission on your screen. We have a very full agenda, as you can see today, with a lot of great content. We've built in 5 -- excuse me, three 5-minute breaks. During those breaks, we're going to be showing an array of video clips. We'll also have a countdown clock to make sure that you're not going to miss any of the great content that we're going to be presenting today. I would also encourage you to take that time to submit your questions as well. So with that, it's now my pleasure to introduce our first speaker, Stride's CEO and Chairman of the Board, Mr. Nate Davis.

Welcome, everyone. Thank you, Mike, for the introduction. I see that we have, oh, about 140 attendees. I want to thank everyone for being on the call this morning. It's a pretty exciting time for us. The number of attendees, the people that are interested, this is just fantastic, and we really do appreciate the opportunity to speak with you this morning. You planned to come to learn something about K-12 and about the business that we operate today. And then lo and behold, last night, you got a shock because we announced some changes. We announced 2 acquisitions, and we announced that we were changing the name of the company to Stride. And we're going to talk more about that today. Why we're changing the name? What these 2 acquisitions are about? We're also going to explain to you about the core business, and why the core business is so important. I hope investors are excited about this. We certainly are. There are really 3 things I would like to accomplish today, not just in my talk, but 3 things I want to accomplish across all the speakers' communications. The first is, how does that base business work? And why is it a strong foundation for the future? That is so important. We are launching off of a business that is a strong base business, generating cash and growing modestly. But the future, the bright future we think we have as a company is all based on the fact that we're focused on a growth strategy around career learning. Career learning that helps kids when they go to college, figure out what their future really should be, whether they go to trade school or military, give them the skills to be able to get jobs and advance in those careers. And then finally, I want to talk to you about our management team. I'm proud of the team we've built. They're diverse in their skills, their gender, their knowledge, yes, their race and in every other way. I'm so proud of the team that we have, and I'm really excited about who we want to talk to you about. Let's start with why the heck we went to a new name, all right? Why? Why do we do that? We've evolved. We're no longer that company that operates online charter schools. We're so much more. And it was important for us to be able to communicate that to investors and to the rest of the world. We started this business by helping homeschools, a well-designed, pedagogically thought out program that helped homeschools figure out how could they teach their kids and give them an advantage over traditional schools. We grew once charter schools started to take off. We became a provider of all the services necessary to run a charter school. But that was about 2% of the market that said it would consider an online school. And that was just the market -- addressable market opportunity. An $11 billion addressable market opportunity is not bad. But we wanted to do more. So we went on to school district programs. And while you may not be able to tell the difference, today, almost 40% of the students that we have are actually in schools that are under contract with public school districts. That means a school district in Texas or a school district in Florida or a school district in Virginia wants to have an online school that we operate for them. We'll hire the teachers, train the teachers, bring the software, run all their programs, make sure the finances are properly reported, compliance with all state rules. That's what we do to operate these schools. And we did that to make sure that we had an opportunity to do more than just online charter schools. And then we started saying, look at all the software and the online solutions that we built to run these schools. If we unbundle that, we can license that content to other school districts who want to set up their own online schools. And we call that Learning Solutions. You may have heard of it in the past, this Fuel Education. It is K-12 Online Solutions. That gave us an additional $35 billion addressable market, but actually took us up to a $35 billion addressable market with a long opportunity to grow even further than that. So we're really proud of the progress we made there. But if you think about it, we, the Board of Directors, got excited about the fact that we had tried for a couple of years -- about 4, 5 years ago, we tried a couple of years a trial in a couple of states, just to see how many of our students really would benefit from having career learning, software development, health care jobs, business, manufacturing, new economy architecture. Could we give them those skills? And once we decided to do that, we figured there was a much larger market opportunity. That $65 billion market opportunity is what we launched in 2, 3 years ago. I've communicated this before, and I'm not sure everybody understood how serious we were, but all the factors came together. Governors told me that this was important to them to be able to compete with other states and compete internationally, filling the kinds of jobs that they had opened in their states. There was less regulatory overhang. People are worried. You may not like charter schools. You may not like online, but everybody knows it's important to have our citizens trained in the jobs of the future. And so that became an opportunity for us to fulfill that need and become a national resource for helping students fill jobs. We also wanted students to make better decisions. It wasn't just about going from high school into college or into an immediate job. We wanted them to go to college making better decisions about their future. What's the right curriculum to take? What curriculum is going to allow me to get a job? And have some exposure to some summer jobs, some internships, so that they had a full understanding of what they were getting into. So today, we've opened up 30 of these Destination Career Academies. Actually, it's 20 of them and going to 30 because we want to have one in every state that we're in. They're up to 30,000 students today already in these schools, but we wanted more. We wanted to be a disruptive technology business. Now I didn't describe my own background, but I came into this company from a technology business and a number of technology businesses. I worked at AT&T and MCI. And when we were at MCI, we always knew that if we were going to be competitive with the big guy, AT&T, we needed to be able to do things that they couldn't do, to attract people away from the comfort of the status quo and into our business. And then I went to work at a company called Nextel, a small wireless company. And we decided that the key to cellphones for us was putting apps on the phone. And when we put apps on the phone, that would allow the phone to be more valuable than just a plain telephone. Everybody knows where apps are today. I joined another company, the XO Communications, and then I joined another company called XM Satellite Radio. Why would you ever pay for satellite radio, right? Why would you ever pay for radio when you get it for free? Free radio only had certain content. On the satellite radio, we could do things that couldn't be done. This whole story I'm telling you is the way we think about our business today. We have to do things that are different than the way traditional schools operate. We have to give people choice, we have to give them capabilities that are not available in traditional schools. So our evolution from that company that built a well thought out curriculum to help homeschoolers to charter schools, to district programs, to a la carte programs, to career learning, all of that is why we've evolved to a $65 billion addressable market. And then on to when you add all those markets together, the $65 billion market and the $35 billion market, that becomes $100 billion market. We did a couple of acquisitions to help us get there. And Tim Medina is going to talk today about the financials associated with this, but I wanted you to get a little color from the beginning from me about why we did this. Let's talk about each of these. Tech Elevator is a company that gives us the ability to address a market that is not addressed today by our Galvanize unit. All of those people who have never had any programming experience before can now enter the market with some basic programming skills. Unlike Galvanize, which has a high-end product that gives you a full stack software engineering capabilities and some of the highest skills that you're going to get, the entry-level programs is what Tech Elevator can address for us. And we want them to easily afford that. So Tech Elevator also has a lower market entry in terms of the cost of getting into the programs. MedCerts. That's another deal that we announced this morning. Actually, we announced it last night. MedCerts is something that we've talked about as an opportunity to do at the high school level. And we've said before that we were looking at the right kinds of companies that would help give us content at the high school level, but also give us an opportunity to enter the post high school market. And MedCerts does that. They certify and give certificates for students who complete programs in phlebotomy or in nurses' aides or in radiology or in a number of courses that are not necessarily going to make you a doctor or a nurse, but will help you in all of the medical fields that can give you a real job, a good paying job and launch you into a career that, by the way, often does move into being a nurse or does move into some of the higher skilled jobs. And those 2 things give us, as you can see from the chart, revenues that help us grow, not just this year, but on into the -- on to the future years. And these companies are growing faster than our core business is growing. So while our core business is generating great cash flow, we also are going to get growth from some of these new opportunities. And both of these companies are EBITDA positive today. Together, they generate more than $30 million in revenue before purchase accounting and both are positive EBITDA right now, as I mentioned. So we hit our stride. When you put together all of these things in this picture, they will tell you. When you look at we're no longer K-12 charter school education provider, we go to general education. We go on to high school and middle school programs in career education. We don't want to be at college, but we do want to go into adult education as well. And the programs that we've now put in place show that we can be an adult education provider. Our symbol will remain LRN, which stands for learn. We're all about learning. We won't change our symbol, but we are changing the name to convey that when we walk in the door to our customers and say, we're here to help you retrain, reskill, upskill your employees, we can bring you employees with skills, the skills needed to fill the jobs of tomorrow that you have. When we place those kind of employees into those corporations, we can't walk in the door and say, we're K-12. We have to walk in the door and say, we're something larger than K-12, which is what we've evolved to. That $100 billion market opportunity that I've talked about is the combination of what we've been trying to accomplish. Our mission remains the same. We did not change our mission. We used to say we help students achieve their full potential through inspired teaching and personalized learning. And all we did was change it to learners of all ages, reaching their full potential through inspired teaching and personalized learning because we still believe that personalized learning is the key of the future. At what pace do you need to do it? Where do you need to do it geographically? Where can you be located? You can get this learning from anywhere. And just like MedCerts and Tech Elevator, all of our programs are online and virtual and allow you to get your education from anywhere. Inspired teaching. Whether you're MedCerts or whether you are Tech Elevator or you are Galvanize or you are the K-12, our teachers believe in what they do, they believe in helping you achieve your goals. And inspired teaching is a key part of our program. Today, we're going to talk about all 5 of these categories. I've already given you a little color into each of them, but I'm going to give you a little more color, and then each presenter is going to touch on one of these topics, 1 through 5. The ed services platform will be covered by James Rhyu. James is going to demonstrate for you through a video, exactly how this program works, exactly how our content works. It's important because we do get a question from a lot of people, hey, how does this work? What's this all about? Tell me how it works online? I don't know how a student would learn online. We're going to show you that it's different than the online experience that most parents got when COVID hit, when there was a hodgepodge of solutions together, signing on to different platforms. We're going to show you, it's an integrated platform that can be used both in the classroom -- in physical classroom as well as outside the classroom. And then Tony Bennett is going to come and talk to you about the core business and how it's growing. How we retain students? How we treat students? Because Tony has operated many schools across the nation. And I'm going to talk about him a little bit. Dr. Shaun McAlmont is then going to show you the details of the Career Learning business, which is our high-growth business, our higher-margin business, that is going to continue to sustain us in the future and deliver shareholder value. And then I'm going to talk to you about the team, and I'm going to do that during this talk because I'm so proud of this team. They're not going to pound their own chest, but I'm going to pound their chest for them. This is a fantastic team. And Tim Medina is going to wrap it up, and he's going to show you how all of it fits together financially and show you a 5-year model of what our business can become. Let me start by talking about the fact that this SaaS platform that we built. And I mentioned SaaS platform because this is not a program that requires somebody to buy software, download it, manage content, manage their own computers. It's all done for them. We drive this out of the cloud. So if a student logs on to the system, they're getting a cloud-based service where we manage the content and track what they're doing. It's over 980 courses and a multimillion -- multimedia components. And there are a million of those. We have a tremendous experience, some of it, video; some of it, hands-on; some of it, project-based, all led by expert instructors. It's mobile-enhanced and mobile-ready so that they can do it on their cellphone; on their mobile device, which may be a tablet; or on a desktop computer. It's usable in an online and a hybrid environment. What I mean by that is they can be remote learners, and they can move from being remote learners into the classroom and continue to use the same content. And we teach and adapt to every district and how they want to do it. So if a school district wants to have their own teachers teach our content, they can. We'll do the professional development for them. But if a school district wants us to bring teachers to do that for them, we'll do that as well. So this program is very real, very powerful. It's build on strong relationships. I often get the question, what's our core competency? What's our sustainable competitive advantage? It is the fact, which has been demonstrated in the last couple of years, that we can grow faster than most other companies trying to get into a new market. Example, this business is now -- the Career Learning business is now over $200 million this year. Why is it going to be over $200 million when we just started it 2 or 3 years ago? Because we were able to leverage these relationships we have with school districts and simply open up schools under the existing schools. We have relationships with politicians. We have relationships that understand how the state laws work. And we find ways to make sure that we build a school that's compliant with each state's laws and each state's rules of how we can open a school. So in some states, we do it as district programs; in other states, as charter programs; in other states, it may be a la carte sales. But whatever the state needs is what we try to provide. These contracts that we establish with our customers, our customers being the school districts that -- or charter schools that we work with, they are over 5 years in length on average. And then the renewal rate for those contracts is over 95%. And we now leverage over 3,000 enterprises between what we'll talk about today as Tallo, Tech Elevator, Galvanize, MedCerts and K-12 zone programs. That's over 3,000 enterprise relationships that we can use to help students get experiences, project experiences, learning experiences, summer jobs and internships, mentorships. That's why this is so real. Now our general business started off as a full-time online programs, but there are now part-time programs as well, and they moved into Learning Solutions. The a la carte sales that I mentioned a couple of times could be what? To explain it to you, professional development for teachers; curriculum, just a curriculum that they wanted to buy the curriculum; marketing and enrollment services, which are very important because there are a lot of rules and processes to be able to turn students up into a curriculum and meet all state laws; instructional services, that means our own teachers and instruction; and financial management, managing their programs such as clubs and trips and programs that the students get involved in. All of those are things that we do on an a la carte basis for school districts around the country. I'm not going to spend much time on this slide because Shaun McAlmont is going to talk you through this. But I did want you to understand that this started off as a vision of not just build it and they shall come. Many people say, if you build the content and you train the student, you've prepared them. Our philosophy is, no, you haven't. You've only done half the job. What you have to do is, not just prepare them for the career but give them the career experience, not just the intellectual experience but the hands-on experience. And then you have to help them find jobs, you have to help them with the placement or help them go on to college. And then you also have to make sure that businesses are informing you as to what you need to build into your content to make it the content that helps these students get jobs. And by the way, it's not just in civilian, it's also helping people out in the military. And we have a new program through Galvanize, which takes military personnel who are coming out of the military, takes them through IT training, so they can have jobs and enter the workforce with skills that are necessary in commercial jobs, high-paying commercial jobs. So whether it's military or civilian, IT, medical training, business to manufacturing, we cater to the geography and the jobs of that specific economy and what that specific person needs. This is an important page. Again, I'm not going to go through all the numbers, but I just wanted you to know this is not just Nate Davis standing up here talking to you about what's to come. It's what's already there. I mentioned there's 30,000 students enrolled. We have 32 programs across the U.S. for high school students. We project that we're not just helping kids with a few lessons, but there are 7,000 real-world work experiences. That means projects to jobs, that means internships that we're helping students with. And there are over 2,000 certifications and college credits already earned in these programs. The 3,000 companies that hire our graduates from Stride companies are our partners. And now we have over 1 million users on the Tallo platform. And I love to tell the story because most of our management team didn't understand when I said, what we need is the LinkedIn of career education. What do I mean by the LinkedIn of career education? It is a place where students can connect with employers, where students can connect with scholarships. They can connect with other students. And how would we do that in a safe environment for students, young adults as well as high schoolers? And what technical platform would allow us to do that? There are so many social media platforms out there, but we needed it to be safe. We needed it to be focused on social -- I'm sorry, on career learning and all of those items that students needed to be able to get jobs and show their projects. It needed to be a digital resume where they could take the projects they worked on, put them on a platform, a digital platform, and let employers or scholarship providers come and look at it. And that's what Tallo does, with over 1 million users on that platform. So these things are real now. We're well into this, and we're growing strongly. I'm so proud of what we've done. I mentioned I'd talk about the management team. And I will spend some time on this slide because, as I've said 2 or 3 times, I'm really proud of this team. It's diverse in its point of view. It's diverse in its background. It's experienced. I won't go through every name on this page, but just a few of them. Dr. Shaun McAlmont. Dr. McAlmont has actually headed a public company. He's headed a private career learning organizations. His PhD is in education. He has done so much to help people in other areas of career learning. Shaun's experienced over many, many years. He is the person inside our company who knows the most about career learning and career programs. We hired him 2 years ago, and we brought an entire new team in place to help build this. One of the members of that team is Leilani Brown. She is a Board member for the Executive Leadership Council, well-known national organization for promoting minorities in management. She's a graduate and a Board member for the prestigious Middlebury College. She is the Chief Marketing Officer in her previous life for an insurance company. She brings a wealth of experience across many different areas to go set up those external partnerships. Kevin Chavous, who you'll hear from today, was a city councilman in Washington, D.C., who is considered the Father of Charter Schools in Washington, D.C. He's an author. He's the co-founder of the American Federation for Children, which advocates for children getting a better education. He's an adviser to governors. He was on the presidential transition team. He knows more external folks and more people who can help us in the external community than anybody. And he's a professional at the external communications. And that's -- Kevin heads all of the areas, including our academic policy, and the Chief Academic Officer reports to him. Bryan Flood, who ran successful gubernatorial campaigns. He runs our entire workforce, focused on advocacy in every state. Jodi Marshall, the CEO of Florida Virtual Academy. You may know Florida Virtual Company in Florida. They are primarily in Florida, little smaller than we are. Jodi was ready for something bigger. So we gave her the entire southeast of our country, a very large territory, and she runs that territory. Tony Bennett, who you'll hear from today. The Superintendent of Education in Indiana, who moved on to be the Superintendent of Education in Florida, 2 of the largest and most important states in our union; co-founder of the Cheese for Change. That Cheese for Change organization is the organization that advocates for changing and bringing our education forward in every way. And he was a co-founder of that organization. Tony is a nationally known operator of schools, has run thousands of schools around the country. I can go on, but this team is amazing. I'm not going to walk through every person's background, but I am proud of the team we put in place. I'm proud it's diverse in every way, in its experiences, in its skills, in its points of view. And we have a lot of times we debate internally the right way to do something, the right thing we need to do, the next market opportunity. And I think that's why we're a better company than we've ever been before because of this management team. This management team has a key focus on ESG. And many times, people wanted to know what's our ESG strategy. I would tell you that our biggest fault as a company is we don't give people enough information and enough visibility into all that we already do. We're already, obviously, environmental-friendly because very few of our employees commute to working in cars and send gas up in the air. Very few of our employees have to use paper. Almost everything we do is online. We're very environmentally friendly. And we don't tout that. We don't talk enough about that. So we're going to produce our first annual ESG report this coming spring. And that report will let everybody know what we're really all about, not just in environmental but in social and in governance as well. In governance, I'm proud of our Board of Directors. We have Boards -- we have members of the Board of Directors who've only been on the Board for a year, then 2 years, then 3 years, all the way up to 18 years. So we've got people on the Board who are financial experts, who are CEOs from previous jobs, who are CFOs. We've got education experts on this Board. People who started educational organizations, both for profit and not for profit. We have such a diverse background. We've got a Governor on our Board, who really was one of the early founders of School Choice. I can't be more proud of the Board either. I just think it's a fantastic Board. They give me such, some times, great advice; and some times, they're driving me hard. And it makes us better for who they are. Finally, I want to talk a little bit about our social responsibility. If you know a teacher in your life, what you know is somebody who cares about students, and that permeates all throughout this company. It's the reason that I'd love being here for the time that I've been here. The 11 years that I've been here, I've only grown to know more and more people in the company who care about community surface, who care about what went on in this -- in the demonstrations this year. When racial tension hit our country, I can't tell you the number of employees who wrote me and said, what are we going to do? What are we going to do? What's our role? And we put together an effort called We Stand Together. And that effort is focused on making sure that we give scholarships to kids to help them get through and get to good paying jobs. We also have -- we're going to put together a pathway for high school students to interface and work with and develop their skills in law enforcement. But at the same time, we want law enforcement officers to come into those courses and teach those kids because that's going to help them remove the stereotypes about the kinds of kids that we serve and the kind of kids that are in schools. And bringing them together is going to allow not only more law enforcement officers but also law enforcement to understand what's going on with the kids in this country. We want to sponsor a forum, a national forum with education leaders around the country on February 3, 2021, that allows our community to get together and talk about how can we produce better education equality across this country. Those are the things that we're doing. We're trying to put our best foot forward. We want to represent the country in a great way. We want to be a national resource in the field of education. I'm going to wind this up. I'll talk about a few numbers. These are numbers in our public filings and numbers we've given on our earnings calls. We, this year, in FY '20 -- well, I'm sorry, FY '21, are going to reach 195,000 students. That's what we had at the beginning of the school year. Our revenue guidance has been very clear, $1.457 billion to $1.485 billion. And I think there's an opportunity for us to do better, but that is the range. The median of the range is $1.47 billion of revenue. Not only revenue, but take a look at operating income. Our operating income this year should reach $120 million to $130 million. Free cash flow at the same range of $120 million to $130 million. A very strong business, producing cash flow. And that's in addition to the cash balance that we already have on the books of over $300 million because we brought in money this year from a financing. We have strong, consistent performance. We're a believer that we will deliver great business. So Tim Medina is going to cover with you what I think is the final slide and the final discussion today. And that is, at the end of the day, he's going to talk about our financial outlook. When he talks about the financial outlook, it won't come from just, let's put together some spreadsheet model. We looked at retention. Historical, we looked at our trends in retention. We looked at the growth by segment of our business. We looked at the trends in revenue per student and what's happening in this country? What's happened over time? What happens when you come out of recession? How is education funded? We looked at M&A growth. For the M&A, the activities we've already done and whether we'll do any more. We looked at the growth in Career Learning. And all of those numbers came together. We debated them as a management team, and the summary is on this page. In 5 years, we expect to have revenues between $1.9 billion and $2.2 billion. Adjusted operating income annually reaching $250 million to $350 million. Free cash flow is in the same range of $260 million to $360 million. If you thought of K-12 was that online charter school business? Think again. Don't invest in K-12 because we were going to benefit from the pandemic. Invest in K-12 because our long-term strategy is based on a solid business that's growing modestly, that is giving us great cash flow, and then a business that we're moving into that has already grown to over $200 million. And we've just done 2 acquisitions that are going to help us grow that Career Learning business even further. And then all of the software that we've built, all the capabilities we have, we also can license to school districts at higher gross margins than our core business. And finally, our management team that I believe is one of the best management teams that you're going to find in the education industry with experiences across all areas. I'm very happy with this team. I want to appreciate your time -- that you've given me the time today to talk to you. I know it's going to be a long day because 4 hours of talking heads, where we can't interact is not as fun as if we were in a room. But you're going to get a chance to ask us questions all along, and those questions will be taken by Mike Lawson. We will -- at the end of the talk, we'll dedicate an hour to Q&A. And hopefully, that will be much more interactive. I'd now like to introduce Kevin Chavous. But before I do, there's an agenda in front of you. And just really quickly, Kevin is going to talk about all of the academic policy and external affairs that we go through. But the key that Kevin is going to talk about, and I hope he was really open with you, is how does the election affect K-12? How does the election effect Stride? We are going to benefit from many things that happened, not just at the federal level but at the state level. There's nobody better to talk to you about that than Kevin Chavous. By the way, Dr. Tony Bennett will be here. He also is well-known in all the education circles. He's going to talk about how we operate our schools. But in the Q&A, he can also answer questions about the states and of how the states and the elections in the states are going to touch our programs. James Rhyu, who is in-charge of strategy, M&A and marketing, is also going to talk about the new markets we can enter. And he's going to show you exactly how the platforms work because all of the technology reports into James. And so he'll be able to show you with a video, exactly how it works. Dr. Shaun McAlmont, we like to put pressure on him and tell him that his presentation is the center of what we do. And today, that's true. Shaun's presentation is the most important because that's the future of the business. And he's going to describe to you just how we bring to life this Career Learning. Harsh Patel is our CEO of Galvanize. He is the one that drove us to do the Tech Elevator acquisition. And he's going to talk about Tech Elevator and his core business. And then we're going to wind it up with Tim Medina. And Tim Medina, as I said, is going to bring together all the financial perspective, and you'll understand how all of these things deliver a great financial business. So with that, I'd like to introduce Kevin Chavous. Kevin?

Thank you, Nate. Welcome. Welcome to the future of education, welcome to learning we imagine, welcome to Stride. I'm Kevin Chavous. As Nate said, I'm President of Academics Policy and External Relations. And I'm going to walk you through the regulatory and policy framework under which we operate. But first, in spite of Nate's rousing introduction of me, I want to talk a little bit more about me and my background. I'd like to say and I share with people the fact that on my way to public service, I found my passion. That passion is grounded in the fervent belief that our children are entitled to an equal quality-based education. As Nate said, over 20 years ago, I was on the D.C. City Council, played a role in helping to start our charter school movement. And then I became a student of what works in education. I became a student and educated about education. After that, however, I understood that the relationship between education and politics is intertwined. In fact, I've long believed that there is no Republican or Democratic way to teach a kid how to read, write or count, but the politics of education could get in the way of a kid being able to read, write and count. When I left the City Council, I began to advise, as Nate said, several mayors and governors and legislators. I became steeped in education policy. I was on then Senator, Obama's Policy Committee when he ran for President. And then I also helped to work with people like Joel Klein in New York and Cory Booker in New Jersey. I helped Governor-general start his scholarship program in Louisiana. I came to understand the interrelationship between politics and education. And it was about 12 to 13 years ago, where -- when I got a call from Jeb Bush, where I was introduced for the first time to virtual education and the online education experience. He appointed me to a task force that he and then Governor, Bob Wise, out of West Virginia were putting in place. And that task force was to explore the power and promise of digital learning for America. And when Jeb Bush called me, he said to me, and I distinctly remember, he said, "Kevin, I'm appointing you to this Commission because you need to understand that digital learning, online learning, the digital learning experience for children is going to be part of American education's future." Interestingly, when I saw Jeb after I joined the K-12 team, he said, "you remember our conversation," and indeed, I did. So several years after that, that's when I got to know Nate Davis. And at first, I advised Nate and his team, his executive team on education policy, on academics. I joined the K-12 Board. And during a series of conversations, I shared with Nate the fact that I really thought I could help him. And he said, "Well, let me tell you right now, Kevin, if you come and join the team, you need to get your hands dirty." Well, 3 years later, my hands have been caked in mud. But it's all good. Because over the past 3 years in my previous role with the company, I was able to help drive more excellence, more focused adherence to our academic excellence framework, and also make sure we had a Chief Academic Officer who will ensure that there was consistency in the academic output that exists in all of our partner schools. And not only that, as Nate alluded to, relationships is so important, such a key component of our success. He wanted to make sure that I was tasked with responsibility of enhancing our relationships with our partner Boards. In this new role, now that the -- Tony Bennett is now the Senior Vice President of School Management, as Nate alluded to, a superior educator, one of the best in the country. He's run education departments in 2 states. He is now running schools and will run it much better than anyone else. But in this new role, I am equally excited because I am responsible for all things external. I'm at the point and at the front end of establishing and maintaining relationships with all of our key stakeholders, policymakers, authorizers, elected officials, influencers. I'm also responsible for new school development and the policy thrusts that impact our business on a state-by-state basis. So the highlights that I want to focus on today are essentially 3 main areas: one, it bears noting and it bears some emphasis to talk about the complex nature of our business and our ability at Stride to navigate within those complexities. Then, as Nate alluded to, we want to talk about the elections and the impact on Stride's business. This has been a highly divisive and highly charged political time in American political history. And I get asked all the time about the impact of the federal elections on what we do every day. I will unpack that for you. The third area is state funding. Another question I get asked is because of COVID, because of the pandemic, because of the challenges that exist, won't that affect your funding stream? And how would that impact your ability to grow? I'm going to talk about all of those things. First, let me chat with you about the complexity of our business. Through our core business, we operate in over 30 states, and each one of those states has a different regulatory and compliance requirement. They have different funding models. They have different approaches in measuring academic success. They have even different requirements and how you even can do business in the state. Moreover, many of the states have union teachers. Many of our schools are union teachers. And the politics in each of these states is varied, equally complex. There's a myriad of political challenges alone in each and every jurisdiction that we work in. Frankly, that's why no one else does what we do. To be a national education company operating over 30 states, you have to understand the complex nature of the business and demonstrate a seasonability to navigate within the parameters of those complexities, and we do that well. Let's look at the politics. We have schools in the deepest of blue states like California. But we also have schools in the deepest of red states like Indiana and Kansas. Oh, and by the way, we operate schools in purple states like Arizona and North Carolina. A large part of our success over the past 20 years has been our innate ability to establish and maintain those deep political relationships on both sides of the aisle. And you know why? Because we focus on one thing, what's best for the children and families that we serve. So in many ways, our core message supports our approach to business development. And by the way, those relationships have helped us as we pursue our policy objectives that are important state by state. And we work with our independent Boards that help us operate the schools in every one of those states. So now let's talk politics. I am, as I said, a recovering politician. So I can talk freely about the political world. Many people say, does it matter if President Trump is elected or President Biden is elected. Well, the bottom line is the presidential election has little impact on state education or state charter policy. And you know why? Our business is basically a state-based business. 90% to 95% of our funding comes from the states. In fact, probably the most striking aspect of this election cycle for us from a business development and a business maintenance point of view was the fact that during this election season, there was no significant swings in state legislatures or governorships, and that is important. That means that the approach we've taken in terms of nurturing those relationships and making sure that our policy objectives got a willing and attentive ear, then those people are still in-charge in the states. Now all that being said, I do not want to give short shrift to the power that exists in the federal government or the bully pulpit that the Secretary of Education has. And we still have solid ties to the federal lobbying team -- with the solid -- federal lobbying team that has solid ties to the Biden team. Not only are we working with folks who have those ties, we also meet regularly with members of Congress on both sides of the aisle. And there are 2 things, 2 likely policy thrusts that I want to share with you that will emanate from the Biden Administration that directly in a positive way impacts on our business objectives. One is that it is clear that the Biden Administration wants to help states better prepare for and advance online learning. In fact, if you look at the Biden website, his plan for reopening schools, he says clearly that he will test the Department of Education with developing and sharing best practices for a high-quality, remote and hybrid learning. That's right up our alley. Secondly, the Biden Administration has a deep commitment to career learning. One of our major, if not, the major objectives for the future. We expect that we will get a willing ear with federal policymakers, both in terms of helping states better advance and enhance their online capabilities and also sharing our best practices and our knowledge space as it relates to career learning. So I want to talk to you about 2 more topics. One is the funding for the schools that we operate and how we plan on growing our programs. This slide that you see in front of you is a primer on how we get paid from the states. And Nate talked about the fact that in our traditional core business, where we run and operate schools, we started out as a curriculum company, then a company -- a charter school company, and about 60% of our relationships in our core business are with charters. But 40% and the growing part of our business in terms of operating schools are with school districts. And the funding is -- that we get comes from one of those folks that we work with. Keep in mind that we are an educated service provider. That means we're a vendor. Sometimes people say, well, I know you all have charters in certain states. We don't own any charters. Most of the states that we operate in, it has to be an independent nonprofit Board that owns a charter. And this is what this chart shows you. The money comes from the state, it flows down to the authorizer, who authorizes an independent Board to run a charter, and that charter then hires us, and we get paid in that way. And by the way, with the school district, the money goes from the state to the school district, and then to us. Now this next slide is just as important. Again, there's this feeling that because of COVID that there will be a gap in education funding post-COVID. But over time, as you see, education funding in America state-by-state continues to grow. If you look at this chart, even during a recession, where there's been a dip or an economic downturn, state education funding always comes back, and generally, in a big way. This chart demonstrates that the state's commitment, the collective U.S. state's commitment to education funding is obvious. In fact, for many states, the biggest budget line in their state budget is education funding. But there's one other thing that will help us even as we go state-by-state to grow our business. Similar to the Biden Administration's stated commitment on its website to advance more resources to help states grow their online educational offerings, we expect that there will be new state money available to help local school districts enhance in advance their online learning capacity. As I mentioned earlier, I'm now spearheading our business development, Stride growth. How will we grow? Well, Nate alluded to it. First things first, relationships, relationships, relationships. We will build on our existing relationships and our expertise. And you know why? Because we know how to run schools. We know how to do it in a complex regulatory environment across many states. We know how to innovate. We understand personalized learning. But more than that, probably, we know what school districts want. We know that they need to grow and enhance their online capabilities. They need help with teacher training. They need a curriculum that's adaptable online, and they need a secure platform. We can help with that. We are the best resource in the nation to help fit a need that all U.S. schools are grappling with. This slide shows our potential future footprint. We will utilize multiple models, as you see on the right-hand side, in order to grow these relationships that we plan on developing. On the left, you'll see the new states that are listed that we expect that we will move into over the next couple of years. And on the -- and then the middle of the page are the new schools and programs in existing states. Our goal is to have 100,000 new students, as you see at the top of this page. But I want to call out something, and I want you to pay attention to something very important because there's this feeling that after COVID is abated that we will go back to the old normal. Well, I would be pedestrian that ain't happening. In fact, the new normal will include an online learning experience for children. And when you see blended programs, sometimes, I call them hybrid programs, that will lead to a fundamental pivot in how kids are educated in the future. We have talked to hundreds of school districts around the country. As Nate alluded to, we have relationships with a lot of school districts through our institutional business, but we also run and operate schools for several school districts around the country. And they are looking at maybe 2 or 3 days in a brick-and-mortar classroom, 2 or 3 days in an online setting, hybrid learning is here to stay. And we excel in blended hybrid learning experiences for children. In fact, some of our highest-performing schools are in the blended-hybrid learning arena. So let me summarize. We are the nation's leader delivering online education services at a time when our expertise is most needed. Our execution strategy is to coin a phrase, think globally, act locally. We'll work with the Fed. We have resources and reach to work with the federal government and the new Biden Administration. And we'll work with them to advance policy initiatives that will enhance online learning capacity state by state. But we will remain emerged in building relationships state by state, which is the true guts of our business. Our growth strategy is grounded in -- on the premise of Stride being a value add. We're not a competitor to a traditional American public education. Now we're an ally. We're an asset, not an adversary. We work with 1,000 school districts currently. This summer, we added 150 school districts to our ranks of partnerships. And there's more to come. So the final takeaway is Stride Learning is coming to a town near you. Thank you. Now Mike will take us to break.

Thanks, Kevin. We're going to take our first break. Please enjoy the video clips. Take a moment to submit your questions, and keep your eye on the clock. We'll see you back here in 5 minutes. [Break]

Welcome back. It's my pleasure to introduce our next speaker, Senior Vice President of School Management, Dr. Tony Bennett.

Thank you, Mike. In case you didn't know, I am not the Tony Bennett who left his heart in San Francisco. As Nate mentioned, I have spent about 40 years of my life as a traditional educator running public schools, running public school districts and running 2 state agencies. I started out as a high school biology and science teacher and head boys basketball coach and for the hoosiers in our audience know how important that is. And I worked my way up and literally sat in every chair in the educational platform from the elementary school principal to a high school assistant principal, high school principal, district assistant superintendent, superintendent, ran a CTE program, and then had the incredible opportunity to work with Governor, Mitch Daniels, in Indiana, where we launched what many people believe was the most aggressive education reform agenda in the United States, where we advanced School Choice, advanced charter schools, improved our educator effectiveness, school accountability. And the most important thing is we did all this with the frame of making sure that every child, regardless of their race, regardless of their ZIP code and regardless of the amount of money their parents made each week, we made sure they had the opportunity to have the best education for them, and I was very proud of that. I then had the opportunity to go work for then Governor of Florida, Rick Scott, who is now U.S. Senator in Florida and had an incredible experience running the education program in the state of Florida. But I have to tell you, I'm incredibly honored to be part of this incredible organization and this outstanding leadership team because bluntly, K-12 and Stride, they were providing School Choice an equity for education of children when that wasn't cool. And that is a passion of mine, and I am honored to be here in front of you and talk about how we make sure our core business drives the academic excellence our students deserve. So I'm going to start with some highlights and just kind of tell you what you're going to hear. I mentioned that I was a basketball coach. I believe you tell people what you're going to tell them and then you do it and then you tell them what you told them, and it's a pretty simple equation. So we're going to talk about how over time, over the 20-year experience that K-12 has been in existence, the demand for virtual education has increased and how it's going to continue to increase and how that's impacted our nationwide reach. I'm going to spend some time talking about driving school of excellence and performance. It's incredibly important that if you're going to offer a choice for children, that choice is a great choice. And that choice meets every child where they stand and takes them to their highest level, and that's what we're about. And we're going to talk about improving customer satisfaction, and we have some pretty interesting information that I think I can share with you as a lifetime educator that validates the outstanding work this company has done. So with that, let's move forward. Let's talk a little bit about the increasing demand for virtual education. And many people in the education circles today have talked about COVID being a market changer. It's not a market changer, it's a market accelerator, and let me be clear. The interest and the demand for virtual education has been in place and increasing for 20 years. As a matter of fact, I would suggest to you, there are many market powers in place. Most importantly, we have parents, many of whom went to a virtual educational experience, maybe in their high school days. Many of those got their undergraduate or graduate degrees through an online platform. And they now understand that this is best for their child. It's now a lifestyle decision. So we now have parents who are digital natives. Nate and Kevin mentioned our partnerships with school districts. For many years, politically, publicly, there's been this discussion of choice in education. And is it -- are you pro-school choice or are you pro-traditional public school? What we know today is those lines are blurred. Because of our district partnerships, we are helping to give school districts more capacity to educate more children. You see an idea there about online professional development growing. Many of us took online courses in college. I'm here to tell you, I had a conversation last week with a district school leader who had the opportunity to experience one of our professional development sessions for her school district, and her administrators came back and said it was the best professional development they had ever experienced. That's an incredible feedback coming from the traditional public education experience, but let's also talk about COVID. I mentioned COVID being a market accelerator. Yes, there is increased awareness. There is increased demand, and all of that leads to that graph that you see on the right, which this is a $35 billion addressable market. So what does that mean nationally? If you put a map of the United States like we have in the slide in front of you, you see what might look like blue states and gray states. We've seen these types of maps over the last few weeks, maybe with different colors. But what that shows you is basically we are across the country. We have a stable, predictable, massive revenue source. And it allows us to continue to do great things for children in other areas. You see the blue states. Those are states that have already taken up either statewide or district policy for virtual education. Now that doesn't mean that those white states or gray states that you see there, it doesn't mean they don't. It means they're in process because, as we speak today, many of those states that are shaded in gray are having conversations about how they address education for their children, especially in this pandemic experience. And we're thankful we're a part of every one of those conversations today. Nate and Kevin both mentioned an important statistic, and that's the 60-40 split. You see 63-37 on the right side of your -- of the slide. At one time back when I was a young state chief in Indiana, it wasn't 63 and 37 split between charters and public school district mix. That tells us that the interest and demand for public-private partnerships is growing and will continue to grow. And that tells us that we will reach more and more children in the states where we currently operate along with the states that are considering an expansion of virtual education. So why would a child or a family choose a K-12 or Stride-powered school? I could stand up here and give you and read this list of bullet points. I don't think that's really the key. The key is a little background. I stood in front of state leaders -- state district leaders in Indiana in 2009, and I said, you don't need to worry because this is really for homeschool kids. These are for your lead actors, your elite athletes, your musicians. This won't affect you because at that time, there wasn't that 60-40 split. Now we see virtually 160,000 reasons, these kids come to our schools, either they're bullied, they have a special need, they're medically fragile, might be behavioral issues. They might be homebound. Maybe they live in a rural area where they don't have abundant school choice or they don't have access to the type of programming they need. So in an environment that demands personalized learning, we offer personalized learning at every level from academic to the supports for academics to social and emotional needs. But I think it's very important we take a look at a couple of the statistics on the right. Today we see that 83% of our students enter school below grade level. That's a challenge, that's a challenge for all school districts. We hear it every day. We see that almost half of our children are eligible for free and reduced launch. And we see that 16% of our students enter our schools having a special need. And again, that is the basis of personalized learning. Take every child where they are, take them to the highest level of their capabilities. And so as that slide says, while there's 160 reasons, there are 160,000 ways we drive education for each child. Let's talk about the COVID experience. We'd be remiss if we didn't say that. We didn't talk about it for a minute and visit it. I think the best thing I can say, and there's a lot on this slide. The best thing I can say, and I want you to think if you have children in school. K-12 are stride-driven schools, had an uninterrupted educational experience since last March when the pandemic grew and when many school districts were sent home. Our students didn't miss school. Think about that. We don't have snow days. We don't succumb to hurricanes. Our students learn. But let's talk about the why behind the what, and the why behind the what is we have 20 years of experience. We know how to do both synchronous and asynchronous instruction. We have a world-class platform and curriculum. Nate mentioned that. And we have teachers who understand how to drive relationships and drive academic rigor in a digital environment. No criticism of our traditional public school partners, but they were asked to perform the impossible when they were asked to flip to a virtual experience in a day or two. That's why they turned to us. And we were proud to help them. As I mentioned, part of my background has always been running schools, running school districts. And I mentioned my experience as a basketball coach. And I would tell you that it was a great life experience for me because I learned as a young coach that if we focus on doing a few things incredibly well, our teams won, and I was always very proud of our records. And what we're doing to drive academic excellence is the same thing. It's the same lesson we learned when we were in Indiana, where we took 3 or 4 measurables. We took our state assessments, we took our graduation rates and the number of children, the percentage of children getting Advanced Placement International Baccalaureate or industry certifications and what we saw over a 4-year period, improvement grew steadily. We're doing the same thing here. For those of you who are kind of my age and maybe a little younger or a little older, we know the 3Rs, the old 3Rs of education: reading, writing and arithmetic. It's not the case in the 21st century. This is about rigor relevance and relationships. Academic rigor, relevance to what means -- what a child will see in their post secondary life. And building relationships with inspired and inspiring teachers and leaders. I mentioned those 3 important measurables. And this is what we focus on every day. We have 4 regional teams, and I am proud to tell you I have some of the -- the opportunity to work with some of the greatest regional leaders I know. And they are driving these results with our heads of schools daily. And I want to just spend a moment and talk about those. One is literacy. Sounds simple, and it is. But we know from research, how important it is for a child to be able to read when they leave third grade. And think about the statistic about how many of our children come to us behind grade level. It's especially important in a digital format. So we are focusing every day on providing great literacy instruction, literacy remediation and monitoring of curriculum and instruction so that we make sure our children have the literacy skills necessary to flourish in our academic programs, but most importantly, flourish as they move through their academic careers and on to postsecondary life. The second one, growth. Take a moment here and talk just a little bit about the pandemic in that it's going to change the way we assess children, and I am very proud that Kevin, Nate and the team here thought about this well before the pandemic. Because we will be moving in the future, very likely to a way of measuring children throughout the year to see if they're growing. We've been doing that here for 2 or 3 years. And that's very important. It keeps us ahead of the curve. And it will allow us to be part of the national conversation that will likely come after the pandemic. I believe as an educator, every child has the right to grow at least one year in one year of instruction. And the end result should be that we prepare students for one of those 3Es. I call them the 3Es, it's enrollment in a post secondary educational institution; employment, earning a family sustaining wage goes to the heart of our CRE program that Dr. Shaun McAlmont will talk about or enlistment, where a student moves on to selflessly defend our country and advance their career through the training they get in the military. So literacy, growth and the third is retention. How do we make sure our students stay with us? We do it by monitoring engagement every day. What are we doing to engage our children? The child thinks about leaving us. What are we doing to reach out to see if we can help them in their decision-making process. The result is on the right. That chart, as you can see, shows that as we are successful in these areas, and we keep students with us, they do better. And that's very important, and it's going to be even more important as we all examine what happens with the academic slippage that will likely come across the country as a result of the pandemic. I mentioned this slide a little earlier. And it's the slide about scale and success. Again, having run school districts and state agencies, I will tell you one of the greatest problems we know about in the education industry is how do you grow something and keep its quality. Frankly, the toughest question most district superintendents, most principals, most educational leaders struggle with every day. This slide explains very clearly that K12 Stride has been able to grow and not only maintain customer satisfaction but improve it. And the result is, and Kevin made this very clear, this all comes down to the life of a child. And everything I have spoken about tells us that we have been successful in sending children to some of the most prestigious colleges and universities across America. We've prepared children for opportunities in the trades, and we help them flourish as they pursue their post secondary plans. So as I sum this up, there is an increasing demand for virtual education across the country, and there's no doubt that COVID will continue to accelerate that. And I dare say, it won't slow down. Just as Kevin said, this won't slow down as COVID ends or there's a vaccine. When we come out of this, more and more people are going to look at personalized instruction and choice as the driver for their educational experiences. We will continue to expand our national reach, not only with our current schools, but also with our career destination academies. But most importantly, we will continue it in an environment of excellence and high customer satisfaction. And folks, I'm here to tell you, as a traditional public educator, that's what I hang my hat on, and that's why I'm thrilled to be part of this company and see this company in the growth that it has in the future. With that, I would like to introduce our President of Strategy, Marketing and Technology, James Rhyu.

Thanks, Tony. Appreciate it. So my name is James Rhyu. And as Tony mentioned, I'm the President of Corporate Strategy, Marketing Technology. My background is, before I came to K12, is working in various innovative companies, Match.com, Dow Jones, SiriusXM Satellite Radio, and when I had the opportunity to come to another innovative company like K12, I jumped at it. I came about 8 years ago to K12. And when I came, I came first as a CFO; over time, my role evolved, and this past year, Nate asked me to move into this new role. And really, the purpose that he challenged me with in this new role is to really drive K12 towards that $100 billion market opportunity that he referenced earlier and driving towards that growth and scale and leverage that we know we can achieve. And so really, the purpose of my role is driving K12 toward that market opportunity. So I'm going to talk to you today about 4 pillars that really ground us in our strive towards growth, strive towards scale and getting that leverage. The first is we, over the past 20 years, have built a platform, Education-as-a-Service platform that hinges on our ability to package both product and service in one for our clients. The second is innovation. We are a company 20 years ago, that really was the founder of K through 12 online education. And we need to take that innovative spirit and continue that and continue to drive innovation through existing product but also through new product. In our ability to scale, we also, as Tony mentioned, we need to retain students, and student retention has both an academic benefit as well as a financial benefit. And I'll talk a little bit about that. And as we scale, we need to ensure that we have operating leverage through efficiencies, improving unit cost. And I'll talk to you a little bit about how we're going to do that. So the next 2 slides, I'm going to talk about Education-as-a-Service platform. And this slide here is really what K12 was founded on 20 years ago. It's really the foundation of our product and service offering. We have built the largest, most comprehensive digital-first curriculum in the industry. And that digital-first curriculum evolves. And as Nate mentioned, it's mobile first. It provides access across a breadth of disciplines. It's now involved in career readiness education. We have systems behind that proprietary systems that allow us to scale for the growth that we've had this year, and as Kevin mentioned, for hundreds of thousands of more students to come. We backed that out with a service platform that allows for us to not only provide a product, but to back that up with a service, predominantly both teachers and back office. And so we have instructional services. Those instructional services are not just teachers. They include counselors. They include other educational support services. And then you have a back office. And that back office, as Nate mentioned, involves everything from the finance to HR to compliance that allows us to bundle together a turnkey solution for our clients. And that forms the foundation really of who K12 started out as, and we were able to build off of that foundation as an Education-as-a-Service platform. This next slide here is really the left-hand side -- slide -- part of the slide is, in fact, that same foundation but as we move into Career Learning, we take that foundation and we build an ecosystem around it. And that ecosystem allows for us to provide a path for our students towards a career. In the foundational business, we have around General Education, the outcome that we're really shooting for is education. In our Career Learning, the outcome really is a career trajectory. And that career trajectory is predicated on being able to tap into, as Nate mentioned, hundreds, thousands of career partners, the ability for our students to leverage learning not just through textbooks but through interactions with industry professionals, through linkages with corporations in our talent platform, as Nate mentioned. It gives them the opportunity to work in teams through project-based learning, just like you would in a real-world work environment. It gives you the opportunity to get certificates in fields that are in high demand and growing, like the health care field. And our strategy around our MedCerts acquisition was exactly that to give that pathway for a career trajectory. So this really forms the foundation of our General Education and then the ecosystem around which our Career Learning is built and enables us to scale through the coming years. Now I'm going to show you a video here that gives you a little bit of a taste for how this all comes together for our customers. [Presentation]

I hope that video gave you a little bit of a taste of what we bring to bear in the market and the product differentiation we have. It's interesting over the past 6 or 8 months, I think we've all learned a little bit through this pandemic of what online learning could be. But unfortunately, also, the difficulties sometimes in bringing online learning to kids. And our platform and our service offering is really differentiated, as you can see from that video. And as Tony mentioned, through the pandemic, our kids and our platform is still -- and our teachers are still able to deliver seamless education. In addition, what we're able to do is really meet kids where they are, whether, as Tony mentioned, it's the 80-plus percent of kids who are coming into a grade behind grade level, whether it's a young adult in a Career Learning path that is trying to get into a new field, we're able to meet learners where they are. And part of that, our ability to do that is through the innovation that we bring to bear. And that innovation is both internally developed and partnered innovation. We use tools in the marketplace like AR, machine learning. We bring those to bear within our platform to really enable our learning. And that improves the customer experience. You may have seen in the video, we have an ability, for example, for those learners who are behind grade level to sit in the same classroom with their peers, which is important for their social development but they -- while they may have a below grade level reading skill, they can still read the same passages because we will translate those passages into a lower reading level for them online, real time. Over half of the people in the U.S. today have English not as their primary or first language. We have tools that will allow our curriculum to be translated into over 100 languages. It's bringing these tools to bear that allows our product to be able to meet those learners at their point of need. And through that innovation and the continuing innovation that we bring to bear in our platform, we think that we were able to continue to differentiate ourselves in the marketplace and continue to go after with a growing and evolving education landscape. And we're going to continue to invest in those innovations through our career platforms, and both organic and inorganic means. The last thing on innovation that I'd like to mention is that we, by dint of the fact that we educate so many kids each year, hundreds of thousands of kids each year online, we have more data around how these students learn. And over time, we're going to be able to use that data and innovate around that data to improve the experience for our customers. The last 2 topics I'm going to talk about, as I mentioned earlier, are really around retention and scalability through cost efficiencies and unit cost. Retention is so critical for us, both from a financial standpoint, but as well as from an outcome standpoint. We know that students who stay in our programs longer, over time, will have more opportunities for them. They'll achieve better outcomes. And as you can see from the chart here on your right, we've spent years improving our withdrawal rates. Our withdrawal rates have come down, meaning our retention has gone up. And we still see a lot of opportunity to differentiate our programs in such a way that really helps retain more of our students. In these days, in this day and age, many kids, their engagement, whether it's in our program and other programs, involves some sort of online social engagement. And so we're bringing things like more social engagement to our students, which we believe will help drive up retention and improve our overall outcomes. Lastly, I want to talk about efficiencies. This year, we saw great improvement in operating leverage. Primarily, as you can see on the chart from the right, our SG&A as a percentage of revenue will improve 500 basis points, and we do that through a number of tools. We apply automation tools and techniques. We look at our unit cost and try to drive down unit cost. We're continually looking for ways to make the customer experience easier and more seamless. And so our ability to drive these efficiencies and drive down lower unit costs, help us create leverage for our business and scale. So to wrap up, these 4 pillars are platform, the foundation and then the ecosystem around our career readiness platform, the innovation we're going to bring to bear, the improved retention, the better unit economics. They all will help drive us towards growth and scalability in the future. I believe we're just in the first inning of this game. We have put up points on the board already, but we're just in the beginning of what we can do to go after that $100 billion market opportunity Nate described. So with that, I'll turn it back over to Mike for our next break. Thank you.

Thanks, James. We're going to take our second break. So please again, enjoy the video clips, take a moment to submit any questions. And watch the clock. We'll see you back here in 5 minutes. [Break] [Presentation]

Welcome back. It's my pleasure to introduce our next speaker, President of Career Learning Solutions, Dr. Shaun McAlmont.

Thank you, Mike, and good afternoon, everyone. I'll start by just the order of quick introduction. The majority of my 30-year career has been in leading career training businesses at the adult or postsecondary levels. And as Nate mentioned earlier, I've served as CEO of 2 training companies and had the good fortune of also being the President of an online technical college and actually started my career recruiting high school students to college and advising student athletes at the college level, but all related to career development and success. I met Nate a number of years ago, and he shared with me his vision way back for bringing Career Learning to students at the earliest of ages. And I've got to tell you, when I heard his vision, I was all in. I love the idea of bringing career readiness and career talent related developmental skills to students in the early grades because it will actually help them the moment they graduate, post graduation, it will help their future families and also their communities. And so it's a great initiative. So I joined Stride a couple of years ago, and my role here is focused on building the Career Learning business and bringing my experience in career training to a company where I can also leverage the operations, the experience and the national footprint of Stride. So my presentation today will focus on 3 strategic drivers for the Career Learning business. First, we are well positioned to take advantage of a large and expanding addressable market. Second, we're leveraging the Stride infrastructure while also building a diverse portfolio of assets and related partners to fill a gap that we see in education today, especially at the middle school and high school level. Thirdly, we're creating a unique offering that spans early career prep all the way through adult talent development. You've heard that from a number of our speakers today. And all of this point to a significant growth potential for this particular line of business. So let me go into a little more detail on each of these strategic drivers. First of all, we see this market opportunity expanding, and it's really based on a number of trends that are driving demand for our career related solutions. First and foremost, I think you've heard it from Kevin first. You heard it from Tony loud and clear. And I believe Nate and James also mentioned it, but we have bipartisan political appeal right now. Workforce development is an important factor for this country, no matter what side of the aisle you sit on. In addition, we're living in an automated sort of tech-driven workplace that requires new types of training at all levels. And we've got to be ready to present that type of training to students while they're still in the younger grades. And thirdly, there's an increasing reality and acceptance that new collar jobs or the newer jobs today in today's workplace probably require a different type of training than we've offered in the past. And it might relate to more certification and technical training versus a traditional college degree. I think a number of CEOs have forecasted that their hiring trends over time are going to shift just to employees that have technical skills and abilities versus a traditional degree. And so we wanted to be ready and poised to offer that type of training. Ultimately, we believe that we've expanded our addressable market, and we've done it considerably to about a $65 billion market opportunity based on the addition of Career Learning at the middle and high school level, and also by adding these adult learning assets and corporate training opportunities for the company. There are a number of real market trends that are giving us a tailwind in growing these programs. First of all, workplace demands are changing at a pretty rapid place. And I believe that schools at all levels are having a hard time keeping up with that. At the high school level, we know that teachers are having a tough time understanding that new environment and therefore, a tough time translating those skills to students, and those students are having a tough time finding jobs shortly after high school and thereafter. In addition, student debt is increasing past the $1.6 trillion mark, and that debt crisis will soon become a default crisis if we don't address it. The return on that particular education spending is not reflected in the readiness of students coming out, 75% of employers today are reporting a skill shortage. And ultimately, the real economic cost to -- for all of this is topping the $1.2 trillion market loss output. So what are we doing about it? We're building career solutions that span multiple segments of education and addressing the known gaps that we see in education and providing skilled workers while doing it all at scale. So we've done something pretty unique in the industry. Our second real driver here is for creating a portfolio of assets that allows us to be diversified in our approach and expand our addressable market, both of which we've already done. You saw the announcements of the 2 acquisitions we made last night. And ultimately, our middle school and high school prep program that allows early career development also benefits from the adult training businesses that we've purchased. The adult programs focus on 2 of the highest demand areas that we see in the market today, fields that don't necessarily require a traditional degree for high salary jobs when students graduate. So all of this means that we've added value to the company, we've introduced something new to the market, and we've also added access to a talent management platform named Tallo that Nate mentioned earlier that allows students to access both jobs and continuing education opportunities. I think it's important to mention the competitive market landscape as well and where we're currently positioned. The competitive dynamics around career training from middle school to high school and onto adults is somewhat fragmented. We are a first mover and taking a significant step toward training younger students at scale and then adding the adult trading on after that and ultimately, creating a comprehensive path, which really hasn't been done before. Our competitors are taking a variety of approaches versus ours that really leverages the Stride national network. The reality here is that there are considerable barriers to entry on the high school and middle school side. And so our competitive position is strengthened at that middle to high school level because of what we're approaching. When you look at the map, we showed a map earlier and where all of our general education schools are sitting across the country. Our national footprint really does support our growth today. And while we operate the middle and high school programs in most of those general education states, we've got a goal to expand to all of those states, and that's reflected in the states that are in light blue. We currently have about 30,000 students enrolled with capacity to grow in addition to targeting ongoing capacity expansion through existing schools and states and also new programs over the next few years. So what we've created for the student experience shown on this slide is a combination of learning steps that builds a unique experience and also builds confidence of the middle and high school levels. If you look at this slide from left to right, it really is a carefully designed progression from industry exploration to selecting courses and pathways that introduce students directly to professionals through a partner company that we have named Nepris. You heard earlier, I believe almost everyone who's presented talked about the importance of project-based learning. This type of learning really allows our higher level career and team skill building through that student development when it's joined by work-based learning experiences. That learning is authenticated by what's happening in the workplace. It's not simply teacher and textbook led. Certifications in badging and early college credit also lead the student journey to very high levels of workforce readiness. That confidence is also built and a level of sophistication that we haven't seen before, especially in those younger ages. So overall, the program and the experience that students have are building along the way to prepare a student and increase their options to graduation, whether they're looking for a job, to go on to traditional college, a tech training after school or the combination of all 3. So I'm going to take a moment and share a case that highlights the unique experience I just described. I'll use this slide to really preview a video that you're going to see next that depicts a group of our Florida students engaged in project-based learning. This learning method has elements of problem solving, group work and experiential learning that takes a student out of their comfort zone typically. They work on projects that are real industry challenges, and they solve those problems and projects in their teams with facilitation from the teacher and actual input from industry. As students assist each other in teams, you can see how they develop career skills and confidence, and we see it in the chat. Sometimes when one of the students in a group might not be comfortable talking to an employer or they might not be comfortable in presenting back to their teacher or their group or to an employer to authenticate that learning, we see in the chat that they support each other. They back each other up. And developing that at middle school and high school levels is critical in building that career confidence as they move forward. And so although this is a well-known method, we do it in a blended fashion between virtual and face-to-face, and now we're doing it at scale. So let's watch the video. [Presentation]

This video is a great depiction of how project-based learning should work between the student, the teacher and industry. When those students were able to go into a local business, it really authenticated that experience. And so it gives the students a competitive advantage over students who don't have that type of experience. It builds very important career confidence, and it gives them a leg up on an early entry into their career of choice. And we think that, that confidence level is very important, not only for the moment they graduate, but years later. So this is going to be a hallmark of the program and developed early at the middle and high school levels. Now that high school level experience is matched by experiential learning in the adult programs that we have. And so you can see why this is an important function and feature in all of our career related programs. So we're currently focusing heavily on the development of technology, health and business-related pathways. And you can see the pathways that we offer here and particularly the job categories that are in high demand in each of these pathways. And so you've heard us talk about software development, the move from MedCerts programs, which I'll describe in a moment, toward nursing, incremental movement toward higher salaries in the pathway of choice. We're also currently working with industry representatives to continue the development of both advanced manufacturing, agriculture pathways, soon to the trades. And in doing all of this, the goal is to build out high job demand pathways, but we also consider career pathways that are our high student interest pathways as well. So here's the sample of a general IT pathway that what we're creating. Now I should mention previously, our IT pathway was more of a loose collection of similar IT courses that were found in our career technical education catalog of courses. Today, and looking forward, the introduction of Galvanize and Tech Elevator courses and their related content put together in a structured and developmental path gives students an opportunity to accelerate their tech training. The more structured path, in addition to project-based learning that we just saw, the addition of Nepris industry exposure and work-based learning strengthens that career development from top to bottom. The new pathway structure that we have increases our student earning potential at the moment of graduation and then even in a short period later, as they have more continued training to substantially higher salary options. So the addition of these acquired companies accelerates not only our content development but that acquisition of content time line as well. So I've talked about IT, but let's also turn the time to talk a little bit about the other high demand area that we're focused on developing, and that's health care programs. As you know, IT is a male-dominated field, and health care is equally dominated by females. The development of health care training programs, as we look forward, allows us to broaden our demographic reach and realize a similar approach that we've got now in IT development. And so this opportunity is provided through the acquisition of MedCerts. So let me talk about MedCerts just for a moment in a little more detail. I know Nate introduced it earlier, but I've liked this company ever since first learning about their programs and seeing how they operate, a great leadership team and they're a growth company -- a profitable growth company, which is important as we expand our market into the adult training area. The students upon completion have a really impressive certificate exam pass rate of 89%. And I should mention that MedCerts doesn't provide the certification testing. They provide the training up to the certification readiness and students go out and take the certifications from third-party certifiers. They focus both on consumer and enterprise level training. And they recruit through a number of channels, including direct-to-consumer, adult learning centers and also the military. The organization has a number of programs, and we mentioned them before, you see some listed here. And let me just also mention at this point that all of these programs that they offer lead to an industry-recognized certification. There are -- they offer a number of programs and the tuition ranges from about $1,300 to $6,000 per program, and the programs run between 3 to 6 months in total. So they're not Title IV eligible programs. They really focus on the shorter-term entry-level programs that provide a job that can then be stacked with different types of experiences leading up to other types of -- or for the full-time program that adults would take. And I should mention at this point that there would be no incremental costs to our high school students who are taking MedCerts content while they're in high school. So here's a sample pathway on the general health side. So similar to IT, MedCerts allows us to add high school appropriate level industry content which increases, again, the student earning potential upon graduation and thereafter. Students will have the opportunity to extend their training and stack experiences toward nursing or other higher-paying careers over time. And again, the more structured path in addition to project-based learning, that industry exposure through Nepris and work-based learning experiences, strengthen the student career development. So the addition of MedCerts and the other companies I've mentioned, really do accelerate our content development and content acquisition time lines. We have a developing strategic partner ecosystem that allows for mutually beneficial partnering. On one side, we have corporate partners and education partners that help advise us on what the curriculum should be, how do we keep it real and up to date, how do we advise our students to negotiate the new marketplace, a new workplace. That all comes from having career advisers on the corporate side who can help us stay current. In addition, they provide job shadowing and intern opportunities to many of our students. Now on the other side, we are introducing students to many companies and higher education institutions at early ages and providing a potential pipeline for future employees and college level students. And so that mutually beneficial partnership opportunity is very important to the company. A combination of local partners around each school, as you saw in the project-based learning video and a national partners creates a wide network of opportunities for us. During COVID, interestingly, we turned to the Nepris platform, into the Tallo platform to facilitate connecting students to industry virtually, and we'll continue to do that at very high rates. Because of those 2 platforms, we can say to every one of our 30,000 career learning students today that you have an opportunity to talk directly to an industry professional to learn about what they do on a daily basis, the path they took to their career and what equates to success and not just rely on a high school teacher who's doing their best job to teach or a counselor who's advising students every single day but to talk directly to industry. Developing a variety of outside partnerships is very important to this program's long-term success. So what does all this mean? We have a unique opportunity to continue to grow our middle school and high school programs through the destinations at career academies. And that's done by building quality, strengthening our marketing and expanding our future capacity. We have a compelling opportunity to expand the adult learning businesses as stand-alone entities by leveraging Stride marketing and enrollment resources. And we also have an opportunity to productize our high school career learning program and sell to school districts and other agencies. We will continue to source potential acquisitions down the road that both strengthen existing programs and also expand our market reach. But in the short term, we're going to focus on the 3 acquisitions we've made recently to make sure they really do what we intend them to do in opening our market and also strengthening our programs. So in summary, we've created a line of business that expands our current market reach. It's got a compelling value proposition, and it gives us significant growth potential moving forward. And so what I'll leave you with today is that it is a very exciting time for career learning in America. The secular trends that we're seeing are expanding our addressable market. The diversified career portfolio we've built and that we continue to build strengthens this line of business opportunity. And it all adds up to positioning the company for sustained long-term growth. So thank you for your time today. At this point, I'll turn the time over to Harsh Patel, the CEO of Galvanize, and I believe Harsh will be joining us via Zoom. Harsh?

Thanks, Shaun. Can you hear me okay? Say something similar about the Galvanize team, the collection of folks that are at -- on the Galvanize team have been in this industry since the birth of it. This coding bootcamp industry, this modern version of it was born in 2012, and the folks on our management team were all founders and executives at these code schools all the way back then. One other thing that Nate mentioned about Stride and what really got us excited about but working with Stride in the acquisition about a year ago, was that the Stride team really got it. I believe education is a lot about career learning and Stride and K12 were the only companies that really, from my perspective, understood that perspective and wanted to build behind it. So I'm all about getting people jobs. Galvanize is all about getting people jobs. And K12 and Stride understand that as we build our career learning business. So next slide, please. Let's talk about the few highlights that I'm going to mention. There's 4. The first is that I believe that as Galvanize and with Tech Elevator now, we're the leading provider of workforce training solutions. We have over 8,000 alumni of our programs. We worked with over 3,000 individuals within corporations that we've upskilled. And we're, in my opinion, just getting started with it. Number 2 highlight is that we -- I believe we have a strong consumer education business, and I'll touch more on that in a bit. It's up double-digit percentages year-over-year. It's in 10 locations across the United States with 3 online programs. And believe it or not, we even launched 2 in-person locations in the last 9 months, even amidst the backdrop of COVID because of the demand in these locations for what we do. The third highlight is that we have a large and expanding market opportunity in 2 areas, in particular, in addition to the consumer business, and that's enterprise training and military training. The tailwinds here are significant, and I'll talk about them in a little bit. Enterprises are moving away from paper to digital. They've been doing it for years. And the latest effort is all in bringing in talent that can help them do that themselves and when we enable that. And in the military, we've run a few pilot programs of the military earlier this year and every single one of them are expanding throughout the Department of Defense. And the fourth highlight is, I believe we're well positioned in the big tech markets today. And with the -- with today's news of Tech Elevator, we're now positioned for growth in many of the smaller markets across the country as well. And all of that just enables us to continue to scale and as we scale, we'll see expanded margins as well. Next slide, please. So I'm going to give a little brief about Galvanize for the investors that may not be familiar or maybe just be getting familiar now. There's 4 core sections of the Galvanize business. There's consumer education, enterprise training, military training and membership or coworking. The first 3 are the majority of where I'm going to spend my time on today. Just wanted to give this as a context for folks when I say words like consumer education or enterprise or military. For consumer education, in particular, I'm talking about the full-time in-person and remote programs as well as the part-time programs we run online, the traditional coding bootcamp, that's what the consumer education business is. Enterprise training is really our upskilling and reskilling for corporations that are looking for upskilling their talent. And military training is our exclusive focus on the military to help a lot of the different branches, upscale their own talent. Next slide, please. So looking at the tailwinds that I mentioned earlier, if you look over to the right in blue, the tailwinds are just fantastic. And frankly, they're just getting bigger as the days go on. The tailwinds on the consumer business, bear with me with an analogy, I believe on the consumer side, we're selling shovels during a gold rush. And the gold rush is technology. And we're -- we have schools that help people learn how to mine during this gold rush. And as we all know from at least the last 10, 15 years and with the advent of AI, that tech gold rush is not stopping anytime soon. At the same time, employers and consumers are increasing their acceptance of alternative training models compared to traditional higher education. Some of you might know, Google recently, famously removed higher education from all of their job requirements for software engineering and data science. And so these tailwinds are really just fueling the demand and growth within Galvanize. And then on the enterprise front, firms want to bring digital transformation in-house. They want to upskill their own workers. They want to retrain their workers. And they want to hire talent that already knows the data science and software engineering tools and technologies that are being used today. And our job is to enable them to do that. And again, that's a very, very strong tailwind that's really helping us. All that is to say, the tailwinds in my opinion are just fantastic for Galvanize and Stride, particularly in this area. Next slide, please. Let's talk about amidst these tailwinds, what are the advantages that we have that are going to drive success relative to other people, let's say. I think the #1 advantage is our strong brand and alumni network. We -- don't just take my word for it, go to LinkedIn, search for Galvanize, search for Hack Reactor, and you'll see thousands and thousands of alumni working at big tech companies who got their education from us. And go to Google, go search, what coding school should I go to, and you'll inevitably find yourself at, yes, Hack Reactor or Galvanize, that's where you should go if you're in the big markets and you're looking to get into tech. So I think that alumni network and that strong brand is the driving fuel behind everything that we do. And next is why that network is strong, and it's because of the career service and guidance programs that we run. And I think we succeed wholeheartedly because of this one thing that we do really well. Think back to your own undergraduate or even graduate programs. Do you remember the name of your career coach, most likely not? Did you even have one? You may not even know. I'd venture to say 99% of us never even stepped foot into the career services department in high school or in undergrad or in graduate degrees. And one of the biggest problems, I believe, is that as an adult, you don't learn how to get a job. No one is out there teaching you what you need to do to go get a job in any of your education, traditional education programs out there. And we do it really differently. And one example I'll give you to drive that home is, think of it this way. As soon as one of our graduates get to job, the first person they text is their career coach. They know their career coach from day one, and that career coach is in their corner. And that just goes to show the strength of that relationship with the career coach, which is what I believe is at the -- is the driving force behind people getting jobs in our outcomes. So next is a competitive advantage that we built internally. It's a technology platform that powers all of our learning and all of our education. And it's tailor-made for bootcamp style education, whether it's an internal bootcamp at another company or our own boot camps. We've built this software that helps companies stand up their own bootcamp programs, and it's the same platform that we use to teach our students. And that platform has this nationwide reach, which I believe is another competitive advantage, and it has the capabilities for, say, someone in San Francisco to write a new piece of curriculum that gets deployed to our students in New York City. Or an enterprise client, we write tailor-made curriculum for them, and all of a sudden, our military clients can use that same curriculum because of this platform. And as you can imagine, all of those advantages, in my opinion, are what drive the scalability and repeatability of the business model. And so we're then able to expand from one location to 10 and more over time with high quality because of these platforms that we've built. Next slide. So let's focus on that second highlight that I talked about, a really strong consumer education program. As a little bit of background, on this slide, you'll see the locations that Galvanize is in today. And you'll notice that places like New York, Seattle, San Francisco, we're positioned in America's tech centers. We've built ourselves around the tech centers. The growth that we're seeing has so far been all around these tech centers. 8 years ago, we only had 1 location. It was San Francisco. And today, we have these 10 locations. We've learned to scale this model and how -- and we've learned to repeat it in new markets. And this is just the consumer education program for our in-person programs. Next slide, please. Let's talk about remote as well. Our strong consumer education program is also driven by this remote program that we've been operating since 2013. To my knowledge, we were the first online -- live online coding bootcamp back in 2013. And we've just improved on it since. And this is similar -- this isn't a synchronous delivery. It's similar to a live Zoom call like this one that you're seeing. And I'm sure, to nobody's surprise, our remote programs have grown almost 3x just in this past year. And the additional benefit to that is even our in-person programs have grown during COVID. We operate both in the live online capacity right now, but we're seeing demand both for in-person programs and online programs as a result of COVID, and we don't see that going away. And I believe it's not actually because of needing to be remote, but we're seeing that people want to be reskilled and they want to be reskilled into these technology jobs of today and tomorrow. Let's go to the next slide. So let's look at our overall impact with this consumer education part of the business. So far, over 2,250 companies have hired our graduates. When you think about our -- the technologies that we use on a daily basis, your Apple device, your PC device, whether it's a Dell machine, an Apple machine, your cars, the Zoom call and a lot of the technology that we use on a day-to-day basis, we have graduates that work on those platforms as a result. It's quite incredible to imagine. But they're at those companies writing software that we use on a daily basis. And over 2,000 companies have hired our graduates. And that includes -- about half of the Fortune 100 companies have hired our graduates. And we were one of the first data science, JavaScript and remote bootcamps out there. And as a result, we have over 8,000 graduates working at tech companies all across the country and all across the world. And to be honest, these numbers are just going to look small in about 5 years, because at our scale today even, we're graduating over 1,000 students per year and just accelerating that ramp while they're getting jobs. So that was the second highlight. Let's talk about the third highlight, the large and expanding market opportunities. Next slide, please. And we're first going to start with enterprise training as one of the 2 large and expanding market opportunities. As everyone is likely aware, there's a digitization going on with enterprises across the entire world today. You'll notice our clients on the right-hand side. That's just one example of the type of companies that we have actually worked with and continue to work with. They span all sorts of industries, and they're all moving from paper to digital. And that started many years ago, but what they're doing these days is they are hiring talent, they're reskilling talent so that they can do that transition from paper to digital in-house and then they can retain that talent and go forward. And that's what we just enabled them to do that. We enable enterprises to pivot their skills into technology. And we do with these 4 products today, and as every month goes by, we -- and we work with more clients, we've learned that there are additional products that multiple clients are interested in. We have something called talent development courses. And that helps us upscale existing talent that companies might have. We run executive workshops for executives that are not used to technology, because that's where it has to start. It has to start with those executives and then the rest of the organization follows. We have a product called Talent as a Service where we will handpick and handfind talent for enterprises that are looking for it and then train them and onboard them. And last, the learn platform. It's that technology platform that I mentioned earlier that helps us scale all of this across the country and across the world, because a lot of our clients are outside of United States. Let's go to the next slide. So the second large and expanding market opportunity that we have seen is military. And let me talk about how this came about. About a year ago, we had just started kicking off pilot programs with some of these agencies, with the Air Force, with the Space Force, with the Department of Defense. And over the last 9 months in particular, all of those pilots have expanded. And we are continuing to see an expansion of our services within the military. And there's 2 ways we do this. First is we actually put our training programs on-site at various military posts throughout the country. The first one we did this with is with Fort Hood near Austin, Texas. And we help soldiers in their last 6 months of service. They will come to a Galvanize program, reskill into engineers and then get jobs as engineers as they transition to civilian life. The second model that we use is technical training within the military. So we go into the Air Force and train airmen on how to write software internally, so then those airmen can write software for the military rather than having external agencies or contractors working on writing mission-critical software. And so today, we're working with the Air Force, the Space Force and the Navy, and we're just expanding those into all other branches. It's really quite exciting. I'm really excited about this particular session and telling you more about it next time. Next slide. So what does this all mean? I mentioned a lot of good -- great tailwinds. I've mentioned how on the consumer enterprise and military parts of the business we're seeing a lot of really exciting stuff. And I'm just going to talk about one of the few things from each of these businesses that are going to really drive our growth. First, let's talk about enterprise and military. I'll save consumer for later, because we're going to talk about tech a lot later. So let's -- if we're talking about enterprise and military, our growth strategy here, and I'll share an example of it, because I think that will really drive the point home. Think about it this way. Say one of our graduates gets a job at JPMorgan Chase, and lo and bold, we do have many, many graduates at JPMorgan Chase. 5 years later into their career, they're now an engineering leader within JPMorgan and Chase. And they're faced with the challenge of training up their entire engineering base. Where they're going to go to train up all these people? We're the first phone call that they make. They'll come back to us and say, "Hey, we learned a lot of great stuff when we were at Galvanize and Hack Reactor. Can you guys do that for my organization, because I'm trying to train up 50 engineers to learn these modern technologies." And so that's how we expand our enterprise growth opportunities, and that's how we accelerate them. Military we just talked about, but we are expanding literally every single pilot that we've done with the military in the last year is now expanding. So I'm really excited to share what that growth looks like in the future. Let's talk about consumer education now. And again, I'll just spend time talking about one of the strategies for accelerating growth, which is this Tech Elevator acquisition. Next slide, please. Let me give you some background on Tech Elevator. The primary differentiator between Galvanize and Tech Elevator is that Tech Elevator focuses on students who are new to programming, maybe they haven't written a line of code before. And they are -- when you look at the outcome statistics, they are the best in the industry at training people who have never written code before. They have a 95% graduation rate. 94% of their graduates are hired within 6 months. The average time to hire is only 24 days after graduation. And so these incredibly high placement rates are our commitment to high quality while expanding our total addressable market into people who have never written a line of code before. Tech Elevator is about a 75-person team based out of Ohio. As you can see on the slide, they've got campuses throughout Ohio, Michigan, Pennsylvania. And so they're really in these smaller markets throughout the country. So that's just a little bit of background on Tech Elevator. Let's go to the next slide, and I'll tell you about why this is such a great acquisition from my perspective. And so here on this slide, you'll see this data table. And on the left-hand side, you'll see a map of locations. Orange is where Galvanize has locations today. Blue is where Tech Elevator has locations today. In the orange, you'll notice it's in big tech centers, and the type of learner in these locations in orange is an advanced beginner, someone who has some familiarity with code already. And I believe as Galvanize, we do an exceptional job of training those people to get $100,000 jobs as engineers and data scientists. If you look in the blue, they're not in big tech markets. The blue Tech Elevator locations are in smaller cities, smaller markets, where people may not have tech experience, and therefore, they're starting from scratch. And Tech Elevator does an exceptional job at taking someone who has never written a line of code before and with a high degree of probability of the high placement rate, getting them a job at a $60,000 a year salary range. And so you can imagine, 5 years from now, there's going to be a lot of blue on the map, almost in every single state most likely as Tech Elevator expands into these smaller markets. And we're now going to be able to address this market of people who've never written a line of code. And as Shaun mentioned in his last presentation, with the students in the destination career academies, many of them have never written a line of code before. And we believe that Tech Elevator is going to be a really strong way for them to get upskilled and land jobs at the $60,000 a year range, which is a fantastic outcome, especially for a high school read. Let's go to the next slide. So bringing it all back together, these are the 4 highlights that I just talked about. I'm happy to answer any of those questions during the Q&A that you might have had. But hopefully, you heard why we're so excited about Tech Elevator in particular and why we believe it fits right into this puzzle of expanding career opportunities for high schoolers as we build this career learning business as part of Stride. So we're thrilled about it, and we couldn't be more excited to have Tech Elevator and start to tackle and address this gigantic market of people who have never written a line of code before. And with that, I'll hand it back over to Mike before we take a break.

Thanks, Harsh. We are going to take our third and final break. So again, please enjoy our video clips. If you have a question, please submit through the website. And we'll see you back here in 5 minutes. [Presentation]

Welcome back. It's my pleasure to introduce our next speaker, our CFO, Mr. Tim Medina.

Thanks, Mike, and thank you all for being here today to hear the Stride story. It's a great pleasure to present the financial overview and the outlook. Now it's always hard going last. So if you have a couple of coffee nearby or want to do a jumping jack or do a stretch, whatever you need, because it really is a great pleasure today to wrap up the presentations for this great team. Now with nearly 25 years as a CFO in telecom and IT services companies with disruptive technologies in the new markets, I know what a great team this is. And thanks to Nate and the rest of the executive team for making me feel right at home, bringing me up to speed and making it possible for me to contribute in spite of joining a new team during COVID, a new industry, a new business in the midst of COVID. Now in my 7 months here, I observed so many strengths. This is a special -- a company with a special mission at a special time, and that's even before COVID and especially since then. It's filled with terrific people up and down the company, up and down the organization. We have disciplined, world-class leadership expertise and a great Board of Directors. The company is also in the midst of successfully executing a growth strategy into career learning, a new market. That's not easy to do. And when I got here, the company was doing such a great job with that. And I also like the balance sheet. It's a great balance sheet and a great strength of the company. Now even though I'm new, I am finding ways to get hands on. Let me just mention a few of those things. Now when I joined in April, I inherited a great financial team. At the same time, I prioritized adding some key leadership to that team to make it even stronger, especially in the area of Controller, Treasury and Investor Relations. In August, I recommended and led the 7-year convertible bond financing that brought in $350 million of cash at a very low cost to the company. Also in August, Nate asked me to lead a multi-departmental task force to step up our game in ESG. He spoke so well about that earlier today. And we're going to turn that around real quickly. Also in October, many of you have seen, we began new line of revenue reporting, transitioning our reporting from a product-oriented approach to an approach that reports our revenue based on the markets we're addressing. It makes our business much easier to understand for investors and others and also easier to track our performance against that strategy. And of course, you've heard about the acquisitions we've made in the last day and throughout today. And I've been very hands-on in those acquisitions from the diligence and valuation standpoint as well as acquisitions that we decided to pass on. Now over the next 15 minutes or so, I will demonstrate the financial highlights and the substance behind these financial highlights. Now the way I think about this slide is, first of all, we have a very solid financial foundation built on a steady performance, a long track record. And that leads into this year and very strong guidance that you have seen. And then the fifth item there is our compelling financial targets, where we're going. And in between there is really a lot of the substance. We have a sustainable business model with high visibility to revenue growth and improving margins. And we have all the resources necessary to be a great success going forward. That includes a strong balance sheet as well as the human capital and leadership that you saw -- you've seen demonstrated today. We also have a disciplined strategic approach to capital allocation, prioritizing free cash flow sustainability, development of our technological platform and synergistic M&A. All of this adds up to us having a clear path to enhanced financial performance. And that's what I'll get into now. Stride has a long track record of revenue growth, profitability and free cash flow. Year in and year out, we have been delivering positive results. Now this is where we're starting out with our most recent fiscal year results, surpassing $1 billion in revenue, a 33% gross margin, a 12% adjusted EBITDA margin and completing our eighth straight year of positive free cash flow. These are all pretty good numbers. Now where we're going is all of these numbers are going to get much better. And I'm going to tell you more about that and how that's going to happen. Now our sustainable business model begins with enrollments. Enrollments drive 88% of the revenue in the company. Now the national size of the K-12 population in the United States is $55 million to $56 million and growing about 0.5%. At Stride, our general education growth rate has been much stronger than that. And in fact, in FY '20, we would have grown about 8% had we not lost a large school, which is the first large school we've lost in our 20-year history. Career learning earning is in the early stages of growth. It has nearly doubled every year since we've launched it, in some cases, years many more -- much more than that. The career learning growth is driven by retaining students, ramping up enrollments in existing schools and adding new schools. Now we started with 6 career prep schools in FY '17, as you heard Nate speak, and Shaun. We have about 30 programs today, and we expect to add more schools each year. Our innovation and differentiation in career learning positions us to continue to increase our market penetration into the future with growth rates that are very high. Now with that sustainable growth in enrollments, we have consistent revenue growth. I won't repeat the market sizes. But as you've heard today, there are large markets and growing markets. Now in FY '20, our general education business was about $930 million, and we expect that to grow more than 30% this year to exceed $1.2 billion. Our career learning revenue was about $107 million last year, and that's projected to grow more than 100% this year to get to the midpoint of our guidance. Now it's important to note, when we talk about visibility, we have that track record and that consistent performance, but we also operate in a business that has very high barriers to entry. This business requires investments in learning platforms and curriculum and teachers, as you heard James speak about. It requires frequent curriculum updates across more than 30 states, administrative infrastructure, experience working with regulators and school boards, as Kevin Chavous spoke to. And it requires major working capital. So these barriers to entry enhance the visibility of our forecast. Now I realize everyone wants to know, what will happen to our enrollments when there's a vaccine? The truth is we really don't know exactly what will happen. But here's how we see it right now. We believe that we have a good estimate of this year, and we feel very good about delivering the results to beat our guidance. And we're focused primarily on giving great service to our students and our parents, because that's the key to our FY '22 is retention in addition to career learning and growth in the adult learning space, as you've seen. Now Stride has a track record of steadily expanding our margins in addition to the revenue growth. That steady revenue growth and cost containment has resulted in 100 basis points of improvement each of the past several years. In the nearly doubling of our adjusted operating income in our FY '21 guidance reflects the additional operating leverage potential at Stride. And we feel like we'll hit or exceed the upper end of the range on the margin of improving by 200 basis points. And we also have a long track record of EBITDA performance and free cash flow growth. Now except for timing in FY '20, FY '21 would be the fourth year in a row of free cash flow expansion. FY '20 had a substantial amount of working capital timing issues, some that pulled cash favorably into FY '19 and others that pushed cash into FY '21. K12 also has a strong balance sheet and strong liquidity. This gives us the operating and strategic flexibility to succeed during strong and weak business cycles. We believe we have the strongest balance sheet and cash flow in our peer group. We are building upon this strength to deliver a higher-growth, higher-margin future. So while our name is changing, we'll still continue to have a conservative approach to balance sheet management. Now likewise, Stride has a strategic, disciplined approach to capital allocation. We will invest organically to keep our core general education business strong, high quality and differentiated. We also are investing financial and human capital to make our business stronger and more flexible by growing into categories that have higher margins, while at the same time, maintaining a strong balance sheet. We have the capital to acquire businesses that align to our career learning strategy to build out key career pathways faster than we could do on our own. And that is why we have maintained a strong balance sheet and now is the time to use that. Now over the 5-year view of our financial targets, we do generate substantial excess cash flow. And so we will, with more time, evaluate approaches to return cash to shareholders over the longer term, be that a dividend policy or a stock repurchase program. Now we're targeting acquisitions that accelerate our career learning growth strategy, and that provides substantial revenue synergy potential. We're buying high-quality, high-performing businesses that provide curriculum and content that we can pull down into our destination career academies, and this helps drive retention and new enrollments in these middle and high school programs. Stride is one of the very few companies offering virtual career learning on a full-time basis to middle and high school students. And we want to continue to make that a more differentiated and stronger innovative platform for growth. So these acquisitions, they deepen our differentiation in the DCAs, but they also help lower our costs. And Stride, we also have capabilities that can help those businesses grow faster, more profitably than they would have on their own. So we get revenue and cost synergies in both directions. Now let me just talk a little bit more about these 2 acquisitions. These are 2 very well positioned targets. They're performing very well on their own. And in spite of COVID, and I think that's a very important aspect that we considered when we compare them to other companies, we expect to create substantial value for the Stride shareholders through synergy and with the addition of the great human capital that we're adding to make us a more innovative growth company. So again, as I mentioned, we expect to grow faster and more profitably on a combined basis than these Tech Elevator, MedCerts or Stride would have on their own. Now let me spend a minute talking about the kinds of synergies we expect to get from Tech Elevator. You've heard me mention and Shaun mentioned as well that we will bring Tech Elevator's content into the high school level. And that will help, from a cost standpoint, with -- in terms of our content. We are -- and that -- more importantly, that will drive retention for those students that are really interested in pursuing IT or computer science. We'll retain more of those students. It also is a magnet to drive new enrollments. We also can sell Tech Elevator to Galvanize's existing lead funnel for those people that don't qualify for Galvanize's higher-end program, as you heard Harsh talk about it. There's many other examples of synergies, but I'll just stop right there, and we can get into more perhaps later during Q&A. We also are very excited about MedCerts. So let me get on to those synergies too for a minute. We're adding new health care certification pathways that we don't have today. We're also upgrading and replacing health care content that we use today and that we pay third parties for. These new and improved offerings will drive, again, higher retention and higher enrollments in our DCAs. It is a long list of benefits that we'll get from these acquisitions, and their financial contributions will become more significant as they grow and as we realize these synergies. We are adjusting our revenue guidance upward for these acquisitions. Before purchase accounting impacts, the revenue combined for about 6 months, that is -- what we expect is $16 million to $19 million of combined revenue. Net of purchase accounting, that will be about $12 million to $15 million. So again, that first year impact on revenue is small due to owning them for half a year and then further reduced by the purchase accounting of deferred revenue. Now ignoring purchase accounting, these businesses are accretive to AOI and adjusted EBITDA. And importantly, they are both free cash flow positive. So no change in AOI, no change in capital expenditures, no change in tax rate guidance. Now hang in there with me, just a couple more slides, and I want to let you know I'm getting near to the end here. And -- but off of the strong FY '21 baseline, let me just remind everyone, we just reported a record Q1 and provided very strong FY '21 guidance. So these forecasts are off of that strong baseline. Now on the left side are the key drivers and assumptions, and you've heard about those today. We project a revenue CAGR of 6% to 11% on a combined basis. And that's driven off using the midpoint of guidance from FY '21 to the midpoint of FY '25. That's driven off of more than 30% annual growth rate expectations from career learning. And low single-digit growth in general education. Again, all of that is off of this strong FY '21 baseline. And driven by this growth performance, we expect our profitability and free cash flow to grow 2 or 3x the rate of revenue growth. Now I mentioned earlier that growth in career learning drives higher margins. Now let me spend a couple of minutes on this. So gross margin is expected to expand 300 to 600 basis points due to investments in automation and process improvements. These contribute both higher revenue capture and lower cost, and some of those are listed here on the left. We also have projected lower curriculum investment as a percent of revenue due to scale and M&A, lower material costs as a percent of revenue as a result of a digital-first strategy that's well underway. Fourthly, significantly higher gross margin that we earn from adult learning revenue. Now as you saw, Tech Elevator has a gross margin in excess of 50% and MedCerts is over 80%. So as we grow in those categories, that will deliver more gross profit and more bottom line income and free cash flow. And then lastly, the scale of growing our business on the SG&A structure allows us to project a doubling of our adjusted EBITDA margin over the next 5 years. Now this all flows through to higher free cash flow for the business and on a per share basis. Now I hope you can see these are very exciting times at Stride. The truth is the stock price performance has been hard for all of us to watch. We are disappointed. I will not pretend to completely understand it. But we also are not easily distracted. We're very focused, focused on making the right moves to grow the intrinsic value of the enterprise. We're confident this focus will pay off in public equity valuation in the future. So just to wrap up and as mentioned at the onset, and I hope these minutes -- these past few minutes and today as a whole has helped highlight these key messages, Stride has a solid foundation. We have visibility on a clear path to sustained revenue growth and significantly improved margins. We have the know-how and all the resources to make this happen. New markets are driving our growth, margin expansion and capital allocation priorities. And all of that adds up to a very attractive set of financial targets. Thanks again, and let me hand the floor back to Nate.

Thank you, Tim. By the way, this is not a dickey on my neck. This is a mask. So we're all wearing masks today. I appreciate everybody spending a lot of time with us today. It's been a long meeting. I'm going to get to Q&A here in a minute. I only want to remind you that there were 3 things I set out as objectives in the very beginning. Objective number one, I wanted to make sure you understood the base business and the economics and the operations, how it works, because we do get that question a lot. Tell me about how this online thing works. The second thing I wanted you to understand was the growth in career learning, because that is our future strategy. It is all about and the reason we've changed our name to Stride, the reason we've done the acquisitions, the reason we've created more content is we're about career learning, and that's going to generate a lot of our growth. And the third item is I wanted you to understand who the management team was, some of which you met today as they spoke, others of which you did not have a chance to meet, but at least I talked about some of them on the page that I covered the management team. So I hope that you got all of those 3 things. Now we need about 60 seconds, and I'm going to invite my compadres to come on up to the seats that are around me, and we're going to move the podium out of the way. So if you give us just about 60 seconds, we'll be right back.

Okay. We're back. As you can see, we're spread out a little bit here, social distancing and ready for Q&A. So I'm going to start by reading a question, and I'll assign it to one of my peers here. And I think we also have Harsh on the line. And so Harsh will be able to answer some of those questions as well. Let me start first, because we introduced this call today about Stride and the new name. I'm going to answer your question. Now question is, Nate, do you plan on integrating your acquisitions into the Stride name? And what's the go-to-market strategy? We don't plan to initially include the acquisitions into the Stride name. And the reason is that each of these companies, including K12, has a brand recognition. They have websites that recruit students and explain who they are. To try to use Stride as the basis for bringing on new students would, I think, cause disruption in our marketing efforts. And so we don't want to do that. What we want to do is phase this in. Stride will be the name that we use to talk about our ESG efforts, our corporate entities, our management team, our partnerships, our Investor Relations. And so Stride will be the company name that we use for those things. Over time, we will then migrate various brands into the Stride network. Right off the bat, we may use Stride learning solutions or Stride career academies. But K12 will remain the name and the brand for many of the schools that we assist. In addition, Galvanize has a well-recognized name, so does Hack Reactor in the IT world, the software development world. The same is true with MedCerts. They have a brand recognition that we don't want to step on. So we want to use those brands and use them over time. You might see a tagline that says, Galvanize, a Stride company. Or MedCerts, a Stride company. And over a couple of years, you may see us do the opposite. It says Stride, a Galvanize portion or the Galvanize subsidiary. And then eventually, we may migrate into Stride for everything. But for now, Stride will not be taking over the brand names. So I want to make sure I answered that question. If I can move on to another question. I'm going to throw this in to Shaun. Shaun, the question here is career learning space is very crowded and getting more crowded by the day. How can you compete? Shaun?

Thanks, Nate. We've got a growth strategy for career learning that I outlined in the presentation, but let me just reiterate. The first part of that strategy is to continue to leverage the Stride network. And so we have a national footprint today of 30-plus states. We're operating in almost all of those states, but the goal is to continually leverage current Stride states and schools and add career learning programs to those schools. We're currently a market leader in that regard. And we'll continue to go that way. There are also barriers to entry, as Tim mentioned in his closing remarks. And so we feel that, that growth rate will continue. Secondly, the adult training programs that we have are very focused on short-term training in high-demand fields that have large openings for the numbers of employees in health care and IT. And those skills gaps are, for the foreseeable future, continuing to be wide. And so our goal is to fill those gaps in the training of those particular businesses. And then thirdly, I would say that the acquisitions also give us an opportunity to boost our high school opportunities, to add parts of content and industry contacts, up-to-date curricula that we can market to consumers and hopefully attract new students who otherwise would not have come to a virtual program in the past. And so the acquisitions will play a big role there. And then finally, I'll say that as we look at skills gap moving forward, all of the acquisitions on the high school side, et cetera, are focused on key areas of growth. And so there's no reason for us to think that our growth opportunity would diminish.

Thank you, Shaun. The next question I'm going to throw to Harsh, who is actually on the line, located in Denver. Harsh, on average, how long would it take and how much would it cost for a student with no coding background to move to the Tech Elevator programs and move into the Galvanize program and then finish it. Additionally, how would that change the earnings profile of that student as they look to find a job after Galvanize? Harsh?

Thanks, Nate, and thanks for the question. The question indicates something different than what our strategy is. So I'm going to talk about that briefly, and then I'll talk about the specific answer to the question. We believe that learners who are -- who don't have a background in programming can enter Tech Elevator on average in about a month from ever discovering Tech Elevator to enrolling into a program. Very quick way to enter the program. And the Tech Elevator from there is 14 weeks long. And after those 14 weeks, their average time to placement is another 24 days, let's call it, a month. So you've got a month on the front end and a month on the back and then 14 weeks in between. That would get you a job at a roughly $60,000 a year. Now you would not graduate from Tech Elevator, then go into Galvanize immediately afterwards. You would actually enter the marketplace and go get a job as a developer. You may, after you are too in the marketplace, come back to a Galvanize professional development program to advance your skill set from there. But by design, it will not be take Tech Elevator, then take Galvanize, then into the market. It's take Tech Elevator, enter the market. A different type of student, an advanced student that has programming experience may enter Galvanize and enter the market.

All right. Thank you, Harsh. Harsh, did you cover the cost of the programs?

Great. I did not. The cost of Tech Elevator is slightly less than Galvanize. Galvanize is about $18,000 for tuition and Tech Elevator is about $15,000 for tuition.

Okay. Thank you. I'm going to throw this next question to James. For the improvement in general education satisfaction and NPS scores since 2015, because we've shown significant improvement, what do you think have been the biggest drivers around that improvement? James?

Thanks, Nate. So we've got a few really important drivers, I think, of our improvements. And first and foremost, I think it comes down to really having a culture that Nate has really advocated for around our customers and really driving a culture within the organization that focuses on the experience within our customer base. So -- and that goes all the way down, and I should mention the great leaders that run the schools that we help to manage. They're driving that same culture within the schools and programs that they run. So the first, really, I think, is the cultural advancement, if you will, that we've made over the past few years that really focuses on quality, on the customer experience. The second thing I'd mention is we've invested in different technologies and programs to enhance that customer experience. So everything from specialized counselors and advisers to a customized mobile app that allows parents to understand sort of the progress of their kids. All these tools and technologies help enhance the customer experience. And I'd say lastly that there's a lot more to come. So you've seen improvements over the past few years, but I think we still have a long way to go. We've got a lot more that we're going to invest behind to improve and enhance the culture of quality, enhance the customer experience and continue to improve those scores.

Thank you, James. I want to reinforce something James said about culture. One of my pet peeves is when employees ask me, "I'd like you to tell me what the strategy of the company is. I want to understand the strategy." And that's after we've communicated multiple times what the company's strategy is. So I turn the question back around to employees, and I say, "Well, tell me what you think the top 3 priorities are." Invariably, they say, "Well, I know we have to improve academic results. We have to focus on retention and customer experience. And we have to grow career learning." And I say, "So you do understand the strategy," because -- and they do. And the reason I tell you that story is because it's ingrained in every person that our academic results are our top priority. Our retention and customer experience is a second priority and growing career learning is the third. And everybody understands it. And that's why it's cultural that we've made these improvements in Net Promoter Score and improvements in customer satisfaction, because we focus on every single thing, every single day that would improve those experiences, including putting a leader, Senior Vice President named Karen Ghidotti, in charge of the customer experience every day. Thank you for the time on that question. Let's see. I'm going to move down to another Harsh question. Harsh, within IT adult learning, what more do you need to do on the enterprise side to drive: number one, increased hiring of your graduates by companies; and number two, more enterprises sending their employees to Galvanize or Tech Elevator for upskilling and reskilling. How do you go to market to do that?

Great question. There's 2 things that we actually recently started that hit both of those questions. The first one is increased hiring of graduates by companies. We just launched a learning -- or I'm sorry, a talent solutions team within Galvanize that goes out to companies for their open job postings and matches our graduates with those companies. And so that's the work on top of our already high placement rates. We just are maniacal about making sure our placement rates are really high. So we're adding that on top. So that, I believe, over the next year, will increase the hiring of graduates by companies. Number two, more enterprises sending their employees to Galvanize. We actually just launched a professional development program. It is a short-form program for engineers to take. Rather than the long 3-month Galvanize program, they can take a short-form program to upskill in one particular item. We actually believe that those programs will be one of the ways that enterprises get started with working with Galvanize. They may have a few engineers that take these professional development programs and then they expand it to all of their engineers. So that's another initiative that we've just recently started that I believe is going to address the topic of the second question.

While we're talking to you, Harsh, I'm going to throw another question towards you. And on this one, I know that you're going to range it, because you don't have the exact number, but I'd love to know your range. The question is, how much adult learning revenue is generated right now from military channels and how big will it be by fiscal year '25?

It's a great question. How much today, let's put some time frames to it. You could be talking about FY '20 or you could be talking about FY '21? I'm going to say FY '21 roughly in the $5 million to $10 million range is what we're expecting, and we seem to be on track for that. And now if you're talking about 5 years down the road, let me add a little bit of perspective to that question. We just started working with the military 1 year ago. And we just started our programs with Fort Hood 1 year ago. And so if we're looking at that trajectory, it looks extremely promising in the 5-year time frame. And -- but it's too tough to put a number 5 years down the road on it. It's a really wide aperture. I do joke with our internal team that I think the Galvanize military programs are going to be the biggest part of Galvanize over the next several years if things go as they are. Does that answer your question, Nate?

Yes, that answers the question. It's sort of like me telling Shaun that he's always -- he's going to be the biggest part of Stride in 5 years. Right, Shaun?