Strategic Education, Inc.

Welcome to Strategic Education's third quarter 2022 results conference call. I will 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 third 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. Overall, we were very pleased with our third quarter academic, operational, and financial results that we reported this morning as they reflect continued progress in improving our results and returning the company to revenue and earnings growth. Excluding the impact of foreign currency fluctuations in the third quarter, our revenue was down less than 1% from the prior year. We continue to see significant strength in our U.S. higher education segment, with all key metrics at both Strayer and Capella universities posting improvements from the prior year. The overall demand environment remains very robust, and inquiries into Strayer and Capella increased more than 30 percent from the prior year. Our employer-affiliated enrollment from our network of corporate partnerships is the strongest that it's been in years. New student and total student growth rates from corporate partnerships are significantly higher than our non-affiliated enrollments at 40% and 60%, respectively. At Capella, we continue to see strong growth in FlexPath programs with both strong levels of new student and total student enrollment. As a result, FlexPath now comprises approximately 21% of all U.S. higher education enrollments, an increase of 200 basis points from a year ago. Strayer's enrollment continues to experience a rapid recovery and remains on track to grow its total enrollment on a run rate basis by the end of this year. And both Strayer and Capella had year-over-year increases in course success and student retention. Our education technology and services segment, or ETS as we call it, continues to perform well and having grown its revenue in the third quarter by 27%. Operating income for ETS was flat to the prior year, notwithstanding this revenue growth, as we continue to invest in additional resources to further support ETS's growth. These investments in ETS have helped us to achieve the necessary scale to serve both our existing customer base and much of the anticipated growth for next year. As a result, We expect expense growth will moderate significantly in 2023, resulting in margins much closer to our notional plans of 50% plus. During the quarter, Sophia Learning, our direct consumer portal of high-quality, ACE-recommended general education courses, grew its average subscriber base by 33% and its revenue by 45%. Workforce Edge, our SaaS-based education benefits management platform, grew an additional six clients during the quarter, and increased the employee base by 200,000 people. We expect to have between 800 and 1,000 employees from Workforce Edge clients enrolled in Strayer and Capella by year end, and to have a significant multiple of that enrolled in 2023. Our Australia and New Zealand segment continues to work to return to normal operations, but is still experiencing visa application processing delays that is adversely impacting our enrollment of international students. During the quarter, ANZ's total enrollment grew 2% and its revenue grew 1% on a constant currency basis. Measured in Australian dollars, our ANZ segment has been remarkably stable during the pandemic. Its academic outcomes and student retention remain strong and among the highest in SEI, and notwithstanding the significant headwinds, returning to a normal operating environment has continued to grow throughout. We remain optimistic that continued progress will be made easing the immigration delays throughout the rest of this year and into next year, and as those barriers begin to be removed, we will see higher rates of growth at Torrens University. During the quarter, we also launched SEI's Faculty Action Center at Torrens, a proprietary software that enables significantly more robust faculty and student interaction. We expect that to have a meaningful impact on student satisfaction, teaching effectiveness, and ultimately student retention. So overall, we continue to make considerable progress on our goals thus far this year. I can again reiterate, we expect to see new student growth on a full year basis across each of our universities. And we've not yet seen anything that would suggest our performance in the fourth quarter would lag behind where we are now. And based on that momentum this year, 2022, will be our trophy year for revenue and earnings, and that our enrollment revenue and earnings will be substantially higher in 2023. Finally, and as always, I'd like to thank all of my colleagues at SCI for their continued hard work and dedication on behalf of our students around the world. And with that, operator, we'd be happy to take questions.