Stride - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 delivered double-digit top-line growth and strong profitability: revenue $620.9M (+12.7% YoY), GAAP diluted EPS $1.40 (+48.9% YoY), and adjusted EPS $1.52 (+39.4% YoY). Management cited strong demand but acknowledged execution challenges from platform upgrades that muted in‑year enrollment growth and pressured margins modestly.
• Results beat S&P Global consensus: revenue $620.9M vs $615.9M estimate; Primary EPS $1.52 vs $1.26 estimate (beats on both). Guidance for Q2 revenue $620–$640M brackets the $627.9M consensus. Values retrieved from S&P Global.; Revenue estimate and EPS estimate from S&P Global*
• Guidance initiated for FY26: revenue $2.480–$2.555B, adjusted operating income $475–$500M, capex $70–$80M, tax rate 24–25%. Q2 FY26 guide: revenue $620–$640M, adjusted operating income $135–$145M, capex $15–$18M.
• Strategic platform upgrades drove higher withdrawals and lower conversion than expected (estimated 10k–15k enrollments impact), prompting a tactical decision to limit in‑year intake to preserve program quality; remediation is underway with vendors, with the largest fixes expected over the next few months.
• Capital allocation: Post-quarter, Stride authorized a share repurchase program of up to $500M through Oct 31, 2026, citing confidence in long‑term outlook and cash generation.

What Went Well and What Went Wrong

• What Went Well

  • Strong demand and record fall enrollments: total enrollments 247.7K (+11.3% YoY) with Career Learning enrollments 110.0K (+20.0% YoY). “Demand for our products and services remains strong.” — CEO James Rhyu.
  • Broad-based revenue growth: General Education +10.2% YoY; Career Learning +16.3% YoY (Middle–High +21.4%). Revenue per enrollment rose 3.7%.
  • Profitability expansion despite disruptions: Adjusted operating income +39% YoY to $81.1M; adjusted EBITDA +29% YoY; adjusted EPS +39.4% YoY to $1.52.

• What Went Wrong

  • Platform implementations “did not go as smoothly as we anticipated,” detracting from customer experience, increasing withdrawals, and reducing conversion.
  • Management expects “muted” in‑year enrollment growth versus prior years and lower full‑year gross margin vs FY25 (still above FY24) due to investment and remediation costs.
  • Adult learning softness continued (Adult revenue down 28.6% YoY in Q1).

Transcript

Operator (participant)

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride first quarter fiscal year 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star and the number one on your telephone keypad. I would now like to turn the call over to Timothy Casey, Vice President, Investor Relations. Sir, please go ahead.

Timothy Casey (VP, Investor Relations)

Thank you, and good afternoon. Welcome to Stride's first quarter earnings call for fiscal year 2026. 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, including our most recent annual report on Form 10-K and subsequent 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'll 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. Demand for our products and services remains strong. In fact, we believe industry demand and trends around online education continue to grow. We indicated in August that we believe we would grow enrollment between 10%-15%. While we achieved enrollment growth in that range, we still fell short of our internal expectations. While demand as indicated by application volumes remains healthy, overall growth was tempered. What happened? We made a couple of strategic decisions that we believe will pay dividends over the longer term, but limited our growth in the shorter term. First, we invested in upgrading our learning and technology platforms with third-party industry-leading platforms. We continue to believe the investment is the right long-term decision to ensure we are deploying industry-leading technologies and systems. However, the implementations did not go as smoothly as we anticipated.

We are actively engaged with our vendors to improve the situation. We heard from our customers that their engagement with these platforms detracted from their overall experience. This poor customer experience has resulted in some higher withdrawal rates and lower conversion rates than we expected. Secondly, we wanted to focus on running high-quality programs. In some instances, the best approach to achieve that is to limit enrollment growth while we improve our execution. We estimate that the combination of these factors resulted in approximately 10,000-15,000 fewer enrollments than we otherwise could have achieved. We also believe that these challenges will likely restrict our in-year enrollment growth. While demand continues to remain strong, we do not anticipate the same in-year enrollment increases that we have seen over the past few years. Our outlook for this year compared to last year is a bit muted.

However, our outlook for this business over the longer term remains bullish. These investments should help us achieve our longer-term goals. Our mission and our path are clearer to me than ever. Families want and deserve educational choice. Meeting the demands of families in this country is an increasingly diverse task that is challenging to meet with a one-size-fits-all model. For many families, we are providing the only real affordable alternative in meeting their needs. The trends just continue to move in that direction. Whether it be safety issues like bullying or neighborhood violence, or health issues or special needs that cannot be met by local schools, we are providing a service that is both increasingly in demand and increasingly necessary. We are investing in areas that will help enable us to meet the needs of the families we serve.

One simple example is the rollout this year offering every second and third grader free ELA tutoring. We know that in order for kids to continue learning, they need to be able to read, write, and communicate. Therefore, we are investing to ensure the youngest students in our programs can do just that. We are tomorrow's education today. We meet the diverse needs of families that want flexible, personalized, career-forward, and tech-enabled education at an affordable cost. This fall has proven challenging for us. I want to thank our customer-facing employees, the teachers, administrators, and other staff who have worked tirelessly to help us overcome those challenges to serve the students. I also want to thank all our corporate employees who never forget who our customers are and how impactful what we do is in the lives of so many families. Thank you.

With that, I'll turn the call over to Donna.

Donna Blackman (CFO)

Thanks, James. Good afternoon. As James mentioned, our results this quarter reflect the continued demand for our core offerings. Families are seeking alternative options for their students to solve ongoing challenges within the existing educational system. However, we also had some internal challenges this quarter as we implemented new platforms for our students. While this caused some disruptions, I believe these changes are important for the long-term growth of the business. As always, I am incredibly grateful to all of the Stride employees for their commitment to the families we serve. It is an opportunity and a privilege to influence the lives of so many students each and every year. Turning to a few highlights from our quarterly results. Revenue for the quarter was $620.9 million, up 13% from the first quarter of last year. Adjusted operating income was $81.1 million, an increase of almost $23 million, or 39%.

Adjusted earnings per share were $1.52, up $0.43 from last year. Capital expenditures were $21.7 million, up $6.9 million. As I mentioned, our quarterly results reflect strong demand for our core offerings. Our total enrollments for the quarter were up 11.3% from last year, once again setting a record for the number of students we will serve as families continue to seek out educational alternatives. Career Learning middle and high school revenue for the quarter was $241.5 million, up more than 21% from last year. Career Learning enrollments grew 20% to 110,000. General Education revenue grew over 10% to $363.1 million on enrollment growth of 5.2% to 137,700 students. Total revenue per enrollment across both lines of revenue was $2,388, up 3.7% from last year. As we mentioned in August, we are seeing a positive funding environment, but we do expect some impact from state mix and timing.

As such, we now believe we will finish the year flattish in revenue per enrollment compared to fiscal year 2025. Gross margins for the quarter was 39%, down 20 basis points from last year. I mentioned last quarter that we are continuing to invest in the business, which will have some impact on gross margins. Additionally, given the challenges we had this quarter, we expect to incur some additional expenses related to the platform rollout. As a result, we now expect full-year gross margins will be down from fiscal year 2025, though still above what we saw in fiscal year 2024. Selling, general and administrative expenses totaled $173.1 million, up 3% from last year. We still expect SG&A as a percent of revenue to decrease compared to last year. Stock-based compensation for the quarter was $10.2 million, an increase of $1.8 million compared to last year.

We expect to see an increase in stock-based compensation this year, largely due to the impact of long-term performance grants. Therefore, full-year stock-based compensation will likely be in the range of $41 million-$44 million. As I mentioned earlier, adjusted operating income for the quarter was $81.1 million, up 39% compared to fiscal year 2025. Adjusted EBITDA was $108.4 million, up roughly 29%. Adjusted earnings per share, a new metric we introduced last quarter, was $1.52, up 39.4% from last year. Our profitability strength was driven by the enrollment growth in the quarter and improvements in operating margins. Capital expenditures in the quarter were $21.7 million, up $6.9 million from last year. Free cash flow, defined as cash from operations less CapEx, was -$217.5 million compared to -$156.8 million in the prior year period.

Cash flow followed our typical seasonality related to school launch and the onboarding of students in the first quarter. As in years past, we expect to see positive cash flow for the next three quarters. We finished the quarter with cash, cash equivalents, and marketable securities of $749.6 million. Turning to our guidance, as James mentioned, we do not expect in-year enrollments to be nearly as strong as they have been for the past three years. However, despite the short-term impacts we are seeing, our guidance this year keeps us firmly on track to achieve our fiscal year 2028 financial goals. For the second quarter of 2026, we expect to see revenue in the range of $620-$640 million, adjusted operating income between $135 and $145 million, and capital expenditures between $15 and $18 million.

For the full year, we expect revenue in the range of $2.480 billion-$2.555 billion, adjusted operating income between $475 and $500 million, capital expenditures between $70 and $80 million, and an effective tax rate between 24% and 25%. While any new technology can bring challenges, we are committed to delivering a quality experience for all of our families and our partners. We will make the investments needed this year to ensure we are set up for long-term success. Thank you for your time today. Now, I'll turn the call back over to the operator for your questions. Operator?

Operator (participant)

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from Jeffrey Silber with BMO Capital Markets. Please go ahead.

Jeffrey Silber (Senior Analyst)

Thank you so much. I obviously want to focus on the guidance for the year. Forgive me, did you give enrollment guidance for the year? I think you had said 10%-15% on the prior call. I'm just wondering where you're coming out now.

Donna Blackman (CFO)

We did not give guidance for the full year. We gave the guidance that we gave for the count date was 10%-15% for the count date. We came in at 11.3%. We do not anticipate that we will see the same level of in-year enrollment growth that we've seen over the past three years. Based upon that assumption, the 11.3% growth that we saw from October to October, we don't expect to see that same year-over-year increase by the end of the year.

Jeffrey Silber (Senior Analyst)

Okay. Thank you for clarifying that. You did call out about 10,000-15,000 weaker enrollments, and you cited two items. One was, I guess, a bad platform implementation, and the other was limiting enrollment growth to focus on high-quality programs. Can we parse out what each one had that impact on that 10,000-15,000? If you can give a little bit more color on each of those items, I think that would be helpful. Thanks.

James Rhyu (CEO)

Yeah, I mean, I think it's difficult to say exactly. I'll first say that. You know, anything I say is going to be based on the data that we can see and estimate. But certainly, we believe that the majority was due to the system implementation issues. It impacted the overall customer experience. We had a higher level of withdrawals as a result. You know, we attribute the higher level of withdrawals directly to the system issues that we're having. I think that's definitely the predominance of them. It's also the area that we think is most resolvable. We're working very furiously with our partners to fix those issues.

You know, I think that the ability for us to run quality programs is tied intimately with the platform issues that we discussed because what we don't want to do is to really exacerbate a problem by having more students come on to a platform that is not meeting our expectations.

Jeffrey Silber (Senior Analyst)

Okay. Appreciate the call. Thank you.

Operator (participant)

Your next question comes from the line of Jason Tilchen with Canaccord Genuity. Please go ahead.

Jason Tilchen (Director and Senior Equity Research Analyst)

Great. Good afternoon. Thanks for taking my question. A little bit of a follow-up on the last question. I'm wondering if you could just share a little bit more about, A, the rationale and the timing for this tech implementation, and then a little bit more about exactly what went wrong.

James Rhyu (CEO)

Yeah, I think the first thing is the rationale for the implementation is it's actually pretty simple. As we have scaled, I mean, we have more than doubled in the past five years, and that level of scale requires platforms that are large enough and robust enough to meet the demands of our scale and our anticipated additional growth. We operated a number of platforms that were either in-house proprietary platforms or with third parties where we didn't have the confidence that they were going to be able to scale to the extent we needed them to. Investing in a new set of platforms for the long term, we believe, and we still believe, execution issues aside, is the right thing for our business long term. The idea of investing in upgrading our platforms continues to be, we think, the right approach.

The timing, there's one real window of timing that you have to fall into for most of these types of upgrades, where you have, in theory, the least disruption to your customers. That is in the summer between the end of one school year and the beginning of the next school year. You sort of have to execute in that delicate window. Clearly, what we thought we were going to achieve in terms of execution in that window, we did not achieve. Demand continues to be very strong. We're confident that we're going to overcome this. The timing for this implementation sort of has to occur really in that summer period. You really only get that one window of chance. We didn't execute as well as we should have, and our partners didn't execute as well as they should have.

We're going to spend the year making sure that we get it fixed.

Jason Tilchen (Director and Senior Equity Research Analyst)

Great. Just a follow-up to that. I just want to make sure I understand. Was it essentially the implementation took longer than expected to complete and it sort of bled into the beginning of the school year, or was there something else that went wrong? The other sort of question, the dynamic between the two programs, General Education and Career Learning, it seems like Career Learning, the enrollment remained very strong there while we saw the sequential decline for General Education. I'm wondering if this sort of tech upgrade had any sort of impact on one program more than the other.

James Rhyu (CEO)

Yeah. Not a material impact on one program versus the other. I wouldn't sort of read too much into that split. The implementation, again, there was a couple of platforms there. The main platform implementations took a little bit longer than we expected. Also, we encountered more problems on the rollout than we anticipated. Even when it did roll out for the new semester, the number of problems we experienced during the rollout impacted directly customers' abilities to log on, the resiliency of the platform, the performance of the platform, all impacted the customer trajectory, the customer experience. I would say it did take longer, and it continues into the year to have issues that we're continuing to fix. I think that's sort of the thing that we're dealing with is that we're now in the year, and we have been now for a couple of months.

We're continuing to ensure that we're improving the platforms in year as well.

Jason Tilchen (Director and Senior Equity Research Analyst)

Appreciate the call. Thanks a lot.

Operator (participant)

Your next question comes from the line of Greg Parrish with Morgan Stanley. Please go ahead.

Greg Parrish (Chief Financial Analyst)

Hey, good evening. Thanks for taking my question here. I'm going to get a little more color on the decision to limit in-year enrollment growth. Will the platform implementation issues, is that impacting in-year enrollment growth, or is that not the case? Is this more of a permanent structural decision to just, you know, improve the quality of your program?

James Rhyu (CEO)

I think it's a little bit of both. We clearly want to limit the exposure that the platform issues are having. Just sort of limiting the intake during a period when we want to make sure that the platform gets stabilized is important, and that directly correlates to the quality of the program. I mean, you can't have a high-quality program if you're having customer experience issues. I think they sort of go hand in glove.

Greg Parrish (Chief Financial Analyst)

Would you say then this is just a one-year sort of in-year impact, and then next year it would probably, and that there's only been a couple of years that this has been happening, or is this, next year we're going to kind of, it could go back to the way it has been in the last few years?

James Rhyu (CEO)

Yeah. I think all things being equal, meaning that assuming we fix all the issues in this year, which we do anticipate, we have a clear roadmap that this year the issues will, in fact, be fixed. Assuming that the demand continues to be strong as we have seen it, yes, we would believe that next year we would be able to return to growth in year. Obviously, a lot of variables included there, certainly not guidance of what next year is going to be. If the demand were to maintain at the high levels that we've been seeing it and all other things being equal to, say, a last-year type of performance, then yeah, that's what the math would suggest. We're really focused on making sure we get it fixed this year. That is really the number one priority.

Again, I think we have a clear path of getting these resolved in this fiscal year.

Greg Parrish (Chief Financial Analyst)

Okay. Thanks. That's helpful, caller. I know there's a lot of moving parts there. Maybe just one last question here. I just wanted to talk about the competitive landscape. I say that with, you know, you have double-digit enrollment growth here to start the year, very healthy. With your success over the last couple of years, there's other programs that are going to try to copy some of your very successful strategies. I think your biggest competitor had a great start to the year, I think, following your playbook in many ways. I know you're for lifting all boats in the industry, but maybe just help us with what you're seeing out there in the competitive environment, any changes, just anything you're seeing on that front. Thanks.

James Rhyu (CEO)

Yeah. I mean, I have said, I think, pretty consistently that I want all players in the space to be successful. I want to make sure that the industry is healthy and that the industry has high-quality players. I think a healthy industry promotes higher-quality players in the industry. I think that's important. Congratulations to our competitors who are doing well. I think that's great for them. If you just looked at the raw numbers, forget about percentage for a second. If you looked at raw numbers, I still think our growth year over year outpaced our largest competitors' raw growth numbers by a large margin. When you start at a lower base, percentage is obviously, you know, that's just math. I think what we can see is demand remains strong. We welcome healthy competition.

I think we're going to do everything we can to tee ourselves up for a strong next year.

Alex Parrish (Analyst)

Okay. Fantastic. Thank you.

Operator (participant)

Your next question comes from the line of Steven Sheldon with William Blair. Please go ahead.

Hey, team. You have Matt Fylock on for Steven Sheldon. Wanted to start with a clarification question. Are these platform issues solely related to the classroom and learning experience, or are these platforms also used for processing enrollments and other administrative functions?

James Rhyu (CEO)

Yeah. It's a really stupid question. It's actually both. They are what you would consider to be the more traditional customer-facing side of the equation. The platform serves up the courses and gets the people, gets the students engaged with the program, if you will, as well as the more back-office administrative side that you just referenced.

Okay. That's helpful. What inning do you feel you are in for rectifying these platform issues? Can you also tell us when exactly these issues started? One more thing as well, would you kind of call this two separate platform issues, or is it one thing? How should we think about all that, especially timing of fixing the issues?

Yeah. They are distinct platforms. It is, in this case, specific to your question, two distinct platforms that we're talking about in terms of back office, front office. We did not really have an indication of the impact of these issues until we got well into August. Unfortunately, the timing wasn't great because it happened to be after our last earnings call where it was more funnel activity of demand that we were seeing that was very strong. Subsequent to that, we started seeing the withdrawal issues as the platform issues became apparent. The timing was unfortunate that it was after our last earnings call. I think that when we think about sort of the roadmap to getting these issues fixed, we're working every day on them. We believe that over the course of the year, it's not a one-time fix that we're implementing. It's a series of fixes.

We think that the biggest ones happen here in the next few months, but they will persist throughout the entire year. In fact, we are engaged with our partners to ensure that it doesn't end just when we think that we, quote-unquote, "have the issues fixed," but that we signed up with these partners to ensure that there was a robust ongoing set of improvements to the platforms and innovation curve that we would ride with them, that they would invest behind. While the immediate issues we expect to get fixed in the next few months with the biggest issues and then throughout the year with the remaining issues, we still expect to be investing in improving this platform and improving the experience for our customers well into the future.

This is not just a one-year deal in terms of the expectation we have on improvement, but the most pressing issues we expect to be fixed in this year.

Okay. Thank you, James. Appreciate the added color there.

Operator (participant)

Again, if you would like to ask a question, press star one on your telephone keypad. Your next question comes from Alex Parrish with Barrington Research. Please go ahead.

Alex Parrish (Analyst)

Thank you. I just have a couple of clarification type of questions. At the count date, you had 247,700 students, up 11.3% year-over-year. You said that it could have been 10,000-15,000 higher if it were not for these issues with the platform rollout. The first question I have is, did those withdrawals occur before the count date or after the count date? Because the Q2 guidance calls for revenue at the midpoint of up 7.3%. Fall term enrollment was up 11.3%. If it's flat revenue per enrollment, I don't know why revenue would be up only 7% unless these withdrawals continue to occur beyond the count date.

James Rhyu (CEO)

Let me try to maybe clarify how you're looking at this first and then sort of circle back maybe on how these withdrawals are manifesting themselves. The comp in each of our subsequent quarters from last year is on a rising set of enrollments and rising set of revenue. If what we did was we remain stable, i.e., flat, you still have a deterioration in the year-over-year growth mathematically because you're talking about last year when in the course of the year, you were rising. We do not expect sort of the same dynamic of growth that we saw last year. I think that's the first point. Just mathematically, I think you have to look at it from each quarter sequentially last year that was growing. You know, now we're not sort of indicating that same growth.

The second piece of circling back, I think, is that, you know, largely speaking, the vast majority of the growth that we think we could have had, the indication of the 10-15 thousand occurred in the first fiscal quarter, meaning everything in that estimate specifically is a calculation estimate through September 30th, 2023. Said a different way, if we did not have those problems and our estimates were correct, we actually would have anticipated that our count date, our September 30th only number, would have likely exceeded the upper range of our guidance mathematically. A lot of assumptions built in there around, you know, how we're calculating higher withdrawal rates and things like that. I think to your question, the predominance of it that we're indicating in that number is falling between sort of middle of August through end of September.

Alex Parrish (Analyst)

Okay. When we talk about in-year enrollment, I guess I was sort of thinking about the January enrollment. Implicit in your guidance is rather than a sequential rise in raw enrollment from quarter to quarter to quarter like we saw through Q1, Q2, and Q3 last year, it would be a decline. The second quarter raw number for enrollment will be less than the first quarter raw number enrollment. The third quarter will be less than the second quarter, and presumably the fourth quarter will be less. Next year, once all these problems are fixed, we can presumably return to growth. Is that the way to think about it?

James Rhyu (CEO)

Yeah. So I think we're not giving exact enrollment guidance per se exactly. I think we should probably not presume growth beginning of the year to the end of the year in enrollments. We will handle some backfills. We have some attrition during the course of the year. There's likely some backfills that we will do. I think beginning of the year to end of the year, we should not anticipate growth. We do, again, assuming the conditions remain strong as we've seen, the demand conditions remain strong as we've seen, and we can revert back to the prior retention characteristics that we had prior to this issue. We do think that we could resume to in-year growth in subsequent years.

Alex Parrish (Analyst)

Gotcha. The last question and related is revenue per enrollment. You previously said positive funding environment. It probably up a bit. Now you're saying flat. Is that the delta?

Donna Blackman (CFO)

Yeah. As I said in my prepared remark, Alex, we are still seeing a positive funding environment. We will see some impacts from the mix and from timing. As you may recall, one of the things that we did last year was that we had some adjustments throughout the course of the year, given the in-year enrollment growth that we had throughout the course of the year. We're not anticipating having that same level of in-year enrollment growth. We won't have that catch-up that we had last year. We also had that higher funding catch-up in Q4 funding adjustment, I should say, in Q4. In the back half of the year, the comp's a little bit tougher. To the point, we don't expect to have that level of in-year enrollment growth that we saw last year that we adjusted the revenue per enrollment throughout the course of the year.

Alex Parrish (Analyst)

Has anything really changed on?

Donna Blackman (CFO)

We talked about flat.

Alex Parrish (Analyst)

Has anything really changed on the funding environment outlook? You said you still view it as a positive funding environment. Has the mix changed relative to your expectations a few months ago, the expected mix?

Donna Blackman (CFO)

When I talk about mix, the mix is depending upon where we grow, where the withdrawals come from during the course of the year. That's the mix we talk about. The point James made sounds like we won't have any in-year enrollment growth, right? The reality we'll have is we'll have some prior to the last three years. We would have in-year enrollment growth. Our withdrawals exceeded that in-year enrollment growth, right? We'll still continue to have that mix that will happen. It depends on where that mix happens that will drive the variability that we might see in our revenue per enrollment, whether it be a higher General Education or Career Learning. In terms of the pure funding environment, the sentiment is the same today as it was in August.

Alex Parrish (Analyst)

Gotcha. All right. I appreciate the extra color, and I'll ask other questions as we follow up.

Operator (participant)

Ladies and gentlemen, this concludes the Stride first quarter fiscal year 2026 earnings call. On behalf of Stride, I would like to thank you all for joining. You may now disconnect.