STRA

Strayer Education, Inc. (STRA)

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Strayer Education, Inc. (STRA)

Q3 2010 Earnings Call Transcript

October 28, 2010 10:00 am ET

Executives

Sonya Udler – SVP, Corporate Communications

Rob Silberman – Chairman and CEO

Mark Brown – EVP and CFO

Karl McDonnell – President and COO

Analysts

Sara Gubins – Bank of America

Corey Greendale – First Analysis

Trace Urdan – Signal Hill

Gary Bisbee – Barclays Capital

Amy Junker – Robert W. Baird

Kelly Flynn – Credit Suisse

Suzie Stein – Morgan Stanley Smith Barney

Ariel Sokol – UBS

Jeff Silber – BMO Capital Markets

Peter Appert – Piper Jaffray

Robert Wetenhall – RBC

Andrew Steinerman – JPMorgan

Brandon Dobell – William Blair & Company

Jerry Herman – Stifel Nicolaus

Presentation

Operator

Good morning, everyone, and welcome to Strayer Education Incorporated third quarter 2010 earnings results conference call. This call is being recorded. Following today’s call, we will offer the opportunity to ask questions.

At this time, for opening remarks, I would like to turn the call over to Strayer Education’s Senior Vice President of Corporate Communications, Ms. Sonya Udler. Please go ahead, Ms. Udler.

Sonya Udler

Thank you, operator. With us today to discuss the results are Robert Silberman, Chairman and Chief Executive Officer for Strayer Education; Karl McDonnell, President and Chief Operating Officer; and Mark Brown, Executive Vice President and Chief Financial Officer.

For those of you that wish to listen to the conference via the Internet, please go strayereducation.com where the call will be archived for 90 days. If you are unable to listen to the call in real time, a replay will be available beginning today, 1 P.M. Eastern Time through Friday, November 5. The replay is available at 888-203-1112, passcode 3416702. Following Strayer’s remarks, we will open the call for questions-and-answers.

I would like to remind everybody that today’s press release contains and certain information on this call may contain statements that are forward-looking and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act.

These statements are based on the company’s current expectations and are subject to a number of uncertainties and risks that the company has identified in the paragraph on forward-looking statements at the end of its press release and that could cause the company’s actual results to differ materially.

Further information about these and other relevant uncertainties may be found in the company’s annual report on Form 10-K and its other filings with the Securities and Exchange Commission. Copies of these filings and the full press release are available online and upon request from the company’s Corporate Communications department.

Now, I’d like to turn the call over to Rob. Rob, please go ahead.

Rob Silberman

Thank you, Sonya, and good morning, ladies and gentlemen. As is our custom, I’d like to begin this morning with a brief overview of both our company and our business model for any listeners who are new to Strayer. I’ll then ask Mark to report on our third quarter financial results and Karl to comment on our third quarter operational results, including our enrolment results for the fall academic term. Finally, I’d like to provide an update on our growth strategy, discuss the company’s earnings outlook for both Q4 and full year 2010 and share our thoughts on Strayer’s business model and our investment plans for 2011.

Strayer Education is an education service company, whose primary asset is Strayer University, a 60,000 student, 87 campus, post-secondary education institution, founded in 1892, which offers Bachelors, Masters and Associates degrees in business administration, accounting, computer science, public administration and education.

Unlike traditional universities, Strayer students are working adults who are returning to school to further their careers. Our revenue comes from tuition payments and associated fees. Approximately 75% of that revenue comes to us from federally insured Title IV loans. Our expenses include the cost of our professors, our admissions and administrative staff, marketing expenses and facilities and supplies cost. Strayer University is accredited by the Middle States Commission on Higher Education.

Mark, you want to run through the financials?

Mark Brown

Sure. Revenues for the three months ended September 30, 2010 increased 29% to $147.6 million compared to $114.4 million for the same period in ‘09 due to increased enrolment and a 5% tuition increase, which commenced in January of this year.

Income from operations was $38.2 million compared to $27.3 million for the same period in ‘09, an increase of 40%. Operating income margin was 25.9% compared to 23.8% for the same period in ‘09. Net income was $23.3 million compared to $16.7 million for the same period in ‘09, an increase of 40%.

Diluted earnings per share was $1.72 compared $1.21 for the same period in ‘09, an increase of 42%. Diluted weighted average shares outstanding decreased to 13,557,000 from 13,780,000 for the same period in ‘09.

Revenues for the nine months ended September 30, 2010 increased 27% to $464.8 million compared to $364.8 million for the same period in ‘09, due to increased enrolment and a 5% tuition increase which commenced in January of this year.

Income from operations was $156.9 million compared to $120 million for the same period in ‘09, an increase of 31%. Operating income margin was 33.8% compared to 32.9% for the same period in ‘09. Net income was $95.4 million compared to $73.2 million for the same period in 09, an increase of 30%.

Diluted earnings per share was $6.98 compared to $5.29 for the period in ‘09, an increase of 32%. Diluted weighted average shares outstanding decreased to 13,663,000 from 13,850,000 for the same period in ‘09.

At September 30, 2010, we had cash, cash equivalents and marketable securities of $124.8 million and no debt. We generated $141.4 million from operating activities in the first nine months of 2010 compared to $89.8 million during the same period in ‘09.

Our cash flow from operating activities in the third quarter 2010 was favorably impacted by $34 million of tuition proceeds related to the fall term that normally would have been received in the fourth quarter. These funds were received in the third quarter as a result of a September 30 deadline imposed by private lenders exiting the Title IV loan business.

On a full year basis we expect our operating cash flow growth to be in the mid teens. Capital expenditures were $32.1 million for the nine months ended September 30, 2010 compared to $22.1 million for the same period in ‘09.

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