Welcome to the Strategic Education's Fourth Quarter 2021 Results Conference Call. I will now turn the call over to Terese 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 fourth quarter 2021 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 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 Karl. Karl, please go ahead.

Thank you, Terese, and good morning, everyone. This morning, we released our fourth quarter and full year 2021 results. And I'm not planning to go through those results in detail since everything's in the release. Instead, I'd like to provide our owners with key updates on all of our segments beginning with our largest segment U.S. higher education. First Capella University had a very strong year in 2021. In the year Capella conferred more than 15,000 degrees, which was an 11% increase than any prior year. Employer affiliated enrollments now comprise 30% of all Capella enrollments with healthcare being the strongest sector. FlexPath continues to be a significant source of growth and FlexPath enrollments now represent 18% of all U.S. higher education enrollments, which is up 300 basis points from the prior year. In 2021, we made substantial progress improving the enrollment results at Strayer University, the bulk of Strayer campuses have reopened, and there was more inquiry volume in those reopened markets. Course success, or the percentage of students who earn their academic credit in any given term improved each quarter during the year. Technological improvements to our admissions process has enabled our staff to more efficiently and effectively interact with prospective new students. And we saw improvement in Strayer enrollment results in the second half of 2021. And we expect their new students to grow on an annual basis in 2022. Turning now to our second segment, in our release this morning, we announced we've renamed our alternative learning segment to Education Technology Services, or ETS, which better reflects our products and services. Education Technology Services is SEIs fastest growing segment. It consists of three entities. The first is Sophia Learning our direct-to-consumer portal of low-cost college courses. In 2021, Sophia generated $17 million in revenue, an increase…

Thank you. [Operator Instructions] Have a question from Jeff Silber with BMO Capital Markets.

Thank you so much. Karl, I just wanted to clarify one thing you said I think you said, when looking at 2022, the average total enrollment for the entire company was going to be down mid-single digits. Was that correct?

We said it could be Jeff. It could be. It depends obviously on the performance of our new student cohorts across all of our university as well as retention rates. But as we've said in the past, we did have new student declines, particularly at Strayer University in 2020 and 21. And there's roughly, depending on the performance moving forward somewhere between a six and a eight quarter lag before you would see that total enrollment begins to grow again. So a lot depends on how we perform this year. But we want it to at least highlight that it could be down in the mid-single digits.

Okay. And I'm assuming most of that is in U.S. higher education, would you be looking for enrollment growth in ANZ?

That's correct. It would be mostly in U.S. higher ed.

Okay, appreciate it. If we could just go back to the most recent quarter results, and maybe just focus on U.S. higher education in prior calls, you've given a little bit of color on trends, either by school or by program, undergrad grad, any color you can give us would be great.

Well, I would just maybe amplify what I said in my prepared remarks, which is we've seen considerable stabilization at Strayer University. And in fact, in the very end of 2021, Strayer was actually growing on a year-over-year basis. Capella performance has been new students. Capella’s performance has been quite consistent throughout the year.

Okay. Any difference between grad or undergrad, I know Strayer does a little bit of both.

No real difference from prior trends in the year.

Okay. And just one quick clarification question just on the ANZ universities. Are they fully open? I know you said foreign students are allowed to come back. But are they fully open? Are there any restrictions going on there?

They are fully open. In fact, they've been fully open throughout the pandemic. They're one of the very few if not the only university in Australia that was able to migrate all of the programs 100% of the programs online. So they've been open, they are open. And now we look forward to being able to welcome international students actually in the country itself to begin their studies at Torrens.

And I misspoke, forgive me, I realized that we're fully open. I was just curious about the campuses themselves. Are they fully, back to where they were before pre-pandemic?

Not yet. But we are in the process of opening all the facilities in Australia, New Zealand. It hasn't really impacted us per se, because as I just said, we've been able to operate online, but we expect to have everything open this year.

[Operator Instructions] Next question is from Tobey Sommer with Truist Securities.

Thank you. Could you talk about pricing in your existing businesses, and maybe provide some context about how that pricing compares among your principal competitors? Thanks.

Sure. Well, it depends on what part of our organization you would be referring to. So for example, at Capella, we have FlexPath, which is designed to get people through their programs in roughly about half the time that it would normally take which by definition, then it means it'll be roughly half the cost comparatively. At Strayer University, we on an absolute basis of tuition we feel we're very competitive with most choices that another institution would have similarly, within Australia. But even more broadly than that, as a corporate strategy, we want to really begin to dramatically increase the number of students that we have from our employer affiliated accounts and reduce the number of students who are coming to us via access on title for loans. And when you make that commitment, to try to build those corporate relationships, most of the time, you have to have discounted tuition so that the employer can afford to cover large parts of their workforce. And that, by definition, over time, will reduce the cost of our programs. And that's a strategy that we are very much leaning into. It's also speaks to the importance of productivity for us. We're a very cost conscious organization. The fact that we're maintaining relatively flat expenses this year is net of somewhere between $30 million, $50 million in reductions that we've made just to be flat, because we have wage inflation, we have an increase in the number of employees and so forth. So our actual run rate has been brought down by about $30 million to $50 million to stay flat. But we expect over time, our revenue per student to gradually decline. We expect our corporate enrollments to increase as a result. And on a margin basis, we expect relatively stable margins while this migration happens. Because the students that come to us, either through workforce edge or our 800 corporate partnerships come with very low to no acquisition costs. So it's a trade-off that we think strategically is very valuable. And again, it's a big cornerstone of our strategy.

And where do you see, I understand the internal strategy and how you're mapping it out to the impacts on the income statement. How do you see this fitting into sort of if you could contextualize it, among your principal competitors, in terms of that strategy, leaning into corporate enrollments, et cetera? Is that differentiated in the marketplace? Or is the entire market moving in a similar direction? Thank you.

Well, sure, SEI, from my point of view, has been the leader or among the very few leaders in this space over the last almost 10 years. We found a degree that work, which to this day is the only program in the country that covers all employees plus immediate family members. To my knowledge, we have the largest network of corporate partnerships with well over 800. We continue to innovate new programs and products with workforce edge being the leading example. Roughly a quarter of our students now come to us from these corporate partnerships, these companies wouldn't continue to support sending their employees to our institutions if they didn't have confidence and the quality. So notwithstanding the fact that there's always going to be some level of competition. We think we're very well positioned to be a leader and remain a leader in the corporate education space.

So last question, for me, I'll get back in the queue. Any sort of Page changes to the movements on the regulatory front sort of any clear update, you could give us there about incremental change would be helpful.

Well, the process of developing new regulations is still underway. Recently, the department completed its first negotiated rulemaking, we have to publish any proposed new rule associated with that. They've also announced their intent to commence a second negotiated rulemaking around gainful employment. So it's something that we're obviously paying very close attention to, we'll continue to monitor it. But from the broadest possible sense, we were very confident that all of our institutions, and obviously those particularly here in the United States would be able to comply with any reasonable set of regulations that could come about.

Okay. If I could sneak one more in, on the corporate side, when you sign up an employer is -- what is the competitive dynamic like within that employer? Are you getting an exclusive, and if not how many alternative providers typically sign up with sort of the prototype corporate client that you're going after?

We have both so we do have exclusive arrangements. where we're the only education partner with the coverage to allow an individual to get a completely tuition free degree. So BestBuy, CBS, FCA, Chrysler. But really, we're migrating to this Workforce Edge model. And the best analogy I can give you is when I talk about our proprietary network of institutions, which includes Strayer and Capella, and the Noodle Partners schools, think of that as being the healthcare equivalent of in network. So when an employer signs on to the workforce Edge platform, the employee at that organization can choose to go to any accredited institution they want to. But if they go to one of the in-network schools, they get a much more substantial set of benefits, just as you do if you go to a preferred provider in your health insurance. You can still go to a school that's not in our network, but the coverage for the education benefit will be substantially less. And what Workforce Edge does is, it highlights that fact for the employees. And we think as I said over time that that will ultimately become the largest driver of new students for Strayer and Capella Universities.

Thank you. And this concludes our Q&A. I will turn the call back to Mr. Karl McDonnell for his final remarks.

Thank you very much, everyone. We look forward to chatting with you next quarter.

And with that, ladies and gentlemen, we conclude our program today. Thank you for participating and you may now disconnect.