Stride(LRN) - 2025 Q4 - Annual Report

Part I Item 1. Business Stride, Inc. provides online K-12 and adult learning platforms through school-as-a-service offerings, operating in a regulated and competitive environment Company Overview Stride offers online learning platforms for K-12 General Education and Career Learning, expanding into adult learning through strategic acquisitions - Stride provides a technology-based educational platform for online learning, with products and services spanning curriculum, systems, instruction, and support[18] - The company's platform addresses two key K-12 markets: General Education, focusing on core subjects, and Career Learning, focused on career-oriented skills in high-growth industries[20][22] - During the 2024-2025 school year, Stride's school-as-a-service offering was provided to 89 General Education schools and 56 Career Learning schools or programs[27] - In 2020, Stride expanded into adult learning by acquiring Galvanize, Tech Elevator, and MedCerts, which offer training in software engineering and healthcare[28] Our Market Stride operates in the growing U.S. K-12 and non-degree post-secondary education markets, driven by increasing demand for flexible online learning options - A January 2025 survey by the National School Choice Awareness Foundation found that over 60% of parents considered changing their child's school, with 27% of those considering full-time online options[30] - The National Home Education Research Institute estimated approximately 3.1 million home-educated students in the U.S. during the 2021-2022 school year, up from 2.5 million pre-pandemic[30] - The Bureau of Labor Statistics (April 2025) projects that demand for occupations requiring non-degree postsecondary education will grow by 6.0% by 2033, faster than the overall average[30] Business Strategy Stride's business strategy focuses on personalizing education to maximize learner potential and improve outcomes through investments in platforms and instructional methods - The company's key strategic elements include: growing enrollments, introducing new and improved products and services, improving student outcomes, and improving retention[45][46] Competition Stride faces diverse competition across K-12 virtual schools, digital curriculum, and adult learning, leveraging its experience, comprehensive programs, and scale as competitive advantages - Primary competitors for K-12 virtual school services include Pearson PLC (Connections Academy), Lincoln Learning Solutions, StrongMind, and state-administered online programs[59] - Adult Learning offerings compete with immersive programs like General Assembly and self-paced training providers such as Penn Foster Inc[59] - The company competes based on factors such as experience in virtual education, quality of curriculum, student outcomes, and scale[60] Human Capital Resources As of June 30, 2025, Stride employed approximately 8,600 individuals and managed a total of 9,100 teachers, emphasizing professional development and retention - As of June 30, 2025, the company had approximately 8,600 employees[68] - Stride manages a total of approximately 9,100 teachers, of whom 5,300 are direct employees and 3,800 are employed by the virtual or blended public schools it serves[68] Regulation Stride and its partner schools are subject to extensive and evolving state and federal regulations governing authorization, funding, operations, and privacy in education - The company's operations are heavily regulated by state laws that authorize and restrict virtual schools, dictate funding mechanisms, and impose privacy requirements[75][76] - Key federal laws applicable to the schools Stride serves include the Every Student Succeeds Act (ESSA), Individuals with Disabilities Education Act (IDEA), Section 504 of the Rehabilitation Act, and the Family Educational Rights and Privacy Act (FERPA)[91][92][93][95] - The company's adult learning businesses (Galvanize, Tech Elevator, MedCerts) are subject to state laws for private post-secondary schools and federal laws related to veterans' education and workforce programs[98][101] Item 1A. Risk Factors The company faces significant risks related to its heavy reliance on government funding, regulatory compliance, contract renewals, competition, and operational challenges including cybersecurity and new technologies Risks Related to Government Funding and Regulation of Public Education Stride's revenues are highly dependent on per-pupil government funding, which is vulnerable to legislative changes, economic conditions, and regulatory non-compliance, potentially leading to financial setbacks - The majority of revenues depend on per-pupil funding amounts, which can be reduced or modified due to economic conditions or political opposition, adversely affecting business[108][109] - Failure to comply with extensive federal and state regulations could result in a loss of public funding and an obligation to repay previously received funds[117][118] - The operation of virtual charter schools depends on maintaining their authorizing charters; if these are not renewed, the company's contracts with these schools would be terminated[121] Risks Related to Our Business and Our Industry The company faces business risks from contract non-renewal, failure to meet enrollment targets, increasing competition, and integration challenges from mergers and acquisitions - Contracts for school-as-a-service offerings are subject to periodic renewal, and the inability to renew significant contracts could adversely affect business operations and cash flow[127] - A majority of revenues are a direct function of student enrollment; failure to enroll or re-enroll a sufficient number of students would adversely affect financial results[128] - The company faces increasing competition from a variety of education providers, which could lead to pricing pressures, reduced margins, and loss of market share[158] - Mergers, acquisitions, and joint ventures present risks such as unsuccessful integration, diversion of management attention, and failure to realize anticipated synergies[149][150] Risks Related to Our Operations Operational risks include challenges in teacher recruitment, reliance on third-party IT and logistics vendors, cybersecurity threats, and the complexities of integrating new technologies like AI - The inability to recruit, train, and retain a sufficient number of high-quality certified teachers could compromise academic performance and harm the company's reputation[170][174] - A failure to prevent or mitigate a cybersecurity incident could harm the company's reputation, decrease demand, and expose it to liability and remedial costs[190] - The company utilizes a single logistics vendor for managing and shipping all learning kits and printed materials, and any failure by this vendor would adversely affect the business[201] - The introduction and use of new and developing AI technology may present business, compliance, and reputational challenges that could lead to operational damage, legal risk, and additional costs[210] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[218] Item 1C. Cybersecurity Stride has implemented a cybersecurity risk management program guided by the NIST Cybersecurity Framework, overseen by the Board's Audit Committee, with no material incidents identified to date - The company's cybersecurity risk management program is guided by the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF)[220] - The Board's Audit Committee has been delegated oversight of cybersecurity and other information technology risks[223] - The Chief Information Security Officer (CISO) has over 20 years of experience and is responsible for managing the company's material risks from cybersecurity threats[227] - The company has not identified risks from known cybersecurity threats or prior incidents that have materially affected its operations, business strategy, results, or financial condition[222] Item 2. Properties The company's headquarters is in Reston, Virginia, and it leases additional office space across the United States - The company's headquarters is in a 23,000 sq. ft. leased office in Reston, Virginia, with the lease expiring in July 2033[229] - Stride leases an additional 361,000 square feet in multiple U.S. locations, with leases expiring between July 2025 and August 2030[229] Item 3. Legal Proceedings Information regarding legal proceedings is disclosed in Note 10 – Commitments and Contingencies - Litigation, within Item 8 of Part II of this report - Refers to Item 8, Note 10 for information on legal proceedings[230] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[230] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stride, Inc.'s common stock trades on the NYSE under the symbol "LRN," with no cash dividends paid or planned, as earnings are reinvested for growth - The company's common stock trades on the NYSE under the symbol "LRN"[232] - Stride has never paid cash dividends and currently does not plan to, instead reinvesting earnings into the business[238] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations For FY2025, Stride's revenues increased by 17.9% to $2.41 billion, and operating income grew by 44.3% to $360.1 million, driven by strong enrollment growth and improved gross margins, maintaining robust liquidity Executive Summary In fiscal year 2025, Stride achieved significant financial growth with revenues increasing 17.9% to $2.41 billion and operating income rising 44.3% to $360.1 million, driven by a 20.4% increase in total enrollments Key Financial Metrics (FY 2025 vs. FY 2024) | Metric | FY 2025 | FY 2024 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Revenues | $2.41 billion | $2.04 billion | +$365.2 million | +17.9% | | Operating Income | $360.1 million | $249.6 million | +$110.5 million | +44.3% | - Total enrollments for the year ended June 30, 2025, were 234.0 thousand, an increase of 20.4% from the prior year[254] Critical Accounting Estimates The company's critical accounting estimates involve revenue recognition for funding-based contracts, which are subject to enrollment and state funding variations, and income tax accounting, including a valuation allowance for deferred tax assets - Revenue from funding-based contracts is estimated based on expected funds per school, which is a function of student enrollment and state/district funding levels; these estimates are periodically reviewed and updated[277] - For FY2024, FY2023, and FY2022, the company's aggregate funding estimates differed from actual reimbursements, impacting total reported revenue by approximately 1.8%, 2.8%, and 1.6%, respectively[277] - The company maintains a valuation allowance on net deferred tax assets, which was $7.6 million as of June 30, 2025, for amounts not likely to be realized[287] Results of Operations For FY2025, total revenues grew 17.9% to $2.41 billion, driven by increased enrollments in both General Education and Career Learning, leading to improved gross margin and operating income despite an impairment charge Enrollment Data (in thousands) | Line of Revenue | FY 2025 | FY 2024 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | General Education | 137.7 | 121.6 | 16.1 | 13.2% | | Career Learning | 96.3 | 72.7 | 23.6 | 32.5% | | Total Enrollment | 234.0 | 194.3 | 39.7 | 20.4% | Revenue Data (in thousands) | Line of Revenue | FY 2025 | FY 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | General Education | $1.45 billion | $1.29 billion | $159.5 million | 12.4% | | Career Learning | $956.6 million | $750.9 million | $205.8 million | 27.4% | | Total Revenues | $2.41 billion | $2.04 billion | $365.2 million | 17.9% | - Instructional costs and services expenses increased 14.5% to $1.46 billion but decreased as a percentage of revenue to 60.8% in FY2025 from 62.6% in FY2024[306] - Selling, general, and administrative (SG&A) expenses increased 2.0% to $524.3 million but decreased as a percentage of revenue to 21.8% in FY2025 from 25.2% in FY2024[307] - A $59.5 million impairment of long-lived assets was recorded in FY2025 related to the Galvanize subsidiary; no such impairment occurred in FY2024[308] Liquidity and Capital Resources As of June 30, 2025, Stride maintained a strong liquidity position with $1.33 billion in net working capital and $782.5 million in cash, supported by increased operating cash flow - As of June 30, 2025, the company had net working capital of $1.33 billion, including $782.5 million in cash and cash equivalents[315] - The company has $420.0 million in 1.125% Convertible Senior Notes due 2027; in connection with the notes, the company entered into Capped Call Transactions to reduce potential dilution[317][318] - Net cash provided by operating activities was $432.8 million for FY2025, a $154.0 million increase from FY2024, primarily due to higher net income and favorable changes in working capital[324] - Net cash used in investing activities decreased to $88.0 million in FY2025 from $139.9 million in FY2024, mainly due to higher net maturities of marketable securities[325] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from inflation, impacting personnel and supply chain costs, and interest rate fluctuations, with foreign currency risk currently not material - The company faces inflation risk, which has resulted in higher personnel, marketing, and supply chain expenses[328] - As of June 30, 2025, a 1% increase in interest rates on variable-interest instruments would lead to a $7.8 million annualized increase in interest income[329] - Foreign currency exchange risk is currently not material as the company does not transact a significant amount of business in foreign currencies[330] Item 8. Financial Statements and Supplementary Data This section presents Stride, Inc.'s consolidated financial statements for FY2025, audited by KPMG LLP, detailing financial position, operations, and cash flows, with key notes on accounting policies and a critical audit matter regarding revenue recognition Reports of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on Stride's FY2025 consolidated financial statements and internal controls, identifying revenue from funding-based contracts as a critical audit matter due to subjective judgment - KPMG LLP issued an unqualified opinion on the consolidated financial statements for the year ended June 30, 2025, and on the effectiveness of internal control over financial reporting[334][335] - A critical audit matter identified by KPMG was the evaluation of revenue from certain funding-based contracts, which required subjective auditor judgment regarding student enrollment numbers and per-enrollment funding levels[338][341] Consolidated Financial Statements The consolidated financial statements present Stride, Inc.'s financial position with total assets of $2.29 billion and total stockholders' equity of $1.48 billion, and FY2025 revenues of $2.41 billion resulting in $287.9 million net income Consolidated Balance Sheet Highlights (as of June 30, 2025) | Account | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $1.63 billion | | Total Assets | $2.29 billion | | Total Current Liabilities | $302.9 million | | Total Liabilities | $814.3 million | | Total Stockholders' Equity | $1.48 billion | Consolidated Statement of Operations Highlights (Year Ended June 30, 2025) | Account | Amount (in thousands) | | :--- | :--- | | Revenues | $2.41 billion | | Gross Margin | $943.9 million | | Income from Operations | $360.1 million | | Net Income | $287.9 million | | Diluted EPS | $5.95 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on Stride's accounting policies, including revenue recognition for funding-based contracts, lease liabilities, convertible senior notes, and a $59.5 million impairment charge related to the Galvanize asset group - Approximately 95% of General Education revenues and 100% of Middle-High School Career Learning revenues were from funding-based contracts in FY2025[400] - In FY2025, the company recorded an impairment loss of $59.5 million related to the Galvanize asset group, comprising $32.2 million for intangible assets and $27.3 million for operating lease right-of-use assets[454] - As of June 30, 2025, the company had a finance lease liability of $86.9 million and an operating lease liability of $46.6 million[480][483] - As of June 30, 2025, there was $27.9 million of total unrecognized compensation expense related to nonvested Performance Share Units (PSUs), expected to be recognized over a weighted average period of 1.2 years[524] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[548] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective at a reasonable assurance level as of June 30, 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[549] - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework[554] Item 9B. Other Information On July 31, 2025, the Board of Directors amended the company's bylaws to revise provisions for exclusive forums for shareholder actions and to select federal courts for Securities Act of 1933 actions - On July 31, 2025, the company's bylaws were amended to revise provisions for exclusive forums for shareholder actions and to select federal courts for actions under the Securities Act of 1933[559] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2025 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[564] Item 11. Executive Compensation Information regarding executive compensation, including the Compensation Discussion and Analysis, is incorporated by reference from the company's 2025 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[566] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management is incorporated by reference from the 2025 Proxy Statement, with 1.88 million securities available for future issuance under equity compensation plans - Information on security ownership is incorporated by reference from the 2025 Proxy Statement[568] Equity Compensation Plan Information (as of June 30, 2025) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | — | $ — | 1,875,859 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's 2025 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[571] Item 14. Principal Accountant Fees and Services Information regarding fees paid to and services provided by the principal accountant is incorporated by reference from the company's 2025 Annual Meeting Proxy Statement - Information is incorporated by reference from the 2025 Proxy Statement[571] Part IV Item 15. Exhibit and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - This item contains the list of financial statements, schedules, and exhibits filed with the report[573][574][575] Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None[577]