Stride, Inc. (LRN) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with a 7.8% enrollment growth and a 29% increase in Career Learning revenue. Despite a slight decline in General Education revenue, overall revenue per enrollment increased, and gross margins improved. The Q&A session revealed strong demand, resolved withdrawal trends, and partner confidence. The company's cautious approach to growth and financial flexibility, despite a drop in free cash flow, indicates a positive outlook. Given the company's market cap, the stock is likely to see a moderate positive movement in the short term.
Key Financial Performance
Revenue $631.3 million, up nearly 8% from the second quarter of fiscal year 2025. This increase was driven by strong demand for core offerings and stabilization of withdrawals.
Adjusted Operating Income $159 million, up $23.4 million or 17% from last year. This growth reflects improved operational efficiency and demand.
Adjusted EPS $2.50, up $0.13 from last year. This increase is attributed to higher revenue and operational improvements.
Adjusted EBITDA $188.1 million, up 17% year-over-year. This reflects strong financial performance and demand.
Capital Expenditures $16 million, up from $14.8 million last year. This increase is due to ongoing investments in platform implementation and infrastructure.
Total Enrollments 248,500, up 7.8% from last year. This growth is driven by strong demand and the ability to backfill attrition.
Career Learning Revenue $275.6 million, up 29% year-over-year. This growth is driven by a 17.6% increase in enrollments.
General Education Revenue $341.4 million, down 3.6% compared to last year. This decline is due to a 3.6% decrease in revenue per enrollment, largely attributed to mix.
Total Revenue Per Enrollment $2,437, up 1.8% from last year. This increase is due to a positive state funding environment and enrollment trends.
Gross Margins 41.1%, up 30 basis points from last year. This improvement is due to a gain related to exiting a long-term commitment in a noncore business.
Selling, General and Administrative Expenses $112.8 million, down nearly 2% from last year. This reduction is due to rightsizing of the adult learning business and reduced marketing spend.
Stock-Based Compensation $10.3 million, an increase of $2.4 million compared to last year. This reflects higher compensation expenses.
Free Cash Flow $75.9 million, compared to $208.6 million last year. This decline is due to timing issues with a large receivable payment, which was pushed to Q3.
Cash, Cash Equivalents, and Marketable Securities $676 million. This reflects the company's strong balance sheet and financial flexibility.
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Operating Highlights
Platform Stabilization: Stride has resolved core platform issues and is focusing on ongoing improvements to enhance customer experience. The company is working on proprietary solutions to maintain control over the user experience.
New Platform Rollout: Stride is replacing its 20-year-old legacy platforms with market-leading platforms to scale with the business. The company is also working with platform partners to build an architecture that provides more control over its operations.
Enrollment Growth: Total enrollments for the second quarter were 248,500, up 7.8% from last year. Career Learning middle and high school programs saw a 17.6% year-over-year enrollment growth.
Revenue Growth: Revenue increased to $631.3 million, up nearly 8% from the second quarter of fiscal year 2025. Career Learning revenue grew 29% to $275.6 million.
Operational Efficiency: Customer support call volumes dropped over 90% week-over-week after addressing a significant login issue. Social media commentary on platform challenges has significantly declined.
Cost Management: Selling, general, and administrative expenses decreased by nearly 2% year-over-year. Marketing spend was reduced during the quarter.
Share Repurchase Program: The Board authorized the repurchase of up to $500 million in shares, with $88.6 million repurchased during the second quarter.
Financial Guidance: Stride reaffirmed its full-year revenue guidance of $2.480 billion to $2.555 billion and increased its adjusted operating income guidance to $485 million-$505 million.
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Risk or Challenges
Platform Issues: The company faced significant platform issues last quarter, which required execution of a plan to address them. While the core issues are reportedly resolved, there is a risk of recurrence if ongoing improvements and proprietary solutions are not effectively implemented.
Reliance on Third-Party Platforms: The company relies on third-party platforms to replace outdated proprietary systems. This reliance poses a risk of reduced control over the user experience and potential disruptions if third-party systems fail or do not meet expectations.
State Funding and Program Mix: Although the state funding environment is generally positive, there are anticipated impacts from state and program mix and timing, which could affect revenue stability.
Timing of Payments: A large receivable payment typically received in Q2 was delayed to Q3, impacting cash flow during the quarter. While the company does not see this as a risk, such timing issues could create short-term financial challenges.
Seasonal Enrollment Declines: The company expects seasonal declines in enrollments during the fourth quarter, which could impact revenue and operational efficiency.
Stock-Based Compensation Costs: Stock-based compensation increased by $2.4 million compared to last year, with full-year costs expected to range between $41 million and $43 million. This could impact overall profitability.
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Guidance & Outlook
Revenue Guidance: Stride reaffirmed its full-year revenue guidance of $2.480 billion to $2.555 billion for fiscal year 2026.
Adjusted Operating Income Guidance: The company raised its adjusted operating income guidance to a range of $485 million to $505 million, up from the prior guidance of $475 million to $500 million.
Capital Expenditures Guidance: Capital expenditures are expected to be between $70 million and $80 million, unchanged from prior guidance.
Effective Tax Rate Guidance: The effective tax rate is expected to remain between 24% and 25%, unchanged from prior guidance.
Third Quarter 2026 Guidance: Revenue is expected to range between $615 million and $645 million, adjusted operating income between $130 million and $140 million, and capital expenditures between $16 million and $21 million.
Seasonality Commentary: The company expects third and fourth quarter revenues to be more evenly split this year, with third-quarter average enrollment similar to the first and second quarters. A seasonal decline in enrollments is anticipated during the fourth quarter.
Long-Term Growth Outlook: Stride believes it is well-positioned for continued long-term growth based on strong demand for its offerings and remains on track to achieve its FY 2028 financial goals.
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Shareholder Return Plan
Share Repurchase Authorization: In November, the Board authorized the repurchase of up to $500 million in shares. The authorization allows the company to purchase shares through October 31, 2026. During the second quarter, $88.6 million in shares were repurchased. The company will continue to balance investments in organic growth, potential M&A transactions, and share repurchases.
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Key Q&A
Q:Have withdrawal trends returned to normal levels?
A:Yes, withdrawal rates in January returned to normal levels, particularly during the second semester when withdrawals typically occur.
Q:How is demand for enrollment measured and what are the current trends?
A:Demand is measured through application volumes, which remain strong and similar to last year's record-breaking levels. This is despite less aggressive marketing efforts, indicating strong organic demand.
Q:What feedback has been received from school or program partners regarding recent issues?
A:Partners, including independent charter school boards and brick-and-mortar districts, expressed frustration but also faith in the company's ability to resolve issues. A summit was held to address concerns, and partners appreciated the shared mission and efforts to improve.
Q:Why is the company cautious about in-year enrollment growth despite strong demand?
A:The company believes it is prudent to focus on stability and long-term success rather than immediate growth. This approach aligns with partner expectations and avoids sending the wrong signal internally and externally.
Q:Will some students be turned away due to capacity constraints?
A:Yes, capacity constraints, such as enrollment caps and teacher availability, mean some students may be deferred or waitlisted. This is a normal occurrence and managed effectively.
Q:Why did Gen Ed revenue per enrollment decrease while Career Learning revenue per enrollment increased?
A:The changes are due to state and program mix, as well as timing. The overall revenue per enrollment for the year is expected to remain flat.
Q:What was the impact of the long-term lease adjustment on gross margins?
A:The lease adjustment, related to exiting a non-core business, improved gross margins by approximately 200 basis points in Q2. This benefit will continue as the lease expense is eliminated.
Q:What contributed to the sequential enrollment growth of 800 students in Q2?
A:Strong demand allowed the company to backfill effectively despite withdrawals. Families showed resilience and commitment to the program despite earlier technical issues.
Q:What is the current operational performance of the platform?
A:The platform has returned to a stable state with occasional edge case issues. The company is focusing on redundancy and user experience improvements for long-term enhancement.
Q:Is there evidence of negative word-of-mouth affecting demand?
A:No, demand remains strong, and there is no evidence of negative sentiment impacting enrollment. Organic demand trends are positive.
Q:What is the status of the new partner pipeline?
A:Discussions with potential partners are ongoing, with no significant concerns about past issues. Partners recognize the company's leadership and the importance of its mission.
Q:Will marketing expenses increase in the future?
A:Marketing expenses may ramp up in Q4 as part of the enrollment season, but overall SG&A is expected to remain disciplined and flexible.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on withdrawal volumes, gross adds, and certain operational metrics. Additionally, responses about platform performance and future marketing plans were somewhat vague, focusing on general trends rather than concrete data.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Families alternative
Instructions pleasure
President Investor
Relations today
Stride
Tina conference
Vice President
addition stabilization
advantage demand
alternative model
application attrition
approach platform
architecture degree
attrition goal
call customer
center example
commentary medium
community teacher
contact feedback
control destiny
control user
core issue
customer experience
customer need
customer support
debt market
decline commentary
degree influence
destiny ecosystem
plan
school staff
semester
week
withdrawal
LRN Transcript
Stride, Inc. (LRN) Q2 2026 Earnings Call Transcript
Positive1-27
The earnings call highlights strong financial performance with a 7.8% enrollment growth and a 29% increase in Career Learning revenue. Despite a slight decline in General Education revenue, overall revenue per enrollment increased, and gross margins improved. The Q&A session revealed strong demand, resolved withdrawal trends, and partner confidence. The company's cautious approach to growth and financial flexibility, despite a drop in free cash flow, indicates a positive outlook. Given the company's market cap, the stock is likely to see a moderate positive movement in the short term.
Stride, Inc. (LRN) Q1 2026 Earnings Call Transcript
Unknown10-28
The earnings call highlights strong enrollment growth and increased revenue, yet issues with platform implementation led to higher withdrawals and no in-year enrollment growth. Positive cash reserves and adjusted EBITDA are offset by negative free cash flow and declining gross margins. The Q&A reveals management's vague responses on guidance and platform fixes. Given the company's market cap, these mixed signals suggest a neutral stock price movement in the short term.
Stride, Inc. (LRN) Q4 2025 Earnings Call Transcript
Positive8-5
The earnings call presents strong financial performance with impressive growth in adjusted operating income and revenues across segments. Despite some concerns in Adult Learning, the overall outlook is optimistic with strategic investments in tutoring and AI. The Q&A reveals no major risks, and the management's positive guidance, along with a well-maintained financial health, supports a positive sentiment. With a market cap of around $3 billion, the stock is likely to react positively, leading to a 2% to 8% increase in the stock price over the next two weeks.
Stride, Inc. (LRN) Q3 2025 Earnings Call Transcript
Positive4-29
The earnings call reveals strong financial performance with record enrollments and increased revenue, supported by a raised guidance. Despite some regulatory and enrollment constraints, the company shows growth in career learning and maintains a low dependency on federal funding. The Q&A session does highlight some uncertainties, but overall, the sentiment is positive. With a market cap of around $3 billion, the stock is likely to react positively, with a predicted movement of 2% to 8% over the next two weeks.
LRN Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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