Strategic Education, Inc. Q2 FY2025 earnings call

• Pleased with second quarter and first half 2025 results, with SEI's revenue growing 4% on constant currency basis, operating income up 12% to $49 million, operating margin up 110 basis points to 15.2%, and adjusted earnings per share up 16% to $1.54.
• ETS division continues strong performance, on track to be a significant contributor to earnings. Sophia Learning and Workforce Edge performing well.
• U.S. Higher Education benefits from employer affiliated and health care portfolio growth, despite slight enrollment decline.
• ANZ pivoting to domestic market with mid- to high single-digit new student growth. Capital allocation includes regular dividend and share repurchases, with $169 million remaining on share repurchase authorization.

Education Technology Services (ETS) Division

• Revenue: $37 million, up 50% from prior year. Operating income: $15 million, up 50% from prior year. ETS' share of SCI's operating income grew from 23% last year to 31% this year.
• Sophia Learning: Average and total subscribers and revenue grew 40%, driven by strong growth in consumer and employer affiliated subscribers.
• Workforce Edge: Has 80 total corporate partnerships collectively employing more than 3.8 million employees. ETS's operating margin remained stable at 41% despite 50% increase in expenses.

U.S. Higher Education

• Total enrollment decreased 1% from prior year. Revenue down half of 1% year-over-year, but slightly higher revenue per student offset about half of enrollment decline.
• Employer affiliated enrollment increased 8% from prior year, representing 32% of all U.S. higher education enrollment. U.S. higher education health care portfolio enrollment increased 8% from prior year.
• Operating expenses decreased $2 million from prior year, operating income increased 5% and operating margin increased 40 basis points.

Australia, New Zealand (ANZ)

• Second quarter total enrollment decreased 3% from prior year due to regulatory restrictions on international student enrollment.
• Using constant currency, revenue increased slightly to $71 million, operating income decreased from $14 million in prior year to $13 million this year.
• Pivot to focusing on Australian domestic market saw mid- to high single-digit new student growth through first half of 2025.

• Anticipates Australia, New Zealand to grow once international enrollment declines are anniversaried early in 2026, with plans to increase marketing investments in domestic market back half of 2025.
• 2025 revenue and profit growth trajectory aligns with investor day model. ETS relationship with large employer partner expected to continue driving revenue growth through back half of 2025.

• Regulatory restrictions on international student enrollment in Australia, New Zealand impacting enrollment. - Decline in unaffiliated enrollment in U.S. Higher Education. - Uncertainty regarding legislative and regulatory changes such as the One Big Beautiful Bill and 90/10 rules.

Q: Could you provide more info on unaffiliated enrollment in U.S. Higher Education, including comparable numbers for second quarter or first half and outlook for second half?

A: Decline in new student enrollment is primarily at Strayer University in unaffiliated students, rate of decline was slightly better in second quarter than first quarter, and Dan will follow up with exact numbers later.

Q: What's the split between domestic and international in Australia, New Zealand now and outlook?

A: Historically 50-50, now skewing to more domestic due to international enrollment declines, expecting growth once international enrollment declines are anniversaried in early 2026, and planning to increase marketing investments in domestic market back half of 2025.

Q: Thoughts on legislative and regulatory implications of One Big Beautiful Bill?

A: Still digesting, many components left to department to implement via negotiated rule-making sessions, but no material adverse impact expected currently.

Q: Where is weakness at Strayer and leading indicators like inquiry volumes?

A: Weakness in unaffiliated undergraduate students at Strayer, leading indicators not available immediately, but expectation of long-term enrollment normalization in mid-single-digit range and on track with investor day model for 2025.

Q: Update on large employer partnership in ETS and revenue implications for second half?

A: In midst of onboarding, client pleased, significant revenue growth from this partner continuing through second half of 2025.

Q: International caps in Australia, New Zealand and impact on transfer students?

A: Caps restricted offshore international enrollment (30% reduction from precap levels), also restrictions on onshore students transferring, expecting growth once international enrollment declines are anniversaried in early 2026.

Q: Positive aspects of One Big Beautiful Act?

A: Increase in cap on employer-affiliated tuition assistance program, first increase in years, which is a net positive, and potential benefit from workforce inclusion components.