Thank you. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss third 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 third quarter 2024 results reflect continued growth across all of our businesses. For the third quarter, SEI's revenue grew 6% to $304 million and operating income grew 13% to $37 million. Our operating margin increased to 12.1%. Expenses in the quarter were slightly lower than we expected due to the timing of expenses and lower-than-expected bad debt. Adjusted earnings per share were $1.15 during the quarter, an increase of 19% from the prior year. Turning now to our segments. U.S. Higher Education delivered another quarter of growth, driven primarily by our employer-affiliated enrollment. Total enrollment in U.S. higher education grew by 5%, with employer-affiliated enrollment increasing 13% compared to last year, reflecting the ongoing strength of our corporate partnerships. During the quarter, the percentage of U.S. higher education enrollment coming from our corporate partnerships increased by 200 basis points to 30%. Student retention in U.S. higher education remained stable at 87%. In the third quarter, revenue from U.S. higher education grew by 3% while operating income increased by 10% compared to last year. Our Australia and New Zealand segment posted another quarter of total enrollment growth with enrollment increasing 5% from the prior year to more than 19,000 students. In the third quarter, revenue grew 11% on a constant currency basis from the prior year, driven by higher enrollment and revenue per student. The higher enrollment was driven predominantly by strong continuing student enrollment. ANZ's revenue per student increased by 6% due to a higher course load and a one-time benefit from non-refundable student deposits. On a constant currency basis, ANZ's operating income increased by 5% compared to the previous year. We are studying the proposed international student caps in Australia and expect to have a clear understanding of their potential impact if and when they are legislated. In the meantime, we are focused on domestic and other growth opportunities in Australia and New Zealand. Our Education Technology Services segment continued to perform well growing revenue by 26% and operating income by 30% compared to the prior year. Sophia Learning, our direct-to-consumer portal of college-level classes and a key component of many of our strategic corporate partnerships increased its revenue by 35% in the third quarter and generated a 49% operating margin. The average number of paid Sophia subscribers grew 33% to more than 45,000. During the quarter, Workforce Edge signed 4 new partnerships, including one with one of the nation's largest private sector employers and our largest ever corporate partner. As a result, the number of employees on the Workforce Edge platform now exceeds 3.7 million employees. Enrollments in Workforce Edge at Strayer or Capella University increased by 27%, reaching roughly 1,600 students. Lastly, a couple of points on capital allocation. First, during the third quarter, we paid down the remaining $60 million of our outstanding debt associated with the purchase of our Australian assets. And second, we paid $5 million to repurchase approximately 54,000 shares of common stock in the open market under our repurchase program. We now have $235 million of share repurchase authorization remaining through the end of 2025. In closing, we are pleased with the performance across our segments and we continue to focus on the success of our students and aim for a strong finish to 2024. And once again, I'd like to thank all of my colleagues at SEI for their ongoing commitment to our students. And with that, Gigi, we'd be happy to answer questions.

It's actually Jeff Silber with BMO. Hi, guys. I wanted to start first on the enrollment numbers. You guys have been posting very solid enrollment growth, including this past quarter, but it did slow a bit from what we've seen in prior quarters. Is there anything specifically going on? Is it just that the comps are getting tougher? Any color would be great.

There's nothing in particular going on, Jeff. We've commented a few times in prior quarters that we thought high single-digit or even double-digit growth was outside of the norm of what we would normally expect over a longer cycle. We've said for a long time, including at our Investor Day last year that we see the U.S. higher education business, in particular, as a mid-single-digit growth business, which is where it is in the third quarter.

Okay. That's fair enough. I appreciate that. If I can move on to Australia and New Zealand. You mentioned that you're studying the potential for the international caps. For those of us that are based here or not as close to the story, can you just tell us at a high level what's been proposed just so we can get an understanding of what's going on there.

Sure. The Australian government has proposed limiting the number of international students who can physically immigrate into Australia to approximately 270,000 students, which would be about half of what it was pre-COVID. These caps have to be legislated. It has to make its way through the Australian Parliament, which it has not done yet. I believe parliament is scheduled to meet later in November. So that would be the opportunity for these caps to become actually legislated and effectively ready for implementation in the first part of 2025. So we're obviously looking at the caps. We don't have anything more to say about them given that they're not legislated currently. But if and when that happens, we would certainly have more to comment on at that point.

Okay. Appreciate that. If I could just sneak in one more on Workforce Edge. You mentioned that the large client that you signed up. I'm not expecting you to name the specific client. But I'm just curious, was this a company that had done this before, and they shifted vendors? Or is this something new to them? Any insight there would be great.

Yeah. I can't. I'm not at liberty to disclose the partner today. But yes, this is a large company that had education benefits, had an existing relationship with another education benefit management partner and elected to switch to Workforce Edge. We went live with this corporate partner last week, and we're delighted to be serving them and look forward to a long relationship.

Hey, guys. Thanks for taking the question. Karl, first question, you said that expenses were lower than expected. I just wanted to get a little bit more color on the increased spending. As listeners will recall, you said last quarter that adjusted operating margins would not expand by 200 basis points because of increased investment, primarily in ETS, but also in other areas and instead maybe expand 150 to 175 basis points. So can I get a little bit more color on that comment?

Hey, Alex, this is Dan. I think, as you know, our expenses in the third quarter typically peak for the year because of marketing spend going into the fall term. Karl's comment on lower than expected related to some bad debt benefits, etc., that just reduced that slightly. Now at this point, we think the investments that we referred to in the last call we've made, you can see sequentially from quarter to quarter this year, expenses have been growing, and we think now the expense base we've got is about where it will be on a quarterly basis through the end of the year.

Good. That's helpful. And then again, I don't know if we discussed in detail last quarter what these increased investments are for in ETS, except that their investments are designed to accelerate growth. Can we get more specific about investments, marketing, technology, what have you? And then what are you doing in Australia, New Zealand in terms of increased spending? Is that marketing and brand building?

Well, in Australia, yes, predominantly, it's marketing, increased advertising, brand building. In ETS, now that we've disclosed that we signed a large corporate partner, a fair amount of these expenses were to hire advisers, coaches, and other positions that are dedicated to this corporate client. As Dan just said, we've made those investments now. We have that staff on board. So the run rate that we have now is what we would expect through the balance of the year.

Great. And then one last big picture question, again, just following up on the U.S. higher education enrollment growth. It's getting more into that mean. You were above mean in terms of growth rates you're getting back into the mid-single digit sort of thing. I wonder if you could offer us some additional color on the demand environment in general and cost per lead and things like that, cost per start.

The demand environment remains healthy and strong. We continue to see increases on a year-over-year basis on inquiries into the universities. As I said in my prepared remarks, our corporate partnership enrollment is very strong, more than double the growth rate than our non-corporate partners. So I'd say the overall demand environment is good. To your last question on acquisition costs, they've been trending down year-over-year this year.

Hey, guys. Good morning. I just wanted to clarify the earlier discussion on expense timing. Do you still think '24 operating margin expansion looks like 150 to 175 basis points based on what's in the 4Q plan? Or is it potentially higher than that now?

Jasper, this is Dan. It's going to likely be at the higher end of that range.

Okay. And then I wanted to follow up on the international student caps in Australia. My understanding of that rule was that the proposal was going to be allocated on a per-university basis. So could you just frame where international student enrollment has been running at Torrens relative to their proposed cap? And if this gets implemented, do you think where the cap is for Torrens right now would be a headwind for new enrollment growth in Australia and New Zealand next year?

Sure. International students historically, going back several years, would on average represent about half of the new cohort that we would have in any given term. Any cap whatsoever would be a reduction in that. But there are still some moving parts that haven't been clarified for us. So for example, if a university, assuming the caps were implemented, if one university in Australia is not able to use their caps, there's been talk about transferring some of that headroom to other institutions, and we would certainly think Torrens would be one of those. So until all of those questions get resolved, we think it's premature to talk about what exactly the cap might be for us.

The only other thing, Jasper, I would say is that we have the example of when we first acquired the institution. There was an effective cap because of COVID, and there were very few international students coming in. Torrens University was able to grow its enrollment by growing domestic students. There are a lot of moving parts that affect enrollment, a governmental limit on the number of international students coming in and certainly a negative to that, but there are various other ways in which the university is attracting students. So it's hard to say at this point what the ultimate resolution or impact will be, especially since we don't know the actual regulation and the details associated with our university.

Makes sense. And then just you took down the debt this quarter, I think that had been priority number one from a capital deployment perspective for a while. Any color on how you're thinking about repurchase at this point and into '25, now that's in the rearview mirror?

Well, Jasper, it's Rob. We look every quarter as a Board at the opportunities to employ our capital. The primary opportunity we always look at is investing in our existing businesses, particularly in improving the academic quality and success of our students because over time, that's proven to be the longest and most durable, high return investments for our owners. After that, we look to shore up our balance sheet. We went a long way towards that this quarter by paying down the remainder of that debt. The final use or the use that we look to after we've invested everything we need to support the business is returning capital to owners. We do it through both a common dividend and opportunistic share repurchases. We look to repurchase shares when we think they are trading at a significant discount to intrinsic value. And when we have excess cash, cash that is distributable to our owners without any negative impact on the business. We'll continue to conduct that analysis through the balance of 2024 and into 2025. To the degree that the outcome of that analysis results in the opportunity to purchase shares, we certainly are eager to do that.

Got it. Last one for me. Revenue per student at U.S. higher ed is down, I think 2% in the quarter. I think the long-term algorithm you talked about was basically flat. I just wanted to follow up on the drivers of the decline in the quarter. As you look at your 2025 planning, should we think about that as flat or potentially down 1% to 2%?

Jasper, this is Dan. The primary drivers are the continued mix shift to employer. I think the planning metric going forward should still be roughly stable revenue per student. But if we continue to see a shift to more employer, it could be a little bit to the downside, but not much.

Got it. Thanks for taking the questions, guys.

Thank you, everyone, for joining us this morning, and we look forward to discussing our results next quarter with you. Thank you.

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