Strategic Education, Inc.

Welcome to Strategic Education's first quarter 2022 results conference call. I will now turn the call over to Terese 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 first quarter 2022 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 first quarter results, which we reported this morning, included year-over-year declines in revenue, operating income, and earnings per share, reflecting the impact of nearly two years of declining enrollment at Strayer University. Improving Strayer's performance has been and remains the company's highest priority. And this morning, I can share that substantial progress has been made in this respect and that Strayer's current performance is ahead of where we expected them to be at this point in the year. The vast majority of Strayer campuses have reopened. We've implemented dozens of enhancements to our systems to enable us to more effectively interact with both prospective and current students. Academic achievement has been consistently improving throughout the past year. Our employer-affiliated accounts are performing much better and amongst our largest agreements showing strong growth versus prior quarters and the prior year. We've seen significant stabilization in new student enrollment at Strayer, including within our employer-affiliated accounts, as well as improvements in student retention. Total enrollment for employer-affiliated students in U.S. higher education increased to 23% of enrollment, which is up 200 basis points from the prior year. Across all of U.S. higher education, we've seen a significant increase in demand and interest into our universities, and we now have enough visibility into the second quarter to reiterate our indicative outlook for this year that we expect new student growth in U.S. higher ed for the full year, sorry, new student growth for the full year in U.S. higher ed, and that total enrollment will be down in the mid-single digits for 2022. And finally, on U.S. higher ed, the current expense run rate is approximately 8% below its pre-pandemic levels, reflecting savings generated over the past two years as a result of various technology and productivity investments, which were all designed to improve our ability to effectively teach much larger cohorts of students without having to add substantial levels of expense. As a result, as our U.S. higher education enrollment increases moving forward, we expect significant improvement to our operating margin. Our Education Technology Service Division also continues to perform very well. During the first quarter, Sophia added more than 15,000 new paid subscribers, which was a 15 percent increase from the prior year, as well as a 37 percent increase sequentially from the fourth quarter of last year. Average total paid subscriptions were more than 22,000 for the first quarter, which is an increase of approximately 95 percent from the prior year. SOFIA's revenue grew 73 percent from the prior year to $6 million, and SOFIA's operating income was 2.4 million, and its operating margin was 45 percent, which is down slightly from the prior year, reflecting continued higher investments in product development and marketing. Our 2022 operating plans for SOFIA included a 50% revenue growth rate from 2021, and we expect that they will be significantly ahead of that number for the full year. Workforce Edge finished the quarter with 37 corporate agreements with a total employee population of 920,000 people. We also have seen some early progress in enrollments from Workforce Edge into SEI institutions, which again is ultimately our monetization strategy for Workforce Edge. Our goal is to have close to 1,000 students from the platform by the end of this year and several thousand beginning in 2023 and beyond. Turning now to our Australia and New Zealand division, where following two years of borders being closed, we are working to normalize our enrollment practices, which includes having foreign students traveling to Australia and New Zealand on student visas. Given the backlog of demand to enter Australia, We've seen some delays in the processing of these student visas, which helped contribute to a slight enrollment decline in the first quarter. Student achievement within the A and Z segment remains very strong and some of the highest within SEI, and Torrens University, for the first time, achieved a student continuation rate for the quarter in excess of 90 percent. Based on current trends, we expect the A and Z segment to be in line with our operating plans for the year. So in total, SEI is off to an extremely strong start in 2022 with all of our key operating initiatives to be either on track or well ahead of plan. And we look forward to updating you on our progress throughout the rest of this year. And finally, and once again, I'd just like to thank all of my colleagues at SEI for their ongoing dedication and professionalism on behalf of our students. And with that, Blue, we'd be happy to open the call for questions.