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. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to turn the call over to Terese 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; 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, 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 Karl. Karl, please go ahead.

Thank you, Terese, 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 & 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 the 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 US Higher Education enrollments, which is up 250 basis points from last year and nearly double what it was four years ago. Finally, student retention remained stable with our trailing one-year persistent rate at 87.3%. Our Education, Technology & Services segment also continues to perform very well. ETS revenue increased 27% to…

[Operator Instructions] And our first question is going to come from the line of Jeff Silber with BMO Capital Markets. Your line is open, please go ahead.

Thanks so much. I wanted to start with the US Higher Education segment. The enrollment growth was much better than we had expected. I know you’ve mentioned the employer affiliated enrollment but can we drill down a little bit more between Strayer and Capella University undergrad and grad and any specific program types to call out?

I’d say at Capella, Jeff, FlexPath continues to remain strong. All the health care programs at Capella are strong. At Strayer, which is predominantly undergraduate, the growth is pretty even across all areas of study. But I have to say, given the growth rates that we’re seeing in our employer affiliated enrollment, that’s a very broad-based set of accounts that have just been growing exceptionally well all year, and that’s really been the primary driver of the increased enrollment.

Okay. That’s helpful. Maybe I can switch over to the ANZ segment. If I remember correctly, there was going to be a new rule that come into effect regarding foreign students coming back on campus July 1. Can we get a little bit of color on that? I know it may be a little bit early, but what do you think the impact is?

Well, that’s definitely helped our revenue per student. And revenue per student is driven by two things, obviously. It’s driven by our tuition and we did have a slight tuition increase in Australia at the beginning of this year, but it’s also driven by the amount of courses that students take and one of the byproducts of that rule with students having to take a full course load. Prior to July 1, they could take a lower course load and still retain their Visa; they’re not able to do that anymore. So that’s what led to the increase in our revenue per student over there.

Okay. That’s really helpful. Just one final one for me. I know you’re having an Investor and Analyst Day. I don’t want to steal your thunder, but what will we be expecting? Are you going to be providing long-term targets, any color would be great?

Yes. We expect to comment both on our full year performance for this year with a little more specificity and we do intend to provide a five-year outlook, which will include our first pass at 2024.

Okay. Fantastic. Thanks so much.

Sure. Thank you, Jeff.

Thank you. [Operator Instructions] Our next question is going to come from the line of Jasper Bibb with Truist Securities. Your line is open, please go ahead.

Hi. Good morning, everyone. Just wanted to ask about updated expectations for 2023. I think you outlined some second half expectations last call, but just any thoughts on how we should think about the cadence of 4Q revenue and OpEx growth relative to that prior view would be great.

Hi Jasper. It’s Dan. As Karl just said, we’re actually going to get into that on Tuesday at our Investor Day, so probably better to wait until then. Other than to say, we still believe we’re on track with what we laid out at the beginning of the year.

Definitely makes sense. Following up on the US Higher Ed discussion, just kind of curious what you’re seeing as far as student interest levels relative to the last couple of years and any trends from a marketing yield perspective there?

We’ve seen improvements in both. We continue to see a very robust healthy macro demand environment. Interest into the universities is relatively high, higher than it’s been in a long time, I would say. But I’d say that we’ve also seen improvements in our ability to effectively advertise. And so our growth is really a product of many things. We have high-performing teams. We have a lot of interest on the part of students potentially wanting to study at either Strayer or Capella University. And again, not to be a broken record, but our corporate-affiliated enrollments are the strongest, frankly, that they’ve ever been. And I’d say that’s really one of the predominant reasons why we’re seeing such high levels of growth.

Makes sense. With respect to US Higher Ed, we did get a final gainful employment rule in September. I was just hoping to get your assessment of the outcome there, the longer earnings period for certain programs and what do you think that could mean for enrollment levels in your US Higher Ed business over the next couple of years?

Yeah, we’ve obviously carefully reviewed the rule. We don’t anticipate to have any failing programs at either Strayer or Capella University. I’m not sure it’s going to have any impact on enrollment. So we’re quite comfortable with that rule.

Great. Last one for me. ETS segment margins were really strong at 40% in the quarter. I know you’ve talked about a longer-term objective to get to 50% there. So looking ahead, should we think about this margin level as sustainable or do you expect ETS margins to normalize back to that low 30%-ish range you’ve been running out the last couple of quarters?

Well, over the last couple of years, we’ve said that we’ve been making a lot of investments in ETS, so the margin has actually been deliberately depressed while we made those investments. The investments that we made in preceding years are starting to generate a fair amount of revenue now. So we’ve always believed that this is a business that we can grow at relatively high rates with very high margins and I would still say I would expect over time, ETS margins to hover around 50%.

Appreciate the detail there. Thanks for taking the questions.

Thank you. And one moment as we move on to our next question. And our next question is going to come from the line of Heather Balsky with BofA. Your line is open, please go ahead.

Hi. Thank you. I was hoping if you could talk about the Australia/New Zealand enrollment trend. The declines are obviously coming down, and we’re now in a period where enrollment is, I guess, just started to pick back up. What are you seeing with regards to, I guess, the early part of fourth quarter enrollment? Do you think you’re going to be up year-over-year in the fourth quarter? And I guess, where is the demand coming from versus pre-COVID?

Yes. So first of all, for the fourth quarter, it’s a pretty small term. It’s not a big number. What we’re really focused on is our first academic term of 2024, which is the largest term for Torrens in any given year. But in the third quarter, we actually had relatively strong new student growth in our domestic market there. It was up double digits, more than double digits. We did have a slight decline in international, which doesn’t alarm us. It’s still relatively new from the post-July 1 rule, requiring students to be on campus and so forth. So I remain very confident that we’ll see both domestic and new student growth at Torrens in 2024.

Great. That’s helpful. And please correct me here, I think you had last spoke about mid-single-digit enrollment growth for 2023. Is that still the case? And given the momentum you’re seeing in higher education, do you think you could be at a higher pace next year?

Yes, Heather, mid-single digit was a reference to total enrollment for SEI, not just ANZ. Is that what you’re asking about?

Yes, yes, total business.

Yes. As I just said, we think we’re on track for what we laid out earlier in the year, a little bit ahead as of the end of the third quarter, and we’ll have more to say on Tuesday at our Investor Day.

Appreciate it. Thank you.

Thank you.

Thank you. And I would like to hand the conference back to Karl McDonnell for closing remarks.

Thank you, everybody. Hopefully, we’ll see many of you in New York next week and, if not, we invite you to participate in our Investor Day on our webcast, and we look forward to speaking with you then.

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