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Strategic Education (STRA)

Participants
Robert Silberman Executive Chairman
Daniel Jackson Executive Vice President and Chief Financial Officer
Karl McDonnell Chief Executive Officer
Peter Appert Piper Jaffray
Corey Greendale First Analysis
Jeff Silber BMO Capital Markets
Call transcript
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Operator

Good morning, everyone, and welcome to Strayer Education Incorporated’s First Quarter 2018 Earnings Results Conference Call. This call is being recorded.

For those of you who wish to listen to the conference via the Internet, please go to strayereducation.com, where the call will be archived. With us today to discuss the results are Robert Silberman, Executive Chairman for Strayer Education; Karl McDonnell, Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer.

Following Strayer’s remarks, we will open the call for questions and answers. pursuant remind on today’s statements Securities this forward-looking are to and release that Litigation like Harbor and information Safe certain call made Reform would Act. everyone the press that contains are provisions I of the Private to may contain its These based paragraph the company the has company’s in the on release current subject at and are press that statements a and number could differ of company’s risks forward-looking that are on end statements results to actual of materially. the cause expectations assumptions, and uncertainties identified the to Further information on found Form other Exchange with uncertainties Report in its and may and other filings about be these and XX-K the Annual the company’s Securities relevant Commission. full upon online are Relations the press company’s Investor Copies release request the of and department. filings available from these and I Robert to And call to Silberman. like now, the turn over would Mr. go Silberman, please ahead.

Robert Silberman

straightforward Thank a my perspective. you, ladies QX gentlemen. operator, good and pretty from quarter and was morning,

on Dan as update on our So I’ll operating have we And, an course, well provide just of details on as comment Dan? Karl for you activities, after turn results, to will of as our the comments it for which will stay long after merger the as activities. integration our over questions. status financial

Daniel Jackson

merger were quarter in quarter impact such our the the integration non-GAAP Thank noting associated reflected as reference reported you, want results, that as and This I our of of with of the of the which Rob, incurred reflect by is expenses transaction release and and and first in financial No format and illustrate and business XXXX XX-Q both or first or good core Capella to consistent adjusted quarter, start results. morning, expenses. intended everyone. the performance the results XXXX. earnings GAAP our with to ongoing numbers last in GAAP adjusted

by student Revenue million our for $XXX.X QX declined the programs Revenue $XXX.X grew year. scholarship X% our from from in XXXX. expectations fall line scholarship QX, in for last in approximately driven million stemming per with to higher primarily Now introduced X% results. quarter and

quarter operations approximately Our operations $XX.X from first GAAP income $XX.X quarter in income million the million, million to the year. last was in merger-related GAAP includes for compared $X.X costs. from first

costs, these from million. adjusted $XX.X income Excluding was operations

adjusted for Our margin the was quarter, was net compared in $X.X GAAP operating million, income XX.X% quarter XX% $XX.X to the first for compared in XXXX. XXXX. million to

$XX.X adjusted quarter costs, Excluding net XXXX was first of merger-related the income million. in

benefits share and share million earnings $XX,XXX,XXX GAAP XXXX. $X.XX grew per first XXXX. during Our per tax The increased effective outstanding vested costs. nondeductible our with for first $XX,XXX,XXX the tax from of XXXX merger was for was average quarter the XX% lower XXXX compared rate $X.XX, associated quarter to Diluted in tax rate, to adjusted earnings that new federal $X.XX X% the of reflecting in million the stock restricted and XX.X%, to the shares of weighted quarter impact

the effective nondeductible and first XX.X% expect tax adjustments, the discrete the tax tax impact rate For of the the XX%. our excluding was merger XX% quarter costs, between other remainder adjusted year, effective merger Excluding rate and of costs tax an for we

the the ended volume cash verification and in to the first selected normal as no for cash debt recede our by quarter, the they’re impacted million expect bad in and quarter activities of $XX $XX.X debt. X.X%, the levels. of $XXX.X to the in indicated balance through the with during QX the by Department has generated to quarter, XXXX. We during And of algorithm the negatively aid the We first We quarter financial bad saw in X.X% an students slight million million been this it proportion Education was for the quarter Our reported further of to compared XXXX. first as debt decrease I quarter compared Department year, increase verification. back during from adjusting operating last anomalous

expenditures, quarter, Regarding compared the we during million in last period the $X.X same $X.X first spent to million year. capital

CapEx full-year $XXX revenue. expect in Karl? to in the on We credit X% available be continue we of to range finally, And revolver. maintain of million our

Karl McDonnell

morning, Thanks, Dan. everyone. Good

student points. like Dan’s In total our grew versus and our enrollment the addition quarter, we results. to our In and enrollment very just to continue that prior pleased X% both the comments, XX I’d to year continuation basis with increased add new first be our rate

and new XXXX. is students for for X% the enrollment strongest we’ve the quarter’s overall outlook growth to That would that since approximately to total be grow second our had Our enrollment rate X%. grow

this announced also that several first seeing opened new years pretty we’re Georgia, in in successfully morning Macon, in campus our demand that market. We and already we’ve strong

Capella and the of October. merger integration. with Strayer integration additional morning’s we strong this companies have And in integration outset our pending have We’re engaged planning, the The our Strayer both plans. key our I’m to as many involved of period, with reported planning that itself established into been build the during planning organized detailed financial primary the more planning work the campuses for three like year, business four the categories. XXXX. Company. of as in also representatives continuity announcements, is on in agreement a merger results Capella teams pleased companies management now enrollment announcement and priority, new At respective integration both where in The open have integration planning a teams track December provide to management since Capella to Education second-half our last I’d on following in commentary been detailed of of of

must over conducting of to proprietary attributes preserved, each to operating a that detailed and the immediately assessment model be unique organization’s also insights opportunities cultural best First, other identifying and while understand we’re practices methodologies. port

IT. work our such corporate resources resulting as combining functions human major identifying back-office second the The involves legal, synergies stream from post-close, finance, and

$XX the XXXX our that systems and in have be and by area and the XXXX. or been of stress close plans million to post-close our million the to regulatory have been rigorous be third approval presently and $XX achieved sorry, The months tested. is collaborative, Of million pending highly the implemented all June. preparing call been run rate million make our in one approximately XX day Overall, has for fully approximately identified implemented in pre-close following. rate will we in Our – planning has and the of for processes savings planning sure XXXX, detailed, $XX remaining final $XX end in run savings, itself

the to Excluding equate costs transaction-related integration at savings synergy will the we themselves estimate roughly expenses, dollar-for-dollar.

and hard Capella in the to their ultimately serve the the ongoing professionalism, will any both success, commitment operator, the teams learners create for be best work and with ahead. and questions. And thank to like our I’d glad we’d take Finally, merger which years to that, believe Strayer to platform students we

Operator

Our Piper the Appert Peter with line question first Instructions] from of comes Jaffray. [Operator

line Your is open. now

Peter Appert

you. morning. Good Thank

Karl McDonnell

Good morning, Peter.

Peter Appert

Karl improved call hoping, on areas, in corporate was is driving to or color more granularity Anything out you what’s their terms performance? on the be little performance? some of continuing I could maybe partnerships, Rob, programmatic you’d give enrollment a the just us more or it

Karl McDonnell

saw Peter. last the Sure, Board. strength we across quarter, This

undergraduate to student grow led the We level. Welch continue graduate performance the per level, at by of turnaround at which XX%-plus year. see performance strong Jack Management the seen We’ve continues to a the also Institute,

– degrees work were the were enrollments partnerships corporate up. up. Our The

Board. across seen So the we’ve really strength

Robert Silberman

And that’s for what to I in you enrollment indicator going well other is perspective, the to was this in would results. participation probably the macroeconomic morning’s over getting and their been – I’ve stronger for Yes, us was consumer XX that, now. Peter, is or announcements environment that it’s labor months I thing significant student its most helping the think, our create say, felt growth. student clearly, And it on particularly us rate undergraduate always employability. see confidence as

Peter Appert

Right.

in do quarter that On the cycle event? the front, scholarships pricing third or the through is we fourth quarter, increased

Karl McDonnell

they’re they’re recede that because keep as even long the to XXXX that, to throughout Peter, the into of but quarter in XXXX as the some continue them each students them probably received year enrolled. extent, quarter, it’ll will going slowly, fourth likely

Peter Appert

expanding then, I it rates a down enrollments, tuition because think guess, bringing you And impact discount and about such further? the beneficial on perhaps had do program

Karl McDonnell

accessible, something fund focus moving forward But been but reduction implementation and the obviously the the something with in tuition a affordable. fairly are XX% that make is our on in on focus late not strong graduation sure XXXX. want always we priced. has we’re also maintain Affordability considerably it We just of undergraduate we that that programs like feel to and

Robert Silberman

or three coincident admissions in and once the Florida Peter, thing, is early in that put they mind, in right Georgia. other fall happened from and XXXX, disruption place we Texas the with late was the had bear were – there some two serious operations those our scholarships of And summer, were at in hurricanes in and

focus affordability and outside tuitions So students. relevant they based. situationally our on really our pretty our of think, current structure, to is were I I And that, think,

Peter Appert

we – over here the up March two And in the How Got the on it. Understood. step the year? sorry, more about costs things. there a One, of marketing I’m trend think took then on quarter. the the should balance

Daniel Jackson

grow a be full-year We could move advertising I XX% timing of But marketing activities – to dollars somewhere X% a quarter. is XX%. activity expenses depending basis, on a basis, around. on in the think, could between year-over-year I basis. will X% any up think, There some given on those marketing the on full-year and some

Peter Appert

And then great. I last will and shut just Okay, up. one thing

call there economics new of new and about cost just is think campus in the incremental openings, them? And of specific campuses? a opening we On terms out the broadly, should how the you would

Karl McDonnell

model, right We now we’re – relatively it’s fine-tuning small. the

be of since would to as new the going strategy. more continue loaded. So the we’ll significant of especially ones are impact the to campus And have for roll it, the to really tell say, it’s about you out back-end broader most of I economic we kind fine-tune new not year,

Robert Silberman

the safe model before to which smaller so. campuses, models operating it’s think, income they opened, get had were we a to pretty larger don’t quickly these that with significant in compared much generated pretty have break-even say, the hit the They Peter, year that. I

Peter Appert

it. Got

very Thanks great. much. Okay,

Karl McDonnell

Sure.

Robert Silberman

Thank you, Peter.

Operator

Our of Corey from comes First question Greendale Analysis. line with the next

Your line is now open.

Corey Greendale

morning. good Hi,

Karl McDonnell

Good morning, Corey.

Corey Greendale

kind Macon students? or you’re open did its have have yet, – campus First, the of student just it’s to enroll start that

Karl McDonnell

first they’re well No, we’re term students couple running online. serving their academic and classes, of on-ground as a as teaching no,

Corey Greendale

experience campuses of footprint, to it’s relevant sort that the of it you just question like smaller in should still it like Okay. already or focus is student ask going it a not how a – is Is have be the concern? other

Karl McDonnell

I it’s early. mean, No,

tested have of instruction. on in the students the We Jackson, campus. literally Mississippi. strong. the quite term feedback has We existing of tested know They’re that been We first layout in their

smaller we going there, early but very are that be we’re well expect So to these footprint received campuses

Corey Greendale

the of question. kind Okay good. up macroeconomist then, since And Rob, you’re bringing

how than there of Do Just as a when was downturn, countercyclical. speaking, would like point viewed go a a be you time a – more education bad this that’s thing was think generally that into we at thing? good kind broken

Robert Silberman

Well, countercyclical, I it was was cyclical. never Corey. I thought thought it a

creating an a cyclical. such it below XXXX I and top such that could that And economy time. so certainly I in – our mean, decisions low regulatory on a perturbation of some that enormous interest And asset disruption students a inflation. was it an of such price lower economy on big thought had heavy But you that laid across that financial somewhat you environment, – a an way just around. hit of economic but higher the general taxes. crisis economy make which hit confidence creating was certainly space, had you amount us stayed really very, you not our fairly the very as whole. was long band in We and demand the in got for rates, had issue big And that mean, I a made put we

a situation, has where healed itself. So economy into now, the we’re moving

– labor rates growing. you’ve get You got participation

that on Corey, You academics have a focus that your really greater undergraduate confidence if And I healing it, and a last confidence. results. in years, aggressive if in not been you say, our the in couple about swing and at you’re that and over confidence the for factor But reflected And level, employability. part have you think generates students. we of our marketer, it’s would the student strengthening is of

Corey Greendale

be you what we’ll a right. a it want think confidence happens. that and All because mouth not to And you in words if But your saying meaning you’re like, see don’t certainly diminish? into downturn, thing, sounds would go put good would

Karl McDonnell

yes, I it’s that Well, it be problem. it would that cyclical by then, which it’s meaningful. a a depends mean If normal much don’t downturn, XXXX, think like impact. has If

Corey Greendale

I to which Capella, this enrollment on point. is question quick referred say much you’re one realize their just not then And Okay. strong. Karl, to at But, going you

year-over-year. was it a think, actually I little down bit

within of want what sure So you a it’s make to expected? I just had band

Karl McDonnell

student of we – obviously, they’ve to And And comment were that results. I respect beyond their appropriate have Well, done. on wouldn’t their the for I new that, we encouraged, by work a think lot results. it’s

Corey Greendale

Okay, just per ones is speaking, you. what to that’s narrow, I sense had for like down? fine. What student be give revenue Dan, can you should you you – full-year The it? think say I it for to average a in generally quarter. reduction heard the two And then, of quick I you with But for the us expect each that

Daniel Jackson

neighborhood say, X%, you’re I’d for full-year, in X.X% the the of to be down. somewhere going

Corey Greendale

to sort do Department should we range, back Okay. the of bad doing. of And the you what then verifications as think think? number normalizes the the of gets they’re Thank kind X%-ish it or you. on debt

Daniel Jackson

It’s to I and think we to we’re once hard – resolved something below. it’s levels, that see expect to is normal X% I say, problem but to think, back closer

Corey Greendale

X% below.

Daniel Jackson

looking mean, I kind we’re at. of that’s what

Corey Greendale

Okay, perfect. you. right. Thank All

Karl McDonnell

Corey. Thanks,

Operator

Capital Jeff [Operator the Silber with BMO question line Instructions] Our Markets. comes next from of

Your line now open. is

Jeff Silber

much. so Thanks

back have model, the new Just size disclosed current or you campus wanted the new compared to roughly will your you quickly footprint? circle campuses to of to disclose these

Karl McDonnell

location, somewhere were… X,XXX in Jeff. Depending the be range, square to on which the to they’ll compared X,XXX Sure, foot previous the

Daniel Jackson

XX.

Karl McDonnell

XX to XX, yes.

Jeff Silber

it. Got

very much. helpful. that’s Thanks so Okay,

Karl McDonnell

level have We’ve students. Jeff, of campuses And, add. a these would just purposely I XX approximately designed break-even to

Jeff Silber

some small wanted to New gears the very to we’ve so nontraditional I’m are you in into But relatively of I Design and Thanks. acquisitions, been What sector, lot tell much. that since shift actually that movement of Okay. doing Academy. York it’s Code has forward? wondering Actually business how if going you that players your space. getting helpful. it? mergers a your piece including us, education bought That’s seeing business. know and plans been can Thanks in just

Karl McDonnell

doing Sure. well. is business The quite

where So expect demands, begin happy and and ultimately far they’re feel XXXX, have of second on camp very still with year in they producing is the for going some meaningful grow contributing they our and small quarter to to the good quite in that you’d of to in XXXX. a And have well great basis just space the back-half way this like We nascent. time organically we achieve think will product. albeit very it’s what of sizes coding earnings But the boot a performing take break-even amount very in they’re revenue of levels of students. we’re earnings. the outcomes for I

Robert Silberman

about to serve Capella And view we’re of fashion strategy what works broader really get two opportunity to the the right with the that well. and has how a and market other really these excited students entities to this

Jeff Silber

waiting remind or that terms we’re for? you Okay. HLC the else just just of And can are of then speaking approvals in we for waiting Capella, milestones anything merger, me, for

Karl McDonnell

is, for merger on understand to last them we’ll meet of is wait pre-close. week we they agenda from that it That’s meeting. their the just the and And June and their following our hear understanding

Jeff Silber

when And booking deal in deal? and Okay. assuming quarter that well will the the you you expect the integration be goes everything costs you it, close the closes

Karl McDonnell

It’s going that the incurred, it’s in quarter to Jeff. be

and costs it But end definitely quarter. next that part integration So will into the is it will of – of integration as a be there will in the through the plan the third big year continue executed. year

Jeff Silber

appreciate Thanks much. color. I great. Okay, so the

Robert Silberman

costs, booked right And, quarter the to clear different the in which just actual Jeff, from be away. that’s will be transaction Yes. that third

Karl McDonnell

yes. Correct,

transaction majority quarter Third have the costs. the of will

Jeff Silber

costs just earlier. just on that out Right. you I looking at was was specifically the call called the thinking, integration I Yes

Karl McDonnell

Yes.

Jeff Silber

appreciate But the so Thanks much. I color.

Operator

showing questions call remarks. no the And closing in Mr. back time. this I’m like Silberman to queue further at I’d to any turn for

Robert Silberman

Thank the point, the with we’ll at and August ladies to which you, in speaking look review results and operator, the of in gentlemen. transaction. very forward you, quarter, and thank you quarter Thanks status We’ll third the much. second early

Operator

disconnect. today’s a program have thank day. you may the for and Everyone, now gentlemen, great participation and Ladies you concludes conference. your in This