Operator: Welcome to Strategic Education, Inc.’s first quarter 2026 results conference call. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education, Inc. Terese Wilke, please go ahead.

Terese Wilke: Thank you. Hello, everyone, and welcome to Strategic Education, Inc.’s conference call in which we will discuss first quarter 2026 results. With us today are 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, Inc. 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, Inc.’s most recent annual report on Form 10-Ks, the 10-Q to be filed, and other filings with the Securities and Exchange Commission, as well as Strategic Education, Inc.’s future 8-Ks, 10-Qs, and 10-Ks. Copies of these filings and the full press release are available for viewing on our website at strategiceducation.com. And now I would like to turn the call over to Karl. Karl, please go ahead.

Karl McDonnell: Thank you, Terese, and good morning, everyone. Our first quarter results reflect meaningful progress across three of our primary strategic objectives: the continued investment and growth of our Education Technology Services division, growing our employer-focused strategy, and further implementing our AI and other productivity-enabling systems. For the first quarter, Strategic Education, Inc. revenue declined 1% year-over-year driven by a slight decrease in consolidated enrollment. Based on our current enrollment trends, we expect that the first quarter will be the low point of the year in both absolute revenue and revenue growth. Our productivity initiatives drove a 2% reduction in adjusted operating expenses, resulting in 3% operating income growth and slight margin expansion to 14.3%.

Adjusted earnings per share came in at $1.41. Turning now to our segments. Education Technology Services grew revenue 21% to $42 million driven by Sophia Learning subscriptions, higher employer-affiliated enrollment, and new Workforce Edge partnerships. Even with a 7% increase in expenses as we continue to invest in the ETS business, ETS operating income grew 42% to $20 million and a 47% margin. ETS now represents 46% of consolidated operating income. Within ETS, Sophia Learning grew average total subscribers by 40% and revenue by 32% with strong growth in both consumer and employer-affiliated subscribers. Workforce Edge ended the quarter with 82 corporate agreements covering 4 million employees, and enrollments from Workforce Edge into either Strayer or Capella grew 70% reaching nearly 4 thousand students.

As you know, expanding this network of corporate partners continues to be among our most important strategic focus areas. Moving to U.S. Higher Education, employer-affiliated enrollment grew 10% and reached a new all-time high of 34.5% of total U.S. Higher Education enrollment, an increase of more than 300 basis points from the prior year. Healthcare, which is a key component of our employer strategy, also grew 10%, and healthcare enrollment now represents more than half of all U.S. Higher Education enrollment. U.S. Higher Education revenue declined 4% in the quarter, reflecting a slight decline in unaffiliated enrollment along with somewhat higher discounts and scholarships, which together lowered revenue per student. Our productivity initiatives continue to enable effective cost control with operating expenses down 2%.

The segment delivered $26 million of operating income and a 12% margin. U.S. Higher Education also set a new record for average student retention at 89%. Turning now to Australia and New Zealand. Total enrollment declined 3% in the quarter. Regulatory constraints on international enrollment continue to be a headwind and are only partially offset by continued domestic new student growth. We remain focused on maximizing international enrollment within the current caps and on our continued investment in the domestic market. On a constant currency basis, ANZ revenue was down 4% reflecting the enrollment decline and a slight decrease in revenue per student. Here too, our productivity initiatives drove a 3% reduction in operating expenses. We reported an operating loss of $2.4 million for the quarter, which, as we have noted before, reflects the normal seasonality of that business.

On capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 493 thousand shares during the quarter for a total of $40 million. As of the end of the first quarter, we have approximately $200 million remaining on our share repurchase authorization through the end of the year. And finally, as always, I would like to thank all of my colleagues here at Strategic Education, Inc. for their ongoing commitment to our students and our employer partners. We will now open the call for questions.

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Operator: If you have a question or a comment at this time, please press 11 on your telephone. If your question has been answered or you would like to remove yourself from the queue, please press 11 again. Our first question comes from Jeffrey Silber with BMO Capital Markets. Your line is open.

Jeffrey Silber: Thanks so much. Karl, I appreciate the comments about saying that the first quarter is hopefully the low point from a revenue and a growth perspective. I know you have always talked about getting back to your notional plan. Any idea in terms of the timing of that, when we might see that?

Karl McDonnell: We have partial visibility into the next quarter, obviously, and I would say that enrollment trends in U.S. Higher Education have been improving. We expect that they will continue to improve, which is why we had the comment on Q1 being the low point on revenue growth for the year. As for the notional plan or model, I should clarify, Jeff, that when I am talking about our performance against the notional plan, I am predominantly referring to EBIT and EPS. And from that lens, I have very high confidence that we are going to be on our notional plan this year. Could we get there with better expense management and maybe a little less revenue just given how the first quarter played out? I think that is possible. But as I say, I am very confident that we are going to be there from an EBIT and EPS standpoint.

Jeffrey Silber: Okay, that is great to hear. If I could just move on to a regulatory issue. Effective July 1, we have some new rules coming from the One Big Beautiful Bill Act, specifically the caps on graduate and professional loans. I know you do not have as much exposure there, especially on the professional side, but I am just curious if you have seen any impact. Are students maybe a little bit reluctant because they are unsure about the funding environment? Any color you can provide would be great.

Karl McDonnell: I have not heard of any demand-related issues or pressures as a result of grad loan limits changing. We are still waiting on final language to see exactly how that is going to be shaped, but I do not expect that we are going to have a major impact from changes to the grad loan limits.

Jeffrey Silber: Alright, great to hear. I will get back in the queue. Thanks.

Karl McDonnell: Thanks, Jeff.

Operator: Again, ladies and gentlemen, if you have a question or a comment at this time, please press 11 on your telephone. One moment for our next question. Our next question comes from Alexander Paris with Barrington Research. Your line is open.

Alexander Paris: Hi, guys. Thanks for taking my question. I just had a follow-up on that last one. The notional plan, Karl, you said you had high confidence in EBIT and EPS. From the notional plan, can you just refresh my memory? It calls for 46% revenue growth and 200 basis points of adjusted operating margin improvement. You said it could be a little less revenue, a little bit more cost reduction. But what are you referring to? You are referring to the 200 basis points of adjusted operating income improvement?

Karl McDonnell: Yes, specifically. And the reason I say that is, obviously, we control our expense. I would say that the AI and other technological enablement to productivity are being implemented a little faster than even I expected, so I think it is going to have a slightly bigger impact this year than I otherwise would have expected. And I do not know where revenue is going to be ultimately, but if you just assume that our current enrollment trends are going to continue through the balance of the year and you layer on accelerated productivity, that gives me high confidence that we are going to get to the 200 basis points of margin expansion, and that will translate into whatever growth rate it is on EPS.

Alexander Paris: Gotcha. And then, regarding enrollment in U.S. Higher Education, obviously, big growth continues in employer-affiliated enrollment that accelerated sequentially from the fourth quarter. Unaffiliated was down 5.5% by my calculation. That too represents a sequential improvement when it was down 8.5% in the fourth quarter. So what explains the sequential improvement? Are new students up in that channel?

Karl McDonnell: Specifically, we have had, I would say, a little better than what we expected in new student growth at Capella. In fact, I would describe Capella’s new student enrollment as quite strong. We have seen ongoing weakness in predominantly Strayer’s undergraduate unaffiliated enrollment, which frankly is not part of our strategy. We are not trying to grow unaffiliated enrollment, but it has been improving. So I would say, Alex, it is a mix of Capella doing better than what we expected and Strayer beginning to improve from lower levels that we had last year.

Alexander Paris: Gotcha. And then is there anything different you are doing in terms of marketing to the unaffiliated? Obviously, your focus is on employer-affiliated, but, you know, social media marketing, things like that, trying to drive enrollment in undergraduate unaffiliated at Strayer.

Karl McDonnell: Yes. Well, it is a combination of a couple of things that have been really playing out over the last couple of years. The first is we have told our U.S. Higher Education management team that we want them to solve for the overall highest growth we can get across U.S. Higher Education and to not necessarily solve for any particular growth at either Strayer or Capella, but to try to maximize the sum of both of those. And what has happened as a result of that is Capella has just been a much stronger grower. And as such, we have been supporting Capella’s growth with increased investments in marketing. And because we have not necessarily increased the aggregate amount in U.S. Higher Education, that means that we have been marketing a lot less at Strayer, which is predominantly the channel for unaffiliated enrollment.

And in fact, Daniel could give you maybe a more precise number, but if you go back two years ago and compare it to where we are today from a marketing investment standpoint, Strayer is probably down by 50% or more, and Capella is up by 50% or more. And that is feeding the strategy that we are trying to execute, which is employer-focused, healthcare-focused. In some quarters, Capella’s mix of employer-affiliated enrollments is over 50%. So it is a direct enablement of our strategy. We are happy to have unaffiliated enrollments. We are not trying to exclude them. It is just not where we are investing our growth capital. We are investing our growth capital in the employer channel, healthcare, and ETS in the States. And that is how it is playing out, and that is how we plan for it to be executed for the rest of this year and moving forward in 2027.

Alexander Paris: Gotcha. And given the improving trends in U.S. Higher Education enrollment, you know, the sequential improvement, the slowing rate or the declining rate of decline, do you think we will get to growth by the end of the year in U.S. Higher Education enrollment?

Karl McDonnell: I think it will be very close. I think we have a good chance to do that. I cannot predict, obviously, but I think that is entirely possible.

Alexander Paris: Great. And then the last question, and kind of similarly, ANZ segment. Given the 3% increase in the international cap expected in 2026 and the strength that you are seeing on the domestic side of new student enrollment, do you still expect that segment to get to overall enrollment growth by the end of the year?

Karl McDonnell: It is going to be close. I am hopeful, I should say, that we are going to have full-year new student growth, which will be the first in the post-cap era. Whether or not we get to total enrollment growth, it will depend. I have to say that one of the things that we saw in the first quarter that we did not foresee is that the Australian government has begun to slow down visa approvals even when you are below your cap. That is not something we saw last year. The Australian government was very good about approving visas as long as you were under your international cap. This year, there has been more friction, and we suspect it may have something to do with just greater immigration scrutiny following the Bondi Beach incident that happened in Sydney last year.

But that was something that did not happen last year. It happened in the first quarter. I do not know if it is going to happen in the second quarter moving on, but that was more friction than what we were expecting, and that may impact our ability to generate total enrollment growth this year.

Alexander Paris: But you feel good about new student enrollment growth this year in ANZ?

Karl McDonnell: Yes. And we continue to have pretty strong domestic enrollment growth, and I have to go back and look, but I think three out of the four quarters last year, we had it, the last three. And we also saw that in the first quarter.

Alexander Paris: Great. That is helpful. I appreciate the additional color. I will get back in the queue.

Karl McDonnell: Okay. Thanks, Alex.

Operator: One moment for our next question. Our next question comes from Jasper Bibb with Truist. Your line is open.

Jasper Bibb: Hey, good morning, everyone. Underneath the U.S. Higher Education margin performance this quarter, can you compare where the operating margins for Capella and Strayer stood at this point? Is there a big difference there? And with the shifting growth investments from Strayer to Capella that you talked about, do you think you have kind of fully right-sized your fixed costs for what has become a smaller business on the Strayer side versus where you were pre-COVID, or is there more to do there potentially?

Daniel Jackson: Hey, Jasper. It is Dan. The Capella margin, probably not surprisingly, is much higher than Strayer and is driving most of the operating income for U.S. Higher Education. Strayer has a positive margin. It is just a fraction right now of Capella. And for expenses at Strayer, though we are pretty close to right-sizing them, there are still opportunities when it comes to some of the productivity work that Karl referenced and continued real estate rationalization. So I think the Strayer margin will improve, but it is unlikely to get to where Capella is.

Jasper Bibb: Got it. And then, there was a slight decline in revenue per student in the U.S. in the first quarter. In the context of revenue bottoming in the first quarter, or the expectation there, how are you thinking about revenue per student in the U.S. over the balance of the year?

Daniel Jackson: Yes. So first off, we are expecting relatively stable revenue per student for the full year. The first quarter was lower due to higher scholarships and discounts and lower classes per student, both year-over-year and sequentially from the fourth quarter. And that variability is driven by program and degree mix, the mix of corporate students, and the mix of some of our unaffiliated student groups that are eligible for scholarships. Again, it is hard to predict those, but with pricing that takes effect starting in the second quarter, we think the full-year revenue per student is still likely to be flat, so it will offset some of these other trends. And one other note on that because the sequential issue was also exacerbated by our fourth quarter 2025 revenue per student being significantly higher due to a significant decline in scholarships and discounts that quarter compared to the fourth quarter 2024. So that was a little bit of an anomaly.

Jasper Bibb: Makes sense. Thank you. And then for Education Technology, it seems like your growth rate for Sophia stayed pretty high, but the Workforce Edge growth rate has slowed a bit. I know you are starting to lap your large retail partner that you were ramping last year. Anything else we should consider for how each of those two businesses are going to perform in 2026 and the relative growth rates there?

Karl McDonnell: Well, you have to remember, Sophia is pretty big now, so it would not surprise me if the growth rate moderates some, although our expectation is that we should be able to continue to support 20% plus growth at Sophia. You are right, we are anniversarying a big retail client in Workforce Edge, so there could be slightly less growth there, but remember, one of the big benefits of Workforce Edge is enrollments into Strayer and Capella. And as I said in my prepared remarks, we had over 4 thousand of those students in the first quarter. We expect that number will continue to grow. We have a very robust pipeline of new clients coming into Workforce Edge. We continue to get unsolicited inbound RFPs every quarter. So the way that we think about ETS is that we basically have two market-leading businesses there.

Sophia is the market leader on alternative credit pathways. Workforce Edge is knocking on the door—Sophia the market leader on education benefit management. They are both great businesses. We continue to invest heavily in them, and we expect that they will continue to grow significantly both in the near term and the long term.

Jasper Bibb: Got it. Thank you for taking the questions.

Karl McDonnell: Sure. Thank you.

Operator: I am not showing any further questions at this time. I will now turn the call back to Karl for any further remarks.

Karl McDonnell: Thank you, ladies and gentlemen, and we look forward to discussing our second quarter results next quarter.

Operator: Thank you, ladies and gentlemen. This does conclude today’s presentation. You may now disconnect, and have a wonderful day.

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