Strategic Education, Inc.

Hello and welcome to Strategic Education's second quarter 2025 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I will now turn the call over to Therese Wilke, Senior Director of Investor Relations for Strategic Education. Ms. Wilke, please go ahead.

Thank you. Hello, everyone, and welcome to Strategic Education's conference call, in which we will discuss second quarter 2025 results. With us today are Robert Silberman, Chairman, Carl MacDonald, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties, and risks that strategic education has identified in today's press release. that could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Strategic Education's most recent annual report on Form 10-K, the 10-Q to be filed, and other filings with the Securities and Exchange Commission, as well as Strategic Education's future 8-Ks, 10-Qs, and 10-Ks. Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com. And now, I'd like to turn the call over to Carl. Carl, please go ahead.

Thank you, Therese, and good morning, everyone. We are very pleased with our second quarter and first half 2025 results, which we reported earlier this morning, and in particular, with the continued strong performance within our education technology services segment, which I will discuss momentarily. On a constant currency basis, SEI's revenue grew 4% from the prior year. Disciplined expense management limited our operating expense growth to just 2%, resulting in operating income of $49 million, a 12% increase from the prior year. Our operating margin increased 110 basis points to 15.2%. Adjusted earnings per share were $1.54 compared to $1.33 from the prior year, an increase of 16%. Turning now to our segments, we are pleased to see the continued strong performance of our ETS division, which remains on track to become a significant contributor to SEI earnings composition in line with our strategy. ETS revenue and operating income both increased 50% from the prior year to $37 million and $15 million, respectively. ETS's share of SEI's operating income grew from 23% last year to 31% this year, an increase of eight percentage points. Sophia Learning, our direct-to-consumer portal that offers high-quality college-level courses and increasingly serves as a key component of many of our key strategic corporate partnerships, grew both average and total subscribers and revenue by 40%, driven by strong growth in both consumer and employer-affiliated subscribers. Workforce Edge continues to perform exceptionally well and now has 80 total corporate partnerships, collectively employing more than 3.8 million employees. And notwithstanding our continued strong investment in ETS, which included a 50% increase in their expenses, ETS's operating margin remains stable on a year-over-year basis at 41%. U.S. higher education total enrollment decreased by 1% from the prior year. However, slightly higher revenue per student helped offset approximately half of the enrollment decline, resulting in revenue being down year over year by half of 1%. Employer-affiliated enrollment once again remained strong, increasing by 8% from the prior year, and now represents 32% of all U.S. higher education enrollment, again in line with our strategy. In addition to the strength of our employer-affiliated enrollment, U.S. Higher Education's healthcare portfolio, which represents half of all enrollments, also increased its total enrollment by 8% from the prior year. U.S. Higher Education operating expenses decreased by $2 million from the prior year, or a reduction of 1%. As a result, U.S. Higher Education operating income increased 5% from the prior year, and its operating margin increased 40 basis points. Turning now to our Australia-New Zealand segment, ANZ second quarter total enrollment decreased 3% from the prior year, driven by the continued regulatory restrictions on international student enrollment. Using constant currency, revenue increased slightly to $71 million and operating income decreased from $14 million in the prior year to $13 million this year. Notwithstanding the recent decline in our international enrollment, We are optimistic about our pivot to focusing primarily on the Australian domestic market where we have seen mid to high single digit new student growth through the first half of this year. Finally, regarding capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 325,000 shares during the quarter for a total of $28 million. Year to date, we have repurchased just under 720,000 shares for $60 million, leaving us with $169 million remaining on our share repurchase authorization through the end of this year. And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support to our students and employer partners. And with that, Andrew, we'd be happy to take questions.