Thank you for standing by, and welcome to Strategic Education's Fourth Quarter 2022 results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. I would now like to hand the call over to Terese Wilke, Director of Investor Relations for Strategic Education. Mrs. Wilkie, please go ahead.
Thank you. Hello, everyone, and welcome to Strategic Education's conference call, in which we will discuss fourth quarter 2022 results. With us today are Robert Silberman, Executive Chairman, Karl McDonnell, President and Chief Executive Officer, and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties, and risks that Strategic Education has identified in today's press release that could cause actual results to differ materially.
Further information about these and other relevant uncertainties may be found in Strategic Education's annual report on Form 10-K to be filed, the most recent 10-Q, and other filings with the Securities and Exchange Commission, as well as Strategic Education's future 8-Ks, 10-Qs, and 10-Ks. Copies of these filings and the full press release are available for viewing on our website at strategiceducation.com. Now I'd like to turn the call over to Rob. Rob, please go ahead.
Thank you, Terese. Just wanna make sure everybody can hear us. We're actually doing this call from Sydney, Australia, and we've had a little bit of telephone difficulties. Please bear with us on that. Good evening, ladies and gentlemen. Before I turn it over to Karl to report on our Q4 and full year results, I just wanted to make a couple of comments at a high level on our capital allocation in 2022. We started the year with roughly $310 million of cash and marketable securities and $140 million of outstanding debt drawn on our bank revolver. We generated $150 million during 2022 in pre-tax cash from operations. We used that cash as follows.
We paid $24 million in taxes. We invested $44 million in CapEx. Out of our remaining owner distributable cash, we paid $60 million in common dividends. We took the opportunity to repurchase $40 million of our stock at an average price of $65 a share. We further paid down $40 million of our outstanding debt. That left us at year-end 2022 with $250 million of cash and marketable securities, $100 million of debt, and 23.9 million shares outstanding. We are fairly confident that 2022 will turn out to have been our trough year for earnings. We feel our balance sheet is well positioned to support all of our upcoming opportunities, as well as to continue to return capital to our owners through our common dividend.
With that, Karl, can you walk everyone through our operating results?
Yeah, sure. Thank you, Rob. Good afternoon, everyone. The fourth quarter financial results that we reported earlier today reflect the continued stabilization of enrollment performance throughout 2022. Total enrollment across SEI was essentially flat at just under 98,000 students and decreased 80 basis points in U.S. Higher Education , which is our largest segment, reflecting the continued new student growth that we've experienced at both Strayer and Capella University. Our revenue for the full year declined 5.8% to just under $1.1 billion. In the fourth quarter, revenue declined 1%, $270 million. The rate of decline improved as a result of strong enrollment results throughout the year.
While we were disappointed by the year-over-year declines in our full year financial results in 2022, which were primarily driven by the enrollment declines that we had in 2020 and 2021, we have been more than pleased with our current operating performance, which will inform 2023's financial performance and beyond. In 2022, our U.S. Higher Education segment had a strong year. U.S. higher ed revenue in the fourth quarter grew almost 1% due to essentially flat enrollment and an increase in revenue per student. Demand at Strayer and Capella universities continues to be among the strongest that we've seen in several years and is back to pre-pandemic levels. Both universities, as we previously indicated, grew new students full year in 2022, and our employer-affiliated enrollments are at all-time highs.
New employer-affiliated enrollment increased 17% from the prior year, and total enrollments grew 13%. Total employer-affiliated enrollments now comprise more than 24% of total U.S. Higher Education enrollment, which is up approximately 350 basis points from the prior year. The enrollment recovery at Strayer University continued throughout the year and is on track to have total enrollment growth in the first quarter of 2023 which is again about one full year faster than we originally anticipated. Our education, technology and services segment also continues to perform well. ETS revenue increased 20% to approximately $17 million. Operating income decreased slightly, reflecting the continued investment in ETS technology and products which helped drive our revenue growth last year. As I previously indicated, we expect ETS expense growth to moderate beginning this year and to essentially be flat on a year-over-year basis.
During the quarter, Sophia grew in average total subscribers by 29%. We had more than 700 SEI total enrollments coming from Workforce Edge, which is up from fewer than 100 in 2022. Our Australia, New Zealand segment grew. Thank you.
To ask a question, please press star one one on your telephone. Again, that's star one one on your telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Silber of BMO. Your line is open, Jeff.
Thank you so much. Karl, I don't know if you broke up for everybody, but you broke up for me when you started to talk about the outlook for 2023. I think you said enrollment and revenue up mid-single digits, and then I lost you until you started talking about the timing issues at Torrens. Can you just repeat what you said, please?
Yeah, apologies for that, Jeff. What I said is we expect that our revenue will be up in the mid-single digits for the full year and that our expenses will be up no more than 3%.
Okay, great. Thank you so much. If, if I could, just circle back to U.S. Higher Education, can we get a little bit more color in terms of where the demand is coming from, whether it's at Strayer, whether it's Capella, program type, et cetera? Anything would be great.
Well, demand is consistently high across both Strayer and Capella, across all program levels. Again, some of the highest demand that we've seen really since back to 2019 levels. It's across the board, Jeff. It's up significantly at both Strayer and Capella. Both universities experienced quite strong new student growth throughout 2022.
All right, great. I know you're not giving specific guidance, but, Rob, I appreciate you going through the capital allocation and how you use the distributed free cash flow. Are those the type of rough percentages we should expect going forward in terms of how that was allocated?
No, I think that percentage as a distribution of free cash flow is much higher than we would expect normally. As I said, I think 2022 is gonna turn out to have been a trough year for both earnings and cash. You know, we kept the dividend, you know, where it was, and we, you know, saw a significant opportunity for long-term value enhancement by buying back shares at the price that it was at. Our dividend payout, I suspect, will go down as a % as our cash flow grows over the next several years. In 19, it was at about 40%, if I remember, in 2019. That feels to us as a board is probably a fair kind of percentage to think about.
The share repurchases are truly opportunistic. If we have distributable cash, excess cash, and access to our needs in the, in the universities, and the share price is trading at what we perceive to be a significant enough discount to intrinsic value, we take advantage of those opportunities, but it's price dependent. You know, depending on what happens to the stock price, we may or may not do that. Our capital you know, CapEx, I suspect will be fairly consistent. You know, our cash flow is growing up, so the overall percentage of distribution is probably going down.
All right. That's, that's really helpful. If I could sneak in one more, and I hate to talk about a regulatory issue, but there was an announcement last week by the Department of Education in talking about the incentive compensation rule, expanding the definition of third-party servicers. Do any of your businesses potentially come under that broader definition, specifically in the ETS division?
No, Jeff. We don't have any relationships that would fall under that definition.
Also, Jeff, I would say that independent of that, we don't have anything that's close to incentive compensation anywhere in our divisions, just as a matter of culture.
All right. That's really helpful. I'll jump back in the queue. Thanks so much.
Thank you. Our next question comes from the line of Tobey Sommer of Truist. Your line is open, Toby.
Hey, good afternoon. This is Jasper Bibb for Toby. Thanks for taking our question. I guess my first question was, I was just hoping you could comment on how you're managing variable expenses, you know, with the return to total enrollment growth. Obviously, if we look back at the longer time period, the company's margins were quite a bit higher a couple years ago than they are now. Any thoughts around how the current expense base might be able to support higher enrollment levels in future years, kind of beyond 2023?
Sure. Well, the bulk of our expenses are quite fixed. If we have substantial enrollment growth, we would expect some small variable expense as we expand the number of classes that we're offering to support the higher enrollment. I'm confident that the current expense base, by and large, can handle many thousands of more students than we're educating today. To the extent that our enrollment continues to grow, in the way that it has over the last year, this year and beyond, I would expect that you would see a very high marginal contribution on the incremental students that we're adding.
Thanks. That makes sense. The margins for the fourth quarter just came in a little bit lower than we were expecting. Was there any kind of particular driver for that, or was that effectively in line with your internal plan?
This is Dan, John. We had, probably the only thing that was a little bit of a surprise, we had a little bit higher, bad debt than we expected. That's typical, now with the benefit of hindsight, when we have faster-growing new students. New students pay at a slightly lower rate than existing students. Aside from that, it was pretty on track with what we expected.
Got it. Maybe pivoting to the Australia/New Zealand segment. We've seen some headlines around the security check requirement, causing delays and students in certain you know, degree fields getting their visas processed. Is that impacting your ability to get international students into the country, or do you think this visa issue is kind of in the rear view mirror at this point?
I think there's been some impact with respect to that. We did see visa delays throughout 2022. We commented on that throughout the year last year. In the early part of this year, we're starting to see visa approvals and processing timelines return to what we consider to be relatively normal. If that continues to be the case in 2022, or sorry, 2023, combined with what I said about the Australian government's rule that all international students have to be in Australia taking their classes, we see that overall as a net positive for Australia/New Zealand in 2023.
Yeah, just one other thing on that, Karl. The one thing that's kind of an immediate impact, though, is the delaying of the start of class is a couple weeks. Although that doesn't change your full year results, it does change your calendarization and, you know, move some of the revenue growth and the margin expansion to the latter half of the year.
Makes sense. Last one for me. In the ANZ segment, are you impacted, expecting any impact, I guess, positive or negatives, from China's recent ban on their citizens studying at foreign universities online?
No. We have relatively few Chinese students as a % of our overall international student cohort, so we wouldn't expect any material impact from that ruling.
Appreciate the detail there. Thanks for taking the questions, guys.
Sure. Thank you.
Thank you. I would now like to turn the conference back to Karl McDonnell for closing remarks. Sir?
Thank you, everyone. We appreciate your time today, and we look forward to connecting with you next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect.