Stride, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2022 (Stride fiscal 2023 Q2). The interim financial statements are unaudited. Stride provides virtual and blended education services through General Education and Career Learning; results are reported as one operating segment.
Financial performance
| Metric | Quarter ended Dec. 31, 2022 | Year-over-year change | Six months ended Dec. 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $458.4 million | +11.9% | $883.6 million | +9.1% |
| Gross profit / margin | $170.1 million / 37.1% | Margin +1.1 percentage points | $299.7 million / 33.9% | Margin +0.1 percentage points |
| Operating income / margin | $68.1 million / 14.8% | +19.6%; margin +0.9 points | $39.4 million / 4.5% | −21.2%; margin −1.7 points |
| Net income | $50.7 million | +$8.7 million | $28.0 million | −$8.1 million |
| Diluted EPS | $1.19 | Compared with $1.00 | $0.66 | Compared with $0.85 |
- Revenue mix: Quarterly General Education revenue fell 12.3% to $274.8 million; Career Learning revenue rose 90.8% to $183.7 million. For the six-month period, General Education fell 11.8% to $546.4 million, while Career Learning increased 77.3% to $337.2 million.
- Costs: Quarterly SG&A increased 12.6% to $102.0 million. Six-month SG&A increased 16.3% to $260.4 million, or 29.5% of revenue versus 27.7%; management cited higher professional services and marketing, personnel costs, and stock-based compensation. Six-month operating income declined despite revenue growth.
- Cash flow: Six-month operating cash flow was $21.2 million, versus cash used of $11.7 million a year earlier; management attributed the improvement primarily to better receivable collections. Investing activities used $55.0 million and financing activities used $37.3 million. Cash and cash equivalents decreased $71.1 million to $318.3 million.
- Balance sheet and liquidity: At December 31, 2022, current assets were $928.8 million, current liabilities $249.3 million, and working capital $679.6 million. Marketable securities totaled $103.9 million at amortized cost. Long-term debt, net of issuance costs, was $412.3 million; finance lease liabilities were $73.3 million. The $100 million revolving credit facility had no borrowings outstanding, and the company reported compliance with its covenants.
Material changes and operating trends
- Total enrollments for the six months declined 6.1% to 176,600. General Education enrollment fell 23.7% to 111,500; Career Learning enrollment rose 55.4% to 65,100. Quarterly enrollment was down 5.3% to 177,500.
- Management linked General Education revenue declines primarily to lower enrollment, school mix, and other factors; Career Learning growth primarily reflected higher enrollment and school mix.
- Instructional costs rose 10.0% in the quarter, which management attributed to personnel hiring timing and salary increases. They represented 62.9% of quarterly revenue versus 64.0% a year earlier.
- In July 2022, Stride acquired Tallo assets for a purchase price of $7.3 million, including cash and converted investment interests; the allocation included $5.7 million of goodwill and $1.3 million of intangible assets. Stride also paid $7.0 million to settle MedCerts contingent consideration and recorded a $4.3 million gain in SG&A in the first quarter.
Outlook, risks, and contingencies
- The filing provides no specific revenue or earnings guidance. Management said cash generated from operations, availability under the credit facility, and working capital should be adequate to fund operations for the foreseeable future; it also continues to consider acquisitions and strategic investments.
- Management cautioned that results for the six-month period are not necessarily indicative of full-year results. The effects of the pandemic and its eventual end on demand and long-term results remain uncertain.
- Funding-based school contracts depend on enrollment, state funding rates, attendance and other estimates. Stride generally absorbs school operating deficits under certain contracts; estimated school operating losses reduced revenue by $16.6 million in the six-month period, versus $25.2 million a year earlier. Management notes actual funding and deficit estimates may differ.
- Management cited inflation-driven increases in personnel, marketing, and supply-chain costs and warned that future inflation could adversely affect results. Cash and investments are also exposed to interest-rate movements.
- The Fourth Circuit affirmed dismissal of a securities class action on November 22, 2022; related derivative claims were dismissed without prejudice on December 29, 2022. The company said there were no material changes to previously disclosed risk factors. Disclosure controls were deemed effective at period-end.
Important facts for investors to verify
- Whether Career Learning growth can offset continued General Education enrollment and revenue declines, and how enrollment trends develop.
- Whether higher SG&A and personnel costs continue to outpace revenue growth and pressure operating income.
- Cash conversion, receivables collections, and the quality of school funding and operating-deficit estimates.
- The nature and impact of unusual items, including the Tallo acquisition and the $4.3 million MedCerts contingent-consideration gain.
- Debt and lease obligations, terms and potential dilution of the 2027 convertible notes, and the company’s liquidity under changing market conditions.