Stride, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2022 first quarter, the three months ended September 30, 2021. Comparisons are with the three months ended September 30, 2020 unless noted. Stride provides virtual and blended education, serving General Education and Career Learning markets. Figures below are in millions except per-share data and enrollments.
Financial performance and liquidity
- Revenue: $400.2, up 7.9% from $371.0. General Education revenue fell 2.4% to $306.3; Career Learning rose 64.4% to $93.9, including growth in middle/high school and adult learning.
- Profitability: Gross margin was $126.4, down from $129.9; gross margin percentage declined to 31.6% from 35.0%. Operating results shifted to a $7.0 loss from $12.1 income. Net loss was $5.9, or $0.15 per diluted share, versus net income of $12.7, or $0.30 per diluted share.
- Costs: Instructional costs and services increased 13.6% to $273.8, or 68.4% of revenue versus 65.0%. SG&A rose 13.2% to $133.4, or 33.3% of revenue versus 31.8%.
- Cash flow: Operating cash use was $131.5, compared with $114.5 used a year earlier. Investing used $23.2; financing used $12.8. Cash, cash equivalents and restricted cash decreased $167.6 during the quarter to $219.0. The filing cites working-capital movements, including a $150.3 increase in accounts receivable cash use, among the cash-flow drivers.
- Balance sheet and liquidity: Cash and equivalents were $218.5; marketable securities totaled $48.0. Current assets were $857.6 and current liabilities $284.6, producing reported working capital of $572.9. Accounts receivable was $519.4, up from $369.3 at June 30; management says receivables typically peak in the first fiscal quarter due to billing timing.
- Debt and leases: Long-term debt, net, was $410.3, representing $420.0 principal of 1.125% convertible senior notes due 2027, less issuance costs. Finance lease liabilities totaled $79.2 and operating lease liabilities $99.6. The $100.0 revolving credit facility had no balance outstanding; the company reported compliance with its financial covenants.
Changes versus the prior comparable period
- Total enrollment decreased 3.0% to 189,600. General Education enrollment fell 10.3% to 147,600, while Career Learning enrollment increased 36.4% to 42,000. Enrollment figures exclude adult-learning subsidiaries.
- Revenue growth came from Career Learning, partly offset by lower General Education revenue. Management attributed the General Education decline mainly to lower enrollment, school mix and other factors; Career Learning growth reflected enrollment, school mix and the MedCerts and Tech Elevator acquisitions.
- Operating performance weakened as instructional and SG&A costs rose faster than revenue. Management noted the prior-year quarter had a slower-than-normal expense ramp, while current-period personnel costs were more consistent through the quarter.
- Stride early adopted convertible-debt accounting guidance on July 1, 2021. Adoption increased reported long-term debt by $110.6, reduced additional paid-in capital by $89.5, reduced deferred tax liabilities by $29.3 and increased retained earnings by $8.2; it did not represent new borrowing.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no specific numerical revenue or earnings guidance. Management said available working capital, expected operating cash generation, notes proceeds and credit-facility capacity should fund operations for the foreseeable future, and said it continues to consider acquisitions and strategic investments.
- COVID-19: The company reported increased demand beginning in late fiscal 2020, but said long-term effects remain uncertain. It identified COVID-19 as an impairment-triggering event but concluded no impairment was required for goodwill, intangible assets or long-lived assets.
- School funding and estimates: Revenue depends partly on enrollment, state or district funding and school operating results. Stride recorded $12.9 of revenue reductions for school operating losses, down from $19.9 in the prior-year quarter. Changes in funding or estimates of school losses could materially affect results.
- Contingencies: A securities class action was dismissed without prejudice in September 2021, with the possibility of an amended complaint; related derivative litigation remains stayed. The company says it intends to defend the matters and does not expect known proceedings to materially affect it, based on currently available information. The Georgia Cyber Academy dispute was settled; the company received $8.64 in August 2021 for the remaining settlement amount.
- Other items: The company deferred $14.1 of employer Social Security payroll taxes under the CARES Act, payable in installments by December 2021 and December 2022. Career Learning Solutions President Shaun McAlmont notified the company of his resignation effective October 29, 2021; the filing says it was not due to a disagreement.
Important facts for investors to verify
- Whether Career Learning growth can offset continued General Education enrollment and revenue declines, and how acquisition contributions affect reported growth.
- Whether margins recover as expenses normalize, given the year-over-year decline in gross margin and swing to operating and net losses.
- How seasonal receivables convert to cash and whether operating cash use improves over the fiscal year.
- The terms, potential dilution or cash settlement implications of the $420.0 convertible notes, and the company’s overall lease obligations.
- Developments in the securities and derivative litigation, and changes in school funding, enrollment estimates or operating-loss exposure.