Stride Inc

Previous wording

The two key financial metrics that we use to assess financial performance are revenues and operating income. For the three months ended September 30, 2024, revenues increased to $551.1 million from $480.2 million in the prior year, an increase of 14.8%. Over the same period, operating income increased to $47.3 million from $3.3 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 three months ended September 30, 2024 were 222.6 thousand, an increase of 34.7 thousand, or 18.5%, 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 have differed from actual reimbursements, generally in the range of 2% of annual revenue or less, 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 six months ended December 31, 2024, revenues increased to $1,138.3 million from $985.0 million in the prior year, an increase of 15.6%. Over the same period, operating income increased to $172.4 million from $87.6 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 six months ended December 31, 2024 were 228.7 thousand, an increase of 36.9 thousand, or 19.2%, 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 have differed from actual reimbursements, generally in the range of 2% of annual revenue or less, which may vary from quarter to quarter.

Previous wording

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our consolidated financial statements. Critical accounting policies and estimates are disclosed in our Annual Report. There have been no significant updates to our critical accounting estimates disclosed in our Annual Report.

Current wording

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our condensed consolidated financial statements. Critical accounting policies and estimates are disclosed in our Annual Report. There have been no significant updates to our critical accounting estimates disclosed in our Annual Report.

Previous wording

Curriculum and Content – Stride has one of the largest digital research-based curriculum portfolios for the K-12 online education industry that includes some of the best in class content available in the market. Our customers can select from hundreds of high-quality, engaging, online coursework and content, as well as many state customized versions

Current wording

Curriculum and Content – Stride has one of the largest digital research-based curriculum portfolios for the K-12 online education industry that includes some of the best in class content available in the market. Our customers can

Previous wording

of those courses, electives, and instructional supports. Since our inception, we have built core courses on a foundation of rigorous standards, following the guidance and recommendations of leading educational organizations at the national and state levels. State standards are continually evolving, and we continually invest in our curriculum to meet these changing requirements. We provide high-quality, engaging, online coursework and content in software engineering, healthcare, and medical fields.

Current wording

select from hundreds of high-quality, engaging, online coursework and content, as well as many state customized versions of those courses, electives, and instructional supports. Since our inception, we have built core courses on a foundation of rigorous standards, following the guidance and recommendations of leading educational organizations at the national and state levels. State standards are continually evolving, and we continually invest in our curriculum to meet these changing requirements. We provide high-quality, engaging, online coursework and content in software engineering, healthcare, and medical fields.

Previous wording

Comparison of the Three Months Ended September 30,2024 and 2023

Current wording

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

Previous wording

Revenues. Our revenues for the three months ended September 30, 2024 were $551.1 million, representing an increase of $70.9 million, or 14.8%, from $480.2 million for the same period in the prior year. General Education revenues increased $30.1 million, or 10.0%, year over year. The increase in General Education revenues was primarily due to the 11.3% increase in enrollments, and school mix (distribution of enrollments by school). Career Learning revenues increased $40.8 million, or 22.6%, primarily due to a 30.4% increase in enrollments and school mix.

Current wording

Revenues. Our revenues for the three months ended December 31, 2024 were $587.2 million, representing an increase of $82.3 million, or 16.3%, from $504.9 million for the same period in the prior year. General Education revenues increased $40.4 million, or 12.9%, year over year. The increase in General Education revenues was primarily due to the 12.5% increase in enrollments, and school mix (distribution of enrollments by school). Career Learning revenues increased $41.9 million, or 22.0%, primarily due to a 30.9% increase in enrollments and school mix.

Previous wording

same period in the prior year. This increase in expense was due to hiring of personnel in growth states and salary increases. Instructional costs and services expenses were 60.8% of revenues during the three months ended September 30, 2024, a decrease from 64.0% for the three months ended September 30, 2023.

Current wording

*Instructional costs and services expenses.*Instructional costs and services expenses for the three months ended December 31, 2024 were $347.4 million, representing an increase of $43.7 million, or 14.4%, from $303.7 million for the same period in the prior year. This increase in expense was due to hiring of personnel in growth states and salary increases. Instructional costs and services expenses were 59.2% of revenues during the three months ended December 31, 2024, a decrease from 60.2% for the three months ended December 31, 2023.

Previous wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses for the three months ended September 30, 2024 were $168.5 million, representing a decrease of $1.1 million, or 0.6% from $169.6 million for the same period in the prior year. Selling, general, and administrative expenses were 30.6% of revenues during the three months ended September 30, 2024, a decrease from 35.3% for the three months ended September 30, 2023.

Current wording

Selling, general, and administrative expenses. Selling, general, and administrative expenses for the three months ended December 31, 2024 were $114.8 million, representing a decrease of $2.1 million, or 1.8% from $116.9 million for the same period in the prior year. Selling, general, and administrative expenses were 19.5% of revenues during the three months ended December 31, 2024, a decrease from 23.2% for the three months ended December 31, 2023.

Previous wording

Interest income (expense), net. Net interest expense for the three months ended September 30, 2024 was $2.4 million as compared to $2.1 million for the same period in the prior year. The increase in net interest expense was primarily due to our finance leases.

Current wording

Interest expense, net. Net interest expense for the three months ended December 31, 2024 was $2.7 million as compared to $2.0 million for the same period in the prior year. The increase in net interest expense was primarily due to our finance leases.

Previous wording

Other income (expense), net. Other income, net for the three months ended September 30, 2024 was $8.8 million as compared to $5.2 million for the same period in the prior year. 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, net. Other income, net for the three months ended December 31, 2024 was $7.3 million as compared to $6.5 million for the same period in the prior year. 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 $11.3 million for the three months ended September 30, 2024, or 21.6% of income before income taxes, as compared to an expense of $1.5 million, or 23.9% 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 September 30, 2024 was primarily due to the excess tax benefit of stock-based compensation, which was partially offset by the tax impact of non-deductible compensation.

Current wording

Income tax expense. Income tax expense was $33.4 million for the three months ended December 31, 2024, or 25.7% of income before income taxes, as compared to an expense of $22.2 million, or 24.9% of income before income taxes for the same period in the prior year. The increase in the effective tax rate for the three months ended December 31, 2024 was primarily due to the tax impact of non-deductible compensation and the excess tax benefit of stock-based compensation.

Previous wording

As of September 30, 2024, we had net working capital, or current assets minus current liabilities, of $1,060.7 million. Our working capital includes cash and cash equivalents of $317.8 million and accounts receivable of $675.7 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 September 30, 2024.

Current wording

As of December 31, 2024, we had net working capital, or current assets minus current liabilities, of $1,157.8 million. Our working capital includes cash and cash equivalents of $515.1 million and accounts receivable of $582.6 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, 2024.

Previous 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 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

minimum interest coverage ratio. The majority of our borrowings under the Credit Facility were at LIBOR plus an additional rate ranging from 0.875% - 1.50% based on our leverage ratio as defined in the agreement. The Credit Facility is secured by our assets. The Credit Facility agreement allows for an amendment to establish a new benchmark interest rate when LIBOR is discontinued during the five-year term. As of September 30, 2024, we were in compliance with the financial covenants. As part of the proceeds received from the Notes, we repaid our $100.0 million outstanding balance and as of September 30, 2024, we had no amounts outstanding on the Credit Facility. The Credit Facility also includes a $200.0 million accordion feature.

Current wording

On January 27, 2020, we entered into a $100.0 million senior secured revolving credit facility (“Credit Facility”) to be used for general corporate operating purposes with PNC Capital Markets LLC. The Credit Facility had a five-year term and incorporated customary financial and other covenants, including but not limited to a maximum leverage ratio and a minimum interest coverage ratio. The majority of our borrowings under the Credit Facility were at LIBOR plus an additional rate ranging from 0.875% - 1.50% based on our leverage ratio as defined in the agreement. The Credit Facility was secured by our assets. The Credit Facility agreement allowed for an amendment to establish a new benchmark interest rate when LIBOR is discontinued during the five-year term. As of December 31, 2024, we were in compliance with the financial covenants. As part of the proceeds received from the Notes, we repaid our $100.0 million outstanding balance and as of December 31, 2024, we had no amounts outstanding on the Credit Facility. The Credit Facility also included a $200.0 million accordion feature. The Credit Facility expired on January 27, 2025 and was not renewed.

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 September 30, 2024 and June 30, 2024, the finance lease liability was $90.1 million and $55.6 million, respectively, with lease interest rates ranging from 2.25%to 6.72%.

Current wording

We are a lessee under finance leases for student computers and peripherals under agreements with Banc of America Leasing & Capital, LLC (“BALC”) and CSI Leasing, Inc. (“CSI Leasing”). As of December 31, 2024 and June 30, 2024, the finance lease liability was $93.9 million and $55.6 million, respectively, with lease interest rates ranging from 2.55% to 6.72%.

Previous wording

We entered into an agreement with BALC in April 2020 for $25.0 million (increased to $41.0 million in July 2020) to provide financing for our leases through March 2021 at varying rates. We entered into additional agreements during fiscal year 2021 to provide financing of $54.0 million for our student computers and peripherals leases through October 2022 at varying rates. Individual leases with BALC include 36-month payment terms, fixed rates ranging from 2.25% to 6.72%, and a $1 purchase option at the end of each lease term. We pledged the assets financed to secure the outstanding leases.

Current wording

We entered into an agreement with BALC in April 2020 for $25.0 million (increased to $41.0 million in July 2020) to provide financing for our leases through March 2021 at varying rates. We entered into additional agreements during fiscal year 2021 to provide financing of $54.0 million for our student computers and peripherals leases through October 2022 at varying rates. Individual leases with BALC include 36-month payment terms, fixed rates ranging from 2.55% to 6.72%, and a $1 purchase option at the end of each lease term. We pledged the assets financed to secure the outstanding leases.

Previous wording

Net cash used in operating activities for the three months ended September 30, 2024 was $142.0 million compared to $135.3 million for the three months ended September 30, 2023. The $6.7 million increase in cash used for operations was primarily due to changes in working capital resulting from seasonal fluctuations in accounts receivable, accounts payable, accrued compensation and benefits, and accrued liabilities partially offset by higher net income in the current period as compared to the prior year quarter.

Current wording

Net cash provided by operating activities for the six months ended December 31, 2024 was $81.4 million compared to $38.0 million for the six months ended December 31, 2023. The $43.4 million increase in cash provided by operating activities was primarily due to higher net income in the current period as compared to the prior period, partially offset by changes in working capital resulting from seasonal fluctuations in accounts receivable and accrued liabilities.

Previous wording

Net cash used in investing activities for the three months ended September 30, 2024 was $20.9 million compared to $7.1 million for the three months ended September 30, 2023, an increase of $13.8 million. The increase was primarily due to higher net purchases of marketable securities of $15.0 million partially offset by a decrease in capital expenditures year over year of $1.3 million.

Current wording

Net cash used in investing activities for the six months ended December 31, 2024 was $35.7 million compared to $68.8 million for the six months ended December 31, 2023, a decrease of $33.1 million. The decrease was primarily due to a decrease in net purchases of marketable securities of $34.6 million partially offset by an increase in capital expenditures year over year of $0.8 million.

Previous wording

Net cash used in financing activities for the three months ended September 30, 2024 was $20.0 million compared to $13.8 million during the three months ended September 30, 2023, an increase of $6.2 million. The increase was primarily due to an increase in the repurchase of restricted stock for income tax withholding of $9.1 million partially offset by a decrease in the repayment of finance lease obligations incurred for the acquisition of student computers of $3.0 million.

Current wording

Net cash used in financing activities for the six months ended December 31, 2024 was $28.7 million compared to $25.7 million during the six months ended December 31, 2023, an increase of $3.0 million. The increase was primarily due to an increase in the repurchase of restricted stock for income tax withholding of $8.8 million partially offset by a decrease in the repayment of finance lease obligations incurred for the acquisition of student computers of $5.8 million.