INVESTOR DAY 2019 - s22.q4cdn.com · INVESTOR DAY 2019 THURSDAY, NOVEMBER 7 Washington, D.C. ......
Transcript of INVESTOR DAY 2019 - s22.q4cdn.com · INVESTOR DAY 2019 THURSDAY, NOVEMBER 7 Washington, D.C. ......
INVESTOR DAY 2019
THURSDAY, NOVEMBER 7Washington, D.C.
Forward-looking statements
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 of SEI; SEI’s plans, strategies and prospects; and future events and expectations. The statements are based on SEI’s current expectations and are subject to a number of assumptions, uncertainties and risks, including but not limited to: SEI’s continued compliance with Title IV of 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 growth of student enrollment; competitive factors; 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 acquisitionof existing educational institutions; risks relating to the timing of regulatory approvals; SEI’s ability to implement its growth strategy; the risk that the benefits of the merger with Capella Education Company, including expected synergies, may not be fully realized or may take longer to realize than expected; the risk that the combined company may experience difficulty integrating employees or operations; risks associated with the ability of SEI’s students to finance their education in a timely manner; general economic and market conditions; and additional factors described in SEI’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 SEI’s ability to control or predict. Because of these risks, uncertainties and assumptions, you shouldnot place undue reliance on these forward-looking statements. Furthermore, these forward-looking statements speak only as of the information currently available to SEI on the date they are made, and SEI undertakes no obligation to update or reviseforward-looking statements, except as required by law. Actual results may differ materially from those projected in the forward-looking statements. All Strategic Education, Inc. filings are available for viewing on our website at www.strategiceducation.com.
ROBERT S.SILBERMANExecutive Chairman
Welcome
• Previously Chief Executive Officer, Strayer Education, Inc., from 2001 to 2013
• Prior roles include President and Chief Operating Officer of CalEnergy Company, a subsidiary of Berkshire Hathaway, and U.S. Assistant Secretary of the Army (presidential appointment)
• MA, Johns Hopkins University, School of Advanced International Studies
SEI Board of Directors
• Strategy
• Leadership
• Culture
• Capital
KARL McDONNELLPresident and Chief Executive Officer
SEI and economic mobility
• Previously Chief Operating Officer, Strayer Education, Inc., from 2006 to 2013
• Prior roles include Chief Operating Officer of InteliStaf Healthcare, Vice President of the Investment Banking Division at Goldman, Sachs & Co., and held senior management positions with several Fortune 100 companies, including The Walt Disney Company
• MBA, Duke University
Brian Jones, President
• Founded 1892
• 51,000 working adult students (Q3 2019)
• 75% undergraduate, 25% graduate
• Business and technology focused
• Majority of instruction delivered online
• More than 75 campuses located mainly in the eastern United States
• Jack Welch Management Institute
Dick Senese, President
• Established 1993
• 38,000 working adult students (Q3 2019)
• 70% graduate, 30% undergraduate
• Health, social science, education, business, and technology focused
• 100% online
• Testing new campus centers in 2019
Focused on delivering 21st century job-relevant skills to consumers and corporate clients
SEI is a national leader in post-secondary education and well positioned to be successful in a rapidly changing environment.
We exist to create a substantive return on our student’s education investment, and engender as much income mobility as possible.
• Always scanning the horizon looking for opportunities and threats
• A culture of experimentation with dozens of active pilots underway at any moment in time
• In a state of perpetual transformation with real-time resource allocation versus a more static budget approach
• An agile organization willing to change anything and everything to improve learning outcomes
Innovation timeline
2012 2013 2014 2015 2016 2017 2018 2019
Strayer Leads on Affordability
Capella Launches Learner Success Program
Strayer and Capella Early Adopters of Predictive Analytics
Capella launches FlexPath
Capella acquires Sophia
Strayer launches Degrees@Work
Strayer launchesStrayer Studios
Strayer Begins Building ArtificialIntelligence Capabilities
Strayer/Capella Merge to Create SEI
New Employability Function Launched
Current and emerging trends
• Best-in-class online infrastructure
• Competitively advantaged instructional models
• Most advanced AI capabilities in higher education
The future of education is digital
• Launched employability function
• Completely reengineered general education curriculum
• Proprietary network of employers
• Launching apprenticeship program for new high school graduates
Degree attainment not a guarantee of professional success
• Over 750 employer relationships
• Invented employer-funded debt-free degree program, including family members
• Expanding capabilities to address broad set of learning and development needs
• Two new major client relationships: – Top 5 healthcare provider– Top 10 retailer
Employers taking more active role in educating their workforce
Our culture
• Mission-driven organization
• SEI leaders are completely intolerant of the status quo
• A deep bench of talented professionals
• Top global quartile on organizational health and top decile on leadership in back-to-back years
Agenda8 AM – 12 PM Welcome – Robert Silberman
SEI and economic mobility – Karl McDonnell
Flexibility and affordability through FlexPath – Richard Senese, PhD
BREAK
Transforming online instruction and support with artificial intelligence and automation – Joe Schaefer
Employability update – Andrea Backman, PhD
Campus strategy – Andy Watt
BREAK
SEI marketing update – Jen Towns
SEI financial update – Dan Jackson
Question and answer
12 – 1:30 PM Lunch panel: Strayer and Capella University alumni and faculty
1:30 PM Thank you and closing remarks; proceed to Strayer University campus tour
• Previously Chief Academic Officer and Vice President of Academic Affairs, Capella University
• Prior roles include leadership positions with the University of Minnesota Extension and faculty positions at Metropolitan State University and St. Olaf College
• Licensed psychologist in Minnesota
• PhD, University of Minnesota
RICHARD SENESE, PhDPresident, Capella University
Flexibility and affordability through FlexPath
FlexPath:
Radical idea to measure learningnot seat time.
FlexPath: Innovation at Scale
FlexPath: Take control and learn smarterSM
An award-winning learning format, only at Capella University
Why Capella?
Reputation and Confidence
ExistingCompetency-Based
Curriculum
Designed for today’s learners
FlexPath = Competency-Based Education + Direct Assessment
Competency-based education
A Combination ofTheory + Practical
ApplicationDelivered Through
Three ElementsCURRICULUM
FACULTYAUTHENTIC ASSESSMENTS
Always know where you are!
• Responsive to adult learners• Immediate feedback with real-time
updating of map• Maintains motivation and fosters
mastery• Transparency of progress,
strengths, and opportunities
Competency Map
Competency map – learner’s view
Direct assessment: measure learning not time
Traditional Credit-Hour FlexPath
Time Spent
Knowledge Acquired
Significant academic results and gains
23% Higher Persistence Rate
59% Faster Bachelor’s Completion
42% Faster Master’s Completion
Subscription-based tuition equals real savings
45% Less Borrowing
59% Less Tuition Billed
Alumni voices
It’saffordable
It’s a valuable investment in your
future
It makesgetting your
degree possible
It helps you reach your goals faster
It’s flexibleto fit your life
Employer partnerships
Capella University partners with
600+employer partners,
79%have employees in
FlexPath
57%of new learners fromall employer partners
65%of new learners fromhealthcare partners
Aligning with employer needs
Employers
Position
Desired Skills & Abilities
Demonstrated Competence
Performance History
Higher Ed
Degree Program
Course
Activity
Assignments
Outcomes
Competencies
Criteria
Competency Evaluation
Aligns with employer needsApplies immediately to the workplace
Capella
201920182017201620142013
FlexPath in our portfolio
19 undergraduate offerings and 20 graduate offerings
Growth of FlexPath
30%
0%
5%
10%
15%
20%
25%
30%
35%
Q4 '13 Q4 '14 Q4 '15 Q4 '16 Q4 '17 Q4 '18 Q2 '19
FlexPath as a percent of Bachelor's and Master's Enrollment
On the horizon
Continuous quality improvement in the learner experience and in the courseroom
1Continued expansion of FlexPath at the Master’s level
2Expand FlexPath into doctoral-level programs – Doctor of Nursing Practice (DNP) submitted to HLC
Explore a direct assessment model at Strayer University
3Exploring FlexPath-only offerings– currently all FlexPath offerings are derived from traditional, credit-hour offerings
4
• Previously Chief Technology and Innovation Officer for Strayer University
• Prior roles include technology leadership positions at Accenture
• Member, Strayer University Board of Trustees
• MBA, University of Virginia
JOE SCHAEFERChief Transformation Officer
Transforming online instruction and support with artificial intelligence and automation
The future of learning is digital.
Data driven innovation
2012 2019
2012Predictive Analytics
2014Engagement
Interaction
201610X
2017AI
2019Accelerate
AI
Student engagement drives outcomes.
SEI understands engagement.
Early engagement intervention example
Engagement change by faculty averageSt
uden
t eng
agem
ent
Faculty
Ideal faculty
Early engagement intervention example
Engagement change by faculty averageSt
uden
t eng
agem
ent
Faculty
Over 80% of facultyimproved engagement
10X amplifies exceptional instruction.
10X concepts are being applied throughout SEI.
Our AI virtual assistants are the most advanced in education.
• Previously Provost and Chief Academic Officer for Strayer University
• Prior roles include Dean of the Jack Welch Management Institute and leadership positions at the University of Virginia and DePaul University
• PhD, University of Virginia
ANDREA BACKMAN, PhDChief Employability Officer
Employability update
SEI employability team
We are focused on return on student investment
Return on student investment=
Economic mobility
DEBT
EARNINGS OVER TIME
TIME TO COMPLETION
ROSI
Levers of ROSI
TIME
EARNINGS
The 10 skills
We listened to employers and reinvented content to include 10 essential employability skills.
Reimagined general education
Employability-focused general education
PSY105: Smarter decision making through psychology
1. AGILITY2. COMMUNICATION3. INITIATIVE4. INNOVATION5. PROBLEM SOLVING
6. PRODUCTIVITY7. RELATIONSHIP BUILDING8. RESULTS DRIVEN9. SELF AND SOCIAL
AWARENESS10.TECHNOLOGY
10 Skills:
Teaching essential skills through the discipline
Early results
CIS 105: Navigating a digital world
At Risk7.8%
better
Continuation8.2%
better
Skills meet general education
“I really liked learning about how to build confidence and learning how to
use internet tools.”
“I liked learning everything I could about the digital world. Also learning
more about myself.”
DEBT
We introduced new “smart borrowing” conversations with students.
And, it worked.
50% of all students reduced borrowing.
So, we are scaling.
Academic outcomes aren’t enough.
We are committed to driving economic mobility.
• Previously Senior Vice President of Post-Secondary Education for Capella Education Company
• Prior roles include transaction advisory services at Deloitte & Touche and Arthur Andersen
• BS, University of St. Thomas
ANDY WATTChief Operating Officer
Campus strategy
Strayer has a history of successfully leveraging campuses
• 76 campuses
• 80% of enrollment within 50 miles
• Higher growth and student success rates
• Visibility, credibility and comfort for student
Strayer has been innovating the campus approach
• Smaller footprints
• More visible locations
• More focus on support
• More centralization of administrative functions
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
2014 2015 2016 2017 2018 2019
% online course registrations
65%
95%
New approach more efficient and effective
Square Feet ClassroomsBreakeven Enrollment
Traditional 10,000 – 30,000 8-12 300
New 3,000 1-2 100
Traditio
nal
New
Extending the campus expertise to Capella
• Opened 1st Campus Center in Atlanta (May)
• Bring Capella brand and experience to life – onsite
• Access employers and professional communities
Early results of the Capella Campus Center on target
Primary Goals:
• Accelerate and sustain enrollment growth
• Lower student-acquisition costs
• Improve student and alumni success
• Build brand awareness and credibility with students and employers
40
100
150
190
0
5
10
15
2nd1st 3rd 4thAverage enrollment (age in terms)
Results demonstrating efficient use of capital
Average total enrollment for Strayer new campuses opened in 2018-19
Accelerating expansion
1 Co-locations: Add Capella Campus Centers in attractive markets and leverage existing Strayer real estate
New markets: Add Capella or Strayer facilities to extend geographic reach
2
2018 2019 2020
4 4 4-8
0 3-4 4-8
4 7-8 10-12
* Pending appropriate regulatory approvals
SEI is well-positioned for ongoing transformation
Future ofLearning
Future ofWork
As needs of our students evolve, our campus infrastructure will adapt to serve them
• Joined in 2018, bringing more than 20 years of experience with consumer, digital-first companies
• Previously head of consumer marketing for Verizon Media, representing more than 22 brands including AOL, Yahoo and Huffington Post
• BS, Towson University
JEN TOWNSChief Marketing Officer
SEI marketing update
Marketing’s key objective is to nurture and embrace what makes us unique and different.
Don’t be a copy cat. Nobody has ever built a brand by imitating someone else’s advertising.
– David Ogilvy
AI: IRVING & ELLA
EMPLOYABILITY
Our legacy of innovation positions us to tell a different story.
COMPETENCY BASED EDUCATION
Leveraging technology to reinvent education
Cultural Tension
The diploma gap: 35 million Americans have put their college
education on hold
Strategy Strayer powers you to finish strong
Creative Platform Out with the old school
Reason to Believe Graduation Fund
Unique approaches to innovation
Cultural Tension
People crave solutions that save them time and give them control over their lives.
Higher education based on seat timeis out of sync.
Strategy On-demand education
Creative Platform Don’t just learn, learn smarter
Reason to Believe FlexPath
Unique approaches to innovation
• Previously Treasurer and Senior Vice President of Finance, Strayer Education, Inc.
• Prior roles include financial and operational positions with Legg Mason Wood Walker and Fairmont Schools
• MBA, Georgetown University
DANIEL JACKSONExecutive Vice President and Chief Financial Officer
SEI financial update
Agenda
• Merger synergy update
• Q3 results
• Liquidity
• Modeling assumptions
• Financial governance
Savings Already Realized
Remaining Savings Planned by YE19
Overlapping Corp Functions $40
Overlapping Univ Shared Svcs
$4
$6
Year End 19Q3 19
$46M
$4M
$50M
SEI remains on track to realize $50M in run-rate merger synergy savings by year end 2019
$Millions
Consolidated financial performance Q3 YTD 2019
$665$679
$733
2.9%
4.2%
7.2%
0
1
2
3
4
5
6
7
8
9
10
500
550
600
650
700
750
Q3YTD 2017 Q3YTD 2018 Q3YTD 2019
+2.2%
+8.0%
Q3YTD revenue and total enrollment growth vs. prior year (%)
Revenue Total Enrollment
80,697
84,091
90,143
Year-to-date results strong as well
$Millions
(Pro-forma) (Adjusted pro-forma) (GAAP)
26%
26%
Q3YTD 2019
76%Q3YTD 2017 24%
Q3YTD 2018 74%
74%
$581
$589
$602
+1%
+2%
PF Marketing Expense PF Non-Marketing Operating Expense
8184
90
-10
-5
0
5
10
50
55
60
65
70
75
80
85
90
Q3 2018
2.7%
-4.4%
Q3 2017
-5.2%
Q3 2019Total Enrollment Non-Mkt Opex / Student
Synergies and innovations driving YTD productivity gains
Thousands$Millions
(Pro-forma)
(Pro-forma)
(Adjusted GAAP)
$83$91
$131
12.5% 13.3%
17.9%
Q3YTD 2017 Q3YTD 2018 Q3YTD 2019
+45%
Op Inc Margin
$2.36
$3.23
$4.54
Q3YTD 2017 Q3YTD 2018 Q3YTD 2019
+41%
Earnings Per ShareOp Income and Margin Trend
Strong adjusted operating income, margin, and EPS
$Millions
(Pro-forma) (Adjusted pro-forma) (Adjusted GAAP)(Pro-forma) (Pro-forma) (Adjusted GAAP)
Segment level update
37,855 37,874 37,827 38,63140,922
43,497
46,657
51,690
2016 2017 2018 2019
+6.3%
+7.3% +2.1%
+10.8%
CU-Total Enrollment SU-Total Enrollment
SU and CU total enrollment(Average per quarter fall to summer)
Q3YTD 2017 Q3YTD 2018
$319
Q3YTD 2019
$344$332 $323$337
$385+1%+4% +4%
+12%
Capella Strayer
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
$7.5
Q3YTD 2017 Q3YTD 2018
$7.4
$8.4
$7.8
$8.5 $8.7
Q3YTD 2019
Capella Strayer
CU and SU revenue and revenue-per-student (RPS)
$Thousands$Millions
Revenue-Per-StudentRevenue
(Pro-forma) (Adjusted pro-forma) (GAAP)(Pro-forma) (Adjusted pro-forma) (GAAP)
CU 2017
75%
74%26%
27%
SU 2017
SU 2019
27%
73%
76%24%
CU 2018
25%SU 2018
73%CU 2019
74%26%
$265
$289
$269
$299
$273
$317
Marketing Expense Non-Marketing Operating Expense
17.0%16.7%
18.9%
13.0% 12.9%
17.7%
Q3YTD 2017 Q3YTD 2018 Q3YTD 2019
SUCU
Non-Mktg Opex/Student YOY
+7.3%
-5.6%
-0.3%
-5.4%
-0.1%
-6.2%
Capella and Strayer Q3YTD expense and operating margin
$Millions
Pro-forma Operating MarginOperating Expenses
(Adjustedpro-forma)
(GAAP)
(Adjustedpro-forma)
$12.9
$12.7
$11.1
$27.2
$20.2
$12.0Q3YTD 2019
Q3YTD 2017
Q3YTD 2018
ExpenseRevenue
$-14.3
$-7.5
$-0.9
Q3YTD 2017 Q3YTD 2018 Q3YTD 2019
Operating Income
Non-degree revenue, expense, and operating income
$Millions $Millions
(Adjustedpro-forma)
(GAAP)
(Adjustedpro-forma)
Liquidity Update
• Over $450M of cash
• $250M in available credit on revolver
• Significant continued cash generation in 2020+
$58
$-23
$53$69$45
$114
$337 $348
$457
Q3YTD 2017 Q3YTD 2018 Q3YTD 2019
Net Income Distributable Cashflow Cash & MS
Significant liquidity to drive growth
$Millions
(Pro-forma) (Pro-forma) (GAAP)
$32
$26
$28
0
5
10
15
Investment and innovation
• Technology (platform, AI & automation)
• Programs, content & delivery
• New SU and CU campuses
• M&A
Projected
3.8%
Q3YTD 2019
4.9%
Q3YTD 2017
4.5%3.9%
Q3YTD 2018
Capex Capex % Revenue
Growth drivers
$Millions
Capital Expenditures
(Pro-forma) (GAAP)(Pro-forma)
2020 modeling assumptions
If you assume low to mid-single digit total enrollment growth:
• Flat revenue-per-student
• Low to mid-single digit revenue growth
• Low single digit increase in adjusted operating expenses
• Adjusted operating margins in the low to mid-twenties by end of 2021
• Steady investment income
• 28.0% adjusted effective tax rate
• Slight increase (≈1.0%) in share count
• Capital expenditures between 4% and 5% of revenue
Financial governance
• Board of Directors / Audit Committee
• University Boards of Trustees / Directors
• Internal audit
• Outside advisors
• Tone at the top
Non-GAAP financial measures
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. Pro forma information is presented as if the merger with Capella Education Company occurred on January 1, 2017. However the pro forma results do not necessarily represent what would have occurred if the merger had actually taken place on that date. Our publicly available financial information reconciles the most directly comparable GAAP measures to non-GAAP measures that we reference. Although management evaluates and presents these pro forma and non-GAAP measures for the reasons described below, please be aware that these measures have limitations and should not be considered in isolation or as a substitute for revenue, income from operations, operating margin, net income, earnings per share or any other comparable financial measure prescribed by GAAP. In addition, we may calculate and/or present these measures differently than measures with the same or similar names that other companies report, and as a result, the measures we report may not be comparable to those reported by others.
Management uses certain pro forma or non-GAAP measures to evaluate financial performance because those measures allow for period-over-period comparisons of the Company’s ongoing operations before the impact of certain items described below. These pro forma or adjusted measures are Revenue, Income from Operations, Operating Margin, Net Income, and Diluted Earnings Per Share (EPS). We define Adjusted Revenue, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Net Income, and Adjusted Diluted EPS to exclude (1) a purchase accounting adjustment in 2018 of $26.2 million to record Capella University contract liabilities at fair value, (2) amortization expense related to intangible assets associated with the Company’s merger with Capella Education Company, (3) transaction and integration costs associated with the Company’s merger with Capella Education Company, (4) goodwill and intangible asset impairment charges related to the Company’s acquisition of the New York Code and Design Academy, (5) income recognized from the Company’s investments in partnership interests and other investments that are not part of our core business, and (6) discrete tax adjustments. Please seethe press release filed as Exhibit 99.1 to the 8-K dated November 7, 2019 and available on our website at www.strategiceducation.com for a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Non-GAAP measures should not be viewed as substitutes for GAAP measures.