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DATE
Thursday, Feb. 26, 2026 at 5 p.m. ET
CALL PARTICIPANTS
- Chief Executive Officer — Karl McDonnell
- Chief Financial Officer — Daniel Jackson
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TAKEAWAYS
- Revenue Growth -- Increased 4% for both the fourth quarter and full year, on an adjusted constant currency basis.
- Operating Income and Margin -- Fourth quarter adjusted operating income rose 35%, with operating margin expanding by 390 basis points to 16.9% on an adjusted constant currency basis.
- Earnings Per Share -- Fourth quarter adjusted EPS was $1.75, up 38% on a constant currency basis.
- Expense Management -- Operating expenses declined 1% in the quarter and 2% for the full year; $30,000,000 in annual expense reduction realized mainly from AI-driven productivity initiatives.
- Education Technology Services (ETS) -- Revenue grew over 40% to nearly $150,000,000, with operating income up 38% to $59,000,000 and an operating margin of 40%; ETS contributed roughly one-third of consolidated operating income.
- Sophia Learning -- Average subscribers increased 47% and revenue grew 41% in the quarter; full-year subscriber growth was 4240% (subscriber figure is as stated in transcript).
- Workforce Edge -- Achieved record year with employer-affiliated enrollment up 6% in the quarter and ending at 33.5% of total U.S. Higher Education enrollment.
- Employer-Affiliated New Students -- Accounted for 40% of all new U.S. Higher Education students in the quarter.
- Healthcare Portfolio -- Represents half of all U.S. Higher Education enrollment and 37% of employer-affiliated enrollment.
- Corporate Partnerships -- Workforce Edge ended the year with 80 corporate agreements representing over 3,000,000 employees.
- U.S. Higher Education Segment -- Revenue grew 2% in the quarter; per-student revenue rose 6% due to fewer drops and lower discounts; operating income up 58% in the quarter; operating margin improved by 470 basis points; record average student retention at 88% for the year.
- Australia/New Zealand (ANZ) Segment -- Total enrollment decreased by 2%; revenue also declined by 2% in the quarter and was flat for the year; fourth quarter operating income rose 16% with a 19% operating margin (up 290 basis points).
- Cash Generation -- Generated $247,000,000 in pretax cash from operations; distributable free cash flow totaled $154,000,000 after taxes and capital expenditures.
- Capital Returns -- Returned $58,000,000 via dividends and just under $140,000,000 via share repurchases (1,700,000 shares, ~7% of shares outstanding), including $45,000,000 in repurchases during the quarter.
- Balance Sheet -- Year-end cash and marketable securities totaled $153,000,000 with no debt; more than $200,000,000 remains on the repurchase authorization.
- Cost Reduction Roadmap -- Management reiterated plans to achieve an additional $70,000,000 in expense savings by 2027, with proceeds allocated to margin expansion and growth initiatives.
- 2026 Outlook Model -- Management confirmed the notional target of 4%-6% annual revenue growth and 200 basis points of adjusted operating income margin expansion, as referenced in the 2023 Investor Day model.
SUMMARY
Management reported sizable improvements in profitability, underpinned by expense reductions driven by AI-enabled productivity measures, and highlighted ongoing transformation in business mix toward higher-margin offerings like ETS. CEO Karl McDonnell said, "employer-affiliate enrollment remains strong," and noted a record employer-affiliate mix in new student enrollments for the quarter. The ANZ segment showed early signs of stabilizing, with management indicating an improved outlook for total enrollment growth before year-end and positive domestic student trends. No debt and substantial liquidity provided flexibility for continued capital returns, with over $200,000,000 remaining for share repurchases. Strategic focus now centers on further automation and employer-related growth, as expense reductions are planned to be reinvested according to the company's multi-year performance model.
- Management confirmed, "we expect ETS to continue to post strong growth," and projected ANZ enrollment will return to growth before 2027, advancing previous expectations.
- Expense savings in U.S. Higher Education were primarily realized through automation, including a back-office transcript evaluation tool and improved admissions process workflow.
- The percentage of employer-affiliated new students in U.S. Higher Education reached 40%, reflecting an accelerated strategic shift in enrollment mix.
- A new 3% increase in permissible international enrollment for ANZ was announced, with domestic student growth cited as the main near-term driver.
- Management stated, "any expense reductions that we get will come from the automation," emphasizing ongoing investment in technology-led cost containment.
INDUSTRY GLOSSARY
- ETS (Education Technology Services): A business segment providing education benefits platforms and alternative credentials, focused on technology-enabled services.
- Workforce Edge: Strategic Education, Inc.'s platform for education benefits administration, targeting employers and corporate partnerships.
- Sophia Learning: An online learning platform offering alternative, low-cost courses and credentials, used by both consumers and employer-affiliated learners.
- Employer-Affiliated Enrollment: Students enrolled via partnerships with employers, typically involving subsidized or employer-sponsored tuition.
- Notional Model: Management’s long-term performance framework, setting financial growth benchmarks for revenue and margin expansion established at the 2023 Investor Day.
Full Conference Call Transcript
Karl McDonnell: Thank you, Terese, and good afternoon, everyone. We are very pleased with our fourth quarter and 2025 full-year results that we released earlier today. And at the outset, and as is normally the case, let me say that the results that I referenced today are adjusted and reflect a constant currency comparison. For the fourth quarter, our revenue increased 4% from the prior year, and our operating expenses declined 1%, resulting in operating income growth of 35% and a 390 basis point expansion in our operating margin to 16.9%. Earnings per share was $1.75, which was an increase of 38%.
For the full year 2025, our revenue increased 4%, and our operating income increased 25%, generating 260 basis points of operating expansion to 15.5%. Our adjusted earnings per share was $6.21, an increase of 28% from the prior year. Our ongoing AI-driven productivity improvements across the portfolio resulted in approximately $30,000,000 of expense reductions, which was used to both fund new growth opportunities and expand our operating margin. We remain on track to generate at least an additional $70,000,000 expense savings through 2027 and as was the case this year, those savings will be used both to fund additional growth and continue to expand our operating margin.
2025 was another record year for Education Technology Services (ETS), which grew revenue by more than 40% to nearly $150,000,000. And notwithstanding our continued strong investment in ETS, which included a 44% increase in expenses, ETS' operating income increased 38% to $59,000,000, generating an operating margin of 40%. ETS' share of Strategic Education, Inc.'s operating income grew to roughly one-third of consolidated operating income in 2025, reflecting progress with our higher-margin technology and services business. Sophia Learning grew average total by 47% and revenue by 41% in the fourth quarter, and by 4240% respectively for the full year. These results were driven by strong growth in both consumer and employer-affiliated subscribers.
Workforce Edge also had a record year, with strong revenue growth driven by employer-affiliated enrollment, platform fees, and new employer partnerships. Employer-affiliated enrollment grew 6% for the quarter, and ended the year at an all-time high of 33.5% of total U.S. Higher Education enrollment. Employer-affiliated mix of new students in U.S. Higher Education was 40%. Another key part of our overall employer strategy is to grow our healthcare portfolio, which remains quite strong. It now represents half of all U.S. Higher Education enrollment and 37% of total employer-affiliated enrollment. Workforce Edge ended 2025 with 80 corporate agreements collectively employing more than 3,000,000 employees. Our network of corporate partners remains one of Strategic Education, Inc.'s major competitive strengths.
Turning now to U.S. Higher Education. Revenue increased 2% for the fourth quarter, and 1% for the full year due to a 6% increase in revenue per student driven by fewer student drops, lower discounts, and scholarships. In 2025, the bulk of our AI-driven productivity improvements were in U.S. Higher Education, which enabled a 3% decline in operating expenses for the fourth quarter and a 2% decline for the full year. This resulted in a 58% increase in operating income in the fourth quarter and a 32% increase for the full year. U.S. Higher Education's operating margin increased 470 and 270 basis points respectively for the fourth quarter and full year. U.S.
Higher Education also recorded record average student retention of 88% for the full year.
Our Australia/New Zealand (ANZ) segment's total enrollment decreased by 2% for both the fourth quarter and the full year, driven by continued regulatory constraints on international enrollment, which was partially offset by domestic new student growth. ANZ's revenue also decreased by 2% in the fourth quarter and was flat on a year-over-year basis. As was the case in U.S. Higher Education, we also had significant productivity gains in Australia, with operating expenses decreasing 6% for the quarter and were flat for the full year. This resulted in a 16% increase in fourth quarter operating income at ANZ and an operating margin of 19%, a 290 basis point improvement.
Next, regarding capital allocation in 2025. We generated $247,000,000 in pretax cash from operations, paid $49,000,000 in taxes, and invested $44,000,000 in capital expenditures, leaving us with $154,000,000 of distributable free cash flow. We used this cash and our existing cash balance to return $58,000,000 to our owners through our $2.40 common dividend and just under $140,000,000 in share repurchases, including $45,000,000 in the fourth quarter, for a total of 1,700,000 shares repurchased in 2025, or approximately 7% of our outstanding shares. As of 2025, we still have more than $200,000,000 remaining on our share repurchase authorization. We ended the year with $153,000,000 of cash and marketable securities and no debt.
Our plans for 2026 reflect continued performance in line with the notional model that we outlined in our 2023 Investor Day. And finally, as always, I would like to take this opportunity to thank all of my colleagues here at Strategic Education, Inc. for their ongoing commitment and support to our students and our employer partners. With that, Kevin, we would be happy to take questions.
Operator: Thank you. Ladies and gentlemen, if you have a question or a comment, our first question comes from Jeff Silber with BMO Capital Markets. Your line is open.
Jeff Silber: I want to focus first on the enrollment trends in U.S. Higher Education. I know you do not give specific guidance, but the declines seem to be getting a bit worse. They seem to be really more composed in your non-employer-affiliated area. So one, I was hoping we get a little bit more color there. And then two, what do you need, or what can you do, to get U.S. Higher Education enrollment moving positive again? Thanks.
Karl McDonnell: Sure. And, hi, Jeff. So you are right. The declines that we are seeing in U.S. Higher Education enrollments are exclusively, I would say, in our unaffiliated employer channel. As I said in my prepared remarks, our employer-affiliate enrollment remains strong. As we have said before, our new student enrollment can be somewhat cyclical and move around quarter to quarter.
In terms of what we can do, we just stay focused on our marketing strategy, our brand strategy across both Strayer and Capella, and I am confident over the long term that enrollment will normalize, and there is nothing that I see that would take me off what I said a moment ago that we expect our performance this year to be in line with our notional plan.
Jeff Silber: Okay. Great. Shifting gears a bit, the margin expansion was very impressive, and you mentioned a few times AI-driven operational improvements. Can we get a couple of examples of what you have been doing there?
Karl McDonnell: Sure. We have an overall productivity effort that has three subcategories. So the first would just be internal productivity, figuring out ways to automate processes and expand people's reach with technology so that any given enrollment counselor or student adviser can have a greater scope. That would be one of the three. The second is anything that we can do to enhance revenue. And the third would be student outcomes and assessment. And all three are quite robust. Daniel here, our CFO, leads the productivity efforts and he could give you a couple of examples.
Daniel Jackson: Yeah. Hey, Jeff. Two more tangible examples. One, on the back-office front, we have developed a tool that automates the vast majority of transcript intake and evaluation, which used to be a very manual effort. So that is something that we have rolled out almost across the entire platform this year. I think by the end of the year, we will have it rolled out everywhere. And then another example is really focused more on the front-end admissions process, starting with how we evaluate and distribute inquiries and then how we make sure that our enrollment counselors, admissions officers, know how to prioritize those inquiries. Those are two areas.
There is quite a few more that we are working on that by the end of the year we will have rolled out. We will have more to say as we go along each quarter.
Jeff Silber: Alright. That is really helpful. I will jump back in the queue. Thanks.
Operator: One moment for our next question. Our next question comes from Alex Paris with Barrington Research. Your line is open.
Alex Paris: Just to follow up on the previous question regarding U.S. Higher Education. The total enrollment was down for the year, and probably the biggest decline was in the fourth quarter on a year-over-year basis. And again, I understand that it is unaffiliated enrollment, and that is not a focus area for the company. You are focused on employer-affiliated. But with that said, and I also know that you run marketing as a portfolio. You invest where the return is the greatest. That might be Capella over Strayer, and it is certainly employer-affiliated over unaffiliated. But we have known of this problem pretty much all year long.
Have you done anything to kind of stem that—anything deliberate to stem the flow on the unaffiliated side and, if not, are you planning to, and what can you do there?
Karl McDonnell: Sure, Alex. To answer your question, have we done anything deliberate? Well, yes. Of course. We have our operating plans, which involve our annual marketing and quarterly marketing spend. You are correct that we do manage it as a portfolio, and we task the U.S. Higher Education management team with solving for what we think will be the strongest overall growth. And there really is not a change to our strategy, which is we are leaning heavy into Workforce Edge, ETS, employer-affiliated enrollment. As I said in reply to Jeff's question just a minute ago, I do not see anything that gives me alarm around any sharper declines in U.S.
Higher Education enrollment, and I am confident that in time it is going to normalize to mid-single-digit growth. And in between now and then, we will just be patient and continue to execute our plans.
Alex Paris: Okay. Fair enough. I appreciate that. And regarding the notional model, you know, in lieu of formal guidance, that calls for a revenue CAGR of 4–6% and AOI margins, adjusted operating income margins, increasing 200 bps per year. Did you say that is a good proxy for 2026?
Karl McDonnell: Yes.
Alex Paris: Okay. And then the makeup of that could be a little different, right? You know, when you put these targets out in 2023, you were looking for enrollment growth in U.S. Higher Education of 4–6% and ANZ enrollment growth of 6–8%. What underpins that revenue growth in 2026? I am assuming heavily towards ETS.
Karl McDonnell: Clearly, we expect ETS to continue to post strong growth. I would also say though that in Australia, the level of domestic new student growth we have seen has been pretty encouraging, such that I think that there is a very good chance Australia will turn to total enrollment growth this year. I believe on our last quarterly call, I said that it probably would not be until 2027. I think it will probably be by the end of this year. So a good contribution from Australia. I am confident, as I said a moment ago, that U.S.
Higher Education is going to normalize, and I cannot obviously predict their contribution to revenue this year, but I am confident in the notional model that we laid out in 2023.
Alex Paris: Gotcha. And then last question, a follow-up on ANZ. You said that you expect a return to total enrollment growth before the end of the year, which implies new student growth now, right? Because there is a lag between turn-up and new student enrollment growth. What will new student enrollment growth be driven by? I think we talked about it on previous calls, an increase in the soft caps, and then also maybe just a little update on students' ability to transfer—international students' ability to transfer from one domestic institution to another once in country.
Karl McDonnell: Yeah. So on the international enrollment, we did receive a 3% increase from the Australian government for the international enrollment. So we expect to fulfill that, and that will be a portion of growth. There has been one change. This is not new. We have known this is coming, where there will be a ban on paying agent fees for any onshore transfers. Transfers can still happen. We expect them to still happen. The volume may change slightly. But I think the bulk of the new student growth will be from domestic, which has been positive for us now for several quarters, and we expect that to continue through 2026.
Alex Paris: Great. Thank you very much. I will get back in the queue.
Karl McDonnell: Thanks, Alex.
Operator: One moment for our next question. Our next question comes from Jasper Bibb with Truist Securities. Your line is open.
Jasper Bibb: Hey, good afternoon, everyone. Maybe just following up on some earlier questions. I have imagined a lot of that unaffiliated non-healthcare exposure in the U.S. businesses is at Strayer. So with that, could you just talk about what trends at Strayer have been like and how you intend to manage the cost structure there as part of the cost cutting you announced? I guess, would you consider downsizing the campus count there as your leases come up?
Karl McDonnell: I would say over the last two years, just as more of our marketing dollars have been focused on healthcare and Capella, both of which have been doing well, we have steadily been, as leases come up, taking advantage of those lease expiries to reduce the campus count. And we may continue to do that, although we still see significant value for having campuses in local communities, and so I would say a fair amount of expenses have already come out of that expense base.
And at this point, moving forward, and not just with Strayer but through the rest of the portfolio, any expense reductions that we get will come from the automation efforts that we have, and I am confident that through 2026 and 2027, those will generate significant productivity for us. Again, not just in Strayer, but across the entire portfolio.
Jasper Bibb: Excellent. And then maybe circling back to the notional model on 2026. In the context of the cost cutting, is there any way to frame how much of that you are going to let drop to the bottom line versus reinvesting in growth with the marketing?
Daniel Jackson: Hey, Jeff. Our notional model, which contemplates a couple hundred basis points of expansion per year on a five-year basis, assumes some amount of productivity benefit. So as Karl mentioned earlier, we invested and we reinvested some of the savings this year, and some of it contributed to some margin outperformance. So from year to year, it will just depend on how much we see opportunity to reinvest first and then support the margin.
Karl McDonnell: That is in the notional model. In some cases, we may see some outperformance.
Jasper Bibb: Okay. Thanks for taking the questions, guys.
Operator: Thank you. I am not showing any further questions at this time. I would like to turn the call back over to Karl for any further remarks.
Karl McDonnell: Thank you, everybody, and we look forward to discussing our first quarter results of 2026 next quarter.
Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. You may now disconnect, and have a wonderful day.
