Strategic Education, Inc. (SEI) demonstrated robust financial performance in the second quarter of 2026, with key metrics indicating significant advancement across its educational divisions, particularly within its Education Technology Services (ETS) segment. The company's U.S. Higher Education division also saw positive trends, marked by increasing employer-affiliated enrollments and improved student retention rates. Despite these successes, the Australia/New Zealand (ANZ) segment faced headwinds due to regulatory changes affecting international student enrollments and an ongoing labor dispute. The leadership expressed confidence in the company's strategic direction, highlighting its focus on capital allocation through dividends and share repurchases, alongside a commitment to sustained operating income margin expansion.
Management's report underscored SEI's ability to navigate a complex global educational landscape, leveraging its strengths in technology-driven learning solutions and robust domestic higher education programs. The call shed light on the strategic investments in academic integrity and new program development, such as Capella University's Bachelor of Science in Nursing, designed to meet evolving workforce demands. While the company acknowledged external factors impacting certain segments, the overall outlook remained positive, with expectations for continued growth and operational efficiency improvements in the coming periods, supported by a healthy cash flow and a clear financial strategy.
Accelerated Growth in Education Technology and U.S. Higher Education
Strategic Education's second-quarter 2026 results showcased impressive growth, largely propelled by its Education Technology Services (ETS) division, which experienced a 15.4% surge in revenue, reaching $42.4 million. This expansion was primarily fueled by a 26.7% increase in Sophia Learning's revenue, driven by a 32% rise in total average subscribers. Additionally, Workforce Edge expanded its reach to 81 corporate agreements, now covering 4 million employees, leading to a 21% increase in student enrollments into Strayer or Capella University, totaling approximately 4,000 students. This segment's operating income climbed to $19.6 million, boasting a substantial operating margin of 46.2%, a 520 basis point improvement from the previous year. The U.S. Higher Education segment also contributed positively, with revenue increasing by 2.3% to $220.5 million, attributed to higher revenue per student and reduced scholarship expenditures. Operating income for this division jumped by 56% to $32.4 million, pushing the operating margin to 14.7%.
The U.S. Higher Education segment demonstrated remarkable progress in student engagement and program alignment, with employer-affiliated enrollment reaching an all-time high of 34.7% of total enrollment, reflecting an 8% growth. This strategic focus on employer partnerships is further underscored by an 11% enrollment increase in healthcare programs, which now constitute 52% of all U.S. Higher Education enrollments. Capella University's launch of a new Bachelor of Science in Nursing (Prelicensure) program in July 2026 is a testament to this strategic expansion. Furthermore, student retention in the U.S. Higher Education segment reached an unprecedented 89%, indicating enhanced student satisfaction and program effectiveness. FlexPath enrollment now accounts for 25% of total U.S. Higher Education students, with a significant 73% of these individuals enrolled in healthcare-related fields, showcasing the efficacy of flexible learning models in addressing critical workforce needs.
Navigating Challenges in Australia/New Zealand and Future Outlook
Despite the overall positive performance, Strategic Education's Australia/New Zealand (ANZ) segment encountered considerable challenges during the second quarter. The segment reported a 2.6% decline in constant currency revenue, amounting to $67.4 million, primarily due to a 5.2% decrease in student enrollment. This downturn is attributed to regulatory shifts and a slowdown in international visa approvals by the Australian government, which hindered enrollment growth, particularly among onshore international transfer students. An additional significant challenge was a $13.9 million reserve recorded in relation to an ongoing labor dispute concerning casual faculty grading compensation. While an Australian court initially sided with the company's interpretation, the Appeals Court overturned this decision, prompting an appeal to the Australian High Court. This situation highlights the complex regulatory and legal environment the company operates within in the ANZ region.
Looking ahead, SEI is actively addressing these issues within its ANZ operations. The company is observing encouraging signs of growth in domestic student enrollments in Australia, with figures nearing double digits. Strategic investments are being made in new educational programs and potential campus expansions to further cultivate the domestic student population, aiming to offset the declines experienced in the international market. Management anticipates receiving an update on their appeal to the Australian High Court regarding the labor matter in late September or early October 2026. Despite the current international enrollment hurdles, leadership remains optimistic about returning the ANZ segment to growth by 2027. The company's commitment to achieving a 200 basis point expansion in adjusted operating income margin for the full year remains firm, even with the potential impact of the Australian labor charge, underscoring a disciplined approach to financial management and operational efficiency.