Strategic Education, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• SEI's revenue grew by 5% in the first quarter, adjusted operating income increased 16%, operating margin increased to 13.6%, and adjusted earnings per share grew 16% to $1.29.
• In US higher education, continued strong employer-affiliated enrollment offset lower unaffiliated enrollment, with corporate partnership enrollment at an all-time high of 31%.
• In ANZ, navigating regulatory changes with enrollment decline in international but growth in domestic market. ANZ revenue up 6% (constant currency) driven by pricing, but reported operating loss.
• ETS segment continued strong performance with revenue up 45% and operating income up 37%, driven by Sofia Learning and Workforce Edge growth. Workforce Edge added 2 corporate partners, total 78, with enrollments near 50% increase.
• Capital allocation: Repurchased approximately 390,000 shares of common stock for $32 million during the quarter, with $197 million remaining in share repurchase authorization.

Segment Performance:

• US Higher Education: Revenue grew by 1%, operating income increased by 7% from the previous year. Total enrollment in U.S. higher education slightly increased, with employer-affiliated enrollment rising 7% from the previous year, offset by lower unaffiliated enrollment. The percentage of total US higher education enrollment from corporate partnership is now 31%, an all-time high.
• Australia and New Zealand (ANZ): Total enrollment decreased 1% during the quarter, driven by lower international enrollment related to regulatory changes. 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. The segment is navigating a shifting regulatory environment.
• Education Technology Services (ETS): Revenue grew by 45% and operating income increased 37% in the first quarter. Sofia Learning subscriptions, higher employer-affiliated enrollment, and revenue from new Workforce Edge employer partnerships drove this growth. ETS' operating margin in the first quarter was 40.3%, a decline due to increased marketing and staffing investments.

Guidance:

• Expect US higher education enrollment to normalize to mid-single digit consistent with investor day notional plan.
• Confident 2025 performance aligns with the notional model outlined at Investor Day.
• Launch of large employer partner by ETS is received well, with demand from that client running ahead of internal modeling.

Risks:

• Regulatory changes in Australia impacting international enrollment in ANZ, specifically affecting transfer students due to new verification requirements.
• Uncertainties in enrollment trends and market conditions that could affect financial performance.

Q: Focus on US higher education enrollment growth slowdown. Any color on marketing or enrollment trends?

A: No change in marketing/advertising; it's normal cyclicality, expect enrollment to normalize to mid-single digit.

Q: ANZ international enrollment decline. Details on regulatory impact?

A: Australian Ministry of Education's new regulation requiring verification for transfer students led to fewer transfers, primary driver of ANZ enrollment decline.

Q: ETS revenue growth acceleration. Update on large employer partner launch and impact on EPS?

A: Launch received well, fully staffed for higher touch model; client's requirement for employees lacking 12 college credits to go through Sofia first is driving demand ahead of modeling, positively impacting EPS expectations.