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Strategic Education (STRA) Q4 Earnings Beat, Enrollment High

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Shares of Strategic Education, Inc. or SEI STRA gained 10.6% during friday’s trading session, following better-than-expected results in fourth-quarter 2018. The positive performance was mainly backed by strong top-line numbers across its segments, given higher enrollment.

The company reported adjusted earnings of $1.56 per share, surpassing the consensus mark of $1.51 by 3.3%. Also, the reported figure increased 43.1% from $1.09 per share recorded in the year-ago quarter.

Total revenues of $242.1 million surpassed the consensus estimate of $236 million by 2.6%. Notably, the reported figure jumped 104% from the prior-year level of $118.7 million. Meanwhile, adjusted revenues (i.e. revenues excluding deferred revenue adjustment) increased an impressive 106.1% from the prior-year quarter to $244.6 million.

Strategic Education Inc. Price, Consensus and EPS Surprise

Strategic Education Inc. Price, Consensus and EPS Surprise | Strategic Education Inc. Quote

Segment Details

SEI currently operates in three reportable segments: Strayer (52.6% of total revenues), Capella (45.9%) and Non-Degree Programs (1.5%).

Strayer Segment: The Strayer segment is comprised of Strayer University, which includes programs offered through the Jack Welch Management Institute.

Strayer University’s revenues grew 8.5% year over year to $127.5 million. Total enrollment grew 8.9% from the year-ago level to 52,447 students. New student enrollments rose 9.2% and continuing student enrollments increased 8.9% from the year-ago quarter. The segment’s operating margin increased 30 basis points (bps) during the quarter.

Notably, during the reported quarter, Strayer opened new campuses in El Paso, TX and Decatur, AL. Moreover, it is likely to open six to eight additional campuses in 2019.

Capella Segment: The Capella segment consists solely of Capella University.

The segment’s fourth-quarter revenues came in at $111.1 million, backed by higher enrollment and increasing revenue-per-learner. Meanwhile, the reported figure includes a purchase accounting adjustment of $2.5 million as deferred revenues at a fair value, as part of the merger. Revenues, excluding purchase accounting adjustment, came in at $113.7 million.

Total enrollment at the University grew 2.4% from the year-ago quarter to 38,409 students. New student enrollment increased 10.6%, with continuing student enrollment growth of 1% year over year. The upside was mainly driven by improved performance of FlexPath, which comprises 28% of Capella University’s Bachelor’s and Master’s degrees total enrollment.

Its adjusted operating margin was 20.4% in the reported quarter. Meanwhile, the University is planning to open Capella University learner support centers in Orlando, FL and Atlanta, GA within the first half of 2019.

Non-Degree Programs Segment: The Non-Degree Programs segment comprises Hackbright Academy, DevMountain, The New York Code + Design Academy and Sophia.

Revenues in the segment jumped nearly 2.7 times to $3.5 million from the year-ago figure of $1.3 million, backed by higher revenues from DevMountain, Hackbright Academy and Sophia.

Operating Highlights

Adjusted operating margin in the reported quarter was 18.6%, up 160 bps from 17% in the year-ago period. Adjusted EBITDA also increased a notable 107% from a year ago to $59.2 million.

Financial Details

As of Dec 31, 2018, it recorded cash and cash equivalents of $311.7 million compared with $155.9 million at 2017-end.

In full-year 2018, the company provided $46.9 million cash from operating activities versus $56.2 million in the year-ago period. The decline was mainly due to merger-related cash payments. Capital expenditures totaled $27.5 million compared with $18.1 million in the prior-year period.

Full-Year 2018 Highlights

SEI’s full-year adjusted earnings came in at $4.75 per share, up 52.7% from the year-ago figure of $3.11. Revenues also increased 39.4% from the year-ago level to $634.2 million. Adjusted revenues grew 45.7% on a year-over-year basis to $662.9 million. In 2018, its adjusted operating margin was up 230 bps to 14.7% from 12.4% a year ago. Adjusted EBITDA also improved 57.5% to $139.7 million from $88.7 million in 2017.

Zacks Rank & Other Key Picks

Currently, SEI carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the Zacks Schools industry include Career Education Corporation CECO, K12 Inc. LRN and Adtalem Global Education Inc. ATGE. While Career Education sports a Zacks Rank #1 (Strong Buy), K12 and Adtalem both carry a Zacks Rank #2. You can the complete list of today’s Zacks #1 Rank stocks here.

Career Education is expected to record an EPS growth rate of 9.5% in 2019.

K12’s earnings per share are expected to increase 16.2% in 2019.

Adtalem has an expected earnings growth rate of 2.5% for the current year.

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