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Date of Report (Date of Earliest Event Reported):
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January 20, 2021
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Stride, Inc.
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(Exact name of registrant as specified in its charter)
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Delaware
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001-33883
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95-4774688
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(State or other jurisdiction
of incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.)
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2300 Corporate Park Drive,
Herndon, Virginia
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20171
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
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(703) 483-7000
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Former name or former address, if changed since last report
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Common Stock, $0.0001 par value per share
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LRN
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New York Stock Exchange (NYSE)
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Item 2.02
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Results of Operations and Financial Condition.
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Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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Item 7.01
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Regulation FD Disclosure.
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Item 9.01
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Financial Statements and Exhibits.
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Exhibit
No.
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Description
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104
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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Stride, Inc.
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Date: January 26, 2021
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By:
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/s/ Vincent W. Mathis | ||
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Name:
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Vincent W. Mathis
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Title:
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Executive Vice President, General Counsel and Secretary
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1.
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Effective as of January 26, 2021 (the “Transition Date”), the Company shall continue to
employ you as its Executive Chairman and you will no longer serve as the Company’s Chief Executive Officer.
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2.
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Effective as of the Transition Date, your annual Base Salary is decreased to $500,000.
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3.
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As provided in the Agreement, your target annual Performance Bonus will remain at 150% of Base Salary (and not more than 300% of Base Salary). For the Company’s
2021 fiscal year, the target amount of your Performance Bonus shall be pro-rated, taking into account your Base Salary in effect for the partial year prior to the Transition Date.
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4.
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Beginning with the Company’s 2022 fiscal year, your target level for awards under the Company’s equity incentive award plan will be in a range to be determined
based on good faith negotiations between you and the Board or the Compensation Committee.
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5.
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This Letter is not intended to impact any outstanding equity compensation awards of the Company that were previously granted, which awards will continue to be
eligible to vest in accordance with their terms while you serve as Executive Chairman and otherwise remain unchanged and in effect in accordance with their terms.
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6.
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You agree that neither you are no longer serving as the Company’s Chief Executive Officer as of the Transition Date nor any of the changes to your compensation or
other terms and conditions of employment as provided for under this Letter shall constitute “Good Reason” under the Agreement.
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7.
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The following language is hereby stricken and deleted from the Agreement and the Third Amendment: “In addition, the Agreement is hereby amended to provide that in
the event any Company Named Executive Officer’s employment terms are changed so as to provide better terms and conditions of employment than those in the Agreement, you shall receive those same improved terms and conditions of employment.”
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Sincerely,
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DocuSigned by:
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Name: Robert E. Knowling, Jr.
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Title: Chairman of the Compensation Committee of the Board of Directors of Stride, Inc.
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Agreed and Accepted:
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DocuSigned by:
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Nathaniel A. Davis |
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1. Employment. The Company hereby employs Executive on the terms and conditions set forth in this Agreement and Executive hereby accepts such employment. Executive shall
serve as the Chief Executive Officer of the Company and report to the Company’s board of directors (the “Board”). Executive shall perform such duties and have such responsibilities as are normally commensurate with Executive’s
position, including such other duties as are reasonably assigned to Executive from time to time. Executive agrees that the Company shall be his exclusive employer and Executive shall devote his full business time to performing
Executive’s responsibilities under this Agreement.
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2. Salary. Effective as of the Effective Date, Executive’s base salary shall be $700,000 annually (the “Base Salary”), subject to standard payroll deductions. The Base
Salary shall be paid on the Company’s regular payroll dates in accordance with the Company’s normal payroll practices. Executive’s Base Salary shall be reviewed annually, and the Board or its compensation committee (the “Compensation
Committee”) shall determine, in their sole and absolute discretion, whether to grant Executive any increases to the Base Salary based on the performance of Executive and the Company.
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3. Performance Bonus. Executive will be eligible to receive an annual end of fiscal year bonus (the “Performance Bonus”) with a target equal to one hundred fifty
percent (150%) of the Executive’s Base Salary. For the Company’s 2021 fiscal year, the target amount of Executive’s Performance Bonus shall be pro-rated, taking into account the Executive’s base salary and target bonus level in effect
for the partial year prior to the Effective Date. Actual bonus payments may vary (above or below target) based on the overall performance of the Company, including Company performance metrics to be determined by the Board or
Compensation Committee, the successful completion of the Executive’s personal performance goals and objectives and the discretion of the Board or Compensation Committee. Payment of any amount is conditioned upon your employment with
the Company on the scheduled payroll date when bonus payments are issued.
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4.
Annual Equity Incentive Awards. During Executive’s employment as Chief Executive Officer, Executive will be eligible to participate in and will receive awards under the Company’s equity incentive
award plans and programs as in effect from time to time at a level and on terms commensurate with his position as Chief Executive Officer (“Ongoing Equity Awards”). Ongoing Equity Awards are currently granted on an annual basis at or near
the beginning of each fiscal year of the Company, in each case as determined by the Board or the Compensation Committee of the Board, and are expected to be granted in the form of performance-based restricted stock, restricted stock units
or similar awards, in each case as determined by the Board or the Compensation Committee of the Board in their discretion from time to time. For the avoidance of doubt, all equity compensation awards are subject to approval by the Board
on an annual basis or otherwise at the time of grant. This Agreement is not intended to impact any outstanding equity compensation awards that were previously granted, which awards remain unchanged and in effect in accordance with their
terms.
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5. One-Time Stock Award. Upon or as soon as practicable after the Effective Date, the Company will grant Executive a one-time award of restricted stock
under the Company’s 2016 Incentive Award Plan (the “Plan”), having a value as of the grant date of $1,500,000 (the “One-Time Stock Award”). 50% of the One-Time Stock Award (the “Time-Based Portion”) will be subject to time-based vesting
in semi-annual installments following the Effective Date with 20% of the shares vesting in the first year following the Effective Date and 40% of the shares vesting in each of the next two years following the Effective Date. The remaining
50% of the One-Time Stock Award (the “Performance- Based Portion”) will be eligible to vest based on the Company’s attainment of a financial performance metric to be determined by the Board or Compensation Committee at the time of grant
for a calendar year 2021 performance period. The Performance-Based Portion will be subject to (i) a threshold performance level, at which 80% of the shares subject to the Performance-Based Portion would be earned, (ii) a target
performance level, at which 100% of the shares subject to the Performance-Based Portion would be earned, and (iii) a maximum performance level, at which 133% of the shares subject to the Performance-Based Portion would be earned. Any
shares considered earned in respect of the Performance-Based Portion will vest in three equal annual installments with the first installment vesting on the one-year anniversary of the Effective Date. The One-Time Stock Award will be
subject to the terms and conditions of the Company’s standard form of restricted stock award agreements for Company executives.
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6.
Personal Time Off. Executive shall be entitled to vacation and personal time off in accordance with the Company’s policy, which is subject to change or deletion at the discretion of the Company.
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7. Expenses. During Executive’s
employment, the Company shall reimburse Executive for reasonable travel, business entertainment, and other business expenses incurred in the performance of Executive’s duties, upon presentation of supporting documentation, in
accordance with and subject to all Company policies, including any bring-your-own-device or similar policy.
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8. Benefits. Executive will be eligible to participate in such
health, welfare and retirement benefit plans as may be adopted from time to time by the Company on the same basis as similarly situated employees, including participation in any senior-level executive benefit plans that may be adopted
by the Company. Executive’s participation shall be subject to: (i) the terms of the applicable plan documents; (ii) generally applicable Company policies; and (iii) the discretion of the Board or any administrative or other committee
provided for in, or contemplated by, such plan or programs. These plans and programs are subject to change or deletion at the discretion of the Company. In addition, the Company will pay or reimburse Executive’s reasonable attorneys’
fees incurred in connection with the review and execution of this Agreement.
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9. Holidays. Executive
will be eligible for paid holidays in accordance with the Company’s holiday policy and schedule, as may be amended by the Company from time to time at the sole discretion of the Company.
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10. Employment at Will: Termination.
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10.1. Employment at Will.
Executive’s employment with the Company will be on an “at will” basis, meaning that Executive’s employment is not for a specified period of time and can be terminated by Executive or the Company at any time, with or without cause, and
with or without notice.
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10.2. Termination by Company for Cause. The Company may terminate this
Agreement at any time, effective immediately, for Cause, which shall be defined as: (i) a Willful and continued material failure to perform Executive’s duties under this Agreement in a satisfactory manner (other than as a result of
total or partial incapacity due to physical or mental illness or Disability, as defined in Section 10.3 below), where Willful means, when applied to any action or omission made by Executive, that Executive did so without a good faith
belief that such action or omission was in, or was not contrary to, the best interests of the Company; (ii) acts of dishonesty, fraud, embezzlement, misrepresentation, and misappropriation involving the Company or any of its
affiliates; (iii) unprofessional conduct which may adversely affect the reputation of the Company and/or its relationship with its customers, employees or suppliers ; and (iv) a conviction of, or entry of a guilty plea or no contest
to, any crime involving moral turpitude or dishonesty (collectively “Cause”). In the event of termination of this Agreement for Cause, Executive shall immediately be paid all accrued Base Salary and any reasonable and necessary
business expenses properly incurred by Executive in connection with the duties hereunder, all through the date of termination. All stock options held by Executive shall expire at the date of termination for any of the above-enumerated
reasons to terminate for Cause. In addition, the parties’ obligations hereunder, except as set forth in the Employee Confidentiality, Proprietary Rights and Non-Solicitation Agreement (as defined
below), Agreement to Arbitrate (as defined below), and Sections 10, 11 and 12 of this Agreement, shall terminate.
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10.3. Termination upon Disability or Death. Executive’s employment with
the Company shall terminate upon the Disability or death of Executive. In the event of such termination, the Company shall pay to Executive any unpaid compensation to the extent earned and payable as of the date of termination. As
used herein, the term “Disability” means a physical or mental disability that renders Executive unable to perform Executive’s normal duties for the Company for a period of ninety (90) or more days as determined in the good faith
judgment of the Compensation Committee or the Board. If Executive disagrees with the good faith determination of Disability, the matter shall be submitted to arbitration pursuant to the Agreement to Arbitrate, which is incorporated
herein by reference as provided in Section 11.1 of this Agreement.
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10.4. Termination by Company without Cause. The Company may terminate
Executive’s employment and this Agreement at any time, effective immediately, without Cause. In the event that the Company terminates Executive’s employment and this Agreement without Cause, Executive shall be paid immediately (except
as noted) all accrued Base Salary and any reasonable and necessary business expenses properly incurred by Executive in connection with Executive’s duties hereunder, all through the date of termination, as well as, provided that such
termination of employment constitutes a “separation from service” with the Company as such term is defined in Treasury Regulation Section 1.409A-1(h) and any successor provision thereto (a “Separation from Service”), the severance pay
set forth in Section 10.6 or Section 107, as applicable, below. In addition, the parties’ obligations hereunder, except as set forth in the Employee Confidentiality, Proprietary Rights and Non-Solicitation Agreement, Agreement to
Arbitrate and Sections 10, 11 and 12 of this Agreement, shall terminate.
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10.5. Termination by Employee. In the event of termination of this
Agreement by Executive other than for Good Reason (as defined in Section 10.5.1 below), Executive shall not be entitled to any salary, bonus, benefits, severance pay or other remuneration after the effective date of termination. In
addition, the parties’ obligations hereunder, except as set forth in the Employee Confidentiality, Proprietary Rights and Non-Solicitation Agreement, Agreement to Arbitrate and Sections 10, 11 and 12 of this Agreement, shall
terminate.
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10.5.1.
Resignation for Good Reason. In the event that Executive resigns his or her employment and
terminates this Agreement for Good Reason, then, provided that such resignation constitutes a Separation from Service, Executive shall be entitled to the severance pay set forth in Section 10.6 or Section 10.7, as applicable, below. In addition, the parties’ obligations hereunder, except as set forth in the Employee Confidentiality,
Proprietary Rights and Non-Solicitation Agreement, Agreement to Arbitrate and Sections 10, 11 and 12 of this Agreement, shall terminate. Good Reason shall be defined as the occurrence of any of the following events or conditions
without Executive’s written consent:
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(i) a material diminution in Executive’s authority, duties or responsibilities; |
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(ii) a material diminution in Executive’s base salary or target annual bonus level;
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(iii) a material change in the geographic location at which Executive must perform his or her duties, which shall not include a
relocation of Executive’s principal place of employment to any location within a fifty (50) mile radius of the location from which Executive served the Company immediately prior to the relocation;
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(iv) a material breach of this Agreement by the Company or the failure of the Company to obtain an agreement from any successor to
the Company in a Change in Control (as defined below) to assume and agree to perform this Agreement.
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10.6. Effect of Termination (Severance Pay). Upon termination of Executive’s employment and this Agreement by the Company without Cause pursuant to Section 10.4 or by Executive for Good Reason pursuant to Section 10.5.1 above, and provided that such
termination constitutes a Separation from Service and provided further that Executive executes and does not revoke a general release of claims satisfactory to the Company within thirty (30) days following the date of termination,
Executive shall be entitled to; (1) twenty-four (24) months of severance pay at the then-existing Base Salary (the “Severance Pay”), (2) an amount equal to any accrued and earned annual bonus for the completed fiscal year immediately
preceding the date of termination that has been declared by the Compensation Committee but not yet paid as of the date of termination, payable as soon as practicable after the date of termination and (3) a pro-rated annual bonus for
the year of termination, payable based on actual performance (as determined by the Board or Compensation Committee in good faith) after the end of the fiscal year in which the termination date occurs and at the same time as annual
performance bonus payments are made to other senior Company executives (the “Pro Rata Bonus”). The Severance Pay shall be payable in equal installments at the same time and in the same manner as such Base Salary had been paid prior to
such termination; provided that any payments required to be made prior to the thirtieth (30th) day following the date of termination of employment (the “First Pay Date”) shall be paid in a single lump sum on the first regularly
scheduled payroll date on or following the First Pay Date. For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulation Section 1.409A-2(b) (iii)), each payment that Executive may be
eligible to receive under this Agreement shall be treated as a separation and distinct payment.
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10.7 Change in Control. Executive acknowledges that he has previously
entered into that certain Executive Change in Control Severance Agreement with the Company (the “CIC Agreement”).
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(i) a transaction or series of transactions occurring after the Effective Date whereby any “person” or
related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (other than the Company, any of its subsidiaries, an employee benefit plan maintained
by the Company or any of its subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such transaction; or
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(ii) the consummation by the Company (whether directly involving the Company or indirectly involving the
Company through one or more intermediaries) after the Effective Date of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single
transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
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(A) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by
remaining outstanding or by being converted into voting securities of the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s
assets or otherwise succeeds to the business of the Company (such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately
after the transaction, and
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(B) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this paragraph as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction. |
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11. Other Conditions of Employment.
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11.1. Employee Confidentiality, Proprietary Rights and Non-Solicitation; Agreement to Arbitrate; and
Non-Competition. Executive’s acknowledges his prior execution of (i) that certain Employee Confidentiality, Proprietary Rights and Non-Solicitation Agreement (the “Employee Confidentiality,
Proprietary Rights and Non-Solicitation Agreement”) and (ii) Agreement to Arbitrate (the “Agreement to Arbitrate”), each of which were executed by Executive in connection with his commencement of employment with the Company and its
subsidiaries in 2013. Executive expressly acknowledges and agrees that the Employee Confidentiality, Proprietary Rights and Non-Solicitation Agreement and Agreement to Arbitrate remain in full force and effect in accordance with their
terms and such agreements are expressly incorporated herein by reference. In addition, during the period in which Executive is receiving any compensation from the Company (including and no less than the severance period) and for a
twelve-month period thereafter, Executive shall not engage in, or be employed by, a business or organization that renders the same or similar services as the Company or otherwise competes with the Company or its business. In applying
this non-competition provision, the Company will not unreasonably withhold its consent for future employment with entities that are not direct competitors or offer substantially the same or similar services as the Company.
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11.2. Policies and Procedures.
Executive’s employment is subject to the Company’s personnel policies and procedures as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion.
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12. Miscellaneous.
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12.1 Entire Agreement. The terms described in this Agreement, together with the Employee
Confidentiality, Proprietary Rights and Non-Solicitation Agreement, and Agreement to Arbitrate, both incorporated herein by reference, set forth the entire understanding between Executive and the Company, and supersede any prior
representations or agreements, whether written or oral, with respect to the subject matter hereof, including, without limitation, the CIC Agreement and that certain employment offer letter agreement dated May 1, 2013 entered into by Executive
in connection with his initial commencement of employment with the Company. No term or provision of this Agreement may be amended waived, released, discharged or modified except in writing, signed by Executive and an authorized officer of the
Company, except as otherwise specifically provided herein.
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12.2. Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, without reference to conflict of law principles. If any legal action is initiated by either party arising from or related to this Agreement, the parties agree to
the exclusive jurisdiction of the courts of Fairfax County, Virginia.
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12.3. Successors. This Agreement shall be
binding upon and shall inure to the benefit of the Company and its successors and assigns. In that this Agreement constitutes a non-delegable personal services agreement, it may not be assigned by Executive and any attempted
assignment by Executive in violation of this covenant shall be null and void.
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12.4. Severability. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and all such remaining
provisions shall remain in full force and effect.
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12.5. Waiver. The failure of either party to insist on strict compliance
with any of the terms of this Agreement will not be deemed to be a waiver of any terms of this Agreement or of the party’s right to require strict compliance with the terms of this Agreement in any other instance.
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12.6. Notices. All notices, demands, or requests provided for or
permitted to be given pursuant to this Agreement must be given in writing, unless otherwise specified, and shall be deemed to have been properly given, delivered, or served by depositing the same in the United States mail, postage
prepaid, certified or registered mail, with deliveries to be made to the following addresses:
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If to Executive:
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James Rhyu, at the address contained in the Company’s Human Resources records.
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If to the Company:
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Attn: General Counsel
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Stride, Inc.
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2300 Corporate Park Drive
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Herndon, VA 20171
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Either party may change such party’s address for notices as necessary by notice given pursuant to this Section.
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13. Captions. Section headings used in this Agreement are for
convenience of reference only and shall not be considered a part of this Agreement.
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14. Amendments and Further Assurances. This Agreement may be amended
or modified from time to time, but only by written instrument executed by all the parties hereto. No variations, modifications, or changes herein or hereof shall be binding upon any party except as set forth in such a written
instrument. The parties will execute such further instruments and take such further action as may be reasonably necessary to carry out the intent of this Agreement.
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15. Counterparts. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one instrument.
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16. Representations by Executive: Executive represents and warrants
that:
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(a) Executive is
free to enter into and perform each of the terms and conditions of this Agreement. Executive is not subject to any agreement, judgment, order or restriction that would be violated by Executive being employed by the Company or that in
any way restricts the services that may be rendered by Executive for the Company. Executive’s execution of this Agreement and performance of Executive’s obligations under this Agreement does not and will not violate or breach any
other agreement between Executive and any other person or entity. In addition, Executive has disclosed to the Company the educational and religious institutions to which Executive has made charitable contributions and donated his
services prior to entering into this Agreement, and the Company has determined that a continuation of those activities after execution of this Agreement, absent a material change in the status of those institutions as they relate to
the Company, is consistent with the Company’s Code of Business Conduct and Ethics.
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(b) Executive has carefully considered the nature and extent of the restrictions and covenants in this Agreement and Executive agrees that they will not prevent Executive from earning a livelihood after employment
with the Company and that they are fair, reasonable and necessary to protect and maintain the proprietary interests, goodwill and other legitimate business interests of the Company in view of the following facts: (i) Executive will
hold a position of confidence and trust with the Company as a result of Executive’s employment with the Company, access to confidential financial and other information, and relationship with the customers, suppliers and other
employees of the Company, (ii) it would be impossible for Executive to be employed or engaged in a directly competitive business to that of the Company as described in Section 11.1 of this Agreement without inevitably using the
Company’s proprietary information, and (iii) Executive has broad skills that will permit gainful employment in many areas and businesses outside the scope of the Company’s business.
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(c) Executive
acknowledges that but for the above representations and warranties of Executive; the Company would not employ Executive or enter into this Agreement.
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17. Parachute Payments.
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(i) It is the
objective of this Agreement to maximize Executive’s Net After-Tax Benefit (as defined herein) if payments or benefits provided under this Agreement are subject to excise tax under Section 4999 of the Code. Notwithstanding any other
provisions of this Agreement, in the event that any payment or benefit by the Company or otherwise to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or
otherwise (all such payments and benefits being hereinafter referred to as the “Total Payments”), would be subject (in whole or in part) to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the cash severance
payments shall first be reduced, and the non-cash severance payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments shall be subject to the Excise Tax, but only if the net amount
of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal
exemptions attributable to such reduced Total Payments), is greater than or equal to the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such
Total Payments and the amount of Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such
unreduced Total Payments).
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(ii) The Total Payments shall be reduced by the Company in the following order: (w) reduction of any cash severance payments
otherwise payable to Executive that are exempt from Section 409A of the Code, (x) reduction of any other cash payments or benefits otherwise payable to Executive that are exempt from Section 409A of the Code, but excluding any payments
attributable to the acceleration of vesting or payments with respect to any equity award with respect to the Company’s common stock that is exempt from Section 409A of the Code, (y) reduction of any other payments or benefits otherwise
payable to Executive on a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any payments attributable to the acceleration of vesting and payments with respect to any equity award with respect to
the Company’s common stock that are exempt from Section 409A of the Code, and (z) reduction of any payments attributable to the acceleration of vesting or payments with respect to any other equity award with respect to the Company’s common
stock that are exempt from Section 409A of the Code.
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(iii) All determinations regarding the application of this Section 3(g) shall be made by an accounting firm with experience in
performing calculations regarding the applicability of Section 280G of the Code and the Excise Tax selected by the Company (“Independent Advisors”). For purposes of determining whether and the extent to which the Total Payments will be
subject to the Excise Tax, (x) no portion of the Total Payments the receipt or enjoyment of which Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code
shall be taken into account, (y) no portion of the Total Payments shall be taken into account which, in the opinion of the Independent Advisors, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code
(including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of Independent Advisors, constitutes reasonable compensation
for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the “base amount” (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation and (z) the value of any non-cash
benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. The costs of obtaining such determination
and all related fees and expenses (including related fees and expenses incurred in any later audit) shall be borne by the Company.
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(iv)
In the event it is later determined that a greater reduction in the Total Payments should have been made to implement the objective and intent of this Section 3(g), the excess amount shall be
returned immediately by Executive to the Company, plus interest at a rate equal to 120% of the semi- annual applicable federal rate as in effect at the time of the Change in Control.
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18. Section 409A.
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(a)
Compliance. In the event that following the date hereof the Company or Executive reasonably
determines that any compensation or benefits payable under this Agreement may be subject to Section 409A of the Code, the Company and Executive shall work together to adopt such amendments to this Agreement or adopt other policies or
procedures (including amendments, policies and procedures with retroactive effect), or take any other commercially reasonable actions necessary or appropriate to (x) exempt the compensation and benefits payable under this
Agreement from Section 409A of the Code and/or preserve the intended tax treatment of the compensation and benefits provided with respect to this Agreement or (y) comply with the requirements of Section 409A of the Code and related
Department of Treasury guidance.
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(b) In-Kind Benefits and Reimbursements. Notwithstanding anything to the contrary in this Agreement, in-kind benefits and reimbursements provided under this Agreement shall be provided in accordance with the requirements of Treasury Regulation
Section 1.409A-3(i)(iv), such that any in- kind benefits and reimbursements provided under this Agreement during any calendar year shall not affect in-kind benefits or reimbursements to be provided in any other calendar year, other
than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code, and any in-kind benefits and reimbursements shall not be subject to liquidation or exchange for another benefit.
Notwithstanding anything to the contrary in this Agreement, reimbursement requests must be timely submitted by Executive and, if timely submitted, reimbursement payments shall be promptly made to Executive following such submission,
but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred. In no event shall Executive be entitled to any reimbursement payments after December 31st of the calendar
year following the calendar year in which the expense was incurred. This paragraph shall only apply to in-kind benefits and reimbursements that would result in taxable compensation income to Executive.
|
(c) Distribution. Notwithstanding anything to the contrary in this
Agreement, to the maximum extent permitted by applicable law, amounts payable to Executive pursuant to Section 10.6 or 10.7 shall be made in reliance upon Treas. Reg. Section 1.409A-1(b)(9) (Separation Pay Plans) or Treas. Reg.
Section 1.409A-1(b)(4) (Short-Term Deferrals). However, to the extent any payments are treated as non-qualified deferred compensation subject to Section 409A of the Code, then if Executive is deemed at the time of his Separation from
Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any portion of the benefits to which Executive is entitled under this Agreement is required in order
to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of Executive’s termination benefits shall not be provided to Executive prior to the earlier of (i) the expiration of the six-month period
measured from the date of Executive’s Separation from Service or (ii) the date of Executive’s death. Upon the earlier of such dates, all payments deferred pursuant to this Section 17(c) shall be
paid in a lump sum to Executive. Thereafter, payments will resume in accordance with this Agreement. The determination of whether Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time
of his Separation from Service shall be made by the Company in accordance with the terms of Section 409A of the Code and applicable guidance there under (including without limitation Treas. Reg. Section 1.409A-1(i)). This Agreement is
intended to be written, administered, interpreted and construed in a manner such that no payment or benefits provided under the Agreement become subject to (a) the gross income inclusion set forth within Section 409A(a)(1)(A) of the
Code or (b) the interest and additional tax set forth within Section 409A(a)(1)(B) of the Code (together, referred to herein as the “Section 409A Penalties”), including, where appropriate, the construction of defined terms to have
meanings that would not cause the imposition of Section 409A Penalties. In no event shall the Company be required to provide a tax gross-up payment to Executive or otherwise reimburse Executive with respect to Section 409A Penalties.
|
|
- 11 - |
DocuSigned by:
|
|
|
|
Nathaniel A. Davis, Executive Chairman |
|
- 12 - |
Agreed and Accepted:
|
|
|
|
|
|
DocuSigned by:
|
|
|
|
James Rhyu | |
Date: 1/22/2021
|
|
- 13 - |
Total Enrollments of 191.5 Thousand, up nearly 60% Year-over-Year
HERNDON, Va.--(BUSINESS WIRE)--January 26, 2021--Stride, Inc. – formerly K12 Inc. (NYSE: LRN), one of the nation’s leading tech-enabled education companies, today announced its results for the second fiscal quarter ended December 31, 2020.
Financial Highlights for the Second Quarter Fiscal 2021 compared with the Second Quarter Fiscal 2020
Second Quarter Fiscal 2021 Summary Financial Metrics
|
|
Three Months Ended December 31, |
|
Change 2020 / 2019 |
||||||||
|
|
2020 |
|
2019 |
|
$ |
|
% |
||||
|
|
(In thousands, except percentages) | ||||||||||
Revenues |
|
$ |
376,145 |
|
$ |
257,559 |
|
$ |
118,586 |
|
46.0 |
% |
Income from operations |
|
|
38,452 |
|
|
30,305 |
|
|
8,147 |
|
26.9 |
% |
Adjusted operating income (1) |
|
|
50,050 |
|
|
37,224 |
|
|
12,826 |
|
34.5 |
% |
Net income |
|
|
24,501 |
|
|
20,594 |
|
|
3,907 |
|
19.0 |
% |
EBITDA (1) |
|
|
61,613 |
|
|
47,534 |
|
|
14,079 |
|
29.6 |
% |
Adjusted EBITDA (1) |
|
|
70,687 |
|
|
53,711 |
|
|
16,976 |
|
31.6 |
% |
Financial Highlights for the Six Months Ended December 31, 2020 Compared to the Six Months Ended December 31, 2019
Six Months Ended December 31, 2020 Summary Financial Metrics
|
|
Six Months Ended December 31, |
|
Change 2020 / 2019 |
||||||||
|
|
2020 |
|
2019 |
|
$ |
|
% |
||||
|
|
(In thousands, except percentages) | ||||||||||
Revenues |
|
$ |
747,105 |
|
$ |
514,680 |
|
$ |
232,425 |
|
45.2 |
% |
Income from operations |
|
|
50,516 |
|
|
10,917 |
|
|
39,599 |
|
362.7 |
% |
Adjusted operating income (1) |
|
|
73,059 |
|
|
24,101 |
|
|
48,958 |
|
203.1 |
% |
Net income |
|
|
37,167 |
|
|
10,864 |
|
|
26,303 |
|
242.1 |
% |
EBITDA (1) |
|
|
91,954 |
|
|
45,293 |
|
|
46,661 |
|
103.0 |
% |
Adjusted EBITDA (1) |
|
|
109,921 |
|
|
56,992 |
|
|
52,929 |
|
92.9 |
% |
(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 our investors as an indicator of performance because they exclude stock-based compensation expense and the amortization of intangible assets. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below. |
Cash Flow and Liquidity
As of December 31, 2020, the Company’s cash and cash equivalents totaled $258.1 million, compared with $212.3 million reported at June 30, 2020. The increase in the cash balance is largely the result of the $348.3 million in proceeds the Company received from its issuance of convertible senior notes during the first quarter, partially offset by the use of $100 million to pay down its revolving credit facility and $72.8 million in cash used to acquire Tech Elevator and MedCerts.
Capital Expenditures
Capital expenditures for the six months ended December 31, 2020 were $23.6 million, a decrease of $2.7 million from the six months ended December 31, 2019 and comprised of,
Organization Announcement
The company today announced that Nathaniel (Nate) A. Davis is retiring from his role as Chief Executive Officer. He will remain active in the business as the Executive Chairman of Stride’s Board of Directors supporting the company’s strategy, public policy, and external relations initiatives. The Board of Directors has selected James J. Rhyu to replace Mr. Davis as Chief Executive Officer. “With a solid foundation and clear strategies in place, I believe this is the appropriate time for me to retire from my role as CEO,” said Nate Davis, Executive Chairman of the Board of Directors. “Having known James and the quality of his work for fifteen years, I have complete faith in his broad set of skills, which he’s developed through managing multiple functional areas both at Stride and throughout his career. He is the right person, at the right moment for this role.” Mr. Rhyu assumes the role of CEO from his current position as President of Corporate Strategy, Marketing, and Technology. During his eight-year tenure at Stride, Mr. Rhyu has also served as the company’s Chief Financial Officer and President of Product and Technology. With more than two decades of business experience, Mr. Rhyu brings significant strategic, financial management, and operational expertise to his new role.
Revenue and Enrollment Data
During the first quarter of fiscal year 2021, the Company revised its lines of revenue reporting into two categories:
a. |
|
General Education - products and services that are predominantly focused on kindergarten through twelfth grade students for core subjects including math, English, science, and history to help build a common foundation of knowledge, and |
|
|
|
b. |
|
Career Learning - products and services that are focused on developing skills for students, in middle school through high school and adult learners, to enter careers in high-growth, in-demand industries—including information technology, business, and health services. Middle and high school students also take general education courses per state standards in addition to coursework in career pathways. |
The Company believes that the change in the lines of revenue will facilitate a better understanding of its business strategy and the markets in which the Company competes. Additional information on the new lines of revenue, including revenue and enrollments for the three months ended December 31st, 2020 and 2019 revised to reflect the new lines of revenue format can be found in Appendix A. Additional information on the new lines of revenue for fiscal years 2020 and 2019 revised to reflect the new lines of revenue format can be found in our first quarter, fiscal year 2021 press release. This information is provided for investor reference only. Readers are encouraged to obtain and carefully review Stride Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2020, including all financial statements contained therein and the footnotes thereto, filed with the SEC.
Revenue
The following table sets forth the Company’s revenues for the periods indicated:
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
||||||||||
|
|
December 31, |
|
Change 2020 / 2019 |
|
December 31, |
|
Change 2020 / 2019 |
||||||||||||||||
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
||||||||
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
General Education |
|
$ |
313,989 |
|
$ |
232,619 |
|
$ |
81,370 |
|
35.0 |
% |
|
$ |
627,838 |
|
$ |
466,185 |
|
$ |
161,653 |
|
34.7 |
% |
Career Learning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Middle - High School |
|
|
51,376 |
|
|
24,940 |
|
|
26,436 |
|
106.0 |
% |
|
|
100,147 |
|
|
48,495 |
|
|
51,652 |
|
106.5 |
% |
Adult |
|
|
10,780 |
|
|
— |
|
|
10,780 |
|
100.0 |
% |
|
|
19,120 |
|
|
— |
|
|
19,120 |
|
100.0 |
% |
Total Career Learning |
|
|
62,156 |
|
|
24,940 |
|
|
37,216 |
|
149.2 |
% |
|
|
119,267 |
|
|
48,495 |
|
|
70,772 |
|
145.9 |
% |
Total Revenues |
|
$ |
376,145 |
|
$ |
257,559 |
|
$ |
118,586 |
|
46.0 |
% |
|
$ |
747,105 |
|
$ |
514,680 |
|
$ |
232,425 |
|
45.2 |
% |
Enrollment Data
The following table sets forth total enrollment data for students in our General Education and Career Learning lines of revenue. Enrollments for General Education and Career Learning include those students in full service public or private programs where Stride provides a combination of curriculum, technology, instructional and support services inclusive of administrative support.
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
||||
|
|
December 31, |
|
2020 / 2019 |
|
December 31, |
|
2020 / 2019 |
||||||||||
|
|
2020 |
|
2019 |
|
Change |
|
Change % |
|
2020 |
|
2019 |
|
Change |
|
Change % |
||
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Education (1) |
|
161.2 |
|
106.8 |
|
54.4 |
|
50.9 |
% |
|
162.0 |
|
107.8 |
|
54.2 |
|
50.3 |
% |
Career Learning (1) (2) |
|
30.3 |
|
13.1 |
|
17.2 |
|
131.3 |
% |
|
30.4 |
|
13.2 |
|
17.2 |
|
130.3 |
% |
Total Enrollment |
|
191.5 |
|
119.9 |
|
71.6 |
|
59.7 |
% |
|
192.4 |
|
121.0 |
|
71.4 |
|
59.0 |
% |
(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. Revenue per enrollment in the three and six months ended December 31st declined from 2019 to 2020 due to state budgetary pressures resulting from COVID-19 and a higher mix of lower-funded states.
|
|
Three Months Ended December 31, |
|
Change 2020 / 2019 |
|
Six Months Ended December 31, |
|
Change 2020 / 2019 |
|||||||||||||||
|
|
2020 |
|
2019 |
|
$ |
|
% |
|
2020 |
|
2019 |
|
$ |
|
% |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
General Education |
|
$ |
1,755 |
|
$ |
1,953 |
|
$ |
(198 |
) |
|
(10.1 |
%) |
|
3,491 |
|
3,847 |
|
(356 |
) |
|
(9.2 |
%) |
Career Learning |
|
|
1,681 |
|
|
1,866 |
|
|
(185 |
) |
|
(9.9 |
%) |
|
3,258 |
|
3,619 |
|
(361 |
) |
|
(10.0 |
%) |
Outlook
The Company is updating its outlook for the third quarter and full fiscal year, 2021. The Company is forecasting the following for the full fiscal year 2021:
The Company is forecasting the following for the third quarter, fiscal 2021:
(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. Please also see Special Note on Forward Looking Statements below. |
|
|
Three Months Ended March 31, 2021 |
|
Year Ended June 30, 2021 |
||||||||
|
|
Low |
|
High |
|
Low |
|
High |
||||
|
|
(In millions) |
||||||||||
Income from operations |
|
$ |
30.5 |
|
$ |
34.5 |
|
$ |
90.5 |
|
$ |
98.5 |
Stock-based compensation expense |
|
|
13.0 |
|
|
14.0 |
|
|
43.0 |
|
|
45.0 |
Amortization of intangible assets |
|
|
3.5 |
|
|
3.5 |
|
|
11.5 |
|
|
11.5 |
Adjusted operating income |
|
$ |
47.0 |
|
$ |
52.0 |
|
$ |
145.0 |
|
$ |
155.0 |
Conference Call
The Company will discuss its second quarter 2021 financial results during a conference call scheduled for Tuesday, January 26, 2021 at 5:00 p.m. eastern time (ET).
Participants can access a live webcast of the call at https://event.on24.com/wcc/r/2948484/F4CDE03D7AFE81652B2C24482A4B7C99. Please access the website at least 15 minutes prior to the start of the call. To participate in the live call, investors and analysts should dial (833) 900-1536 (domestic) or (236) 712-2276 (international) at 4:45 p.m. (ET). The conference ID is 7723219.
A replay of the call will be available starting on January 26, 2021 at 8:00 p.m. (ET) through February 26, 2021 at 8:00 p.m. (ET) at 1-800-585-8367 (domestic) or 416-621-4642 (international) and entering the conference ID 7723219. A webcast replay will be available at https://event.on24.com/wcc/r/2948484/F4CDE03D7AFE81652B2C24482A4B7C99 for 30 days.
About Stride Inc.
At Stride, Inc. (NYSE: LRN) – formerly K12 Inc. – 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, destinationsacademy.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; failure to replace students who have graduated from the terminal grade in a school or have left our programs for other reasons with new students of a sufficient number; inability to maintain our current rate of retention of students enrolled in our courses; an increase in the amount of failures to enter into new school contracts or renew existing contracts, in part or in their entirety; the failure of perceived industry trends and projections resulting from the expected effects of COVID-19 on virtual education; 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 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 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 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, 2020 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 quarterly period ended December 31, 2020, 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 December 31, |
|
Six Months Ended December 31, |
||||||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||||||
|
|
(In thousands except share and per share data) | ||||||||||||||
Revenues |
|
$ |
376,145 |
|
|
$ |
257,559 |
|
|
$ |
747,105 |
|
|
$ |
514,680 |
|
Instructional costs and services |
|
|
246,754 |
|
|
|
167,470 |
|
|
|
487,823 |
|
|
|
336,828 |
|
Gross margin |
|
|
129,391 |
|
|
|
90,089 |
|
|
|
259,282 |
|
|
|
177,852 |
|
Selling, general, and administrative expenses |
|
|
90,939 |
|
|
|
59,784 |
|
|
|
208,766 |
|
|
|
166,935 |
|
Income from operations |
|
|
38,452 |
|
|
|
30,305 |
|
|
|
50,516 |
|
|
|
10,917 |
|
Interest income (expense), net |
|
|
(5,024 |
) |
|
|
441 |
|
|
|
(7,131 |
) |
|
|
1,351 |
|
Other income, net |
|
|
1,361 |
|
|
|
365 |
|
|
|
1,790 |
|
|
|
357 |
|
Income before income taxes and loss from equity method investments |
|
|
34,789 |
|
|
|
31,111 |
|
|
|
45,175 |
|
|
|
12,625 |
|
Income tax expense |
|
|
(10,642 |
) |
|
|
(10,392 |
) |
|
|
(8,266 |
) |
|
|
(1,574 |
) |
Income (loss) from equity method investments |
|
|
354 |
|
|
|
(125 |
) |
|
|
258 |
|
|
|
(187 |
) |
Net income attributable to common stockholders |
|
$ |
24,501 |
|
|
$ |
20,594 |
|
|
$ |
37,167 |
|
|
$ |
10,864 |
|
Net income attributable to common stockholders per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.61 |
|
|
$ |
0.52 |
|
|
$ |
0.93 |
|
|
$ |
0.28 |
|
Diluted |
|
$ |
0.60 |
|
|
$ |
0.52 |
|
|
$ |
0.89 |
|
|
$ |
0.27 |
|
Weighted average shares used in computing per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
40,160,362 |
|
|
|
39,450,017 |
|
|
|
40,072,360 |
|
|
|
39,369,287 |
|
Diluted |
|
|
41,102,425 |
|
|
|
39,973,933 |
|
|
|
41,681,061 |
|
|
|
40,692,822 |
|
STRIDE INC. |
||||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
|
|
|||||||
|
|
Six Months Ended December 31, |
||||||
|
|
2020 |
|
2019 |
||||
|
|
(In thousands) | ||||||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net income |
|
$ |
37,167 |
|
|
$ |
10,864 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
41,438 |
|
|
|
34,376 |
|
Stock-based compensation expense |
|
|
17,967 |
|
|
|
11,699 |
|
Deferred income taxes |
|
|
5,375 |
|
|
|
346 |
|
Provision for (recovery of) doubtful accounts |
|
|
6,382 |
|
|
|
(344 |
) |
Amortization of discount and fees on debt |
|
|
4,973 |
|
|
|
— |
|
Other |
|
|
16,871 |
|
|
|
7,116 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(208,870 |
) |
|
|
(59,650 |
) |
Inventories, prepaid expenses, deposits and other current and long-term assets |
|
|
(23,231 |
) |
|
|
2,556 |
|
Accounts payable |
|
|
(7,202 |
) |
|
|
(14,141 |
) |
Accrued liabilities |
|
|
4,346 |
|
|
|
690 |
|
Accrued compensation and benefits |
|
|
(5,401 |
) |
|
|
(13,943 |
) |
Operating lease liability |
|
|
(10,364 |
) |
|
|
(4,089 |
) |
Deferred revenue and other liabilities |
|
|
40,592 |
|
|
|
3,255 |
|
Net cash used in operating activities |
|
|
(79,957 |
) |
|
|
(21,265 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
(1,969 |
) |
|
|
(1,338 |
) |
Capitalized software development costs |
|
|
(14,061 |
) |
|
|
(12,978 |
) |
Capitalized curriculum development costs |
|
|
(7,524 |
) |
|
|
(11,991 |
) |
Sale of long-lived assets |
|
|
223 |
|
|
|
— |
|
Acquisition of MedCerts, LLC, net of cash acquired |
|
|
(54,775 |
) |
|
|
— |
|
Acquisition of Tech Elevator, Inc., net of cash acquired |
|
|
(15,981 |
) |
|
|
— |
|
Other acquisitions and investments, net of distributions |
|
|
(188 |
) |
|
|
(4,114 |
) |
Net cash used in investing activities |
|
|
(94,275 |
) |
|
|
(30,421 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Repayments on finance lease obligations |
|
|
(11,455 |
) |
|
|
(14,959 |
) |
Repayments on credit facility |
|
|
(100,000 |
) |
|
|
— |
|
Issuance of convertible senior notes |
|
|
408,610 |
|
|
|
— |
|
Purchases of capped calls in connection with convertible senior notes |
|
|
(60,354 |
) |
|
|
— |
|
Proceeds from exercise of stock options |
|
|
303 |
|
|
|
48 |
|
Withholding of stock options for tax withholding |
|
|
(10,885 |
) |
|
|
— |
|
Repurchase of restricted stock for income tax withholding |
|
|
(6,108 |
) |
|
|
(4,883 |
) |
Net cash provided by (used in) financing activities |
|
|
220,111 |
|
|
|
(19,794 |
) |
Net change in cash, cash equivalents and restricted cash |
|
|
45,879 |
|
|
|
(71,480 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
213,299 |
|
|
|
284,621 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
259,178 |
|
|
$ |
213,141 |
|
|
|
|
|
|
|
|||
Reconciliation of cash, cash equivalents and restricted cash to balance sheet as of December 31st: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
258,107 |
|
|
$ |
211,641 |
|
Other current assets (restricted cash) |
|
|
571 |
|
|
|
500 |
|
Deposits and other assets (restricted cash) |
|
|
500 |
|
|
|
1,000 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
259,178 |
|
|
$ |
213,141 |
|
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with GAAP, we have presented adjusted operating income (loss), and adjusted EBITDA, which are not presented in accordance with GAAP.
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:
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.
|
|
Three Months Ended December 31, |
|
Six Months Ended December 31, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
|
|
(In thousands) | ||||||||||
Income from operations |
|
$ |
38,452 |
|
$ |
30,305 |
|
$ |
50,516 |
|
$ |
10,917 |
Stock-based compensation expense |
|
|
9,074 |
|
|
6,177 |
|
|
17,967 |
|
|
11,699 |
Amortization of intangible assets |
|
|
2,524 |
|
|
742 |
|
|
4,576 |
|
|
1,485 |
Adjusted operating income |
|
|
50,050 |
|
|
37,224 |
|
|
73,059 |
|
|
24,101 |
Depreciation and other amortization |
|
|
20,637 |
|
|
16,487 |
|
|
36,862 |
|
|
32,891 |
Adjusted EBITDA |
|
$ |
70,687 |
|
$ |
53,711 |
|
$ |
109,921 |
|
$ |
56,992 |
Appendix A
Full Definitions for New Lines of Reporting Revenue and Enrollments
Stride, Inc., together with its subsidiaries (“Stride” or the “Company”) is an education services company providing online and blended learning. On December 16, 2020, the Company changed its name from K12 Inc. to Stride, Inc. The brand reflects the Company’s continued growth into lifelong learning, regardless of a student’s age or location. The Company’s technology-based products and services enable its clients to attract, enroll, educate, track progress, and support students on a scalable basis. These products and services, spanning curriculum, systems, instruction, and support services are designed to help learners reach their educational goals through inspired teaching and personalized learning. The Company’s clients are primarily public and private schools, school districts, and charter boards. Additionally, it offers solutions to employers, government agencies and consumers, including through private schools which it operates. These products and services are provided through two lines of revenue:
General Education – products and services are predominantly focused on kindergarten through twelfth grade students for core subjects including math, English, science, and history to help build a common foundation of knowledge. Programs utilizing General Education products and services are for students that are not specializing in any particular curriculum or course of study. These programs provide an alternative to traditional school options and serve a range of student needs including safety concerns, increased academic support, scheduling flexibility, physical/health restrictions or advanced learning among other reasons. Products and services are sold a la carte or combined into customized customer offerings.
Career Learning – products and services are focused on developing skills for students, in middle school through high school and adult learners, to enter careers in high-growth, in-demand industries—including information technology, business, and health services. The Company provides middle and high school students with Career Learning programs that complement their core general education coursework in math, English, science and history. Stride currently offers a catalog of over 160 Career Learning courses in 23 Career Pathways™ in five of the sixteen National Career Clusters. The middle school program spans career exploration, exposes students to a variety of career options, and introduces career skill development. In high school, students may engage in industry content pathway courses, project-based learning in virtual teams, and career development services. High school students also have the opportunity to progress toward certifications, connect with industry professionals, earn college credits while in high school, and participate in job shadowing and/or work based learning experiences that are required to succeed in today’s digital, tech-enabled economy. A student enrolled in a school offering our General Education program may take Career Learning courses but that student and associated revenue is not reported as Career Learning enrollment and revenue. A student and the associated revenue, whether in middle or high school is counted as Career Learning if enrolled in a school offering our Career Learning program and must commit to a career pathway and its associated services, including the Exploratory Pathways. Like General Education, products and services for the Career Learning market are sold a la carte or combined into a Career Learning program or customized customer offering. The Company also offers post-secondary Career Learning programs to adult learners, through its Galvanize, Tech Elevator and MedCerts subsidiaries. These programs include skills training in data science and software engineering, healthcare and medical fields, technology staffing and talent development, and are offered directly to consumers, employers and government agencies.
The following tables provide revenue and enrollments for the three months ended December 31, 2020 and 2019 for the new reporting formats. This information is provided for investor reference only. Readers are encouraged to obtain and carefully review Stride Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2020, 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.
|
|
Fiscal Year 2021 |
|
Fiscal Year 2020 |
||||
General Education |
|
Three Months Ended |
|
Three Months Ended |
||||
|
|
December 31, 2020 |
|
December 31, 2019 |
||||
|
|
(In thousands) |
|
(In thousands) |
||||
Managed Public School Programs |
|
$ |
325,827 |
|
|
$ |
229,576 |
|
Add: |
|
|
|
|
|
|
||
Private Pay Schools and Other |
|
|
12,533 |
|
|
|
8,626 |
|
Institutional (Non-managed and Software & Services) |
|
|
27,005 |
|
|
|
19,357 |
|
Less: |
|
|
|
|
|
|
||
Career Learning - Managed Public School Programs |
|
|
(50,228 |
) |
|
|
(24,356 |
) |
Career Learning - Non-managed Public School Programs |
|
|
(477 |
) |
|
|
(481 |
) |
Career Learning - Private Pay Schools and Other |
|
|
(671 |
) |
|
|
(103 |
) |
Total General Education Revenues |
|
$ |
313,989 |
|
|
$ |
232,619 |
|
|
|
|
|
|
|
|||
|
|
Fiscal Year 2021 |
|
Fiscal Year 2020 |
||||
|
|
Three Months Ended |
|
Three Months Ended |
||||
|
|
December 31, 2020 |
|
December 31, 2019 |
||||
|
|
(In thousands) |
|
(In thousands) |
||||
Managed Public School Programs |
|
|
186.7 |
|
|
|
117.6 |
|
Non-managed Public School Programs |
|
|
55.5 |
|
|
|
15.6 |
|
Total Old Reporting |
|
|
242.2 |
|
|
|
133.2 |
|
Add: |
|
|
|
|
|
|
||
Private Pay |
|
|
4.8 |
|
|
|
2.3 |
|
Less: |
|
|
|
|
|
|
||
Non-managed Public School Programs |
|
|
(55.5 |
) |
|
|
(15.6 |
) |
Net Changes - Old vs New Reporting |
|
|
(50.7 |
) |
|
|
(13.3 |
) |
Total New Reporting |
|
|
191.5 |
|
|
|
119.9 |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
|
Fiscal Year 2021 |
|
Fiscal Year 2020 |
||||
Career Learning |
|
Three Months Ended |
|
Three Months Ended |
||||
|
|
December 31, 2020 |
|
December 31, 2019 |
||||
|
|
(In thousands) |
|
(In thousands) |
||||
Career Learning - Managed Public School Programs |
|
$ |
50,228 |
|
|
$ |
24,356 |
|
Career Learning - Non-managed Public School Programs |
|
|
477 |
|
|
|
481 |
|
Career Learning - Private Pay Schools and Other |
|
|
671 |
|
|
|
103 |
|
Private Pay Schools and Other (Galvanize, MedCerts and Tech Elevator) |
|
|
10,780 |
|
|
|
— |
|
Total Career Learning Revenues |
|
$ |
62,156 |
|
|
$ |
24,940 |
|
Stride Inc.
Investor Contact:
Mike Lawson, 513-432-2358
Vice President, Investor Relations
mlawson@k12.com
James J. Rhyu named new CEO
HERNDON, Va.--(BUSINESS WIRE)--January 26, 2021--Stride, Inc. (NYSE: LRN)—a leading provider of innovative, high-quality, and tech-enabled education solutions—today announced that Nathaniel (Nate) A. Davis is retiring from his role as Chief Executive Officer. He will remain active in the business as the Executive Chairman of Stride’s Board of Directors.
Replacing Mr. Davis as Chief Executive Officer is James J. Rhyu who has served in a variety of roles during his eight-year tenure at Stride, including Chief Financial Officer, President of Product and Technology, and most recently as President of Corporate Strategy, Marketing, and Technology.
Among many notable achievements during his tenure, Mr. Davis led the company to prioritize academic outcomes, strengthen teacher tools and student-teacher interaction, increase student retention and graduation rates, reimagine the customer experience, and expand the company’s use of gamification, video, and Artificial Intelligence to support student outcomes. Also, under his direction, the company increased revenues on an annual basis by more than 65%, while increasing profitability and establishing one of the deepest management teams in the education sector.
With more than two decades of business experience, Mr. Rhyu brings significant strategic, financial management, and operational expertise to his new role.
“Having known James and the quality of his work for fifteen years, I have complete faith in his broad set of skills, which he’s developed through managing many different functional areas,” said Nate Davis, Executive Chairman of the Board. “Whether it’s examining student enrollment trends, evaluating acquisitions, or dissecting changes in marketing programs and techniques, James has played an active role in using business information to set strategic direction and drive the success of new initiatives. His depth of experience and track record of success uniquely qualifies him to lead Stride and continue the progress we’ve made. And under his direction, we will continue building a successful world-class education company.”
Prior to joining Stride, Mr. Rhyu served as Chief Financial Officer and Chief Administrative Officer of Match.com, a subsidiary of publicly traded IAC/InterActiveCorp. Prior to his roles at Match.com, Mr. Rhyu was a Senior Vice President of Finance at Dow Jones & Company, where he ran the global financial function. Mr. Rhyu also spent six years with Ernst & Young LLP in the United States and South America.
“It is an honor and a privilege to lead Stride, Inc.—a company that is reimagining learning for today’s digital economy,” Rhyu said. “I am very much looking forward to building on our successes as a company, and providing personalized, high-quality education for learners of all ages.
Mr. Rhyu earned a bachelor’s degree from the Wharton School of Business at the University of Pennsylvania and an MBA from the London Business School.
The Board of Directors has focused on a smooth transition in leadership as Mr. Davis and Mr. Rhyu have worked together to build Stride into the education leader it is today. Mr. Davis, with Mr. Rhyu’s support, has led the company’s rapidly expanding career learning business, which gives learners the chance to explore opportunities in high-demand careers. Stride’s career learning business currently serves more than 30,000 students and is targeted to more than double revenues year-over-year. As part of this effort, Mr. Davis has led transformative investments in three of the nation’s leading workforce development companies—Galvanize, MedCerts, and Tech Elevator.
Importantly, Mr. Davis expanded online learning options for thousands of families during the coronavirus pandemic; launched a first-of-its-kind partnership with Southern New Hampshire University that offers a graduate degree program in online teaching; and spearheaded an extensive internal campaign focused on student growth and student engagement. With his signature program “We Stand Together” he strengthened Stride’s diversity and inclusion efforts and made it a core part of the way the company works, teaches, and leads.
Mr. Davis leaves a legacy of commitment to the students, families, schools, and customers Stride serves, and to reimagining lifelong learning.
About Stride, Inc.
At Stride, Inc. (NYSE: LRN) – formerly K12 Inc. – we are reimagining lifelong learning as a rich, deeply personal experience that prepares learners for tomorrow. Since its inception, Stride has been committed to removing barriers that impact academic equity and to providing high-quality education for anyone—particularly those in underserved communities. 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. Providing a solution to the widening skills gap in the workplace and student loan crisis, Stride equips students with real world skills for in-demand jobs with career learning. 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, destinationsacademy.com, galvanize.com, techelevator.com, and medcerts.com.
Mike Kraft,
Senior Vice President, Corporate Communications
571-353-7778
mkraft@k12.com