Business Context and Reporting Period
This is Strayer Education, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2011. The filing identifies the registrant as Strayer Education, Inc.; this differs from the company name in the request metadata. Strayer University operated 89 campuses and online programs and reported one business segment. Approximately 98% of quarterly revenue was tuition.
Financial Results
| Metric | Q1 2010 | Q1 2011 |
|---|---|---|
| Revenue | $157.9 million | $172.0 million |
| Operating income | $59.9 million | $59.2 million |
| Operating margin | 38.0% | 34.4% |
| Net income | $36.4 million | $35.8 million |
| Net margin | 23.0% | 20.8% |
| Diluted EPS | $2.65 | $2.80 |
| Cash from operations | $63.1 million | $67.2 million |
| Capital expenditures | $12.2 million | $11.4 million |
- Revenue rose 9%, attributed to 4% enrollment growth and a 5% tuition increase. Winter-term enrollment increased 4% to 57,608; new-student enrollment declined about 20%, while continuing-student enrollment rose about 10%.
- Operating income fell 1% and net income fell 2% as operating costs grew faster than revenue. Diluted EPS increased 6%, reflecting a lower share count following repurchases.
- Instruction and educational support expense increased 18% to $75.0 million, or 43.6% of revenue versus 40.1%. Marketing and admissions advisory expenses increased 16% and 19%, respectively. General and administration expense declined 1%.
- At March 31, cash and cash equivalents were $71.1 million; marketable securities were zero, compared with $12.4 million at year-end. Current assets were $108.2 million and current liabilities $71.2 million.
- Total liabilities were $164.3 million, including $80.0 million drawn on the revolving facility. Stockholders’ equity declined to $73.3 million from $176.0 million at year-end, primarily reflecting $127.2 million of share repurchases and $13.2 million in dividends.
- Operating cash flow was $67.2 million. The quarter’s investing cash flow was positive $1.0 million, including $12.4 million from sales of marketable securities; financing cash flow was negative $61.2 million. Ending cash was $71.1 million.
Changes, Outlook, Risks and Unusual Items
- On April 4, 2011, after quarter-end, the company amended its financing arrangements to provide a $100 million revolving facility and a $100 million term loan, both maturing March 31, 2014. The term loan was used to repay the $80 million drawn on the prior revolver. A swap fixed the term-loan rate at approximately 3.6%; the revolving facility remains exposed to floating rates. The new facility is secured by substantially all personal property assets.
- Management said cash, operating cash generation and available revolver capacity should be sufficient for requirements over at least the next 12 months. No specific earnings or revenue guidance was provided. The company planned eight campus openings in 2011, five of which had opened by the filing.
- A Department of Education preliminary program review report said the Associate in Arts in General Studies program may not qualify for Title IV funding. Strayer disagreed and was communicating with the Department to resolve the matter.
- The company disclosed a securities class action and a shareholder derivative action, stated it considers them without merit, and did not expect a material financial effect. The outcomes remain uncertain.
- Management cited enrollment growth, Title IV and other regulatory compliance, accreditation, regulatory rulemaking and scrutiny of for-profit education, competition, new-campus execution, student financing and general economic conditions as risks.
- The company changed the presentation of operating expenses and retrospectively reclassified prior periods; total operating expenses and operating income were unchanged. It also changed the timing for recording tuition receivable and unearned tuition; the filing says this had no effect on earnings, working capital, equity or operating cash flow.
Key Facts for Investors to Verify
- Confirm the registrant identity: this filing is for Strayer Education, Inc., not the company name stated in the request metadata.
- Track the Department of Education review and whether the associate-degree program’s Title IV eligibility is affected.
- Assess continuing-student growth against the sharp decline in new-student enrollment and the company’s campus-expansion plans.
- Monitor margins, bad debt expense (3.5% of revenue versus 3.2% a year earlier), and tuition receivables.
- Review the effect of the April financing, debt-service requirements, interest-rate exposure and asset security, alongside continued repurchases and dividends.
- Confirm cash figures against the balance sheet: it reports $64.1 million at December 31, 2010 and $71.1 million at March 31, 2011; MD&A separately cites $76.5 million at December 31, apparently including marketable securities.