Stride NYSE: LRN executives said the company is making progress addressing platform issues that surfaced earlier in the fiscal year, while demand indicators such as application volume remain strong heading into the next school year. Management also pointed to ongoing investments tied to the platform rollout as a key factor affecting margins, even as the company narrowed its full-year guidance ranges.
Platform updates and demand trends
Chief Executive Officer James Rhyu opened the call by revisiting the platform challenges discussed on prior updates, saying Stride continues to execute on a “roadmap for stability and improvements.” Rhyu said the company is focused on closing out the school year and preparing for the fall, adding that he is “comfortable with our progress” and believes the business is “on the right track” for the upcoming season.
Rhyu said application volumes indicate demand remains “strong relative to the start levels,” and suggested that the broader macro environment for school alternatives remains a long-term tailwind. He acknowledged attrition has moved “marginally higher” since the previous quarter’s update, but said it was not unexpected and that management does not believe it will harm long-term prospects.
Third-quarter results: growth in Career Learning offsets General Education declines
Chief Financial Officer Donna Blackman said the quarter reflected “continued demand and solid execution across the business.” She reported total enrollments grew 1.8% year-over-year to 244.5 thousand, while total revenue increased 2.7% to $629.9 million.
Blackman highlighted a mix shift between segments:
- Career Learning middle and high school programs: Revenue rose nearly 16% to $259.5 million, driven by enrollment growth of 11.6%.
- General Education: Revenue declined 3.6% to $367.5 million, which Blackman said was driven by a 5% enrollment decline.
Blackman said growth in Career Learning more than offset the enrollment decline in General Education. Total revenue per enrollment across Career Learning and General Education was $2,485, up 2.9% from $2,415 in the prior-year quarter. She emphasized that revenue per enrollment can vary by program and state mix and encouraged investors to focus on total revenue per enrollment as the “most representative measure” of underlying performance. Based on results to date, Blackman said the company expects total revenue per enrollment for the full year to be up roughly 2% from last year.
Margins, expenses, and profitability
Blackman said gross margin was 36.8%, down 380 basis points year-over-year, primarily due to continued investments, including costs associated with the platform transition. She projected full-year gross margin in the range of 37% to 37.4% and said a portion of these costs are expected to “moderate as we move into FY2027.”
Selling, general and administrative expenses were $102.5 million, down $16 million, or 13.5%, from the prior year. Blackman said the company expects to finish the year with SG&A down 6% to 8% compared to last year. Stock-based compensation was $9.6 million for the quarter, and Blackman guided to $40 million to $42 million for the full year.
Adjusted operating income was $140.4 million, down 1%, while adjusted EBITDA increased 1.8% to $171.3 million. Adjusted earnings per share were $2.30, down $0.03 from the prior-year quarter. Blackman noted that, as in prior years, fourth-quarter profitability is expected to be lower than the third quarter as the company increases marketing and other spending ahead of the upcoming school year.
Cash flow, balance sheet, and guidance updates
Capital expenditures were $18.5 million, up from $15.8 million a year ago. Free cash flow—defined as cash from operations less capital expenditures—was $202.4 million, compared to $37.3 million in the prior-year quarter. For the full year, Blackman said Stride expects free cash flow to be “flattish to last year.” The company ended the quarter with $856 million in cash, equivalents, and marketable securities.
Stride narrowed its full-year guidance ranges and reaffirmed its effective tax rate outlook. Blackman guided to:
- Revenue: $2.490 billion to $2.520 billion (narrowed from $2.480 billion to $2.555 billion)
- Adjusted operating income: $490 million to $500 million (narrowed from $485 million to $505 million)
- Capital expenditures: $75 million to $80 million (narrowed from $70 million to $80 million)
- Effective tax rate: 24% to 25% (unchanged)
Blackman said the revenue range implies fourth-quarter revenue below the prior-year fourth quarter, citing “marginally higher attrition rates” and difficult comparisons tied to the timing of “funding true-ups.” She added that management does not view this as a change in underlying demand trends.
Q&A: renewals, funding debates, enrollment windows, marketing, and Adult Learning
During the question-and-answer session, Rhyu told BMO Capital Markets analyst Jeff Silber that existing partners remain generally positive about Stride’s programs, though he acknowledged some partners are “aren’t happy about things that have happened over this past year.” He said partners have largely worked collaboratively with the company.
On new business development, Rhyu said Stride has seen “no negative impact” from the platform issues in terms of “doors that are opening” and claimed the pipeline is “as strong or stronger than it’s been in the five years that I’ve been the CEO.” He said prospective customers tend to focus on outcomes for families rather than the platform issues, adding that many have dealt with platform disruptions themselves, particularly during COVID.
Asked about state funding and legislative shifts—specifically Pennsylvania—Rhyu said Pennsylvania has had long-standing efforts to cut virtual funding and that this year those efforts advanced after the company had been “pretty successful for 20 years getting that legislation sort of beaten back.” Still, he said Stride’s business and market in Pennsylvania remain “pretty robust,” and he characterized such changes as potential opportunities for stronger players. More broadly, he said he did not see a materially different legislative trend than in the last 10 to 15 years.
Barrington Research’s Alex Paris asked about enrollment windows and whether some programs closed earlier than in prior years. Rhyu said yes, and also said the company has been “very proactively” taking a stance this year of “trying to backfill as opposed to grow,” which he said put downward pressure on enrollment. He said it would be difficult to quantify how many students were “left on the table,” but added it was “clearly in the thousands,” and suggested it could be similar to prior years’ in-year growth amounts.
Rhyu also said that in some cases families are being added to wait lists, and in other cases Stride has begun accepting applications for the fall, including what he described as “provisional state enrollments.” He noted some families seek an immediate solution and may go elsewhere if Stride cannot provide a spot during the current school year.
When asked whether the earlier window closings contributed to differences between General Education and Career Learning enrollment trends, Rhyu said he did not think there was anything specific to “read into that.”
On marketing spend, William Blair’s Matt Filek asked how the company is thinking about spending as platform issues are mitigated. Rhyu said Stride is on a “trajectory for essentially business as usual” and expects to be “in the market pretty aggressively” ahead of fall. He also said there are “data points” suggesting customer use of AI could improve conversion and potentially lower cost of acquisition, though he cautioned he would not call it a trend yet.
Filek also asked about the Adult Learning segment. Rhyu said the businesses are “immaterial” and not meaningful enough to materially affect shareholders’ view of results. He said boot camp offerings are in “secular decline” and that it is difficult for that environment to recover meaningfully. Rhyu described MedCerts as an attractive market segment but said Stride “have not executed well” there, citing leadership changes over the past year and plans to continue investing, while reiterating that the segment is not large enough to “change the needle” financially.
About Stride NYSE: LRN
Stride, Inc NYSE: LRN is a technology-driven education company that designs and delivers online learning solutions for students and adult learners. Through long-term partnerships with state-authorized public school districts, Stride operates virtual academies that serve K-12 students across the United States. The company's blended-learning model combines digital curriculum, live teaching support and data analytics to personalize instruction and monitor student progress.
In addition to its K-12 offerings, Stride provides a portfolio of career and workforce readiness programs under its Stride Career Prep division.
Read More
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Stride, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Stride wasn't on the list.
While Stride currently has a Hold rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
With the proliferation of data centers and electric vehicles, the electric grid will only get more strained. Download this report to learn how energy stocks can play a role in your portfolio as the global demand for energy continues to grow.
Get This Free Report
