Strategic Education, Inc. (NASDAQ:STRA) is a leading provider of flexible and affordable higher education programs, serving working adult students globally through its core focus areas of U.S. Higher Education, Education Technology Services, and Australia/New Zealand. The company has demonstrated strong financial performance, reporting annual revenue of $1,132,924,000 and net income of $69,791,000 in its most recent fiscal year. Additionally, the company generated annual operating cash flow of $117,119,000 and free cash flow of $80,176,000, showcasing its ability to generate substantial cash flow to support its operations and growth initiatives.

Recent Developments

In the second quarter of 2024, Strategic Education reported impressive results, with revenue increasing 8.5% year-over-year to $312.3 million. The company's non-GAAP earnings per share also improved significantly, rising from $0.82 in the same period last year to $1.33 in the current quarter. This strong performance was driven by robust enrollment growth and operational efficiency across the company's business segments.

Business Overview

U.S. Higher Education Segment

The U.S. Higher Education (USHE) segment, which includes Capella University and Strayer University, continued to be a standout performer. During the second quarter, USHE enrollment increased 8.4% to 87,077 students, with employer-affiliated enrollment growing at an even faster pace of 17% year-over-year. This growth in employer-affiliated enrollment, which now accounts for 29% of USHE's total enrollment, highlights the strong demand for the company's programs among working adult students and its successful partnerships with corporate clients.

Education Technology Services Segment

The Education Technology Services (ETS) segment also delivered impressive results, with revenue increasing 25.6% to $24.5 million in the second quarter. This growth was driven by continued expansion of the company's Sophia Learning platform, which saw a 37% increase in average total paid subscribers to over 42,000. Additionally, the Workforce Edge platform, which provides employers with a full-service education benefits administration solution, added 23 new corporate partnerships during the quarter, bringing the total to 71 corporate partners collectively employing over 1.5 million employees.

Australia/New Zealand Segment

The Australia/New Zealand (ANZ) segment, which includes Torrens University, Think Education, and Media Design School, also contributed to the company's overall performance. In the second quarter, ANZ enrollment increased 6.4% to 19,113 students, and revenue on a constant currency basis grew 10.3% to $72.2 million, driven by higher enrollment and increased revenue per student.

Outlook

Looking ahead, Strategic Education has indicated that it plans to increase investments in the second half of 2024 to support the accelerated growth of its Sophia Learning and Workforce Edge platforms within the ETS segment, as well as increased marketing spend in the ANZ segment. While this will result in slightly higher operating expenses compared to the company's previous notional model, management remains confident in the long-term growth potential of these strategic initiatives.

Liquidity

The company's strong financial position, with $256.2 million in cash, cash equivalents, and marketable securities as of June 30, 2024, and $61.3 million in outstanding debt, provides ample liquidity to fund its growth plans and support its operations. Additionally, the company's healthy cash flow generation, with $101.9 million in cash provided by operations in the first half of 2024, underscores its ability to reinvest in the business and return capital to shareholders through its regular quarterly dividend.

Conclusion

Strategic Education's diversified business model, with a focus on serving the needs of working adult students through flexible and affordable education programs, has positioned the company well to capitalize on the growing demand for alternative higher education pathways. The company's strong performance across its key segments, coupled with its strategic investments in growth initiatives, suggest that Strategic Education is well-positioned to continue delivering value to its students and shareholders in the years to come.