Hello, and welcome to Strategic Education's Second Quarter 2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Ms. Wilke, please go ahead. Terese W

Thank you. Hello, everyone, and welcome to Strategic Education's conference call, in which we will discuss second quarter 2025 results. With us today are Robert Silberman, Chairman; Karl McDonnell, President and Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties and risks that Strategic Education has identified in today's press release that could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Strategic Education's most recent annual report on Form 10-K, the 10-Q to be filed and other filings with the Securities and Exchange Commission as well as Strategic Education's future 8-Ks, 10-Qs and 10-Ks. Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com. And now I'd like to turn the call over to Karl. Karl, please go ahead.

Thank you, Terese, and good morning, everyone. We are very pleased with our second quarter and first half 2025 results, which we reported earlier this morning and in particular, with the continued strong performance within our Education Technology Services segment, which I will discuss momentarily. On a constant currency basis, SEI's revenue grew 4% from the prior year. Disciplined expense management limited our operating expense growth to just 2%, resulting in operating income of $49 million, a 12% increase from the prior year. Our operating margin increased 110 basis points to 15.2%. Adjusted earnings per share were $1.54 compared to $1.33 from the prior year, an increase of 16%. Turning now to our segments. We are pleased to see the continued strong performance of our ETS division, which remains on track to become a significant contributor to SEI earnings composition in line with our strategy. ETS revenue and operating income both increased 50% from the prior year to $37 million and $15 million, respectively. ETS' share of SCI's operating income grew from 23% last year to 31% this year, an increase of 8 percentage points. Sophia Learning, our direct-to-consumer portal that offers high- quality college level courses and increasingly serves as a key component of many of our key strategic corporate partnerships grew both average and total subscribers and revenue by 40%, driven by strong growth in both consumer and employer affiliated subscribers. Workforce Edge continues to perform exceptionally well and now has 80 total corporate partnerships collectively employing more than 3.8 million employees. And notwithstanding our continued strong investment in ETS which included a 50% increase in their expenses, ETS's operating margin remained stable on a year-over-year basis at 41%. U.S. Higher Education total enrollment decreased by 1% from the prior year. However, slightly higher revenue per student helped offset approximately half of the enrollment decline resulting in revenue being down year-over-year by half of 1%. Employer affiliated enrollment once again remained strong, increasing by 8% from the prior year and now represents 32% of all U.S. higher education enrollment, again, in line with our strategy. In addition to the strength of our employer affiliated enrollment, U.S. Higher Education health care portfolio, which represents half of all enrollments also increased its total enrollment by 8% from the prior year. U.S. higher education operating expenses decreased by $2 million from the prior year or a reduction of 1%. As a result, U.S. higher education operating income increased 5% from the prior year and its operating margin increased 40 basis points. Turning now to our Australia, New Zealand segment. ANZ's second quarter total enrollment decreased 3% from the prior year driven by the continued regulatory restrictions on international student enrollment. Using constant currency, revenue increased slightly to $71 million and operating income decreased from $14 million in the prior year to $13 million this year. Notwithstanding the recent decline in our international enrollment, we are optimistic about our pivot to focusing primarily on the Australian domestic market where we have seen mid- to high single-digit new student growth through the first half of this year. Finally, regarding capital allocation. In addition to our regular quarterly dividend, we repurchased approximately 325,000 shares during the quarter for a total of $28 million. Year-to-date, we have repurchased just under 720,000 shares for $60 million leaving us with $169 million remaining on our share repurchase authorization through the end of this year. And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SCI for their ongoing commitment and support to our students and employer partners. And with that, Andrew, we'd be happy to take questions.

[Operator Instructions] And our first question comes from the line of Alex Paris with Barrington Research.

Congrats on the strong earnings. Just a couple of clarifying questions on your prepared comments. Starting with U.S. Higher Education, you noted in the press release the success with employer affiliated enrollment and the health care portfolio, you mentioned the decline in unaffiliated enrollment. I wonder if we can get a little bit more information there. I think you said on the Q1 call, unaffiliated enrollment was down 2.7% year-over-year to 60, 444. So I'm wonder if you can get comparable numbers for the second quarter or the first half? And then what's the outlook for the second half? Because as I recall, the comps get a little easier in the second half.

Alex, the declines in new student enrollment -- and by the way, I don't have the exact number in front of me, but I can tell you that the softness that we're seeing in new student enrollment is primarily at Strayer University. It's primarily in our unaffiliated students, students that don't come from a corporate partnership. I believe the rate of decline was slightly better in the second quarter than it was in the first quarter. And maybe, Dan, afterwards can follow up with you on the exact numbers.

Yes. No, that's great. And we have a follow-up call schedule. And then -- on the ANZ side, again, not surprising on the lower enrollment internationally. You said that there's progress on the domestic side. I'm wondering what the split is between the 2 now? And is domestic up as a percentage of the total from the beginning of the year, for example. And yes, so a little more color there would be great.

Sure. Historically, as we've said, the split between domestic and international was always roughly 50-50. We've seen a decline in international basically in line with the indicative caps that the Australian government imposed. As I said, we have seen growth in domestic. So the composition is skewing now to more domestic. We're going to anniversary these declines in international enrollment sometime early in '26. And at that point, we would expect Torrens to return to both new student growth and total enrollment growth, given the success that we've seen in the domestic market. And I would just add that I would say we're still not fully funded from a marketing standpoint in the domestic market. We're planning to increase marketing investments in the back half of this year. And based on the performance of the domestic market, that will kind of set what our intention is for '26. But we have every expectation that Australia, New Zealand will be growing once we anniversary these declines due to the Australian restrictions on international enrollment.

Great. And then last question, and I can follow up with the team after this call and some of the other particulars. But just wondering what your thoughts are about legislative and regulatory with the One Big Beautiful Bill passed and its implications for higher education as well as other regulatory moves like on the 90/10 side and so on.

Yes. So obviously, we're still digesting everything that was in One Big Beautiful Bill. My understanding is that many of the components were left to the department to figure out how to implement, which my understanding is they intend to do via a couple of negotiated rule-making sessions. So those will clearly be important for us to follow to see any impact. But based on everything that we've seen now, we don't expect any material adverse impact from anything in One Big Beautiful Bill.

And our next question comes from the line of Jasper Bibb with Greer Securities.

Just hoping you could talk a little bit more about where you're seeing weakness at Strayer. And to the extent you can, maybe you could frame how your leading indicators like inquiry volumes are trending? And any expectations for what enrollment might look like for U.S. in the back half of the year?

Sure. This is the cycle that we're in and seeing where we have some pressure on our unaffiliated undergraduate students, again, primarily at Strayer is a cycle that we've seen and been through before. There is some natural variability to enrollment. In terms of leading indicators, I don't have that in front of me, Jasper, but we have every expectation that over the long-term, enrollment will normalize, as we've always said, kind of in the mid-single-digit range. So our expectation hasn't changed there. And for this year, I'd say we're kind of right on track with what we laid out at Investor Day, and that's still the trajectory that we're planning for in 2025.

Maybe following up on that last comment, do you still, I guess, expect where you'll be at in '25 from a revenue and profit growth perspective to align with the notional model that you outlined at the Investor Day, I guess, 1.5 years, 2 years ago now?

Yes.

On the ETS front, really strong growth there. I was just hoping you could kind of update us on the large employer partnership you've talked about the last couple of calls, how that's ramping. And then maybe the progression of that and any implications for revenue in the back half of the year as, I guess, more probably employees from that relationship migrate onto the platform?

Yes, I'd say we're in the midst of that onboarding. So far, I would say our team has done a great job. My understanding is this particular client is very pleased with the work that the Workforce Edge ETS team has done. We've seen significant revenue growth, specifically from that partner because we haven't anniversaried that, we didn't have it last year. That will continue through the back half of this year. So all things considered, I'd say that particular relationship has gone as well as it possibly could.

And our next question comes from the line of Jeff Silber with BMO Capital Markets.

Just a couple of quick follow-ups from the other questions. First on Australia, New Zealand. Can you just remind us what the international caps are? And are they impacted in terms of transfer students at other universities. I know you've talked about that before?

Yes. So Jeff, by the way, the caps themselves were intended to restrict what we refer to as offshore international enrollment. These are students who are not in Australia who need a visa to immigrate in for the purposes of study. Those reductions for us represented about a 30% reduction from precap levels. The Australian government, in addition to that cap, which, by the way, they're enforcing not with legislation, but through the velocity, if you will, of Visa approvals. They've also put some restrictions in on onshore people who are already in Australia, ability -- students' ability to transfer to other institutions, which historically, frankly, was the primary source of international enrollments for Torrens, at least in the last couple of years. So we've seen a decline in both. We've seen a decline on a year-over-year basis on offshore students immigrating in, and we've also seen a decline in onshore students transferring. But as I said just a few moments ago, we do expect to lap those declines early next year. And at that point, we expect to see a return to both new and total enrollment growth. And I'd have to say the domestic growth that we've seen, it's early, but it's been a little stronger than, frankly, I was anticipating it would be at this point, just given that Torrens is so young in the Australian higher ed ecosystem and we haven't fully funded a domestic marketing budget even since we've taken over the asset. But again, that's something that we intend to do in the back half of this year and heading into 2026.

Okay. That's really helpful. Appreciate that. And then just 1 big -- 1 follow-up from the One Big Beautiful Act question. Was there anything in there that might be a positive to you? And I know this is minor, but it looks like that they're going to be increasing the cap on the employer-affiliated tuition assistance program. I know it's small, but would that be something that might be a needle mover for you?

Definitely. It's the first increase in that number that I can remember since I've been here in 20-ish years. So the fact that, that can be indexed to inflation, I think, is a net positive. To the extent that we expand the portfolio in the U.S. to include some more workforce- related programs, there's also a chance that the workforce [ tell ] inclusion could be beneficial. But yes, definitely on the cap on the $5,250 taxable limit.

Thanks, Jeff. I'm showing no further questions. So with that, I'll hand the call back over to CEO, Karl McDonnell for any closing remarks.

Thank you, everyone, for joining us today, and we look forward to discussing our Q3 results in the 3 months.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.