American Public Education Inc (APEI) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the American Public Education Fourth Quarter and Fiscal Year 2007 Earnings Conference Call. My name is Ghihaida and I will be your coordinator for today. At this time, all participants are in a listen-only mode.

(OPERATOR INSTRUCTIONS)

As a reminder, this call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's day, Mr. Chris Symanoskie, Director of Investor Relations. Please proceed.

Thank you, operator. Good evening, everyone, and welcome to American Public Education's fourth quarter of 2007 earnings release conference call and webcast. Before we begin, please note that an electronic copy of the PowerPoint presentation that accompanies this conference call is available in the webcast section of our Investor Relations website, americanpubliceducation.com, and is included in our 8-K filed earlier today.

Also, please note that statements made in this conference call regarding American Public Education that are not historical facts are forward-looking statements based on current expectations, assumptions, estimates and projections about the Company and the industry. These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Forward-looking statements can be identified by words such as anticipate, believe, could, estimate, expect, intend, may, should, will and would.

These forward-looking statements include, without limitation -- outlook statements and statements regarding expected growth. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors including the risks described in the risk factors section and elsewhere in the prospectus dated February 13, 2008 that forms a part of the Company's registration statement on Form S-1 as amended for the Company's recently completed secondary offering.

The Company undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Today, our speakers are Wally Boston, CEO of American Public Education, and Harry Willkins, the Executive Vice President and CFO. Now at this time, I'd like to turn the call over to Wally Boston. Mr. Boston?

Thanks, Chris. I'm starting with slide number three, growth and registration, and I'm pleased to report another quarter of strong growth, despite the fact that the broader economy is slowing. We believe our historical growth and our expected growth illustrate resilience of the higher education marketplace and our confidence in the need for our online programs. This demand is driven, in part, by the attractiveness of our unique programs, high academic quality and outcomes, our flexibility and affordability.

As a result, net course registrations in the fourth quarter of 2007 increased 63% to 27,830 registrations. This record number of registrations represents the eighth consecutive quarter of year-over-year growth in net course registrations. This growth was driven by a 42% increase in the number of net course registrations from new students and increasing returning student registrations.

For the year, we grew net course registrations by 73%, with growth in registrations from new students of roughly the same rate at 71%. It is notable that we also had a record number of graduations this year with 1,580 new alumni. While achieving our growth, the increased number of graduates reflects our ongoing commitment to improving academic quality and retention.

Moving on to slide four, recent developments. We believe that our continued success in the military market combined with gains in the civilian market will enable us to achieve our long-term revenue goals. On example of how we can continue to grow market share in the military market is illustrated by our recent success with the Navy. In a letter from the Navy, we were notified that we have been provisionally accepted into the Navy College Partnership Distance Learning Program , NCPDLP. This program will give us broader access to Navy bases and greater visibility on Navy websites.

Interestingly, the Navy is the second largest branch of the military, but currently ranks fourth as a percent of total APU.S. enrollment. This development is likely to help us expand our success with Navy students and to allow us to increase our market share with the military overall.

Turning to developments in the civilian market, the approval of our new Master of Education in Administration Supervision by the West Virginia Board of Education is an important event for us. In order to be a licensed principal, a teacher must have a degree that is approved by their home state's Board of Education or by a state board that has reciprocity with their state.

Since West Virginia has reciprocity with nearly all other U.S. states, the approval of our degree means that teachers nationwide will know that they can obtain our affordable degree and be licensed as a principal or administrator in their home state through a streamline process.

These are two examples of how we will continue to work diligently to expand our presence in both the military and civilian markets. We also expect to continually enhance our efficiency and invest in our infrastructure. This is best illustrated by our recent agreement with Compassionate, our university's e-learning provider. Ucompass.com provides us with our distance learning software called Educator.

We have signed a new contract with Ucompass.com, which provides us with a perpetual license and a long-term service agreement. In addition, we expect to increase our collaboration with Ucompass.com to develop new proprietary features and tools that will ultimately enhance the experience of our students, teachers and administrative staff. These enhancements will be for the exclusive use of American Public University System.

We are also very pleased to successfully complete a follow-on offering at $35.50 per share before underwriting discounts. For our investors and for those of you that have been following us since the initial public offering and the follow-on offering, I'm sure that you are pleased that our business has performed as we expected, despite the trials and tribulations of the stock market, American politics and the broader economy.

Moving on to slide five, student composition. In our first earnings conference call as a public company, we stated that there are certain metrics that we will update on an annual basis. Slide five shows some of those items. Looking at the pie chart labeled 'students by school' you will see that 53% of our students are in the school of public safety, national and homeland security.

These are our unique degrees such as strategic intelligence, national security, and emergency and disaster management. However, we also offer more than a dozen degrees in the liberal arts such as history. This is somewhat unique in the online higher education marketplace. About 21% of our students are in the school of arts of science. Another 19% of our students are in the school of business and management and 7% of our students are in the school of professional studies, which includes degrees such as sports management, public health and now education.

On the right side of the PowerPoint slide, you will see that we are still predominantly an undergraduate institution with 74% of our students in undergraduate programs and 26% in graduate programs. Over time, we expect this metric to change slightly to more graduate students as we expand in the civilian market.

Lastly, we expect that the percentage of civilian students will also increase. Currently, 67% of our students are active-duty military, 15% are military-affiliated and 18% are civilian. In 2007, our military student population increased 64%. The military-affiliated population increased 61% and our civilian student population increased 54%.

On slide six, marketing and funding sources, we will see a pie chart that illustrates applications by marketing source. It shows that our referral rate has increased to 54%, a very positive reflection on our university. Our referral rate historically has fluctuated between 40% and 60% and is something we focus on. We also take a highly targeted approach to advertising on the internet and in print media. This enables us to be very effective at generating the enrollment while keeping marketing costs under control. We expect marketing expense to be about 12% of revenue in 2008.

In 2007, if you recall, we backed off of marketing when our growth rates reached well over 70%. We did this so that we could continue to provide exceptional customer service and not outgrow our ability to manage the surprising volume of the students. In 2007, our marketing spend was about 10% of revenue.

Looking at the pie chart that illustrates funding sources as a percent of revenue, you will notice that 66% comes from the military's tuition assistance program. Over time, the percent of Title IV funding, which now stands at 11%, should increase as registrations from civilian students as a percent of total registrations expands.

Moving on to slide seven, APU.S. tuition below Title IV maximum loan limits. In this current lending environment, investors are keenly focused on public company exposure to private lending sources. Approximately 1% of our revenues are from private sources. Affordable tuition makes the need for private funding extremely low. In most cases, there is no negative gap between our tuition rates and Title IV maximum loan amount, as seen on this slide. Title IV loans will more than cover the amount of the tuition we charge to students.

Occasionally, a full-time student may select a private lender if they have a very heavy course load in a year. Otherwise, there are only a few reasons for a student to select private lending when attending our institution. Additionally, our Title IV lenders have continued to support student loans. We have three primary lenders that we introduce to students -- Fifth Third Bank, Regents Bank and Nellie Mae. However, students are free to select any private lender of their choice.

In summary, our fourth quarter and year end 2007 results show that we are on track to reach our goals. We are very excited about our future. Our recent successes position us for a great year in 2008. Now, I'd like to ask our CFO, Harry Willkins, to provide some additional details regarding our financial performance and outlook.

Thanks, Wally. We did have a great fourth quarter. If you look at slide number eight, which shows the three months ended comparatively with '06, we had 63% growth year-over-year in registrations for the quarter, which resulted in increase in revenue of 65% to $21.2 million for the quarter, which was the best quarter in our company's history.

We also enjoyed some margin expansion and that propelled a large growth in operating income to $5.1 million, which compared to a gap loss of $413,000 in the previous corresponding quarter in '06. That quarter happened to include a $3.1 million write-off. But if you adjust for that, we would have had a fourth quarter '06 operating income of $2.7 million and that would be an 89% increase to this year's operating income for the quarter of '07 of $5.1 million. So, an 89% increase in quarter-to-quarter adjusted operating income.

The one, I guess, negative surprise was that our tax rate turned out to be 44% for the year '07. We had been anticipating [a] 42% and I really think 42% tax rate is where we should be going forward. What's happened is we just have an awful lot of income that we have to allocate to West Virginia. West Virginia's state corporate income tax rate is 9%. The surrounding states, Virginia is 6%, Maryland is 7%, so we're paying about 2% to 3% more income tax for the income that we allocate to West Virginia.

You have to allocate that income based on where your payroll is and where you're property owned is and your sales. That's how you apportion your income by state, as you probably know, but we're going to explore some methods to try to get that number into a more reasonable number, which we feel will be a long-term tax rate of 42% going forward. The bottom line was that we had a great quarter with $0.19 a share EPS in-line with our guidance, at the high end of the range of our guidance.

So let's take a look at slide nine, that shows historical trends. As you can see, our compound annual growth rate of revenue since 2002 is 45%. That positions us well to hit our expected long-term top-line growth that we like to manage to a 40% as we move forward.

Slide ten shows that we've become a little more efficient and we've had significant growth in income from continuing operations. That's earning a compound annual growth rate since 2003 of 69%. Again, we think that we had very good margin improvement in the fourth quarter of '07.

We will there will be, because of the public company expenses in '08 that we're going to have for the first time in the first quarter of '08 and because we're still staffing up to catch up with the growth that we experienced in '07 and because we're also incurring some additional instructional cost to wrap up for our Ph.D. programs that we're developing.

We have some faculty working on them that aren't teaching. So there'll be a little bit of margin pressure in the first and second quarter of '08, which we think we will catch up with in the third quarter. And as we move into the fourth quarter of '08, we expect to see continued margin improvement.

Slide 11 shows our cash flow, our EBITDA from continuing operations, and that's growing at a compound annual growth rate of 70% and increased all the way to $17.5 million in 2007. So, 2007 was a great year. The next slide, which is on slide 12, shows our outlook. This is the first time we've given full-year outlook for 2008.

We expect net course registrations to be approximately 137,000, which would be a 44% growth in net course registrations for the full year. And new student registrations of 33,500, which would be 36% growth in new students. That would result in total revenues of somewhere between $100 million and $103 million, which would be top-line growth of 45% to 49%.

And we feel that would result in income continuing operations of $19.1 million to $20.1 million, net income of $11.9 million to $12.5 million, and fully diluted EPS of somewhere between $0.63 to $0.66 a share, based on approximately 18.9 million to 19 million shares outstanding, fully diluted for the year.

So that's our outlook for '08. We continue to grow the business with a strong growth that we anticipated, we [achieved]. And I guess I'd like to turn things back to Wally now to sum up.

Thank you, Harry. On slide 13, we really believe that APEI is positioned for strong growth in 2008. The developments that we have discussed today further support the outlook that we're now providing you. Our growth is going to be supported and enhanced by increased access to the Navy market, the continued launch and development of new degrees and our continued marketing of FSA access and affordability.

We're comforted by the fact that few of our students' finance their degrees with private lenders and we're not impacted by that market at all. We expect that the affordability of our bachelor's and master's degrees will expand access to education for those who are not able to attend other institutions because of the high tuition costs. In short, our affordability makes it less necessary for students to seek private loans.

It is attractive to military students on tuition assistance, especially undergraduate students, that enjoy the no out-of-pocket expense while pursuing a degree with us because of our undergraduate book grant program. It's appealing to civilians who see expensive tuition and rising costs at other schools and affordability and higher education is becoming an issue with state schools as economic pressures on state budgets strain funding sources.

We are in a great position. Our strategy will enable us to grow, become more efficient and address our mission of affordability. With that, I would enjoy the opportunity to address any questions that you may have. Operator, please open the line for questions.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Mark Marostica with Piper Jaffray. Please proceed.

Hi, guys. It's actually Mark Zgutowicz for Marostica, who is traveling. Just on your point about the first and second quarter, margin pressure. I was wondering if you could maybe better quantify that, what concentration you expect, costs in the first half versus the second half?

I think we have given some first quarter guidance previously and in half one, I don't think we need to update that at this point. I think you should see that instructional costs, the margins will decline a little bit in that because we have about six full-time professors that are doing nothing for us right now except working on Ph.D. program development, so that's going to hit that a little bit.

And then I think we're going to see more return to traditional spending for marketing. Our selling and promotional costs were less than 10% last year for the full year. Traditionally, that's been about 12% of revenue. That's what it was in '06. We think we're going to return to 12% of revenue in '08. So, I think that's where you'll see some margin difference and then the public company expenses, which are included in G&A will be about $0.5 million a quarter we anticipate. I think those are the areas where you'll see some margin pressure.

And is that $0.5 million to the remainder of the year, or is that just in the first half?

Per quarter. I think it'll be between $1.6 million and $2 million for the year. But hopefully, evenly spread throughout the quarters.

Okay. And just a question on retention. I just wondered how it looked both sequentially and year-over-year?

Our retention looks great. We were comfortable actually giving you guidance of a 44% increase in net course registrations and in order to accomplish that we only actually had to compute a 36% growth rate in net course registrations from new students. We're feeling good about the retention rate.

Okay. And just one final question as it relates to the Navy. Can you just remind me what your market position is with the Navy right now and sort of how you see your position improving and over what time frame?

Well, the Navy doesn't issue a listing as two of the other branches do, but the Navy is fourth in our ranking while at the same time it's the second largest service in terms of manpower. We have a rough and dirty computation as to where it is, but I'd rather not issue that and have it conflict with maybe a document that somebody achieves through a FOIA, but we think we can move our position in the Navy into a top five position as it is with the other three branches of the service, once we are fully admitted into the distance learning program and we expect that to happen beginning in April.

Okay, great. Thanks very much.

Your next question comes from the line of Trace Urdan with Signal Hill. Please proceed.

Hey, good afternoon. Wally, your guidance in terms of 12% of, say, the high end of your range of $103 million in revenue implies basically a doubling of your selling and promotional expense. And yet the guidance at the same time points to pulling in new course registrations that are about 2,000 registrations lower than what you guys did last year. And I wonder if you could speak to that. Why that shouldn't be something that we look at as alarming. What it maybe implies about the mix between military and civilian, as you look forward to 2008?

Well, Trace, we have a 55 page marketing plan that we use internally and don't issue out there. We have not been shy about the fact that we know that civilians, even inside of your own data, don't have as high of referral rate as military service members do and the military family. That said, we expect because of a number of initiatives, including branding and just getting brand awareness out there.

We have a great brand with AMU and our APU brand isn't as well recognized, so we'll be spending money on branding as well as spending additional monies per student on the civilian side. Harry and I are comfortable at 12% and I would say I wouldn't worry about it being alarming because I think our past performance has been excellent. But since the two of us are new to providing forward-looking guidance for this company, we want to give you a number that we think we can achieve.

Okay, and then you've indicated pretty clearly that you intend to manage the top-line growth in order to maintain the quality of the programs. Can you speak a little bit about, just qualitatively, how you do that in the course of the quarter, if you find that the enrollments are coming in maybe stronger than you had anticipated as they have in this past year? What are the tools at your disposal to sort of make sure that you don't bring in too many students?

I think the biggest tool we have, Trace, is our internet marketing spend. That's much easier to stop and start than print advertising, for example. At the same time, I would tell you that managing it as granularly as quarter-by-quarter is pretty difficult while we really have a 45-day to 90-day lead time for registrations in a quarter from the time somebody applies.

And, in fact, we have as long as a one year tail with our military population from the application to the start date that primarily deals with the assignments that someone in the military may get. One of the more frequent reasons for why they don't start after they are accepted is that something came up with their job assignment.

I don't know that it is a granular process that we can actually manage so tightly quarter-to-quarter, but at the same time, a year ago when we were at about 100% growth through June 30 we did ask the marketing department to curtail the internet marketing, which they were able to do.

We ratcheted that back up in the fourth quarter, but was substantially lower in the third quarter of last year because we felt like we wanted to begin bringing student flow in for the first quarter of this year. There is some lead-time. I don't know that our internet marketing lead-time is any different than any of my competitors out there. But I would say it's pretty tough to control in a 30-day space. We really need 45 days to 90 days to control it.

Okay, that's really helpful. Thank you.

Your next question comes from the line of Corey Greendale with First Analysis. Please proceed.

Hi guys, it's Tom Smith in for Corey. I had a question on the revenue per registration. Can you just talk about your expectations as far as that trending throughout 2008? Do you anticipate a mix shift to graduate students? What are your expectations there?

Yes, it's a little tough to predict--to be honest with you--accurately, because we do anticipate the civilian population gravitating more toward our graduate programs, especially with these masters in education programs that we're going to roll out in April or May. We think they'll be very popular. Offsetting that, though, is the growth in the Navy. The vast majority of the Navy students will be undergraduate.

So depending on where the growth comes from, if it's in the civilian population, yes, the trend will be toward graduate programs. For the military population, because we're really entering the Navy for the first time and the vast majority of them will be undergraduates, the military may trend downward to more undergraduates. So it's really hard to say definitively what that mix shift is going to be and when it's going to occur, but the general trend will be that the civilians will shift hopefully more toward our graduate programs and the military may shift temporarily more toward undergraduate until we build out the Navy.

Okay. And then on your relationship with Ucompass, you mentioned that it had been expanded. I'm just wondering, did that cause any cost savings? Any benefits from that expanded relationship? I guess, what exactly do you expect to realize from it?

Well, Ucompass is a very small player in the learning management software business and at the same time they've been a great partner of ours for the last eight years. We felt that it was important, as there seems to be some consolidation in that industry, to lock in a strategic long-term relationship with Ucompass that would provide them some assurances that we're going to stick around as a customer and provide us some assurances that we would receive a great rate.

Actually, our rate is fixed for the next three years, for example, as part of this agreement. And commitments to continue the enhancement of our electronic classroom. As part of the agreement, we've got a perpetual license, which means should they decide they want to sell or get out of the business that we have the right to operate the source code under specific circumstances and it's a win-win for both of us.

Okay, great. Thanks a lot, guys.

Your next question comes from the line of Jerry Herman with Stifel Nicolaus. Please proceed.

Thanks and good afternoon, everybody. First question is on Title IV. You were kind enough to give a breakout for the full year. Can you talk about the percentage of students and the percentage of revenues that was related to Title IV in the fourth quarter?

Yes. I think we have the slide that shows the revenue by funding source, but for the--. You're talking about just for the fourth quarter?

Right. I guess the full year numbers would be trending upward as the year progressed. I just want to get a feel for how you exited the year.

You're right that they trended upward, Jerry. I don't have the data in front of me.

We're not disclosing that right now. There will be a section on the breakdown of our revenue in our 10-K when we file that in a couple of weeks.

Okay. Let me shift to soft of the new developments, then. First on the Navy side, what exactly does provisional approval mean? Are you constrained in any way and if not, what mechanics you need to go through to build that relationship?

It's provisional in that we have to go through the service member opportunity college Navy, SOCNAV it's called, and it's basically a procedure where the degrees that when you--. It's not a problem explaining this, but it may be a little more academic than you want.

But essentially, when we applied to that program we were obligated to take certain degrees and map them to MOSs, which are the assignments that the Navy service members have, and for every one of those degrees that we applied to put in the distance learning program and we did not apply for all 57 because some of our 57 degrees don't map up ideally to an assignment and in fact, very few schools put all of their degrees in there.

Each of those degrees has to go through an approval process by the member institutions of SOCNAV because all members of SOCNAV agree to accept transfer of credit from other SOCNAV members. So once those degrees have been reviewed by a committed of SOCNAV, then we go from provisional status to fully admitted status. It's a paperwork process that should take four to six weeks.

Four to six weeks?

Yes.

Okay, thanks. And then, on the education program. Can you size that market opportunity? And with regard to West Virginia and the reciprocal arrangement, is there any constraint among the other states for that not to benefit you right away?

I guess it depends on your definition of benefiting us right away. We've taken a different [tact] than some schools, which is three of our four new education degrees lead to licensure. Some schools leave that up to the student, but we've taken a tact that we wanted to get each of those three, which is a masters in teaching, masters in administration and supervision, and a masters in counseling approved by the state of West Virginia.

The licensure itself won't come until someone completes the program and while they're in our program we'll be working with them based upon the home state that they say they're in and West Virginia has actually arranged reciprocity with with the remaining 49 states and the District of Columbia because historically they've had shortages of teachers and administrators.

To tell you that it's going to benefit us, I would tell you that it absolutely will benefit us, but on the short-term side we're going to market our programs in Maryland, Virginia and West Virginia and D.C. and the mid-Atlantic area through people knocking on doors and introducing themselves and we'll back up that marketing with print advertising and internet marketing and it is traditional with us to count on referrals. And that as we add students into the program we'll get a fair share of referrals and word-of-mouth to spread and we'll go from being a regional program to a national program ideally.

And then just one final question, Wally. Could you just refresh us on the mechanics of the provisional accreditation, getting off provisional status? What are the key time-frames as we enter the summer period and that situation?

Jerry, do you mean provisional Title IV or provisional accreditation, because our accreditation is not provisional.

Provisional, I'm sorry, provisional Title IV.

I think Harry can fill you in on that.

Yes. They wanted to see a full year of compliance, which we have completed our Title IV audit, which we will file with the Department of Education by the end of this month. They have until June 30 to review it and then they should renew our participation by giving us a full participation agreement. So we expect that by July they will lift that provisional status. It doesn't preclude us from doing anything right now except new degrees that we launch are not eligible for Title IV while we're provisional.

Right. They'll --

As of July, we would hope that our new degree programs that we're launching would be eligible for Title IV.

Does that come in the form of a letter?

Yes.

Okay, great. Thanks very much, guys.

Sure.

The next question comes from the line of Chris Shutler with William Blair & Company. Please proceed.

Hi, guys. Good afternoon. On the education degrees, maybe you could just talk for a minute about the go-to-market strategy there and give us some sense of how we should think about the timing and magnitude of the ramp?

Sure. Obviously, I may have some competitors listening here, so I'm going to soft-pedal this. First of all, we are not planning for any of our 2008 growth to be a material contribution from the education degrees. Our style of marketing has been referral-based marketing.

When we've launched any new degree program, our first goal is to hire program managers in the marketing department and a typical program manager -- let's say, marketing education degrees would either be a licensed teacher or licensed principal or counselor, one of those three categories. Our expectation is that we'll specially design brochures. Those individuals will travel locally to West Virginia, Maryland, Virginia, D.C. and meet with groups of teachers and talk about our programs.

We expect that with Title IV and our affordability of our degrees that our $10,000 -- it's actually $9,875 -- and the current tuition will be very attractive compared to many other online education degrees that we've seen at between $20,000 and $24,000. As we add students, we except that students will refer students.

One of the tougher things in online programs is people want to get that feel for the quality of the faculty and the quality inside the classroom and once they do and once they realize that you're convenient and affordable, word of mouth spreads. And so as we start adding students into our classrooms and set up our classes, more frequently we will back up that with internet marketing, print advertising and that's the way we grow a program.

We certainly expect that in 2009 education will make an impact, but it really isn't a planned factor at all in 2008. 2008 is our start-up year, but we're quite optimistic about these degrees for our long-term impact in the civilian marketplace.

To answer an earlier question, it looks like our Title IV as a percentage of revenue in the fourth quarter was about 12.2%, which was up from about 11% in the third quarter and that's the way it's been trending.

Okay, great. Thanks guys. And then, looking at the new student registration growth that you guys have been putting up recently, any trends that you point to in terms of material changes in the types of students that you're getting, average age, programs that you've seen are receiving a lot of attention recently from students, number of credits the students are coming in with? Just any general trends that you've picked up on recently?

I really don't think there's any material change in the trend. We do get interesting anecdotes about receiving some higher-than-normal inquiries from foreign students, which is a pleasant surprise. That's probably because the dollar is so weak. But by the way, I'm mentioning that anecdotally. I don't know that it's any material trend at this point in time.

And we do have a substantial number of inquiries from students on our education degrees. A lot of interest in that, also a lot of interest in the IT degrees that we got approved back in the fall. So we're quite optimistic that some of the new programs that we've launched are going to work out well for us, but at this point I wouldn't say that I've seen any materially different trends. Would you, Harry?

No, not at this time.

Okay. And then, final question. Several months back you guys talked about potentially trying to convert your associate in general studies program into a number of specific associate degrees. And I guess I was just wondering if you could talk about progress on that front and when we should expect to maybe hear something a little bit more definitive in terms of the progress you guys are making.

We've done all that internally and we plan to submit that to the higher learning commission. Our liaison is aware of that and we're hopeful that will be successfully completed sometime by the end of June, first of July. For those of you who are unfamiliar with that, we had one prior to our two IT associates degrees that we had approved in September.

We had an associate of arts degree in general studies, which if you're a for profit institution that degree is not eligible for Title IV, so once we found that out we went and took a number of our concentrations that had had 60 or more students in them and have restructured them to be individuals degrees. And we expect that we'll get approval sometime over the summer.

Okay, thanks guys.

Your next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed.

Thanks so much. I wanted to go back to the funding issue and I appreciate all of the color you've given us so far. I realize it's not a big deal for your company relative to the other companies out there, but in terms of the Title IV side, are you hearing any noise, seeing any issues in terms of maybe disruptions on that side? I know we've heard about private lending from some of the other companies. I'm just wondering if you've heard anything on the Title IV side?

No, and I can't imaging a presidential election year anybody's going to do anything to disrupt the federal student loan program, which is a very--one of the most--popular programs that the federal government offers. There's 19 million students who got student loans last year in our country. I can't imaging they would do anything to disrupt that.

And you had mentioned your preferred lenders, do those three companies both lend on the Title IV side as well as do private lending for you?

Our private lending is done through Sallie Mae and there's no indication that would cease. They are very happy with it. Our students have a good payment history with them. But, again, if we did a little less than $700,000 last year on nearly $70 million in revenue, so it's just not a big concern.

There are plenty of private lenders out there that would like to offer our students loans. We haven't seen a problem with that. But we try to restrict it to reputable ones and ones that give our students the best deals. So far, we think Sallie Mae's private lending funds do that.

Okay. And again, going back to the Title IV side, are you a participant in the direct lending program? Is it something that you're thinking about doing?

We are not, but we could be very easily. That would be a relatively minor change for us. But right now, we still think Sallie Mae gives the best deal to our students. My concerns with the federal direct lending program are more long-term in nature and their ability to collect those loans and holding us responsible for default rates. I trust, to be honest with you, traditional lending institutions to do a better job of collecting our student loans than the government.

Okay, fair enough. Moving back to some of the guidance that you had given. In the first quarter, should we be expecting to see some of the secondary offering costs?

Yes. Most of those costs were capitalized, so I don't think they'll be a big hit from the secondary offering. Now, being a public company, we are going to start seeing--and you will start seeing--public company costs in the first quarter, but nothing that really related that much to the secondary offering. Most of those were capitalized as part of the offering cost.

Okay and then you had mentioned the tax rate, your long-term goal getting it back down to 42%. What is your guidance for the first quarter in 2008 assume that rate to be?

I think it should be 42%.

Okay, great. I'll let somebody else jump on. Thanks again.

(OPERATOR INSTRUCTIONS)

At this time, we do not have anymore questions. Thank you and I would like to turn the presentation back to management for closing remarks.

Thank you much, everybody, for attending today. This will conclude our conference call. I want to thank you for your time and interest in American Public Education. Have a great evening.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.