Stride Inc

Previous wording

We offer a wide range of individual products and services, as well as customized solutions, such as our most comprehensive school-as-a-service offering which supports our clients in operating full-time virtual or blended schools. More than three million students have attended schools powered by Stride curriculum and services since our inception. In our most recent academic year ended June 30, 2023, we graduated 13,435 high school students.

Current wording

We offer a wide range of individual products and services, as well as customized solutions, such as our most comprehensive school-as-a-service offering which supports our clients in operating full-time virtual or blended schools. More than three million students have attended schools powered by Stride curriculum and services since our inception. In our most recent academic year ended June 30, 2023, we graduated 13,435 high school students from our partner schools.

Previous wording

For both the General Education and Career Learning markets, the majority of revenue is derived from our comprehensive school-as-a-service offering which includes an integrated package of curriculum, technology systems, instruction, and support services that we administer on behalf of our customers. The average duration of the agreements for our school-as-a-service offering is greater than five years, and most provide for automatic renewals absent a customer notification of non-renewal. During any fiscal year, we may enter into new agreements, receive non-automatic renewal notices, negotiate replacement agreements, terminate such agreements or receive notices of termination, or customers may transition a school to a different offering. For the 2023-2024 school year, we provide our school-as-a-service offering for 92 schools in 31 states and the District of Columbia in the General Education market, and 56 schools or programs in 27 states and the District of Columbia in the Career Learning market.

Current wording

For both the General Education and Career Learning markets, the majority of revenue is derived from our comprehensive school-as-a-service offering which includes an integrated package of curriculum, technology systems, instruction, and support services that we administer on behalf of our customers. The average duration of the agreements for our school-as-a-service offering is greater than five years, and most provide for automatic renewals absent a customer notification of non-renewal. During any fiscal year, we may enter into new agreements, receive non-automatic renewal notices, negotiate replacement agreements, terminate such agreements or receive notices of termination, or customers may transition a school to a different offering. For the 2023-2024 school year, we provide our school-as-a-service offering for 91 schools in 31 states and the District of Columbia in the General Education market, and 56 schools or programs in 27 states and the District of Columbia in the Career Learning market.

Previous wording

The two key financial metrics that we use to assess financial performance are revenues and operating income. For the six months ended December 31, 2023, revenues increased to $985.0 million from $883.6 million in the prior year, an increase of 11.5%. Over the same period, operating income increased to $87.6 million from $39.4 million in the prior year. The increase in operating income was driven by revenue growth and an increase in gross margin. Additionally, we use the non-financial metric of total enrollments to assess performance, as enrollment is a key driver of our revenues. Total enrollments for the six months ended December 31, 2023 were 191.8 thousand, an increase of 15.2 thousand, or 8.6%, over the prior year. Our revenues are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results from these audits and other routine changes in funding estimates are incorporated into the Company’s monthly funding estimates for the current and prior periods. Historically, aggregate funding estimates differed from actual reimbursements by less than 2% of annual revenue, which may vary from quarter to quarter.

Current wording

The two key financial metrics that we use to assess financial performance are revenues and operating income. For the nine months ended March 31, 2024, revenues increased to $1,505.9 million from $1,353.9 million in the prior year, an increase of 11.2%. Over the same period, operating income increased to $175.9 million from $111.6 million in the prior year. The increase in operating income was driven by revenue growth and an increase in gross margin. Additionally, we use the non-financial metric of total enrollments to assess performance, as enrollment is a key driver of our revenues. Total enrollments for the nine months ended March 31, 2024 were 194.6 thousand, an increase of 15.8 thousand, or 8.8%, over the prior year. Our revenues are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results from these audits and other routine changes in funding estimates are incorporated into the Company’s monthly funding estimates for the current and prior periods. Historically, aggregate funding estimates differed from actual reimbursements by less than 2% of annual revenue, which may vary from quarter to quarter.

Previous wording

Comparison of the Three Months Ended December 31,2023 and 2022

Current wording

Comparison of the Three Months Ended March 31,2024 and 2023

Previous wording

Revenues. Our revenues for the three months ended December 31, 2023 were $504.9 million, representing an increase of $46.5 million, or 10.1%, from $458.4 million for the same period in the prior year. General Education revenues increased $39.1 million, or 14.2%, year over year. The increase in General Education revenues was primarily due to the 8.5% increase in enrollments, school mix (distribution of enrollments by school), and other factors. Career Learning revenues increased $7.3 million, or 4.0%, primarily due to a 9.2% increase in enrollments and school mix.

Current wording

Revenues. Our revenues for the three months ended March 31, 2024 were $520.8 million, representing an increase of $50.5 million, or 10.7%, from $470.3 million for the same period in the prior year. General Education revenues increased $39.3 million, or 13.6%, year over year. The increase in General Education revenues was primarily due to the 8.7% increase in enrollments, school mix (distribution of enrollments by school), and other factors. Career Learning revenues increased $11.2 million, or 6.2%, primarily due to a 9.8% increase in enrollments and school mix.

Previous wording

Instructional costs and services expenses. Instructional costs and services expenses for the three months ended December 31, 2023 were $303.7 million, representing an increase of $15.4 million, or 5.3%, from $288.3 million for the same period in the prior year. This increase in expense was due to growth, higher volume and salary increases. Instructional costs and services expenses were 60.2% of revenues during the three months ended December 31, 2023, a decrease from 62.9% for the three months ended December 31, 2022.

Current wording

Instructional costs and services expenses. Instructional costs and services expenses for the three months ended March 31, 2024 were $319.5 million, representing an increase of $24.5 million, or 8.3%, from $295.0 million for the same period in the prior year. This increase in expense was due to growth, higher volume and salary increases. Instructional costs and services expenses were 61.3% of revenues during the three months ended March 31, 2024, a decrease from 62.7% for the three months ended March 31, 2023.

Previous wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses for the three months ended December 31, 2023 were $116.9 million, representing an increase of $14.9 million, or 14.6% from $102.0 million for the same period in the prior year. The increase was primarily due to an increase of $5.3 million in bad debt expense,

Current wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses for the three months ended March 31, 2024 were $113.0 million, representing an increase of $9.9 million, or 9.6% from $103.1 million for the same period in the prior year. The increase was primarily due to an increase of $8.8 million in professional fees and marketing expenses. Selling, general, and administrative expenses were 21.7% of revenues during the three months ended March 31, 2024, a decrease from 21.9% for the three months ended March 31, 2023.

Previous wording

Other income (expense), net. Other income, net for the three months ended December 31, 2023 was $6.5 million as compared to $4.0 million in the three months ended December 31, 2022. The increase in other income, net was primarily due to the increase in our investments in marketable securities and the returns on those investments year over year.

Current wording

Other income (expense), net. Other income, net for the three months ended March 31, 2024 was $7.7 million as compared to $4.6 million in the three months ended March 31, 2023. The increase in other income, net was primarily due to the increase in our investments in marketable securities and the returns on those investments year over year.

Previous wording

Income tax expense. Income tax expense was $22.2 million for the three months ended December 31,2023, or 24.9% of income before income taxes, as compared to an expense of $18.9 million, or 27.1% of income before income taxes for the same period in the prior year. The decrease in the effective tax rate for the three months ended December 31, 2023 was primarily due to the tax impact of non-deductible compensation and excess tax benefit of stock-based compensation.

Current wording

Income tax expense. Income tax expense was $24.7 million for the three months ended March 31, 2024, or 26.1% of income before income taxes, as compared to an expense of $19.5 million, or 26.0% of income before income taxes for the same period in the prior year.

Previous wording

Revenues. Our revenues for the six months ended December 31, 2023 were $985.0 million, representing an increase of $101.4 million, or 11.5%, from $883.6 million for the same period in the prior year. General Education revenues increased $66.8 million, or 12.2%, year over year. The increase in General Education revenues was primarily due to the 7.5% increase in enrollments, school mix (distribution of enrollments by school), and other factors. Career Learning revenues increased $34.6 million, or 10.3%, primarily due to a 10.4% increase in enrollments and school mix.

Current wording

Revenues. Our revenues for the nine months ended March 31, 2024 were $1,505.9 million, representing an increase of $152.0 million, or 11.2%, from $1,353.9 million for the same period in the prior year. General Education revenues increased $106.1 million, or 12.7%, year over year. The increase in General Education revenues was primarily due to the 8.1% increase in enrollments, school mix (distribution of enrollments by school), and other factors. Career Learning revenues increased $45.9 million, or 8.9%, primarily due to a 10.2% increase in enrollments and school mix.

Previous wording

Instructional costs and services expenses. Instructional costs and services expenses for the six months ended December 31, 2023 were $611.0 million, representing an increase of $27.2 million, or 4.7%, from $583.8 million for the same period in the prior year. This increase in expense was due to the timing of hiring of personnel and salary increases. Instructional costs and services expenses were 62.0% of revenues during the six months ended December 31, 2023, a decrease from 66.1% for the six months ended December 31, 2022.

Current wording

Instructional costs and services expenses. Instructional costs and services expenses for the nine months ended March 31, 2024 were $930.5 million, representing an increase of $51.6 million, or 5.9%, from $878.9 million for the same period in the prior year. This increase in expense was due to the timing of hiring of personnel and salary increases. Instructional costs and services expenses were 61.8% of revenues during the nine months ended March 31, 2024, a decrease from 64.9% for the nine months ended March 31, 2023.

Previous wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses for the six months ended December 31, 2023 were $286.5 million, representing an increase of $26.1 million, or 10.0% from $260.4 million for the same period in the prior year. The increase was primarily due to an increase of $13.2 million in bad debt expense, $10.8 million in personnel and related benefit costs, including stock-based compensation, and $1.1 million in professional fees and marketing expenses. Selling, general, and administrative expenses were 29.1% of revenues during the six months ended December 31, 2023, a decrease from 29.5% for the six months ended December 31, 2022.

Current wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses for the nine months ended March 31, 2024 were $399.5 million, representing an increase of $36.1 million, or 9.9% from $363.4 million for the same period in the prior year. The increase was primarily due to an increase of $13.0 million in bad debt expense, $9.9 million in professional fees and marketing expenses, and $9.8 million in personnel and related benefit costs, including stock-based compensation. Selling, general, and administrative expenses were 26.5% of revenues during the nine months ended March 31, 2024, a decrease from 26.8% for the nine months ended March 31, 2023.

Previous wording

Other income (expense), net. Other income, net for the six months ended December 31, 2023 was $11.7 million as compared to $5.0 million in the six months ended December 31, 2022. The increase in other income, net was primarily due to the increase in our investments in marketable securities and the returns on those investments year over year.

Current wording

Other income (expense), net. Other income, net for the nine months ended March 31, 2024 was $19.4 million as compared to $9.6 million in the nine months ended March 31, 2023. The increase in other income, net was primarily due to the increase in our investments in marketable securities and the returns on those investments year over year.

Previous wording

*Income tax expense. Income tax expense was $23.7 million for the six months ended December 31, 2023, or 24.9% of income before income taxes, as compared to an expense of $11.4 million, or 28.8% of income before income taxes for the same period in the prior year. The decrease in the effective tax rate for the six months ended December 31, 2023 was primarily due to the tax impacts of non-deductible compensation and Tallo transaction, which were partially offset by the decrease in excess tax benefit of stock-based compensation.

Current wording

*Income tax expense. Income tax expense was $48.4 million for the nine months ended March 31, 2024, or 25.5% of income before income taxes, as compared to an expense of $30.9 million, or 27.0% of income before income taxes for the same period in the prior year. The decrease in the effective tax rate for the nine months ended March 31, 2024 was primarily due to the tax impacts of non-deductible compensation and Tallo transaction, which were partially offset by the decrease in excess tax benefit of stock-based compensation.

Previous wording

As of December 31, 2023, we had net working capital, or current assets minus current liabilities, of $848.0 million. Our working capital includes cash and cash equivalents of $354.4 million and accounts receivable of $509.6 million. Our working capital provides a significant source of liquidity for our normal operating needs. Our accounts receivable balance fluctuates throughout the fiscal year based on the timing of customer billings and collections and tends to be highest in our first fiscal quarter as we begin billing for students. In addition, our cash and accounts receivable were significantly in excess of our accounts payable and short-term accrued liabilities at December 31, 2023.

Current wording

As of March 31, 2024, we had net working capital, or current assets minus current liabilities, of $927.1 million. Our working capital includes cash and cash equivalents of $376.6 million and accounts receivable of $577.8 million. Our working capital provides a significant source of liquidity for our normal operating needs. Our accounts receivable balance fluctuates throughout the fiscal year based on the timing of customer billings and collections and tends to be highest in our first fiscal quarter as we begin billing for students. In addition, our cash and accounts receivable were significantly in excess of our accounts payable and short-term accrued liabilities at March 31, 2024.

Previous wording

$408.6 million after deducting the underwriting fees and other expenses paid by the Company. The Notes bear interest at a rate of 1.125% per annum, payable semi-annually in arrears on March 1 st and September 1 st of each year, beginning on March 1, 2021. The Notes will mature on September 1, 2027. In connection with the Notes, we entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain counterparties. The Capped Call Transactions are expected to cover the aggregate number of shares of the Company’s common stock that initially underlie the Notes, and are expected to reduce potential dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes. The upper strike price of the Capped Call Transactions is $86.174 per share. The cost of the Capped Call Transactions was $60.4 million and was recorded within additional paid-in capital.

Current wording

During the first quarter of fiscal year 2021, we issued $420.0 million aggregate principal amount of 1.125% Convertible Senior Notes due 2027 (“Notes”). The Notes are governed by an indenture (the “Indenture”) between us and U.S. Bank National Association, as trustee. The net proceeds from the offering of the Notes were approximately $408.6 million after deducting the underwriting fees and other expenses paid by the Company. The Notes bear interest at a rate of 1.125% per annum, payable semi-annually in arrears on March 1 st and September 1 st of each year, beginning on March 1, 2021. The Notes will mature on September 1, 2027. In connection with the Notes, we entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain counterparties. The Capped Call Transactions are expected to cover the aggregate number of shares of the Company’s common stock that initially underlie the Notes, and are expected to reduce potential dilution to the Company’s common stock upon any conversion of Notes

Previous wording

We are a lessee under finance lease obligations for student computers and peripherals under loan agreements with Banc of America Leasing & Capital, LLC (“BALC”) and CSI Leasing, Inc. (“CSI Leasing”). As of December 31, 2023 and June 30, 2023, the finance lease liability was $63.7 million and $56.9 million, respectively, with lease interest rates ranging from 2.10% to 6.72%.

Current wording

We are a lessee under finance lease obligations for student computers and peripherals under loan agreements with Banc of America Leasing & Capital, LLC (“BALC”) and CSI Leasing, Inc. (“CSI Leasing”). As of March 31, 2024 and June 30, 2023, the finance lease liability was $60.9 million and $56.9 million, respectively, with lease interest rates ranging from 2.10% to 6.72%.

Previous wording

increase in net income as adjusted for non-cash items, a lower decrease in accrued compensation as compared to the prior year, partially offset by a larger increase in accounts receivable and a decrease in deferred revenue as compared to the prior year.

Current wording

Net cash provided by operating activities for the nine months ended March 31, 2024 was $106.6 million compared to $106.2 million for the nine months ended March 31, 2023. The increase of $0.4 million was primarily due to the increase in net income as adjusted for non-cash items, a lower decrease in accrued compensation and accounts payable as compared to the prior year, partially offset by a larger increase in accounts receivable and a decrease in deferred revenue as compared to the prior year.

Previous wording

Net cash used in investing activities for the six months ended December 31, 2023 was $68.8 million compared to $55.0 million for the six months ended December 31, 2022, an increase of $13.8 million. The increase was primarily due to higher net purchases of marketable securities of $20.4 million partially offset by a decrease in capital expenditures year over year of $4.9 million.

Current wording

Net cash used in investing activities for the nine months ended March 31, 2024 was $101.0 million compared to $70.8 million for the nine months ended March 31, 2023, an increase of $30.2 million. The increase was primarily due to higher net purchases of marketable securities of $36.1 million partially offset by a decrease in capital expenditures year over year of $3.9 million.

Previous wording

Net cash used in financing activities for the six months ended December 31, 2023 was $25.7 million compared to $37.3 million during the six months ended December 31, 2022, a decrease of $11.6 million. The decrease was primarily due to a decrease in the repurchase of restricted stock for income tax withholding of $7.1 million and a payment of contingent consideration of $7.0 million during the three months ended September 30, 2022, partially offset by an increase in the repayment of finance lease obligations incurred for the acquisition of student computers of $2.6 million.

Current wording

Net cash used in financing activities for the nine months ended March 31, 2024 was $39.8 million compared to $51.2 million during the nine months ended March 31, 2023, a decrease of $11.4 million. The decrease was primarily due to a decrease in the repurchase of restricted stock for income tax withholding of $5.3 million and a payment of contingent consideration of $7.0 million during the three months ended September 30, 2022, partially offset by an increase in the repayment of finance lease obligations incurred for the acquisition of student computers of $1.0 million.