Strategic Education, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations is a supplement to and should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2024. Cautionary Notice Regarding Forward-Looking Statements Certain of the statements included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report on Form 10-Q are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 (“Reform Act”). Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” “potential” or similar words, and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, and capital expenditures. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements. The assumptions, risks and uncertainties include the pace of student enrollment; our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as other federal laws and regulations, institutional accreditation standards and state regulatory requirements, legislation and other actions by the U.S. Congress, actions by the current administration, rulemaking and other action by the U.S. Department of Education or other governmental entities, including without limitation action related to Title IV programs, U.S. Department of Education staffing levels, borrower defense to repayment applications, gainful employment or similar measures, 90/10, increased focus by governmental entities on for-profit education institutions, and including actions by governmental entities in Australia and New Zealand; competitive factors; risks associated with the opening of new campuses; risks associated with the offering of new educational programs and adapting to other changes; risks associated with the acquisition of existing educational institutions including our acquisition of Torrens University and associated assets in Australia and New Zealand; the risk that the benefits of our acquisition of Torrens University and associated assets in Australia and New Zealand may not be fully realized or may take longer to realize than expected; the risk that our acquisition of Torrens University and associated assets in Australia and New Zealand may not advance our business strategy and growth strategy; risks related to the timing of regulatory approvals; our ability to implement our growth strategy; the risk that the combined company may experience difficulty integrating employees or operations; risks associated with the ability of our students to finance their education in a timely manner; and general economic and market conditions. You should not put undue reliance on any forward-looking statements. Further information about these and other relevant risks and uncertainties may be found in Part II, “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, Part I, “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K and in the Company’s other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise forward-looking statements, except as required by law. Additional Information We maintain a website at http://www.strategiceducation.com. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only. We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Background Strategic Education, Inc. (“SEI,” “we,” “us,” “our,” or “the Company”) is an education services company that provides access to high-quality education through campus-based and online post-secondary education offerings, as well as through programs to develop job-ready skills for high-demand markets. We operate through our wholly-owned subsidiaries Capella University and Strayer University, both accredited post-secondary institutions of higher education located in the United States, and Torrens University, an accredited post-secondary institution of higher education located in Australia. Our operations also include the Education Technology Services segment, which primarily develops and maintains relationships with employers to build education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs, including through Workforce Edge, a full-service education benefits administration solution for employers, and Sophia Learning, which offers low-cost online general education-level courses. 30 Table of Contents Segments Overview As of September 30, 2025, we had the following reportable segments: U.S. Higher Education (“USHE”) Segment • The USHE segment provides flexible and affordable certificate and degree programs to working adults primarily through Capella University and Strayer University, including the Jack Welch Management Institute MBA, which is a unit of Strayer University. USHE also operates non-degree web and mobile application development courses through Hackbright Academy and Devmountain, which are units of Strayer University. • Capella University is accredited by the Higher Learning Commission and Strayer University is accredited by the Middle States Commission on Higher Education, both higher education institutional accrediting agencies recognized by the U.S. Department of Education. The USHE segment provides academic offerings both online and in physical classrooms, helping working adult students develop specific competencies they can apply in their workplace. • In the third quarter of 2025, USHE enrollment decreased 1.0% to 85,640 compared to 86,533 for the same period in 2024. • Trailing 4-quarter student persistence within USHE was 87.8% in the second quarter of 2025 compared to 87.0% for the same period in 2024. Student persistence is calculated as the rate of students continuing from one quarter to the next, adjusted for graduates, on a trailing 4-quarter basis. Student persistence is reported one quarter in arrears. The table below summarizes USHE trailing 4-quarter student persistence for the past 8 quarters. Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 87.4 % 87.0 % 86.9 % 87.0 % 86.9 % 87.2 % 87.4 % 87.8 % • Trailing 4-quarter government provided grants and loans per credit earned within USHE decreased 7.1% as of the end of the second quarter of 2025. Government provided grants and loans per credit earned includes all federal loans and grants for students (Title IV hereafter) in our USHE institutions, and is calculated on a trailing 4-quarter basis and reported one quarter in arrears. Title IV per credit earned has been declining as employer-affiliated enrollment has grown, and as more students earn credit through Sophia Learning and other affordable alternative pathways. The table below summarizes the percentage change in USHE trailing 4-quarter Title IV per credit earned for the past 8 quarters. Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 (8.3) % (7.4) % (5.0) % (3.8) % (2.5) % (4.7) % (6.2) % (7.1) % Education Technology Services (“ETS”) Segment • Our ETS segment primarily develops and maintains relationships with employers to build education benefits programs that provide employees access to affordable and industry-relevant training, certificate, and degree programs. The employer relationships developed by the ETS segment are an important source of student enrollment for Capella University and Strayer University, and a significant portion of the revenue attributed to the ETS segment is driven by the volume of enrollment derived from these employer relationships. Enrollments attributed to the ETS segment are determined based on a student’s employment status and the existence of a corporate partnership arrangement with SEI. All enrollments attributed to the ETS segment continue to be attributed to the segment until the student graduates or withdraws, even if his or her employment status changes or if the partnership contract expires. • In the third quarter of 2025, employer affiliated enrollment as a percentage of USHE enrollment was 32.7% compared to 29.8% for the same period in 2024. • ETS also supports employer partners through Workforce Edge, a platform which provides employers a full-service education benefits administration solution, and Sophia Learning, which offers low-cost online general education-level courses recommended by the American Council on Education for credit at other colleges and universities. Australia/New Zealand (“ANZ”) Segment • Torrens University is the only investor-funded university in Australia. Torrens University offers undergraduate, graduate, higher degree by research, and specialized degree courses primarily in five fields of study: business, design and creative technology, health, hospitality, and education. Courses are offered both online and at physical campuses. Torrens University is registered with the Tertiary Education Quality and Standards Agency (“TEQSA”), the regulator for higher 31 Table of Contents education providers and universities throughout Australia, as an Australian University that is authorized to self-accredit its courses. • Think Education is a vocational registered training organization and accredited higher education provider in Australia. Think Education delivers education services at several campuses in Sydney, Melbourne, Brisbane, and Adelaide as well as through online study. Think Education and its colleges are accredited in Australia by the TEQSA and the Australian Skills Quality Authority, the regulator for vocational education and training organizations that operate in Australia. • Media Design School at Strayer (“MDS”) is a private tertiary institution for creative and technology qualifications in New Zealand. MDS offers industry-endorsed courses in 3D animation and visual effects, game art, game programming, graphic and motion design, digital media, artificial intelligence, and creative advertising. MDS is accredited in New Zealand by the New Zealand Qualifications Authority (“NZQA”), the organization responsible for the quality assurance of non-university tertiary training providers. On September 8, 2025, MDS became a wholly owned subsidiary and international additional location of Strayer University included within Strayer’s Middle States Commission on Higher Education accreditation. NZQA approved the transaction and MDS will continue to operate as a New Zealand private tertiary institution. This change does not affect our segment reporting. • In the third quarter of 2025, Australia/New Zealand enrollment decreased 2.1% to 18,808 compared to 19,205 for the same period in 2024. We believe we have the right operating strategies in place to provide the most direct path between learning and employment for our students. We are constantly innovating to differentiate ourselves in our markets and drive growth by supporting student success, producing affordable degrees, optimizing our comprehensive marketing strategy, serving a broader set of our students’ professional needs, and establishing new growth platforms. The talent of our faculty and employees, supported by market leading technology, enable these strategies. We believe our strategy will allow us to continue to deliver high quality, affordable education, resulting in continued growth over the long-term. We will continue to invest in this strategy to strengthen the foundation and future of our business. Critical Accounting Policies and Estimates “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and judgments related to its allowance for credit losses; income tax provisions; the useful lives of property and equipment; redemption rates for scholarship programs and valuation of contract liabilities; fair value of right-of-use lease assets for facilities that have been vacated; incremental borrowing rates; valuation of deferred tax assets, goodwill, and intangible assets; forfeiture rates and achievability of performance targets for stock-based compensation plans; and accrued expenses. Management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly reviews its estimates and judgments for reasonableness and may modify them in the future. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements. Revenue recognition — Capella University and Strayer University offer educational programs primarily on a quarter system having four academic terms, which generally coincide with our quarterly financial reporting periods. Torrens University offers the majority of its education programs on a trimester system having three primary academic terms, which all occur within the calendar year. Approximately 94% of our revenues during the nine months ended September 30, 2025 consisted of tuition revenue. Capella University offers monthly start options for new students, who then transition to a quarterly schedule. Capella University also offers its FlexPath program, which allows students to determine their 12-week billing session schedule after they complete their first course. Tuition revenue for all students is recognized ratably over the period of instruction as the universities provide academic services, whether delivered in person at a physical campus or online. Tuition revenue is shown net of any refunds, withdrawals, discounts, and scholarships. The universities also derive revenue from other sources such as textbook-related income, certificate revenue, certain academic fees, licensing revenue, accommodation revenue, and food and beverage fees, which are all recognized when earned. In accordance with Accounting Standards Codification 606, Revenue Recognition , materials provided to students in connection with their enrollment in a course are recognized as revenue when control of those materials transfers to the student. At the start of each academic term or program, a contract liability is recorded for academic 32 Table of Contents services to be provided, and a tuition receivable is recorded for the portion of the tuition not paid in advance. Any cash received prior to the start of an academic term or program is recorded as a contract liability. Students at Capella University and Strayer University finance their education in a variety of ways, and historically a majority of our students have participated in one or more financial aid programs provided through Title IV of the Higher Education Act. In addition, many of our working adult students finance their own education or receive full or partial tuition reimbursement from their employers. Those students who are veterans or active duty military personnel have access to various additional government-funded educational benefit programs. In Australia, domestic students may finance their education themselves or by taking a loan through the national Higher Education Loan Program provided by the Australian government to support higher education. In New Zealand, domestic students may utilize government loans to fund tuition and may be eligible for a period of “fees free” study funded by the government. International students are not eligible for funding from the Australian or New Zealand governments. A typical class is offered in weekly increments over a six- to twelve-week period, depending on the university and course type, and is followed by an exam. Student attendance is based on physical presence in class for on-ground classes. For online classes, attendance consists of logging into one’s course shell and performing an academically-related activity (e.g., engaging in a discussion post or taking a quiz). If a student withdraws from a course prior to completion, a portion of the tuition may be refundable depending on when the withdrawal occurs. We use the student’s withdrawal date or last date of attendance for this purpose. Our specific refund policies vary across the universities and non-degree programs. For students attending Capella University, our refund policy varies based on course format. GuidedPath students are allowed a 100% refund through the first five days of the course, a 75% refund from six to twelve days, and 0% refund for the remainder of the period. FlexPath students receive a 100% refund through the 12th calendar day of the course for their first billing session only and a 0% refund after that date and for all subsequent billing sessions. For students attending Strayer University, our refund policy typically permits students who complete less than half of a course to receive a partial refund of tuition for that course. For domestic students attending an ANZ institution, refunds are typically provided to students that withdraw within the first 20% of a course term. For international students attending an ANZ institution, refunds are provided to students that withdraw prior to the course commencement date. In limited circumstances, refunds to students attending an ANZ institution may be granted after these cut-offs subject to an application for special consideration by the student and approval of that application by the institution. Refunds reduce the tuition revenue that otherwise would have been recognized for that student. Since the academic terms coincide with our financial reporting periods for most programs, nearly all refunds are processed and recorded in the same quarter as the corresponding revenue. For certain programs where courses may overlap a quarter-end date, we estimate a refund or withdrawal rate and do not recognize the related revenue until the uncertainty related to the refund is resolved. The portion of tuition revenue refundable to students may vary based on the student’s state of residence. For U.S. students who receive funding under Title IV and withdraw, funds are subject to return provisions as defined by the Department of Education. The university is responsible for returning Title IV funds to the Department and then may seek payment from the withdrawn student of prorated tuition or other amounts charged to him or her. Loss of financial aid eligibility during an academic term is rare and would normally coincide with the student’s withdrawal from the institution. In Australia and New Zealand, government funding for eligible students is provided directly to the institution on an estimated basis annually. The amount of government funding provided is based on a course-by-course forecast of enrollments that the institution submits for the upcoming calendar year. Using the enrollment forecast provided as well as the requesting institution’s historical enrollment trends, the government approves a fixed amount, which is then funded to the institution evenly on a monthly basis. Periodic reconciliation and true-ups are undertaken between the relevant government authority and the institution based on actual eligible enrollments, which may result in a net amount being due to or from the government. Students at Strayer University registering in credit-bearing courses in any undergraduate program qualify for the Learn and Earn Scholarship (formerly known as the Graduation Fund), whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. Students must meet all of Strayer University’s admission requirements and not be eligible for any previously offered scholarship program. To maintain eligibility, students must be enrolled in a bachelor’s degree program. Students who have more than one consecutive term of non-attendance lose any Learn and Earn Scholarship credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by Strayer University in the future. In their final academic year, qualifying students will receive one free course for every three courses that the student successfully completed in prior years. The Company defers the value of the related performance obligation associated with the free credits estimated to be redeemed in the future based on the underlying revenue transactions that result in progress by the student toward earning the benefit. The estimated value of awards under the Learn and Earn Scholarship that will be recognized in the future is based on historical experience of students’ persistence in completing their 33 Table of Contents course of study and earning a degree and the tuition rate in effect at the time it was associated with the transaction. Estimated redemption rates of eligible students vary based on their term of enrollment. As of September 30, 2025, we had deferred $37.7 million for estimated redemptions earned under the Learn and Earn Scholarship, as compared to $37.1 million at December 31, 2024. Each quarter, we assess our assumptions underlying our estimates for persistence and estimated redemptions based on actual experience. To date, any adjustments to our estimates have not been material. However, if actual persistence or redemption rates change, adjustments to the reserve may be necessary and could be material. Tuition receivable — We record estimates for our allowance for credit losses related to tuition receivable from students primarily based on our historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of recoveries. Our experience is that payment of outstanding balances is influenced by whether the student returns to the institution, as we require students to make payment arrangements for their outstanding balances prior to enrollment. Therefore, we monitor outstanding tuition receivable balances through subsequent terms, increasing the reserve on such balances over time as the likelihood of returning to the institution diminishes and our historical experience indicates collection is less likely. We periodically assess our methodologies for estimating credit losses in consideration of actual experience. If the financial condition of our students were to deteriorate based on current or expected future events resulting in evidence of impairment of their ability to make required payments for tuition payable to us, additional allowances or write-offs may be required. For the third quarter of 2025, our bad debt expense was 4.7% of revenue compared to 4.5% for the same period in 2024. A change in our allowance for credit losses of 1% of gross tuition receivable as of September 30, 2025 would have changed our income from operations by approximately $1.6 million. Goodwill and intangible assets — Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. Indefinite-lived intangible assets, which include trade names, are recorded at fair market value on their acquisition date. At the time of acquisition, goodwill and indefinite-lived intangible assets are allocated to reporting units. Management identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management regularly reviews the operating results of those components. Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment. No events or circumstances occurred in the three and nine months ended September 30, 2025 to indicate an impairment to goodwill or indefinite-lived intangible assets. Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three and nine months ended September 30, 2025. In the second quarter of 2024, the Australian government introduced proposed legislation seeking to limit the number of international students enrolled at Australian institutions. Due to the potential adverse financial impacts of the proposed regulations, in 2024 we performed a quantitative impairment assessment for goodwill assigned to the ANZ reporting unit and for the ANZ indefinite-lived intangible assets as of October 1, 2024. We determined the fair value of the ANZ reporting unit and the ANZ trade name using an income-based approach, which consisted of a discounted cash flow model that included projections of future revenues and cash flows. Based on the results of our quantitative impairment assessment, we concluded that the fair value of the ANZ reporting unit exceeded carrying value by approximately 17% and the fair value of the ANZ indefinite-lived intangible assets exceeded carrying value by approximately 14%. For the third quarter of 2025, student enrollment within ANZ decreased 2.1% to 18,808 compared to 19,205 for the same period in 2024, largely due to constraints on international enrollment. Lower international enrollment was partially offset by growth in domestic enrollment, which is expected to be a bigger driver of future growth. If the regulatory constraints on international students continue permanently and are not offset by growth in domestic enrollment, the goodwill and indefinite-lived intangible assets associated with the ANZ reporting unit could become impaired in the future. As of September 30, 2025, the ANZ reporting unit had $505.0 million of goodwill and $64.3 million of indefinite-lived intangible assets. We believe the fair value of the ANZ reporting unit remains in excess of carrying value and that the fair value of indefinite-lived intangible assets remains in excess of carrying value as of September 30, 2025. Management will continue to assess goodwill and indefinite-lived intangible assets for impairment in future quarters. Other estimates — We record estimates for income tax liabilities and estimate the useful lives of our property and equipment. We also periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary. Should actual results differ from our estimates, revisions to the carrying amount of property and equipment and intangible assets, stock-based compensation expense, and income tax liabilities may be required. Results of Operations In the third quarter of 2025, we generated $319.9 million in revenue compared to $306.0 million for the same period in 2024. Our income from operations was $37.0 million in the third quarter of 2025 compared to $36.3 million for the same period in 2024, primarily driven by higher revenue in our USHE and ETS segments, partially offset by higher restructuring costs. Net income in 34 Table of Contents the third quarter of 2025 was $26.6 million compared to $27.7 million for the same period in 2024, and diluted earnings per share was $1.15 in the third quarter of 2025 compared to $1.15 for the same period in 2024. For the nine months ended September 30, 2025, we generated $945.0 million in revenue compared to $908.5 million for the same period in 2024. Our income from operations was $122.6 million for the nine months ended September 30, 2025 compared to $119.6 million for the same period in 2024, primarily driven by higher revenue in our USHE and ETS segments, partially offset by higher operating expenses and restructuring costs. Net income was $88.7 million for the nine months ended September 30, 2025 compared to $87.3 million for the same period in 2024, and diluted earnings per share was $3.76 for the nine months ended September 30, 2025 compared to $3.62 for the same period in 2024. Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024 Revenues. Consolidated revenue increased 4.6% to $319.9 million in the third quarter of 2025 compared to $306.0 million in the third quarter of 2024, primarily due to higher revenue in our ETS segment, which was driven by an increase in Workforce Edge revenue from new employer partnerships and growth in Sophia Learning subscriptions, and higher revenue in our USHE segment due to higher revenue per student, partially offset by lower revenue in our ANZ segment primarily due to unfavorable foreign currency exchange impacts and a decrease in enrollment. In the USHE segment for the three months ended September 30, 2025, total enrollment decreased 1.0% to 85,640 from 86,533 for the same period in 2024. USHE segment revenue increased 2.6% to $213.1 million in the third quarter of 2025 compared to $207.7 million in the third quarter of 2024, primarily due to higher revenue per student. In the Australia/New Zealand segment for the three months ended September 30, 2025, total enrollment decreased 2.1% to 18,808 from 19,205 for the same period in 2024. Australia/New Zealand segment revenue decreased 4.7% to $68.6 million in the third quarter of 2025 compared to $71.9 million in the third quarter of 2024, primarily due to unfavorable foreign currency exchange impacts and a decrease in enrollment. ETS segment revenue increased 45.6% to $38.3 million in the third quarter of 2025 compared to $26.3 million in the third quarter of 2024, primarily due to an increase in Workforce Edge revenue from new employer partnerships, growth in Sophia Learning subscriptions, and higher employer affiliated enrollment. Instructional and support costs. Consolidated instructional and support costs were $162.7 million in the third quarter of 2025 compared to $162.7 million in the third quarter of 2024. Higher technology-related costs and bad debt expense in the third quarter of 2025 compared to the third quarter of 2024 were offset by lower personnel-related costs and facility expenses and favorable foreign currency exchange impacts. Consolidated instructional and support costs as a percentage of revenues decreased to 50.9% in the third quarter of 2025 from 53.2% in the third quarter of 2024. General and administration expenses . Consolidated general and administration expenses decreased to $105.9 million in the third quarter of 2025 compared to $106.2 million in the third quarter of 2024, principally due to lower stock-based compensation expense and depreciation expense and favorable foreign currency exchange impacts, partially offset by increased investments in branding initiatives and higher personnel-related costs. Consolidated general and administration expenses as a percentage of revenues decreased to 33.1% in the third quarter of 2025 from 34.7% in the third quarter of 2024. Restructuring costs . Restructuring costs increased to $14.3 million in the third quarter of 2025 compared to $0.8 million in the third quarter of 2024, primarily due to a $7.7 million increase in severance and other personnel-related expenses related to employee terminations, a $5.4 million increase in asset impairment charges, and a $0.3 million loss related to assets classified as held for sale in the third quarter of 2025. Income from operations . Consolidated income from operations increased to $37.0 million in the third quarter of 2025 compared to $36.3 million in the third quarter of 2024, primarily due to higher revenue in our USHE and ETS segments, partially offset by higher restructuring costs. USHE segment income from operations increased 99.7% to $22.9 million in the third quarter of 2025 compared to $11.4 million in the third quarter of 2024, primarily driven by lower personnel-related costs, depreciation expense, facility expenses, and stock-based compensation expense, partially offset by higher bad debt expense and technology-related costs. Australia/New Zealand segment income from operations decreased 15.9% to $12.5 million in the third quarter of 2025 compared to $14.8 million in the third quarter of 2024, primarily driven by lower revenue and higher technology-related costs, partially offset by decreased investments in branding initiatives and lower stock-based compensation expense. ETS segment income from operations increased 47.8% to $16.0 million in the third quarter of 2025 compared to $10.8 million in the third quarter of 2024, primarily due to higher revenue as a result of an increase in Workforce Edge revenue from new employer partnerships, growth in Sophia Learning subscriptions, and higher employer affiliated enrollment, partially offset by higher personnel-related costs and increased investments in branding initiatives. Other income (expense). Other income (expense) decreased to $0.3 million of expense in the third quarter of 2025 compared to $2.3 million of income in the third quarter of 2024, primarily due to a $1.5 million decrease in investment income primarily related to our limited partnership investments and a $1.4 million decrease in interest income, partially offset by a $0.4 million decrease in interest expense. We incurred $0.3 million of interest expense in the three months ended September 30, 2025 compared to $0.7 million in the three months ended September 30, 2024. 35 Table of Contents Provision for income taxes. Income tax expense was $10.1 million in the third quarter of 2025 compared to $10.8 million in the third quarter of 2024. Our effective tax rate for the third quarter of 2025 was 27.6% compared to 28.1% in the third quarter of 2024. Net income. Net income decreased to $26.6 million in the third quarter of 2025 compared to $27.7 million in 2024 due to the factors discussed above. Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024 Revenues. Consolidated revenue increased to $945.0 million in the nine months ended September 30, 2025 compared to $908.5 million in the same period in 2024, primarily due to higher revenue in our ETS segment, which was driven by an increase in Workforce Edge revenue from new employer partnerships and growth in Sophia Learning subscriptions. USHE segment revenue increased 1.0% to $649.7 million in the nine months ended September 30, 2025 compared to $643.6 million in the same period in 2024, primarily due to higher revenue per student. Australia/New Zealand segment revenue decreased 2.3% to $186.0 million in the nine months ended September 30, 2025 compared to $190.5 million in the same period in 2024, primarily due to unfavorable foreign currency exchange impacts and a decrease in enrollment, partially offset by higher revenue per student. ETS segment revenue increased 46.8% to $109.3 million in the nine months ended September 30, 2025 compared to $74.5 million in the same period in 2024, primarily due to an increase in Workforce Edge revenue from new employer partnerships, growth in Sophia Learning subscriptions, and higher employer affiliated enrollment. Instructional and support costs. Consolidated instructional and support costs increased to $487.2 million in the nine months ended September 30, 2025 compared to $483.6 million in the same period in 2024, principally due to higher technology-related costs, personnel-related costs, bad debt expense, depreciation expense, and stock-based compensation expense, partially offset by lower student material costs and facility expenses and favorable foreign currency exchange impacts. Consolidated instructional and support costs as a percentage of revenues decreased to 51.6% in the nine months ended September 30, 2025 from 53.2% in the nine months ended September 30, 2024. General and administration expenses . Consolidated general and administration expenses increased to $316.3 million in the nine months ended September 30, 2025 compared to $308.0 million in the same period in 2024, principally due to increased investments in branding initiatives and partnerships with brand ambassadors, higher personnel-related costs, and higher facility expenses, partially offset by lower stock-based compensation expense and depreciation expense and favorable foreign currency exchange impacts. Consolidated general and administration expenses as a percentage of revenues decreased to 33.5% in the nine months ended September 30, 2025 from 33.9% in the nine months ended September 30, 2024. Restructuring costs . Restructuring costs increased to $18.9 million in the nine months ended September 30, 2025 compared to a $2.8 million net benefit in the nine months ended September 30, 2024, primarily due to a $9.0 million increase in severance and other personnel-related expenses related to employee terminations, a $6.2 million increase in asset impairment charges, a $6.2 million gain related to the early termination of operating leases in 2024, and a $0.3 million loss related to assets classified as held for sale in the third quarter of 2025. Income from operations . Consolidated income from operations increased to $122.6 million in the nine months ended September 30, 2025 compared to $119.6 million in the same period in 2024, primarily driven by higher revenue in our USHE and ETS segments, partially offset by higher operating expenses and restructuring costs. USHE segment income from operations increased 24.1% to $73.6 million in the nine months ended September 30, 2025 compared to $59.3 million in the same period in 2024, primarily driven by higher revenue and lower personnel-related costs, student material costs, depreciation expense, and facility expenses, partially offset by higher technology-related costs, bad debt expense, and investments in branding initiatives. Australia/New Zealand segment income from operations decreased 13.2% to $23.1 million in the nine months ended September 30, 2025 compared to $26.7 million in the same period in 2024, primarily driven by lower revenue and higher personnel-related costs and technology-related costs, partially offset by lower stock-based compensation expense. ETS segment income from operations increased 45.0% to $44.8 million in the nine months ended September 30, 2025 compared to $30.9 million in the same period in 2024, primarily due to higher revenue as a result of an increase in Workforce Edge revenue from new employer partnerships, growth in Sophia Learning subscriptions, and higher employer affiliated enrollment, partially offset by higher personnel-related costs and increased investments in branding initiatives. Other income. Other income decreased to $1.6 million in the nine months ended September 30, 2025 compared to $3.9 million in the same period in 2024, primarily due to a $3.2 million decrease in interest income and a $1.6 million decrease in investment income primarily related to our limited partnership investments, partially offset by a $2.6 million decrease in interest expense. We incurred $0.8 million of interest expense in the nine months ended September 30, 2025 compared to $3.4 million in the same period in 2024. 36 Table of Contents Provision for income taxes. Income tax expense was $35.5 million and $36.2 million in the nine months ended September 30, 2025 and 2024, respectively. Income tax expense for the nine months ended September 30, 2025 and 2024 include windfall tax impacts of approximately $0.4 million and shortfall tax impacts of approximately $1.2 million, respectively, related to share-based payment arrangements. Net income. Net income increased to $88.7 million in the nine months ended September 30, 2025 compared to $87.3 million in the same period in 2024 due to the factors discussed above. Non-GAAP Financial Measures We use certain financial measures including Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share that are not required by or prepared in accordance with GAAP. These measures, which are considered “non-GAAP financial measures” under SEC rules, are defined by us to exclude the following: • severance costs, asset impairment charges, gains/losses on sale of real estate and early termination of leased facilities, and other costs associated with our restructuring activities; • income/loss from partnership and other investments that are not part of our core operations; and • discrete tax adjustments related to stock-based compensation and other adjustments. To illustrate currency impacts to operating results, Revenue, Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share for the three and nine months ended September 30, 2025 are also presented on a constant currency basis. When considered together with GAAP financial results, we believe these measures provide management and investors with an additional understanding of our business and operating results, including underlying trends associated with our ongoing operations. Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable with other similarly titled measures of other companies. Non-GAAP financial measures may be considered in addition to, but not as a substitute for or superior to, GAAP results. A reconciliation of these measures to the most directly comparable GAAP measures is provided below. Adjusted income from operations was $51.3 million in the third quarter of 2025 compared to $37.1 million for the same period in 2024. Adjusted net income was $37.7 million in the third quarter of 2025 compared to $27.9 million for the same period in 2024, and adjusted diluted earnings per share was $1.63 in the third quarter of 2025 compared to $1.16 for the same period in 2024. Adjusted income from operations was $141.5 million for the nine months ended September 30, 2025 compared to $116.8 million for the same period in 2024. Adjusted net income was $104.8 million for the nine months ended September 30, 2025 compared to $86.9 million for the same period in 2024, and adjusted diluted earnings per share was $4.44 for the nine months ended September 30, 2025 compared to $3.60 for the same period in 2024. 37 Table of Contents The tables below reconcile our reported results of operations to adjusted results: Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2025 (in thousands, except per share data) Non-GAAP Adjustments As Reported (GAAP) Restructuring costs (1) Loss from other investments (2) Tax adjustments (3) As Adjusted (Non-GAAP) Total costs and expenses $ 282,907 $ (14,251) $ — $ — $ 268,656 Income from operations $ 37,042 $ 14,251 $ — $ — $ 51,293 Operating margin 11.6% 16.0% Income before income taxes $ 36,769 $ 14,251 $ 2,147 $ — $ 53,167 Net income $ 26,630 $ 14,251 $ 2,147 $ (5,279) $ 37,749 Diluted earnings per share $ 1.15 $ 1.63 Weighted average diluted shares outstanding 23,209 23,209 Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2024 (in thousands, except per share data) Non-GAAP Adjustments As Reported (GAAP) Restructuring costs (1) Loss from other investments (2) Tax adjustments (3) As Adjusted (Non-GAAP) Total costs and expenses $ 269,632 $ (758) $ — $ — $ 268,874 Income from operations $ 36,326 $ 758 $ — $ — $ 37,084 Operating margin 11.9% 12.1% Income before income taxes $ 38,590 $ 758 $ 290 $ — $ 39,638 Net income $ 27,748 $ 758 $ 290 $ (851) $ 27,945 Diluted earnings per share $ 1.15 $ 1.16 Weighted average diluted shares outstanding 24,173 24,173 38 Table of Contents Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2025 (in thousands, except per share data) Non-GAAP Adjustments As Reported (GAAP) Restructuring costs (1) Loss from other investments (2) Tax adjustments (3) As Adjusted (Non-GAAP) Total costs and expenses $ 822,414 $ (18,948) $ — $ — $ 803,466 Income from operations $ 122,596 $ 18,948 $ — $ — $ 141,544 Operating margin 13.0% 15.0% Income before income taxes $ 124,219 $ 18,948 $ 4,410 $ — $ 147,577 Net income $ 88,705 $ 18,948 $ 4,410 $ (7,283) $ 104,780 Diluted earnings per share $ 3.76 $ 4.44 Weighted average diluted shares outstanding 23,597 23,597 Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2024 (in thousands, except per share data) Non-GAAP Adjustments As Reported (GAAP) Restructuring costs (1) Loss from other investments (2) Tax adjustments (3) As Adjusted (Non-GAAP) Total costs and expenses $ 788,868 $ 2,757 $ — $ — $ 791,625 Income from operations $ 119,606 $ (2,757) $ — $ — $ 116,849 Operating margin 13.2% 12.9% Income before income taxes $ 123,541 $ (2,757) $ 2,467 $ — $ 123,251 Net income $ 87,348 $ (2,757) $ 2,467 $ (166) $ 86,892 Diluted earnings per share $ 3.62 $ 3.60 Weighted average diluted shares outstanding 24,137 24,137 _________________________________________________________________________________________ (1) Reflects severance costs, asset impairment charges, gains/losses on sale of real estate and early termination of leased facilities, and other costs associated with the Company’s restructuring activities. (2) Reflects income/loss recognized from the Company’s investments in partnership interests and other investments. (3) Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 29.0% for the three and nine months ended September 30, 2025 and 29.5% for the three and nine months ended September 30, 2024. 39 Table of Contents The tables below reconcile our reported results of operations to adjusted results of operations on a constant currency basis: Reconciliation of Reported to Adjusted Results of Operations on a Constant Currency Basis for the three months ended September 30, 2025 (in thousands, except per share data): As Reported (GAAP) Non-GAAP adjustments (1) Constant currency adjustment (2) As Adjusted with Constant Currency (Non-GAAP) Revenues $ 319,949 $ — $ 1,722 $ 321,671 Total costs and expenses $ 282,907 $ (14,251) $ 1,323 $ 269,979 Income from operations $ 37,042 $ 14,251 $ 399 $ 51,692 Operating margin 11.6% 16.1% Income before income taxes $ 36,769 $ 16,398 $ 411 $ 53,578 Net income $ 26,630 $ 11,119 $ 291 $ 38,040 Earnings per share: Diluted $ 1.15 $ 1.64 Weighted average shares outstanding: Diluted 23,209 23,209 Reconciliation of Reported to Adjusted Results of Operations on a Constant Currency Basis for the nine months ended September 30, 2025 (in thousands, except per share data): As Reported (GAAP) Non-GAAP adjustments (1) Constant currency adjustment (2) As Adjusted with Constant Currency (Non-GAAP) Revenues $ 945,010 $ — $ 5,948 $ 950,958 Total costs and expenses $ 822,414 $ (18,948) $ 5,150 $ 808,616 Income from operations $ 122,596 $ 18,948 $ 798 $ 142,342 Operating margin 13.0% 15.0% Income before income taxes $ 124,219 $ 23,358 $ 856 $ 148,433 Net income $ 88,705 $ 16,075 $ 607 $ 105,387 Earnings per share: Diluted $ 3.76 $ 4.47 Weighted average shares outstanding: Diluted 23,597 23,597 _________________________________________________________________________________________ (1) Reflects non-GAAP adjustments related to restructuring costs, income/loss from other investments, and tax adjustments as described further in the Reconciliation of Reported to Adjusted Results of Operations table above. (2) Reflects an adjustment to translate foreign currency after the non-GAAP adjustments for the three and nine months ended September 30, 2025 at a constant exchange rate of 0.67 and 0.66 Australian Dollars to U.S. Dollars, which were the average exchange rates for the same periods in 2024. Liquidity and Capital Resources At September 30, 2025, we had cash, cash equivalents, and marketable securities of $182.6 million compared to $199.0 million at December 31, 2024 and $222.1 million at September 30, 2024. We maintain our cash and cash equivalents primarily in money market funds and demand deposit bank accounts at high credit quality financial institutions, which are included in cash and cash equivalents at September 30, 2025 and 2024. We also hold marketable securities, which primarily include corporate debt securities, U.S. treasury securities with maturities greater than three months, and term deposits. During the nine months ended September 30, 2025 and 2024, we earned interest income of $6.5 million and $9.7 million, respectively. We are party to a credit facility (the “Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $250 million. The Amended Credit Facility provides us with an option, subject to obtaining additional loan commitments and satisfaction of certain conditions, to increase the 40 Table of Contents commitments under the Revolving Credit Facility or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) the greater of (A) $300 million and (B) 100% of the Company’s consolidated EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation) calculated on a trailing four-quarter basis and on a pro forma basis, and (y) if such Incremental Facility is incurred in connection with a permitted acquisition or other permitted investment, any amounts so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00. In addition, the Amended Credit Facility provides for a subfacility for borrowings in certain foreign currencies in an amount equal to the U.S. dollar equivalent of $150 million. Borrowings under the Revolving Credit Facility bear interest at a per annum rate equal to Term SOFR or a base rate, plus a margin ranging from 1.50% to 2.00%, depending on our leverage ratio. An unused commitment fee ranging from 0.20% to 0.30% per annum, depending on our leverage ratio, accrues on unused amounts. We were in compliance with all applicable covenants related to the Amended Credit Facility as of September 30, 2025. We had no borrowings outstanding under the Revolving Credit Facility as of September 30, 2025 and September 30, 2024. During the nine months ended September 30, 2025 and 2024, we paid $0.4 million and $3.1 million, respectively, of interest and unused commitment fees related to our Revolving Credit Facility. Our net cash provided by operating activities for the nine months ended September 30, 2025 increased to $159.0 million, compared to $153.4 million for the same period in 2024. The increase in net cash from operating activities was primarily driven by higher earnings and non-cash adjustments, partially offset by unfavorable changes in working capital. Our net cash used in investing activities for the nine months ended September 30, 2025 decreased to $0.5 million, compared to $15.2 million for the same period in 2024. The decrease in net cash used in investing activities was primarily driven by a $28.0 million increase in cash proceeds from marketable securities and other investments, partially offset by a $11.1 million increase in purchases of marketable securities and a $2.7 million increase in capital expenditures. Capital expenditures increased to $32.0 million for the nine months ended September 30, 2025, compared to $29.3 million for the same period in 2024, primarily due to the timing of capital projects. Our net cash used in financing activities for the nine months ended September 30, 2025 increased to $147.4 million, compared to $114.1 million for the same period in 2024. The increase in net cash used in financing activities was primarily driven by a $89.3 million increase in share repurchases and a $6.2 million increase in net payments for employee stock awards, partially offset by a $61.3 million long-term debt payment during the nine months ended September 30, 2024 and a $0.9 million decrease in cash dividend payments. The Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock in the first three quarters of 2025. During the nine months ended September 30, 2025, we paid a total of $43.4 million in cash dividends on our common stock, compared to $44.3 million for the same period in 2024. During the nine months ended September 30, 2025, we paid $94.3 million to repurchase shares of common stock in the open market under our repurchase program, compared to $5.0 million for the same period in 2024. As of September 30, 2025, we had $134.2 million remaining in share repurchase authorization to use through December 31, 2025. For the third quarter of 2025 and 2024, bad debt expense as a percentage of revenue was 4.7% and 4.5%, respectively. Our recurring cash requirements consist primarily of general operating expenses, capital expenditures, discretionary dividend payments, income tax payments, and contractual obligations related to our lease agreements, limited partnership investments, and Revolving Credit Facility. We believe that the combination of our existing cash, cash equivalents, and marketable securities, cash generated from operating activities, and if necessary, cash available under our Amended Credit Facility will be sufficient to meet our cash requirements for the next 12 months and beyond.