Strategic Education (STRA) 28 Feb 202019 Q4 Earnings call transcript

Welcome to Strategic Education’s Fourth Quarter 2019 Earnings Call. I will now turn the call over to Terese Wilke, Manager of Investor Relations for Strategic Education. Mrs. Wilke, please go ahead.

Thank you, Victor. welcome discuss Education’s fourth and which call everyone, will we quarter morning to conference Strategic in Good XXXX results.

to President Officer; today Chairman; Financial Officer. Vice us discuss Robert Chief are With Silberman, President Karl and McDonnell, Daniel and and Executive Chief Jackson, Executive results Executive

Following will call open for remarks, we the questions.

based Strategic call XX-Q, and and Report on of most of well Education’s forward-looking provisions to XX-K, that statements at today’s differ subject materially. and the Private Further the Commission Please cause XXXX. other and of could future number and uncertainties, to viewing statements Litigation pursuant of Form actual X-Ks, Annual XX-Qs, expectations website identified release XX-Ks. are available this uncertainties information press and Strategic about these Securities in other note Act on recent on and with made to Strategic strategiceducation.com. for Education’s the a may risks results as relevant the that Exchange include in release Reform Copies are the Education The are filings as full Securities press filings Harbor current the found may assumptions, Safe has these be that

turn now, go ahead. to the like And I’d Rob. to over call Rob, please

you, and ladies good and morning gentlemen. Thank Terese,

our earnings call. We have a normally lot of ground to year-end we do cover this morning for as

us thoughts upcoming comment our academic the on and QX on will Karl give and First, operational year. results

our in we for quarter, year, well Suffice the finally, will far, capital it based I a Next, say, XXXX expect allocation our very so Karl? Dan financial and we great capital on XXXX, and XXXX. results a XXXX. will full walk strong year QX plan our what great to for and as seen cover it was results through as in

company, we our successful and which $XX year the It you, Rob. merged measure every Education of Strayer and of first was brought million Company the full everyone. our and most Good fully XXXX completed target. morning history. nearly integration in the our Capella our synergies year Education year, ahead was by achieved available Thank together company’s during schedule

and Both generated enrollment decade. a year quarter in XXXX in increased leverage these the well business. revenue and our Capella both the many as efforts and operating both results achieved universities, of substantial outstanding the achievement synergies fourth best academic the productivity strong growth, were combination and student in cases, as we’ve our Pro that for and more our than the in forma Strayer X% realized ongoing of generated full among results

quarters to These over five-year organic which due notional was our XXX for and increased and that increase margin full fourth XX.X% the in half range the next operating points gains, adjusted mid-XX% Our was we the well productivity plan merger basis the to in basis ahead particularly XXX related margins are operating XX.X% cases, both half of quarter the In other points to into year. improvements. years. the our to synergies margin two the of due increased fourth get in

campus will open intends brands, both in represent and XX our campuses of better Campus Georgia. Atlanta, we each again, the campuses first first The and open growth new these campuses investment and university’s the strong which the Capella every consecutive generated six full X% in growth. student XXXX for between of which XXXX sixth year-over-year growing is Center Augusta, ever opened company our Georgia to notional Capella plan that enrollment quarter year Strayer company growth, Capella in is university generated Both in and Strayer eight in new new and XXXX student including including new performing student year, new than generated ever in student X% new the new throughout co-located and

million We a opposed to improvement XXXX. first the nearly non-degree generated operating time $XX for segment, which in also a and profit that’s in had loss substantial our an

And to before over go a turning the on call want make I to coronavirus. the comment brief financials, Dan through to our just

than quarter’s all risk on and of taking we of say some think little or while actually more our entire XX% fair it to pre-tax classes visibility and future we our student if virus. students result our remotely, are the results not of I the of net up our that quarter a of and and to prior our are current XX% first fourth that company including year income given quarter, for first will enrollment And our practice the it’s provide new more both than is operate the Given working performance stability to comment already online we workforce with have in our capability the see from that can their level to enrollment be no required, business I than expect as the our quarter. better

appreciation achievement to in is mission-driven gratitude student-focused students’ lives our every make of culture day. helps the here day. whose thousands we to like work me, greatest my employees for XXXX the extend and lastly, And deepest and that would the every nurture and Dan? better I each SEI

the occurred XXXX Program segments, Strategic the include University that Capella Thanks, which results University and August our good everyone. Company three exclude Non-Degree Capella financial X, consolidated the prior we’re Karl, that Education, XXXX. morning to for Note Today Strayer Education results segment, of results and the consolidated segment. segment, reporting Inc.

Investor of segment to For the XXXX Relations a this level of that release website. see our quarter pro results, please fourth earnings forma our morning deck slide section posted view the we

results everyone illustrate adjusted core non-GAAP. format is GAAP release want references This or earnings that numbers addition this Please business remind quarter refer release financial as earnings in GAAP included the reflected information intended the morning in also results. results, our and information. the we of reported our performance to adjusted to are the to in additional non-GAAP our which as to financial fourth for I issued

XXXX for of $XXX.X compared quarter QX Now, million adjusted to million to in the grew of fourth results. to XXXX. revenue X% $XXX.X Revenue moving on our

million grew same from Our $XX.X income for for period adjusted from million $XX.X in operations the the to XXXX. XX% quarter

margin Our the basis our XXXX. to to of expanded quarter G&A compared XX% XX% to QX in XXXX were XX.X% marketing adjusted QX Approximately investment in XXXX. XXX XX% QX about related from for costs points XX.X% in and operating

bad fourth Our to same quarter compared period the for for in X% expense debt the of revenue was XXXX. X.X%

adjusted net grew to $X.XX to grew net XXXX $X.XX adjusted to compared and XXXX XX% for income of per adjusted quarter same income $XX period share Fourth the earnings compared million million $XX.X diluted to XX% in XXXX. in

for was our expect XXXX tax adjusted quarter be XX% and the rate of first tax to rate effective XX%. fourth quarter adjusted we approximately effective Our for the XXXX

year on our in increased to Moving from to $XXX.X revenue million for XX% adjusted results, full the $XXX.X million XXXX. the year

Our $XXX.X revenue X% to pro full year increased million. XXXX revenue compared the of forma

million operations XXXX million. income compared from $XXX.X operations to adjusted of income XXXX. forma $XX.X in from for operations income XX% from grew XX% $XXX from million grew adjusted Our Adjusted to pro XXXX

adjusted margin XX% pro and $XXX.X share income Our of to adjusted per from points XXXX. adjusted earnings share for from grew grew to XXXX income million adjusted basis net $XXX.X by XXXX XXX million forma of XXXX. in earnings net to $X.XX expanded forma XXXX operating from XX.X% XX% pro per in $X.XX in XX.X%

adjusted Our tax effective was year rate XX.X%. for the

tax in effective adjusted XXXX year XX%. full be approximately our rate to expect We

in and $XX.X spent we million expenditures, capital $XX expect regarding XXXX we to $XX.X million the XXXX, to full million in finally compared Rob? capital be XXXX and $XX for expenditures million. And between year

Thank you, Dan.

And run it’s the moment of for we our to part As time to major XXXX. a of a is quarter take our year, XXXX just this in Board plans decisions like the of Directors, our I’d discussions. not at way custom through and the by year, at capital track allocation just every this our end with our of

XXXX securities our cash with started $XXX We and in million sheet. on balance marketable

across Karl all owners operating million strong generated taxes. SEI’s flow the of $XXX which cash XXXX, in results segments During discussed before has

facilities, Now, Roughly non-capitalized we year one-half to and amount million paid and federal generated the next, other capital went used we the owners’ as that infrastructure, to expenditures distributable and plants, intelligence. this in in taxes; that’s left information existing technologies, and to artificial with both openings to we new the routine $XX then technology one-quarter investments follows: academic allocated in capital on campus $XXX of one-quarter state cash development, then $XX course were invested maintenance refer went We we upgrades million and final our business. we as physical million first, flow. and what during of

distributable mentioned share. our That just should per per owners’ we wrote financial last and that our way, of net income us year’s per of share our of track statements reported per the $XXX morning. cash or you roughly adjusted net million share shareholders this million XXXX letter $X.XX cash our can to share I in exceeded income keep flow from Dan Now, adjusted that in owners’ that or $XXX that reported slightly $X.XX equal distributable

tracking we’re our improvements to our think of of according on after all what have team important in looks plan and academics that fully funded for and of generative necessary. Board nature that’s management the us all is business the cash are So, at we we the

dividends flow, and cash $XXX this sheet. in the balance $XX million we to owners’ our of million we out So, added paid distributable remaining

future owners, business, use. think So, to in million our in we million undrawn and of the solid XXXX cash, XX% $XXX our after-tax in no back $XXX with you cash debt. into rough That left held invested XX% us when XX% year-end a of we we sheet XXXX, balance over and our for revolver, rock year, terms, back an at returned

to our XXXX, advantage of opportunities capital and that to In any to way. both support our continue very universities to positioned come we are of to well take financially owners return

Education favorable announcement as is the planned capital excess believe into out the fully merger upcoming think the shareholders fully capitalized confident of laid generating and all the important year. on and projections we synergies savings beginning that that truly will XXXX, the having now merger, point based therefore, successfully very we XXXX, are of to we – including I be of we are integrated our owners to it we SEI, out this year-end for executing on at Capella that

dividends, XXXX, have that and importantly, increased financial authorization could for of million. overriding X.X $XXX our to or share U.S. and which is Board’s $XXX common So return $X.XX And owners score increased million still in we’ve per calculated we repurchases increased with composite perfect roughly share XX% by we Education, amount to objectives. the Department our of have is our the share capital maintain our dividend of either one repurchase we to

to with And any we would be questions. operator, answer pleased that

Jeff our Capital BMO Instructions] And of [Operator first first our from come Markets. call question the will from Silber – line

You may begin.

Thanks so much. enough. That’s close

a… all, congratulations on of First

Jeff. Good morning,

at were on kind sounds the we to talked few of and good Congratulations you your morning. current wondering and new Day from start you And that? another a year Investor year back, your rolling great out just that’s it results about Good have marketing well. how as what months campaign. a I’m like been When

Yes, people favorable. attribution, The which impression sure. and weekly is Jeff. environment demand been Good on has We as been what strong. Those morning, lasts. strong, growth an to we proper and the great. inquiry track organic we’re kind been refer it for that looking that of creating It’s metrics actually what all is has advertising them recognizing are

pleased our with both with Strayer Capella. we’re very marketing and So, campaigns

fantastic. Okay,

lot if that’s been just update a that, rolling instructional out? wondered can model. how You get about on also I the talked an XXX we

courses technology the instructional begun and of nearing XX% it’s apply improved, methodology inside we’ve at meaning Capella might and that there but There we model rates so retention both implement is maturity Well, the the approach the forth. that increased another XXX on to Strayer. and seem completion indications too, are early favorable it’s having a impact the be instructional of to probably also

of focus Capella to of I is be University. in out continued it So, roll think XXX the XXXX predominantly on the inside going

still methodology Jeff, just reached although Strayer of it that on you it’s we’re thing other as number through – of we the that, maturity expect get the University, one within the – going we’ve and a courses terms the those apply in And to through get academic continue rates, compounding progression. year the students effect next that as year continuation better and into of their you higher continue performance, to

one Okay, queue. more jump that’s in back it. the helpful. finally, And I’ll then I and appreciate

just I guidance, I those called think this think year? give a don’t slide you for know I I’m you you assumptions. still modeling XXXX but had official are valid the wondering – Thanks.

Yes, they are. Jeff.

Okay.

is ahead comment regard Karl’s we’re think I of and are both They least to with at them. quarter, first

thanks Yes, Really it I that, yes. got okay. appreciate again. and

Sure.

from [Operator Instructions] of will come the Analysis. Our next from line Corey question Greendale First

begin. may You

a on good and another morning good congratulations year. Hey,

Corey. Thanks,

given the but didn’t to imagine to way First enrollment, huge their enrollment contribution is just campuses was long, is a any question what there new that they haven’t had the in that I to year? I quantify contribution the spent open make

on be XXX Corey. probably reach basis months, model XX about one growth. We when XXX which of estimation footprint is points, a campuses Strayer side, generate the basis any new new would be It basis campus they it in on months of points should student but might in the smaller XX to maturity, our full-year kind the

cross-pollination? of good. collaborating but with nation that Okay, at Capella done, more us maybe, bit And heard state and the employers collaboration the with on of broadly, of then on I opportunities on any integration a just could or other institutions the the little Capella, the status you give are you of the XXX any anyways

a course support shared collaboration. Throughout is number created institutions. there Yes. both of we of the that integration, services widespread the

So shared the of are corporate all basically, functions service.

marketing, began curricula new institutions. practices student to both advising leveraged also models, on being best ed and share gen support So, and IT in models, finance is we’ve the

Capella. So, Strayer that’s and collaboration, that I’d inside say deploying obviously, some developed that Strayer the of Flexpath academic those want The might if in pursue. evaluating adopt Strayer technologies the taking something team to determine there had and is is of to University which includes considerable

is one the that So, exists. of the I’d the achievements collaboration merger that’s of of Corey, say, honestly, big level

I’ll and Great. you which might is this, I’ll I one then, suspect ask ask last going anyway. how one, that to answer just – but are know I

of get be impact employment, of questions know that, what any that, gainful who knows the I in good the on Sanders that Sanders the you As and Presidency broader with would could be like you on about impact and imagine, we Presidency. have sector you than particular, might you’re if just on thoughts but it anything

of roughly taxpayer is about think credit through of highly-regulated mission students, fundamental revenue academic great been of XX% it case, the the and the I our impact to to and or to given the it institution defense our supports best way any political is loans industry very belief administration be always our generous has change through a think outcomes. best any is deserves that against our but the in criticism that

that, modify regulations whatever So, our adjust day teaching deal in help every operations students with you to focus our is well other technologies developing academic classroom, and that the on and your than to succeed exist.

much. Great. thank you very

you. Thank

you. currently time. showing Thank to I’d further not this any like remarks. And questions closing call turn at the Mr. to I’m over back Silberman for any

appreciate operator you, and and your gentlemen. Thank We participation. thank you, ladies

If you other our calls, to talking at you. you contact please in earnings we April. specific us call directly and to have next Thank forward any look

call. concludes today’s participating. and this Ladies conference gentlemen, you Thank for

disconnect. now may You