Market Overview

Strategic Education, Inc. Reports First Quarter 2019 Results; Strong Performance at Both Strayer University and Capella University; Merger Integration and Synergies on Track

Share:

Strategic
Education, Inc. (SEI)
(NASDAQ:STRA) today announced financial
results for the period ended March 31, 2019.

Karl McDonnell, Chief Executive Officer of SEI said, "Our strong first
quarter results provide us with a solid foundation to build on for the
balance of 2019. We are moving into the tenth month since we closed our
merger with Capella Education Company, and are very pleased with
progress of the merger integration and the organization's continued
ability to execute. We remain focused on delivering academic success and
long-term economic mobility for our students and alumni."

STRATEGIC EDUCATION, INC. CONSOLIDATED RESULTS

[Note: Strategic Education, Inc.'s financial results for any periods
ended prior to August 1, 2018 do not include the financial results of
Capella Education Company and are therefore not directly comparable.]

Three Months Ended March 31

  • Revenue increased 111.7% to $246.5 million compared to $116.5 million
    for the same period in 2018.
  • Income from operations was $25.7 million compared to $11.3 million for
    the same period in 2018. Income from operations in 2019 includes $15.4
    million of amortization expense related to assets acquired in the
    merger with Capella Education Company and $7.2 million in costs
    associated with the merger with Capella Education Company. Income from
    operations in 2018 included $5.3 million in costs associated with the
    merger with Capella Education Company. Adjusted income from
    operations, which is a non-GAAP financial measure and excludes the
    aforementioned expenses, was $48.3 million in 2019 compared to $16.7
    million for the same period in 2018. The adjusted operating income
    margin was 19.6% compared to 14.3% for the same period in 2018. For
    more details on non-GAAP financial measures, refer to the information
    in the Non-GAAP Financial Measures section of this press release.
  • Net income, which includes the adjustments described above, income
    from partnership interests, and certain discrete tax adjustments, was
    $11.5 million in 2019 compared to $9.5 million for the same period in
    2018. Adjusted net income was $36.7 million compared to $13.9 million
    for the same period in 2018.
  • Earnings before interest, taxes, depreciation, and amortization
    (EBITDA) was $51.7 million in 2019 compared to $16.4 million in 2018.
    Adjusted EBITDA was $61.0 million compared to $24.8 million for the
    same period in 2018.
  • Diluted earnings per share was $0.52 compared to $0.84 for the same
    period in 2018. Adjusted diluted earnings per share increased to $1.66
    from $1.23 for the same period in 2018. Diluted weighted average
    shares outstanding increased to 22,050,000 from 11,311,000 for the
    same period in 2018, due primarily to new shares issued to facilitate
    the merger with Capella Education Company.

Strayer University Segment Highlights

  • The Strayer University segment is comprised of Strayer University,
    including its programs offered through the Jack Welch Management
    Institute.
  • For the first quarter, student enrollment at Strayer University
    increased 11.5% to 51,479 compared to 46,184 for the same period in
    2018. New student enrollment for the period increased 13.2% and
    continuing student enrollment for the period increased 11.1%.
  • Revenue increased 11.1% to $128.1 million in the first quarter of 2019
    compared to $115.3 million for the same period in 2018, driven
    primarily by higher first quarter enrollment.
  • Income from operations increased to $25.0 million in the first quarter
    of 2019 from $18.0 million for the same period in 2018. The operating
    income margin was 19.5%, compared to 15.6% for the same period in 2018.
  • During the first quarter of 2019, Strayer University opened new
    campuses in Mobile, Alabama and Fort Worth, Texas, and is planning to
    open four to six additional campuses through the balance of 2019.

Capella University Segment Highlights

  • The Capella University segment consists solely of Capella University.
  • For the first quarter, student enrollment at Capella University
    increased 2.9% to 39,271 compared to 38,181 for the same period in
    2018. New student enrollment for the period increased 14.7% and
    continuing student enrollment for the period increased 0.7%.
  • FlexPath continued to be a significant driver of new and total
    enrollment growth in the first quarter of 2019, and is now 30% of
    Capella University's bachelor's and master's degrees total enrollment.
  • Revenue was $114.7 million in the first quarter of 2019 and reflects
    higher enrollment and revenue-per-learner.
  • Income from operations was $24.2 million in the first quarter of 2019,
    and the operating income margin was 21.1%.
  • The Company is on track to open Capella University learner support
    centers, pending regulatory approval, in Atlanta, Georgia in the
    second quarter and Orlando, Florida in the third quarter.

Non-Degree Programs Segment Highlights

  • The non-degree programs segment includes Hackbright Academy,
    DevMountain, The New York Code + Design Academy, and Sophia.
  • For the first quarter, revenue increased to $3.8 million from $1.2
    million for the same period in 2018, primarily due to the inclusion of
    revenue from DevMountain, Hackbright Academy, and Sophia.
  • Loss from operations was $0.8 million in the first quarter of 2019
    compared to a loss of $1.3 million in the same period in 2018.

BALANCE SHEET AND CASH FLOW

At March 31, 2019, Strategic Education, Inc. had cash, cash equivalents,
and marketable securities of $420.7 million, and no debt. For the first
three months of 2019, cash provided by operations was $58.7 million
compared to $17.0 million for the same period in 2018. Capital
expenditures for the first three months of 2019 were $8.8 million
compared to $4.2 million for the same period in 2018. Capital
expenditures for 2019 are expected to be between $40 million and $45
million.

For the first quarter of 2019, consolidated bad debt expense as a
percentage of revenue was 5.0%, compared to 5.5% for the same period in
2018.

COMMON STOCK CASH DIVIDEND

SEI announced today that it declared a regular, quarterly cash dividend
of $0.50 per share of common stock. This dividend will be paid on June
10, 2019 to shareholders of record as of May 28, 2019.

CONFERENCE CALL WITH MANAGEMENT

SEI will host a conference call to discuss its first quarter 2019
earnings results at 9:00 a.m. (ET) today. To participate in 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.strategiceducation.com
in the Investor
Relations
section 15 minutes prior to the start time of the call to
register. Following the call, the webcast will be archived and available
at www.strategiceducation.com
in the Investor
Relations
section.

About SEI

Strategic Education, Inc. (NASDAQ:STRA) (www.strategiceducation.com)
is dedicated to enabling economic mobility with education. We serve
working adult students through a range of educational opportunities that
include: Strayer University and Capella University (separate
institutions that are each regionally accredited), which collectively
offer flexible and affordable associate, bachelor's, master's, and
doctoral programs; a Top-25 Princeton Review-ranked online MBA program
through the Jack Welch Management Institute at Strayer University;
self-paced courses for college credit through Sophia; customized degrees
for corporations through Degrees@Work; and non-degree web and mobile
application development courses through DevMountain, Generation Code,
Hackbright Academy, and The New York Code + Design Academy. These
programs help our students prepare for success in today's jobs and find
a path to bettering their lives.

Forward-Looking Statements

This communication contains certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements may be identified by the use of words such as "expect,"
"estimate," "assume," "believe," "anticipate," "may," "will,"
"forecast," "outlook," "plan," "project," "potential" and other similar
words, and include all statements that are not historical facts,
including with respect to, among other things, the future financial
performance of SEI; SEI's plans, strategies and prospects; and future
events and expectations. The statements are based on SEI's current
expectations and are subject to a number of assumptions, uncertainties
and risks, including but not limited to:

  • SEI'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;
  • the pace of growth of student enrollment;
  • 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 associated with the acquisition of existing educational
    institutions;
  • risks relating to the timing of regulatory approvals;
  • SEI's ability to implement its growth strategy;
  • the risk that the benefits of the merger with Capella Education
    Company, including expected synergies, may not be fully realized or
    may take longer to realize than expected;
  • the risk that the combined company may experience difficulty
    integrating employees or operations;
  • risks associated with the ability of SEI's students to finance their
    education in a timely manner;
  • general economic and market conditions; and
  • additional factors described in SEI's most recent Annual Report on
    Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
    8-K.

Many of these risks, uncertainties and assumptions are beyond SEI's
ability to control or predict. Because of these risks, uncertainties and
assumptions, you should not place undue reliance on these
forward-looking statements. Furthermore, these forward-looking
statements speak only as of the information currently available to SEI
on the date they are made, and SEI undertakes no obligation to update or
revise forward-looking statements, except as required by law. Actual
results may differ materially from those projected in the
forward-looking statements.

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

For the three months ended
March 31,

2018   2019
Revenues $ 116,469   $ 246,508
Costs and expenses:
Instructional and support costs 68,452 134,050
General and administration 31,342 64,139
Amortization of intangible assets 15,417
Merger and integration costs 5,347   7,179
Total costs and expenses 105,141   220,785
Income from operations 11,328 25,723
Other income 289   3,327
Income before income taxes 11,617 29,050
Provision for income taxes 2,150   17,550
Net income $ 9,467   $ 11,500
Earnings per share:
Basic $ 0.88 $ 0.53
Diluted $ 0.84 $ 0.52
Weighted average shares outstanding:
Basic 10,745 21,499
Diluted 11,311 22,050
Cash dividend declared per share $ 0.25 $ 0.50
 

 
STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
   

December 31,
2018

March 31,
2019

ASSETS
Current assets:
Cash and cash equivalents $ 311,732 $ 352,387
Marketable securities, current 37,121 36,486
Tuition receivable, net 55,694 50,842
Other current assets 15,814   16,874
Total current assets 420,361 456,589
Property and equipment, net 122,677 119,040
Right-of-use lease assets 101,533
Marketable securities, non-current 37,678 31,866
Intangible assets, net 328,344 314,511
Goodwill 732,540 732,799
Other assets 19,429   19,052
Total assets $ 1,661,029   $ 1,775,390
 
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 85,979 $ 80,085
Income taxes payable 419 6,144
Contract liabilities 38,733 40,826
Lease liabilities, current 26,462
Total current liabilities 125,131 153,517
Deferred income tax liabilities 59,358 70,298
Lease liabilities, non-current 90,501
Other long-term liabilities 51,316   37,636
Total liabilities 235,805   351,952
Commitments and contingencies
Stockholders' equity:
Common stock, par value $0.01; 32,000,000 shares authorized;
21,743,498 and 21,923,800 shares issued and outstanding at December
31, 2018 and March 31, 2019, respectively
217 219
Additional paid-in capital 1,306,653 1,304,170
Accumulated other comprehensive income 32 266
Retained earnings 118,322   118,783
Total stockholders' equity 1,425,224   1,423,438
Total liabilities and stockholders' equity $ 1,661,029   $ 1,775,390
 

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

For the three months ended
March 31,

2018   2019
Cash flows from operating activities:
Net income $ 9,467 $ 11,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred financing costs 66 83
Amortization of investment discount/premium 127
Depreciation and amortization 5,035 25,983
Deferred income taxes (1,842 ) 10,834
Stock-based compensation 2,688 3,010
Changes in assets and liabilities:
Tuition receivable, net (2,249 ) 4,847
Other current assets 931 (1,060 )
Other assets 115 325
Accounts payable and accrued expenses (867 ) (3,537 )
Income taxes payable and income taxes receivable 3,995 6,031
Contract liabilities 1,192 1,702
Other long-term liabilities (1,482 ) (1,187 )
Net cash provided by operating activities 17,049   58,658  
 
Cash flows from investing activities:
Purchases of property and equipment (4,233 ) (8,756 )
Purchases of marketable securities (6,249 )
Maturities of marketable securities 12,910
Other investments   (374 )
Net cash used in investing activities (4,233 ) (2,469 )
 
Cash flows from financing activities:
Common dividends paid (2,889 ) (11,091 )
Taxes paid for stock awards   (4,443 )
Net cash used in financing activities (2,889 ) (15,534 )
Net increase in cash, cash equivalents, and restricted cash 9,927 40,655
Cash, cash equivalents, and restricted cash — beginning of period 156,448   312,237  
Cash, cash equivalents, and restricted cash — end of period $ 166,375   $ 352,892  
Noncash transactions:
Purchases of property and equipment included in accounts payable $ 2,385 $ 634
 

 
STRATEGIC EDUCATION, INC.
UNAUDITED SEGMENT REPORTING
(in thousands)
 

For the three months
ended March 31,

2018   2019
Revenues:
Strayer University $ 115,271 $ 128,058
Capella University 114,698
Non-Degree Programs 1,198   3,752  
Consolidated revenues $ 116,469   $ 246,508  
Income (loss) from operations:
Strayer University $ 17,992 $ 24,973
Capella University 24,153
Non-Degree Programs (1,317 ) (807 )
Amortization of intangible assets (15,417 )
Merger and integration costs (5,347 ) (7,179 )
Consolidated income from operations $ 11,328   $ 25,723  

Non-GAAP Financial 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 that follow 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 income from operations, operating margin, net income,
earnings per share or any other comparable financial 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 financial
performance because those non-GAAP measures allow for period-over-period
comparisons of its ongoing operations before the impact of certain items
described below. These measures are Adjusted Income from Operations,
Adjusted Operating Margin, Adjusted Net Income, Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted EBITDA
and Adjusted Diluted Earnings Per Share (EPS). We define Adjusted Income
from Operations, Adjusted Operating Margin, Adjusted Net Income, and
Adjusted Diluted EPS to exclude (1) amortization expense related to
intangible assets associated with the Company's merger with Capella
Education Company, (2) transaction and integration costs associated with
the Company's merger with Capella Education Company, (3) income
recognized from the Company's investments in partnership interests, and
(4) discrete tax adjustments utilizing adjusted effective income tax
rates of 18.1% and 27.5% for 2018 and 2019, respectively. We define
EBITDA as net income before the provision for income taxes, other
income, depreciation and amortization, and from this amount in arriving
at Adjusted EBITDA we also exclude the amounts in (2) above, stock-based
compensation expense, and adjustments to the value of purchase
consideration related to the Company's acquisition of The New York Code
+ Design Academy, Inc. These non-GAAP measures are reconciled to the
most directly comparable GAAP measures in the sections that follow.
Non-GAAP measures should not be viewed as substitutes for GAAP measures.

 
STRATEGIC EDUCATION, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
ADJUSTED INCOME FROM OPERATIONS, ADJUSTED NET INCOME, AND
ADJUSTED EPS
(in thousands, except per share data)
     
    For the Three Months Ended March 31, 2018    
Non-GAAP Adjustments

As Reported
(GAAP)

Amortization
of
Acquired
Assets(1)

 

Merger and
integration
Costs(2)

 

Income from
partnership
interests(3)

 

Tax
Adjustments
(4)

As Adjusted
(Non-GAAP)

Income from operations $ 11,328 $ $ 5,347 $ $ $ 16,675
Operating margin 9.7% 14.3%
Other income, net 289           289
Income before income taxes 11,617 5,347 16,964
Provision for income taxes 2,150         914   3,064
Net income $ 9,467   $   $ 5,347   $   $ (914 ) $ 13,900
Earnings per share:
Basic $ 0.88 $ 1.29
Diluted $ 0.84 $ 1.23
Weighted average shares outstanding:
Basic 10,745 10,745
Diluted 11,311 11,311
 
 
    For the Three Months Ended March 31, 2019    
Non-GAAP Adjustments

As Reported
(GAAP)

Amortization
of
Acquired
Assets(1)

Merger and
integration
Costs(2)

Income from
partnership
interests(3)

Tax
Adjustments
(4)

As Adjusted
(Non-GAAP)

Income from operations $ 25,723 $ 15,417 $ 7,179 $ $ $ 48,319
Operating margin 10.4% 19.6%
Other income, net 3,327       (1,023 )   2,304
Income before income taxes 29,050 15,417 7,179 (1,023 ) 50,623
Provision for income taxes 17,550         (3,629 ) 13,921
Net income $ 11,500   $ 15,417   $ 7,179   $ (1,023 ) $ 3,629   $ 36,702
Earnings per share:
Basic $ 0.53 $ 1.71
Diluted $ 0.52 $ 1.66
Weighted average shares outstanding:
Basic 21,499 21,499
Diluted 22,050 22,050
 
(1)   Reflects amortization expense related to intangible assets
associated with the Company's merger with Capella Education Company.
(2) Reflects transaction and integration charges associated with the
Company's merger with Capella Education Company.
(3) Reflects income recognized from the Company's investments in
partnership interests.
(4) Reflects discrete tax adjustments related to stock-based
compensation and other adjustments, utilizing an adjusted effective
tax rate of 18.1% and 27.5% for 2018 and 2019, respectively.
 

 
STRATEGIC EDUCATION, INC.
UNAUDITED NON-GAAP SEGMENT REPORTING
(in thousands)
  For the Three Months Ended
March 31,
2018   2019
 
Revenues:
Strayer University $ 115,271 $ 128,058
Capella University - 114,698
Non-Degree Programs   1,198     3,752  
Consolidated revenues $ 116,469   $ 246,508  
 
 
Income (loss) from operations:
Strayer University $ 17,992 $ 24,973
Capella University - 24,153
Non-Degree Programs (1,317 ) (807 )
Amortization of intangible assets - (15,417 )
Merger and integration costs   (5,347 )   (7,179 )
Consolidated income from operations   11,328     25,723  
 
Adjustments to consolidated income from operations:
Amortization of intangible assets - 15,417
Merger and integration costs   5,347     7,179  
Total adjustments to consolidated income from operations   5,347     22,596  
 
Adjusted income from operations by segment:
Strayer University 17,992 24,973
Capella University - 24,153
Non-Degree Programs   (1,317 )   (807 )
Total adjusted income from operations by segment $ 16,675   $ 48,319  
 

 
STRATEGIC EDUCATION, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
ADJUSTED EBITDA
(in thousands)
 

For the three months
ended March 31,

2018   2019
Net income $ 9,467 $ 11,500
Provision for income taxes 2,150 17,550
Other income (289) (3,327)
Depreciation and amortization 5,035 25,983
EBITDA (1) 16,363 51,706
Stock-based compensation 2,688 2,530
Merger and integration costs (2) 5,347 6,781
Fair value adjustments (3) 381  
Adjusted EBITDA (1) $ 24,779   $ 61,017
 
(1)   Denotes non-GAAP financial measures. Please see the information in
the Non-GAAP Financial Measures section of this press release for
more detail regarding these adjustments and management's reasons for
providing this information.
(2) Reflects transaction and integration charges associated with the
Company's merger with Capella Education Company. Excludes $0.4
million of depreciation and amortization expense and includes $0.5
million of stock-based compensation expense for the three months
ended March 31, 2019.
(3) Reflects adjustments to the value of purchase consideration related
to the Company's acquisition of The New York Code + Design Academy,
Inc. for the three months ended March 31, 2018.
 

View Comments and Join the Discussion!