Strategic Education(STRA) - 2020 Q4 - Annual Report

Part I Business Strategic Education, Inc. (SEI) is an education services company providing post-secondary education and job-ready skills through its subsidiaries, generating $1.0 billion in net revenue in 2020 * Strategic Education, Inc. is an education services company providing post-secondary education and job-ready skills programs through its main subsidiaries: Strayer University, Capella University, and Torrens University Australia[17] 2020 Financial Snapshot | Metric | Amount (USD) | | :--- | :--- | | Net Revenue | $1.0 billion | * On November 3, 2020, the company completed the acquisition of Torrens University and related assets in Australia and New Zealand (ANZ) for approximately $658.4 million in cash, expanding its international presence[19][20] * The company's reportable segments as of December 31, 2020, are the Strayer University Segment, the Capella University Segment, and the Australia/New Zealand Segment[22] Strayer University Segment This segment, including Strayer University and its affiliates, offers undergraduate and graduate degrees primarily to working adults, with 50,773 students in Fall 2020 * Strayer University offers undergraduate and graduate programs in fields like business, IT, and healthcare at 64 physical campuses and online, also including the Jack Welch Management Institute (JWMI), DevMountain (a software development school), and Hackbright Academy (a software engineering school for women)[22][24][25] Strayer University Student Enrollment by Program (Fall 2020) | Program | Number of Students | Percentage of Total | | :--- | :--- | :--- | | Bachelor's | 40,770 | 80% | | Master's | 8,608 | 17% | | Associate's | 1,309 | 3% | | Other | 86 | <1% | | Total | 50,773 | 100% | * The student population is primarily working adults, with approximately 64% aged 31 or older and 90% studying part-time, and a diverse student body comprising 73% minorities and 72% women as of the Fall 2020 quarter[54][55] Capella University Segment This segment, comprising Capella University and Sophia Learning, focuses on online master's and doctoral degrees for working adults, serving 41,073 students as of December 31, 2020 * Capella University is an online post-secondary institution offering bachelor's, master's, and doctoral degrees, with a focus on graduate programs (70% of students), and also includes Sophia Learning, which provides self-paced online general education courses[26][27][28] Capella University Student Enrollment by Program (as of Dec 31, 2020) | Program | Number of Students | Percentage of Total | | :--- | :--- | :--- | | Master's | 19,130 | 47% | | Bachelor's | 12,928 | 31% | | Doctoral | 8,210 | 20% | | Other | 805 | 2% | | Total | 41,073 | 100% | * Capella offers two learning formats: GuidedPath (structured, credit-hour courses) and FlexPath (a direct assessment model where students progress by demonstrating competencies at their own pace)[63][65] Australia/New Zealand Segment The ANZ segment, acquired in November 2020, includes Torrens University, Think Education, and Media Design School, serving both domestic and international students * The ANZ segment includes Torrens University (Australia's only investor-funded university), Think Education (a vocational and higher education provider in Australia), and Media Design School (a creative and technology institution in New Zealand)[29][30][31] * The ANZ institutions offer a range of undergraduate, graduate, and vocational programs both online and on-campus, with a strong focus on industry partnerships and career-relevant curriculum[88] * The student body comprises both domestic students from Australia and New Zealand and international students, who make up approximately half of the student population[95] Human Capital Resources As of December 31, 2020, Strategic Education employed 3,679 full-time employees globally, emphasizing a student-centric, diverse, and inclusive culture Full-Time Employee Headcount (as of Dec 31, 2020) | Region | Faculty | Non-Faculty Staff | Total | | :--- | :--- | :--- | :--- | | U.S. | 385 | 2,382 | 2,767 | | Outside U.S. | 246 | 666 | 912 | | Worldwide Total | 631 | 3,048 | 3,679 | * The company emphasizes a vibrant, diverse, and inclusive culture, with initiatives such as recurring organization health surveys, company-wide town halls, and a CEO's Council on Diversity, Equity, and Inclusion[105][106] Regulation The company's U.S. operations are extensively regulated by the U.S. Department of Education, state bodies, and accrediting agencies, with compliance crucial for Title IV federal student aid eligibility * Strayer University and Capella University are heavily regulated by a triad of U.S. entities: the Department of Education (federal), state education bodies, and institutional accrediting agencies (Middle States for Strayer, Higher Learning Commission for Capella)[111][119][126] 90/10 Rule Compliance (2019) | Institution | % of Cash-Basis Revenue from Title IV | Status | | :--- | :--- | :--- | | Strayer University | 82.4% | Compliant | | Capella University | 75.8% | Compliant | Official Three-Year Cohort Default Rates | Year | Strayer University | Capella University | National Average (Proprietary) | | :--- | :--- | :--- | :--- | | 2017 | 11.3% | 6.5% | 14.7% | | 2016 | 10.4% | 6.8% | 15.2% | | 2015 | 10.6% | 6.5% | 15.6% | * The Australian and New Zealand institutions are regulated by national bodies, including the Tertiary Education Quality and Standards Agency (TEQSA) and the Australian Skills Quality Authority (ASQA) in Australia, and the New Zealand Qualifications Authority[237][238][239] Risk Factors The company faces significant risks from extensive U.S. regulatory compliance, enrollment uncertainty, intense competition, and the ongoing impact of the COVID-19 pandemic * A primary risk is the failure of Strayer University and Capella University to comply with extensive U.S. legal and regulatory requirements, which could result in significant penalties, including the loss of access to federal Title IV student loans and grants[249] * The company is dependent on the renewal and maintenance of Title IV programs, where any action by Congress that significantly reduces funding or participation could materially harm the business[257] * Business operations face risks from enrollment uncertainty, strong competition, the need to update academic programs, system disruptions, and potential difficulties in integrating the newly acquired ANZ business[292][298][309] * The COVID-19 pandemic poses ongoing risks to business operations and financial results due to its uncertain duration and scope, its impact on economic activity, and its effect on employees and students[311][312] Properties The company primarily leases its U.S. campus and administrative facilities, totaling 1.4 million square feet across approximately 90 locations, with corporate headquarters in Herndon, VA * The company's corporate headquarters is in Herndon, VA, with primary locations for its main subsidiaries in Minneapolis, MN (Capella), Washington, D.C. (Strayer), and Sydney, NSW (ANZ)[316] * As of year-end 2020, the company leased approximately 90 campus and administrative facilities in the U.S., totaling 1.4 million square feet, and owned five facilities totaling 110,000 square feet, with the leased footprint reduced by 115,000 square feet in 2020[316][317] Legal Proceedings The company is involved in routine litigation, but management believes these matters will not materially affect its consolidated financial position or results of operations * The company is involved in routine litigation but does not believe any current matters will have a material adverse effect on its financial condition or results of operations[319] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "STRA," with $2.40 in quarterly dividends per share approved in 2020 and a $250 million share repurchase program authorized * The company's common stock is traded on the NASDAQ Global Select Market under the symbol "STRA", with 24,408,808 shares outstanding as of January 29, 2021[323] Dividends Per Common Share | Quarter | 2019 | 2020 | | :--- | :--- | :--- | | First | $0.50 | $0.60 | | Second | $0.50 | $0.60 | | Third | $0.50 | $0.60 | | Fourth | $0.60 | $0.60 | | Total | $2.10 | $2.40 | * As of December 31, 2020, $250 million remained under the company's share repurchase authorization, which is effective through December 31, 2021[330] Selected Financial Data This section presents selected consolidated financial data for the five years ended December 31, 2020, reflecting significant revenue growth to $1,027.7 million in 2020, largely due to acquisitions Selected Financial Data (2018-2020) | (in thousands, except per share data) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $634,185 | $997,137 | $1,027,653 | | Income (loss) from operations | ($22,740) | $110,532 | $109,384 | | Net income (loss) | ($15,671) | $81,138 | $86,268 | | Diluted EPS | ($1.03) | $3.67 | $3.77 | | Total assets | $1,661,029 | $1,789,408 | $2,295,807 | * Financial results include Capella Education Company (CEC) from August 1, 2018, and Australia/New Zealand (ANZ) from November 3, 2020, making periods prior to these dates not directly comparable[332] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting the COVID-19 pandemic's impact, recent acquisitions, and a strong liquidity position with $225.3 million in cash and equivalents as of December 31, 2020 * The COVID-19 pandemic prompted a shift to remote work and online courses, along with financial relief measures for students, but also led to a deterioration in overall demand and enrollment, most pronounced at Strayer University[338][340] * A restructuring plan was implemented in Q3 2020 to reduce operating costs, involving employee terminations and the closure of underutilized campus and office space[339] Year-Over-Year Financial Performance (2019 vs. 2020) | (in millions) | 2019 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenue | $997.1 | $1,027.7 | +3.1% | | Income from Operations | $110.5 | $109.4 | -1.0% | | Net Income | $81.1 | $86.3 | +6.4% | | Diluted EPS | $3.67 | $3.77 | +2.7% | * As of December 31, 2020, the company had cash, cash equivalents, and marketable securities of $225.3 million and $141.8 million outstanding on its $350 million revolving credit facility[402][403] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from interest rate changes and foreign currency fluctuations, with a 100 basis point LIBOR increase potentially raising annual interest expense by $3.5 million * The company is subject to interest rate risk on its cash investments and its revolving credit facility, where a 100 basis point increase in LIBOR would increase annual interest expense by $3.5 million if the full $350 million facility was drawn[415][417] * Following the acquisition of ANZ, the company has foreign currency risk, primarily related to the Australian dollar, where a weakening of foreign currencies relative to the USD could negatively affect reported revenue and operating income[418] Financial Statements and Supplementary Data This section contains the company's consolidated financial statements for the three years ended December 31, 2020, reflecting the significant impact of the Capella and ANZ acquisitions Key Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2019 | 2020 | | :--- | :--- | :--- | | Total Current Assets | $524,094 | $286,122 | | Goodwill | $732,075 | $1,318,526 | | Total Assets | $1,789,408 | $2,295,807 | | Total Current Liabilities | $156,748 | $200,052 | | Long-term Debt | $0 | $141,823 | | Total Liabilities | $326,698 | $547,488 | | Total Stockholders' Equity | $1,462,710 | $1,748,319 | Key Consolidated Income Statement Data (Year Ended Dec 31) | (in thousands) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Revenues | $634,185 | $997,137 | $1,027,653 | | Income (loss) from operations | ($22,740) | $110,532 | $109,384 | | Net income (loss) | ($15,671) | $81,138 | $86,268 | Key Consolidated Cash Flow Data (Year Ended Dec 31) | (in thousands) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $46,867 | $202,146 | $142,905 | | Net cash from investing activities | $130,137 | ($38,066) | ($642,192) | | Net cash from financing activities | ($21,215) | ($55,820) | $279,187 | Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, excluding the newly acquired ANZ business * Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[648] * Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2020, with the assessment excluding the recently acquired ANZ business, which represented approximately 10% of total assets and 2% of total revenues[652][653] Other Information The company announced a change in its principal accounting officer, with Tal Darmon replacing Thomas J. Aprahamian as SVP, Controller, and Chief Accounting Officer, effective March 22, 2021 * The company announced a change in its principal accounting officer, with Tal Darmon set to replace Thomas J. Aprahamian as SVP, Controller and Chief Accounting Officer, effective March 22, 2021[656][657] Part III Directors, Executive Officers, and Corporate Governance This section provides biographical information for the company's directors and executive officers, including Robert S. Silberman as Executive Chairman and Karl McDonnell as CEO * Key leadership includes Robert S. Silberman (Executive Chairman), J. Kevin Gilligan (Vice Chairman), and Karl McDonnell (CEO and Director)[660] * The Board of Directors is composed of individuals with extensive experience in finance, education, technology, and corporate management[661][662][663] Executive Compensation Detailed information on executive compensation is incorporated by reference from the company's forthcoming Proxy Statement * Detailed information on executive compensation is incorporated by reference from the company's Proxy Statement[678] Security Ownership of Certain Beneficial Owners and Management Detailed information on security ownership is incorporated by reference from the company's forthcoming Proxy Statement * Detailed information on security ownership is incorporated by reference from the company's Proxy Statement[679] Certain Relationships and Related Transactions, and Director Independence Detailed information on related party transactions and director independence is incorporated by reference from the company's forthcoming Proxy Statement * Detailed information on related transactions and director independence is incorporated by reference from the company's Proxy Statement[680] Principal Accounting Fees and Services Detailed information on principal accounting fees and services is incorporated by reference from the company's forthcoming Proxy Statement * Detailed information on principal accounting fees and services is incorporated by reference from the company's Proxy Statement[681] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements and exhibits filed as part of the Annual Report on Form 10-K, with financial statements included under Item 8 * This section contains the list of all financial statements (included in Item 8) and exhibits filed with the Form 10-K[683][685] Form 10-K Summary This item is not applicable to the report * Item 16 is not applicable[692]