Strategic Education Q1 2025 Earnings Report

Strategic Education EPS Results

• Actual EPS: $1.30
• Consensus EPS: $1.01
• Beat/Miss: Beat by +$0.29
• One Year Ago EPS: $1.11

Strategic Education Revenue Results

• Actual Revenue: $303.59 million
• Expected Revenue: $300.67 million
• Beat/Miss: Beat by +$2.92 million
• YoY Revenue Growth: +4.60%

Strategic Education Announcement Details

• Quarter: Q1 2025
• Date: 4/24/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 10:00AM ET

Strategic Education (NASDAQ:STRA), Inc. is a provider of postsecondary education serving working adults and other learners primarily in the United States. The company delivers academic programs through its Strayer University and Capella University institutions, using online instruction as well as campus-based and blended learning formats.

Its offerings include associate, bachelor’s, master’s and doctoral degree programs, along with certificates and other professional learning opportunities. Areas of study include business, information technology, healthcare, education, public administration and other career-focused disciplines. Strategic Education also provides non-degree education and skills training through Sophia Learning, a digital learning platform that offers self-paced courses and transferable college credit options.

The company was formerly known as Strayer Education and adopted the Strategic Education name following its combination with Capella Education Company in 2018. Strategic Education is headquartered in Herndon, Virginia, and its institutions serve students throughout the United States through online programs and physical locations. Karl McDonnell serves as the company’s president and chief executive officer.

Strategic Education Q1 2025 Earnings Call Transcript

Key Takeaways

• Strategic Education reported Q1 revenue growth of 5% and adjusted operating income up 16%, driving EPS to $1.29 versus $1.11 in Q1 2024.
• U.S. Higher Education enrollment was flat overall, but employer-affiliated enrollment rose 7%, lifting corporate partnerships to 31% of total students and supporting a 1% revenue increase.
• Australia & New Zealand saw a 1% enrollment decline driven by new international transfer verification rules, resulting in a $2.2 million operating loss despite 6% constant-currency revenue growth.
• Education Technology Services achieved 45% revenue growth and 37% operating income growth, led by a 37% increase in Sofia Learning subscribers and expansion of Workforce Edge partnerships.
• The company repurchased 390,000 shares for $32 million in Q1, leaving $197 million available under its current buyback authorization.

Presentation

[Operator]

Hello, and welcome to Strategic Education First Quarter 2025 Results Conference Call. I will now turn the conference over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Ms. Wilke, please go ahead.

[Terese Wilke, Senior Director of Investor Relations at Strategic Education Inc.]

Thank you. Hello, everyone, and welcome to Strategic Education's Conference Call, in which we will discuss First Quarter 2025 results. With us today are Robert Silberman, Chairman; Karl McDonnell, President and Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties, and risks that Strategic Education has identified in today's press release that could cause actual results to differ materially.

[Terese Wilke, Senior Director of Investor Relations at Strategic Education Inc.]

Further information about these and other relevant uncertainties may be found in Strategic Education's most recent annual report on Form 10-K, the 10-Q to be filed, and other filings with the Securities and Exchange Commission, as well as Strategic Education's future 8-Ks, 10-Qs, and 10-Ks. Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com. I would like to turn the call over to Karl. Karl, please go ahead.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Thank you, Terese, and good morning, everyone. We are pleased with our First Quarter 2025 Results reported this morning, which demonstrate the strength of our ETS division and our employer strategy in U.S. higher education. SEI's revenue grew by 5% in the first quarter, and our adjusted operating income increased 16%. Our operating margin increased to 13.6%, while adjusted earnings per share grew 16% to $1.29, compared to $1.11 for the same period in 2024. Turning now to our segments. During the first quarter, total enrollment in U.S. higher education slightly increased, driven by continued strong employer-affiliated enrollment, which rose 7% from the previous year, offset by lower unaffiliated enrollment. As of the first quarter, the percentage of total U.S. Higher Education enrollment from our corporate partnerships is now 31%, an increase of 200 basis points from the prior year, marking an all-time high. U.S.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Higher education revenue grew by 1%, and operating income increased by 7% from the previous year. Turning now to Australia and New Zealand, we continue to navigate the shifting regulatory environment in Australia. ANZ total enrollment decreased 1% during the quarter, driven by lower international enrollment related to the regulatory changes impacting international students. That enrollment decline was partially offset by growth in our domestic market, consistent with our strategy to shift the bulk of our enrollment growth in the coming years to the domestic market. ANZ's revenue increased 6% for the quarter on a constant currency basis, primarily driven by pricing. ANZ reported an operating loss of $2.2 million in the first quarter, reflecting a slight improvement from the previous year. As we've noted before, ANZ revenue in the first quarter represents a low point for the year, attributed to fewer instructional days during the Australian summer.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Conversely, ANZ expenses are incurred more consistently throughout the four quarters of the year. The Education Technology Services segment continued its strong performance in the first quarter, with revenue growing by 45% and operating income increasing 37%. Sophia Learning subscriptions, higher employer-affiliated enrollment, and revenue from new Workforce Edge employer partnerships drove this growth. ETS's operating margin in the first quarter was 40.3%, a decline of 240 basis points as we continue to invest in increased marketing and staffing to drive both near-term and future growth. Sophia Learning, our direct-to-consumer portal that offers college-level classes and serves as a key component of many of our strategic corporate partnerships, grew its average total subscribers by 37% and revenue by 36%, as employer relationships increasingly become a larger part of Sophia. During the quarter, Workforce Edge added two additional corporate partners, bringing the total to 78, collectively employing about 3.9 million employees.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Enrollments in Workforce Edge to either Strayer or Capella University increased nearly 50%, reaching roughly 2,300 students. In February of this year, we announced that our decade-long relationship with Best Buy, the nation's 16th largest retailer, has expanded into an all-inclusive partnership with Strayer University's Degrees at Work program, enabling all full and part-time employees at Best Buy to earn a degree at no cost to the employee. In addition to expanding the scope of its education benefits, Best Buy will also become a Workforce Edge client, further strengthening our relationship with Best Buy as they continue to prioritize the well-being of their employees. Finally, concerning capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 390,000 shares of our common stock for a total of $32 million during the quarter, leaving us with $197 million remaining in our share repurchase authorization through the end of this year.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support to our students, learners, and employer partners. With that, Tawanda, we'd be happy to take questions.

[Operator]

Thank you. Ladies and gentlemen, to ask a question, please press star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.

[Jeffrey Silber, Equity Research Analyst at BMO Capital Markets]

Thank you so much. I want to focus first on U.S. higher education enrollment. We've seen growth slow. This past quarter was relatively flattish on a year-over-year basis. The other companies in the space seem to be seeing growth slowing, but not nearly as dramatically as what you've been posting. Is there anything specific going on changing your marketing matches? Any color would be helpful.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Hey, good morning, Jeff. No, nothing's really changed from a marketing or advertising standpoint. I'd say that what we're seeing is part of just the normal cyclicality that at least we've seen over the years with our enrollment. You'll recall that when we were growing 10% or even above, we thought that that was probably not sustainable over the long term. You're right, we were relatively flat in the first quarter, but we expect our enrollment to normalize in kind of the mid-single digits, consistent with the notional plan that we outlined in our investor day.

[Jeffrey Silber, Equity Research Analyst at BMO Capital Markets]

Is there anything that you can do maybe to get to that mid-single digit level a little bit quicker?

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Our corporate partnerships remain very strong, and we suspect that they'll continue to be a source of strength for us as we add partnerships and deepen our relationships in Workforce Edge. Ultimately, we remain confident that the unaffiliated students will return to mid-single digit growth as well.

[Jeffrey Silber, Equity Research Analyst at BMO Capital Markets]

All right, great. I'll let somebody else ask about Australia and New Zealand, but just had a question on ETS. The numbers have been really solid, much better than we had thought. What do you think is driving that? Is it something you're doing? Is it the end market demand? Again, any color would be great.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

The strength at Sophia is both reflected in the strength of its product. It has a very high Net Promoter Score, so we know that the subscribers there really value the product. We have added, I'd say, pretty sizable incremental marketing investments in Sophia that have a very near-term ROI for us. Workforce Edge, we just have clients that are beginning to mature. As you heard, we have now 2,300 students in either Strayer or Capella. Our non-Workforce Edge corporate partnerships, they're doing well also. It is a combination of all three of those levers in ETS.

[Jeffrey Silber, Equity Research Analyst at BMO Capital Markets]

All right, that's really helpful. Thanks so much.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Thanks, Jeff.

[Operator]

Please stand by for our next question. Our next question comes from the line of Alex Paris with Barrington Research. Your line is open.

[Alex Paris, Equity Research Analyst at Barrington Research]

Thank you, and thank you for taking my questions. I will focus my questions on ANZ. One last question on U.S. higher education. Any comment about persistence? That's a number you typically give.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Persistence is stable. I'd say it was probably up slightly in the first quarter. We've seen multi-year gains, particularly at Strayer, over the last several years. As course success, the percentage of students who successfully complete their courses and earn credit has been near all-time highs. By and large, our persistence rates are pretty stable, Alex.

[Alex Paris, Equity Research Analyst at Barrington Research]

Great. Thank you. Moving on to Australia and New Zealand, I was a little surprised to see international enrollment down this early in the year. I understand the regulatory changes, I think, going on in Australia. I did not think that would really be a factor until the second half as you approach these caps. I realize they are not caps. It is all having to do with visa approval speeds and that sort of thing, but effective caps, I guess. I guess it is two parts. Please discuss international enrollment, and then maybe a little additional color on the increase in domestic enrollment.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Taking the latter part of your question first, we have increased our domestic marketing. It's been part of our strategy now for the last really couple of years to focus more on the domestic Australia market. That's something that we intend to continue this year and beyond. I'd say one change, Alex, with regard to international enrollment that certainly we experienced is that historically, one of the biggest drivers of growth for us is not necessarily offshore students coming into Australia on visas for the first time, although we do do that. It's students who transfer. So foreign students who have a visa, they're at another institution. After six months, they're able to transfer. And Torrens, historically, was a destination that many of these transfer students would select.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

The Australian Ministry of Education put into place a new regulation this year in the first quarter that requires all institutions to go through the same verification process for transfer students that we do for offshore students. There is a list of anywhere from a half dozen to a dozen items that we have to verify on the part of the student. Aside from just the administrative burden of that, the net effect is fewer students are transferring as a result. I'd say that was the primary driver of our decline in the first quarter.

[Alex Paris, Equity Research Analyst at Barrington Research]

Gotcha. Okay, that makes sense. Thank you for that. Lastly, I'll ask you a question about adjusted OPEX. Adjusted operating expenses were up 2.9% versus revenue growth of 4.6%. You got some leverage there. That adjusted operating expense number was better than our estimate. I just wanted to ask about the incremental spending that we kind of had factored into our model for the first half at ETS and others. Is that behind us now, behind us ahead of schedule, or did you just kind of pull back on the spending level?

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Hey, Alex, Dan, we're still on track for what we said in the recent past on expense growth for the year. The first quarter was a little bit better, primarily because of some headcount timing, some of it at ETS, but we're still planning to spend, invest the same amount at ETS. It's just going to be a little bit pushed to the last three quarters of the year.

[Alex Paris, Equity Research Analyst at Barrington Research]

Gotcha. The long-term model calls for 200 basis points of adjusted operating income improvement. I realize you do not give guidance for one year at a time, but I think you had kind of alluded to the fact that it would be a good proxy for 2025. We still feel good about adjusted operating margin expansion in 2025, given the slightly lower enrollment numbers than I had previously expected.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Yes, Alex, we do. We feel like, albeit it's early, it's the first quarter, but yes, we feel confident that our 2025 performance would be in line with our notional model that we outlined at investor day.

[Alex Paris, Equity Research Analyst at Barrington Research]

Good to hear. Thank you very much. That's all for me today.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Thanks, Alex.

[Operator]

Thank you. Please stand by for our next question. Our next question comes from the line of Jasper Bibb with Truist Securities. Your line is open.

[Jasper Bibb, Equity Research Analyst at Truist Securities]

Hey, good morning, everyone. I'll start with another ANZ enrollment question. Could you just frame for us the, I guess, domestic Australian citizen or permanent Australian resident enrollment as percentage of ANZ today versus, I guess, what part of the enrollment base is international offshore or international transfer students?

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Yeah, so Jasper, historically, an average new cohort of students would have been roughly 50-50, 50% domestic enrollment, 50% international. Of the half that's international, at least in the recent trends, I'd say at least two-thirds of that would be onshore transfer, maybe even slightly more, actually. In the first quarter, given that we had growth in the domestic market, a decline in international, the mixed percent shifted obviously more to domestic. That's something that we're working towards. We want more of our enrollment to be from the domestic Australia market. We're working through the verification process for both offshore and onshore transfers, and that remains to be seen what will happen this year based on whatever demand there is.

[Jasper Bibb, Equity Research Analyst at Truist Securities]

The ETS revenue growth accelerated nicely this quarter. I think on the Q4 call, you talked about the launch of a large employer partner at the end of last year. To the extent you can, can you just update us on how that launch is going and how that might maybe impact your ETS expectations for the year?

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Yeah, the launch has been received well by our client. I would say we're essentially fully staffed now to serve that higher touch model. One important nuance of that relationship, which frankly we hope is replicated in future relationships with other clients, this particular client has a new requirement for their employees who lack 12 college credits, which frankly we think will be the bulk of new enrollment. The requirement is that they have to go through Sophia first and complete six classes on Sophia before they can matriculate into a degree program. Again, it's early first quarter servicing this client, but I'd say the demand from that that we see through Sophia is running ahead of what we had modeled or planned internally.

[Jasper Bibb, Equity Research Analyst at Truist Securities]

Great. Last one for me. You already addressed kind of margins versus the notional model. On revenue, I think the notional model called for 4-6% revenue growth. You still, I guess, feel confident that 2025 revenue would align with that, I guess, notional framework?

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Yep, we are.

[Jasper Bibb, Equity Research Analyst at Truist Securities]

That's it for me. Thanks, guys.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Thanks, Jasper.

[Operator]

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Karl for closing remarks.

[Karl McDonnell, President and CEO at Strategic Education Inc.]

Thank you, everybody. We look forward to discussing our Second Quarter Results with you in three months' time.

[Operator]

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Karl McDonnell, President and CEO
• Terese Wilke, Senior Director of Investor Relations

Analysts

• Alex Paris, Equity Research Analyst at Barrington Research
• Jasper Bibb, Equity Research Analyst at Truist Securities
• Jeffrey Silber, Equity Research Analyst at BMO Capital Markets