Stride Achieves Record Enrollment Growth over First Quarter

RESTON, Va.--(BUSINESS WIRE)--January 24, 2023--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, 2022.

Second Quarter Fiscal 2023 Highlights Compared to 2022

• Revenue of $458.4 million, compared with $409.5 million, driven by enrollment strength, increases in revenue per enrollment, and Adult Learning growth.
• Income from operations of $68.1 million, compared with $56.9 million.
• Net income of $50.7 million, compared with $42.0 million.
• Diluted net income per share of $1.19, compared with $1.00.
• Adjusted operating income of $76.3 million, compared with $60.7 million. (1)
• Adjusted EBITDA of $100.5 million, compared with $82.7 million. (1)

Second Quarter Fiscal 2023 Summary Financial Metrics

	Three Months Ended December 31,							Change 2022/2021
	2022			2021				$		%
	(In thousands, except percentages and per share data)
Revenues	$	458,435		$	409,507		$	48,928		11.9	%
Income from operations		68,073			56,915			11,158		19.6	%
Adjusted operating income (1)		76,293			60,731			15,562		25.6	%
Net income		50,705			42,004			8,701		20.7	%
Net income per share, diluted		1.19			1.00			0.19		19.0	%
EBITDA (1)		95,536			82,095			13,441		16.4	%
Adjusted EBITDA (1)		100,477			82,697			17,780		21.5	%

(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 (loss), 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.

Six Month Fiscal 2023 Highlights Compared to 2022

• Revenue of $883.6 million, compared with $809.7 million.
• Income from operations of $39.4 million, compared with $49.9 million.
• Net income of $28.0 million, compared with $36.1 million.
• Diluted net income per share of $0.66, compared with $0.85.
• Adjusted operating income of $56.4 million, compared with $65.3 million. (1)
• Adjusted EBITDA of $103.5 million, compared with $108.2 million. (1)

Six Month Fiscal 2023 Summary Financial Metrics

	Six Months Ended December 31,							Change 2022/2021
	2022			2021				$			%
	(In thousands, except percentages and per share data)
Revenues	$	883,585			809,733			73,852			9.1	%
Income from operations		39,354			49,938			(10,584	)		-21.2	%
Adjusted operating income (1)		56,373			65,253			(8,880	)		-13.6	%
Net income		28,033			36,121			(8,088	)		-22.4	%
Net income per share, diluted		0.66			0.85			(0.19	)		-22.4	%
EBITDA (1)		93,068			99,265			(6,197	)		-6.2	%
Adjusted EBITDA (1)		103,519			108,153			(4,634	)		-4.3	%

(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 (loss), 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 2022 / 2021							December 31,						Change 2022 / 2021
		2022			2021			$				%			2022			2021			$				%
		(In thousands, except percentages)
General Education		$	274,764		$	313,241		$	(38,477	)		(12.3	%)		$	546,422		$	619,582		$	(73,160	)		(11.8	%)
Career Learning
Middle - High School			153,795			75,287			78,508			104.3	%			279,330			146,699			132,631			90.4	%
Adult			29,876			20,979			8,897			42.4	%			57,833			43,452			14,381			33.1	%
Total Career Learning			183,671			96,266			87,405			90.8	%			337,163			190,151			147,012			77.3	%
Total Revenues		$	458,435		$	409,507		$	48,928			11.9	%		$	883,585		$	809,733		$	73,852			9.1	%

Enrollment Data¹

The following table sets forth enrollment data for students in our General Education and Career Learning lines of revenue. Enrollments for General Education and Career Learning only 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,						2022 / 2021							December 31,						2022 / 2021
		2022			2021			#				%			2022			2021			#				%
		(In thousands, except percentages)
General Education (2)			111.2			145.6			(34.4	)		(23.6	%)			111.5			146.1			(34.6	)		(23.7	%)
Career Learning (2)(3)			66.3			41.9			24.4			58.2	%			65.1			41.9			23.2			55.4	%
Average Enrollment			177.5			187.5			(10.0	)		(5.3	%)			176.6			188.0			(11.4	)		(6.1	%)

(1)		Enrollments are presented as the average monthly enrollments during the second quarter fiscal year 2023. Total ending enrollments were 180.3 thousand and 187.6 thousand, as of December 31, 2022 and 2021, respectively. General Education enrollments were 112.8 thousand and 145.5 thousand and Career Learning enrollments were 67.5 thousand and 42.1 thousand as of December 31, 2022 and 2021, respectively.
(2)		This data includes enrollments for which Stride receives no public funding or revenue.
(3)		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,						2022 / 2021						December 31,						2022 / 2021
		2022			2021			$			%			2022			2021			$			%
General Education		$	2,281		$	1,953		$	328		16.8	%		$	4,508		$	3,852		$	656		17.0	%
Career Learning			2,319			1,794			525		29.3	%			4,280			3,482			798		22.9	%

Cash Flow and Capital Allocation

As of December 31, 2022, the Company’s cash and cash equivalents totaled $318.3 million, compared with $389.4 million reported at June 30, 2022. The decrease is largely the result of normal seasonal trends.

Capital expenditures for three months ended December 31, 2022 were $16.9 million, compared to $14.2 million in the second quarter of fiscal year 2022, and were comprised of $1.9 million of property and equipment, $11.6 million of capitalized software development, and $3.4 million of capitalized curriculum development.

Fiscal Year 2023 Outlook

The Company is raising its revenue and adjusted operating forecast and narrowing its capital expenditures forecast for the full year fiscal 2023:

• Revenue in the range of $1.775 billion to $1.815 billion.
• Capital expenditures in the range of $70.0 million to $75.0 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.
• Effective tax rate of 27% to 29%.
• Adjusted operating income in the range of $180.0 million to $200.0 million. (1)

The Company is forecasting the following for the third quarter fiscal year 2023:

• Revenue in the range of $445.0 million to $465.0 million.
• Capital expenditures in the range of $16.0 million to $19.0 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 $70.0 million to $80.0 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 2023 financial results during a conference call scheduled for Tuesday, January 24, 2023 at 5:00 p.m. eastern time (ET).

A live webcast of the call will be available at https://events.q4inc.com/attendee/833472576. To participate in the live call, investors and analysts should dial (888) 210-2831 (domestic) or 1 (289) 514-2968 (international) and provide the conference ID number 4812941. Please access the website at least 15 minutes prior to the start of the call.

A replay of the call will be posted at https://events.q4inc.com/attendee/833472576 as soon as it is available.

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 millions of people’s teaching and learning experiences by providing innovative, high-quality, tech-enabled education solutions, curriculums, and programs directly to students, schools, the military, and enterprises in primary, secondary, and postsecondary settings. Stride is a premier provider of K–12 education for students, schools, and districts, including career learning services through middle and high school curriculums. 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. 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 that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this press release are forward-looking statements. 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 Learning 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 or mitigate 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, 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 December 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								Six Months Ended
		December 31,								December 31,
		2022				2021				2022				2021
		(In thousands except share and per share data)
Revenues		$	458,435			$	409,507			$	883,585			$	809,733
Instructional costs and services			288,347				261,950				583,848				535,774
Gross margin			170,088				147,557				299,737				273,959
Selling, general, and administrative expenses			102,015				90,642				260,383				224,021
Income from operations			68,073				56,915				39,354				49,938
Interest expense, net			(2,082	)			(1,875	)			(4,128	)			(3,868	)
Other income, net			3,970				3,884				5,007				3,795
Income before income taxes and loss from equity method investments			69,961				58,924				40,233				49,865
Income tax expense			(18,860	)			(15,928	)			(11,353	)			(13,035	)
Loss from equity method investments			(396	)			(992	)			(847	)			(709	)
Net income attributable to common stockholders		$	50,705			$	42,004			$	28,033			$	36,121
Net income attributable to common stockholders per share:
Basic		$	1.20			$	1.01			$	0.66			$	0.88
Diluted		$	1.19			$	1.00			$	0.66			$	0.85
Weighted average shares used in computing per share amounts:
Basic			42,259,061				41,525,736				42,167,844				41,042,401
Diluted			42,547,334				41,963,399				42,602,405				42,413,828

STRIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
		December 31,				June 30,
		2022				2022
						(audited)
		(In thousands except share and per share data)
ASSETS
Current assets
Cash and cash equivalents		$	318,279			$	389,398
Accounts receivable, net of allowance of $25,744 and $26,993			442,166				418,558
Inventories, net			23,960				36,003
Prepaid expenses			43,822				25,974
Other current assets			100,588				80,601
Total current assets			928,815				950,534
Operating lease right-of-use assets, net			75,823				85,457
Property and equipment, net			68,124				61,537
Capitalized software, net			76,192				71,800
Capitalized curriculum development costs, net			50,557				50,580
Intangible assets, net			83,410				88,669
Goodwill			246,676				241,022
Deposits and other assets			89,694				93,946
Total assets		$	1,619,291			$	1,643,545
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable		$	32,809			$	61,997
Accrued liabilities			40,909				63,200
Accrued compensation and benefits			34,083				73,027
Deferred revenue			83,799				53,630
Current portion of finance lease liability			44,377				37,389
Current portion of operating lease liability			13,281				12,830
Total current liabilities			249,258				302,073
Long-term finance lease liability			28,925				28,888
Long-term operating lease liability			65,827				75,127
Long-term debt			412,260				411,438
Deferred tax liability			10,752				3,205
Other long-term liabilities			10,370				10,233
Total liabilities			777,392				830,964
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; 48,431,576 and 48,112,664 shares issued; and 43,096,833 and 42,777,921 shares outstanding, respectively			4				4
Additional paid-in capital			688,695				687,454
Accumulated other comprehensive income (loss)			187				143
Retained earnings			255,495				227,462
Treasury stock of 5,334,743 shares at cost			(102,482	)			(102,482	)
Total stockholders’ equity			841,899				812,581
Total liabilities and stockholders' equity		$	1,619,291			$	1,643,545

STRIDE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Six Months Ended
		December 31,
		2022				2021
		(In thousands)
Cash flows from operating activities
Net income		$	28,033			$	36,121
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense			53,714				49,327
Stock-based compensation expense			10,451				8,888
Deferred income taxes			7,995				6,008
Provision for doubtful accounts			2,173				4,730
Amortization of fees on debt			822				809
Noncash operating lease expense			7,369				10,074
Other			(2,869	)			5,550
Changes in assets and liabilities:
Accounts receivable			(25,680	)			(65,606	)
Inventories, prepaid expenses, deposits and other current and long-term assets			(9,177	)			11,944
Accounts payable			(26,059	)			(26,810	)
Accrued liabilities			(10,681	)			(8,570	)
Accrued compensation and benefits			(38,806	)			(39,157	)
Operating lease liability			(5,966	)			(10,662	)
Deferred revenue and other liabilities			29,863				5,686
Net cash provided by (used in) operating activities			21,182				(11,668	)
Cash flows from investing activities
Purchase of property and equipment			(2,823	)			(2,705	)
Capitalized software development costs			(21,399	)			(19,330	)
Capitalized curriculum development costs			(9,527	)			(7,461	)
Sale of other investments			60				5,261
Acquisition of assets			(1,409	)			—
Other acquisitions, loans and investments, net of distributions			(767	)			(3,956	)
Proceeds from the maturity of marketable securities			36,729				7,248
Purchases of marketable securities			(55,879	)			(38,720	)
Net cash used in investing activities			(55,015	)			(59,663	)
Cash flows from financing activities
Repayments on finance lease obligations			(19,938	)			(14,744	)
Payments of contingent consideration			(7,024	)			—
Payments of deferred purchase consideration			—				(7,858	)
Proceeds from exercise of stock options			10				246
Repurchase of restricted stock for income tax withholding			(10,334	)			(35,404	)
Net cash used in financing activities			(37,286	)			(57,760	)
Net change in cash, cash equivalents and restricted cash			(71,119	)			(129,091	)
Cash, cash equivalents and restricted cash, beginning of period			389,398				386,582
Cash, cash equivalents and restricted cash, end of period		$	318,279			$	257,491
Reconciliation of cash, cash equivalents and restricted cash to balance sheet as of December 31st:
Cash and cash equivalents		$	318,279			$	256,986
Other current assets (restricted cash)			—				505
Total cash, cash equivalents and restricted cash		$	318,279			$	257,491

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP, we have presented adjusted operating income (loss), 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) from operations, 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.

Reconciliation of Income from Operations to Adjusted Operating Income, EBITDA and Adjusted EBITDA
Second Quarter Fiscal Year 2023
	Three Months Ended						Six Months Ended
	December 31,						December 31,
		2022			2021			2022			2021
	(In thousands)
Income from operations	$	68,073		$	56,915		$	39,354		$	49,938
Stock-based compensation expense		4,941			602			10,451			8,888
Amortization of intangible assets		3,279			3,214			6,568			6,427
Adjusted operating income		76,293			60,731			56,373			65,253
Depreciation and other amortization		24,184			21,966			47,146			42,900
Adjusted EBITDA	$	100,477		$	82,697		$	103,519		$	108,153
EBITDA	$	95,536		$	82,095		$	93,068		$	99,265

Reconciliation of Income from Operations to Adjusted Operating Income (unaudited)
Fiscal Year 2023 Outlook
	Three Months Ended						Year Ended
	March 31, 2023						June 30, 2023
	Low			High			Low			High
	(In millions)
Income from operations	$	62.5		$	70.5		$	147.5		$	164.5
Stock-based compensation expense		4.5			5.5			20.0			22.0
Amortization of intangible assets		3.0			4.0			12.5			13.5
Adjusted operating income	$	70.0		$	80.0		$	180.0		$	200.0