American Public Education Inc (APEI) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter-one 2010 American Public Education earnings conference call. My name is Modesta and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Chris Symanoskie, Associate Vice President of Investment Relations. Please proceed.

Thank you, Operator. Good evening, everyone, and welcome to American Public Education's first-quarter 2010 earnings conference call. Presentation materials for today's call are available in the webcast section of our Investor Relations website and are included as an exhibit to our current report on Form 8-K filed earlier today. During the Q&A session we ask that participants limit their questions to one per caller to enable broader participation.

Please note that statements made in this conference call regarding American Public Education or its subsidiaries that are not historical facts, are forward-looking statements based on current expectations, assumptions, estimates and projections about American Public Education 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 the words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," and "would." These forward-looking statements include, without limitation, statements about the second quarter, the full year 2010 and the 2011 outlook, as well as 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 risk factors described in the Risk Factor Section and elsewhere in the Company's Annual Report on Form 10-K filed with the SEC. The Company undertakes no obligation to update publically any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

Today we are joined by Wallace Boston, our President and CEO, and Harry Wilkins, our Executive Vice President and Chief Financial Officer. Now at this time I would like to turn the call over to Mr. Boston.

Good evening, ladies and gentlemen. In today's conference call I would like to review our recent financial results and operational highlights, as well as discuss some of our strategies for continued growth. Harry Wilkins, our Chief Financial Officer, will discuss our first-quarter financial performance in greater detail and provide additional perspective on our expectations for the remainder of the year.

We are pleased with our strong first-quarter results which were ultimately driven by our attention to quality, affordability and student retention, as well as by our focus on creating operational efficiencies. Student enrollment at American Public University System increased 42% year over year to 70,600 students as of the end of the first quarter.

Total net course registration increased 39% and net course registrations from new students increased 26%. These increases in both military and civilian student enrollment are a result of our attractive value proposition for students in the military and civilian sectors, continued improvement in student retention, and an increasing percentage of students returning for a second degree.

Net course registrations from Title IV students, which we believe is a good proxy for civilian student growth, increased 71% to 12,800 in the first quarter of 2010. Furthermore, strong growth in Title IV net course registrations, which now represent 20% of total net course registrations, illustrates that our mix shift to an increased civilian population is proceeding as expected. As of March 31, 2010, approximately 36% of APUS students are civilian, 64% are active duty military.

In the first quarter of 2010 revenues increased 43% year over year to $47.3 million as a result of strong growth in net course registrations and the timing of course starts. Operating income increased 50% during the quarter to $13.1 million, driven in part by the inherent operating leverage of our online model, our focus on automation, and by the timing of selling and promotional spending.

We reported net income of $7.6 million or $0.40 per diluted share, an increase of approximately 46% over the prior year's net income of $5.2 million or $0.28 per diluted share.

Other highlights this quarter include the selection of Sakai as the foundation of the University's new state-of-the-art learning management system. We plan to gradually transition APUS courses to this new learning environment. This process is proceeding as planned, but we recognize and are mindful of the risk involved. We are on schedule for all graduate level courses to be converted by year-end, and undergraduate courses are expected to be converted by mid-2011.

Our focus on developing relationships with the various communities we serve has led to yet another interesting partnership. We recently signed an agreement with the Los Angeles Police Department which will allow APUS a regular presence on the campus of their training academies, police headquarters and regionally located stations throughout the City of Los Angeles.

We also recently announced an agreement that makes our online programs available to faculty and other employees of Connections Academy, a leading national operator of K through 12 virtual public schools. Through this partnership more than 1,000 Connections Academy employees can enroll in as many as four APUS classes annually at no cost to them. Tuition will be paid directly by Connections Academy. This agreement expands Connections Academy's existing annual tuition benefit plan and is designed to increase the number of courses eligible employees may take annually, as well as reduce or eliminate the cost of higher education for their employees. Although the impact of the agreement is unknown, last year Connections Academy faculty took over 400 individual higher education courses.

Another highlight this quarter is related to the new GI Bill. Net course registrations from new students using veterans' benefits, or VA, increased by more than 100% year over year. Veterans now represent 7% of total net course registrations compared to 4% in the first quarter of 2009. While this corresponds to a small portion of our overall registrations, it illustrates how the new GI Bill is also providing us with a nice tailwind.

Lastly, we are prepared to launch three new degrees in late 2010 or early 2011 -- a Master of Science in Information Technology, a Master of Science in Psychology, and an R.N. to Bachelor of Science in Nursing. These new degree programs as well as several degree programs currently in our development pipeline will help support our growth in 2010 and beyond. Program availability will be dependent on the timing of our LNS conversion schedule.

Please flip to slide number four. For the remainder of the year our plan is to serve the requirements of our new and existing students, as well as the needs of the communities and the partners they represent. We believe we can manage to a revenue and earnings growth rate of between 36% and 39% in the full year 2010 while continuing to focus on academic quality, improving retention and student outcomes. We will continue to execute our lower cost relationship-oriented marketing strategy, as well as utilize a consultative approach to enrollment advising. As you know, our 36 enrollment advisors focus on listening to the prospective students who contact us and advising them about degrees that we offer that may fit their educational needs. Our enrollment advisors are not compensated based on the volume of students they recruit, nor are they involved with cold calling people who are unaware about our institutions. Our overall enrollment process is inherently different than many of our peers.

We have added vertical marketing managers this year to focus on market segments that match up nicely with some of our existing degrees and certificates such as Environmental Science, Security Management and Emergency Management, Disaster Preparedness. We strongly believe that we have built a successful enduring model for higher education. This belief is underscored by broad trends affecting our country -- one, growing consumer preferences for low-cost, high-quality and flexible higher education; two, the economic need for credentials to compete successfully in a very competitive job market; and three, political and regulatory bodies searching for solutions to our nation's higher education challenges. As such, I am confident that growing value of our approach positions us for continued long-term growth in a rapidly changing environment.

Now I'd like to turn the call over to our CFO, Harry Wilkins, to discuss our results and our outlook in more detail. Harry?

Thanks, Wally. If you can go to slide six, you see that our first-quarter results represent a strong start for the year 2010, with net course registrations increasing 39%, slightly better than expected due to a higher than anticipated increase in registrations from civilian students. As a result, first-quarter revenues increased 43% to $47.3 million. This growth was higher than the net course registration growth due to the timing of our starts in December 2009 where we had an additional week of revenue flowing into the first quarter of this year.

We recognize revenue on a daily basis over the life of our eight- and sixteen-week courses, with classes starting on the first Monday of each month. As such, the timing of the starts within a quarter and a month can have an impact on revenue growth. In the first quarter of 2010 we continued to see healthy improvement in G&A leverage and a modest improvement in leveraging instructional costs and services. We benefited from inherent leverage in our instructional cost line and we continue to believe that G&A is our most leverageable cost item going forward.

As expected, selling and promotion expenses increased slightly as a percentage of revenue, reflecting our focus on civilian markets where we enjoy tremendous growth rates and benefit from the higher economic value of civilian students. However, where we spent less than our original first-quarter selling and promotion marketing budget, we expect to catch up with some of that in the second quarter. Our high referral rates and low reliance on high-cost lead aggregators give us confidence that our marketing spend will for the foreseeable future remain among the most attractive in the group.

Now turning to the first quarter's bottom line, we reported net income of $7.6 million or $0.40 per diluted share. That was higher than what was implied by our outlook range, despite a higher than expected effective tax rate. The actual combined effective tax rate for these three months ended March 31, 2010 was 41.9%. The quarterly effective tax rate is higher than the estimated annual effective tax rate of 40.2%, and that's primarily due to an adjustment for actual state taxes that we paid when we filed our return for 2009. And we accounted for them in the first three months ended March 31, 2010. For the full year we expect the effective tax rate to be approximately 40.5%.

In short, the quarter was basically right on track with our plan and the out-performance is attributable in part by the timing of our marketing spend. We should now expect some catch up in the marketing activity in the second quarter.

If you move to slide seven, you can see we have a very strong balance sheet with $85.5 million in cash and no debt. Our depreciation increased modestly to $1.4 million and CapEx was about where we'd expect it to be at $3.7 million. You would ordinarily expect CapEx to be about at a $12 million run rate for the full year 2010, except for the fact that we are building a new academic center in Charles Town, West Virginia, and this will add about $10 million to CapEx this year. Our new LMS and our office expansion in Manassas, Virginia may add another $1 million to $2 million, for a total CapEx of approximately $24 million in 2010. Our bad debt remains at less than 1% of revenue.

It is important to note that there is some seasonality to registrations, revenues and marketing spend compared to what occurred last year. This could become more pronounced in the future years as our mix changes to more civilian students. If you look at slide eight, similarly to the seasonality that we experienced in 2008 and 2009, we are forecasting higher S&P spending in the second quarter compared to the first quarter, both in terms of aggregate dollars and as a percentage of revenue. For that matter, we expect to see sequential increases in quarters two and three and a sequential decline in S&P spend in the fourth quarter, both in aggregate dollars and as a percentage of revenue. This is a result of higher expected revenue in the seasonally strong fourth quarter, combined with lower levels of marketing activity following our all-important fall intake period.

As we discussed previously, the timing of starts also plays a role in our seasonality. In June of 2010 our first monthly start is on the seventh of that month. This is a week's revenue for June that flows into the third quarter instead of the second quarter. We believe the revenue for that week will be approximately $2 million. The combined result of this seasonality is that we expect the second quarter net course registration growth to be between 34% and 36%. Revenues are expected to increase between 28% and 30%. And net income is anticipated to increase between 16% and 18% during the second quarter of 2010.

We are also providing additional information on revenue and net income expectations for the third and fourth quarters to assist investors with understanding the seasonality and expected quarterly performance.

Our first quarter out-performance dictates that we increase our full year net income outlook by two percentage points on the high end of the range. For the full year 2010 we now expect net income to increase between 36% and 39%. As stated in last quarter's conference call, overall operating margin growth for the year 2010 will be likely impacted by nonrecurring expenses related to the implementation of new LMS, and our office expansion and move in both Charles Town and Manassas. However, we are somewhat more optimistic about the possibility of margin improvement this year and we expect a return to greater operating margin improvement in 2011.

We are reiterating our expectations for net course registration growth of between 35% and 38%, as well as revenue growth of between 36% and 39% for the full year 2010. We also reiterate our long-term view that net course registrations will increase between 32% and 35% in 2011.

Moving to slide nine, in closing we enjoyed a strong first-quarter results with slight financial and operational out-performance. And as a result, we're raising our full year EPS growth outlook. To put our results and guidance in perspective, the graph on slide nine illustrates our past success at executing our unique strategy and approach. This year, as in prior years, we expect our expansion to continue and our University's reputation for quality and affordability to grow.

Now at this time we're happy to answer any questions from participants. Operator, if you'd open it up for questions.

(Operator instructions.) Your first question comes from the line of Bob Craig with Stifel Nicolaus. Please proceed.

Good afternoon, guys. I'll play by the rules, stick to one, maybe a couple-parter, though. Wally, it's been awhile since you guys have conveyed what your market share statistics are in the military. I was wondering if you had any updated information there. And what kind of growth are you expecting or is incorporated in your model for this year on military growth?

Bob, as far as market share, we'd be glad to give that number out as soon as the Department of Defense issues the aggregate number. Last year in January they had the CCME conference in Hawaii, last year being 2009. They gave that data out. This year, when they had the conference in Nashville they did not give that out. We're continually reminding them that they had promised to bring it out. So as soon as it's out, we'll give it.

And as far as guidance for specific military growth for the year, we did not issue that. We do expect to grow but we haven't broken our total growth picture between civilians and military.

We historically only do that on an annual basis.

Okay, thanks, guys. I'll jump back in.

Your next question comes from the line of Bob Wetenhall with Royal Bank of Canada. Please proceed.

Hi, guys. Great quarter, this is terrific stuff. Just wanted to see if you could put a little context around your continued gains in the civilian market as opposed to the military market and what do you think is driving that and if it's sustainable, because this is tremendous growth rate.

We're pretty comfortable that in the civilian market all the signs that we're seeing, Bob, are that we can continue to attract people with our affordability, in particular. And one of the things that we note is that we continue to see higher than normal interest in applications and inquiries from the 18 to 24 year old market, which is a market that we don't try to pursue at all. And I just think that when you look at the state pressures, in a state like California, for example, where tuition went up 32% this year, we are now well below many state -- in-state tuition rates before you add room and board to it.

So we think that we're on track on the civilian side to continue pretty high growth rates. At the same time we've always said that once we've reached number one market share in the military, that with that much bigger denominator, it would be tougher to grow. But we do expect to continue to grow and we're seeing continued growth in the military.

You had said that 20% of students are using T4 funding. What do you think that percentage will be by year end?

I don't -- that's a good question. I don't know if we've given that guidance or not. But I would expect to see it gr- -- at one point a year or so ago we gave some guidance on increasing it a full point to two points every quarter. So I don't know if we're ready to say that, Harry, but that was what--

That's what's happened in the last 12 months and I don't think that's going to change.

Okay, terrific. Thank you very much.

Your next question comes from the line of Adrienne Colby with Deutsche Bank. Please proceed.

You disclosed that active duty related revenue increased from 53% to 59% of revenue year over year. I was wondering if you could comment on the areas or branches where you feel like you're growing the most and where you see some additional opportunities.

I think our growth has been in all of the branches. We haven't seen a major jump like we saw when we got into the Navy distance learning program. But we're -- and we've also seen some, a little bit of fallout with the Marines that were deployed to Afghanistan for that push. As you might know, Afghanistan bases for the Marines really don't have broadband connectivity, and also their level of activity in this current deployment is such that they're kicking down doors and there's really no time for them to study. But while that part, that created a little softness, I think we're continuing to see growth in the other branches.

Thank you.

Your next question comes from the line of Ariel Sokol with Wedbush, please proceed.

Congratulations.

Thanks, Ariel.

Thanks, Ariel.

So a quick question, and I apologize, a math question. I took the midpoint of your quarterly guidance. And if you add up Q1 and Q2, Q3, Q4 midpoints, it doesn't seem to add up to the guidance for the full year. I just was curious, is there any particular quarter where you might see or have expectations above the midpoint of guidance by chance?

We basically just raised the high end of the guidance and I think we're within these ranges on a quarterly basis. I think the high end adds up if you add up the high end.

Okay, thank you.

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

Hi, good afternoon.

Hi, Corey.

Hi.

Guys, we've -- you've pretty well delineated the dynamics as to why you don't need new student registrations to remain in the same range as overall registrations because of students taking more classes in the civilian market. But can you just help us think through the dynamics of how long it might take to translate? So in other words, if new student growth were to remain in the range of 25%, how long could overall registration growth remain 10 points above that?

Well, obviously retention is a big part in looking at student churn. But if you look at our undergraduate students, the average time to graduate is seven years. So unlike a traditional institution where people are moving through at a 20% to 25% clip a year, we're moving students through much slower than that. So I would tell you it depends -- it's actually a complicated calculation and that looks -- while you're growing civilian mix at the rate that we're growing it, and it's going to change the dynamics on the number of classes that the average student is taking.

Our -- if you look at our historic numbers going way back and looking at what we filed with the SS-1, we can have numbers in the high 20's, mid 20's for a couple of quarters and it really doesn't impact us for the year because of that seven-year graduation rate. We still run about a 39% long-term growth rate. So we're managing to our total net registrations and our total number of students. Because as you may recall, the higher education reauthorization said that accrediting bodies need to look at anyone whose student growth -- not new student growth but total student growth -- exceeds 50%. As we said, we're trying to manage to a number that we're comfortable with, that we can demonstrate that we're improving quality and improving retention at the same time.

Yes, and Corey, one of things that is unusual about us and I really haven't seen this before in my experience in the industry, is we're having an awful lot of students return for a second degree. Over 40% of our graduates right now are returning for a second degree. And that kind of -- and we don't count them as a new student. So that plays into it also.

Great, thank you.

Your next question comes from the line of Amy Junker with Robert W. Baird. Please proceed.

Hi, good afternoon. Thanks. Wally, you've talked in the past about intentionally limiting your growth to keep up the quality of the student outcomes and experience. So I'm wondering if you can talk a little bit more about what's involved on the front end, if you're seeing any success there. And just as a follow-up, if that's what gives you the confidence to have given guidance to the enrollment for 2011. I'm wondering if you think you could grow more, but given these efforts that you're able to do the growth that you laid out?

We've always said we could grow more, Amy, if we spend the money. We -have experimented over the years with lead generators. And we can use that source and have a student in a seat for about $3,000 a head which is what many of the peers in this industry do. What we've tried to do, though, has been to look at our total enrollments and what we have to spend on the incremental civilian marketing which is higher than in the military because of the lower referral rate. And actually manage to that top aggregate number while monitoring the graduations, while monitoring the students who return for a second degree, while monitoring our attrition rate.

It's one of those things that actually is a little more difficult to do when you report quarterly earnings than back in the old days when we just worried about it on an annual basis. But nonetheless, we think we've done a pretty good job of it and it's -- as you note in the first quarter here, we didn't spend the marketing money that we had budgeted because we were more than exceeding what our original guidance was.

Great, thank you

(Operator instructions.) Your next question comes from the line of Kelly Flynn with Credit Suisse. Please proceed.

Thanks. I wanted to revisit the seasonality issue that you referenced on the call and that we can see in the guidance. First of all, could you just confirm that the more pronounced seasonality you think is entirely caused by the civilian mix shift? And then can you specifically talk about enrollments, revenue and expenses and sort of how seasonality impacts those three items differently?

Kelly, this is Wally. I think there's two factors to the seasonality. I'll talk to one and perhaps Harry will add something to the other. One of the seasonality factors and the biggest one for the second quarter is that we start all of our semesters, our monthly semesters, on the first Monday of the month. And so we have the month of June for the second quarter where it starts on June 7 and that's different than a year ago. So we lose a full week's worth of revenue on the amortization which is about $2 million.

The second seasonality factor, if you go back to our second quarter call last year we gave a graph that demonstrated that the first two quarters of the year are typically -- are relatively consistent in terms of enrollments. And then we start ratcheting up really the last four to five months of the year. It's -- our seasonality has been a traditional hockey stick. First seven months are pretty flat, and then we see that hockey stick growth beginning in August for the remainder of the year, which is why we typically have a lower marketing spend in the fourth quarter because we have so many extra enrollments.

We're comfortable with our guidance for the year. Harry, do you have anything else to add for the seasonality?

No, I just want to reiterate what Wally said. That -- the fact that we're only recognizing 24 days of revenue in June has about a $2 million impact in the second quarter with no associated costs. So that's about $0.06 of EPS that kind of gets pushed back into the third quarter from the second quarter. And that happens whenever we have the last month of the quarter starts on the seventh. So that -- we can kind of guide for that. I'm not sure everybody who's following our stock understands that. That's why we wanted to give the quarterly guidance this year. And then traditionally, the second quarter and third quarter are impacted by -- that's when we generally begin to increase our marketing spend is the latter part of the second quarter and during the third quarter because we always want to make sure we hit our fall numbers. That's the big number that we like to hit every September. And that usually happens. Usually the spend picks up in the second and third quarter.

And then with traditional students, civilian students, they like to take courses in September and January. That's when they usually start. And not that -- the civilian starts do drop off usually in the spring for some reason. And that -- I've been in this industry 25 years, that's the way it's been in every company I've been associated with. So that is the seasonality.

I think another explanation, too, for that also, Kelly, is that when someone transfers from one Title IV institution to another they have to wait until their semester concludes before they can re-up for a new academic year. And we actually -- they'll actually get denied when their FSA application is in if they're still enrolled in another institution. So if they're enrolled in a traditional format at some institution that they're transferring to us for, it really implies that they have to stick with a traditional format versus if they start with us from day one they can start any month.

Okay, so I guess -- let me just paraphrase it because I mean obviously you've always had seasonality in your business. I'm trying to understand what's changed this year versus last year. Am I right that it's two things? It's this revenue timing issue related to the June 7 start. And then it's also just mix shift towards more civilians makes you a little bit more back-end weighted on seasonality because more civilians enroll in the fall?

That's correct.

You said it better than we did.

Okay, all right. Thanks, guys.

Sure.

Thank you.

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

Thanks so much. If I remember correctly you were slated to increase your per credit hour charge for graduate students in April. I think it was going up to $300. Can you confirm did that happen? And also do you have any updates on what the Department of Defense is doing with their tuition assistance for graduate programs? Thank you.

Sure, Jeffrey. We did have our tuition increase in April for starts in April. We estimate that that impact in revenues for the quarter is about $700,000. And that's just the way the course is amortized. People who are enrolled for March with the pretuition increase, we won't see that revenue from and you have to start in April and beyond. As far as DOD, we've not heard any additional news on the graduate tuition increase other than the last piece of news we had was it was effective October 1, 2011.

Okay, great. Thanks for the color.

Your next question comes from the line of Brandon [Cobell] with William Blair. Please proceed.

Hi, guys, thanks. With the changing mix in students, maybe some color or commentary on whether or not the -- I guess the teacher dynamics are changing. Do you find -- do you need to make any shifts in terms of the type of people that you're bringing in, how you're allocating their time, those kinds of questions. Thanks.

You're talking about our professors, Brandon?

Correct.

We currently have this first quarter about 261 full-time professors and about 864 part-time professors. We try to balance that out and have our full-time professors take the courses that are offered more frequently, the high enrollment courses, and use the part-time faculty to basically prove their abilities to teach and then we'll transition and move them in as full-time faculty as their enrollments grow and as the demand for the courses increase.

We have over 1,000 faculty members who have been prescreened, who are on a waiting list. So we're not having any problems adding faculty. I just heard in a meeting this morning that we continue to add probably about a dozen faculty members a week to our training classes. So we prepare for future enrollment growth.

And so far, Brandon, we haven't -- I haven't heard any of our faculty members say there's been any impact in the classroom of having a higher percentage of civilian students in the classroom. If anything, it's given a little more diversity to the classroom.

Okay, thanks a lot.

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

Thanks, good afternoon.

Hi, Trace.

You guys operate admissions differently from just about all the other, at least publically traded companies in the group. And we've had the Department of Education effectively tell us that they're not really thrilled with the state of how enrollment counselors are compensated. They appear to want to get rid of the safe harbors. And I guess I'd love to hear from you guys as to how do you measure performance of your enrollment counselors? How do you provide them with incentives? Do you use quantitative measures? Do you have benchmarks of what you expect from them since you do operate much more like a traditional institution than most of the other guys? I'm just sort of wondering how you deal with keeping them motivated and not kind of turning into DMV drones or something as they answer the telephone.

Trace, I started with the institution in 2002 and to the best of my knowledge our admissions advisors have never had quotas. That's not how we manage them. Our evaluations of them are on their abilities to listen to the prospective student and to counsel them on whether or not we have an appropriate degree program for what their needs are. So we evaluate them really on their ability to service the inbound traffic that we have. We don't make outbound calls. We don't even have that skill set. And as you can see with 36 admission officers compared to the hundreds and thousands that I hear everybody else has, we're just on a different plane and a different style.

And I would say that everyone in the admissions department understands our mission. And our mission is to provide access and affordable education. And their goals are to listen to the needs, and if we can meet a need, then we'll make a recommendation. And if we can't, we'll send them somewhere else.

I mean, the other thing is that they're in the same building and their boss walks around the building. There's only 36 of them. And Terry Grant is very good. She's our Direction of Admissions and she has the ability to listen in on calls or to get online with emails and monitor. And she does that on a random basis. And so our admissions people know that their boss is listening to their calls occasionally and looking at the emails they're responding to students. So we do it that way. It's more of like an old fashioned way. And we don't really feel the need -- they are evaluated the same way that all of our employees are evaluated for bonuses, based on the student satisfaction quotient, which is made up of many factors that we disclose, but none of them are really related to their conversion record.

How do you know when you need a new one? How do you know when you need to add capacity?

When basically no one has time to answer the inbound calls. I think we've added six in the first quarter, Harry?

We have added six and we're getting ready to add eight more before the fall.

And do you worry at all about the scalability of the system?

The only thing I worry about from a management perspective is that if we had, for whatever reason, just a huge influx that it would take us awhile to train people to do it the way we do it. We pride ourselves on all admissions people going through about a three-week training program before we actually take them live by themselves on emails, chat and the telephone. So to the extent that for whatever reason our inquiries might double in a particular month, we might be caught unaware. But usually we're very plugged in with what marketing is spending to generate leads and what we need to have to respond to the inbound inquiries

Okay, great. Thank you.

Your next question comes from the line of Bob Craig with Stifel Nicolaus. Please proceed.

This is a follow-up for you. I was wondering whether or not the potentially changing economic circumstance might cause you to rethink the timing of the doctoral degrees that you had basically put on hold in favor of some of the lower end degrees?

That's a great question. Right now our doctoral degrees are still on hold and we're not looking at the economic situation. We're looking at the fact that our reaccreditation visit is in February and so we do not want to be in the process of implementing new degrees in the middle of a major site visit, which is our five-year reaccreditation visit. So we will wait until after that visit.

They'll obviously, since we submit a self-study, will be very much aware that we've developed these degrees and that we have deferred them for economic reasons. And we'll probably have a nice discussion and they'll give us some feedback, positive or negative, who knows, you can never judge a subjective visit. But we're not going to interfere with that visit by having a major group of degrees in the process of implementation when they're on board.

And refresh me, Wally, how many degrees were in that pipeline, doctoral degrees?

We had three in that pipeline.

Had three of them, okay. Great. Thanks.

Your next question comes from the line of Kelly Flynn with Credit Suisse. Please proceed.

Hi, sorry. A couple of quick follow-ups. Just on the fiscal 'll guidance, sorry if you said this on the call, but can you just reaffirm that you're reiterating that guidance as well since it wasn't in the press release?

We did. When I had our commentary, we did.

Okay. Sorry about that. And then just one other one, on the veterans, you mentioned that quickly. Can you just give a little more detail on kind of what benefits you are seeing from the GI -- the new GI Bill and you gave a prior period comparison. I think it was last year. Can you also give us what you did in the prior sequential quarter for veterans on a percentage basis?

I don't know that we have the prior sequential quarter, but we gave year over year. Harry, do you want to elaborate?

Yes, our VA is up dramatically. It's actually the fastest -- we consider the people getting VA benefits to be civilians. They're not active duty military. And we were up -- we didn't give that number out, but we were up -- it's our fastest growing segment of our civilian population. We're benefiting greatly from Chapter 33. Actually, more than we anticipated.

I think we said it went from 4% to 7 %.

Of our total student population, yes. It's about 100% actual growth in terms of net registrations for VA students.

Okay, great. Thank you.

A lot faster than the rest of the civilians. Thanks.

(Operator instructions.) Your next question comes from the line of Ariel Sokol with Wedbush. Please proceed.

Hi, guys. Just a quick question. So my understanding is that Senator Akaka of Hawaii is going to introduce revisions of legislation related to the post-911 GI bill, and I think there's been this constant discussion about potentially giving veterans a housing allowance for attending an online institution. And if that -- if it does get passed, I guess, what is the potential for your business taking off in that sector, the veterans who can extend benefits to their spouses or children?

Well, there's actually two different things at work there, Ariel. The ability of a veteran to transfer the benefits to spouses or children, they can only transfer the tuition benefit. The housing allowance doesn't transfer to spouses or children. And I believe the Department of Defense had a press release two weeks ago that talked about the fact that either a 100,000 or 125,000 veterans have transferred those benefits since the inception of the program. So you could Google it and you can get the precise number. But that's my recollection.

We wouldn't have an estimate. But we do believe based upon student feedback that students who say, "I'm really sad to tell you that I've enjoyed attending your institution, but now that I'm back stateside and leaving the service I want to get the housing allowance. So I'm going to go to State U." We get those emails and so I think my net assumption is if Senator Akaka's bill is successful and the Student Veterans of Afghanistan and Iraq are in favor of -- they're supporting the housing allowance for [distance] education, as well as a number of other groups like the Military Officers Association and the American Legion. So certainly if that goes through, I think it would actually help accelerate our veterans on GI Bill again. But I can't quantify it because it hasn't happened yet.

Thank you.

I would now like to turn the call back over to Chris Symanoskie for closing remarks.

Thank you, Operator. Before we adjourn we'd like to thank all of today's callers for their participation and interest in American Public Education. Thank you and have a great evening.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.