Strategic Education, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 1, 2021. The filing is an annual report, not a standalone Q4 filing. Quarterly figures below are unaudited. The company operates Strayer University, Capella University, and, from November 3, 2020, its Australia/New Zealand (ANZ) education businesses.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,027.7 million | $997.1 million |
| Operating income / margin | $109.4 million / 10.6% | $110.5 million / 11.1% |
| Net income | $86.3 million | $81.1 million |
| Diluted EPS | $3.77 | $3.67 |
| Operating cash flow | $142.9 million | $202.1 million |
| Capital expenditures | $46.8 million | $38.7 million |
| Cash, cash equivalents and marketable securities at year-end | $225.3 million | $491.2 million |
| Working capital at year-end | $86.1 million | $367.3 million |
| Long-term debt at year-end | $141.8 million | None |
Revenue increased 3.1%, primarily reflecting the ANZ acquisition late in the year. U.S. university enrollment growth was partly offset by lower revenue per student from scholarships, discounts, and mix. Operating income edged down as ANZ incurred a post-acquisition operating loss and the company recorded restructuring costs; lower merger-related costs and U.S. enrollment growth partly offset these pressures. Net income rose despite lower operating income, helped in part by a lower effective tax rate: 24.3% versus 34.4% in 2019, when a discrete deferred-tax charge affected results.
Management’s non-GAAP adjusted operating income was $211.1 million, with a 20.3% adjusted operating margin, versus $194.1 million and 19.5% in 2019. Adjusted net income was $152.7 million and adjusted diluted EPS $6.68, versus $147.3 million and $6.67. These measures exclude, among other items, acquired-intangible amortization, acquisition costs, restructuring charges, and tax adjustments; they are not substitutes for GAAP results.
Fourth-quarter detail
| Metric | Q4 2020 | Q4 2019 |
|---|---|---|
| Revenue | $267.5 million | $263.8 million |
| Operating income | $3.6 million | $37.2 million |
| Net income | $5.9 million | $28.5 million |
| Diluted EPS | $0.25 | $1.29 |
Q4 revenue increased about 1.4%, but operating income, net income, and EPS fell sharply year over year. The filing attributes full-year operating pressure to ANZ’s post-acquisition loss and 2020 restructuring; it does not provide a clear standalone explanation quantifying each factor’s Q4 impact.
Liquidity, debt and capital allocation
- Operating cash flow fell by $59.2 million year over year. The company cited working-capital movements, including a $25.3 million payment for a perpetual license to use the Jack Welch name and likeness.
- The ANZ acquisition cost approximately $658.4 million in cash, funded with cash on hand and revolving-credit borrowings. The company also raised approximately $220.2 million net through an August 2020 common-stock offering.
- A November 2020 amended facility provides a $350 million senior secured revolver, maturing in November 2025. Year-end borrowings were $141.8 million; the company reported compliance with its covenants.
- Cash dividends paid were $56.0 million, or $2.40 per share. The board’s repurchase authorization had $250 million remaining through December 31, 2021; open-market repurchases in 2020 were minimal.
- Lease liabilities totaled $141.0 million on the balance sheet. Contractual lease payments were $160.0 million, excluding $60.0 million of legally binding payments for leases not yet commenced.
Material changes, outlook and risks
- ANZ acquisition: Closed November 3 for approximately $658.4 million. ANZ contributed $23.4 million in reported 2020 revenue and a $13.3 million segment operating loss after acquisition. The purchase-price allocation, including $546.1 million of initial goodwill, remained preliminary and subject to measurement-period adjustments.
- Enrollment and COVID-19: Average 2020 enrollment rose 2% at Strayer to 52,167 and 3% at Capella to 40,471. Management reported weaker demand in Q3 and Q4, most notably at Strayer, where total enrollment declined 9% in Q4. Pandemic-related campus closures, online transitions, discounts and cost controls affected operations.
- Restructuring: A plan begun in Q3 included employee reductions expected to decrease the workforce by about 5%, plus campus and office closures. The company recorded $12.4 million in restructuring costs in 2020 and expected related personnel costs to continue through March 31, 2021.
- Outlook: No earnings or revenue guidance is provided. Management expected near-term U.S. revenue growth to be pressured by weaker demand and higher scholarships and discounts; cost controls could continue in 2021. 2021 capital expenditures were estimated at 4%–5% of revenue. Management said available cash, operating cash flow and, if needed, revolver availability should meet requirements for at least 12 months.
- Regulatory exposure: Strayer and Capella depend materially on U.S. federal Title IV student aid and face extensive accreditation, state authorization and federal compliance requirements. The 2020 90/10 computations were not finalized or audited; management expected both universities to remain compliant. Strayer’s full Title IV certification ran through June 30, 2021, with recertification due in 2021; Capella’s provisional certification ran through December 31, 2022.
- Other risks and contingencies: Risks include prolonged pandemic-related enrollment weakness, international student restrictions, acquisition integration and goodwill impairment, foreign-exchange movements, cybersecurity and privacy incidents, and regulatory or legislative changes. The company said ordinary-course litigation was not expected to materially affect consolidated results, though adverse outcomes could affect a particular period. No goodwill or indefinite-lived intangible impairment was recorded in 2020.
Most important facts for investors to verify
- Whether enrollment and revenue trends at Strayer, Capella and ANZ stabilized after Q4, and how much of reported growth reflects acquisition versus organic performance.
- Whether ANZ integration improves profitability, and whether final purchase accounting or future impairment testing changes the reported goodwill and intangible-asset values.
- Final 2020 90/10 results, Strayer’s recertification status, and continuing compliance with Title IV, accreditation and state-authorization requirements.
- The durability of operating cash flow and liquidity after the acquisition, dividends, lease commitments and debt service; monitor covenant compliance and variable-rate exposure.
- The Q4 earnings decline and the reconciliation of GAAP results to management’s adjusted measures, including recurring acquisition, amortization and restructuring costs.