Earnings call transcript: Strategic Education beats EPS forecast in Q2 2025

Strategic Education Inc. (NASDAQ:STRA) reported its second-quarter 2025 earnings, surpassing earnings per share (EPS) expectations with an actual EPS of $1.54 compared to the forecasted $1.43, marking a 7.69% surprise. Revenue fell slightly short of expectations at $321.5 million against a forecast of $322.84 million. The company’s stock experienced a pre-market decline of 4.34%, trading at $76, down from the previous close of $79.45. With a market capitalization of $1.84 billion and a healthy dividend yield of 3.02%, InvestingPro data shows the company has maintained dividend payments for 9 consecutive years.

Key Takeaways

• EPS exceeded expectations by 7.69%, signaling strong profitability.
• Revenue slightly missed forecasts, with a minor shortfall of 0.42%.
• Stock price declined 4.34% in pre-market trading, reflecting mixed investor sentiment.
• Operating income increased by 12% to $49 million, with a stable operating margin.
• Strategic focus on Australian domestic market amid international student restrictions.

Company Performance

Strategic Education demonstrated robust financial performance in Q2 2025, marked by a 4% revenue growth on a constant currency basis and a 12% rise in operating income. The operating margin improved by 110 basis points to 15.2%. InvestingPro analysis reveals strong financial health with an overall score of "GOOD" and an impressive Altman Z-Score of 6.13, indicating solid financial stability. The company’s Education Technology Services (ETS) segment continued to perform strongly, contributing to the overall positive results despite challenges in international student enrollment.

Financial Highlights

• Revenue: $321.5 million, a 4% increase year-over-year
• Earnings per share: $1.54, up 16% from the prior year
• Operating income: $49 million, a 12% increase
• Operating margin: 15.2%, up 110 basis points

Earnings vs. Forecast

Strategic Education’s EPS of $1.54 exceeded the forecast of $1.43 by 7.69%, showcasing the company’s ability to manage costs and drive profitability. However, revenue fell short of the expected $322.84 million, missing by 0.42%. This mixed performance is consistent with the company’s focus on operational efficiency and strategic market adjustments.

Market Reaction

Despite the earnings beat, Strategic Education’s stock fell by 4.34% in pre-market trading to $76. This decline reflects investor concerns over the revenue miss and potential challenges in the higher education sector. According to InvestingPro analysis, the stock is currently trading near its 52-week low, with a P/E ratio of 16.06. The company appears undervalued based on InvestingPro’s Fair Value calculations. For investors seeking deeper insights, InvestingPro offers 8 additional exclusive tips and a comprehensive Pro Research Report, available along with 1,400+ other detailed company analyses.

Outlook & Guidance

The company anticipates enrollment normalization in the mid-single-digit range and plans to increase marketing investments in Australia in the latter half of 2025. With a revenue growth of 5.72% over the last twelve months and strong cash flows sufficient to cover interest payments, Strategic Education projects a return to growth in its Australia-New Zealand segment by early 2026, aligning with its strategic pivot toward the domestic market amid international student restrictions.

Executive Commentary

CEO Carl McDonnell expressed confidence in long-term enrollment trends, stating, "We have every expectation that over the long term, enrollment will normalize, kind of in the mid single digit range." He also highlighted the company’s strategic focus, noting, "We’re still not fully funded from a marketing standpoint in the domestic market."

Risks and Challenges

• Decline in US higher education enrollment poses ongoing challenges.
• International student restrictions impact the Australia-New Zealand segment.
• Market saturation and competitive pressures in the education technology sector.
• Economic uncertainties affecting employer-affiliated enrollments.

Q&A

During the earnings call, analysts inquired about the weakness in unaffiliated undergraduate enrollments at Strayer University and the potential benefits of increased employer tuition assistance caps. Executives remained optimistic about long-term growth, emphasizing strategic initiatives and market adjustments to address these concerns.

Full transcript - Strategic Education Inc (STRA) Q2 2025:

Conference 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.

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.

Therese Wilkie, Senior Director of Investor Relations, 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.

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.

Carl McDonnell, President and Chief Executive Officer, 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%.

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.

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%.

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.

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.

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

Conference 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.

Alex Paris, Analyst, Barrington Research: 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.

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.

Carl McDonnell, President and Chief Executive Officer, 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.

Alex Paris, Analyst, Barrington Research: 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.

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.

So Yeah. Anyway, a little more color there would be great.

Carl McDonnell, President and Chief Executive Officer, 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.

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.

Alex Paris, Analyst, Barrington Research: 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.

Carl McDonnell, President and Chief Executive Officer, 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.

Alex Paris, Analyst, Barrington Research: Great. That’s what I thought. Thank you. I’ll, I’ll get back in the queue and let somebody else ask questions. Sure.

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

Jasper Bibb, Analyst, Dura Securities: Hey, good morning, everyone. I was hoping you could talk

Jasper Bibb, Analyst, Dura Securities: 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.

Carl McDonnell, President and Chief Executive Officer, 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.

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, Analyst, Dura Securities: Maybe following up on that.

Jasper Bibb, Analyst, Dura 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.

Carl McDonnell, President and Chief Executive Officer, Strategic Education: Yep.

Jasper Bibb, Analyst, Dura Securities: Yeah. Okay. And then on

Jasper Bibb, Analyst, Dura Securities: 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?

Carl McDonnell, President and Chief Executive Officer, 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.

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, Analyst, Dura Securities: Okay. I’ll take my questions.

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

Jeff Silber, Analyst, 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.

Carl McDonnell, President and Chief Executive Officer, 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.

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.

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.

Jeff Silber, Analyst, 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?

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?

Carl McDonnell, President and Chief Executive Officer, 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.

Jeff Silber, Analyst, BMO Capital Markets: Okay. Really appreciate the color. Thanks so much.

Carl McDonnell, President and Chief Executive Officer, Strategic Education: Thanks, Jeff.

Conference 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.

Carl McDonnell, President and Chief Executive Officer, Strategic Education: Thank you everyone for joining us today, and we look forward to discussing our q three results in three months.

Conference Operator: Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.

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