Strategic Education, Inc.

Second-quarter adjusted revenue increased approximately 3% year over year to $330 million. Adjusted operating income was $53 million, up 9%, and operating margin was 16%, up 90 basis points; excluding the $13 million Australia charge, operating income would have been up 35% and margin 20%. Adjusted EPS was $1.76, up 16%, and year-to-date cash flow from operations rose 18% to $117 million. Segmentally, ETS revenue grew 15% to $42 million, U.S. Higher Education revenue increased 2% and operating income rose 56% to $32 million, and Australia/New Zealand revenue declined just under 3% to $67 million. For the outlook, management said it expects full-year revenue growth to revert toward roughly 5% over the next year and reiterated confidence in 200 basis points of EBIT margin expansion over this year and next year, while noting full-year revenue could be a bit below the notional model because of Australia.

Karl McDonnell said the quarter showed strong execution across ETS and U.S. Higher Ed, plus progress toward returning Australia to growth in 2027. He emphasized stable-to-good demand in the U.S., especially in employer-affiliated and health care programs, and said the company is intentionally leaning into employer health care rather than unaffiliated enrollment. He also framed the Australia issue as a legal accounting matter, saying the instructional model has already been adjusted and that the company still expects domestic student growth there.

Daniel Jackson highlighted the quarter’s financial leverage and the reason operating expenses looked higher: the reported results included a one-time Australia labor-related reserve, and excluding it operating expenses would have been $265 million, down 3% year over year. He said lower scholarships and discounts, plus higher classes per student, helped revenue per student, but reiterated that full-year revenue per student should be roughly flat. On capital allocation, the company repurchased about 421,000 shares for $33 million and had about $141 million remaining under its authorization at quarter-end.

Analysts pressed on whether non-health care U.S. enrollment weakness reflected bias from LLM-based search; management said it has not identified LLM search as a problem, and attributed the mix more to a strategic emphasis on employer health care and less focus on unaffiliated enrollment. Questions also focused on Sophia growth slowing and AI-related academic integrity concerns; McDonnell said the business is still growing strongly, that the team had already been strengthening integrity controls, and that further platform investments will continue. On Australia, management said the High Court update is expected in September or early October, and explained weaker international enrollment by citing slow visa approvals and a tougher onshore transfer market.