Strategic Education, Inc.

Second quarter 2021 results conference call. I will now turn the call over to Therese Wilke, Director of Investor Relations for Strategic Education. Mrs. Wilke, please go ahead.

Thank you. Good morning, everyone, and welcome to Strategic Education's conference call in which we will discuss second quarter 2021 results. With us today are Robert Silberman, Executive Chairman, Carl McDonald, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties, and risks that Strategic Education has identified in today's press release that could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Strategic Education's most recent annual report on Form 10-K, 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 Carl. Carl, please go ahead.

Thank you, Therese, and good morning, everyone. Our second quarter financial results that we released this morning were basically right in line with our expectations. And this morning I'd like to cover a few highlights from our results and then open the call up for your questions, as Therese just said. And first, I'd like to begin with our Australia-New Zealand segment, which generated $74 million of revenue and $16 million of operating income in the second quarter. The integration of Torrens University, Think Education, and the Media Design School onto SEI's infrastructure is mostly complete, and we expect the last component of that integration to be complete by the middle of August, well ahead of our original plan, which was the end of the year. At the beginning of this year, we assumed that the Australian borders would reopen to foreign travel, including international students, by this time of the year, essentially the third quarter. However, it now appears that borders will remain closed through at least spring of 2022, which we expect could have a moderately negative impact on this year's revenue. Notwithstanding this, we still believe ANZ's EBITDA will be essentially at their plan of $60 million U.S., And next, I'd like to provide a few updates on our alternative learning segment, which again includes Sophia Learning, Workforce Edge, which again is our education benefits management platform for employers, and our employer solutions team. For the second quarter, alternative learning's direct revenue increased 52 percent from the prior year to $13 million. Their operating income increased 24 percent to $5.2 million. and the reduction in their operating margin was the result of continued accelerated investments in new products and services to support their continued growth. Sophia Learning continues to perform exceptionally well and is now generating more than $1 million of subscription-based revenue each month and is on track to generate $15 million this year, which is up more than 300% from the 12 months preceding the pandemic. Also, Workforce Edge continues to gain good traction in the marketplace. And since launching Workforce Edge roughly five months ago, we've already signed 20 corporate agreements which collectively employ more than 415,000 employees. This compares to our internal goal of 250,000 total employees for the full year. Based on this strong traction, we expect to have more than 750,000 total employees to be on the Workforce Edge platform by the end of the year. Turning now to our U.S. higher education segment, I thought it would be useful to talk specifically about both of our U.S.-based universities, beginning with Capella. Capella University had a great second quarter and an incredibly strong first half of the year. Year to date, Capella's total enrollment has grown 6% from the prior year, and its continuation rate has increased 50 basis points. Total FlexPath enrollments have increased 36% so far in 2021, and now comprise 35% of total enrollments, which is up 700 basis points from the prior year. Employer-affiliated enrollments at Capella have increased 18% year to date. Turning now to Strayer University, where we continue to focus on reversing their enrollment declines and returning the university to positive enrollment growth following more than a year of COVID-related lockdowns. Strayer's spring term, or second quarter enrollment, was in line with our expectations. And Strayer's summer academic enrollment, which ultimately will inform our third quarter financial results, continued to improve and was sequentially better than the second quarter, albeit at a level that was below what we had expected. As a result of this, as well as the extended border closures in Australia, SEI's full-year 2021 financial results could be at the bottom or low end of the indicative outlook we provided during our last earnings call. However, we are continuing to focus on reversing Strayer's enrollment declines by working to resume normal operating practices as quickly and safely as we can. We have already reopened 30 of Strayer's 65 campuses with plans to open all remaining campuses no later than October 1st. We have added additional resources to Strayer's advising and coaching functions, as well as our employer solutions team, which has also resumed in-person meetings with our network of corporate partners. We have also added additional operating managers to assist our campus in the resumption of their activities supporting and enrolling students. And since the end of our summer enrollment period, we've seen strong increases in several leading indicators, such as inquiries into the university, as well as applications for new enrollment, both of which are now positive on a year-over-year basis. And course success, the strongest predictor of long-term retention and defined as the percentage of students who complete a course and earn academic credit, was positive on a year-over-year basis in both the first and second quarter, which should aid us in the back half of the year. We remain very confident that these steps, along with others, will return Strayer University to positive enrollment growth And Strayer remains a strong institution with a rich 129-year history of serving working adults and which has weathered other periods of declining enrollment before returning to solid growth. Across all of our institutions, we remain committed to providing the highest quality education that we can and working to help our graduates earn a substantive return on their educational investments. And finally, before opening the call up for questions, SEI continues to have substantial liquidity of nearly $300 million of cash and marketable securities and has generated $125 million in cash from operations in the first six months of 2021, representing a 13% increase over the prior year. And I would like to once again extend my thanks to all of my colleagues within SEI for their ongoing commitment to serving our students. And with that, Danny, we would be happy to open the call for questions.