Stride Inc Stock

Hello, everyone. Thank you for joining us, and welcome to the Stride Fourth Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Eliza Henson, Manager of Investor Relations. Eliza, please go ahead.

Thank you, and 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, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we will answer questions you may have.

Now I'll turn the call over to Bob.

Thanks, Eliza, and 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. And 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 believe 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 aligned 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 New York City 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 and 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 SimDesk 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 the 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. So 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. And then third, I bring a shareholder-driven mindset from my Board experiences. There is a lot to continue to build on here at Stride, and 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, and 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. And 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 31, 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. And 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 to 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. And 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 reregistration 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. And I'll now turn the call over to Donna.

Thank you, Bob, and good afternoon. As Bob discussed, FY '26 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.

Now 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. And 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 109,700, up 14%. General Education revenue totaled $1.42 billion, decreasing 2% from FY 2025. Enrollment in General Education totaled 134,200, down 2.5% for the year. Taken together, we serve approximately 243,900 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 '26 revenue per enrollment continue to reflect differences in state funding, program mix and enrollment timing.

Looking ahead to FY '27, 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. And while it's still early in the enrollment season, given the current environment, we expect full year FY '27 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 was 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. While many of the onetime implementation costs associated with these initiatives are now behind us, we will continue to incur some ongoing expenses associated with the new platforms as we focus on realizing the long-term operational benefits, and we will continue to invest in our strategic priorities.

Selling, general and administrative expenses totaled $499.8 million, down 4.7% from last year. Stock-based compensation for the year was $40.3 million, and our effective tax rate for FY '26 was 23.3%.

Now turning to our balance sheet. Capital expenditures for the year were $78.8 million. Free cash flow, which we define as cash from operations less capital expenditures, totaled $355 million, down $17.8 million from last year. We finished the year with cash, cash equivalents and marketable securities of approximately $1.034 billion.

During FY 2026, we continued executing against our share repurchase authorization, purchasing approximately $189 million of our common stock. These repurchases reflect our confidence in the long-term value of the business, while maintaining the financial flexibility to continue investing in our strategic priorities. We ended the year with approximately $311 million remaining under the current repurchase authorization, which now extends to October 31, 2027.

Even as we continue executing against our share repurchase authorization, our capital allocation priorities remain unchanged. We will continue to invest, first, in opportunities that support organic growth, evaluate strategic acquisitions that strengthen our business and return excess capital to shareholders when we believe it creates long-term value. Our balance sheet gives us the flexibility to pursue each of these priorities, while maintaining a strong financial position.

Now before I wrap up, let me offer a few thoughts on FY 2027. As Bob mentioned, we're encouraged by what we're seeing early in the enrollment cycle. At the same time, I remind investors that the first quarter count date enrollment growth will face a more difficult comparison than it has for the last couple of years. Because we moderated in-year enrollment growth during FY 2026, we won't have the same carryover benefit entering fiscal year. As a result, even with healthy demand and solid execution year-over-year, count date growth may appear more modest than what we've seen over the past few years.

Keeping that in mind, for FY 2027, seasonality should remain generally consistent with the years prior. CapEx and SG&A as a percent of revenue are anticipated to be relatively flat. We expect gross margins will be flattish to last year, and we expect to see somewhat of an uptick in both stock-based compensation and tax rate from this year.

As we typically do, we will provide formal enrollment and financial guidance when we report our first quarter results in October. It is still early in the enrollment season and with August and September being our busiest month, there is still a lot of work ahead of us, and we remain confident in our ability to execute.

FY '26 was an important year for Stride. We believe the foundation we've built positions us well for the coming year, and we believe we are on track to achieve our FY 2028 financial targets.

Thank you for your time today. Now I'll turn the call back over to the operator for your questions. Operator?

[Operator Instructions] Your first question from the line of Jeff Silber with BMO Capital Markets.

I wanted to start with Lone Star Online Academy. I think this is the first opportunity you've had to discuss this publicly. Can you give us a little bit more color what happened? I know the outcomes there were a little bit subpar. Is that the reason that Roscoe decided not to renew? And if that's the case, how do you make sure that things like this don't happen at other schools?

So Jeff, as we have talked about previously, we were in conversations with Roscoe about renewing the contract. And as you have indicated, we certainly had some performance issues with that school. And I think the district decided not to renew the contract. And as you also know that in any given year, we could have schools that do not decide to renew the contract.

To get to the second part of your question about how do you ensure that this doesn't happen in the future. We will never -- we're going to ensure we won't have the contracts leave us. We will -- as part of the business, we have contracts that leave us, we have -- and we sign on new contracts. But what I can say is, Bob is really focused on student outcomes. And we are continuing to invest in our student outcomes. And so that will help us to enable us to ensure that we deliver to our students the outcomes that they come to expect.

Okay. I appreciate that. I know you're not providing guidance for fiscal '27. You mentioned a few times, it's still early in the year. But based on what you know now, at least directionally, should we see enrollment revenue and earnings growth in fiscal '27?

So Jeff, I'm not going to get ahead of myself. We did that a little bit last year. Here's what I will say, the funding environment looks favorable. And I said that in my prepared remarks. While our application volumes are strongest, that's really like slightly behind last year, but still strong. What I'm encouraged by is the fact that our conversion rates are higher as well as our reregistration rates are higher.

And so other than saying those things, I don't want to get too far ahead of saying what 2027 numbers will look like. But hopefully, those data points are helpful for you. I just don't want to get ahead of ourselves because we are so early in the enrollment season. And August and September is a really busy time for us and our team is working really hard to make sure that we enroll as many students as possible and have them have the best experience as possible.

Your next question is from the line of Alex Paris with Barrington Research.

I appreciate the opportunity to ask a question or 2. First, just to follow on the previous question by Jeff. Last year, from Q4 to Q1, you brought on 12,400 students to get us to where we were. This year -- and you alluded to it in your prepared remarks, you're starting with fewer students because you held down in year enrollments. And if you added, the same number of students, 12,400 from Q4 to Q1 this year, you'd be pretty flat, down 0.4% on a year-over-year basis as of the count date. Are you expecting some growth in the fall? I know you don't want to commit to a number or what have you. If you were able to do 12,400 last year, can you do 12,400 this year, I guess, is what I'm asking.

Yes. Look, I think the important thing to note is where we're ending the year, right? And so because we're ending the year lower than what we began the year. And in the past few years, that was not the case, right? We ended the year with enrollment higher than we began the year. So the starting point was much easier for us to be able to grow. So the comparison from a count date perspective will certainly be -- the comparison will be a tougher comparison because of that.

And I know you want me to give you an enrollment number and I'm probably not going to give you an enrollment number. That's going to make you happy. Last year was sort of a onetime thing. I've had conversations with investors who say we're not going to do that again. But I do think it's important for you to know where we're seeing things in terms of the conversion rates, where we're seeing things in terms of rereg and where we're seeing things from -- in terms of for next year in terms of application volumes.

And so while things are pointing in the right direction, August and September is when we're really, really busy. Parents are making decisions about the upcoming school year, even at latest August and September. And so I don't want to get ahead of ourselves for full 2027.

But the other thing I will point out to you is that we cut off our enrollments last year earlier than usual. And so while it's still early to say what that will look like for FY 2027, what I can say is I would not expect for us to cut off our in-year enrollment to the same capacity that we did on last year. And so I hope that information is helpful for you.

It is. So just a clarifying question on that last comment. Would you expect in-year enrollment this year like we saw in the 3 years prior to fiscal 2026? Regardless of where you start?

Yes, yes. So I would -- look, based on where I sit today, I would expect us to have in-year enrollment growth. In 2025 from Q2 to Q3, we had pretty significant in-year enrollment growth. And so I don't know if I want to commit that we're going to have that in-year enrollment growth consistent in 2027. But what I will say is that we're not going to have all the windows closed to the same extent that we had them closed in 2026.

Got you. And then the last one is still related is, obviously, investors were concerned by what seemed like the sudden CEO succession announcement last week, Thursday. A lot of investors voted with their feet, with the sell-off in the shares 15% or 18%. Thinking that this had something to do with a disappointing fall enrollment season. Was that part of the decision? Or is it more, Bob, like you said earlier, changing horses for the next phase of accelerated growth?

Thanks for the question. It is the latter. There was no consideration about any forward thinking, forward-looking performance, but a need and a desire to move to the next level of growth and development of this enterprise. And as you probably all know, leadership transitions are tough. But the decision was made and we made it to be an immediate in effect so that I'd really have a chance at the end of the fiscal year to hit the ground running relative to 2027.

Okay. Because it sounds like all the comments -- I appreciate that. It sounds like all the comments are -- the fall term expectations are not too different from the Q3 call or the Q2 call.

I think it's fair.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride Third Quarter Fiscal Year 2026 Earnings Call.

[Operator Instructions] I would now like to turn the call over to Eliza Henson, Manager of Investor Relations. Eliza, please go ahead.

Thank you, and good afternoon. Welcome to Stride's Third Quarter Earnings Call for Fiscal Year 2026. With me on today's call are James Rhyu, 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, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we will answer questions you may have. Now I'll turn the call over to James.

Thanks, Eliza, and good afternoon, everyone. I'd like to start off with an update on the platform issues we experienced earlier this year. As I mentioned last quarter, we continue to execute on the road map for stability and improvements. As we close out this school year and preparations have already begun for the coming fall, we are heads down making sure our customers get the best experience possible. So I'm comfortable with our progress and believe we are on the right track as we prepare for the fall season.

And as we have discussed previously, the demand for our products and services, as indicated by application volumes continues to be strong relative to historic levels. And while our focus is on finishing this year executing against our road map, we believe the demand environment sets us up well for the future. And although we experienced a marginally higher level of attrition since I gave an update on our last call, this was not unexpected. We continue to monitor, but we are confident it won't harm our long-term prospects.

I believe the macro environment for school alternatives like ours continues to be a long-term trend that will serve as a tailwind to our business. Our job right now is to maintain focus and execute through the rest of this year and into the fall, so that the students and their families can continue to choose the options, including our programs that they deserve. Thank you, and I will now turn the call over to Donna.

Thank you, James, and good afternoon. As James mentioned, we are seeing strong demand for the fall as measured by application volume, and we remain confident in the long-term growth in the business.

This quarter's results reflect continued demand and solid execution across the business, and I'll start by reviewing those results. Total enrollments grew 1.8% to 244,500 and total revenue for the quarter was $629.9 million, up 2.7% compared to last year.

Revenue in our career learning, middle and high school programs grew nearly 16% to $259.5 million, driven by strong enrollment growth of 11.6%. General Education revenue was $357.5 million, down 3.6% compared to last year, driven by an enrollment decline of 5%, which was more than offset by the growth in our Career Learning business. As we think about next quarter, it's important to remember that we anticipate enrollment decline as most of our programs no longer accept enrollments during the fourth quarter.

We are focused on converting these leads into new enrollments for the upcoming school year, and we expect a sequential decline next quarter like we typically do every year from Q3 to Q4. Total revenue per enrollment across both Career Learning and General Education was $2,485, up 2.9% from $2,415 last year. As a reminder, revenue per enrollment can vary between General Ed and career due to program and state mix as well as timing. So we encourage investors to focus on total revenue per enrollment, which, as I've said previously, we believe is the most representative measure of underlying performance.

Given this quarter's results, we expect total revenue per enrollment for the full year to be up roughly 2% from last year. We've received a lot of questions about next year's enrollment expectations, and I want to reiterate that it is still very early in the enrollment season. We should have a better picture of the enrollment landscape during the fourth quarter call as well as more color on the funding environment as states finalize their budgets in the coming months.

Turning back to the results from the third quarter. Gross margins at 36.8% for the quarter was down 380 basis points. We expect to finish the year with gross margins in the range of 37% to 37.4%. Now let me provide a bit more color on gross margins. The year-over-year decline is primarily driven by continued investments in the business, including those related to our platform rollout as we support the transition. We would expect a portion of these costs to moderate as we move into FY 2027. Selling, general and administrative expenses totaled $102.5 million, down $16 million or 13.5% from last year.

We expect to finish the year with SG&A down 6% to 8% compared to last year. Stock-based compensation for the quarter was $9.6 million. We now expect to finish the year with stock-based compensation in the range of $40 million to $42 million. Adjusted operating income was $140.4 million, down 1%. Adjusted EBITDA was $171.3 million, up 1.8%. And adjusted earnings per share for the quarter was $2.30, down $0.03 from last year.

As in years past, we expect fourth quarter profitability to be less than the third quarter as we ramp up marketing and other spend for the upcoming school year. Now moving to our balance sheet. Capital expenditures for the quarter were $18.5 million, up from $15.8 million last year. Free cash flow, defined as cash from operations less CapEx, was $202.4 million, up from $37.3 million last year. For the year, we expect free cash flow to be flattish to last year.

We finished the quarter with cash, cash equivalents and marketable securities of $856 million. Turning to our guidance. For the full year, we are narrowing our revenue, AOI and CapEx guidance ranges and affirming our effective tax rate guidance. For the balance of the year, we expect revenue in the range of $2.490 billion to $2.520 billion, narrowed from $2.480 billion to $2.555 billion last quarter.

Adjusted operating income between $490 million and $500 million narrowed from $485 million and $505 million last quarter. Capital expenditures between $75 million and $80 million, narrowed from $70 million and $80 million last quarter and an effective tax rate between 24% and 25%, unchanged from last quarter. As you'll note, the range of revenue implies fourth quarter revenue below the fourth quarter of last year, driven by marginally higher attrition rates and tough comparisons associated with the timing of funding true-ups.

We do not, however, believe this is indicative of any change in underlying demand trends. We continue to see positive trends in demand and customer experience, and we remain optimistic about the coming school year. We believe that our investments in the business are setting us up for long-term success and the ability to meet the demand of families seeking alternative education options. Thank you for your time today. Now I'll turn the call back over to the operator for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Jeff Silber with BMO Capital Markets.

I appreciate the timing in terms of trying to gauge enrollment for next year. But I was wondering if you can comment on the contract renewal pipeline or new business. I'm just wondering how that's going, if you're seeing any pushback from some of the issues that you incurred last summer.

Yes. Jim, I think sort of 2 separate questions, and I think they have sort of similar-ish answers, but one may be more positive than the other. I think with our existing clients, we -- first of all, we're very thankful that our existing clients remain, I think, really positive on our programs. They understand the value that together, we're able to deliver and the value that we can bring to those programs.

So we still think that we have very good relationships with our partners. I mean, clearly, we have partners that aren't happy about things that have happened over this past year. But in general, they're working collaboratively with us, and I think they're pretty understanding. On the new business development side of it, interestingly, we have seen no negative impact in terms of doors that are opening for us, conversations we've been able to have. And in fact, our pipeline of new business activity is, I would say, probably as strong or stronger than it's been in the 5 years that I've been the CEO, certainly.

So I think the issues that we've experienced on the platform side, and I've gone out and talked to a bunch of these customers myself personally sort of to gauge the sentiment out there. Almost none of them focus on the issues that we've had. I think they're all focused on the success that we can deliver for families across this country and the belief that the options and the choices that we can provide for them are of paramount importance. And so we're getting nothing but really positive feedback. We proactively discuss the issues we've had this past year. And I think to it either, they're all pretty understanding. They've -- many of them have been through some issues themselves, almost all of them experienced really difficult issues regarding the platforms that they monitored and executed on during COVID.

So sort of reasonably fresh experience of somewhat negative platform issues. And so pretty positive conversations along those lines. And again, I think just the pipeline of activity that we have is as strong as we've seen in 5 years.

Okay. That's great to hear. I know, again, you're not commenting on the funding environment for next year. But I know there's been some changes in certain states. Pennsylvania has been one that's been in the press. Do you see other states changing how they're funding virtual schools? Is that a trend we might see continue?

I think it's a little bit hard to sort of call a trend. Pennsylvania, as you indicated, they've had legislation on the books. I believe it may be for almost 20 straight years to cut virtual funding. They're one of the states in the country that have the longest-standing virtual programs. They have some of the highest penetrations in the state.

They have a very, very robust marketplace of providers in that state. I think, as you know, the politics have played into it for many, many years and particularly in that state, there's been legislation on the books. We've been pretty successful for 20 years, getting that legislation sort of beating back a little bit. And at some point, that's not going to happen, and this was the year.

I think our business remains, I think, pretty robust in Pennsylvania. I think the market in Pennsylvania remains robust. I think that, if anything, these types of situations present opportunities for stronger players like us. And so we'll obviously look at ways that we can take advantage of any situation like this in the marketplace. So I actually think that something like this, in particular in Pennsylvania presents an opportunity.

More broadly across the country, I don't see -- I don't think we see any different trend than the activity we've seen in the past 10 or 15 years. I mean there's always legislation that's getting proposed, both for and against virtual programs. I don't see a materially different trend now than there was in any time in at least the past 10 or 15 years.

Your next question comes from the line of Alex Paris with Barrington Research.

My first question relates to enrollment and the enrollment windows. It was my understanding that some of the enrollment windows at some of the programs might have closed earlier this year than last year and previous years in general, given the challenges of last fall.

And then obviously, we expect windows to be closed for the full fourth quarter. Is that an accurate statement? Did windows close earlier in the third quarter than last year? And what impact, if any, can you quantify on enrollment in the third quarter?

Yes. I think -- so the short answer is yes. And I think more -- maybe more profoundly, not just the windows, I'll say, closed earlier, I think, which we've indicated previously, we are very proactively not maybe taking advantage of even as much as we theoretically could windows that are open because we generally this year have taken the stance of trying to backfill as opposed to grow.

And so that's sort of what you've seen. And so when you have programs that you can backfill and you do, but you don't grow them and then you have other programs where windows are closing earlier, you're going to have a dynamic where it puts downward pressure on enrollment. I think we've been very clear and consistent with that all year. And so yes, I think you're exactly correct.

And through the fourth quarter, that's going to continue to be so to the extent that really we don't have windows open through the balance of this year. And so it's only a story of attrition. But again, I think that was pretty transparent from previous calls that we've discussed, and it does not change our perspective of the overall demand environment, which continues to be strong and bodes well for the fall.

So yes, you're going to have this dynamic, which we've explained around this year enrollment trends, which is going to run counter the past few years in terms of in-year enrollment growth. But I don't think that's a commentary on the overall demand, which we see continue to be very strong.

Well, it looked like you backfilled well in the third quarter with enrollment coming in where it did a little bit. I mean we expected a sequential decline. We got a little sequential decline, but it was still up 1.8% year-over-year. Part of that's due to windows being closed earlier, part of it's due to the fact that you're not pushing hard, you want to get it right. Is there any way to quantify how many students you left on the table, so to speak, in the third quarter because of early windows being closed?

I think it'd be difficult to quantify sort of -- I think it's difficult to quantify because conversion rates and things like that are a little bit variable. But it's clearly in the thousands. I think it's -- if you sort of just looked at prior year's trends and assuming that demand was similar and see how much we grew in the prior year, we left on the table probably a similar amount that we could have grown this year.

Okay. I got you. So sequentially, it grew from Q2 to Q3 last year. This year, it did part of that is due to the closed windows.

Yes, exactly.

Yes. Okay. And then given the demand continues to be so strong as measured by application volumes, does that mean that these students get added to waitlists? And does that bode well for the fall term?

Yes. In some cases, yes, they get added to a waitlist. In some cases, we've actually started opening up enrollment for the fall. So they're sort of in, I'll say, like a provisional state maybe because it's technically not open. But basically, we're accepting applications now.

And so we have some like, I'll say, provisional state enrollments as well. And so I think, yes, it does give us a little bit of a head start on the pipeline for next year. There are those a not insignificant number of families who unfortunately are, I don't say, desperate for a solution immediately.

And when we're not able to provide that immediate solution for them, then in those cases, they often do look elsewhere. So there is some number of the pipeline that we can't translate into next year enrollment because they're looking for an immediate solution and where we can't provide that, we certainly understand that they're going to look somewhere else.

All right. And then last question on the topic. Enrollment at some programs, their window was closed early. Can we say similarly that the enrollment window for the fall has opened up earlier this year than last year?

I don't think materially. Yes. I mean I do think we try to get a little bit of a head start, but I don't think we're materially different than last year. We try to open the windows early every year, I guess, maybe for the fall is what I'm saying.

I do think that probably there is a little bit of a dynamic where in prior years, where there -- we open enrollments for the fall, there are some small number of families who when they realize, oh, we're calling in for the fall, but you actually have a spot now, I'll take the spot now. So that sometimes will happen.

Got you. And then anything to read -- this is my last question on enrollment. Anything to read into the fact that general education enrollment was down 5% and career learning enrollment was up 12%, just round numbers.

I know it doesn't really matter economically. Care to comment any color on that?

Yes. No, I don't think there's anything really to read into that. It's just -- like you said, it's -- we sort of look at the whole pie and we break them up into those buckets. But I don't think there's not a specific trend, I guess, really that maybe to answer your question is that we see that's positive or negative based on those numbers.

[Operator Instructions] Your next question comes from the line of Stephen Sheldon with William Blair.

James and Donna, you have Matt Filek on for Stephen Sheldon. Given you seem to be making good progress on mitigating the platform issues, how are you thinking about marketing spend from here? Is that something you plan to push the pedal on? Just curious how we should think about SG&A spend over the next year or so?

Yes. I think we're on a trajectory for essentially business as usual from here on in. I think we're executing well against our road map, as I mentioned earlier, I think that we expect a very robust and successful fall. There's -- I don't see anything that is going to hold us back right now for ramping up.

And I think we're going to be in the market pretty aggressively. I will say, which I think actually is -- again, is a net positive for us that -- and I won't call it a trend yet, but I guess I see certain data points.

And again, I'm not saying yet it's a trend, but there are certainly some data points that appear as though the customer use of AI might be actually improving conversion because the ability for people to have better research essentially into different programs, I think, ultimately benefits us.

And so therefore, I think that there are some data points that we see where conversion could ultimately improve and therefore, our cost of acquisition actually goes down. And so I think that there are some things that I think look generally positive in sort of the funnel mechanics, if you will, of our business heading into the fall.

Got it. That's helpful color. And then can you just provide a little more detail on the Adult Learning segment and what it might take to get that segment to return to growth? I know in the past, you've been a little more positive on MedCerts with Tech Elevator and Galvanize, the laggards there. But just an update on what's going on within that segment and the path to get things back to growth eventually would be helpful.

Yes. I think I mentioned this before. First of all, these businesses to us are -- I mean, if they disappear tomorrow, I don't think our shareholders would notice from this impact of our numbers, and they're just immaterial and not meaningful enough to really have a long-term impact for shareholders.

I think the underlying businesses, as we've described before, the boot camps are in just secular decline. I think it's going to continue to be the case. I think it's very difficult for the secular environment for the boot camp side, the Tech Elevator, Galvanize side of the businesses to really recover meaningfully.

And at least my industry checks across the folks in the industry that I know that run these kinds of businesses, I think, would all sort of echo this similar sentiment, at least privately for sure.

I think the MedCerts business is and continues to be an attractive market segment for us. We have not executed well across that market segment. We've had some leadership changes in the past year or so that we're hoping that will help reignite our positioning there. I continue to believe that we're going to make investments in that.

I think it benefits our K-12 programs. And I think it -- the market opportunity still exists. So it's not meaningful. The investments won't change the needle on anything in our financials. But I do think there continues to be opportunity there. We're going to continue to look for ways to take advantage of the opportunity. But I think clearly, our execution has not yet been where we expect it to be.

That concludes our question-and-answer session. Ladies and gentlemen, this concludes the Stride Third Quarter Fiscal Year 2026 Earnings Call. Thank you all for joining. You may now disconnect.

Okay. Great. So thank you, ladies and gentlemen. I'd like to introduce one of our top analysts, Gowshi Sriharan. Gowshi is a seasoned analyst with over a decade of experience in equity research, encompassing both buy-side and sell-side exposure. He has held pivotal roles at South Texas Money Management, Gravity Capital, Sidoti, CL King & Associates and others. As an experienced generalist, he has analyzed a myriad of sectors, quickly identifying and diving into the key factors driving investment theses. Gowshi holds a CFA designation. He's a native of the U.K., and he splits his time between London and the United States. Welcome, Gowshi.

Thank you, Timothy.

Just while I finish this, so Gowshi is going to be presenting Stride. Stride is a technology-enabled education platform delivering online K-12 and career learning solutions. So go ahead, Gowshi, get started. Thank you.

Okay. Thank you, Timothy. So let me dive in straight. We thought we'll talk about Stride today, our view on Stride and why we think it's a compelling opportunity right here.

What Stride is the largest K-12 education, virtual K-12 education provider in the United States. They are serving over 240,000 students across 100 schools in 30 states. They dominate the market. They have the reputation and the relationship. They are twice the size of their nearest competitor.

The business model is very pretty straightforward. Stride contracts with school districts, charter boards for typically 3 to 5 years, runs the entire virtual school operation and gets paid per pupil using the same state funding formulas as a traditional brick-and-mortar school, talking about around $9,000 to $10,000 per student on average.

So the economics are attractive. They're running high 30s gross margins, mid-20s EBITDA margins with strong free cash flow generation. Importantly, this business is recession-resistant. K-12 education is compulsory and state funded, so you don't have the same cyclical dynamics you see in a lot of other sectors.

What's the upside here? Well, our price target is $136.60, which represents over 60% upside from current prices, which is around $81 or around $84. The stock is trading just around 10x our fiscal 2026 earnings estimate compared to a historical 12x to 15x. The base case -- our base case assumes that mid-teen revenue growth resumes as the learning management system issues from the last year get resolved, we expect that the margins would normalize back to high teens or low 20s percentage. The Career Learning segment, which has been growing at over 20% annually, should continue to see a favorable -- drive favorable revenue mix and margin expansion. And we're modeling cash flow compounding at a 10% or better. The way we see it is you're buying a scaled cash-generative business at a distressed multiple because of a 1-year operational stumble that appears to be fixable.

So what's the downside here? To be realistic, when we did the worst-case scenario, which would involve regulatory shutdowns in key states if legislators or regulators decided to severely restrict the virtual public schooling options, you could see enrollment growth stall if the demand doesn't materialize or if New Mexico-style disputes are becoming more common. I'll talk about that a little in further detail down the track.

Margins could get compressed if technology costs remain elevated or if competitive dynamics intensifies. The New Mexico litigation could potentially create a negative precedent that affects how the company operates in other states. When we initiated the company last year in a true bear case where the growth and margin thesis could structurally break, we thought the stock could trade down to $60 to $70 range. It's already hit that range, kind of did that in late October, and it has bounced back. But we think that's the real downside.

So what is the market missing? Here, we think the disconnect is the market has over extrapolated a 1-year IT implementation failure into a structural bear case. Last year, Stride botched a learning management system rollout. It was messy. It cost them around 10,000 to 15,000 students' enrollments, and the stock got cut in half. It was an execution error, not evidence of a broken demand. The Q2 fiscal 2026 results actually showed stabilization in enrollment growth, which came in at around 8%. Management said -- raised adjusted operating income guidance, and the platform issues appears to be resolved. Customer support volumes have dropped sharply. Withdrawal rates have normalized. So the underlying demand is still there.

The other thing the market is doing is treating this like a for-profit education, drawing some parallels to the University of Phoenix-type scandals from 2008-2012. But the funding structure here is completely different. There is no Title IV federal student loans here, no stipend skimming schemes, no -- this is a state per-pupil funding for compulsory K-12 education. The regulatory and fraud risk profile is just isn't the same.

So what will be the catalyst that will trigger the appreciation? For the next 12 -- 6 to 12 months, we're watching what -- first, the Q3 and Q4 results. If enrollment and withdrawal trends stay stable or improve without new platform setbacks, that will confirm the recovery narrative and removes a major overhang. Secondly, the fiscal 2027 enrollment season, which kind of kicks off in summer 2026. If Stride demonstrates strong sign-ups, management restores mid-teen growth guidance for the following year, that would be a big miss signal that the demand is intact and the IT issues were truly onetime.

And then thirdly, the New Mexico litigation, whether it's a settlement or a favorable court ruling, getting that behind them removes the legal uncertainty and clarifies what compliance standards actually are. Right now, the lawsuit might be creating some headline risks that's disproportionate to the actual financial exposure. If that, coupled with the Career Learning, if that segment continues to maintain healthy growth, keeps driving margin mix up, it will reinforce the thesis that Stride isn't just a K-12 story. They're also positioned in workforce development and has strong fundamental -- strong structural tailwinds.

So the bottom line is that Stride is a scaled operator in a niche but growing segment of K-12 education. The business has good economics. It's recession-resistant, and the category still looks underpenetrated. Virtual education is only about 1% of the total U.S. K-12 enrollment nationally versus 5% or more in states like Oklahoma that have embraced it. So still a lot of runway for growth.

The stock got hammered because of self-inflicted technology screw ups, and so -- and some noisy litigation about the -- but the fundamentals like parent demand, state funding, competitive positionings remain solid for the company. And we think the risk/reward is very compelling with an upside up to $136 and a downside to $60 or $70 if the execution normalizes over the next year.

So just to briefly give you a background into [ KS ] Stride. It was formerly known as K12, founded back in 2000, offered virtual education as a real alternative to traditional schools, from early support from investors like Larry Ellison, Michael Milken. The company scaled and quickly went public in '07. In 2020, they rebranded to Stride to reflect a broader mission supporting not just K-12, but also adult and career education.

The company operates in 2 main segments: General Ed and Career Learning. The General Ed side runs the virtual and hybrid schools for K-12 students, supporting over 100 schools in 31 states. And the Career Learning side focuses on workforce readiness, offering training in fields like IT, health care. And these programs serve middle schoolers, high schoolers and even some adult learners looking to gain real job-ready skills.

Under the current CEO, James Rhyu, Stride has doubled down on innovation and operational efficiency. They have invested in tech and acquired some key education companies, now serves students in all 50 states and over 100 companies. The stats is that they served over 3 million students that have engaged in their platform since inception.

They have a go-to-market strategy that -- the biggest revenue stream comes from, like I said, from the long-term virtual school contracts with public districts. They also work with traditional schools to provide set of blended learning tools, digital curriculum. On the consumer side, they run tuition-based private schools, offer supplementary products like summer courses and tutoring. For adults, they provide training in fields like software, health care, so they either directly to the learners or to employers looking to upscale their workforce. So at their core, Stride is meeting the rising demand for flexible, tech-enabled education while addressing the skills gap in the labor market, making it a key player in the next chapter of EdTech.

So just the price action here. Let me walk you through. So -- what happened with the stock over the last few months -- because the chart tells a very dramatic story. In late October 2025, Stride reported Q1 fiscal 2026 earnings. And while the numbers themselves were actually solid, beating both on the revenue and the EPS, they revealed that they had some major operational problem. Over the summer, they had rolled out 2 technology platform upgrades, a new learning management system and a new student information system. The implementation did not go smoothly. And so the result was a management call was a poor customer experience, which led to higher withdrawal rates, lower conversion rates. And by their estimate, they -- an estimated 10,000 to 15,000 fewer enrollments than they otherwise would have been able to capture.

The stock absolutely cratered on -- around the end of October, it dropped around 50% -- over 50% in a single day from $154 to $70. The market was clearly spooked not just by the enrollment miss, by what could that imply, whether there were deeper structural problems, was the demand actually weaker than the management had been signaling. And on top of that, they had multiple law firms announcing securities fraud investigations, questioning about whether the company had properly disclosed risks around the platform changes.

Since then, we've seen some recovery. Stock has climbed back from the 70 -- low 70s. And now it's trading around in the 80s, $81, $84. So we've recaptured some of that losses, but still well below where we were before the crash. And what's driving the recovery is, in our view, is the Q2 fiscal 2026 results that came out in late January. Management showed that platform issues are largely behind them. The enrollment growth rate is at around 8%, have normalized. Customer support calls, volumes have dropped sharply. And their full year adjusted operating income -- and they raised their adjusted income guidance.

So that's a big signal that this was an execution stumble and not a broken business model. So when we look at the chart, we see is a massive overreaction to a real fixable problem. The technology rollout was bungled, no question about that. But the underlying demand for virtual K-12 education is still there. The contracts are long term and they are sticky, and the economics of the business is -- haven't fundamentally changed. And the market seems to have punished them for a 1-year operational failure, and we think there's a clear path for the stock to rerate as execution normalizes through the rest of fiscal '26 and into fiscal '27.

So just to give a brief, Stride is shaping up to be a strong opportunity in EdTech space. Fiscal 2026 guidance is around -- revenues close to $2.480 billion, $2.555 billion. And the adjusted operating income, around $485 million to $500 million, which signals confidence that the underlying demand remains intact. And the confidence is backed by the 8% enrollment growth in Q2, stabilizing platform performance and continued momentum in the Career Learning, which is growing at roughly 20%, 25% and driving that favorable margin mix.

Stride's appeal lies in its ability to adapt where education is headed. It's not just riding a short-term wave. Structural trends are moving towards more personalized, flexible and career-oriented learning, and we think Stride is positioned right at the center of that shift. Financially, it's in a solid spot with strong free cash flow, $676 million in cash, marketable securities. Add in some favorable policy wins like continued support for school choice, and you've got a company with room to recover and potentially upwards north of 60% return from current levels at a price target of $136. And like we mentioned, the risks of platform rollout, management is currently prioritizing stability over aggressive near-term growth to rebuild their partner confidence. The litigation also highlights some importance of maintaining strong compliance and operational standards across all segments.

The Adult Learning performance segment remains a little subdued, but -- though it's not material to the overall thesis. There's also elevated short interest, around 15% to 16% of the float, which could add to some volatility. Bottom line, Stride is a well-run company with strong growth drivers. While it's not without its risk, the upside story remains very compelling as execution normalizes and education continues to evolve.

So that's the enrollment numbers. We're seeing a long shift in how families and individuals approach education, and Stride is at the right at the center of it. The pandemic may have sparked the initial move towards virtual learning, and the continued -- but the continued growth in enrollment shows that demand for flexible online education isn't going away. It's now a structural part of the kind of the education landscape.

What makes Stride particularly relevant is how it goes around beyond just academics. Its Career Learning segment is designed to meet a very real need in the labor market, skilled areas like IT and health care, the trades. These programs aren't just theoretical. They also build in some partnership with local businesses to give students experience through internships and certifications. So instead of just graduating with the diploma, students will be able to leave with some real-world skills and a resume that help them to stand out. There's also support at a policy level with growing bipartisan movement towards career readiness and alternative education pathways. So in short, Stride is well positioned to meet those -- both the educational and workforce needs of a changing economy.

So the school choice is gaining serious momentum across the U.S., and Stride is well positioned to benefit. As of mid-2024, more than 35 states have implemented school choice programs, everything from vouchers to education savings account, broadening the access to alternative education options. I think remarkably, around 40% of students in the U.S. are now eligible for some form of private choice support, and that number is expected to grow even further.

The shift isn't just state-driven. At the federal level, political backing is now helping accelerate adoption. In January '25, President Trump signed an executive order on expanding educational freedom and opportunities for families that directs the Department of Education, Defense and the Interior to develop plans for allowing military families and those served by the Bureau of Indian Education Schools to use certain federal funds for schools of their choice, including private and charter options.

In July 2025, the Congress passed the Big Beautiful Bill, which created a federal tax credit for scholarship program, allowing taxpayers to receive federal credits for donations to K-12 scholarship granting organizations. The program is projected to scale from $500 million of credits to around $4 billion annually over time. Participation is optional and depends on whether states choose to opt in. So states like Idaho, Wyoming, Tennessee are leading the charge with new expanded programs aimed at giving families more flexibility in choosing where and how their children are educated. And while the critics have raised concerns about public school funding, accountability in private education, the broader trend remains clear. More parents want options, and more policymakers are making that possible. What that means for Stride is that the addressable market share and the policy-driven tailwinds support continued enrollment growth and long-term expansion.

Recent data continues to support the case for sustained growth in alternative education. In January 2025, a survey by the National School Choice Awareness Foundation highlights strong and consistent interest among parents exploring nontraditional education options, especially home schooling, micro schools. Some takeaways were that while the number of patients -- the number of parents actively considering switching schools slightly dropped to 60%, down from 72% the year before, the interest in alternative models remains very high. Nearly 2/3 of the parents have considered home schooling, making -- marking a significant uptick. Younger parents, military families, Black parents are leading the kind of the trend, with as many as 71% of the younger parents exploring new schools options. That said, only around 28% of the parents who considered switching actually followed through. Financial constraints, limited seat availability were kind of the main barriers underscoring the -- well, that really underscores the unmet demand that Stride is well positioned to address.

So the importance of awareness of school choice options is growing, with few parents saying they need more information compared to last year. Beyond K-12, the outlook for career and technical education is also strong. Bureau of Labor Statistics demand for roles that require nondegree post-secondary education like medical assistance, commercial truck drivers is also projected to grow faster than the overall job market. Again, a trend that supports the long-term value that Stride's career learning programs provide.

And of course, the path forward isn't without challenges. Enrollment caps, competition and execution risk will remain. But with the strategic investments in tutoring, skilled trades and platform improvements, we think Stride is positioned to continue to capture the demand. And altogether, the data supports a clear narrative that the appetite for flexible workforce aligned education is real and growing.

That's a slide kind of explains the motivation for parents to opt to a virtual education kind of falls into 3 buckets there: health and well-being, flexibility and concerns about the environment of their previous school. And that's the data from the January survey that I was talking about, where it shows that parents are favoring -- more and more parents are favoring choice.

So on the financial side, Stride isn't just recovering. It's demonstrating it can navigate the operational challenges while maintaining the underlying economics that make it attractive. Financially, the company is stabilizing after the platform disruptions. Management's reaffirmed the 2026 guidance and raised the operating income guidance to around $500 million. The kind of upward revision, mobility revision to profitability, especially coming out of a difficult period, signals that they are regaining control of operations and cost structure.

One of the key drivers here is margin discipline, with enrollment growing -- moderating around 8% year-over-year due to the platform issues. Stride has still been able to maintain healthy margins and continued to show operating leverage. And total enrollment now is around close to 250,000 students as of Q2 2026. And the company is managing to spread its fixed cost more effectively as it scales, particularly in the career -- high-margin Career Learning segment. And importantly, Stride is also accomplishing this while maintaining strict cost discipline on the SG&A. SG&A number dollars actually declined by 2% year-over-year in Q2, which points to operational rigor even as the company has navigated the platform remediation. Management is obviously choosing to prioritize stability over aggressive near-term growth, which we think is the right trade-off to -- required to rebuild that partner confidence and the system resilience.

Stride's balance sheet remains strong. The company ended with close to $676 million in cash and marketable securities, ample liquidity to fund any ongoing platform investment, growth initiatives in tutoring and skilled trades. Capital efficiency adds a runway and minimizes any financial risk, especially as the company works through this transition year. The pricing environment also seems to be -- remain rational. Revenue per student has held up well despite the operational noise and the litigation noise, which tells us that districts and parents still value the services and that Stride has remained in competitive positioning even through this challenging period.

In short, I think the financial story right now demonstrates resilience, execution discipline during a reset year. Enrollment growth is normalizing, margins are holding. Cash flow remains strong. If the next 2 quarters show continued platform stability and the enrollment season for 2027 shows solid sign-ups, the growth narrative can reaccelerate into fiscal 2027, and that creates a compelling setup for investors willing to look through the near-term noise.

So that's just long-term growth targets for the company. You can find that on the investor presentation. And key financial metrics, just quickly go through that. Our valuation -- to estimate the fair value, we used a blended framework that kind of combined peer multiples with discounted cash flow model that lets us anchor our view both on how the market is pricing comparable EdTech names and companies' underlying cash generation capacity. On the multiple side, we applied a sector average to our forward estimate, reflecting Stride's solid growth, profitability and leadership in the online and career-focused K-12, but also the overhang from recent execution of legal risks.

The approach reads to around $107 per share on the relative valuation scale. When we pair that with our DCF, which we weight more heavily because we see Stride as a value as primarily driven by long duration cash flows than near-term sentiment. The DCF is built on forecasting cash flow over 10 years, assuming kind of a 10% EBIT growth through year 1 to 10, and then it reflects a more subdued 3%. And so the DCF produces a value around $144. And so combining that -- and we weight the DCF price a little higher. And so that weighted price gives us a fair value of around $136. So that reflects like over a 60% upside.

Okay. So to sum up, Stride is a -- offers a meaningful upside from our framing now and reflects a transition year and a straight-line growth story. Today, the opportunity is driven less by headline enrollment spikes and more by a combination of normalized enrollment growth, improving platform stability and the continued shift in mix towards a higher-margin career learning. And after the platform missteps in fall of 2025, I think we have -- that the management has deliberately prioritized stability over maximizing near -- in-year volume. And yet, Q2 delivered some healthy growth and meaningful gross margin expansion.

So that tells us that the core economics remain intact. The markets remains overly cautious for different reasons than a year ago. A year ago, they were concerned about the ESSER and the pandemic funding issues that highlighted by the short pitch research paper that came out last year in its -- that phase is in its liquidation phase, and that will be wound up by spring '26. So the pandemic relief is no longer an issue that reflects the investment thesis. Instead, investors now worry about lingering execution risks from prior tech rollouts, the legal noise around New Mexico and whether General Education can grow alongside a fast Career Learning franchise. We think those are all valid watch points, but we see that the platform risk is receding, withdrawals have normalized. On the policy side, the backdrop is still net positive. School choice eligibility has expanded. Roughly 40% of U.S. students are expected to rise -- and that eligibility is expected to rise as more states push forward universal and near universal programs. And so the demand for career and technical education will also continue to accelerate.

So at the end of the pandemic funding issues, the ongoing legal and political issues around the choice seems to be -- means that funding is becoming more normal, which raises the bar on execution, but also favors scaled and compliant operators like Stride that have the relationship over other smaller undercapitalized players. Bottom line is Stride is no longer a pure post-COVID growth story. It's a scaled cash-generative operator working through some self-inflicted reset. And our view is that with that platform issues largely contained, solid liquidity and a growing higher-margin business, the risk/reward is very attractive. And if management can string together a few more clean quarters and a strong summer enrollment for 2027, we see a credible path to $136, and the market will rerate the name for normalized earning powers.

That's all we had for the company's presentation. And if there is any questions, we'll address that.

Thank you, Gowshi. This is Tim again. And yes, a couple of questions came in. Let me see. So you mentioned the New Mexican legal issue. Can you explain a little bit, what are the main legal issues Stride is dealing with right now and how serious they are for investors?

Okay. So yes. So the main legal issues Stride is dealing with right now kind of falls into 2 buckets of legal risk, so the New Mexico district lawsuit and the securities class action related to -- tied to the October '25 stock drop.

On the operating side, Gallup-McKinley County Schools in New Mexico had sued Stride, alleging fraud and misconduct in how the virtual schools was run. The complaint accuses Stride of keeping ghost students on the rolls to draw state funding, overloading teachers on the rolls to draw state funding and overloading teachers beyond statutory limits and failing to -- falling short on compliance areas like background checks and special services. It sounds alarming, but it's a single district dispute in 1 state. Stride's exposure is largely tied to potential damages and legal costs and any operating changes that New Mexico might require. Importantly, after the contract was terminated, Stride was able to stand up a new school in the state and enroll -- reenroll most of the families, which suggests that the issue is not a broad loss of parent demand, but a localized governance and a compliance issue.

The second bucket is the investor litigations after the stock dropped in October '25 and had announced the platform issue -- upgrade issues and poor customer experience. Many -- some -- multiple law firms have filed advertised securities class actions arguing that management misled investors about enrollment strength, platform readiness and the impact of New Mexico allegations, including claims that Stride inflated their rolls with the students. These cases typically seek monetary damages and hinges on whether the company's prior disclosures were materially incomplete or misleading.

So from an investor standpoint, we think that financially, these matters are unlikely to threaten the company's viability. They could result in settlement of higher legal expenses. Stride generates solid cash flow and has over $600 million in cash for the last quarter. The New Mexico case is more important than the dollar -- in reputation than the dollar amount. It kind of puts a spotlight on the attendance tracking, teacher loads and specialized compliance areas that regulators already care about, but which means that Stride has to demonstrate tight controls across the network to reassure other boards and state.

So the -- I think for valuation, there's an overhang mainly, which shows up as a higher risk premium. The market is baking a possibility of a further negative headline or a perception problem around ghost students. Even though the allegations stem from 1 district and not being -- and still being litigated. So in short, these legal issues are nontrivial, but contained. They are better thought of as execution or multiple contraction. But there isn't an existential threat to the business model, provided that Stride can continue to clean up the platform issues and tighten up compliance so that the new Mexico looks like more like an outlier than a start of a pattern.

Okay. Great. And it looks like we might have time for one more question. Let's see, here's one. Longer term, what are the biggest real risks that you worry about? And do you think that the market is overpenalizing them?

Yes. The market is probably overpenalizing the idea that the 1 enrollment year means that the virtual K-12 market is tapped out. We see multiple data points. So if you look at parent forums, state policy moves in places like Texas and Oklahoma, the company's own -- and the company's own application volumes, that points to a durable demand for a virtual option for a small but meaningful slice of families.

So -- but we all have to be cautious about the execution on the compliance side. This is taxpayers' funded, highly regulated education. Stride has to prove every day that kids are logging in and being served appropriately and that attendance and withdrawals are tracked to the letter of each state's rules. So the New Mexico is a good example that the headline sounds scary. But when you read the complaint, it's about a few dozen students and the timing of the withdrawal reporting, not thousands of fake enrollments. And so the company opened another school in that state and reenrolled most of those families.

So the true long-term risk isn't that the model doesn't work. It's that the management might stumble on systems and compliance in a way that erodes the trust of regulators and the Board. And that's why we have to focus much on the recent platform fixes and the governance and the compliance companies willing to prioritize stability over the near term.

Okay. And real quickly, there is one more question that just came in. So how should we think about student outcomes versus traditional schools? Aren't virtual schools just doing worse? What's your thought about that?

Yes. So that's a question that comes up regularly. It's a fair question. But this is not an apples-to-apples comparison. So if you look -- if -- you have to be careful about the baseline we are using here. The Stride students, as I showed you on that 3 buckets, the students, the parents that choose Stride are not random slices of the state population. They're disproportionately mobile. They are behind grade. They've been bullied or dealing with some special need or health need or some family issues. That's why they have opted to leaving in the local school environment in the first place.

So comparing their average test scores to need to neighborhood schools, like it won't be an apples-to-apples comparison. So there needs to be a more meaningful lens in the progress of each student's starting point and not a simple cross-sectional average. So regulators might require all the same standardized testing and specialized compliance. But directionally, I think the company and the Board sees improvement, and this will always be nuanced by student-by-student story than a single headline metric.

Very good. Very interesting presentation. Thank you, Gowshi.

Awesome. Thank you.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Tim Casey, Vice President of Investor Relations. You may begin.

Thank you, and good afternoon. Welcome to Stride's Second Quarter Earnings Call for fiscal year 2026. With me on today's call are James Rhyu, 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, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we will answer any questions you may have. Now I'll turn the call over to James.

Thanks, Tim, and good afternoon, everyone. I'd like to begin our call today by providing an update on the platform issues we discussed last quarter. I think the bottom line is that we've executed on our plan and the core issues are behind us. Our focus now is to drive ongoing improvements that continue to enhance the customer experience. We will continue to build on the progress that we have made so far. And insofar as possible, we will work to find proprietary solutions in order to maintain more control of the user experience. I'm confident we will not have a recurrence of these issues in the upcoming season.

In addition to the stabilization of our platforms, we also saw continued strength in demand for our products and resiliency in our existing enrollments. The trends that have driven our strong enrollment growth over the last few years remain. Families continue to seek alternatives to the traditional model of education to address their specific needs. So we were able to take advantage of the strong demand in applications to backfill much of our attrition during the quarter and end the quarter basically flat with the prior quarter. Our goal this year is stability and not growth. So that's what we prioritized.

Now there were still some uncertainties as we headed into this quarter, most notably, how would withdrawal trends shape up as we started the second semester. I'm pleased to share that so far, second semester withdrawal rates are within historical norms. Now I'd like to circle back and discuss our approach to rolling out new platforms and why it is strategically important to us to make these investments. We operated a proprietary set of legacy platforms that were over 20 years old and a lot of technical debt, and we're not going to scale with the business as we needed them to. So we went to the market to get what we believe and what the market has confirmed are market-leading platforms to replace our outdated ones. That thesis still holds true.

However, we also want to ensure that we don't place too much reliance on third parties. So as part of our road map, we are working with our platform partners to build an architecture where we also have a degree of influence and control over our own destiny. This will be an evolving ecosystem, which prioritizes our customer needs, and we are investing now to ensure we have plans in place to be able to move forward productively either way. We are confident the primary issues from this fall are behind us. The primary evidence we can point to are the reduction in the number and types of calls to our customer support center. As an example, after we addressed a significant login issue a couple of months ago, call volumes dropped over 90% week-over-week. Qualitatively, we've also seen a significant decline in the commentary on social media discussing the challenges students are facing on the platform.

Now thankfully, the families in our community are resilient and our teachers and school staff are superheroes. We continue to be in contact with them and solicit feedback as we roll out new improvements. And given the trends we are seeing in demand, withdrawals and customer experience, we believe we are well positioned for a return to our expected growth patterns next year. I want to thank all of the Stride employees and school staff who spent the last quarter moving us forward and toward our end goal of delivering results and an experience we can all be proud of. With that, I'll turn the call over to Donna, who will talk more about our financial results. Donna?

Thank you, James, and good afternoon. Our employees and school staff continue to work hard to meet the needs and improve the experience of the families we serve, and we continue to see strong demand for our core offerings as families seek us out for educational alternatives. Our results this quarter reflect that continued demand. Some highlights from our quarterly results. Revenue of $631.3 million, up nearly 8% from the second quarter of fiscal year 2025. Adjusted operating income of $159 million, up $23.4 million or 17% from last year; adjusted EPS of $2.50, up $0.13 from last year; adjusted EBITDA of $188.1 million, up 17% and capital expenditures of $16 million, up from $14.8 million last year.

As a result of the continued demand for our offerings and the stabilization of our straws, our total enrollments for the second quarter were 248,500, up 7.8% from last year and up slightly from the first quarter. Revenue in our Career Learning middle and high school programs grew 29% to $275.6 million, driven by enrollment growth of 17.6% year-over-year. General Education revenue declined 3.6% to $341.4 million compared to last year. Average enrollments were up slightly from last year to $137,000, but revenue per enrollment was down 3.6%, largely due to mix. Total revenue per enrollment across both lines of revenue were $2,437, up 1.8% from last year.

As we mentioned last quarter, we are generally seeing a positive state funding environment. However, we still anticipate some impacts from state and program mix and timing, so we expect to finish the year flattish to last year. Gross margins for the quarter were 41.1%, up 30 basis points from last year. During the quarter, we recognized a gain related to a noncore business. We were able to reach an agreement to exit a long-term commitment in that business, which positively impacted gross margins. As I mentioned on the call in October, we will continue to see additional expenses related to the platform implementation throughout the rest of the year, and we now expect full year gross margin to be similar to FY 2024.

Selling, general and administrative expenses totaled $112.8 million, down nearly 2% from last year. We saw some benefits from the continued rightsizing of our adult learning business, and we also pulled back our marketing spend during the quarter. Stock-based compensation for the quarter was $10.3 million, an increase of $2.4 million compared to last year. We expect to see stock-based compensation in the range of $41 million to $43 million for the full year.

Now turning to our balance sheet and cash flow. Capital expenditures in the quarter were $16 million. Free cash flow, defined as cash from operations less CapEx, was $75.9 million compared to $208.6 million last year. Cash flow during the quarter was impacted by the timing of some payments, specifically a large receivable we typically get in Q2 was pushed to Q3. We don't think there's any risk for this payment, rather it's a timing issue between quarters. We finished the quarter with cash, cash equivalents and marketable securities of $676 million, -- as in past years, we expect to see positive free cash flow for the balance of the year.

In November, our Board authorized the repurchase of up to $500 million in shares. The authorization allows us to purchase shares through October 31, 2026. During the second quarter, we repurchased $88.6 million in shares. Even with this authorization, we will continue to consider our best use of cash and our capital allocation priorities remain unchanged. We will continue to balance investments in organic growth and potential M&A transactions with our share repurchases. As we've said in the past, our strong balance sheet enables us to maintain financial flexibility.

Now turning to our guidance. As James mentioned, we are seeing positive trends in demand and overall customer experience, and we are reaffirming our full year revenue guidance of $2.480 billion to $2.555 billion. Given this year's trends, I want to provide a little more commentary on seasonality. Over the past few years, we've seen the second half revenues weighted towards the fourth quarter. This year, our quarterly enrollment trends are slightly different, and therefore, we believe that the third and fourth quarter revenues will be more evenly split. Also, it's important to remember that many schools start closing enrollment for the full year in the third quarter. So even with the demand remaining strong, we still expect our third quarter average enrollment to be similar to the first and second quarters. Historically, we have seen seasonal decline in enrollments during the fourth quarter, and we expect comparable trends this year.

Now returning to our guidance. We expect adjusted operating income between $485 million and $505 million, up from our prior guidance of $475 million to $500 million. Capital expenditures between $70 million and $80 million, unchanged from our prior guidance and an effective tax rate between 24% and 25%, also unchanged. For the third quarter of 2026, we expect revenue in the range of $615 million to $645 million; adjusted operating income between $130 million and $140 million and capital expenditures between $16 million and $21 million.

We feel confident that the biggest challenges to our tech implementation are behind us. We still have work to do, but we believe we are well positioned to see continued long-term growth based on the strong demand we see for our offerings. Given this, we believe we remain on track to achieve our FY 2028 financial goals. These goals allow us to continue to appropriately invest in the business to ensure that we are set up for long-term success. Thank you for your time today. Now I'll turn the call back to the operator for questions. Operator?

[Operator Instructions] And our first question comes from the line of Alex Paris with Barrington Research.

Congratulations on an outstanding quarter. What a difference 3 months makes. So I got a couple of questions. I'm going to start with enrollment. Enrollment was certainly in line with your guidance and a little bit better than consensus expectations as you offset elevated attrition by in-year enrollment. I just wanted to get a point of clarification. James, you said withdrawal trends in the second quarter are within historical norms. So have we returned to a more normal attrition rather than the elevated attrition we talked about last quarter?

Yes. So just to be 100% clear, we are 3.5 weeks, I guess, into this month. And so there's not yet a full quarter of data. So I don't want to say the quarter. But yes, we -- in the January month to date, which is where we actually had, I think, the sort of that sort of second semester risk potential where a lot of withdrawals would happen for the second semester, we saw withdrawal rates return to normal levels, which was very good news for us.

Yes, absolutely. Good news. All right. And then demand, both you and Donna said demand continues to be robust as measured by applications, I'm assuming. Any degradation or any increase or just continued strong? How would you characterize that? Or just a little additional color would be helpful.

Yes. I think you're right. And sorry if I didn't clarify, demand, we measure demand through application volumes. and demand continues to be strong. Last year was a like by far, a record-breaking year, and we're seeing volumes that are similar to last year. So -- and I would say, for a little bit of context, this is -- we're seeing very strong demand volumes at a time where we're not as aggressively in market either trying to acquire enrollments. So that really speaks to a little bit of the strength of the organic demand that we see for our programs, which is also, I think, long-term good news.

Absolutely. And then the last question I'm going to ask, and then I'll get back in the queue. I just -- so really great news to see that attrition has sort of stabilized and is back to a more normalized level. I get it that we're early in the second semester here. I had a question about school or program relations since this summer. Obviously, this was unexpected, not only for investors, but also for those who -- those who are in charge of the programs that you run. What are you hearing from your schools, the Boards of Trustees of the schools with regard to the issues that you faced and the remediation efforts that you have embarked on so far? And what have you done to be in front of these clients? And any additional color there would be helpful.

Yes. It's actually a great question. I think the first thing I would say is that we have just really fantastic partners. I think most people know that we have basically 2 categories of partners. We have these independent charter school board partners and then we have these districts, which are brick-and-mortar school districts predominantly, and they partner with us to offer this full-time offering -- a full-time online offering. And I'll say, when you have a failure in your system somewhere where your partners are relying on you, I think it's natural for your partners to be frustrated and upset. And I wouldn't expect anything different. I think the the thing that I see -- and we actually had late in the fall after we announced this, we actually had a summit for our partners where we bring all our partners into the office here. And I think that I see is that our partners understand and recognize, by and large, it's not that they don't have frustration. They understand that we have shared mission. And I think that shared mission gives us a common sense of purpose. And that common sense of purpose allows us to work through these issues together. And I think it's really productive. Again, that doesn't say that some of our partners aren't frustrated. Of course, they're frustrated on behalf of our clients just as we are. And I think I understand and appreciate the frustration that they have. But we had a record turnout here for our summit. I was able to personally speak to a lot of our partners. A lot of our partners expressed a lot of faith in our ability to turn this around. So we're just very appreciative of the partners that we have. I think in a different situation, our partners could have reacted differently. I think they stay the course. They understand we have a common mission, and I think it's been very productive.

Our next question is from Greg Parrish with Morgan Stanley.

Congrats on the stabilization here in the quarter. I wanted to double-click on the potential for in-year enrollment growth in third quarter because I mean, it sounds like the core platform challenges are behind you, withdrawal rates are within historical norms and demand is still strong. So I'm not really understanding why you wouldn't grow. You grew 10,000 students sequentially last year. So maybe you're taking a cautious approach just given the last few months or maybe there's something else to call out, but I just wanted to help understand that.

Yes. I mean, I guess I would -- first of all, I would really caution investors or analysts to get maybe ahead of themselves here. And I think the answer is actually really a follow-up to the last question that Alex asked with our partners. We just think it's prudent, and I think our partners think it's prudent to give ourselves time to settle in here for this year. And could, in theory, do we see demand trends that theoretically could allow for growth? Probably, yes. Do we think it's the right thing to do? I don't think so. And when you go through a tough few months like we have, putting your foot back on the gas, I think just it sends the wrong signal all around to our partners internally to our employees. And so it's just not the right thing to do long term for our business. So it's not what we're going to do. It has really no correlation to the demand or the withdrawal characteristics. It has to do with setting ourselves up for long-term success. And that's sort of the decision that we've made and sort of the decision we're going to stick with.

Yes. Okay. That's fair and helpful. So I mean, is the right way to think about it that I mean, you're going to potentially turn some students away here and say, "Hey, we don't have capacity because we're sort of ingesting where we're at. Is that one way to think about it?

Every year, by the way, for a host of reasons, we do not have enough capacity for the demand, say every year, every year in the past few years for sure. For a whole host of reasons. Sometimes it's because we have caps, sometimes it's because we don't have just enough -- whether it's teacher capacity or whatever the reason, our partners want to cut enrollments off at a certain date. Whatever the reason, we always deal with this. We deal with it at different orders of magnitude. As I think Donna mentioned, during this semester, in a normal year, enrollment windows will be closing anyway. So anybody who's applying after the enrollment window gets turned away. So again, this is not an unusual circumstance from that perspective. It's -- we have people who essentially get put on a waitlist or get deferred. We often encourage our families to apply for the fall. We help them do that. So it's not an unusual situation for us. It's a situation I think we'll manage and handle very well. I think the good news is that the demand for our products and services continues to outstrip the capacity and supply that we have. And as long as that continues into the future, I think we're set up well. I think also the overall trends, forget about just the demand and applications that we're seeing. I think we continue to see the overall macro trends for our business for alternative forms of education continue to grow. And I think, again, long term, that bodes well for our business. I think we've got to be really careful not to make shortsighted short-term decisions. I think we're trying to do things that will build value for our customers over the long term. And so I just don't think it's that unusual of a situation that we're in, and I think that we know how to manage through it.

Yes. Okay. That's very helpful color. And maybe just a couple more cleanup questions for me. On the revenue per enrollment, and I'm sorry, maybe this is a little messy, but I know it can be noisy as you accrue through the year, but the Gen Ed revenue per enrollment down 4. I think you called out mixed Donna and then career learning up 10 -- maybe just help us unpack there if there's anything sort of onetime or how to think about why those moved so much.

Yes, Alex, and part of the reason why I've sort of been sort of focused on the combined revenue per enrollment is because the revenue per enrollment between Gen Ed and Career as well as the enrollment between Gen Ed and Career can get a little bit wonky, right? And so as we -- when we typically talk about mix, we think about it from a state perspective. But there's also a mix between Gen Ed and career, right? So as we think about how we do the forecasting of our enrollment, -- and if we forecast our enrollments with an assumption for Gen Ed and we have more career than we have Gen Ed or vice versa, we still have to do a true-up adjustment, right? It doesn't impact the full year. It doesn't impact the total number, but it could impact the variance between Gen Ed or career. So it gets a little bit wonky. And so overall, the impact of our revenue per enrollment for the year, as I said, will be flat. The impact of the revenue per enrollment for the quarter, I would sort of focus on the total as opposed to the difference between Gen Ed and careers. -- really, as I pointed out in my prepared remarks, about state mix and also about program mix. When I say program mix, I mean between Gen Ed and career and also some timing as well.

Okay. That's helpful. And maybe just a last sort of model cleanup question for me. I think you called out some long-term agreement adjustment that benefited gross margin. I'm sorry if I missed it, but can you size that at all? I don't know if either in dollars or what sort of gross margin would have been excluding that impact? Any way for us to think about it?

Yes. The total amount -- it's really -- you may recall, when we purchased our boot camp business, we purchased a community business, which is sort of a business where you can lease space -- and so it was not core to our business. And so that business, we have been sort of talking about trying to get rid of that business. We've had some success over the years and getting rid of small parts of it. We were able to negotiate and get out of one of the larger leases that were set to expire in 2030. The impact on that -- on the gross margins in Q2 was roughly around 200 basis points.

Okay. And that doesn't sound onetime then, right? Because you got out of that lease, so that should come out of your cost base on a go-forward basis. Is that right?

Yes, right. So we will no longer have that lease expense that we would have otherwise had through 2030.

Our next question comes from the line of Jason Tilchen with Canaccord.

Just to go back a little bit to Q2, I was hoping maybe we could unpack the overall enrollment growth. You mentioned sort of increased about 800 students sequentially. Can you just talk about the level of gross adds and withdrawals relative to a typical Q2 that you saw? And maybe a little bit more color you can share on what some of the conversations were that you had with some of the families who are experiencing some of these issues, that would be very helpful.

Yes. So we don't really disclose specific withdrawal volumes and things like that. And so I think what I would just say that with demand being as strong as it is, we were able to backfill, I think, pretty effectively, and that's a good thing. I think when we talk to the families and it's it's really actually pretty amazing how resilient the families themselves are because -- and I've had a chance to talk to a number of families myself personally and the sentiment tends to be I need this alternative. And basically, I'm willing to grit and bear some of the pain, if you will, because of how important this alternative is to me and my family. And that's a pretty -- I find eye-opening testament to how important, I think, structurally these types of programs are within our society. And obviously, particularly in the earlier days of the fall, the user experience was difficult for a lot of families. And for as many families as we saw really grit through it with us, it's a real testament to their resiliency and I think a real testament to the need for some of these alternative programs that we operate. And so I think the conversations are never easy. When you're disappointing a customer, the conversation is never easy. And I can just -- I don't know that I had a statistically significant number of conversations where I can say that it was representative. But I think the numbers sort of bear it out that you don't have this many families persist in a program that had some technical glitches for this long if they're not really resilient and if the alternative program isn't that important to them. So I think that's sort of the message.

Okay. Really, really helpful. And then just in terms of the sort of the operational performance of the platform today sort of relative to historical normal operations. Can you just give us a little bit of context about how things are performing, if there are still any issues that are in the process of being resolved? And then just sort of the follow-up to that is maybe a little more color on the road map to continuing to work on sort of in-housing some of that tech over time.

Yes. I think the context in the answer to this question is that prior to this year, we were dealing with an increasing number of issues on the platform. That's sort of what I was referring to in our comments to the technical debt that we were incurring that was growing year-over-year. And so it's not like the previous platforms were not experiencing issues. And I think that sort of when you get back to a place where most platforms like this are going to -- they're not perfect. And so yes, are there still issues that pop up from time to time? Of course. No different than prior platforms. So -- and there are edge cases often, whether that's whatever the device somebody is trying to use as an edge case or the software somebody is trying to use as an edge case or the connectivity that they have is an edge case. And so we obviously -- we try to eliminate as many of those edge cases as possible. But I feel like we're at a point where we have a good foundation now to build off of. And I think we learned a lot through this experience. And I think that we need to make sure that we have better redundancy and a lot of what we're trying to do is to ensure sort of better redundancy. We still have to rely on our third parties. And I'm hopeful that our third parties are going to continue to step up and be good partners. And -- and I think that we have, through this experience, gotten a lot of feedback from our customers. And a lot of it has to do with the user experience, how the workflows are, the sort of distinguishment in grade levels and sort of what's more appealing for lower grade levels versus middle-grade levels versus upper grade levels. And a lot of those things are things that over time, we can just continue to refine and build and iterate into our system and continue to get that feedback and improve. So I'm optimistic. I think we've got a long road ahead of us of creating really incredible experiences for our customers. And just to round out the answer, that's not exclusive to the academic elements of the experience. We are investing in a lot of elements of the experience that actually extend beyond the academic elements that just give a fuller, richer experience to the families.

The next question is from Stephen Sheldon with William Blair.

You have Pat Acle on for Stephen. And congratulations on all the progress you made this quarter. My first question, James, you've acknowledged that you still have some work to do here, but you've clearly made a ton of progress since the fall. So if we were to assume that you're largely past the issues you saw that last fall, how are you thinking about the risk from any negative word-of-mouth activity going forward and the risk to top of funnel trends heading into next year. Is there any sign that, that could have a more lasting impact?

Yes. So I actually think that we were worried about that pretty acutely in the fall. And I think that we were concerned that that sort of overhang, if you will, of bad press, bad word of mouth, whatever, would carry over into, I'll say, sort of a post normalization period. And we've just not seen evidence of that. In fact, I would actually suggest we've seen the opposite. We think that we had momentum in sort of word of mouth. I mentioned earlier that our demand characteristics continue to look strong, and they look strong in spite of us being less aggressive in the marketplace, as you can imagine, as we're sort of tempering our growth this year. And so when you see the organic strength that we've seen in demand, that would run counter to an assumption that there would be this overhang in sort of negative sentiment. I think it speaks to the macro conditions of our business that are very strong and the strength of 25 years operating this business as a leader. And the reality is if you're -- and this -- we've done some sort of, I'll say, "focus groups" or talk to some families about some of their experiences. And if you're not in the market for this alternative, there's really no reason for you to hear the negative sentiment. And when you're in the market, largely, you're not going to the places where you're going to hear the negative sentiment because you need this alternative. And so we just haven't seen evidence that the demand characteristics are negatively impacted so far, at least by an overhang of sentiment around what happened this fall. We just haven't seen it.

Okay. That's really encouraging. And one more on margins. I understand there was some onetime benefit to the gross margins this quarter, but G&A also took a nice step down. Can you talk about how you managed to drive that efficiency despite the unforeseen circumstances you were dealing with in the quarter and maybe some of the labor and capital that might have required?

Yes. One of the things that we have been talking about for the past couple of years is that we've got to -- internally, I say to our senior management team, we've got to remain disciplined during the good times. So when things are difficult that we can continue to maintain that level of discipline. We continue to be disciplined. With that discipline, there are a couple of other things that we've done. And I said it in my prepared remarks, we continue to rightsize our adult business, given the sort of stability and the focus on stability and not growth, we sort of pulled back on our marketing spend. And so those are some of the things that we've done to be able to reduce the costs in our SG&A. And so some of the additional costs you might expect given the impact of our platform challenges that we have, you would see those in our gross margins, not in our SG&A.

I also got to say, give a huge shout out to the team here. The team here that have been working to resolve some of these problems, I mean, they've been working 24/7 for the past several months, and they just don't give up. They're on top of it. I mean it's just -- it's really amazing to see how our mission has rallied our employees on behalf of our customers. And listen, again, it's not perfect. Not everything is perfect. But we just see a lot of employees just step up in amazing ways. I mean just the number of stories I could tell you that are countless on the way that the employees in this company just step up because they believe so much in our customers, and they want to help our customers so much that it's not sustainable, by the way. But you get a lot of leverage out of that when you have employees that are that committed.

These issues. Our next question comes from the line of Jeff Suler with BMO Capital Markets.

I know you're focused on maintaining stability this year, and that makes a lot of sense. And then you're not going to give specific guidance next year, but I'm just curious, in terms of potential new partner pipeline, can you talk a little bit about that? And I'm just wondering how discussions are going based on what happened a few months ago, if there's been any change?

Yes. So it's sort of an interesting and timely question only because I was visiting a potential partner last Friday. I won't give you the state, but it wasn't an easy state for me to find it out of. And we dealt with the questions of what happened this fall pretty directly and I'll say, reputational issues that they might have questions around. And I spent a couple of good hours with this potential partner. They haven't signed yet, but they gave no indication that any issues that we've had, whether they're platform related or otherwise, by the way, reputational issues that may be floating around in the market. They're just sort of unconcerned because, again, and this is sort of, I guess, maybe how powerful the macro conditions are and the mission is that they really believe in what we're doing. They recognize that we're the leader. They want to help families in their state, and they think that their state deserves these types of alternatives, and they really want to be a part of it. And so again, I just -- I can't speak for every partner, every potential partner or whatever. I just happened to be visiting one last week, and there's no overhang that that I have experienced from a potential partner on this past fall or sort of any events that have happened in this past year or so. So...

Okay. That's very helpful. You also mentioned that you cut back a bit on marketing expenses in the second quarter. Should we expect that to ramp back up, especially in the fourth quarter as we're entering into the potential enrollment season?

Our assumption for the back half of the year is that our SG&A will continue to benefit from some of the -- what you saw happening in the first half of the year. We want to sort of maintain that level of flexibility in Q4. We typically start to ramp up a little bit in Q4. And so we want to have some flexibility there. But when you think about the overall SG&A in the back half of the year, we will expect that number to continue to be reflective of what you saw in Q2 and maybe down a little bit. But we have some flexibility to ramp up on the marketing spend as we get to later in the fiscal year.

And I think that just from a planning perspective, we expect in the normal cadence of the rest of this fiscal year and going into next fiscal year to be in market business as usual. There is no expectation that we would not be returning to business as usual for the fall season in whatever cadence that is this year or next year.

With that, this concludes today's closing remarks. You may now disconnect.

Hello and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Stride First Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Timothy Casey, Vice President, Investor Relations. Sir, please go ahead.

Thank you, and good afternoon. Welcome to Stride's First Quarter Earnings Call for Fiscal Year 2026. With me on today's call are James Rhyu, 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, and the company assumes no obligation to update any forward-looking statements. Following our prepared remarks, we'll answer any questions you may have.

Now I'll turn the call over to James. James?

Thanks, Tim, and good afternoon, everyone.

Demand for our products and services remain strong. In fact, we believe industry demand and trends around online education continue to grow. We indicated in August that we believe we would grow enrollment between 10% to 15%. And while we achieved enrollment growth in that range, we still fell short of our internal expectations. While demand as indicated by application volumes remains healthy, overall growth was tempered.

Well, what happened? Well, we made a couple of strategic decisions that we believe will pay dividends over the longer term, but limited our growth in the short term. First, we invested in upgrading our learning and technology platforms with third-party industry-leading platforms. We continue to believe the investment is the right long-term decision to ensure we are deploying industry-leading technologies and systems. However, the implementations did not go as smoothly as we anticipated. We are actively engaged with our vendors to improve the situation. We heard from our customers that their engagement with these platforms detracted from their overall experience. This poor customer experience has resulted in some higher withdrawal rates and lower conversion rates than we expected.

Secondly, we wanted to focus on running high-quality programs. And in some instances, the best approach to achieve that is to limit enrollment growth while we improve our execution. We estimate that the combination of these factors resulted in approximately 10,000 to 15,000 fewer enrollments than we otherwise could have achieved. We also believe that these challenges will likely restrict our in-year enrollment growth. While demand continues to remain strong, we do not anticipate the same in-year enrollment increases that we have seen over the past few years. So our outlook for this year compared to last year is a bit muted. However, our outlook for this business over the longer term remains bullish. And these investments should help us achieve our longer-term goals.

Our mission and our path are clear to me than ever. families want and deserve educational choice. Meeting the demands of families in this country is an increasingly diverse task that is challenging to meet with a one-size-fits-all model. So for many families, we are providing the only real affordable alternative in meeting their needs. And the trends just continue to move in that direction, whether it be safety issues like bulling or neighborhood violence or health issues or special needs that cannot be met by local schools, we are providing a service that is both increasingly in demand and increasingly necessary. And we are investing in areas that will help enable us to meet the needs of the families we serve. One simple example is the rollout this year, offering every second and third grader free ELA tutoring. We know that in order for it to continue learning, they need to be able to read, write and communicate. Therefore, we are investing to ensure the younger students in our programs can do just that.

We are tomorrow's education today. We meet the diverse needs of families that want flexible, personalized career forward and tech-enabled education at an affordable cost. This fall has proven challenging for us, and I want to thank our customer-facing employees, the teachers, administrators and other staff who have worked tirelessly to help us overcome those challenges to serve the students. I also want to thank all our corporate employees who never forget who our customers are and how impactful what we do is in the lives of so many families. Thank you.

With that, I'll turn the call over to Donald.

Thanks, James, and good afternoon. As James mentioned, our results this quarter reflect the continued demand for our core offering. Families are seeking alternative options for their students to solve ongoing challenges within the existing education system. However, we also had some internal challenges this quarter as we implemented new platforms for our students. While this caused some disruption, I believe these changes are important for the long-term growth of the business. As always, I am incredibly grateful to all of this drive employees for their commitment to the families we serve, it is an opportunity and a privilege to influence the lives of so many students each and every year.

Turning to a few highlights from our quarterly results. 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. As I mentioned, our quarterly results were strong demand for our core offerings. Alcoa enrollments for the quarter were up 11.3% from last year. Once again, setting a record for the number of students we will serve as families continue to seek out educational alternatives. career learning middle and high school revenue for the quarter was $241.5 million, up more than 21% from last year. 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. As we mentioned in August, we are seeing a positive funding environment, but we do expect some impact from state mix and timing. And as such, we now believe we will finish the year flattish in revenue per enrollment compared to FY '25.

Gross margin for the quarter was 39%, down 20 basis points from last year. I mentioned last quarter that we are continuing to invest in the business, which will have some impact on gross margin. Additionally, given the challenges we had this quarter, we expect to incur some additional expenses related to the platform rollout. As a result, we now expect full year gross margins will be down from FY '25 but still above what we saw in FY '24. Selling, general and administrative expenses totaled $173.1 million, up 3% from last year. We still expect SG&A as a percent of revenue to decrease compared to last year. 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 brand. And therefore, full year stock-based compensation will likely be in the range of $41 million to $44 million.

As I mentioned earlier, adjusted operating income for the quarter was $81.1 million, up 39% compared to FY '25. Adjusted EBITDA was $108.4 million, up roughly 29%. Adjusted earnings per share, a new metric we introduced last quarter was $1.52, up 39.4% from last year. Our profitability strength was driven by the enrollment growth in the quarter and improvements in operating margins. Capital expenditures in the quarter were $21.7 million, up $6.9 million from last year. Free cash flow, defined as cash from operations less CapEx was a negative $217.5 million compared to negative $156.8 million in the prior year period. Cash flow followed our typical seasonality related to school launch and the onboarding of students in the first quarter. As in years past, we expect to see positive cash flow for the next 3 quarters. We finished the quarter with cash, cash equivalents and marketable securities of $749.6 million.

Turning to our guidance. As James mentioned, we do not expect an enrollment to be nearly as strong as we have been for the past years. However, despite the short-term impacts we are seeing, our guidance this year keeps us firmly on track to achieve our FY '28 financial goals. 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 of between $70 million and $80 million and an effective tax rate between 24% and 25%. While any new technology can bring challenges, we are committed to delivering a quality experience for all of our families and our partners. And we will make the investments needed this year to ensure we are set up for long-term success. Thank you for your time today.

Now I'll turn the call back over to the operator for your questions. Operator?

[Operator Instructions] Your first question comes from Jeff Silber with BMO Capital Markets.

I obviously want to focus on the guidance for the year. And forgive me, did you give enrollment guidance for the year? I think you had said 10% to 15% on the prior call. I'm just wondering where you're coming out now.

With that give -- guidance for the full year. We gave the guidance that we gave for the count date was 10% to 15% of 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. So based upon that assumption, the 11.3% growth that we saw from October to October, we don't expect to see that same year-over-year increase by the end of the year.

Okay. And then you did call out about 10,000 to 15,000 weaker enrollments. And you cite 2 items. One was, I guess, a bad systems implementation and other was limiting enrollment growth to focus on high-quality programs. can we parse out what each one had that impact on that 10,000 to 15,000. And if you can give a little bit more color on each of those items, I think that would be helpful.

Yes. I mean I think -- so the -- it's difficult to say exactly, I'll for say that first. So again, anything I say is going to be based on the data that we can see and estimate. But 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. And we attribute the higher level draws directly to the system issues that we're having. So I think that's definitely the predominance of them. It's also the area that we think is most resolvable. We're working very furiously with our partners to fix those issues. And I think that the ability for us to run quality programs is tied intimately with the platform issues that we discussed because we don't want to do is to really exacerbate a problem by having more students come on to a platform that is not meeting our expectations.

Your next question comes from the line of Jason Tilchen with Canaccord Genuity.

Great. A little bit of a follow-up on the last question. I'm wondering if you could just share a little bit more about, a, the rationale and the timing for this tech implementation and then a little bit more about exactly what went wrong.

Yes. I think -- so the first thing is the rationale for the implementation is actually pretty simple. As we have scaled I mean we have more than doubled in the past 5 years. And that level of scale requires platforms that are large enough and robust enough to meet the demands of our scale and our anticipated additional growth. And so we operated a number of platforms that were either in-house proprietary platforms or with third parties where we didn't have the confidence that they were going to be at a scale to the extent we needed them to. And so investing in a new set of platforms for the long term, I believe, and we still believe execution issues decided is the right for our business long term. And so the idea of investing in upgrading our platforms continues to be, we think, the right approach.

The timing, there's one real window of timing that you have to fall into for most of these types of upgrades where you have, in theory, the least disruption to your customers. And that is in the summer between the end of one school year and the beginning of the next school year. So we sort of have to execute in that sort of delicate window. And clearly, what we thought we were going to achieve in terms of an execution in that window. We did not achieve. Demand continues to be very strong. And so -- so we're confident that we're going to overcome this, but the timing for this implementation sort of has to occur really in that summer period. And you really only get that window of chance, and we didn't execute as well as we should have in our orders didn't execute as well as they should have, and we're going to spend the year on making sure that we get it fixed.

Great. And just a follow-up to that. I just want to make sure I understand. Was it essentially the implementation to longer than expected to complete and it's a blend at the beginning of the school year? Or was there something else that went wrong? And then the other sort of question, the dynamic between the 2 programs Gen Ed and Career Learning, it seems like Career Learning, the enrollment remained very strong there, while we saw a sequential decline for Gen Ed. So wondering if this sort of tech upgrade had any sort of impact on one program more than the other?

Yes. So not a material impact on one program versus the other. So I wouldn't sort of read too much into that split. The implementation again, there was a couple of platforms. The main platform implementation took a little bit longer than we expected. Also, we encountered more problems on the rollout than we anticipated. So even when it did roll out for the new semester, 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. So I would say it did take longer, and it continues into the year. to have issues that we're continuing to fix. So I think that's sort of the thing that we're dealing with is that we're now in the year, and we have been now for a couple of months and we're continuing to ensure that we're improving the platforms in here as well.

Your next question comes from the line of Greg Parrish with Morgan Stanley.

I was hoping to get a little more color on the decision to limit in your enrollment growth. will the platform implementation issues, is that impacting in your enrollment growth? Or is that not the case? Is this more of a permanent structural decision to just improve the quality of your programs?

So I think it's a little bit of both. Clearly, we want -- we want to limit the exposure that the platform machines are having. So just sort of limiting the intake during a period when we want to make sure that the platform gets stabilized is important. So -- and that directly correlates to the quality of the program, you can't have high-quality program if you're having customer experience issues. So I think they sort of go hand in glove.

Okay. So would you say that this is just a 1-year sort of in-year impact and then next year, it would probably -- and there's only been a couple of years that has been happening. Or is this -- next year, we're going to kind of it could go back to the way it has been in the last few years?

Yes. I think all things be equal, meaning that 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 as we have seen it. Yes, we would believe that next year we would be able to return to growth in year. Now obviously, a lot of variables included there, certainly not guidance of what next year is going to be. But if the demand were to maintain at the high levels that we've been seeing it and all other things being equal to, say, a last year type of performance, then yes, I mean that's what the math would suggest. But we're really focused on making sure we get a fixed this year. So that is really the #1 priority. And again, I think we have a clear path of getting these resolved in this fiscal year.

Yes. Okay. That's helpful color. I know there's a lot of moving parts there. And then maybe just one last question here. I just wanted to talk about competitive landscape. And I say that with you have double-digit enrollment growth here to start the year. So very healthy. But with your success over the last couple of years, there's other programs are going to try to copy some of your very successful strategies. I think your biggest competitor had a great start to the year. I think following your playbook in many ways. And I know you're for lifting all boats in the industry, but maybe just help us with what you're seeing out there in the competitive environment? Any changes? Just anything you're seeing on that front?

Yes. I mean I have said pretty consistently that I want all players in the space to be successful. I want to make sure that the industry is healthy and that the industry has high-quality players. I think a healthy industry promotes higher quality players in the industry. I think that's important. I mean, congratulations to our competitors who are doing well. I think that's great for them. I think if you just look at the raw numbers, figure out percentages for a second. If you look at raw numbers, I still think our growth year-over-year outpaced our largest competitor's raw growth numbers by a large margin. We started at a lower base, the percentage is, obviously, that's just math. But I think what we can see is demand remains strong, and we welcome healthy competition. And I think we're going to everything we can to tee ourselves up for strong next year.

Your next question comes from the line of Stephen Sheldon with William Blair.

You have Matt Filek for Stephen Sheldon. I wanted to start with a clarification question. Are these platform issues solely related to the classroom and learning experience? Or are these platforms also used for processing enrollments and other administrative like functions?

Yes. It's a really straight question. It's actually both. So they are the -- what you would consider to be the more traditional customer-facing side of the equation. The platform that serves up the courses and get the people get the students engaged with the program, if you will, as well as the more back office administrative side you just referenced.

Okay. That's helpful. And then what inning do you feel you're in for ratifying these platform issues? And then can you also tell us when exactly these issues started? And then one more thing as well. Would you kind of call this 2 separate platform issues? Or is it one thing? How should we think about all of that, especially timing of fixing the issues?

Yes. So they are distinct platforms. So in this case, specific to your question, 2 distinct platforms that we're talking about in terms of back office, front office. We did not really have an indication of the impact of these issues until we got well into August. And unfortunately, the timing wasn't great because it happened to be after our last earnings call where it was more funnel activity of demand that we were seeing that was very strong. And then subsequent to that, we started seeing the withdrawal issues as the platform issues became apparent. So the timing was unfortunate that it was after our last earnings call. And I think that when we think about sort of the road map to getting these issues fixed. We're working every day on them. We believe that over the course of the year. It's not a onetime fix that we're implementing at a series of 6s. We think that the biggest ones happen here in the next few months, but they will persist throughout the entire year. And in fact, we are engaged with our partners to ensure that here -- the and just when we think that have the issue fixed. But that we signed up with these partners to ensure that there was a robust ongoing set of improvements to the platforms and innovation curve that we would drive with them that they would invest behind. And so while the immediate issues, we expect to get fixed in the next few months with the biggest issues and then sort of throughout the year with the remaining issues, we still expect to be investing in improving this platform and improving the experience for our customers well into the future. It's not just a 1-year deal in terms of the expectation we have on improvement. But the most pressing issues we expect to be fixed in this year.

[Operator Instructions] Your next question comes from Alex Paris with Barrington Research.

I just have a couple of clarification type of questions. So at count date, you had 247,700 students, up 11.3% year-over-year. You said that it could have been 10,000 to 15,000 higher if were not for these issues with the platform rollout I guess the first question I have is, did those withdrawals occur before the count date or after the count date because the Q2 guidance calls for revenue at the midpoint of up 7.3%. So fall term enrollment was up 11.3%. And if it's flat revenue per enrollment, I don't know why revenue would be up only 7% unless these withdrawals continue to occur beyond the count date.

Yes. So let me try to maybe clarify how you're looking at this first and then sort of circle back maybe on sort of how these withdrawals are manifesting themselves. The comp in each of our subsequent quarters from last year is on a rising set of enrollment and rising set of revenue. And so what we did was we remain stable, i.e., flat you still have a deterioration on the year-over-year growth mathematically because you're talking about last year when in the course of the year, you were rising, and we do not expect sort of the same dynamic of growth that we saw last year. And so I think that's the first point. Just mathematically, I think you have to look at it from each quarter sequentially last year that was growing. And now we're not sort of indicating that same growth. The second piece circling back, I think, is that largely speaking, the -- the vast majority of the growth that we think we could have the indication of the 10,000 to 15,000 occurred in the first fiscal quarter, meaning everything in that estimate statistically is a calculation estimate through September 30. So said a different way, if we did not have those problems, and our estimates were correct. We actually would have anticipated that our count date, our September 30 only number would have likely exceeded the upper range of our guidance, mathematically. Now a lot of assumptions built in there around how we're calculating higher withdrawal rates and things like that. But I think to your question, the predominance of it that we're indicating in that number is falling between sort of middle of August through end of September.

Okay. And then when we talk about in-year enrollment, I guess I was sort of thinking about the January enrollment. But implicit in your guidance is rather than sequential rise in raw enrollment from quarter to quarter to quarter like we saw through Q1, Q2 and Q3 last year. It would be a decline in the second. The second quarter raw number for enrollment will be less than the first quarter of raw number enrollment. And third quarter will be less than the second quarter and presumably, the fourth quarter will be less. And then next year, once all these problems are fixed, we can presumably return to growth. Is that the way to think about it?

Yes. So I think we're not giving exact enrollment guidance per se exactly. But I think we should probably not presume growth beginning of the year to the end of the year in enrollments. We will handle some backfills. We have some attrition during the course of the year. We -- there's likely some backfills that we will that we will do. But yes, I think beginning of the year to end of the year, we should not anticipate growth. And we do, again, assuming the conditions remain strong as we've seen, the demand conditions remain as strong as we've seen and we can revert back to the prior retention characteristics that we had prior to this issue we do think that we could resume to in-year growth in subsequent years.

Got you. And then the last question and related is revenue per enrollment. You previously said positive funding environment, probably up a bit, and now you're saying flat. Is that the delta?

As I said in my prepared remarks, we are still seeing a positive funding environment. We will see some impact from the mix and from timing. And as you may recall, one of the things that we did last year was that we had some adjustments throughout the course of the year, given the in-year enrollment growth that we had throughout the course of the year. We're not anticipating having that same level of in-year enrollment growth. So we won't have that catch-up that we had last year. And then we also had that higher funding catch-up and Q4 funding adjustment, I should say, in Q4. From the back half of the year, the comps are a little bit tougher. And then again, to the point, we don't expect to have that level of in-year enrollment growth that we saw last year that we adjusted the revenue per enrollment throughout the course of the year.

So has anything changed on -- has anything really changed on the funding environment outlook? You said you still view it as a positive funding environment. But has the mix changed relative to your expectations a few months ago? Do you expected that?

I'm sorry, when I talk about mix, the mix is depending upon where we grow, where the withdrawals confirm during the course of the year, that's the mix we talked about. So the contained may someone won't have any end year enrollment growth, right? The reality will happen is that we'll have some prior the last 3 years. We would have in-year enrollment growth. Our trawls exceeded that in year enrollment growth, right? And so we'll still continue to have that mix that will happen. And so it depends on where that mix happens, that will drive the variability that we might see in our revenue per enrollment, whether it be a higher general ad or learnt. But in terms of the pure funding environment, the sentiment is the same today as it was in August.

Got you. All right. I appreciate the extra color and I'll ask other questions as we follow up. .

Ladies and gentlemen, this concludes the Stride First Quarter Fiscal Year 2026 Earnings Call. On behalf of Stride, I would like to thank you all for joining. You may now disconnect.