Thank you for your patience. My name is Tiffany, and I will be your conference operator today. I would like to welcome everyone to the Stride First Quarter Fiscal Year 2026 Earnings Call. I will now turn the call over to Timothy Casey, Vice President of Investor Relations. Please proceed, sir.

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.

Thanks, Tim, and good afternoon, everyone. Demand for our products and services remains 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? 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. 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 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 clearer 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. 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 bullying 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 kids to continue learning, they need to be able to read, write, and communicate. Therefore, we are investing to ensure the youngest 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 Donna.

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 the Stride 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. Capital expenditures were $21.7 million, up $6.9 million. As I mentioned, our quarterly results were strong demand for our core offerings. Our total 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 and 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 flat 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 grant. 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 the 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 three 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 in-year enrollment to be nearly as strong as it has been for the past few 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 expenditures 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. 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.

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.

We did not give guidance for the full year. We gave the guidance that we gave for the count date was 10% to 15%; for the count date, we came in at 11.3%. But we do not anticipate that we will see the same level of in-year enrollment growth that we've seen over the past 3 years. 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 cited two items. One was a bad systems implementation, and the 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, it's difficult to provide an exact answer. My comments are based on the data we have available. However, we believe that the majority of the withdrawals were due to system implementation issues, which affected the overall customer experience. As a result, we experienced a higher level of withdrawals, and we directly link these to the system issues we are facing. This is certainly the primary reason for the withdrawals, and we consider this area to be the most manageable. We are actively working with our partners to resolve these issues. The ability to run quality programs is closely connected to the platform problems we discussed, as we want to avoid worsening the situation by bringing in more students to a platform that isn't meeting our standards.

Our 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.

The rationale for the implementation is straightforward. As we have scaled and more than doubled over the past five years, that level of growth requires platforms that are large and robust enough to handle our needs and expected future growth. We have been using several platforms, whether in-house or third-party, that we did not feel would support our scale adequately. Therefore, investing in new platforms for the long term is the right strategy for our business. The timing for these upgrades needs to align with a specific window that minimizes disruption to our customers, which occurs in the summer, between school years. We needed to execute within that narrow timeframe, but unfortunately, we did not achieve the execution we expected. Demand remains very strong, and we are confident we will overcome this, but it is crucial that the implementation aligns with that summer window, and we did not execute as effectively as we should have.

Great. And just a follow-up to that. I just want to make sure I understand. Was it essentially the implementation took longer than expected to complete and sort of 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 two 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 I’m 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 read too much into that split. The implementation again, there were a couple of platforms there. The main platform implementation took a little bit longer than we expected. Also, we encountered more problems on the rollout than we anticipated. Even when it did roll out for the new semester, the number of problems we experienced during the rollout that impacted directly customers' abilities to log on, the resiliency of the platform, and 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.

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-year enrollment growth. With the platform implementation issues, is that impacting in-year 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 to limit the exposure that the platform issues 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. That directly correlates to the quality of the program; you can't have a high-quality program if you're having customer experience issues. They sort of go hand in glove.

Okay. So would you say that this is just a one-year impact and that next year it could return to what it has been in the last few years?

Yes. I think all things being equal, meaning that assuming we fix all the issues this year, which we do anticipate, we have a clear roadmap 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 in-year growth. Obviously, a lot of variables included there, certainly not guidance for what next year is going to be. But if the demand were to maintain at the high levels we have been seeing and all other things being equal to the last year type of performance, then yes, the math would suggest that. We're really focused on making sure we get it fixed this year, which is our #1 priority.

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 the 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 are other programs that are going to try to copy some of your very successful strategies. I think your biggest competitor had a great start to the year, and I think following your playbook in many ways. 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 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 it has high-quality players. I think a healthy industry promotes higher quality players. That’s important. Congratulations to our competitors who are doing well; that's great for them. If you just look at the raw numbers, forgetting about 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. When you start at a lower base, the percentages are, obviously, just math. But what we can see is demand remains strong, and we welcome healthy competition. We're going to do 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 functions?

Yes. It's a really straightforward question. It's actually both. They are what you would consider to be the more traditional customer-facing side of the equation. The platform that serves up the courses and gets the students engaged with the program, 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 rectifying these platform issues? Can you also tell us when exactly these issues started? Would you kind of call this two separate platform issues? Or is it one thing? How should we think about all of that, especially the timing of fixing the issues?

Yes. They are distinct platforms. In this case, specific to your question, two distinct platforms. We did not really have an indication of the impact of these issues until we got well into August. 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. Afterwards, we started seeing the withdrawal issues as the platform issues became apparent. The timing was unfortunate that it was after our last earnings call. When we think about the roadmap 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 one-time fix that we're implementing; it is a series of fixes. We think the biggest ones happen here in the next few months, but they will persist throughout the entire year.

Your next question comes from Alex Paris with Barrington Research.

I just have a couple of clarification-type 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 it were not for these issues with the platform rollout. First question I have is, did those withdrawals occur before the count date or after the count date? The Q2 guidance calls for revenue at the midpoint of up 7.3%. So fall term enrollment was up 11.3%. 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. Let me clarify how you're looking at this first, and then I'll circle back to 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. If we remained 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 the same dynamic of growth that we saw last year. The second piece circling back is that largely speaking, the vast majority of the growth that we think we could have indicated in 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. If we did not have those problems, we would have anticipated that our count date, our September 30 number would have exceeded the upper range of our guidance mathematically.

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 a 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 raw number enrollment, and the third quarter will be less than the second quarter and presumably, the fourth quarter will be less. 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. For the beginning of the year to the end of the year, we should not anticipate growth. We will handle some backfills; we have some attrition over the course of the year. There are backfills that we will do. Yes, I think we shouldn't anticipate growth from the beginning to the end of the year. Assuming the conditions remain strong and we revert back to prior retention characteristics, we think 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. As you may recall, we had some adjustments throughout the course of the year, given the in-year enrollment growth. We’re not anticipating having the same level of in-year enrollment growth. So we won't have that catch-up that we had last year. We also had that higher funding catch-up and Q4 funding adjustments in Q4. From the back half of the year, the comps are a little bit tougher. Again, to the point, we don't expect to have that level of in-year enrollment growth that we saw last year.

So 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?

I'm sorry, when I talk about mix, the mix depends upon where we grow, and where the withdrawals come from during the course of the year. That’s the mix we talked about. We won’t have any end-year enrollment growth. We will have some withdrawals exceeding that in-year enrollment growth. That mix will happen. It will drive the variability that we might see in our revenue per enrollment. 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.