Release Date: November 07, 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 6% increase in revenue to $304 million for the third quarter of 2024.
- Operating income grew by 13% to $37 million, with an operating margin increase to 12.1%.
- The U.S. higher education segment saw a 5% increase in total enrollment, driven by a 13% rise in employer-affiliated enrollment.
- The Australian and New Zealand segment experienced a 5% enrollment growth, with revenue increasing by 11% on a constant currency basis.
- The education technology services segment reported a 26% growth in revenue and a 30% increase in operating income, with Sophia Learning's revenue up by 35%.
Negative Points
- Enrollment growth in the U.S. higher education segment has slowed compared to previous quarters, aligning more with mid-single-digit growth expectations.
- The proposed international student caps in Australia could potentially impact future enrollment growth, though the exact effects remain uncertain.
- Revenue per student in the U.S. higher education segment decreased by 2% in the quarter, attributed to a shift towards employer-affiliated enrollments.
- The company is facing uncertainties regarding the legislative process of international student caps in Australia, which could affect future operations.
- Despite paying down $60 million of debt, the company still faces challenges in capital allocation and balancing share repurchases with other investments.
Q & A Highlights
Q: Enrollment growth has been solid but slowed this quarter. Is there a specific reason for this?
A: Karl McDonnell, President and CEO, explained that there is nothing specific causing the slowdown. The company has previously noted that high single-digit or double-digit growth is not typical over a longer cycle. They view U.S. higher education as a mid-single-digit growth business, which aligns with the current quarter's performance.
Q: Can you provide more details on the proposed international student caps in Australia?
A: Karl McDonnell stated that the Australian government has proposed limiting international student immigration to about 270,000 students, roughly half of pre-COVID levels. These caps need to be legislated, with discussions expected in the Australian Parliament later in November. The company is monitoring the situation but has no further comments until legislation is finalized.
Q: Regarding the large client signed for Workforce Edge, was this a new initiative for them or a switch from another vendor?
A: Karl McDonnell confirmed that the client had existing education benefits and switched from another education benefit management partner to Workforce Edge. The partnership went live last week.
Q: Can you elaborate on the lower-than-expected expenses and increased investments in ETS and other areas?
A: Daniel Jackson, CFO, noted that expenses were slightly lower due to benefits like reduced bad debt. Investments were made in hiring advisors and coaches for a large corporate client in ETS. The current expense base is expected to remain stable through the end of the year.
Q: How are you approaching share repurchases now that debt has been paid down?
A: Daniel Jackson explained that the company prioritizes investing in existing businesses and maintaining a strong balance sheet. Share repurchases are considered when shares trade at a significant discount to intrinsic value and when there is excess cash. The company will continue this analysis into 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
