Stride’s Career Learning Business Continues to Drive Growth

HERNDON, Va.--(BUSINESS WIRE)--Stride, Inc. (NYSE: LRN), one of the nation’s leading technology-based education companies, today announced its results for the third fiscal quarter ended March 31, 2022.

Third Quarter Fiscal 2022 Highlights Compared to 2021

• Revenue of $421.7 million, compared with $392.1 million, driven by strong enrollment trends, continued growth in Adult Learning, and increases in revenue per enrollment.
• Income from operations of $60.6 million, compared with $38.6 million, due to improved gross margins and lower selling, general and administrative expenses.
• Net income of $42.9 million, compared with $23.8 million.
• Diluted net income per share of $1.02, compared with $0.57.
• Adjusted operating income of $69.4 million, compared with $54.9 million. (1)
• Adjusted EBITDA of $90.3 million, compared with $75.0 million. (1)

Third Quarter Fiscal 2022 Summary Financial Metrics

	Three Months Ended March 31,					Change 2022/2021
	2022		2021			$	%
	(In thousands, except percentages and per share data)
Revenues	$	421,722		392,145	$	29,577	7.5%
Income from operations		60,594		38,553		22,041	57.2%
Adjusted operating income (1)		69,440		54,906		14,534	26.5%
Net income		42,919		23,789		19,130	80.4%
Net income per share, diluted		1.02		0.57		0.45	78.9%
EBITDA (1)		84,731		62,153		22,578	36.3%
Adjusted EBITDA (1)		90,307		75,007		15,300	20.4%

Nine Month Fiscal 2022 Highlights Compared to 2021

• Revenue of $1,231.5 million, compared with $1,139.3 million.
• Income from operations of $110.5 million, compared with $89.1 million.
• Net income of $79.0 million, compared with $61.0 million.
• Diluted net income per share of $1.87, compared with $1.46.
• Adjusted operating income of $134.7 million, compared with $128.0 million. (1)
• Adjusted EBITDA of $198.5 million, compared with $184.9 million. (1)

Nine Month Fiscal 2022 Summary Financial Metrics

	Nine Months Ended March 31,					Change 2022/2021
	2022		2021			$	%
	(In thousands, except percentages and per share data)
Revenues	$	1,231,455		1,139,250	$	92,205	8.1%
Income from operations		110,532		89,069		21,463	24.1%
Adjusted operating income (1)		134,693		127,965		6,728	5.3%
Net income		79,040		60,956		18,084	29.7%
Net income per share, diluted		1.87		1.46		0.41	28.1%
EBITDA (1)		183,996		154,107		29,889	19.4%
Adjusted EBITDA (1)		198,460		184,928		13,532	7.3%

(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									Nine Months Ended
	March 31,				Change 2022 / 2021					March 31,				Change 2022 / 2021
	2022		2021		$			%		2022		2021		$			%
	(In thousands, except percentages)
General Education	$	315,858	$	322,304	$	(6,446	)	(2.0	%)	$	935,440	$	950,142	$	(14,702	)	(1.5	%)
Career Learning
Middle - High School		83,238		52,382		30,856		58.9	%		229,937		152,529		77,408		50.7	%
Adult		22,626		17,459		5,167		29.6	%		66,078		36,579		29,499		80.6	%
Total Career Learning		105,864		69,841		36,023		51.6	%		296,015		189,108		106,907		56.5	%
Total Revenues	$	421,722	$	392,145	$	29,577		7.5	%	$	1,231,455	$	1,139,250	$	92,205		8.1	%

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					Nine Months Ended				Change
	March 31,				2022 / 2021					March 31,				2022 / 2021
	2022		2021		#			%		2022		2021		#			%
	(In thousands, except percentages)
General Education (1)		143.8		155.8		(12.0	)	(7.7	%)		145.1		159.4		(14.3	)	(9.0	%)
Career Learning (1)(2)		42.0		29.5		12.5		42.4	%		41.9		30.0		11.9		39.7	%
Total Enrollment		185.8		185.3		0.5		0.3	%		187.0		189.4		(2.4	)	(1.3	%)

(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			Nine Months Ended				Change
	March 31,				2022 / 2021			March 31,				2022 / 2021
	2022		2021		#		%	2022		2021		#		%
General Education	$	2,006	$	1,876	$	130	6.9%	$	5,867	$	5,384	$	483	9.0%
Career Learning		1,981		1,759		222	12.6%		5,463		5,033		430	8.5%

Cash Flow and Capital Allocation

As of March 31, 2022, the Company’s cash and cash equivalents totaled $308.6 million, compared with $386.1 million reported at June 30, 2021, in line with normal seasonal trends.

Capital expenditures for the first nine months of fiscal 2022 were $47.9 million, compared to $34.9 million in the first nine months of fiscal 2021, and were comprised of $4.7 million of property and equipment, $30.8 million of capitalized software development, and $12.4 million of capitalized curriculum development.

Fiscal Year 2022 Outlook

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

• Revenue in the range of $1.645 billion to $1.660 billion.
• Capital expenditures in the range of $65 million to $70 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 29%.
• Adjusted operating income in the range of $180 million to $185 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 third quarter fiscal year 2022 financial results during a conference call scheduled for Tuesday, April 19, 2022 at 5:00 p.m. eastern time (ET).

A live webcast of the call will be available at https://events.q4inc.com/attendee/550949613. 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 April 19, 2022 at 8:00 p.m. ET through May 19, 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/550949613 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 nine months ended March 31, 2022 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 March 31, 2022, 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						Nine Months Ended
	March 31,						March 31,
	2022			2021			2022			2021
	(In thousands except share and per share data)
Revenues	$	421,722		$	392,145		$	1,231,455		$	1,139,250
Instructional costs and services		266,883			253,128			802,657			740,951
Gross margin		154,839			139,017			428,798			398,299
Selling, general, and administrative expenses		94,245			100,464			318,266			309,230
Income from operations		60,594			38,553			110,532			89,069
Interest expense, net		(2,373	)		(5,371	)		(6,241	)		(12,502	)
Other income, net		496			486			4,291			2,276
Income before income taxes and income from equity method investments		58,717			33,668			108,582			78,843
Income tax expense		(16,716	)		(10,275	)		(29,751	)		(18,541	)
Income from equity method investments		918			396			209			654
Net income attributable to common stockholders	$	42,919		$	23,789		$	79,040		$	60,956
Net income attributable to common stockholders per share:
Basic	$	1.03		$	0.59		$	1.91		$	1.52
Diluted	$	1.02		$	0.57		$	1.87		$	1.46
Weighted average shares used in computing per share amounts:
Basic		41,823,564			40,286,109			41,302,789			40,143,610
Diluted		42,136,042			41,690,509			42,351,877			41,701,955

STRIDE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		March 31,		June 30,
	2022			2021
				(audited)
	(In thousands except share and per share data)
ASSETS
Current assets
Cash and cash equivalents	$	308,564		$	386,080
Accounts receivable, net of allowance of $20,641 and $21,384		422,615			369,303
Inventories, net		23,986			39,690
Prepaid expenses		35,861			19,453
Other current assets		80,553			43,004
Total current assets		871,579			857,530
Operating lease right-of-use assets, net		87,516			94,671
Property and equipment, net		67,565			72,069
Capitalized software, net		64,921			57,308
Capitalized curriculum development costs, net		50,476			50,376
Intangible assets, net		91,940			99,480
Goodwill		240,952			240,353
Deposits and other assets		99,583			105,510
Total assets	$	1,574,532		$	1,577,297
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	32,848		$	62,144
Accrued liabilities		55,152			77,642
Accrued compensation and benefits		59,843			80,363
Deferred revenue		51,530			38,110
Current portion of finance lease liability		37,016			27,336
Current portion of operating lease liability		13,790			20,649
Total current liabilities		250,179			306,244
Long-term finance lease liability		37,566			41,568
Long-term operating lease liability		76,342			77,458
Long-term debt		411,047			299,271
Deferred tax liability		9,034			31,853
Other long-term liabilities		9,794			16,255
Total liabilities		793,962			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; 48,102,945 and 46,911,527 shares issued; and 42,768,202 and 41,576,784 shares outstanding, respectively		4			4
Additional paid-in capital		683,892			795,449
Accumulated other comprehensive income (loss)		(216	)		(474	)
Retained earnings		199,372			112,151
Treasury stock of 5,334,743 shares at cost		(102,482	)		(102,482	)
Total stockholders’ equity		780,570			804,648
Total liabilities and stockholders' equity	$	1,574,532		$	1,577,297

STRIDE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months Ended
	March 31,
	2022			2021
	(In thousands)
Cash flows from operating activities
Net income	$	79,040		$	60,956
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		73,464			65,038
Stock-based compensation expense		14,464			30,821
Deferred income taxes		6,572			2,256
Provision for doubtful accounts		7,047			7,635
Amortization of discount and fees on debt		1,182			8,737
Noncash operating lease expense		15,084			14,573
Other		4,675			7,883
Changes in assets and liabilities:
Accounts receivable		(56,072	)		(197,659	)
Inventories, prepaid expenses, deposits and other current and long-term assets		7,967			(27,798	)
Accounts payable		(26,761	)		(913	)
Accrued liabilities		(14,630	)		8,850
Accrued compensation and benefits		(20,652	)		14,913
Operating lease liability		(15,899	)		(15,650	)
Deferred revenue and other liabilities		5,922			31,480
Net cash provided by operating activities		81,403			11,122
Cash flows from investing activities
Purchase of property and equipment		(4,734	)		(2,967	)
Capitalized software development costs		(30,837	)		(20,189	)
Capitalized curriculum development costs		(12,361	)		(11,742	)
Sale of long-lived assets		—			223
Sale of other investments		5,261			—
Acquisition of MedCerts, LLC, net of cash acquired		—			(54,795	)
Acquisition of Tech Elevator, Inc., net of cash acquired		—			(16,030	)
Other acquisitions, loans and investments, net of distributions		(3,654	)		(1,008	)
Proceeds from the maturity of marketable securities		19,904			—
Purchases of marketable securities		(64,151	)		—
Net cash used in investing activities		(90,572	)		(106,508	)
Cash flows from financing activities
Repayments on finance lease obligations		(23,919	)		(17,103	)
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		391			724
Withholding of stock options for tax withholding		—			(10,885	)
Repurchase of restricted stock for income tax withholding		(37,463	)		(8,872	)
Net cash provided by (used in) financing activities		(68,849	)		212,120
Net change in cash, cash equivalents and restricted cash		(78,018	)		116,734
Cash, cash equivalents and restricted cash, beginning of period		386,582			213,299
Cash, cash equivalents and restricted cash, end of period	$	308,564		$	330,033
Reconciliation of cash, cash equivalents and restricted cash to balance sheet as of March 31st:
Cash and cash equivalents	$	308,564		$	329,031
Other current assets (restricted cash)		—			502
Deposits and other assets (restricted cash)		—			500
Total cash, cash equivalents and restricted cash	$	308,564		$	330,033

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP, we have presented adjusted operating income, EBITDA, 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.
• EBITDA is defined as income (loss) from operations as adjusted for depreciation and amortization.
• 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. Adjusted operating income (loss) and Adjusted EBITDA remove stock-based compensation, which is a non-cash charge that varies based on market volatility and the terms and conditions of the awards. EBITDA and Adjusted EBITDA remove depreciation and amortization, which can vary depending upon accounting methods and the book value of assets. EBITDA and Adjusted EBITDA provide 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.

Third Quarter Fiscal 2022

	Three Months Ended				Nine Months Ended
	March 31,				March 31,
		2022		2021		2022		2021
	(In thousands)
Income from operations	$	60,594	$	38,553	$	110,532	$	89,069
Stock-based compensation expense		5,576		12,854		14,464		30,821
Amortization of intangible assets		3,270		3,499		9,697		8,075
Adjusted operating income		69,440		54,906		134,693		127,965
Depreciation and other amortization		20,867		20,101		63,767		56,963
Adjusted EBITDA	$	90,307	$	75,007	$	198,460	$	184,928
EBITDA	$	84,731	$	62,153	$	183,996	$	154,107

Fiscal Year 2022 Outlook

	Year Ended June 30, 2022
	Low		High
	(In millions)
Income from operations	$	148.0	$	151.0
Stock-based compensation expense		19.0		21.0
Amortization of intangible assets		13.0		13.0
Adjusted operating income	$	180.0	$	185.0