SEC filing summary
Entity and period: The supplied filing is Strayer Education, Inc.’s Form 10-K for the fiscal year ended December 31, 2011, not a filing identified as Strategic Education, Inc. It includes fourth-quarter results and full-year comparisons.
Business context and reporting period
Strayer operated Strayer University, a post-secondary education provider serving working adults through 92 campuses and online programs. Fall 2011 enrollment was 54,233; nearly 60% of students took all courses online. About 98% of 2011 revenue came from tuition.
Financial and operating metrics
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $627.4 million | $636.7 million |
| Income from operations | $179.1 million | $215.8 million |
| Operating margin | 28.6% | 33.9% |
| Net income | $106.0 million | $131.3 million |
| Net margin | 16.9% | 20.6% |
| Diluted EPS | $8.88 | $9.70 |
| Average enrollment | 53,901 | 56,002 |
| Operating cash flow | $154.4 million | $162.8 million |
| Capital expenditures | $30.0 million | $46.0 million |
Fourth quarter: Revenue was $155.8 million versus $172.0 million in Q4 2010; operating income was $45.4 million versus $58.9 million; net income was $26.7 million versus $35.9 million; and diluted EPS was $2.30 versus $2.73.
Liquidity and debt: At year-end, cash and cash equivalents were $57.1 million, working capital was $17.5 million, and total debt was $117.5 million: $97.5 million under the term loan and $20.0 million under the revolver. The revolver balance was repaid in January 2012, restoring $100 million of availability. The term loan carries a swap fixing its rate at approximately 3.6%. Management said cash, operating cash flow and available credit should meet requirements for at least 12 months.
Capital returns: Strayer paid $49.1 million in dividends and repurchased $202.7 million of stock during 2011. The annual dividend was $4.00 per share; management intended to maintain it in 2012. Approximately $80 million of repurchase authorization remained at year-end.
Material changes versus prior periods
- Revenue fell 1% in 2011 as average enrollment declined 4%; a 5% tuition increase partly offset the decline. New-student enrollment fell 19% for the year.
- Operating income declined 17% and net income declined 19%. Instructional and educational support costs rose 8%, and marketing costs rose 6%, while revenue decreased. Operating margin contracted to 28.6% from 33.9%.
- Diluted EPS fell 8%, less than the decline in net income, partly reflecting share repurchases and a lower weighted-average share count.
- Cash and marketable securities declined to $57.1 million from $76.5 million. The company also added debt during the year; it reported no debt at year-end 2010.
- Strayer acquired operating assets supporting the Jack Welch Management Institute in December 2011 for $7.0 million, recorded $6.8 million of goodwill and included the institute’s results from the acquisition date.
Outlook, commentary, risks and unusual items
- Management attributed weaker enrollment partly to unemployment and lower confidence in job prospects, and said the 2011 decline in new students would weigh on 2012 enrollment. It cautioned that future enrollment trends were uncertain.
- Management planned eight new campuses in 2012, subject to regulatory approval, and implemented a 3% tuition increase effective January 1, 2012. Planned 2012 capital expenditures were $25 million to $30 million.
- The filing presents enrollment-based business-model scenarios rather than a single-point forecast. Assuming new-student enrollment changes of -10%, 0% or +10% versus 2011, it estimated revenue of $570 million, $590 million or $610 million, respectively, and diluted EPS of $6.00–$6.20, $6.90–$7.10 or $7.80–$8.00. These are scenario estimates, not assured results.
- Regulatory exposure is significant: 71% of fall 2011 students participated in Title IV programs. The Department of Education approved Strayer University’s participation agreement provisionally through September 30, 2014, citing untimely Title IV disbursements. A Department program review was pending; a preliminary report disputed the eligibility of the Associate in Arts in General Studies program, which the company contested.
- The company reported a 78% Title IV share of cash-basis revenue for 2010; its 2011 calculation had not been finalized and audited. New gainful-employment rules effective in 2012 could require disclosures and, in certain cases, affect program eligibility beginning in 2015.
- Other risks include regulatory approvals for campus expansion, changing rules and scrutiny of for-profit education, student financing and enrollment trends, competition, and online-system reliability. The company reported that it was in compliance with its credit facility covenants and had no off-balance-sheet arrangements.
- The securities class action and related derivative action were described as not expected to have a material financial effect; a magistrate judge recommended dismissal of the class action, but the filing did not state that the matter was finally resolved.
Most important facts for investors to verify
- Confirm the issuer: the provided 10-K is for Strayer Education, Inc.; the request metadata names Strategic Education, Inc.
- Track enrollment and new-student trends, particularly whether the 19% decline in new students continues to affect 2012 enrollment and revenue.
- Review the final Department of Education program-review determination, the provisional Title IV agreement conditions, and the resolution of the Associate in Arts program eligibility issue.
- Verify the finalized 2011 90/10 calculation and assess potential effects of gainful-employment rules and other regulatory changes.
- Assess debt repayment, liquidity, lease commitments, and whether dividends and repurchases remain supportable amid lower earnings and enrollment.
- Compare subsequent results with the filing’s 2012 enrollment scenarios, campus-opening plan, and capital-spending expectations.