Strategic Education, Inc.

We'll now turn the call over to Therese Wilke, Director of Investor Relations for Strategic Education. Ms. Wilke, please go ahead.

Thank you. Good morning, everyone, and welcome to Strategic Education's conference call, in which we will discuss fourth 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 provision 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 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 Carl. Carl, please go ahead.

Thank you, Therese, and good morning, everyone. This morning we released our fourth quarter and full year 2021 results, and I'm not planning to go through those results in detail since everything's in the release. Instead, I'd like to provide our owners with key updates on all of our segments, beginning with our largest segment, U.S. Higher Education. First, Capella University had a very strong year in 2021. In the year, Capella conferred more than 15,000 degrees, which was an 11% increase than any prior year. Employer-affiliated enrollments now comprise 30% of all Capella enrollments, with healthcare being the strongest sector. FlexPath continues to be a significant source of growth, and FlexPath enrollments now represent 18% of all U.S. higher education enrollments, which is up 300 basis points from the prior year. In 2021, we made substantial progress improving the enrollment results at Strayer University. The bulk of Strayer campuses have reopened, and there is more inquiry volume in those reopened markets. Course success, or the percentage of students who earn their academic credit in any given term, improved each quarter during the year. Technological improvements to our admissions process has enabled our staff to more efficiently and effectively interact with prospective new students. And we saw improvement in Strayer's enrollment results in the second half of 2021, and we expect their new students to grow on an annual basis in 2022. Turning now to our second segment, in our release this morning, we announced we've renamed our alternative learning segment to Education Technology Services, or ETS, which better reflects our products and services. Education Technology Services is SEI's fastest-growing segment and consists of three entities. The first is Sophia Learning, our direct-to-consumer portal of low-cost college courses. In 2021, Sophia generated $17 million in revenue, an increase of more than 460 percent from its pre-pandemic annualized run rate. Sophia had more than 19,000 average monthly paid subscribers who collectively completed more than 36,000 courses. Consumer satisfaction with Sophia was also very strong, with a net promoter score of 63. For the full year, 2021, Sophia's operating margin was 54%, which is net of ongoing investments we continue to make. Over the next several years, as the product begins to mature, operating margins at Sophia should be approximately 75 percent. Workforce Edge is our education benefits management platform, which also includes our proprietary network of affiliated institutions, the largest of which are Strayer and Capella Universities. And I'd like to take just a minute to help our owners better understand our monetization strategy for Workforce Edge, which is a key element in SEI's long-term strategy to reduce the number of students receiving Title IV loan dollars while increasing the number of students whose tuition is being paid for by their employer. First, we built a proprietary technology platform for employers to manage their education benefits, which includes the ability to process their tuition benefit payments. In addition, The platform allows the employer to feature, for their employees, a select number of colleges and universities as preferred partner institutions, which have the highest benefit coverage, and in some cases covers the full cost of a degree program. In all cases, this preferred network of schools is SEI's proprietary brokered network, which again always includes Strayer and Capella universities. In terms of monetization, The platform itself is free for employers to use, and monetization occurs when an employee from a participating company enrolls in one of the institutions in the network. If either Strayer or Capella is selected, we receive the tuition dollars from the employer, or if a partner school is selected, we receive an annual fee from that partner institution. At maturity, We expect the percentage of employees on the Workforce Edge platform who select either Strayer or Capella University to be approximately 2%. In 2021, which was our first year in operation, Workforce Edge signed 32 corporate agreements who collectively employ approximately 650,000 employees. We expect to see the initial enrollments from these accounts to begin this year as well as 2023 and beyond. Ultimately, our goal here is to have several million employees on the platform and having Workforce Edge being the largest driver of new student enrollments within our U.S. higher education segment. The third component of our ETS segment is our Employer Solutions Group, which is responsible for managing SEI's network of more than 800 corporate partnerships. In 2021, employer-affiliated students comprised 26% of all new enrollments and 21% of total enrollments. In 2021, we added a total of 80 new corporate partnerships, including six enterprise healthcare accounts who each employ more than 50,000 employees. We were also very pleased to announce our exclusive partnership with the new United States Football League to provide their athletes and staff members with the opportunity to earn a tuition-free, debt-free degree from either Strayer or Capella University with the USFL covering the full cost of the program. Last year, our Australia-New Zealand segment completed its first full year of operation within SEI, and we couldn't be happier with their performance. Total enrollment for the Australian segment increased 1.5% on an annualized pro forma basis, in spite of operating in the most strict COVID-related lockdowns anywhere in the world. In early January, the Australian government announced the country would resume allowing foreign students to enter the country to attend college, which is an important development, as approximately half of our new students at Torrens University are international students. After completing the integration of ANZ assets onto SEI platforms last year, we're now focused on harvesting revenue synergies, which we estimate could be more than $80 million over the next three to five years. First of these synergies will be to launch SEI's suite of proprietary AI-based technological tools, which are designed to improve learning outcomes and increase student retention. We also plan to offer courses from the Jack Welch Management Institute, as well as curricula from Capella's postgraduate catalog. Longer term, we are evaluating the feasibility of offering a subscription-based tuition pricing plan, akin to FlexPath, within Australia. In addition, we also plan to export New Zealand's prestigious media design school to the United States, likely taking advantage of existing real estate in Strayer University's campus footprint. And before closing and taking questions, I just want to make a few comments about this year, 2022. First and foremost, we expect to have positive year-over-year increases in new student enrollment across all of our universities, including Strayer University. As we've said in the past, the total enrollment within our U.S. higher education segment for any given quarter mostly depends on the continuation rate and the new student enrollment for the six to eight quarters preceding it. As such, based on declines in new student enrollment within our U.S. higher education segment that we experienced in 2020 and 2021, we expect average total enrollment for SEI could be down in 2022 in the mid-single digits. We also expect SEI's full-year operating expenses to be roughly flat on a year-over-year basis. And I should note that our current expense base is net of approximately $150 million in reductions that we've made over the past two years, and we feel the current run rate is both necessary and appropriate to continue to invest in our long-term growth while maintaining the high levels of academic quality across our institutions. And lastly, I'd like to once again thank all of my colleagues here at SEI for their continued hard work and dedication. And with that, Carmen, we'd be happy to take questions.