Thank you for standing by, and welcome to the Strategic Education's First Quarter 2024 Results Conference Call. As a reminder, today's program is being recorded. I will now 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 first quarter 2024 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. Our first quarter 2024 results reflect continued strength across all of our segments. Before we begin, and as is normally the case, I'd like to start by pointing out that all of my references to our financial results are to our adjusted results, and they assume a constant currency for foreign exchange purposes. For the first quarter, our revenue grew 14% to $292 million. Our operating expenses grew 3%, which was in line with our expectations, and our operating income grew by more than 4x to $36 million. Our operating margin increased 910 basis points. During the quarter, we generated an incremental $28 million of operating income from $36 million of incremental revenue. That 78% marginal contribution is a bit more than we would normally expect, and it reflects the fact that many of our planned investments this year are timed to occur in the second half of the year to support our growth initiatives for 2025. During the quarter, we generated $1.11 earnings per share, which was more than a 350% increase. Turning now to our segments. U.S. Higher Education delivered another quarter of strong growth driven once again by employer-affiliated enrollment. Total enrollment in U.S. higher education for the first quarter grew 10%, with total employer-affiliated enrollment growing more than double that rate at 22% from the prior year, reflecting continued strength in our corporate partnerships. During the quarter, the percentage of total U.S. Higher Education enrollment coming from our corporate partnerships increased 300 basis points to 29%. Student retention at U.S. Higher Education remained stable at 87%. In the first quarter, U.S. Higher Education revenue grew 11% and operating income grew 192% from the prior year. Our Education, Technology & Services segment also continued to see strength with both Sophia and Workforce Edge continuing to gain market share. In the first quarter, ETS revenue grew 30%, and operating income increased 74% from the prior year. Sophia Learning, our direct-to-consumer portal of college-level classes, grew its revenue in the first quarter by 45% and generated a 51% operating margin, which is up from 44% in the prior year. Average total paid subscribers grew 42% to more than 39,000 paid subscribers. Workforce Edge now has 68 corporate partners who collectively employ approximately 1.5 million employees. Workforce Edge enrollments into either Strayer or Capella University grew 62% to approximately 1,600 students. Our Australia, New Zealand segment returned to total enrollment growth in the first quarter, with enrollment increasing 5% from the prior year to 2,197 students. In the first quarter, revenue on a constant currency basis grew 19% from the prior year, driven by higher enrollment and revenue per student. The higher enrollment was driven by onshore international enrollment, meaning international students already in Australia that either reenrolled or transferred to Torrens University during the quarter. Increased course load contributed to a 14% increase in revenue per student, which, as we've previously noted, is partly due to the resumption of the Australian requirement for international students to take more courses on campus. On a constant currency basis, the loss from operations was $2.2 million in the first quarter, improving from a loss from operations of $7.2 million in the prior year. As we've noted before, ANZ first quarter revenue is the low point in the year due to relatively fewer instructional days during the quarter as it's the Australian summer. Our expenses, on the other hand, are incurred somewhat evenly throughout the year. In closing, we are very pleased with our continued momentum across our business and are working towards a successful 2024. Once again, I'd like to thank all of my colleagues within SEI for your ongoing commitment to our students. With that, Jonathan, we'd be happy to take questions.

And our first question comes from the line of Jeff Silber from BMO Capital Markets.

You had given some prior guidance, I guess, or an outlook for 2024, I think, on your Investor Day last November, gave a little bit of an update last quarter. If I remember correctly, we were looking for something like 4% to 6% revenue growth and adjusted operating margins up 200 basis points for the year. Are you still comfortable with that given the strong job performance in 1Q?

Well, Jeff, the outlook that we provided at Investor Day was intended to be illustrative to educate owners about how the business works and the relationship between revenue growth that we have and our disciplined expense management, where we do expect margin expansion but it's not guidance, and we don't provide forward-looking outlooks ever.

Okay. Let me ask another question that might be forward-looking but does not contain specific guidance. There has been a lot of media attention regarding the issues with the Department of Education and the faster rollout. How do you believe this will affect your business in the future?

All I can say is we've not seen any impact to date. As I just said, I can't speak to what might happen in the future. But so far, we haven't seen any disruptions across either Strayer or Capella.

Okay. I guess it's a little bit too early to see that.

And our next question comes from the line of Jasper Bibb from Truist Securities.

I guess just kind of curious how we should think about enrollment growth in U.S. Higher Ed over the balance of the year. I mean enrollments were up 10% this quarter. I think in the annual report, you talked about 10% plus new at both Strayer and Capella. So I mean, has there been any change in retention that would drive moderating enrollment growth over the balance of the year? Or do you think staying in that low double-digit range would be achievable?

Actually, retention has either been stable or improving throughout 2023 into the first quarter. It's probably good to remind owners that one of the dynamics of our business is the momentum that's generated across, say, 4 to 6 quarters, that momentum continues forward. As we've said before, even if we were to stop growing, we'd likely continue to grow for several quarters just based on what's happened in the previous year. Because we had such a strong 2023 both new student growth and total enrollment growth, that momentum is carrying through 2024. I can't speak to what the enrollment is going to be in quarters 2, 3, and 4 other than to point out the momentum that we had last year definitely helps us this year.

Maybe just following up on that, like the student interest, new enrollment for the U.S. seems pretty strong right now. I guess if you just look back to maybe the experience of 2020 to '22 versus what you've seen in '23 and this year-to-date, what do you think is driving, I guess, inflection there as far as student interest in new enrollment?

Well, '20 to '22, we were really adversely impacted on the Strayer side with the complete closing of all the campuses. The fact that those have reopened has definitely been a catalyst. But I'd say across U.S. Higher Education, the biggest catalyst by far is the ongoing momentum and strength in our corporate partnerships. We have over 1,000 of those partnerships. We see strength across all of the sectors that are represented in that portfolio of partners. As I said in my prepared remarks, the mix of those students increased another 300 basis points. So basically one out of every three U.S. higher education students is coming from a corporate partnership. That is the clear differentiator and what's driving a lot of our performance.

Jasper, it's Rob. I'd also say that, as Karl pointed out, we were severely impacted in 2021, '22 with our campus shutdowns, but also with a damaged macroeconomic situation. I mean the employment confidence was shocking. And we've always thought that employment confidence and labor participation rates are kind of the most telling metrics for our future student enrollment in the United States. Right now, the macroeconomic situation is pretty healthy, mildly inflationary, but very strong employment confidence and that very strong labor participation rates, and that's what tends to drive macroeconomic demand for our working adult students.

That's very helpful context. I guess last one for me. The enrollments in Australia this quarter were a bit stronger than we anticipated. I was just hoping you could give a bit more detail on what you're seeing with international enrollments, I guess, both domestic transfers and also new international also, just kind of curious how the changes to the visa and immigration rules there might be impacting your business?

Yes, I would say that the visa situation remains somewhat unclear regarding the Australian government's plans. We are experiencing some delays in lease approvals. Our understanding is that this is not specific to Torrens; most non-GE universities in Australia are facing similar challenges. That segment of the business actually contracted in the first quarter compared to last year. However, the number of students already on visas in Australia who are able to transfer increased significantly, which was more than enough to compensate for the decline in new visa applications from international students. Additionally, some growth in our domestic market helped us achieve a total enrollment increase of 5%. We were very pleased to see that.

And our next question comes from the line of Heather Balsky from BofA.

This is Emily Marzo on for Heather Balsky. First question is when it comes to ANZ and the increased course load and revenue per student, can you give us some color on how we should think about that moving forward through the rest of the year?

Yes. If you remember, the rule change requiring courses to be taken in the country on the ground occurred midyear last year. As we approach the anniversary of that change in 2024, we expect some of the increase to moderate. Additionally, we implemented a smaller tuition increase this year compared to what has been done in previous years. Do you have any specific questions?

Yes. Emily, I think the improvements that Karl just mentioned that we are calendaring in the latter half of the year will likely lead to more stable revenue per student, which is generally, as I've told you before, that's what we plan around.

Okay. Great. You had some great corporate partnerships. I'm wondering if you could give us any color on Strayer and Capella and if there's any specific program that's drawing interest? Or any color you could give us on the two different programs there.

Sure. At Capella, it's significantly weighted to healthcare, and depending on the quarter and certainly throughout last year, the mix percentage of new students from corporate partnerships at Capella has increased substantially, in some quarters getting close to or if not over 40%. So healthcare is the clear driver at Capella. Strayer's more business-oriented, more undergraduate, and we've seen strong growth albeit slightly stronger growth at Capella, but nevertheless, we continue to see strong growth across U.S. higher ed and really a wide array of partners.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Karl McDonnell for any further remarks.

Thank you, everyone, for joining us this morning, and we look forward to discussing our second quarter results with you in a few months. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.