Stride, Inc. Income Taxes Disclosure
5. Income Taxes
The provision for income taxes is based on earnings reported in the consolidated financial statements. A deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense or benefit is measured by the change in the deferred income tax asset or liability during the year.
Deferred tax assets and liabilities result primarily from temporary differences in book versus tax basis accounting. Deferred tax assets and liabilities consist of the following:
June 30, | ||||||
| 2025 |
| 2024 | |||
(In thousands) | ||||||
Deferred tax assets | ||||||
Net operating loss carryforward | $ | 13,888 | $ | 15,553 | ||
Reserves |
| 9,154 |
| 9,031 | ||
Accrued expenses |
| 15,441 |
| 13,290 | ||
Stock compensation expense |
| 6,881 |
| 8,162 | ||
Other assets |
| 3,308 |
| 2,180 | ||
Convertible debt |
| 4,059 |
| 5,980 | ||
Deferred revenue |
| 260 |
| 456 | ||
Capitalized software and website development costs | 4,680 | — | ||||
Lease liability | 11,136 | 13,879 | ||||
Total deferred tax assets |
| 68,807 |
| 68,531 | ||
Deferred tax liabilities | ||||||
Capitalized curriculum development |
| (10,071) |
| (9,466) | ||
Capitalized software and website development costs |
| — |
| (4,340) | ||
Property and equipment |
| (11,460) |
| (9,401) | ||
Right-of-use assets | (3,832) | (13,052) | ||||
Returned materials |
| (2,722) |
| (2,858) | ||
Purchased intangibles | (6,717) | (14,827) | ||||
Total deferred tax liabilities |
| (34,802) |
| (53,944) | ||
Net deferred tax asset before valuation allowance |
| 34,005 |
| 14,587 | ||
Valuation allowance |
| (7,628) |
| (7,387) | ||
Net deferred tax asset | $ | 26,377 | $ | 7,200 | ||
Reported as: | ||||||
Long-term deferred tax assets | $ | 26,377 | $ | 7,200 | ||
The Company maintained a valuation allowance on net noncurrent deferred tax assets of $7.6 million and $7.4 million as of June 30, 2025 and 2024, respectively, predominantly related to foreign and state income tax net operating losses ("NOL").
At June 30, 2025, the Company had approximately $26.5 million of available federal NOL carryforwards solely related to the acquisition of Galvanize in January 2020. The available federal NOL carryforwards were generated after 2017 and have an indefinite carryforward period due to the Tax Cuts and Jobs Act (the “Tax Act”). Section 382 of the Internal Revenue Code limits the utilization of NOL carryforwards following a change of control. The Company has performed an analysis of the Section 382 ownership changes and have determined that it will be able to fully utilize its available NOLs subject to the Section 382 limitation.
At June 30, 2025, the Company had tax effected state NOL carryforwards of $0.7 million, net of valuation allowances, and will expire on various dates.
The components of the income before income taxes for the years ended June 30, 2025, 2024 and 2023 were as follows:
Years Ended June 30, | |||||||||
| 2025 |
| 2024 |
| 2023 | ||||
(In thousands) | |||||||||
Domestic | $ | 374,932 | $ | 262,802 | $ | 161,270 | |||
Foreign |
| 6,016 |
| 5,863 |
| 10,943 | |||
Total income before income taxes | $ | 380,948 | $ | 268,665 | $ | 172,213 | |||
The components of the income tax expense (benefit) for the years ended June 30, 2025, 2024 and 2023 were as follows:
Years Ended June 30, | |||||||||
| 2025 |
| 2024 |
| 2023 | ||||
(In thousands) | |||||||||
Current: | |||||||||
Federal | $ | 91,696 | $ | 52,678 | $ | 41,360 | |||
State |
| 17,921 |
| 7,660 |
| 12,032 | |||
Foreign |
| 1,173 |
| 1,254 |
| 2,327 | |||
Total current |
| 110,790 |
| 61,592 |
| 55,719 | |||
Deferred: | |||||||||
Federal |
| (16,047) |
| (667) |
| (9,033) | |||
State |
| (1,736) |
| 3,557 |
| (1,340) | |||
Total deferred |
| (17,783) |
| 2,890 |
| (10,373) | |||
Total income tax expense | $ | 93,007 | $ | 64,482 | $ | 45,346 | |||
The provision for income taxes can be reconciled to the income tax that would result from applying the statutory rate to the net income before income taxes as follows:
Years Ended June 30, |
| ||||||
| 2025 |
| 2024 |
| 2023 |
| |
U.S. federal tax at statutory rates | 21.0 | % | 21.0 | % | 21.0 | % | |
Lobbying |
| - | 0.1 | 0.1 | |||
Non-deductible compensation | 2.7 | 0.8 | 1.6 | ||||
State taxes, net of federal benefit |
| 3.4 | 3.2 | 4.4 | |||
Research and development tax credits |
| (1.2) | (1.5) | (1.4) | |||
Change in valuation allowance |
| - | - | (0.4) | |||
Effects of foreign operations |
| - | 0.1 | 0.9 | |||
Reserve for unrecognized tax benefits |
| 0.4 | 0.5 | 0.9 | |||
Other |
| (0.2) | 0.1 | (0.5) | |||
Stock-based compensation | (1.7) | (0.3) | (0.3) | ||||
Provision for income taxes |
| 24.4 | % | 24.0 | % | 26.3 | % |
The increase in the effective income tax rate for the year ended June 30, 2025, as compared to the effective tax rate for the year ended June 30, 2024, was primarily due to the increase in non-deductible compensation. As of June 30, 2025 and 2024, the balance of income taxes payable was $52.6 million and $10.7 million, respectively. Income taxes payable is recorded within accrued liabilities on the consolidated balance sheets.
Tax Uncertainties
The Company follows the provisions of ASC 740, Income Taxes (“ASC 740”) which applies to all tax positions related to income taxes. ASC 740 provides a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. ASC 740 clarifies accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. If the probability for sustaining a tax position is greater than 50%, then the tax position is warranted and recognition should be at the highest amount which would be expected to be realized upon ultimate settlement related to unrecognized tax benefits.
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of June 30, 2025, 2024 and 2023, the Company had $0.5 million, $0.4 million and $0.2 million in accrued interest and penalties, respectively.
The unrecognized tax benefits for the years ended June 30, 2025, 2024 and 2023 were as follows:
Years Ended June 30, | |||||||||
| 2025 |
| 2024 |
| 2023 | ||||
(In thousands) | |||||||||
Balance at beginning of the year | $ | 4,286 | $ | 3,156 | $ | 1,729 | |||
Additions for prior year tax positions |
| 486 |
| 591 |
| 568 | |||
Additions for current year tax positions |
| 1,635 |
| 1,205 |
| 1,106 | |||
Reductions for prior year tax positions | (893) | (666) | (247) | ||||||
Balance at end of the year | $ | 5,514 | $ | 4,286 | $ | 3,156 | |||
If recognized, all of the $5.5 million balance of unrecognized tax benefits as of June 30, 2025 would affect the effective tax rate. The Company does not anticipate a significant increase or decrease in unrecognized tax benefits in the next twelve months.
The Company remains subject to audit by the Internal Revenue Service for federal tax purposes for tax years after June 30, 2021. Certain state and foreign tax jurisdictions are also either currently under audit or remain open under the statute of limitations for the tax years after June 30, 2019.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Aug 6, 2025 | Showing above |
| 2024 | Aug 7, 2024 | |
| 2023 | Aug 16, 2023 | |
| 2022 | Aug 10, 2022 | |
| 2021 | Aug 11, 2021 | |
| 2020 | Aug 12, 2020 | |
| 2019 | Aug 7, 2019 | |
| 2018 | Aug 8, 2018 | |
| 2017 | Aug 9, 2017 | |
| 2016 | Aug 9, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.