Strayer Education (STRA)

Q3 2011 Earnings Call

November 03, 2011 10:00 am ET

Executives

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

Sonya G. Udler - Senior Vice President of Corporate Communications

Karl McDonnell - President and Chief Operating Officer

Robert S. Silberman - Chairman of the Board and Chief Executive Officer

Analysts

Trace A. Urdan - Wunderlich Securities Inc., Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Amy W. Junker - Robert W. Baird & Co. Incorporated, Research Division

Thomas Allen - Morgan Stanley, Research Division

Jeffrey M. Silber - BMO Capital Markets U.S.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Peter Wahlstrom - Morningstar Inc., Research Division

Presentation

Operator

Good morning, everyone, and welcome to Strayer Education Incorporated's Third Quarter 2011 Earnings Results Conference Call. This call is being recorded. Following today's call, we will offer the opportunity for questions and answers. At this time, for opening remarks and introduction, 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 G. 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 Time through Thursday, November 10. The replay is available at (855) 859-2056. Conference ID 94195606. 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 Provision 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 S. 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. Mark will then report on our third quarter financial results, followed by Karl commenting on our third quarter operational results including our student enrollment 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 2011 and share our thoughts on Strayer's investment plans and resolving business model for 2012.

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 bachelor's, master's and associate's degree 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 federal-insured Title IV loans. Our expenses include the costs 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 C. Brown

Sure. Revenues for the 3 months ended September 30, 2011, decreased 8% to $135.9 million compared to $147.6 million for the same period in 2010 due to lower enrollment, partly offset by a 5% tuition increase which commenced in January of this year. Income from operations was $24.4 million compared to $38.2 million for the same period in 2010, a decrease of 36%. Operating income margin was 18% compared to 25.9% for the same period in 2010. Net income was $13.9 million compared to $23.3 million for the same period in 2010, a decrease of 40%. Diluted earnings per share was $1.20 compared to $1.72 for the same period in 2010, a decrease of 30%. Diluted weighted average shares outstanding decreased 14% to $11,647,000 from $13,557,000 for the same period in 2010. Revenues for the 9 months ended September 30, 2011, increased 1% to $471.6 million compared to $464.8 million for the same period in 2010 due to a 5% tuition increase which commenced in January of this year, offset by lower average enrollments. Income from operations was $133.8 million compared to $156.9 million for the same period in 2010, a decrease of 15%. Operating income margin was 28.4% compared to 33.8% for the same period in 2010. Net income was $79.4 million compared to $95.4 million for the same period in 2010, a decrease of 17%. Diluted earnings per share was $6.58 compared to $6.98 for the same period in 2010, a decrease of 6%. Diluted weighted average shares outstanding decreased 12% to 12,055,000 shares from 13,663,000 shares for the same period in 2010.

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