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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Strategic Education Inc | NASDAQ:STRA | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
3.03 | 2.57% | 121.00 | 112.36 | 127.00 | 120.87 | 118.34 | 120.84 | 193,203 | 05:00:00 |
Maryland
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52-1975978
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2303 Dulles Station Boulevard
Herndon, VA
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20171
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Common Stock, $0.01 par value
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STRA
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Nasdaq Global Select Market
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(Title of each class)
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(Trading symbol(s))
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(Name of each exchange on which registered)
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PART I — FINANCIAL INFORMATION
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CERTIFICATIONS
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December 31, 2018
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|
March 31, 2019
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
311,732
|
|
|
$
|
352,387
|
|
Marketable securities, current
|
37,121
|
|
|
36,486
|
|
||
Tuition receivable, net
|
55,694
|
|
|
50,842
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|
||
Other current assets
|
15,814
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|
|
16,874
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|
||
Total current assets
|
420,361
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|
456,589
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Property and equipment, net
|
122,677
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|
119,040
|
|
||
Right-of-use lease assets
|
—
|
|
|
101,533
|
|
||
Marketable securities, non-current
|
37,678
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|
|
31,866
|
|
||
Intangible assets, net
|
328,344
|
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|
314,511
|
|
||
Goodwill
|
732,540
|
|
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732,799
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|
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Other assets
|
19,429
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|
|
19,052
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|
||
Total assets
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$
|
1,661,029
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$
|
1,775,390
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|
||||
LIABILITIES & STOCKHOLDERS’ EQUITY
|
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|
||||
Current liabilities:
|
|
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|
||||
Accounts payable and accrued expenses
|
$
|
85,979
|
|
|
$
|
80,085
|
|
Income taxes payable
|
419
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|
|
6,144
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|
||
Contract liabilities
|
38,733
|
|
|
40,826
|
|
||
Lease liabilities, current
|
—
|
|
|
26,462
|
|
||
Total current liabilities
|
125,131
|
|
|
153,517
|
|
||
Deferred income tax liabilities
|
59,358
|
|
|
70,298
|
|
||
Lease liabilities, non-current
|
—
|
|
|
90,501
|
|
||
Other long-term liabilities
|
51,316
|
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|
37,636
|
|
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Total liabilities
|
235,805
|
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|
351,952
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|
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Commitments and contingencies
|
|
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|
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Stockholders’ equity:
|
|
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|
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Common stock, par value $0.01; 32,000,000 shares authorized; 21,743,498 and 21,923,800 shares issued and outstanding at December 31, 2018 and March 31, 2019, respectively
|
217
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|
219
|
|
||
Additional paid-in capital
|
1,306,653
|
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|
1,304,170
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|
||
Accumulated other comprehensive income
|
32
|
|
|
266
|
|
||
Retained earnings
|
118,322
|
|
|
118,783
|
|
||
Total stockholders’ equity
|
1,425,224
|
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|
1,423,438
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Total liabilities and stockholders’ equity
|
$
|
1,661,029
|
|
|
$
|
1,775,390
|
|
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For the three months ended
March 31, |
||||||
|
2018
|
|
2019
|
||||
Revenues
|
$
|
116,469
|
|
|
$
|
246,508
|
|
Costs and expenses:
|
|
|
|
||||
Instructional and support costs
|
68,452
|
|
|
134,050
|
|
||
General and administration
|
31,342
|
|
|
64,139
|
|
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Amortization of intangible assets
|
—
|
|
|
15,417
|
|
||
Merger and integration costs
|
5,347
|
|
|
7,179
|
|
||
Total costs and expenses
|
105,141
|
|
|
220,785
|
|
||
Income from operations
|
11,328
|
|
|
25,723
|
|
||
Other income
|
289
|
|
|
3,327
|
|
||
Income before income taxes
|
11,617
|
|
|
29,050
|
|
||
Provision for income taxes
|
2,150
|
|
|
17,550
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|
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Net income
|
$
|
9,467
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$
|
11,500
|
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Earnings per share:
|
|
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|
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Basic
|
$
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0.88
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$
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0.53
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Diluted
|
$
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0.84
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$
|
0.52
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Weighted average shares outstanding:
|
|
|
|
||||
Basic
|
10,745
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|
|
21,499
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|
||
Diluted
|
11,311
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|
|
22,050
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|
||
Cash dividend declared per share
|
$
|
0.25
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|
|
$
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0.50
|
|
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For the three months ended
March 31, |
||||||
|
2018
|
|
2019
|
||||
Net income
|
$
|
9,467
|
|
|
$
|
11,500
|
|
Other comprehensive income:
|
|
|
|
||||
Unrealized gain on marketable securities, net of tax
|
—
|
|
|
234
|
|
||
Comprehensive income
|
$
|
9,467
|
|
|
$
|
11,734
|
|
|
Common Stock
|
|
Additional
Paid-in Capital |
|
Retained
Earnings |
|
Accumulated
Other Comprehensive Income |
|
Total
|
|||||||||||||
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Shares
|
|
Par Value
|
|
|
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|
|||||||||||||||
Balance at December 31, 2017
|
11,167,425
|
|
|
$
|
112
|
|
|
$
|
47,079
|
|
|
$
|
162,006
|
|
|
$
|
—
|
|
|
$
|
209,197
|
|
Impact of adoption of new accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
(171
|
)
|
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—
|
|
|
(171
|
)
|
|||||
Stock-based compensation
|
—
|
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—
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|
2,688
|
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|
—
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—
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|
2,688
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|
|||||
Restricted stock grants, net of forfeitures
|
133,246
|
|
|
1
|
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|
(1
|
)
|
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—
|
|
|
—
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|
|
—
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|
|||||
Common stock dividends
|
—
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|
|
—
|
|
|
—
|
|
|
(2,889
|
)
|
|
—
|
|
|
(2,889
|
)
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
9,467
|
|
|
—
|
|
|
9,467
|
|
|||||
Balance at March 31, 2018
|
11,300,671
|
|
|
$
|
113
|
|
|
$
|
49,766
|
|
|
$
|
168,413
|
|
|
$
|
—
|
|
|
$
|
218,292
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
|
|||||||||||||
|
Shares
|
|
Par Value
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2018
|
21,743,498
|
|
|
$
|
217
|
|
|
$
|
1,306,653
|
|
|
$
|
118,322
|
|
|
$
|
32
|
|
|
$
|
1,425,224
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,772
|
|
|
82
|
|
|
—
|
|
|
2,854
|
|
|||||
Exercise of stock options, net
|
51,889
|
|
|
1
|
|
|
(1,700
|
)
|
|
—
|
|
|
—
|
|
|
(1,699
|
)
|
|||||
Restricted stock grants, net of forfeitures
|
121,714
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Issuance of restricted stock, net
|
6,699
|
|
|
—
|
|
|
(3,554
|
)
|
|
—
|
|
|
—
|
|
|
(3,554
|
)
|
|||||
Common stock dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,121
|
)
|
|
—
|
|
|
(11,121
|
)
|
|||||
Unrealized gains on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
234
|
|
|
234
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
11,500
|
|
|
—
|
|
|
11,500
|
|
|||||
Balance at March 31, 2019
|
21,923,800
|
|
|
$
|
219
|
|
|
$
|
1,304,170
|
|
|
$
|
118,783
|
|
|
$
|
266
|
|
|
$
|
1,423,438
|
|
|
For the three months ended
March 31, |
||||||
|
2018
|
|
2019
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
9,467
|
|
|
$
|
11,500
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Amortization of deferred financing costs
|
66
|
|
|
83
|
|
||
Amortization of investment discount/premium
|
—
|
|
|
127
|
|
||
Depreciation and amortization
|
5,035
|
|
|
25,983
|
|
||
Deferred income taxes
|
(1,842
|
)
|
|
10,834
|
|
||
Stock-based compensation
|
2,688
|
|
|
3,010
|
|
||
Changes in assets and liabilities:
|
|
|
|
||||
Tuition receivable, net
|
(2,249
|
)
|
|
4,847
|
|
||
Other current assets
|
931
|
|
|
(1,060
|
)
|
||
Other assets
|
115
|
|
|
325
|
|
||
Accounts payable and accrued expenses
|
(867
|
)
|
|
(3,537
|
)
|
||
Income taxes payable and income taxes receivable
|
3,995
|
|
|
6,031
|
|
||
Contract liabilities
|
1,192
|
|
|
1,702
|
|
||
Other long-term liabilities
|
(1,482
|
)
|
|
(1,187
|
)
|
||
Net cash provided by operating activities
|
17,049
|
|
|
58,658
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(4,233
|
)
|
|
(8,756
|
)
|
||
Purchases of marketable securities
|
—
|
|
|
(6,249
|
)
|
||
Maturities of marketable securities
|
—
|
|
|
12,910
|
|
||
Other investments
|
—
|
|
|
(374
|
)
|
||
Net cash used in investing activities
|
(4,233
|
)
|
|
(2,469
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
||||
Common dividends paid
|
(2,889
|
)
|
|
(11,091
|
)
|
||
Taxes paid for stock awards
|
—
|
|
|
(4,443
|
)
|
||
Net cash used in financing activities
|
(2,889
|
)
|
|
(15,534
|
)
|
||
Net increase in cash, cash equivalents, and restricted cash
|
9,927
|
|
|
40,655
|
|
||
Cash, cash equivalents, and restricted cash — beginning of period
|
156,448
|
|
|
312,237
|
|
||
Cash, cash equivalents, and restricted cash — end of period
|
$
|
166,375
|
|
|
$
|
352,892
|
|
Noncash transactions:
|
|
|
|
||||
Purchases of property and equipment included in accounts payable
|
$
|
2,385
|
|
|
$
|
634
|
|
1.
|
Nature of Operations
|
2.
|
Significant Accounting Policies
|
|
|
New Classification
|
||||||||||||||||||||||||||||||
|
|
March 31, 2018
|
|
June 30, 2018
|
|
September 30, 2018
|
|
December 31, 2018
|
||||||||||||||||||||||||
Prior Classification
|
|
I&SC
|
|
G&A
|
|
I&SC
|
|
G&A
|
|
I&SC
|
|
G&A
|
|
I&SC
|
|
G&A
|
||||||||||||||||
Instructional and educational support
|
|
$
|
63,776
|
|
|
$
|
—
|
|
|
$
|
64,690
|
|
|
$
|
—
|
|
|
$
|
93,290
|
|
|
$
|
—
|
|
|
$
|
118,320
|
|
|
$
|
—
|
|
Admissions advisory
|
|
4,676
|
|
|
—
|
|
|
4,609
|
|
|
—
|
|
|
9,789
|
|
|
—
|
|
|
12,392
|
|
|
—
|
|
||||||||
Marketing
|
|
—
|
|
|
20,124
|
|
|
—
|
|
|
21,113
|
|
|
—
|
|
|
46,165
|
|
|
—
|
|
|
49,577
|
|
||||||||
General and administration
|
|
—
|
|
|
11,218
|
|
|
—
|
|
|
11,063
|
|
|
—
|
|
|
15,811
|
|
|
—
|
|
|
18,964
|
|
||||||||
Total reclassified costs and expenses
(1)
|
|
$
|
68,452
|
|
|
$
|
31,342
|
|
|
$
|
69,299
|
|
|
$
|
32,176
|
|
|
$
|
103,079
|
|
|
$
|
61,976
|
|
|
$
|
130,712
|
|
|
$
|
68,541
|
|
|
As of March 31,
|
||||||
|
2018
|
|
2019
|
||||
Cash and cash equivalents
|
$
|
165,867
|
|
|
$
|
352,387
|
|
Restricted cash included in other current assets
|
8
|
|
|
5
|
|
||
Restricted cash included in other long-term assets
|
500
|
|
|
500
|
|
||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
$
|
166,375
|
|
|
$
|
352,892
|
|
|
December 31, 2018
|
|
March 31, 2019
|
||||
Tuition receivable
|
$
|
84,151
|
|
|
$
|
80,229
|
|
Allowance for doubtful accounts
|
(28,457
|
)
|
|
(29,387
|
)
|
||
Tuition receivable, net
|
$
|
55,694
|
|
|
$
|
50,842
|
|
|
For the three months ended
March 31, |
||||||
|
2018
|
|
2019
|
||||
Allowance for doubtful accounts, beginning of period
|
$
|
12,687
|
|
|
$
|
28,457
|
|
Additions charged to expense
|
6,391
|
|
|
12,320
|
|
||
Write-offs, net of recoveries
|
(5,303
|
)
|
|
(11,390
|
)
|
||
Allowance for doubtful accounts, end of period
|
$
|
13,775
|
|
|
$
|
29,387
|
|
|
For the three months ended
March 31, |
||||
|
2018
|
|
2019
|
||
Weighted average shares outstanding used to compute basic earnings per share
|
10,745
|
|
|
21,499
|
|
Incremental shares issuable upon the assumed exercise of stock options
|
45
|
|
|
92
|
|
Unvested restricted stock and restricted stock units
|
521
|
|
|
459
|
|
Shares used to compute diluted earnings per share
|
11,311
|
|
|
22,050
|
|
3.
|
Merger with Capella Education Company
|
Fair value of Company common stock issued in exchange for CEC outstanding shares
(1)
|
$
|
1,209,483
|
|
Fair value of Company equity-based awards issued in exchange for CEC equity-based awards
|
27,478
|
|
|
Total fair value of consideration transferred
|
$
|
1,236,961
|
|
(1)
|
The Company issued
10,263,775
common shares at a market price of
$117.84
in exchange for each issued and outstanding share of CEC common stock.
|
Cash and cash equivalents
|
$
|
167,859
|
|
Marketable securities, current
|
31,419
|
|
|
Tuition receivable
|
38,803
|
|
|
Income tax receivable
|
163
|
|
|
Other current assets
|
8,496
|
|
|
Marketable securities, non-current
|
34,700
|
|
|
Property and equipment, net
|
53,182
|
|
|
Other assets
|
14,556
|
|
|
Intangible assets
|
349,800
|
|
|
Goodwill
|
725,999
|
|
|
Total assets acquired
|
1,424,977
|
|
|
Accounts payable and accrued expenses
|
(46,735
|
)
|
|
Contract liabilities
|
(39,000
|
)
|
|
Deferred income taxes
|
(100,044
|
)
|
|
Other long term liabilities
|
(2,237
|
)
|
|
Total liabilities assumed
|
(188,016
|
)
|
|
Total consideration
|
$
|
1,236,961
|
|
|
Fair Value
|
|
Weighted Average
Useful Life in Years
|
||
Trade names
|
$
|
183,800
|
|
|
Indefinite
|
Student relationships
|
166,000
|
|
|
3
|
|
|
$
|
349,800
|
|
|
|
•
|
Intangible assets - To determine the fair value of the trade name, the Company used the relief from royalty approach. The excess earnings method was used to estimate the fair value of student relationships.
|
•
|
Property and equipment - Included in property and equipment is course content of
$14.0 million
, valued using the relief from royalty approach, and internally developed software of
$5.0 million
, valued using the cost approach. Each will be amortized over
three years
. All other property and equipment was valued at estimated cost.
|
•
|
Contract liabilities - The Company estimated the fair value of contract liabilities using the cost build-up method, which represents the cost to deliver the services plus a normal profit margin.
|
•
|
Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.
|
4.
|
Revenue Recognition
|
|
For the three months ended March 31,
|
||||||
|
2018
|
|
2019
|
||||
Strayer University Segment
|
|
|
|
||||
Tuition, net of discounts, grants and scholarships
|
$
|
110,960
|
|
|
$
|
123,515
|
|
Other
(1)
|
4,311
|
|
|
4,543
|
|
||
Total Strayer University Segment
|
115,271
|
|
|
128,058
|
|
||
Capella University Segment
|
|
|
|
||||
Tuition, net of discounts, grants and scholarships
|
—
|
|
|
109,468
|
|
||
Other
(1)
|
—
|
|
|
5,230
|
|
||
Total Capella University Segment
|
—
|
|
|
114,698
|
|
||
Non-Degree Programs Segment
(2)
|
1,198
|
|
|
3,752
|
|
||
Consolidated revenue
|
$
|
116,469
|
|
|
$
|
246,508
|
|
|
As of March 31,
|
||||||
|
2018
|
|
2019
|
||||
Balance at beginning of period
|
$
|
37,400
|
|
|
$
|
43,329
|
|
Revenue deferred
|
5,885
|
|
|
6,945
|
|
||
Benefit redeemed
|
(4,967
|
)
|
|
(5,798
|
)
|
||
Balance at end of period
|
$
|
38,318
|
|
|
$
|
44,476
|
|
5.
|
Restructuring and Related Charges
|
|
Lease and Related Costs, Net
|
|
Severance and Other Employee
Separation Costs
|
|
Total
|
||||||
Balance at December 31, 2017
|
$
|
8,781
|
|
|
$
|
—
|
|
|
$
|
8,781
|
|
Restructuring and other charges
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|||
Payments
|
(724
|
)
|
|
—
|
|
|
(724
|
)
|
|||
Adjustments
(2)
|
41
|
|
|
—
|
|
|
41
|
|
|||
Balance at March 31, 2018
|
$
|
8,098
|
|
|
$
|
—
|
|
|
$
|
8,098
|
|
|
|
|
|
|
|
||||||
Balance at December 31, 2018
(3)
|
$
|
6,540
|
|
|
$
|
14,347
|
|
|
$
|
20,887
|
|
Restructuring and other charges
(1)
|
—
|
|
|
1,913
|
|
|
1,913
|
|
|||
Payments
|
—
|
|
|
(2,424
|
)
|
|
(2,424
|
)
|
|||
Adjustments
(2)
|
(6,540
|
)
|
|
—
|
|
|
(6,540
|
)
|
|||
Balance at March 31, 2019
(3)
|
$
|
—
|
|
|
$
|
13,836
|
|
|
$
|
13,836
|
|
(1)
|
Restructuring and other charges of
$1.9 million
for the
three
months ended
March 31, 2019
are included in Merger and integration costs on the unaudited condensed consolidated statements of income. There were
no
restructuring and other charges for the
three
months ended March 31, 2018.
|
(2)
|
For the three months ended
March 31, 2018
, adjustments include accretion of interest on lease costs, partially offset by changes in the timing and expected income from sublease income. For the three months ended
March 31, 2019
, adjustments represent the impact of adopting ASC 842 on January 1, 2019. In accordance with ASC 842, the lease related restructuring liability balance as of December 31, 2018 was netted against the initial ROU asset recognized upon adoption. Asset retirement obligations related to these restructured properties are also included in the adjustments amount.
|
(3)
|
The current portion of restructuring liabilities was
$9.8 million
and
$8.4 million
as of
December 31, 2018
and
March 31, 2019
, respectively, which are included in accounts payable and accrued expenses. The long-term portion is included in other long-term liabilities.
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
Corporate debt securities
|
$
|
46,685
|
|
|
$
|
95
|
|
|
$
|
(89
|
)
|
|
$
|
46,691
|
|
Tax-exempt municipal securities
|
18,969
|
|
|
83
|
|
|
(9
|
)
|
|
19,043
|
|
||||
Variable rate demand notes
|
1,600
|
|
|
—
|
|
|
—
|
|
|
1,600
|
|
||||
Commercial paper
|
1,018
|
|
|
—
|
|
|
—
|
|
|
1,018
|
|
||||
Total
|
$
|
68,272
|
|
|
$
|
178
|
|
|
$
|
(98
|
)
|
|
$
|
68,352
|
|
|
Amortized Cost
|
|
Gross Unrealized Gain
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
Corporate debt securities
|
$
|
48,202
|
|
|
$
|
12
|
|
|
$
|
(284
|
)
|
|
$
|
47,930
|
|
Tax-exempt municipal securities
|
22,858
|
|
|
45
|
|
|
(34
|
)
|
|
22,869
|
|
||||
Variable rate demand notes
|
4,000
|
|
|
—
|
|
|
—
|
|
|
4,000
|
|
||||
Total
|
$
|
75,060
|
|
|
$
|
57
|
|
|
$
|
(318
|
)
|
|
$
|
74,799
|
|
|
December 31, 2018
|
|
March 31, 2019
|
||||
Due within one year
|
$
|
37,121
|
|
|
$
|
36,486
|
|
Due after one year through five years
|
37,678
|
|
|
31,866
|
|
||
Total
|
$
|
74,799
|
|
|
$
|
68,352
|
|
|
For the three months ended March 31,
|
||
|
2019
|
||
Lease cost:
|
|
||
Operating lease cost
|
$
|
8,084
|
|
Short-term lease cost
|
233
|
|
|
Sublease income
|
(722
|
)
|
|
Total lease costs
|
$
|
7,595
|
|
Other information:
|
|
||
Cash paid for amounts included in the measurement of lease liabilities
(1)
|
$
|
8,552
|
|
Weighted-average remaining lease term (years)
|
5.8
|
|
|
Weighted-average discount rate
|
4.23
|
%
|
Year Ending March 31,
|
|
||
2020
|
$
|
30,724
|
|
2021
|
27,021
|
|
|
2022
|
21,035
|
|
|
2023
|
12,858
|
|
|
2024
|
10,326
|
|
|
Thereafter
|
30,942
|
|
|
Total lease payments
(1)
|
$
|
132,906
|
|
Less: interest
|
(15,943
|
)
|
|
Present value of lease liabilities
|
$
|
116,963
|
|
|
Minimum
rental
commitments
(1)
|
||
2019
|
$
|
33,600
|
|
2020
|
28,399
|
|
|
2021
|
23,485
|
|
|
2022
|
13,770
|
|
|
2023
|
10,316
|
|
|
Thereafter
|
32,745
|
|
|
Total
|
$
|
142,315
|
|
8.
|
Fair Value Measurement
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||
|
March 31,
2019 |
|
Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
9,441
|
|
|
$
|
9,441
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
||||||||
Corporate debt securities
|
47,691
|
|
|
—
|
|
|
47,691
|
|
|
—
|
|
||||
Tax-exempt municipal securities
|
19,043
|
|
|
—
|
|
|
19,043
|
|
|
—
|
|
||||
Variable rate demand notes
|
1,600
|
|
|
—
|
|
|
1,600
|
|
|
—
|
|
||||
Commercial paper
|
1,018
|
|
|
—
|
|
|
1,018
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis
|
$
|
78,793
|
|
|
$
|
9,441
|
|
|
$
|
69,352
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Deferred payments
|
$
|
4,131
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,131
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||
|
December 31,
2018 |
|
Quoted Prices in
Active Markets
for Identical
Assets/Liabilities
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
||||||||
Money market funds
|
$
|
1,791
|
|
|
$
|
1,791
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
||||||||
Corporate debt securities
|
48,430
|
|
|
—
|
|
|
48,430
|
|
|
—
|
|
||||
Tax-exempt municipal securities
|
22,869
|
|
|
—
|
|
|
22,869
|
|
|
—
|
|
||||
Variable rate demand notes
|
4,000
|
|
|
—
|
|
|
4,000
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis
|
77,090
|
|
|
1,791
|
|
|
75,299
|
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Deferred payments
|
$
|
4,120
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,120
|
|
•
|
Money market funds – Classified in Level 1 is excess cash the Company holds in both taxable and tax-exempt money market funds, which are included in cash and cash equivalents in the accompanying unaudited condensed consolidated balance sheets. The Company records any net unrealized gains and losses for changes in fair value as a component of accumulated other comprehensive income in stockholders' equity. The Company's cash and cash equivalents held at
December 31, 2018
and
March 31, 2019
approximate fair value and are not disclosed in the above tables because of the short-term nature of the financial instruments.
|
•
|
Marketable securities – Classified in Level 2 and valued using readily available pricing sources for comparable instruments utilizing observable inputs from active markets. The Company does not hold securities in inactive markets.
|
•
|
Deferred payments – The Company acquired certain assets and entered into deferred payment arrangements with the sellers in transactions that occurred in 2011 and 2016. The deferred payments are classified within Level 3 as there is no liquid market for similarly priced instruments and are valued using models that encompass significant unobservable inputs to estimate the operating results of the acquired assets. The assumptions used to prepare the discounted cash flows include estimates for interest rates, enrollment growth, retention rates, obtaining regulatory approvals for expansion into new markets, and pricing strategies. These assumptions are subject to change as the underlying data sources evolve and the programs mature. The short-term portion of deferred payments was
$0.4 million
as of
March 31, 2019
and is included in accounts payable and accrued expense.
|
|
As of March 31,
|
||||||
|
2018
|
|
2019
|
||||
Balance as of the beginning of period
|
$
|
4,514
|
|
|
$
|
4,120
|
|
Amounts paid
|
(656
|
)
|
|
(751
|
)
|
||
Other adjustments to fair value
|
698
|
|
|
762
|
|
||
Balance at end of period
|
$
|
4,556
|
|
|
$
|
4,131
|
|
9.
|
Goodwill and Intangible Assets
|
|
Strayer University
|
|
Capella University
|
|
Non-Degree Programs
|
|
Total
|
||||||||
Balance as of December 31, 2018
|
$
|
337,381
|
|
|
$
|
395,159
|
|
|
$
|
—
|
|
|
$
|
732,540
|
|
Additions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Adjustments
|
—
|
|
|
259
|
|
|
—
|
|
|
259
|
|
||||
Balance as of March 31, 2019
|
$
|
337,381
|
|
|
$
|
395,418
|
|
|
$
|
—
|
|
|
$
|
732,799
|
|
|
|
December 31, 2018
|
|
March 31, 2019
|
||||||||||||||||||||
|
|
Gross Carrying Amount
|
|
Accumulated
Amortization |
|
Net
|
|
Gross Carrying Amount
|
|
Accumulated
Amortization
|
|
Net
|
||||||||||||
Subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Student relationships
|
|
$
|
166,000
|
|
|
$
|
(23,056
|
)
|
|
$
|
142,944
|
|
|
$
|
166,000
|
|
|
$
|
(36,889
|
)
|
|
$
|
129,111
|
|
Not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Trade names
|
|
185,400
|
|
|
—
|
|
|
185,400
|
|
|
185,400
|
|
|
—
|
|
|
185,400
|
|
||||||
Total
|
|
$
|
351,400
|
|
|
$
|
(23,056
|
)
|
|
$
|
328,344
|
|
|
$
|
351,400
|
|
|
$
|
(36,889
|
)
|
|
$
|
314,511
|
|
10.
|
Long-Term Debt
|
•
|
A leverage ratio of not greater than
2
to 1. Leverage ratio is defined as the ratio of total debt to trailing four-quarter EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation).
|
•
|
A coverage ratio of not less than
1.75
to 1. Coverage ratio is defined as the ratio of trailing four-quarter EBITDA and rent expense to trailing four-quarter interest and rent expense.
|
•
|
A U.S. Department of Education (“Department”) Financial Responsibility Composite Score of not less than
1.5
.
|
|
December 31, 2018
|
|
March 31, 2019
|
||||
Contract liabilities, net of current portion
|
$
|
23,880
|
|
|
$
|
23,489
|
|
Deferred payments related to acquisitions
|
5,904
|
|
|
5,433
|
|
||
Employee separation costs
|
6,800
|
|
|
5,422
|
|
||
Deferred rent and other facility costs
|
6,837
|
|
|
1,875
|
|
||
Other
|
1,263
|
|
|
1,417
|
|
||
Loss on facilities not in use
|
4,332
|
|
|
—
|
|
||
Lease incentives
|
2,300
|
|
|
—
|
|
||
Other long-term liabilities
|
$
|
51,316
|
|
|
$
|
37,636
|
|
12.
|
Equity Awards
|
|
For the three months ended
March 31, |
||||||
|
2018
|
|
2019
|
||||
Instructional and support costs
|
$
|
620
|
|
|
$
|
858
|
|
General and administration
|
2,068
|
|
|
1,673
|
|
||
Merger and integration costs
|
—
|
|
|
479
|
|
||
Stock-based compensation expense included in operating expense
|
2,688
|
|
|
3,010
|
|
||
Tax benefit
|
752
|
|
|
759
|
|
||
Stock-based compensation expense, net of tax
|
$
|
1,936
|
|
|
$
|
2,251
|
|
13.
|
Income Taxes
|
|
For the three months ended March 31,
|
||||||
|
2018
|
|
2019
|
||||
Revenues
|
|
|
|
||||
Strayer University
|
$
|
115,271
|
|
|
$
|
128,058
|
|
Capella University
|
—
|
|
|
114,698
|
|
||
Non-Degree Programs
|
1,198
|
|
|
3,752
|
|
||
Consolidated revenues
|
$
|
116,469
|
|
|
$
|
246,508
|
|
Income (loss) from operations
|
|
|
|
||||
Strayer University
|
$
|
17,992
|
|
|
$
|
24,973
|
|
Capella University
|
—
|
|
|
24,153
|
|
||
Non-Degree Programs
|
(1,317
|
)
|
|
(807
|
)
|
||
Amortization of intangible assets
|
—
|
|
|
(15,417
|
)
|
||
Merger and integration costs
|
(5,347
|
)
|
|
(7,179
|
)
|
||
Consolidated income from operations
|
$
|
11,328
|
|
|
$
|
25,723
|
|
16.
|
Litigation
|
17.
|
Regulation
|
•
|
have an annual income rate that does not exceed
8%
;
or
|
•
|
have a discretionary income rate that does not exceed
20%
.
|
•
|
The institution must provide a warning with respect to the program to students and prospective students indicating, among other things, that students may not be able to use Title IV funds to attend or continue in the program; and
|
•
|
The institution must not enroll, register or enter into a financial commitment with a prospective student until a specified time after providing the warning to the prospective student.
|
•
|
Requirements for accrediting agencies in their oversight of member institutions and programs.
|
•
|
Criteria used by the Secretary to recognize accrediting agencies, emphasizing criteria that focus on educational quality and deemphasizing those that are anti-competitive.
|
•
|
Simplification of the Department’s recognition and review of accrediting agencies.
|
•
|
Clarification of the core oversight responsibilities amongst each entity in the regulatory triad, including accrediting agencies, States, and the Department to hold institutions accountable.
|
•
|
Clarification of the permissible arrangements between an institution of higher education and another organization to provide a portion of an education program (34 CFR 668.5).
|
•
|
The roles and responsibilities of institutions and accrediting agencies in the teach-out process (34 CFR 600.32(d) and 602.24).
|
•
|
Elimination of regulations related to programs that have not been funded in many years.
|
•
|
Needed technical changes and corrections to program regulations that have been identified by the Department.
|
•
|
Regulatory changes required to ensure equitable treatment of brick-and-mortar and distance education programs; enable expansion of direct assessment programs, distance education, and competency-based education; and to clarify disclosure and other requirements of state authorization.
|
•
|
Protections to ensure that accreditors recognize and respect institutional mission, and evaluate an institution’s policies and educational programs based on that mission; and remove barriers to the eligibility of faith-based entities to participate in the title IV, HEA programs.
|
•
|
Teacher Education Assistance for College and Higher Education (“TEACH”) Grant requirements and ways to reduce and correct the inadvertent conversion of grants to loans.
|
•
|
Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, public administration, and criminal justice at 74 physical campuses, predominantly located in the eastern United States, and online. Strayer University is accredited by the Middle States Commission on Higher Education (hereinafter referred to as “Middle States” or “Middle States Commission”), one of the seven regional collegiate accrediting agencies recognized by the Department. By offering its programs both online and in physical classrooms, Strayer University provides its working adult students flexibility and convenience.
|
•
|
The Jack Welch Management Institute (“JWMI”) offers an executive MBA online and is a Top 25 Princeton Review ranked online MBA program.
|
•
|
In the first quarter, Strayer University’s enrollment increased 11.5% to 51,479 compared to 46,184 for the same period in 2018. New student enrollment for the period increased 13.2% and continuing student enrollment for the period increased 11.1%.
|
•
|
Capella University is an online post-secondary education company that offers a variety of doctoral, master’s and bachelor’s degree programs, primarily for working adults, in the following primary disciplines: public service leadership, nursing and health sciences, social and behavioral sciences, business and technology, education, and undergraduate studies. Capella University focuses on master's and doctoral degrees, with 70% of its learners enrolled in a master’s or doctoral degree program. Capella University's academic offerings are built with competency-based curricula and are delivered in an online format that is convenient and flexible. Capella University designs its offerings to help working adult learners develop specific competencies they can apply in their workplace. Capella University is accredited by the Higher Learning Commission, one of the seven regional collegiate accrediting agencies recognized by the Department.
|
•
|
On April 19, 2019, the Higher Learning Commission ("HLC") issued formal notification that its Institutional Action Council affirmed the appropriateness of the Change of Control arising out of the merger and further affirmed Capella University’s continued adherence to HLC’s Eligibility Requirements and Criteria for Accreditation. In addition, HLC specifically confirmed Capella University’s shared service relationship with the Company satisfies HLC’s Core Components related to HLC’s Guidelines for Shared Services Arrangements.
|
•
|
In the first quarter, Capella University’s enrollment increased 2.9% to 39,271 compared to 38,181 for the same period in 2018. New student enrollment for the period increased 14.7%.
|
•
|
DevMountain, LLC is a software development school offering affordable, high-quality, leading-edge software coding education at multiple campus locations and online.
|
•
|
Hackbright Academy, Inc. is a software engineering school for women. Its primary offering is an intensive 12-week accelerated software development program, together with placement services and coaching.
|
•
|
The New York Code and Design Academy, Inc. is a New York City-based provider of web and application software development courses.
|
•
|
Sophia Learning, LLC is an innovative learning company which leverages technology to support self-paced learning, including courses eligible for transfer into credit at over 2,000 colleges and universities.
|
•
|
amortization expense related to assets acquired through the Company’s merger with Capella Education Company,
|
•
|
transaction and integration costs associated with the Company’s merger with Capella Education Company,
|
•
|
income from partnership investments that are not part of our core operations, and
|
•
|
discrete tax adjustments related to stock-based compensation and other adjustments.
|
|
|
|
Non-GAAP Adjustments
|
|
|
||||||||||||||||||
|
As Reported
(GAAP)
|
|
Amortization of
intangible assets
(1)
|
|
Merger and integration costs
(2)
|
|
Income from partnership interests
(3)
|
|
Tax
adjustments
(4)
|
|
As Adjusted
(Non-GAAP)
|
||||||||||||
Income from operations
|
$
|
25,723
|
|
|
$
|
15,417
|
|
|
$
|
7,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48,319
|
|
Other income, net
|
3,327
|
|
|
—
|
|
|
—
|
|
|
(1,023
|
)
|
|
—
|
|
|
2,304
|
|
||||||
Income before income taxes
|
29,050
|
|
|
15,417
|
|
|
7,179
|
|
|
(1,023
|
)
|
|
—
|
|
|
50,623
|
|
||||||
Provision for income taxes
|
17,550
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,629
|
)
|
|
13,921
|
|
||||||
Net income
|
$
|
11,500
|
|
|
$
|
15,417
|
|
|
$
|
7,179
|
|
|
$
|
(1,023
|
)
|
|
$
|
3,629
|
|
|
$
|
36,702
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
$
|
1.71
|
|
||||||||
Diluted
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
$
|
1.66
|
|
||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic
|
21,499
|
|
|
|
|
|
|
|
|
|
|
21,499
|
|
||||||||||
Diluted
|
22,050
|
|
|
|
|
|
|
|
|
|
|
22,050
|
|
|
|
|
Non-GAAP Adjustments
|
|
|
||||||||||||||||||
|
As Reported
(GAAP)
|
|
Amortization of
intangible assets
(1)
|
|
Merger and integration
costs
(2)
|
|
Income from partnership interests
(3)
|
|
Tax
adjustments
(4)
|
|
As Adjusted
(Non-GAAP)
|
||||||||||||
Income from operations
|
$
|
11,328
|
|
|
$
|
—
|
|
|
$
|
5,347
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,675
|
|
Other income, net
|
289
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
289
|
|
||||||
Income before income taxes
|
11,617
|
|
|
—
|
|
|
5,347
|
|
|
—
|
|
|
—
|
|
|
16,964
|
|
||||||
Provision for income taxes
|
2,150
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
914
|
|
|
3,064
|
|
||||||
Net income
|
$
|
9,467
|
|
|
$
|
—
|
|
|
$
|
5,347
|
|
|
$
|
—
|
|
|
$
|
(914
|
)
|
|
$
|
13,900
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
$
|
1.29
|
|
||||||||
Diluted
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
$
|
1.23
|
|
||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic
|
10,745
|
|
|
|
|
|
|
|
|
|
|
10,745
|
|
||||||||||
Diluted
|
11,311
|
|
|
|
|
|
|
|
|
|
|
11,311
|
|
(1)
|
Reflects amortization expense related to intangible assets associated with the Company’s merger with CEC.
|
(2)
|
Reflects transaction and integration charges associated with the Company's merger with CEC.
|
(3)
|
Reflects income recognized from the Company's investments in partnership interests.
|
(4)
|
Reflects discrete tax adjustments related to the vesting of stock awards and other adjustments, utilizing an adjusted effective tax rate of 18.1% and 27.5% for 2018 and 2019, respectively.
|
a)
|
Disclosure Controls and Procedures.
The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of
March 31, 2019
. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company had in place, as of
March 31, 2019
, effective disclosure controls and procedures designed to ensure that information required to be disclosed by the Company (including consolidated subsidiaries) in the reports it files or submits under the Securities Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
|
b)
|
Internal Control Over Financial Reporting
. On August 1, 2018, the Company completed its acquisition of Capella Education Company. As noted under Item 9A, Controls and Procedures, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, management’s assessment of, and conclusion on, the effectiveness of internal control over financial reporting did not include the internal controls of Capella Education Company. See Note 3, Merger with Capella Education Company in the condensed consolidated financial statements appearing in Part I, Item 1 of this report for a discussion of the acquisition and related financial data. Under guidelines established by the SEC, companies
|
3.1
|
|
|
3.2
|
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
|
|
32.2
|
|
|
101.
|
|
INS XBRL Instance Document
|
101.
|
|
SCH XBRL Schema Document
|
101.
|
|
CAL XBRL Calculation Linkbase Document
|
101.
|
|
DEF XBRL Definition Linkbase Document
|
101.
|
|
LAB XBRL Label Linkbase Document
|
101.
|
|
PRE XBRL Presentation Linkbase Document
|
|
STRATEGIC EDUCATION, INC.
|
|
|
|
|
|
By:
|
/s/ Daniel W. Jackson
|
|
Daniel W. Jackson
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
Date: May 2, 2019
|
1 Year Strategic Education Chart |
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