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Strategic Education (STRA)

Participants
Terese Wilke Manager, Investor Relations
Robert Silberman Executive Chairman
Karl McDonnell President and Chief Executive Officer
Daniel Jackson Executive Vice President and Chief Financial Officer
Peter Appert Piper Jaffray
Corey Greendale First Analysis
Call transcript
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Operator

Welcome to Strategic Education's First Quarter 2019 Earnings Conference Call. I will now turn the call over to Terese Wilke, Manager of Investor Relations for Strategic Education. Ms. Wilke, please go ahead.

Terese Wilke

Thank you, Ashley. welcome discuss Education's first and which call, everyone, will we quarter morning, to conference Strategic in Good XXXX results. to Education; and Financial Officer today Chairman Jackson, Executive Strategic us discuss Strategic and Robert Daniel are With Chief President Silberman, Education; for and Strategic Executive Education. Karl Chief President for Vice McDonnell, Officer for results Executive

subject on and identified a expectations Reform that uncertainties Following this these to current the forward-looking assumptions, Litigation press Further other include pursuant and today's to that are could of call has to Education Safe Private materially. remarks, provision number results actual about Act differ statements Strategic we of the cause release will open statements risks the call The information in and may for questions. Please of Harbor are note XXXX. made Securities based relevant annual to recent well be filings Education's Commission, and uncertainties report ahead. XX-Q in X-Ks, this of Exchange on with like are week website be Rob, these may release the to Strategic press future the other on full viewing call for go available Strategic Education's strategiceducation.com. Copies and Securities filed and the over turn And XX-K, please most found the as now, at XX-Ks. Form as to filings I'd and XX-Qs Rob. the

Robert Silberman

a my but was straightforward quarter, pretty perspective, a not of Terese. you, QX to ladies good And add lot gentlemen. Thank information. from and morning, a lot

Karl? long as operating So, stay as I financial have which let Dan questions. results, will Karl and for details me turn and on our to just it over for you after

Karl McDonnell

We quarter our announced that All this morning. right. results everybody. were pleased very with you, first Thank Good Rob. we morning,

remains results and Our this are on year. incredibly integration solid operating to be and completed track merger our financial

net product solid That on earnings of forma revenue was pro the X%, combined $X.XX resulting XX% generated company a expense results, basis, of growth increase performance our additional per X.X%. regarding year-over-year share. just the with income, operating financial in in First, a of growth of

net merger operating million increase of margin XXX in operating the million and XXX a realized our result of Capella's improved a basis $X points. of first expense expansion of productivity income basis and points basis $XXX XXX basis and the Strayer's operating The Within in operating basis points of points Our our XXX in consists operating was margin expanded points. synergies as quarter. This XX% resulted in increased margin merger increased business. segments, XXX synergies from

fourth it's for And in while $X expect second, respectively, $XX new merger-related will both FlexPath in implemented Strayer Capella's its enrollment quarter, and remains approvals. evenly Our cumulative operating savings an increased while track integration student and savings results X.X% quarters new completed XXXX. million XXXX, additional the we and think support $XX this where XXXX to Texas rate XX% bringing four mostly be run the quarter, Florida the savings Worth, And to of the the to programs I now run our will the generate our continue was Universities, and at There Mobile, like work and to million, in and total enrollment of integration quite strong increased Capella. to at these Capella sharing. merger in organizations and six through we in $X expenses other quarter, center will second our likely open second on in Capella's spread to SEI and one that million pending tremendous additional an third on Fort track to campuses achieved regulatory student of million open this our first the synergy new all Alabama, as be million. expense we and quarter university first will collaboration first deepen year. quarter. remains in again, Georgia In Atlanta, finally, the open integration and Merger location the at initially-communicated remain to our Dan? of XX.X% to practice XX% teams in Orlando, year. while across third together Strayer total went non-doctoral total our to synergy two while now well, be opened at all widespread $XX target their all best enthusiasm FlexPath with FlexPath campuses new new continue exceptionally students continues thank And efforts students this FlexPath my one-third of enrollments for into for perform University results of commitment would colleagues and XX%, across enrollments grew commend enrollments rate represent the Strayer Capella. producing in morning. XX%. I increasing

Daniel Jackson

Thank you, everyone. morning, And good Karl.

that our want also Institute; remind University Note, consolidated everyone exclude include includes that businesses I financial that the Company First, University and our to segment, three XXXX. prior the Strayer Capella Welch segments Management the results the of which Education coding Strayer of Xst, Jack and University; Capella segment consisting August camp solely the Programs Non-Degree – boot our to Capella of results occurred consolidated results in segment, Sophia. consisting University

posted forma For results, This section reported, of I financial in first addition reflected to website. also or the in remind everyone non-GAAP release quarter of or XXXX first GAAP to is earnings adjusted the a see slide our pro view segment-level as our the format our Investor that please results. business GAAP illustrate of results, performance quarter the want deck earnings results. as our to and numbers to adjusted intended core references Relations the release

Please Capella amortization and income from exclude the with and merger, additional to information. morning issued costs adjustments. transaction associated for the the to interests, investments information in earnings results and certain release this discreet refer partnership tax financial quarter in related adjusted the integration Our assets we first merger, non-GAAP expense acquired included

and about statement we company, our to combined administration. first income think and with instructional expenses the combined our general our operationally. advisory now In under and financial support simplifying commenced are align as better and support general a admissions costs of expenses year and and under costs, combined educational reporting full are addition, as are marketing how administration and we Instructional we presentation now

will a line our our detailed in later map new how items items. week, illustration to of the expense previous We include, this XX-Q line

comments few consolidated on a the SEI's in million for QX compared million XXXX. $XXX.X results. XXXX Now, $XXX.X our of was revenue quarter for to first

$XX.X Our XXXX. adjusted for to in income the $XX.X compared period from for same was the quarter operations million million

QX Our the XX.X% about to XXXX. adjusted margin to marketing to XX.X% our administration related in XX% for compared costs of quarter compared was and Approximately QX investment general in operating XXXX. XX%

excludes intangible assets amortization expense of operating merger in to in and the XXXX million related quarter adjusted costs. $XX.X first income merger-related million acquired Our $X.X

quarter $X.X First XXXX in merger-related million excludes operating costs. adjusted income

was $X.XX in million compared of million compared income net for net $X.XX adjusted XXXX earnings $XX.X quarter per to same to period the share diluted income adjusted $XX.X adjusted XXXX. and was in First XXXX

Our adjusted compensation merger of the one-time from costs, effective associated tax of income which book intangible plan. and first tax rate of partnership XX.X%, XXXX expense a assets, quarter was interests with for our deferred elimination excludes amortization the

and the We be effective quarter rate full-year for tax to continue expect adjusted XX.X%. to XXXX our approximately second

driven increased quarter results, Strayer and for revenue enrollment student. XX.X% segment by million, per stable to University from higher quarter first $XXX.X Moving to the first-quarter revenue $XXX.X million our segment

XXXX. and basis for Strayer last the to quarter scholarships million million, XXX was annual year and for operating margin University shift million Capella between for from $XX to $XXX.X $XX XX For quarter the XX.X% per basis revenue basis enrollment segment Strayer students. to XXXX, first XX.X% points and revenue in decline for the segment we continued reflecting the paying to per continued higher University to the segment continue increased operations on revenue increased student use to mix improved to from lower and an quarter due learner. compared points expect of income corporate-sponsored

University revenue For for revenue learner to higher XXXX, continued to from Capella for tuition for programs. July that to per Income increased was Programs our in cost the by expect in of commenced XXXX. the same the Sophia. million loss Non-Degree the $X.X in Loss period Capella due last million margin the XXXX, segment compared and slightly from operations $XX.X and revenue of operating segment offset million shift increases FlexPath a reflecting million was mix DevMountain, Academy we from year, was quarter flat lower QX inclusion to $X.X from operations XX.X%. mainly to $XXX,XXX the XXXX $X.X at Hackbright

first Moving ended XXXX. and quarter with revenue equivalents the quarter compared to cash of X% the during the balance $XXX.X the and same and in million we no $XX generated quarter to period for X.X% debt. debt of million marketable of was for cash, $XX.X sheet flow, and operations expense in XXXX cash during compared million quarter the to from cash the first securities Bad

expenditures, And during quarter to XXXX, million and $XXX $XX And on to XXXX. the finally, for be capital $XX expenditures in revolver. our maintain compared million first $X.X million capital Rob? $X.X to spent For continue available million. million we we full-year continue between in we to credit expect the

Robert Silberman

we'd that, With Dan. be answer to operator, pleased Thanks, questions. any

Operator

first [Operator the with from Peter comes you. Thank our Instructions] question of Appert Piper And line Jaffray.

Your line open. now is

Peter Appert

are And of the for thoughts The programmatic start assume in marketing Capella, morning. your terms call very you anything that either be for it's the Good start sustainability of continues cetera, I it. offerings, programs, FlexPath. Thanks. would University, the the to obviously. Strayer the performance? – impressive performance out on But et driving

Karl McDonnell

morning, the campuses to Peter. quarter, only continue those call And The out different well. would new we that new Good than campuses Sure. open Strayer side. might I our that of all thing performing last are be on

pretty quarter, case see we As sound was last the macro still conditions.

you the and economy the up is just we're So, know, rest growth. as a locations think I've I said, macro the sustainability, clearly physical so to into On optimistic on student we heading guidance. with conditions as year. the But new combined on don't side aiding open favorable now, right strong of continuing forward quite are Strayer provide fundamental

Peter Appert

continuing that's you've for Got growth function that the shorter significantly last lower growth I enrollment quarters, it. interpret a you. programs Capella, a then, enrollment just should fact than And anything the the just function this Karl, or Is do I is continuing the how at – know? – that? of student Thank several that seen new else

Karl McDonnell

to Are Peter? total enrollment, you their referring

Peter Appert

the at up was continuing X.X%. enrollment looking I'm No,

Karl McDonnell

those programs of a nursing in Yeah. to are FlexPath in cases, XX XX getting months. students some function through is in shift particularly months, the It program, where, mix

And so, to much FlexPath that that grow, will those getting as offset will that through enrollment of the one are growth over so programs but continues the Capella's drivers students I the new of continuing suspect is increase, students because quicker. be time, to extent student primary

Peter Appert

acquisition margin profile the And, would offering a FlexPath versus offering difference different? therefore, is And offerings? for of cost the student Understood. there in that significant traditional be

Karl McDonnell

channels corporate relatively through fair No, they're A enrollments, cost. again, number acquisition particularly come there similar. is FlexPath where a relatively of nursing, low

they're relatively par, on Peter. So,

Peter Appert

the And in first in rate anticipated your Got the of if the better been then, I certainly performance margins in I'm your if has interested couple margin lastly, couple get Karl, rethinking quarters the of it. could transaction. just – expectations thoughts, of had where the wondering next you're of terms run years. than

Karl McDonnell

dissimilar on performance XXX would be talked estimated synergies various the not of know, From We you initiatives. gets XX% roughly million it's previously. which pro as versus we're we've the worth $XX there, about focused that points, from standalone Well, the basis Strayer you what productivity to margins. value forma

continue should to mid And to is our we enrollment the margins low see grow, XXs. in what ultimately so,

Peter Appert

Great.

Thanks, Okay. Karl.

Karl McDonnell

Peter. Thanks,

Robert Silberman

you, Thank Peter.

Operator

with from question Greendale the Thank Analysis. And line First of you. [Operator comes Corey Instructions] next your

line open. Your is now

Corey Greendale

Hi. Good morning.

Robert Silberman

morning Corey. Good

Corey Greendale

that couple Can FlexPath you what or give were over know A – questions. morning. don't up that that it we've I the you us that year how past has said had is so? FlexPath, new On a Good I number think relative what XX%. to students of of before. sense that been

Karl McDonnell

this XX% growing. was and quarter It been it's

learners Corey. last you. out FlexPath happy history, growing I don't full for the years, to for been the have XX% New dig that have but of we're plus couple

Corey Greendale

be helpful. Okay. It might

So, like have you'd it point with it sounds helped would that? actually to that that accelerated. Anything

Karl McDonnell

in strength the of program – and that's fastest FlexPath FlexPath the Capella. largest program Other the within than continued both and nursing growing just

Corey Greendale

there it easier universities somewhat has can you relatively might Do start department been you talk expect Do that open of the making competition so, you and to competitive think that the has start kind programs. – – I been increase? I that And Okay. may changing. think enough head the have maintain you from some direct for think a strength as environment of there benign assessment

Karl McDonnell

I got There think differentiated. strong of mouth. It's is is incredibly word FlexPath outcomes. tremendous

developed may and we So, competency-based attempt suspect the differentiated to it. are good just very direct a others FlexPath FlexPath to that's expertise we has continue we feel stronger and And that as will very Capella get do about real stronger a and program, that confident assessment fact notwithstanding assessments. I in very go.

Robert Silberman

regard is would may institutions the pressures do what's of is Rob. academic is assessment an and to competitive what particularly able the years of performance with these term, This difficult that's level to long has it's think, direct not same to very will a experience concerned Corey. The five on more rigor, we're going what other the the which on, the academic But well-run drive in do University programs. I that last build thing be, if over with Hey, to say there able that. people our to over been Capella focused be that regulations, to well build really very I'm program. of I short only is that term, lessening there And academically-sound, attempting

Corey Greendale

given on Strayer updated in-house, starting offer fair. you assessment that That's have to program? thoughts And any University direct that expertise

Karl McDonnell

would considering. is it by of then into may best be for something Education. that layers go is approval. is a classroom, individual that by we're and It fit to But and workplace of have very that be accreditor, fit Strayer see Department the program States, of would something the It's It the we two some Middle we're through Corey. a have actively FlexPath lot approved actively first subsequently competencies that on who side. considering, University to unique there Strayer's bring a students

Corey Greendale

been the up a that as things things can level, some things popping know proposed top-of-conversation proposing, of long are of to revenue make some hasn't are with which regulatory least you it lot requiring some efficient on and doing we're And XX% think of be sense, AI. state sure but as you late, huge heck at point, if I'm of a more as there's doing Okay. of being – institutions including you're I instruction, the may states spend at some on not

So, on a going about? you're focused at on anything level state particularly that concerned or

Karl McDonnell

to know given and business initiatives their a very at it government governmental regulated But availability attention that how been while, operate. propels really level to of at we this it's We students all be ought would credit a educations. for any pay heavily affect the that opportunity having we get to

and from at is whatever that's that out really track to heard everything, but things before universities keep in with of out we've will there's that the we So, nothing point popped always us this significantly there. compliance operate different about regulations are

Corey Greendale

over. Got I'll nice it Well, it. work and turn post-merger

Karl McDonnell

Thank you.

Robert Silberman

Thanks, Corey.

Operator

Thank you. and Rob today's back call over to session. Ladies remarks. any like Q&A concludes would closing I now the turn for this gentlemen, to

Robert Silberman

operator, everybody Thank participated. that you, thanks to and

July. with please specific or in other Karl we call Dan. And you again have you forward questions, If free feel to speaking look Thank to you.

Operator

gentlemen, and may conference. And conclude ladies participating wonderful for day. today's you Well, thank program. today's in all you Everyone, This a have disconnect. does