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Operator: Thank you for standing-by, and welcome to Strategic Education’s Fourth Quarter 2022 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I will now like to hand the call over to Terese Wilke, Director of Investor Relations for Strategic Education. Mrs. Wilke, please go ahead.

Terese Wilke: Thank you. Hello everyone, and welcome to Strategic Education’s conference call, in which we will discuss fourth quarter 2022 results. With us today are Robert Silberman, Executive Chairman; Karl McDonnell, 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 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 Rob. Rob, please go ahead.

Robert Silberman: Thank you, Terese. I just want to make sure everybody can hear us. We’re actually doing this call from Sydney, Australia and we’ve had a little bit of telephone difficulties. Please bear with us on that. But good evening ladies and gentlemen. Before I turn it over to Karl to report on our Q4 and full year results, I just wanted to make a couple of comments at a high level on our capital allocation in 2022. We started the year with roughly $310 million of cash and marketable securities and $140 million of outstanding debt drawn on our bank revolver. We generated $150 million during 2022 in pretax cash from operations. We used that cash as follows. We paid $24 million in taxes and we invested $44 million in capital expenditures.

Out of our remaining owners’ distributable cash, we paid $60 million in common dividends. We took the opportunity to repurchase $40 million of our stock at an average price of $65 a share. We further paid down $40 million of our outstanding debt. That left us at year-end 2022 with $250 million of cash and marketable securities, $100 million of debt and 23.9 million shares outstanding. We are fairly confident that 2022 will turn out to have been our trough year for earnings. So we feel our balance sheet is well positioned to support all of our upcoming opportunities, as well as to continue to return capital to our owners through our common dividend. And with that Karl, can you walk everyone through our operating results.

Karl McDonnell: Yes sure. Thank you, Rob. Good afternoon everyone. The fourth quarter financial results that we reported earlier today reflect the continued stabilization of our enrollment performance throughout 2022. Total enrollment across SEI was essentially flat at just under 98,000 students and decreased 80 basis points in US higher education, which is our largest segment reflecting the continued new student growth that we’ve experienced at both Strayer and Capella University. Our revenue for the full year declined 5.8% to just under $1.1 billion. And in the fourth quarter revenue declined 1% to $270 million. The rate of decline improved as a result of strong enrollment results throughout the year. And while we were disappointed by the year-over-year declines in our full year financial results in 2022 which were primarily driven by the enrollment declines that we had in 2020 and 2021, we have been more than pleased with our current operating performance which will inform 2023’s financial performance and beyond.

In 2022, our US Higher Education segment had a strong year. US Higher Ed revenue in the fourth quarter grew almost 1% due to essentially flat enrollment and an increase in revenue per student. The demand at Strayer and Capella University continues to be among the strongest that we’ve seen in several years and is back to pre-pandemic level, both universities as we previously indicated. We continue to see this full year in 2022 and our employer affiliated enrollments are at all-time highs. New employer affiliated enrollment increased 17% from the prior year and total enrollments grew 13%. Total employer affiliated enrollments now comprise more than 24% of total US higher education enrollments, which is up approximately 350 basis points from the prior year.

The enrollment recovery at Strayer University continued throughout the year and is on track to have total enrollment growth in the first quarter of 2023, which is again about one full year faster than we originally anticipated. Our Education, Technology and Services segment also continues to perform well. ETS revenue increased 20% to approximately $17 million. Operating income decreased slightly reflecting the continued investment in ETS, technology and products, which helped drive our revenue growth last year. As I previously indicated, we expect ETS expense growth to moderate beginning this year and to essentially be flat on a year-over-year basis. During the quarter, Sophia grew an average total subscribers by 29% and we had more than 700 SEI total enrollments coming from Workforce Edge, which is up from fewer than 100 in 2022.

Our Australia/New Zealand segment grew by approximately 4% in the fourth quarter and its revenue was essentially flat on a constant currency basis. student has offshore online international students took fewer average classes per student. Visa processing issues and delays that we experienced throughout 2022 have improved and are close to returning to pre-pandemic levels. The Australian government has ruled that all students on active student visa must be in country and attending classes in person by June of this year, which we see as a positive catalyst for our international student growth. Now based on the strong enrollment results that we’ve had in 2022 meaning that these results continued this year 2023 we expect enrollment and revenue to be up in the mid-single digit.

. However, I would like to bring two timing related . First, we’ve adjusted the academic calendar at Torrens University to start later in the quarter. This is to allow students whose visas are currently in the process of being approved to start the term without having to miss any classes. The result of this will push more of our AMC revenue from the first half to the second half of the year. Second, we expect the majority of the year-over-year expense growth to occur in the first half of the year, which will flatten out in the second half of the year. But again, on a full year basis to be up no more than 3% from the prior year. Based on the timing issues that I’ve just described, we expect our revenue in the first quarter will be essentially flat versus the prior year, and our expenses will be up approximately 5% in the first quarter.

And once again, I’d like to thank all of our colleagues at SEI for their ongoing commitment on behalf of our students. And with that, Latif we’d be happy to answer questions.

Operator: Thank you. Our first question comes from the line of Jeff Silber of BMO. Your line is open.

Jeff Silber: Thank you so much. Karl, I don’t know, if you broke up for everybody, but you broke up for me when you started to talk about the outlook for 2023. I think you said enrollment in revenue up mid-single digits, and then I lost you and still you started talking about the timing issues at Torrens. Can you just repeat what you said, please?

Karl McDonnell: Yeah. Apologies, for that Jeff. What I said is, we expect that our revenue will be up in the mid-single digits for the full year and that our expenses will be up no more than 3%

Jeff Silber: Okay. Great. Thank you so much. If I could just circle back to US Higher Education. Can we get a little bit more color in terms of where the demand is coming from whether it’s at Strayer whether it’s Capella program type et cetera anything would be great?

Karl McDonnell: Well, demand is consistently high across both Strayer and Capella, across all program levels. Again some of the highest demand that we’ve seen really since back to 2019 levels. So it’s across the board Jeff. It’s up significantly at both Strayer and Capella. And both universities experienced quite strong new student growth throughout 2022.

Jeff Silber: All right. Great. I know you’re not giving specific guidance, but Rob I appreciate you going through the capital allocation and how you use the distributed free cash flow. Are those the type of growth percentages we should expect going forward in terms of how that was allocated?

Robert Silberman: No. I think that percentage as a distribution of free cash flow is much higher than we would expect normally in our €“ as I said I think 2022 is going to turn out to have been a trough year for both earnings and cash. And we kept the dividend where it was and we saw a significant opportunity for long-term value enhancement by buying back shares at the price that it was at. So our dividend payout I suspect will go down as a percent as our cash flow grows over the next several years. In 2019, it was at about 40%, if I remember in 2019. And that feels to us, as a Board, is probably a fair kind of percentage to think about. The share repurchases are truly opportunistic. If we have — we have distributable cash, excess cash, and access to our needs in the universities and the share price is trading at, what we perceive to be, a significant enough discount to intrinsic value, we take advantage of those opportunities but its price dependent.

So depending on what happens to the stock price we may or may not do that. Our capital — our CapEx, I suspect, will be fairly consistent. But our cash flow is growing up. So the overall percentage of distribution is probably going down.

Jeff Silber: All right. That’s really helpful. If I could sneak in one more and I hate to talk about a regulatory issue, but there was an announcement last week by the Department of Education and talking about the incentive compensation role, expanding the definition of third-party servicers. Do any of your businesses potentially come under that broader definition specifically in the ETS division?

Karl McDonnell: No, Jeff. We don’t have any relationships that would fall under that definition.

Robert Silberman: And also, suffice to say that, independent of that, we don’t have anything that’s close to incentive compensation anywhere in our divisions, just as a matter of culture.

Jeff Silber: All right. That’s really helpful. I’ll jump back in the queue. Thanks, so much.

Operator: Thank you. Our next question comes from the line of Tobey Sommer of Truist. Your line is open, Tobey.

Jasper Bibb: Hey, good afternoon. This is Jasper Bibb on for Tobey. Thanks for taking our questions. I guess my first question was, I was just hoping you could comment on how you’re managing variable expenses with the return to total enrollment growth. And, obviously, if we look back at a longer time period, the company’s margins were quite a bit higher a couple of years ago than they are now. So any thoughts around how the current expense base might be able to support higher enrollment levels in future years kind of beyond 2023?

Karl McDonnell: Sure. Well, the bulk of our expenses are quite fixed. If we have substantial enrollment growth, we would expect some small variable expense as we expand the number of classes that we’re offering to support the higher enrollment. But I’m confident that the current expense base by and large can handle many thousands of more students than we’re educating today. So to the extent that our enrollment continues to grow in the way that it has over the last year, this year and beyond, I would expect that you would see a very high marginal contribution on the incremental students that we’re adding.

Jasper Bibb: Thanks. That makes sense. And then, the margins for the fourth quarter just came in a little bit lower than we were expecting. Was there any kind of particular driver for that, or was that effectively in line with your internal plan?

Daniel Jackson: This is Dan, John . We had probably the only thing that was a little bit of a surprise is we had a little bit higher bad debt than we expected. That’s typical. Now, with the benefit of hindsight when we have faster-growing new students’– new students pay at a slightly lower rate than existing students. But aside from that it was pretty on track with what we expected.

Jasper Bibb: Got it. Maybe pivoting to the Australia/New Zealand segment, we’ve seen some headlines around the security check requirement, causing delays and the students and certain degree fields getting their visas processed. Is that impacting your ability to get international students into the country, or do you think this issue is kind of in the rearview mirror at this point?

Karl McDonnell: I think there’s been some impact with respect to that. We did see visa delays throughout 2022. We commented on that throughout the year last year. But in the early part of this year, we’re starting to see visa approvals and processing time lines return to what we consider to be relatively normal. And so if that continues to be the case, in 2022, — or sorry, 2023 combined with what I said about the Australian government’s rule that all international students have to be in Australia, taking their classes we see that overall as a net positive for Australia/New Zealand in 2023.

Robert Silberman: Just one other thing on that Karl, the one thing that’s kind of an immediate impact though is the lane of the started classes a couple of weeks that — although, that doesn’t change your full year results, it does change your calendarization and move some of the margin — the revenue growth and the margin expansion for the latter half of the year.

Jasper Bibb: Makes sense. Last one for me. In the ANZ segment, are you impacted — expecting any impact I guess positive or negative from China’s recent ban on their students studying at foreign universities online?

Karl McDonnell: No. We have relatively few Chinese students, as a percent of our overall international student cohorts. So we wouldn’t expect any material impact from that ruling.

Jasper Bibb: Appreciate the detail there. Thanks for taking my questions guys.

Karl McDonnell: Sure. Thank you.

Operator: Thank you. I would now like to turn the conference back to Karl McDonnell, for closing remarks, Sir?

Karl McDonnell: Thank you everyone. We appreciate your time today. And we look forward to connecting with you next quarter.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.