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Strategic Education, Inc. (STRA)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered modest top-line growth and strong non-GAAP profitability: revenue rose 4.6% to $303.6M and adjusted diluted EPS increased to $1.30; GAAP diluted EPS was $1.24 .
  • EPS and revenue exceeded Wall Street consensus: EPS $1.30 vs $0.96 (+$0.34, +36%); revenue $303.6M vs $300.7M (+$2.9M, +1.0%)—a clean beat, aided by ETS strength and employer partnerships*.
  • Education Technology Services revenue grew 45% to $34.3M with operating margin of 40.3% as Sophia subscribers rose ~37% and Workforce Edge expanded to 78 corporate agreements (~3.89M employees) .
  • USHE enrollment was stable (87,854) with employer-affiliated mix at an all-time high of 31.2%; ANZ faced international enrollment headwinds from new transfer verification rules, partially offset by domestic growth .
  • Capital allocation remains supportive: $32.0M repurchases (391K shares) and a $0.60 quarterly dividend; cash, equivalents and marketable securities totaled $197.6M; no revolver debt .

What Went Well and What Went Wrong

What Went Well

  • ETS momentum: revenue +45% YoY, operating income +37%; Sophia subscribers +37% and Workforce Edge at 78 employer agreements (~3.9M employees) .
  • Mix shift to employers: USHE employer-affiliated enrollment reached 31.2%—an all-time high—supporting revenue per student and operating income growth .
  • Management tone on margin trajectory: “our adjusted operating income increased 16%” with operating margin at 13.6% and adjusted EPS up 16% YoY, highlighting leverage from ETS and employer strategy .

What Went Wrong

  • ANZ international enrollment declined due to new Q1 transfer verification rules, dampening onshore transfer flows; ANZ posted a $2.1M operating loss (seasonal) despite constant-currency revenue growth .
  • USHE total enrollment was “relatively flattish” YoY as unaffiliated enrollment softened, tempering segment revenue growth to +0.8% .
  • Operating expenses will step up later in the year: Q1 was helped by headcount timing; ETS investments in marketing and staffing will be pushed to Q2–Q4, implying less margin tailwind ahead .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$305.96 $311.46 $303.59
Income from Operations ($USD Millions)$36.33 $36.02 $39.79
Operating Margin (%)11.9% 11.6% 13.1%
Diluted EPS ($USD)$1.15 $1.05 $1.24
Adjusted Income from Operations ($USD Millions)$37.08 $40.43 $41.71
Adjusted Operating Margin (%)12.1% 13.0% 13.7%
Adjusted Diluted EPS ($USD)$1.16 $1.27 $1.30
Adjusted EBITDA ($USD Millions)$56.24 $60.07 $59.96

Segment breakdown (Q1 2025 vs Q1 2024):

SegmentQ1 2024 Revenue ($USD Millions)Q1 2025 Revenue ($USD Millions)Q1 2024 Op Inc ($USD Millions)Q1 2025 Op Inc ($USD Millions)Q1 2024 MarginQ1 2025 Margin
U.S. Higher Education (USHE)$219.24 $221.01 $28.01 $29.96 12.8% 13.6%
Education Technology Services (ETS)$23.64 $34.32 $10.09 $13.85 42.7% 40.3%
Australia/New Zealand (ANZ)$47.38 $48.26 ($2.26) ($2.10) N/AN/A

Key KPIs and cash items (Q1 2025):

KPIQ1 2025Prior Year/Context
USHE total enrollment87,854 87,731
Employer-affiliated % of USHE31.2% 29.2%
FlexPath % of USHE24% 23%
Sophia avg total subscribers YoY+~37% —
Workforce Edge agreements78; ~3.89M employees —
ANZ enrollment20,082 20,197
Bad debt expense (% of revenue)4.2% 4.2%
Cash, equivalents & marketable securities$197.6M —
Share repurchases391,302 shares; $32.0M —
Dividend$0.60 declared for June 2, 2025 Maintained

Estimate performance (Q1 2025):

MetricConsensusActualSurprise ($)Surprise (%)
Primary EPS ($)0.9633*1.30*+0.3367*+34.9%*
Revenue ($USD Millions)300.67*303.59 +2.92*+0.97%*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue growthFY 2025Notional model: 4–6% growth (Investor Day reference) Management reaffirmed alignment with notional model Maintained
Adjusted operating income margin expansionFY 2025~+200 bps (notional model) Management reaffirmed alignment Maintained
ETS spending cadence2025Elevated marketing/staffing investment expectedQ1 OpEx lower on headcount timing; spend pushed to Q2–Q4 Rephasing (no change in total)
DividendQuarterly$0.60 per share$0.60 declared (payable June 2, 2025) Maintained

Note: Company did not issue formal quantitative quarterly or annual guidance ranges; management referenced alignment with prior “notional model” targets .

Earnings Call Themes & Trends

TopicQ3 2024Q4 2024Q1 2025Trend
Employer partnerships (USHE)Employer-affiliated 29.8%; mix rising 30.2% in Q4; employer mix up YoY 31.2% all-time high Strengthening
Sophia Learning growthSubscribers +33% YoY Subscribers +29% YoY Subscribers +~37% YoY Accelerating
ETS financialsRev +26% YoY; margin ~41% Rev +39% YoY; margin ~39% Rev +45% YoY; margin 40.3% (planned investment compression) Strong growth; margin steady-to-slightly down due to investment
ANZ enrollment & regulationEnrollment +5.1% YoY; margins solid Q4 margin down vs 2023; full-year enrollment up International transfers impacted by new verification; domestic growth focus; seasonal operating loss Mixed; regulatory headwind
FlexPath adoption24% of USHE 24% of USHE 24% of USHE Stable high
Capital allocationPaid dividend; debt repaid in Q3 Dividend $0.60; FY cash up; buybacks $11.5M Dividend $0.60; buybacks $32.0M; $197.6M liquidity; no revolver debt Supportive to EPS

Management Commentary

  • Prepared remarks emphasized ETS and employer strategy: “We are pleased with our first quarter results driven by continued strength across the Education Technology Services segment and ongoing focus on growth through employer partnerships.” — Karl McDonnell, CEO .
  • Profitability and margin: “SEI’s revenue grew by 5% in the first quarter and our adjusted operating income increased 16%. Our operating margin increased to 13.6%, while adjusted earnings per share grew 16% to $1.29 compared to $1.11 for the same period in 2024.” — Karl McDonnell .
  • ANZ regulation: “The Australian Ministry of Education put into place a new regulation this year… requires all institutions to go through the same verification process for transfer students… the net effect is fewer students are transferring… [primary driver of our decline].” — Karl McDonnell .
  • ETS go-to-market: “We are essentially fully staffed now to serve that higher touch model… demand through Sophia is running ahead of what we had modeled.” — Karl McDonnell .
  • Capital returns: “We repurchased approximately 390,000 shares for a total of $32 million… $197 million remaining in our share repurchase authorization through the end of this year.” — Karl McDonnell .

Q&A Highlights

  • USHE enrollment pacing: Management described Q1 as “relatively flat” and consistent with cyclicality; expect normalization to mid-single-digit growth over time, led by employer partnerships .
  • Persistence: “Persistence is stable… probably up slightly,” supported by high course success .
  • ETS drivers: Strength from Sophia (high NPS, increased marketing ROI), Workforce Edge maturation, and non-Workforce Edge corporate partnerships .
  • OpEx timing: Q1 adjusted OpEx grew 2.9% vs revenue +4.6%, better than expected due to headcount timing; ETS investment levels unchanged but pushed to last three quarters .
  • 2025 framework: Management affirmed alignment with notional model (4–6% revenue growth; ~+200 bps adjusted OI margin expansion) despite softer USHE unaffiliated enrollment in Q1 .
  • Large employer partnership: New policy requires certain employees to complete six Sophia classes before matriculating; early demand ahead of plan .

Estimates Context

  • Q1 2025 EPS and revenue beat consensus meaningfully: EPS $1.30 vs $0.96; revenue $303.6M vs $300.7M*; ETS strength and employer mix likely drove upside and mix-led revenue per student benefits in USHE .
  • Given management’s reiteration of the 2025 notional model and OpEx phasing, sell-side estimates may modestly lift ETS revenue and full-year adjusted margin assumptions, while embedding ANZ international headwinds and USHE unaffiliated softness*.

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • ETS is the growth engine: sustained double-digit revenue growth, high-40% margin profile even with investment, and structural demand via Sophia and Workforce Edge; near-term catalyst for estimate revisions .
  • Employer-affiliated momentum supports USHE pricing and margin resilience; continued partnership expansion (e.g., Best Buy Degrees@Work) underpins mix shift .
  • ANZ regulation is a transitory headwind to international transfers; domestic marketing pivots should partially offset; expect seasonal loss in Q1 and stronger subsequent quarters .
  • Q1 beat was clean and broad-based; OpEx timing suggests less near-term cost tailwind, but full-year margin expansion targets remain intact .
  • Capital returns are supportive: $32M buybacks and $0.60 dividend; strong liquidity with $197.6M in cash/marketable securities and no revolver debt .
  • Near-term trading: Positive skew on ETS momentum and employer mix; watch ANZ regulatory cadence and USHE unaffiliated demand. Medium-term thesis: diversified portfolio, employer-led demand, and operating leverage toward the notional model.