Strategic Education, Inc. Stock

Welcome to Strategic Education's Second Quarter 2026 Results Conference Call.

I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Ms. Wilke, please go ahead.

Thank you. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss second 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 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 our 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. SEI's second quarter financial results, which we released this morning demonstrate continued significant strength in our ETS division, increased momentum in U.S. Higher Education and meaningful progress in returning our Australia business to growth in 2027. Before I go through the results themselves, I just want to remind everyone that I'm referring to our adjusted financial results and from a constant currency standpoint.

SEI's second quarter revenue increased approximately 3% from the prior year to $330 million. Our operating expenses increased by approximately 1.5% from the prior year, but this is inclusive of a onetime charge related to a labor matter in Australia dating back to the close of the transaction in 2020 and which I will comment on when we discuss the Australia segment's results momentarily. Excluding this nonrecurring expense, our operating expenses would have been $265 million, or a reduction of 3% from the prior year.

Operating income was $53 million for the quarter, a 9% increase from the prior year, and our operating margin for the quarter was 16%, a 90 basis point improvement from the prior year. Again, excluding the onetime Australian charge of $13 million, operating income would have increased by 35%, and our operating margin would have been 20%. Adjusted earnings per share were $1.76, a 16% increase from the prior year. Year-to-date cash flow from operations increased 18% from the prior year to $117 million. So overall, it was a very solid quarter financially.

And now turning to our segments. Our Education Technology Services division grew revenue 15% to $42 million and operating income by 30% to $20 million, while operating margin increased to 46.2%, an increase of 520 basis points. Sophia Learning total average subscribers grew 32% and revenue increased by 27% to $21 million. Workforce Edge ended the quarter with 81 corporate agreements covering 4 million employees and enrollments from Workforce Edge into either Strayer or Capella University grew 21% to roughly 4,000 students.

We were proud to recently announce that Workforce Edge was selected as winner of the Professional Development Solution Provider of the Year Award in the eighth annual EdTech Breakthrough Awards program that recognizes top companies and solutions in the global education technology market. ETS now represents nearly 40% of SEI's consolidated income from operations.

Turning now to U.S. Higher Education. Employer-affiliated enrollment grew 8% and reached a new all-time high of 35% of total U.S. Higher Education enrollment, an increase of nearly 300 basis points from the prior year. Health care enrollment, which again is a key component of our employer strategy, grew 11% and now represents 52% of all U.S. Higher Education enrollment. As part of our health care expansion strategy, I'm pleased to announce that during the second quarter, Capella University launched a BSN Prelicensure program, which enrolled its first cohort this month. U.S. Higher Education revenue increased 2% in the quarter, driven by higher revenue per student and lower scholarships and discounts.

Our productivity initiatives continue to enable very effective cost control with operating expenses down 3% from the prior year. U.S. Higher Education operating income increased 56% from the year to $32 million, and the operating margin increased by 500 basis points to 10% from -- I'm sorry, up from 10% last year to 15% this year. U.S. Higher Education student retention increased last quarter to 89%, representing an all-time high for this metric.

Turning now to Australia and New Zealand. Total enrollment declined 5% in the second quarter and revenue decreased just under 3% to $67 million. Operating income was $1 million in the quarter, but this is net of the $13 million charge we took to create a reserve related to an ongoing labor matter dating back to the close of the transaction in 2020. At issue is whether grading time should be included in our casual faculty contracts or should that portion of the work be compensated separately. Our view, which is the view that has been in place at Torrens since its inception and, therefore, was in place when we closed the transaction, is that grading is part of teaching the course and therefore, should be included in our casual faculty contracts. Casual faculty is the equivalent to adjunct faculty here in the U.S.

The Australian Fair Work Ombudsman, assisting a former Torrens instructor, challenged this view in court, and the court sided with us, ruling in favor of our interpretation. Later, the Australian Appeals Court overturned this ruling, making a determination that grading time should be compensated separately. We have appealed this ruling to the Australian High Court and have created a reserve to compensate faculty members affected by this ruling should our appeal not be heard by the High Court or should the High Court affirm the appellate court's ruling. Independent of the High Court's ruling, we have already made modifications to our instructional model such that we do not anticipate any increases in our instructional expense as a result of this change. We continue to be encouraged by domestic student growth in Australia and are making investments in new programs and potential campus additions to further grow the domestic student population.

And just a note on capital allocation. In addition to our regular quarterly dividend, we repurchased approximately 421,000 shares during the quarter for a total of $33 million. As of the end of the second quarter, we have approximately $141 million remaining on our share repurchase authorization through the end of this year. And as always, I'd like to thank all of my colleagues here at SEI for their ongoing commitment to our students and our employer partners.

And with that, Kevin, we'd be happy to take questions.

[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets.

I wanted to first start with the U.S. Higher Education division. You pointed out your health care enrollment, which has been really strong. But I guess if we back out the non-health care enrollment, that has been shrinking for a while. I know there's been others in the industry that have talked about students searching using LLMs that may have some inherent bias against the for-profit sector. I'm wondering, are you seeing any of that? Is that the reason for those declines? And if so, are you doing anything about that?

Jeff, first of all, I would describe our overall demand environment as being stable to pretty good. Our student acquisition rates are flat and in some cases, down. So we're pretty pleased with that. We do have marketing teams that are working through various strategies to ensure that both Strayer and Capella Universities are favorably returned through LLM searches, which, of course, is an ongoing and longer-term issue. But to answer your specific questions about search being impacted or inquiries being impacted by LLM, that's not something that we've identified as being an issue.

So is there any specific reason why you're seeing those declines?

It's not so much declines as it is for us that we're leaning heavily into our strategy of employer health care. And from a marketing standpoint, on the Strayer side, unaffiliated enrollment hasn't been a priority for us. And non-health care, we're happy to have those programs grow, but it's not really a part of our marketing strategy at this point.

Okay. I understand. Let me switch over to ETS. And again, I'll focus on Sophia. We've seen some negative press regarding how students have been using AI to complete some of those courses. And I think you've added what I saw quoted as quality-enhancing initiatives to offset this. Can you tell us a little bit about what you're doing? Is that why we've seen growth slow a bit in Sophia?

We're really pleased with Sophia's growth. You're getting into the law of large numbers now. It's one thing to grow 30-plus percent when you're a $20 million business to be able to maintain that at an $80 million business, I think, is pretty strong. And we take academic integrity and quality of assessments very seriously across the entire portfolio, not just at Sophia.

And in fact, independent of the article that you're referencing, the Sophia management team was already working to put enhancements into our academic integrity controls. That's something that we will continue to focus on. And it will be a priority for the investments that we make in the Sophia platform through the balance of this year into next year.

[Operator Instructions] Our next question comes from Alex Paris with Barrington Research.

Congrats on the strong quarter versus expectations, which was really a lot stronger considering you didn't add back the Australia charge to adjusted results, which I would have thought that you would have. But on an apples-to-apples basis, it was -- not only it was revenue better than expected, but so were earnings. Just a couple of follow-up questions on U.S. Higher Ed and then ANZ. First off, on U.S. Higher Ed, the enrollment was in line or better than expected. Employer affiliated was up 8.6%. Unaffiliated was still down, but there was a sequential improvement. My question is really about revenue per student, which was up 2.8% by my math year-over-year despite growth in employer affiliated. And I think, Karl, you noted that you had lower scholarships and discounts. Any color you can provide us there?

Alex, it's Dan. You nailed it. It was primarily related to lower scholarships, but also higher classes per student. And as we've said in the past, and that's both at U.S. Higher Ed and Australia and New Zealand. And as we've said in the past, both those metrics can be variable from quarter-to-quarter. So for the full year, we continue to expect roughly flat revenue per student.

You want to talk about the charge not being adjusted?

Yes. And Alex, on your comment on the charge, our practice when we adjust out expenses is to only adjust out expenses that we believe are both onetime and will not be part of the cost base moving forward. Assuming an unfavorable outcome from this appeal process, which is what the accounting is based on, we will technically have grading costs in our cost base moving forward. But to Karl's earlier point, we've already got a plan to mitigate any incremental -- significant incremental expense related to it. So -- but it's still technically part of our cost base.

I know it's difficult to predict, but when would you expect to hear back from the Australia High Court on your appeal?

We expect we will hear whether or not they intend to take the case probably in September, early October.

Okay. So we should have an update on the next call. And then regarding Australia/New Zealand, enrollment was a little bit below expectations, my estimate, in fact, at consensus, I know you don't guide on that number. Revenue per student was up sharply and then up 8.4% by my math. Why is that? Is that a domestic versus international trade-off?

Yes, it is. The mix shift -- shifting more towards domestic from international. We continue to have, I would describe as very healthy domestic new student growth approaching double digits. That's been the case for the past year plus. The international, particularly the onshore transfer market internationally is just much more challenged, combined with the fact that for whatever reason, the Australian government has slowed visa approvals even below what would be required to get an institution to their cap. That could change between now and the end of the year, but we'll have to wait and see.

So the strong growth in domestic so far hasn't been enough to offset the declines that we have in international. But as long as that domestic market continues to grow as healthy as it is, we expect to be growing in the first part of next year.

That's great. So despite raising the cap, the Australian -- on higher education in Australia, including Torrens, they're slow-rolling the visa approvals?

Yes. Yes. So we were -- we reached our cap last year. The cap was raised by 3% roughly. At the current rate, we'd be under our cap. Last year, in the second half of the year, we saw an acceleration of visa approvals. So that pattern could repeat this year, in which case we do a little bit better. But so far, for whatever reason, the processing time of visas, even in countries where you have high density of genuine students, and that's an Australian government term, it's just much slower for some reason.

Great. That's helpful. Last quick question. On the last call, you were asked about the notional model as it applies to 2026. And you said, while revenue could or will be below that notional model this year, that you're very committed to 200 bps of adjusted operating income margin improvement. Did you foresee the $13.7 million charge? Or is that included in that optimism of hitting that 200 bps for the year? Or would the 200 bps be -- the 200 bps plus the haircut by the $13.7 million charge?

Yes. Well, just remember that when we describe our notional model, it's a notional model over a 5-year period, and it could be up and down in any one given year. But to my comments in the first quarter, just given what we're seeing in Australia primarily, I think it's possible, if not probable, that for the full year, we'd be a little bit under that notional model on revenue. I'm very confident that we will outperform the notional model's, 200 basis points of EBIT margin expansion, potentially even including the $13 million FWO charge.

And if you exclude it, most definitely, we would -- and to answer your question, no, it's not something that we saw coming. We've been following the court cases, obviously. And when we won the initial ruling, we were confident that, that was going to prevail through the appellate process, and, for whatever reason, it didn't. And so now we're just waiting for the High Court to make their ruling, and we'll adjust our instructional strategy once we hear from them.

Our next question comes from Jasper Bibb with Truist Securities.

I wanted to maybe follow up on the customer acquisition topic Jeff raised earlier. I'm not sure how much detail you can give here, but could you share, I guess, the mix of how you're reaching students in the U.S. today, maybe kind of general breakdown between employer channel, paid search, referrals, brand marketing, things like that?

I mean, I don't have that level of granularity, Jasper, with me. But just big picture, we said that about 4,000 students are coming to us through Workforce Edge. That's a completely proprietary channel of new students for us. There's almost no acquisition cost for those. That's more than 1/3 of our total student population in the U.S. and growing. So we expect to continue to be advantaged there.

Just broadly speaking, and you could follow up with Dan after the call, if he can give specifics. But broadly speaking, roughly half of our advertising, our marketing budget is spent on brand-building activities. And we want both Capella and Strayer to be top of mind for prospective students who might be searching for whatever degree that they might be interested in. And then the other half is a mixture of traditional paid search, could be out-of-home, just kind of the traditional advertising channels. And that, as far as I know, for the last at least 2 years, it has been relatively stable as a mix of dollars. And I think, generally speaking, the mix of students follows closely to the mix of dollars.

Right. That all makes sense. I know you don't guide formally, but I was just wondering maybe if you have any more detail on the cadence of revenue in the next 2 quarters. Last call, I think you mentioned 1Q would be the bottom for year-over-year revenue growth through the year. On a constant currency basis, do you think revenue growth continues to improve into the back half of the year? And I guess, what would be the drivers of any expectations for the back half of '26?

I mean, obviously, we'll have to wait and see. I feel good about the comment you're referencing that last quarter would be the low point in terms of revenue growth. There's some seasonality in the back half of the year. As I just said, when answering Alex's questions, the Australian government is slower than what they have been. So I can't predict visa approvals and so forth. But over -- between now and a year from now, I'm very confident that revenue growth will revert to the mean of roughly 5%, which is the anchor of our notional model. And as I also just said, I'm more than confident in the 200 basis point EBIT margin expansion over this year and next year. And so that's how I think about the notional model relative to both '26 and '27.

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

Great. Thank you, everybody, for participating today, and we look forward to talking with you again next quarter.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Welcome to Strategic Education'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. Ms. Wilke, please go ahead.

Thank you. Hello, everyone, and welcome to Strategic Education'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 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 our 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. Our first quarter results reflect meaningful progress across 3 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, SEI 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 University grew 70%, reaching nearly 4,000 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. Health care, which is a key component of our employer strategy, also grew 10%, and health care 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 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've noted before, reflects the normal seasonality of that business.

On capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 493,000 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'd like to thank all of my colleagues here at SEI for their ongoing commitment to our students and our employer partners.

And with that, Kevin, we'd be happy to take questions.

[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets.

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've always talked about getting back to your notional plan. Any idea in terms of the timing of that, when we might see that?

Sure. Well, we have partial visibility into the next quarter, obviously. And I'd 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'm talking about our performance against the notional plan, I'm predominantly referring to EBIT and EPS. And from that lens, I have very high confidence that we're 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's possible. But as I say, I'm very confident that we're going to be there from an EBIT and EPS standpoint.

Okay. That's great to hear. If I could just move on to a regulatory issue. Effective July 1, we've got some new rules coming from the One Big Beautiful Bill Act, specifically the caps on graduate and professional loans. I know you don't have as much exposure there, especially on the professional side. But I'm just curious if you've seen any impact. Are students maybe a little bit reluctant because they're unsure about the funding environment? Any color you can provide would be great.

Yes. I've not heard of any demand-related issues or pressures as a result of grad loan limits changing. We're still waiting on final language to see exactly how that's going to be shaped. But I don't expect that we're going to have a major impact from changes to the grad loan limits.

[Operator Instructions] Our next question comes from Alex Paris with Barrington Research.

I just had a follow-up on that last one. The notional plan, Karl, you said you had confidence -- high confidence in EBIT and EPS. From the notional plan, can you just refresh my memory, it calls for 4% to 6% revenue growth and 200 basis points of adjusted operating margin improvement. You said it might be a little less revenue, a little bit more cost reduction. But what are you referring to? Are you referring to the 200 basis points of adjusted operating income improvement?

Yes, specifically. And the reason I say that is, obviously, we control our expenses. I'd say that the AI and other technological enablements of productivity are being implemented a little faster than even I expected. So I think it's going to have a slightly bigger impact this year than I otherwise would have expected.

And I don't know what 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're going to get to the 200 basis points of margin expansion, and that will translate into whatever growth rate it is on EPS.

Got you. 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?

Specifically, we've had, I'd say, a little better than what we've 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're not trying to grow unaffiliated enrollment. But it has been improving.

So I'd say, Alex, it's a mix of Capella doing better than what we expected and Strayer beginning to improve from lower levels that we had last year.

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

Yes. Well, it's a combination of a couple of things that have been really playing out over the last couple of years. The first is we've 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 Ed, 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's happened as a result of that is Capella has just been a much stronger grower. And as such, we've been supporting Capella's growth with increased investments in marketing. And because we haven't necessarily increased the aggregate amount in U.S. Higher Ed, that means that we've been marketing a lot less at Strayer, which is predominantly the channel for unaffiliated enrollment.

And in fact, Dan could give you maybe a more precise number, but if you go back 2 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's feeding the strategy that we're trying to execute, which is employer focused, health care focused. In some quarters, Capella's mix of employer-affiliated enrollments is over 50%.

So it's a direct enablement of our strategy. We're happy to have unaffiliated enrollments. We're not trying to exclude them. It's just not where we're investing our growth capital. We're investing our growth capital in the employer channel, health care and ETS in the States. And that's how it's playing out and that's how we plan for it to be executed for the rest of this year and moving forward in '27.

Got you. And given the improving trends in U.S. Higher Education enrollment, the sequential improvement, the slowing rate or the declining rate of decline, do you think we'll get to growth by the end of the year in U.S. Higher Education enrollment?

I think it'd be very close. I think we have a good chance to do that. I can't predict, obviously, but I think that's entirely possible.

Great. And then the last question and kind of similarly, ANZ segment. Given the 3% increase in the international caps expected in 2026 and the strength that you're 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?

It's going to be close. I do -- I'm hopeful, I should say, that we're 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 didn't foresee is that the Australian government has begun to slow down visa approvals even when you're below your cap. That's 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's 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 didn't happen last year. It happened in the first quarter; I don't know if it's 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.

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

Yes. And we continue to have pretty strong domestic enrollment growth. And I'd have to go back and look, but I think 3 out of the 4 quarters last year, we had it, the last 3. And we also saw that in the first quarter.

Our next question comes from Jasper Bibb with Truist.

Underneath the U.S. margin performance this quarter, can you compare where the operating margins for Capella and Strayer sit at this point? Is there a big difference there? And with the shift in growth investments from Strayer to Capella that you talked about, do you think you've kind of fully rightsized your fixed costs for what's become a smaller business on the Strayer side versus where you were pre-COVID? Or is there more to do there potentially?

Jasper, it's Dan. The Capella margin, probably not surprising, is much higher than Strayer and is driving most of the operating income for U.S. Higher Ed. Strayer is -- has a positive margin; it's just a fraction right now of Capella.

And the expenses for Strayer, though we're pretty close to rightsizing them, there's 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's unlikely to get to where Capella is.

Got it. And then there's a slight decline in revenue per student in the U.S. in the first quarter. I guess 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?

Yes. So first off, we're 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, we -- it's 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.

Makes sense.

And one other note, Jasper, on that, the sequential issue was also exacerbated by our fourth quarter '25 revenue per student was significantly higher due to a significant decline in scholarships and discounts that quarter compared to the fourth quarter of '24. So that was a little bit of an anomaly.

Makes sense. And then for Education Technology, it seems like the growth rate for Sophia stayed pretty high, but the Workforce Edge growth rate has slowed a bit. I know you're starting to lap your large retail partner that you were ramping last year. Anything else we should consider for how each of those 2 businesses are going to perform in '26 and the relative growth rates there?

Well, you got to remember, Sophia is pretty big now. So it would not surprise me if the growth rate moderates some, although our expectations is that we should be able to continue to support 20-plus percent growth at Sophia.

You're right, we're anniversarying a big retail client in Workforce Edge, so there could be slightly less growth there. But remember, the big -- or 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 4,000 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 2 market-leading businesses there. Sophia is the market leader on alternative credit pathways. Workforce Edge is knocking on the door of being the market leader on education benefit management. They're both great businesses. We continue to invest heavily in them. And we expect that they'll continue to grow significantly both in the near term and the long term.

And I'm not showing any further questions at this time. I'd like to turn the call back to Karl for any further remarks.

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

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Welcome to the Strategic Education Fourth Quarter 2025 Results Conference Call. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education.

Ms. Wilke, 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 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 to be filed, the most recent 10-Q 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 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%. Earnings per share was $1.75, which was an increase of 38%. For the full year 2025, our revenue increased 4% and our operating income increased 25%, generating 260 basis points of operating margin expansion to 15.5%. 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 our Education Technology Services segment, which grew revenue by more than 40% to nearly $150 million. And notwithstanding our continued strong investment in ETS, which included a 44% increase in expenses, ETS' operating income increased 38% to $59 million, generating an operating margin of 40%. ETS' share of SEI's operating income grew to roughly 1/3 of consolidated operating income in 2025, reflecting progress with our higher-margin technology and services business.

Sophia 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 6% for the quarter and ended the year at an all-time high of 33.5% of total U.S. higher education enrollment. Employer-affiliated mix of new students in U.S. Higher Education was 40%.

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 Australia/New Zealand segment's 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. ANZ'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 6% for the quarter and were flat for the full year. This resulted in a 16% increase in fourth quarter operating income at ANZ and an operating margin of 19%, a 290 basis point improvement.

Next, regarding capital allocation in 2025. We generated $247 million in pretax 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.

[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets.

I want to focus first on the enrollment trends in U.S. Higher Education. I know you don't give specific guidance, but 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 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?

Sure. 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. We have an overall productivity effort that has 3 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 adviser can have a greater scope. That would be 1 of the 3. The second is anything that we can do to enhance revenue. And the third would be student outcomes and assessment. And all 3 are quite robust.

Dan here, our CFO, leads the productivity efforts, and he can give you a couple of examples.

Yes. Jeff, 2 more tangible examples. One, 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, admissions officers know how to prioritize those inquiries.

Those are 2 areas. There's quite a few more that we're working on that by the end of the year, we'll have rolled out. We'll have more to say as we go along each quarter.

Our next question comes from Alex Paris with Barrington Research.

Just a 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 to kind of stem that -- 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 then 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 in lieu of formal guidance, that calls for a revenue CAGR of 4% to 6% and AOI margins, adjusted operating income margins, increasing 200 bps per year. Did you say that, that is a good proxy for 2026?

Yes.

Okay. And then the makeup of that could be a little different, right? When you put these targets out in 2023, you were looking for enrollment growth in U.S. Higher Education of 4% to 6% and ANZ enrollment growth of 6% to 8%. 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 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 I'm confident in the notional model that we laid out in 2023.

Got you. And then last question, a follow-up on ANZ. You said that you expect to return to total enrollment growth before the end of the year, which implies new student growth now, right, because there's a lag between term-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 students' ability to transfer -- international students' ability to transfer from one domestic institution to another once in country.

Yes. 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 will be a portion of growth. There's been one change. This is not new. We've known this is coming, where there will be a ban on paying agent fees for any onshore transfers. Transfers can still happen. We expect them to still happen. 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.

Our next question comes from Jasper Bibb with Truist Securities.

Maybe just following up on some earlier questions. I'd imagine a lot of that unaffiliated non-healthcare exposure in the U.S. business is at Strayer. So with that, could 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 cutting you announced? I guess, would you consider for downsizing the campus count there as your leases come up?

I'd say over the last 2 years, just as more of our marketing dollars have been focused on healthcare and Capella, both of which have been doing well, we've steadily been, as leases come up, taking advantage of those lease expiries 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.

And then maybe circling back to the notional model in '26. In the context of the cost cutting, is there any way to frame how much of that you're going to let drop to the bottom line versus reinvesting in growth and marketing?

Jeff, this is Dan. Our notional model, which contemplates a couple of hundred basis points of expansion per year on a 5-year basis, that assumes some amount of productivity benefit. So as Karl mentioned earlier, we invested or reinvested some of the savings this year and some of it contributed to some margin outperformance. So from year-to-year, it will just depend on how much we see opportunity to reinvest first and then support the margin. That's in the notional model. In some cases, we may see some outperformance.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Karl 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. This does conclude today's presentation. You may now disconnect, and have a wonderful day.

Welcome to Strategic Education's Third Quarter 2025 Results Conference Call. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Mrs. Wilke, please go ahead.

Thank you. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss third 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 pleased with our third quarter results, especially the sustained strength in our Education Technology and Services segment, supported by strong growth at Sophia and Workforce Edge.

On an adjusted constant currency basis, SEI's revenue rose 5% from the previous year. We continue to advance our efforts to leverage technology, resulting in operating expense growth of less than 1%, operating income growth of 39% and a 400 basis point margin expansion.

We did incur restructuring costs in the third quarter related to our ongoing productivity initiatives, which accounted for most of the difference between our GAAP and our adjusted results in the third quarter. Adjusted earnings were $1.64 compared to $1.16 from the prior year, an increase of 41%.

Turning now to our segments. Our Education Technology Services division generated continued strong growth during the quarter with revenue and operating income increasing by 46% and 48% from the prior year to $38 million and $16 million, respectively. And notwithstanding our continued strong investment in ETS, which included a 44% increase in expenses, ETS' operating margin increased slightly on a year-over-year basis to 41.7%.

Sophia Learning, our direct-to-consumer portal that offers high-quality college-level courses and has increasingly become a key component of many of our strategic corporate partnerships, grew both average and total subscribers and revenue by 42%, driven by strong growth in both consumer and employer-affiliated subscribers.

ETS' share of SEI's operating income continues to grow and now represents 1/3 of consolidated operating income, reflecting progress with our employer-focused strategy.

U.S. Higher Education total enrollment decreased slightly from the prior year, but was more than offset by higher revenue per student driven by fewer drops, less discounting and students taking more courses on average. This resulted in revenue growth of 3% from the prior year.

Employer-affiliated enrollment once again remained strong, increasing approximately 8% from the prior year and now represents 33% of all U.S. Higher Education enrollment, an increase of 290 basis points from the prior year.

In addition to the strength in our employer affiliate enrollment, U.S. Higher Education's health care portfolio generated strong total enrollment growth of 7% from the prior year. Health care is a critical part of our portfolio, representing half of all U.S. Higher Education enrollments and almost 40% of enrollment from employer partners.

Recently, we commissioned a survey in partnership with The Harris Poll, which highlights the ongoing burnout facing the health care workforce and the projected shortfall of clinical health care workers. This research emphasizes the importance of investing in employees' growth and making continuous education a key part of strategies to retain talent. Full survey results can be found on our website at strategiceducation.com.

U.S. Higher Education operating expenses decreased by $6 million from the prior year or a reduction of 3%. As a result, U.S. Higher Education operating income almost doubled from the prior year to $23 million, and its operating margin increased 520 basis points.

Turning now to our Australia and New Zealand segment. ANZ's third quarter total enrollment decreased 2% from the prior year, driven by the continued regulatory restrictions on international student enrollment. Using constant currency, revenue decreased 2% to $70 million and operating income decreased from $15 million in the prior year to $13 million this year.

Notwithstanding the decline in total international enrollment, we are encouraged by the continued progress with domestic enrollment growth and recent guidance from the Australian government that our international caps will increase 3% in 2026.

Finally, regarding capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 429,000 shares during the quarter for a total of $34 million. As of the end of the third quarter, we have repurchased over 1.1 million shares for $94 million, leaving us with $134 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 SEI for their ongoing commitment and support to our students and our employer partners.

And with that, Shue, we'd be happy to take questions.

[Operator Instructions] And our first question will come from the line of Jasper Bibb with Truist Securities.

I wanted to ask two on U.S. to start. I guess, first, what drove the healthy revenue per student gain in the quarter? And what should we expect on a revenue per student basis over the next few quarters? And then second, a lot better margin than we anticipated in the U.S., too. Just hoping to get a bit more detail on the expense reductions there.

Jasper, it's Dan. On the revenue per student, Karl mentioned lower drops and higher seats per student. It was also some lower discounts, and I think we'll see some benefit from that through the balance of the year. So there'll be some upside on revenue per student at U.S. Higher Ed.

And on margins, Jasper, we've said before, we're in the midst of a pretty aggressive productivity initiative that's designed to essentially remake our entire expense base. We've got -- through technology and artificial intelligence notably, we've got six different categories that touch all parts of the organization. Our expectation is that we'll probably be able to save upwards of $100 million in operating expenses by the end of '27.

Okay. No, that's great. Could you maybe frame where you're at on that journey to $100 million in annual operating expenses? And is that only coming out of the U.S. business or that's company-wide?

It's company-wide. In my prepared remarks, I referenced the restructuring that we completed at the end of the second quarter, beginning of the third quarter. On a run rate basis, that equated to probably $30 million of expense reduction. So I'd say there's another $70 million or so over the next 2.5 years. Some of that, we're going to reinvest as growth capital to continue to support the various businesses and some of it will show up as increased margin.

Okay. That's great. For U.S., could you maybe frame the relative growth rates for Strayer and Capella at this point? And can you talk about how you're managing each of those businesses in the context of trying to get back to mid-single-digit enrollment growth at the segment level? It sounds like you might already be at mid-single digit for Capella and Strayer is declining. Is that accurate?

I'd say that Capella has been stronger. The weakness that we've seen at Strayer is primarily attributable, as it has been in prior cycles, to a reduction in non-affiliated students, but it's also a function of just, frankly, more efficient marketing dollars at Capella. So we don't necessarily -- we're not fixated on spending a set amount at both Strayer and Capella.

We tell the U.S. Higher Education management team, solve for whatever is going to result in the overall highest growth for U.S. Higher Education as a division. And over the last 18 months or so, that's been much more effective at Capella. So we've worked to grow Capella at a higher rate of growth than Strayer, and we're seeing that in the performance that's playing out.

And then I wanted to ask about Australia/New Zealand, encouraging news on the international student caps. Are you still expecting that business to return to total enrollment growth in 2026?

Total enrollment growth, I would like for it to return in 2026. Definitely new student growth in 2026 when we anniversary the caps. It generally takes 4 to 6 quarters of new student growth to overcome any declines you've had over the preceding 4 to 6 quarters. So getting to total enrollment growth by the end of '26 would be a little bit of a stretch goal, but I would definitely expect new student growth beginning in the first part of '26.

Okay. Got it. Maybe I misremembered the comment from the last call. Last one for me. As you see it today, do you think the '26 for the company level would align with the notional framework you outlined a few years ago at the Investor Day?

Yes. We are very anchored on our notional model. Nothing that I see now at either the revenue line or the expense line, which we obviously control, leads me to believe that we won't be able to hit the targets that we laid out at our Investor Day.

[Operator Instructions] Our next question will come from the line of Jeff Silber with BMO Capital Markets.

I wanted to start with Australia/New Zealand. I know many folks on the line don't necessarily follow what's going on, on a daily basis. Can you just remind us exactly what has happened, what the changes were compared to what we thought might have happened a few months ago?

Well, the change is -- the change from when we bought it is that the Australian government has put in place hard enrollment caps for international students. And in our case, that resulted in a reduction of approximately 30% from what we had when there were no caps. And international students historically at Torrens represented about half of any new student cohort that we had.

The change that we didn't further anticipate that happened at the beginning of this year is the government went further and put much more tighter controls and restrictions on the ability of an international student who already has a Visa and who is already in Australia from transferring to another institution, which frankly was the source of most of the growth that we had at Torrens because it's a very common practice in Australia for universities to charge a pretty significant tuition premium for international students.

And we at Torrens effectively have tuition parity between international and domestic students. So there was a strong incentive for students to enroll at Torrens because they were going to save a significant amount of money. The change is that we, Torrens, have to essentially vet any transfer student the same way you would as somebody coming in offshore when they're just applying for Visa.

So you have to vet things like the amount of finances that they have onshore, you have to vet their ability to return back to their country and their willingness to return back to their country when they're done with the studies. It's a significant headwind. And the product of that headwind is that far fewer students are transferring.

But regardless whether it's the offshore students coming in for the first time or the international transfer students, we're going to anniversary these caps mid-'26. We've seen pretty strong domestic new student enrollment growth throughout '25.

So when I was answering Jasper's question, I expect that we'll be growing new students in 2026. And hopefully, that will translate into total enrollment growth by the end of '26. But by the time we fully anniversary these restrictions heading into '27, we expect that business to be growing.

Okay. That's really helpful. I appreciate it. Why don't I move back to U.S. Higher Education, and I appreciate you guys calling out your health care exposure. Can you just remind us -- I know there seems to be some concern on the street between what they call pre-licensure and post-licensure programs. Can you just remind us of the exposure in those two boxes?

We are not in the pre-licensure field in nursing. We are in the post-licensure with the RN to BSN program, and that's a FlexPath program, which is the largest program at Capella. And we've seen, I'd say, a little softness in that program. They are in the BSN throughout 2025. But we further believe that we're advantaged because that's also our largest program from an employer-affiliated enrollment standpoint. And as I've said in my prepared remarks, that part of our business remains strong.

Okay. Great. And just one more. I know also there's some concern on the government shutdown, specifically those companies that might have exposure to military and veteran students. Can you talk about any potential impact you've seen and what you think the impact might be going forward?

Yes. To my knowledge, we haven't seen any impact. And when I think about our largest clients like CVS Health or Best Buy or Dollar General, they're not really impacted by the government shutdown per se. So as of yet, Jeff, we haven't seen any adverse impact.

Jeff, this is Dan. We have very few direct military students. So the exposure there is really insignificant.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Karl McDonnell for any closing remarks.

Thank you, everyone, and we look forward to joining you in February to discuss our fourth quarter and full year results.

This concludes today's program. Thank you all for participating. You may now disconnect.