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Strategic Education, Inc. (STRA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 revenue was $311.5M (+2.9% YoY), diluted EPS was $1.05 and adjusted diluted EPS was $1.27; operating margin compressed to 11.6% (13.0% adjusted) as USHE revenue per student declined and ETS incurred one-time implementation costs for its largest employer partner .
  • Segment mix: U.S. Higher Ed revenue fell 1.5% YoY while ETS grew 39.3% and ANZ grew 5.4%; ETS strength (Sophia subscriptions, Workforce Edge) offset USHE pressure from higher scholarships and employer mix .
  • FY 2024 delivered ~190 bps adjusted operating margin expansion to 12.9% (from 11.0%), adjusted EPS of $4.87, and operating cash flow of $169.3M; cash and marketable securities were $199.0M and revolver debt was fully repaid .
  • 2025 framework: management reiterates its notional model of 200 bps adjusted operating margin expansion and mid-single-digit revenue growth over the long term; adjusted quarterly operating expense run-rate ($271M) is “about where we need it” for 2025 .
  • Dividend maintained at $0.60 per share; ETS expansion and ANZ regulatory developments are the key stock narrative drivers near term .

What Went Well and What Went Wrong

What Went Well

  • ETS delivered a record year: Q4 revenue +39.3% YoY to $30.5M; full-year ETS revenue >$100M with operating income up ~50% and Sophia subscribers up ~35% for 2024. “Our Education Technology Services segment had a record year…” .
  • Corporate partnerships strengthened: employer-affiliated enrollment rose to 30.2% of USHE in Q4 (29.6% for FY), with a large new Workforce Edge client and an expanded Best Buy Degrees@Work program .
  • Cash generation and balance sheet: FY operating cash flow $169.3M; revolver fully repaid; cash and marketable securities ~$199.0M at year-end .

What Went Wrong

  • USHE margin and revenue per student pressure: USHE Q4 revenue -1.5% YoY to $214.3M; operating income fell to $17.9M with margin down to 8.3%. Drivers included higher scholarships and employer mix shift .
  • ANZ margin compression: ANZ Q4 operating margin declined to 16.1% (from 23.5%) despite 5.4% revenue growth; management highlighted evolving visa processing rules that could effectively cap international students .
  • Adjusted EPS softness in the quarter: Q4 adjusted diluted EPS fell to $1.27 (from $1.68) amid higher seasonal expenses and ETS implementation costs; bad debt expense was 4.5% of revenue in Q4 (vs. 3.7% prior-year) .

Financial Results

Consolidated Quarterly Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$312.3 $306.0 $311.5
Income from Operations ($USD Millions)$41.9 $36.3 $36.0
Operating Margin %13.4% 11.9% 11.6%
Net Income ($USD Millions)$29.9 $27.7 $25.3
Diluted EPS ($USD)$1.24 $1.15 $1.05
Adjusted Diluted EPS ($USD)$1.33 $1.16 $1.27

Notes: YoY Q4 revenue +2.9% and adjusted EPS down from $1.68 to $1.27 .

Segment Breakdown (Q4 YoY)

Segment MetricQ4 2023Q4 2024
USHE Revenue ($USD Millions)$217.6 $214.3
USHE Income from Operations ($USD Millions)$32.9 $17.9
USHE Operating Margin %15.1% 8.3%
ETS Revenue ($USD Millions)$21.9 $30.5
ETS Income from Operations ($USD Millions)$8.8 $11.8
ETS Operating Margin %40.3% 38.8%
ANZ Revenue ($USD Millions)$63.3 $66.7
ANZ Income from Operations ($USD Millions)$14.9 $10.7
ANZ Operating Margin %23.5% 16.1%

KPIs

KPIQ3 2024Q4 2024
USHE Enrollment (students)86,533 88,860
FlexPath as % of USHE24% 24%
Employer-Affiliated Enrollment as % of USHE29.8% 30.2%
Sophia Learning Avg Subscribers YoY Growth (%)~33% ~29%
Workforce Edge Corporate Agreements (#)75 76
Workforce Edge Covered Employees (Millions)~3.76 ~3.82
ANZ Enrollment (students)19,205 19,825
Bad Debt Expense as % of Revenue4.5% 4.5%

Non-GAAP Context (Q4 2024)

  • Adjusted income from operations: $40.4M; adjusted operating margin 13.0%; adjustments primarily restructuring costs of $4.4M .
  • Constant currency adjusted EPS: $1.26 vs $1.27 reported adjusted .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Operating Margin ExpansionFY 2024150–175 bps (Q3 commentary) Actual ~190 bps to 12.9% (from 11.0%) Raised vs prior expectation
Adjusted Operating Margin ExpansionFY 2025 frameworkInvestor Day notional ~200 bps/year Reiterated ~200 bps; expect margins to improve through the year Maintained framework
Revenue GrowthFY 2025 frameworkLong-term mid-single-digit Framework: “revenue growth consistent with the notional model” (mid-single-digit long term) Maintained framework
Quarterly Adjusted Operating Expense Run-Rate2025Not previously quantified~$271M is “about where we need it” (seasonal heavier in Q2/Q3) New framework detail
USHE Revenue per Student2025Roughly stable long-term “Likely…pretty stable, maybe slightly up” Maintained/stable
DividendOngoing$0.60 per quarter $0.60 per quarter (paid Mar 17, 2025) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
ETS growth investmentsQ3: expenses peak in Q3; added staff/advisers for large Workforce Edge partner; record ETS revenue/margins One-time implementation costs in Q4; ETS revenue +39.3% YoY; 76 partners; 3.82M employees Scaling; short-term cost bulge then normalize
Corporate partnershipsQ2/Q3: employer-affiliated enrollment rising; ~30% of USHE; Best Buy program expansion Employer % rose to 30.2%; continued partnership expansion Strengthening
USHE revenue per studentQ3: down ~2% from mix shift to employer; expected roughly stable forward Steeper decline than expected; drivers were employer mix and higher scholarships; 2025 “pretty stable” Near-term pressure; stabilizing plan
ANZ regulatory backdropQ3: proposed international caps under consideration Caps replaced with ministerial direction to manage visas; modeling as if caps in place Evolving; potential enrollment timing risk
Bad debtQ3: lower-than-expected bad debt drove expense benefit Q4 bad debt at 4.5% of revenue (flat YoY vs Q3 metric) Stable
Capital allocationQ3: paid down remaining $60M debt; buybacks; dividend FY cash from ops ~$169.3M; revolver repaid; dividend maintained; ~$199M cash & securities Balance sheet strengthened

Management Commentary

  • “Our Education Technology Services segment had a record year, growing revenue by more than 30% to over $100 million and operating income by almost 50%.”
  • “Employer-affiliated enrollment grew faster, increasing 16% for the full year…More than 70% of the incremental total enrollment…came through our corporate partners.”
  • On ANZ: “International caps…replaced with a ministerial direction…to use visa processing speed…we’re modeling as though those caps would be in place.”
  • Expense framework: “The expense base of $271 million is about where we need it in 2025…seasonality with marketing investment in Q2/Q3.”
  • Revenue per student: “Driven mostly by the continued shift to employer…but also scholarships…2025…likely to be pretty stable, maybe slightly up.”

Q&A Highlights

  • Enrollment normalization: Management reiterated long-term mid-single-digit enrollment growth and noted quarter-to-quarter variability as growth normalizes from high-single-digit peaks in 2024 .
  • ANZ regulatory timing: Ministerial direction implies visa processing slowdowns later in 2025 as caps are approached; SEI pivoting marketing to domestic students and expects continued growth despite delays .
  • Expense cadence and margin: Adjusted quarterly expense run-rate (~$271M) set; margins likely improve through 2025 but quarterly cadence depends on revenue/enrollment .
  • USHE revenue per student: Decline driven by employer mix and higher scholarships; plan for stability in 2025 .
  • Capital allocation: FY distributable FCF ~$128M used for dividends ($2.40/share) and buybacks; revolver repaid and renewed ($250M availability) .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2024 revenue and EPS was unavailable due to S&P Global request-limit errors during retrieval; therefore, beat/miss analysis versus consensus cannot be provided at this time [SPGI retrieval error].
  • Implications: With strong ETS growth but USHE revenue per student pressure, sell-side models may need to re-balance segment assumptions and margin cadence for 2025; management’s 200 bps margin expansion framework remains the anchor .

Key Takeaways for Investors

  • Mix matters: ETS momentum (Sophia, Workforce Edge) is structurally positive; USHE revenue per student sensitivity to employer mix and scholarships drives margin variability quarter-to-quarter .
  • Margin framework intact: Despite Q4 compression, FY adjusted margin expanded ~190 bps; 2025 plan calls for another ~200 bps with expense discipline and seasonality awareness—watch Q2/Q3 spend .
  • ANZ watchlist: Visa processing as a de facto cap introduces timing risk; SEI’s domestic pivot and brand strength mitigate, but monitor FY25 intake pacing and ANZ margins .
  • Cash strength and returns: ~$199M cash/marketable securities, no revolver debt, operating cash flow $169.3M; dividend maintained, opportunistic buybacks possible as excess cash allows .
  • Enrollment pipeline via employers: Employer-affiliated share at 30.2%—key driver of volume; narrative supportive of sustained mid-single-digit growth long term .
  • Near-term trading lens: Q4 EPS/margin softness vs strong ETS prints may lead to mixed reactions; catalysts include new ETS partner ramp efficiency, clarity on ANZ visa regime, and Q2/Q3 marketing ROI .
  • Model adjustments: Incorporate stable-to-slightly up USHE revenue per student for 2025, ETS scaling with normalized costs, and ~200 bps adjusted margin expansion—pending confirmation as quarterly results unfold .