So last week I wrote a bit of a commentary when I posted the notice of John’s blog entry on Student Art and School Funding, and in that entry I mentioned I wanted to return to the topic of how Stride Inc. (formerly K12, Inc. reported its revenue and expenses).  Regular readers of this space will note that I regularly (almost daily when I receive them) post the corporate notices for Stride Inc. (under their ticker label of LRN).  Historically, the court has found that schools managed by corporate educational management organization are private, proprioriety organizations and that they don’t have the same disclosure requirements as traditional public schools (and this is true of both online and brick and mortar examples – and almost all of these court cases have focused on corporate EMOs that operate brick-and-mortar schools).  Even in instances where the online schools provide disclosure, many of the guidelines continue to be written for brick-and-mortar environments- which means that online schools have to figure out where to put X and Y, and they don’t always make the same decision (see Funding Virtual Schools – Michigan Edition for a good example).

What all of this means is that the corporate filings that are required by the SEC continue to be some of the best sources of information for what we know about the corporations.  But that level of detail is changing based on recent business decisions.  If you look at the corporate filings of Stride Inc., historically they have broken down their revenue and expenses based on the following three line.

Taken from the 2020 annual report.

As you can see from the descriptions, the “Managed Public School Programs” provided a great deal of information about the amount of revenue and expenses, number of schools in each category, number of students enrolled in each category, etc..  In fact, even the “Institutional” line was useful, as this was similar data for instances where they partnered with or were contracted by a public school district to provide similar services to what is included in their managed programs.

However, beginning with the 2021 annual report, they have changed those three lines to these two:

• Products and services for the General Education market are predominantly focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students 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 address a range of student needs including, safety concerns, increased academic support, scheduling flexibility, physical/health restrictions or advanced learning. Products and services are sold as a comprehensive school-as-a-service offering or à la carte.
• Career Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries—including information technology, health care and business. 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 offers multiple career pathways supported by a diverse catalog of Career Learning courses. The middle school program 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 Stride’s General Education program may take Career Learning courses, but that student and the associated revenue is not reported as a Career Learning enrollment or Career Learning revenue. However, a student and the associated revenue, whether in middle or high school, is counted as a Career Learning enrollment or Career Learning revenue if the student is enrolled in a Career Learning program. Like General Education products and services, the products and services for the Career Learning market are sold as a comprehensive school-as-a-service offering or à la carte. The Company also offers focused post-secondary career learning programs to adult learners, through its Galvanize, Inc. (“Galvanize”), Tech Elevator, Inc. (“Tech Elevator”), and MedCerts, LLC (“MedCerts”) brands. These include skills training in the data science, software engineering, healthcare, and medical fields, as well as providing staffing and talent development services to employers. These programs are offered directly to consumers, as well as to employers and government agencies.

As you can see from the descriptions, while it appears that most of their managed public school programs would fall into the General Education line, there are a lot of other things that get included in General Education.  Additionally, some of the managed public school programs that have a specific focus on career and technical education would fall under the Career Learning line.  So a level of transparency that used to exist for those of us in the field is no longer available to us

And this is not to specifically pick on or single out Stride Inc., as historically their corporate filings have told us a lot more about their operations than what Pearson’s filings tell us about the role that Connections Education and their Connections Academies play in their overall revenue.  Pearson is a much bigger and more international corporation with many more streams of revenue and expenses.  So trying to determine what profit margins might exist from managed schools is difficult.  If you look at Pearson’s latest filings, its 2021 annual report indicates that:

Overview

The Group (i.e., Pearson) is a leading provider of educational materials and learning technologies. It provides test development, processing and scoring services to governments, educational institutions, corporations and professional bodies around the world. It provides content across the curriculum and a range of education services including teacher development, educational software and system-wide solutions, it owns and operates colleges and schools (including virtual schools). The Group is run as one global learning company, operating around six geographical areas (UK, Europe, US, Canada, Asia Pacific, Other countries) organized in five main global business divisions, each of which are reporting segments (Virtual Learning, Higher Education, English Language Learning, Workforce Skills and Assessment & Qualifications). Within each geographical area, the Group provides content, assessment and digital services to schools, colleges and universities, as well as professional and vocational education to learners. The results of the Businesses under Strategic Review are reported separately.

If we try and focus in just on the Virtual Learning segment, it includes:

Virtual Learning Virtual Learning comprises our Virtual Schools and Online Program Management (OPM) businesses. There is a growing international demand for virtual schooling, partly down to advances in technology, but also accelerated by the recent pandemic. Our Virtual Learning division offers highly effective online learning for every age and stage of education. Users are able to learn where, when, and how they learn best, giving them a truly personalized experience. It’s designed to be smart, flexible, and inspiring education that propels people forward in their lives and careers. Students in grades K-12 in the US (equivalent to primary and secondary school in the UK) can enrol in full-time online public or private school programs offered by Pearson Virtual Schools. Fully accredited and staffed with specially trained teachers, these online schools have been providing high quality alternatives to the traditional classroom experience for over 20 years. Students are prepared to be adaptable; equipped with the academic and life skills they need to thrive today and in an ever-changing world. K-12 online school options include Connections Academy (US-based public schools), Pearson Online Academies (international private schools), and programs for school districts across the US. Adult learners, universities and employers rely on Pearson for exclusive online higher education programs and Online Program Management (OPM) services, including degrees, certificates and short courses. Students gain access to convenient, compelling online learning to boost employability and advance in their careers, while higher education institutions extend their reach and provide the flexible online options their students want. For employers, our OPM business delivers vital upskilling and reskilling to keep pace with the future of work. This business operates in the US and internationally. See “Item 5. Operating and Financial Review and Prospects — Results of Operations — Year Ended December 31, 2021 compared to year ended December 31, 2020 — Sales and operating profit by division — Virtual Learning” for a discussion of developments during 2021 with respect to this segment.

In trying to figure out what impact this might have on the overall corporate operations, they write later in the report:

Virtual Learning  Virtual Learning sales increased from £692m in 2020 to £713m in 2021, an increase of £21m or 3%. The Group estimates that after excluding the impact of exchange rates, Virtual Learning’s sales increased by 11% in 2021 compared to 2020. Revenue growth reflects strong enrolment growth in Virtual Schools in the 2020/2021 academic year, with good underlying enrolment growth in OPM. Adjusted operating profit grew 28% in underlying terms, due to operating leverage and efficiency improvements in OPM more than offsetting the investment in our Virtual Schools’ platform and customer care support, as well as margin impact in OPM due to discontinued programs. Headline profit grew 10% with good growth in adjusted operating profit partially offset by currency movements. Virtual Schools performed strongly driven by 43% enrolment growth in new and existing schools for the 2020/2021 academic year. We opened five new full-time, online partner schools in Florida, Rhode Island, Colorado, South Carolina, and Oregon. We also announced our first Connections Academy in the state of Virginia, which begins enrolment in March 2022, one school in New Mexico moved from a partner school to district programme. This brings the 2021/2022 total number of partner schools to 47 in 30 states. Enrolments in the 2021/2022 academic year grew by 2% despite a significant unwinding of the “covid cohort”. In OPM, we saw good underlying enrolment growth of 7% as Maryville University extended its OPM partnership for online degrees in the high-demand field of Nursing through to 2033 and Northeastern University added a new online master’s degree and certificate programs in Nursing and Healthcare. We ended the year with a total of 477 programs across 31 partners with the addition of 43 new programs in North America across 21 partners, and 7 new programs internationally where underlying enrolments grew by more than 80%. The Virtual Learning results also include intangible charges of £25m in 2021 compared to £30m in 2020 reflecting the impact of historical acquisition activity. Major restructuring costs were £48m in 2021 and £nil in 2020.

So not really any details on what virtual learning revenue and expenses come from US-based virtual learning and what comes from international sources, and no real way of figuring out what comes rom their “virtual schools” compared to what is for their other forms of virtual learning.

Anyway, since it came up last week in the entry on Student Art and School Funding – as well as the fact that I was also recently accused of being a Stride Inc. supporter because I post their corporate news as it crosses my electronic desk – I wanted to dive into this topic a bit more and give folks a chance to comment.