Strategic Education, Inc. (STRA) Earnings Call Transcript & Summary

Good morning, and welcome to Strategic Education's Investor and Analyst Day 2023. I'm Terese Wilke, Director of Investor Relations, and we are so pleased you are able to join us. Before we begin, I'd like to remind you that this presentation 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 could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Strategic Education's annual report on Form 10-K, 10-Qs and other filings with the Securities and Exchange Commission. All Strategic Education filings are available for viewing on our website at strategiceducation.com. And now after a brief introductory video, Robert Silberman, Chairman of Strategic Education, will provide opening remarks. We kindly ask you to hold questions until the end of each of our 3 segment presentations. Robert Silberman, Karl McDonnell and Daniel Jackson will also be taking questions at the end of our presentation. Thank you. Let's get started. [Presentation]

I'm going to make sure I don't read Terese's comments. So -- thank you, Terese, and good morning, ladies and gentlemen. It's my pleasure to welcome all of you, both our attendees here in New York as well as our shareholders listening around the world on our webcast to SEI's 2023 Investor Day. I have the easiest job today, consisting solely of introducing what in my admittedly biased point of view is the best management team in the higher education space. However, I did want to make 3 brief points to both preface and set in context the presentations that you're going to hear this morning. The first is that SEI has a very experienced, dedicated, committed and mission-driven team. The average tenure at SEI of our senior managers is close to 20 years. We all take a very long view of our operations and our results. We have seen a lot, we have managed through a lot, and we've learned a lot. The second point is that our senior management team understands that SEI is, at its core, the steward of important educational institutions. Because of that, on all business and operating decisions, we always saw first for the academic success of our current and future students. We know that, that academic success of our students is the only true generator of sustainable long-term attractive returns on our shareholders' invested capital. And the third point is that in stewarding first-rate academic institutions, we run an inherently, operationally, levered business, relatively small increases in student enrollment and, therefore, revenue, have outsized positive impacts on our generation of operating income and cash flow. Indeed, we believe that modest mid-single-digit enrollment and revenue growth over the next 5 years should create cash and net income growth, which will compound annually in excess of an average of 20% per year. However, and most importantly, that financial performance is solely dependent on our commitment to maintaining the academic quality of our institutions, which in turn ensures the value of our educational offerings to our students. And I can tell you from long, close, personal observation that the management team, which you'll hear from this morning, both understands that dependence and welcomes that challenge. And so with that, I'll let me kick things off by introducing our President and Chief Executive Officer, Karl McDonnell.

All right. Good morning. Thank you for those of you that are with us in-person, and welcome to everybody online. I want to kick off by echoing what Rob said about our management team. And I've had the good fortune of working with a lot of great leaders and a lot of great companies. And this is the best management team that I've ever had the privilege of being associated with. And I would describe our management team as very driven and very competitive, but with a collective low ego, and a lot of humility. And it's an absolute privilege and honor to be working alongside this group. So I'm looking forward to you having the opportunity to interacting with them. I have several objectives this morning for our Investor Day. Obviously, I want to give you an overview of our corporate strategy. I'd like to talk a little bit about how we organize the company and our culture and our people. And at the end of my remarks, I'm going to provide a new notional 5-year outlook for the company. I think the best place to start in having a conversation about SEI and our strategy is to really understand our stewardship principles, which you can see here. And let me start with our mission, because I think it's important that our owners have a deep understanding of exactly what we're trying to accomplish. Our mission has 3 elements that drive every operating decision we make. The first element is we want to get as many of our students through their academic programs as we can successfully. It's impossible for a student to truly monetize the value of their credential, their degree if they don't successfully complete the program. So that's always first, our highest priority. Second, we want to quicken the time that it takes people to get through their programs. You can think about FlexPath as being an element that is designed to get people through their academic programs in about half the time and half the cost. But also now we have Sophia Learning, which you're going to hear a lot about later with Joe Schaefer. And we allow students at Strayer and Capella to use Sophia for free, foregoing tuition revenue that we would otherwise get, such that they're able to complete their program sooner. And the third element of our mission is we want to lower the overall cost of the program. And in particular, we want to lower the amount of debt. And one of our primary strategies is to over time, work to transfer 100% of our revenue, if we're able, from Title IV lending to private sector employer pay. Now the rest of these tenets being student-centric and quality-focused, having high standards and a long-term orientation, those are what I would just refer to as kind of advanced common sense in terms of how you should operate an organization. But they absolutely drive everything that we do as a management team. Next, I'd like to provide you with an overview of the assets that we actually own and operate, starting in the United States, where we have 2 of the best adult-focused digital universities in the country with Strayer and Capella Universities. And I would actually go so far this morning as to say that I think Capella University right now is the strongest adult-focused digital university in the United States. But both of these universities are in the midst of multiyear highs on academic achievement. Both of them participate in the largest corporate partnership network in the United States with more than 1,200 relationships. Both of them will exit this year with enrollment growth rates approaching 10%. And in a normalized environment, both have very high contribution margins. In fact, Capella University right now, excluding corporate overhead, has a contribution margin approaching 30%. Strayer's margin is artificially depressed due to the adverse impact of lower enrollment during the pandemic, but we fully expect Strayer's margin to recover over time also into the mid-20% range. In Australia, the largest asset that we acquired when we made the acquisition of these Australian assets back in 2020 is Torrens University, Australia. Torrens is one of 43 federally licensed universities, and it's the only investor-funded university in Australia. And inside of 10 years, Torrens grew from nothing, obviously, to close to 20,000 students. And also within 10 years, is now recognized in many of the most important academic components or categories within Australia as being a top 10 university, which is an incredible feat to have accomplished in just 10 years. We also own Think College, which is a relatively small vocational, primarily health care, subdegree credentialing school. And we also own the Media Design School, which is one of the world's most renowned graphic art, gaming and technology organizations. And then the most nascent part of our organization, but the fastest growing and with the highest margin is our Education Technology and Services segment, which consists primarily of Workforce Edge and Sophia. Workforce Edge is a technology platform that SEI built that enables us to manage education benefits on behalf of large employers. In just under 2 years, we went from no clients and no employees on the platform to now 60 clients and approaching 1.5 million employees on the platform. We allow our corporate clients to use Workforce Edge for free, and we monetize Workforce Edge when employees at the employers that we have contracts with decide to attend either Strayer or Capella University. Sophia is our direct-to-consumer SaaS application. It's a portal of high-quality general education courses that have all been recommended by the American Council on Education. And a subscriber pays a very low monthly fee, roughly $99 a month. And in exchange for that, they have access to Sophia's full catalog of high-quality gen ed courses. And the idea is you go to Sophia, you pay $99, you successfully complete a course and then you transfer the credit for that course to an institution. That clearly enables you to get through your program quicker and at a much lower cost. Joe Schaefer, our President of ETS, will share some statistics about the amount of tuition dollars that we've saved Sophia subscribers over the last several years. These assets compete in very attractive markets to us. In the United States, certainly post-COVID, you've seen a dramatic shift in both the popularity and legitimacy of online learning. So having 2 of the best adult-focused digital universities in the United States sets us up very well here. And in Australia, higher education is actually Australia's third largest export. And so being one of only 43 universities in Australia, we believe that over time, we will more than double our student body from its existing 20,000 to ultimately 40,000 and 50,000 and beyond and also getting Torrens' margins into the mid- to high-20% on a contribution basis. I think this slide is really the key to understanding our strategy. This is the crux of our strategy, which is our strategy is to directly confront and solve the issues around what's not working in higher education today, both for students and for large employers. Or all employers, frankly. We hear constantly from students that higher education is too expensive. It takes too long. The outcomes are uneven, and it's very inflexible. From employers -- and we hear this from our 1,200-plus corporate clients all the time -- they're in a constant war for talent. There's high turnover, extreme dissatisfaction with the quality of graduates coming out of schools. And the nation's employers are having to spend hundreds of billions of dollars every single year trying to get their workforce trained in the way that they need them to be trained. And that just has extreme frustration with higher education today. And so we're trying to put ourselves directly in the middle of solving both ends of those issues. For students, we want to make programs more affordable, more accessible. We want the skills to be relevant to employers so that when they get into their career, they're much more effective. There's less of a need on the part of the employer to train them, and we want, obviously, to do that to the extent that we can so there's 0 tuition to the student and therefore, 0 debt. And if we're able to do that, we'll help the nation's employers deal with this war for talent. We have data over many years that suggest when employees of an organization partake in education benefits, turnover is dramatically reduced. And, in many cases, reduced by as much as 50%. And if you can reduce the turnover for a large employer in key roles by 50%, it really becomes a self-funding benefit that when all is said and done, ends up costing the employer nothing. The kinds of things that will enable us to be successful in executing these strategies, be it a lot of experience in the digital learning space, an advanced technological infrastructure, having connections to industry, diverse portfolio, these are all SEI strengths. So as we execute against the strategy over the years, we feel we're well positioned to be successful. Let me talk for a minute about how we organize the company. We think of this as kind of horizontal integration, if you will. And that means we leverage large shared services that provide centers of excellence for all parts of our organization. And that really enables us to do 3 things: First, it enables us to identify best practices and share those best practices across the company as fast as possible. Second, it enables us to innovate more quickly. And third, it enables us to be synergistic. And when I say synergistic, I mean both from a revenue synergy standpoint as well as a productivity or cost synergy standpoint. Productivity is a major goal of the company because it's the only way over time we're going to be able to lower the cost of our academic programs, both to just our straight consumer students but also for our corporate students or students that come via our corporate affiliations. Vertical integration, or the bundling of our assets in creative ways, is a major part of how we differentiate ourselves. And really, I would argue, this set of assets are really unmatched anywhere in higher education. You'll hear Joe later talk about how we bundle Sophia with Workforce Edge so that we can effectively lower our tuition down to match the company's benefit, such that the company can offer students a completely tuition-free, debt-free degree. There's not another organization in the country that has that capability and can match SEI's offerings. And throughout today, I think you'll hear a lot of examples from our team about how we're thinking about bundling all these assets in ways that benefit our students, and as I said at the outset, directly connect to our mission. I also want to speak to the fact that our culture and our team, in my view, is very much a competitive advantage for us. We've got an agile, entrepreneurial culture of experimentation. We want to give a voice to every single employee to SEI to contribute to the constant search for a better way of doing things. And we have actually a whole technological infrastructure set up internally where people can submit their ideas around, I think we should do this differently. And we particularly want to hear from people who are on the -- what we would call the frontline or student-facing roles. And I'm probably the worst person to have an idea around how to improve faculty advising, for example. But our faculty advisers certainly have a point of view, and we want to give them a voice, such that anyone in the organization can contribute to us being better. And this is where a lot of humility comes in and low ego because we never assume any one of us has all the answers. And that a spark -- a little spark of a great idea can truly come from anywhere. And our people are so connected to our mission. If any of you were fortunate enough to attend one of our graduations and you just randomly went around and talked to 25 people, among the first things that you would be impressed upon you is the degree to which these people are absolutely committed to SEI's mission and SEI's students. Now obviously, in a world where digital learning is the future, having a very robust technological infrastructure is enormously important. And I just want to describe for our owners that I would say SEI's technology is best of class in nearly every case. We've got some of the most advanced cloud computing platforms that are available that enable things like very advanced predictive analytics for our management team. SEI has been and will continue to be a leader in the use of artificial intelligence. When you hear from our U.S. Higher Education team, you'll hear a little case study on how we've used AI already. One of the things that I'm also very proud of is the fact that we're one of the best and biggest partners to the ed tech community in the United States, such that if you're an entrepreneur in the ed tech space, you've got an emerging piece of technology. You're not sure of the efficacy. We invite you to come to SEI and in particular, Capella and Strayer universities and test your product with our students. And we run dozens and dozens of little experiments every academic term to see what might emerge as something that could be truly effective in deepening learning or helping students get through their programs more quickly. And then our team will iterate with the entrepreneur and say, well, if you tweak this, you should do this differently to make the product better. And we've done -- there's countless examples of this over the last 5 to 10 years, and we want to be the nation's premier partner to the best ed tech entrepreneurs in the country. Now obviously, we operate in a heavily regulated industry. And I think many of our owners understand the regulations that we operate within, but I am going to take a minute to go through them. But before I do that, I just want to say that SEI absolutely agrees with the fact that higher education, A, should be heavily regulated. And we also agree with the stated objectives of what the U.S. Department of Education is trying to accomplish, which is to improve student outcomes and to lower debt. And as I said earlier, our strategy centers on trying to take all of our revenue away from Title IV as a source and transfer that responsibility to pay for college to the nation's top employers. The key metrics that we work within -- or the key regulations, rather, are here. First and foremost, the financial responsibility metric, the financial composite score is a metric that applies to all institutions in the United States. And it's a metric that's essentially designed to assess the financial health of an institution. And it's a complicated metric, and it's very complex. If anyone has an interest and really learning it and deconstructing it, as some of our owners do, I invite you to get with Dan Jackson off-line. But there's a level below which you're considered to not be financially healthy. And if you fall below that level, you are subject to additional scrutiny and regulatory constraints, such as having to post letters of credit against your Title IV disbursements. And it just opens you up to incredible levels of additional scrutiny. SEI has always tried to maintain a healthy margin of safety above that non-passing threshold, such that we make capital allocation decisions, resource allocation decisions that maintain that buffer. That if you were only solving for some financial optimization of a balance sheet or a transaction using all cash or not issuing shares when you're making an acquisition, you could make a better financial decision, but you would open yourself up to failing the score, and that's not something we're going to do. So we will -- even if it's financially inefficient on occasion, we're going to solve for compliance with this financial composite score rather than optimizing balance sheet or capital allocation, things like that. The 90/10 metric only applies to investor-funded institutions. And the 90/10 rule states that at least 10% of your cash revenue in any given year must be from nonfederal fund sources. And both Strayer and Capella Universities have traditionally done very well in this metric, and we expect to be in compliance moving forward. The new gainful employment regulation, we've carefully reviewed. And at this time, we're confident that no programs that either Strayer or Capella University would fail the new gainful employment metric. I want to speak for a minute about 2023 because it's been one of our best years, one of the highest performing years that I can remember. And I think it would be beneficial to kind of walk you through where we're at vis-a-vis our goals. When we started the year, our primary goal was to continue the recovery of Strayer University. Strayer University has a decentralized local operating model that relies on local campuses in communities, and the employees of those campus are residents of those communities. And that's how we've always enrolled students via that campus network. During COVID, we had to shutter that whole operation for the better part of 2 years. And it was not an operating model that was ever used to conducting itself with remote work, unlike Capella University, which has always been online and had some familiarity with remote work. And I'm going to just fast forward a minute to show you the both the very steep enrollment decline that we had at Strayer University, which was the sharpest decline that I've seen in my 17 years with the company, although there had been some other declines. But you can see in 2021, when we reopened the campuses, we saw just a sharp of a recovery. And when we were in the midst of the enrollment decline, based on our experience with prior reductions or prior periods of enrollment decline, we estimated at that point, it would take Strayer probably 2 years before it would return to year-over-year total enrollment growth. And you could see they accomplished it in essentially 1 year, which is about half of what we were expecting when we were planning our budgets and so forth. We also are very, very proud of the work that Capella has done in repositioning Capella from a relatively flat to very low growing enterprise to an institution that, as I said, will exit this year, growing close to 10%. If you went back a decade and you looked at Capella's revenue growth, you'd see a very stable line that would hover somewhere between 1% and 3%. Andy Watt, who you're going to meet momentarily, and his team made a very convincing argument to the Board of Directors that we should dramatically increase our advertising investment in Capella because we want to position Capella as the nation's premier adult-focused digital university. When we made that investment, which we agreed to, it reduced Capella's margin. But the argument was, it would reposition permanently structurally as long as we maintained a certain level of investment, Capella had a much higher growth rate, and that has worked. Since we made that investment in 2022 and Andy can share the exact number of quarters. Every single quarter since we made that investment, Capella's new student growth has been in double digits. So repositioning Capella has been a huge success this year, repositioning Capella's growth rate. We're in the midst of having our best ever year on corporate partnerships. So we've got 1,200 of these corporate partnerships, 1 in 3 basically students at SEI, well, in the United States at Strayer or Capella University is affiliated with one of our corporate partnerships. I'm not aware of another adult-focused digital university in the United States that can say that. We've got small accounts, we've got big accounts. Some of our largest accounts are growing this year, new students, 20%, 30%, even 40%. So this is clearly probably SEI's strongest competitive advantage, this very robust network of corporate partnerships. It would take an institution many, many years, if not decades, to try to replicate what we have with our corporate network. Sophia and Workforce Edge are in the midst of terrific years. And I don't want to steal Joe's thunder, but Sophia Learning, as an example, was essentially an asset that we owned. We never really figured out what to do with it. In its best year pre-pandemic, it might have done a few million dollars, $2 million, $3 million. Sophia learning this year is on track to do basically $35 million with a 40 -- mid-40% margin, and that's a business that we think ultimately will get to over $100 million with a 50% margin. So an absolutely terrific asset. Workforce Edge is on its way to becoming the country's best education benefits management technology, competing head-to-head against Skilled, EdAssist and Stride others. And in the back half of this year, we're very pleased to see Torrens University return to new student growth. Obviously, they operated in one of the harshest COVID-related lockdowns anywhere in the world. Getting the normalized operating environment back has been huge for Torrens, and we're very optimistic that they'll be growing in 2024. In terms of our long-term objectives, as I said when I was going through the regulatory slide, the first thing that we always saw for, and we have a culture of compliance actually is to always maintain the strictest compliance with any regulations that we face and our accreditor standards as well. Once we're confident that we're -- we have the right posture from a quality standpoint, we want to generate sustained revenue growth. And we believe, as an organization, given the current environment, given current demand levels, what we see sort of in the near-term future, we should be able to sustain mid- to high-single-digit revenue growth. To the extent, as we grow, we can strengthen our competitive position, that's also a key priority for us. If we're successful in positioning Workforce Edge as the country's premier platform to manage education benefits on the part of employers, we absolutely will build one of the largest competitive advantages anywhere in the country in the higher ed space. And just let me talk about how that would work for just a second. We give the platform away for free. We allow our employers to use it for free. We amass millions of employees on the platform. Those employees have access to a curated set of schools where we have negotiated a discount, such that the employers can cover a large part of the tuition expense, with Strayer and Capella typically being the only institutions on the platform that will offer a completely tuition-free, debt-free degree. And we expect basically over time to be able to get somewhere between a 0.5% of 1% to 1% yield, if you will, of all the employees on the platform deciding to enroll in Strayer and Capella. And if we're able to get 3 million, 4 million or 5 million employees on the platform and that yield of 0.5% to 1% holds, that would mean that we would be getting 10,000 to 20,000 new students every year with virtually no acquisition cost as a result of having Workforce Edge. So we're very eager to continue to invest in that product. I think we're very skilled at managing expenses and looking for productivity. If you go back 5 years and looked just at corporate overhead, I'd say our corporate overhead growth has been limited to somewhere between 1% and 2% per year over 5 years. And of course, we've got wage inflation and other things that are much higher than that. So the management team is very skilled at looking at ways to offset increases in incremental investments that we make. We'll continue to do that. And then obviously, we want to maintain a very healthy, welcoming, vibrant culture where our people can do their absolute best work each and every day. In terms of what we think is possible for the next 5 years, we think that we can generate consistent revenue growth of somewhere between 4% and 5% each year. We think we can limit the growth in our expenses to somewhere between 2% and 3%, which would yield a 200 basis point gain of margin each year and compounded net income and cash growth of 20% per year. And if you make those assumptions and go out 5 years, this is where we see the organization. You can see that in U.S. Higher Education, we'd get to $1 billion and a 17% EBIT margin. That's fully burdened. Education Technology Services would essentially double to $150 million with a 50% EBIT margin. And our Australia, New Zealand would add just over $100 million of incremental revenue, getting to $350 million at a 25% EBIT margin. And so the company as a whole would be at $1.5 billion with 22% EBIT margin. And I don't look at this plan personally and think that it's going to take any amount of necessarily heroics. Or said differently, I think this is an immensely achievable plan. And I'm looking forward to working with our management team over the next 5 years to executing against it. And with that, I'm going to invite Andy Watt and Constance St. Germain and Andrea Backman to go through their overview of U.S. Higher Education. [Presentation]

Good morning, everybody. As Karl mentioned, my name is Andy Watt, and I'm the President of U.S. Higher Education here at SEI. Along with my colleagues, Dr. Constance St. Germain, who is President of Capella University; and Dr. Andrea Backman, who is President of Strayer University, we're going to spend the next 45 minutes or so going a bit deeper into the U.S. Higher Education segment, specifically talking about Capella and Strayer. I'd first like to say though that I'm incredibly proud to be here today to represent literally hundreds and hundreds of dedicated staff and faculty who every day put their energy, their smarts, their passion into helping our students be successful. I can tell you, I've been with the organization now for 21 years. And one of the main reasons I've stayed within the organization, and I know is the reason so many others stay for so long as well, is that we collectively, as an organization, believe we have the power to change people's lives. I want to spend a few minutes here, just giving you a high-level overview of Capella and Strayer. While both institutions are adult-focused, they have very unique and different histories. And that gives them some characteristics that are different in terms of how they go to market and support students today. First, I'll talk about Strayer. Strayer was actually founded over 130 years ago and has had a long history of supporting adult students to meet what is an ever-changing economic and job landscape. In fact, Strayer was founded in 1892 to teach shorthand, accounting and typing skills to farm workers. So obviously, a pretty long history. Since then, Strayer's continued to evolve with the economic landscape, staying at the forefront of making sure students have the skills necessary to be valuable in the workplace, and today has bachelors and masters programs delivered primarily online but also integrated through a network of campuses that provide extra support for the students. Capella on the other hand, is about 30 years old. Capella was founded actually with the opportunity of seeing the Internet emerge as a new tool that could create flexibility and access to professionals in career who are looking to advance in their profession with a graduate degree. And Capella over the last few decades has really evolved now to support bachelors, masters and doctoral students in a variety of different professional disciplines, now reaching around 46,000 students, Strayer at about 36,000. Now while both Capella and Strayer are adult-focused, they have incredible opportunities in the current landscape of higher education. Higher education right now and the transformation that's going on in the industry actually really plays to both Capella and Strayer's strengths. I'll give you a couple of examples. First of all, I think everybody knows the changing job and career landscape is requiring people to constantly reskill and upskill. Lifelong learning for adult professionals is going to become the norm, not the exception, as we move forward. And we have decades and decades of experience catering, in Strayer's case, over 100 years, being able to customize our learning for that adult professional who needs to continue to reinvent themselves. Secondly, as Karl mentioned, digital learning is the future. Unlike a lot of institutions that have actually moved their traditional delivery online since the pandemic, Capella and Strayer were both very much at the forefront of digital learning and have been doing it for decades. We have an expertise that is really, really important in today's market because as more and more students have online experience, particularly high school students who are coming up into their adult years, they have a very different level of expectation, what they want from a digital learning experience. And then finally, and you'll hear a lot more about this later in my presentation, but also in Joe's presentation around ETS. Employers need institutions that can move at a pace that they move at. A lot of traditional higher education is unable to adapt to the changing landscape that employers need to be able to reinvent curriculum, make it more relevant, to be able to provide services and support. Capella and Strayer have done that, and I think where the industry going serves us and sets us up incredibly well. Now one thing I learned many years ago in this space is, it's very difficult for any one institution to be all things to all people. Varying different segments of the student population have different needs. They have different wants. They have different desires in what they're looking for. And I think this is truly one of the game-changing differentiators of SEI, as we actually have 2 wonderful institutions but that serve slightly different markets. It has not prohibited us from being able to cross, share and leverage best practices and expertise and capabilities. As you heard Karl say, we do that, and we do that excellently. And I think we're continuing to figure out new ways to expand where and how we do. But we also stay very true to ensuring that each institution is unique and focused on its priority kind of student focus. I'll start with Capella in this regard. So Capella, having been a graduate-focused institution from its origination, has really defined the Career Amplifier as its primary student focus. Career Amplifiers -- and I'll get into this in a little bit more detail but are people who are typically in career and they are looking to get a job for advancing on that track. And in many cases, it's a licensure program. They're looking to get an advanced degree, at a Masters or a Doctoral level. Whereas Strayer, we've defined that segmentation, the Career Builder. And we look at kind of the psychographic of the wants, the needs, the motivations and the behaviors to find that. And that Career Builder is really about what are the skills that I need to potentially change careers or go from a job into a career. And those are slightly different, but important differences. The other thing that I think differentiates our 2 institution is how they go to market. Capella, having been focused on a broad graduate market throughout its kind of early history, ended up deciding to build a national brand. Whereas Strayer, which has always been very tied to its campuses and the power of that local and community presence and being able to provide support for students, has built more of a local and regional brand. And then finally, the differences also play out in the professional focuses. The professional disciplines, while both institutions, and you'll see this in Constance's and Andrea's section. Both institutions have a wide discipline of programs. Capella typically focuses on the mental and behavioral health and health care space, whereas Strayer has historically and continues to be very strong in the business and technology space. Now let me tell you a little bit more about the Career Amplifier. So as I mentioned, the Career Amplifier is someone who is typically coming with prior experience and higher education that are typically in a job and in a career, and they're looking to complete a bachelors that they already started, get a masters or move on and get a Doctoral degree. And they care very, very much about professional relevancy and credibility. These are in-career professionals, again, oftentimes looking to get a licensure track program. And they want to make sure they're learning what is absolutely critical for their field and their professional track. Secondly, they really, really want to optimize personal flexibility. And one of the things you'll hear about is FlexPath. And I think FlexPath is a great example of where we've kind of engineered and reengineered how learning can happen and unfold in order to give professionals who have a lot of knowledge and a lot of experience to come back and be measured more on demonstrating their learning versus seat time, and Constance will talk a lot about that. And then finally, that speed to impact, helping people move as quickly through a program as possible. If you look on the right side, this is just for a nursing example. We take the full, the full spectrum of all the capabilities that we have across SEI to bring this value to life through unique features. So things like we specialize. Accreditation in nursing is really important. The opportunity to choose FlexPath or GuidedPath from a delivery modality, our employer relationships and partnerships, the ability to help find these students site-based practical experiences that they require for their professional track. All of those things come together to create a very differentiated position for the Career Amplifier. And I want to bring this to life by sharing an example around nursing. You can see up here that when we have the right product, the right experience, the right brand, the right credibility, we can do really, really amazing things. Over the last 6 years, our nursing programs at Capella have gone from about $40 million in revenue to over $110 million in revenue. So we've seen just tremendous growth. More importantly than that, though, we have great outcomes. We have over a 60% graduation rate in most of our nursing programs. And as Karl mentioned earlier, one of the points of differentiation that we really think about is how often our employers and our employer students picking us. And you can see within our nursing programs, we have an over 60% mix coming from employer partnerships. So this is really proof that we have a differentiated offering. We're driving really great outcomes and we're continuing to build that momentum. Now what's super exciting when you get that flywheel effect going of credibility, quality, channel, relationship, it leads to new opportunities. And one of the things that we were so excited to announce a couple of months ago was an extension of our portfolio into the nurse practitioner space. So Capella now offers 2 specializations in the nurse practitioner space. It's an area that we've long been interested in getting into. However, one of the really, really important aspects of the Nurse Practitioner program is a very robust, site-based learning and practical experience. And we actually were approached by a longtime partner, UnitedHealth Group and Optum, to come together to help solve a workforce challenge and shortage that they have and all of health care has. The demand for nurse practitioners is high. There's way more demand than there is supply. The expectation over the coming years is for that gap to continue to widen. And the opportunity for us to bring our high-quality, online, scalable learning model to the nurse practitioner market and have access with their partnership to place our students, whether they're UnitedHealth Group, Optum employees or not in their sites to generate more graduates of this program was a truly remarkable partnership, and we're so excited about it. I think it is the perfect example of how higher education and industry need to continue to work together to come together to solve the 21st century workforce challenges. Now it's not just the employer channel. It's not just nursing that's driving a lot of Capella's success. As Karl mentioned, one of the things that we've long believed is Capella has a wonderful set of programs. It has a great reputation within the higher ed space. It has great outcomes. The challenge in this fragmented and very competitive market is being able to create that brand awareness. And how do you get enough people to know who you are and how you do what you do. And we made, after several years of robust analytics, testing, pulling data together, we made a very calculated decision that said, if we could invest in our brand at Capella, both in terms of more absolute dollars but also shifting more of our mix of marketing spend to brand, then we would be able to really break out and step out and grow Capella at a higher rate and bring this wonderful set of programs to a broader part of the population. And as Karl said, we've had 7 quarters now since we did it. We've had double-digit growth at Capella every quarter, and we've had more efficient -- more efficiency in driving that new enrollment than we frankly have ever had in our history. So we're really, really proud of that. I would say, though, it only comes true and only actually delivers on those results if we continue to make sure Capella's brand and reputation and the quality of our experience and the outcomes of our students is where it is and has been. Now I want to shift to Strayer University. So Strayer University, as I mentioned earlier, focus is on the Career Builder. And this is a really, really large part of the market. Oftentimes, Career Builder students do not have prior education. And so one of the things that Strayer has been uniquely focused on -- and Andrea will speak more to this is, how do you make learning more interesting, more fun, and have it be a lot more supportive. If a lot of these students don't have as much discipline previously from learning, we have to change the game for them. We have to come forward with a different model that is going to grab their interest and really help them be successful. And I think Strayer has done a phenomenal job of that. Focusing on those in-demand skills that are really, really important for employment, making sure that personalized level of support is there. And then another area that I think Strayer has done such a fantastic job of is really driving affordability. In fact, I think Strayer was the first institution in our space to really step out and make affordability a priority. And you can see on the right side of this slide, a lot of the different features for Strayer that we bring together. Karl mentioned free Sophia, what an incredible opportunity and advantage for Strayer students. And I'll share a bit of data on that in a minute. Obviously, we continue to build the same types of employer relationships for Strayer. But as Andrea will talk about, the way we've created new learning and new ways of delivering that learning, I think, is the really exciting and special sauce of Strayer. In addition to that, Strayer has long leveraged a robust network of campuses. Karl talked about -- was one of the big impacts during the pandemic of not being able to operate as we normally have in those campuses. And I would be remiss to not thank the teams who have got back, got those campuses open and have seen dramatic results since. The campuses have evolved. They are continuing to evolve. We see them continuing to evolve. They are more support centers today than they've ever been. But the future and one of the things that we're really thinking about and excited about is, how potentially could these campuses evolve further into being a hub for our higher education and employer integration. How do we bring these campuses into be a center where a lot of that community, local employer aspect comes together in new and unique different ways. So that's something we're really focused on and thinking about, but we're really proud of having these campuses back open and the great results that we're seeing. Similarly, I want to say that Strayer, as I mentioned, has done a great job on the affordability front. These are just some figures to bring home the point things that you've already seen or heard about. So for instance, since 2000, when we actually made Sophia free and available to Strayer students, we've had 23,000 Strayer students take advantage of Sophia. And using kind of Strayer's tuition levels, probably helped them save about $100 million from a credit perspective. So that's just a tremendous advantage. I know it's something that really differentiates Strayer. People are coming to Strayer, thinking about the opportunity for how Sophia pathed with Strayer can create a new, more valuable, more affordable bachelor's program. The graduation fund, which we've had in place for many years, is a really, really great scholarship model that allows students to earn scholarship funds that they can apply towards the back of their program for every credit and class that they take earlier on in the program. And year-to-date, we've had 10% of our students basically take advantage of about $43 million of scholarship credits. And then obviously, our continued focus -- and you'll hear more about this from Joe, to drive more and more of our students to be leveraging employer tuition reimbursement and employer pay. All of that is really leading to this focus that Karl mentioned and is actually one of our key corporate goals. We've been reporting this for a couple of years now, on reducing the Title IV per credit hour at U.S. Higher Ed. So what that is basically taking the total Title IV dollars of Strayer and Capella and dividing it by the total number of credits that are earned from Capella and Strayer students. And you can see over the last 3 years, we've actually reduced that metric by about 25%. And our plans is to continue building with all the various tools and opportunities that we've discussed, keep building momentum towards that where we one day envision primarily being moved away from Title IV for our students. Now before I hand it over to Dr. St. Germain to talk a little bit more about Capella, I did want everybody to know that it is important for our teams, for all of you to understand that everything in higher ed starts with a focus -- U.S. Higher Ed, starts with a focus on our students' experience and our students' outcomes. So we're constantly thinking about how do we take advantage of all the capabilities that we have to deploy them against helping bring total program costs down, making sure that the speed to impact for our students is as fast as possible. As adults, we want to get them benefiting from their education, improving graduation rate, and then also making sure they're getting the career impact that they need. And that comes from a variety of different elements, making sure we have the right access and onboarding, making sure we have high-quality learning, making sure we're personalizing the support experience and also leveraging the best of technology and the capabilities we have to offer. So thank you for your time. And with that, I'm going to ask Constance to come up.

All right. Good morning, everyone. It's lovely to see all of you. My name is Dr. Constance St. Germain and I am the President of Capella University. I've been with the organization a little over 6 years now, previously as its provost and Chief Academic Officer and most recently, as its President. So I'm just absolutely thrilled to be able to be here today to talk to you a little bit about Capella's journey and really its transformational approach to learning that's made it a beacon of innovation in the realm of higher ed. So before I get started, I'd like to share a little bit -- Andy mentioned a little bit about the history of Capella. So we had our genesis in 1993 as a graduate-focused institution pioneering masters and doctoral programs to adult learners who are looking really to take their careers to the next level. And so we started off offering degrees in 4 distinct disciplines. So fast forward 30 years, and we actually celebrated our 30th anniversary this year. We now offer almost 50 degree programs. We have over 46,000 students, and we've conferred over 140,000 degrees. So if you look at Capella itself, you can see while we have a firm foundation in the business and IT disciplines, we are primarily focused in the social and behavioral sciences and the nursing and health sciences. So think degrees like education, social work, counseling, clinical psychology, nursing, all of those degree programs that we know now in a post-COVID endemic society are so greatly in demand. And so many of these degrees that we offer are at the masters and doctoral level, and they lead to licensure. And if you were to take a snapshot right now in time of who our student is, they would be in the mid-30s, established in their careers, as Andy mentioned, and they come to us with some transfer credits. So they're really looking to amplify their careers, and that's why we call them Career Amplifiers. So the way that we deliver on our promise to the Career Amplifier is really in 3 ways: one, around how we actually deliver the learning in our academics; two, about how we integrate the work and learning. And the third one is around our approach to innovation and educational technology. And I'll talk a little bit more about each of these in turn. So our educational philosophy is one that's based on competency-based education. And the competency-based education model has nothing to do with traditional rote learning. It is not about memorizing something. It is not about read something, write something. It is about the demonstration of mastery of certain competencies that are aligned to the discipline. So it's the marriage of theory and application. And we -- what we do is we bring this together in 3 ways: one, around how we actually deliver our curriculum. So we're always trying to make sure that it's relevant, engaging, interactive. The second one is around our faculty. And our faculty, we have approximately 1,200 faculty. We call them scholar practitioners, and over 80% of our faculty have doctorates. So not only do they have the academic credentials, but they're also actively practicing within their disciplines. So they bring that outside knowledge into the classroom to share it with their students. And then the last one is around authentic assessment. And authentic assessments are the application of theory to real-world scenarios. And so we can do this in a variety of ways, whether it's through putting together digital portfolios, it can be through video and them recording what their experiences and showing that. And so we're always trying to think of how we can differentiate those assessments again to make sure that we are moving away from the traditional read something, write something. Now we transitioned to a competency-based model a little over 20 years ago. So we've been doing this for quite some time. And because we were so successful in the competency-based model, in 2013, the Department of Education actually recognized us as one of the first institutions in the country to pioneer a new form of competency-based education that was untethered from the traditional credit hour, and that's known as direct assessment. Now the traditional credit hour is what higher education measures learning by. It is known as seat time, and it was established in 1906 as a way to measure learning by how much time a student spent sitting in their seat in a classroom. But direct assessment is completely different from this. And what it is, is it actually, as I mentioned, measures not just mastery and competency-based education, but it's measuring how fast a student can move. So a student can move as fast or as slow as they need to through any given course by demonstrating their mastery of any given topic. And with that, we started offering these in 2013 just at the undergraduate level. And since that time period, we've actually expanded it all the way up into professional doctorates. We were one of the first institutions in the country to offer a professional doctorate in a direct assessment model. And it's been so well received. You can see that almost 40% of our total enrollment today is in our FlexPath model. Now just for clarification, there are 2 forms of competency-based education that we offer. One is the traditional model, which we call GuidedPath, and the other one is the direct assessment model that we call FlexPath. So really, we have had with both of these models, such a resounding success in terms of student outcomes and academic achievements. We are seeing some historic highs in terms of student completion of their courses, their persistence. And if you look at the actual outcomes of them, a student who's going through a FlexPath course, it takes -- spends less on tuition. They take out less financial aid, and they will complete their degree faster than their traditional counterparts. So another way that we deliver on our approach to the Career Amplifier is how we integrate work and learning, and we do this in 3 distinct ways. One is around credit for prior learning. It was previously known as prior learning assessment. And credit for prior learning, because our learners are established in their careers, allows these learners to bring their experience together and work with our teams to put together a portfolio for review for college credit. So that's one way they can do it. Another way is to think about perhaps they were in the military and they took courses in the military that were approved by the American Council of Education for college credit, they can bring that in as well as credit for prior learning. Now the second way we do this is through experiential learning. And we do experiential learning in a very unique way. On one hand, we -- in some cases, we partner with external organizations, nonprofits who bring to us projects or things that they need help with, and our faculty collaborate with the students to work with that organization to solve the issue that they need help with. The other way they can do that is we actually allow our students to take what they've learned in the classroom and apply it to something they're doing at work and bring that back into the classroom to demonstrate their mastery of a given topic. And then the last one is around site-based learning. Andy mentioned this earlier, because so many of our programs lead to licensure, after the students complete the academic requirements, so many of them have to go on and take clinical hours, practicum hours in order to apply to their state boards for licensure to be able to practice. And so we have a very robust site-based learning team. We put approximately 12,000 students a year through our site-based learning program. We have over 20,000 sites across the United States, and that's growing every single day. And we track and catalog all of the hours and where they're at and the forms that they need for their any given state so when they actually complete all their required hours and they apply to their state licensure boards, we then help package up all that information for them and verify that they've completed all of their requirements. And then lastly, we are constantly innovating. Both Karl and Andy mentioned this in their earlier remarks. We have used data analytics all the time, not just for students to see where they might need extra support or how they're performing in our classroom, being that we're an online institution. We use it for faculty. We monitor faculty to help us see where they might need extra support. Faculty can use it as well to see how they're performing against their peers, what they might actually do -- be able to do better to enhance themselves. So data analytics underpins everything that we're doing, and we're very open and transparent with our faculty about the use of those analytics. We've been doing some very interesting things lately. We have a learning lab that is constantly iterating and doing small pilots. Any given quarter, we have approximately 20 pilots that are going on in various stages. Most recently, we were piloting HyFlex. And because we are an online asynchronous environment, we started offering the option to our students in certain courses to be able to take courses synchronously. And we wanted to see how they would receive it. They absolutely love to have that option. They love being able to connect with their peers and their faculty in real time. And if for some reason they couldn't make it, perhaps their child had a soccer game or something else was going on in their life, they had the option to either do an alternate assignment or watch the recording of that interaction as well. So we're constantly doing those kind of things to really promote that peer-to-peer engagement and lessen that interpersonal distance sometimes that you find in an online environment. We have very robust multimedia. We are constantly using interactive media, simulations, video messagings to try to convey the information again, move away from the read something, write something area. And then lastly, around AI. This has been such a significant lift for, I would say, the institution. We are so thrilled about AI. We are embracing it. It is evolving at such a fast pace that we believe that it's going to be simply like a calculator, a cell phone coming in the future. And so we're trying to figure out what is the best way to leverage that. And so we have teams all around SEI and the university who are thinking through how can we use AI, not just to make sure that our students are ready for work, but also for faculty and to remove those heavy administrative tasks sometimes that they have, so we can take that burden off of them so they can actually focus on teaching and connecting with their students. So underpinning everything that we do is our commitment to excellence. And you can see here, as I mentioned earlier, since so many of our programs lead to licensure, these are all of the numerous accreditations, recognitions, designations that we've received and are actually required in specific disciplines here. These are considered the gold standards of their disciplines. And in many states, unless you graduate from one of accredited program, you cannot apply for licensure. So we have a very robust continuous quality improvement process that's always going on. It seems like every single year, we have some accreditor who's visiting us, and we are really lucky to be able to say we have such great relationships with all of them, and it helps us make sure that we are being aligned in the best way possible to not only what's going on in the discipline, but to their standards as well. So I'm going to get it ready to turn it over to Dr. Andrea Backman, and I'll just leave you with this spot that Capella isn't just an institution of higher education, but it's actually a transformational movement and a force for change. And I think it's a fantastic representation of what's possible when passion meets innovation. Thank you.

Good morning. I'm Andrea Backman. I have the honor of serving as Strayer University's President. I've been here for about a little over 16 years, 15-ish years. And the thing that makes me so passionate every day getting up to do the work that we do, it's been mentioned before, but it's worthy of mentioning again, as I start to talk about Strayer University is the deep commitment to economic mobility. So I've spent my career thinking about access and making sure that people who gain access actually achieve the goal of education. But if nothing ultimately changes in their lives, then we haven't done what we've set out to do. So economic mobility is at the heart of everything the team thinks about every day. I can't wait to share some of the innovations that Strayer continues to iterate on. But before I do, I just wanted to share a little bit about our program mix. It's not surprising, given the history and our legacy that Andy mentioned, that 71% of Strayer students are in business-related programs. And as historically been the case, our second largest program continues to be IT-related programs. Now Andy mentioned the really strong recovery post-COVID and the really strong continuous new student enrollment growth, which, of course, we're very pleased about and very important to our organization. But equally as important is the success of the students coming in. And so I wanted to make sure that I took some time to share a few of the metrics that my team looks at every day and that we find to be really important in thinking about student success. The first is student core success. This is the number of students that finish the term and have a passing grade. And that might feel like well, just like a nugget, but it's actually a really important proxy for continuation. And continuation is important because it is a proxy for student success into the future. But the more important metric up here is the first year success metric. And you can see over time -- and actually, if I took these numbers back, there'll be 3 more arrows up there of cohorts of students coming in who are doing better year-over-year as it relates to first year success. First year success is important to Strayer students and students across the nation because those who get to the end of their first year are much more likely to graduate. So for us, this is a proxy for gaining success in graduation rates as these students move through their programs of study. As Karl mentioned, I'm going to spend a little bit of time on this slide. Technology for us is core to everything we do. We don't sort of rest on our laurels but what we've introduced into our classrooms is going to be good enough into the future. And so we're constantly looking at ways to evolve learning so that it's the most engaging experience and the most successful experience for students. So I just want to spend a little bit of time on a few of these here. The first is Irving. Capella has Ella. So I can talk a little bit about Ella too, but Irving is our proprietary chatbot that we introduced actually in 2017 as a way to remove rote questions that faculty and staff got all of the time, to be able to provide instant feedback to students who had questions, about things that were not academic or that honestly, were just sort of an FAQ list of questions. Since 2017, Irving's had almost 3 million conversations with students, removing a lot of the goo, if you will, that faculty and staff would spend their time answering questions on things when they could be having substantive interaction with our students. So we're really proud of the evolution of Irving, which is now also inside the classrooms. Faculty Action Center for us has been game changing. Again, it's a proprietary tool that we -- that we built internally. We've stretched it across all of our institutions, including ANZ and Capella. And it's a way for faculty to immediately be able to see which students need what help, in what areas. And you can imagine if you're an instructor and you have, call it, 1,000 students across several sections, trying to find who needs help in what areas in an online environment is very challenging. This tool allows people to immediately understand who needs help in what ways so that we can do immediate outreach. And it has been game changing in terms of both, again, faculty efficiency but also student success and support. The 10x model of instruction is something that we also deployed within Strayer and have been ported to the other universities. We realized some years ago that we had some really superior faculty in our midst. These were gem of faculties who could create environments where students thrived at levels that were just exceptional. So our first thought was to figure out how do we create more superior faculty. And if you look at the definition of superior, it is that way because it's a category of people who are exceptional. So we could grow a few more, but we couldn't grow at the scale that we needed to have that level of faculty in front of our students. So instead, we flipped our thinking, and we scaled our best faculty, our most superior faculty to the most number of students possible. So today, our best faculty are teaching great numbers of students. Meaning that instead of having 5 sections of 30, these faculty can teach 1,300 students in a given quarter. And that has been remarkable in terms of student success. They don't do it alone. This is technology-enabled, again, our commitment to technology and also behind the scenes are a group, a very dedicated teaching assistants with the right credentials to be able to support students. If technology is important, we also believe that the environment in which students learn has to be as engaging as possible. If you've ever been in an online course and it's not a Strayer course -- but the online coursework can be boring unless you focus on making it not so. And so we decided we wanted our content to be episodic and interesting and fun. Learning can be fun. So that students want to come back and want to engage in the content. So we actually went out and hired a few documentary filmmakers and said, gave them -- you've heard about pilots, said, here is our largest course. Take this particular content of the course, carve out some students. And we want to pilot what happens if we put a docu-style learning event inside the course room instead of the traditional sort of video answer discussion question. And the results were remarkable. People want to hear real-life stories about real-life people doing real-life things. And so what you see up here, I won't go through all of it, but we have a award-winning actor up here. We have a WNBA player who's known everywhere. We have the first female Thunderbird pilot. And then we have our crew, who is here on the runway. But all of these individuals are inside of one of our biggest courses, which is a general education, core psychology. They're all talking about decision-making in bite-sized chunks. And Nicole Malkowski, who's the Thunderbird pilot, is talking about, for example, decision-making in the face of stress. She's talking about it from the context of flying right next to her peers in the air and the nanosecond decisions that she has to make. So we believe that this content is very unique and different, and it's driving great student engagement and results. I would be remiss if I didn't highlight our faculty. So I've worked with a number of institutions of higher education. I think our faculty -- I know our faculty are world-class. But it's not just us who think that. Our students are telling us that term after term. So this is Net Promoter Score. Anything in between 50 and 80 is considered exceptional, as it relates to Net Promoter. You can see over time, our faculty have remained in the exceptional category. But there continues to be a climb. And that's because we focus on faculty culture. We also focus on making sure that faculty have all the supports they need to be successful. There are 2 faculty categories that I pulled out, the first one is the 10x category on the left-hand side. And the second is the Jack Welch Management Institute faculty, which I'll touch on in a minute. But those 2 scores are considered to be world-class by Bain & Company. So we just -- I just wanted to make sure I highlighted that we think the faculty have a really big impact on what happens in our classrooms and the success rates that we're seeing. Now equally important at Strayer University, our students come to us, they're about 37 years of age. They have a lot of competing life priorities. Many of them lack confidence. There's a lot going on in their lives. And so if our goal is to create access and then have them realize success and economic mobility, and yet, food and security or housing and security or child care issues are getting in the way. It's going to be really hard for our students to focus on school work, even though they really, really want to. So during the COVID era, we did a 36-week pulse survey with our students to better understand what was happening. We knew that all of the things I just mentioned were already happening. And things just got worse and dire. And we decided that we had to invest in a center for well-being that really focused on the whole person and supporting the whole person. Even though we are an academic institution, we recognize that we have to be helping students navigate all of the 6 component parts that are around the wheel. So we can't deliver all of them, but we can triage, we can make supports available to have conversations with students and make sure that they're able to be successful in their educational journey. We also believe -- and it's been mentioned several times that students should not wait until the end of their academic program to realize benefit and currency through the -- with the investment that they're making. So there's a few things that we've done over the years that have been really essential to student success, and I just -- I want to highlight 2 here. First is the 10 essential employability skills. So for most institutions of higher education, there's a general education requirement. That requirement is about 40% of an undergraduate degree program. It is almost always completely disconnected from the world of work. So someone sitting in a classroom, and they're learning very important -- we all believe in the general education curriculum. But we believe that there is a way to infuse skill-based learning so that it maps. Students were understanding how we connected to the workplace while they were learning the general education curriculum. So for example, if I'm in a history course and I'm a Strayer University student, I'm learning about history, and I'm being measured on my content knowledge. I'm also learning about productivity over time. And my -- how I could be a productive employee within a workplace. And I'm being measured on that, and I have a scale on that, too. So students understand the relevancy, and they're also growing those skills. The second thing that I would highlight is that, again, along the way, we want students to be able to demonstrate to employers and to the world that they have a skill that they didn't have before they came to us. For example, if they get 1 of the 10 skills along the way, we send them a badge, they can put that badge on their social media sites, which we also help them figure out that's really important to have those out there. And also just tell their employer that they have something, some skills, some currency that they didn't have before they started. The Jack Welch Management Institute, I just wanted to quickly highlight, this is one of our GEM programs within Strayer University, with close to 2,000 students. I had the distinct privilege of serving as Jack Welch's Dean when he was here and building this program, and he was deeply, deeply engaged in the content and exposing his expert of practice network to the team so that we could capture stories, not just Jack's, but other world class leaders in the classroom. And you can -- the thing that is -- 2 things on this slide that are really important. The majority of students are experiencing a promotion or a raise while they're in the program. And this is a graduate program, so it's a shorter program. And also that it's not just us that think it's great again, Princeton Review this year, we showed up seventh in terms of the top 50 online MBA programs. And that's been -- we've been climbing our way up for the last few years in really, really, really good company. Finally, again, our North Star is to create ensure students have the best experience possible. We have over 150,000 alumni at Strayer University, that's as far back as we can count given how long we've been around. And alumni are -- 83% are saying that it was a worthwhile investment. So that's why we do what we do. It's what we set out to do. And with that, I'd like to invite Andy and Constance back up for questions. Thank you.

Any questions?

So when you were talking about Capella, you say that many of your programs lead to licensure. And so I'm curious, do you track how many people apply for these licenses and then either pass or fail?

Not all licensure actually requires them to take a test, similar to like an RN test if you're thinking about that when they're trying to get that. Some of them just have to apply. And because we have so many of them, we do our best. Many of our accreditors actually require that we actually keep track of that. And we have to report that out in our self studies to them.

Yes, there's not any one specific metric overall. I think we feel really good about the licensure success rates. There are, as Constance was just saying, there are different areas like the nurse practitioner program, for example, will require actually an exam. And so that's something that we will have and be able to consider reporting as we get into the future.

Emily Marzo with Bank of America. I guess my first question would be, when you look at AI and the future of AI, are you looking to leverage it more internally first? Are you looking to use it externally with the students and with engagement that way?

Yes. So I'll maybe start, and then I'll ask them to jump in. I think we see it honestly being applied to a bunch of different categories. First of all, I think we believe we need to be teaching the future students how to use AI. The world is going in that direction. So how we integrate AI and create programs and curriculum in that space, but also just across discipline, how to use those tools is definitely a focus, and we're working on that. I think secondarily, there's opportunities to figure out how to deliver a better learning experience. And that's both in terms of how instruction and learning happens, how we empower our faculty to be more effective, more personalized in the learning. But also thinking -- and I think Constance and Andrea can speak to this. How do we also make sure that the credibility and legitimacy of our assessments are withstanding the AI tools and evolution. But then on top of that, there's massive opportunities for productivity and efficiency across the rest of the organization. And that is everything from how do we use like generative AI in ways that could -- better personalize, through avatars or other means support service that today we use people to do. How do we make them more effective, how do we give them the tools to reach more students, kind of 10x our support staff. And then also, there's back-office areas where we're seeing the opportunity. We -- one example is we deal with a lot of documents, and so how can we use AI automation to much more efficiently process some of our back-office capabilities. I don't know what else you'd like to add?

Well, I can just give you a really great example of how we're leveraging AI in the classroom that we've been piloting. We try to be very transparent. We have student advisory boards. I've spoken with our students. I know that they're using it. They've already told us they use it in their jobs a lot, and so we have decided to embrace that. So for example, we'll have a faculty member who will provide the prompt and tell the student as part of an assignment, I want you to write this assay, and then I want you to go and I want you to upload it into ChatGPT with this prompt, asking it to do these specific things, right? How can I make this paper better, right? What are areas that I need to work on with my grammar, things like that. Then take that feedback they get from the AI and then rewrite their paper, and they have to upload not only what they were uploaded, plus with all the feedback and then the final product as well, right, and make sure that they're properly citing the use of AI. So we're trying to actually teach students how to use it to improve it. So it's not only going to a traditional writing center in a traditional campus and asking for help.

And I would just add that we think that artificial intelligence has a lot more benefit than it does risk for the classroom, and so there's a lot of ways that we're already training students and faculty about the proper use, and we've also introduced programs across SEI for people to learn more about AI and to study what AI is so that they can grow their careers in that way.

And then a second question is on Sophia and the Work Edge program and converting, I believe you said 0.5% to 1% of employees on the platform? I guess, how are you driving that? What is making students convert over to Strayer and Capella? And how confident do you feel of the conversion?

Yes. No, that's a great question. I think Karl said about 0.5% to 1%. I know Joe Schaefer, we're going to have a whole section on ETs in a couple -- a little bit, and he's going to go into much more detail on that, but he'll explain.

Jasper Bibb with Truist Securities. I guess my first question was just how do you think about the balance between the employer affiliated channel and individual enrollments over the next 5 years in this plan? And if mix keeps going towards the employer affiliated channel, what would be the implications for your unit economics, revenue per student cost of acquisition?

Yes, it's a great question. So I'd say right now, what's contemplated is that employer as a channel will continue to grow faster than our direct-to-consumer, but it's not going to be a light switch. It's more of a dimmer switch, so continuing to grow the direct-to-consumer business. We think there's an opportunity to continue with our brand expansions to reach students directly. We just think that employers are going to grow faster. So I would say, an equivalent mix shift that we've been seeing the last couple of years. In terms of the unit economics, one of the things that is really great about the employer channel is the efficiency of the enrollments, particularly as Joe will get into in a minute when we can get a platform like Workforce Edge integrated into an employer. It almost becomes a micro ecosystem for us to build our brand and reputation with and then also be able to really access those employee students at a much more efficient level. So even though there is a lifetime revenue pricing decrease, our efficiency to reach that student is much less. We also see our employer students often persist better than the direct-to-consumer students too, so on a total lifetime value, even though the pricing is lower, it gets averaged out. So we feel like the unit economics work very well, and there's a whole host of other advantages that being more focused on the employer provide us.

And then my second question was just on the future of the campus network. Like if you look at the history of Strayer, the growth was fueled through building out the campuses, and then you brought that number down a bit. As you look out to the next 5 years, do you think like the current campus footprint is sufficient to support your growth objectives? Do you see yourself opening up more campuses in the next couple of years? So any context there would be great.

Yes. I think it's something that we're trying to figure out. I think we are trying to figure out -- it's possible that investing more in certain campuses, in certain geographies, and actually even building a bigger campus position in certain markets might be a really attractive option, but maybe having fewer campuses. So right now, I think we're still trying to figure out what is the go forward. I would not expect a massive increase in campuses but I think there could be some, and we're going to be piloting some things over the next year so that's going to help us uncover this specific direction.

Just wondering, given the success in the new enrollment growth in Capella with the brand investment, are you considering a similar investment in Strayer?

Yes. I think it's something we talk about. Obviously, when the model at Strayer was under pressure given the campuses were closed during the pandemic, it was something that we were not really thinking about. I think as we get Strayer into a more recovered position, we're seeing some momentum. I think there is a question about whether or not we take a step and go bigger there. I think we would do it differently if we did. Building a national brand is an expensive proposition. In fact, we looked at doing that for Strayer pre-pandemic. It's taken Capella many years to kind of build that, so I think we would probably, if we did make an investment, focus more on that local regional strategy and maybe in combination with some of the new campus ideas that we have. So not right now. We're not planning on it, but it's something that we're considering.

Sure. And then who do you think your biggest competitors are?

I mean, I'll ask the presidents to join in, but I would say, competition varies widely by program and by institution. So we do look at data through the National Student System, NSLDS, about kind of where our applicants are going that don't enroll so we can kind of understand that. It's very, very different by different programs. Like nursing at Capella would have a very different competitive set than others. But it's the big categories. It's some of the large, online, national branded institutions. It's a lot of local and regional schools, but those are onesie-twosies, but as you know, there's a really, really large list of them, and so it's kind of all of those. I think there's not any 1 particular competitor that makes sense. I don't know if you'd add anything different to that?

No, that's correct.

All right. Thank you very much.

Thank you, Andy, Constance and Andrea. We will now take a 30-minute break. So please join us in the gathering space for refreshments, and we'll meet back here in 30 minutes. Thank you. [Break]

Welcome back after the break, and welcome to everybody who's joining us online. See, I've probably confused here already. You've got a Scottish accent talking about Australia and New Zealand, so you can tell that SEI is truly global. And in a minute, I'm going to introduce also my Vice Chancellor, Professor Alwyn Louw who's got a beautiful South African accent, so we're going to travel around the world with you today. I was absolutely honored to be the Founding President of Torrens University in Australia, but also creating the portfolio that we're going to share with you today with the 3 assets that Karl talked about earlier today and Torrens University, Think Education and MDS. And I'm going to take you through the journey of the creation, how we win in the market and how we are very confident that we will continue to move forward with growth. So I'm not going to go back through the bit that Karl talked about, and he kind of highlighted Media Design School and the amazing global recognition that college has got. And as part of the plan, we really want to bring the design and creative technology portfolio to America. Think Education, as Karl shared, is a vocational education and training college. It also has a higher education license, mainly nursing in there at the moment, but looking at the opportunity to grow that further into other fields of study as we start to develop the portfolio in partnership with SEI. And really, the jewel in the crown, Torrens University, Australia. So I'm going to spend a little bit more time on that on this slide to explain why it is an incredibly unique asset. What I'd like to draw your attention to, though, before I go on to Torrens University, Australia is this portfolio was created to really start to look at synergies and scale. So already in Australia and New Zealand right from the inception, when we sold Think Education at that time to Laureate created the new university and brought MDS into the portfolio, we already looked at the synergies in the back office and created shared services. And I'm really delighted to be part of the SEI portfolio now, not just to bring synergies together as we start to look at shared services across the whole group, but also you will see all through my presentation today, I hope, the opportunity for growth. The opportunity to really, really leverage the experience of Capella and Strayer Universities to expand our market and our impact in Australia. So let me tell you a little bit about Torrens, 10 years old this year. So really, from our inception in 2013, it has just been an incredible journey. We actually have a mixed portfolio, but our portfolio, the same as Capella and the same as Strayer, is really focused on employability. I remember when I started the university, I had 2 targets. One was to get to 5,000 students in 10 years, and one was to get our students employability rate over 80%. I'm glad to say, we blew both of these out of the water. So why is it important that we have got that Australian university license? This isn't a foreign branch campus license. It isn't being an international university in Australia. We are a recognized, governed Australian university. There are 43 in Australia, and we are one of the 43. When we started 10 years ago, we were the first Greenfield University. We were the first new university in Australia in 20 years, and as already been shared by Karl, we are the only investor-funded university in Australia. So an incredible privilege to be given the opportunity to build a brand-new university. Along with that university comes some very, very unique market differentiators. The first one is self accreditation. When you are an accredited Australian university, you can accredit your own curriculum, then you can use that anywhere in the world without any additional permission, or within Australia. So the fact that we can accredit curriculum, we can do that in 3 months when it takes our competitors 12 to 18 months to accredit curriculum, means that we have an incredible advantage around speed to market. The other thing that's changed since we received the invitation to create a brand-new university, was that the rules have actually changed. Could I do it in the same time scale now that we did then? Absolutely not. At that point in time, when we created the university, we were given 3 years to 5 years to find 3 world-class fields of study, to build the university and to make sure we met all the requirements for being a university in Australia. The government changed the rules. They changed the rules 3 years ago. And now for market entry, if anybody wants to come into the market to create a new university, they have to become a university college first. And then they have to, at least for 7 years, show that they have scholarship and research in the market. So that really, really highlights the privileged position that we have. The other thing that's really important about being an Australian university is Irish students have access along with the other 42 public universities, to income contingent loans. These loans are not decided on merit. Anybody who wants to study in Australia can have -- as a higher education provider, university provider, can have access to these loans, and they start to pay these loans back when they reach just under $52,000. And the collection of those loans comes through their wage packet and their tax returns at the end of the year. As I move on, you can see the program mix at the bottom: business, health, design, hospitality and education. Within that pie chart, there's some really, really special assets. If you think about hospitality, we own the Blue Mountains Hospitality School. That has an employability rate of over 97%. It's one of the absolutely top 5 hospitality schools in Asia Pac. Under our Design portfolio, we've already talked about Media Design School. Karl mentioned that earlier and mentioned its accreditation globally. We also have another brand in there called Billy Blue, which again is in the top 10 and Asia Pacific. These were all brands that were created by industry for industry, and we've carried on with that legacy. We need campuses, and it's not only for the pedagogy that we believe and that people should have the opportunity at a subject level, which I think we are the only people [ professor ] that do that in Australia, where every subject is offered either online or face-to-face so that students can have choice. We also need campuses because I'm going to talk to you in a minute about 2 distinct markets, our domestic market and our international market, because the government legislates that international students have to come to campus for 2/3 of their time. So it's really important that we've got state-of-the-art campuses, which you can see on the other side. They're pretty fantastic campuses, and all over Australia, and it's really important that we have domestic and international students integrating in these campuses. And we have invested and built a campus network that then allows the government to give us an accreditation for more international students, and I'll explain that a little bit more in a minute. Just let me give you an idea of the demographics. In Australia, we have -- roughly, it's very small compared to America. Very precious. We have 25 million people. Two out of 3 people in Australia are first-generation. Migrants and international people coming to the country is really the lifeblood of Australia, and Karl mentioned earlier that our -- the top 3 experts every year is international education. So 25 million people in Australia, about 1.5 million people annually do higher education. As I said, there's only 43 universities, only 190 private higher education providers, so it's quite a restricted market, and we have about 500,000 international students a year and 1 million domestic students. In New Zealand, where we have Media Design School, we have about a population of around about 6 million people. About 400,000 people a year do higher education, of which about 40,000, 50,000 a year are international students. And there's only 8 universities in New Zealand at the moment, all public. One of the big things that we -- differentiates us again as a university is that when you become a public university in Australia, because you get some funding from the government to supplement student fees for domestic students, if you want to move out of your states of Melbourne wanted to move to Queensland into Brisbane, they have to ask permission from the government and they have to get agreement from the universities that are already there. The only 2 universities that don't have to do that are ourselves, Torrens University, because we were created as a national university, and Australian National University, which is our research-intensive university, a bit like your Ivy League, that they have been set up as a national university. So again, that gives us lots of flexibility to face the market and to allow our students, international and domestic, to start in one state, maybe move to another state if they're looking for work, and continue with their teaching and learning. As Karl has already shared, this is a $50 billion market. It was actually more than that pre-COVID. I'll talk a little bit about that in a minute. 43 universities, 190 higher education providers. You can see the split there, that $14 billion, and this is last year's figures, I think, 2023, so it was up to 2020 on that [indiscernible] figures. $14 billion for international. Before COVID, before we shut the borders for 2 years and did not allow one airplane to come in, that was up over $20 billion. So the public universities mainly dropped, reduced their revenue by $6 billion, which was 25%. I'm really proud to see that Torrens stayed flat during that period, and we managed to protect our domestic students and our international students, and our international students who were out of country by being innovative and supporting them online until they could return. So we are, by the government's own publication, the fastest-growing university in Australia from 2017 to 2021. But that growth is in partnership with quality, and we're going to show you some of the accolades and the way that we ensure that we service our students to the absolute highest standard. So as I said, there's 2 distinct markets. There's an international market, and there's a domestic market. If you think about the international market first, that's actually in 2 parts. The first part of the international market is students coming into Australia. They're coming for an experience, mainly coming to stay, mainly coming to get a job and hopefully get permanent residency. So the employability and the skills that they get and the opportunity to earn money while they're learning, they're only allowed to work 40 hours a fortnight, is critical to them. So the flexibility that we can show them being student-centric and ensuring that they don't have to change their timetable every 14 weeks and renegotiate with their employer is a key differentiator for us in bringing people into country. Inside that international bucket, and to be honest, that has not come back as quick as I expected. Before COVID, we were growing that market specifically at 33% CAGR. During the pandemic, it flattened, and we're still returning to growth in that particular market because the government has taken the opportunity to be very careful about who they let in, from what countries, to ensure that the public universities never again are so dependent on students from one country. And in the case of the public universities, it was China. So we're looking at mix, we're looking at bringing in different students from different countries, and we're looking at growing the visa process more slowly than we did before COVID. But I have no doubt that one of the government's top priorities is to return to quality international education as soon as possible. The other market that I wanted to talk a little bit about is the internal market, the internal market within Australia. A lot of students come in, they'll go to one of our competitors, and they will spend some time with that competitor. Mainly through word of mouth, they'll hear about Torrens and our price point and our quality indicators, and the fact that somebody knows your name when you're in class. And then after 6 months, legitimately, they are allowed to swap. So as we started to change our mix, as we started to get into quarter 3 this year when we knew that the visa process wasn't going to speed up to the amount that we hoped for, we started to concentrate on that internal market and our growth and our student numbers. In Q3, 50% of our new students came from that internal market. So there's an external market and there's an internal market. The domestic market is equally as important and hidden in our figures as a continuous growth in our domestic market. It has not been a spectacular as the growth in international in the first 10 years of our trajectory, but it has grown single digits continually year-over-year in revenue. And I'm delighted to say that in the third quarter, we actually hit 14% growth in our domestic market after putting some more investment in the market to attract local students. But domestic students want to be with international students, and international students want to be with domestic students, so it's really important that we're mixing that up so that everybody has the experience that they want coming to an Australian university but for an international experience. I want to go through each one of these individually because I am absolutely confident that the growth in international will come back, the growth in international offshore. We have already regulatory approval to serve another 8,000 students. When we were building and when we were building in front of us for the first 10 years, we would grow, we would have to go to the regulator, we would need to get more, we need to grow, we would need to go to the regulator and get more. With SEI's support, we have a network of campuses that can service that many students, 17,000 students. Because as I said, international students need to come to campus for 2/3 of the study, and believe it or not, the regulator calculates how many you can have based on the square footage in campuses. The second thing is about our price competitiveness. We are, our graduate tuition is 17% lower and 11% lower than our competitors for undergraduates. There is an enormous price differential in our public universities between domestic students and international students. And along with SEI's mission around economic mobility and fairness, the same way that the Capella and Strayer are talking about ensuring that students don't have a lot of debt, we are working towards parity because we think that's fair. We are very flexible. As I said, every subject is online and face-to-face and delivered across a national and international footprint. We serve 4,500 of our international students who couldn't get back into country during COVID offshore online. We were actually only doing 20% of online when COVID hit, and within 3 weeks, we had all our curriculum online and Professor Louw will talk about how we capacity build our academics to ensure that students were still getting an excellent experience. But the employability outcomes are really what our students come for. It takes a village to send an international student, in most cases, to Australia. They're looking for a job, a higher salary point, skills to take back to country if they go back to country or the opportunity to stay in Australia, and that has to be our North Star. And we could have grown this year. But if we've grown this year, we really did have the risk of some of our students getting their visas refused, and we didn't think that was the right thing to do. So we were very, very conservative and measured in making sure that we continued with the diversity of countries that came to Torrens, and made sure that the students that were coming to us and applying for a visa had every opportunity to get one. Our domestic student market is as important as our international market, as I said. But actually, when you think about the differentiation in the domestic market, it also fits our international market. So if you look at the area in Australia, the Australian universities do not serve well and we need to serve better, it's that adult market that Andy was talking about earlier today. Universities in Austria are still quite traditional. They expect students to come when you put a class on when an academic is available. It doesn't matter if you're working and it is a fit for purpose for you. So therefore, one of the things and one of the strategies that we're going to build on and one of the really strong SEI multipliers, as I call them, is to stand on the shoulders of giants of Capella and Strayer and really understand how they've managed to attract and service the adult market. We're working with them now, we're looking at that, and we're looking at how can we differentiate ourselves in that space. We are currently the fifth largest university for part-time students in Australia, and to be honest, nobody does it well. And we're the 14th largest university in 10 years in Australia. So we believe this isn't just about shifting market, which was really our first 10-year strategy. We're still only 1% of domestic market share. We also believe there is a new market out there that we can look at how Capella and Strayer develop that and take those smarts into Australia and really start to support adult learners who want to reskill. We are now known as an industry's university, and we have worked really, really hard to get that accolade. We've been in the top innovative companies, the top 5 innovative companies in Australia in the last 5 years. Not only do we do very high-quality Australian qualifications, we ensure that curriculum that I talked to you about that we can take to market in 3 months, we have a minimum of 12 employers sitting around the table with us when we develop it. And we also see that we will not put any curriculum to market that isn't branded, the employer isn't prepared to put their name on, yes, who is leading the way in that industry. So these are some of our partners that -- our curriculum. We have Pracademics. We have a lot of people who work and teach, who are doing industry-based research, and again, Alwyn will talk a little bit about that again in a minute. I want to give you 2 quick case studies just so that you know how that comes to life. We own 23% of the market for the masses and business information systems in Australia. Very ticked up qualification. It's on this skills list. Students who come in and take that qualification, in most cases, can get an extra 2 years of post-study work rights. So they know that they can stay in the country until they can apply for a permanent residency. Went to market in 3 months. As I said, it was designed in collaboration with industry partners. We just put the SES certification in there. There's currently 4 industry certifications in there, and we've just worked with Microsoft to put their new AI certification in there. This is a really differentiated product that gives students a best of both worlds, and nationally and internationally-recognized qualification and an industry endorsement. The second one is more of a domestic example. We have a lot of branded fashion students. I think you saw them in the video. And one of the big challenges that we had was that they had to come to campus to do fabric work and to do work around design and creation of garments. We've managed to take all that work and put it into a living lab, which is obviously online, and our enrollments have gone up by 40% since we did that because again, we're driving accessibility. They don't have to be close to one of our campuses. And we've won 2 international teaching innovation awards for that, so we're particularly proud of that one. As Karl said, we have a platform to reach 50,000 students. It was beyond our wildest dreams to become the 14th biggest university in Australia in the first 10 years. But having established that, being part of the partnership with ETS which you're about to hear about, with Strayer and Capella, with SEI, bringing those smarts in, but more importantly, that technology and the way to drive learning and parity through technology, is something that we are all extremely excited about. We will continue to refine brand, and Andy has done all the hard work and he put the money in the market, and we've seen it work for Capella, and we've already committed to do that for Torrens next year and increase the brand awareness. Because Torrens, even though we are the 14th biggest university, still can be the best kept secret in Australia. We'll leverage technology. Super excited about that. And we've got really the potential to build Think Education into a premier college and become a university college and start on that pathway, if needed, to that university license. We've been working with the New Zealand government for the last 4 years to talk to them and try to persuade them to let us build the first private university in New Zealand, and if we get the honor to do that, there's no better asset to build that from than Media Design School. So we really believe that we have the platform, we have the foundation. You hear that we have the quality, and in our first 10 years, we have proven that you can do quality at scale, and we're really excited about the next 10 years. Professor Alwyn Louw, everyone.

It's an honor for me to share a few ideas about the academic part of our business in Australia and in New Zealand. I've been with Torrens for 4 years after living in South Africa for a number of years and originally come from Namibia, and this is why the accent is well ingrained. And probably at this age, it's not going to change. It is such a privilege for me to be part of growing a new university in this day and age, for the simple reason that the landscape around higher education internationally is changing so fast. Someone made the remark the other day that nothing happened during COVID. I said, a lot happened during COVID. People's total approach in terms of technology, in terms of the way in which they live, in terms of their engagement, in terms of their networks, changed, and that impacts the whole process -- of the whole approach around higher education drastically. What we've learned as a young institution is to be very clear in terms of purpose, very clear in terms of what is the mission that you want to drive and where do you want to position the institution? We are firmly committed to the idea that education is a key driver for the improvement of human development and the improvement of society, the quality and standard of living. But we also acknowledge that is not higher education territory alone. Our partnership with industry and the society establish a synergy through which we are able to ensure relevance, ensure that we continuously lead with the latest thinking in terms of the -- latest developments and the latest needs in terms of the changing world of work. How do we do that? Quality is the base. We've always asked the quality question. But apart from the quality question when we talk about compliance, we asked the quality question we talk about taxes, when we talk about our curriculum. Quality rests on our ability to do effective research, to have effective scholarship, to continue to lead in terms of creating new and relevant information, to be able to impact the solutions towards the challenges of [our day], and that gives us a unique position in terms of our relationship with the industry because we have a clear position in terms of the value that we bring into the debate. That enables us, of course, to look differently at our curriculum, but at the same time, it also assists us to define a market differently. So open access for us is not access without rules. It's a responsible access to more people into curriculum and learning opportunities that will give them a reasonable opportunity to be successful. Based on this and understanding open access, of course, the diversity of our students change tremendously. So we need to make sure that we understand the profile of our students well. We need to understand that we design the opportunities for learning and the support environment in a way that will meet the specific circumstances and learning requirements of our students effectively. And for that reason, hybridity for us and blendedness to support the learning process is critical. And of course, the day and age in which we're living personalization. What does customization look like if you want to use that concept in higher education? How do you make it personal? And how do you find that student pack in a group? And how do you ensure that you facilitate their learning experience? If you look at our students, student and qualification mix, if you want to look at the moment for a bit of a size and shape, this is where we are. We offer qualifications on sub-degree level, on diploma level, and you can see that domestic students dominate in that specific space at Torrens. On degree level, we have more of a balance between domestic and international, and post-graduate, total dominance from international students. So this is our opportunity. We want to make sure that we create pathways through effective articulation and support for our diploma students to grow into the degree space. And of course, lifelong learning because stackability and the opportunity to progress important. And we want to make sure that, in terms of our first graduate students, that we play a bigger role in the domestic market in Australia. So that is the opportunity. Because of the broad spectrum of our offerings and our involvement, you can see that the whole learning spectrum is open. We have students that can attend classes, they can attend online synchronously, but you can also have students, the 4,500 students that Linda was talking about, basically on demand. Offshore, online, making sure students have the choice to do some subjects online and other subjects, they can attend the class. They can change the mix in each of the enrollment cycles. So flexibility, because working and nonworking students, we want to accommodate students based on their personal circumstances. In Australia, to have university status, you need to perform on world standard, international standard, in at least 3 fields of research. Now to achieve those 3 fields of research for a young university means that you basically have to focus on developing your staff, which typically in a young university, also young staff and new staff coming into higher education, to develop the capacity of that staff into the research space and support them to start to grow their research capacity. We are proud to say that we already achieved the international standard in 4 areas, in the public health area, artificial intelligence environment, specifically focusing on optimization, and we can also claim that our leading researchers there is internationally-renowned as one of the leaders in Australia as #1. We're focusing on cardiovascular, medicine and hematology, and we're specifically focusing on health services and systems as well. We're currently developing into areas around building and tourism as well and into the management space. We have 6 research centers, and the strategy behind that is to ensure that we focus our resources, we focus our attention so that we don't go too wide. By focusing our attention, of course, our impact is much stronger. So we've seen through this strategy that over the past 3 years, we had major successes. For example, our research output in terms of publications, et cetera, we have increased that 3x. 65% of all our research output are done and delivered through international collaboration. We had a 44% increase in our higher degrees research numbers, and that is important to us because that continues to enhance the academic depth and the level of reflection. And of course, it impacts the curriculum. It attracts post-graduate students into the institutions because students follow research leaders, students follow expertise. So in terms of our progression there, inevitably, we need to make sure that we're able to resource our research continuously. And therefore, we're aggressive in the ground market. We already have $4.8 million in contracts supporting that is over and above the contribution that the institution is making to research in the institution. But it all translates into student satisfaction because quality is defined by the consumer. We have to understand our students better, and therefore, we have -- in each term during the year, we have an extensive survey across our student body and asking our students, what are the critical areas? Do they experience our learning as effective to enable them to be successful and to progress? And you can see that 84% of our students say we're satisfied with what we have, the quality of the subject, which means the content, the material, et cetera. 86% say satisfied with lecturers, competencies, teaching and learning, support we receive from our lecturers. Of course, that translates into student stay. 88% of our domestic students stay and 92% of our international students stay, and that lead to significant success rates and our students graduating ultimately. But it's not only internal assessment. The Australian government conducts a national survey on an annual basis, looking at the teaching and learning processes, teaching and learning outcomes, the assessment from our students, and they publish that on a national basis. In 2022, we were top 10 in terms of our learning support. In other words, the whole environment we built around students, we topped 10 -- top 7 in terms of -- the seventh in natural [indiscernible] in terms of the quality of the total academic experience. We're #3 in terms of skills development for postgraduate students. That is significant for us because the new generation university says, we don't want students that only can manage the theory or only manage the application, enable us to bring those worlds together, and we, through that, get a recognition that we are successful in this. But the last one is important, and this is also a national government survey. 86.7% of our employers say they're satisfied with Torren students, and that is significant. Research is clear on this. 73% of universities say we do what industry want, 11% of the industry say there's a piece of research on that, and you can go and read that. So we're very proud about that achievement. And in the last instance, if you look at the seventh position for total academic experience, that is significant after only 10 years. But it's also significant, if you look at the first 6 institutions, only one of those institutions have more students than us. The rest of them are dominantly small and often specialist institutions, so that indicates that we continue to deliver quality on scale. And that factor will ensure that we continue to remain an institution of choice in Australia while we continue growing. Linda, would you mind to come back for questions? Any questions?

Jasper Bibb, Truist Securities. Obviously, it seems like you have some great brands involved with Torrens today, but I was hoping you could speak a bit more about how the employer relationships for your schools in ANZ play into the market and your ability to attract students and grow?

Yes, do you want me to take that first? So we spend a lot of time with partnerships like the American Chamber of Commerce, Australian Chamber of Commerce, we spend a lot of time with industry. And we have -- we do a lot more now than Australian universities by way of partnerships with industry. We're super excited because we can do a lot more. When Joe comes up and starts to talk about the capability in ETS, we know we can amplify that further. So at the moment, it's really around curriculum design, and it's really about supporting academics and pracademics coming in to teach. The area that we still have to crack, and we know that we will be able to do that with SEI's muscle behind us, is actually getting employers to pay for industry education. In Australia, it doesn't happen. We don't have the match funding kind of tax to -- Joe will explain it much better than me, so industries are less likely to pay for education and for individuals. They expect the individual to do that because we get the return on investment, but that's an area for development in the future. So mainly at the moment, curriculum design and ensuring that we have got the right skills at the right time for industry.

May I just add to that. What is exciting is that [indiscernible], for example, one of the largest technology providers, we have an agreement with them where they start to acknowledge and recognize and accredit, if you want our qualifications for some of their internal training, the other way around. So that is a new relationship. So over and above the fact that we engage with them on a continuous basis, we have these type of relationships which are obviously developing and we have more of those. But another one that is very important is that more than 50% of our staff come from industry. . In other words, we hear the voice of the industry also in your classroom. Students say we want to hear the voice of the industry. We hear that, and those staff members are also part of the curriculum thinking. So the teaching and learning environment is influenced by the industry voice, our curriculums industry, and also, our staff lead us back into further relationships with the industry. So it's a multifaceted type of approach, and it must be that because the definition of partnership is more than just periodic engagement. It's a matter of working together towards a common goal.

Yes, that definitely makes sense. And it seems like the operating environment has just changed a little bit with the visa rules and then the requirement to take courses on campus for international students. Like how have you seen those changes filter through the business? And what do you think the main implications of this new, I guess, regulatory framework will be going forward?

Yes, the rules have actually gone back to what they were before COVID. So before COVID, students could only take 1/3 of their program online. They had to do 2/3 of their program on campus. So we were designed that way. What happened during COVID as the government actually said to international students, you don't have to study for a year at all. You can work, yes? And what we have seen is people are slower to return to their studies. They're not walking away from these studies, but they're deferring their studies as long as they can to be able to earn money and to be able to work as long as they possibly can before they come back. So the rules actually changed on the first of July, where students were then asked to come back to campus. And we're really in that transition phase of organizing students to ensure that they can still work in the jobs that they had and when they weren't studying and making sure that we can be ready to accept them in a more flexible manner so that they don't have to choose between earning and learning. Any other questions?

[indiscernible] from Bank of America. I guess my first question would be, the 21% from different nationalities are accepted. Is that new since COVID? Or is that changed at all?

The way that we built the university, because we were able to build it from scratch, we didn't have any historical legacy. So when we were looking at risk mitigating the university, we were aware, especially me because I was in public universities, that a lot of the programs maybe had 80% Chinese students, some programs had 60% Indian students which, one, wasn't a great experience for anybody but also has a high degree of risk because of the geopolitical situation changed and as happened, China told all the students that they could only have an Australian qualification if they came and did it in our country. Changes like that can affect the visa system. So I believe that we risk mitigate that incredibly well by having a wide mix of students from a wide mix of countries and also enhancing the educational experience by ensuring that in a class, as much as we can, you have a real mix of nationalities. So it's been there since inception because that's been part of our strategy.

The diversity in the learning experience is a very important point for our students. So it remains a critical part for us, for the quality of the learning because internationalization must be part of a curriculum, And this is the only way in which it happens.

And as a follow-up, what synergies do you have more to realize with the U.S. counterparts, realizing that I think is 92% nursing or so? Like what synergies do you have more to realize?

There's just so many. And really, there are synergies for growth and there's synergies for efficiency. I think the first major synergy for us is to get the technology stack in, yes. I mean, SEI, as Karl said, and we've been watching them even before we became part of that family, just have an incredible capability to drive innovation and technological based learning and to actually bring that across Australia and New Zealand. That will help us not only with efficiency, that will help us also use our data better, analyze our students better, support them and bring that in, and we've already started to do that through faculty action center. So the first priority really is to get the technology in to help efficiency and to drive growth. The second thing I think that you will hear today is really around the synergies around Capella and Strayer and their position in the market, that historical experience position in the market and supporting working adults. We have so much to learn from them, I call it second starter advantage because we'll be able to find out from them what worked and what didn't work. And therefore, we will not only be increasing market share by taking market off of the other universities, we believe we can go out and create a new market in Australia for working adults. So I think that's critical as well. And also just curriculum. We've already started that. I was blessed a few weeks ago because I had to go to parliament as part of a group on cybersecurity. And what I did before I went to talk to the minister, and I was with all the big companies, was I got somebody to do a brief kind of capacity statement for me, looking at cybersecurity over Strayer, Capella, and ANZ. From that, in the next month, we are launching a cybersecurity qualification in partnership with Fortinet, which is one of the biggest, you will know, cybersecurity companies in the world to put out to everybody who is involved in the defense [indiscernible] category in Australia. That came from that capacity of looking at what Strayer does, Capella does, ANZ does and putting that together for a global employer. That's special.

I know Australia has another recession for quite some time, but I was just curious about the cyclicality of the enrollments in Australia? I know most investors think about the U.S. as a countercyclical in terms of the enrollments going up in a bad labor market, but I was just curious to get your thoughts there?

Yes, it's really interesting because we've almost got a full labor market at the moment. So -- and usually, education goes down when there's a full labor market, and it goes up when people are unemployed and are looking to rescale to get new jobs. This is really the first time that we've continued to see a really high demand in our domestic growth during full employment, and I think it's back to the conversation that we had earlier about really being flexible and providing a working adult with an opportunity to rescale when they're at work, but also to provide them with -- to rescale when they're not. So I think we're looking at both as being an advantage for the university.

I think the massive discussion around artificial intelligence and the changing world of work, that awareness is ready to grow. I think people will start to realize in Australia, this whole process of reviewing higher education and the awareness that we need to increase participation in higher education, the level of -- the percentage of jobs that will require a degree, I think that awareness is impacting the market strongly.

Got it. And then just a follow-up on the pricing in the region. I know it might differ a little bit from the U.S., but is that a lever you're going to pull on to achieve that high single-digit growth in the '28 target?

100%. So you can see already, our price competitiveness with international, and we also -- we're priced for our domestic for the service that they receive. So we are -- every year, we're really analyzing our competitors and pricing and how the market is going to react to that. [Presentation]

Good morning. I'm Joe Schaefer, President of Education Technology Services. I have been with SEI for a little over 15 years in a variety of different roles, including technology, innovation, academic operations. And prior to joining SEI, I was in consulting for 13 years, trying to help companies increase their value via technology. And I am fortunate now to lead the ETS division, which really brings together all of that using technology, innovation, education and consulting to help employers improve performance via education. But before I get into the details of ETS, it was helpful to ground in the mission of ETS. Our Education Technology Services' mission is to make SEI the leading educational partner to employers and to make higher education more affordable. We have made great progress on that mission, as you'll see, and I believe we have a great road ahead of us to do even more. So SEI has a long history of serving corporations. And as Karl mentioned, it may be a new division, a relatively new division, it is not new to SEI. We started back when we were independent companies or universities with Strayer and Capella both had employer divisions in the early 2000s, working closely with employers to align curriculum and drive employer-affiliated enrollment. And when we came together with the merger of Strayer and Capella to form SEI, we brought that long history of corporate partnerships together and increased investment and accelerated that as a strategy of SEI; so that -- and then in 2019, we actually formed the ETS division. In that same year, we created the pilot for Workforce Edge, which I'll talk a lot more about. And since that time, we brought additional capabilities to employers, bringing them Sophia as new pathways to lower the cost of education, bringing our bootcamps, which we are part of Strayer University but are helpful for short-term or shorter technology training. And now together, all of that, as Karl mentioned, we serve over 1,300 employer partners, 60 of which use Workforce Edge and we have over 23,000 employer-affiliated students. I believe that the depth and breadth of our employer network is unmatched anywhere in higher education. I wanted to go a little bit more into the components of ETS. So first is our direct corporate relationships, and this is built off the legacy of corporate partnerships that you saw in that time line. But this is our essentially organization that consults with employers, employer sales, activation support of those students; primarily bringing offerings historically from Strayer and Capella, but now a broader set of offerings; and very flexible pricing and curriculum models, which you'll see in some examples I'll go through in this presentation. More recently, we added Workforce Edge. Workforce Edge is our tuition assistance management platform, SaaS platform. It is free to employers. It includes non-SEI educational assets as well, so it can run the whole program for an employer of tuition assistance; but includes debt-free degree pathways as well, which are typically the Strayer and Capella, Sophia offerings because of what you've heard throughout the day, our ability to offer the most affordable educational offerings. And we have Sophia, which is our platform of self-paced courses, mostly general education courses. We have over 60 now, and they are recommended for transfer credit by the American Council on Education, to be transferred into other institutions. That is primarily, as Karl mentioned, a direct-to-consumer business in partnership with other universities, but is increasingly important as you'll see to our employer space and a lot of growth opportunities directly in the B2B market for Sophia as well. So I wanted to share a little bit about how the revenue in ETS breaks down. Roughly $45 million of the ETS' $80 million of revenue roughly that we'll do this year is related to those corporate partnerships. So either the direct relationships that we've built up over time and the fast-growing Workforce Edge component, and the other $35 million is the various elements of Sophia. It's all Sophia, but more detail there on the B2C versus B2B and kind of what comes from partners and unaffiliated students. But I also wanted to call your attention to the strategic importance of ETS. So the ETS division is roughly $80 million of revenue this year, but the impact on SEI's revenue of ETS is much greater than that. Most of the tuition revenue associated with employer-affiliated students is part of the U.S. higher ed division, logically because that's where the teaching occurs. But if you look at the overall revenue to SEI of all of the employer-affiliated enrollment plus all of the ETS technology assets combined, that is driving about $215 million of SEI's revenue in 2023. Karl mentioned the strategic importance to SEI of growing our employer-affiliated enrollment and our long-term mission of transferring hopefully all of our tuition to employer paid versus Title IV. And we're making great progress on that. You can see that the growth rates of the employer-affiliated enrollment are higher than the growth rates of our direct student enrollments from Strayer and Capella but also the mix and, therefore, that is driving this mix of employer-affiliated enrollment as a percentage of the U.S. higher ed division enrollment is rising quickly. And we believe that over the period over the next 5 years, the time line we're using today, that this will double again. So why are we having all that great growth? We believe that we understand the employer needs and how education can be used to help employers, and we believe we have the right solutions to meet those needs. So employers are investing in education, they're usually doing so with the goal of upskilling their workforce or driving higher retention or acquiring the right talent, ideally all three. And with the mix of assets that you've seen today with SEI, we have the ability to create the right alignment of those assets to tailor them in ways to work with our academic partners; to change them if necessary; add new content, if necessary, but we can pull from that broad portfolio of education assets to create the right content for employers. We can also drive improvements in their efficiency of their educational spend because of the price points that we can hit in the way we can blend Sophia and even the productivity that Karl and everyone has talked about today, helping us lower the price of tuition increases the efficacy of the -- or really how far the employer's education investment spend can reach. With the addition of Workforce Edge, we now have the ability to administer the full education benefits program via the platform, inclusive of bringing in other institutions onto that platform. And we have the ability to modify or source incremental educational assets either by working with our other assets in SEI and now with Workforce Edge, including the ability to go out and get them from other education providers to bring back to the employer. So I'm going to share several case studies that will highlight all this. But before I do, I wanted to share a little bit of the life cycle of a typical employer deal. It's important to understand it's a multistage deal. So first, we work with employers to understand their needs, design and consult the right solutions, curate the ways to help them and then we would reach an agreement and implement a program, but that step doesn't drive revenue. The next -- what drives revenue is after that step, the employer begins to communicate if it's an education benefit or whatever the solution was to their employees, which we can help with. But the next step is it's important to realize the employee needs to decide to use that education benefit. And for the purposes of our planning, we assume that roughly 2% of employees who have access to tuition benefits will use those benefits in any given year. That varies widely across employers and across industry. But for our planning purposes, we assume that will be roughly 2%. Usually, the employee has a choice of where to go. So they also need to decide where to go, and we hope that they will pick an SEI education asset of where to go. And that -- those two things combined is what gets to the kind of 0.5% to 1% metric that Karl was talking about earlier is ideally, we'd like to see our employer partners somewhere in the range of 30% of their users of tuition benefits choosing to go to an SEI school. Another important thing to understand about how we compete in that market, why would employees pick us. One is the high quality that you heard throughout the day and the alignment of Capella and Strayer curriculum against employer needs. It's the quality and the flexibility element, but the other important element is our pricing. So we created what we call tuition assistance-aligned pricing, and our goal of tuition assistance-aligned pricing is to try to match or create a pathway such that an employee can choose to go to Strayer or Capella debt-free. Many employers offer tuition assistance benefits at an annual benefit to the employee of $5,250. And the reason many employers offer a benefit at that level is that is the limit at which that they can deduct that as a business expense. So not everybody offers $5,250, but it's a relatively common number. So we can create education pathways with Strayer and Capella to price at an annual price of $5,250. And when we do that, employees can pick Strayer or Capella with no out-of-pocket cost to them. When you combine that with the quality that you heard about throughout the day and the alignment to the employer needs, a lot of employees do pick Strayer and Capella. And that is fueling the growth that you've seen. So I wanted to take some time to go through a few case studies. And I think a couple of things I'd point out in all these case studies, really. You will see the legacy in all of these of our employer focus. So with CVS Health as the first one, this program started all the way back, its relationship started all the way back in 2011 as a relationship between Capella and Aetna. When Strayer and Capella merged and formed SEI, that relationship evolved and grew and added in Strayer. When CVS acquired Aetna, they formed CVS Health. And subsequent to that, they changed and expanded their tuition assistance benefit, and it was now $3,000 per year, but to a broader set of employees. We adapted, worked closely with CVS Health and created a debt-free degree pathway by combining Sophia with Strayer and Capella so that we could still offer debt-free degree pathways to CVS Health employees at only $3,000 a year tuition assistance benefit. I'm not aware of any other academic institution who could meet that employer desire. Since that time, we've also expanded our relationship and built new content to our new curriculum to provide Pharmacy Spanish and Spanish for Nurses. But as you can see, it's a long-term employer relationship that grows and evolves over time. And from that first year to now, this account has grown over 200x in annual enrollment. The next one is Quest Diagnostics. This also started even longer ago than CVS Health as a relationship between Quest and Capella. And one of the reasons I wanted to highlight this one is there is the academic capabilities of what we can offer employers. Capella University and Quest Diagnostics as part of this deal, worked together to map, as you heard from Constance, the competencies of Capella's Bachelor's in Business program, it's a competency-based program, remember, against the skills required for Quest employees to map together the competencies of the two. Since that time, we've also added Strayer University and most recently, Quest selected Workforce Edge to manage their overall tuition assistance management platform, and we're seeing great success since then. Next, this one is a long-term relationship with a large national discount retailer. This one started first as a relationship between Strayer and Capella back in 2012, was grown and expanded to include Sophia. And then in 20 -- and actually this one, we worked together through that consulting model we talked about, this employer brought us areas where they had critical skill gaps, and we worked with them and Strayer to customize Strayer programs to create and help them close those skill gaps. And most recently, they've selected Workforce Edge as their tuition assistance management platform. And as part of that rollout, we added Sophia and tuition assistance-aligned pricing. And since the rollout of Workforce Edge, the enrollment at this account has grown 10x. And finally, this case study, I think will help to show the wide range of ways in which we can work with employers. This is with Stellantis, relationship started with Strayer back in 2015. This relationship is unique anywhere in higher education that I'm aware of. We created a program with Stellantis. It's called Degrees@Work, that was the name that we've created with Stellantis to allow a Stellantis dealer for a flat annual fee to opt into a program where they could offer Strayer University with no cost to all of the employees at the dealer. We later added another version of that plan, which was a family plan. For a slightly higher fee, they could opt into a program where anybody who worked at the dealer as well as their family members could go to Strayer for no cost. We've ultimately added Sophia. And then given the flexibility that you heard from Andrea, we've even worked with Stellantis to articulate some of their own training into credit for Sophia. And now we have 380 dealers across the Stellantis network who have opted into this program, over half of which have picked the family plan. And that is driving almost 1,700 enrollments into Strayer University, but a very unique program showing the flexibility in the ways we can work with employers. As you can see from those examples, we have a broad portfolio and a lot of flexibility of how we can work with employers. But I wanted to spend a little more time going into the platforms that we now also have to accelerate that employer growth even more. So Workforce Edge is critical to our strategy. Workforce Edge enables us to expand the number of corporate partnerships that can work with SEI because it's also a platform. So even employers who weren't working directly with just Strayer or Capella can choose to use a platform to manage their overall tuition assistance benefit plan. And it also serves, as Karl mentioned, as a lead source, an effective lead source into enrollment for Strayer and Capella. We have 60 employer partners who have selected Workforce Edge so far. The majority of those clients are net new accounts that we were not working with before Workforce Edge. That has so far driven over 1,200 enrollments into Strayer and Capella. And as I talked about in that kind of time line of an employer deal slide, for the purposes of planning, we assume that roughly 2% of employees will use their tuition benefit in any given year. And what we've seen from Workforce Edge is for the employees who do choose to use their education benefit and they use Workforce Edge to select where to go, that Strayer and Capella win roughly 30% of that enrollment. And keep in mind that on Workforce Edge, Workforce Edge is a curated set of academic partners that are offering discounts. But in Workforce Edge, you can also go out of network and go to any school that you want to in the country and still use your tuition assistance benefits. Even though Workforce Edge is competing against the full U.S. -- full set of universities in the U.S., Strayer and Capella are still winning roughly 30% of that because we're often able to price at a debt-free degree pathway to employer -- to employees and the academic credibility and the alignment with the career paths that you heard about throughout the day. This also gives us an opportunity to expand into new markets because when we already have Workforce Edge installed and we need to meet new employer needs, we can either create new academic assets or we can go out and source things like nondegree content or whatever we may need to from other academic providers. So it'd be helpful to go a little bit into why -- what are the advantages for employers and employees to use Workforce Edge over our competitors. So for employees, this gives them a platform to understand their education benefits to explore academic providers that are offering discounts to them as an employer. It gives them that access to a curated list of providers who are offering discounts. But as I mentioned on the slide before, they still have choice to go anywhere they want out of network. So we're not limiting that. And they've received personalized support from our advisers on using their benefits. For employers, there are also great reasons to use this. First, there's no cost. So some of our competitors charge just for the management software. This is no cost to employers. We work with them to curate the academic providers that they want in the network. We work with them to create debt-free pathways, depending on how much tuition assistance they have available to their employees. We work very closely with them with dedicated account managers. We can integrate with their HR systems, things that provide incremental support for them to lower the administrative cost and increase the effectiveness of managing these education benefit plans. And then to switch to Sophia, as Karl mentioned, Sophia was actually founded back in 2010, and it was a relatively slow growth platform for SEI until the pandemic. At the beginning of the pandemic, we made the decision to make Sophia free. And we did that to help other institutions and students across the U.S. make that transition to online and not interrupt their learning as all of the universities were trying to make that shift online. When we did that, that dramatically increased the awareness of Sophia and it gave people the chance to see the value that Sophia creates for subscribers. After that period was over, we moved to a low-cost subscription model. And since that time, Sophia has grown from less than $5 million a year of revenue to over $34 million in revenue this year. And as we've mentioned earlier, there are 3 -- it's a direct-to-consumer business, which is kind of really split between subscribers who are using it affiliated with a partner and those that are using it unaffiliated with any partner, haven't decided where they want to go yet and a B2B business. So I'll go into each of those a little. On the direct-to-consumer business, this is a reflection of the great growth we've seen post pandemic, including the students who are enrolled via Strayer and Capella, where they can get it for free. We have roughly 44,000 active subscribers. This is over roughly 125,000 unique people will use Sophia across the year. And they use it because of it increases affordability, it increases flexibility and there's the credibility and the partners that they can transfer to. And that value to the subscriber has resulted in more than $500 million in tuition saved relative to the tuition they might have paid at an in-state institution, more than 0.5 million courses that are completed and more than 1.5 million transfer credits. And that doesn't even factor in the time savings that this also helps them accelerate their degree. But Sophia isn't only valuable to subscribers, Sophia is also highly valuable to our academic partners, other institutions. And when I say our higher education partners, what I'm referring to is academic institutions that have signed articulation agreements with Sophia, meaning they have worked with us to map the Sophia courses against their courses so that anybody who wants to use Sophia can clearly see, if I take this Sophia course, what will it map to in my home institution? We have over 60 partners that have articulation agreements, but we've also sent transcripts to over 1,000 institutions. Because Sophia courses are recommended for transfer credit by the American Council on Education, it's up to the receiving institution to evaluate that and decide if they're using them. It's better for everyone if the -- if there's already articulation agreement in place because it's much more clear to the Sophia subscribers. But we do know there's a lot of users that are transferring it without -- beyond those partners. To the partners, this creates an ability to -- it increases their retention rate, it may help them actually boost enrollment, too, because we have a lot of a lot of subscribers who are using Sophia and haven't decided where they're going yet, and they're going to want somewhere where that credit is going to transfer. And they help them also expand their course offerings. There's no cost and no technical implementation to a partner using Sophia. All they need to do is work on an articulation agreement with us, and then we help them figure out where they want to use Sophia, who do they want to recommend it to, how should their advisers think about telling their students about Sophia and where it could be a benefit to them. And I wanted to share a case study on this because sometimes people think, how can this possibly help a university, somebody else is teaching their class. They're taking a class somewhere else. And it's that flexibility and cost that there are a lot of places where that is very beneficial to a student and it helps the retention of the partner institution. And we do research to prove that. So we have done 5 research studies so far, partnership with Sophia and other academic institutions and their academic research team. And in all 5 cases, every one of these metrics holds true that if a student has completed at least 1 Sophia course, they're more likely to complete their first term, more likely to enroll in their second term and more likely to enroll in their fourth term. All 5 studies on all 3 of these metrics are positive and substantially so. We continue to do more research. We have more of this in the pipeline, and we will offer this type of research to any of our academic partners who want to do it because we want to prove the value to our academic partners. And then finally on corporate partnerships. You heard through the case studies and actually throughout the day, that we use Sophia to help create pathways and lower the cost of degree attainment. We are also using it more now direct with employers as something that they can offer to their employees who are not eligible for tuition assistance, to expand who they can offer education to but also increasingly see the opportunity to offer nondegree content on their -- beyond just the general education courses and to build out Sophia -- a component of Sophia that we're calling Sophia for Business for now, but a capability of Sophia that we think can grow significantly from roughly the $1 million it is today to a much bigger portion of Sophia's revenue. And with that, I am happy to take questions.

Jasper Bibb with Truist. Just kind of curious, like how would you rank the main deliverables you need to achieve to hit that $100 million revenue target for Sophia? Would it be expanding the course catalog, adding new partners to that articulation list or just kind of building awareness in the marketplace?

You've got them. So first and foremost, through that, the studies we're doing, we really want to show partners the value that we're adding to them because we'd like to have many more signed articulation agreements. Subscribers are more likely to use Sophia when they can see in advance where it's going to transfer. It's helpful to everyone. So we want to expand the partnerships. Sophia, I know the term was used earlier today, but I'm going to take it again for Sophia. I think it's the best-kept secret. When we raised awareness of Sophia significantly in the pandemic, we've seen great growth since then. The awareness of Sophia, and this is a pathway into education, is still relatively low. It's growing fast, but there we've got to continuously work on the awareness of this as a pathway. And then we are continually adding courses too. So we've added many more courses in health care earlier this year. Those courses are growing strong. So it's all 3 of what you said, combined with I think there is a meaningful market in Sophia for Business as well. You put all those things together, and that's how I think we can get to the $100 million for Sophia.

Sure. Do you think there's more to do as far as educating potential university partners on why this is value-add or just potential students and that knowing that this is an option and this is out there?

There's work to do on both, definitely. And we are working with academic institutions to show them exactly that and to sign up more. And through our consumer marketing, we're working on the other side of that. But that's part of the reason that the value proposition for both subscribers and institutions is so high that we're working on the awareness problem from both sides. And I think that's where the -- as we solve and make improvements on both of those, we expect to see the growth kind of naturally come.

Definitely makes sense. With respect to Workforce Edge, I know that's a free model now. Over the long term, would you consider monetizing that via like a subscription model or charging referral fees if they ought to enroll somewhere that's not Strayer or Capella?

We do have some monetization when people enroll in nondegree and some with other partners on the network. But it's small relative to the value being the enrollment that's coming into Strayer and Capella. I do think that will grow, but I think the bigger value to SEI is on the enrollment into Strayer and Capella. And we do also have some services that employers can decide to use approval services and other things that have small fees, but we want to keep the core of the platform free to help employers use that.

Emily Marzo, Bank of America. I guess first question, in terms of Sophia, the retention in the subscription, do you know what that is from the free period in 2020 to where we are now? And do you know how many students are moving from Sophia to the Strayer-Capella option?

The -- so on retention, we will serve about 125,000 distinct people this year. We have about an 80% month-to-month retention. So it's not designed for long-term retention because you're not completing the whole degree program, you're picking a few courses that you wanted to transfer in. So we have about an 80% retention. And the other question, sorry?

Do you know how many students are moving from Sophia to the Strayer-Capella option?

Thank you. So the majority of the Strayer and Capella students are actually the opposite direction. So the -- you heard earlier that Strayer and Capella offer Sophia for free to help complete -- to help drive affordability and retention flexibility. So this year, we'll have about 8,000-or-so students who will have, in some fashion, use Sophia. But we look at it more for the purposes of Sophia, it's more about providing a value add to the Strayer and employee, Strayer and Capella students than about providing a pathway into Strayer and Capella. Although we do have some of the unaffiliated subscribers of Sophia ultimately pick Strayer and Capella, but it's much smaller than what's going in the other direction.

Okay. And then a follow-up question on just making sure we understand the debt-free path of the $5,250 or I believe that what it was, is that annual?

Yes.

It's not -- if they decide to go faster in their program or add courses or take on more?

It is an annual amount. They don't have to use the whole amount, so they could take 1 class and then it wouldn't use that much. But the pathways are designed that if they're staying continuously enrolled throughout the year, they will not have to pay out of pocket.

Just one question on the lead costs. Is there -- how do you think about the lead costs on a blended basis if you have the students coming in for a lower price point through the Workforce Edge system?

The acquisition on -- through the Workforce Edge platform is lower than a consumer element, because when somebody decides to use their tuition assistance benefit, they're going to go on Workforce Edge and see -- do their research, where should they go or at least some of them, some might already know where they want to go. But because we have the opportunity to present the debt-free degree pathways, there, we just went to a higher share between the quality of Strayer and Capella and the fact that so many employees can do that with no out-of-pocket cost. It's less expensive. However, the flip side is all of the investment that Strayer and Capella are making in marketing is very beneficial to the employer side, too, because it increases the awareness and reputation when people do use their tuition assistance benefits if they have high confidence to use -- to select Strayer and Capella already being aware of what they may have heard from consumer marketing. So there is an interconnection between the two. Great. Thank you very much. And with that, I will hand it over to Dan Jackson, our Chief Financial Officer.

Thanks, Joe. I know you're all wondering where's Dan's promotional introductory video. It shouldn't surprise you that I was unable to find creative talent within my team. And given the ongoing SAG-AFTRA strike, I couldn't outsource it. So it became a 2023 productivity gain. I want to start by jumping back to the outlook that we communicated earlier this year. You recall that as we ended '22 and saw the early enrollment in the first quarter of '23, we laid out expectations that assumed we'd see that trend of enrollment growth across the U.S. and relatively stable revenue per student continue. And with that, we thought we could see in '23 revenue growth in the mid-single digits. We also said at the time that we thought we could keep expense growth in the low single digits, and that with that revenue growth back-end, second half weighted; expense growth, first half weighted, that we would start to see significant earnings growth and margin expansion in the second half of the year and then for the full year as well. I assume most of you saw our release last week. The good news is we're on track with the outlook. Revenue growth is, in fact, accelerating. Expense growth is moderating. And across the board, across all 3 segments and for the company, we're seeing healthy margin expansion and significant earnings growth. And at this point, we're seeing that momentum continue into the fourth quarter. And for the full year, we think we're actually going to be slightly better on the revenue line than what we first communicated, which was mid-single digits. And we also think that we will successfully keep expense growth 200 to 300 basis points below revenue growth which enables, for the full year, 200 basis points of margin expansion and really contribution from across the 3 segments. I think as most of you know, our business model is cash generative. And again, assuming the '23 forecast that I just showed you is what we achieve, we're estimating that we can generate around $115 million of operating cash flow, which really puts us into a position to one, continue to invest in the business. We've communicated early on in the year that we expect to spend $50 million on CapEx, which includes cloud computing. I think at least some of you know that cloud computing a few years ago was carved out of CapEx by FASB and it's now recorded as really an operating cash flow. For here, for illustrative purposes, I'm showing it as part of CapEx here. But that's our ongoing investment into the business. That cash flow also allows us to service our debt. I think most of you saw that we repaid $40 million of the roughly $100 million that was outstanding on our revolver, and we've got $60 million to go. And at this point, I plan to have that paid down by the end of next year. And then, of course, it allows us flexibility to return capital to our owners. Starting with our dividend which, again, we've maintained through the pandemic. I think as those of you who have been with us for a while know, before the pandemic, our payout ratio was roughly 35%. At the sort of the bottoming of the pandemic impact on our business, that ratio went up to about 100%. We're growing back into that 30% to 40% payout ratio and expect to maintain it roughly there. And then finally, we're opportunistic buyers of our own shares. And then most importantly, as Karl and Rob, I think, referenced, the cash-generative nature of our model gives us the ability to maintain -- to do all of that and still maintain a fortress balance sheet, which is critical to the ongoing success we have operating in a highly regulated industry. Normally, we don't produce an outlook until we get to our February release. We decided to take advantage of this time with our investors and analysts to go ahead and give you a preliminary outlook, which starts with the momentum we've got in '23 and gives us confidence that we can continue that into '24. And so at this point, based on the trends that we're seeing now, we expect to see continued mid-single-digit growth across U.S. higher ed. We expect to see a recovery in enrollment in ANZ. Success in domestic, we think will continue, and we see a gradual return to growth from international. And of course, we've already seen the benefit on revenue per student that has enabled that business to generate revenue growth, notwithstanding some weakness on the enrollment front. So we expect to see that turnaround in '24. Joe and the ETS team, we expect are going to produce mid-single digit -- sorry, mid-teens growth across ETS, starting with employer-affiliated enrollment, which we expect to see continue to shift as a mix in U.S. higher ed. Sophia growth, again, we expect to be strong. And if we're successful in those 3, we think we can continue to deliver revenue growth in the mid-single digits. We're going to continue to focus on cost management. We think we can keep expense growth 200 to 300 basis points below revenue growth, and we'll see another 200 basis points of margin expansion for the full year. Just from a modeling standpoint, 30% adjusted effective tax rate is still a good assumption to use and we'll continue to invest 4% to 5% in CapEx and cloud computing. I want to expand a little bit there. First off, we're going to continue to invest in what I think are world-class learning platforms across all of our business, including in the U.S. with Capella and Strayer, we're going to continue to invest in Sophia and Workforce Edge. Linda mentioned technology as a key opportunity for ANZ. We're going to be investing more to bring a lot of the technologies that we've built in the U.S. over to Australia. I think Andy and Linda mentioned campuses. Those are still critical differentiators for both Strayer and ANZ. So we'll continue to invest in campuses, although it's a much smaller investment than was the case years ago when Strayer was adding campuses. Now we're going to be really fine-tuning campuses, make them more relevant to our employer partners and certainly relevant to our on-ground students, which increasingly will include more international students in the U.S. and of course, a lot more international students at ANZ. About 10% of our CapEx will go to infrastructure maintenance. And though we've been investing here, we're actually going to accelerate investment in automation and the use of AI, which I'll expand on as well. I think you heard from Andrea and Constance, and I think you know those of you that have been with us for a long time, we've been leaders in the realm of using AI and automation in higher ed. We're now going to take advantage of what we're seeing as a step change in the technology that's out there. And we've got a more focused and concerted effort on this front to drive continued improvement in the outcomes, but also increasingly productivity. So we're planning to spend a $4 million to $5 million per year investment on generating what we think could be $30 million to $40 million in productivity gains over the next 3 to 4 years. We're going to leverage capabilities that are increasingly available through our key strategic IT providers, companies like Workday, Canvas, Oracle, Salesforce. We're going to expand the use of robotic process automation. We've actually, over the last year, been doing what I would characterize as pilot tests across our finance and accounting team and have had a lot of success. It's small, but call it, 10,000 hours of kind of tedious transactional effort that we've been able to automate with these tools. And we're now in the process of expanding it to all other parts of our business, mostly on the back-office front, but we think there's a lot of opportunity there to drive productivity. And then finally, and probably most significantly, we're going to continue to invest in the really dramatic increase in availability of generative AI tools to automate much more complex process across all of our divisions and in a lot of the areas that are deeper in the student support front and then, of course, a lot of the back-office functions that are more than just transactional work that we think generative AI can be used to drive productivity gains. So if we're successful there with those investments and certainly with the efforts of the teams that you've heard from today, we think we can hit that 5-year model that Karl laid out earlier this morning. I wanted to walk through a handful of the assumptions that underpin that model. Of course, it gets us to the $1.5 billion of revenue and roughly doubling margin for the company. It starts with the heart of the business, which is our U.S. higher ed division and our belief at this point that we can sustain mid-single-digit enrollment growth, which actually gets us to just over 100,000 students in the U.S., which sounds like a lot. But think back to the first quarter of 2020, our U.S. higher ed enrollment at that point was 96,000. We obviously lost some ground through the pandemic. The 5-year model assumes we're going to get back a little bit further than we were pre pandemic. It assumes that we can accelerate growth at Australia and New Zealand. Right now, we're just under 20,000. Our 5-year model would have us between 25,000 and 30,000, which we think is very possible with the strength that we found in domestic enrollment and certainly the return to the strong international enrollment growth, which was the thesis that we had when we made this investment. Again, we expect Joe and the team to continue to grow in the mid-teens. This assumes that we're able to move employer-affiliated enrollment as a percent of our U.S. enrollment from just under 30% to approaching 50%. It also assumes that we can double the size of active subscribers at Sophia. If we're successful there, we can deliver the roughly mid-single-digit revenue growth over that 5-year period, which gets us to the $1.5 billion. And with the focus on productivity, the leveraging of our fixed cost model, 200 basis points of margin expansion per year, we think, is achievable. And again, I expect that the tax rate and CapEx over that same period of time will be consistent with what it's been more recently. When you put those pieces together, again, $1.5 billion of 2028 revenue. It assumes roughly $1 billion at U.S. higher ed, $350 million for ANZ and $150 million at ETS. And importantly, very profitable revenue growth. On a marginal basis, that would assume roughly 50%, 55% marginal contribution for the company. Across the segments, between 50% and 70% marginal contribution, which sounds ambitious, but I think as Karl pointed out earlier, it's not a lay-up, but it's also not going to require an active heroism. If you compare our target margin, EBIT margin, which I've got down at the bottom of the slide which, again, for the consolidated company is 22%, it's only a couple of hundred basis points above our pro forma margin in 2020. And if you look across the segments, U.S. higher ed, the target is slightly below where we were in 2020. ANZ, it's a little higher than that, but we think the investments that we're making there in productivity are going to help sustain the margin that we're seeing actually right now. If you look at our third quarter margin, it's already in the mid-single -- mid -- sorry, the low 20s. And then of course, ETS, it's really just a return to the 50% range that they've been in, in the past. So again, we think it's ambitious but achievable. And finally, I wanted to end on a message that I remember hearing at the first Investor Day I went to about 19 years ago that my predecessor left the group with. And that is the financial performance that we've achieved in the recent past, in fact, that we've achieved in the last 20 years and that we expect to achieve over the next 5 wouldn't be possible without what Rob pointed out or started with this morning, which is, one, our focus first on what's good for students; and then two, the what I would characterize as a thoughtful and rigorous governance structure that we wrap around everything. It starts with our Board at SEI. We've got boards of trustees at all of the institutions. They're supported by what I consider the best-in-class, both legal, compliance and internal audit teams who are supported by the best outside advisers. And most importantly, it ends with the tone that they hear on a daily, monthly, quarterly and annual basis from Rob, Karl and the rest of our senior team. And with that, I would like to invite Rob and Karl back up for some final Q&A.

Dan, maybe a couple of questions to start on the financial outlook. Like how would you think about the weighting of margin expansion and earnings growth over the next 5-year plan? I guess the outlook for 200 basis points next year is kind of pretty consistent with what you outlined over the next 5 years. I guess my question is, why wouldn't the margin gains be more pronounced in '24 and '25, just given how fast you're growing U.S. higher ed enrollments? And how far the margins are below 2020 levels in the third quarter?

Yes. The -- what we're laying out is -- actually I'm going to back up even a little bit more. Just at a summary level, what are you underwriting when you're thinking about an ownership in SEI? And you're underwriting a couple of key concepts, a couple of key assumptions. One is, over time, do you have a management team that's going to focus on the quality of the academic offerings to the institutions? And through that, do you have a sustainable set of organizations that will exist over long periods of time? The second thing is within that constructive commitment to academic quality, what's the underlying demand and how fast are you reinvesting capital so as to serve that demand? And what sort of enrollment growth and then ultimately, revenue growth? And it's really based on enrollment growth because as you've heard, we're not really banking on a whole lot of increases in revenue per student. We're driving down cost of students. And then the third thing you are underwriting is an assumption around, can this institution, can this management team deliver that revenue at constantly decreasing amounts of expense per revenue? Are they improving their margins? And what you heard today is a commitment across not just general expense discipline, but investment in kinds of multipliers to that productivity multipliers, both in terms of technology, artificial intelligence, et cetera. And so over that 5-year period, there are going to be periods in which -- let me put it this way, we're not guaranteeing a certain outcome per year on an average that, that's going to look like. We know that running academic institutions, they kind of -- they're somewhat variable. The enrollment sum is variable. We know we can control the expense. So what we would expect is that in periods in which we have higher revenue growth than the notional, we're not going to surge the expense, so you would get more margin expansion. In periods where you have lower than the notional revenue growth, you might not get quite as much margin expansion. These were never designed to be specific 5-year plans with targets. They're designed to give you a sense of how we think about the future and how we're investing the dollars. And most importantly, how the management team knows to conduct themselves and the decisions they make in terms of maintaining priorities over what's most important and then controlling what they can control. And that over time, what we would expect is you are going to see if we have higher revenue growth than is contemplated or illustrated in that notional model, you would have higher margin expansion.

That definitely makes sense. So you've been maybe pivoting to capital deployment, like you've paid down the debt balance following the ANZ acquisition. I think last quarter, it's only about $60 million or so left on the revolver. Like looking at the projections that you outlined today, it seems like that could get to 0 pretty quickly just based on the available cash generation. So once that happens, like how do you intend to manage the cash generation going forward? Should we think about primarily repurchase until you hit the dividend payout target? Or is there a desire to build more of a cash buffer against the financial responsibility rules?

Well, a couple of things. One is you're accurate in terms of predicting the pace of the debt paydown. We expect to have that done by the end of calendar '24, as Dan said, and it is a cash-generative business. We are still -- our financial composite score is still below perfect, which is where we had it for a long period of time. It's sufficient, well above the 2.0 target. We'd like to build that back up to 3.0. We think that is an investment in the confidence that the department and the other academic institutions have in our financial stability. But that should happen pretty quickly also. Dan also mentioned that the Board's desire is to get back to a payout ratio of about 35%. So within a couple of years, we'll have to start increasing our dividend to meet that payout ratio. But again, you're correct in that if you model out the assumptions that Dan has, even after that, you're going to be generating hundreds of millions of dollars of what I would call distributable owner's cash. In the past, when we've been in that situation, what we've tried to do is keep much cash on hand to fund any potential opportunities. But when you have the kind of fortress balance sheet that Dan described, you also have access to capital. So it's not like you have to hold on to it. We're not a bank. We don't hold on to it forever. And in those cases, we tend to return the capital to owners in the most value-enhancing way. We'll do that either through increased dividends or in those situations where the market presents us the opportunity to repurchase shares at what we consider a significant discount to intrinsic value. We've been known to do that significantly in the past, and I wouldn't rule that out in the future also.

I think you gave guidance pre-COVID. I was just wondering on the revisions since you gave that guidance before.

Notional outlook maybe?

I'm sorry, I didn't understand the question. Say that again?

I was just comparing and contrasting the guidance today versus the pre-COVID guidance in 2019.

You're referring to the outlook we might have communicated at our last Investor Day?

Yes.

It's not comparable anymore, primarily because we've gone in and acquired the Australia, New Zealand business, which at that point, we didn't own yet. So I think what we're communicating now is what you should expect going forward.

Okay. And then do you have any targets for free cash flow or EPS growth?

Yes. Free cash flow, distributable free cash flow, we expect going into next year in the 5-year plan, we'll target roughly equivalent to adjusted net income. And we haven't communicated a net income goal, but it's pretty straightforward in terms of the model. You can calculate it pretty easily.

The one other thing I should add to that sort of off-the-cuff summation of what you're underwriting when you own SEI, is you're also underwriting a much more diversified company than we were pre-COVID. The ANZ acquisition gives us the opportunity to serve markets that we were really unable to serve efficiently prior to that as well as giving us a base in a -- both a geography and an educational establishment that is different from what we have in the U.S. So you have a stronger base of both revenue and operations from which the overall entity is a little more, I would say, it's certainly more diversified and potentially more stable to any various disruptions that might happen in either in individual geographies or within individual platforms that we have.

Emily Marzo, Bank of America. My first question is, the guidance assumes no M&A, is that correct?

Correct.

Okay. The second question is what gives you the confidence in the acceleration of Sophia, the ETS platform in order to prevent any cannibalization of the U.S. higher education?

Well, first, we haven't seen any cannibalization to date. And what gives us the confidence is as we've made these investments over the last several years, we've seen growth accelerate. We think that both are at the highest possible quality levers -- levels vis-a-vis their direct competitors. So we just expect both Sophia and Workforce Edge will continue to take market share over the next 5 years.

And then what goes into the ANZ target of that 6% to 8%? Like where is -- do the visas come back? What is in your guidance for those targets?

We're expecting probably mid- to high single digit, maybe double-digit growth on international and probably just mid-single digit on domestic given the low awareness in the brand but both improving over time, but slightly higher growth in international going forward, which I should caveat by saying it was the exact opposite in the third quarter. We had strong domestic growth and a little less international growth. We expect that to reverse over the 5-year period.

I think before COVID, it was 55% international or so.

Yes.

Is that the target to get back to? Or do you think you can...

We don't really have a target per se. We're just trying to grow both domestic and international students. And whatever it is on a composition standpoint, it will be what it is.

Well, if there's no other questions, I want to thank everybody who's here today in person. I want to thank all our listeners on the webcast. And I truly want to thank the entire staff throughout Strategic Education throughout the world. All of these numbers look really exciting and attractive, but they're only numbers on a slide. What really happens is every night, every day, individuals coming to work and committing to helping students achieve their educational objectives, and that's what drives the value creation for owners. And so what you're seeing here is a mere representation of all the effort that actually happens. And I want to thank all of our staff and faculty around the world who are doing that. So thank you very much. If you have other questions, please contact us directly during the open period. You can always reach Dan and Karl. And we thank you for being here and look forward to seeing you again soon. Thank you.