Strategic Education Q2 2025 Earnings Report

Strategic Education EPS Results

• Actual EPS: $1.52
• Consensus EPS: $1.42
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $1.33

Strategic Education Revenue Results

• Actual Revenue: $321.47 million
• Expected Revenue: $322.84 million
• Beat/Miss: Missed by -$1.37 million
• YoY Revenue Growth: +2.90%

Strategic Education Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, July 30, 2025
• Conference Call Time: 10:00AM ET

Strategic Education (NASDAQ:STRA), Inc., through its subsidiaries, provides education services through campus-based and online post-secondary education, and programs to develop job-ready skills. The company operates through U.S. Higher Education, Australia/New Zealand, and Education Technology Services segments. It operates Strayer University that offers undergraduate and graduate degree programs in business, criminal justice, education, health services, information technology, and public administration at physical campuses located in the eastern United States, as well as through online; non-degree web and mobile application development courses through Hackbright Academy and Devmountain; and MBA online through its Jack Welch Management Institute. In addition, the company operates Capella University that provides post-secondary education; Torrens University, which offers undergraduate, graduate, higher degree by research, and specialized degree courses primarily in business, design and creative technology, health, hospitality, and education fields through online and on physical campuses located in Australia; Think Education, a vocational training organization; and Media Design School, which provides industry-endorsed courses in 3D animation and visual effects, game art and programming, graphic and motion design, digital media artificial intelligence, and creative advertising in New Zealand. It also offers Workforce Edge, a platform to employers that provides education benefits administration solutions; and Sophia Learning, which enables lower cost education benefits programs. Strategic Education, Inc. was founded in 1892 and is headquartered in Herndon, Virginia.

Strategic Education Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q2 results: revenue +4% constant currency, operating income +12% to $49 M, margin +110 bps, and adjusted EPS +16% to $1.54.
• Positive Sentiment: ETS segment growth: 50% yoy increases in revenue ($37 M) and operating income ($15 M), stable 41% margin, and segment op income share up to 31%.
• Neutral Sentiment: US higher education trends: total enrollment down 1% (unaffiliated students), revenue flat, but employer-affiliated and healthcare enrollments up 8%, driving a 5% increase in operating income.
• Negative Sentiment: ANZ enrollment headwinds: total enrollment down 3% from regulatory caps on international and transfer students, reducing operating income to $13 M despite steady revenue.
• Positive Sentiment: Share repurchases: bought 325,000 shares for $28 M in Q2 ($60 M YTD), with $169 M remaining under repurchase authorization.

Presentation

[Operator]

Hello, and welcome to Strategic Education's second quarter '20 twenty May. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand has been raised.

[Operator]

To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I will now turn the call over to Therese Wilkie, senior director of investor relations for strategic education. Miss Wilke, please go ahead.

[Terese Wilke, Senior Director - IR at Strategic Education]

Thank you. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss second quarter twenty twenty five results. With us today are Robert Silberman, chairman Carl 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.

[Terese Wilke, Senior Director - IR at Strategic Education]

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. 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 eight Ks, 10 q's, and 10 k's. Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com. And now I'd like to turn the call over to Carl. Carl, please go ahead.

[Karl McDonnell, President & CEO at Strategic Education]

Thank you, Therese, and good morning, everyone. We are very pleased with our second quarter and first half twenty twenty five results, which we reported earlier this morning, and in particular, with the continued strong performance within our Education Technology Services segment, which I will discuss momentarily. On a constant currency basis, SEI's revenue grew 4% from the prior year. Disciplined expense management limited our operating expense growth to just 2%, resulting in operating income of $49,000,000 a 12% increase from the prior year. Our operating margin increased 110 basis points to 15.2%.

[Karl McDonnell, President & CEO at Strategic Education]

Adjusted earnings per share were $1.54 compared to $1.33 from the prior year, an increase of 16%. Turning now to our segments. We are pleased to see the continued strong performance of our ETFs division, which remains on track to become a significant contributor to SEI earnings composition, in line with our strategy. ETFs revenue and operating income both increased 50% from the prior year to $37,000,000 and $15,000,000 respectively. ETS' share of SEI's operating income grew from 23% last year to 31% this year, an increase of eight percentage points.

[Karl McDonnell, President & CEO at Strategic Education]

Sofia Learning, our direct to consumer portal that offers high quality college level courses and increasingly serves as a key component of many of our key strategic corporate partnerships grew both average and total subscribers and revenue by 40%, driven by strong growth in both consumer and employer affiliated subscribers. Workforce Edge continues to perform exceptionally well, and now has 80 total corporate partnerships, collectively employing more than 3,800,000 employees. And notwithstanding our continued strong investment in ETFs, which included a 50% increase in their expenses, ETS' operating margin remained stable on a year over year basis at 41%. US higher education total enrollment decreased by 1% from the prior year. However, slightly higher revenue per student helped offset approximately half of the enrollment decline, resulting in revenue being down year over year by half of 1%.

[Karl McDonnell, President & CEO at Strategic Education]

Employer affiliated enrollment once again remained strong, increasing by 8% from the prior year, and now represents 32% of all US higher education enrollment, again, in line with our strategy. In addition to the strength of our employer affiliated enrollment, US higher education's healthcare portfolio, which represents half of all enrollments, also increased its total enrollment by 8% from the prior year. US higher education operating expenses decreased by 2,000,000 from the prior year, or a reduction of 1%. As a result, US Higher Education operating income increased 5% from the prior year, and its operating margin increased 40 basis points. Turning now to our AustraliaNew Zealand segment.

[Karl McDonnell, President & CEO at Strategic Education]

ANZ's second quarter total enrollment decreased 3% from the prior year, driven by the continued regulatory restrictions on international student enrollment. Using constant currency, revenue increased slightly to $71,000,000 and operating income decreased from $14,000,000 in the prior year to $13,000,000 this year. Notwithstanding the recent decline in our international enrollment, we are optimistic about our pivot to focusing primarily on the Australian domestic market, where we have seen mid to high single digit new student growth through the first half of this year. Finally, regarding capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 325,000 shares during the quarter for a total of $28,000,000 Year to date, we have repurchased just under 720,000 shares for $60,000,000, leaving us with $169,000,000 remaining on our share repurchase authorization through the end of this year. And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SCI for their ongoing commitment and support to our students and employer partners.

[Karl McDonnell, President & CEO at Strategic Education]

And with that, Andrew, we'd be happy to take questions.

[Operator]

Certainly. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. And our first question comes from the line of Alex Paris with Barrington Research.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

Hi, guys. Thanks for taking my question and congrats on the strong earnings. Just a couple of clarifying questions on your prepared comments. Starting with US higher education, you noted in the press release the success with employer affiliated enrollment and the health care portfolio. You mentioned the decline in unaffiliated enrollment.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

I wonder if we can get a little bit more information there. I think you said on the q one call, unaffiliated enrollment was down 2.7% year over year to sixty thousand four four four. So I'm wondering if you can get comparable numbers for the second quarter or the first half. And then what's the outlook for the second half? Because as I recall, the comps get a little easier in the second half.

[Karl McDonnell, President & CEO at Strategic Education]

Good morning, Alex. The declines in new student enrollment and by the way, I don't have the exact number in front of me, but I can I can tell you that the softness that we're seeing in new student enrollment is primarily at Strayer University? It's primarily in our unaffiliated students, students that don't come from a corporate partnership. I believe the rate of decline was slightly better in the second quarter than it was in the first quarter. And maybe Dan afterwards can follow-up with you on the exact numbers.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

Yeah. No. That's great. And we we have a follow-up call schedule. And then on the ANZ side, again, not surprising on the lower enrollment internationally.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

You you said that there's progress on the domestic side. I'm wondering what the split is between the two now. And and, you know, is domestic up as a percentage of the total from the beginning of the year, for example. And and Yeah. Yeah.

[Karl McDonnell, President & CEO at Strategic Education]

So Yeah.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

Anyway, a little more color there would be great.

[Karl McDonnell, President & CEO at Strategic Education]

Sure. Historically, as we've said, the split between domestic and international was always roughly fifty fifty. We've seen a decline in international basically in line with the indicative caps that the Australian government imposed. As I said, we have seen growth in domestic, so the composition is skewing now to more domestic. We're going to anniversary these declines in international enrollment sometime early in '26.

[Karl McDonnell, President & CEO at Strategic Education]

And at that point, we would expect Torrance to return to both new student growth and total enrollment growth, given the success that we've seen in the domestic market. And I would just add that I would say we're still not fully funded from a marketing standpoint in the domestic market. We're planning to increase marketing investments in the back half of this year. And based on the performance of the domestic market, that will kind of set what our intention is for '26. But we have every expectation that Australia, New Zealand will be growing once we anniversary these declines due to the Australian restrictions on international enrollment.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

Great. And then and then last question, and I can follow-up with the team after this call on some of the other particulars. But just wondering what your thoughts are about legislative and regulatory, with the one big beautiful bill passed and its implications for higher education, as well as other regulatory moves like on the 9010 side and so on.

[Karl McDonnell, President & CEO at Strategic Education]

Yeah. So, obviously, we're still digesting everything that was in one big beautiful bill. My understanding is that many of the components were left to the department to figure out how to implement, which my understanding is they intend to do via a couple of negotiated rulemaking sessions, so those will clearly be important for us to follow to see any impact. But based on everything that we've seen now, we don't expect any material adverse impact from anything in one big beautiful bill.

[Alexander Paris, President & Senior MD at Barrington Research Associates]

Great. That's what I thought. Thank you. I'll, I'll get back in the queue and let somebody else ask questions.

[Karl McDonnell, President & CEO at Strategic Education]

Sure.

[Operator]

And our next question comes from the line of Jasper Bibb with Dura Securities.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Hey, good morning, everyone. I was hoping you could talk a little bit more about where you're seeing weakness at Strayer. And to the extent you can, maybe you could frame how you're leading indicators like inquiry volumes are are trending and then the expectations for what enrollment might look like for US in the back half of the year. Thanks.

[Karl McDonnell, President & CEO at Strategic Education]

Sure. This is a a the cycle that we're in and seeing where we have some pressure on our unaffiliated undergraduate students, again, primarily at Strayer, is a cycle that we've seen and been through before. There is some natural variability to enrollment. In terms of leading indicators, I don't have that in front of me, Jasper. But we have every expectation that over the long term, enrollment will normalize, as we've always said, kind of in the mid single digit range.

[Karl McDonnell, President & CEO at Strategic Education]

So our expectation hasn't changed there. And for this year, I'd say we're kind of right on track with what we laid out at Investor Day, and, that's still the trajectory that we're planning for in 2025.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Maybe following up on that.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Last comment. Do you still, I guess, expect where you'll be at in '25 from a a revenue and profit growth perspective to align with the the notional model that you outlined at the Investor Day, I guess, maybe, the year and a half, two years ago now.

[Karl McDonnell, President & CEO at Strategic Education]

Yep.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Yeah. Okay. And then on the the ECS front, you know, really strong growth there. Was just hoping you could kind of update us on the the large employer partnership you've talked about the last couple calls, how that's ramping, and then, maybe the progression of that and any implications for revenue in the back half of the year as as, I guess, more probably employees from that relationship migrate onto the platform?

[Karl McDonnell, President & CEO at Strategic Education]

Yeah. I'd say we're, in the midst of that onboarding. So far, I would say our team has done an great job. My understanding is this particular client is very pleased with the work that the Workforce Edge ETS team has done. We've seen significant revenue growth, specifically from that partner.

[Karl McDonnell, President & CEO at Strategic Education]

Because we haven't anniversaried that, we didn't have it last year, that will continue through the back half of this year. So all things considered, I'd say that particular relationship has gone as well as it possibly could.

[Jasper Bibb, VP - Equity Research at Truist Securities]

Okay. I'll take my questions.

[Operator]

Thank you. And our next question comes from the line of Jeff Silber with BMO Capital Markets.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

Thanks so much. Just a couple of quick follow ups from the other questions. First on Australia and New Zealand. Can you just remind us what the international caps are? And are they impacted in terms of transfer students at other universities? I know you've talked about that before.

[Karl McDonnell, President & CEO at Strategic Education]

Yes. So, good morning, Jeff, by the way. The caps themselves were intended to restrict what we refer to as offshore international enrollment. These are students who are not in Australia who need a visa to immigrate in for the purposes of study. Those reductions for us represented about a 30% reduction from pre cap levels.

[Karl McDonnell, President & CEO at Strategic Education]

The Australian government, in addition to that cap, which by the way, they're enforcing not with legislation, but through the velocity, if you will, of visa approvals, they've also put some restrictions in on onshore people who are already in Australia's ability, students' ability to transfer to other institutions, which historically, frankly, was the primary source of international enrollment for Torrance, at least in the last couple of years. So we've seen a decline in both. We've seen a decline on a year over year basis on, offshore students immigrating in, and we've also seen a decline, in onshore students transferring. But as I said just a few moments ago, we do expect to lap those declines early next year. And at that point, we expect to see a return to both new and total enrollment growth.

[Karl McDonnell, President & CEO at Strategic Education]

And I'd have to say, the domestic growth that we've seen, it's early, but it's been a little stronger than, frankly, I was anticipating it would be at this point, just given that Torrens is so young in the Australian higher ed ecosystem, and we haven't fully funded a domestic marketing budget even since we've taken over the asset. But, again, that's something that we intend to do in the back half of this year and heading into 2026.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

Okay. That's really helpful. Appreciate that. And then, just one big, one follow-up from the one big beautiful act, question. Was there anything in there that that might be a positive to you?

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

And I know this is minor, but it looks like that they're gonna be increasing the cap on the employer affiliated tuition, assistance program. I know it's small, but would that be something that might be a needle mover for you?

[Karl McDonnell, President & CEO at Strategic Education]

Definitely. It's the first increase in that number that I can remember since I've been here in twenty ish years. So, the fact that that can be indexed to inflation, I think, is a net positive. To the extent that we expand the portfolio in The US to include some more workforce related programs, there's also a chance that the workforce Pell inclusion could be beneficial. But, yes, definitely on the cap on the $5,250 taxable limit.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

Okay. Really appreciate the color. Thanks so much.

[Karl McDonnell, President & CEO at Strategic Education]

Thanks, Jeff.

[Operator]

Thank you. I'm showing no further questions. So with that, I'll hand the call back over to CEO, Carl McDonnell, for any closing remarks.

[Karl McDonnell, President & CEO at Strategic Education]

Thank you everyone for joining us today, and we look forward to discussing our q three results in three months.

[Operator]

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.

Participants

Executives

• Terese Wilke, Senior Director - IR
• Karl McDonnell, President & CEO

Analysts

• Alexander Paris, President & Senior MD at Barrington Research Associates
• Jasper Bibb, VP - Equity Research at Truist Securities
• Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets