Strategic Education (NASDAQ:STRA) executives highlighted higher profitability, continued growth in education technology services, and ongoing AI-driven productivity initiatives during the company’s fourth quarter 2025 earnings call, while also addressing ongoing enrollment softness in parts of its U.S. Higher Education business.
Fourth quarter and full-year results
President and CEO Karl McDonnell said the company was “very pleased” with fourth quarter and full-year 2025 performance, noting that results discussed on the call were adjusted and reflected a constant-currency comparison.
For the full year 2025, McDonnell said revenue increased 4% and operating income increased 25%, producing 260 basis points of operating margin expansion to 15.5%. Adjusted EPS was $6.21, up 28% from the prior year.
AI-driven productivity and cost savings
Management attributed part of the margin improvement to AI-driven productivity efforts across the portfolio. McDonnell said the company delivered approximately $30 million of expense reductions in 2025, which it used to both fund growth opportunities and expand operating margin. He added that Strategic Education expects at least an additional $70 million of expense savings through the end of 2027, with those savings similarly intended to support growth investments and further margin expansion.
In response to analyst questions, the company provided examples of initiatives underway. CFO Daniel Jackson described a back-office tool that automates “the vast majority” of transcript intake and evaluation, which had previously been a manual process, and said it was rolled out across most of the platform with plans to deploy it everywhere by year-end. Jackson also cited work on the front-end admissions process, including how inquiries are evaluated and distributed and how enrollment counselors prioritize them.
McDonnell framed the productivity program as having three parts:
- Internal productivity through automation and expanding employee reach with technology
- Efforts intended to enhance revenue
- Improvements tied to student outcomes and assessment
Education Technology Services growth and employer strategy
McDonnell said 2025 was another record year for the Education Technology Services (ETS) segment, with revenue up more than 40% to nearly $150 million. Despite a 44% increase in expenses tied to continued investment, ETS operating income increased 38% to $59 million, producing a 40% operating margin. McDonnell said ETS accounted for roughly one-third of consolidated operating income in 2025, reflecting progress in higher-margin technology and services.
Within ETS, Sophia Learning posted strong growth. McDonnell said average total subscribers increased 47% and revenue rose 41% in the fourth quarter, while full-year average subscribers and revenue grew 42% and 40%, respectively, driven by gains in consumer and employer-affiliated subscribers.
Workforce Edge also delivered what McDonnell called a record year, driven by employer-affiliated enrollment, platform fees, and new employer partnerships. Employer-affiliated enrollment grew 6% in the quarter and ended 2025 at an all-time high of 33.5% of total U.S. Higher Education enrollment, according to management. McDonnell also said employer-affiliated mix of new students in U.S. Higher Education was 40%.
McDonnell said healthcare remains a major part of the employer strategy, representing half of U.S. Higher Education enrollment and 37% of total employer-affiliated enrollment. Workforce Edge ended 2025 with 80 corporate agreements, which management said collectively employ more than 3.9 million employees.
U.S. Higher Education: revenue per student up as unaffiliated enrollment declines
In U.S. Higher Education, McDonnell said revenue increased 2% in the fourth quarter and 1% for the full year, driven by a 6% increase in revenue per student. He attributed the revenue per student improvement to fewer student drops, lower discounts, and scholarships.
McDonnell said AI-driven productivity initiatives were “focused” in U.S. Higher Education during 2025, enabling operating expenses to decline 3% in the fourth quarter and 2% for the year. As a result, U.S. Higher Education operating income increased 58% in the fourth quarter and 32% for the full year, with operating margin up 470 basis points and 270 basis points, respectively. He also said U.S. Higher Education delivered record average student retention of 88% for the full year.
During Q&A, analysts pressed the company on enrollment declines, particularly among non-employer-affiliated students. McDonnell said the declines in U.S. Higher Education enrollments were “exclusively” in the unaffiliated employer channel, while employer-affiliated enrollment remained strong. He described new student enrollment as “somewhat cyclical” and said the company would remain focused on its marketing and brand strategy across Strayer and Capella, expressing confidence that enrollment will normalize over the long term.
Asked whether the company has taken deliberate steps to stem unaffiliated declines, McDonnell said Strategic Education manages marketing as a portfolio and continues to lean into Workforce Edge, ETS, and employer-affiliated enrollment. He said he did not see anything alarming about the declines and reiterated his expectation that U.S. Higher Education enrollment would normalize to mid-single-digit growth over time.
On Strayer specifically, McDonnell said that as marketing has focused more on healthcare and Capella, the company has reduced campus count as leases expire and may continue to do so, while still seeing value in maintaining campuses in local communities. He added that going forward, additional expense reductions are expected to come primarily from automation efforts across the portfolio.
Australia/New Zealand trends and 2026 outlook framework
McDonnell said the Australia/New Zealand (ANZ) segment saw total enrollment decline 2% in both the fourth quarter and the full year due to continued regulatory constraints on international enrollment, partially offset by domestic new student growth. Revenue declined 2% in the fourth quarter and was flat year over year for the full year. ANZ operating expenses decreased 6% in the quarter and were flat for the year, contributing to a 16% increase in fourth quarter operating income and an operating margin of 19%, up 290 basis points.
In Q&A, McDonnell said domestic new student growth in Australia has been encouraging and that he now believes ANZ could return to total enrollment growth by the end of 2026, earlier than he had suggested on a prior quarterly call. He also noted an approximately 3% increase in international enrollment allowed by the Australian government. Discussing regulatory changes, McDonnell said there would be a ban on paying agent fees for onshore transfers; he said transfers can still occur but volume may change slightly.
Regarding 2026, management pointed to the “notional model” discussed at the company’s 2023 Investor Day as a proxy. McDonnell said 2026 plans reflect continued performance in line with that framework. Jackson added that year-to-year results will depend on how much productivity is reinvested in growth opportunities versus flowing through to margin performance, and said in some cases the company may see outperformance versus the model.
On capital allocation, McDonnell said Strategic Education generated $247 million in pre-tax cash from operations in 2025, paid $49 million in taxes, and invested $44 million in capital expenditures, resulting in $154 million of distributable free cash flow. The company returned approximately $58 million through its $2.40 common dividend and just under $140 million in share repurchases, including $45 million in the fourth quarter. McDonnell said the company repurchased 1.7 million shares in 2025, about 7% of shares outstanding, and ended the year with $153 million in cash and marketable securities and no debt. He added that more than $200 million remained on the repurchase authorization at year-end.
About Strategic Education (NASDAQ:STRA)
Strategic Education, Inc is a publicly traded higher education services holding company headquartered in Herndon, Virginia. Through its primary operating subsidiaries, Strayer University and Capella University, the company delivers degree programs and professional development opportunities to working adults. Its offerings span undergraduate and graduate degrees, certificates, continuing education, and workforce training in fields such as business, technology, health services, education, and public administration.
Strayer University, with a network of physical campuses across the United States complemented by an online platform, provides associate’s through doctoral degrees designed to accommodate non-traditional students.
