Stride, Inc. 2027 Q1 Earnings Call

Thank you, and good afternoon. Welcome to Stride's first quarter earnings call for fiscal year 2027. With me on today's call are Bob Knowling, 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 will answer questions you may have. Now, I'll turn the call over to Bob.

Thank you, Eliza, and good afternoon, everyone, and thank you for joining us. It has truly been energizing to be a part of Stride's school year launch. School opening is always a flurry, regardless if it's a traditional brick-and-mortar school or a virtual school. All of the excitement, the anxiety, and the positive energy, it's still the same. Our students are back. Teaching and learning is in full swing, and I'm fully focused on operational execution and our business results. We delivered first quarter revenue of $639.4 million, which is up 3% from last year. Our first quarter enrollment results were lower than we anticipated. The results are disappointing to me, and obviously, this has my full attention. The experience that parents, students, and teachers had with our technology platforms contributed to the headwinds in applications and the retention of new students during this period.

While retention of returning students remained stable and our conversion metrics remained strong, it was not enough to overcome the decline in net new enrollments, and Donna will provide additional detail on enrollment trends, our financial results, and our outlook. Taking a step back, let me talk about my first two months as CEO and what I've learned, which factors into my plans going forward. Since becoming CEO at the end of July, I've met with district partners. I've met with school leaders to learn from those closest to our students and parents, and those conversations have reinforced my view that the demand backdrop remains substantial. Families continue to look for more flexibility for their children. They want personalization and career-focused options for their kids.

There's a recent Gallup report that showed satisfaction with K-12 education has reached a new low, with only 32% of Americans satisfied with the quality of K-12 education in the United States. The survey underscores the continuing opportunity for education options that better meet the needs of students and families. Our opportunity is right in front of us, and we have to go earn that demand by delivering stronger student outcomes and a better experience. I'm convinced that Stride is well-positioned to meet this demand. We have a strong foundation, and our focus now is on executing more consistently across the business and building on that foundation to create long-term value for students, for families, for our school partners, and for our shareholders. I've identified three key areas that I'm working to improve. The first priority is student outcomes. Student outcomes are the ultimate measure of our success.

Our investments in curriculum, our technology platform, and overall support services has to translate into meaningful academic achievement for students. Better outcomes leads to stronger retention, stronger relationships with school partners, and it provides sustainable growth. On average, nearly 60% of our students enter our schools below grade level. Yet, that is no excuse for falling short on outcomes. I will have a relentless focus on student and school success. In order to do that, we have to analyze the data available across our schools to better understand which interventions are making the greatest difference for students and where we should focus our time and resources. For example, we know from our data that timely, targeted support can make a meaningful difference for students. Knowing when a student is falling behind is key, as well as then applying the appropriate interventions to help the student.

We have to use data more effectively across our schools in pursuit of student progress. Second, I will spend more time listening directly to parents and incorporating what we hear into the improvements we make to the experience we provide. We have to help parents understand what their kids need to do each day with their schoolwork. We need to teach parents how to access support and how to stay connected in a virtual learning environment. The parent engagement with the child in a virtual environment is one major difference from a brick-and-mortar school experience. When introducing our new platform changes last year, we added friction to the user experience instead of making it more seamless. We did not sufficiently anticipate the end-to-end experience for families or move quickly enough to address the friction they encountered.

In hindsight, we should have taken a more deliberate approach to implementation and testing with greater focus on the experience of the families using the platform every day. Sounds simple, and it should have been, but we didn't get it right. We made meaningful progress in preparing for this year's school year, and we did not see a repeat of the broad-based technical disruption we experienced last fall. That does not mean the experience is where it needs to be for our students and families. In response to last year's technical problems, the leadership team decided to develop a new platform overlay called Launchpad that sits in front of the learning management system that caused last year's challenges. That was the right decision, and one which I support. Launchpad organizes information and connects with the learning management system to help guide students through their day.

As you may recall, Launchpad's initial rollout in the beginning of this calendar year was successful, and it improved the customer experience. However, as we continued to make enhancements leading into the fall enrollment season, those enhancements led to a poor user experience during the school year launch. We have heard those concerns, and we take that feedback seriously. It is not acceptable for families to have difficulty navigating schedules, retrieving assignments, or accessing classes. While we cannot isolate the impact on enrollment, we recognize that this friction affected some families' decisions during the enrollment period, and we're moving with urgency to make Launchpad simpler, more reliable, and easier to use. I have strengthened our technology leadership with the hiring of Darlene Williams as our Chief Information Officer.

Darlene joined Stride from Rocket Software, where she served as the CIO there and led technology modernization, enterprise systems, and complex integrations across a large growing business. She brings more than 20 years of experience building technology organizations and delivering scalable, secure solutions. With Darlene's appointment, all IT development and operational functions will come together under her leadership. She will help advance our technology roadmap with a particular focus on improving the experience for students and families and ensuring our investment supports better outcomes. The third priority is getting more from the portfolio we already have. We have built capabilities that can add real value for students at different points in their educational journey, including tutoring, career exploration, and connections to future opportunities through Tallo.

Historically, we have not always been deliberate enough about how these capabilities fit together, which students would benefit most, or how we measure their impact. We are addressing that by bringing a more integrated approach to our product portfolio, using data to identify where these offerings can have the greatest effect, and scaling those that improve outcomes, that improve engagement, and the overall K-12 experience. We will also be more selective about the initiatives we support, shifting resources away from less effective capabilities and towards the areas we see the clearest opportunity to create value for students and families. That translates into concrete choices. We are halting further work on initiatives where we do not see a clear path to improving outcomes or creating meaningful value for students and families. In my first months as CEO, we have begun a strategic reassessment of how we organize and operate the business.

As part of that work, we have already moved to simplify the organization, bringing related teams together and clarifying accountability around our highest priorities. These actions are intended to sharpen our focus and direct both financial and leadership resources towards the areas with the greatest potential impact and return. That work is ongoing, but we have not waited to begin making the changes needed to improve execution and strengthen the business. We also recently announced the formation of a new capital allocation committee, which is tasked with reviewing our capital structure, our capital allocation priorities, including input from shareholders. We expect to share more about this committee's initial framework in the coming months. The strategic reassessment supports our commitment to the fiscal 2028 targets that we have already communicated.

The core work is execution, improving the experience for students and families, focusing our resources on the areas of greatest impact, and holding ourselves accountable for the progress. Our strategic reassessment remains ongoing, and we will share more as that work develops. To summarize, I am excited about the market opportunity in front of us. I have full confidence in my team, and while change makes people uncomfortable, everything we are doing is in service to the kids and parents who chose us. I intend to lead Stride by staying close to what students, families, and school partners are experiencing, focusing our resources on the areas of greatest impact, and being very clear about where we need to improve and holding myself and my team accountable for making progress.