Business context and reporting period
Stride, Inc. provides virtual and blended education services, spanning General Education and Career Learning for school-age and adult learners. It reports one operating segment. The supplied filing is a Form 10-Q for the quarter ended March 31, 2022 (fiscal 2022 third quarter), not 2021 Q3 as stated in the request.
Financial performance
Amounts below are in millions of dollars unless otherwise noted. Quarterly and nine-month comparisons are with the periods ended March 31, 2021.
| Metric | Three months | Nine months |
|---|---|---|
| Revenue | $421.7; up 7.5% | $1,231.5; up 8.1% |
| Gross margin | $154.8; 36.7% of revenue, versus 35.5% | $428.8; 34.8%, versus 35.0% |
| Operating income | $60.6; 14.4% of revenue, versus 9.8% | $110.5; 9.0%, versus 7.8% |
| Net income attributable to common stockholders | $42.9; diluted EPS $1.02 | $79.0; diluted EPS $1.87 |
| Net cash from operating activities | Not provided separately | $81.4, versus $11.1 |
- Quarterly General Education revenue fell 2.0% to $315.9 million; Career Learning rose 51.6% to $105.9 million. For nine months, the respective changes were down 1.5% to $935.4 million and up 56.5% to $296.0 million.
- Quarterly General Education enrollments decreased 7.7%, while Career Learning enrollments rose 42.4%. Nine-month total enrollments declined 1.3% to 187,000.
- Quarterly SG&A declined 6.3% to $94.2 million; nine-month SG&A increased 2.9% to $318.3 million. Management attributed quarterly savings mainly to lower professional services, marketing, and personnel costs; nine-month expense growth included higher licensing fees.
Financial position, liquidity and debt
- At March 31, 2022, cash and cash equivalents were $308.6 million, current assets $871.6 million, current liabilities $250.2 million, and working capital $621.4 million. Marketable securities totaled $84.8 million at amortized cost.
- Long-term debt was $411.0 million, representing $420.0 million principal of 1.125% convertible senior notes due 2027, less issuance costs. The company had no borrowings outstanding under its $100 million revolving credit facility and reported covenant compliance.
- Operating cash flow was $81.4 million; investing cash use was $90.6 million and financing cash use was $68.8 million. Cash, cash equivalents and restricted cash declined $78.0 million to $308.6 million. Investing included net purchases of marketable securities; the prior-year period included acquisitions.
- Management said operating cash generation, the credit facility and working capital should be adequate to fund ongoing operations for the foreseeable future.
Changes, outlook, risks and unusual items
- Management attributed revenue growth primarily to Career Learning expansion, offset by lower General Education revenue and enrollment. Instructional costs increased with hiring in growth states and salary increases. SG&A leverage contributed to higher operating margins.
- No numerical guidance was provided. Management noted uncertainty about the long-term effects of COVID-19 and said it may modify operations as circumstances require.
- In the quarter, Stride recorded $4.0 million of credit-loss expense on loans to Tallo, Inc. ($2.5 million on a convertible note and $1.5 million on a promissory note), and reversed $0.4 million of accrued interest. These charges were recorded in SG&A and interest expense, respectively.
- Adoption of convertible-debt accounting guidance increased reported debt by $110.6 million and reduced additional paid-in capital by $89.5 million at adoption; this was an accounting change, not new borrowing.
- A securities class-action dismissal is on appeal; related derivative litigation is stayed pending that appeal. The company said it intends to defend the matters and believes existing or known threatened proceedings are not expected to materially affect it, but outcomes are uncertain.
- Stride guarantees certain school operating deficits and approximately $0.5 million of school lease commitments. It reported no material changes to the risk factors in its prior Form 10-K.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers fiscal 2022 Q3, ended March 31, 2022.
- Assess whether Career Learning growth can continue to offset General Education enrollment and revenue declines.
- Review cash conversion and working-capital trends, particularly receivables and school funding estimates; funding and potential school operating losses involve management estimates.
- Review the Tallo loan recoverability and any further credit-loss or interest adjustments.
- Track the securities-litigation appeal and related derivative action, and the terms and potential dilution or cash obligations of the 2027 convertible notes.