Stride : Demand for Stride Career Learning Continues to Drive Strong Performance - Form 8-K

Demand for Stride Career Learning Continues to Drive Strong Performance

HERNDON, Va.--(BUSINESS WIRE)--January 25, 2022--Stride, Inc. (NYSE: LRN), one of the nation's leading technology-based education companies, today announced its results for the second fiscal quarter ended December 31, 2021.

Second Quarter Fiscal 2022 Highlights Compared to 2021

• Revenue of $409.5 million, compared with $376.1 million, driven by continued strength in middle and high school Career Learning enrollments, growth in Adult Learning, and increases in revenue per enrollment.
• Income from operations of $56.9 million, compared with $38.5 million, due to improved gross margins and flat selling, general and administrative expenses.
• Net income of $42.0 million, compared with $24.5 million.
• Diluted net income per share of $1.00, compared with $0.60.
• Adjusted operating income of $60.7 million, compared with $50.1 million. (1)
• Adjusted EBITDA of $82.7 million, compared with $70.7 million. (1)

Second Quarter Fiscal 2022 Summary Financial Metrics

	Three Months Ended December 31,		Change 2021/2020
	2021		2020		$		%
	(In thousands, except percentages and per share data)
Revenues	$	409,507		$	376,145		$	33,362		8.9	%
Income from operations		56,915			38,452			18,463		48.0	%
Adjusted operating income (1)		60,731			50,050			10,681		21.3	%
Net income		42,004			24,501			17,503		71.4	%
Net income per share, diluted		1.00			0.60			0.40		66.7	%
EBITDA (1)		82,095			61,613			20,482		33.2	%
Adjusted EBITDA (1)		82,697			70,687			12,010		17.0	%

Six Month Fiscal 2022 Highlights Compared to 2021

• Revenue of $809.7 million, compared with $747.1 million.
• Income from operations of $49.9 million, compared with $50.5 million.
• Net income of $36.1 million, compared with $37.2 million.
• Diluted net income per share of $0.85, compared with $0.89.
• Adjusted operating income of $65.3 million, compared with $73.1 million. (1)
• Adjusted EBITDA of $108.2 million, compared with $109.9 million. (1)

Six Month Fiscal 2022 Summary Financial Metrics

	Six Months Ended December 31,		Change 2021/2020
	2021		2020		$		%
	(In thousands, except percentages and per share data)
Revenues	$	809,733		$	747,105		$	62,628			8.4	%
Income from operations		49,938			50,516			(578	)		-1.1	%
Adjusted operating income (1)		65,253			73,059			(7,806	)		-10.7	%
Net income		36,121			37,167			(1,046	)		-2.8	%
Net income per share, diluted		0.85			0.89			(0.04	)		-4.5	%
EBITDA (1)		99,265			91,954			7,311			8.0	%
Adjusted EBITDA (1)		108,153			109,921			(1,768	)		-1.6	%

(1)

To supplement our financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we also present non-GAAP financial measures including adjusted operating income, EBITDA and adjusted EBITDA. Management believes that these additional metrics provide useful information to investors relating to our financial performance. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Revenue and Enrollment Data

Revenue

The following table sets forth the Company's revenues for the periods indicated:

		Three Months Ended							Six Months Ended
		December 31,		Change 2021 / 2020		December 31,		Change 2021 / 2020
		2021		2020		$		%		2021		2020		$		%
		(In thousands, except percentages)
General Education		$	313,241		$	313,989		$	(748	)		(0.2	%)		$	619,582		$	627,838		$	(8,256	)		(1.3	%)
Career Learning
Middle - High School			75,287			51,376			23,911			46.5	%			146,699			100,147			46,552			46.5	%
Adult			20,979			10,780			10,199			94.6	%			43,452			19,120			24,332			127.3	%
Total Career Learning			96,266			62,156			34,110			54.9	%			190,151			119,267			70,884			59.4	%
Total Revenues		$	409,507		$	376,145		$	33,362			8.9	%		$	809,733		$	747,105		$	62,628			8.4	%

Enrollment Data

The following table sets forth total enrollment data for students in our General Education and Career Learning lines of revenue. Enrollments for General Education and Career Learning include those students in full service public or private programs where Stride provides a combination of curriculum, technology, instructional and support services inclusive of administrative support.

		Three Months Ended		Change		Six Months Ended		Change
		December 31,		2021 / 2020		December 31,		2021 / 2020
		2021		2020		#		%		2021		2020		#		%
		(In thousands, except percentages)
General Education (1)			145.6			161.2			(15.6	)		(9.7	%)			146.1			162.0			(15.9	)		(9.8	%)
Career Learning (1)(2)			41.9			30.3			11.6			38.3	%			41.9			30.4			11.5			37.8	%
Total Enrollment			187.5			191.5			(4.0	)		(2.1	%)			188.0			192.4			(4.4	)		(2.3	%)

(1)		This data includes enrollments for which Stride receives no public funding or revenue.
(2)		No enrollments are included in Career Learning for Galvanize, Tech Elevator or MedCerts.

Revenue per Enrollment Data

The following table sets forth revenue per average enrollment data for students for the period indicated. If the mix of enrollments changes, our revenues will be impacted to the extent the average revenues per enrollments are significantly different.

		Three Months Ended		Change		Six Months Ended		Change
		December 31,		2021 / 2020		December 31,		2021 / 2020
		2021		2020		#		%		2021		2020		#		%
General Education		$	1,953		$	1,755		$	198		11.3	%		$	3,852		$	3,491		$	361		10.3	%
Career Learning			1,794			1,681			113		6.7	%			3,482			3,258			224		6.9	%

Cash Flow and Capital Allocation

As of December 31, 2021, the Company's cash and cash equivalents totaled $257.0 million, compared with $386.1 million reported at June 30, 2021. The decrease is largely the result of normal seasonal trends.

Capital expenditures for the first six months of fiscal 2022 were $29.5 million, compared to $23.6 million in the first six months of fiscal 2021, and were comprised of $2.7 million of property and equipment, $19.3 million of capitalized software development, and $7.5 million of capitalized curriculum development.

Fiscal Year 2022 Outlook

The Company is raising its forecast for the full fiscal year 2022:

• Revenue in the range of $1.62 billion to $1.64 billion.
• Capital expenditures in the range of $65 million to $75 million. Note that capital expenditures include the purchase of property and equipment, capitalized software, and curriculum development costs as defined on our Statement of Cash Flows.
• Effective tax rate of 27% to 30%.
• Adjusted operating income in the range of $175 million to $185 million. (1)

The Company is forecasting the following for the third quarter fiscal 2022:

• Revenue in the range of $405 million to $415 million.
• Capital expenditures in the range of $15 million to $18 million. Note that capital expenditures include the purchase of property and equipment, and capitalized software and curriculum development costs as defined on our Statement of Cash Flows.
• Adjusted operating income in the range of $60 million to $65 million. (1)

(1)

In addition to providing an outlook for revenue and capital expenditures, adjusted operating income is provided as a supplemental non-GAAP financial measure as management believes that it provides useful information to our investors. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below. Please also see Special Note on Forward Looking Statements below.

Conference Call

The Company will discuss its second quarter fiscal year 2022 financial results during a conference call scheduled for Tuesday, January 25, 2022 at 5:00 p.m. eastern time (ET).

A live webcast of the call will be available at https://events.q4inc.com/attendee/148057977. To participate in the live call, investors and analysts should dial [phone] (domestic) or 1 [phone] (international) at 4:45 p.m. ET. The conference ID number is 4812941. Please access the website at least 15 minutes prior to the start of the call.

A replay of the call will be available starting on January 25, 2022 at 8:00 p.m. ET through February 25, 2022 at 8:00 p.m. ET by dialing (800) 770- 2030 (domestic) or 1 [phone] (international) and entering the conference ID 4812941. A webcast replay will be available at https://events.q4inc.com/attendee/148057977 for 30 days.

About Stride Inc.

At Stride, Inc. (NYSE: LRN) we are reimagining learning - where learning is lifelong, deeply personal, and prepares learners for tomorrow. The company has transformed the teaching and learning experience for millions of people by providing innovative, high-quality, tech-enabled education solutions, curriculum, and programs directly to students, schools, the military, and enterprises in primary, secondary, and post-secondary settings. Stride is a premier provider of K-12 education for students, schools, and districts, including career learning services through middle and high school curriculum. For adult learners, Stride delivers professional skills training in healthcare and technology, as well as staffing and talent development for Fortune 500 companies. Stride has delivered millions of courses over the past decade and serves learners in all 50 states and more than 100 countries. The company is a proud sponsor of the Future of School, a nonprofit organization dedicated to closing the gap between the pace of technology and the pace of change in education. More information can be found at stridelearning.com, K12.com, galvanize.com, techelevator.com, and medcerts.com.

Special Note on Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have tried, whenever possible, to identify these forward-looking statements using words such as "anticipates," "believes," "estimates," "continues," "likely," "may," "opportunity," "potential," "projects," "will," "expects," "plans," "intends" and similar expressions to identify forward looking statements, whether in the negative or the affirmative. These statements reflect our current beliefs and are based upon information currently available to us. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties, factors and contingencies include, but are not limited to: reduction of per pupil funding amounts at the schools we serve; inability to achieve a sufficient level of new enrollments to sustain our business model; limitations of the enrollment data we present, which may not fully capture trends in the performance of our business; failure to enter into new school contracts or renew existing contracts, in part or in their entirety; failure of the schools we serve or us to comply with federal, state and local regulations, resulting in a loss of funding, an obligation to repay funds previously received, or contractual remedies; governmental investigations that could result in fines, penalties, settlements, or injunctive relief; declines or variations in academic performance outcomes of the students and schools we serve as curriculum standards, testing programs and state accountability metrics evolve; harm to our reputation resulting from poor performance or misconduct by operators or us in any school in our industry and/or in any school in which we operate; legal and regulatory challenges from opponents of virtual public education or for-profit education companies; changes in national and local economic and business conditions and other factors, such as natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as coronavirus disease 2019 ("COVID-19"); discrepancies in interpretation of legislation by regulatory agencies that may lead to payment or funding disputes; termination of our contracts, or a reduction in the scope of services, with schools; failure to develop the career readiness education business; entry of new competitors with superior technologies and lower prices; unsuccessful integration of mergers, acquisitions and joint ventures; failure to further develop, maintain and enhance our technology, products, services and brands; inadequate recruiting, training and retention of effective teachers and employees; infringement of our intellectual property; disruptions to our Internet-based learning and delivery systems, including, but not limited to, our data storage systems, resulting from cybersecurity attacks; misuse or unauthorized disclosure of student and personal data; and failure to prevent a cybersecurity incident that affects our systems; and other risks and uncertainties associated with our business described in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this presentation is as of today's date, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

Financial Statements

The financial statements set forth below are not the complete set of Stride Inc.'s financial statements for the three and six months ended December 31, 2021 and are presented below without footnotes. Readers are encouraged to obtain and carefully review Stride Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, including all financial statements contained therein and the footnotes thereto, filed with the SEC, which may be retrieved from the SEC's website at www.sec.gov or from Stride Inc.'s website at www.stridelearning.com.

STRIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended		Six Months Ended
		December 31,		December 31,
		2021		2020		2021		2020
		(In thousands except share and per share data)
Revenues		$	409,507			$	376,145			$	809,733			$	747,105
Instructional costs and services			261,950				246,754				535,774				487,823
Gross margin			147,557				129,391				273,959				259,282
Selling, general, and administrative expenses			90,642				90,939				224,021				208,766
Income from operations			56,915				38,452				49,938				50,516
Interest expense, net			(1,875	)			(5,024	)			(3,868	)			(7,131	)
Other income, net			3,884				1,361				3,795				1,790
Income before income taxes and income (loss) from equity method investments			58,924				34,789				49,865				45,175
Income tax expense			(15,928	)			(10,642	)			(13,035	)			(8,266	)
Income (loss) from equity method investments			(992	)			354				(709	)			258
Net income attributable to common stockholders		$	42,004			$	24,501			$	36,121			$	37,167
Net income attributable to common stockholders per share:
Basic		$	1.01			$	0.61			$	0.88			$	0.93
Diluted		$	1.00			$	0.60			$	0.85			$	0.89
Weighted average shares used in computing per share amounts:
Basic			41,525,736				40,160,362				41,042,401				40,072,360
Diluted			41,963,399				41,102,425				42,413,828				41,681,061

STRIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
		December 31,		June 30,
		2021		2021
					(audited)
		(In thousands except share and per share data)
ASSETS
Current assets
Cash and cash equivalents		$	256,986			$	386,080
Accounts receivable, net of allowance of $26,305 and $21,384			430,436				369,303
Inventories, net			23,941				39,690
Prepaid expenses			29,240				19,453
Other current assets			75,528				43,004
Total current assets			816,131				857,530
Operating lease right-of-use assets, net			91,410				94,671
Property and equipment, net			74,149				72,069
Capitalized software, net			60,520				57,308
Capitalized curriculum development costs, net			49,787				50,376
Intangible assets, net			95,210				99,480
Goodwill			240,921				240,353
Deposits and other assets			97,617				105,510
Total assets		$	1,525,745			$	1,577,297
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	33,821			$	62,144
Accrued liabilities			61,462				77,642
Accrued compensation and benefits			41,193				80,363
Deferred revenue			50,409				38,110
Current portion of finance lease liability			36,080				27,336
Current portion of operating lease liability			15,233				20,649
Total current liabilities			238,198				306,244
Long-term finance lease liability			44,612				41,568
Long-term operating lease liability			79,020				77,458
Long-term debt			410,674				299,271
Deferred tax liability			8,282				31,853
Other long-term liabilities			10,726				16,255
Total liabilities			791,512				772,649
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.0001; 10,000,000 shares authorized; zero shares issued or outstanding			-				-
Common stock, par value $0.0001; 100,000,000 shares authorized; 48,084,410 and 46,911,527 shares issued; and 42,749,667 and 41,576,784 shares outstanding, respectively			4				4
Additional paid-in capital			680,601				795,449
Accumulated other comprehensive income (loss)			(343	)			(474	)
Retained earnings			156,453				112,151
Treasury stock of 5,334,743 shares at cost			(102,482	)			(102,482	)
Total stockholders' equity			734,233				804,648
Total liabilities and stockholders' equity		$	1,525,745			$	1,577,297

STRIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Six Months Ended
		December 31,
		2021		2020
		(In thousands)
Cash flows from operating activities
Net income		$	36,121			$	37,167
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization expense			49,327				41,438
Stock-based compensation expense			8,888				17,967
Deferred income taxes			6,008				5,375
Provision for doubtful accounts			4,730				6,382
Amortization of discount and fees on debt			809				4,973
Noncash operating lease expense			10,074				9,627
Other			5,550				7,244
Changes in assets and liabilities:
Accounts receivable			(65,606	)			(208,870	)
Inventories, prepaid expenses, deposits and other current and long-term assets			11,944				(23,231	)
Accounts payable			(26,810	)			(7,202	)
Accrued liabilities			(8,570	)			4,346
Accrued compensation and benefits			(39,157	)			(5,401	)
Operating lease liability			(10,662	)			(10,364	)
Deferred revenue and other liabilities			5,686				40,592
Net cash used in operating activities			(11,668	)			(79,957	)
Cash flows from investing activities
Purchase of property and equipment			(2,705	)			(1,969	)
Capitalized software development costs			(19,330	)			(14,061	)
Capitalized curriculum development costs			(7,461	)			(7,524	)
Sale of long-lived assets			-				223
Sale of other investments			5,261				-
Acquisition of MedCerts, LLC, net of cash acquired			-				(54,775	)
Acquisition of Tech Elevator, Inc., net of cash acquired			-				(15,981	)
Other acquisitions, loans and investments, net of distributions			(3,956	)			(188	)
Proceeds from the maturity of marketable securities			7,248				-
Purchases of marketable securities			(38,720	)			-
Net cash used in investing activities			(59,663	)			(94,275	)
Cash flows from financing activities
Repayments on finance lease obligations			(14,744	)			(11,455	)
Repayments on credit facility			-				(100,000	)
Issuance of convertible senior notes, net of issuance costs			-				408,610
Purchases of capped calls in connection with convertible senior notes			-				(60,354	)
Payments of deferred purchase consideration			(7,858	)			-
Proceeds from exercise of stock options			246				303
Withholding of stock options for tax withholding			-				(10,885	)
Repurchase of restricted stock for income tax withholding			(35,404	)			(6,108	)
Net cash provided by (used in) financing activities			(57,760	)			220,111
Net change in cash, cash equivalents and restricted cash			(129,091	)			45,879
Cash, cash equivalents and restricted cash, beginning of period			386,582				213,299
Cash, cash equivalents and restricted cash, end of period		$	257,491			$	259,178
Reconciliation of cash, cash equivalents and restricted cash to balance sheet as of December 31st:
Cash and cash equivalents		$	256,986			$	258,107
Other current assets (restricted cash)			505				571
Deposits and other assets (restricted cash)			-				500
Total cash, cash equivalents and restricted cash		$	257,491			$	259,178

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP, we have presented adjusted operating income, and adjusted EBITDA, which are not presented in accordance with GAAP.

• Adjusted operating income (loss) is defined as income (loss) from operations as adjusted for stock-based compensation and the amortization of intangible assets.

• Adjusted EBITDA is defined as income (loss) from operations as adjusted for stock-based compensation and depreciation and amortization.

• Adjusted EBITDA and adjusted operating income (loss) exclude stock-based compensation, which consists of expenses for stock options, restricted stock, restricted stock units, and performance stock units.

Management believes that the presentation of these non-GAAP financial measures provides useful information to investors relating to our financial performance. These measures remove stock-based compensation, which is a non-cash charge that varies based on market volatility and the terms and conditions of the awards. Adjusted EBITDA also removes depreciation and amortization, which can vary depending upon accounting methods and the book value of assets. Adjusted EBITDA provides a measure of corporate performance exclusive of capital structure and the method by which assets were acquired.

Our management uses these non-GAAP financial measures:

• as additional measures of operating performance because they assist us in comparing our performance on a consistent basis; and
• in presentations to the members of our Board of Directors to enable our Board to review the same measures used by management to compare our current operating results with corresponding prior periods.

Other companies may define these non-GAAP financial measures differently and, as a result, our use of these non-GAAP financial measures may not be directly comparable to similar non-GAAP financial measures used by other companies. Although we use these non-GAAP financial measures to assess the performance of our business, the use of non-GAAP financial measures is limited as they include and/or do not include certain items not included and/or included in the most directly comparable GAAP financial measure.

These non-GAAP financial measures should be considered in addition to, and not as a substitute for, revenues, income (loss), net income (loss) and net income (loss) per share or other related financial information prepared in accordance with GAAP. Adjusted EBITDA is not intended to be a measure of liquidity. You are cautioned not to place undue reliance on these non-GAAP financial measures.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Second Quarter Fiscal 2022

	Three Months Ended		Six Months Ended
	December 31,		December 31,
	2021		2020		2021		2020
	(In thousands)
Income from operations	$	56,915		$	38,452		$	49,938		$	50,516
Stock-based compensation expense		602			9,074			8,888			17,967
Amortization of intangible assets		3,214			2,524			6,427			4,576
Adjusted operating income		60,731			50,050			65,253			73,059
Depreciation and other amortization		21,966			20,637			42,900			36,862
Adjusted EBITDA	$	82,697		$	70,687		$	108,153		$	109,921
EBITDA	$	82,095		$	61,613		$	99,265		$	91,954

Fiscal Year 2022 Outlook

	Three Months Ended March 31, 2022		Year Ended June 30, 2022
	Low		High		Low		High
	(In millions)
Income from operations	$	50.7		$	54.7		$	142.0		$	150.0
Stock-based compensation expense		6.0			7.0			20.0			22.0
Amortization of intangible assets		3.3			3.3			13.0			13.0
Adjusted operating income	$	60.0		$	65.0		$	175.0		$	185.0

Contacts

Investor Contact
Timothy Casey
Vice President, Investor Relations
Stride, Inc.
[e-mail]