Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Our platform addresses two markets in the K-12 space: General Education and Career Learning.

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General Education

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General Education products and services are predominantly focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students to help build a common foundation of knowledge. These programs provide an alternative to traditional school options and address a range of student needs. Products and services are delivered as a comprehensive school-as-a-service offering for schools or as stand-alone products and services. A student enrolled in a school that offers Stride's General Education program may elect to take career courses, but that student and the associated revenue is reported as a General Education enrollment and General Education revenue.

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Career Learning

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Career Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries-including information technology, healthcare and general business. We provide middle and high school students with Career Learning programs that complement their core general education coursework. Stride offers multiple career pathways through a broad catalog of courses. The middle school program exposes students to a variety of career options and introduces career skill development. In high school, students may engage in industry content pathway courses, project-based learning in virtual teams, and career development services. High school students have the opportunity to progress toward certifications, connect with industry professionals, earn college credits while in high school, and participate in job shadowing and/or work-based learning experiences that facilitate success in today's digital, tech-enabled economy. A student is reported as a Career Learning enrollment and associated Career Learning revenue only if the student is enrolled in a Career Learning program. Like General Education products and services, the products and services for Career Learning are sold as a comprehensive school-as-a-service offering or as stand-alone products and services.

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We also provide focused post-secondary career learning programs to adult learners, for the software engineering, healthcare, and medical fields. These programs are sold directly to consumers, employers and government agencies.

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For both the General Education and Career Learning markets, the majority of revenue is derived from our comprehensive school-as-a-service offering which includes an integrated package of curriculum, technology systems, instruction, and support services that we administer on behalf of our customers. The average duration of the agreements for our school-as-a-service offering is greater than five years, and most provide for automatic renewals absent a customer notification of non-renewal.

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For the 2025-2026 school year, we provide our school-as-a-service offering to 92 schools in 31 states and the District of Columbia in the General Education market, and 57 schools or programs in 25 states in the Career Learning market.

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In 2020, we significantly expanded our Career Learning opportunity by acquiring three adult learning companies, Galvanize, Tech Elevator, and MedCerts. These Adult Learning brands deliver training in software engineering and allied healthcare to consumers and enterprises.

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We generate a significant portion of our revenues from the sale of curriculum, administration support and technology services to virtual and blended public schools. The amount of revenue generated from these contracts is impacted largely by the number of enrollments, the mix of enrollments across grades and states, state or district per student funding levels and attendance requirement, among other items.

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The two key financial metrics that we use to assess financial performance are revenues and operating income. During the three months ended September 30, 2025, revenues increased to $620.9 million from $551.1 million in the prior year, an increase of 12.7%. Over the same period, operating income increased to $69.0 million from $47.3 million in the prior year, an increase of 45.9%. The increase in operating income was driven by revenue growth and an increase in gross margin. Additionally, we use the non-financial metric of total enrollments to assess performance, as enrollment is a key driver of our revenues. Total enrollments for the three months ended September 30, 2025 were 247.7 thousand, an increase of 25.1 thousand, or 11.3%, over the prior year. Our revenues are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results from these audits and other routine changes in funding estimates are incorporated into the Company's monthly funding estimates for the current and prior periods. Historically, aggregate funding estimates have differed from actual reimbursements, generally in the range of 2% of annual revenue or less, which may vary from quarter to quarter.

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Critical Accounting Estimates

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our condensed consolidated financial statements. Critical accounting policies and estimates are disclosed in our Annual Report. There have been no significant updates to our critical accounting estimates disclosed in our Annual Report.

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Results of Operations

Lines of Revenue

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We operate in one operating and reportable business segment as a technology company providing an educational platform to deliver proprietary and third-party curriculum, software systems and educational services designed to facilitate individualized learning. The Chief Operating Decision Maker evaluates profitability based on consolidated results. We have two lines of revenue: (i) General Education and (ii) Career Learning.

Enrollment Data

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The following table sets forth total enrollment data for students in our General Education and Career Learning lines of revenue. Enrollments for General Education and Career Learning only include those students in full service public or private programs where Stride provides a combination of curriculum, technology, instructional and support services inclusive of administrative support. No enrollments are included in Career Learning for Galvanize, Tech Elevator or MedCerts. This data includes enrollments for which Stride receives no public funding or revenue.

If the mix of enrollments changes, our revenues will be impacted to the extent the average revenue per enrollment is significantly different. We do not award or permit incentive compensation to be paid to our public school program enrollment staff or contractors based on the number of students enrolled.

The following represents our current enrollment for each of the periods indicated:

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Revenue Data

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Revenues are captured by market based on the underlying customer contractual agreements. Where customers purchase products and services for both General Education and Career Learning markets we allocate revenues based on the program for which each student is enrolled. All kindergarten through fifth grade students are considered General Education students. Periodically, a middle school or high school student enrollment may change line of revenue classification.

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The following represents our current revenues for each of the periods indicated:

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Products and Services

We have developed curriculum, systems, instructional practices and support services that enable us to support hundreds of thousands of students. The following describes the various products and services that we provide to customers. Products and services are provided on an individual basis as well as customized solutions, such as our most comprehensive school-as-a-service offering which supports our clients in operating full-time virtual or blended schools. Stride is continuously innovating to remain at the forefront of effective educational techniques to meet students' needs. It continues to expand upon its personalized learning model, improve the user experience of its products, and develop tools and partnerships to more effectively engage and serve students, teachers, and administrators.

Curriculum and Content - We have one of the largest digital research-based curriculum portfolios for the K-12 online education industry that includes some of the best - in - class content available in the market. Our customers can select from hundreds of high-quality, engaging, online coursework and content, as well as many state customized versions of those courses, electives, and instructional supports. Since our inception, we have built core courses on a foundation of rigorous standards, following the guidance and recommendations of leading educational organizations at the national and state levels. State standards are continually evolving, and we continually invest in our curriculum to meet these changing requirements. We provide high-quality, engaging, online coursework and content in software engineering, healthcare, and medical fields.

Systems - We have established a secure and reliable technology platform, which integrates proprietary and third-party systems, to provide a high-quality educational environment and gives us the capability to grow our customer programs and enrollment. Our end-to-end platform includes single-sign on capability for our content management, learning management, student information, data reporting and analytics, and various support systems that allow customers to provide a high-quality and personalized educational experience for students. Stand-alone products and services can provide curriculum and content hosting on customers' learning management systems, or integration with customers' student information systems.

Instructional Services - We provide a broad range of instructional services that includes customer support for instructional teams, including recruitment of state - certified teachers, training in research-based online instruction methods and Stride systems, oversight and evaluation services, and ongoing professional development. Stride also provides training options to support teachers and parents to meet students' learning needs. Stride's range of training options are designed to enhance skills needed to teach using an online learning platform, and include hands-on training, on-demand courses, and support materials.

Support Services - We provide a broad range of support services, including marketing and enrollment, supporting prospective students through the admission process, assessment management, administrative support (e.g.,

budget proposals, financial reporting, and student data reporting), and technology and materials support (e.g., provisioning of student computers, offline learning kits, internet access and technology support services).

Financial Information

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The following table sets forth statements of operations data and the amounts as a percentage of revenues for each of the periods indicated:

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Comparison of the Three Months Ended September 30, 2025 and 2024

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Revenues. Our revenues for the three months ended September 30, 2025 were $620.9 million, representing an increase of $69.8 million, or 12.7%, from $551.1 million for the same period in the prior year. General Education revenues increased $33.7 million, or 10.2%, year over year. The primary drivers for the increase in revenue were a 5.2% increase in enrollments, and changes to school mix. Career Learning revenues increased $36.1 million, or 16.3%, primarily due to a 20.0% increase in enrollments and school mix. In addition, revenue recognized in each of the periods includes certain adjustments resulting from the completion of state and district audits and reconciliation processes related to services provided in prior years. These adjustments were not material and were recognized in the period in which the audit or reconciliation was finalized and the outcome became known and reasonably estimable. While these items contributed to reported revenue in each period, they were not a significant driver of the year over year change.

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Instructional costs and services expenses. Instructional costs and services expenses for the three months ended September 30, 2025 were $378.8 million, representing an increase of $43.6 million, or 13.0%, from $335.2 million for the same period in the prior year. This increase in expense was due to hiring of personnel in growth states and salary increases. Instructional costs and services expenses were 61.0% of revenues during the three months ended September 30, 2025, an increase from 60.8% for the three months ended September 30, 2024.

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Selling, general, and administrative expenses. Selling, general, and administrative expenses for the three months ended September 30, 2025 were $173.1 million, representing an increase of $4.6 million, or 2.7% from $168.5 million for the same period in the prior year. The increase was primarily due to an increase of $4.9 million in professional services and marketing expenses and $3.2 million in personnel and related benefit costs, including stock-based compensation, partially offset by a decrease of $3.7 million in bad debt expense. Selling, general, and administrative expenses were 27.9% of revenues during the three months ended September 30, 2025, a decrease from 30.6% for the three months ended September 30, 2024.

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Interest expense, net. Net interest expense for the three months ended September 30, 2025 was $3.1 million as compared to $2.4 million for the same period in the prior year. The increase in net interest expense was primarily due to an increase in our finance leases.

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Other income, net. Other income, net for the three months ended September 30, 2025 was $16.9 million as compared to $8.8 million for the same period in the prior year. The increase in other income, net was due to the increase in our investments in marketable securities and the returns on those investments year over year and other investment income.

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Income tax expense. Income tax expense was $14.4 million for the three months ended September 30, 2025, or 17.3% of income before income taxes, as compared to $11.3 million, or 21.6% of income before income taxes for the same period in the prior year. The decrease in the effective income tax rate for the three months ended September 30, 2025, as compared to the effective tax rate for the three months ended September 30, 2024, was primarily due to stock-based compensation.

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Liquidity and Capital Resources

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As of September 30, 2025, we had net working capital, or current assets minus current liabilities, of $1,406.5 million. Our working capital includes cash and cash equivalents of $518.4 million and accounts receivable of $809.3 million. Our working capital provides a significant source of liquidity for our normal operating needs. Our accounts receivable balance fluctuates throughout the fiscal year based on the timing of customer billings and collections and tends to be highest in our first fiscal quarter as we begin billing for students. In addition, our cash and accounts receivable were significantly in excess of our accounts payable and short-term accrued liabilities at September 30, 2025.

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During the first quarter of fiscal year 2021, we issued $420.0 million aggregate principal amount of 1.125% Convertible Senior Notes due 2027 ("Notes"). The Notes are governed by the indenture between us and U.S. Bank National Association, as trustee. The net proceeds from the offering of the Notes were approximately $408.6 million after deducting the underwriting fees and other expenses paid by the Company. The Notes bear interest at a rate of 1.125% per annum, payable semi-annually in arrears on March 1^st and September 1^st of each year, beginning on March 1, 2021. The Notes will mature on September 1, 2027. In connection with the Notes, we entered into privately negotiated capped call transactions (the "Capped Call Transactions") with certain counterparties. The Capped Call Transactions are expected to cover the aggregate number of shares of the Company's common stock that initially underlie the Notes, and are expected to reduce potential dilution to the Company's common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes. The upper strike price of the Capped Call Transactions is $86.174 per share. The cost of the Capped Call Transactions was $60.4 million and was recorded within additional paid-in capital.

Before June 1, 2027, noteholders will have the right to convert their Notes only upon the occurrence of certain events. After June 1, 2027, noteholders may convert their Notes at any time at their election until two days prior to the maturity date. We will settle conversions by paying cash up to the outstanding principal amount, and at our election, will settle the conversion spread by paying or delivering cash or shares of our common stock, or a combination of cash and shares of our common stock. The initial conversion rate is 18.9109 shares of common stock per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $52.88 per share of common stock. The Notes will be redeemable at our option at any time after September 6, 2024 at a cash redemption price equal to the principal amount of the Notes, plus accrued and unpaid interest, subject to certain stock price hurdles as discussed in the Indenture.

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We are a lessee under finance leases for computers and peripherals under agreements with Banc of America Leasing & Capital, LLC ("BALC") and CSI Leasing, Inc. ("CSI Leasing"). As of September 30, 2025 and June 30, 2025, the finance lease liability was $125.0 million and $86.9 million, respectively, with lease interest rates ranging from 4.68% to 6.72%.

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We entered into agreements with BALC and CSI Leasing in April 2020 and August 2022, respectively, to provide financing for our computers and peripherals. Individual leases with BALC include 36-month payment terms, fixed rates ranging from 4.87% to 6.72%, and a $1 purchase option at the end of each lease term. We pledged the assets financed to secure the outstanding leases. Individual leases under the agreement with CSI Leasing include 36-month payment terms, but do not include a stated interest rate. We use our incremental borrowing rate as the implied interest rate and the total lease payments to calculate our lease liability.

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Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to interest on our Notes, office facility leases, capital equipment leases and other operating leases. We expect to make future payments on existing leases from cash generated from operations. We believe that the combination of funds to be generated from operations and net working capital on hand will be adequate to finance our ongoing operations on a short-term (the next 12 months) and long-term (beyond the next 12 months) basis. In addition, we continue to explore acquisitions, strategic investments and joint ventures related to our business that we may acquire using cash, stock, debt, contribution of assets or a combination thereof.

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Operating Activities

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Net cash used in operating activities for the three months ended September 30, 2025 was $195.8 million compared to $142.0 million for the three months ended September 30, 2024. The $53.8 million increase in cash used in operating activities was primarily due to changes in working capital, driven primarily by changes in accounts receivable, accrued liabilities, and inventories, prepaid expenses, deposits and other current and long-term assets, partially offset by higher net income adjusted for non-cash items.

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Investing Activities

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Net cash used in investing activities for the three months ended September 30, 2025 was $24.7 million compared to $20.9 million for the three months ended September 30, 2024. The $3.8 million increase in cash used in investing activities was primarily due to an increase in capital expenditures of $6.9 million and an increase in investments of $2.3 million, partially offset by higher net maturities of marketable securities of $5.4 million year over year.

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Financing Activities

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Net cash used in financing activities for the three months ended September 30, 2025 was $43.6 million compared to $20.0 million during the three months ended September 30, 2024. The $23.6 million increase in cash used in financing activities was primarily due to an increase in the repurchase of restricted stock for income tax withholding of $20.3 million and an increase in the repayment of finance lease obligations incurred for the acquisition of computers of $3.3 million.

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