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Strayer Education, Inc. Reports First Quarter Enrollment, Revenues, and Earnings

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Strayer Education, Inc. (NASDAQ:STRA) today announced financial results
for the period ended March 31, 2018. Financial highlights are as follows:

Three Months Ended March 31:

  • For the first quarter, student enrollment at the Company's main
    operating unit, Strayer University, increased 6% to 46,184 compared to
    43,387 for the same period in 2017. New student enrollment for the
    period increased 6% and continuing student enrollment for the period
    increased 7%.
  • Revenue was $116.5 million compared to $114.9 million for the same
    period in 2017, as higher winter term enrollment was offset by lower
    revenue per student due to the continuing effect of scholarships
    issued in the fall 2017 term.
  • Income from operations decreased to $11.3 million from $18.4 million
    for the same period in 2017, primarily due to costs associated with
    the Company's pending merger with Capella Education Company. Adjusted
    income from operations, which is a non-GAAP financial measure, was
    $16.7 million compared to $18.4 million in the same period in 2017.
    For more details on non-GAAP financial measures, refer to the
    information on pages 8 through 10.
  • Net income, which includes the effects of the new lower federal income
    tax rate, was $9.5 million, and adjusted net income was $13.9 million,
    compared to net income of $10.6 million in the same period in 2017.
  • Earnings before interest, taxes, depreciation, and amortization
    (EBITDA) was $16.4 million compared to $22.8 million in 2017. Adjusted
    EBITDA was $24.8 million compared to $25.7 million in the same period
    in 2017.
  • Diluted earnings per share was $0.84 compared to $0.95 for the same
    period in 2017. Adjusted diluted earnings per share grew 29% to $1.23
    from $0.95 for the same period in 2017. Diluted weighted average
    shares outstanding increased 2% to 11,311,000 from 11,121,000 for the
    same period in 2017.

Balance Sheet and Cash Flow

At March 31, 2018, the Company had cash and cash equivalents of $165.9
million and no debt. Cash flow from operations was $17.0 million
compared to $24.5 million during 2017, primarily due to cash payments of
costs related to the Company's pending merger with Capella Education
Company. Capital expenditures for 2018 were $4.2 million compared to
$3.8 million for the same period in 2017.

For the first quarter of 2018, bad debt expense as a percentage of
revenues was 5.5% compared to 3.8% for the same period in 2017.

The Company had $70.0 million of share repurchase authorization
remaining at March 31, 2018. No shares were repurchased in the first
quarter of 2018.

Q2 2018 Outlook

Total enrollments at Strayer University for the second quarter of 2018
are anticipated to grow 8% to approximately 46,800 students from 43,411
students for the same period in 2017. New student enrollments are
expected to increase approximately 7% and continuing student enrollments
are expected to increase approximately 8%. Revenue per student for the
second quarter is expected to decrease by approximately 5% due primarily
to the continuation of students participating in scholarship programs
launched in 2017. Additionally, the Company expects the tax rate in the
second quarter to be in the range of 27% to 28%, excluding the impact of
any non-deductible merger costs, and other discrete tax adjustments.

New Campus Openings

The Company opened a new campus in Macon, Georgia, incorporating a new
smaller, more cost-efficient design intended to service a student body
that values a brick-and-mortar presence, even while taking an increasing
majority of their courses online. The Company is on track to open two to
three additional new campuses by the end of 2018.

Common Stock and Common Stock Equivalents

At March 31, 2018, the Company had 11,300,671 common shares issued and
outstanding, including 458,522 shares of restricted stock. The Company
also had 250,000 restricted stock units outstanding and 100,000 vested
stock options outstanding.

Common Stock Cash Dividend

The Company announced today that it declared a regular, quarterly cash
dividend of $0.25 per share of common stock. This dividend will be paid
on June 18, 2018 to shareholders of record as of June 4, 2018.

Merger Update

The Company confirmed today that its pending merger with Capella
Education Company remains on track to close in the third quarter of
2018, subject to approval by the Higher Learning Commission, Capella
University's accreditor.

Conference Call with Management

Strayer Education, Inc. will host a conference call to discuss its first
quarter 2018 earnings results at 10:00 a.m. (ET) today. To participate
on the live call, investors should dial (877) 303-9047 ten minutes prior
to the start time. In addition, the call will be available via webcast.
To access the live webcast of the conference call, please go to www.strayereducation.com
15 minutes prior to the start time of the call to register. Following
the call, the webcast will be archived and available at www.strayereducation.com.

About Strayer Education, Inc.

Strayer
Education, Inc.
(NASDAQ:STRA) is educating a more competitive and
qualified workforce by solving higher education's most challenging
problems. It includes Strayer
University
, a regionally accredited institution that delivers
affordable degree programs for working adults, and a Top
25 Princeton Review-ranked executive MBA program
through the Jack
Welch Management Institute
. Non-degree web and mobile application
development courses are offered through the New
York Code + Design Academy
. Strayer also transforms the workforces
of its corporate partners through customized degree and professional
development programs. By deploying innovative teaching methods and
technologies that enhance student learning outcomes, Strayer makes it
possible for working adults to acquire the skills they need to succeed
in today's rapidly changing economy.

Forward-Looking Statements

This press release contains statements that are forward-looking and are
made pursuant to the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such statements may be
identified by the use of words such as "expect," "estimate," "assume,"
"believe," "anticipate," "will," "forecast," "outlook," "plan,"
"project," or similar words. The statements are based on the Company's
current expectations and are subject to a number of assumptions,
uncertainties, and risks. In connection with the safe-harbor provisions
of the Reform Act, the Company has identified important factors that
could cause the Company's actual results to differ materially from those
expressed in or implied by such statements. The assumptions,
uncertainties and risks include the pace of growth of student
enrollment, the Company's continued compliance with Title IV of the
Higher Education Act, and the regulations thereunder, as well as
regional accreditation standards and state regulatory requirements,
rulemaking by the Department of Education and increased focus by the
U.S. Congress on for-profit education institutions, competitive factors,
risks associated with the opening of new campuses, risks associated with
the offering of new educational programs and adapting to other changes,
risks relating to the timing of regulatory approvals, the Company's
ability to implement its growth strategy, risks associated with the
ability of the University's students to finance their education in a
timely manner, risks associated with the Company's pending merger with
Capella Education Company, including the risk that the merger may not be
completed on the agreed terms or at all, and general economic and market
conditions. Further information about these and other relevant risks and
uncertainties may be found in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2017 and in its subsequent
filings with the Securities and Exchange Commission, all of which are
incorporated herein by reference and which are available from the
Commission. The Company undertakes no obligation to update or revise
forward-looking statements.

 
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
 

For the Three Months Ended
March 31,

2017   2018
Revenues $ 114,912 $ 116,469
Costs and expenses:
Instruction and educational support 61,416 63,776
Marketing 18,718 20,124
Admissions advisory 4,716 4,676
General and administration 11,619 11,218
Merger costs     5,347
Total costs and expenses   96,469   105,141
Income from operations 18,443 11,328
Investment income 181 448
Interest expense   159   159
Income before income taxes 18,465 11,617
Provision for income taxes   7,887   2,150
Net income $ 10,578 $ 9,467
 
Earnings per share:
Basic $ 1.00 $ 0.88
Diluted $ 0.95 $ 0.84
 
Weighted average shares outstanding:
Basic 10,630 10,745
Diluted 11,121 11,311
 

   
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
 
December 31, March 31,
2017 2018
ASSETS
Current assets:
Cash and cash equivalents $ 155,933 $ 165,867
Tuition receivable, net 23,122 24,997
Other current assets   11,293   10,558
Total current assets 190,348 201,422
Property and equipment, net 73,763 73,686
Deferred income taxes 24,452 23,803
Goodwill 20,744 20,744
Other assets   11,971   12,155
Total assets $ 321,278 $ 331,810
 
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 46,177 $ 45,806
Income taxes payable 1,038 2,541
Contract liabilities   21,851   23,931
Total current liabilities 69,066 72,278
Other long-term liabilities   43,015   41,240
Total liabilities   112,081   113,518
Commitments and contingencies
Stockholders' equity:

Common stock, par value $0.01, 20,000,000 shares authorized;
11,167,425 and 11,300,671 shares issued and outstanding at
December 31, 2017 and March 31, 2018, respectively

112 113
Additional paid-in capital 47,079 49,766
Retained earnings   162,006   168,413
Total stockholders' equity   209,197   218,292
Total liabilities and stockholders' equity $ 321,278 $ 331,810
 

 
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 

For the Three Months Ended
March 31,

2017   2018
Cash flows from operating activities:
Net income $ 10,578 $ 9,467

Adjustments to reconcile net income to net cash provided by
operating activities:

Amortization of gain on sale of assets (71 )
Amortization of deferred rent (477 ) (417 )
Amortization of deferred financing costs 66 66
Depreciation and amortization 4,370 5,035
Deferred income taxes 762 (1,842 )
Stock-based compensation 2,427 2,688
Changes in assets and liabilities:
Tuition receivable, net 19 (2,249 )
Other current assets 616 931
Other assets 397 115
Accounts payable and accrued expenses (2,836 ) (867 )
Income taxes payable 7,089 3,995
Contract liabilities 2,441 1,192
Other long-term liabilities   (846 )   (1,065 )
Net cash provided by operating activities   24,535     17,049  
 
Cash flows from investing activities:
Purchases of property and equipment   (3,841 )   (4,233 )
Net cash used in investing activities   (3,841 )   (4,233 )
 
Cash flows from financing activities:
Common dividends paid   (2,853 )   (2,889 )
Net cash used in financing activities   (2,853 )   (2,889 )
Net increase in cash, cash equivalents, and restricted cash 17,841 9,927
Cash, cash equivalents, and restricted cash – beginning of period   129,758     156,448  
Cash, cash equivalents, and restricted cash – end of period $ 147,599   $ 166,375  
 
Non-cash transactions:
Purchases of property and equipment included in accounts payable $ 571 $ 2,385
 

Non-GAAP Financial Performance Measures

In our press release and schedules, and on the related conference call,
we report certain financial measures that are not required by, or
presented in accordance with, accounting principles generally accepted
in the United States of America ("GAAP"). We discuss management's
reasons for reporting these non-GAAP measures below, and the press
release schedules reconcile the most directly comparable GAAP measure to
each non-GAAP measure that we reference. Although management evaluates
and presents these non-GAAP measures for the reasons described below,
please be aware that these non-GAAP measures have limitations and should
not be considered in isolation or as a substitute for revenue, operating
income, income from continuing operations, net income, earnings per
share or any other comparable operating measure prescribed by GAAP. In
addition, we may calculate and/or present these non-GAAP financial
measures differently than measures with the same or similar names that
other companies report, and as a result, the non-GAAP measures we report
may not be comparable to those reported by others.

Management uses certain non-GAAP measures to evaluate the Company's
financial performance because those non-GAAP measures allow for
period-over-period comparisons of its ongoing operations before the
impact of these items. These measures are Adjusted Income from
Operations, Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA), Adjusted EBITDA, Adjusted Net Income, and
Adjusted Earnings Per Share. These non-GAAP measures exclude charges
associated with the Company's previously announced merger with Capella
Education Company. Adjusted EBITDA also excludes stock-based
compensation expense and costs related to the Company's acquisition of
the New York Code + Design Academy. Each of these non-GAAP measures is
reconciled to the most directly comparable GAAP measures on pages 9 and
10. Non-GAAP financial measures should be considered in addition to, and
not as substitutes for, the Company's reported GAAP results.

                 
STRAYER EDUCATION, INC.
NON-GAAP UNAUDITED ADJUSTING STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
 
For the Three Months Ended March 31, 2018
Non-GAAP Adjustments

As Reported
(GAAP)

Merger Costs
(1)

As Adjusted
(Non-GAAP)

Income from operations $ 11,328 $ 5,347 $ 16,675
Investment income 448 448
Interest expense   159     159
Income before income taxes 11,617 5,347 16,964
Provision for income taxes   2,150   914   3,064
Net income $ 9,467 $ 4,433 $ 13,900
Earnings per share:
Basic $ 0.88 $ 0.41 $ 1.29
Diluted $ 0.84 $ 0.39 $ 1.23
Weighted average shares outstanding:
Basic 10,745 10,745
Diluted 11,311 11,311
 
 

(1)

  Reflects charges associated with the Company's previously announced
merger with Capella Education Company.
 

 
STRAYER EDUCATION, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
ADJUSTED EBITDA
(Amounts in thousands, except per share data)
 

Three Months Ended
March 31,

2017   2018
Net income $ 10,578 $ 9,467
Provision for income taxes 7,887 2,150
Investment income (181 ) (448 )
Interest expense 159 159
Depreciation and amortization   4,370     5,035  
EBITDA (1) 22,813 16,363
Stock-based compensation 2,427 2,688
Fair value adjustments (2) 466 381
Merger costs (3)       5,347  
Adjusted EBITDA (1) $ 25,706   $ 24,779  
 
 

(1)

Denotes non-GAAP financial measures. Please see pages 8-9 for more
detail regarding these adjustments and management's reasons for
providing this information.

(2)

Reflects the amortization of amounts paid to the sellers of the New
York Code + Design Academy, which was acquired in January 2016.

(3)

Reflects charges associated with the Company's previously announced
merger with Capella Education Company.
 

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