Stride, Inc. Q2 FY2026 earnings call

• Resolved core platform issues from the previous quarter, with call volumes to customer support center dropping over 90% after addressing login issues. Social media commentary on platform challenges also declined.
• Demand for products remained strong, with applications maintaining levels similar to the previous record-breaking year. Withdrawal rates in the second semester were within historical norms.
• Operated on outdated legacy platforms over 20 years old, so invested in market-leading platforms to replace them and work towards greater control over the ecosystem.
• Adjusted operating income was $159 million, up $23.4 million or 17% from the prior year. Adjusted EPS was $2.50, up $0.13. Adjusted EBITDA was $188.1 million, up 17%.

Revenue for the second quarter was $631.3 million. The Career Learning middle and high school programs saw revenue grow 29% to $275.6 million, contributing approximately 43.7% of total revenue. General Education revenue declined 3.6% to $341.4 million, contributing about 54.1% of total revenue. Total enrollments for the second quarter were 248,500, up 7.8% from the prior year.

• Reaffirmed full-year revenue guidance of $2.480 billion to $2.555 billion.
• Revised adjusted operating income guidance to $485 million to $505 million (previously $475 million to $500 million).
• Capital expenditures guidance remains $70 million to $80 million. Effective tax rate guidance 24% to 25%.
• Third quarter 2026 revenue expected to be in the range of $615 million to $645 million; adjusted operating income $130 million to $140 million; capital expenditures $16 million to $21 million.

• Past platform issues could have posed reputational risks, but management does not see lasting negative impact on demand or top-of-funnel trends. However, ongoing vigilance is needed to maintain customer experience and partner relationships.

Q: Can we say withdrawal trends are back to normal?

A: Yes, withdrawal rates in the January month to date returned to normal levels, which was good news.

Q: How is demand characterized?

A: Demand, measured by application volumes, continues to be strong, similar to the previous record-breaking year, even without aggressive market acquisition efforts.

Q: What's the status of school/program relations after summer issues?

A: Partners understand the shared mission and have faith in the ability to turn things around, with a productive summit held and many partners expressing confidence.

Q: Why isn't there in-year enrollment growth despite demand and stabilized withdrawals?

A: Prudent to give time to settle in after tough months, not to send wrong signals to partners and employees, and to focus on long-term success rather than short-term growth.

Q: Size of the long-term agreement adjustment benefiting gross margin?

A: The impact on gross margins in Q2 was roughly around 200 basis points from getting out of a large lease.

Q: Thoughts on word-of-mouth risk going forward?

A: No evidence of negative word-of-mouth overhang affecting demand, as demand characteristics remain strong despite less aggressive marketing.

Q: Status of new partner pipeline?

A: Discussions with potential partners are positive, with no overhang from past issues as they believe in the mission and the company's leadership.