Strategic Education Q1 Earnings Call Highlights

Key Points

• ETS-led growth: ETS revenue rose 21% to $42 million and ETS operating income jumped 42% to $20 million (a 47% margin), with Sophia subscribers up 40% and Workforce Edge now covering 4 million employees.
• Mixed consolidated results: Consolidated revenue fell 1% year-over-year while adjusted EPS was $1.41; productivity cuts reduced adjusted operating expenses 2%, helping operating income grow 3% and expand margins to 14.3%, and management expects Q1 was the year’s low point.
• Confident outlook and capital returns: Management expects to hit its notional plan and target ~200 bps of margin expansion via AI/productivity initiatives, repurchased ~493,000 shares for $40 million this quarter with about $200 million still available for buybacks.

Strategic Education NASDAQ: STRA reported first-quarter 2026 results that CEO Karl McDonnell said showed “meaningful progress” against three strategic priorities: expanding the Education Technology Services (ETS) division, growing an employer-focused strategy, and implementing AI and other productivity tools.

For the quarter, McDonnell said revenue declined 1% year over year, driven by a slight decrease in consolidated enrollment. However, he added that based on current enrollment trends, the company expects the first quarter to be the low point of the year “in both absolute revenue and revenue growth.” Productivity initiatives contributed to a 2% reduction in adjusted operating expenses, which McDonnell said helped drive 3% operating income growth and “slight margin expansion” to 14.3%. Adjusted earnings per share were $1.41.

ETS growth led by Sophia and employer partnerships

McDonnell said ETS revenue grew 21% to $42 million, supported by Sophia Learning subscriptions, higher employer-affiliated enrollment, and new Workforce Edge partnerships. Even with a 7% increase in ETS expenses as the company continues to invest in the business, McDonnell said ETS operating income rose 42% to $20 million, representing a 47% margin. He added that ETS accounted for 46% of consolidated operating income in the quarter.

Within ETS, McDonnell said Sophia Learning grew average total subscribers by 40% and revenue by 32%, with strength across both consumer and employer-affiliated subscribers. Workforce Edge ended the quarter with 82 corporate agreements covering 4 million employees. McDonnell also said Workforce Edge enrollments into Strayer or Capella rose 70% to nearly 4,000 students.

On the outlook for the two ETS businesses, McDonnell said Sophia has scaled to the point where moderating growth would not be surprising, but he expects the company can “continue to support 20%+ growth” at Sophia. He noted Workforce Edge is anniversarying a large retail client, which could reduce reported growth, but said the company has a “very robust pipeline” and continues to receive unsolicited inbound RFPs each quarter.

U.S. Higher Education: employer-affiliated mix hits record

In U.S. Higher Education, McDonnell highlighted continued growth in employer relationships. Employer-affiliated enrollment increased 10% and reached an all-time high of 34.5% of total U.S. Higher Education enrollment, an increase of more than 300 basis points from the prior year. Healthcare, which McDonnell described as a key component of the employer strategy, grew 10% and now represents more than half of U.S. Higher Education enrollment.

Despite those gains, McDonnell said U.S. Higher Education revenue declined 4% due to a slight decline in unaffiliated enrollment as well as “somewhat higher discounts and scholarships,” which reduced revenue per student. Operating expenses in the segment fell 2%, and the segment delivered $26 million of operating income and a 12% margin. McDonnell also said U.S. Higher Education achieved a new record in average student retention at 89%.

In the Q&A, McDonnell told Barrington Research’s Alex Paris that unaffiliated enrollment trends improved sequentially, which he attributed to better-than-expected new student growth at Capella and early signs of improvement at Strayer from lower prior-year levels. McDonnell characterized Capella’s new student enrollment as “quite strong,” while noting ongoing weakness in Strayer undergraduate unaffiliated enrollment, which he said is “not part of our strategy.”

McDonnell also described how marketing investment has shifted between the two institutions in line with company priorities. He said the company has increased marketing support behind Capella’s growth while reducing marketing for Strayer, adding that compared with two years ago, Strayer marketing investment is “probably down by 50% or more,” while Capella is “up by 50% or more.”

Asked whether U.S. Higher Education enrollment could return to growth by year-end, McDonnell said, “I think it’ll be very close. I think we have a good chance to do that.”

Margin and revenue per student commentary

Responding to Truist’s Jasper Bibb on profitability differences, CFO Daniel Jackson said Capella’s operating margin is “much higher than Strayer” and is driving most of U.S. Higher Education operating income. He said Strayer’s margin remains positive but is “a fraction” of Capella’s. Jackson added that while Strayer costs are “pretty close” to being right-sized, there are still opportunities tied to productivity work and continued real estate rationalization. He said Strayer margins should improve but are “unlikely to get to where Capella is.”

On revenue per student, Jackson said the company expects it to be “relatively stable” for the full year. He attributed the first-quarter decline to higher scholarships and discounts and lower classes per student, both year over year and sequentially. He said variability is influenced by program and degree mix, corporate-student mix, and unaffiliated student groups eligible for scholarships. Jackson said pricing that takes effect in the second quarter should help support a flat full-year revenue per student outcome.

McDonnell added that sequential comparisons were also affected by an unusually strong fourth quarter of 2025 revenue per student, which he said was boosted by a “significant decline in scholarships and discounts” versus the prior-year quarter, calling it “a little bit of an anomaly.”

Australia and New Zealand impacted by international constraints

In Australia and New Zealand (ANZ), McDonnell said total enrollment declined 3% due to regulatory constraints on international enrollment, only partially offset by domestic new student growth. On a constant currency basis, ANZ revenue fell 4%, reflecting the enrollment decline and a slight decrease in revenue per student. Operating expenses declined 3% due to productivity initiatives, and the segment posted an operating loss of $2.4 million, which McDonnell said reflects normal seasonality.

When asked about the prospect of returning ANZ to enrollment growth by year-end, McDonnell said “it’s going to be close.” He said he is hopeful the company will deliver full-year new student growth—potentially the first since the post-cap period—while cautioning that total enrollment growth depends in part on international visa processing. He said that in the first quarter, the Australian government began slowing visa approvals “even when you’re below your cap,” which the company did not see last year. McDonnell said the company suspects the added friction may be tied to increased immigration scrutiny following the Bondi Beach incident in Sydney last year, and he said it is unclear whether the trend will persist.

Capital allocation and notional plan confidence

McDonnell said the company repurchased approximately 493,000 shares during the quarter for $40 million, in addition to paying its regular quarterly dividend. He said approximately $200 million remained on the company’s repurchase authorization through year-end.

On Strategic Education’s “notional plan,” McDonnell told BMO Capital Markets’ Jeff Silber that his commentary is primarily focused on EBIT and EPS performance. “From that lens, I have very high confidence that we’re going to be on our notional plan this year,” he said, adding it is possible the company could reach targets with “better expense management and maybe a little less revenue” depending on how the year develops.

In a follow-up with Barrington’s Paris, McDonnell said the company is implementing AI and other productivity tools faster than expected, which could have a bigger impact this year than he previously anticipated. He said if current enrollment trends continue and accelerated productivity initiatives hold, he has high confidence the company can reach the plan’s targeted 200 basis points of margin expansion, supporting EPS growth.

McDonnell also addressed a regulatory question regarding upcoming rules effective July 1 related to caps on graduate and professional loans, saying he had not heard of demand pressures tied to the change and does not expect “a major impact” from adjustments to graduate loan limits, though he noted the company is still waiting on final language.

About Strategic Education NASDAQ: STRA

Strategic Education, Inc is a publicly traded higher education services holding company headquartered in Herndon, Virginia. Through its primary operating subsidiaries, Strayer University and Capella University, the company delivers degree programs and professional development opportunities to working adults. Its offerings span undergraduate and graduate degrees, certificates, continuing education, and workforce training in fields such as business, technology, health services, education, and public administration.

Strayer University, with a network of physical campuses across the United States complemented by an online platform, provides associate’s through doctoral degrees designed to accommodate non-traditional students.

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