Strategic Education, Inc. (as identified in request) — filing summary
Filing identity: The supplied Form 10-K is for Strayer Education, Inc., not Strategic Education, Inc. It reports the fiscal year ended December 31, 2014; the filing also provides unaudited fourth-quarter results. The company operated Strayer University, offering campus-based and online higher education, with approximately 42,189 students in fall 2014.
Financial performance and liquidity
Amounts below are in U.S. dollars; annual figures are for fiscal 2014 unless otherwise noted.
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $446.0 million | $503.6 million |
| Operating income | $81.7 million; 18.3% margin | $32.7 million; 6.5% margin |
| Net income | $46.4 million; 10.4% margin | $16.4 million; 3.3% margin |
| Diluted EPS | $4.35 | $1.55 |
| Operating cash flow | $77.6 million | $84.1 million |
| Capital expenditures | $6.9 million | $8.7 million |
- Revenue fell 11%, reflecting an 8% decline in average enrollment to 40,254 and a 3% decline in revenue per student. Approximately 96% of revenue came from tuition.
- Profit comparisons were materially affected by the 2013 restructuring: 2013 included $54.7 million of restructuring charges; 2014 included a $4.1 million benefit from reducing estimated liabilities for unused facilities. Management attributed about $2.6 million of 2014 net income and $0.23 of diluted EPS to that benefit.
- Cash and cash equivalents rose to $162.3 million from $94.8 million; working capital was $140.3 million. Total assets were $307.8 million and total liabilities $215.1 million at year-end.
- Debt was $118.8 million, comprising a $112.5 million long-term term-loan balance and $6.25 million current portion; the $100 million revolving facility was undrawn. The term loan matures December 31, 2016, and its rate is fixed through a swap at an effective 2.85%–3.35%, depending on leverage. The company reported compliance with loan covenants.
- Operating lease commitments totaled $192.6 million, including $39.0 million due within one year. The company reported no off-balance-sheet arrangements.
- Fourth-quarter 2014 revenue was $116.1 million, operating income $22.6 million, net income $12.9 million and diluted EPS $1.21. Fourth-quarter 2013 included a $30.1 million operating loss and $19.0 million net loss, largely reflecting restructuring charges.
Changes versus prior periods
- Annual revenue continued to contract: down 10% in 2013 and 11% in 2014; average enrollment fell 11% in 2013 and 8% in 2014.
- Despite lower revenue, operating income recovered in 2014 as restructuring-related costs and ongoing personnel and facility expenses declined. Management estimated the 2013 restructuring actions reduced 2014 operating expenses by approximately $50 million.
- New undergraduate tuition was reduced about 20% beginning in the 2014 winter term, and eligible students could earn a free course through the Graduation Fund. These initiatives contributed to lower revenue per student.
- Bad debt expense decreased to 3.8% of revenue from 4.4%. Cash flow from operations declined to $77.6 million from $84.1 million.
Outlook, risks and notable items
- Management forecast 2015 revenue flat to down 2%, revenue per student down 4%–5%, and operating expenses flat to up 2%. It said continued enrollment trends could produce total enrollment growth in the second quarter of 2015, with revenue growth roughly two quarters later; management expected earnings growth after 2015 under that scenario. These are forecasts, not guarantees.
- Management expected a 2015 tax rate of approximately 39% and capital expenditures of $10–12 million. It stated cash, operating cash generation and available borrowing capacity should meet requirements for at least 12 months.
- Enrollment, competition, affordability and dependence on federal student aid are key business risks. The filing says the majority of 2014 consolidated revenue was collected from Title IV aid programs. The reported 90/10 ratio was approximately 74% in 2012 and 2013; the 2014 calculation was not yet finalized and audited, though management expected continued compliance.
- The Department of Education issued a provisional Title IV participation agreement through June 30, 2017, due to open program reviews. Two reviews remained without determination letters at filing; two others were closed with no further action required. Provisional status requires federal approval for substantial changes, including new locations and programs.
- New gainful-employment rules were scheduled to take effect July 1, 2015. The company said the full impact was unclear; the rules could increase compliance costs, affect enrollment and, for certain programs, restrict Title IV eligibility. The filing also identifies potential changes to the 90/10 rule and other education regulations as risks.
- Strayer closed approximately 20 locations in 2013 and one Wisconsin location in 2014; a Metairie, Louisiana location was scheduled to close in March 2015. Management said no new campus openings were planned for 2015.
- The company made no share repurchases and paid no regular dividends in 2014. It had approximately $70 million remaining under its repurchase authorization through year-end 2015.
- PwC issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective as of December 31, 2014. The filing reported no pending material legal proceedings.
Most important facts for investors to verify
- Confirm the issuer: the provided filing is Strayer Education, Inc.’s 2014 Form 10-K, not a filing under the requested Strategic Education, Inc. name.
- Track enrollment and new-student trends, tuition discounts, Graduation Fund costs, and whether the forecast recovery in enrollment and revenue materialized.
- Review subsequent Title IV program-review determinations, the provisional participation agreement, and compliance with gainful-employment and 90/10 requirements.
- Assess the sustainability of 2014 earnings after excluding the $4.1 million facility-liability benefit and considering ongoing lease commitments and debt maturity in 2016.
- Compare reported cash flow with operating results and monitor liquidity, term-loan repayment and covenant compliance.