Welcome to Strategic Education's Fourth Quarter 2024 Results Conference Call. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Ms. Wilke, please go ahead.

Thank you. Hello, everyone, and welcome to Strategic Education's conference call, where we will discuss fourth quarter and full year 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 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. We were very pleased with SEI's 2024 full year results that we reported this morning, which reflect strong performance consistent with our notional operating model, which we highlighted during our Fall 2023 Investor Day. For the full year 2024, our revenue increased 8% and operating income increased 26%, generating almost 200 basis points of operating margin expansion. Our adjusted earnings per share grew 31% for the year to $4.87. Our operating performance was strong across all three segments. US higher education grew average total enrollment by 6% in 2024, and employer-affiliated enrollment grew faster, increasing 16% for the full year, reflecting the ongoing strength of our student retention. In US higher education, revenue increased 5% in 2024 but was down in the fourth quarter due to higher scholarships and the mix shift to employer-affiliated students. Our ongoing focus on productivity and disciplined cost management enabled us to keep expense growth well below revenue growth at US higher ed, enabling almost 30% growth in operating income for the full year. The Australia and New Zealand segment grew average total enrollment 5% for the year. The higher enrollment was driven predominantly by strong continued student enrollment. Australia and New Zealand segment revenue grew 11% in 2024 on a constant currency basis, driven by enrollment growth and higher revenue per student, which was aided primarily by students taking more courses per term as well as a small tuition increase. On a constant currency basis, ANZ operating income increased 3% in 2024. We continue to monitor and adapt to the evolving political and regulatory environment in Australia. The previously proposed international student cap was recently replaced with a new regulation that will attempt to govern international student immigration through the use of visa processing speed. Though we believe this change is more favorable than the previously proposed enrollment caps, we are still studying the issue and its potential impact on our ANZ enrollment moving forward. Our education technology services segment had a record year, growing revenue by more than 30% to over $100 million and operating income by almost 50%. Sophia Learning, our direct-to-consumer portal for college-level classes, exceeded our expectations last year, growing both subscribers and revenue by 35%. Workforce Edge also had a great year, adding another 11 corporate partners for a total of 76, collectively employing more than 3.8 million employees. In the fourth quarter, the Workforce Edge team launched our largest-ever employer partner, which includes a newer, higher-touch employer support model. During the fourth quarter, our operating expenses were higher as a result of several one-time implementation-related costs associated with this new partnership. We also expanded our more than decade-old partnership with Best Buy, converting it from a more standard tuition discount program to an all-inclusive Strayer University's Degrees@Work program, which offers eligible employees the opportunity to earn a certificate or master's degree from Strayer University at no cost to the employee. Our network of corporate partners remains one of SEI's major competitive strengths. In fact, more than 70% of the incremental total enrollment that we had in US higher education last year came through our corporate partners. We expect these partnerships will be a major driver of ETS revenue and income growth over the next five-plus years. Lastly, regarding capital allocation in 2024, we generated about $217 million pre-tax cash from operations. We paid $48 million in taxes, invested $41 million in capital expenditures, leaving us with $128 million of distributable free cash flow. We used this cash and our existing cash balance to return about $75 million to our owners through our $2.40 common dividend and roughly $15 million in share repurchases. We then repaid a $61 million balance on our revolver and refinanced a $250 million revolver, leaving us with just under $200 million of cash and marketable securities at the end of 2024. Overall, we were very pleased with our performance in 2024 across the board. I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support. On behalf of SEI, we would be happy to take questions.

Thank you. To withdraw your question, press star one one again. And that will come from the line of Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much. I want to first focus on enrollment trends. I know you do not guide to a specific enrollment number, but growth did slow to some extent in the back half of the year and was a little bit weaker than we had thought in 4Q. Was it just because the comps got tougher? Is there anything specifically going on either from a new enrollment or retention perspective?

Good morning, Jeff. No, I would say that as you heard in my prepared remarks, certainly, our corporate partnership enrollment remains strong. Our non-affiliated enrollment, the demand environment there continues to be strong. You may recall beginning really, I think, in the middle of last year when our enrollment was in the high single digits, we thought that at some point, it would normalize to our long-term trend and notional operating model average of about 5%. So it is going to move around in any one quarter. Some quarters, it will be above that. Other quarters, it might be slightly below. But over the long term, we range, which is reflected in our notional model that we presented at our last investor day.

Okay. I appreciate that. Can we shift gears to Australia and New Zealand? Can you give us a little bit more color from a regulatory perspective exactly what the changes might be?

So the Labor government had proposed these international student caps, which did not have enough support to pass the parliament that was necessary to be implemented. So instead, they issued what is called a ministerial direction, which has the effect that instead of having a hard cap through legislation, the government has indicated they are just going to use visa processing time to effectively get to the same level of international enrollment. So it remains to be seen in any one quarter or throughout the year what the timing may look like. But for the purposes of our own internal modeling, we are modeling as though those caps would be in place because the government has actually said they are going to level out the foreign migration into Australia at those levels.

And from a timing perspective, has that started already? Is that something you expect to happen over the next few months?

No, it has not yet. But that is because when they issued this ministerial directive, they said that all enrollment up until you hit that cap, those visas would be approved kind of at normal speed, and that is where we are at. Since we are at the very beginning of the year, it would not be until later in the year as our enrollment starts to buttress up against that cap number that we may start to see the visa slowdown.

Okay. Great. And if I could shift gears to the US government, obviously, a lot going on in Washington DC these days and you guys are physically there. Any potential impact on your business in terms of, you know, what DOE is doing? Do you think you might be able to get some potential students from folks that might be being let go?

Well, we have always had a large presence of federal government employees, particularly in the US. So that is something that we have seen before and could certainly continue. In terms of impact from the new administration, obviously, the new political appointees are still in the process of being confirmed. So we are continuing to monitor what is happening and will just continue to update any comments as more policy takes shape.

Alright. I will get back from the queue. Thanks.

Thank you. As a reminder, if you have a question, please press star one one. And that will come from the line of Alex Paris with Barrington Research. Your line is open.

Thank you, and thanks for taking my questions. I have a quick follow-up on ANZ. I read about the new ministerial directive. I heard your response. As I recall, Torrens is roughly fifty-fifty domestic and international. First of all, is that correct? And then second, what will you do later this year when your enrollment gets closer to that notional cap?

Well, Alex, over the last year, we have really worked to pivot with our marketing and advertising dollars to emphasize our domestic student enrollment. Historically, it has been about fifty-fifty. But, honestly, since the country reopened a couple of years ago, we have been dealing with visa lag times for a couple of years now, so that is something we are used to. Torrens has a great reputation in Australia. High-quality academic programs. We intend to market more than we have in the past to the domestic Australian market. And we are confident that notwithstanding whatever the delays may exist, we will be able to continue to grow the Australian enrollment over time.

Right. Helpful. And then on adjusted operating expense, it came in at $271 million, up about 10% year over year, pretty much in line with expectations. And then I look at the operating income from US Higher Education, ANZ, and ETS, and see some impact there. I am wondering, number one, the incremental expenditures for growth in ETS and to a lesser extent US higher education and ANZ. To what extent did those incremental investments impact adjusted operating income generally this year? I do realize that the AOI margin was up 190 bps, which is pretty close to where you had forecast at the beginning of the year. And should we expect 200 bps based on the notional model of adjusted operating income margin expansion in 2025, 2026, and over the foreseeable future?

Hey, Alex. This is Dan. The fourth quarter happened precisely how we expected it. And, yes, a big portion of the increase in expense was ETS related, as we have talked about several times this year, and definitely had an impact on their operating income. I think the expense base of $271 million is about where we need it in 2025. Obviously, there will be some seasonality with marketing investment, which is typically concentrated in the middle two quarters. But we think the expense base right now is in pretty good shape, even with the additional investment in ETS continuing through this year.

Okay. So just to be clear, the $271 million in adjusted operating expense in 2024 is approximately where it ought to be in 2025 based on need and requirement.

Yes. But, again, it will not be uniform throughout the four quarters. The two middle quarters, Q2 and Q3, are typically where we have more investment in marketing and are also the higher expense periods for ANZ, given that those are their two bigger quarters.

Gotcha. Got it.

Sorry. Just to address the other part of your question on 200 basis points, that is in our notional model. That is what we expect over the next several years.

Great. And then while we are on this guidance thing, perhaps you are feeling generous, how should we be thinking about enrollment and revenue growth in 2025? I think enrollment growth at US Higher Education and ANZ were up about 3%, roughly in line with the notional model. I think US higher education was a little low, and then ANZ at the lower end. And I think the long-term forecast is mid-single digits for US higher education and high single digits for ANZ. Should we expect acceleration in enrollment in 2025 versus 2024?

Well, obviously, we do not know what the enrollment is going to be in 2025 and beyond other than just given our history over many years, we are confident that we can grow the business at roughly mid-single digits over the long term. It would not surprise me if that were the case in 2025. Dan just gave you a pretty good direction on operating expenses, and I reiterated our notional of roughly 200 basis points of margin expansion. It remains to be seen, obviously, what is going to happen with revenue, but I personally feel good about the five-year plan that we laid out at our investor day in 2023.

Great. That is super helpful. Thank you, and I will get back in the queue.

Thank you. One moment for our next question. And that will come from the line of Jasper Bibb with Chorus Securities. Your line is open.

Hey. Good morning, guys. I apologize if my line has been cutting in and out. So I hope you can hear me clearly. I just wanted to level set on the framework for 2025. And I know there have been a couple of questions discussing this, but just can you clarify? So the framework is 2025. It sounds like that is revenue growth consistent with the notional model and 200 basis points of adjusted operating margin expansion. Do I have that right? And is there any other, I guess, detail on what we should expect for 2025 you are prepared to provide on the call today?

Yeah. Well, as you know, we do not provide any specific guidance. We did introduce a five-year plan back in the fall of 2023. We have a pretty good handle on expenses. We made a lot of the investments we needed to for ETS in the back half of 2024. So to Dan's earlier point, kind of the current run rate on expenses seems pretty good for the year. We are not trying to be coy. We just do not know what the revenue is going to be. Other than that, you know, we are disciplined cost managers, such that we feel good about the 200 basis points of margin expansion because we can adjust expenses up or down based on the actual volume of enrollment and revenue that we do see. But, yes, are we in that notional model over five years? We are.

Okay. Thanks. And then wanted to ask about the cadence of operating margin expansion. Maybe we should assume in this 2025 plan, I guess hoping you would comment on planned growth investments and what we could expect for a first half, second half split, as maybe the normal seasonality has been a little bit off in the past two years with some of the growth investments you have made.

Hey, Jasper. It is Dan. The quarterly margin is a little bit harder to peg. What we have anchored on is our notional model of 200 basis points. I think it is probably fair to assume that the margin will improve throughout the year, but to try and give you detailed quarterly guidance beyond that requires a little bit more view on revenue and enrollment.

Okay. Last one for me. I guess the revenue per student decline at US higher ed was steeper than we expected in the quarter. Can you maybe explain the drivers of that decline and then how we should think about revenue per student for US higher ed in 2025 if the employer channel continues to drive the growth there?

Yeah. It was about what we expected, Jasper, driven mostly by the continued shift to employer, but also scholarships at US Higher Ed were higher than we would typically expect. The 2025 revenue per student at US higher ed is likely to be pretty stable, maybe slightly up, but pretty stable.

I mean, it's okay, Jeff, but this is Rob. At the broadest level, we, in US higher ed, we do not see ourselves as big price takers. Our objective is to drive down the cost of the education for our students. The individual programs may have some variability and some opportunity on tuition. But in general, when we think about opportunity on tuition, it is to drive it down.

Okay. Thank you, guys.

Thank you. I am showing no further questions at this time. I would now like to turn the call back over to Mr. Karl McDonnell for closing remarks.

Thank you, everybody. We look forward to updating you on next quarter's results in about three months.

This concludes today's program. Thank you all for participating. You may now disconnect.