Strategic Education, Inc. Reports First Quarter 2021 Results

Rhea-AI Summary

Strategic Education (NASDAQ: STRA) reported Q1 2021 financial results, showing a 9.4% revenue increase to $290.3 million compared to Q1 2020. Adjusted revenue rose 9.5% to $290.5 million. However, income from operations declined to $12.0 million from $44.0 million, with adjusted income at $52.9 million. Net income was $9.6 million, down from $35.2 million in the prior year. The company declared a cash dividend of $0.60 per share, payable June 7, 2021. Student enrollment decreased 7.3%

Positive

• Revenue increased 9.4% to $290.3 million.
• Adjusted revenue rose 9.5% to $290.5 million.
• Cash and marketable securities totaled $274 million.
• Quarterly cash dividend of $0.60 declared.

Negative

• Income from operations fell to $12.0 million from $44.0 million.
• Net income decreased to $9.6 million from $35.2 million.
• Adjusted income from operations dropped to $52.9 million from $63.1 million.
• Student enrollment decreased by 7.3%.

Strategic Education, Inc. (Strategic Education) (NASDAQ: STRA) today announced financial results for the period ended March 31, 2021.

“We are pleased with the organization’s ongoing commitment to the success of our students and to our mission to enable economic mobility,” said Karl McDonnell, Chief Executive Officer of Strategic Education. “As we continue to navigate through the challenges presented by the COVID-19 pandemic, we are encouraged by continued strength in our Australia/New Zealand and Alternative Learning segments.”

STRATEGIC EDUCATION CONSOLIDATED RESULTS

[Note: Strategic Education’s financial results for any periods ended prior to November 3, 2020 do not include the financial results of the Australia/New Zealand acquisition and are therefore not directly comparable.]

Three Months Ended March 31

• Revenue increased 9.4% to $290.3 million compared to $265.3 million for the same period in 2020. Revenue in 2021 includes the impact of a purchase accounting adjustment of $2.2 million to record acquired contract liabilities at fair value as a result of the acquisition of Torrens University and associated assets in Australia and New Zealand, and foreign currency exchange impact. Adjusted revenue, which is a non-GAAP financial measure and excludes the aforementioned adjustments, increased 9.5% to $290.5 million compared to $265.3 million for the same period in 2020. For more details on non-GAAP financial measures, refer to the information in the Non-GAAP Financial Measures section of this press release.

• Income from operations was $12.0 million or 4.1% of revenue, compared to $44.0 million or 16.6% of revenue for the same period in 2020. Income from operations in 2021 includes the impact of the aforementioned contract liabilities adjustment, $19.4 million of amortization expense related to assets acquired in the merger with Capella Education Company and the acquisition of Torrens University and associated assets in Australia and New Zealand, $1.0 million in expenses associated with the merger with Capella Education Company and the acquisition of Torrens University and associated assets in Australia and New Zealand, $18.3 million of restructuring charges for severance costs and right-of-use lease asset impairment charges, and foreign currency exchange impact. Income from operations in 2020 included $15.4 million of amortization expense related to assets acquired in the merger with Capella Education Company and $3.8 million in expenses associated with the merger with Capella Education Company. Adjusted income from operations was $52.9 million in 2021 compared to $63.1 million for the same period in 2020. The adjusted operating income margin was 18.2% compared to 23.8% for the same period in 2020.

• Net income, which includes the items described above, and also includes income from partnership interests and other investments, certain discrete tax adjustments, and foreign currency exchange impact, was $9.6 million in 2021 compared to $35.2 million for the same period in 2020. Adjusted net income was $37.0 million compared to $46.5 million for the same period in 2020.

• Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $46.6 million in 2021 compared to $69.7 million in 2020. Adjusted EBITDA, which excludes the items described above, as well as amortization expense associated with deferred implementation costs incurred in cloud computing arrangements, and stock-based compensation expense, was $70.6 million compared to $76.5 million for the same period in 2020.

• Diluted earnings per share was $0.40 compared to $1.60 for the same period in 2020. Adjusted diluted earnings per share decreased to $1.53 from $2.11 for the same period in 2020. Diluted weighted average shares outstanding increased to 24,153,000 from 22,071,000 for the same period in 2020, due primarily to new shares issued to facilitate the acquisition of Torrens University and associated assets in Australia and New Zealand.

U.S. Higher Education Segment Highlights

• The U.S. Higher Education segment (USHE) is comprised of Strayer University, including the Jack Welch Management Institute and DevMountain, Capella University, and Hackbright Academy.

• For the first quarter, student enrollment within USHE decreased 7.3% to 89,482 compared to 96,537 for the same period in 2020.

• For the first quarter, FlexPath enrollment was 17% of USHE enrollment compared to 12% for the same period in 2020.

• Revenue decreased 11.3% to $226.5 million in the first quarter of 2021 compared to $255.5 million for the same period in 2020, driven by lower first quarter enrollment and lower revenue-per-student.

• Income from operations decreased to $47.8 million in the first quarter of 2021 from $56.7 million for the same period in 2020. The operating income margin was 21.1%, compared to 22.2% for the same period in 2020.

Alternative Learning Segment Highlights

• The Alternative Learning segment includes Employer Solutions, Workforce Edge, Sophia Learning, and Digital Enablement Partnerships.

• For the first quarter, employer affiliated enrollment was 20.7% of USHE enrollment compared to 17.0% for the same period in 2020.

• Revenue increased 27.9% to $12.5 million in the first quarter of 2021 compared to $9.8 million for the same period in 2020, driven by growth in Sophia Learning subscriptions and employer affiliated enrollment.

• Income from operations decreased to $5.9 million in the first quarter of 2021 from $6.4 million for the same period in 2020, as we continue to invest in the Alternative Learning group. The operating income margin was 47.0%, compared to 65.3% for the same period in 2020.

Australia/New Zealand Segment Highlights

• The Australia/New Zealand segment (ANZ) includes Torrens University, Think Education, and Media Design School.

• For the first quarter, student enrollment within ANZ was 21,469, an increase of 11.9% compared to pro forma enrollment of 19,192 for the same period in 2020.

• Revenue was $51.3 million in the first quarter of 2021, and adjusted revenue was $51.5 million excluding the impact of a purchase accounting adjustment of $2.2 million to record acquired contract liabilities at fair value as a result of the acquisition of Torrens University and associated assets in Australia and New Zealand, and foreign currency exchange impact. On a pro forma basis, revenue was $50.2 million in the first quarter of 2020.

• Loss from operations was $2.9 million in the first quarter of 2021, and the adjusted loss from operations was $0.7 million excluding the impact of a purchase accounting adjustment to record acquired contract liabilities at fair value as a result of the acquisition of Torrens University and associated assets in Australia and New Zealand, and foreign currency exchange impact. On a pro forma basis, income from operations was $2.7 million in the first quarter of 2020.

BALANCE SHEET AND CASH FLOW

At March 31, 2021, Strategic Education had cash, cash equivalents, and marketable securities of $274.0 million, and $141.8 million outstanding under its revolving credit facility. For the first three months of 2021, cash provided by operations was $78.8 million compared to $68.7 million for the same period in 2020. Capital expenditures for the first three months of 2021 were $12.7 million compared to $14.3 million for the same period in 2020. Capital expenditures for 2021 are expected to be $50 million to $55 million.

For the first quarter of 2021, consolidated bad debt expense as a percentage of revenue and adjusted revenue was 3.7%, compared to 4.2% of revenue for the same period in 2020. Net tuition receivable as of March 31, 2021 includes additional reserves to account for projected deterioration in collections performance due to the pandemic.

COMMON STOCK CASH DIVIDEND

Strategic Education announced today that it declared a regular, quarterly cash dividend of $0.60 per share of common stock. This dividend will be paid on June 7, 2021 to shareholders of record as of May 28, 2021.

CONFERENCE CALL WITH MANAGEMENT

Strategic Education will host a conference call to discuss its first quarter 2021 results at 10:00 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. An earnings release presentation will also be posted to www.strategiceducation.com in the Investor Relations section prior to the start time of the call. Following the call, the webcast will be archived and available at www.strategiceducation.com in the Investor Relations section.

About Strategic Education, Inc.

Strategic Education, Inc. (NASDAQ: STRA) (www.strategiceducation.com) is dedicated to helping advance economic mobility through higher education. We serve working adult students globally through our core focus areas: 1) U.S. Higher Education, including Strayer University and Capella University, each institutionally accredited, and collectively offer flexible and affordable associate, bachelor’s, master’s, and doctoral programs including the Jack Welch Management Institute at Strayer University, and non-degree web and mobile application development courses through Hackbright Academy and Strayer University’s DevMountain; 2) Alternative Learning, encompassing Employer Solutions, developing and maintaining relationships with large employers; Workforce Edge, a full service, online employee education management platform; Sophia Learning, self-paced general education courses that are ACE-recommended for college credit; and Digital Enablement Partnerships, helping advance capabilities in course development, online delivery, and student support; and 3) Australia/New Zealand, comprised of Torrens University, Think Education, and Media Design School that collectively offer certificate and degree programs in Australia and New Zealand. This portfolio of high quality, innovative, relevant, and affordable programs and institutions helps our students prepare for success in today’s workforce 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 and growth opportunities of Strategic Education; Strategic Education’s plans, strategies and prospects; the impact of the current COVID-19 pandemic on Strategic Education’s business and results; and future events and expectations. The statements are based on Strategic Education’s current expectations and are subject to a number of assumptions, uncertainties and risks, including but not limited to:

• the pace of student enrollment;
• Strategic Education’s continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional 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 further spread of COVID-19, including the ultimate impact of COVID-19 on people and economies;
• the impact of regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements;
• 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, including in the case of Strategic Education’s acquisition of Torrens University and associated assets in Australia and New Zealand, the risk that the benefits of the acquisition may not be fully realized or may take longer to realize than expected, and the risk that the acquisition may not advance Strategic Education’s business strategy and growth strategy;
• risks relating to the timing of regulatory approvals;
• Strategic Education’s ability to implement its growth strategy;
• the risk that the combined company may experience difficulty integrating employees or operations;
• risks associated with the ability of Strategic Education’s students to finance their education in a timely manner;
• general economic and market conditions; and
• additional factors described in Strategic Education’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 Strategic Education’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 Strategic Education on the date they are made, and Strategic Education 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,
		2020				2021
Revenues		$	265,302			$	290,336
Costs and expenses:
Instructional and support costs		132,936				152,805
General and administration		69,226				86,845
Amortization of intangible assets		15,417				19,407
Merger and integration costs		3,764				1,012
Restructuring costs		—				18,267
Total costs and expenses		221,343				278,336
Income from operations		43,959				12,000
Other income		2,123				2,167
Income before income taxes		46,082				14,167
Provision for income taxes		10,843				4,590
Net income		$	35,239			$	9,577
Earnings per share:
Basic		$	1.62			$	0.40
Diluted		$	1.60			$	0.40
Weighted average shares outstanding:
Basic		21,810				23,974
Diluted		22,071				24,153

STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
		December 31, 2020				March 31, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	187,509			$	238,290
Marketable securities		7,557				6,455
Tuition receivable, net		50,169				63,469
Income taxes receivable		1,429				—
Other current assets		39,458				44,714
Total current assets		286,122				352,928
Property and equipment, net		158,854				164,277
Right-of-use lease assets		120,687				142,998
Marketable securities, non-current		30,270				29,280
Intangible assets, net		326,420				308,190
Goodwill		1,318,526				1,311,487
Other assets		54,928				60,282
Total assets		$	2,295,807			$	2,369,442
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	104,742			$	97,448
Income taxes payable		—				11,350
Contract liabilities		60,501				108,073
Lease liabilities		34,809				32,886
Total current liabilities		200,052				249,757
Long-term debt		141,823				141,798
Deferred income tax liabilities		53,407				44,264
Lease liabilities, non-current		106,151				152,981
Other long-term liabilities		46,055				44,717
Total liabilities		547,488				633,517
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.01; 32,000,000 shares authorized; 24,418,939 and 24,651,205 shares issued and outstanding at December 31, 2020 and March 31, 2021, respectively		244				247
Additional paid-in capital		1,519,549				1,521,145
Accumulated other comprehensive income		48,880				40,064
Retained earnings		179,646				174,469
Total stockholders’ equity		1,748,319				1,735,925
Total liabilities and stockholders’ equity		$	2,295,807			$	2,369,442

STRATEGIC EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
		For the three months ended March 31,
		2020				2021
Cash flows from operating activities:
Net income		$	35,239			$	9,577
Adjustments to reconcile net income to net cash provided by operating activities:

FAQ

What were the financial results for STRA in Q1 2021?

Strategic Education reported a revenue increase of 9.4% to $290.3 million, but income from operations fell to $12.0 million.

What is the cash dividend declared by STRA?

Strategic Education declared a quarterly cash dividend of $0.60 per share, payable on June 7, 2021.

How did STRA's net income change in Q1 2021?

Net income for STRA decreased to $9.6 million in Q1 2021 from $35.2 million in Q1 2020.

What was the status of student enrollment for STRA in Q1 2021?

Student enrollment decreased by 7.3% to 89,482 compared to 96,537 in Q1 2020.

What were the adjusted operating income figures for STRA?

Adjusted income from operations was $52.9 million, down from $63.1 million in the same quarter last year.