Gregory Parrish

Greg Parrish asked for insights into snow margin, particularly heading into Q2 given the significant snowfall in January. He inquired about the proportion of snowfall covered by fixed versus variable contracts and the potential for increased margin upside in the snow business as clients move into higher service tiers.

Answer

President and CEO Dale Asplund explained that Q1 saw a $6 million incremental EBITDA benefit on $36 million of snow revenue, which was slightly below the typical 20-25% flow-through due to the timing of fixed-tier contracts. He noted that a large portion of northern market contracts are fixed-tier, which limits margin until additional tiers are triggered, at which point profitability increases. Mr. Asplund expressed confidence that the company will comfortably achieve the 20-25% margin expectation on incremental snow for the full year, anticipating added profit benefit in Q2 as more tiers are triggered and customers seek fixed pricing after a heavy snow year.

Greg Parrish of Morgan Stanley asked for insights into BrightView's snow margin, particularly heading into Q2 with significant January snowfall, and the breakdown between fixed versus variable contracts, as well as the potential for increased margin upside as clients move into higher service tiers.

Answer

President and CEO Dale Asplund explained that Q1 saw a $6 million incremental EBITDA benefit from $36 million in snow revenue, with a net benefit of $3 million after accounting for land and development shrinkage. He noted that a large portion of northern market contracts are fixed-tier, and while outsized snow initially limits margin, profitability increases as additional tiers are triggered. He expects a 20-25% margin on incremental snow for the year, anticipating more profit benefit in Q2 as tiers are met.

Greg Parrish questioned why Stride is not projecting in-year enrollment growth for Q3, given stabilized platform issues, normal withdrawal rates, and strong demand, especially compared to sequential growth in the prior year. He also asked for clarification on the variances in General Education and Career Learning revenue per enrollment, and the specific impact and nature of the long-term agreement adjustment that benefited gross margins.

Answer

CEO James Rhyu explained that the decision to not pursue growth this year is a prudent, long-term strategic choice to allow the business to settle after platform challenges, rather than being correlated to demand or withdrawal characteristics. He noted that Stride often manages demand exceeding capacity. CFO Donna Blackman clarified that revenue per enrollment variances between Gen Ed and Career Learning are often 'wonky' due to state and program mix, advising focus on the total revenue per enrollment. She also detailed that the gross margin benefit was a 200 basis point impact from exiting a non-core community business lease, a permanent cost reduction.

Greg Parrish inquired about the lack of projected in-year enrollment growth for Q3 despite platform stabilization and strong demand, the potential for turning away students due to capacity, and sought clarification on the drivers behind the Gen Ed and Career Learning revenue per enrollment variances. He also asked for the size and nature of the long-term agreement adjustment benefiting gross margins.

Answer

CEO James Rhyu explained that the decision to prioritize stability over growth in Q3 was a prudent, long-term strategic choice, not related to demand or withdrawals. He added that Stride frequently manages capacity constraints, and strong demand outstripping supply is a positive long-term indicator. CFO Donna Blackman clarified that revenue per enrollment variances between Gen Ed and Career Learning are often 'wonky' due to state and program mix and timing, advising focus on the total. She detailed that exiting a non-core community business lease (from a bootcamp acquisition) positively impacted Q2 gross margins by approximately 200 basis points, a benefit that will continue through 2030.

Greg Parrish sought more color on Stride's decision to limit in-year enrollment growth, asking if it was primarily due to platform issues or a more permanent structural decision to improve program quality, and what this implies for growth expectations in the next fiscal year.

Answer

CEO James Rhyu stated that the decision to limit in-year enrollment growth was a combination of both, aiming to limit exposure to platform issues while stabilizing the system to ensure program quality. He expressed confidence that assuming issues are fixed this year and demand remains strong, Stride could return to in-year growth in the next fiscal year.

Greg Parrish of Morgan Stanley questioned the sustainability of Stride's long-term framework for operating income to grow at twice the rate of revenue, especially after recent outperformance. He also asked for more color on the strong Q4 funding and the broader FY26 funding outlook amid federal and state budget uncertainty.

Answer

CEO James Rhyu acknowledged that achieving operating income growth at twice the rate of revenue becomes mathematically harder at scale and noted that gross margin expansion is expected to slow. CFO Donna Blackman added that Q4 revenue per enrollment was strong due to state mix and some favorable growth and completion funding. Both executives described the overall FY26 funding environment as positive, with no material negative impact anticipated from the federal level.

Gregory Parrish of Morgan Stanley asked about Stride's marketing strategy and spending plans for the upcoming summer enrollment season, and also questioned the potential impacts of the U.S. Department of Education's pro-school-choice stance on the company.

Answer

CEO James Rhyu stated the marketing approach will be similar but with more rapid testing of new methods. CFO Donna Blackman added that they do not plan to significantly increase marketing spend, instead focusing on optimization and efficiency. On federal policy, Rhyu noted that the administration's focus on empowering states and promoting choice is generally positive for Stride's business model.

Gregory Parrish asked for the specific operational factors behind enrollment success beyond general demand, a breakdown of the drivers for the significant margin improvement, and an explanation for discrepancies between Stride's financials and those of the nonprofit schools it manages, particularly regarding ESSER funds.

Answer

CEO James Rhyu stressed that strong customer demand was the overwhelming driver of performance. CFO Donna Blackman attributed margin gains to both gross margin leverage from scale and disciplined SG&A management. Rhyu declined to comment on client financials, stating how they manage funds is proprietary to them.

Greg Parrish asked about the implied guidance for fiscal year 2026 revenue (2-3% growth) given the strong 7% exit growth and accelerating enrollment, inquiring what factors could drive this figure higher or lower.

Answer

CEO Chris Lynne explained that fiscal 2025 revenue growth outpaced enrollment due to stronger retention, the absence of a prior year scholarship, academic calendar timing, and a higher volume of students in the risk-free period. He also cited a spike in unusual enrollment activity (UEA) in summer 2024, linked to FAFSA breakdowns, which led to higher initial course dropouts. For fiscal 2026, the outlook reflects a focus on attracting higher-propensity-to-succeed students (e.g., with transfer credits, B2B channel growth) and not expecting the same revenue per student trends as fiscal 2025. Moving UEA controls to the top of the funnel in Q4 2025 improved enrollment productivity and marketing efficiency, contributing to healthier new student growth and record-high retention.

Greg Parrish asked about the drivers behind Phoenix Education Partners' implied fiscal year 2026 revenue guidance of 2-3% growth, especially given the strong 7% revenue growth and 6% enrollment growth exiting fiscal year 2025, and what factors could influence this figure higher or lower.

Answer

CEO Chris Lynne explained that fiscal year 2025's higher revenue growth compared to enrollment growth was due to stronger retention, the absence of a prior year scholarship, academic calendar timing, and a higher volume of students in the risk-free period, including those flagged for unusual enrollment activity (UEA). For fiscal year 2026, the outlook reflects a more conservative stance as a new public company, a shift towards higher-quality student mix (e.g., transfer credits, B2B channel), and the expectation that the revenue per student trend from FY25 will normalize. Lynne also highlighted that moving UEA controls to the top of the enrollment funnel in Q4 significantly improved enrollment productivity and marketing efficiency, leading to healthier new student growth and record-high retention.

Greg Parrish (on behalf of Tony Kaplan) from Morgan Stanley inquired about the patent renewal business, specifically addressing the competitive landscape, the positioning of Clarivate's products against competitors like Anaqua, and distinguishing between market and competitive headwinds impacting recent performance.

Answer

Jonathan Collins, EVP and CFO, highlighted that the recurring patent and trademark renewal service improved from a 3% decline last year to flat year-to-date, attributing this to competitive position improvements and market recovery. Matti Tov, CEO, expressed confidence in turning the IP segment into a growing business through renewed sales structures, processes, and new products like Trademark Riskmark and Derwent Patent Monitor, similar to the progress seen in Life Sciences and A&G.

Gregory Parrish inquired about the Academia & Government (A&G) segment, specifically the impact of U.S. government funding pressures and insights from customer advisory groups.

Answer

CEO Matti Shem Tov and CFO Jonathan Collins responded, stating that the Q1 impact was minimal and that a detailed risk analysis shows any potential future impact is contained within the company's guidance range. They highlighted that nearly half of direct federal contracts have already been renewed and that A&G renewal rates remain strong in the mid-90s.

Greg Parrish from Morgan Stanley asked for details on the drivers for the expected second-half EBITDA improvement in the Branded Services segment, questioned the surprisingly low Q2 CapEx, and inquired about the current wage inflation trends.

Answer

CEO Dave Peacock attributed the anticipated second-half improvement in Branded Services to new business wins, positive seasonality heading into the holidays, and greater efficiencies from the new 'Pulse' analytics platform. CFO Chris Growe explained that the low Q2 CapEx was due to project timing and a lower-than-planned capitalization of labor, though some spending may shift into 2026. He also stated that wage inflation is stable at around 3% and was nearly offset by pricing actions in the quarter, a trend he expects to continue.

Gregory Parrish asked for the 2025 outlook for the Branded Services segment, questioned the assumptions embedded in the full-year guidance regarding market conditions, and inquired about potential intentional client exits.

Answer

CEO David Peacock addressed the Branded Services outlook by acknowledging CPG market uncertainties from tariffs and GLP-1 drugs, but noted opportunities in new business and e-commerce services. Regarding the 2025 guidance, he explained it reflects the current environment and includes significant transformation-related investments in technology and data, which temper the underlying mid-single-digit growth potential. Peacock confirmed that the company does not anticipate any further intentional client exits in 2025.

Gregory Parrish inquired about any competitive impacts from a recent merger of two competitors, the current spread between labor cost inflation and pricing actions, and the net effect of rising promotional activity on the business.

Answer

CEO David Peacock responded that there has been no specific business impact from the competitor merger yet, but acknowledged a potential opportunity could arise during their integration. Regarding pricing, he stated that the company is getting closer to equilibrium as wage inflation moderates and productivity initiatives help mitigate costs. On promotions, Peacock explained that increased promotional activity is generally a net positive, as it drives unit volume and in-store merchandising work for their teams. CFO Christopher Growe added that the strong performance in the labor-intensive Retail and Experiential segments demonstrates effective management of pricing and labor costs.