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Strategic Education, Inc. Reports Third Quarter 2022 Results

Strategic Education, Inc. (Strategic Education) (NASDAQ: STRA) today announced financial results for the period ended September 30, 2022.

“We are pleased with the continued strengthening of demand in our U.S. Higher Education segment during the third quarter of 2022,” said Karl McDonnell, Chief Executive Officer of Strategic Education. “Our Education Technology Services segment also produced strong results during the quarter, and notwithstanding continued delays in a return to pre-pandemic student immigration conditions in Australia and New Zealand, we remain confident in the long-term growth potential of the Australia/New Zealand segment.”

STRATEGIC EDUCATION CONSOLIDATED RESULTS

Three Months Ended September 30

  • Revenue decreased 2.6% to $263.1 million compared to $270.1 million for the same period in 2021.
  • Income from operations was $7.8 million or 3.0% of revenue, compared to $7.3 million or 2.7% of revenue for the same period in 2021. Adjusted income from operations, which is a non-GAAP financial measure, was $12.2 million compared to $20.7 million for the same period in 2021. The adjusted operating income margin, which is a non-GAAP financial measure, was 4.6% compared to 7.7% for the same period in 2021. [Adjusted results for 2021 exclude an adjustment for foreign currency exchange impacts and are therefore not directly comparable to adjusted results previously reported for the three months ended September 30, 2021.] For more details on non-GAAP financial measures, refer to the information in the Non-GAAP Financial Measures section of this press release.
  • Net income was $6.1 million compared to $3.9 million for the same period in 2021. Adjusted net income, which is a non-GAAP financial measure, was $8.0 million compared to $14.1 million for the same period in 2021.
  • Adjusted EBITDA, which is a non-GAAP financial measure, was $31.6 million compared to $38.6 million for the same period in 2021.
  • Diluted earnings per share was $0.25 compared to $0.16 for the same period in 2021. Adjusted diluted earnings per share, which is a non-GAAP financial measure, decreased to $0.33 from $0.59 for the same period in 2021. Adjusted diluted earnings per share on a constant currency basis, which is a non-GAAP financial measure, was $0.35. Diluted weighted average shares outstanding decreased to 23,902,000 from 24,113,000 for the same period in 2021.

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 3.1% to 75,144 compared to 77,574 for the same period in 2021.
  • For the third quarter, FlexPath enrollment was 21% of USHE enrollment compared to 19% for the same period in 2021.
  • Revenue decreased 3.3% to $185.5 million in the third quarter of 2022 compared to $191.9 million for the same period in 2021, driven by lower third quarter enrollment.
  • Loss from operations was $1.9 million in the third quarter of 2022 compared to income from operations of $5.2 million for the same period in 2021.

Education Technology Services Segment Highlights

  • The Education Technology Services segment (ETS) is comprised primarily of Employer Solutions, Sophia Learning, and Workforce Edge.
  • For the third quarter, employer affiliated enrollment was 25.3% of USHE enrollment compared to 21.1% for the same period in 2021.
  • For the third quarter, Sophia Learning had an increase in average total subscribers of approximately 33% from the same period in 2021.
  • As of September 30, 2022, Workforce Edge had a total of 51 corporate agreements, collectively employing approximately 1,200,000 employees.
  • Revenue increased 26.9% to $16.4 million in the third quarter of 2022 compared to $13.0 million for the same period in 2021, driven by growth in Sophia Learning subscriptions and employer affiliated enrollment.
  • Income from operations was $5.2 million in the third quarter of 2022 compared to $5.2 million for the same period in 2021. The operating income margin was 31.8%, compared to 40.0% for the same period in 2021.

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 increased 1.7% to 18,493 compared to 18,188 for the same period in 2021.
  • Revenue decreased 6.2% to $61.2 million in the third quarter of 2022 compared to $65.2 million for the same period in 2021. Revenue on a constant currency basis increased 0.7% to $65.7 million in the third quarter of 2022 compared to $65.2 million for the same period in 2021.
  • Income from operations was $8.9 million or 14.6% of revenue, compared to $10.4 million or 15.9% of revenue for the same period in 2021. Income from operations and the operating income margin on a constant currency basis were $9.6 million or 14.7% of revenue in the third quarter of 2022, compared to $10.4 million or 15.9% of revenue for the same period in 2021.

Balance Sheet and Cash Flow

At September 30, 2022, Strategic Education had cash, cash equivalents, and marketable securities of $288.8 million, and $141.2 million outstanding under its revolving credit facility. For the first nine months of 2022, cash provided by operations was $124.7 million compared to $161.2 million for the same period in 2021. Capital expenditures for the first nine months of 2022 were $32.5 million compared to $33.6 million for the same period in 2021. Capital expenditures for 2022 are expected to be approximately $45 million.

For the third quarter of 2022, consolidated bad debt expense as a percentage of revenue was 4.5%, compared to 3.8% of revenue for the same period in 2021.

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 5, 2022 to shareholders of record as of November 28, 2022.

CONFERENCE CALL WITH MANAGEMENT

Strategic Education will host a conference call to discuss its third quarter 2022 results at 10:00 a.m. (ET) today. This 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. To participate in the live call, investors should register here prior to the call to receive dial-in information and a PIN.

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) Education Technology Services, developing and maintaining relationships with employers to build education benefits programs providing employees access to affordable and industry-relevant training, certificate, and degree programs, including through Workforce Edge, a full-service education benefits administration solution for employers, and Sophia Learning, enabling education benefits programs through low-cost online general education-level courses that are ACE-recommended for college credit; 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 and other action by the Department of Education or other governmental entities, including without limitation action related to borrower defense to repayment applications, 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 Strategic Education’s acquisition of Torrens University and associated assets in Australia and New Zealand;
  • the risk that the benefits of the acquisition of Torrens University and associated assets in Australia and New Zealand may not be fully realized or may take longer to realize than expected;
  • the risk that the acquisition of Torrens University and associated assets in Australia and New Zealand 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.

 

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

 

For the three months ended

September 30,

 

For the nine months ended

September 30,

 

 

2021

 

 

2022

 

 

2021

 

 

2022

Revenues

$

270,078

 

$

263,123

 

$

859,587

 

$

795,542

Costs and expenses:

 

 

 

 

 

 

 

Instructional and support costs

 

153,651

 

 

153,162

 

 

459,394

 

 

445,154

General and administration

 

95,714

 

 

97,753

 

 

275,954

 

 

289,259

Amortization of intangible assets

 

8,932

 

 

3,522

 

 

47,731

 

 

10,954

Merger and integration costs

 

1,111

 

 

269

 

 

4,060

 

 

933

Restructuring costs

 

3,322

 

 

610

 

 

26,400

 

 

6,129

Total costs and expenses

 

262,730

 

 

255,316

 

 

813,539

 

 

752,429

Income from operations

 

7,348

 

 

7,807

 

 

46,048

 

 

43,113

Other income (expense)

 

(1,848)

 

 

(262)

 

 

1,076

 

 

(1,133)

Income before income taxes

 

5,500

 

 

7,545

 

 

47,124

 

 

41,980

Provision for income taxes

 

1,646

 

 

1,453

 

 

13,717

 

 

13,639

Net income

$

3,854

 

$

6,092

 

$

33,407

 

$

28,341

Earnings per share:

 

 

 

 

 

 

 

Basic

$

0.16

 

$

0.26

 

$

1.39

 

$

1.19

Diluted

$

0.16

 

$

0.25

 

$

1.38

 

$

1.18

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

23,948

 

 

23,550

 

 

23,966

 

 

23,765

Diluted

 

24,113

 

 

23,902

 

 

24,131

 

 

24,026

 

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

December 31,

2021

 

September 30,

2022

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

268,918

 

$

262,757

Marketable securities

 

6,501

 

 

11,387

Tuition receivable, net

 

51,277

 

 

81,676

Income taxes receivable

 

313

 

 

Other current assets

 

40,777

 

 

46,928

Total current assets

 

367,786

 

 

402,748

Property and equipment, net

 

150,589

 

 

136,073

Right-of-use lease assets

 

149,587

 

 

125,081

Marketable securities, non-current

 

23,377

 

 

14,648

Intangible assets, net

 

276,380

 

 

259,855

Goodwill

 

1,285,864

 

 

1,226,499

Other assets

 

52,297

 

 

50,347

Total assets

$

2,305,880

 

$

2,215,251

 

 

 

 

LIABILITIES & STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

95,518

 

$

101,357

Income taxes payable

 

 

 

3,316

Contract liabilities

 

73,232

 

 

131,705

Lease liabilities

 

27,005

 

 

23,539

Total current liabilities

 

195,755

 

 

259,917

Long-term debt

 

141,630

 

 

141,234

Deferred income tax liabilities

 

44,595

 

 

33,688

Lease liabilities, non-current

 

162,821

 

 

136,791

Other long-term liabilities

 

47,089

 

 

45,139

Total liabilities

 

591,890

 

 

616,769

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Common stock, par value $0.01; 32,000,000 shares authorized; 24,592,098

and 24,454,377 shares issued and outstanding at December 31, 2021 and

September 30, 2022, respectively

 

246

 

 

245

Additional paid-in capital

 

1,529,969

 

 

1,507,902

Accumulated other comprehensive income (loss)

 

9,203

 

 

(66,369)

Retained earnings

 

174,572

 

 

156,704

Total stockholders’ equity

 

1,713,990

 

 

1,598,482

Total liabilities and stockholders’ equity

$

2,305,880

 

$

2,215,251

 

STRATEGIC EDUCATION, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

For the nine months ended

September 30,

 

 

2021

 

 

2022

Cash flows from operating activities:

 

 

 

Net income

$

33,407

 

$

28,341

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Loss on sale of marketable securities

 

781

 

 

Gain on sale of property and equipment

 

(681)

 

 

Amortization of deferred financing costs

 

414

 

 

414

Amortization of investment discount/premium

 

55

 

 

29

Depreciation and amortization

 

88,188

 

 

49,193

Deferred income taxes

 

(12,197)

 

 

(9,213)

Stock-based compensation

 

12,714

 

 

16,209

Impairment of right-of-use lease assets

 

18,914

 

 

1,185

Changes in assets and liabilities:

 

 

 

Tuition receivable, net

 

(38,490)

 

 

(33,320)

Other assets

 

(6,106)

 

 

417

Accounts payable and accrued expenses

 

(253)

 

 

6,768

Income taxes payable and income taxes receivable

 

4,050

 

 

4,498

Contract liabilities

 

66,022

 

 

65,437

Other liabilities

 

(5,655)

 

 

(5,226)

Net cash provided by operating activities

 

161,163

 

 

124,732

 

 

 

 

Cash flows from investing activities:

 

 

 

Purchases of property and equipment

 

(33,632)

 

 

(32,508)

Proceeds from marketable securities

 

9,300

 

 

2,600

Proceeds from sale of property and equipment

 

4,328

 

 

Other investments

 

(589)

 

 

(223)

Cash paid for acquisition, net of cash acquired

 

 

 

(193)

Net cash used in investing activities

 

(20,593)

 

 

(30,324)

 

 

 

 

Cash flows from financing activities:

 

 

 

Common dividends paid

 

(44,289)

 

 

(44,600)

Net payments for stock awards

 

(2,283)

 

 

(2,973)

Repurchase of common stock

 

(5,905)

 

 

(36,916)

Net cash used in financing activities

 

(52,477)

 

 

(84,489)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

(3,280)

 

 

(10,729)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

84,813

 

 

(810)

Cash, cash equivalents, and restricted cash — beginning of period

 

202,020

 

 

279,212

Cash, cash equivalents, and restricted cash — end of period

$

286,833

 

$

278,402

 

STRATEGIC EDUCATION, INC.

UNAUDITED SEGMENT REPORTING

(in thousands)

 

 

For the three months ended

September 30,

 

For the nine months ended

September 30,

 

 

2021

 

 

2022

 

 

2021

 

 

2022

Revenues:

 

 

 

 

 

 

 

U.S. Higher Education

$

191,893

 

$

185,499

 

$

630,647

 

$

571,291

Australia/New Zealand

 

65,224

 

 

61,177

 

 

190,549

 

 

177,232

Education Technology Services

 

12,961

 

 

16,447

 

 

38,391

 

 

47,019

Consolidated revenues

$

270,078

 

$

263,123

 

$

859,587

 

$

795,542

Income (loss) from operations:

 

 

 

 

 

 

 

U.S. Higher Education

$

5,168

 

$

(1,948)

 

$

84,981

 

$

25,386

Australia/New Zealand

 

10,364

 

 

8,934

 

 

23,016

 

 

20,506

Education Technology Services

 

5,181

 

 

5,222

 

 

16,242

 

 

15,237

Amortization of intangible assets

 

(8,932)

 

 

(3,522)

 

 

(47,731)

 

 

(10,954)

Merger and integration costs

 

(1,111)

 

 

(269)

 

 

(4,060)

 

 

(933)

Restructuring costs

 

(3,322)

 

 

(610)

 

 

(26,400)

 

 

(6,129)

Consolidated income from operations

$

7,348

 

$

7,807

 

$

46,048

 

$

43,113

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) 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, and (5) discrete tax adjustments utilizing adjusted effective income tax rates of 29.7% and 33.0% for the three months ended September 30, 2021 and 2022, respectively. To illustrate currency impacts to operating results, 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 for the three months ended September 30, 2022 are also presented on a constant currency basis utilizing an exchange rate of 0.73 Australian Dollars to U.S. Dollars, which was the average exchange rate for the same period in 2021. We define EBITDA as net income before other income (loss), the provision for income taxes, 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) and (3) 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.

 

STRATEGIC EDUCATION, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

ADJUSTED REVENUE, ADJUSTED TOTAL COSTS AND EXPENSES, ADJUSTED INCOME FROM

OPERATIONS, ADJUSTED OPERATING MARGIN, ADJUSTED INCOME BEFORE INCOME TAXES,

ADJUSTED NET INCOME, AND ADJUSTED EPS

(in thousands, except per share data)

 

 

 

 

For the three months ended September 30, 2021

Non-GAAP Adjustments

 

 

 

As Reported

(GAAP)

 

Purchase

accounting

adjustments(1)

 

Merger and

integration

costs(2)

 

Restructuring

costs(3)

 

Loss from

other

investments(4)

 

Tax

adjustments(5)

 

As Adjusted

(Non-GAAP)

Revenues

$

270,078

 

$

 

$

 

$

 

$

 

$

 

$

270,078

Total costs and expenses

$

262,730

 

$

(8,932)

 

$

(1,111)

 

$

(3,322)

 

$

 

$

 

$

249,365

Income from operations

$

7,348

 

$

8,932

 

$

1,111

 

$

3,322

 

$

 

$

 

$

20,713

Operating margin

 

2.7%

 

 

 

 

 

 

 

 

 

 

 

 

7.7%

Income before income taxes

$

5,500

 

$

8,932

 

$

1,111

 

$

3,322

 

$

1,211

 

$

 

$

20,076

Net income

$

3,854

 

$

8,932

 

$

1,111

 

$

3,322

 

$

1,211

 

$

(4,312)

 

$

14,118

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

$

0.16

 

 

 

 

 

 

 

 

 

 

 

$

0.59

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Diluted

 

24,113

 

 

 

 

 

 

 

 

 

 

 

 

24,113

 

 

 

For the three months ended September 30, 2022

Non-GAAP Adjustments

 

 

 

As Reported

(GAAP)

 

Purchase

accounting

adjustments(1)

 

Merger and

integration

costs(2)

 

Restructuring

costs(3)

 

Income from

other

investments(4)

 

Tax

adjustments(5)

 

As Adjusted

(Non-GAAP)

Revenues

$

263,123

 

$

 

$

 

$

 

$

 

$

 

$

263,123

Total costs and expenses

$

255,316

 

$

(3,522)

 

$

(269)

 

$

(610)

 

$

 

$

 

$

250,915

Income from operations

$

7,807

 

$

3,522

 

$

269

 

$

610

 

$

 

$

 

$

12,208

Operating margin

 

3.0%

 

 

 

 

 

 

 

 

 

 

 

 

4.6%

Income before income taxes

$

7,545

 

$

3,522

 

$

269

 

$

610

 

$

(39)

 

$

 

$

11,907

Net income

$

6,092

 

$

3,522

 

$

269

 

$

610

 

$

(39)

 

$

(2,478)

 

$

7,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

$

0.25

 

 

 

 

 

 

 

 

 

 

 

$

0.33

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

Diluted

 

23,902

 

 

 

 

 

 

 

 

 

 

 

 

23,902

(1)

Reflects amortization and depreciation expense of intangible assets and software assets acquired through 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)

Reflects 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)

Reflects severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring.

(4)

Reflects income/loss recognized from the Company's investments in partnership interests and other investments.

(5)

Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments,

utilizing adjusted effective income tax rates of 29.7% and 33.0% for the three months ended September 30, 2021 and 2022, respectively.

 

STRATEGIC EDUCATION, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Q3 2022 AS ADJUSTED WITH CONSTANT CURRENCY

(in thousands, except per share data)

 

 

As Adjusted

(Non-GAAP)

 

Constant

currency

adjustment(1)

 

As Adjusted

with Constant

Currency

(Non-GAAP)

Revenues

$

263,123

 

$

4,496

 

$

267,619

Total costs and expenses

$

250,915

 

$

3,791

 

$

254,706

Income from operations

$

12,208

 

$

705

 

$

12,913

Operating margin

 

4.6%

 

 

 

 

4.8%

Income before income taxes

$

11,907

 

$

708

 

$

12,615

Net income

$

7,976

 

$

474

 

$

8,450

 

 

 

 

 

 

Earnings per share:

 

 

 

 

Diluted

$

0.33

 

 

 

$

0.35

Weighted average shares outstanding:

 

 

 

 

Diluted

 

23,902

 

 

 

 

23,902

(1)

Reflects an adjustment to translate foreign currency results for the three months

ended September 30, 2022 at a constant exchange rate of 0.73 Australian Dollars

to U.S. Dollars, which was the average exchange rate for the same period in 2021.

 

STRATEGIC EDUCATION, INC.

UNAUDITED NON-GAAP SEGMENT REPORTING

(in thousands)

 

 

For the three months ended

September 30,

 

For the nine months ended

September 30,

 

 

2021

 

 

2022

 

 

2021

 

 

2022

Revenues:

 

 

 

 

 

 

 

U.S. Higher Education

$

191,893

 

$

185,499

 

$

630,647

 

$

571,291

Australia/New Zealand

 

65,224

 

 

61,177

 

 

190,549

 

 

177,232

Education Technology Services

 

12,961

 

 

16,447

 

 

38,391

 

 

47,019

Consolidated revenues

 

270,078

 

 

263,123

 

 

859,587

 

 

795,542

 

 

 

 

 

 

 

 

Adjustments to consolidated revenues:

 

 

 

 

 

 

 

U.S. Higher Education

 

 

 

 

 

 

 

Australia/New Zealand(1)

 

 

 

 

 

3,646

 

 

Education Technology Services

 

 

 

 

 

 

 

Total adjustments to consolidated revenues

 

 

 

 

 

3,646

 

 

 

 

 

 

 

 

 

 

Adjusted revenues by segment:

 

 

 

 

 

 

 

U.S. Higher Education

 

191,893

 

 

185,499

 

 

630,647

 

 

571,291

Australia/New Zealand

 

65,224

 

 

61,177

 

 

194,195

 

 

177,232

Education Technology Services

 

12,961

 

 

16,447

 

 

38,391

 

 

47,019

Adjusted consolidated revenues

$

270,078

 

$

263,123

 

$

863,233

 

$

795,542

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

U.S. Higher Education

$

5,168

 

$

(1,948)

 

$

84,981

 

$

25,386

Australia/New Zealand

 

10,364

 

 

8,934

 

 

23,016

 

 

20,506

Education Technology Services

 

5,181

 

 

5,222

 

 

16,242

 

 

15,237

Amortization of intangible assets

 

(8,932)

 

 

(3,522)

 

 

(47,731)

 

 

(10,954)

Merger and integration costs

 

(1,111)

 

 

(269)

 

 

(4,060)

 

 

(933)

Restructuring costs

 

(3,322)

 

 

(610)

 

 

(26,400)

 

 

(6,129)

Consolidated income from operations

 

7,348

 

 

7,807

 

 

46,048

 

 

43,113

 

 

 

 

 

 

 

 

Adjustments to consolidated income from operations:

 

 

 

 

 

 

 

Australia/New Zealand(1)

 

 

 

 

 

3,646

 

 

Amortization of intangible assets

 

8,932

 

 

3,522

 

 

47,731

 

 

10,954

Merger and integration costs

 

1,111

 

 

269

 

 

4,060

 

 

933

Restructuring costs

 

3,322

 

 

610

 

 

26,400

 

 

6,129

Total adjustments to consolidated income from operations

 

13,365

 

 

4,401

 

 

81,837

 

 

18,016

 

 

 

 

 

 

 

 

Adjusted income (loss) from operations by segment:

 

 

 

 

 

 

 

U.S. Higher Education

 

5,168

 

 

(1,948)

 

 

84,981

 

 

25,386

Australia/New Zealand

 

10,364

 

 

8,934

 

 

26,662

 

 

20,506

Education Technology Services

 

5,181

 

 

5,222

 

 

16,242

 

 

15,237

Total adjusted income from operations

$

20,713

 

$

12,208

 

$

127,885

 

$

61,129

(1)

Adjustments to the Australia/New Zealand segment revenue and income from operations for the nine months ended

September 30, 2021, include a purchase accounting adjustment of $3.6 million 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.

 

STRATEGIC EDUCATION, INC.

UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

ADJUSTED EBITDA

(in thousands)

 

 

For the three months ended

September 30,

 

 

2021

 

 

2022

Net income

$

3,854

 

$

6,092

Provision for income taxes

 

1,646

 

 

1,453

Other loss

 

1,848

 

 

262

Gain on sale of property and equipment

 

(681)

 

 

Depreciation and amortization

 

21,564

 

 

15,757

EBITDA (1)

 

28,231

 

 

23,564

Stock-based compensation

 

4,868

 

 

5,612

Merger and integration costs (2)

 

1,111

 

 

269

Restructuring costs (3)

 

3,404

 

 

510

Cloud computing amortization (4)

 

1,019

 

 

1,644

Adjusted EBITDA (1)

$

38,633

 

$

31,599

(1)

Denotes non-GAAP financial measures. Please see the information in the Non-GAAP Financial Measures section of this press release for more detail regarding these adjustments and management’s reasons for providing this information.

(2)

Reflects integration charges 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)

Reflects severance costs and right-of-use lease asset impairment charges associated with the Company’s restructuring. Includes $0.2 million of stock-based compensation benefit related to forfeitures of stock-based awards for the three months ended September 30, 2021. Excludes $0.7 million of gain on sale of property and equipment for the three months ended September 30, 2021 and $0.6 million and $0.1 million of depreciation and amortization expense for the three months ended September 30, 2021 and 2022, respectively.

(4)

Reflects amortization expense associated with deferred implementation costs incurred in cloud computing arrangements.

 

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