STRA Q1 Earnings Call: Employer Partnerships and Education Technology Drive Outperformance

Higher education company Strategic Education (NASDAQ: STRA) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 4.6% year on year to $303.6 million. Its non-GAAP profit of $1.30 per share was 34.5% above analysts’ consensus estimates.

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StockStory’s Take

Strategic Education’s Q1 results benefited from continued momentum in its employer-focused strategy and solid performance in education technology services. Management credited the quarter’s revenue growth primarily to the expansion of corporate partnerships, especially in U.S. higher education, and a surge in subscriptions to Sofia Learning. CEO Karl McDonnell highlighted that corporate-affiliated enrollment now makes up 31% of total U.S. higher education enrollment, reflecting the impact of targeted employer relationships and programs like the expanded partnership with Best Buy.

Looking ahead, management’s guidance is built on expectations of mid-single-digit U.S. enrollment growth, continued execution in corporate partnerships, and ongoing investment in education technology. McDonnell cited the early success of new employer partnerships and Sofia Learning’s growing adoption as key pillars supporting the company’s long-term model. He acknowledged ongoing regulatory risks in Australia and New Zealand but maintained confidence that Strategic Education’s multi-segment approach and capital allocation discipline would help meet 2025 targets.

Key Insights from Management’s Remarks

Management attributed outperformance to the employer channel and education technology, while also addressing challenges in international markets and margin pressures. The company’s multi-segment approach and targeted investments shaped both current performance and future expectations.

• Employer-affiliated enrollment growth: U.S. higher education enrollment from corporate partners rose 7%, now representing 31% of the total, as large employers expanded education benefits programs. Management noted the Best Buy partnership as a milestone, enabling all employees to access Strayer University degrees at no cost.
• Education technology strength: The education technology services (ETS) segment grew revenue by 45%, driven by higher Sofia Learning subscriptions and new Workforce Edge employer clients. Sofia’s average subscribers climbed 37%, reflecting increased adoption among both consumers and employer partners.
• Australia/New Zealand headwinds: Total enrollment in Australia/New Zealand declined 1% due to new regulatory requirements that reduced international student transfers; however, domestic enrollment rose as the company shifted its marketing focus.
• Margin dynamics: ETS operating margin declined to 40.3%, down 240 basis points, as the company continued to invest in marketing and staffing to support future growth. Management indicated operating expense growth was delayed due to hiring timing but will ramp up in the remainder of the year.
• Share repurchases: The company repurchased 390,000 shares for $32 million, reinforcing its commitment to returning capital to shareholders while maintaining flexibility for ongoing investment.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on maintaining momentum in employer partnerships and education technology, navigating international regulatory risks, and executing on disciplined investment to support margin expansion.

• Corporate partnership expansion: The company expects further growth from new and existing employer relationships, particularly as large clients drive higher enrollment through benefits like tuition coverage and mandatory Sofia coursework.
• Domestic market focus in Australia/New Zealand: Management plans to accelerate domestic student recruitment to offset regulatory-driven declines in international enrollment, aligning with broader industry trends and government policy.
• Ongoing investment in technology: Continued investment in ETS, including marketing and product development, is expected to support revenue growth but may pressure margins in the near term; management believes these investments will yield operating leverage over time.

Top Analyst Questions

• Jeff Silber (BMO Capital Markets): Asked about the flat U.S. higher education enrollment and whether changes in marketing or student mix were responsible. Management attributed it to normal cyclicality and reiterated confidence in mid-single digit growth as corporate partnerships mature.
• Alex Paris (Barrington Research): Inquired about the impact of new Australian regulations on international student transfers. Management explained that verification requirements reduced transfer volumes, shifting the mix toward domestic students.
• Alex Paris (Barrington Research): Questioned whether operating expense growth would accelerate after a better-than-expected first quarter. CFO Daniel Jackson confirmed that expense growth was delayed by hiring timing and would increase in the coming quarters per plan.
• Jasper Bibb (Truist Securities): Sought details on the composition of Australia/New Zealand enrollment between domestic and international students. Management clarified that the domestic mix increased due to international declines.
• Jasper Bibb (Truist Securities): Asked about the ramp-up of a new large employer partner in ETS and its effect on Sofia Learning demand. Management noted early demand exceeded internal expectations, driven by requirements for employees to take Sofia courses before degree matriculation.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will watch (1) the pace of new employer partnership signings and their impact on enrollment, (2) how well Strategic Education manages cost discipline while scaling education technology services, and (3) the company’s progress in offsetting Australia/New Zealand international enrollment declines by growing the domestic student base. Developments in regulatory environments and competitive dynamics will also be important to monitor.

Strategic Education currently trades at a forward P/E ratio of 15.6×. Should you load up, cash out, or stay put? See for yourself in our free research report.

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