Business context and reporting period
The filing identifies the registrant as Strayer Education, Inc. (not Strategic Education, Inc.); it owns Strayer University, a provider of undergraduate and graduate education to working adults through campuses and online programs. This 10-K covers the fiscal year ended December 31, 2010. The filing also provides unaudited fourth-quarter results.
Strayer reported 56,002 average students during 2010 and 60,711 students in the fall term. It operated 84 campuses during the 2010 fourth quarter; 13 campuses opened during the year. More than 43,000 students took at least one online course in fall 2010.
Financial performance and position
| Metric | FY 2010 | FY 2009 | Change |
|---|---|---|---|
| Revenue | $636.7 million | $512.0 million | +24% |
| Operating income | $215.8 million | $172.4 million | +25% |
| Operating margin | 33.9% | 33.7% | +0.2 percentage points |
| Net income | $131.3 million | $105.1 million | +25% |
| Net margin | 20.6% | 20.5% | +0.1 percentage points |
| Diluted EPS | $9.70 | $7.60 | +28% |
| Operating cash flow | $162.8 million | $141.8 million | +$21.0 million |
Growth reflected a 19% increase in average enrollment and a 5% tuition increase effective January 2010. Instruction and educational support costs rose 23%, while marketing and admissions costs rose 22%; general and administration costs rose 27%, increasing from 15.6% to 16.0% of revenue. Bad debt expense declined to 3.8% of revenue from 4.1%.
At December 31, cash, cash equivalents and marketable securities totaled $76.5 million, down from $116.5 million a year earlier. Working capital was $62.2 million; total assets were $412.8 million and total liabilities were $236.8 million. The company had no debt outstanding. A new $100 million unsecured revolving facility, including a $50 million letter-of-credit subfacility, was entered into on January 3, 2011, replacing a $15 million facility.
Capital expenditures were $46.0 million, compared with $30.4 million in 2009. The company paid $44.5 million in dividends and spent $115.5 million on share repurchases. Operating, investing and financing cash flows were $162.8 million, negative $5.9 million and negative $156.8 million, respectively.
Fourth-quarter 2010 revenue was $172.0 million, operating income was $58.9 million, net income was $35.9 million and diluted EPS was $2.73. The comparable 2009 quarter recorded revenue of $147.2 million, operating income of $52.4 million, net income of $31.9 million and diluted EPS of $2.32. Results are seasonal: enrollment and revenue generally peak in the fourth quarter and are lowest in the third.
Material changes, outlook and commentary
- Average enrollment growth moderated to 19% in 2010 from 23% in 2009; revenue growth slowed to 24% from 29%. Management cited expansion, mature-market growth and online enrollment as drivers.
- Management planned eight campus openings in 2011, five of which had opened by the filing date. It expected 2011 capital expenditures to be 5%–6% of revenue, including campus openings, and said available resources should fund operations and planned growth for at least 12 months.
- The company reported two quarters of lower enrollment growth, including fewer new enrollments, and said 2011 growth was likely to be lower than in 2010 amid regulatory and legislative uncertainty. It nevertheless intended to continue investing in campuses and online programs. A roughly 5% tuition increase took effect January 1, 2011.
- Title IV funding is a significant business dependency: about 73% of students participated in one or more Title IV programs in fall 2010. The 2010 90/10 calculation had not been finalized; the filing reports 78% for 2009 and 77% for 2008.
- The Department of Education’s Title IV program review, following an on-site inspection, remained pending. The University’s recertification application was also pending, with eligibility continuing month to month. Management said the prior 2008 program review produced no material findings.
- New federal rules effective largely July 1, 2011 concern state authorization, incentive compensation, disclosures, program administration and other compliance matters. Proposed “gainful employment” standards remained unsettled; the company said it could not predict their final form or impact.
- The filing describes a putative securities class action and a shareholder derivative action. Management considered the claims without merit and did not expect them to materially affect financial condition or results.
Investor facts to verify
- Whether enrollment and new-student trends weakened further, and how 2011 growth compared with management’s expectations.
- The outcome and any required remediation from the Department of Education program review and pending Title IV recertification.
- Final state-authorization and gainful-employment requirements, and their effects on online programs, campus expansion and Title IV eligibility.
- The final 2010 90/10 calculation and subsequent bad-debt, tuition-receivable and cash-flow trends.
- Whether planned campus openings and capital spending generated expected enrollment and returns, alongside continued dividends and share repurchases.
The financial statements received an unqualified audit opinion, and the auditor and management reported effective internal control over financial reporting as of December 31, 2010.