Strayer Education, Inc. — Q2 2010 Form 10-Q
Entity note: The supplied filing identifies the registrant as Strayer Education, Inc., not Strategic Education, Inc. The report covers the quarter and six months ended June 30, 2010; financial statements are unaudited. Unless noted, dollar amounts below are in millions.
Business context and reporting period
Strayer operated Strayer University, a single-segment higher-education provider offering campus and online programs. Approximately 97% of first-half 2010 revenue was tuition. Management attributed growth to higher enrollment and a 5% tuition increase implemented at the start of 2010.
Financial and operating performance
| Metric | Q2 2010 | Q2 2009 | First half 2010 | First half 2009 |
|---|---|---|---|---|
| Revenue | $159.3 | $125.9 | $317.2 | $250.4 |
| Operating income | $58.7 | $45.1 | $118.6 | $92.7 |
| Net income | $35.7 | $27.5 | $72.0 | $56.6 |
| Diluted EPS | $2.60 | $2.00 | $5.25 | $4.07 |
| Operating margin | 36.8% | 35.8% | 37.4% | 37.0% |
- Q2 revenue, operating income, net income, and diluted EPS each rose about 26%–30% year over year. First-half revenue increased 27%, operating income 28%, and net income 27%.
- Q2 spring-term enrollment increased 22% to 55,970; global online enrollment rose 34%. First-half average enrollment increased 21% to 55,538.
- Q2 instruction costs were 31.5% of revenue versus 32.5% a year earlier; marketing and admissions were 15.6% versus 15.9%. General and administration rose to 16.1% from 15.8%. First-half general and administration also increased as a share of revenue, to 15.7% from 15.1%.
- The effective tax rate was 39.5% in Q2 and 39.5% for the first half, versus 39.5% and 39.6%, respectively, in 2009.
- First-half operating cash flow was $87.9, compared with $71.9. Capital expenditures were $22.6, up from $13.0. Cash and cash equivalents were $88.0 at June 30.
- Cash, cash equivalents, and marketable securities totaled $140.9, up from $116.5 at December 31, 2009. Current assets were $331.9 and current liabilities $203.3. The company reported no debt; its $15.0 credit facility was undrawn.
- First-half dividends paid were $20.9; the quarterly dividend was $0.75 per share. The company repurchased $22.0 of stock in the first half, including $7.0 in Q2; $68.0 remained authorized at June 30.
Material changes, outlook, and risks
- Revenue growth reflected enrollment expansion and the 5% tuition increase. Management said instructional and marketing costs grew more slowly than revenue, while higher administrative costs included salary-related expense, bad debt, and other administration.
- Q2 bad debt expense was 3.6% of revenue, down from 4.2%; adjusted days sales outstanding improved to 12 days from 15.
- Management expected existing cash, operating cash generation, and, if needed, the credit facility to meet requirements for at least the next 12 months. No specific earnings or revenue guidance was provided.
- Four campuses were planned for fall 2010—three in Texas and one in Georgia—completing 13 planned campus openings for the year. Management planned to announce its 2011 campus-opening plan in October.
- Key regulatory uncertainty included proposed Department of Education rules on program integrity and whether programs lead to gainful employment. Final rules were due by November 1, 2010 to take effect July 1, 2011; the company said it could not predict their substance.
- Other stated risks include enrollment growth, Title IV and accreditation compliance, competition, new-campus and program execution, student financing, and general economic conditions. Management reported no pending material legal proceedings and no material change in internal control over financial reporting.
- The short-term tax-exempt bond fund held $52.9; its stated average credit rating was AA, average maturity 1.3 years, and average yield to maturity 0.8%. Management said a 10% interest-rate change would not materially affect investment-related earnings, fair values, or cash flows.
Important facts for investors to verify
- Confirm the registrant identity: the provided 10-Q is for Strayer Education, Inc., despite the request metadata naming Strategic Education, Inc.
- Track final Department of Education rules and assess potential effects on Title IV eligibility and program economics.
- Monitor enrollment growth, bad debt, tuition receivables, and whether administrative costs continue to rise faster than revenue.
- Assess execution and returns from the 2010 campus openings alongside the increase in capital expenditures and lease commitments ($243.0 total operating-lease payments disclosed).
- Review the cash investment portfolio’s principal, credit, and interest-rate risks, as well as capital allocation through dividends and repurchases.