Strategic Education, Inc. Reports Third Quarter 2021 Results

Strategic Education, Inc. (Strategic Education) (NASDAQ: STRA) today announced financial results for the period ended September 30, 2021.

“While conditions in the U.S. Higher Education segment continue to be challenged due primarily to pandemic-related impacts, we are encouraged by strong performance in our Alternative Learning segment, and by the potential for reopening of the Australia borders for international students by the end of the year,” said Karl McDonnell, Chief Executive Officer of Strategic Education. “We remain committed to the success of our students and to our mission to enable economic mobility.”

STRATEGIC EDUCATION CONSOLIDATED RESULTS

[Note: Strategic Education’s financial results for any periods ended prior to November 3, 2020 do not include the financial results of the Australia/New Zealand acquisition and are therefore not directly comparable.]

Three Months Ended September 30

• Revenue increased 13.0% to $270.1 million compared to $239.0 million for the same period in 2020. Adjusted revenue, which is a non-GAAP financial measure and excludes a foreign currency exchange impact, increased 13.3% to $270.7 million compared to $239.0 million for the same period in 2020. For more details on non-GAAP financial measures, refer to the information in the Non-GAAP Financial Measures section of this press release.

• Income from operations was $7.3 million or 2.7% of revenue, compared to $15.4 million or 6.5% of revenue for the same period in 2020. Adjusted income from operations, which is a non-GAAP financial measure, was $20.8 million in 2021 compared to $37.8 million for the same period in 2020. The adjusted operating income margin, which is a non-GAAP financial measure, was 7.7% compared to 15.8% for the same period in 2020.

• Net income was $3.9 million in 2021 compared to $11.0 million for the same period in 2020. Adjusted net income, which is a non-GAAP financial measure, was $14.2 million compared to $27.4 million for the same period in 2020.

• Adjusted EBITDA, which is a non-GAAP financial measure, was $38.7 million compared to $52.4 million for the same period in 2020.

• Diluted earnings per share was $0.16 compared to $0.47 for the same period in 2020. Adjusted diluted earnings per share, which is a non-GAAP financial measure, decreased to $0.59 from $1.18 for the same period in 2020. Diluted weighted average shares outstanding increased to 24,113,000 from 23,214,000 for the same period in 2020, due primarily to new shares issued to facilitate the acquisition of Torrens University and associated assets in Australia and New Zealand.

U.S. Higher Education Segment Highlights

• The U.S. Higher Education segment (USHE) is comprised of Strayer University and Capella University.

• For the third quarter, student enrollment within USHE decreased 12.9% to 77,574 compared to 89,042 for the same period in 2020.

• For the third quarter, FlexPath enrollment was 19% of USHE enrollment compared to 14% for the same period in 2020.

• Revenue decreased 16.7% to $191.9 million in the third quarter of 2021 compared to $230.3 million for the same period in 2020, driven by lower third quarter enrollment and lower revenue-per-student.

• Income from operations decreased to $5.2 million in the third quarter of 2021 from $33.7 million for the same period in 2020. The operating income margin was 2.7%, compared to 14.6% for the same period in 2020.

• Strayer University has now reopened 46 campuses that had been closed during the COVID-19 pandemic, and the majority of remaining campuses are expected to be reopened by the end of 2021.

Alternative Learning Segment Highlights

• The Alternative Learning segment is comprised primarily of Employer Solutions, Sophia Learning, and Workforce Edge.

• For the third quarter, employer affiliated enrollment was 21.1% of USHE enrollment compared to 18.3% for the same period in 2020.

• As of September 30, 2021, Workforce Edge had a total of 22 corporate agreements, collectively employing approximately 430,000 employees.

• Revenue increased 48.7% to $13.0 million in the third quarter of 2021 compared to $8.7 million for the same period in 2020, driven by growth in Sophia Learning subscriptions and employer affiliated enrollment.

• Income from operations increased to $5.2 million in the third quarter of 2021 from $4.1 million for the same period in 2020. The operating income margin was 40.0%, compared to 47.2% for the same period in 2020.

Australia/New Zealand Segment Highlights

• The Australia/New Zealand segment (ANZ) is comprised of Torrens University, Think Education, and Media Design School.

• For the third quarter, student enrollment within ANZ was 18,188.

• Revenue was $65.2 million in the third quarter of 2021, and adjusted revenue, which is a non-GAAP financial measure, was $65.9 million.

• Income from operations was $10.4 million or 15.9% of revenue in the third quarter of 2021, and adjusted income from operations, which is a non-GAAP financial measure, was $10.4 million or 15.8% of adjusted revenue.

BALANCE SHEET AND CASH FLOW

At September 30, 2021, Strategic Education had cash, cash equivalents, and marketable securities of $305.0 million, and $141.6 million outstanding under its revolving credit facility. For the first nine months of 2021, cash provided by operations was $161.2 million compared to $158.8 million for the same period in 2020. Capital expenditures for the first nine months of 2021 were $33.6 million compared to $34.8 million for the same period in 2020. Capital expenditures for 2021 are expected to be between $45 million and $50 million.

For the third quarter of 2021, consolidated bad debt expense as a percentage of revenue was 3.8%, compared to 4.7% of revenue for the same period in 2020.

COMMON STOCK CASH DIVIDEND

Strategic Education announced today that it declared a regular, quarterly cash dividend of $0.60 per share of common stock. This dividend will be paid on December 6, 2021 to shareholders of record as of November 29, 2021.

CONFERENCE CALL WITH MANAGEMENT

Strategic Education will host a conference call to discuss its third quarter 2021 results at 10:00 a.m. (ET) today. To participate in the live call, investors should dial (877) 303-9047 ten minutes prior to the start time. In addition, the call will be available via webcast. To access the live webcast of the conference call, please go to www.strategiceducation.com in the Investor Relations section 15 minutes prior to the start time of the call to register. An earnings release presentation will also be posted to www.strategiceducation.com in the Investor Relations section. Following the call, the webcast will be archived and available at www.strategiceducation.com in the Investor Relations section.

About Strategic Education, Inc.

Strategic Education, Inc. (NASDAQ: STRA) (www.strategiceducation.com) is dedicated to helping advance economic mobility through higher education. We primarily serve working adult students globally through our core focus areas: 1) U.S. Higher Education, including Strayer University and Capella University, each institutionally accredited, and collectively offer flexible and affordable associate, bachelor’s, master’s, and doctoral programs including the Jack Welch Management Institute at Strayer University, and non-degree web and mobile application development courses through Strayer University’s Hackbright Academy and Devmountain; 2) Alternative Learning, encompassing Employer Solutions, developing and maintaining relationships with large employers; Workforce Edge, a full service, online employee education management platform; Sophia Learning, self-paced general education courses that are ACE-recommended for college credit; and Digital Enablement Partnerships, helping advance capabilities in course development, online delivery, and student support; and 3) Australia/New Zealand, comprised of Torrens University, Think Education, and Media Design School that collectively offer certificate and degree programs in Australia and New Zealand. This portfolio of high quality, innovative, relevant, and affordable programs and institutions helps our students prepare for success in today’s workforce and find a path to bettering their lives.

Forward-Looking Statements

This communication contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” “potential” and other similar words, and include all statements that are not historical facts, including with respect to, among other things, the future financial performance and growth opportunities of Strategic Education; Strategic Education’s plans, strategies and prospects; and future events and expectations. The statements are based on Strategic Education’s current expectations and are subject to a number of assumptions, uncertainties and risks, including but not limited to:

• the pace of student enrollment;

• Strategic Education’s continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional accreditation standards and state regulatory requirements;

• rulemaking by the Department of Education and increased focus by the U.S. Congress on for-profit education institutions;

• competitive factors;

• risks associated with the further spread of COVID-19, including the ultimate impact of COVID-19 on people and economies;

• the impact of regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements;

• risks associated with the opening of new campuses;

• risks associated with the offering of new educational programs and adapting to other changes;

• risks associated with the acquisition of existing educational institutions, including in the case of Strategic Education’s acquisition of Torrens University and associated assets in Australia and New Zealand, the risk that the benefits of the acquisition may not be fully realized or may take longer to realize than expected, and the risk that the acquisition may not advance Strategic Education’s business strategy and growth strategy;

• risks relating to the timing of regulatory approvals;

• Strategic Education’s ability to implement its growth strategy;

• the risk that the combined company may experience difficulty integrating employees or operations;

• risks associated with the ability of Strategic Education’s students to finance their education in a timely manner;

• general economic and market conditions; and

• additional factors described in Strategic Education’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Many of these risks, uncertainties and assumptions are beyond Strategic Education’s ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, these forward-looking statements speak only as of the information currently available to Strategic Education on the date they are made, and Strategic Education undertakes no obligation to update or revise forward-looking statements, except as required by law. Actual results may differ materially from those projected in the forward-looking statements.

Non-GAAP Financial Measures

In our press release and schedules, we report certain financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America ("GAAP"). We discuss management's reasons for reporting these non-GAAP measures below, and the press release schedules that follow reconcile the most directly comparable GAAP measure to each non-GAAP measure that we reference. Although management evaluates and presents these non-GAAP measures for the reasons described below, please be aware that these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, total costs and expenses, income from operations, operating margin, income before income taxes, net income, earnings per share or any other comparable financial measure prescribed by GAAP. In addition, we may calculate and/or present these non-GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others.

Management uses certain non-GAAP measures to evaluate financial performance because those non-GAAP measures allow for period-over-period comparisons of the Company’s ongoing operations before the impact of certain items described below. Management believes this information is useful to investors to compare the Company’s results of operations period-over-period. These measures are Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted EBITDA and Adjusted Diluted Earnings Per Share (EPS). We define Adjusted Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted EPS to exclude (1) a purchase accounting adjustment to record acquired contract liabilities at fair value as a result of the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand, and amortization and depreciation expense related to intangible assets and software assets associated with the Company’s merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand, (2) transaction and integration expenses associated with the Company's merger with Capella Education Company and the Company’s acquisition of Torrens University and associated assets in Australia and New Zealand, (3) severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring, (4) income/loss recognized from the Company’s investments in partnership interests and other investments, (5) discrete tax adjustments utilizing adjusted effective income tax rates of 28.5% and 29.7% for the three months ended September 30, 2020 and 2021, respectively, and (6) foreign currency exchange impact related to translating foreign currency results at a constant exchange rate of 0.743 Australian Dollars to U.S. Dollars, which is the 2021 budget rate. We define EBITDA as net income before other income, the provision for income taxes, gain on sale of property and equipment, depreciation and amortization, and from this amount in arriving at Adjusted EBITDA we also exclude stock-based compensation expense, amortization expense associated with deferred implementation costs incurred in cloud computing arrangements, and the amounts in (2), (3) and (6) above. These non-GAAP measures are reconciled to the most directly comparable GAAP measures in the sections that follow. Non-GAAP measures should not be viewed as substitutes for GAAP measures.

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