Welcome to Strategic Education First Quarter 2020 Earnings Call. I will now turn the call over to Terese Wilke, Manager 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 first quarter 2020 results. With us today to discuss results are Robert Silberman, Executive Chairman; Karl McDonnell, President and Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following 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 Rob. Rob, please go ahead.

Thank you, Terese, and good morning ladies and gentlemen. As you can see from today’s earnings release, SEI had a particularly strong first quarter. However, as we are speaking to you this morning for the first time since the mandated economic shutdown to combat the coronavirus pandemic, I would like in my remarks today to refocus our shareholders on some basic first principles about our enterprise before asking Karl and Dan to comment more specifically on our recent operational and financial results as well as our future plans and outlook. First, SEI is the steward of two well-respected regionally accredited working adult-focused universities, Strayer University and Capella University. As fully online universities, both institutions are uniquely prepared to operate successfully in a pandemic-affected world. Second, SEI’s long-term value has been and always will be ultimately defined by the academic success of our students, and how that success translates into the professional success of our alumni. Therefore, as the stewards of your invested capital, the performance of our students and alumni is always our first concern. Third, SEI has been and will continue to be run on a very stable financial basis. We have a fortress balance sheet with over $500 million in cash and an available undrawn $250 million revolver with no debt. Our operating and financial model allows us to fully fund first-rate academic programs with potential wide variation in student enrollment, while constantly investing in our academic outcomes, as well as providing a conservative, but steady financial dividend to our shareholders. Fourth, because of that financial strength, neither Strayer University nor Capella University will seek or accept supplementary financial resources from the Federal Government to deal with the impact of the coronavirus pandemic. Instead, we are providing to our students from our own financial resources equivalent sums as were authorized by the Federal Government and Student Financial Assistance by the recently passed CARES Act. We are also making our technologies and academic resources available free of charge to other academic institutions to help them deal with this crisis. Indeed, we want to be as helpful as we can during this crisis, not just to our own students, but to the educational community as a whole. Fifth, as a management team which has led this enterprise for nearly 20 years, we have seen and prospered through a number of different macroeconomic cycles. We know from experience that a significant and persistent decline in labor force participation rates will temporarily and negatively affect our student enrollment, particularly from our corporate sponsored students. However, our academic and financial model has proven over time to be stable enough to withstand wide variations in student enrollment. We, of course, have no idea how long the coronavirus mandated lockdown and subsequent recession will last, but we are confident that by maintaining our focus on the academic success of our students, our institutions will prosper over the long-term in all cycles. And finally, before I turn it over to Karl, I want to say on behalf of our entire Board of Directors how grateful we are to the SEI Community including our Executive Team, our faculty and our staff for all their extraordinary efforts on behalf of our students over these last two months.

Thank you, Rob. Good morning, everyone. At the outset, I’d like to note that the Company’s first quarter financial results, which we reported this morning, were more than 90% complete prior to the widespread outbreak of COVID-19 and therefore reflect virtually no impact from the current healthcare crisis and current economic downturn. Obviously, we were very pleased with those first quarter results. But, as Dan will cover them in more detail momentarily, I intend to focus my comments on SEI’s COVID-19 response to date, as well as to provide some visibility for our owners into our current business trends. And I’d like to begin this morning by outlining SEI’s response to COVID-19. SEI’s primary focus since the outbreak of COVID-19 has been on the health and well-being of our employees and our students. We’ve moved quickly and aggressively to implement alternative business continuity strategies in the first week of March, well before either national or state guidance ordered such moves. These measures include mandating 100% work from home for our staff, as well as canceling all in-person gatherings for our students such as commencement ceremonies, Capella’s doctoral residences, and Strayer University's on-ground classes, which account for only 5% of Strayer University class seats. That was for the spring academic term, which started a couple of weeks ago. During that same week in March, the company also modified its sick pay and time-off policy to provide unlimited time-off with uninterrupted pay for every SEI employee. The company has not nor do we plan to furlough any employees as a result of COVID-19. We are, however, reducing operating expenses where possible purely as a precautionary step. These measures include pausing new campus openings, implementing a temporary external hiring freeze except for critical faculty members, deferring other non-essential capital expenditures, and reducing executive compensation. For our students, we implemented on a preemptive basis, temporary changes to some of our policies with the expectation that many of our students may experience some financial hardship during this mandated economic lockdown. These measures included waiving drop fees, extending deadlines to withdraw from courses, and discounting some tuition as needed. For example, given Capella’s concentration in healthcare and nursing, we are creating a scholarship for nurses to assist them should they decide to enroll. The company is also working with some corporate partners to be more flexible on corporate reimbursement arrangements. Turning now to an update on current business conditions. First and most importantly, both Strayer and Capella Universities are fully functioning and have had no interruptions nor do we expect any disruptions. Given the unique structure of our business model, which can be delivered by our staff remotely and consumed by our students remotely, we’ve seen very little change in our workforce productivity. Today, we have not seen higher levels of students dropping, withdrawing from classes, or failing to re-register for upcoming terms beyond what we would normally expect to see during this time of a quarter. For modeling purposes, we forecast the temporary COVID-19 relief measures I described for our students will result in a roughly 3% reduction in revenue per student for the second quarter versus the roughly flat revenue per student we talked about at our Investor Day last November. And in terms of the second quarter, leading demand-related metrics that we track on a daily basis, which includes visits to our various websites, digital search trends, inquiries for more information coming to the university, as well as applications for new enrollment have changed somewhat. Capella’s trends across these categories began to decline and in some cases sharply during mid-March and early April. However, since then they have recovered and are now tracking at levels above prior year. Strayer’s leading indicators have remained relatively stable and strong for the past eight weeks, essentially staying well above last year’s targets on a quarter-to-date basis. What portion of this demand translates into new student enrollment for either university remains to be seen as we’re still early in the quarter. Across both universities, we have also seen some reduction in employer-sponsored new students, which we attribute to the current economic downturn. We estimate that approximately 50% of our second quarter results were locked in prior to COVID-19 restrictions due to the fact that many of our students register for classes weeks in advance from the start of a term. And while we never give guidance given the unprecedented nature of this government-mandated economic shutdown, we would like to share with our owners what we are seeing in terms of potential second-quarter results. Based on the conditions we are seeing today, we would expect the following results in the following ranges for the second quarter: Enrollment growth of somewhere between 0% and 4%, revenue per student down approximately 3%, which will yield flat to slight growth in revenue with flat to slightly reduced operating expenses, yielding mid-single-digit growth in net income and earnings per share. In addition to supporting our own students, the company is also mobilizing its expertise, tools, and technologies to assist other parts of the education community that may be struggling during this crisis. We have made all courses on Sophia, our consumer-based learning platform which has ACE certified college-level courses, free to the general public until at least July 31, 2020. Since introducing this free offer, more than 45,000 people have registered for more than 100,000 courses. As people complete these courses and transfer them back to their primary institution, they can dramatically lower the remaining cost of their degree programs. Secondly, SEI is moving quickly to assist the nation’s HBCUs who may not have the capability to provide instruction to their students as a result of COVID-19. SEI is offering to allow any student from an affected HBCU to enroll in either Strayer or Capella free of charge, and with no expense to their home HBCU school. The students can then transfer earned credits back to their home institution once it resumes instruction. Third, the company is building the necessary technological tools to assist other post-secondary education institutions to provide their courses online and at scale. Given our view that most, if not all colleges and universities will both want and need to have a robust online capability post COVID-19, we see these investments, which we expect to be in the low single million dollar range, as an important new capability for SEI over the long-term. Our focus on this, I should note, will only be on technology and instructional support, and will not extend to marketing, admissions, or enrollment for other institutions. Finally, the company is making its universities available for public school districts whose high schools may be struggling in the wake of the sudden shift to 100% online learning. This would be done through a dual enrollment, where the student would continue to be enrolled in their high school as well as either Strayer or Capella University. Courses that are successfully completed can then be used to fulfill high school graduation requirements, as well as earning college credit. Presently, we expect no material adverse financial impact as a result of any of these offers to assist other institutions. Furthermore, as Rob mentioned, with our fortress balance sheet and two strong financially secure universities, we have no need to, have not asked for, and will not accept any supplementary federal COVID-19 related financial assistance. We will, however, be providing financial assistance to Strayer University students who were already enrolled in a ground class for the spring academic term when we canceled those classes and moved to them entirely online. This aid will be in the form of a scholarship to reduce their tuition, and we estimate the total impact to be approximately $1.5 million. In addition, we have earmarked another $1 million to assist employees experiencing financial hardships as a result of COVID-19. Notwithstanding these incremental operating expenses, and based on our ability to reduce operating expenses elsewhere, we expect total 2020 operating expenses to be roughly flat with the prior year. Our current approach, which I outlined this morning, reflects SEI’s desire to be as helpful as possible not just to our students, but also to the broader education community. We believe it is highly likely that online learning broadly and online degree instruction specifically will be even better positioned to serve the nation post COVID-19, and we further believe SEI will remain at the forefront in innovating digital instruction. Finally, I would like to extend my thanks to all of my colleagues at SEI for their tremendous resilience and ongoing mission-driven focus to serve our students. And with that, I’d like Dan to run through our first quarter financial results.

Thank you, Karl, and good morning everyone. Before I start, I wanted to point out that effective Q1 2020 we consolidated what was previously our Non-Degree segment into the Strayer and Capella segment. Historical numbers have been adjusted accordingly. So, year-over-year comparisons are consistent. I also want to remind everyone that our earnings release references as reported or GAAP results and adjusted results, which are non-GAAP. The adjusted numbers exclude charges and expenses that are non-recurring and/or related to our merger with Capella. Moving on to our Q1 results, our revenue for the first quarter of 2020 grew 7.6% to $265.3 million compared to $246.5 million in 2019, a reflection of strong enrollment growth at both Capella and Strayer Universities. New and total enrollment at Capella grew 17% and 4% respectively, while Strayer new and total enrollment grew 7% and 11% respectively. We held year-over-year adjusted operating expense growth to 2%, which drove 31% growth in adjusted operating income and adjusted operating margin expansion of 420 basis points for the quarter. Our bad debt expense for the first quarter was 4.2% of revenue compared to 5% for the same period in 2019. Our bad debt expense for the quarter includes an additional reserve we are taking in anticipation of the impact of some of the payment flexibility measures Karl referred to earlier. Adjusted earnings per share for the first quarter grew 27%, slightly lower than operating income growth due to lower investment income and a slightly higher tax rate compared to Q1 2019. Our investment income will continue to decline year-over-year through the balance of 2020 due to significantly lower interest rates. We expect our adjusted effective tax rate for the second quarter and full year 2020 to be approximately 28.5%. Moving to the balance sheet and cash flow, we generated $68.7 million in cash from operations during the quarter compared to $58.7 million during the first quarter of 2019 and ended the quarter with $56.3 million of cash, cash equivalents and marketable securities, no debt and $250 million of available credit on our revolver. Capital expenditures for the first quarter were $14.3 million compared to $8.8 million for the same period in 2019. The increase in CapEx was partially driven by the carryover of several projects from the fourth quarter of last year. For the full year 2020, we now expect capital expenditures to be at the lower end of our previous estimate between $40 million and $45 million.

Thank you, Dan. Thank you, Karl. A lot of material to digest, but operator, we’re happy to answer any questions.

Our first question comes from Jeff Silber from BMO Capital Markets.

Thank you so much. My apologies, I got on a little bit late. First of all, I’m glad to hear you’re all doing well and really appreciate what you’re doing for the industry, your students and employees. You mentioned the impact on corporate partnerships. I was wondering if we could just talk a little bit about that. What exactly are you seeing? Are companies just cutting it off? Are they reducing the number of employees that’s making available to them? Anything you can tell us would be great?

Sure. Good morning, Jeff. We’re not yet seeing any corporate partners eliminating or suspending or pausing tuition benefits. We haven’t seen that. In a small number of cases we have had corporate partners proactively reach out to us and ask for some flexibility on payment arrangements, which would be clearly a minority of our overall corporate partnerships. And as I said in my prepared remarks, we have seen across several corporate partners a reduction in what we would expect to be a normalized level of new student enrollment, which again, we attribute to the sharp economic downturn, the unemployment situation in the country and so forth.

Okay, great. That’s helpful. You gave a little bit of color on some of the demand trends you’re seeing now. I just want to focus on one. I think you had mentioned that Capella saw initially a sharp drop, but that has somewhat normalized since then. Any reason for that sharp drop that you’re aware of?

No. We monitor all of this information on a daily basis, and we tend to smooth the data sort of on a rolling 14-day average basis so that we don’t overreact to any one day. In early March, Capella’s early indicators, which are mostly things like web visits, inquiries began to decline quite sharply, but then about four weeks later reverse that trend entirely and started growing again on a double-digit basis year-over-year.

In with both Capella and Strayer are you seeing, I don’t know if you have this granularity, different types of students either looking for different programs than you were beforehand or maybe more undergrad versus grad? Again, any color would be great.

Well, we haven’t seen a change in the type of student coming to either university, recognizing that students at Capella are different than students at Strayer for exactly what you just said; Strayer being predominantly undergraduate, Capella being predominantly graduate. But the inquiries that we’re getting are consistent with the types of students that previously would enroll at either of those universities.

Okay, great. And then just one more quick one and forgive me if you mentioned this at the beginning of the call that I missed. From a capital allocation perspective, has anything changed in your mind? I mean, you’ve got a strong cash balance. I’m just curious what you’re focusing on there? Thanks.

Nothing has really changed, Jeff, with the exception that as we saw the economy start to shut down. I think we appropriately have become a little more conservative in terms of thinking about capital deployment. We don’t know how long this downturn is going to last. We think that if it lasts for an extended period, it would have a negative impact on our, particularly our new student enrollment. We’ve seen that before. And so, we’ve got a healthy dividend, which will continue. Other than that, we’re going to continue to look to allocate our capital in the most value-enhancing, highest return way that we can.

Okay, great. I’ll jump back in the queue. Thanks so much.

Thanks, Jeff.

Our next question comes from Alex Paris with Barrington Research.

Hi guys. Congratulations on the quarter. Among all the information you just gave us, one thing piqued my interest. A number of things piqued my interest. But the one I wanted to ask you about is in terms of your COVID-19 response, you’re assisting other educational institutions to provide online courses at scale. It’s a low single-digit million-dollar cost to you in the near-term. You think it’s a good idea, could result in some business opportunities down the road I’m presuming. Can you give us a little bit more color on that? Am I understanding that correctly?

Sure, Alex. Before COVID-19, the company began collaborating with Historically Black Colleges and Universities to enable them online and provide various SEI technologies for their use. This initiative was already in progress for about 18 months. When the pandemic emerged, our management team assessed the future landscape and recognized that online instruction would gain greater acceptance nationwide, which we had always believed. Additionally, we anticipated that many institutions would face challenges in transitioning online. Given our existing focus on HBCUs, it was natural to consider how we could assist other institutions in a similar manner. While our current technology is not designed to host several universities, enhancing our capabilities to do so is manageable, which is why we project the investment needed to be in the low single million dollar range. Our team is dedicated to this effort, and although we don't have a specific update to share, we expect significant demand for online enablement assistance, and we believe we can excel in this area.

So right now, you’re being a good corporate citizen and a good educational citizen and helping out HBCUs and other institutions. It could turn into a business though is what I’m asking down the road.

Clearly, it could. We don’t know when that is. The basis for us making the investment is to position the company to be able to both help other institutions and to build what could become, as you’ve noted, an entirely new business segment for us. In the short term, during this crisis, our focus is just to do whatever we can do to be helpful. As I said in my prepared remarks and particularly for HBCUs, we’re doing it at the company’s cost even though we don’t expect any material adverse financial impact in doing it. As we build these capabilities and get into a more normalized reopening of the economy and into 2021 and etc, then I think there will be an opportunity to help other institutions in a very cost-effective way given that we see with our productivity tools and other things that we have a cost-advantaged business model already.

I completely agree. I just have a couple of quick follow-up questions regarding Jeff’s inquiry about capital allocation, specifically your views on M&A. I believe M&A has always had potential, especially evident from our merger with Capella a few years ago. Considering the current COVID situation, I have a sense of what your answer might be, but I’d like to hear your thoughts on M&A in the near future, as well as in the intermediate and longer term.

Well, Alex, it’s Rob. In the near term, it’s rather impractical. We probably wouldn’t do a lot of M&A in situations where we can’t send people to go take a look at assets and facilities and people. In the intermediate and long-term, it’s on our stack of potential allocation of capital, but it’s generally below reinvestment in our own universities and in improving the academic outcomes of our own students. So I would say it’s virtually non-existent in the near-term and a lower but distinct priority in the intermediate and long-term.

Thank you for the response. Dan, regarding the transition of the boot camps into the Strayer segment, you mentioned the year-ago figures. Could you provide some restated segment data for the past year or two, or perhaps the last eight quarters?

Prior to last year, the information was already included in the Strayer results. 2018 was complicated due to the merger, making 2019 the only significant year with that data. We can review all four quarters of 2019 and will do so as we move ahead. For now, the restated data will be included in the Q we filed today.

Okay, I got you. So, we’ll just get Q2, Q3, Q4 of ‘19 as you report the same quarter of ‘20 going forward?

Correct.

Okay. Good, well, thank you all very much. Appreciate it.

Thank you, Alex.

And I’m not showing any further questions at this time. I’d like to turn the call back over to Rob.

Thank you, operator, and thank you very much, ladies and gentlemen. I want to assure you that we are socially distant here more than 8 feet away from each other. As Karl mentioned, we’re well suited for working remotely but we’re reachable. If you have questions, please give Dan a call and he can set up other communications. Look forward to speaking to you again at the end of the second quarter call in July. Thanks very much.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.