Stride, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the three months ended September 30, 2023. Financial statements are unaudited. Stride provides virtual and blended education services through General Education and Career Learning programs.
Financial performance
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $480.2 million | $425.2 million | +12.9% |
| Gross profit / margin | $172.9 million / 36.0% | $129.6 million / 30.5% | Margin +5.5 percentage points |
| Operating income (loss) | $3.3 million | $(28.7) million | Improved |
| Net income (loss) | $4.9 million | $(22.7) million | Improved |
| Operating cash flow | $(135.3) million | $(143.1) million | Cash use decreased $7.8 million |
Revenue growth reflected General Education revenue of $299.3 million, up 10.2%, and Career Learning revenue of $180.8 million, up 17.8%. Total enrollment increased 8.1% to 187,900 students. General Education enrollment rose 4.7%; Career Learning enrollment rose 14.1%.
Instructional costs increased 4.0% to $307.3 million, growing more slowly than revenue; the company attributed the increase to hiring timing and salary increases. SG&A rose 7.1% to $169.6 million, including higher bad debt expense and personnel costs, partly offset by lower professional fees and marketing expenses. SG&A was 35.3% of revenue versus 37.2% a year earlier.
Cash, liquidity and debt
- Cash and cash equivalents were $254.6 million at September 30, down from $410.8 million at June 30. Management cited seasonal working-capital patterns; accounts receivable increased to $629.6 million from $463.7 million.
- Working capital was $781.1 million. Marketable securities had an amortized cost of $126.4 million and fair value of $125.9 million.
- Long-term debt, net of issuance costs, was $413.5 million, representing $420 million principal of 1.125% convertible senior notes due September 2027. No amounts were drawn on the $100 million revolving credit facility, and the company reported compliance with its financial covenants.
- Finance lease liabilities were $64.7 million; operating lease liabilities were $69.7 million.
- Investing cash use was $7.1 million and financing cash use was $13.8 million. Operating cash use was driven in part by the $175.2 million increase in accounts receivable.
Outlook, risks and unusual items
- Management said operating cash generation, the credit facility and working capital on hand should be adequate to finance operations in both the next 12 months and longer term. The filing provides no quantified earnings or revenue guidance.
- Results depend on enrollment, school mix, state or district funding, attendance requirements and estimates of school operating losses. Stride’s funding estimates are subject to school district audits; historically, aggregate estimates differed from actual reimbursements by less than 2% of annual revenue.
- Revenue included a $5.2 million reduction for estimated school operating losses, compared with $10.1 million in the prior-year quarter. The company also records certain school costs and related amounts gross; these represented $136.1 million of revenue and expense in the quarter.
- Bad debt expense increased, and the cash-flow statement included a $9.4 million provision for credit losses. Estimates of collection and school funding may affect results.
- Other income increased to $5.2 million, primarily reflecting higher investment balances and returns.
- Management identified a previously reported material weakness in IT general controls over financial reporting, including user access, program changes and data processing. It remained unremediated at quarter-end; management concluded disclosure controls were not effective. Management nevertheless stated the interim financial statements fairly present the company’s financial position and results.
- The company cited inflation-related personnel, marketing and supply-chain costs as potential risks. It reported no material changes to the risk factors in its latest Form 10-K.
- The securities class action relating to 2020 disclosures was dismissed, with the appellate court affirming dismissal in November 2022. A related derivative action was voluntarily dismissed without prejudice in December 2022. Management said known proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether enrollment growth and school mix translate into sustained revenue and margin improvement.
- Subsequent collections on the elevated accounts receivable balance and any changes to credit-loss allowances.
- Actual school funding and operating-loss outcomes compared with management’s estimates and the quarter’s $5.2 million revenue reduction.
- Progress in remediating the material weakness in IT controls and the timing of effective testing.
- Cash use through the school-year cycle, available liquidity, and obligations under the convertible notes and leases.