Strategic Education, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Full year 2024: Revenue up 8%, operating income up 26%, adjusted EPS up 31% to $4.87.
• US higher ed: Focus on productivity and cost management kept expense growth below revenue growth, enabling 30% operating income growth for full year.
• Australia and New Zealand: Monitoring regulatory changes, pivoting to domestic marketing to emphasize domestic student enrollment.
• Education technology services: Record year with Sophia Learning and Workforce Edge growth; expanded partnership with Best Buy.
• Capital allocation: Generated $217M pretax cash from operations, paid taxes, invested in cap ex, returned $75M to owners, repaid/refinanced revolver.

Segment Performance

• US higher education: Full year 2024 revenue up 5%, average total enrollment up 6% (16% for employer-affiliated). Fourth quarter revenue down due to higher scholarships and mix shift to employer-affiliated students. Operating income up almost 30% for full year. Revenue contribution: Details not given in absolute terms but performance across segments noted.
• Australia and New Zealand: Average total enrollment up 5% in 2024. Revenue up 11% constant currency, operating income up 3% constant currency. Driven by enrollment growth and higher revenue per student. Monitoring evolving political and regulatory environment.
• Education technology services: Record year, revenue up over 30% to over $100M, operating income up almost 50%. Sophia Learning grew subscribers and revenue 35%, Workforce Edge added 11 corporate partners including a new employer support model.

Guidance

• No specific 2025 enrollment or revenue guidance, but confident in mid-single digit long-term growth for US higher ed and high single digits for ANZ long term.
• Notional model expects ~200 basis points of adjusted operating margin expansion over next several years.
• Expense base for 2025 set at $271M, with seasonality in marketing investment, and margin expansion expected based on notional model.

Risks

• Australia and New Zealand: Evolving political and regulatory environment, including new visa processing speed regulation impact on enrollment.
• US government: Potential impact from political and regulatory changes in Washington DC.

Question and Answer Q: Enrollment trends, especially back half slowdown.

A: Corporate partnership enrollment strong, non-affiliated demand strong, enrollment normalizing to long-term trend of about 5% Q: ANZ regulatory changes A: Ministerial directive replacing international student cap, monitoring impact, pivoting to domestic marketing to emphasize domestic student enrollment Q: Adjusted operating expense and margin expansion A: ETS related expenses impacted operating income, expense base set for 2025, margin expansion expected per notional model Q: 2025 enrollment and revenue growth A: No specific guidance, but confident in mid-single digit long-term growth, margin expansion expected Q: US higher ed revenue per student decline A: Driven by shift to employer and higher scholarships, 2025 revenue per student likely stable