Strategic Education, Inc.

Good day and thank you for standing by. Welcome to Strategic Education's third quarter 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to 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 third 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 10Q to be filed, and other filings with the Securities and Exchange Commission, as well as Strategic Education's future 8Ks, 10Qs, and 10Ks. 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 third quarter financial results that we released this morning reflect strong continued momentum as our performance has substantially improved over the course of the past year. Let me just say at the outset, all of my remarks with respect to our financial results are referred to in constant currency. For the third quarter, SEI's revenue increased 10% from the prior year and was another strong quarter of sequential revenue growth. The revenue growth was driven by continued strong enrollment within US higher education, another strong quarter of growth in our education technology and services segment, and improved revenue per student in our Australian New Zealand segment. Our operating expenses increased just 2% from the prior year, in line with our expectations, and our operating income more than doubled from $12 million to $33 million. And lastly, on a use of cash item, we did repay $40 million of outstanding debt on our revolver, leaving us with $61 million of debt on the revolver. Now turning to our segments. US higher education continues to perform exceptionally well. Overall demand in the US remains very strong, and both Strayer and Capella universities continue to have healthy new student growth driven predominantly by increases in our employer-affiliated enrollments, which I believe our owners know is one of our key strategies. Total employer-affiliated enrollment grew 21%, which was more than twice the overall growth rate. Employer-affiliated enrollment is now 28% of all U.S. higher education enrollments, which is up 250 basis points from last year, and nearly doubled what it was four years ago. Finally, student retention remained stable with our trailing one year persistent rate at 87.3%. Our education technology and services segment also continues to perform very well. ETS revenue increased 27% to $21 million, driven by growth in Sophia learning subscriptions and employer affiliated enrollment, as I just noted. ETS operating income increased 60%, notwithstanding ongoing continuing investments to build out ETS products and services. Sophia average subscribers increased 38%, and we now have more than 34,000 paid subscribers on the platform. Workforce Edge continues to gain market share in the education benefits management space with 60 corporate clients. And thus far this year, we now have 1,200 students from Workforce Edge at either Strayer or Capella University. Our Australia New Zealand segment also had a strong quarter, notwithstanding a slight 1% decrease in its total enrollment. Revenue increased 7% to $66 million, driven by increases in revenue per student. ANZ operating income increased 60% to $14 million, and the operating margin increased 720 basis points to 21.8%. We continue to be optimistic about returning Torrens University to enrollment growth in 2024. Overall, we were very pleased with all of these results, and as always, I'd like to thank my colleagues for their ongoing commitment to our students, and I'd like to remind our owners that we will be hosting an Investor Day on November 7th in New York City. Webcast details can be found on our website. And with that, Michelle, we'd be happy to take questions.