Stride, Inc. 2026 Q4 Earnings Call

Good afternoon. Welcome to Stride's fourth quarter and year-end earnings call for fiscal year 2026. 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. The company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we will answer questions you may have. I'll turn the call over to Bob.

Thanks, Eliza. Good afternoon, everyone. Before we discuss our results, I would like to address the leadership transition that we announced last Thursday. The board executed this leadership change after careful evaluation and deliberation. Ultimately, the board determined that for Stride to reach its full potential, a new leader was needed to take the reins. Having made that decision, the board enacted our succession plan to appoint me as the new CEO. We collectively believed that it was best to do this immediately so that I could hit the ground running. I appreciate the board's confidence in making me Stride's CEO. A strong consideration was putting in place a leader with strong tech and education experience and a track record of building strong teams. Those qualities align with my background. I've been an independent member of the Stride board since 2018.

On the education front, I served as the inaugural CEO of the NYC Leadership Academy, which was a nationally recognized nonprofit organization committed to improving outcomes for students, particularly the most vulnerable students, through high-quality educational leadership. I was a founding member of the organization, which was crafted under Mayor Michael Bloomberg and Chancellor Joel Klein. It was during my tenure there that I grew to truly understand the importance of driving student outcomes. I believe this is the ultimate measure of educational success. Investments in curriculum, technology, and support services must translate into meaningful academic achievement. Educators, institutions, and policymakers expect this from Stride. This will be one of my top priorities. On the tech side, I spent the early part of my career in the Bell System at Ameritech and US West.

As Executive Vice President of Operations and Technology at US West, I oversaw every technical function in the company. Subsequently, I became CEO at Covad Communications, which I took public, and have served as CEO of Symantec Technologies and Telwares as well. I have also served on the board at a variety of Fortune 500 companies, bringing a lens of delivering long-term shareholder value through board oversight. I've been a leader on every board on which I have served, whether as chairman of the board or committee chair. Given my experience on Stride's board, I have a strong understanding of our business. I've got an appreciation for our mission and our people who deliver on that mission every day. If you were to summarize my experience in a few words, I have a proven track record as an operator.

I'm known for building strong teams, and I get quite deep in the details as that is my comfort zone. Second, I have a strong blend of tech and education experience. Then third, I bring a shareholder-driven mindset from my board experiences. There is a lot to continue to build on here at Stride. I'm incredibly excited by the opportunity ahead of us. Stride is a market leader with several competitive advantages. We have a significant and scaled base of students across more than 30 geographies. The management team is committed to growing the business deeper where we already have students, as well as planting flags in new geographies. The management team has exhibited disciplined fiscal management. As a result, we have a balance sheet that enables us to make prudent investments in the growth of our company.

An example of this is the extension of our share repurchase authorization until October 31st, 2027. Once our trading window opens at the end of October, I intend to actively consider opportunistic stock repurchases as part of our capital allocation strategy. Stride has a tremendous amount of talent throughout the organization, from the management team all the way to our front line. That's why I'm eager to roll up my sleeves alongside this group. I do recognize there is room for improvement. While we have strong foundational elements, we also have many students that we could still be serving. To grow our market share, in large part, we must improve student outcomes. This includes better leveraging our suite of products and services, such as our live and AI tutoring platforms and our Tallo career and digital curriculum platforms.

We've done a nice job over the years of adding capabilities, but I believe that there's even more we can do to extend our suite of products and help students to reach their goals. Improving our go-to-market has huge potential. As we execute our strategy, I am confident that we will better meet the needs of our students, which will in turn create more value for our shareholders. Let me now pivot to talk about our performance. As you've heard the team talk about in the past, Stride has made significant investments in our technology platforms to improve the long-term scalability of the business. We have improved the customer experience, we've strengthened our operational foundation, and we've positioned the business for future growth. As a result of the steps we have taken to date, we have delivered 4.2% enrollment growth and 4.7% revenue growth.

Turning briefly to the previously announced decision by Roscoe Independent School District to not renew their contract for our Lone Star Online Academy. While we're disappointed by the district's decision, Texas remains an important state for us, and our commitment to serving families across the state remains unchanged. We continue to operate multiple schools in Texas, and we're actively placing Roscoe Independent School District-impacted families in our other programs. As we look towards the upcoming school year, it is still early in the enrollment season. Families will continue to make enrollment decisions throughout the fall and increasingly throughout the school year. With that caveat, we are encouraged by the indications we are seeing so far. Applications are tracking slightly behind this time last year, but we're seeing improved conversion metrics and re-registration activity continues to track slightly ahead of last year.

While I'm just getting started in the CEO role, it's clear to me that there is much to be excited about. I have relocated to Virginia, and I'm full steam ahead. I believe we can build upon what this leadership team has accomplished and reach even greater heights. Thank you for your attention, I'll now turn the call over to Donna.

Thank you, Bob, and good afternoon. As Bob discussed, FY 2026 was a year of meaningful progress for Stride. We continue to see strong demand for our programs, made progress on a number of strategic priorities, and delivered solid financial results. While the year was not without challenges, we believe the progress we made positions us well for the future. I want to thank our employees, school partners, and our students and families for their continued commitment throughout the year. I'd like to provide some detail on our fiscal 2026 financial results. For the full year, revenue was $2.518 billion, an increase of 4.7% over fiscal 2025. Adjusted operating income was $498.4 million, up nearly 7%. Adjusted EBITDA totaled $617.6 million, up 8.2% from last year. Adjusted earnings per share were $8.33. Overall, these results reflect another year of resilient demand and disciplined financial management.

Looking more closely at our business, revenue from our Career Learning middle and high school programs was $1.04 billion, an increase of 19% from last year. Full year Career Learning enrollments totaled 109.7 thousand, up 14%. General Education revenue totaled $1.42 billion, decreasing 2% from FY 2025. Enrollments in General Education totaled 134.2 thousand, down 2.5% for the year. Taken together, we served approximately 243.9 thousand students during the year, just over 4% more than last year, reflecting sustained demand for the educational choices we provide. Total revenue per enrollment across both lines of revenue was $9,914, compared to $9,677 last year. FY 2026 revenue per enrollment continued to reflect differences in state funding, program mix, and enrollment timing. Looking ahead to FY 2027, most of our partner states have now finalized their educational budgets. While funding decisions vary across states, the overall funding environment remains supportive.

As with any year, revenue per enrollment may be impacted by state mix and yield. While it's still early in the enrollment season, given the current environment, we expect full year FY 2027 revenue per enrollment to be relatively flat to up slightly versus FY 2026. As always, revenue per enrollment may continue to fluctuate modestly based on state and program mix, as well as enrollment yield throughout the year. Now turning to profitability. Gross margins for the year were 37.8%, down 140 basis points. As we mentioned previously, our investments affected our near-term margins, but they also strengthened the business and have positioned us well for the years ahead.