Matthew Filek

Matt Filek inquired about Ayesa's historical faster growth and higher margins compared to the broader engineering platform, asking for future growth expectations and drivers of its stronger margin profile. He also asked if the company is appropriately staffed in Capital Markets and Leasing to capture upside from a more meaningful recovery in 2026, or if incremental hiring is expected.

Answer

CFO Christian Mayer projected high single-digit organic growth for Ayesa, attributing its stronger margins to high-value services like design, site supervision, and project management consulting in high-demand end markets such as public transit, water, and energy transition. CEO Jay Hennick added Ayesa's expertise in desalination and disciplined pricing. Regarding staffing, Mr. Hennick stated they are active in recruiting for specific specialties, while Mr. Mayer noted that existing producers are not at peak productivity and have capacity for more revenue.

Matthew Filek (for Steven Sheldon) asked about the professional services gross margins in Q3, specifically if the slight compression was due to costly third-party labor. He also inquired if AI efficiency benefits could accelerate the decline of product development spend as a percentage of revenue.

Answer

Dave Wood (CFO, Agilysys) clarified that the lower gross margin was due to seasonality and lower utilization during the holiday quarter, not third-party labor, as most services are performed by Agilysys employees. Ramesh Srinivasan (President and CEO, Agilysys) explained that while AI increases development speed, high customer demand for innovation makes operating leverage from reduced R&D spend a 'moving target,' though he expects it to increase in FY27 and beyond.

Matthew Filek of William Blair & Company L.L.C. asked about professional services gross margins in Q3, inquiring if the mid-20s figure was due to costly third-party labor or other factors. He also asked if the boost in product development speed from AI could accelerate the decline of product development spend as a percentage of revenue.

Answer

CFO Dave Wood clarified that professional services gross margins were not due to third-party labor but rather lower utilization and billable hours during the holiday season, given recent hiring. President and CEO Ramesh Srinivasan noted that while AI increases efficiency, customer demand for innovation remains high. He expects operating leverage in product development to increase in FY2027 and beyond, but the pressure to innovate faster is significant.

Matthew Filek, on for Stephen Sheldon of William Blair, inquired about the potential revenue and cost synergies from the planned consolidation of APUS, Rasmussen, and Hondros. He also asked about the company's minimum cash requirements and the pro forma balance sheet impact following the sale of Graduate School USA.

Answer

CEO Angela Selden explained that revenue synergies will come from cross-selling programs, such as offering Rasmussen's full nursing curriculum to Hondros students and APUS's catalog to all campus-based students, with specifics to be provided at the November Investor Day. CFO Richard Sunderland stated that the required cash level is managed to maintain a composite score above 1.5. He clarified the Graduate School sale primarily improved the balance sheet by transferring a $28 million lease liability, rather than significantly altering the cash position.

Matthew Filek, on for Stephen Sheldon, asked about the expected 2025 enrollment growth mix at Rasmussen between online and in-person, the comparative EBITDA margins for each, and for an update on APUS's revised marketing strategy.

Answer

CEO Angela Selden confirmed expectations for continued positive online enrollment growth at Rasmussen in 2025, with campus enrollments also rebounding due to improved NCLEX scores. SVP and Chief Strategy Officer Steve Somers explained that on-ground margins should accelerate as enrollment grows against a high fixed-cost base, reiterating a 5-10% overall Rasmussen margin target over 1-2 years. Regarding APUS marketing, Selden highlighted that an upgraded team, a refined local market strategy, and strengthened admissions processes are driving the strong 4-6% Q4 registration growth forecast. CFO Rick Sunderland noted this growth comes on top of a challenging prior-year comparison.

Matthew Filek of William Blair asked for an update on the current international agent count, the expected cadence of growth towards the 2030 target of 50,000 agents, the point at which the international segment could become profitable, and the outlook for GAAP gross margins.

Answer

MD of International Felix Bravo stated the international agent count is approximately 5,000, with growth focused on productive agents and strong local leadership. Founder, Chairman, and CEO Glenn Sanford explained that due to ongoing investments in new markets, the international segment is not expected to show net profitability for at least two to three years. CFO Jesse Hill confirmed that expecting GAAP gross margins to remain in the low 7% range for the second half of the year is a reasonable assumption.

Matthew Filek from William Blair & Company asked about agent count trends for 2025, distinguishing between domestic and international markets. He also inquired about the expected timeline for new international countries to achieve profitability and sought details on the recent partnership with CoStar for the commercial brokerage division.

Answer

Glenn Sanford, Founder, Chairman and CEO, noted that while total agent count is down, the number of productive agents is at an all-time high, with international expected to be a key growth driver. He clarified that overall international profitability will take time due to aggressive expansion plans, though markets like the U.K. and France are already profitable. Leo Pareja, Chief Strategy Officer, added that the CoStar partnership is vital for providing a best-in-class tech stack for commercial agents, a strategy mirroring their residential approach. Kent Cheng, CFO, confirmed commercial agent count is not disclosed but is a small percentage of the total.

Matthew Filek, on behalf of Stephen Sheldon at William Blair, asked about the impact of the political environment on opening new schools, the status of pilot programs for skilled trades, and whether any schools are approaching enrollment caps.

Answer

CEO James Rhyu stated that while the political tone supporting school choice is a positive 'halo effect,' the business remains state-focused and is not run based on federal administration changes. He noted that tests for skilled trades programs are underway but they are proceeding cautiously. Rhyu confirmed that Stride consistently manages enrollment caps and has a successful track record of getting them raised by demonstrating unmet student demand.

Matthew Filek, on for Stephen Sheldon, asked what factors could lead to hardware revenue returning to growth in 2025, given the initial flat outlook. He also inquired about the key priorities for the R&D department over the coming year.

Answer

CEO Stephen Trundle responded that the company is currently sticking with its initial flat hardware revenue forecast for 2025. He noted that potential upside could come from unexpectedly strong performance in the commercial business or a slower-than-modeled rollout of the ADT Google platform. On R&D, Trundle stated the focus is on building out new capabilities within existing markets, particularly in video and analytics with new camera form factors and battery-powered technology, rather than expanding into entirely new markets.