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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 | |
---|---|---|---|---|---|---|---|---|---|---|
0.45 | 0.38% | 118.32 | 117.76 | 118.75 | 118.90 | 115.68 | 117.91 | 64,693 | 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
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Herndon,
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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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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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Common Stock, $0.01 par value
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STRA
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Nasdaq Global Select Market
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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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PART I — FINANCIAL INFORMATION
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December 31, 2018
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September 30, 2019
|
||||
ASSETS
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|
||||
Current assets:
|
|
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|
||||
Cash and cash equivalents
|
$
|
311,732
|
|
|
$
|
397,094
|
|
Marketable securities
|
37,121
|
|
|
33,455
|
|
||
Tuition receivable, net
|
55,694
|
|
|
50,964
|
|
||
Income taxes receivable
|
—
|
|
|
6,970
|
|
||
Other current assets
|
15,814
|
|
|
17,130
|
|
||
Total current assets
|
420,361
|
|
|
505,613
|
|
||
Property and equipment, net
|
122,677
|
|
|
116,489
|
|
||
Right-of-use lease assets
|
—
|
|
|
93,208
|
|
||
Marketable securities, non-current
|
37,678
|
|
|
26,532
|
|
||
Intangible assets, net
|
328,344
|
|
|
286,844
|
|
||
Goodwill
|
732,540
|
|
|
732,075
|
|
||
Other assets
|
19,429
|
|
|
20,435
|
|
||
Total assets
|
$
|
1,661,029
|
|
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$
|
1,781,196
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|
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|
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|
||||
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|
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|
||||
Current liabilities:
|
|
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|
||||
Accounts payable and accrued expenses
|
$
|
85,979
|
|
|
$
|
86,092
|
|
Income taxes payable
|
419
|
|
|
—
|
|
||
Contract liabilities
|
38,733
|
|
|
45,571
|
|
||
Lease liabilities
|
—
|
|
|
26,167
|
|
||
Total current liabilities
|
125,131
|
|
|
157,830
|
|
||
Deferred income tax liabilities
|
59,358
|
|
|
57,016
|
|
||
Lease liabilities, non-current
|
—
|
|
|
83,067
|
|
||
Other long-term liabilities
|
51,316
|
|
|
38,624
|
|
||
Total liabilities
|
235,805
|
|
|
336,537
|
|
||
Commitments and contingencies
|
|
|
|
||||
Stockholders’ equity:
|
|
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|
||||
Common stock, par value $0.01; 32,000,000 shares authorized; 21,743,498 and 21,964,505 shares issued and outstanding at December 31, 2018 and September 30, 2019, respectively
|
217
|
|
|
220
|
|
||
Additional paid-in capital
|
1,306,653
|
|
|
1,306,353
|
|
||
Accumulated other comprehensive income
|
32
|
|
|
447
|
|
||
Retained earnings
|
118,322
|
|
|
137,639
|
|
||
Total stockholders’ equity
|
1,425,224
|
|
|
1,444,659
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,661,029
|
|
|
$
|
1,781,196
|
|
|
For the three months ended
September 30, |
|
For the nine months ended
September 30, |
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Revenues
|
$
|
160,945
|
|
|
$
|
241,747
|
|
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$
|
392,082
|
|
|
$
|
733,365
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
Instructional and support costs
|
103,079
|
|
|
132,527
|
|
|
240,830
|
|
|
397,281
|
|
||||
General and administration
|
61,976
|
|
|
72,303
|
|
|
125,494
|
|
|
204,816
|
|
||||
Amortization of intangible assets
|
10,278
|
|
|
15,417
|
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|
10,278
|
|
|
46,251
|
|
||||
Merger and integration costs
|
29,620
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|
1,500
|
|
|
37,791
|
|
|
11,698
|
|
||||
Impairment of intangible assets
|
13,119
|
|
|
—
|
|
|
19,304
|
|
|
—
|
|
||||
Total costs and expenses
|
218,072
|
|
|
221,747
|
|
|
433,697
|
|
|
660,046
|
|
||||
Income (loss) from operations
|
(57,127
|
)
|
|
20,000
|
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(41,615
|
)
|
|
73,319
|
|
||||
Other income
|
1,110
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|
3,243
|
|
|
1,846
|
|
|
10,695
|
|
||||
Income (loss) before income taxes
|
(56,017
|
)
|
|
23,243
|
|
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(39,769
|
)
|
|
84,014
|
|
||||
Provision (benefit) for income taxes
|
(3,236
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)
|
|
6,551
|
|
|
(1,643
|
)
|
|
31,413
|
|
||||
Net income (loss)
|
$
|
(52,781
|
)
|
|
$
|
16,692
|
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$
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(38,126
|
)
|
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$
|
52,601
|
|
Earnings (loss) per share:
|
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||||||||
Basic
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$
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(2.97
|
)
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$
|
0.77
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|
$
|
(2.90
|
)
|
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$
|
2.42
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Diluted
|
$
|
(2.97
|
)
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|
$
|
0.75
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$
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(2.90
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)
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$
|
2.38
|
|
Weighted average shares outstanding:
|
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||||||||
Basic
|
17,799
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|
21,806
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13,141
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|
|
21,694
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|
||||
Diluted
|
17,799
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|
22,129
|
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|
13,141
|
|
|
22,096
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|
|
For the three months ended
September 30, |
|
For the nine months ended
September 30, |
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Net income (loss)
|
$
|
(52,781
|
)
|
|
$
|
16,692
|
|
|
$
|
(38,126
|
)
|
|
$
|
52,601
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Unrealized gains (losses) on marketable securities, net of tax
|
(22
|
)
|
|
(2
|
)
|
|
(22
|
)
|
|
415
|
|
||||
Comprehensive income (loss)
|
$
|
(52,803
|
)
|
|
$
|
16,690
|
|
|
$
|
(38,148
|
)
|
|
$
|
53,016
|
|
|
For the three months ended September 30, 2018
|
|||||||||||||||||||||
|
Common Stock
|
|
Additional
Paid-in Capital |
|
Retained
Earnings |
|
Accumulated
Other Comprehensive Income (Loss) |
|
Total
|
|||||||||||||
|
Shares
|
|
Par Value
|
|
|
|
|
|||||||||||||||
Balance at June 30, 2018
|
11,306,527
|
|
|
$
|
113
|
|
|
$
|
53,015
|
|
|
$
|
170,712
|
|
|
$
|
—
|
|
|
$
|
223,840
|
|
Issuance of stock in connection with the acquisition of Capella Education Company
|
10,263,775
|
|
|
103
|
|
|
1,236,858
|
|
|
—
|
|
|
—
|
|
|
1,236,961
|
|
|||||
Filing fee related to new stock issuance
|
—
|
|
|
—
|
|
|
(147
|
)
|
|
—
|
|
|
—
|
|
|
(147
|
)
|
|||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
5,098
|
|
|
—
|
|
|
—
|
|
|
5,098
|
|
|||||
Exercise of stock options, net
|
131,779
|
|
|
1
|
|
|
6,830
|
|
|
—
|
|
|
—
|
|
|
6,831
|
|
|||||
Issuance of restricted stock, net
|
5,518
|
|
|
—
|
|
|
(426
|
)
|
|
—
|
|
|
—
|
|
|
(426
|
)
|
|||||
Common stock dividends ($0.50 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,024
|
)
|
|
—
|
|
|
(11,024
|
)
|
|||||
Unrealized losses on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(52,781
|
)
|
|
—
|
|
|
(52,781
|
)
|
|||||
Balance at September 30, 2018
|
21,707,599
|
|
|
$
|
217
|
|
|
$
|
1,301,228
|
|
|
$
|
106,907
|
|
|
$
|
(22
|
)
|
|
$
|
1,408,330
|
|
|
For the three months ended September 30, 2019
|
|||||||||||||||||||||
|
Common Stock
|
|
Additional
Paid-in Capital |
|
Retained
Earnings |
|
Accumulated
Other Comprehensive Income (Loss) |
|
Total
|
|||||||||||||
|
Shares
|
|
Par Value
|
|
|
|
|
|||||||||||||||
Balance at June 30, 2019
|
21,948,563
|
|
|
$
|
219
|
|
|
$
|
1,305,148
|
|
|
$
|
132,060
|
|
|
$
|
449
|
|
|
$
|
1,437,876
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
3,021
|
|
|
—
|
|
|
—
|
|
|
3,021
|
|
|||||
Exercise of stock options, net
|
12,795
|
|
|
1
|
|
|
(1,565
|
)
|
|
—
|
|
|
—
|
|
|
(1,564
|
)
|
|||||
Issuance of restricted stock, net
|
3,147
|
|
|
—
|
|
|
(251
|
)
|
|
—
|
|
|
—
|
|
|
(251
|
)
|
|||||
Common stock dividends ($0.50 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,113
|
)
|
|
—
|
|
|
(11,113
|
)
|
|||||
Unrealized losses on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
16,692
|
|
|
—
|
|
|
16,692
|
|
|||||
Balance at September 30, 2019
|
21,964,505
|
|
|
$
|
220
|
|
|
$
|
1,306,353
|
|
|
$
|
137,639
|
|
|
$
|
447
|
|
|
$
|
1,444,659
|
|
|
For the nine months ended September 30, 2018
|
|||||||||||||||||||||
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive Income (Loss) |
|
Total
|
|||||||||||||
|
Shares
|
|
Par Value
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2017
|
11,167,425
|
|
|
$
|
112
|
|
|
$
|
47,079
|
|
|
$
|
162,006
|
|
|
$
|
—
|
|
|
$
|
209,197
|
|
Impact of adoption of new accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
(171
|
)
|
|
—
|
|
|
(171
|
)
|
|||||
Issuance of stock in connection with the acquisition of Capella Education Company
|
10,263,775
|
|
|
103
|
|
|
1,236,858
|
|
|
—
|
|
|
—
|
|
|
1,236,961
|
|
|||||
Filing fee related to new stock issuance
|
—
|
|
|
—
|
|
|
(147
|
)
|
|
—
|
|
|
—
|
|
|
(147
|
)
|
|||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
11,035
|
|
|
—
|
|
|
—
|
|
|
11,035
|
|
|||||
Exercise of stock options, net
|
131,779
|
|
|
1
|
|
|
6,830
|
|
|
—
|
|
|
—
|
|
|
6,831
|
|
|||||
Issuance of restricted stock, net
|
144,620
|
|
|
1
|
|
|
(427
|
)
|
|
—
|
|
|
—
|
|
|
(426
|
)
|
|||||
Common stock dividends ($1.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(16,802
|
)
|
|
—
|
|
|
(16,802
|
)
|
|||||
Unrealized losses on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
|||||
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(38,126
|
)
|
|
—
|
|
|
(38,126
|
)
|
|||||
Balance at September 30, 2018
|
21,707,599
|
|
|
$
|
217
|
|
|
$
|
1,301,228
|
|
|
$
|
106,907
|
|
|
$
|
(22
|
)
|
|
$
|
1,408,330
|
|
|
For the nine months ended September 30, 2019
|
|||||||||||||||||||||
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive Income (Loss) |
|
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
|
—
|
|
|
—
|
|
|
8,947
|
|
|
83
|
|
|
—
|
|
|
9,030
|
|
|||||
Exercise of stock options, net
|
103,364
|
|
|
2
|
|
|
(1,774
|
)
|
|
—
|
|
|
—
|
|
|
(1,772
|
)
|
|||||
Issuance of restricted stock, net
|
117,643
|
|
|
1
|
|
|
(7,473
|
)
|
|
—
|
|
|
—
|
|
|
(7,472
|
)
|
|||||
Common stock dividends ($1.50 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,367
|
)
|
|
—
|
|
|
(33,367
|
)
|
|||||
Unrealized gains on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
415
|
|
|
415
|
|
|||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
52,601
|
|
|
—
|
|
|
52,601
|
|
|||||
Balance at September 30, 2019
|
21,964,505
|
|
|
$
|
220
|
|
|
$
|
1,306,353
|
|
|
$
|
137,639
|
|
|
$
|
447
|
|
|
$
|
1,444,659
|
|
|
For the nine months ended
September 30, |
||||||
|
2018
|
|
2019
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income (loss)
|
$
|
(38,126
|
)
|
|
$
|
52,601
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
||||
Amortization of deferred financing costs
|
209
|
|
|
250
|
|
||
Amortization of investment discount/premium
|
132
|
|
|
286
|
|
||
Depreciation and amortization
|
29,107
|
|
|
78,862
|
|
||
Deferred income taxes
|
(4,443
|
)
|
|
971
|
|
||
Stock-based compensation
|
11,781
|
|
|
9,075
|
|
||
Impairment of intangible assets
|
19,304
|
|
|
—
|
|
||
Changes in assets and liabilities:
|
|
|
|
||||
Tuition receivable, net
|
8,227
|
|
|
2,258
|
|
||
Other current assets
|
2,223
|
|
|
(921
|
)
|
||
Other assets
|
(581
|
)
|
|
(727
|
)
|
||
Accounts payable and accrued expenses
|
(8,949
|
)
|
|
(2,022
|
)
|
||
Income taxes payable and income taxes receivable
|
(7,868
|
)
|
|
(7,125
|
)
|
||
Contract liabilities
|
(21,946
|
)
|
|
10,311
|
|
||
Other long-term liabilities
|
(3,717
|
)
|
|
(2,412
|
)
|
||
Net cash provided by (used in) operating activities
|
(14,647
|
)
|
|
141,407
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Net cash acquired in acquisition
|
168,387
|
|
|
—
|
|
||
Purchases of property and equipment
|
(16,028
|
)
|
|
(27,769
|
)
|
||
Purchases of marketable securities
|
(11,346
|
)
|
|
(17,769
|
)
|
||
Maturities of marketable securities
|
5,842
|
|
|
32,860
|
|
||
Other investments
|
(167
|
)
|
|
(878
|
)
|
||
Net cash provided by (used in) investing activities
|
146,688
|
|
|
(13,556
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
||||
Common dividends paid
|
(16,802
|
)
|
|
(33,297
|
)
|
||
Net payments for stock awards
|
6,372
|
|
|
(9,195
|
)
|
||
Payment of deferred financing costs
|
(1,162
|
)
|
|
—
|
|
||
Net cash used in financing activities
|
(11,592
|
)
|
|
(42,492
|
)
|
||
Net increase in cash, cash equivalents, and restricted cash
|
120,449
|
|
|
85,359
|
|
||
Cash, cash equivalents, and restricted cash — beginning of period
|
156,448
|
|
|
312,237
|
|
||
Cash, cash equivalents, and restricted cash — end of period
|
$
|
276,897
|
|
|
$
|
397,596
|
|
Noncash transactions:
|
|
|
|
||||
Purchases of property and equipment included in accounts payable
|
$
|
2,975
|
|
|
$
|
1,821
|
|
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
|
||||||||||||||||
Instruction 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
|
|
(1)
|
This amount excludes the amortization of intangible assets, merger and integration costs, and impairment of intangible assets expense line items on the condensed consolidated statements of income as those expense line items were not impacted by the operating expense reclassification.
|
|
As of September 30,
|
||||||
|
2018
|
|
2019
|
||||
Cash and cash equivalents
|
$
|
276,382
|
|
|
$
|
397,094
|
|
Restricted cash included in other current assets
|
15
|
|
|
2
|
|
||
Restricted cash included in other assets
|
500
|
|
|
500
|
|
||
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
$
|
276,897
|
|
|
$
|
397,596
|
|
|
December 31, 2018
|
|
September 30, 2019
|
||||
Tuition receivable
|
$
|
84,151
|
|
|
$
|
82,494
|
|
Allowance for doubtful accounts
|
(28,457
|
)
|
|
(31,530
|
)
|
||
Tuition receivable, net
|
$
|
55,694
|
|
|
$
|
50,964
|
|
|
For the three months ended
September 30, |
|
For the nine months ended
September 30, |
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Allowance for doubtful accounts, beginning of period
|
$
|
15,048
|
|
|
$
|
30,733
|
|
|
$
|
12,687
|
|
|
$
|
28,457
|
|
Additions charged to expense
|
9,864
|
|
|
12,111
|
|
|
22,851
|
|
|
35,893
|
|
||||
Adjustment to value of acquired receivables
|
6,601
|
|
|
—
|
|
|
6,601
|
|
|
2,207
|
|
||||
Write-offs, net of recoveries
|
(6,118
|
)
|
|
(11,314
|
)
|
|
(16,744
|
)
|
|
(35,027
|
)
|
||||
Allowance for doubtful accounts, end of period
|
$
|
25,395
|
|
|
$
|
31,530
|
|
|
$
|
25,395
|
|
|
$
|
31,530
|
|
|
For the three months ended
September 30, |
|
For the nine months ended
September 30, |
||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||
Weighted average shares outstanding used to compute basic earnings (loss) per share
|
17,799
|
|
|
21,806
|
|
|
13,141
|
|
|
21,694
|
|
Incremental shares issuable upon the assumed exercise of stock options
|
—
|
|
|
44
|
|
|
—
|
|
|
65
|
|
Unvested restricted stock and restricted stock units
|
—
|
|
|
279
|
|
|
—
|
|
|
337
|
|
Shares used to compute diluted earnings (loss) per share
|
17,799
|
|
|
22,129
|
|
|
13,141
|
|
|
22,096
|
|
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
|
31,419
|
|
|
Tuition receivable
|
36,716
|
|
|
Income taxes receivable
|
163
|
|
|
Other current assets
|
9,041
|
|
|
Marketable securities, non-current
|
34,700
|
|
|
Property and equipment, net
|
53,182
|
|
|
Other assets
|
14,556
|
|
|
Intangible assets
|
349,800
|
|
|
Goodwill
|
725,275
|
|
|
Total assets acquired
|
1,422,711
|
|
|
Accounts payable and accrued expenses
|
(48,103
|
)
|
|
Contract liabilities
|
(39,000
|
)
|
|
Deferred income taxes
|
(96,320
|
)
|
|
Other long-term liabilities
|
(2,327
|
)
|
|
Total liabilities assumed
|
(185,750
|
)
|
|
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.
|
•
|
The allocation of purchase price and related adjustments, including the adjustments to amortization expense related to the fair value of intangible assets acquired;
|
•
|
The exclusion of acquisition-related costs incurred during the three and nine months ended September 30, 2018;
|
•
|
Associated tax-related impacts of adjustments; and
|
•
|
Changes to align accounting policies.
|
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
||||
Revenue
|
$
|
224,641
|
|
|
$
|
679,309
|
|
Net income (loss)
|
(14,146
|
)
|
|
10,606
|
|
4.
|
Revenue Recognition
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Strayer University Segment
|
|
|
|
|
|
|
|
||||||||
Tuition, net of discounts, grants and scholarships
|
$
|
107,773
|
|
|
$
|
123,259
|
|
|
$
|
328,476
|
|
|
$
|
371,176
|
|
Other(1)
|
6,698
|
|
|
4,578
|
|
|
15,168
|
|
|
13,630
|
|
||||
Total Strayer University Segment
|
114,471
|
|
|
127,837
|
|
|
343,644
|
|
|
384,806
|
|
||||
Capella University Segment
|
|
|
|
|
|
|
|
||||||||
Tuition, net of discounts, grants and scholarships
|
40,749
|
|
|
105,623
|
|
|
40,749
|
|
|
322,157
|
|
||||
Other(1)
|
3,043
|
|
|
4,926
|
|
|
3,043
|
|
|
15,261
|
|
||||
Total Capella University Segment
|
43,792
|
|
|
110,549
|
|
|
43,792
|
|
|
337,418
|
|
||||
Non-Degree Programs Segment(2)
|
2,682
|
|
|
3,361
|
|
|
4,646
|
|
|
11,141
|
|
||||
Consolidated revenue
|
$
|
160,945
|
|
|
$
|
241,747
|
|
|
$
|
392,082
|
|
|
$
|
733,365
|
|
(1)
|
Other revenue is primarily comprised of academic fees, sales of course materials, and other revenue streams.
|
(2)
|
Non-Degree Programs revenue is primarily comprised of tuition revenue and placement fee revenue.
|
|
For the nine months ended September 30,
|
||||||
|
2018
|
|
2019
|
||||
Balance at beginning of period
|
$
|
37,400
|
|
|
$
|
43,329
|
|
Revenue deferred
|
18,791
|
|
|
21,358
|
|
||
Benefit redeemed
|
(15,792
|
)
|
|
(17,947
|
)
|
||
Balance at end of period
|
$
|
40,399
|
|
|
$
|
46,740
|
|
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)
|
—
|
|
|
13,088
|
|
|
13,088
|
|
|||
Payments
|
(2,069
|
)
|
|
(439
|
)
|
|
(2,508
|
)
|
|||
Adjustments(2)
|
107
|
|
|
—
|
|
|
107
|
|
|||
Balance at September 30, 2018
|
$
|
6,819
|
|
|
$
|
12,649
|
|
|
$
|
19,468
|
|
|
|
|
|
|
|
||||||
Balance at December 31, 2018(3)
|
$
|
6,540
|
|
|
$
|
14,347
|
|
|
$
|
20,887
|
|
Restructuring and other charges(1)
|
—
|
|
|
2,334
|
|
|
2,334
|
|
|||
Payments
|
—
|
|
|
(7,841
|
)
|
|
(7,841
|
)
|
|||
Adjustments(2)
|
(6,540
|
)
|
|
—
|
|
|
(6,540
|
)
|
|||
Balance at September 30, 2019(3)
|
$
|
—
|
|
|
$
|
8,840
|
|
|
$
|
8,840
|
|
(1)
|
Restructuring and other charges were $0.2 million and $2.3 million for the three and nine months ended September 30, 2019, respectively, and $13.1 million for both the three and nine months ended September 30, 2018. Restructuring and other charges are included in Merger and integration costs on the unaudited condensed consolidated statements of income.
|
(2)
|
For the three and nine months ended September 30, 2018, adjustments include accretion of interest on lease costs, partially offset by changes in the timing and expected income from subleases. For the three and nine months ended September 30, 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 lease 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 $6.2 million as of December 31, 2018 and September 30, 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
|
$
|
40,148
|
|
|
$
|
207
|
|
|
$
|
(6
|
)
|
|
$
|
40,349
|
|
Tax-exempt municipal securities
|
13,936
|
|
|
131
|
|
|
(29
|
)
|
|
14,038
|
|
||||
Variable rate demand notes
|
5,600
|
|
|
—
|
|
|
—
|
|
|
5,600
|
|
||||
Total
|
$
|
59,684
|
|
|
$
|
338
|
|
|
$
|
(35
|
)
|
|
$
|
59,987
|
|
|
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
|
|
September 30, 2019
|
||||
Due within one year
|
$
|
37,121
|
|
|
$
|
33,455
|
|
Due after one year through five years
|
37,678
|
|
|
26,532
|
|
||
Total
|
$
|
74,799
|
|
|
$
|
59,987
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Maturities of marketable securities
|
$
|
5,842
|
|
|
$
|
10,300
|
|
|
$
|
5,842
|
|
|
$
|
32,860
|
|
Total
|
$
|
5,842
|
|
|
$
|
10,300
|
|
|
$
|
5,842
|
|
|
$
|
32,860
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
||||
|
2019
|
|
2019
|
||||
Lease cost:
|
|
|
|
||||
Operating lease cost
|
$
|
7,022
|
|
|
$
|
22,520
|
|
Short-term lease cost
|
234
|
|
|
674
|
|
||
Sublease income
|
(681
|
)
|
|
(2,128
|
)
|
||
Total lease costs
|
$
|
6,575
|
|
|
$
|
21,066
|
|
|
As of September 30, 2019
|
|
Lease term and discount rate:
|
|
|
Weighted-average remaining lease term (years)
|
5.7
|
|
Weighted-average discount rate
|
4.20
|
%
|
|
For the nine months ended September 30,
|
||
|
2019
|
||
Other information (in thousands):
|
|
||
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
24,982
|
|
Right-of-use assets obtained in exchange for operating lease liabilities
|
$
|
4,082
|
|
Leasehold improvements obtained in exchange for TIAs paid directly to third parties
|
$
|
2,156
|
|
Year Ending September 30,
|
|
||
2020
|
$
|
30,365
|
|
2021
|
25,692
|
|
|
2022
|
17,443
|
|
|
2023
|
12,121
|
|
|
2024
|
10,442
|
|
|
Thereafter
|
27,470
|
|
|
Total lease payments(1)
|
$
|
123,533
|
|
Less: interest
|
(14,299
|
)
|
|
Present value of lease liabilities
|
$
|
109,234
|
|
(1)
|
Operating lease payments exclude $6.0 million of legally binding minimum payments for leases signed but not yet commenced.
|
|
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
|
|
(1)
|
Amounts are based on the accounting guidance in ASC 840, Leases, that was superseded upon the Company's adoption of ASC 842 on January 1, 2019.
|
8.
|
Fair Value Measurement
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||
|
September 30, 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
|
$
|
41,818
|
|
|
$
|
41,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
||||||||
Corporate debt securities
|
40,349
|
|
|
—
|
|
|
40,349
|
|
|
—
|
|
||||
Tax-exempt municipal securities
|
14,038
|
|
|
—
|
|
|
14,038
|
|
|
—
|
|
||||
Variable rate demand notes
|
5,600
|
|
|
—
|
|
|
5,600
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis
|
$
|
101,805
|
|
|
$
|
41,818
|
|
|
$
|
59,987
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Deferred payments
|
$
|
3,558
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,558
|
|
|
|
|
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 September 30, 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 discounted cash flow models that encompass significant unobservable inputs. The assumptions used to prepare the discounted cash flows include estimates for interest rates, enrollment growth, retention rates, 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 $1.2 million as of September 30, 2019 and is included in accounts payable and accrued expense.
|
|
As of September 30,
|
||||||
|
2018
|
|
2019
|
||||
Balance as of the beginning of period
|
$
|
4,514
|
|
|
$
|
4,120
|
|
Amounts paid
|
(1,412
|
)
|
|
(1,579
|
)
|
||
Other adjustments to fair value
|
1,264
|
|
|
1,017
|
|
||
Balance at end of period
|
$
|
4,366
|
|
|
$
|
3,558
|
|
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
|
—
|
|
|
(465
|
)
|
|
—
|
|
|
(465
|
)
|
||||
Balance as of September 30, 2019
|
$
|
337,381
|
|
|
$
|
394,694
|
|
|
$
|
—
|
|
|
$
|
732,075
|
|
|
|
December 31, 2018
|
|
September 30, 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
|
|
|
$
|
(64,556
|
)
|
|
$
|
101,444
|
|
Not subject to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Trade names
|
|
185,400
|
|
|
—
|
|
|
185,400
|
|
|
185,400
|
|
|
—
|
|
|
185,400
|
|
||||||
Total
|
|
$
|
351,400
|
|
|
$
|
(23,056
|
)
|
|
$
|
328,344
|
|
|
$
|
351,400
|
|
|
$
|
(64,556
|
)
|
|
$
|
286,844
|
|
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” or "Department of Education") Financial Responsibility Composite Score of not less than 1.5.
|
11.
|
Other Long-Term Liabilities
|
|
December 31, 2018
|
|
September 30, 2019
|
||||
Contract liabilities, net of current portion
|
$
|
23,880
|
|
|
$
|
27,233
|
|
Deferred payments related to acquisitions
|
5,904
|
|
|
4,837
|
|
||
Employee separation costs
|
6,800
|
|
|
2,681
|
|
||
Deferred rent and other facility costs
|
6,837
|
|
|
1,880
|
|
||
Loss on facilities not in use
|
4,332
|
|
|
—
|
|
||
Lease incentives
|
2,300
|
|
|
—
|
|
||
Other
|
1,263
|
|
|
1,993
|
|
||
Other long-term liabilities
|
$
|
51,316
|
|
|
$
|
38,624
|
|
12.
|
Equity Awards
|
|
For the three months ended
September 30, |
|
For the nine months ended
September 30, |
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Instructional and support costs
|
$
|
703
|
|
|
$
|
945
|
|
|
$
|
1,821
|
|
|
$
|
2,820
|
|
General and administration
|
2,869
|
|
|
2,077
|
|
|
7,688
|
|
|
5,888
|
|
||||
Merger and integration costs
|
2,272
|
|
|
(523
|
)
|
|
2,272
|
|
|
367
|
|
||||
Stock-based compensation expense included in operating expense
|
5,844
|
|
|
2,499
|
|
|
11,781
|
|
|
9,075
|
|
||||
Tax benefit
|
1,607
|
|
|
651
|
|
|
3,253
|
|
|
2,333
|
|
||||
Stock-based compensation expense, net of tax
|
$
|
4,237
|
|
|
$
|
1,848
|
|
|
$
|
8,528
|
|
|
$
|
6,742
|
|
13.
|
Income Taxes
|
|
For the three months ended
September 30, |
|
For the nine months ended
September 30, |
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Limited partnership investments, beginning of period
|
$
|
—
|
|
|
$
|
14,490
|
|
|
$
|
—
|
|
|
$
|
13,449
|
|
Additions from merger
|
14,153
|
|
|
—
|
|
|
14,153
|
|
|
—
|
|
||||
Capital contributions
|
166
|
|
|
366
|
|
|
166
|
|
|
878
|
|
||||
Equity in net income of limited partnerships
|
—
|
|
|
706
|
|
|
—
|
|
|
2,260
|
|
||||
Distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,025
|
)
|
||||
Limited partnership investments, end of period
|
$
|
14,319
|
|
|
$
|
15,562
|
|
|
$
|
14,319
|
|
|
$
|
15,562
|
|
|
For the three months ended September 30,
|
|
For the nine months ended September 30,
|
||||||||||||
|
2018
|
|
2019
|
|
2018
|
|
2019
|
||||||||
Revenues
|
|
|
|
|
|
|
|
||||||||
Strayer University
|
$
|
114,471
|
|
|
$
|
127,837
|
|
|
$
|
343,644
|
|
|
$
|
384,806
|
|
Capella University
|
43,792
|
|
|
110,549
|
|
|
43,792
|
|
|
337,418
|
|
||||
Non-Degree Programs
|
2,682
|
|
|
3,361
|
|
|
4,646
|
|
|
11,141
|
|
||||
Consolidated revenues
|
$
|
160,945
|
|
|
$
|
241,747
|
|
|
$
|
392,082
|
|
|
$
|
733,365
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
||||||||
Strayer University
|
$
|
11,904
|
|
|
$
|
18,689
|
|
|
$
|
44,215
|
|
|
$
|
68,268
|
|
Capella University
|
(14,326
|
)
|
|
18,643
|
|
|
(14,326
|
)
|
|
63,918
|
|
||||
Non-Degree Programs
|
(1,688
|
)
|
|
(415
|
)
|
|
(4,131
|
)
|
|
(918
|
)
|
||||
Amortization of intangible assets
|
(10,278
|
)
|
|
(15,417
|
)
|
|
(10,278
|
)
|
|
(46,251
|
)
|
||||
Merger and integration costs
|
(29,620
|
)
|
|
(1,500
|
)
|
|
(37,791
|
)
|
|
(11,698
|
)
|
||||
Impairment of intangible assets
|
(13,119
|
)
|
|
—
|
|
|
(19,304
|
)
|
|
—
|
|
||||
Consolidated income (loss) from operations
|
$
|
(57,127
|
)
|
|
$
|
20,000
|
|
|
$
|
(41,615
|
)
|
|
$
|
73,319
|
|
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%.
|
•
|
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 of 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 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 76 physical campuses, predominantly located in the eastern United States, and online. Strayer University is accredited by the Middle States Commission on Higher Education (“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 third quarter, Strayer University’s enrollment increased 11.3% to 50,582 compared to 45,431 for the same period in 2018. New student enrollment for the period increased 4.1% and continuing student enrollment for the period increased 13.3%.
|
•
|
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 approximately 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 ("HLC"), one of the seven regional collegiate accrediting agencies recognized by the Department.
|
•
|
On April 19, 2019, the 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 third quarter, Capella University’s enrollment increased 1.7% to 38,451 compared to 37,822 for the same period in 2018. New student enrollment for the period increased 6.9% and continuing student enrollment for the period increased 0.4%.
|
•
|
DevMountain is a software development program offering affordable, high-quality, leading-edge software coding education at multiple campus locations and online.
|
•
|
Hackbright Academy 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 is a New York City-based provider of web and application software development courses.
|
•
|
Sophia Learning 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.
|
•
|
a purchase accounting adjustment to record Capella University contract liabilities at fair value as a result of the Company's merger with Capella Education Company,
|
•
|
amortization and depreciation expense related to intangible assets and software 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,
|
•
|
impairment charges for intangible assets related to the Company's acquisition of the New York Code and Design Academy,
|
•
|
income from partnership and other 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)
|
|
Contract liability adjustment(1)
|
|
Amortization of
intangible assets(2)
|
|
Merger and integration costs(3)
|
|
Impairment of intangible assets(4)
|
|
Income from other investments(5)
|
|
Tax
adjustments(6)
|
|
As Adjusted
(Non-GAAP)
|
||||||||||||||||
Income (loss) from operations
|
$
|
20,000
|
|
|
$
|
—
|
|
|
$
|
15,417
|
|
|
$
|
1,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,917
|
|
Other income, net
|
3,243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(706
|
)
|
|
—
|
|
|
2,537
|
|
||||||||
Income (loss) before income taxes
|
23,243
|
|
|
—
|
|
|
15,417
|
|
|
1,500
|
|
|
—
|
|
|
(706
|
)
|
|
—
|
|
|
39,454
|
|
||||||||
Provision (benefit) for income taxes
|
6,551
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,496
|
|
|
11,047
|
|
||||||||
Net income (loss)
|
$
|
16,692
|
|
|
$
|
—
|
|
|
$
|
15,417
|
|
|
$
|
1,500
|
|
|
$
|
—
|
|
|
$
|
(706
|
)
|
|
$
|
(4,496
|
)
|
|
$
|
28,407
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.30
|
|
||||||||||||
Diluted
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1.28
|
|
||||||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
21,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,806
|
|
||||||||||||||
Diluted
|
22,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,129
|
|
|
|
|
Non-GAAP Adjustments
|
|
|
||||||||||||||||||||||||||
|
As Reported
(GAAP)
|
|
Contract liability adjustment(1)
|
|
Amortization of
intangible assets(2)
|
|
Merger and integration costs(3)
|
|
Impairment of intangible assets(4)
|
|
Income from other investments(5)
|
|
Tax
adjustments(6)
|
|
As Adjusted
(Non-GAAP)
|
||||||||||||||||
Income (loss) from operations
|
$
|
(57,127
|
)
|
|
$
|
26,214
|
|
|
$
|
10,278
|
|
|
$
|
29,620
|
|
|
$
|
13,119
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
22,104
|
|
Other income, net
|
1,110
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,110
|
|
||||||||
Income (loss) before income taxes
|
(56,017
|
)
|
|
26,214
|
|
|
10,278
|
|
|
29,620
|
|
|
13,119
|
|
|
—
|
|
|
—
|
|
|
23,214
|
|
||||||||
Provision (benefit) for income taxes
|
(3,236
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,527
|
|
|
6,291
|
|
||||||||
Net income (loss)
|
$
|
(52,781
|
)
|
|
$
|
26,214
|
|
|
$
|
10,278
|
|
|
$
|
29,620
|
|
|
$
|
13,119
|
|
|
$
|
—
|
|
|
$
|
(9,527
|
)
|
|
$
|
16,923
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
$
|
(2.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.95
|
|
||||||||||||
Diluted
|
$
|
(2.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.92
|
|
||||||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
17,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,799
|
|
||||||||||||||
Diluted
|
17,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,480
|
|
|
|
|
Non-GAAP Adjustments
|
|
|
||||||||||||||||||||||||||
|
As Reported
(GAAP)
|
|
Contract liability adjustment(1)
|
|
Amortization of
intangible assets(2)
|
|
Merger and integration costs(3)
|
|
Impairment of intangible assets(4)
|
|
Income from other investments(5)
|
|
Tax
adjustments(6)
|
|
As Adjusted
(Non-GAAP)
|
||||||||||||||||
Income (loss) from operations
|
$
|
73,319
|
|
|
$
|
—
|
|
|
$
|
46,251
|
|
|
$
|
11,698
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
131,268
|
|
Other income, net
|
10,695
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,334
|
)
|
|
—
|
|
|
7,361
|
|
||||||||
Income (loss) before income taxes
|
84,014
|
|
|
—
|
|
|
46,251
|
|
|
11,698
|
|
|
—
|
|
|
(3,334
|
)
|
|
—
|
|
|
138,629
|
|
||||||||
Provision (benefit) for income taxes
|
31,413
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,907
|
|
|
38,320
|
|
||||||||
Net income (loss)
|
$
|
52,601
|
|
|
$
|
—
|
|
|
$
|
46,251
|
|
|
$
|
11,698
|
|
|
$
|
—
|
|
|
$
|
(3,334
|
)
|
|
$
|
(6,907
|
)
|
|
$
|
100,309
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
$
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.62
|
|
||||||||||||
Diluted
|
$
|
2.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.54
|
|
||||||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
21,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,694
|
|
||||||||||||||
Diluted
|
22,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,096
|
|
|
|
|
Non-GAAP Adjustments
|
|
|
||||||||||||||||||||||||||
|
As Reported
(GAAP)
|
|
Contract liability adjustment(1)
|
|
Amortization of
intangible assets(2)
|
|
Merger and integration costs(3)
|
|
Impairment of intangible assets(4)
|
|
Income from other investments(5)
|
|
Tax
adjustments(6)
|
|
As Adjusted
(Non-GAAP)
|
||||||||||||||||
Income (loss) from operations
|
$
|
(41,615
|
)
|
|
$
|
26,214
|
|
|
$
|
10,278
|
|
|
$
|
37,791
|
|
|
$
|
19,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
51,972
|
|
Other income, net
|
1,846
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,846
|
|
||||||||
Income (loss) before income taxes
|
(39,769
|
)
|
|
26,214
|
|
|
10,278
|
|
|
37,791
|
|
|
19,304
|
|
|
—
|
|
|
—
|
|
|
53,818
|
|
||||||||
Provision (benefit) for income taxes
|
(1,643
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,749
|
|
|
13,106
|
|
||||||||
Net income (loss)
|
$
|
(38,126
|
)
|
|
$
|
26,214
|
|
|
$
|
10,278
|
|
|
$
|
37,791
|
|
|
$
|
19,304
|
|
|
$
|
—
|
|
|
$
|
(14,749
|
)
|
|
$
|
40,712
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
$
|
(2.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3.10
|
|
||||||||||||
Diluted
|
$
|
(2.90
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.97
|
|
||||||||||||
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
13,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,141
|
|
||||||||||||||
Diluted
|
13,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,724
|
|
(1)
|
Reflects a purchase accounting adjustment to record Capella University contract liabilities at fair value as a result of the Company's merger with CEC.
|
(2)
|
Reflects amortization and depreciation expense of intangible assets and software assets acquired through the Company’s merger with CEC.
|
(3)
|
Reflects transaction and integration charges associated with the Company's merger with CEC.
|
(4)
|
Reflects impairment of goodwill and intangible assets related to the Company's acquisition of the New York Code and Design Academy.
|
(5)
|
Reflects income recognized from the Company's investments in partnership interests and other investments.
|
(6)
|
Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 28.0% and 27.6% for the three and nine months ended September 30, 2019 and an adjusted effective tax rate of 27.1% and 24.4% for the three and nine months ended September 30, 2018, 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 September 30, 2019. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded
|
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 are permitted to exclude acquisitions from their assessment of internal control over financial reporting for a period of up to one year following an acquisition while integrating the acquired company. The Company is in the process of integrating Capella Education Company’s and the Company’s internal controls over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Except as noted above, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
|
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
|
104.
|
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
|
STRATEGIC EDUCATION, INC.
|
|
|
|
|
|
By:
|
/s/ Daniel W. Jackson
|
|
Daniel W. Jackson
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
Date: November 7, 2019
|
1 Year Strategic Education Chart |
1 Month Strategic Education Chart |
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