Strategic Education, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Although the request references 2021 Q4, this filing reports annual results, not standalone fourth-quarter results. The company provides higher education and workforce-learning services through Strayer University, Capella University, Torrens University and related businesses.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,131.7 million | $1,027.7 million |
| Operating income | $73.9 million | $109.4 million |
| Operating margin | 6.5% | 10.6% |
| Net income | $55.1 million | $86.3 million |
| Diluted EPS | $2.28 | $3.77 |
| Operating cash flow | $180.5 million | $142.9 million |
| Capital expenditures | $49.4 million | $46.8 million |
Revenue rose about 10%, largely because ANZ contributed a full year in 2021 versus only the period after its November 2020 acquisition in 2020; periods are therefore not directly comparable. Operating income and net income declined despite higher revenue. Adjusted, non-GAAP operating income was $165.3 million (14.6% margin) versus $211.1 million (20.3%); adjusted net income was $116.4 million and adjusted diluted EPS was $4.82, both lower than in 2020.
Segments: US Higher Education (USHE) revenue fell 14.2% to $829.3 million, and operating income fell 45.8% to $104.9 million. Education Technology Services revenue increased 38.7% to $52.3 million, with operating income of $21.3 million. ANZ revenue was $250.1 million and operating income was $35.9 million; 2020 reflected only post-acquisition activity. USHE average enrollment declined 11.0% to 82,425; ANZ enrollment increased 1.5% to 19,350.
Liquidity, debt and capital
At year-end, cash and cash equivalents were $268.9 million and marketable securities totaled $29.9 million, or $298.8 million combined. Revolver borrowings were $141.6 million under a $350 million facility maturing in November 2025. The company reported compliance with its credit-facility covenants. Operating cash flow increased year over year; the company paid $59.0 million in dividends and repurchased $5.9 million of shares during 2021. Management stated existing cash, operating cash generation and, if needed, facility availability should meet requirements for at least 12 months. Lease liabilities totaled $189.8 million.
Changes, outlook and material risks
- USHE weakness reflected lower enrollment and lower revenue per student, including higher scholarships and discounts. Management expected near-term USHE revenue to remain pressured by the pandemic, softer enrollment demand and discounts. No quantified full-year 2022 financial guidance is provided in the filing.
- Restructuring costs rose to $25.5 million, including $18.9 million of right-of-use lease asset impairment charges and $2.7 million of fixed-asset impairment charges; a $2.7 million gain on campus asset sales partly offset these costs. The company reduced its U.S. leased footprint by about 330,000 square feet during 2021.
- Key risks include dependence on federal Title IV student aid, evolving regulation of for-profit education and the 90/10 rule, enrollment trends, competition, COVID-19 effects, cybersecurity and privacy, and foreign exchange exposure. The American Rescue Plan’s expanded 90/10 calculation is scheduled to apply to institutional fiscal years beginning on or after January 1, 2023. The company said its 2021 calculation was not yet finalized and audited, but it expected to remain compliant.
- Capella received approximately 1,500 borrower-defense applications concerning alleged misrepresentations about doctoral-program completion time and is cooperating with the Department of Education’s fact-finding process; the outcome was uncertain. Separately, the parties in the Ornelas (formerly Wright) litigation reached an agreement in principle for a confidential settlement, expected to become effective in Q1 2022; no settlement amount is stated here.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit highlighted the $52.0 million Strayer Graduation Fund liability as a critical audit matter because estimating future student redemption depends on persistence assumptions.
Important facts for investors to verify
- Whether USHE enrollment and revenue per student stabilize, and whether discounting continues to pressure margins.
- The final 2021 90/10 calculations and the effect of the expanded rule beginning in 2023.
- Developments and potential financial exposure from Capella borrower-defense applications and the confidential settlement.
- Cash generation and debt capacity relative to dividends, lease obligations and continued investment needs.
- ANZ performance, international student recovery and the effect of currency movements; a hypothetical 10% adverse currency move was estimated to reduce annual revenue by about $25 million.