Stride - Earnings Call - Q3 2025

Executive Summary

• Stride delivered another record quarter: revenue $613.4M (+17.8% y/y), diluted EPS $2.02, adjusted operating income $141.7M (+47%), and adjusted EBITDA $168.3M (+39.6%). Gross margin reached 40.6% (+190 bps y/y), driven by enrollment growth and efficiency efforts.
• Versus consensus: revenue beat ($613.4M vs $590.1M*) while EPS slightly missed ($2.02 vs $2.147*)—management attributed the EPS gap to diluted share count mechanics tied to the convertible note and timing effects. Values retrieved from S&P Global.*
• Guidance raised: FY25 revenue to $2.370–$2.385B (from $2.320–$2.355B) and adjusted operating income to $455–$465M (from $430–$450M); CapEx ($60–$65M) and effective tax rate (24–26%) maintained.
• Strategic catalysts: continued in-year enrollment strength (+21% y/y), robust Career Learning momentum (+33% y/y), efficiency-driven margin expansion, and favorable funding environment into FY26; management highlighted new student socialization initiatives (K12 Zone, geographic pods) and planned adjusted EPS disclosure next quarter.

What Went Well and What Went Wrong

What Went Well

• Record profitability: adjusted operating income $141.7M (+47%) and adjusted EBITDA $168.3M (+39.6%)—both quarterly records.
• Enrollment strength and mix: total average enrollments up 21.1% y/y to 240.2K; Career Learning enrollments up 33.7% to 98.7K; general education enrollments up 14% to 141.5K, supporting revenue growth across segments.
• Confirmed margin trajectory: gross margin 40.6% (+190 bps y/y); management expects ~200 bps improvement for FY25, ahead of long-term targets.
  Quote: “Gross margins were 40.6%, up 190 basis points from last year… we expect to see gross margin improve around 200 basis points for the full year”.

What Went Wrong

• EPS below consensus and share count complexity: diluted EPS $2.02 versus consensus $2.147*; management suggested the gap largely reflects the as-if-converted treatment of convertible notes increasing diluted shares, partially offset by a capped call structure. Values retrieved from S&P Global.*
• Adult Learning softness: adult revenue fell 22.2% y/y to $18.7M in Q3; management indicated the category remains pressured, consistent with prior quarters.
• Revenue per enrollment modestly down: total RPE $2,415 versus $2,420 prior year; management cited state mix effects from in-year enrollments, though they now expect full-year decline to be less than 1%.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. I would now like to turn the conference over to Tim Casey, Vice President of Investor Relations. You may begin.

Timothy Casey (VP of Investor Relations)

Thank you and good afternoon. Welcome to Stride's third quarter earnings call for fiscal year 2025. With me on today's call are James Rhyu, Chief Executive Officer, and Donna Blackman, Chief Financial Officer. As a reminder, today's conference call and webcast are accompanied by a presentation that can be found on the Stride Investor Relations website. Please be advised that today's discussion of our financial results may include certain non-GAAP financial measures. A reconciliation of these measures is provided in the earnings release issued this afternoon and can also be found on our Investor Relations website. In addition to historical information, this call will also involve forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to several important factors as described in the company's earnings release and latest SEC filings.

These statements are made on the basis of our views and assumptions regarding future events and business performance at the time we make them, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we will answer any questions you may have. Now, I'll turn the call over to James. James?

James Rhyu (CEO)

Thanks, Tim, and good afternoon, everyone. Another solid quarter as demand continues to outpace last year. I mentioned last quarter that the macro environment remains favorable, and some recent polling supports our thesis. A survey of parents compiled by the National School Choice Awareness Foundation earlier this year found that more than 60% of parents considered sending at least one of their children to a different school last year. Of those, 27% considered sending their child to a full-time online program, meaning over 15% of all families are considering a full-time online program. That is at a much higher level than we saw just a few years ago. Also, a February Gallup poll indicated that less than a quarter of Americans are satisfied with public education. That is the lowest level since the survey began in 2001.

Nearly 90% of parents are interested in non-college degree pathways, meaning a focus on career education. All of this bodes well for our future prospects. This is the time of year we are trying to both finish the year strong and gear up for the fall. If we continue to execute and given the macro trends we are seeing, that should position us for continued strong growth heading into next fall. We also need to look past this fall. While we celebrate our 25th anniversary this year, we need to ensure we build an enduring business for the next 25 years. I believe we can continue to change the future of education by leveraging our core capabilities to deliver innovative, outcomes-driven solutions for the 50 million-plus students across the country.

Parents remain dissatisfied with the current state of education, and we are in a position to give schools, administrators, teachers, and students the tools to redefine the system and set ourselves up as leaders for the next 25 years. In the near term, the trends we see in market demand, in-year enrollment, and retention set us up for another strong start to the fall season. For context, since January 1, demand, as measured by in-year application volumes, has grown in each of the past four years. This year, application volumes are almost twice what they were two years ago and four times what they were four years ago. This is during a time when we have some constraints to the number of new enrollments we can add, as some schools have closed enrollment for the school year.

I've been pleasantly surprised by this ongoing trend, and it supports our thesis that demand for our products and services continues to strengthen. Once again, we expect to finish the year with more enrollments than we started. We still have a lot of work to do before the next school year begins, but we feel confident in our ability to continue to grow enrollments in fiscal year 2026. Thank you. Now I'll turn the call over to Donna. Donna.

Donna Blackman (CFO)

Thanks, James. Good afternoon. As James mentioned, we continue to see strong in-year demand in Q3. We finished the quarter with enrollment up over 21% from last year. We believe this has set us up to once again finish the fiscal year with more enrollments than we started for the third year in a row. The market conditions, including demand for full-time online programs, coupled with our continued strong execution, give us confidence to again raise our FY25 revenue and adjusted operating income guidance. For the full year, the implied growth rates, both revenue and profitability, exceed the 2028 CAGR targets we outlined during our Investor Day in November 2023. Our AOI guidance for this year suggests we will be well ahead of the low end of our FY28 AOI targets three years early. For our Q3 results, total revenue was $613.4 million, up 17.8%.

Revenue from our Career Learning, middle, and high school programs grew to $223.9 million, up 33%. This strength was driven by enrollment growth of 34% to 98,700 enrollments. General Education revenue was $370.8 million, up 13% from last year, which was also driven by continued enrollment growth in the quarter. Average enrollments were up 14% from last year to 141.5 thousand. Total revenue per enrollment across both lines of revenue was $2,415 compared to $2,420 last year. As we've discussed over the last two quarters, the cause of the slight decline is the impact of state mix from in-year enrollments as we otherwise continue to see a largely positive funding environment. Given the results this quarter, we now expect to finish the year down less than 1% in revenue per enrollment.

While I know this is a quarter we receive lots of questions about next year, and we remind you that it's very early in the season, I do want to give a little insight into what we are seeing with the funding environment for FY26. Recognizing it's still very early in the process of states setting their budgets, we are seeing a generally favorable funding environment going into next year. As states finalize their budgets over the next few months, I'll be able to give more color during our fourth quarter earnings call. Additionally, I know there's lots of discussion about federal funding and the impact that could have on Stride. I want to reiterate what we said last quarter. Well less than 5% of our overall revenues come from federal sources.

Now, to wrap up the remaining highlights for the third quarter, gross margins were 40.6%, up 190 basis points from last year. Given the strength through the first three quarters, we expect to see gross margin improve around 200 basis points for the full year. Selling, general and administrative expenses increased 5% to $118.5 million. As I've mentioned previously, we expected some increase in the back half of the year. We still expect to finish the year up slightly compared to FY2024. Stock-based compensation was $8.5 million, and we expect to finish the year with stock-based compensation in the range of $34-$37 million. Adjusted operating income was $141.7 million, up 47%. Adjusted EBITDA was $168.3 million, up 40%. Both metrics are quarterly records for the company. Diluted earnings per for the quarter was $2.02.

Our EPS calculation now includes incremental shares related to our convertible notes on an as-is converted basis for GAAP reporting purposes. Our quarterly investor presentation includes a slide that shows the potential dilution from our convertible note at various share prices, as well as the offset from the capped call transaction we completed at the time of the note issuance. Starting next quarter, in addition to the investor presentation, we plan to introduce an adjusted earnings per share calculation in our earnings material to give investors a picture of the underlying EPS growth in the business. Capital expenditures for the quarter were $15.8 million, down slightly from $16.3 million. Free cash flow, defined as cash from operations, less CapEx, was $37.3 million, down from $52.2 million due to the timing of cash receipts. As with last year, we expect fourth quarter free cash flow to be up significantly.

Given the continued strength of in-year enrollments and the margin improvements, we are raising our full-year revenue and AOI guidance, and we now expect revenue in the range of $2.370 billion-$2.385 billion, up from $2.320 billion-$2.355 billion last quarter. Adjusted operating income between $455 million and $465 million, up from $430 million and $450 million last quarter. Capital expenditures between $60 million and $65 million unchanged from last quarter, and an effective tax rate between 24% and 26%, also unchanged from last quarter. Thank you so much for your time this afternoon. Now I will turn it over to the operator for Q&A. Operator?

Operator (participant)

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. Our first question comes from the line of Jason Tilchen with Canaccord Genuity. Your line is open.

Jason Tilchen (Director and Senior Equity Research Analyst)

Great. Good afternoon. Thanks for taking my question. I guess the first thing I'm curious about, you continue to see really strong enrollment growth in the Career Learning program. I think you talked about last quarter, that's largely coming from the same application funnel as General Education, but that over time you're going to work towards opening up that sort of second funnel with sort of directly related to Career Learning. I'm wondering if you could talk a bit more about some of the steps you're taking in that area, some of the progress that's being made, and sort of what's the timeline we could realistically expect to start to see that standalone funnel really start to contribute to overall enrollment growth?

James Rhyu (CEO)

Yeah. I think, Jason, the unfortunate truth of it is that, and I think this, I've been saying this now for a number of years, not quarters, is that we just haven't cracked the code on it yet. We keep running a bunch of tests around it. I think this year we ran a number of tests where we saw maybe a little bit more promise. Everything outside of the tests we're running points to this being an attractive market for us and a good opportunity for us. If you look more broadly at the market and see the activity that, whether it's corporate enterprises having around direct hiring out of high school, focus on skills as opposed to degrees and things like that, we know that this is sort of an evolving market in the direction of career education for high school.

I don't think that we've yet cracked the code. I don't know if there's a timing yet. I think we're making incremental progress. It's not as good as I would have hoped, and that's on us.

Jason Tilchen (Director and Senior Equity Research Analyst)

Okay. Great. Really helpful overview there. One other question. I'm curious about some of the efforts you guys are making to improve socialization opportunities for students that are in sort of full-time online programs. Anything you can share there about some of the steps you've taken there to help sort of create a more similar experience to the sort of traditional in-person socialization opportunities?

James Rhyu (CEO)

Yeah. I mean, I think we all, I think, recognize that socialization is one very significant aspect of school experience. We also, I think, recognize, whether you like it or not, that school-aged kids these days socialize predominantly online. Again, not a commentary on whether that's good or bad, just I think a factual statement. We are leaning into a number of platforms that enable that type of socialization. One of them is we call our K12 Zone. It's a virtual school, basically school structure, if you will, as a playground or a library and things like that. We've gotten record this year, record usage. We rolled it out, I guess, formally a year ago, but we had it in test even before that. We're just seeing record numbers out of that. We think that that's one very, very powerful element.

The other thing that we're doing, and we just started testing it this calendar year, which is actually counter to the online engagement model, is we're rolling out what's essentially geographic pods, meaning we are rolling out the ability for families that live geographically close to each other that have similar school-aged kids in the program to do meetups and things like that with the kids. It just so happens that I spoke to a family that just was unbelievably grateful that they were going to get the opportunity to do both of those activities, both the online and the in-person. I think the families recognize that there's a reality about sort of just online socialization that's important, but also just the opportunity to being from an online school to have a chance to meet up with kids in person.

We were just this past weekend at an event for one of our amazing kids in Florida. His name's Carter Bonas, and he's an incredible golfer. He had a golf tournament, and they did a meetup party, a meetup pizza party with Mini Golf the night before. Some of the families there had said that it was one of the most exciting things that their kids do is to do these in-person meetups. There are a lot of different angles that we can approach to improve our ability to enable socialization, and we're going to continue investing behind that. We think it's really important for the families and for the kids.

Jason Tilchen (Director and Senior Equity Research Analyst)

Great. Thanks a lot for taking my questions.

James Rhyu (CEO)

Sure.

Operator (participant)

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

Gregory Parrish (VP Equity Research)

Hey, thanks. Good evening. Congrats on the quarter. Strong result. On your marketing strategy, thinking maybe ahead for the summer, I imagine the strategy may be limited changes. I don't know if there's anything to talk through. On the marketing spend, it's been pretty consistent over the last couple of years. Do you anticipate that number changing at all, or maybe the similar spot is the right way to think about it? Thanks.

James Rhyu (CEO)

Yeah. I think the approach from a marketing perspective, it is, I think, going to be pretty similar. Of course, we're always evolving. I think one of the things that from a sort of approach perspective that I think that we've been doing a good job of in the past year or two is testing a lot of different things. I think our sort of testing velocity has increased. I think we're going to continue to lean into that, the ability to test a lot of different approaches, methodologies, creatives. I think that will continue to improve.

I think that there's actually, I think, a lot of different angles of our marketing approach that we can continue to pursue that goes back to the previous question around career as well, around creative and approach and social media and things like that, that local social media. I think there's just a lot of different things that we have been testing and we're going to continue to test. I think we continue to see opportunities to make improvements. I think that's going to be consistent, and that we'll keep double-downing on that through the summer. Sorry, the other question was.

Gregory Parrish (VP Equity Research)

Yeah. With respect to spend, I mean, as you know, we grew enrollment significantly this year without increasing our marketing spend. Our priority is really around certainly doing some more testing, optimizing media placement, SEO, testing our messaging, and improving our messaging. We will focus on that. The plan is not to spend significantly more on marketing, but to be smart about our marketing and to look for ways to be more efficient in our marketing spend. Okay. That is all very helpful. I know we always talk a little bit about the changes going on at the federal level and the shakeup at the DOE and not the funding side. I think that has been well covered over the last year or so. They have a very pro-choice stance, right?

I mean, what are the impacts of those kind of as they sort of filter down to the states through this administration? And maybe any other impacts really from the DOE and some of their stances. Thanks.

James Rhyu (CEO)

Yeah. I mean, I think we have observed that I think we said before that we have a lot of confidence that this administration and the Department of Education is going to keep kids and families in focus. We continue to believe that that's the case. Some of the more tactical things that they're doing, I think, have maybe a little bit more sort of soundbite and impact at the post-secondary level right now. I think just generally speaking, their general overall stance of empowering the states, which we're a state-level business really, reducing sort of overhead administration, if you will, we think that tends to be good. It does tend to send a message of more choice that I think this administration really believes in the power of choice and customers for the customers. I think that's really an important message.

I think outside of just continuing to monitor the things that they're advocating for and continuing to be aligned with what the administration is advocating, which I think we are, we're just very optimistic that both the federal government and the state governments are going to keep the focus on the kids and the students and the families.

Gregory Parrish (VP Equity Research)

Great. I'll pass it off. Thank you.

Operator (participant)

Your next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.

Jeffrey Silber (Senior Equity Research Analyst.)

Thank you so much. Wanted to go back to Career Learning, specifically the middle high school area. Just another strong quarter with growth accelerating. Can we get a little bit more color? What's driving this strong growth?

James Rhyu (CEO)

Yeah. I mean, I think I might actually say the opposite way, Jeff. And I know this is going to sound, I don't know, it may sound odd, but I actually think that I look at it as instead of the fact that our growth is higher in middle and high school, I actually think we're missing some opportunities in the lower grades. I think the robust strength in middle and high school, we've seen that there for a while. I think that our types of programs directly address a lot of the needs that we're seeing in those grade levels.

We see a lot of the parent satisfaction surveys and things like that in those grade levels where for a lot of different reasons, the local either districts or the states or the way the state programs run or whether it's the lack of certain academic elements or restrictions around certain academic elements or things like that, it just opens up for those grade levels a lot of parental desire to look at alternatives. I think it similarly applies in the lower grade levels. We haven't been as effective in communicating that message in the lower grade levels because I'll tell you, one thing that we know across the country is reading scores, specifically third-grade and reader scores, are really subpar.

One of the messages that we're really going to promote here to sort of have the lower grades "catch up" to the upper grades in terms of the awareness and growth is we're going to really lean into some sort of high-dosage tutoring in the lowest grades, specifically around reading, because we think it's that important. We're going to make some pretty significant investments in that arena. We've launched our Tutoring Platform a couple of years ago. It's running really well. We think we can apply some of that into the lowest grades for a lot of programs and really accelerate learning in the lowest grades. I think that may be a message that's going to resonate as well with some families.

I think to me, it's more of a challenge of improving the lower grades as opposed to why are the upper grades outperforming the lower grades.

Jeffrey Silber (Senior Equity Research Analyst.)

Okay. Fair enough. Shifting gears a bit, I think in your prepared remarks, you talked about some constraints. I don't know if it was some schools that have closed enrollment or some states that have closed enrollment. Is that in both general education and career learning? Any specific color would be great. Thank you.

James Rhyu (CEO)

Yeah. Yeah. It's a great question. Yes, it is in both. I think, as I mentioned in my remarks, the demand side of this equation has just really continued to grow in ways that I think are unexpected, at least to me, in a time of year that usually isn't the strongest part of the year. Just by the nature of either the policy or the school or the partner or whatever, sometimes we close up the enrollment windows. This is, by the way, not new, but just those enrollment windows close up often during this quarter. As demand continues to spike, the ability to meet that demand actually stays somewhat contained. That's just really a phenomenon that's always happened.

We just haven't really had to deal with it as much in previous years because we haven't seen such a spike in demand. It hasn't been as sort of acute as it has been this year. It has really been a demand-side issue more than any change in enrollment windows or caps or anything like that. That has really always been there.

Jeffrey Silber (Senior Equity Research Analyst.)

Good. Thanks so much.

Operator (participant)

As a reminder, it is Star One if you would like to ask a question. Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Patrick McLlwee (Senior Equity Research Associate.)

Hi, team. Pat McIlwee on today. James, you've talked about this a bit, but in the past, you've said that uncertainty and chaos have historically benefited Stride. I understand that K through 12 isn't necessarily within the crosshairs of recent trade policies or geopolitical tensions. Do you get the sense any of the traction you've been seeing has been supported by these uncertain times, or do you think this demand is more so a factor of you reaching scale and word-of-mouth referral kind of beginning to flywheel?

James Rhyu (CEO)

Yeah. It's a great question. I think it's actually both. I do think that uncertainty, I think broad macro uncertainty is probably less the issue. We've just seen just uncertainty and volatility, whether it's gun violence, certainly has precipitated, I think, a lot of interest in our programs. Uncertainty at the district level and volatility in sort of how certain districts may be administering programs or whatever has benefited our programs, I think. Some of the larger sort of geopolitical things like tariffs and things like that, I don't think we see that as having as direct a correlation with demand. In fact, I could say in the data that I've seen, we have not seen direct correlation between the past few weeks' spikes in policies of tariffs or things like that, spiking demand.

I do not think it is that type of uncertainty, but certainly the uncertainty that happens at the district level, uncertainty that happens around school safety, uncertainty that happens around school policy, those types of things, I think, do have a positive impact. I think your last comment there around the flywheel, we do see that. I think that the more scale that we get and the high customer satisfaction scores that we receive does create a lot of referral business. We see that sort of just directionally, the referral numbers are strong, cost of acquisition is good, things that sort of indicate towards referral, also those things tend to look good as well.

Patrick McLlwee (Senior Equity Research Associate.)

Right. Okay. All very helpful. Thank you. Donna, on the gross margins, once again, above 40% this quarter, you're already pacing ahead of your margin targets for the year. My question really is just how much more room for expansion do you think you have in that line over time? What are the primary levers as you think about driving that expansion over the next few years?

Donna Blackman (CFO)

Yeah. Look, I think we will continue to see good flow-through in the business. I think the efficiency efforts that I started to talk about two years ago, maintaining those efficiency efforts, that's bearing out well for us. We'll continue to do that. I think we'll continue that into the future. I wouldn't expect to have gross margins be significantly higher than they are now. We're not coming up, even though we are at the high end of our targets for 2028, I'm not changing our overall targets for our gross margins. We will continue, however, to see strong flow-through as the business grows and expands. We are continuing to maintain those efficiency efforts that we put into place over the past couple of years.

James Rhyu (CEO)

I also want to say that as much as those efforts are ongoing, we continue to look at ways to reinvest for the programs. I mean, I mentioned earlier the investment we'll make in tutoring. There is a balance that we try to strike. Not always are those investments gross margin impacting, but sort of in aggregate dollars, we're investing more today in the business, in new tools, investing in our teachers than we've ever done before. I think there's a balance there that we need to keep investing for the longevity of the business. As sort of the market dynamics evolve, technologies evolve, we want to keep investing in new technologies. There is a big investment piece of this that sort of gets maybe a little bit masked by how sort of other parts of the business we run efficiently.

There are a lot of investments that go into improving our product. The socialization stuff I mentioned earlier, those are all very significant investments that will grow over time as we see them working. Some of those investments are some of what I talked about, as you may recall, during our investor day to help the teachers out, to make their lives a lot easier, right, and take some of that administrative burden from them so they can do the things that they love to do, which is teach kids.

Patrick McLlwee (Senior Equity Research Associate.)

Right. Understood. Thank you both for the thoughts.

Operator (participant)

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

Alexander P. Paris (President and Senior Managing Director)

Hi guys. Thanks for taking my questions. I essentially have two. First one for James. James, would you mind repeating your comments about finishing the year with more enrollment than you started? While early, your comments for next year, I think you said that you would expect growth. You were just kind of going fast for my pencil. Can we get that recapped?

James Rhyu (CEO)

Yeah. I mean, and this has been now a multi-year trend where we're on a trajectory. We feel pretty confident that we'll end the year with a higher enrollment level than we began the year. You can sort of see that we just reported numbers that are pretty significantly higher than we started the year, right? Ending the year at a higher level, what it does is it gives us a higher jumping-off point for the fall enrollment because obviously many of those students will come back. In fact, as we get almost counterintuitively, as we get toward the end of the year, many of the students who joined right at the end of the year have actually a high propensity to return in the fall. Ending the year strong just really does set us up for strength going into the fall.

There is some early indicator that we are going to end the year strong and that will bode well for the re-registration cohort for the fall. That early indication, along with the very strong demand we saw in Q3, January through March, if that continues, it really sets us up for a very strong demand season for the fall, which I think sets us up for growth. I think the characteristics are all there for us to continue our enrollment trajectory.

Alexander P. Paris (President and Senior Managing Director)

Along those lines, is it too early to talk about applications for the fall? When do those start rolling in?

James Rhyu (CEO)

Yeah. The fall application season is literally the windows are just opening up here. That is way too early to really have any good indicator of how that's shaping up. I think that we'll have a little bit more information on that in the next call. At least the past couple of years that we've seen, the back half of the year has boded well. The strength in the back half of the year has boded well for the fall applications. We don't yet see that, but if the prior years are any indicator, the strength that we've seen this past quarter in application volume is a pretty good indicator for the fall.

Alexander P. Paris (President and Senior Managing Director)

That's great. Donna, I think you said in terms of revenue per enrollment for the full year, you're saying down less than 1%. I think you said down 1-2% as recently as the Q2 report. Do I have that right?

Donna Blackman (CFO)

That is correct. Now that we are sort of three quarters in, feel comfortable saying that we'll be down less than 1%.

Alexander P. Paris (President and Senior Managing Director)

Great. That's helpful. The last one is on the slide on page 17. It's just to understand how to use it a little bit better because I was off. I was using 47.6 million shares, and on a diluted basis, it came in at 49.2. You talk about the illustrative average quarterly stock price. I'm just looking at Q3, and you started the year at about $104 or the quarter, and then you finished the quarter at $126. Is this just a simple average, or is it a VWAP? How do we calculate that?

Donna Blackman (CFO)

It's the average stock price for the quarter. If you look on page 17, the average stock price for the quarter was around roughly $127. Use the $125 as the example. You would have added roughly 4.6 million shares to what would otherwise have been without the convert for the purpose of calculating the.

Alexander P. Paris (President and Senior Managing Director)

What am I adding that to? The basic shares? My assumption for basic shares? Basic shares plus whatever stock option underlying stuff is there, plus the 4.6 million shares.

James Rhyu (CEO)

Correct.

Alexander P. Paris (President and Senior Managing Director)

How do you do it? Gotcha. Okay. Wanted to have a more accurate share count.

Donna Blackman (CFO)

Yes. We can certainly walk you through it offline if you like.

Alexander P. Paris (President and Senior Managing Director)

Okay. For sure. To me, your numbers were spot on mine, but you were slightly below the consensus EPS estimate. I suspect it's just because of the share count that the consensus of analysts were using. Thank you very much. That does it for me.

Donna Blackman (CFO)

Thanks.

Operator (participant)

Ladies and gentlemen, that concludes our question and answer session and today's conference call. We thank you for your participation, and you may now disconnect.