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Strategic Education, Inc. (STRA)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered modest top-line growth with consolidated revenue up 2.9% year over year to $321.5M, while operating margin expanded to 14.2% (15.2% on a constant currency, adjusted basis), supported by outsized strength in Education Technology Services (ETS) .
  • EPS outperformed Street expectations: adjusted diluted EPS came in at $1.52 versus consensus of ~$1.43; revenue was slightly below consensus ($321.5M vs ~$322.8M). EPS beat was driven by disciplined OpEx and mix shift to ETS, which posted 50% YoY revenue and operating income growth . Estimates with * retrieved from S&P Global.
  • USHE exhibited mixed dynamics: healthcare portfolio enrollment rose 8% and employer-affiliated reached a new high of 31.8% of enrollment, but unaffiliated enrollment remained a headwind; ANZ revenue declined on regulatory pressure to international enrollments, partially offset by domestic strength .
  • Capital allocation remains active: quarterly dividend of $0.60/share and $28M in Q2 buybacks ($60M YTD), with ~$169M remaining under the repurchase authorization through year-end .
  • Near-term stock catalysts: ETS scaling (Sophia +40% revenue to $16.4M; Workforce Edge now at 80 corporate agreements) and potential policy tailwinds from the employer tuition assistance cap increase mentioned on the call; watch for ANZ regulatory normalization and domestic marketing ramp .

What Went Well and What Went Wrong

What Went Well

  • ETS momentum and mix shift: “ETS revenue and operating income both increased 50%… to $37 million and $15 million, respectively,” with stable ~41% operating margin despite investment; Sophia subscribers and revenue grew ~40% YoY; Workforce Edge at 80 corporate partners covering ~3.87M employees .
  • Margin execution: Operating margin expanded to 14.2% GAAP and 15.2% adjusted constant currency; adjusted operating income rose to $49.1M (from $43.9M) on disciplined expense growth (~2%) .
  • USHE healthcare portfolio strength: Total enrollment in healthcare programs rose 8% and now represents 47% of USHE enrollment vs 43% a year ago; employer-affiliated share hit 31.8% (new high) as corporate partnerships deepen .

What Went Wrong

  • USHE unaffiliated softness at Strayer: Management flagged ongoing pressure in unaffiliated undergraduate enrollment at Strayer, though “the rate of decline was slightly better in Q2 than Q1,” leaving total USHE enrollment down 0.8% YoY .
  • ANZ regulatory headwinds: International enrollment declines (indicative caps and visa velocity constraints) weighed on ANZ revenue (-2.8% YoY), though domestic growth is improving; management expects to lap declines early 2026 .
  • Top-line vs consensus: Revenue was modestly below the Street in Q2 ($321.5M actual vs ~$322.8M consensus*), reflecting USHE enrollment declines and ANZ constraints despite ETS strength . Estimates with * retrieved from S&P Global.

Financial Results

Consolidated Results (GAAP and Adjusted)

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$312.266 $311.456 $303.590 $321.471
Operating Income ($USD Millions)$41.924 $36.022 $39.794 $45.760
Operating Margin % (GAAP)13.4% 11.6% 13.1% 14.2%
Diluted EPS (GAAP) ($)$1.24 $1.05 $1.24 $1.37
Adjusted Diluted EPS ($)$1.33 $1.27 $1.30 $1.52

Segment Breakdown (Q2 YoY)

Segment MetricQ2 2024Q2 2025
USHE Revenue ($M)$216.613 $215.635
USHE Operating Income ($M)$19.825 $20.759
USHE Operating Margin %9.2% 9.6%
ANZ Revenue ($M)$71.130 $69.144
ANZ Operating Income ($M)$14.060 $12.756
ANZ Operating Margin %19.8% 18.4%
ETS Revenue ($M)$24.523 $36.692
ETS Operating Income ($M)$10.034 $15.028
ETS Operating Margin %40.9% 41.0%

KPIs

KPIQ2 2024Q2 2025
USHE Total Enrollment87,077 86,339
Employer-Affiliated Enrollment (% USHE)29.3% 31.8%
FlexPath Enrollment (% USHE)22% 23%
Healthcare Portfolio (% USHE)43% 47%
Sophia Learning Revenue ($M)$11.7 $16.4
Sophia Subscribers YoY Growth (%)—~40%
Workforce Edge Corporate Agreements—80
Workforce Edge Employees Covered—~3,870,000
ANZ Total Enrollment19,113 18,524
Bad Debt Expense (% Revenue, Consolidated)4.3% 4.0%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQuarterly$0.60 $0.60 Maintained
Share Repurchase Authorization RemainingFY2025—~$169M remaining Update (status)
Formal Revenue/Margin/Tax/OI&E/Segment GuidanceFY/Q3Not providedNot providedNo formal guidance; management reiterated trajectory consistent with Investor Day

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
ETS scaling (Sophia, Workforce Edge)ETS revenue +39% YoY in Q4; Sophia avg subscribers +29%; Workforce Edge 76 agreements ETS revenue +50% YoY; Sophia revenue +39.8% to $16.4M; Workforce Edge at 80 agreements Accelerating growth and contribution
USHE employer-affiliated mix30.2% employer-affiliated in Q4; 31.2% in Q1 New high 31.8% in Q2; management cited ~32% on call Steadily rising mix
USHE unaffiliated enrollmentMixed in Q1; slight total enrollment increase Softness at Strayer unaffiliated; decline “slightly better” than Q1 Persistent headwind, moderating
ANZ regulatory environmentQ4: higher revenue; margins compressed vs prior year International caps and visa approvals reduce int’l enrollment; domestic growth improving; normalization expected early 2026 Near-term pressure; medium-term recovery setup
Policy tailwinds (U.S.)—Employer tuition assistance cap increase seen as positive; workforce Pell inclusion could help Emerging potential tailwind

Management Commentary

  • “On a constant currency basis, SEI's revenue grew 4%… expense growth limited to 2%, resulting in operating income of $49 million… operating margin increased 110 bps to 15.2%… Adjusted EPS were $1.54 vs $1.33” .
  • “ETS revenue and operating income both increased 50%… Sophia… grew both average and total subscribers and revenue by 40%… Workforce Edge… now has 80 total corporate partnerships… more than 3.8 million employees” .
  • “U.S. higher education total enrollment decreased by 1%… employer-affiliated enrollment increased by 8% and now represents 32% of all U.S. higher education enrollment… healthcare portfolio… increased its total enrollment by 8%” .
  • “ANZ… decreased 3%… driven by… restrictions on international student enrollment… optimistic about pivot to domestic market… planning to increase marketing investments in the back half” .

Q&A Highlights

  • USHE unaffiliated enrollment: softness concentrated at Strayer undergrad; decline rate “slightly better” in Q2 vs Q1; management expects normalization over time .
  • ANZ split and outlook: composition skewing more domestic; declines in both offshore visa-driven and onshore transfer pathways; expects to lap international declines early 2026; ramping domestic marketing in H2 2025 .
  • ETS large employer onboarding: ramp progressing well; significant revenue contribution expected through back half as employees migrate to the platform .
  • Policy environment: “One Big Beautiful Bill” not expected to be materially adverse; employer tuition assistance cap increase and potential workforce Pell inclusion viewed as positives .

Estimates Context

Results vs Wall Street consensus (S&P Global):

MetricQ4 2024Q1 2025Q2 2025
Revenue Consensus Mean ($USD)$315.176M*$300.672M*$322.841M*
Revenue Actual ($USD)$311.456M $303.590M $321.471M
Primary EPS Consensus Mean ($)$1.24*$0.963*$1.433*
EPS Actual (Adjusted Diluted) ($)$1.27 $1.30 $1.52
Outcome (vs consensus)EPS Beat; Rev MissEPS Beat; Rev BeatEPS Beat; Rev Miss

Estimates with * retrieved from S&P Global.

Interpretation:

  • Q2 2025: EPS beat driven by margin expansion and ETS mix; slight revenue miss reflects USHE unaffiliated softness and ANZ regulatory headwinds despite strong ETS growth .
  • Estimate trajectory: Company has consistently outperformed EPS consensus in recent quarters while revenue outcomes have been mixed, suggesting upside from operating leverage and portfolio mix even amid enrollment variability .

Key Takeaways for Investors

  • ETS is becoming a larger earnings driver (31% of SEI operating income vs 23% last year), with durable 41% operating margins, Sophia +40% growth, and Workforce Edge scaling to 80 partners—supporting a structurally higher margin profile .
  • USHE mix shift toward employer-affiliated and healthcare programs (47% of USHE enrollment) improves revenue quality and persistence even as unaffiliated enrollment cycles; monitor Strayer unaffiliated stabilization in H2 .
  • ANZ near-term revenue softness is policy-driven; management plans to fully fund domestic marketing in H2 2025 and expects growth resumption post-lap in early 2026—watch for domestic intake momentum .
  • EPS beats alongside mixed revenue prints highlight cost control and margin execution; adjusted EPS ($1.52) materially above GAAP ($1.37) given restructuring/investment mark-to-market and tax adjustments—focus on non-GAAP drivers in modeling .
  • Capital returns remain active (dividend maintained at $0.60; $60M YTD buybacks; ~$169M authorization remaining), offering downside support while ETS scales .
  • Policy developments: employer tuition assistance cap increase and possible workforce Pell inclusion could be incremental positives for employer-affiliated enrollment and ETS offerings .
  • Near-term trading setup: positive EPS surprise and ETS momentum are supportive; headline risk remains around ANZ regulatory actions and USHE unaffiliated trends—focus on upcoming Q3 cadence and any update on ETS large-partner ramp .