Stride, Inc. Form 10-Q Summary
Reporting period: The filing covers the quarter ended March 31, 2023, and nine months ended March 31, 2023. This is fiscal 2023 third quarter; the request metadata’s “2022 Q3” does not match the filing period. All dollar amounts below are in U.S. dollars.
Business context
Stride provides virtual and blended education services, including curriculum, technology, instruction and student support. It reports one operating segment and two revenue lines: General Education and Career Learning, the latter including middle-high school and adult learning.
Financial performance
| Metric | Three months ended March 31, 2023 | Year-over-year change | Nine months ended March 31, 2023 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $470.3 million | +11.5% | $1,353.9 million | +9.9% |
| Gross profit / margin | $175.3 million / 37.3% | Margin +0.6 percentage points | $475.0 million / 35.1% | Margin +0.3 percentage points |
| Operating income / margin | $72.2 million / 15.4% | Income +19.2% | $111.6 million / 8.2% | Income +1.0%; margin down 0.8 points |
| Net income | $55.5 million | +29.2% | $83.5 million | +5.6% |
| Diluted EPS | $1.30 | From $1.02 | $1.96 | From $1.87 |
- Revenue mix: Quarterly General Education revenue declined 8.3% to $289.6 million, while Career Learning increased 70.7% to $180.7 million. For nine months, General Education declined 10.6% to $836.0 million and Career Learning rose 75.0% to $517.9 million.
- Enrollments: At the quarter-end reporting measure, total enrollment was 181,800, down 2.2% year over year. General Education enrollment fell 20.3% and Career Learning enrollment increased 60.0%. Nine-month total enrollment was 178,800, down 4.4%.
- Cash flow: Nine-month operating cash flow was $106.2 million, versus $81.4 million a year earlier. Investing activities used $70.8 million and financing activities used $51.2 million. Cash and cash equivalents decreased $15.7 million during the period to $373.7 million.
- Liquidity: Current assets were $1,006.8 million and current liabilities $284.2 million; management reported working capital of $722.6 million. Accounts receivable was $474.7 million. Marketable securities had a carrying amount of $104.2 million.
- Debt and leases: Convertible senior notes had $420.0 million principal and $412.6 million net carrying value, mature September 2027 and bear 1.125% interest. No borrowings were outstanding under the $100 million revolving credit facility; the company said it was in covenant compliance. Finance and operating lease liabilities totaled $67.0 million and $76.5 million, respectively.
Material changes and notable items
- Growth was driven by Career Learning, which more than offset shrinking General Education revenue and enrollment. Management attributed the General Education decline mainly to lower enrollment, school mix and other factors; Career Learning growth reflected higher enrollment and school mix.
- Nine-month SG&A rose 14.2%, faster than revenue, partly due to higher professional services and marketing expense and personnel costs. Operating income consequently grew only 1.0% for the nine-month period, despite revenue growth.
- Other income included a $4.3 million gain from settling MedCerts acquisition contingent consideration in the first quarter. The company acquired Tallo assets in July 2022 for a purchase price of $7.3 million, including converted and previously held interests; the allocation included $5.7 million of goodwill.
- School operating-loss reductions to revenue were $2.7 million for the quarter and $19.2 million for nine months, compared with $13.3 million and $38.5 million, respectively, in the prior-year periods.
Outlook, risks and contingencies
- No quantified revenue, earnings or enrollment guidance is provided in the supplied filing text. Management said operating cash flow, available borrowing capacity and working capital should fund operations for the foreseeable future, while noting it may pursue acquisitions, investments or joint ventures.
- Management cautioned that school funding estimates depend on enrollment, attendance, state funding formulas and other inputs; actual funding and school operating losses may differ from estimates and could materially affect results. Historically, aggregate funding estimates differed from actual reimbursements by less than 2% of annual revenue.
- The company said the longer-term business effects of the COVID-19 pandemic and its ending are not estimable. It also cited inflation-related pressure on personnel, marketing and supply-chain costs. No material changes to previously reported risk factors were disclosed.
- The company reported ordinary-course legal matters and stated known proceedings were not expected to have a material adverse effect. A securities class action dismissal was affirmed by the Fourth Circuit in November 2022; related derivative claims were voluntarily dismissed without prejudice in December 2022.
- Stride guarantees certain school operating deficits, which may reduce its management fees, and reported approximately $0.3 million of lease guarantees. It said it had no other material off-balance-sheet arrangements. Disclosure controls were assessed as effective, with no material changes to internal control over financial reporting reported.
Important facts for investors to verify
- Confirm the fiscal-period comparison: this filing is for the quarter ended March 31, 2023, not 2022 Q3.
- Assess whether Career Learning growth can offset continued General Education enrollment and revenue declines, and how enrollment mix affects revenue per student.
- Review school funding estimates, receivables and school operating-loss exposure, including the effect of annual district audits and collections.
- Track SG&A growth relative to revenue and distinguish recurring operating performance from the one-time contingent-consideration gain.
- Review cash conversion and investment needs, including capitalized software and curriculum spending, lease payments and the 2027 convertible notes’ potential settlement or dilution terms.
- Monitor inflation and any post-pandemic demand changes; the filing provides no quantified forward guidance.