Q3 2020 Results November 5, 2020 Forward-Looking Statements - - PowerPoint PPT Presentation

Q3 2020 Results

November 5, 2020

Forward-Looking Statements

November 5, 2020 2

Statements Under the Private Securities Litigation Reform Act of 1995 Statements in this presentation are “forward-looking statements” under the federal securities laws. Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” “potential” and other similar words, and include all statements that are not historical facts, including with respect to, among other things, the future financial performance and growth opportunities

• f Strategic Education, Inc. (Strategic Education); Strategic Education’s plans, strategies and prospects; the impact of the current COVID-19 pandemic on

Strategic Education’s business and results; and future events and expectations. The statements are based on Strategic Education’s current expectations and are subject to a number of assumptions, uncertainties and risks, including but not limited to: Strategic Education’s continued compliance with Title IV

• f the Higher Education Act, and the regulations thereunder, as well as regional accreditation standards and state regulatory requirements; rulemaking by

the Department of Education and increased focus by the U.S. Congress on for-profit education institutions; the pace of student enrollment; competitive factors; risks associated with the further spread of COVID-19, including the ultimate impact of COVID-19 on people and economies; the impact of regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements; risks associated with the opening of new campuses; risks associated with the offering of new educational programs and adapting to other changes; risks associated with the acquisition of existing educational institutions, including in the case of Strategic Education’s acquisition of Laureate’s Australia and New Zealand business, the risk that the benefits of the acquisition may not be fully realized or may take longer to realize than expected, and the risk that the acquisition may not advance Strategic Education’s business strategy and growth strategy; risks relating to the timing of regulatory approvals; Strategic Education’s ability to implement its growth strategy; the risk that the combined company may experience difficulty integrating employees or operations; risks associated with the ability of Strategic Education’s students to finance their education in a timely manner; general economic and market conditions; and additional factors described in Strategic Education’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Many of these risks, uncertainties and assumptions are beyond Strategic Education’s ability to control or predict. Because of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. Furthermore, these forward-looking statements speak only as of the information currently available to Strategic Education on the date they are made, and Strategic Education undertakes no obligation to update or revise forward-looking statements, except as required by law. Actual results may differ materially from those projected in the forward-looking statements. All Strategic Education filings are available for viewing on our website at www.strategiceducation.com.

2019 SEI Results

November 5, 2020 3

• Educated 91,000 students
• Received $997 million in revenue
• Spent $803 million to educate those students
• Generated $194 million in adjusted operating income and $6.67 of adjusted EPS

November 2019 SEI Investor Day 2020 Business Model

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• Increase student enrollment by approximately 5%
• Hold revenue-per-student roughly flat
• Increase operating margin, and grow adjusted operating income (and adjusted EPS) by

at least 10%

November 5, 2020 5

90 95 84 86 88 90 92 94 96 2020 2019 6%

Enrollment

492 521 450 460 470 480 490 500 510 520 530 2019 2020 6%

Revenue

99 128 80 90 100 110 120 130 2019 2020 29%

Adjusted EBT*

3.25 4.17 3.0 3.2 3.4 3.6 3.8 4.0 4.2 2019 2020 28%

Adjusted EPS*

First Half 2020 Results Were Well On Track

*Non-GAAP measures – see slide 17 for a description of SEI’s use of non-GAAP financial measures

Impact of Pandemic on SEI’s Q3 Results

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• Strayer University enrollment declined 1%, driven by a 28% decrease in new students

for the summer academic term, which we pre-announced in July

• Capella University’s enrollment remained strong, with new and total enrollment growing

4%, which was significantly better than we expected in July

• Results highlight differential economic impact on undergraduate vs graduate programs,

and Capella University’s long history as a fully online institution

• Generous discounting and scholarships to support our students leads to a 2% reduction

in SEI’s revenue-per-student

November 5, 2020 7

88 89 85 86 87 88 89 90 2019 2020 1%

Enrollment

242 239 210 220 230 240 250 2020 2019

• 1%

Revenue

39 38 35 36 37 38 39 40 2020 2019

• 3%

Adjusted EBT*

1.28 1.18 1.10 1.15 1.20 1.25 1.30 2019 2020

• 8%

Adjusted EPS*

Q3 2020 Consolidated Results

*Non-GAAP measures – see slide 17 for a description of SEI’s use of non-GAAP financial measures

November 5, 2020 8

91 92 85 86 87 88 89 90 91 92 2020 2019 2%

Enrollment

997 1,000 900 920 940 960 980 1,000 2019 2020 0%

Revenue

204 210 170 175 180 185 190 195 200 205 210 2020 2019 3%

Adjusted EBT*

6.67 6.65 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 2019 2020 0%

Adjusted EPS*

Full Year 2020 Outlook if Q3 Enrollment Trends Continue (Excluding ANZ Acquisition)

*Non-GAAP measures – see slide 17 for a description of SEI’s use of non-GAAP financial measures

Response to Current Trends

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To address the possible continuation of Q3 demand trends, we are taking significant action to support students and maintain our financial strength as we close 2020 and begin 2021

• Most importantly, we are undertaking a reorganization and expense rationalization

initiative that commenced in September

• We are prioritizing investments in growth opportunities, including our B2B teams, Sophia,

and our Digital Enablement Partnerships initiative

• We have closed our acquisition of Torrens University and its other educational assets in

Australia/New Zealand, which will provide significant earnings accretion in 2021

Reorganization and Expense Rationalization

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• Reorganizing around three divisions
• U.S. Higher Education
• Alternative Learning
• Australia/New Zealand
• Accelerating rationalization of on-ground infrastructure which will reduce run rate real

estate operating expense by approximately $7.5 million starting 2021

• Rationalizing other spend to reduce overall operating expense by another approximate

$25 million in 2021

• We expect a restructuring charge of approximately $30 million between Q3 2020 and Q1

2021

Planned Segment Reporting Starting Q4 2020

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Segment Description US Higher Education Strayer University, including Jack Welch Management Institute, and Capella University Alternative Learning Sophia Learning, DevMountain, Hackbright Academy, Workforce Edge, Digital Enablement Partnerships Australia/New Zealand Torrens University, Media Design School, Think Education

Investing In 2021 Opportunities

November 5, 2020 12

• Continued focus on B2B
• Demand from employer channel grew 10% in 2020
• 2021 employer growth should shift mix of employer funded students from 20% to 30%
• Growing B2B team in 2021 by almost 30%
• Cost per acquisition for employer enrollments approximately 30% of non-employer CPA
• Employer enrollments persist about 200 basis points better than non-employer
• Investing significantly in new Workforce Edge platform to support employer growth
• New partnership with Noodle to leverage the Workforce Edge platform
• Sophia
• Investing in new disciplines, non-degree certificates, and courses
• New subscription model driving rapid growth, from zero to 13,000 subscribers in three months
• Key to new innovative employer education benefit offerings
• Expecting subscription growth in 2021 of 50%+, and revenue growing to $12 million+ from $3 million
• Digital Enablement Partnerships
• Investing in commercializing capabilities in course development, online delivery, and student support
• Launching new culinary short-course program with Sur La Table

Update on Australia/New Zealand Acquisition

November 5, 2020 13

• Acquisition closed on November 3rd
• On track to exceed original 2020 plan for both revenue and EBITDA
• Assuming current trend continues, the Australia/New Zealand assets will contribute

approximately:

• USD$270 million in 2021 revenue, 10% annual growth
• USD$60 million in 2021 EBITDA, 10% annual growth
• Torrens University is the only investor funded University in Australia and is uniquely

positioned to accelerate online innovation in Australia’s higher education sector

Full Year 2021 Notional Business Model

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Assuming continuation of Q3 enrollment trends

• Divisional performance:
• US Higher Education: Weaker enrollment and revenue in first half, stabilizing in second half; driven by continued impact of

pandemic on Strayer University demand, offset by growth at Capella University

• Alternative Learning: Significant growth in employer sponsored enrollment and revenue, coupled with strong subscription

and revenue growth at Sophia

• Australia/New Zealand: $270 million revenue and $60 million EBITDA contribution driven by continued enrollment growth

as Torrens University proves very competitive in the current mostly online Australian higher education market

• Consolidated performance:
• GAAP revenue: Approximately 15% growth driven by ANZ and Alternative Learning, offset by weak to stabilizing

enrollment at US Higher Education

• Adjusted EBITDA: Flat versus 2020
• Other: 29.5% tax rate, and share count of 24.2 million
• Capital expenditures: $50 to $55 million

In Summary: Solid Financial Footing Enables Flexibility to Execute Thoughtfully

November 5, 2020 15

• Continued cash accumulation, projecting $450 million in liquidity at year-end, and $500

million+ by end of 2021

• Focus will continue to be on student outcomes
• Comfortable with and can sustain wide variations in student enrollment
• We do not try to push or create demand in periods of economic distress for our students
• Positioned well to take advantage of accelerated demand for high-quality online

educational services, and plan to invest accordingly

In Summary: Ongoing SEI Objectives

November 5, 2020 16

• Maintain the highest academic quality at all of our educational institutions
• Successfully integrate ANZ assets into SEI
• LOWER the cost of attendance, and the occurrence of debt for all of our students
• Manage our expense base efficiently to fully support our academic mission, and be

prepared for a post pandemic increase in student enrollment

• Continue to invest in academic innovation
• Deploy our financial capital for the highest long term return, including returning surplus

capital to our shareholders

Non-GAAP Financial Measures

November 5, 2020 17

These materials report certain financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States of America ("GAAP"). We discuss management's reasons for reporting these non-GAAP measures below, and our publicly available financial information reconciles the most directly comparable GAAP measure to each non-GAAP measure that we reference. Although management evaluates and presents these non-GAAP measures for the reasons described below, please be aware that these non-GAAP measures have limitations and should not be considered in isolation or as a substitute for revenue, total costs and expenses, income from operations, operating margin, income before income taxes, net income, earnings per share or any other comparable financial measure prescribed by GAAP. In addition, we may calculate and/or present these non-GAAP financial measures differently than measures with the same or similar names that other companies report, and as a result, the non-GAAP measures we report may not be comparable to those reported by others. Management uses certain non-GAAP measures to evaluate financial performance because those non-GAAP measures allow for period-over-period comparisons of the Company’s ongoing operations before the impact of certain items described below. These measures are Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), Adjusted EBITDA and Adjusted Diluted Earnings Per Share (EPS). We define Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted EPS to exclude (1) amortization and depreciation expense related to intangible assets and software assets associated with the Company’s merger with Capella Education Company, (2) integration expenses associated with the Company's merger with Capella Education Company, and transaction expenses associated with the Company’s acquisition of the Australia and New Zealand operations of Laureate, (3) severance costs associated with the Company’s restructuring, (4) income recognized from the Company’s investments in partnership interests and other investments, and (5) discrete tax adjustments utilizing an adjusted effective tax rate of 28.0% and 28.5% for the three months ended September 30, 2019 and 2020,

• respectively. We define EBITDA as net income before other income, the provision for income taxes, depreciation and amortization, and from this amount

in arriving at Adjusted EBITDA we also exclude stock-based compensation expense and the amounts in (2) and (3) above. Please see the press release filed as Exhibit 99.1 to the 8-K dated November 5, 2020 and available on our website at www.strategiceducation.com and our Form 10-Q for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. Non-GAAP measures should not be viewed as substitutes for GAAP measures. These materials also include certain non-GAAP forward-looking information. Management believes that a quantitative reconciliation

• f such forward-looking information to the most comparable financial measure calculated and presented in accordance with GAAP cannot be made

available without unreasonable efforts. A reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of acquisition costs and benefits, changes in accounting principles and other changes. Neither these forward-looking measures, nor their probable significance, can be quantified with a reasonable degree of accuracy.

Q3 2020 Results

November 5, 2020