Welcome to the Strategic Education Fourth Quarter 2025 Results Conference Call. I will now turn the call over to Therese Wilkie, Senior Director of Investor Relations for Strategic Education. Ms. Wilkie, please go ahead.

Thank you. Hello, everyone, and welcome to Strategic Education's Conference Call, in which we will discuss Fourth Quarter 2025 Results. With us today are Carl McDonald, 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 to be filed, the most recent 10-Q, and other filings with the Securities and Exchange Commission, as well as Strategic Education's future 8Ks, 10Qs, and 10Ks. 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 Carl. Carl, please go ahead.

Thank you, Therese, and good afternoon, everyone. We are very pleased with our fourth quarter and 2025 full-year results that we released earlier today. And at the outset, and as is normally the case, let me say that the results that I referenced today are adjusted and reflect a constant currency comparison. For the fourth quarter, our revenue increased 4% from the prior year, and our operating expenses declined 1%, resulting in operating income growth of 35% and a 390 basis point expansion in our operating margin to 16.9 percent. Earnings per share was $1.75, which was an increase of 38 percent. For the full year, 2025, our revenue increased 4 percent and our operating income increased 25 percent, generating 260 basis points of operating margin expansion to 15.5 percent. Our adjusted earnings per share was $6.21, an increase of 28% from the prior year. Our ongoing AI-driven productivity improvements across the portfolio resulted in approximately $30 million of expense reductions, which was used to both fund new growth opportunities and expand our operating margin. We remain on track to generate at least an additional $70 million of expense savings through the end of 2027, and as was the case this year, those savings will be used both to fund additional growth and continue to expand our operating margin. 2025 was another record year for education technology services segment which grew revenue by more than 40 percent to nearly 150 million dollars and notwithstanding our continued strong investment in ETS which included a 44 in 44 percent increase in expenses ETS's operating income increased 38% to $59 million, generating an operating margin of 40%. ETS's share of SEI's operating income grew to roughly one-third of consolidated operating income in 2025, reflecting progress with our higher-margin technology and services business. SOFIA Learning grew average total subscribers by 47% and revenue by 41% in the fourth quarter and by 42% and 40% respectively for the full year. These results were driven by strong growth in both consumer and employer-affiliated subscribers. Workforce Edge also had a record year with strong revenue growth driven by employer-affiliated enrollment platform fees and new employer partnerships employer affiliated enrollment grew six percent for the quarter and ended the year at an all-time high of thirty three point five percent of total US higher education enrollment employer-affiliated mix of new students in US higher education was forty percent another key part of our overall employer strategy is to grow our healthcare portfolio, which remains quite strong. It now represents half of all U.S. higher education enrollment and 37% of total employer-affiliated enrollment. Workforce Edge ended 2025 with 80 corporate agreements collectively employing more than 3.9 million employees. Our network of corporate partners remains one of SEI's major competitive strengths. Turning now to U.S. higher education. Revenue increased 2% for the fourth quarter and 1% for the full year due to a 6% increase in revenue per student, driven by fewer student drops, lower discounts, and scholarships. In 2025, the bulk of our AI-driven productivity improvements were focused in U.S. higher education, which enabled a 3% decline in operating expenses for the fourth quarter and a 2% decline for the full year. This resulted in a 58% increase in operating income in the fourth quarter and a 32% increase for the full year. U.S. higher education's operating margin increased 470 and 270 basis points respectively for the fourth quarter and full year. U.S. higher education also recorded record average student retention of 88% for the full year our Australian New Zealand segments total enrollment decreased by 2% for both the fourth quarter and the full year driven by continued regulatory constraints on international enrollment which was partially offset by domestic new student growth a and Z's revenue also decreased by 2% in the fourth quarter and was flat on a year-over-year basis. As was the case in U.S. higher education, we also had significant productivity gains in Australia with operating expenses decreasing six percent for the quarter and were flat for the full year. This resulted in a 16 percent increase in fourth quarter operating income at A and Z and an operating margin of 19 percent, a 290 basis point improvement. Next regarding capital allocation in 2025. We generated $247 million in pre-tax cash from operations. We paid $49 million in taxes and invested $44 million in capital expenditures, leaving us with $154 million of distributable free cash flow. We used this cash and our existing cash balance to return approximately $58 million to our owners through our $2.40 common dividend and just under $140 million in share repurchases, including $45 million in the fourth quarter, for a total of 1.7 million shares repurchased in 2025, or approximately 7% of our outstanding shares. As of the end of 2025, we still have more than $200 million remaining on our share repurchase authorization. We ended the year with $153 million of cash and marketable securities and no debt. Our plans for 2026 reflect continued performance in line with the notional model that we outlined in our 2023 Investor Day. And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support to our students and our employer partners. And with that, Kevin, we'd be happy to take questions.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered and you wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much for taking my question. I want to focus first on the enrollment trends in U.S. higher education. I know you don't give specific guidance, but, you know, the declines seem to be getting a bit worse. They seem to be really more composed in your non-employer-affiliated area. So, one, I was hoping we'd get a little bit more color there. And then, two, what do you need or what can you do to get U.S. higher education enrollment moving positive again?

And hi, Jeff. So, you're right. The declines that we're seeing in U.S. higher education enrollments are exclusively, I would say, in our unaffiliated employer channel. As I said in my prepared remarks, our employer-affiliated enrollment remains strong. As we've said before, our new student enrollment can be somewhat cyclical and move around quarter to quarter. In terms of what we can do, we just stay focused on our marketing strategy, our brand strategy across both Strayer and Capella. and I'm confident over the long term that enrollment will normalize and there's nothing that I see that would take me off what I said a moment ago that we expect our performance this year to be in line with our notional plan.

Okay, great. Shifting gears a bit, the margin expansion was very impressive and you mentioned a few times AI-driven operational improvements. Can we get a couple of examples of what you've been doing there?

Sure. Sure, we have an overall productivity effort that has three subcategories. So the first would just be internal productivity. So figuring out ways to automate process, expand people's reach with technology so that any given enrollment counselor or student advisor can have a greater scope. That would be one of the three. The second is anything that we can do to enhance revenue. And the third would be student outcomes and assessment. And all three are quite robust. Dan here, our CFO, leads the productivity efforts, and he could give you a couple of examples.

Hey, Jeff, two more tangible examples. One is on the back office front where we've developed a tool that automates the vast majority of transcript intake and evaluation, which used to be a very manual effort. So, that's something that we've rolled out almost across the entire platform. This year, I think by the end of the year, we'll have it rolled out everywhere. And then another example is really focused more on the front-end admissions process, starting with how we evaluate and distribute inquiries, and then how we make sure that our enrollment counselors and admissions officers know how to prioritize those inquiries. um those are two areas there's there's a there's a quite a few more that we're working on um that by the end of the year we'll have rolled out we'll have more to say as we go along each quarter all right that's uh really helpful i'll jump back to the queue thanks one moment one moment for our next question our next question comes from alex paris with

barrington research your line is open hi guys thanks for taking my question just to follow up on the previous question regarding U.S. higher education. The total enrollment was down for the year and probably the biggest decline was in the fourth quarter on a year-over-year basis. And again, I understand that it's unaffiliated enrollment and that's not a focus area for the company. You're focused on employer-affiliated. But with that said, and I also know that you run marketing as a portfolio. You invest where the return is the greatest. That might be Capella over Strayer, and it's certainly employer-affiliated over unaffiliated. But we've known of this problem pretty much all year long. Have you done anything deliberate to stem the flow on the unaffiliated side? And if not, are you planning to, and what can you do there?

Sure, Alex. To answer your question, have we done anything deliberate? Well, yes, of course. We have our operating plans, which involve our annual marketing and quarterly marketing spend. You're correct that we do manage it as a portfolio, and we task the U.S. higher education management team with solving for what we think will be the strongest overall growth. And there really isn't a change to our strategy, which is we're leaning heavy into workforce edge, ETS, employer-affiliated enrollment. As I said in reply to Jeff's question just a minute ago, I don't see anything that gives me alarm around any sharper declines in U.S. higher education enrollment. And I'm confident that in time it's going to normalize to mid-single-digit growth. And in between now and then, we'll just be patient and continue to execute our plans.

Okay, fair enough. I appreciate that. And regarding the notional model, you know, in lieu of formal guidance, that calls for a revenue CAGR of 4% to 6% and AOI margins, adjusted operating income margins, increasing 200 BIPs per year. Did you say that that is a good proxy for 2026? yes okay uh and then the makeup of that could be a little different right um uh you know when you put these targets out in 2023 you were looking for enrollment growth in u.s higher education of four to six percent um and uh anz enrollment growth of six to eight percent uh what underpins that revenue growth in 2026? I'm assuming heavily towards ETS.

Clearly, we expect ETS to continue to post strong growth. I'd also say, though, that in Australia, the level of domestic new student growth we've seen has been pretty encouraging, such that I think that there's a very good chance Australia will turn to total enrollment growth this year. I believe on our last quarterly call, I said that it probably wouldn't be until the first part of 2027. I think it will probably be by the end of this year. So a good contribution from Australia. And I'm confident, as I said a moment ago, that U.S. higher education is going to normalize. And I can't obviously predict their contribution to revenue this year, but, you know, I'm confident in the notional model that we laid out in 2023.

Gotcha. And then last question, a follow-up on ANZ. You said that you expect a return to total enrollment growth before the end of the year, which implies new student growth now, right, because there's a lag between turn up and new student enrollment growth. What will new student enrollment growth be driven by? I think we talked about it on previous calls. An increase in the soft caps, and then also maybe just a little update on, you know, students' ability to transfer, international students' ability to transfer from one domestic institution to another once in-country.

Yeah, so on the international enrollment, we did receive an approximately 3% increase from the Australian government for the international enrollment so we expect to fulfill that and that'll be a portion of growth there there's been one change this is not new we've known this is coming where there'll be a ban on paying agent fees for any onshore transfers transfers can still happen we expect them to still happen it'll you know the volume may change slightly but I think the bulk of the new student growth will be from domestic which has been positive for us now for several quarters, and we expect that to continue through 2026.

Great.

Thank you very much. I'll get back in the queue.

Thanks, Alex.

One moment for our next question. Our next question comes from Jasper Bibb with Truist Securities.

Hey, good afternoon, everyone. Maybe just following up on some earlier questions, I've imagined a lot of that unaffiliated non-healthcare exposure in the U.S. business is at Strayer. So with that, can you just talk about what trends at Strayer have been like and how you intend to manage the cost structure there as part of the cost coming you announced? I guess would you consider further downsizing the campus count there as your leases come up?

I'd say over the last two years, just as more of our marketing dollars have been focused on healthcare and Capella both of which have been doing well we've we've steadily been as leases come up taking advantage of those lease expires to reduce the campus count and we may continue to do that although we still see significant value for having campuses in local communities and so I'd say a fair amount of expenses have already come out of that expense base and at this point moving forward and not just with Strayer but through the rest of the portfolio any expense reductions that we get will come from the automation efforts that we have and I'm confident that through 26 and 27 those will generate significant productivity for us again not just in Strayer but across the entire portfolio maybe circling back to the the notional model in 26 in the context of the cost coming is there any way to frame how much of that you're going to let drop to the bottom line versus reinvesting and growth and marketing?

Hey, Jeff, this is Dan. Our notional model, which contemplates a couple hundred basis points of expansion per year on a five-year basis, that assumes some amount of productivity benefit. So as Carl mentioned earlier, we invest in or reinvested some of the savings this year, and some of it contributed to some margin outperformance. So from year to year, it'll just depend on how much we see opportunity to reinvest first and then, you know, support the margin. That's in the notional model. In some cases, we may see some outperformance.

Thank you. Any questions, guys?

Thank you.

And I'm not showing any further questions this time, but I'd like to turn the call back over to Carl for any further remarks.

Thank you, everybody. And we look forward to discussing our first quarter results of 2026 next quarter.

Thank you, ladies and gentlemen. That concludes today's presentation. You may now disconnect and have a wonderful day.