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Strategic Education, Inc. Reports Fourth Quarter 2021 Results

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HERNDON, Va., February 25, 2022--(BUSINESS WIRE)--Strategic Education, Inc. (Strategic Education) (NASDAQ: STRA) today announced financial results for the period ended December 31, 2021.

"We are very proud of the organization’s commitment over the past year to the success of our students and our mission to enable economic mobility," said Karl McDonnell, Chief Executive Officer of Strategic Education. "As we enter 2022, we are focused on investing in opportunities within our diversified portfolio, including more growth in the Education Technology Services and Australia/New Zealand segments and continued recovery in our U.S. Higher Education segment."

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 1.7% to $272.1 million compared to $267.5 million for the same period in 2020. Adjusted revenue, which is a non-GAAP financial measure, decreased 2.1% to $272.8 million compared to $278.8 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 $27.9 million or 10.2% of revenue, compared to $3.6 million or 1.3% of revenue for the same period in 2020. Adjusted income from operations, which is a non-GAAP financial measure, was $37.9 million in 2021 compared to $47.1 million for the same period in 2020. The adjusted operating income margin, which is a non-GAAP financial measure, was 13.9% compared to 16.9% for the same period in 2020.

  • Net income was $21.7 million in 2021 compared to $5.9 million for the same period in 2020. Adjusted net income, which is a non-GAAP financial measure, was $27.7 million compared to $33.4 million for the same period in 2020.

  • Adjusted EBITDA, which is a non-GAAP financial measure, was $56.1 million compared to $64.2 million for the same period in 2020.

  • Diluted earnings per share was $0.90 compared to $0.25 for the same period in 2020. Adjusted diluted earnings per share, which is a non-GAAP financial measure, decreased to $1.15 from $1.39 for the same period in 2020. Diluted weighted average shares outstanding decreased to 24,098,000 from 24,143,000 for the same period in 2020.

Year Ended December 31

  • Revenue increased 10.1% to $1,131.7 million compared to $1,027.7 million in 2020. Adjusted revenue, which is a non-GAAP financial measure, increased 9.0% to $1,132.1 million compared to $1,038.9 million 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 $73.9 million or 6.5% of revenue, compared to $109.4 million or 10.6% of revenue in 2020. Adjusted income from operations, which is a non-GAAP financial measure, was $165.3 million in 2021 compared to $211.1 million in 2020. The adjusted operating income margin, which is a non-GAAP financial measure, was 14.6% compared to 20.3% in 2020.

  • Net income was $55.1 million in 2021 compared to $86.3 million in 2020. Adjusted net income, which is a non-GAAP financial measure, was $116.4 million compared to $152.7 million in 2020.

  • Adjusted EBITDA, which is a non-GAAP financial measure, was $237.3 million compared to $271.2 million in 2020.

  • Diluted earnings per share was $2.28 compared to $3.77 in 2020. Adjusted diluted earnings per share, which is a non-GAAP financial measure, decreased to $4.82 from $6.68 in 2020. Diluted weighted average shares outstanding increased to 24,122,000 from 22,860,000 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 and Capella University.

  • For the fourth quarter, student enrollment within USHE decreased 14.3% to 78,721 compared to 91,846 for the same period in 2020. Full-year 2021 student enrollment within USHE decreased 11.0% compared to 2020.

  • For the fourth quarter, FlexPath enrollment was 18% of USHE enrollment compared to 15% for the same period in 2020.

  • Revenue decreased 14.9% to $198.6 million in the fourth quarter of 2021 compared to $233.4 million for the same period in 2020, driven by lower fourth quarter enrollment and slightly lower revenue-per-student.

  • Income from operations decreased to $19.9 million in the fourth quarter of 2021 from $44.2 million for the same period in 2020. The operating income margin was 10.0%, compared to 18.9% for the same period in 2020.

  • Strayer University has now reopened 50 campuses that had been closed during the COVID-19 pandemic, and continues to evaluate reopening additional campuses in 2022.

Education Technology Services Segment Highlights

  • The Alternative Learning segment has been renamed to the Education Technology Services segment, and is comprised primarily of Employer Solutions, Sophia Learning, and Workforce Edge.

  • For the fourth quarter, employer affiliated enrollment was 21.7% of USHE enrollment compared to 18.8% for the same period in 2020. Full-year 2021 employer affiliated enrollment was 21.0% of USHE enrollment compared to 17.8% in 2020.

  • As of December 31, 2021, Workforce Edge had a total of 32 corporate agreements, collectively employing approximately 640,000 employees.

  • Revenue increased 29.8% to $13.9 million in the fourth quarter of 2021 compared to $10.7 million for the same period in 2020, driven by growth in Sophia Learning subscriptions.

  • Income from operations increased to $5.1 million in the fourth quarter of 2021 from $4.9 million for the same period in 2020. The operating income margin was 36.5%, compared to 45.9% for the same period in 2020.

Australia/New Zealand Segment Highlights

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

  • For the fourth quarter, student enrollment within ANZ was 18,942. On a pro forma basis, full-year 2021 student enrollment within ANZ increased 1.5% compared to 2020.

  • Revenue was $59.6 million in the fourth quarter of 2021, and adjusted revenue, which is a non-GAAP financial measure, was $60.3 million.

  • Income from operations was $12.8 million or 21.6% of revenue in the fourth quarter of 2021, and adjusted income from operations, which is a non-GAAP financial measure, was $12.9 million or 21.4% of adjusted revenue.

BALANCE SHEET AND CASH FLOW

At December 31, 2021, Strategic Education had cash, cash equivalents, and marketable securities of $298.8 million, and $141.6 million outstanding under its revolving credit facility. Cash provided by operations in 2021 was $180.5 million compared to $142.9 million in 2020. Capital expenditures for 2021 were $49.4 million compared to $46.8 million in 2020.

For the fourth quarter of 2021, consolidated bad debt expense as a percentage of revenue was 4.5%, compared to 5.5%, or 5.3% of adjusted revenue, which is a non-GAAP financial measure, for the same period in 2020.

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 14, 2022 to shareholders of record as of March 7, 2022.

CONFERENCE CALL WITH MANAGEMENT

Strategic Education will host a conference call to discuss its fourth 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. 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 primarily 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 Strayer University’s Hackbright Academy and Devmountain; 2) Education Technology Services, developing and maintaining relationships with employers to build education benefits programs providing employees access to affordable and industry-relevant training, certificate, and degree programs, including through Workforce Edge, a full-service education benefits administration solution for employers, and Sophia Learning, enabling education benefits programs through low-cost online general education courses that are ACE-recommended for college credit; 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; 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
December 31,

For the twelve months ended
December 31,

2020

2021

2020

2021

Revenues

$

267,494

$

272,099

$

1,027,653

$

1,131,686

Costs and expenses:

Instructional and support costs

147,007

148,867

532,661

608,261

General and administration

84,635

85,391

295,231

361,345

Amortization of intangible assets

17,974

3,764

64,225

51,495

Merger and integration costs

5,912

7,141

13,770

11,201

Restructuring costs

8,358

(928

)

12,382

25,472

Total costs and expenses

263,886

244,235

918,269

1,057,774

Income from operations

3,608

27,864

109,384

73,912

Other income (expense)

(101

)

1,611

4,573

2,687

Income before income taxes

3,507

29,475

113,957

76,599

Provision (benefit) for income taxes

(2,410

)

7,795

27,689

21,512

Net income

$

5,917

$

21,680

$

86,268

$

55,087

Earnings per share:

Basic

$

0.25

$

0.91

$

3.81

$

2.30

Diluted

$

0.25

$

0.90

$

3.77

$

2.28

Weighted average shares outstanding:

Basic

23,955

23,924

22,633

23,955

Diluted

24,143

24,098

22,860

24,122

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

December 31,
2020

December 31,
2021

ASSETS

Current assets:

Cash and cash equivalents

$

187,509

$

268,918

Marketable securities

7,557

6,501

Tuition receivable, net

50,169

51,277

Income taxes receivable

1,429

313

Other current assets

39,458

40,777

Total current assets

286,122

367,786

Property and equipment, net

158,854

150,589

Right-of-use lease assets

120,687

149,587

Marketable securities, non-current

30,270

23,377

Intangible assets, net

326,420

276,380

Goodwill

1,318,526

1,285,864

Other assets

54,928

52,297

Total assets

$

2,295,807

$

2,305,880

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

104,742

$

95,518

Contract liabilities

60,501

73,232

Lease liabilities

34,809

27,005

Total current liabilities

200,052

195,755

Long-term debt

141,823

141,630

Deferred income tax liabilities

53,407

44,595

Lease liabilities, non-current

106,151

162,821

Other long-term liabilities

46,055

47,089

Total liabilities

547,488

591,890

Commitments and contingencies

Stockholders’ equity:

Common stock, par value $0.01; 32,000,000 shares authorized; 24,418,939 and 24,592,098 shares issued and outstanding at December 31, 2020 and December 31, 2021, respectively

244

246

Additional paid-in capital

1,519,549

1,529,969

Accumulated other comprehensive income

48,880

9,203

Retained earnings

179,646

174,572

Total stockholders’ equity

1,748,319

1,713,990

Total liabilities and stockholders’ equity

$

2,295,807

$

2,305,880

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the year ended
December 31,

2020

2021

Cash flows from operating activities:

Net income

$

86,268

$

55,087

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

Loss on sale of marketable securities

781

Gain on sale of property and equipment

(2,656

)

Amortization of deferred financing costs

466

552

Amortization of investment discount/premium

146

70

Depreciation and amortization

109,154

103,416

Deferred income taxes

(13,431

)

(7,710

)

Stock-based compensation

14,610

18,149

Impairment of right-of-use lease assets

848

18,876

Changes in assets and liabilities:

Tuition receivable, net

19,659

(196

)

Other assets

(32,326

)

(6,964

)

Accounts payable and accrued expenses

(22,685

)

(6,700

)

Income taxes payable and income taxes receivable

(4,020

)

1,196

Contract liabilities

(10,095

)

13,995

Other liabilities

(5,689

)

(7,369

)

Net cash provided by operating activities

142,905

180,527

Cash flows from investing activities:

Cash paid for acquisition, net of cash acquired

(628,759

)

Purchases of property and equipment

(46,812

)

(49,433

)

Purchases of marketable securities

(1,863

)

Proceeds from marketable securities

36,192

9,300

Proceeds from sale of property and equipment

8,331

Other investments

(950

)

(1,292

)

Net cash used in investing activities

(642,192

)

(33,094

)

Cash flows from financing activities:

Net proceeds from issuance of common stock

220,248

Proceeds from long-term debt

145,630

Common dividends paid

(55,956

)

(59,045

)

Net payments for stock awards

(24,741

)

(2,938

)

Payments on long-term debt

(3,807

)

Payment of deferred financing costs

(1,940

)

Repurchase of common stock

(247

)

(5,905

)

Net cash provided by (used in) financing activities

279,187

(67,888

)

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

1,623

(2,353

)

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

(218,477

)

77,192

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

420,497

202,020

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

$

202,020

$

279,212

STRATEGIC EDUCATION, INC.

UNAUDITED SEGMENT REPORTING

(in thousands)

For the three months
ended December 31,

For the twelve months
ended December 31,

2020

2021

2020

2021

Revenues:

U.S. Higher Education

$

233,405

$

198,623

$

966,579

$

829,270

Australia/New Zealand

23,381

59,575

23,381

250,124

Education Technology Services

10,708

13,901

37,693

52,292

Consolidated revenues

$

267,494

$

272,099

$

1,027,653

$

1,131,686

Income (loss) from operations:

U.S. Higher Education

$

44,213

$

19,933

$

193,393

$

104,914

Australia/New Zealand

(13,275

)

12,839

(13,275

)

35,855

Education Technology Services

4,914

5,069

19,643

21,311

Amortization of intangible assets

(17,974

)

(3,764

)

(64,225

)

(51,495

)

Merger and integration costs

(5,912

)

(7,141

)

(13,770

)

(11,201

)

Restructuring costs

(8,358

)

928

(12,382

)

(25,472

)

Consolidated income from operations

$

3,608

$

27,864

$

109,384

$

73,912

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. Management believes this information is useful to investors to compare the Company’s results of operations period-over-period. 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, and 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, (2) 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, (3) severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring, (4) income/loss recognized from the Company’s investments in partnership interests and other investments, (5) discrete tax adjustments utilizing adjusted effective income tax rates of 28.4% and 25.5% for the three months ended December 31, 2020 and 2021, respectively, and an adjusted effective income tax rate of 28.5% for the twelve months ended December 31, 2020 and 2021, and (6) foreign currency exchange impact related to translating foreign currency results at a constant exchange rate of 0.743 Australian Dollars to U.S. Dollars, which is the 2021 budget rate. We define EBITDA as net income before other income, the provision for income taxes, gains on sale of property and equipment, 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, a purchase accounting adjustment to record acquired contract liabilities at fair value, and the amounts in (2), (3) and (6) 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, 2020

Non-GAAP Adjustments

As
Reported
(GAAP)

Purchase
accounting
adjustments(1)

Merger and
integration
costs(2)

Restructuring
costs(3)

Income from
other
investments(4)

Tax
adjustments(5)

Foreign
exchange
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

$

29,270

$

5,912

$

8,358

$

$

$

$

47,148

Operating margin

1.3

%

16.9

%

Income before income taxes

$

3,507

$

29,270

$

5,912

$

8,358

$

(315

)

$

$

$

46,732

Net income

$

5,917

$

29,270

$

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 three months ended December 31, 2021

Non-GAAP Adjustments

As
Reported
(GAAP)

Purchase
accounting
adjustments(1)

Merger and
integration
costs(2)

Restructuring
costs(3)

Income from
other
investments(4)

Tax
adjustments(5)

Foreign
exchange
adjustments(6)

As
Adjusted
(Non-
GAAP)

Revenues

$

272,099

$

$

$

$

$

$

698

$

272,797

Total costs and expenses

$

244,235

$

(3,764

)

$

(7,141

)

$

928

$

$

$

646

$

234,904

Income from operations

$

27,864

$

3,764

$

7,141

$

(928

)

$

$

$

52

$

37,893

Operating margin

10.2

%

13.9

%

Income before income taxes