Company Overview
Strategic Education, Inc. (NASDAQ:STRA) is a leading provider of post-secondary education focused on serving the needs of working adult students. Formed through the merger of Strayer Education and Capella Education in 2018, the company has a rich history dating back to 1892 when Strayer University was founded. Over the past decades, Strategic Education has established itself as a trusted brand in the industry, known for its flexible delivery formats, affordable tuition, and unwavering commitment to student success.
Core Strategy and Brands
At the core of Strategic Education's strategy is a focus on providing career-relevant education that empowers working adults to advance their professional goals. The company operates primarily through its two accredited university brands - Capella University and Strayer University - which offer a diverse range of certificate, associate, bachelor's, master's, and doctoral programs across in-demand fields such as business, technology, healthcare, and education. Strayer University, founded in 1892 in Washington, D.C., initially offered courses in business, accounting, and secretarial studies. Over the following decades, it expanded its campus locations and academic program offerings throughout the eastern United States. Capella University, established in 1993 in Minneapolis, Minnesota, was founded as an online, for-profit post-secondary education institution. It initially offered master's and doctoral degree programs in business, information technology, and education, quickly becoming a leader in competency-based, online education.
Technological Advantage
Strategic Education's unique positioning is underpinned by its ability to leverage technology to deliver high-quality education in a flexible, convenient manner. Capella University pioneered the use of competency-based learning through its FlexPath model, which allows students to progress at their own pace and earn degrees based on demonstrated mastery of key skills and knowledge. Similarly, Strayer University's extensive network of physical campuses, combined with its robust online offerings, provides students with the option to learn in the format that best suits their needs.
Affordability Focus
The company's focus on affordability is another key differentiator. Both Capella University and Strayer University offer various tuition reduction programs, scholarships, and employer partnerships to help make higher education more accessible to working adults. For example, Strayer University's Graduation Fund allows eligible students to earn free courses by maintaining consistent enrollment, while the company's education technology services segment, which includes platforms like Sophia Learning, provides low-cost online courses that can be applied towards degree programs.
Financials
Strategic Education's diversified business model has served the company well, enabling it to navigate the challenging landscape of the post-secondary education industry. In 2024, the company reported revenue of $1.22 billion, representing a 7.7% increase from the prior year. Net income for the year was $112.7 million, with diluted earnings per share of $4.67. The company's strong financial performance was driven by solid enrollment growth, particularly in its U.S. Higher Education and Australia/New Zealand segments, as well as continued momentum in its Education Technology Services division.
For the most recent quarter, Strategic Education reported revenue of $311.5 million, a 2.9% increase compared to the same quarter in the previous year. Net income for the quarter stood at $25.3 million. The company's annual operating cash flow for the most recent fiscal year was $169.3 million, with free cash flow of $128.8 million.
Strategic Education operates through three reportable segments: U.S. Higher Education (USHE), Australia/New Zealand (ANZ), and Education Technology Services. The USHE segment, which includes Capella University and Strayer University, accounted for 70.3% of total revenue in 2024, generating $857.9 million, a 4.8% increase from the previous year. The ANZ segment, comprising Torrens University, Think Education, and Media Design School, contributed 21% of total revenue, with $257.1 million in 2024, a 10.1% increase year-over-year. The Education Technology Services segment saw significant growth, with revenues increasing 30.4% to $104.9 million in 2024.
Liquidity
Strategic Education maintains a strong liquidity position, with $137.1 million in cash and cash equivalents as of December 31, 2024. The company has a debt-to-equity ratio of 0.075, indicating a conservative approach to leverage. Strategic Education also has access to a $250 million revolving credit facility, which remained untapped as of the end of 2024. The company's current ratio and quick ratio both stand at 1.41, suggesting a healthy ability to meet short-term obligations.
Industry Challenges and Adaptation
Despite the headwinds facing the industry, such as increased regulatory scrutiny and evolving student preferences, Strategic Education has demonstrated its ability to adapt and thrive. The company's commitment to innovation, affordability, and student success has positioned it as a leader in the market, with a solid track record of consistent growth and profitability. Over the years, Strategic Education has faced various regulatory challenges common to the for-profit education industry, including increased scrutiny from Congress, the Department of Education, and state regulatory bodies regarding issues such as student outcomes, financial responsibility, and incentive compensation. The company has navigated these challenges by maintaining strong compliance programs and continuously innovating its educational offerings to best serve its students.
Future Prospects
Looking ahead, Strategic Education remains optimistic about its future prospects. While the company has not provided specific enrollment or revenue guidance for 2025, management has indicated expectations for mid-to-high single-digit growth over the long term. For the U.S. Higher Education segment, growth is anticipated to be in the mid-single digits, while the Australia/New Zealand segment is expected to grow in the high single digits. The company also aims to continue its 200 basis points of adjusted operating income margin expansion over the next several years, consistent with its previously communicated long-term "notional model."
The Education Technology Services division is expected to be a significant driver of revenue and earnings expansion, leveraging the company's strong relationships with employers to drive increased enrollment and revenue from corporate-sponsored education programs. In 2024, employer-affiliated enrollment as a percentage of USHE average total student enrollment reached 29.6%, up from 27.2% in 2023, highlighting the growing importance of this segment.
Operational Performance
Strategic Education's operational performance has been strong across its segments. In the USHE segment, average total student enrollment reached 87,550 in 2024, a 6.4% increase from the previous year. The ANZ segment saw average total student enrollment grow to 19,590, up 4.8% from 2023. The company's focus on student persistence has yielded positive results, with trailing 4-quarter student persistence within USHE at 86.9% in Q3 2024.
The company continues to invest in innovation to improve the student experience and outcomes. This includes the ongoing development of Capella's FlexPath program and the Workforce Edge platform, which partners with employers to provide education benefits to employees. These initiatives, combined with the company's focus on affordability and flexibility, position Strategic Education well to capitalize on the growing demand for career-focused education among working adults.
Human Capital Resources
As of December 31, 2024, Strategic Education employed 3,800 full-time employees worldwide, with 895 based outside of the United States. The company emphasizes a culture focused on student centricity, high standards, global mindset, innovative solutions, teamwork, great people leaders, transparency, growth opportunities, health and wellbeing, and community service. This commitment to its workforce aligns with the company's mission to provide high-quality education and support to its students.
Risks and Challenges
While Strategic Education has demonstrated strong performance, the company faces ongoing challenges. The highly regulated nature of the post-secondary education industry means that Strategic Education must navigate a complex web of accreditation, state authorization, and federal financial aid requirements. Additionally, the company faces competition from traditional colleges and universities, as well as emerging alternative education providers, which could impact enrollment and pricing.
Conclusion
Strategic Education's proven track record, diversified business model, and focus on innovation and affordability suggest that the company is well-positioned to continue delivering value for its stakeholders. With its strong financial performance, solid liquidity position, and strategic focus on serving working adult students through flexible and employer-aligned programs, Strategic Education appears poised to capitalize on the significant opportunities ahead in the evolving landscape of higher education.