Key Takeaways:
- Revenue rose 5% to $337.3 million, beating consensus by 3.1%
- EPS of $1.76 missed estimates of $1.79 but climbed 16% from a year ago
- ETS operating income surged 30% on 32% Sophia Learning subscriber growth
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Strategic Education revenue beats as ETS growth offsets Australia drag
Strategic Education reported Q2 revenue of $337.3 million, beating estimates by 3.1%, while EPS of $1.76 missed consensus.
"The results reflect strong momentum in our Education Technology Services business and continued margin improvement in U.S. higher education," Chief Executive Officer Karl McDonnell said.
Revenue rose 5% from $321.5 million a year earlier. The ETS segment posted revenue of $42 million, up 15%, with operating income climbing 30% to $20 million. Sophia Learning's average subscriber base grew 32%, while Workforce Edge enrollments into Strayer or Capella increased 21% to about 4,000 students. U.S. higher education operating income jumped 56% to $32 million, with margin expanding to 15% from 10%.
The Australia and New Zealand segment remained a drag, with revenue falling 3% to $67 million and enrollment down 5%. A $13 million reserve tied to a labor matter at Torrens University Australia reduced segment operating income to $1 million. Management expects the Australia business to return to growth in early 2027.
Adjusted EPS rose 16% from $1.52 a year earlier, driven by margin expansion in U.S. higher education and ETS growth. Operating expenses rose about 1.5%, including the $13 million Australia charge. Excluding that item, expenses would have declined 3% year over year, McDonnell said.
The company repurchased about 421,000 shares for $33 million during the quarter and had $141 million remaining under its buyback authorization through year-end. Shares have gained about 1.5% year to date, trailing the S&P 500's 8.5% advance.
McDonnell said full-year revenue may fall somewhat below the company's long-term target of about 5% growth, primarily because of Australia. He expressed confidence that Strategic Education would exceed its target of 200 basis points of EBIT margin expansion for the year. The company sees revenue growth reverting toward the 5% model over the second half of 2026 and into the following year.
The guidance raise on margins signals management expects the ETS segment to continue scaling profitably. Investors will watch the Q3 earnings call for updates on the Australia High Court appeal, expected in September or early October.
This article is for informational purposes only and does not constitute investment advice.
