- Covid Windfall is GONE! – Funds Expired Sept 2024 – EBITDA Cliff Coming
- Mgmt. Hid That Schools Received >$330mm in Revenue from Covid Funds
- Discovered That Fake “Ghost Students” Account for Large % of Enrollment
- Undisclosed Churn – Schools are Leaving
We are short Stride Inc (fka K12 Inc.) (NYSE:LRN). We believe Stride, a K-12 online education company, is the last Covid over-earning stock yet to fall. The stock is near its highs (+60% YoY) but investors are clueless about the looming Covid funding cliff. Investors don’t know because Stride management has NOT told them. Instead, management has said over and over again that the company received little to no benefit from the $190 Billion of federal Covid funds (called Elementary & Secondary School Emergency Relief Funds, or “ESSER”). Former Stride executives told us that management misled investors.
“That ESSER money was kind of like a windfall … [Stride] swept all that money”
~Former Senior Stride Executive
We spent hundreds of hours of collecting publicly available school data that confirmed Covid ESSER funds were a windfall for Stride from 2020-2024. We discovered that Stride schools received >$330 million of revenue from Covid (ESSER) funds, and much of that flowed to the corporate bottom line.
Former executives told us Stride captured abnormally high margins of the Covid funds (ESSER) because there were few specific requirements on how they could be spent. The executives estimated the funds flowed through to Stride’s bottom line at supernormal rates estimated of between 50-75%. We estimate that ESSER Covid funds accounted for >25% of EBITDA!
As of September 30, 2024 those funds have expired. We believe Stride’s EBIDTA is set to Fall Off a Covid Cliff.
Stride is currently trading at peak everything. Peak EBITDA, Peak Multiple, and near its Peak Stock Price. Investors don’t know that on the other side of that peak lays a Covid Cliff!
Background: Stride was a sleepy company no growth for a decade, Covid hit. Growth ensued and, boom EBITDA almost doubled, we’ll show you why that’s set to not only end but reverse.
We are short Stride because:
- We pulled the data school by school & uncovered Stride Schools got >$300 million revenue from Covid funds.
- Management has hidden that their schools received a huge benefit from Covid Funds
- Covid (ESSER funds) are gone. They expired September 2024
- We estimate ESSER Funds boosted Stride EBITDA by >25% of EBITDA.
- Formers estimated ESSER funds flowed to Stride’s bottom line at a 50-75% rate
- Covid Funds massively reduced school operating losses that Stride is contractually obligated to reimburse — Loss reimbursement went from –$555 per student to –$87 per student
- Enabled Stride to claw back the past operating losses paid to schools.
- Increased high margin fees earned by Stride
- ESSER Funds came with “no strings attached” – Stride took advantage and “supplanted” (paid for) existing expenses with the new Covid funds.
- Executives told us it was “a little bit of a shell game.”
- “Ghost Students” = Stride collects millions for fake “ghost students” it is not educating.
- Invisible Ghosts – est 5-10% of total enrollment
- Described as “fake students”
- Truant Ghosts – est 20-30% of total enrollment
- Stride focuses on getting these students to “show up” on the days where states count initial attendance then disappear.
- Stride cut the staff who tracked attendance and kept kids in class.
- Invisible Ghosts – est 5-10% of total enrollment
- Seven Undisclosed Schools Left Stride Since 2021
- Another large school is leaving in FY26; competitors est Stride will lose 1-2 schools a year
- Management talks about opportunity to add schools in 19 states – but Stride already has been kicked out of 9 of those states
- Allegations of Overbilling & Fraudulent Reimbursement Claims.
- “It’s outright fraud…[Stride] created a shell company, and they put all these kids under the shell company as interns.” ~Former Teacher
- Qui-tam lawsuit accused Stride of using a fake program to get 300% higher reimbursement.
- Stride schools enroll students even when it’s impossible to earn academic credits.
- Ridiculous mark-ups on supplies sold to schools:
- Charged $400 for $300 chromebooks;
- $27 if students change classes (aka click a different class link)
- Risk of Ghost students going away is mispriced – Kamala Harris Cracked Down on Ghost StudentsOnce Before
- As California’s attorney general in 2016, Harris investigated the ghost students and forced Stride into a $168 million settlement – an amount equal to ~20% of Stride’s revenue that year.
- Could she do it again as president?
- Stride Schools Rate Terribly & Educators See Dropping Demand
- Stride schools are rated “3/10” on Greatschools.org – That’s terrible!
- Educators say demand for online school is “much lower;” kids say they prefer real school
- CEO James Rhyu’s Colorful Leadership Style – The Phrase “A**hole” came up frequently
- Disdain for students – “He says they’re students, they’re dumb”
- We heard appalling stories – Rhyu’s inappropriate stories about “when he used to travel in Asia and the hookers”
- And telling female executives to “smile more and be less ambitious”
- Formers told us about: “Rageholic episodes” with “Yelling” and “throwing tantrums”
We are short Stride Inc (LRN). We think Stride is the last Covid over-earner to fall off the free government money cliff, and management has been hiding this from investors. Now that the ESSER Covid funds are finally ending, investors are set to find out the truth.
Fuzzy Panda Research is Short Stride Inc. (LRN)
Fuzzy Panda Research and Fuzzy Panda “Affiliates” are short securities of Stride Inc (LRN). Please see additional disclosures at end of report and in our terms of service.
Note on Sources: We are eager to hear more! Former employees or whistleblowers who wish to speak with us anonymously should reach out to us at [email protected]. Many former executives and other Stride employees requested that we keep their identities anonymous. Most feared retribution by James Rhyu, and did not want to risk damaging professional relationships and career prospects in what remains a tight-knit business. We kept those sources anonymous throughout the report but can share them (provided they have approved us to do so) with reputable journalists, state AG’s, the SEC, DOJ, and other government regulators. We will be actively reaching out and providing all this information to regulators and other government agencies.
Note on Estimates – DO YOUR OWN WORK!: All estimates, included in this report are the result of our own data collection & based on our own assumptions and calculations. They should not be relied on by anyone…well other than us. Please start with the assumption that all of our calculations were miscalculated. In fact, the healthiest assumption would probably be that we made up all the public data and since we are Panda’s that we fat fingered the data incorrectly into an abacus made out of bamboo. We included an appendix that will help walk investors through many of the details required to make your own calculation & estimates. Please do your own work. Even better – management should fully disclose all these essential details about their business to investors.
The Bull Case is Going Cliff Jumping
Stride’s Stock is +>100% since the beginning of 2023. At face value, the expansion of Stride’s profits has been impressive, and it has truly warranted the increased share price. It appeared Stride had finally found the long-sought economies of scale within public school education.
After 10+ years of margins being stuck at 10-13% Stride has finally been able to expand their EBITDA Margins. In 2021, they began growing. First to 15%, then 16%, and then boom 19%! Now sell-side analysts are modeling future margins at >20% margins. Bulls believe the margin expansion is here to stay and that Covid brought about structural changes in demand for virtual education.
Long investors could hardly be faulted for believing it when you look at Stride’s top-line numbers. Unfortunately for long investors, Stride’s management has been hiding the real source of improved profitability.
We discovered the core source of the improvement from FY 2020 to FY 2024 EBITDA margins is due to the fact that Stride managed schools got the highest funding per student that they ever had. And that they ever will. But this increased federal Covid funding came with something even better than economies of scale: It came with “no strings attached.” These government funds flowed to Stride’s bottom line at abnormally high margins (50-75% according to formers).
Now it’s October 2024, and there is one, giant problem with the bull thesis. The ESSER Covid relief program ended on Sept. 30. The extra federal funding that enabled the EBITDA margin expansion is gone.
Part I – The ESSER Truth – Covid Cliff is Here; Est >25% EBITDA Going Away
- Public Data Indicates Covid Funding Contributed Est >25% of Stride’s EBITDA
- Unprecedented Subsidies That Had “No Strings Attached” & Could Supplant Existing Expenses
- $190 Bn in Key Federal Subsidies Have Expired
- Stride School’s Own Forecast Shows a Large EBITDA Drop Coming
Stride has been misleading investors into thinking that they didn’t benefit from ESSER funds at all. Unfortunately for Stride and CEO James Rhyu, the data is publicly available. And we pulled it all.
We uncovered the extent of the Esser cliff. It’s real and it’s ugly.
“That ESSER money was kind of like a windfall … [Stride] swept all that money”
~Former Senior Stride Executive
Is Stride CEO’s Credible?
Q) Are you honest?
A) That is hard to answer
“WTF! Type of answer is that”
James Rhyu’s exchange from a 2023 Deposition on honesty raised a major red flag about his ability to mislead investors. Any normal truthful person just says “Yes, I’m honest.”
Q: Mr. Rhyu, are you a man of your word?
Rhyu: I’m not sure I understand that question.
Q: Do you do what you say you are going to do, sir?
Rhyu: Under what circumstances?
Q: Do you do what you say you are going to do, Mr. Rhyu?
Rhyu: That’s such a broad question. It’s hard for me to answer.
We uncovered that James Rhyu appears to have been misleading investors about the ESSER impact since 2021 and still is.
- In August 2021, Rhyu told investors that “[federal stimulus dollars] were not really directed towards us, either directly or indirectly.”
- In October 2021, Rhyu said “we didn’t see a significant amount of ESSER money coming, and we still don’t.”
- In April 2024, Rhyu said “we have sort of indirectly benefited from some of the [ESSER Funding] … I don’t think that we have a cost structure that’s going to need to be rightsized because of ESSER funding going away.”
Here is an example for context on Rhyu’s alleged misstatements—in July 2021 Stride’s Largest School, Ohio Virtual Academy, had already been approved to receive $35.6 million of funds.
Hundreds of School’s Annual Reports Expose Covid Funds as Significant % of Sales; Est >25% of EBITDA
We pulled >250 individual school annual reports and utilized buried government databanks to uncover the real amount of ESSER funds granted to each of Stride’s Schools. The total increase in revenue for Stride Schools from FY 2021-2024 due to ESSER grants alone is >$330 million of revenue.
ESSER funds account for an estimated ~6% of Revenue of FY 2024 revenue; but more importantly it equates to an estimated 26% of 2024 EBITDA and 45% of Net Income!
Below is the School by School ESSER Revenue build-up that we built from public data sources and disclosure around ESSER funding granted to school districts.
We also uncovered that due to a lack of restrictions on how the ESSER funds could be spent, the money flowed to Stride’s bottom line at abnormally high profit margins.
Former Stride Executives estimated that 50-75% of ESSER funds dropped to the bottom line.
Question: If a Stride school had $100 of Esser money coming to the school, how much of that $100 ends up falling to Stride’s bottom-line?
Former Senior Stride Executive: “I think $50 to $75 of $100 [Covid Funds] would have would have fallen to their bottom line one way or another”
What was ESSER? – Covid Funds for Schools A Bonanza for Stride
ESSER funds (Elementary and Secondary School Emergency Relief) are federal funds that Congress allocated to help public and charter schools address the impact of the Covid-19 pandemic. It was massive subsidy for K-12 schools by the federal government of ~$190 billion.
The deadline to allocate ESSER Covid funds without applying for an extension was Sept 30, 2024. Effectively, the massive subsidy for public schools and virtual public schools is over.
The ESSER funds are gone. This has major implications for Stride’s business.
Why ESSER Funds Were High Margin?
ESSER Funds were “A Blank Check” Due to the Ability to “Supplant” Expenses
“The [ESSER] money came in the form of a blank check”
~Marguerite Roza, Georgetown University
The blank check nature of these Covid funds was due to the funds lacking a “Supplement Not Supplant” requirement. As a result of this very rare type of funding, schools were not required to spend the money on documented “supplemental items.” There was no requirement to use the funds to hire additional staff, add new classes, technologies, etc.
Stride schools could instead use the ESSER funds to “Supplant” (pay for) existing expenses.
Former Stride Executives & School Finance Executives explained how the ability to “supplant” existing costs with ESSER funds enabled Stride to increase their profitability.
“[Stride] supplanted a lot and let a lot of that money drop to the bottom line … ESSER did have some purposes tied to it, but it was a lot looser in how you were able to spend the money. And unlike other federal funds, you could use the money to supplant thethings that you are already spending money on… We shifted [school counselors] salaries to ESSER so that then some of the general funds that were coming in to the state, the basic state aid would be freed up then for other things, which meant that in a kind of a little bit of a shell game.”
~Former Senior Stride Executive
“Normal federal funding when it comes from education, in education, you are not allowed to supplant. You will have to supplement…The ESSER Funds, however, did allow you to supplant…So the ESSER money is not the same as federal funds, typically. And because of that, I’m sure [Stride] got the majority. They got their percentage out of the majority of that.”
~Former Stride School Finance Executive
Stride was crafty. They quickly figured out how to utilize this funding bonanza to plug the negative rebates Stride had been paying to schools & school districts for years.
How ESSER Boosted Stride’s Margins?
ESSER Funds were essential to the increase in Stride’s profitability. Former Stride executives listed multiple ways Stride ensured ESSER funds flowed to its bottom line, including:
- Eliminating operating loss reimbursement for schools
- Increased high margin Management and Technology fees of 20%
- Enabled clawbacks of past operating losses paid by Stride to the schools
- Additionally, they said Stride utilized these funds:
- “The shell game game of moving costs from one bucket to another”
- Selling additional services, like professional development or training
- Increased tutoring and additional curriculum costs
“There was extra spending when the ESSER money came after this money came in, but it wasn’t spending 100% of it. It was maybe spending 25 or 30% of it. And then the rest was just a windfall.”
~ Former Senior Stride Executive
Investigator: What is going to happen to Stride’s bottom line once these ESSER funds dry up?
“I think it’s going to drop…“
~ Former Stride School Finance Executive
Maximizing Profitability 101 – Decreased Operating Loss Reimbursement to Schools
Stride maximizes their profitability for the schools it operates by incorporating high management and technology fees into school contracts. The management and technology fees are set at a combined rate of ~20%, which is purposefully higher than most schools can afford to pay. In order to ensure that schools still have a balanced budget, Stride reimburses any school operating losses via rebating these fees to cover any funding deficits. It’s essentially an overcharge then rebate strategy.
Overall, the easiest way to think of the management fees and technology fees Stride charges is to view it as the high gross margin business within Stride.
The result of the ESSER funds was that schools’ operating losses dropped dramatically, allowing Stride to temporarily sweep a higher amount of Technology & Management fees. At the same time, the ESSER funds drastically decreased the schools’ operating losses Stride it needed to reimburse.
ESSER Funds Increased School’s Profitability -> Decreased Stride’s Loss Reimbursement From -$555 per student to -$87 per student
Pre-ESSER Funds from FY’16 to FY’19 Stride reimbursed schools an average of -$555 per student. Esser Funds temporarily boosted those school’s budgets dropping operating losses significantly and causing the reimbursement loss per student to fall to just -$87 per student.
Now the Covid funds are gone, we expect Stride’s loss reimbursements to rebound to normalized rates.
With Clawbacks ESSER Impact Could Be Even HIGHER Than Our Est – Utilized Ability to Recapture Past “Deficit Credits”
At many of its schools, Stride was not only able to stop covering losses but was even able to recapture previous payouts it had made to cover school budget deficits. The amount Stride could recapture from each school was contract-by-contract dependent; some allowed Stride to recapture multiple years; others just allowed 1 year’s recapture, and some even allowed ALL of the reimbursement losses to be recaptured.
“I think [Stride was] able to collect on a couple of schools for sure and say, ‘oh good, you have all this extra money, time to pay us all back now.’”
~Former Senior Stride Executive
At Idaho Virtual Academy – Stride Could Recapture ALL of the Deficit Credits
At Ohio Virtual Academy – Stride Could Recapture 1 year of Service Credits
We have not included an ESSER benefit to Stride’s EBITDA from recapturing past service credits. From the School’s annual reports and Stride’s filings we just don’t know how much money they were able to take back from the schools once they became profitable. We found it impossible to estimate when Stride recaptured it. Which FY did Stride take back service credits? Did school boards allow them to take all the Service Credits or just a couple years’ worth?
All we know is that former senior Stride executives and officers told us that whenever there is money on the table, Stride tries to find a way to grab it.
Stride has paid out > $540 million of “Deficit Credits” since 2014.
We believe the amount of Deficit Credits that Stride has recaptured from 2021-2024 is something that management should disclose.
School’s Internal Forecast Shows Stride’s High Margin Fees Will Decline by 36% Post-ESSER
We discovered that Ohio Virtual Academy, one of Stride’s largest schools, published the schools’ future budget forecasts. These forecasts show exact detail of how Stride’s profitability will decline based on the loss of ESSER funds beginning in FY 2025.
The high margin portion of Stride’s revenue, the technology fee + management fees are forecasted to decline by 36% assuming other factors stay equal.
“Question – What happens now that those [Esser] funds are gone?”
~Former Stride School Principal
“These schools are, well say, schools are gonna hurt. And I’ve recently talked to some admin at other Stride schools and like they are preparing for the worst.”
Why Now – ESSER Funds are Gone
Schools had until September 30, 2024 to allocate* ESSER Covid funds. That was 2 weeks ago.
The other option was the schools could apply for an extension. According to a recent news article that requested all state or school district funding extensions; extension requests represented Less Than 1% the $190 billion of funding granted.
It’s time for management to tell the truth to investors about the real ESSER impact on financials.
*Note – Schools could also apply for a 6-month extension if they had not spent the funds yet. However, ESSER spending data and requests for the extensions filed shows the vast majority of funds had already been spent by mid-summer 2024.
PART II: Ghost Students & Empty Seats – Stride Got Paid for Students it was NOT Educating
- 5-10% of Students Were “Ghost Students” and Not Actual Students
- Another 20%-30% of Students Did Not Regularly Attend School yet Stride still got paid
Stride has a “Ghost Student” problem. They tricked the government and treated themselves.
“Ghost students” were described by former executives and administrators as students who Stride was paid to educate but weren’t attending school. Stride collected taxpayer dollars for kids they were not educating, and still is, they said.
Through our interviews we learned that there are 2 different types of “Ghost Students” at Stride:
- 5-10% of students are “Invisible Ghosts”— Former Executives told us that calling this group actual studentsis “complete nonsense.”
- 20-30% are “Truant Ghosts”— These ghost students show up on enrollment/ “count day.” They click a link to join or attend a class or two to get counted as enrolled. They rarely log into classes afterward, effectively disappearing.
Invisible Ghost Students – The “5-10% Who Should Have Never Been Counted as Enrolled”
A former executive told us that Stride uses tricks to boost its enrollment with students who will never spend a day in class. Executives told us that they believed this group of students “should never have been enrolled in the first place”and estimated that “Ghost Students” inflated enrollment numbers by “5-10%.”
How does Stride enroll “Ghost Students”?
- Stride keeps students enrolled year after year even when they don’t show up to classes, former executives said. “[Stride] just re-enrolls them.”
- Unless families actively opt out of re-enrolling, students are automatically registered for the next year even if they have not been attending classes.
- Families who say “unsure” or who don’t respond to an email survey get registered year after year.
- Another way is by enrolling students with incomplete documentation. Stride relaxed compliance so they can enroll students missing needed paperwork like birth certificates or proof of residency.
- Delays withdrawing students who are attending a different school to try to keep them on the count.
This is a shady business practice that was described to us as being either illegal or borderline illegal depending on state rules. They said “[Stride] gets caught sometimes” — and has to pay back money — “but not all the time.” Most of the time it does not.
“Stride wasn’t doing anything besides getting as many kids in the door as possible … enrolling families without confirmation was a big one, and relaxing compliance was a big one … not processing withdrawals.”
~ Former Stride Senior Executive
“Truant Ghost Students”—The 20-30% That is Missing from Classes
These ghost students tend to only show up on enrollment/count day. They are cajoled into clicking a link by Stride’s pestering. They get counted as enrolled, and then they vanish into the ether like … ghosts.
Former principals, teachers, and Stride executives estimated that 20%-30% of kids were truant “ghost kids.”
“Even students that were ten days truant, we would allow parents to excuse and excuse and excuse and they would have sometimes like 30, 40 days absent … they weren’t learning and kids weren’t attending school.”
~ Former Stride Attendance Coordinator
How does Stride keep students who aren’t attending school on the rosters?
- Stride fired its student advisors and attendance coordinators who were tasked with reengaging ghost students
- The responsibility got pushed on the schools & teachers which meant it didn’t happen.
- Pressured schools into keeping those kids on its enrollment rolls
“It was really almost impossible to withdraw a kid. And so, they just sat there and did nothing…”
~ Former Stride School Principal
Question – Was there pressure by Stride to not withdraw those [ghost] students?
~ Former Stride School Principal
A – “Yes, because if they’re on the books, Stride’s going to be able to take more of that money.”
The legal framework around truancy is complex, but the reality is simple: Stride receives funding for many students who aren’t attending class. Thus, astute investors should be asking:
So what? Why should we be spooked?
Is Stride actually at risk of losing their ghost students?
Who is going to hold them accountable for overcharging the government?
Part III: The Kamala Crackdown? – 50% Chance the Ghostbuster Returns
- Harris Won a $168 Million Settlement Against Stride as California’s AG
- Harris Accused Them of Inflating Attendance – a.k.a. Making Money Off Ghost Students!
- Campaign Speeches Highlight Going After For-Profit Education
Kamala Harris might describe herself as American’s “Fun Aunt” but K12/Stride likely remembers her as “The Ghostbuster.”
Harris took on Stride and its ghost students as California’s AG – and WON! In fact, she decimated Stride by winning a $168.5 million settlement in 2016. For context, at the time, the settlement size equated to ~20% of Stride’s (fka K12) Revenue & >150% of 2016 EBITDA that year.
Current polls show that she has a ~50% chance of winning the presidency. We think it’s fair to estimate that Stride has a 50% of its ghost students vanishing.
Kamala Harris alleged Stride/K12:
- Inflated student attendance numbers
- Misled parents about class sizes and the quality of K12/Stride’s schools.
- Hid costs from families.
“A student merely logging in to the online school system without engaging in educational activities, for example, is not sufficient,”
California AG Settlement v. K12 (Stride)
As part of the settlement, Stride agreed to change how it tracks attendance so students could not simply log on and then float through class like ghosts, doing no real school work.
Harris has even made her fight against for-profit education scams a major part of her 2024 presidential campaign stump speech.
How would a Harris administration handle learning that Stride’s ghost students have returned?
Madam President Ghostbuster?
Note – Kamala Harris is not an actual Ghostbuster. This is a bad photoshop of Kamala’s head onto Bill Murray’s body.
Additional Note – As Pandas, we do not endorse any presidential candidates. Pandas can’t vote, but if we could, we would vote for Bill Murray.
PART IV: Stride’s Undisclosed Churn – 7 Schools Left; More are Unhappy
- One Large School is Leaving Next Year
- Industry Executives Told Us “More schools are preparing to leave” – “Expect 1-2 a year”
- Management Claims Expansion Opportunity to Add Schools in 19 States— They’ve Previously Been Kicked Out of 9 of Those 19
Stride used to disclose to investors when major schools would churn or close. When James Rhyu took over, they stopped disclosing this essential business KPI!
After discovering the ghost students, we wondered what else could Stride & James Rhyu be hiding. We uncovered 1 major school leaving next year and 7 that already left without being disclosed.
Multiple of the seven schools that have closed or left since Rhyu took over include some of its largest, serving between 2,000 to 5,000 students.
Uncovered Seven Schools Dropped Stride Since James Rhyu Took Over as CEO – They Remain Undisclosed:
- Career Academy at Utah (UT) – June 2024 – Closed
- Passport Virtual Charter School (PA) – 2023 -Stride ContractNot Renewed.
- Nevada Virtual Academy – 2023 – Terminated Stride & Hired Competitor
- Omaha Virtual Academy (NE) – 2023 – Terminated Stride Contract
- Oregon Virtual Academy – 2022 – Dropped Stride
- Miami Virtual Program in Arizona (AZ) – 2022 – Contract Expired
- South Carolina Virtual Charter School – 2022 – Terminated Stride Contract
Insight PA Cyber (>3500 students) – Plans to Leave in Next 18 Months.
- Insight PA Cyber (PA) – 2025 – Planning to Transition from Stride at end of FY2025
Insight PA is a relatively large Stride school yet Stride has not disclosed their plans to leave to investors. We discovered this key loss in the school’s draft budget plan for the 2024-2025 school year. They plan to leave Stride before Fall of 2025.
Stride has been trying – and failing – to salvage its relationship with Insight PA Cyber for years, said a former Insight PA Executive.
“Once we looked at everything line by line, we just looked at each other and said, ‘why aren’t we doing this ourselves.”
~ Former Insight PA Executive
Stride Used to Disclose When Large Schools Churned Under Their Previous CEO
Stride used to disclose when large Schools left, but we had to discover these schools leaving by using webarchive.org and then pouring through School Board Notes and State Education Memo’s to find the missing schools.
Nevada Virtual Academy – Terminated Stride – Not Disclosed!
South Carolina Virtual Charter School – Terminated Stride – Not Disclosed!
Career Academy of Utah – Closes & Discontinues Operations – Not Disclosed!
“Expect Stride to Lose 1-2 Schools a Year for the Foreseeable Future … >25% of Schools in the Penalty Box.”
An executive at a competitor said they are keeping track of the dissatisfaction at Stride and are expecting to pick up one to two Stride schools a year “for the foreseeable future.”
“I think that [Stride] will probably lose two (schools) for sure next year… I bet we’ll win one of those two, possibly both… If they continue in the vein they are in, I don’t see how they don’t continue to lose schools… We’re counting on picking up one to two a year for the foreseeable future.”
~ Executive at Stride Competitor
School board involvement is a key determinant in whether a school is likely to leave Stride.
As such, board management was a central aspect of executives’ jobs, one former executive told us. They were required to take board members out to dinner, be present at every board meeting and have friendly conversations over coffee. The objective is simple, they said: “do everything you can to make sure the boards stay warm and friendly so they’d be rubber stamp boards.”
The more independent the board, the more likely the school was to drop Stride. And the more schools that leave, the more other schools are emboldened to do the same.
“The longer these schools are around and the more board seats turn over and they do get independent, they ask the right questions and eventually get frustrated.”
~Former Senior Stride Executive
Management Claims Growth Opportunity in 19 More States – We Uncovered Stride Already Lost 9 of Them
Management claims they have a lot of white space for growth across the country.
In reality, about half of the states without a Stride school previously had one and kicked out Stride. With more schools on the brink, that white space is likely the shrink even further.
Nine states had Stride schools and dropped them:
- Alaska – Alaska Virtual Academy (2015)
- Delaware – based on 10-K disclosure
- Hawaii – Hawaii Technology Academy (2015)
- Illinois – Hoosier Academy Muncie (2014), Hoosier Academy Indianapolis (2018), Gary Digital Academy (2020)
- Massachusetts – Massachusetts Virtual Academy (2017)
- Nebraska – Omaha Virtual School (2023)
- Nevada – Nevada Passport Academy (2019), Nevada Virtual Academy Elementary School (2019), Great Basin Virtual Academy (2019), Destinations Career Academy at Nevada (2019), Nevada Virtual Academy (2023)
- New Jersey – based on 10-K disclosure
- Pennsylvania – Agora Cyber Charter School (2016), Passport Academy Charter School (2022), Insight PA Cyber (2025+)
Students performed poorly, and the school’s found Stride maddeningly opaque about finances, the executive said.
Former school leaders and executives said there are some typical warning signs indicating a school is likely to drop Stride. There are tell-tale signs that school boards are getting ready to drop Stride. They will renegotiate their contract and shorten the length.One-year contracts are a sign that a board is unhappy.
“Renegotiating the contract is a clear indicator the board has some level of independence and isn’t happy.”
~ Former Stride School Finance Executive
Rhyu has a poor track record at salvaging relationships with schools. A Former Executive told us “[Rhyu’s] ego gets very involved. And he’s like ‘fine, if they want to leave, they can leave’.”
Former school leaders and executives recounted story after story of Rhyu’s “tone-deaf” strategies to keep schools from leaving.
He told board executives that the kids at the school were dumb. Those board members had children at the school.
In another instance, as a last effort, he invited the board chair and vice chair to the bar at the Cosmopolitan hotel in Las Vegas for drinks late at night. Both were Mormon and didn’t drink. That school left Stride.
Part V – Allegations of Overbilling States Via Fraudulent Reimbursement Claims
- Lawsuit Exposed Fake Internship Program Used to Get Stride 300% More Government Funds
- Allowed Students to Enroll Even When It’s Impossible to Earn Credit
- Ridiculous Markups – $300 Chromebooks Cost $400
Accusations of Fraudulently Enrolled Students – TEXAS
“It’s outright fraud. I likened it to [Stride] created a shell company, and they put all these kids under the shell company as interns.”
~ Former Teacher
A 2023 qui tam lawsuit in Texas accused Stride of fraudulently enrolling students in a program that received 3x higher funding. It accuses Stride of:
- Signing up students without telling them.
- Made a fake internship program to get around the requirements
The U.S. Attorney for the Eastern District of Texas took over the qui tam lawsuit. It later dropped the case for reasons undisclosed reasons but not before the AG made a special request to have the court unseal the documents in the case.
Given what we know about Stride’s “ghost” students, we have to ask: Are other Stride schools running schemes like the one they were accused of in Texas?
Registering Students that Can’t Complete Courses
In states that pay for incremental class time, Stride takes in students throughout the year, not just in the beginning of semesters when there is enough time left to ensure it can properly educate them. Former executives, teachers and administrators described the policy as a naked grab for government money.
“They were just ready to let anybody in. Didn’t matter what day of the week it was, what time of the year.”
~Former Stride School Principal
Large Markups on Basic Tools:
- $300 Chromebooks Sold to Schools for $400;
- $27 for Clicking to Change a Class
Stride charges significant markups for basic supplies. For example, the schools are required to provide computers for the schools and we have heard that Stride constantly used this as an opportunity to price gouge the government.
For example, Stride would charge the school $400 for a Chromebook that retails for $300.
Stride would charge schools $27 if students changed a course. School administrators described the fee as being absurd since students were essentially just clicking into a different Zoom Classroom.
PART VI – Stride’s Schools Terrible Ratings & Educators See Dropping Demand
- Stride Schools Consistently Scored “Below Average” by Great Schools
- Educators say demand for online school is “much lower,” and kids say they prefer real school.
- Even Google searches for “online” and “virtual” school is down.
Former Stride executives believe growth is going to end up at its unspectacular pre-pandemic rates.
“It will probably return to the prior growth rates… We’ve actually seen quite a lot of backlash from states on virtual education.”
~ Former Executive E
Simply put: Stride’s schools aren’t very good
Stride’s schools average 3 out of 10 on Great Schools’ scale.
- They typically score “below average” in every category, from “academic progress” to “equity.”
- At 5 of Stride’s largest schools, roughly a third of students do not graduate on time and about 70% are below grade level in reading and math, according to data tracked by states.
Educators see demand dropping
- Education Week surveyed 163 school districts and 95 school leaders this year, and 53% said interest in virtual school is down. Most saw it dropping “much lower.”
- The district and leaders said they “expect this decline … to continue over the next two years.”
- Even something as simple as Google searches for “online school” and “virtual school” are down.
One Reason Demand is Dropping? Kids Like Online School Even Less Than Regular School!
Most students in America were exposed to virtual school during the pandemic. They did not like it.
- A 2022 survey by the Pew Research Center found that only 9% of students preferred online school.
If online schools are unpopular, why should investors expect them to keep growing at pandemic rates?
Part VII: James Rhyu – What is ESG? “Letters of the Alphabet” – Leading by Yelling (aka “The One A**hole Rule”)
- Executives & Educators Say He Doesn’t Care About Educating Students or the Schools
- Rhyu’s Shouting & Bullying Drive Away Talent and Stifle Innovation
- Many More Colorful Stories
Stride CEO, James Rhyu actual answers from a 2023 deposition:
Q: What is ESG?
Rhyu: Letters of the alphabet. I don’t know.
Q: You don’t know what ESG is in the context of a corporation?
Rhyu: Well, there’s a — I think, I suspect a lot of the different ESGs out there. I’m not sure which one you are referring to.
Based on the horror stories we heard from executives that worked closely with James Rhyu. We believe Mr. Rhyu could actually be confused and that he might think ESG Stands for:
E – Escorts
S – Screaming
G – Gaslighting
But we’ll let Rhyu’s former colleagues speak for themselves. In all our interviews we asked a simple questions:
Does James Rhyu care about the schools or students?
The answer was always “No!”
- “He says “they’re students, they’re dumb” – Former Senior Stride Executive
- “My $0.02. No! He cares about Money” ~ Former Stride School Principal
- “He did not care about the schools.” – Former Senior Stride Executive
- “I don’t care what the mission is, this is a for-profit company.” ~ Former Sales Executive
- “Once you get away from the executive suite, people care [about students]” — Former Executive C
ESG According to James Rhyu:
- He would … talk about when he used to travel in Asia and the hookers…it was totally inappropriate” ~ Former Female Stride Executive
- “He told me that I needed to smile more and be less ambitious” ~ Former Senior Stride Executive
- “He would just interrupt all the time” ~ Former Stride School Principal
Other James Rhyu Episodes:
- “He got some bad news …and got down on all fours and was like, ‘f–k me, f–k me in the a**hole.’” – Former Senior Stride Executive
- “His voice was so elevated that an executive who was like a former D-3 offensive lineman, a large dude, was like, “am I going to have to step in.’” ~ Former Executive C
What’s is James Rhyu’s management style? It was described as “The One A**hole Rule”
- “One of my favorite leadership books is called the No A**hole Rule…The One A**hole rule would be the title of an article [on James Rhyu]” ~Former Executive B
- “He creates a toxic environment” ~Former Executive C
- “[James] is a total f–king a**hole.” ~Former Executive D
- “Tendency to have rageaholic type episodes ~Former Executive B
- “[James] shits on people all day long” ~Former Executive C
- “A management by fear, bullying control freak… There are many executives who left the company precisely because of him.” ~Former Executive B
- “There was a group meeting and James literally tore her a new a**hole. It was unbelievable… Two weeks later, the exact same situation.” ~Former Executive C
- “I’ve seen him make grown men cry. He’s ripped people to shreds.” ~Former School Administrator
- “He would publicly ridicule you if he didn’t like your ideas and invite everybody else to do the same thing.” ~Former Senior Stride Executive
The shocking stories about James Rhyu reminds us of the horror stories we heard about Anthony Geisler, the former CEO of Xponential Fitness. Geisler has since been fired and Xponential Fitness is now under SEC, DOJ, and multiple state AG investigation for Geisler’s potential lies and actions.
We don’t know what will happen with Stride, only time will tell.
Former Stride Executives and Employees – If you are a former Stride employee and have had similar horrible experiences or want to share other James Rhyu stories please email us at [email protected] . We will protect your anonymity and make sure your story gets shared.
Why Now – FY 2025 Guidance to Include the Covid Cliff – Street Numbers are About to Fall
A majority of Wall Street analysts that cover Stride’s Stock do not cover other education companies. The few that do seem oblivious to the impact that Covid ESSER Funds have had on Stride. Despite the major headwinds, the sell-side analysts are actually forecasting EBITDA Margins to continue to expand.
Stride historically updates their annual guidance for FY 2025 during Q1-2025. We think Stride will be forced to come clean about the impact that the ESSER Covid funds have had on their profitability on their Q1-2025 earnings call. They will finally be forced to disclose to investors the size of the Covid cliff they are facing in FY 2025 and going forward and that ESSER funds are gone.
Conclusion – Short Stride (LRN)
We are short Stride. The Covid bonanza is over, and the no-strings-attached federal ESSER dollars are gone. We believe Stride’s record margins, EBITDA and stock price are going next.
As if that was not enough, we discovered from former executives that fake “Ghost Students” make up roughly a third or more of Stride’s enrollment. That the company is steadily losing schools and not telling investors, demand is dropping and CEO James Rhyu does not care about the schools or students.
Stride was a boring, low margin and low-growth story before Covid, and that is the best-case scenario for the company now that the pandemic over and ESSER funds are done and gone. We believe that making money while educating kids is amazing, but taking excess profits by neglecting kids and inflating enrollment numbers is appalling
- Public Data shows Stride’s schools got >$300 million revenue from Covid (ESSER) funds – and as much as 75% flowed to Stride. That’s an estimated ~25% of EBITDA!
- The Covid (ESSER) funds are gone. They expired September 2024
- Meanwhile, Stride collects tens of millions for “ghost students” it is not educating.
- “Invisible Ghosts” who should not be counted at all account for 5-10% of enrollment.
- “Truant Ghosts” who rarely show up to class account for 20-30% of enrollment.
- Stride’s lost 7 schools since 2021, and all were undisclosed to investors.
- Competitors expect Stride to lose 1-2 schools a year for the foreseeable future.
- Stride was alleged to have run a fake internship to get 300% more government money in Texas.
- Educators and web traffic point to post-Covid drop in demand for online schools.
- Executives & Educators Say CEO James Rhyu Doesn’t Care About Students or the Schools
Stride Inc is the last Covid Earner left standing, but they are standing on the edge of their own Covid funding cliff. In fact, they started to fall over that EBITDA cliff last month, they just haven’t told investors yet.
Fuzzy Panda Research is Short Stride Inc. (LRN)
12 Questions for Stride Inc’s (K-12’s) Management & Board:
- Did you benefit from government Covid (ESSER) funds?
- Yes
- No
- Did you ask schools to supplant existing Stride expenses with ESSER funds?
- Yes
- No
- What was the EBITDA benefit Stride received from Covid ESSER Funds from 2021-2024?
- >20% of EBITDA
- 15-20% of EBITDA
- <15% (aka we plan to keep being creative with our disclosure)
- Why have you hidden the revenue impact due to ESSER funds from investors?
- What do your project your reimbursement rate for school operating losses “Deficit Credits” will be in FY 2026/FY2027, how many Deficit Credits do you plan to issue?
- Did Stride re-collect on old “Deficit Credits” issued to schools for previous operating losses between 2021-2024? If Yes, then how much $ was collected in each year?
- How many schools have dropped Stride since James Rhyu became CEO?
- What % of your students were re-enrolled in FY 2025 without a parent actively consenting to their child being enrolled? What % of your enrolled students have not attended class in the last 10 days?
- Why should investors believe that post-Covid ESSER prospects for Stride will be any better than its pre-Covid performance?
- James Rhyu – Are you a man of your word?
- I’m not sure I understand…That’s too broad of a question.
- No
- Stride’s Board – What does ESG stand for? Does a CEO that berates women, yells at executives, and brags about prostitutes exemplify the principles of ESG?
- Do you see the Covid/ESSER cliff in front of you?
Appendix DIY – DIY Guide to Calculating* the Est ESSER Impact:
We apologize to all the junior analysts out there tasked with the job of pouring over “Appendix DIY – Esser Impact” and that will be forced to download and verify all the ESSER data. Prepare to spend the next 100+ hours in obscure government resources, school’s annual report, and reading the minutes of school board meetings. These government websites will be your late night dinner date for the foreseeable future, enjoy!
But as a treat to keep you company when everyone else has left the office, we wrote a poem (a Tanka) just for all the hard-working young analysts out there:
“Trust Fuzzy Panda,
ESSER data shows a gap,
EBITDA’s large hole,
Public school's data’s truths,
Jr analyst knows All & Nothing.”
*Calculations Note – Below are figures and estimates that shown for illustration purposes only. These figures and estimates represent data downloaded by Fuzzy Panda Research, our own assumptions or estimates, and our process for how we calculated the ESSER impact for Stride Schools. Everything should be considered best guess estimates especially since it is always possible that we made data entry errors along the way (Panda’s are known to have fat fingers). Note – some state and federal data sources have slightly different ESSER numbers. For example Ohio Virtual Academy’s ESSER # is $57.1m on the Ohio Schools website & $55.8m on the US Dept of Education website. We used the lower $55.8m number in our estimates.
DIY – Stride School’s ESSER Benefit Process – Direct Schools
These Stride Schools are also listed as their own School Districts, meaning that 100% of the school district is the Stride Virtual School. Thus, you need to make only minimal assumptions necessary for ~50% of the enrollment.
Step 1 –Download each “public” stride school fromhttps://www.k12.com/find-a-school
Step 2 -Find ESSER Funding per school via DOE (Department of Education) or via State’s Websites
- Method #1 – Search DOE website (eg. Ohio Virtual School, Michigan Virtual School, etc)
- https://covid-relief-data.ed.gov/
- https://edunomicslab.org/esser-spending/ (Note – The data resource currently says temporarily disabled until States update spending. Here is a pdf of the data to use in the meantime)
- Method #2: Search State by state individual ESSER Spending (eg Ohio Dashboard)
- Method #3: USA Spending – https://www.usaspending.gov/search/?hash=ac4c33cb642842f7bbd808ac5ecd8224
- If you click any specific state’s allocation, you’ll find the list of subawards:
Step 3 – Pull Individual Schools annual reports. Lucky for you, Schools receiving 750K+ in federal funding have to file annual reports here – https://app.fac.gov/dissemination/search/
- Type School Name into “Name Category” (eg “Ohio Virtual Academy”, “California Virtual Academy,” etc) – Note for Arizona Virtual you want to use “Portable Practical Educational Preparation”
- For annual reports not on that website you need to find them either on their own school’s website, on their state’s one, or email the school directly to request copies.
- Then -> Search within each annual report for ESSER $ spent each year (some search terms to use are “ESSER,” “Federal awards,”covid-19 emergency)
Stride Direct “District” Schools – Links to ESSER Funds
There is exact data for over 50% of enrollment. These Stride schools are listed as their own “school district.”
- Ohio Virtual Academy – ESSER Link
- California Virtual Academy @ Fresno – ESSER Link
- Michigan Great Lakes Virtual Academy – ESSER Link
- Arizona Virtual Academy – ESSER Link
- Michigan Virtual Charter Academy – ESSER Link
- Louisiana Virtual Charter Academy – ESSER Link
- California Virtual Academy @ Los Angeles – ESSER Link
- Oklahoma Virtual Charter Academy – ESSER Link
- Arkansas Virtual Academy – ESSER Link
- Idaho Virtual Academy – ESSER Link
- California Virtual Academy @ San Diego – ESSER Link
- North Carolina Virtual Academy – ESSER Link
- Utah Virtual Academy – ESSER Link
- California Virtual Academy @ Maricopa – ESSER Link
- California Virtual Academy @ San Joaquin – ESSER Link
- Insight Academy of Arizona (note search PPEP instead of Arizona Insight) – ESSER Link
- Insight School of Michigan – ESSER Link
- California Virtual Academy @ Sutter – ESSER Link
- IQ Academy California-Los Angeles – ESSER Link
- Highpoint Virtual Academy of Michigan – ESSER Link
- California Virtual Academy @ San Mateo – ESSER Link
- California Virtual Academy @ Sonoma – ESSER Link
- Insight School of Oklahoma – ESSER Link
- Maine Virtual Academy – ESSER Link
- California Virtual Academy @ Kings –ESSER Link
- Insight School of California – ESSER Link
- Ohio Digital Learning School – ESSER Link
- Hoosier College and Career Academy – ESSER Link
DIY Process – Indirect Schools – Stride School’s within a larger district – (these Stride Schools are in a larger school district with multiple public schools)
For the other <50% you need to pull the ESSER data for the Stride school’s district. Then you can pull public data on both Stride school’s enrollment and the total district enrollment in order to get fairly precise estimates on the amount of ESSER funds allocated per student in that district provided the funds were allocated equally per student among all the schools. Formers told us that was usually the case.
Find what district Stride’s virtual schools are included in here (or if they are their own district)
- https://nces.ed.gov/ccd/schoolsearch/
- If the school is within a district, the annual report will be under that district.
- Example: Texas Virtual Academy @ Hallsville is in District “Hallsville Isd”
- For schools that are part of a district and aren’t disclosed:
- First, collect ESSER recognized by the district.
- Second, make a list of the schools under the district & their student counts. This is findable via the NCES website.
- Third, pro-rate the ESSER funding by the number of students the Stride school represents.
Below are links to the overall ESSER numbers for each District that the school is in. Enjoy this head-start!
Estimates of the # of Stride Students per District:
Pull ESSER Granted to Each District to Then Estimates the Amount of ESSER Revenue Paid to Stride Schools within that District:
Appendix – Career Learning v. General Education – Former Executives Told us to Count Them as One Group
- Stride Shifts Student’s Between Groups to Please Investors
- Disclosure Admits There’s No Difference
Career learning courses are one of the New Big Things in education. Stride presents the courses as a meaningful add on to the business. We’ve purposefully made no distinction between General Education enrollment and Career Learning enrollment because Former executives told us we shouldn’t.
The ratio of gen ed to career education doesn’t mean anything … quite frankly, the ratio was, I don’t want to say made up, but the career number was boosted.”
~ former Executive C
When Stride says “General Education” and “Career Learning,” it is talking about two different curriculums, not different groups students. Adding a career learning program does NOT equal adding more students or revenue.
Former executives told us Stride juggles the numbers of students in the different courses to create ratios that look good to investors.
- Sometimes students don’t even know that they are in career learning bucket.
- They told us that Career Learning numbers were boosted to create appearance of growth.
Stride’s disclosure in the 10-K appears to confirm what executives told us. It notes that students are moved back and forth between the two categories.
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