STRA - Earnings call transcript Q2 2019 | Strategic Education, Inc.

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Operator

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

Terese Wilke

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

Following will call open for remarks, we the questions.

based Education's call XX-Q and report of forward-looking provisions Form website to that are statements Strategic today's differ XX-Qs subject materially. Private the the Please well about viewing cause Copies XXXX. of these at and could Education's be number uncertainties to other to statements Securities release Litigation pursuant relevant as of X-Ks, for actual information uncertainties the full other recent expectations identified release this Strategic and XX-K, press on and Strategic most Securities filings note the Act on made the may as on press future to a may available today, risks results that in include in of Reform are Education and filed and be The Commission are harbor current the assumptions, with strategiceducation.com. these safe have filings XX-Ks. Further Exchange annual and found that

And please now, over go call I'd Rob, like to to ahead. Rob. turn the

Robert Silberman

Thank you, Terese, and good morning, ladies and gentlemen.

the forward results tremendous integrating of to in We put effort quarter on the of both and founding the two his anniversary well Education. companies. of here as Strategic merger are team company's the X-year that as the be second reflect delighted the Strayer successfully logic The strong today have Karl Capella

course, our Karl? on will will ask and stay as questions. Karl operating the results as financial then, second for long for This morning, the provide results second of academic have And our quarter. quarter. will you provide we for to details Dan detailed I

Karl McDonnell

Rob, Thanks, everyone. good morning, and

Capella work our earnings Education its just completion. solid, revenue increased of resulting financial forma of second On product were operating Our XX%, growth Company very pro of with integration income an per performance quarter once nearing results merger expense $X.XX net combined was again adjusted growth, with in X%. and operating and That the SEI's X% is share. basis, additional

of net synergies of $X second million quarter, expense synergies realized year-to-date $XX merger operating in $XXX merger Our million. of was and million realized are the

University operating the margin Our from prior productivity were points, points organic operating versus increased and remained to year increased operating new grew our enrollment basis our margin enrollment from XXX points pretax synergies prior basis margin X% the increased income Strayer's to XX.X%, universities. and Capella's increased XX.X%. their increased XXX total which Strayer's both at points total new XX%, XXX and and respectively. XX% results were X% from XXX XXX year. segments, basis and of and increased basis Within gains. points basis enrollment Capella's X% strong Enrollment

New FlexPath enrollments increased total increased XX%. and FlexPath Capella enrollments at XX%

non-doctoral now students, from XX% in year. Capella of prior the FlexPath comprises XX% up

quarter. first its University track in Strayer second opened Florida open track in in Texas, of XXXX, Orlando, open remains the second on physical X a ever Capella first Killeen, quarter, the campus second half remains while the in campuses its During new location Strayer and in its opened to Capella opens Georgia. additional location on Atlanta, new X -- to to third

quarter, loss compared year. a generated in the second to of segment the first, operating slight its $X prior million in Non-Degree SEI's a profit

into of this XXXX segment through positive XXXX. and the expect balance to income remain We operating

Education And integration with finally, the merger is completion. nearing Company Capella

or quarter target. of of Many technology completed were $XX service As without of integration most million our $XX company's the million of implemented interruptions the the projects second during has run company savings end of the complex outages. successfully any quarter, the out meaningful second rate

to like Strayer's professionalism been to initial Strayer's just continued activities of by various once again, colleagues thank experiences. on inside all deployed remaining XXXX. have All dedication Capella's results. I track my whose across end And AI-enabled platforms integration-related completed have initial enabled SEI remain in with services with line be student-facing of these the results of and

that, I'll with Dan. turn over to And it

Daniel Jackson

XXXX. everyone. X, prior and that University you, which financial segment results reporting to consolidated and August Today, the at which Programs results Strategic our segment, the camp occurred exclude that Capella Thank Education segments, Karl, good consolidated University includes for coding three morning, boot results and Sophia. we're the Inc., Note Non-Degree includes businesses Strayer the Capella Company Education, our segment,

For please quarter quarter website. earnings posted level a our Relations to of section release deck slide second second view Investor of pro XXXX results, segment our forma see the the

in also the financial references GAAP performance of which our to adjusted non-GAAP. our remind addition as that earnings I as as reflected adjusted are illustrate release results. is reported the GAAP well to are format as results, want everyone core intended numbers This results, to in business the

Design earnings expense information. related and Capella acquired the additional assets merger, merger, financial and tax release the and certain integration interests to of in New + amortization The Please adjustments. exclude results investments to other we morning and included the transaction issued income non-GAAP in discrete for investments York second associated adjusted costs information refer Our this assets Academy, from the partnership quarter with Code impairment intangible goodwill in associated with

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

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

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

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

in and costs. operating Second for assets Design $X.X million merger-related New income of + adjusted and impairment $X.X intangible The associated quarter million Code goodwill XXXX excludes with York Academy

$X.X same period million the Second adjusted income net in quarter XXXX was of for XXXX. income $XX.X adjusted net million compared to

Adjusted XX.X%, impact quarter other was intangible investments which share adjusted in for income compared amortization costs, earnings the of $X.XX discrete per diluted to XXXX rate and certain partnership and the The adjustments. assets, from tax interests of excludes tax XXXX. was $X.XX effective merger second of

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

and Moving classes by to revenue rate. a per driven second the Strayer for improvement results. University second $XXX.X quarter per student higher student reflected to second segment increase XX.X% in and quarter during segment revenue our million quarter an million quarter student. $XXX.X increased Revenue in XXXX, from drop per higher enrollment lower the

operations the segment to flat XXXX year the mixed to student to and for paying We for the students. income slightly for to from XX.X% for the increased XXXX. in be the continued due second million down segment quarter University to $XX.X the per corporate-sponsored Strayer from to $XX.X expect quarter lower million revenue scholarships last year Strayer from XX.X% full improved higher margin operating and shift

University was quarter higher revenue segment higher Capella million, and the per $XXX.X for revenue learner. enrollment reflecting

from and to July For operating the by year the XXXX, we Capella our for by million expect higher tuition students in XX.X%. Income and segment mixed FlexPath shift margin was from for full was higher University continued at enrollment corporate-sponsored have the slightly $XX.X commenced lower operations lower cost paying programs. driven that learner the offset revenue quarter increases XXXX, per Capella

same year, due segment of in Programs Non-Degree last the for XXXX. from DevMountain, period revenue mainly from from $XXX,XXX operations the revenue the and inclusion increased to XXXX million to million Hackbright Sophia. in $X was $X.X $XXX,XXX loss to Academy, compared QX Income of a

in Moving $XXX.X securities the to the cash million $XXX.X balance of of with cash first $XX from and compared period no months million And ended flow. XXXX. cash, operations during in equivalents and We generated sheet XXXX the cash in debt. the to quarter and marketable same X million

for same $XX in compared the Our for to XXXX was same to between bad expect And million compared the the period we million X.X% maintain year to X.X% $XX.X revenue credit XXXX, for capital of of expenditures And million the finally, continue to debt in first year. continue revolver. expense full Capital $X.X half quarter for available to Rob? our million last in and were $XXX million. XXXX. we expenditures on the be $XX period second

Robert Silberman

Thank you, Dan.

I Before remind an to our be Washington, will of third earnings quarter November for The questions, available X Investor logistics it will that serve just I hold Day in everyone wanted call. that website. and on we on up details DC, as open which our Day Investor will

be And any with questions. that to we'll operator, pleased answer

Operator

[Operator Instructions].

Markets. of Silber Jeff question BMO Capital the with Our comes line first from

Jeffrey Silber

side, but synergies You had side this. I'm you're potentially track. just importantly, either merger the going the Do only on in -- may you that forward? mentioned synergies not to the now into there's be more from expense we're curious, the on on be know, think terms revenue you more of

Karl McDonnell

early say, we of Sure. the approach to to think Jeff, XXXX continue have expenses. a operating cost too I disciplined managing think, our to in about it's than savings. to slightly Other way

we've of some gains. technologies significant have And on certainly deployed the side productivity the Strayer that generated some pre-merger

I of have not, Orlando Capella the moving for think year It's XXXX. center the the we early But likely we'll that's think synergies, see, the next focus later largest the seeing think, early location. locations do And to or potential I to student opening very of the we when over We'll quarter. into if data, synergy So to looking is whether we two. revenue in quite physical positive. largest be revenue Capella. opportunity productivity the But we're is similar data that some Atlanta the or continue I on get be identified for open Capella opportunity

Jeffrey Silber

great. Okay,

potential believe I the has some the more a and of economy their business cyclical may business Are or I be the seeing bit your I we're other seeing in going all? think of here I that at of because as know you the corporate past, exposure strong, team signs that feeling as was still any countercyclical not might that's little your on helpful. weakness companies, is side. or of partnership but think, your be thought there.

Karl McDonnell

our of demand. that all say I of slowing No. seen any levels. sort we've seen We've wouldn't across growth macro down of degree

we've something So so not far, that Jeff. that's seen

Jeffrey Silber

helpful. That's Okay.

Robert Silberman

I definitely Jeff, would agree this is your with assertion. Rob.

view actual impact after impactful, as employment that to as the system strong definitely biggest, we acyclical that has felt I had have, less level destroys we've or working Our think, countercyclical. not macro long real on a that stays but adult-focused were high, The both business And negative may degrees our like employment get because is impact cycle confidence. university we that if always think, confidence is us. you 'XX, the of relatively relationships overall is the shock be a I corporate that, and we

Jeffrey Silber

just I Great. correct? these residents check not about school. today Is impacting an that for-profit Appreciate market the There run want is in the that attending issue and double of or you Good. noise lot to for California some schools This of see rules that. online you. that Okay. are are is a potential non-for-profit proprietary.

Robert Silberman

not It's whatsoever. issue an Correct.

Jeffrey Silber

Okay. Great.

that. wanted any to the for back half then queue. expenses operating double one what in I'll year? on Just And the more Can check just gauge you're in expecting jump of you give us the of and back

Karl McDonnell

Jeff, Pro on I forma still to slightly originally in operating expenses think, be that. was. what, for about track we're above going talked we flat we're to XXXX,

Operator

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

Corey Greendale

a So of questions. quick couple

you at when been has that Karl, First, AI Capella. said student-facing deployed

about there or that's of deployed? uses is in talking the classroom the been sort were classroom outside use You some

Karl McDonnell

some room. and deployed has has both. inside around various chat engagement, function technology to been assistant classroom its the been the Those technologies other of on It's have deployed that then Strayer scale used support faculty online Capella's student tools. inside virtual course feedback, also for video function Capella. online And The student

Corey Greendale

a may the that of than that's also I you it's to think because bit? And just of what's to how working same And widely be the to good, at the deployed? outlook tougher going Strayer. your get more be there's classes be that could how but conceptionally have thinking? part, at little returns I so kind many leverage at you kind Capella early Could just just elaborate said in-classroom But relative Strayer? been just know

Karl McDonnell

across I Well, I'm all could of and Strayer describing. be course it deployed the tools online room, think, that Capella's

But early productivity correct just likely asserting on that disparate course yield the catalog. Strayer we've we expect side data perhaps to You're slightly course things that do to that. that engagement, student of a higher on I'm improved seen completion more in see better increases in like it's drop drops. same they kind have similar the that, in because not more is rates, the rates, In gains on describing

Corey Greendale

more you revenue it than other you of random that that per that drove sounds in terms per think don't the student walk? helped like, the student point anything Okay. And is dynamic at there of that's Strayer, but classes dynamic would to sustained,

Robert Silberman

Yes. a but variable is Corey, the volatile, not classes from bit per student volatile, quarter-to-quarter.

anything necessarily earlier. again, basis. that students, and is mentioned shift it's And that not though continue. But in paying model as So I we mixed real. we rate drop to mentioned, that's Karl lower offset to as again forward-looking on improvement scholarships by a expect corporate The that

Corey Greendale

And at the Capella? tuition Yes. average increase what the was of magnitude

Robert Silberman

X%. about It's

Corey Greendale

Okay.

has of realized market getting but the environment since number is sort from company, And competitive commented know, given of reasons, certainly a competitive different times, but environment of of for at part big look at tougher. pretty And but any don't going on down I is them to you're XU's are, they that, totally that, at they the other shifted. stock reporting few you're a the a you

So from differences of the or competitors particularly you students the non-profit just have seen question, economics year that? your around -- any like the attracting driving that's anything over pegging -- changes anything the last in

Robert Silberman

institution universities the that XX swamp And and good the been I that of very of to sure, reputation that always years that even we've two am which your drives of the use we're impact. schools larger there almost compete number And a run health first-rate product. the think an years your with I alumni over we've the And the the for a you not and and well tends do we're XU large our sort a commitment different in for of university. demand. time, of supply is private of would it part of and universities, has in But market. the that a has say if like running mean these job said students state institutions. educational I Corey, classroom competitive supports. we there's that view any And that

on have like, of about the we've we garnering we're sort future ever companies, good pretty the comment Karl So that companies, in morning position. by two other reported both we're and combination on feel efficiencies but based the that team we universities the the view and confident don't this the results that of the and of a

Operator

Our question the next from Alex of Paris with Barrington comes line Research.

Huang Howe

here Howe is for sitting you. Chris This some questions in for Alex. have I quick

your we well, about growing far Are as on this characterize forward? where as rate in FlexPath, up early Just evolution we go And then more your should position outlook? FlexPath then longer of -- would innings? no, following ahead. been the maintaining we move you it's XX%-plus. term as your how as in look in And And think we growth

Karl McDonnell

a students question early and FlexPath Sure, through has half speak. in in say the enormous it's just an to get on probably cost. proposition that the to time so I'd the still essentially enabling FlexPath, degree value half program innings, therefore,

economic to value substantial and is improve there created looking speaks more So their value are proposition that people volumes student. them. the that's being condition to And more for as a

that very to continue FlexPath I to hope Capella we FlexPath personally, expand and and look And will Strayer I'm grow eventually, will offerings. confident so

Huang Howe

competition. on That's or question FlexPath, comes helpful. maintained? are previous in your to quarter? has you the a And then seeing market More any been this position when competitive specifically up Or past change strength following about it

Karl McDonnell

which of only Capella their No. X Education both programs, of country I the Title programs direct note is With and in the is. approved that by regard for to should X in for FlexPath FlexPath, participate IV that is Department competition to institutions assessment accreditor

company the product FlexPath in is clearly having by our So advantaged portfolio.

Huang Howe

relates for last in doing Capella to the as my Orlando. is Atlanta in in you're what of locations to it Okay. just physical and then regard And question kind

at should launch more conjunction out are goals openings? short-term recent launch you the look As you as of -- these or establishing look we into further XXXX, we campuses campuses your the campus development with will to existing in planning

Karl McDonnell

campus we student no the really on-ground for classes. center. Before use are I clarify, when to just There answer that, phrase University, it's Capella wanted support I a

I So to on will to we their Capella additional in your But XXXX. locations, early put It's is too suspect, question, locations get way open there's there Strayer's. to not a instruction number University the on-ground in in for that.

we start dynamics of are But to integration operation. branded were that One target is intend before together, Universities sizing is facility of of of revenue now end locations around and that we just that of it's Strayer kind when this year, number to year, a Capella typically, what last test, synergies we with following between the end calendar years. and to see the open that the hopefully in the the both the the

little a ahead now. that So we're of just right

Operator

further queue would turn I for time. now back call like this no are remarks. closing at Silberman the There the Robert questions in to to

Robert Silberman

you, thank Thank operator. And gentlemen, ladies and participating. for all, you

we at outset, a look those As Presidents alumni. where how initiatives full of you showcase our forward be November and some all students that Washington, and the on I DC. able University of academic we to said seeing Karl helping have in to Xth will and the the Investor are Day, have We'll

you look forward other have Please very us you seeing we then. So questions, contact if and much. to you thank any

Operator

This participating Ladies today's and conclude today's for program. gentlemen, thank conference. you in does

disconnect. all have great may Everyone, day. a You

Strategic Education (STRA) 31 Jul 192019 Q2 Earnings call transcript