Stride outlines muted in-year enrollment growth for FY 2026 as platform upgrades impact student retention

Earnings Call Insights: Stride, Inc. (LRN) Q1 2026

MANAGEMENT VIEW

* CEO James Rhyu reported that "Demand for our products and services remain strong. In fact, we believe industry demand and trends around online education continue to grow." He stated the company achieved enrollment growth within the previously stated 10% to 15% range but noted, "we still fell short of our internal expectations." Rhyu attributed this shortfall to the decision to "invest in upgrading our learning and technology platforms with third-party industry-leading platforms," which led to implementation challenges. He specified, "the implementations did not go as smoothly as we anticipated" and acknowledged higher withdrawal rates and lower conversion rates as a result.
* Rhyu also emphasized a strategic focus on "running high-quality programs" which led to limiting enrollment growth during the improvement period. He estimated that "these factors resulted in approximately 10,000 to 15,000 fewer enrollments than we otherwise could have achieved," and cautioned that "these challenges will likely restrict our in-year enrollment growth."
* Rhyu highlighted a new initiative, stating, "One simple example is the rollout this year offering every second and third grader free ELA tutoring."
* CFO Donna Blackman stated, "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. And capital expenditures were $21.7 million, up $6.9 million." She added, "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 revenues was $2,388, up 3.7% from last year."

OUTLOOK

* Blackman stated, "For the second quarter of 2026, we expect to see revenue in the range of $620 million to $640 million, adjusted operating income between $135 million and $145 million; and capital expenditures between $15 million and $18 million. For the full year, we expect revenue in the range of $2.480 billion to $2.555 billion; adjusted operating income between $475 million and $500 million. Capital expenditure between $70 million and $80 million and an effective tax rate between 24% and 25%."
* She clarified, "we do not anticipate that we will see the same level of in-year enrollment growth that we've seen over the past 3 years."

FINANCIAL RESULTS

* Blackman reported, "Gross margin for the quarter was 39%, down 20 basis points from last year." She added, "Selling, general and administrative expenses totaled $173.1 million, up 3% from last year."
* She stated, "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 a long-term performance grant."
* Blackman highlighted free cash flow, "a negative $217.5 million compared to negative $156.8 million in the prior year period," noting this reflects typical seasonality.
* The company finished the quarter with "cash, cash equivalents and marketable securities of $749.6 million."

Q&A

* Jeffrey Silber, BMO Capital Markets, asked about updated enrollment guidance. Blackman responded, "We gave the guidance that we gave for the count date was 10% to 15% for the count date, we came in at 11.3%. But we do not anticipate that we will see the same level of in-year enrollment growth that we've seen over the past 3 years."
* Silber followed up on the 10,000 to 15,000 weaker enrollments, seeking more detail on the causes. Rhyu answered, "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."
* Jason Tilchen, Canaccord Genuity, asked for more detail on the tech implementation's rationale and problems. Rhyu explained, "the rationale for the implementation is actually pretty simple. As we have scaled and we have more than doubled in the past 5 years...investing in a new set of platforms for the long term, we believe...is the right for our business long term." He described problems with the rollout, saying, "the number of problems we experienced during the rollout that impacted directly to customers' abilities to log on the resiliency of the platform, the performance of the platform, all impacted the customer trajectory and the customer experience."
* Gregory Parrish, Morgan Stanley, asked if limiting in-year enrollment growth was temporary. Rhyu said, "Assuming we fix all the issues in this year, which we do anticipate, we have a clear road map that this year, the issues will, in fact, be fixed. Assuming that demand continues to be strong...we would believe that next year we would be able to return to growth in year."
* Matthew Filek, William Blair, clarified the scope of platform issues. Rhyu replied, "It's actually both...the platform that serves up the courses...as well as the more back office administrative side."
* Alexander Paris, Barrington Research, asked about the timing of withdrawals and revenue per enrollment. Rhyu said, "the predominance of it that we're indicating in that number is falling between sort of middle of August through end of September." Blackman added, "we are still seeing a positive funding environment. We will see some impact from the mix and from timing."

SENTIMENT ANALYSIS

* Analysts were probing and slightly negative, focusing on the impact of platform issues and seeking clarity on future enrollment and revenue growth. Questions were direct, often pressing for specifics on challenges and their resolution timelines.
* Management acknowledged operational setbacks but maintained a constructive and confident tone about long-term prospects, frequently referencing their commitment to resolving platform issues and returning to growth. Rhyu stated, "we do anticipate, we have a clear road map that this year, the issues will, in fact, be fixed."
* Compared to the previous quarter, this call reflected a shift from unreserved optimism to a more cautious, problem-solving approach. Management was more defensive and detailed about operational challenges, while analysts displayed increased skepticism.

QUARTER-OVER-QUARTER COMPARISON

* The previous quarter focused on record demand, double-digit enrollment growth expectations, and a generally optimistic outlook, with management highlighting positive macro trends and ongoing investments.
* This quarter, management reported meeting the lower end of enrollment growth targets but cited platform implementation problems and deliberately limited growth to ensure program quality.
* Guidance language shifted to a more muted tone, with management warning of restricted in-year enrollment growth and a flat revenue per enrollment outlook, compared to earlier projections of flat to slightly up.
* Analysts in the current quarter zeroed in on operational disruptions, the impact on student retention, and the timeline for resolution, compared to last quarter’s focus on growth drivers and market expansion.
* Management’s tone shifted from growth-oriented confidence to a focus on remediation and stabilization.

RISKS AND CONCERNS

* Key challenges included the disruptive rollout of new technology platforms, resulting in higher withdrawal rates and lower conversion rates.
* Management is prioritizing platform fixes, with Rhyu stating, "We’re working very furiously with our partners to fix those issues."
* Limiting in-year enrollment growth is both a mitigation strategy for quality control and a response to technology-related customer dissatisfaction.
* Analysts expressed concern about the duration and magnitude of these disruptions and their potential impact on financial performance.

FINAL TAKEAWAY

Management acknowledged that while demand and long-term trends remain positive for Stride, the company faced significant short-term challenges from technology platform upgrades, resulting in higher student withdrawals and constrained enrollment growth. The strategic decision to prioritize quality and invest in platform improvements has muted short-term outlooks but is positioned as necessary for future stability and growth, with management expressing confidence in resolving these issues during the current fiscal year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/lrn/earnings/transcripts]

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