Q3 2025 Strategic Education Inc Earnings Call
Speaker #1: Welcome to Strategic Education's third Quarter 2020 results conference call . I will now turn the call over to Terese Wilke Senior Director of Investor relations for Strategic Education .
Speaker #1: Mrs. Wilkie . Please go ahead .
Speaker #2: Thank you . Hello , everyone , and welcome to Strategic Education's conference call , in which we will discuss third quarter 2020 results .
Speaker #2: With us today are Robert Silverman , chairman Karl McDonnell President and Chief Executive Officer and Daniel Jackson , Executive vice president and chief Financial officer .
Speaker #2: 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 .
Speaker #2: 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 .
Speaker #2: 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 ACS thank and thanks .
Speaker #2: Copies of these filings and the full press release are available for viewing on the website at Strategic Education, Inc. . Com . And now I'd like to turn the call over to Karl .
Speaker #2: Karl , please go ahead .
Speaker #3: Thank you . Terry , and good morning , everyone . We are pleased with our third quarter results , especially the sustained strength in our education , technology and services segment , supported by strong growth at Sophia and Workforce Edge .
Speaker #3: On an adjusted constant currency basis , revenue rose 5% from the previous year . We continue to advance our efforts to leverage technology , resulting in operating expense growth of less than 1% .
Speaker #3: Operating income , growth of 39% , and a 400 basis point margin expansion . We did incur restructuring costs in the third quarter related to our ongoing productivity initiatives , which accounted for most of the difference between our GAAP and our adjusted results .
Speaker #3: In the third quarter . Adjusted earnings were $1.64 . Compared to $1.16 from the prior year , an increase of 41% . Turning now to our segments .
Speaker #3: Our education technology Services division generated continued strong growth during the quarter , with revenue and operating income increasing by 46 and 48% from the prior year to $38,000,016 million , respectively .
Speaker #3: And notwithstanding our continued strong investment in ETS , which included a 44% increase in expenses , ETS is operating margin increased slightly on a year over year basis to 41.7% .
Speaker #3: Sophia learning our direct to consumer portal that offers high quality , college level courses and has increasingly become a key component of many of our strategic corporate partnerships , grew both average and total subscribers and revenue by 42% , driven by strong growth in both consumer and employer affiliated subscribers .
Speaker #3: Etsy's share of Rs . Operating income continues to grow , and now represents one third of consolidated operating income , reflecting progress with our employer focused strategy .
Speaker #3: US higher education total enrollment decreased slightly from the prior year , but was more than offset by higher revenue per student , driven by fewer drops , less discounting , and students taking more courses .
Speaker #3: On average . This resulted in revenue growth of 3% from the prior year . Employer affiliated enrollment . Once again remains strong , increasing approximately 8% from the prior year , and now represents 33% of all U.S.
Speaker #3: higher education enrollment . An increase of 290 basis points from the prior year . In addition to the strength in our employer affiliated enrollment , US higher education , health portfolio generated strong total enrollment growth of 7% from the prior year .
Speaker #3: Healthcare is a critical part of our portfolio , representing half of all U.S. higher education enrollments and almost 40% of enrollment from employer partners .
Speaker #3: Recently , we commissioned a survey in partnership with the Harris Poll , which highlights the ongoing burnout facing the healthcare workforce and the projected shortfall of clinical healthcare workers .
Speaker #3: This research emphasizes the importance of investing in employees growth and making continuous education a key part of strategies to retain talent . Full survey results can be found on our website at Strategic Education, Inc. .
Speaker #3: Com us higher Education operating expenses decreased by $6 million from the prior year , or a reduction of 3% as a result , US higher education operating income almost doubled from the prior year to $23 million , and its operating margin increased 520 basis points .
Speaker #3: Turning now to our Australia and New Zealand segment , ANZ's third quarter total enrollment decreased 2% from the prior year , driven by the continued regulatory restrictions on international student enrollment using constant currency .
Speaker #3: Revenue decreased 2% to $70 million and operating income decreased from $15 million in the prior year to $13 million this year . Notwithstanding the decline in total international enrollment , we are encouraged by the continued progress with domestic enrollment growth and recent guidance from the Australian government that are international .
Speaker #3: Caps will increase 3% in 2026 . Finally , regarding capital allocation , in addition to our regular quarterly dividend , we repurchased approximately 429,000 shares during the quarter for a total of $34 million .
Speaker #3: As of the end of the third quarter , we have repurchased over 1.1 million shares for $94 million , leaving us with $134 million remaining on our share repurchase authorization .
Speaker #3: 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 NCI for their ongoing commitment and support to our students and our employer partners .
Speaker #3: And with that , Sheri , we'd be happy to take questions .
Speaker #1: Thank you . As a reminder to ask a question , please press star one one on your telephone and wait for your name to be announced .
Speaker #1: To withdraw your question , press star one one again . One moment while we compile the Q&A roster . And our first question will come from the line of Jasper Bibb with Truist Securities .
Speaker #1: Your line is open .
Speaker #4: Good morning everyone . I wanted to ask two on us start , I guess first , what drove the healthy revenue per student gain in the quarter and what should we expect on a revenue per student basis over the next few quarters ?
Speaker #4: And then second , a lot better margin than we anticipated in the US . Just hoping to get a bit more detail on the expense reductions there .
Speaker #3: Hey , Jasper .
Speaker #5: It's Dan . On the revenue per student , Carl mentioned lower drops and higher seats per student . It was also some lower discounts and I think we'll see some benefit from that through the balance of the year .
Speaker #5: So there'll be some upside on revenue per student at US higher ed .
Speaker #3: And on margin . Jasper , we've said before , we're in the midst of a pretty aggressive productivity initiative that's designed to essentially remake our entire expense base .
Speaker #3: We've got through technology and artificial intelligence . Intelligence . Notably , we've got six different categories that touch all parts of the organization .
Speaker #3: Our expectation is that we'll probably be able to save upwards of $100 million in operating expenses by the end of 27 .
Speaker #4: Okay . No , that's that's great . Could you maybe frame where you're at on that journey to 100 million in annual operating expenses ?
Speaker #4: And is that only coming out of the US business or . That's that's companywide .
Speaker #3: It's company . In my prepared remarks , I referenced a restructuring that we completed at the end of the second quarter , beginning of the third quarter on a run rate basis .
Speaker #3: That equated to probably $30 million of expense reduction . So I'd say there's another 70 million or so over the next two and a half years .
Speaker #3: Some of that we're going to reinvest as growth capital to continue to support the various businesses . And some of it will show up as increased margin .
Speaker #4: Okay . That's great . For us , could you maybe frame the relative growth rates for Strayer and Capella at this point ? And can you talk about how you're managing each of those businesses in the context of trying to get back to mid-single digit enrollment growth at the segment level ?
Speaker #4: It sounds like you might already be at mid-single digit for Capella and Strayer is declining . Is that accurate ?
Speaker #3: I'd say that Capella has been stronger . The the weakness that we've seen at Strayer is primarily attributable , as it has been in prior cycles , to a reduction in non-affiliated students .
Speaker #3: But it's also function of just , frankly , more efficient marketing dollars at Capella . So we don't necessarily we're not fixated on spending a set amount at both Strayer and Capella .
Speaker #3: We tell the the higher education , the US higher education management team solve for whatever is going to result in the overall highest growth for us , higher education as a division .
Speaker #3: And over the last 18 months or so , that's been much more effective at Capella . So we've we've worked to grow Capella at a higher rate of growth than Strayer .
Speaker #3: And we're seeing that in the performance that's playing out .
Speaker #4: Thanks . And then wanted to ask about Australia and New Zealand encouraging news on the international student caps . Are you still expecting that business to return to total enrollment growth in 2026 ?
Speaker #3: Total enrollment growth ? I would like for it to return in 2026 . Definitely new student growth in 2026 . When we anniversary the caps , it generally takes 4 to 6 quarters of new student growth to overcome any declines you've had over the preceding 4 to 6 quarters .
Speaker #3: So getting to total enrollment growth by the end of 26 would be a little bit of a stretch goal , but I would definitely expect new student growth beginning in the first part of 26 .
Speaker #4: Okay . Got it . Maybe I misremembered the comment from the last call . Last one for me . As you see it today , do you think the 26 for the company level would align with the notional framework you outlined a few years ago at the Investor Day ?
Speaker #3: Yeah , we we are very anchored on our notional model . Nothing that I see now at either the revenue line or the expense line , which we obviously control , leads me to believe that we won't be able to hit the targets that we laid out at our Investor Day .
Speaker #4: Great . Thank you for taking the questions , guys .
Speaker #3: Thanks .
Speaker #1: Thank you . As a reminder , if you'd like to ask a question , please press star one . One . Our next question will come from the line of Jeff Silber with BMO Capital Markets .
Speaker #1: Your line is open .
Speaker #6: Thanks so much . I wanted to start with Australia , New Zealand . I know many folks on the line don't necessarily follow what's going on on a daily basis .
Speaker #6: Can you just remind us exactly what had happened, what the changes were compared to what we thought might have happened a few months ago?
Speaker #7: Well , the .
Speaker #3: Change is the change from when we bought it . Is that the Australian government has put in place hard enrollment caps for international students and in our case , that resulted in a reduction of approximately 30% from what we had when there were no caps .
Speaker #3: And international students historically at Torrens represented about half of any new student cohort that we had . The change that we didn't further anticipate , that happened at the beginning of this year is the government went further and put much more tighter controls and restrictions on the ability of an international student who already has a visa and who is already in Australia from transferring to another institution , which frankly , was the source of most of the growth that we had at Torrens , because it's a very common practice in Australia for universities to charge a pretty significant tuition premium for international students , and we we at Torrens effectively have tuition parity between international and domestic students .
Speaker #3: So there was a strong incentive for students to enroll at Torrens because they were going to save a significant amount of money . The the change is that we torrens have to essentially vet any transfer student the same way you would as somebody coming in offshore when they're just applying for visa .
Speaker #3: So you have to vet things like the amount of finances that they have onshore . You have to vet their ability to return back to their country and their willingness to return back to their country when they're done with the studies .
Speaker #3: It's a significant headwind . And the product of that headwind is that far fewer students are transferring . But regardless whether it's the offshore students coming in for the first time or the international transfer , students , we're going to anniversary .
Speaker #3: These caps mid 26 . We've seen pretty strong domestic new student enrollment growth throughout 25 . So when I was answering Jaspers question , I expect that we'll be growing new students in 2026 .
Speaker #3: And hopefully that will translate into total enrollment growth by the end of 26 . But by the time we fully anniversary these restrictions heading into 27 , we expect that business to be growing .
Speaker #6: Okay . That's really helpful . Appreciate it . Why don't I move back to US higher education and I appreciate you guys calling out your healthcare exposure .
Speaker #6: Can you just remind us ? I know there's seems to be some concern on the street between what they call pre-licensure and Post-licensure programs .
Speaker #6: Can you just remind us of the exposure in those two buckets ?
Speaker #3: We are not in Pre-licensure field in nursing . We are in the post-licensure with the RN to BSN program , and that's a flex path program , which is the largest program at Capella .
Speaker #3: And we've seen , I'd say , a little softness in that program . They are into BSN throughout 2025 , but we further believe that we're advantaged because that's also our largest program from an employer affiliated enrollment standpoint .
Speaker #3: And as I've said in my prepared remarks , that part of our business remains strong .
Speaker #6: Okay , great . And just one more . I know also , there's some concern on the government shutdown , specifically those companies that might have exposure to military and veteran students .
Speaker #6: Can you talk about any potential impact you've seen and what you think the impact might be going forward ? Thanks .
Speaker #7: Yeah , we .
Speaker #3: To my knowledge , we haven't seen any impact . And when I think about our largest clients like CVS health or Best Buy or Dollar General , they're not really impacted by the government shutdown per se .
Speaker #3: So as of yet , we we haven't seen any adverse impact .
Speaker #5: Jeff , this is Dan . We have very few direct military students . So the exposure there is is really insignificant .
Speaker #6: Okay . Please . I appreciate the color . Thanks so much .
Speaker #7: Okay . Thank you .
Speaker #1: Thank you . I'm showing no further questions in the queue at this time . I would now like to turn the call back over to Mr. Karl McDonnell for any closing remarks .
Speaker #3: Thank you everyone . And we look forward to joining you in February to discuss our fourth quarter and full year results .