Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strategic Education Inc (STRA, Financial) reported a 9% increase in revenue to $313 million for the second quarter of 2024.
- Operating income grew by more than 60% to $44 million, with an increase in operating margin by 460 basis points.
- U.S. higher education segment saw an 8% growth in total enrollment, with employer-affiliated enrollments growing by 17%.
- Education technology services segment experienced a 26% increase in revenue, with Sophia Learning's revenue growing by 40%.
- Australia and New Zealand segment posted a 10% revenue growth on a constant currency basis, driven by higher enrollment and revenue per student.
Negative Points
- Operating expenses are expected to be slightly higher than previously planned due to increased investments in the second half of 2024.
- The operating margin expansion is likely to be below the initially projected 200 basis points, expected to be between 150 and 175 basis points.
- There is uncertainty regarding the impact of FAFSA delays on future enrollment, particularly in the largest enrollment intake quarter.
- The timing of visa approvals for international students in Australia has started to lengthen, potentially affecting new enrollments.
- Revenue growth in the U.S. higher education segment is expected to moderate to a notional level of 5% to 10% over the long term.
Q & A Highlights
Q: Can you remind us of the operating expense expectations for this year compared to last year's notional model?
A: Daniel Jackson, CFO, explained that they initially expected operating margin to expand by a couple of hundred basis points. However, due to additional investments, it will likely be between 150 and 175 basis points for the year.
Q: Will the increased expenses be concentrated in any specific segments?
A: Daniel Jackson noted that while expenses will increase across all segments, the Education Technology Services (ETS) and Australia and New Zealand (ANZ) segments will see more expense growth relative to U.S. higher education.
Q: Was there anything specific driving the strong operating margins in U.S. higher education this quarter?
A: Karl McDonnell, CEO, stated that the high enrollment and revenue growth, coupled with low variable expenses, significantly impacted the margins favorably.
Q: Do you expect any impact from FAFSA delays in the back half of the year?
A: Karl McDonnell mentioned that they have not seen any impact from past FAFSA delays and are currently in their largest enrollment intake quarter, so it remains to be seen if there will be any impact.
Q: Are you updating revenue growth expectations for 2024?
A: Karl McDonnell clarified that they do not provide an outlook on revenue as it is uncertain. However, they expect U.S. higher education enrollment to moderate to a notional level of 5% to 10% growth over the long term.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
