Business Wire | Jan 25, 2022 04:30PM EST

Demand for Stride Career Learning Continues to Drive Strong Performance

Jan. 25, 2022

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

Second Quarter Fiscal 2022 Highlights Compared to 2021

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

Second Quarter Fiscal 2022 Summary Financial Metrics

Three Months Ended December Change 2021/2020 31, 2021 2020 $ %

(In thousands, except percentages and per share data)Revenues $ 409,507 $ 376,145 $ 33,362 8.9 %

Income from operations 56,915 38,452 18,463 48.0 %

Adjusted operating income 60,731 50,050 10,681 21.3 %(1) Net income 42,004 24,501 17,503 71.4 %

Net income per share, 1.00 0.60 0.40 66.7 %diluted EBITDA (1) 82,095 61,613 20,482 33.2 %

Adjusted EBITDA (1) 82,697 70,687 12,010 17.0 %

Six Month Fiscal 2022 Highlights Compared to 2021

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

Six Month Fiscal 2022 Summary Financial Metrics

Six Months Ended December Change 2021/2020 31, 2021 2020 $ %

(In thousands, except percentages and per share data)Revenues $ 809,733 $ 747,105 $ 62,628 8.4 %

Income from operations 49,938 50,516 (578 ) -1.1 %

Adjusted operating income 65,253 73,059 (7,806 ) -10.7 %(1) Net income 36,121 37,167 (1,046 ) -2.8 %

Net income per share, 0.85 0.89 (0.04 ) -4.5 %diluted EBITDA (1) 99,265 91,954 7,311 8.0 %

Adjusted EBITDA (1) 108,153 109,921 (1,768 ) -1.6 %

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

Revenue and Enrollment Data

Revenue

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

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(1) adjusted EBITDA. Management believes that these additional metrics provide useful information to investors relating to our financial performance. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Revenue and Enrollment Data

Revenue

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

Three Months Ended Six Months Ended December 31, Change 2021 / 2020 December 31, Change 2021 / 2020 2021 2020 $ % 2021 2020 $ %

(In thousands, except percentages) General $ 313,241 $ 313,989 $ (748 ) (0.2 %) $ 619,582 $ 627,838 $ (8,256 ) (1.3 %)EducationCareerLearningMiddle - 75,287 51,376 23,911 46.5 % 146,699 100,147 46,552 46.5 %HighSchoolAdult 20,979 10,780 10,199 94.6 % 43,452 19,120 24,332 127.3 %

Total 96,266 62,156 34,110 54.9 % 190,151 119,267 70,884 59.4 %CareerLearningTotal $ 409,507 $ 376,145 $ 33,362 8.9 % $ 809,733 $ 747,105 $ 62,628 8.4 %Revenues 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 Change Six Months Change Ended Ended December 31, 2021 / 2020 December 31, 2021 / 2020 2021 2020 # % 2021 2020 # %

(In thousands, except percentages) General 145.6 161.2 (15.6 ) (9.7 %) 146.1 162.0 (15.9 ) (9.8 %)Education(1)Career 41.9 30.3 11.6 38.3 % 41.9 30.4 11.5 37.8 %Learning(1)(2)Total 187.5 191.5 (4.0 ) (2.1 %) 188.0 192.4 (4.4 ) (2.3 %)Enrollment(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.

(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 Change Six Months Ended Change Ended December 31, 2021 / 2020 December 31, 2021 / 2020 2021 2020 # % 2021 2020 # %

General $ 1,953 $ 1,755 $ 198 11.3 % $ 3,852 $ 3,491 $ 361 10.3 %EducationCareer Learning 1,794 1,681 113 6.7 % 3,482 3,258 224 6.9 %

Cash Flow and Capital Allocation

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

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

Fiscal Year 2022 Outlook

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

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

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

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

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(1) information to our investors. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below. Please also see Special Note on Forward Looking Statements below.

Conference Call

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

A live webcast of the call will be available at https://events.q4inc.com/attendee/148057977. To participate in the live call, investors and analysts should dial (888) 210-2831 (domestic) or 1 (289) 514-2968 (international) at 4:45 p.m. ET. The conference ID number is 4812941. Please access the website at least 15 minutes prior to the start of the call.

A replay of the call will be available starting on January 25, 2022 at 8:00 p.m. ET through February 25, 2022 at 8:00 p.m. ET by dialing (800) 770- 2030 (domestic) or 1 (647) 362 9199 (international) and entering the conference ID 4812941. A webcast replay will be available at https://events.q4inc.com/attendee/148057977 for 30 days.

About Stride Inc.

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

Special Note on Forward-Looking Statements

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

Financial Statements

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

STRIDE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended December 31, December 31, 2021 2020 2021 2020

(In thousands except share and per share data)Revenues $ 409,507 $ 376,145 $ 809,733 $ 747,105

Instructional 261,950 246,754 535,774 487,823 costs andservicesGross margin 147,557 129,391 273,959 259,282

Selling,general, and 90,642 90,939 224,021 208,766 administrativeexpensesIncome from 56,915 38,452 49,938 50,516 operationsInterest (1,875 ) (5,024 ) (3,868 ) (7,131 )expense, netOther income, 3,884 1,361 3,795 1,790 netIncome beforeincome taxesand income 58,924 34,789 49,865 45,175 (loss) fromequity methodinvestmentsIncome tax (15,928 ) (10,642 ) (13,035 ) (8,266 )expenseIncome (loss)from equity (992 ) 354 (709 ) 258 methodinvestmentsNet incomeattributable to $ 42,004 $ 24,501 $ 36,121 $ 37,167 commonstockholdersNet incomeattributable tocommonstockholdersper share:Basic $ 1.01 $ 0.61 $ 0.88 $ 0.93

Diluted $ 1.00 $ 0.60 $ 0.85 $ 0.89

Weightedaverage sharesused incomputing pershare amounts:Basic 41,525,736 40,160,362 41,042,401 40,072,360

Diluted 41,963,399 41,102,425 42,413,828 41,681,061

STRIDE, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, June 30,

2021 2021

(audited) (In thousands except share and per share data)ASSETSCurrent assetsCash and cash equivalents $ 256,986 $ 386,080

Accounts receivable, net of allowance of $26,305 430,436 369,303 and $21,384Inventories, net 23,941 39,690

Prepaid expenses 29,240 19,453

Other current assets 75,528 43,004

Total current assets 816,131 857,530

Operating lease right-of-use assets, net 91,410 94,671

Property and equipment, net 74,149 72,069

Capitalized software, net 60,520 57,308

Capitalized curriculum development costs, net 49,787 50,376

Intangible assets, net 95,210 99,480

Goodwill 240,921 240,353

Deposits and other assets 97,617 105,510

Total assets $ 1,525,745 $ 1,577,297

LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable $ 33,821 $ 62,144

Accrued liabilities 61,462 77,642

Accrued compensation and benefits 41,193 80,363

Deferred revenue 50,409 38,110

Current portion of finance lease liability 36,080 27,336

Current portion of operating lease liability 15,233 20,649

Total current liabilities 238,198 306,244

Long-term finance lease liability 44,612 41,568

Long-term operating lease liability 79,020 77,458

Long-term debt 410,674 299,271

Deferred tax liability 8,282 31,853

Other long-term liabilities 10,726 16,255

Total liabilities 791,512 772,649

Commitments and contingenciesStockholders' equity Preferred stock, par value $0.0001; 10,000,000 - - shares authorized; zero shares issued oroutstandingCommon stock, par value $0.0001; 100,000,000shares authorized; 48,084,410 and 46,911,527 4 4 shares issued; and 42,749,667 and 41,576,784shares outstanding, respectivelyAdditional paid-in capital 680,601 795,449

Accumulated other comprehensive income (loss) (343 ) (474 )

Retained earnings 156,453 112,151

Treasury stock of 5,334,743 shares at cost (102,482 ) (102,482 )

Total stockholders' equity 734,233 804,648

Total liabilities and stockholders' equity $ 1,525,745 $ 1,577,297

STRIDE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended December 31, 2021 2020

(In thousands)Cash flows from operating activitiesNet income $ 36,121 $ 37,167

Adjustments to reconcile net income to net cashused in operating activities:Depreciation and amortization expense 49,327 41,438

Stock-based compensation expense 8,888 17,967

Deferred income taxes 6,008 5,375

Provision for doubtful accounts 4,730 6,382

Amortization of discount and fees on debt 809 4,973

Noncash operating lease expense 10,074 9,627

Other 5,550 7,244

Changes in assets and liabilities:Accounts receivable (65,606 ) (208,870 )

Inventories, prepaid expenses, deposits and other 11,944 (23,231 )current and long-term assetsAccounts payable (26,810 ) (7,202 )

Accrued liabilities (8,570 ) 4,346

Accrued compensation and benefits (39,157 ) (5,401 )

Operating lease liability (10,662 ) (10,364 )

Deferred revenue and other liabilities 5,686 40,592

Net cash used in operating activities (11,668 ) (79,957 )

Cash flows from investing activitiesPurchase of property and equipment (2,705 ) (1,969 )

Capitalized software development costs (19,330 ) (14,061 )

Capitalized curriculum development costs (7,461 ) (7,524 )

Sale of long-lived assets - 223

Sale of other investments 5,261 -

Acquisition of MedCerts, LLC, net of cash acquired - (54,775 )

Acquisition of Tech Elevator, Inc., net of cash - (15,981 )acquiredOther acquisitions, loans and investments, net of (3,956 ) (188 )distributionsProceeds from the maturity of marketable securities 7,248 -

Purchases of marketable securities (38,720 ) -

Net cash used in investing activities (59,663 ) (94,275 )

Cash flows from financing activitiesRepayments on finance lease obligations (14,744 ) (11,455 )

Repayments on credit facility - (100,000 )

Issuance of convertible senior notes, net of - 408,610 issuance costsPurchases of capped calls in connection with - (60,354 )convertible senior notesPayments of deferred purchase consideration (7,858 ) -

Proceeds from exercise of stock options 246 303

Withholding of stock options for tax withholding - (10,885 )

Repurchase of restricted stock for income tax (35,404 ) (6,108 )withholdingNet cash provided by (used in) financing activities (57,760 ) 220,111

Net change in cash, cash equivalents and restricted (129,091 ) 45,879 cashCash, cash equivalents and restricted cash, 386,582 213,299 beginning of periodCash, cash equivalents and restricted cash, end of $ 257,491 $ 259,178 period Reconciliation of cash, cash equivalents andrestricted cash to balance sheet as of December31st:Cash and cash equivalents $ 256,986 $ 258,107

Other current assets (restricted cash) 505 571

Deposits and other assets (restricted cash) - 500

Total cash, cash equivalents and restricted cash $ 257,491 $ 259,178

Non-GAAP Financial Measures

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

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

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

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

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

Our management uses these non-GAAP financial measures:

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

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

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

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

Second Quarter Fiscal 2022

Three Months Ended Six Months Ended December 31, December 31, 2021 2020 2021 2020

(In thousands)Income from operations $ 56,915 $ 38,452 $ 49,938 $ 50,516

Stock-based compensation expense 602 9,074 8,888 17,967

Amortization of intangible assets 3,214 2,524 6,427 4,576

Adjusted operating income 60,731 50,050 65,253 73,059

Depreciation and other amortization 21,966 20,637 42,900 36,862

Adjusted EBITDA $ 82,697 $ 70,687 $ 108,153 $ 109,921

EBITDA $ 82,095 $ 61,613 $ 99,265 $ 91,954

Fiscal Year 2022 Outlook

Three Months Ended Year Ended March 31, 2022 June 30, 2022 Low High Low High (In millions)Income from operations $ 50.7 $ 54.7 $ 142.0 $ 150.0

Stock-based compensation expense 6.0 7.0 20.0 22.0

Amortization of intangible assets 3.3 3.3 13.0 13.0

Adjusted operating income $ 60.0 $ 65.0 $ 175.0 $ 185.0

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CONTACT: Investor Contact Timothy Casey Vice President, Investor Relations Stride, Inc. tcasey@k12.com