STRA Strategic Education Inc

Strategic Education, Inc. (Strategic Education) (NASDAQ: STRA) today announced financial results for the period ended December 31, 2020.

“We are encouraged by the organization’s ability to adapt to the challenges presented by the COVID-19 pandemic over the past year,” said Karl McDonnell, Chief Executive Officer of Strategic Education. “As we enter 2021, we remain focused on providing the highest level of academic quality for our students. Our financial strength provides a solid foundation as we work to successfully integrate the Australia/New Zealand assets into the organization, focus on areas of existing strength in our core business, and invest in opportunities including employer initiatives, Sophia Learning, and digital enablement partnerships.”

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 December 31

• Revenue increased 1.4% to $267.5 million compared to $263.8 million for the same period in 2019. Revenue in 2020 includes the impact of a purchase accounting adjustment of $11.3 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. Adjusted revenue, which is a non-GAAP financial measure and excludes the aforementioned contract liabilities adjustment, increased 5.7% to $278.8 million compared to $263.8 million for the same period in 2019. 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 $3.6 million or 1.3% of revenue, compared to $37.2 million or 14.1% of revenue for the same period in 2019. Income from operations in 2020 includes the impact of the aforementioned contract liabilities adjustment, $18.0 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, $5.9 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, and $8.4 million of severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring. Income from operations in 2019 included $15.4 million of amortization expense related to assets acquired in the merger with Capella Education Company and $10.2 million in expenses associated with the merger with Capella Education Company. Adjusted income from operations was $47.1 million in 2020 compared to $62.9 million for the same period in 2019. The adjusted operating income margin was 16.9% compared to 23.8% for the same period in 2019.
• Net income, which includes the items described above, and also includes income from partnership interests and other investments, and certain discrete tax adjustments, was $5.9 million in 2020 compared to $28.5 million for the same period in 2019. Adjusted net income was $33.4 million compared to $47.0 million for the same period in 2019.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $34.6 million in 2020 compared to $63.2 million in 2019. Adjusted EBITDA, which excludes 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, expenses associated with the merger with Capella Education Company and the acquisition of Torrens University and associated assets in Australia and New Zealand, severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring, amortization expense associated with deferred implementation costs incurred in cloud computing arrangements, and stock-based compensation expense, was $64.2 million compared to $76.5 million for the same period in 2019.
• Diluted earnings per share was $0.25 compared to $1.29 for the same period in 2019. Adjusted diluted earnings per share decreased to $1.39 from $2.13 for the same period in 2019. Diluted weighted average shares outstanding increased to 24,143,000 from 22,101,000 for the same period in 2019, due primarily to new shares issued to facilitate the acquisition of Torrens University and associated assets in Australia and New Zealand.

Year Ended December 31

• Revenue increased 3.1% to $1,027.7 million compared to $997.1 million in 2019. Revenue in 2020 includes the impact of a purchase accounting adjustment of $11.3 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. Adjusted revenue, which is a non-GAAP financial measure and excludes the aforementioned contract liabilities adjustment, increased 4.2% to $1,038.9 million compared to $997.1 million in 2019. 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 $109.4 million or 10.6% of revenue, compared to $110.5 million or 11.1% of revenue in 2019. Income from operations in 2020 includes the impact of the aforementioned contract liabilities adjustment, $64.2 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, $13.8 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, and $12.4 million of severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring. Income from operations in 2019 included $61.7 million of amortization expense related to assets acquired in the merger with Capella Education Company and $21.9 million in expenses associated with the merger with Capella Education Company. Adjusted income from operations was $211.1 million in 2020 compared to $194.1 million in 2019. The adjusted operating income margin was 20.3% compared to 19.5% in 2019.
• Net income, which includes the items described above, and also includes income from partnership interests and other investments, and certain discrete tax adjustments, was $86.3 million in 2020 compared $81.1 million in 2019. Adjusted net income was $152.7 million compared to adjusted net income of $147.3 million in 2019.
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) was $218.5 million in 2020 compared to $215.4 million in 2019. Adjusted EBITDA, which excludes 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, expenses associated with the merger with Capella Education Company and the acquisition of Torrens University and associated assets in Australia and New Zealand, severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring, amortization expense associated with deferred implementation costs incurred in cloud computing arrangements, and stock-based compensation expense, was $271.2 million compared to $248.7 million in 2019.
• Diluted earnings per share was $3.77 compared to $3.67 in 2019. Adjusted diluted earnings per share was $6.68 compared to $6.67 in 2019. Diluted weighted average shares outstanding increased to 22,860,000 from 22,097,000 in 2019, due primarily to new shares issued to facilitate the acquisition of Torrens University and associated assets in Australia and New Zealand.

Strayer University Segment Highlights

• For the fourth quarter, student enrollment at Strayer University decreased 9% to 50,773 compared to 55,788 for the same period in 2019. Full-year 2020 student enrollment at Strayer University increased 2% compared to 2019. Starting in the first quarter of 2020, Strayer University adopted a new enrollment reporting census date, which occurs approximately two weeks following the start of the academic term. Previously the Strayer University enrollment census date coincided with the end of the University’s “drop-add” period, approximately one week following the start of the academic term. This new census date is consistent with the approach employed by Capella University. All historical enrollment data included in this release and other disclosures has been revised using the new census date. Year-over-year percentage change in enrollment for the new census date does not differ significantly from the prior approach.
• Revenue decreased 13.2% to $125.5 million in the fourth quarter of 2020 compared to $144.5 million for the same period in 2019, driven by lower fourth quarter enrollment and lower revenue-per-student.
• Income from operations decreased to $25.2 million in the fourth quarter of 2020 from $37.2 million for the same period in 2019. The operating income margin was 20.1%, compared to 25.7% for the same period in 2019.

Capella University Segment Highlights

• For the fourth quarter, student enrollment at Capella University increased 5% to 41,073 compared to 39,244 for the same period in 2019. Full-year 2020 student enrollment at Capella University increased 3% compared to 2019. Starting in the first quarter of 2020, Capella University consolidated two different enrollment reporting census dates into a single date, which occurs approximately two weeks following the start of the academic term. All historical enrollment data included in this release and other disclosures has been revised accordingly. Year-over-year percentage change in enrollment for the new census date does not differ significantly from the prior approach.
• FlexPath continued to be a significant driver of enrollment growth in the fourth quarter of 2020 and is 32% of Capella University’s total enrollment.
• Revenue decreased 0.5% to $118.6 million in the fourth quarter of 2020 compared to $119.3 million for the same period in 2019, driven by lower revenue-per-student.
• Income from operations decreased to $24.0 million in the fourth quarter of 2020 from $25.7 million for the same period in 2019. The operating income margin was 20.2%, compared to 21.5% for the same period in 2019.

Australia/New Zealand Segment Highlights

• Revenue was $23.4 million in the fourth quarter of 2020, and adjusted revenue was $34.7 million excluding the impact of a purchase accounting adjustment of $11.3 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.
• Loss from operations was $13.3 million in the fourth quarter of 2020, and the adjusted loss from operations was $2.0 million excluding the impact of a purchase accounting adjustment of $11.3 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.
• On a pro forma basis, full-year 2020 student enrollment within the Australia/New Zealand segment was 19,069, an increase of 23% compared to 2019.
• On a pro forma basis, full year 2020 Australia/New Zealand revenue was $258.2 million compared to $203.6 million for 2019, and income from operations was $44.1 million compared to $22.1 million in 2019.

BALANCE SHEET AND CASH FLOW

At December 31, 2020, Strategic Education had cash, cash equivalents, and marketable securities of $225.3 million, and $141.8 million outstanding under the revolving credit facility. Cash provided by operations in 2020 was $142.9 million compared to $202.1 million in 2019. Capital expenditures for 2020 were $46.8 million compared to $38.7 million in 2019. Capital expenditures for 2021 are expected to be approximately $55 million.

For the fourth quarter of 2020, consolidated bad debt expense as a percentage of revenue was 5.5%, or 5.3% of adjusted revenue, compared to 5.0% of revenue for the same period in 2019. Net tuition receivable as of December 31, 2020 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 March 15, 2021 to shareholders of record as of March 8, 2021.

ELECTIONS TO THE BOARD OF DIRECTORS

On November 5, 2020, the Company announced that the Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, unanimously voted to elect Jerry L. Johnson to serve as a Director of the Company, with service beginning on January 4, 2021. Mr. Johnson is Senior Vice President of Strategy, Corporate Development and Investor Relations at EnPro Industries, a leading technology company using materials science to push the boundaries of the semiconductor, life sciences, and other technology-enabled sectors. Mr. Johnson is a founding member and previously served as a Partner at RLJ Equity Partners since 2007.

In addition, on February 25, 2021, upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors unanimously approved the nomination of William J. Slocum for election to the Board of Directors at the Company’s 2021 Annual Meeting of Stockholders. Mr. Slocum is a Partner of Inclusive Capital Partners L.P. (“In-Cap”), a San Francisco-based investment firm. Prior to his work at In-Cap, Mr. Slocum was a portfolio manager at Golden Gate Capital for nine years and was a Vice President at ValueAct Capital for five years.

CONFERENCE CALL WITH MANAGEMENT

Strategic Education will host a conference call to discuss its fourth quarter 2020 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 all over the globe through our core focus areas: 1) U.S. Higher Education, through 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; 2) Alternative Learning, encompassing Sophia Learning, self-paced general education courses that are ACE-recommended for college credit; Workforce Edge, a full service, online employee education management portal; Digital Enablement Partnerships, helping advance capabilities in course development, online delivery and student support; and non-degree web and mobile application development courses through Hackbright Academy and Strayer University’s DevMountain; and 3) Australia/New Zealand, comprised of Torrens University, Think Education and Media Design School operations 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 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 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 CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

 

For the Three Months Ended December 31,

 

For the Twelve Months Ended December 31,

 

2019

 

2020

 

2019

 

2020

Revenues

$

263,772

 

$

267,494

 

 

$

997,137

 

$

1,027,653

Costs and expenses:

 

 

 

 

 

 

 

Instructional and support costs

133,323

 

147,007

 

 

530,604

 

532,661

General and administration

67,595

 

84,635

 

 

272,411

 

295,231

Amortization of intangible assets

15,416

 

17,974

 

 

61,667

 

64,225

Merger and integration costs

10,225

 

5,912

 

 

21,923

 

13,770

Restructuring costs

—

 

8,358

 

 

—

 

12,382

Total costs and expenses

226,559

 

263,886

 

 

886,605

 

918,269

Income from operations

37,213

 

3,608

 

 

110,532

 

109,384

Other income (expenses)

2,497

 

(101

)

 

13,192

 

4,573

Income before income taxes

39,710

 

3,507

 

 

123,724

 

113,957

Provision (benefit) for income taxes

11,173

 

(2,410

)

 

42,586

 

27,689

Net income

$

28,537

 

$

5,917

 

 

$

81,138

 

$

86,268

Earnings per share:

 

 

 

 

 

 

 

Basic

$

1.31

 

$

0.25

 

 

$

3.73

 

$

3.81

Diluted

$

1.29

 

$

0.25

 

 

$

3.67

 

$

3.77

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

21,817

 

23,955

 

 

21,725

 

22,633

Diluted

22,101

 

24,143

 

 

22,097

 

22,860

 

STRATEGIC EDUCATION, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

December 31, 2019

 

December 31, 2020

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

419,693

 

$

187,509

Marketable securities

34,874

 

7,557

Tuition receivable, net

51,523

 

50,169

Income taxes receivable

—

 

1,429

Other current assets

18,004

 

39,458

Total current assets

524,094

 

286,122

Property and equipment, net

117,029

 

158,854

Right-of-use lease assets

84,778

 

120,687

Marketable securities, non-current

36,633

 

30,270

Intangible assets, net

273,011

 

326,420

Goodwill

732,075

 

1,318,526

Other assets

21,788

 

54,928

Total assets

$

1,789,408

 

$

2,295,807

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

90,828

 

$

104,742

Income taxes payable

1,352

 

—

Contract liabilities

39,284

 

60,501

Lease liabilities

25,284

 

34,809

Total current liabilities

156,748

 

200,052

Long-term debt

—

 

141,823

Deferred income tax liabilities

47,942

 

53,407

Lease liabilities, non-current

80,557

 

106,151

Other long-term liabilities

41,451

 

46,055

Total liabilities

326,698

 

547,488

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, par value $0.01; 32,000,000 shares authorized; 21,964,809 and 24,418,939 shares issued and outstanding at December 31, 2019 and 2020, respectively

220

 

244

Additional paid-in capital

1,309,438

 

1,519,549

Accumulated other comprehensive income

233

 

48,880

Retained earnings

152,819

 

179,646

Total stockholders’ equity

1,462,710

 

1,748,319

Total liabilities and stockholders’ equity

$

1,789,408

 

$

2,295,807

 

STRATEGIC EDUCATION, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

For the Year Ended December 31,

 

 

2019

 

2020

Cash flows from operating activities:

 

 

 

 

Net income

 

$

81,138

 

 

$

86,268

 

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

 

 

 

 

Amortization of deferred financing costs

 

333

 

 

466

 

Amortization of investment discount/premium

 

296

 

 

146

 

Depreciation and amortization

 

104,861

 

 

109,154

 

Deferred income taxes

 

(8,037

)

 

(13,431

)

Stock-based compensation

 

12,160

 

 

14,610

 

Impairment of right-of-use lease assets

 

6,046

 

 

848

 

Changes in assets and liabilities:

 

 

 

 

Tuition receivable, net

 

1,770

 

 

19,659

 

Other assets

 

(2,129

)

 

(32,326

)

Accounts payable and accrued expenses

 

245

 

 

(22,685

)

Income taxes payable and income taxes receivable

 

1,198

 

 

(4,020

)

Contract liabilities

 

7,716

 

 

(10,095

)

Other long-term liabilities

 

(3,451

)

 

(5,689

)

Net cash provided by operating activities

 

202,146

 

 

142,905

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

Cash paid for acquisition, net of cash acquired

 

—

 

 

(628,759

)

Purchases of property and equipment

 

(38,689

)

 

(46,812

)

Purchases of marketable securities

 

(40,481

)

 

(1,863

)

Proceeds from marketable securities

 

43,762

 

 

36,192

 

Other investments

 

(2,658

)

 

(950

)

Net cash used in investing activities

 

(38,066

)

 

(642,192

)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Net proceeds from issuance of common stock

 

—

 

 

220,248

 

Proceeds from long-term debt

 

—

 

 

145,630

 

Common dividends paid

 

(46,625

)

 

(55,956

)

Net payments for stock awards

 

(9,195

)

 

(24,741

)

Payments on long-term debt

 

—

 

 

(3,807

)

Payment of deferred financing costs

 

—

 

 

(1,940

)

Repurchase of common stock

 

—

 

 

(247

)

Net cash provided by (used in) financing activities

 

(55,820

)

 

279,187

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

—

 

 

1,623

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

108,260

 

 

(218,477

)

Cash, cash equivalents, and restricted cash — beginning of period

 

312,237

 

 

420,497

 

Cash, cash equivalents, and restricted cash — end of period

 

$

420,497

 

 

$

202,020

 

 

STRATEGIC EDUCATION, INC.

UNAUDITED SEGMENT REPORTING

(in thousands)

 

 

For the Three Months Ended December 31,

 

For the Twelve Months Ended December 31,

 

2019

 

2020

 

2019

 

2020

Revenues:

 

 

 

 

 

 

 

Strayer University

$

144,503

 

 

$

125,488

 

 

$

536,969

 

 

$

537,633

 

Capella University

119,269

 

 

118,625

 

 

460,168

 

 

466,639

 

Australia/New Zealand

—

 

 

23,381

 

 

—

 

 

23,381

 

Consolidated revenues

$

263,772

 

 

$

267,494

 

 

$

997,137

 

 

$

1,027,653

 

Income (loss) from operations:

 

 

 

 

 

 

 

Strayer University

$

37,180

 

 

$

25,173

 

 

$

103,409

 

 

$

120,398

 

Capella University

25,674

 

 

23,954

 

 

90,713

 

 

92,638

 

Australia/New Zealand

—

 

 

(13,275

)

 

—

 

 

(13,275

)

Amortization of intangible assets

(15,416

)

 

(17,974

)

 

(61,667

)

 

(64,225

)

Merger and integration costs

(10,225

)

 

(5,912

)

 

(21,923

)

 

(13,770

)

Restructuring costs

—

 

 

(8,358

)

 

—

 

 

(12,382

)

Consolidated income from operations

$

37,213

 

 

$

3,608

 

 

$

110,532

 

 

$

109,384

 

Non-GAAP Financial Measures

In our press release and schedules, 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 revenue, total costs and expenses, income from operations, operating margin, income before income taxes, 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 the Company’s ongoing operations before the impact of certain items described below. These measures are Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted EBITDA and Adjusted Diluted Earnings Per Share (EPS). We define Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted EPS to exclude (1) a purchase accounting adjustment to record acquired contract liabilities at fair value as a result of the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand, (2) amortization and depreciation expense related to intangible assets and software assets associated with the Company’s merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand, (3) transaction and integration expenses associated with the Company's merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand, (4) severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring, (5) income recognized from the Company’s investments in partnership interests and other investments, and (6) discrete tax adjustments utilizing adjusted effective income tax rates of 28.0% and 28.4% for the three months ended December 31, 2019 and 2020, respectively, and adjusted effective income tax rates of 27.8% and 28.5% for the twelve months ended December 31, 2019 and 2020, respectively. We define EBITDA as net income before other income, the provision for income taxes, depreciation and amortization, and from this amount in arriving at Adjusted EBITDA we also exclude stock-based compensation expense, amortization expense associated with deferred implementation costs incurred in cloud computing arrangements, and the amounts in (1), (3) and (4) above. 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 REVENUE, ADJUSTED TOTAL COSTS AND EXPENSES, ADJUSTED INCOME FROM OPERATIONS, ADJUSTED INCOME BEFORE INCOME TAXES, ADJUSTED NET INCOME, AND ADJUSTED EPS

(in thousands, except per share data)

 

 

 

For the Three Months Ended December 31, 2019 Non-GAAP adjustments

 

As Reported (GAAP)

Contract liability adjustment(1)

Amortization of intangible assets(2)

Merger and integration costs(3)

Restructuring costs(4)

 

Income from other investments(5)

Tax adjustments(6)

As Adjusted (Non-GAAP)

Revenues

$

263,772

 

 

$

—

$

—

 

$

—

 

 

$

—

 

$

—

 

 

$

—

 

 

$

263,772

 

Total costs and expenses

$

226,559

 

 

$

—

$

(15,416

)

$

(10,225

)

 

$

—

 

$

—

 

 

$

—

 

 

$

200,918

 

Income from operations

$

37,213

 

 

$

—

$

15,416

 

$

10,225

 

 

$

—

 

$

—

 

 

$

—

 

 

$

62,854

 

Operating margin

 

14.1

%

 

 

 

 

 

 

 

 

23.8

%

Income before income taxes

$

39,710

 

 

$

—

$

15,416

 

$

10,225

 

 

$

—

 

$

(112

)

 

$

—

 

 

$

65,239

 

Net income

$

28,537

 

 

$

—

$

15,416

 

$

10,225

 

 

$

—

 

$

(112

)

 

$

(7,094

)

 

$

46,972

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Diluted

$

1.29

 

 

 

 

 

$

2.13

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Diluted

 

22,101

 

 

 

 

 

 

 

 

22,101

 

 

 

 

For the Three Months Ended December 31, 2020 Non-GAAP adjustments

 

 

As Reported (GAAP)

Contract liability adjustment(1)

Amortization of intangible assets(2)

Merger and integration costs(3)

Restructuring costs(4)

Income from other investments(5)

Tax adjustments(6)

As Adjusted (Non-GAAP)

Revenues

$

267,494

 

 

$

11,296

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

278,790

 

Total costs and expenses

$

263,886

 

 

$

—

 

$

(17,974

)

 

$

(5,912

)

 

$

(8,358

)

 

$

—

 

 

$

—

 

 

$

231,642

 

Income from operations

$

3,608

 

 

$

11,296

 

$

17,974

 

 

$

5,912

 

 

$

8,358

 

 

$

—

 

 

$

—

 

 

$

47,148

 

Operating margin

 

1.3

%

 

 

 

 

 

 

 

16.9

%

Income before income taxes

$

3,507

 

 

$

11,296

 

$

17,974

 

 

$

5,912

 

 

$

8,358

 

 

$

(315

)

 

$

—

 

 

$

46,732

 

Net income

$

5,917

 

 

$

11,296

 

$

17,974

 

 

$

5,912

 

 

$

8,358

 

 

$

(315

)

 

$

(15,700

)

 

$

33,442

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Diluted

$

0.25

 

 

 

 

 

 

 

 

$

1.39

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Diluted

 

24,143

 

 

 

 

 

 

 

 

24,143

 

   

 

For the Twelve Months Ended December 31, 2019 Non-GAAP adjustments

 

As Reported (GAAP)

Contract liability adjustment(1)

Amortization of intangible assets(2)

Merger and integration costs(3)

Restructuring costs(4)

Income from other investments(5)

Tax adjustments(6)

As Adjusted (Non-GAAP)

Revenues

$

997,137

 

 

$

—

 

$

—

 

 

$

—

 

 

$

—

 

$

—

 

 

$

—

 

 

$

997,137

 

Total costs and expenses

$

886,605

 

 

$

—

 

$

(61,667

)

 

$

(21,923

)

 

$

—

 

$

—

 

 

$

—

 

 

$

803,015

 

Income from operations

$

110,532

 

 

$

—

 

$

61,667

 

 

$

21,923

 

 

$

—

 

$

—

 

 

$

—

 

 

$

194,122

 

Operating margin

 

11.1

%

 

 

 

 

 

 

 

19.5

%

Income before income taxes

$

123,724

 

 

$

—

 

$

61,667

 

 

$

21,923

 

 

$

—

 

$

(3,446

)

 

$

—

 

 

$

203,868

 

Net income

$

81,138

 

 

$

—

 

$

61,667

 

 

$

21,923

 

 

$

—

 

$

(3,446

)

 

$

(14,001

)

 

$

147,281

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Diluted

$

3.67

 

 

 

 

 

 

 

 

$

6.67

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Diluted

 

22,097

 

 

 

 

 

 

 

 

22,097

 

 

 

 

For the Twelve Months Ended December 31, 2020 Non-GAAP adjustments

 

As Reported (GAAP)

Contract liability adjustment(1)

Amortization of intangible assets(2)

Merger and integration costs(3)

Restructuring costs(4)

Income from other investments(5)

Tax adjustments(6)

As Adjusted (Non-GAAP)

Revenues

$

1,027,653

 

 

$

11,296

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,038,949

 

Total costs and expenses

$

918,269

 

 

$

—

 

$

(64,225

)

 

$

(13,770

)

 

$

(12,382

)

 

$

—

 

 

$

—

 

 

$

827,892

 

Income from operations

$

109,384

 

 

$

11,296

 

$

64,225

 

 

$

13,770

 

 

$

12,382

 

 

$

—

 

 

$

—

 

 

$

211,057

 

Operating margin

 

10.6

%

 

 

 

 

 

 

 

20.3

%

Income before income taxes

$

113,957

 

 

$

11,296

 

$

64,225

 

 

$

13,770

 

 

$

12,382

 

 

$

(2,094

)

 

$

—

 

 

$

213,536

 

Net income

$

86,268

 

 

$

11,296

 

$

64,225

 

 

$

13,770

 

 

$

12,382

 

 

$

(2,094

)

 

$

(33,141

)

 

$

152,706

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Diluted

$

3.77

 

 

 

 

 

 

 

 

$

6.68

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Diluted

 

22,860

 

 

 

 

 

 

 

 

22,860

 

 

(1)

Reflects a purchase accounting adjustment to record acquired contract liabilities at fair value as a result of the Company's acquisition of Torrens University and associated assets in Australia and New Zealand.

(2)

Reflects amortization and depreciation expense of intangible assets and software assets acquired through the Company’s merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand.

(3)

Reflects transaction and integration expenses associated with the Company's merger with Capella Education Company and the Company's acquisition of Torrens University and associated assets in Australia and New Zealand.

(4)

Reflects severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring.

(5)

Reflects income recognized from the Company's investments in partnership interests and other investments.

(6)

Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing adjusted effective income tax rates of 28.0% and 28.4% for the three months ended December 31, 2019 and 2020, respectively, and adjusted effective income tax rates of 27.8% and 28.5% for the twelve months ended December 31, 2019 and 2020, respectively.

 

STRATEGIC EDUCATION, INC.

UNAUDITED NON-GAAP SEGMENT REPORTING

(in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

December 31,

 

December 31,

2019

 

2020

 

2019

 

2020

Revenues:

Strayer University

$

144,503

 

$

125,488

 

$

536,969

 

$

537,633

 

Capella University

119,269

 

118,625

 

460,168

 

466,639

 

Australia/New Zealand

—

 

23,381

 

—

 

23,381

 

Consolidated revenues

 

263,772

 

 

267,494

 

 

997,137

 

 

1,027,653

 

 

 

Adjustments to consolidated revenues:

 

 

Strayer University

—

 

—

 

—

 

—

 

Capella University

—

 

—

 

—

 

—

 

Australia/New Zealand

—

 

11,296

 

—

 

11,296

 

Total adjustments to consolidated revenues

 

—

 

 

11,296

 

 

—

 

 

11,296

 

 

 

Adjusted revenues by segment:

 

 

Strayer University

144,503

 

125,488

 

536,969

 

537,633

 

Capella University

119,269

 

118,625

 

460,168

 

466,639

 

Australia/New Zealand

—

 

34,677

 

—

 

34,677

 

Adjusted consolidated revenues

$

263,772

 

$

278,790

 

$

997,137

 

$

1,038,949

 

 

 

Income (loss) from operations:

 

 

Strayer University

$

37,180

 

$

25,173

 

$

103,409

 

$

120,398

 

Capella University

25,674

 

23,954

 

90,713

 

92,638

 

Australia/New Zealand

—

 

(13,275

)

—

 

(13,275

)

Amortization of intangible assets

(15,416

)

(17,974

)

(61,667

)

(64,225

)

Merger and integration costs

(10,225

)

(5,912

)

(21,923

)

(13,770

)

Restructuring costs

 

—

 

 

 

(8,358

)

 

 

—

 

 

 

(12,382

)

Consolidated income from operations

 

37,213

 

 

3,608

 

 

110,532

 

 

109,384

 

 

 

Adjustments to consolidated income from operations:

 

 

Contract liabilities adjustment

 

—

 

 

 

11,296

 

 

 

—

 

 

 

11,296

 

Amortization of intangible assets

15,416

 

17,974

 

61,667

 

64,225

 

Merger and integration costs

10,225

 

5,912

 

21,923

 

13,770

 

Restructuring costs

 

—

 

 

 

8,358

 

 

 

—

 

 

 

12,382

 

Total adjustments to consolidated income from operations

 

25,641

 

 

43,540

 

 

83,590

 

 

101,673

 

 

 

 

Adjusted income (loss) from operations by segment:

 

 

 

Strayer University

37,180

 

25,173

 

103,409

 

120,398

 

Capella University

25,674

 

23,954

 

90,713

 

92,638

 

Australia/New Zealand

—

 

(1,979

)

—

 

(1,979

)

Total adjusted income from operations

$

62,854

 

$

47,148

 

$

194,122

 

$

211,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STRATEGIC EDUCATION, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

ADJUSTED EBITDA

(in thousands)

 

For the Three Months Ended

 

For the Twelve Months Ended

December 31,

 

December 31,

2019

 

2020

 

2019

 

2020

 

Net income

$

28,537

 

$

5,917

 

$

81,138

 

$

86,268

 

Provision (benefit) for income taxes

 

11,173

 

 

(2,410

)

 

42,586

 

 

27,689

 

Other income (expenses)

 

(2,497

)

 

101

 

 

(13,192

)

 

(4,573

)

Depreciation and amortization

 

25,999

 

 

30,965

 

 

104,861

 

 

109,154

 

EBITDA (1)

 

63,212

 

 

34,573

 

 

215,393

 

 

218,538

 

Stock-based compensation

 

3,085

 

 

3,851

 

 

11,790

 

 

14,610

 

Merger and integration costs (2)

 

10,225

 

 

5,912

 

 

21,525

 

 

13,770

 

Restructuring costs (3)

 

—

 

 

8,009

 

 

—

 

 

12,033

 

Cloud computing amortization (4)

 

—

 

 

 

520

 

 

 

—

 

 

 

983

 

Contract liability adjustment (5)

 

—

 

 

 

11,296

 

 

 

—

 

 

 

11,296

 

Adjusted EBITDA (1)

$

76,522

 

$

64,161

 

$

248,708

 

$

271,230

 

(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 and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand. Excludes $0.4 million of depreciation and amortization expense for the twelve months ended December 31, 2019 and includes $0.4 million of stock-based compensation expense for the twelve months ended December 31, 2019.

(3)

Reflects severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring. Excludes $0.3 million of depreciation and amortization expense for the three and twelve months ended December 31, 2020.

(4)

Reflects amortization expense associated with deferred implementation costs incurred in cloud computing arrangements.

(5)

Reflects a purchase accounting adjustment to record acquired contract liabilities at fair value as a result of the Company's acquisition of Torrens University and associated assets in Australia and New Zealand.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210226005140/en/

For more information: Terese Wilke Manager, Investor Relations Strategic Education, Inc. (612) 977-6331 terese.wilke@strategiced.com