Q3 2020 Strategic Education Inc Earnings Call
[music].
Welcome to the strategic Education's third quarter 2020 results conference call.
I will now turn the call over to Theresa Wilkie manager of Investor Relations for strategic education.
Ms. Wilkey. Please go ahead.
Thank you good morning, everyone and welcome to strategic Educations conference call in which we will discuss third quarter 2020 results and closure of the Australia, New Zealand acquisition, we announced this morning.
With us today are Robert Silberman Executive Chairman, Carl Mcdonald, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer.
This conference call is also available via webcast with a corresponding slide presentation.
We encourage you to log into the webcast as a slide presentation is only available at this time for viewing via the webcast.
You can access the webcast at strategic education Dot com in the Investor Relations section.
After completion of the call the slide presentation will be posted to the website follow.
Following today's remarks, we will open the call for questions.
Please note that this call may include forward looking statements made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
The statements are based on current expectations and are subject to a number of assumptions uncertainties and risks that strategic education has identified in today's press release that could cause actual results to differ materially.
Further information about these and other relevant uncertainties may be found in strategic educations. Most recent annual report on form 10-K.
The 10-Q to be filed and other filings with the Securities and Exchange Commission as well as strategic educations future 8-K's, 10-Q's and 10-K's.
Copies of these filings and the full press release are available for viewing on the web site at strategic education Dotcom.
And now I'd like to turn the call over to Rob Rob. Please go ahead.
Thank you Terry and good morning, ladies and gentlemen, and.
Our earnings release. This morning, we reported both our Q3 earnings results as well as announced the closing of our acquisition of Torrance University and related educational assets in Australia, and New Zealand.
I think it's important to note at the outset that the regulatory approval for this acquisition by the governments of Australia, New Zealand took less than 90 days in the mid civil worldwide pandemic I believe that the speed of this approval is a testament to the high regard, which broke those governments hold for the academic quality of Torrance University as well as their confidence.
And as she eyes track record as a responsible steward of academic institutions are Carl will cover both of these announcements in his remarks. This morning as well as share with you our view of the impact of the krona virus pandemic on our operations and I think more importantly, what our company will look like post this acquisition in 2012.
Any one and beyond.
No because there's a lot of material to cover we're going to take a little more time. This morning than we usually do in our introductory remarks before we open it up for questions.
In fact to assist you in following along we've included some slides on this webcast, which call we'll refer to in his remarks those of you who are using the dial in and want to see the slides should join the webcast now.
And of course, we will we will stay as long as needed to answer any of your questions.
Her earnings per share.
And you May recall in our last earnings call I said that the third quarter was the first quarter in which the full impact of the pandemic and associated economic damage was felt by our company.
Or two University strayer, and capella are experiencing substantially different effects from the current macroeconomic conditions.
And last quarter, we pre announced strayer as enrollment results, which again included a 28% decline in new students in a 1% decline in total enrollment.
At that time, we also forecasted cabela's, new enrollment would be down somewhere between five and 10% for the third quarter Kapell us actual third quarter enrollment was substantially better with both new and total enrollment growing 4% over the prior year.
And while stairs performance is disappointing to as it is not necessarily surprising given that it's an institution that predominantly serves an undergraduate population, including a large percentage of first time College students, which we know is a segment of the population even pre pandemic that is most sensitive to adverse changes in the economy and.
Unemployment.
And this is in contrast to capello, 70% graduate student mix, where that segment of the population people that have existing four year degrees is ferrying substantially better.
To help offset some of the economic pain for some of our students. We have implemented several scholarship programs, which will likely result in a 2% decrease in revenue per student for the full year 2020.
First of all of our employer solution efforts Sophia or coding schools in our new digital enablement function in Australia, and New Zealand will include Torrens University, Thank education, and the media design School.
We have also implemented a series of expense reductions that will reduce our run rate operating expenses next year by approximately $33 million.
This includes almost $8 million of real estate savings from reducing our corporate square footage as a result of the effectiveness of working remotely which is a trend we see continuing for many even post pandemic as well as the rationalization of the stray our campus footprint as 95% of stray our students are already taking 100.
Per cent of their classes online and.
And the company intends to take a restructuring charge of approximately $30 million between the third quarter of this year and the first quarter of next year.
And slight 11 provide the detail on these divisions and it's important to note that the company will begin new segment reporting reflecting this structure beginning with our queue for in full year 2020 results, which we will announce next February.
And as I said, a moment ago, we intend to invest in our growth next year, including significant new investments in our new alternative learning segment.
Your new culinary education product with certain the top and rest or tour and chef Scott Conant, which we expect to grow significantly in the coming years.
Turning now to are now closed acquisitions of Torrens University think education and the media design School.
First I'd like to say that we're thrilled to be the new owners of these very high quality assets and we look forward to investing in their long term growth, where we see significant opportunities.
For 2021, we expect Australia, New Zealand to generate approximately 270 million U S dollars of revenue and 60 million U S dollars of EBITDA, representing 10% growth for each.
And as a reminder towards University is the only federally recognized investor funded University in Australia uniquely positioning it to innovate with on within Australia is higher education market.
Now in terms of next year. Our initial 2021 notional model assumes until we have evidence to the contrary that our current enrollment trends continue into next year and specifically that we see continued weakness in new enrollments at Strayer University through the first half of 2021.
[noise] stabilizing in the second half.
We also see a continuation of Capella universities current performance with mid single digit new student growth.
The notional model also assume significant growth within the alternative learning as I, just said and the $270 million of revenue and $60 million of EBITDA in Australia, and New Zealand.
All of that then would generate consolidated Sci revenue growth in 2021 of approximately 15%.
We would also then assume flat EBITDA 29, 5% tax rate capital expenditures that between 50 and $55 million and our new sure count of 24.2 million shares.
So in summary, we project continued strong cash generation and accumulation of $450 million and liquidity at the end of this year and 500 plus million dollars at the end of next year.
We remain committed to our student first focused on academic achievement and as has been our practice and other periods of economic downturns, we don't try to chase or create demand that isn't there organically or.
Or solid financial strength enables us to withstand wide variations in enrollment and we remain highly confident that stray as demand will eventually recover to pre pandemic levels and begin to grow again, particularly as overall demand for high quality digital learning is now higher than ever.
And operationally next year, our primary focus will remain to serve the highest possible levels of academic quality for all of our students and work to successfully integrate tarns, Thank education and the media design school into Sci.
And importantly, we remain committed to addressing college affordability and will actively work to reduce our cost of attendance and debt levels for all of our students.
And our Investor day last year, I said that we haven't aspirational tenure vision to fully convert 100% of our tuition from title for funding to the private sector via our employer partnerships, we remain committed to that vision and in fact intend to modify our executive incentive compensation pro.
Graham to include this metric as a qualifier in determining whether incentive compensation has been earned and at what levels.
We will also maintained are disciplined cost approach and with the support of our full board of directors will deploy our financial capital towards the highest long term returns, including returning surplus capital back to our shareholders and finally I'd like to thank all of my colleagues within Sci, including our newest colleagues in.
Australia, and New Zealand for all of the dedication and continued hard work during this very challenging year.
And with that Daphne, we'd be happy to open up for Q&A.
[noise] operator.
At this time in order to ask a question.
One on your telephone keypad.
To withdraw your question.
<unk>.
Please stand by while we come out to kill anyway.
Yes. My first question comes from the law.
Lineup, Jeff so far with BMO capital markets.
Thank you so much.
I want to focus first on I get your core business.
The.
Last quarter, you had given us some color on new enrollment trends I'm wondering if you can do the same thing right now what what does that tracking both at Strayer University and Capella University.
Good morning, Jeff.
We're still in the fourth quarter, obviously, but I can share that the new student enrollment trends at both strayer and Capella are largely in line with the third quarter.
Okay, that's fine and why do you think capella outperform your initial expectations you gave us last quarter.
When when we provided that initial forecast it was very early in the quarter.
We were cautiously optimistic that the traction that we were seeing early in the quarter would hold but obviously we weren't sure. We were very pleased that they ended up as strong as they did up 4% and as I said in my prepared remarks they serve.
A student body that is more established professionally.
70% graduate meaning everyone in a graduate program, obviously already has a four year degree and that's just a part of the economy that tends to fare better even in periods of economic distress, which is in contrast to the stray or student body, which has that rather large.
Portion of the student body that our first time college students in that part of the economy, we know tends to suffer the worst in periods, where you have.
A sizeable change in economic activity as we've had this year with the pandemic in the immediate shutdown of the economy.
Hey, Jeff It's Rob just.
Even simplify it more think about the fact that that capello student is more likely to have been able to work from home.
And the Strayer student is much less likely to been able to work from home and much more subject to involuntary.
Employment reductions layoffs et cetera.
Okay. That's actually very helpful. Can we talk a little bit about retention trends I guess, we can kind of back into it with your numbers, but it would be helpful. If you just give us some color what's been going on about schools.
In the third quarter Strayer was down slightly we had.
Light increase in drops, which again given everything that Rob you said is not.
Surprising to us that that portion of the student body might be struggling a little bit more cabela's retention has been relatively stable and flat.
Okay, great and if I could just sneak in one more.
During the quarter you announce the workforce edge product can you give us a little bit more color in exactly what this entails.
Sure.
Workforce edge as a technology platform that allows corporations to market education benefits broadly to their workforce in one place. So that an employee can log in and see all of the educational benefits that the company has negotiated on behalf of the workforce and then.
Click through and be able to get information from a particular school and then carry forward and actually enroll as well as get administrative insights into what is the performance of people taking educational benefits within the schools, what's the participation rate and so forth. So that's the platform what's wrapped.
Around it is the consortia of institutions that we formed with noodle partners. So our institutions Strayer and capella along with the 22 or 24 partner institutions with noodle partners performs.
Consists of an exclusive consortia that employees of these companies can participate with prenegotiated discount tuition and we're going to launch our first client eminently here within the next week or so.
Alright, that's helpful I'll jump back in the queue.
Thanks, Jeff.
Your next question comes from the lineup tell the summer with choice security.
Thank you.
Had a couple of questions and Sophia how do you think the the growth your forecasting for next year compares to competitors and could you give us a little bit of color.
On the profile of the sign ups and how you anticipate that profile of all day. Thanks.
Sure well first of all in profile.
These are what we believe to be people either preparing to attend college for the first time or existing college students who are looking for a low cost alternative to college tuition.
We're assuming that you successfully complete the course, you have the opportunity to transfer that credit into another institution and I should just say that one of the benefits of attending either of our University stairs Capella as those students get free access to Sophia and can really reduce the cost of a degree by transferring in as.
Many as 10 or 15.
Courses that are predominantly general education.
In terms of growth I can't speak to the the growth of Sophia competitors, but we do expect that <unk> will have significant growth next year as I said, 300% in basically and we would expect that to be able to continue to add paid subscribers given it's very attractive price point of roughly $80 a month.
Okay. Thank you.
With respect to how your corporate programs are are trendy.
What is the gross like.
Does it compare to your overall numbers and.
You mentioned sort of a longterm decadelong gold does that mean you.
Expect that to approach.
Sort of 100 per cent of the book or in a decade or is it all could you give us some perspective on law.
Yeah, so in Capella in particular.
Through this year employer solutions related enrollments have been very strong, particularly in healthcare, where we've seen year over year increases for new students in excess of 30%, so well above with the non employer solution channel has been doing strayer hasn't been as strong, but we are seeing traction within strayer because strayer.
Has many enterprise level employer solution partnerships, including national retailers like best buy or health care companies like Cvs, Aetna and others, where the entire workforce is covered by an agreement.
And are aspirational vision is sort of what you said it is to transfer the burden of paying for college from the taxpayer for those people that you subsidize student lending to private sector employers via these large enterprise level agreements because frankly, we see it as a win win it's a win for the employer because they.
Can attract and retain a talented workforce, it's clearly a win for the employee slash student because they get a debt free degree. It's a win for society, because we're we're helping to transfer.
The responsibility of payment away from the government and the taxpayer. So our vision is to replace 100% of our tuition from federally funded dollars into private sector funded dollars.
Thank you our last question for me and I'll get back into the queue. How how do you see strayer market share versus it's sort of direct competitor set.
Given the demographic is more vulnerable to the high unemployment this recession.
Yeah.
I don't I can't speak to what is the market share because I don't know necessarily the enrollment of the competitor set which is is a growing competitor set every day, but suffice it to say in a period, where we've seen double digit declines in new students in a very short term, there's probably been an adverse impact, but we also as I said fully expect that that does.
Manned will recover I can't imagine the strayer students being adversely impacted from employment are necessarily choosing to go somewhere else I just think life events are such that they're just having to pause.
Their education and because the economy over the long term is such that you still need a four year degree to really begin, earning a meaningful middle class wage.
That's the confidence that we had that the demand will ultimately return when we get to a more normalised set of economic activity.
I think I read.
Recently that the overall student enrollment in universities in the fall of 20 was down about 2%.
Which would include traditional universities.
Which obviously a fair much better so I think working adult.
Undergraduate first time college enrollment across the entire educational spaces, probably down at least as high as sprayers has been so I don't think it's much of an impact on market share overall demand is down in a pandemic created economic distress.
And his call said were highly confident we've seen this kind of.
Wave before and we've seen how.
Australia University responds.
Positively as as you get labor force participation rate starting to increase again as the economy strengthens.
Thank you very much yeah.
As a reminder.
To ask a question.
Taiwan on your telephone.
And you have no further questions.
And I will now trying to call back over to Mister silver.
Thank you very much operator, and thank you ladies and gentlemen.
We are available for questions if you.
You have follow up.
We look forward very much.
To the coming year and the integration of the ANZ assets and although it's late in the evening there we want to welcome any of them any of our <unk>.
Faculty or staff, who happened to be listening in and say that we couldn't be more excited to have you as part of the Sci community.
And we will talk to all of you in February thanks, very much.
Ladies and gentlemen.
Concludes today's conference call. Thank you for participating and you may now disconnect.
[music].
[music].
[music].
Welcome to the strategic Education's third quarter 2020 results.
I will now turn the call over to Theresa well Keith.
<unk> of Investor Relations for strategic education.
Well Keith Please go ahead.
Thank you good morning, everyone and welcome to the strategic Educations conference call in which we will discuss third quarter 2020 result, and culture of the Australia, New Zealand acquisition, we announced this morning.
With us today are Robert Silberman Executive Chairman, Carl Mcdonald, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer.
[music].
[music].
Welcome to the strategic Education's third quarter 2020 results conference call.
I will now turn the call over to Theresa Wilkie manager of Investor Relations for strategic education.
Well Keith Please go ahead.
Thank you good morning, everyone and welcome to the strategic Educations conference call in which we will discuss third quarter 2020 result, and culture, The Australia, New Zealand acquisition, we announced this morning.
With us today are Robert Silberman Executive Chairman, Carl Mcdonald, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer.
This conference call is also available via webcast with a corresponding slide presentation.
We encourage you to lock into the webcast as a slide presentation is only available at this time for viewing via the webcast.
You can access the webcast out strategic education Dot com.
The Investor Relations section.
After completion of the call the slide presentation will be posted to the website follow.
Following today's remarks, we will open the call for questions.
Please note that this call may include forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 90 to 95.
Statements are based on current expectations and are subject to a number of assumptions uncertainties and risks that strategic education has identified in today's press release that could cause actual results to differ materially.
Further information about these and other relevant uncertainties may be found in strategic education. Its most recent annual report on form 10-K, but.
The 10-Q to be filed and other filings with the Securities and Exchange Commission as well as strategic educations future 8-K's, 10-Q's and 10-K.
Copies of these filings and the full press release are available for viewing on the web site at strategic education Dot com.
And now I'd like to turn the call over to Rob Rob. Please go ahead.
Thank you Terry and good morning, ladies and gentlemen.
In our earnings release. This morning, we reported both our Q3 earnings results as well as announced the closing of our acquisition of Torrance University and related educational assets in Australia, and New Zealand.
I think it's important to note at the outset that the regulatory approval for this acquisition by the governments of Australia, New Zealand took less than 90 days in the midst of a worldwide pandemic I believe that the speed of this approval is a testament to the high regard, which both those governments hold for the academic quality of Torrance University as well as their confidence.
And as T.I.s track record as a responsible steward of academic institutions are Carl will cover both of these announcements in his remarks. This morning as well as share with you our view of the impact of the krona virus pandemic on our operations and I think more importantly, what our company will look like post this acquisition in 2021.
One and beyond.
No because there's a lot of material to cover where I'll take a little more time. This morning than we usually do in our introductory remarks before we open it up for questions. In fact to assist you in following along we've included some slides on this webcast, which call we'll refer to in his remarks.
Those of you who are using the dial in and want to see the slides should join the webcast now and.
And of course, well, we will stay as long as needed to answer any of your questions.
Suffice it to say that 2020 is been an eventful year for our students our faculty and our universities I just want to say on behalf of our board of directors, we could not be prouder of the way our entire organization has risen to this moment Karl thank.
Thank you Rob and good morning, everyone. Today, we have a slightly different presentation of our earnings information, which is intended to provide you our owners with a more detailed view of our outlook for the current year as well as our preliminary view on 2021, Notionally and as Rob just said my commentary will be accompanied by slide.
Which will be available on our website strategic education Dot com following this morning's call.
And to Contextualize 2020, I thought it would be helpful to start with.
That's the ice 2019 results, which are here on slide three.
In 2019, we educated 91000 students, which generated just under $1 billion in revenue.
And to educate those students we spent $803 million in operating expenses, which then generated $194 million of adjusted operating income and $6.67 of adjusted earnings per share.
Then in November of 2019, we hosted our Investor day to lay out our plans for 2020, which included an expected 5% increase in total enrollment roughly flat revenue per student and that would yield at least a 10% increase in both adjusted operating income and EPS.
As well as expanding our operating margin.
And actually through the first half of 2020 as you can see here on slide five we were well ahead of that plan.
We had a 6% increase in both enrollment and revenue and that growth when you combine it with our disciplined approach to cost management.
Yielded a 30% increase in pre tax income and a 28% increase in adjusted earnings per share.
And you May recall in our last earnings call I said that the third quarter was the first quarter in which the full impact of the pandemic and associated economic damage was felt by our company are.
Our two universities strayer and capella are experiencing substantially different effects from the current macroeconomic conditions.
Last quarter, we Preannounced strangers enrollment results, which again included a 28% decline in new student and a 1% decline in total enrollment.
At that time, we also forecast that.
Capello, new enrollment would be down somewhere between five and 10% for the third quarter Capellas actual third quarter enrollment was substantially better with both new and total enrollment growing 4% over the prior year.
And well stringers performance is disappointing to us it is not necessarily surprising given that it's an institution that predominantly serves an undergraduate population.
Putting a large percentage of first time college students, which we know is a segment of the population even pre pandemic that is most sensitive to adverse changes in the economy and employment.
And this is in contrast to capella, 70% graduate student mix.
For that segment of the population people that have existing four year degrees is faring substantially better.
To help offset some of the economic paying for some of our students. We have implemented several scholarship programs, which will likely result in a 2% decrease in revenue per student for the full year 2020.
Slide seven provides an overview of our Q3 consolidated results, which we released this morning. This.
This included a 1% increase in enrollment a 1% decrease in revenue.
3% decrease in pre tax income and an 8% decrease in adjusted earnings per share.
And slide eight provides an outlook for the full year and it's important to note. This is if you assume that Q4's enrollment results would essentially be in line with the third quarter and I should know, we obviously don't know the fourth quarter's enrollment results as we're not even halfway through the quarter. So this is simply a notional outlook and exclude.
Australia New Zealand.
But if the third quarter's enrollment results continued you would have full year results that would include a 2% increase in enrollment flat revenue of $1 billion, a 3% increase in pre tax income and flat earnings per share.
Now in order to maintain our financial strength should these macro conditions continue next year. The company has already begun a fairly comprehensive expense rationalization, which I'll speak to momentarily.
But more importantly, the company remains committed to increasing investments in our areas of strength for growth, including employer solutions Sofia and other strategic assets.
And our newly close towards acquisition will be a major contributor next year generating over a dollar of earnings per share.
Earlier in the third quarter the company initiated several strategic reviews of our business and based on these reviews, we have decided to organize our business into three distinct operating divisions.
You as higher education will consist of strayer and Capella University.
Alternative learning will consist of all of our employer solution efforts Sofia, our coding schools and our new digital enablement function and Australia. New Zealand will include Torrance University think education and the media design School.
We have also implemented a series of expense reductions that will reduce our run rate operating expenses next year by approximately $33 million.
This includes almost $8 million of real estate savings from reducing our corporate square footage as a result of the effectiveness of working remotely which is a trend we see continuing for many even post pandemic as well as the rationalization of the Strayer campus footprint.
As 95% of Strayer students are already taking 100% of their classes online.
The company intends to take a restructuring charge of approximately $30 million between the third quarter of this year and the first quarter of next year.
And slide 11 provides a detail on these divisions and it's important to note that the company will begin a new segment reporting reflecting this structure beginning with our Q4 and full year 2020 resolved, which we will announce next February.
And as I said, a moment ago, we intend to invest in our growth next year, including significant new investments in our new alternative learning segment.
This segment includes all employer solutions workforce edge, which is our new education benefits management solution for corporations that we recently launched along with our partnership with noodle partners.
It includes Sofia, our coding schools, and our new digital enablement efforts.
For your solution is a key differentiator for our universities and has shown steady strength throughout 2020, particularly at Capella University, but also within strayer.
We have set a goal to increase total employer solutions enrollments at both strayer and Capella from 20% of our student population this year to 30% in 2021, representing a 50% increase in the overall mix percentage.
To assist that team the company has committed to a 30% increase in total employer solutions related headcount.
We also expect significant growth with Sofia and have seen quite good traction with our new subscription based pricing model since August 1st when we introduced the new pricing plan. We've added more than 13000 paid subscribers and we expect to grow that by at least 50% next year.
The fees revenue, which was on roughly a 3 million dollar run rate pre pandemic should exceed $12 million in 2021, representing a 300% growth rate and.
And our digital enablement efforts to license Sci tools technologies and other assets to other higher education institutions is also off to a strong start.
And this morning as part of our release, we were excited to announce a major new commentary education product with sort of the top and rest or tour and chef Scott Conant, which we expect to grow significantly in the coming years.
Turning now to our now closed acquisitions of Torrance University think education in the media design School first I'd like to say that we're thrilled to be the new owners of these very high quality assets and we look forward to investing in their long term growth, where we see significant opportunities.
For 2021, we expect Australia, New Zealand to generate approximately 270 million U.S. dollars of revenue and 60 million U.S. dollars of EBITDA, representing 10% growth for each.
And as a reminder towards University is the only federally recognized investor funded <unk> University in Australia uniquely positioning it to innovate with us within Australia as higher education market.
Now in terms of next year, our initial 2021 notional model assumes.
Until we have evidence to the contrary.
At our current enrollment trends continue into next year, and specifically that we see continued weakness in new enrollments at Strayer University through the first half of 2021 stabilizing in the second half.
We also see a continuation of Capella University's current performance with mid single digit new student growth fund.
The notional model also assume significant growth with an alternative learning as I, just said and the $270 million of revenue and $60 million of EBITDA in Australia, and New Zealand.
All of that then we'll generate consolidated Sci revenue growth in 2021 of approximately 15% we.
We would also then assumed flat EBITDA of 29.5% tax rate capital expenditures of between 50 and $55 million and our new share count of 24.2 million shares.
So in summary, we project continued strong cash generation and accumulation of $450 million in liquidity at the end of this year and 500 plus million dollars at the end of next year.
We remain committed to our student first focused on academic achievement and as has been our practice in other periods of economic downturns, we don't try to chase or create demand that isn't there organically.
Our solid financial strength enables us to withstand wide variations in enrollment and we remain highly confident that strangers demand will eventually recover to pre pandemic levels and begin to grow again, particularly as overall demand for high quality digital learning is now higher than ever.
And operationally next year, our primary focus will remain the same.
The highest possible levels of academic quality for all of our students and work to successfully integrate Torrance think education and the media design school into Sci.
And importantly, we remain committed to addressing college affordability and will actively work to reduce our cost of attendance and debt levels for all of our students.
In our Investor Day last year, I said that we Havent Aspirationally 10 year vision to fully convert 100% of our tuition from title for funding to the private sector via our employer partnerships, we remain committed to that vision and in fact intend to modify our executive incentive compensation pro.
Graham to include this metric as a qualifier in determining whether incentive compensation has been earned and at what levels.
We will also maintained our disciplined cost approach and with the support of our full board of directors will deploy our financial capital towards the highest long term returns, including returning surplus capital back to our shareholders and finally I'd like to thank all of my colleagues within Sci, including our newest colleagues in.
Australia, and New Zealand for all of the dedication and continued hard work during this very challenging year.
And with that definitely we'd be happy to open up for Q and a.
[noise] [noise] operator.
At this time in order to ask a question press star one on your telephone keypad.
To withdraw your question press.
The pound key.
Please stand by while we compile the culinary roster.
Your first question comes from the line of Jeff Silber with BMO capital markets.
Thank you so much I want to focus first on I guess your core business.
The.
Last quarter, you had given us some color on new enrollment trends Im wondering if you can do the same thing right now what it what is that tracking both at Strayer University and Capella University.
Good morning, Jeff.
Well, we're still in the fourth quarter, obviously, but I can share that the new student enrollment trends at both strayer and Capella are largely in line with the third quarter.
Okay, that's fine and why do you think capella outperformed your initial expectations you gave us last quarter.
Well when we provided that initial forecast it was very early in the quarter.
We were cautiously optimistic that the traction that we were seeing early in the quarter would hold but obviously we weren't sure. We were very pleased that they ended up as strong as they did up 4% and as I said in my prepared remarks they serve.
A student body that is more established professionally.
70% graduate meeting everyone in a graduate program, obviously already has a four year degree and that's just a part of the economy that tends to fare better even in periods of economic distress, which is in contrast to the strayer student body, which has that rather large.
Portion of the student body that our first time college students and that part of the economy, we know tends to suffer the worst in periods, where you have.
You know a sizeable change in economic activity as we've had this year with the pandemic in the immediate shutdown of the economy.
Hey, Jeff its Rob just a.
Even simplify it more thinking about the fact that the capella student is more likely to have been able to work from home.
And the Strayer studio is much less likely to been able to work from home and much more subject to involuntary employment reductions layoffs et cetera.
Okay, that's actually very helpful.
We talk a little bit about retention trends I guess, we can kind of back into it with your numbers, but it would be helpful. If you just give us some color what's been going on at both schools.
In the third quarter Strayer was down slightly we had a slight increase.
Increase in drops, which again given everything that Rob just said is not.
Surprising to us that that portion of the student body might be struggling a little bit more capellas retention has been relatively stable and flat.
Okay, great if I could just sneak in one more on during the quarter, you announced the workforce edge product.
Give us a little bit more color on exactly what this entails.
Sure.
Workforce edge is a technology platform that allow corporations.
To market education benefits broadly to their workforce in one place so that an employee can log in and see all of the educational benefits that the company has negotiated on behalf of the workforce and then click through and be able to get information from a particular school and then carry forward.
Sofia will have significant growth next year as I said, 300% basically and we would expect that to be able to continue to add paid subscribers given its very attractive price point of roughly $80 a month.
Okay. Thank you.
With respect to how your corporate programs are trending up what is the gross white.
How does it compare to your overall numbers.
You mentioned sort of on a long term decade long Golden does that mean you.
Except that to approach.
Sort of a 100% of the book or or in a decade or is it.
Could you give us some perspective on that thanks.
Yes, so in Capella in particular.
Through this year employer solutions related enrollments have been very strong, particularly in healthcare, where we've seen year over year increases for new students in excess of 30%, so well above what the non employer solution channel has been doing strayer hasn't been as strong, but we are seeing traction within strayer because.
Greater has many enterprise level employer solution partnerships, including national retailers like best buy or health care companies like CBS at night, and others, where the entire workforce is covered by an agreement.
And our aspiration of vision is sort of what you said it is to transfer the burden of paying for college from the taxpayer for those people that use subsidized student lending to private sector employers via these large enterprise level agreements.
Ed or.
Recently that the overall student enrollment in universities in the fall of 20 was down about 2%.
Which would include traditional universities.
Which obviously have fared much better so I think working adult undergraduate first time college enrollment across the entire educational space is probably down at least as high as strangers has been so I don't think its much of an impact on market share overall demand is down in a pandemic created.
Economic distress.
And as Carl said, we're highly confident we've seen this kind of wave.
Wave before and we've seen how.
Strayer University response.
Positively as as you get labor force participation rate starting to increase again as the economy strengthens.
Thank you very much.
As a reminder.
Good question that star one on your telephone.
And you have no further questions at this time.
And I will now turn the call back over to Mr. Silberman.
Thank you very much operator, and thank you ladies and gentlemen, we are available for questions. If you have follow up we look forward very much to the coming year and the integration of the AMC assets and although it's a late in the evening there we want to welcome any of them any of.
Our faculty or staff, who happen to be listening in and say that we couldn't be more excited to have you as part of the <unk> community.
And we will talk to all of you in February thanks, very much.
Ladies and gentlemen this.
Today's conference call. Thank you for participating and you may now disconnect.