Stride, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2021. Stride provides virtual and blended education, with General Education and Career Learning offerings, including adult career training. All figures below are in U.S. dollars; financial statements are unaudited.
Financial performance
| Metric | Three months ended Dec. 31, 2021 | Year-over-year change | Six months ended Dec. 31, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $409.5 million | +8.9% | $809.7 million | +8.4% |
| Gross margin | $147.6 million; 36.0% | 34.4% prior-year margin | $274.0 million; 33.8% | 34.7% prior-year margin |
| Operating income | $56.9 million | +48.0% | $49.9 million | -1.1% |
| Net income | $42.0 million | +$17.5 million | $36.1 million | -$1.0 million |
| Diluted EPS | $1.00 | $0.60 prior year | $0.85 | $0.89 prior year |
- Quarterly revenue growth came primarily from Career Learning: its revenue rose 54.9% to $96.3 million, while General Education revenue was nearly flat at $313.2 million. For the six-month period, Career Learning revenue rose 59.4% to $190.2 million and General Education revenue declined 1.3% to $619.6 million.
- Enrollment across the reported school programs fell 2.1% for the quarter and 2.3% for the six months. General Education enrollment declined 9.7% and 9.8%, respectively; Career Learning enrollment grew 38.3% and 37.8%. Adult Career Learning revenue also benefited from the MedCerts and Tech Elevator acquisitions.
- Quarterly gross margin improved year over year, while the six-month margin contracted. Management attributed higher instructional costs to hiring in growth states and salary increases. Six-month SG&A increased 7.3%, including higher licensing, professional services, and marketing expenses.
Cash flow, liquidity, and debt
- Cash and cash equivalents were $257.0 million at December 31, 2021, down from $386.1 million at June 30, 2021. The company also held $71.5 million of marketable securities at amortized cost ($71.3 million fair value).
- Working capital was $577.9 million. Current assets were $816.1 million and current liabilities were $238.2 million. Accounts receivable, net, was $430.4 million, up from $369.3 million at fiscal year-end.
- For the six months, operating cash flow was negative $11.7 million, versus negative $80.0 million in the prior-year period. Investing cash flow was negative $59.7 million and financing cash flow was negative $57.8 million. Cash, cash equivalents, and restricted cash decreased $129.1 million.
- Long-term debt had a $410.7 million carrying value, representing $420.0 million principal of 1.125% convertible notes due 2027, net of issuance costs. The notes’ initial conversion price is approximately $52.88 per share; capped calls have an $86.174 upper strike. The $100 million revolving credit facility had no borrowings outstanding, and Stride reported covenant compliance.
- Finance lease liabilities were $80.7 million and operating lease liabilities were $94.3 million. These are in addition to long-term debt.
Outlook, commentary, and risks
- The filing provides no specific revenue, earnings, or cash-flow guidance. Management said cash generated from operations, available credit, and working capital should be sufficient for foreseeable operating needs, and noted continued consideration of acquisitions, strategic investments, and joint ventures.
- Management said demand increased beginning in late fiscal 2020, but the longer-term effects of COVID-19 remain uncertain. Results are not necessarily indicative of full-year results; school revenue depends on enrollment, funding rates, attendance requirements, and estimates of school operating losses.
- Stride’s contracts may require it to absorb operating deficits at certain managed schools. Estimated school operating losses reduced revenue by $12.3 million in the quarter and $25.2 million in the six months, compared with $24.2 million and $44.2 million, respectively, a year earlier.
- The securities class action was dismissed without prejudice; plaintiffs appealed in December 2021. Related derivative litigation is stayed pending that appeal. The company said it intends to defend the matters and believes known proceedings are not expected to have a material adverse effect, while noting outcomes cannot be assured.
- Other notable items: Stride early adopted convertible-debt accounting guidance, increasing reported long-term debt and reducing additional paid-in capital. It also funded $2.0 million of a loan to Tallo during the quarter. The filing reported no material changes to previously disclosed risk factors and no impairment indicators for goodwill or long-lived assets.
Most important facts for investors to verify
- Whether Career Learning growth can continue and offset declining General Education enrollment, including the contribution from acquisitions.
- Collections and credit quality of the $430.4 million accounts receivable balance, and the assumptions behind school funding and operating-loss estimates.
- Cash generation in subsequent quarters, given negative six-month operating cash flow and the decrease in cash balances.
- The potential dilution or cash settlement of the 2027 convertible notes, and future lease and debt-service requirements.
- Developments in the securities-litigation appeal and related derivative action, and any material changes in COVID-19-related demand or operating conditions.