Stride, Inc. (NYSE: LRN) — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2021. The request metadata says “2020 Q4,” but the supplied filing is the FY2021 annual report, not a quarterly filing.
Business context
Stride provides virtual and blended education services, curriculum, technology, instruction and support to schools, districts, families, employers and adult learners. It reports one operating segment and two revenue lines: General Education and Career Learning. Most revenue comes from school-as-a-service contracts, whose funding is largely tied to student enrollment and public-school funding. During the 2020–21 school year, Stride served 77 General Education schools in 30 states and the District of Columbia, and 33 Career Learning schools or programs in 23 states.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,536.8 million | $1,040.8 million |
| Gross margin | $534.9 million; 34.8% | $347.5 million; 33.4% |
| Operating income | $110.5 million; 7.2% margin | $32.5 million; 3.1% margin |
| Net income | $71.5 million | $24.5 million |
| Diluted EPS | $1.71 | $0.60 |
| Cash from operating activities | $134.2 million | $80.4 million |
- Revenue rose 47.7%. General Education revenue increased 37.1% to $1,280.2 million; Career Learning increased 139.9% to $256.6 million, including adult-learning acquisitions.
- Total reported enrollments increased 54.1% to 186,300. General Education enrollments rose 45.4% to 156,700; Career Learning enrollments rose 126.0% to 29,600. The filing cautions that enrollment data does not capture adult-learning enrollments and may not correspond directly to revenue.
- Instructional costs were 65.2% of revenue, down from 66.6%; SG&A was 27.6%, down from 30.3%. SG&A increased 34.7% in dollars, including higher personnel, professional-services, licensing and stock-compensation costs.
- At June 30, 2021, cash and cash equivalents were $386.1 million, working capital was $551.3 million, and current assets and current liabilities were $857.5 million and $306.2 million, respectively. Accounts receivable was $369.3 million, up from $236.1 million.
- Investing activities used $165.4 million; financing activities provided $204.6 million. Cash, cash equivalents and restricted cash ended the year at $386.6 million.
- Stride issued $420 million of 1.125% convertible notes due 2027, receiving net proceeds of about $408.6 million, and spent $60.4 million on capped calls. It repaid the $100 million revolver; none was drawn at year-end. Notes were carried at $299.3 million after discount and issuance costs; finance lease liabilities were $68.9 million.
Material changes, outlook and risks
- Results benefited from a sharp increase in demand beginning in late FY2020 during the COVID-19 pandemic. Management said the pandemic’s longer-term effect and the durability of demand were uncertain; the filing provides no formal numerical guidance.
- Stride acquired Tech Elevator and MedCerts in November 2020, expanding adult training in technology and healthcare, following its 2020 acquisition of Galvanize. FY2021 included reported operating losses of $42.2 million for Galvanize and $3.5 million for MedCerts, and operating income of $0.4 million for Tech Elevator.
- The company changed its name from K12 Inc. to Stride, Inc. in December 2020. CEO James Rhyu succeeded Nathaniel Davis in January 2021; Davis remained Executive Chairman.
- Funding-based contract revenue depends on estimates of enrollment, attendance and state funding, and Stride may absorb school operating deficits. FY2021 revenue included a $63.4 million reduction for school operating losses. The auditor identified funding-based revenue estimation as a critical audit matter.
- Key risks include changes or delays in public-school funding, enrollment declines as pandemic-related demand normalizes, contract or charter nonrenewal, regulatory and academic-performance requirements, acquisition integration, and cybersecurity and student-data privacy.
- Stride disclosed a December 2020 ransomware incident involving access to parts of corporate back-office systems, including some student and employee information. The company reported a payment made with its cyber insurer’s involvement and said it did not expect a material business or financial impact, while acknowledging disclosure risk remained.
- A securities class action and related derivative litigation concerning statements about pandemic readiness, cybersecurity and support for users were pending; Stride said it intended to defend the claims. Separately, a 2020 settlement with Georgia Cyber Academy provided for $19 million in payments over two years; $10 million was paid in July 2020.
- The company reported an unqualified audit opinion and effective internal controls; the internal-control assessment excluded the recently acquired MedCerts and Tech Elevator businesses.
Important facts for investors to verify
- Whether enrollment and revenue growth persist after pandemic-driven demand, and how enrollment mix affects revenue per student.
- State funding, attendance estimates, school operating deficits, receivable collections and any audit adjustments to funding-based revenue.
- Adult-learning acquisition performance, integration progress, and the causes and trajectory of Galvanize’s reported operating loss.
- Convertible-note dilution and cash-settlement exposure, the capped-call protection, and lease-financing obligations.
- Developments in the ransomware matter and pending securities and derivative litigation, including any costs, remediation or disclosure updates.