STRA

Strayer Education, Inc. (STRA)

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Strayer Education (STRA)

Q2 2011 Earnings Call

July 28, 2011 10:00 am ET

Executives

Karl McDonnell - President and Chief Operating Officer

Sonya Udler - Senior Vice President of Corporate Communications

Robert Silberman - Chairman of the Board and Chief Executive Officer

Mark Brown - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Brandon Dobell - William Blair & Company L.L.C.

Ariel Sokol - UBS Investment Bank

Robert Craig - Stifel, Nicolaus & Co., Inc.

Maria Karahalis - Goldman Sachs Group Inc.

Peter Wahlstrom - Morningstar Inc.

Jeffrey Silber - BMO Capital Markets U.S.

Andrew Steinerman - JP Morgan Chase & Co

Amy Junker - Robert W. Baird & Co. Incorporated

Peter Appert - Piper Jaffray Companies

Kelly Flynn - Crédit Suisse AG

Sara Gubins - BofA Merrill Lynch

Arvind Bhatia - Sterne Agee & Leach Inc.

Suzanne Stein - Morgan Stanley

Gary Bisbee - Barclays Capital

Steven Bachman - RBC Capital Markets, LLC

Presentation

Operator

Good morning, everyone, and welcome to Strayer Education Incorporated's Second Quarter 2011 Earnings Results Conference Call. This call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Strayer Education's Senior Vice President of Corporate Communications, Ms. Sonya Udler. Ms. Udler, please go ahead.

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 to 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 at 1:00 p.m. Eastern through Thursday, August 4. The replay is available at (800) 642-1687, conference ID 78833654. Following Strayer's remarks, we will open the call for questions and answers.

I would like to remind everyone 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 Provisions of the Private Securities Litigation Reform Act. The 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.

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

Robert Silberman

Thank you, Sonya, and good morning, ladies and gentlemen. As it's 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 second quarter financial results and Karl to comment on our second quarter operational results, as well as our enrollment statistics for the summer academic term. Finally, I'd like to provide an update on our growth strategy, the company's earnings outlook for Q3 2011 and some thoughts on the Department of Education's recently finalized gainful employment rule making. Strayer Education is an education service company, whose primary asset is Strayer University, a 55,000 student, 92 campus, post-secondary education institution founded in 1892, which offers bachelors, masters and associate degrees in Business Administration, Accounting, Computer Science, Public Administration and Education.

Unlike traditional universities, Strayer University students are working adults, who are returning to college and graduate schools to improve their lives. Our revenue comes from tuition payments and associated fees, approximately 75% of that revenue comes to us from federal Title IV loans issued to our students.

Our expenses at Strayer Education, include the cost of our professors, our admissions and administrative staff, marketing expenses and facilities and supplies cost. We serve students in 20 states through fiscal campuses, as well as in all 50 states and over 30 foreign countries through our online courses. Strayer University is accredited by the Middle States Commission on Higher Education.

Now Mark, would you run through the financials

Mark Brown

Sure. Revenues for the 3-months ended June 30, 2011, increased 3% to $163.8 million, compared to $159.3 million for the same period in 2010, due to level enrollment and a tuition increase, which commenced in January of this year. Income from operations was $50.1 million compared to $58.7 million for the same period in 2010, a decrease of 15%. Operating income margin was 30.6%, compared to 36.8% for the same period in 2010. Net income was $29.6 million, compared to $35.7 million for the same period in 2010, a decrease of 17%. Diluted earnings per share was $2.53 compared to $2.60 for the same period in 2010, a decrease of 3%, reflecting a lower share count due to share repurchases. Diluted weighted average shares outstanding decreased to 11,737,000 from 13,704,000 for the same period in 2010. Revenues for the 6-months ended June 30, 2011, increased 6% to $335.7 million, compared to $317.2 million for the same period in 2010, due to increase enrollment and a tuition increase which commenced in January of this year.

Income from operations was $109.4 million, compared to $118.6 million for the same period in 2010, a decrease of 8%. Operating income margin was 32.6%, compared to 37.4% for the same period in 2010. Net income was $65.4 million, compared to $72 million for the same period in 2010, a decrease of 9%. Diluted earnings per share loss was $5.34, compared to $5.25 for the same period in 2010, an increase of 2%, reflecting a lower count -- a lower share count due to share repurchases. Diluted weighted average shares outstanding decreased to 12,263,000 from 13,716,000 for the same period in 2010. At June 30, 2011, the company had cash and cash equivalents of $50.6 million. The company generated $87.4 million from operating activities in the first 6 months of 2011 compared to $87.9 million during the same period in 2010. Capital expenditures were $18.1 million for the 6-months ended June 30, 2011, compared to $22.6 million for the same period in 2010. As previously announced, the Company entered into an amended and restated revolving credit and term loan agreement on April 4, 2011. This credit facility, which is secured by the assets of the company provides $100 million revolving credit facility and $100 million term loan facility, with a maturity date of March 31, 2014. Proceeds from the term loan were used to pay off the $80 million outstanding at March 31, 2011, under the original revolving credit facility. At June 30, 2011, the company had $100 million outstanding under its term loan and $15 million outstanding under it's revolving credit facility. During the 3-months ended June 30, 2011, the Company is $55.5 million to repurchase approximately 434,000 shares of stock at an average price of $127.73 per share, as part of a previously announced stock repurchase authorization. During the 6-months ended June 30, 2011, the Company used $182.7 million to repurchase approximately 1,370,000 shares of stock at an average price of $133.32 per share. The company's remaining authorization for stock repurchases was $25 million at June 30, 2011. During the 6-months ended June 30, 2011, the company paid regular quarterly dividends of $25.2 million or $1 per share for each of the quarterly dividends. For the second quarter 2011, bad debt expense as percentage of revenues was 4.1% compared to 3.6% for the same period in 2010. Days sales outstanding was 12 days at the end of the second quarter of 2011, compared to 11 days at the end of the second quarter of 2010. Rob?

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