Strategic Education, Inc.

second quarter 2023 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. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss second quarter 2023 results. With us today are Robert Silberman, 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. SEI's second quarter reflects continued strong performance in U.S. higher education, another strong quarter from ETS, and improving trends in Australia and New Zealand. But before I discuss our performance this morning, I just want to note that all financial figures that I reference in my prepared remarks are on a constant currency basis. In the second quarter, SEI's revenue increased 7%. That's significantly better than our first quarter performance where our revenue was flat to the prior year. The revenue growth that we had is a product of strong U.S. higher education continued performance, significant revenue growth within ETS, and strong revenue per student in Australia and New Zealand. Based on the current performance, we expect that second half 2023 revenue will be higher than the 7% that we had in the second quarter of this year. Our second quarter operating expenses increased 8%, and that created a slight reduction in our operating income. But as I've previously discussed, our expenses are higher in the first half of 2023 because the majority of the incremental investments that we make this year are time to occur in the first and the second quarters. Expenses in the second half of 2023, we expect to be up only 2% to 3% from the prior year. Our second quarter adjusted earnings per share were 85 cents, and that's flat to the prior year. I'd like to note that this is the first time since the second quarter of 2020 that SEI's earnings have not been down on a year-over-year basis. Given the current visibility into our business, we expect to see significant earnings growth in both the third quarter and the fourth quarter and for the full year 2023. Now turning to our segments, U.S. higher education continues to perform very well. The demand environment remains very strong and we continue to see strong increases year-over-year in inquiries into the university. Both Strayer and Capella universities continue to post strong new student enrollment. We also see strong persistent increases. Our trailing one-year persistence increased 30 basis points in U.S. higher education to 87.4%. Employer-affiliated enrollments also remain very strong. Total employer-affiliated enrollments increased 16%, which was well ahead of the 5% increase across all of U.S. higher education. I'd like to also note that the Strayer recovery continues to be well ahead of our expectations, and we expect Strayer total enrollment to be increasing in the high single digits by year end. ETS, education technology and services segment, had another very strong quarter. ETS revenue increased 22% to $20 million. ETS adjusted operating income increased 16%, notwithstanding that we continue to make significant new investments in both Sophia and Workforce Edge. Sophia average paid subscribers increased 30%, and we now have over 30,000 paid subscribers on the platform. Workforce Edge continues to gain traction in the marketplace. We added seven new corporate clients, bringing our total to 62, who now collectively employ more than 1.4 million people. Australia and New Zealand also had a strong second quarter. Revenue increased 4% to $70 million, despite a slight decline in enrollment on the basis of strong revenue per student. The revenue per student increased based on a planned pricing increase for 2023, as well as an improved course load on the part of our students. ANZ operating income increased 25% to $15 million, and operating margin increased 400 basis points to 22%, and that's the highest operating margin that we've had at ANZ since making the acquisition. But more important than their financial results, we were more pleased with the results from the Australian government annual survey on post-secondary academic quality. It's known as the quality indicators on learning and teaching. And in that report, Torrens University fared quite well. On the measure of overall quality of education experience, Torrens University ranked seventh of 43 federally recognized university And that's an increase from their 14th position in the prior year. On the measure of student support and teaching, Torrens was in the top 10, which was up from 16th in 2021. And for overall satisfaction of recent graduates, Torrens scored 80.3% satisfied, which is 270 basis points higher than the Australian national average. So we were very pleased to see these significant gains in academic quality at Torrens University. Lastly, I'd like to remind all of our owners, we will be hosting an Investor Day on November 7th in New York City, and there's more information on our website if you'd like to participate or attend. And finally, as always, I'd like to thank all of my colleagues at SEI for their ongoing commitment and professionalism on behalf of our students. And with that, Amy, we'd be happy to take questions.