American Public Education Inc (APEI) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 American Public Education, Inc. earning conference call. My name is Jeremy and I will be your operator for today. At this time, all participants are on a listen-only mode . Later we will conduct a question and answer session. (Operator Instructions). I would now like to turn the conference over to Mr. Chris Symanoskie, Associate Vice President of Investor Relations. Please proceed,

Thank you, operator. Good evening and welcome to American Public Education fourth 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 other 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 words such as anticipate, believe, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include without limitation statements about the first quarter 2011 as well as other statements regarding expected future growth.

Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various risk factors, including the risk factors described in the risk factors section and elsewhere in the Company's annual report on form 10-K filed with the SEC, the Company's quarterly reports on Form 10-Q filed with the SEC and the Company's other SEC filings. 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. This evening it's my pleasure to introduce Dr. Wallace Boston, our President and CEO and Harry Wilkins, our Executive Vice President and CFO. At this time I will turn the call over to Dr. Boston.

Good evening, ladies and gentlemen. In today's conference call I would like to review the results of our operations and highlights for the fourth quarter. I also want to talk about our mission and our unique approach to fulfilling that mission. Then Harry Wilkins, our Chief Financial Officer, will discuss our fourth quarter and full year financial results, the outlook for the first quarter, and provide additional prospective on our performance. In the fourth quarter of 2011 -- excuse me, 2010, we experienced accelerated growth in net course registrations from civilian students lead by a 74% increase in net course registrations from students using Title IV, an 85% increase in net course registration from students using veterans benefits.

We believe that success was due in part to our increased focus on civilian outreach and to the growing effectiveness of our innovative awareness campaigns. In reaching out to prospective students we employ a relationship oriented approach. Our partnerships with associations, corporations and organizations within the fields that we serve represent a growing source of inbound inquiries regarding our programs, mission, and expertise. In addition, we're experiencing increased referral rates through most of our existing civilian channels.

We've also increased our use of interactive media with positive results. And we'll continue to build on our experience using internal staff. Looking at the broader marketplace, we believe that students are paying more attention then ever to matters of affordability and quality when they make decisions about higher education. While this trend has been gradual, we believe the era of ever increasing tuition may soon be over for the broader market.

APUS offers a compelling value proposition, degrees of distinction at an affordable price. That's a powerful combination and one that's increasingly attractive to civilians as well as military professionals. We believe it will ultimately lead us to a larger, more diverse student population. While civilian growth is robust, we honor our military heritage and we are keeping our pledge to educate those that serve in many ways. We are guided and advised by four retired US military generals who sit on either the APUS board of trustees or APEI Board of Directors.

Our institution was founded by a Marine who introduced our book grant program in 1999 to help military personnel and veterans in particular overcome a major cost impediment to educational attainment. That program is still in place today and is a great benefit for deserving soldiers. We currently have 17 military outreach team members who have dedicated their careers to serving the active duty military community. They're either former active duty military or have worked as counselors in military education centers or both. Our commitment to serving the military is articulated in our mission and essential to who we are as an institution. Even as our civilian student base grows, we remain committed to our nearly 20 year heritage of serving active duty military students and veterans.

In the fourth quarter of 2010, net course registrations from students using tuition assistance increased 14% year-over-year, representing a slight acceleration from the previous quarter. While there is still a high level of deployment and activity in the US military, especially in Afghanistan, the growth of net course registrations from active duty military students appears to be showing continued signs of improvement. In more recent months, we have seen improvements in the growth of net course registrations from new active duty military students.

At this week's annual meeting of the Council of College and Military Educators, enrollment statistics presented by the D.O.D. indicate that AMU has risen to number one in terms of enrollments in the Navy, remains number one in Air Force, Marine and Coast Guard, and is number two in the Army. The potential for future military enrollment volatility, uncertainty caused by the regulatory environment, and risks associated with the complexity of managing the transition to a larger civilian student population, among other factors, are potential risks to our future growth. Furthermore the potential of the Walmart relationship in the United States and our unique civilian student outreach efforts make forecasting future growth more difficult.

However, I'm pleased with the way our team has responded to the opportunities and challenges over the last several year. In many cases being nimble and adapting to change, in other cases resisting the temptation to follow the packet and always operating with a long-term view. Our transition to the Sakai Learning Management System appears to be proceeding successfully. All graduate programs are now being taught using Sakai. In March we expect to begin the undergraduate migration. Our goal is to have all undergraduate courses converted to Sakai by the end of 2011.

As of December 31, 2010, approximately 83,700 students were enrolled at either AMU or APU. I'm very pleased that we are broadening our university community. At the same time, we continue to invest in academic quality, new faculty and raising brand awareness, as well as building the new infrastructure that's necessary to support expanded university services. Moving to slide number four. We've had many important academic accomplishments in 2010, including earning a second Effective Practice Award from the Sloan Consortium. This represents the first time that members of a single institution have been recognized by Sloan in consecutive years.

Moreover, our faculty published over 400 articles, research papers and other academic publications last year. APUS faculty are encouraged to research and write peer reviewed articles, conference presentations, workshops and white papers, as well as to support and engage their academic and professional communities. For example, APUS professor, Dr. Carol Pollio, commander with the US Coast Guard was heavily engaged in gulf oil spill disaster recovery operations and brought that experience to her classroom through regular communications to her students via the APUS environmental studies group on Linked In and her homeland security blog.

APUS is currently engaged in the HLC re-accreditation process which was scheduled for the 2010-2011 academic year. As a normal part of this process APUS completed and extensive multi-year self-evaluation that engages students, alumni, employers, faculty, staff and other audiences served by APUS. As part of this regularly scheduled process, we submitted the self-study in January 2011 and will undergo an on sight re-accreditation visit in February of 2011. We also launched three new degrees in 2010, the Master of Science and Information Technology with several concentrations, a Master of Arts in Psychology, and an RN to Bachelor of Science in Nursing.

Moving on to slide number five, 2011 is the 20th year anniversary of our founding of AMU. Rather than simply looking back at how we got here, we've been reflecting on how we lead the way today and in the future. The fact that we have not raised undergraduate tuition in approximately a decade speaks volumes about the value of our unique approach. Rather than charging tuition rates at the highest level the market will bear, we chose the more affordable model. One that not only provides our students with a high quality university experience, but also enables us to remain a financially sound institution and to continue to make investments in academic quality, new programs, faculty and student services.

We are intensely focused on academic quality and measuring student outcomes. APUS is recognized for our leadership in these areas. We now offer 79 degree programs. Our classes remain small, averaging 14 students per class and are either eight or 16 weeks in duration. At year end, we had approximately 1,250 adjunct faculty and 250 full-time faculty members. We believe we have created a great work environment. Our faculty turnover was less than 5% last year and staff turnover was less than 10%.

Our relationship focus and unique approach to building awareness is highly effective and accurately depicts our program. Our 45 enrollment advisers engage new students, working to understand their individual needs and appropriately advising them on academic related matters. Steve Jobs is once quoted as saying "Innovation distinguishes between a leader and follower". Our leadership position is underscored by our recent relationship with Walmart among many other examples. We are proud of this ongoing relationship. It is a unique, collaborative effort to bring affordable higher education to Walmart and Sam's Club Associates in the United States due to the Lifelong Learning Program.

Interest is now beginning to be generated in the program and we are pleased with the initial results. We think the long-term prospects are good for the development of a meaningful and truly innovative program with Walmart. At APUS we are passionate about higher education and being part of our nation's resurgent higher education success story. We believe that we have built a sustainable long-term model for higher education, a model that others may emulate, while we continue to innovate. We believe the benefits fall not only to our students and their families but to society as a whole.

Moving on to slide number six. More than 4600 students graduated from AMU and APU in 2010. We now have more than 14,000 alumni worldwide and more than 40% of APUS graduates have returned for a second degree. We have a growing reputation for quality. Surveys conducted by APUS in 2010 found that 98% of APUS alumni employers surveyed were hiring other graduates from APUS. 93% of alumni surveyed one year after graduation agreed or strongly agreed that AMU or APU met their overall expectations. And more than 90% of alumni surveyed would recommend AMU or APU to family, friends or coworkers.

Our team knows that our success is dependent on these metrics and that we have a higher purpose, one that is of social and economic significance to each of our students, to their families, and to our country. Now I would like to turn the call over to Harry Wilkins to discuss our financial results in more detail. Harry.

Thanks, Wally. Moving on to slide eight, our fourth quarter update. We are very pleased with APEI's fourth quarter results which include a 29% increase in revenues to $56.3 million compared to the prior year. Driven in part by a 27% increase in net course registrations and the timing of starts. Operating income increased 13% to $15.8 million in the fourth quarter compared to the prior year, which reflects the impact from higher selling and promotional expenses primarily as a result of incremental spending in civilian markets, increased investment in infrastructure to support a larger student population, and $166,000 of health committee legal expenses.

Net income also increased to 14% to $9.6 million compared to the prior year period or $0.52 per diluted share. The completed share repurchase program effectively was $0.02 accretive per diluted share in the quarter. In addition the corporate tax rate was down slightly to 39% during the fourth quarter due to the effect of a slightly downward adjustment to our original full year tax rate estimate. For the full year of 2010, revenues increased 33% to $198.2 million, driven primarily by a 31% increase in net course registrations and a graduate tuition increase. Net income increased 25% to $29.9 million or $1.59 per diluted share.

We are very pleased with this growth especially given that this wasn't an investment year with initiatives such as the new loaning management system and a new academic center, and considering we incurred $492,000 of unanticipated legal costs related to the health committee compliance request. It was also a year where we continued to experience a significant transition in our student population. Despite all of the potential distractions we maintained our focus while successfully executing our long-term strategic plan, further strengthening our relationships with both military and civilian communities. APEI remains in a strong financial position with $81.4 million of cash and no debt as of December 31, 2010. For the 12 months ended December 31, 2010, CapEx was $22.5 million which includes approximately $9 million of CapEx related to our new academic center and approximately $2 million related to the LMS and an office expansion in Manassas, Virginia.

Recently, APUS received notice that beginning February 28, 2011 the Department of Education will conduct a program review of the university's participation in the Title IV program. This was not unexpected as the secretary of education has previously explained that the Department of Ed plans to increase the number of program reviews this year. Underscoring management's competence in the future cash flow of the business, the board of directors has authorized an additional stock repurchase plan designed to provide an opportunity to potentially offset some of the dilution resulting in the issuance of additional shares under the Company's equity incentive plan.

Moving to slide nine, our first quarter outlook, due to what we believe are ongoing signs of improvements and enrollments by active duty military professionals and due to our continued successful civilian outreach efforts, the Company expects net course registration from new students in the first quarter of 2011 to increase approximately 27% year-over-year, and net course registrations to increase approximately 25% compared to the prior period. Underpinning our outlook is the expected improvement in the growth of net course registrations from new active duty military students in the first quarter of 2011 as well as continued strong growth in civilian channels.

Please note that on January 3, 2011, APUS combined our one credit lab courses with their related three credit classes. As a result the Company plans to report future net course registrations from the resulting four credit courses as one registration. In comparison, adjusted first quarter 2010 net course registrations are being provided to reflect historical net course registrations as had the courses been combined during the prior year and excluding any non-credit registrations. This information is included in the power point presentation that was filed with the SEC as an 8-K earlier today. Keep in mind the tuition for one credit lab and three credit classes was $250 and $750 respectively and tuition for the combined four-credit course will be $1,000. Thus we don't anticipate any revenue impact from this action.

The Company anticipates its first quarter 2011 revenue growth will be approximately 20% compared to the prior year. First quarter revenues are expected to be impacted by the timing of monthly start, effectively adding an additional week of revenue flowing into the second quarter as a result of a later class start in March. Our classes in March start March seventh, the first Monday in March, that's as late as they can start is the first Monday. I want to impart to a slightly higher selling and promotional expenses as well as to the timing of starts, earnings per share is expected to be between $0.43 to $0.45 per diluted share in the first quarter of 2011.

We currently do not plan to provide full year guidance primarily due to the potential for military enrollment volatility. An uncertainty caused by the current regulatory department and the complexity of managing the transition to a larger civilian student population. Moreover, the Walmart relationship, and our unique civilian outreach program, represents potential positive influences that can't be currently forecast beyond the current quarter.

If you move to slide 10, our unique approach is the key to our long-term success. In closing, APEI is in a strong financial position. We believe that our business is highly differentiated by affordability and quality, as well as by our relationship oriented strategies for creating greater awareness. We believe that our innovative approach and unique online model address many of the challenges to educational obtainment and we are working very hard to build on our strengths as we plan for the future. Now, at this time, we're happy to answer any questions from our call participants.

Operator, can you please open the line for questioning?

(Operator Instructions). our first question comes from James Sanford with Citigroup. Please proceed.

Great, thank you. Great, great quarter. I just wanted to make sure I'm clear here. Your guidance for 20% revenue growth, If you include the quarter for revenues, would you be, is that an accelerating growth at this point from a comp basis?

Yes. Well, the difference, our net course registration growth we're forecasting is 25% for the quarter and you would ordinarily assume that, that would align yourself with 20% revenue growth since we haven't had a price increase, 25% revenue growth since we haven't had a price increase, but we're forecasting revenue to only go at 20% because of the fact that actually both in February and in March the classes start on the first Monday, the first Monday in February is the seventh, the first Monday in March is the seventh.

Our classes are eight weeks in length and 16 weeks in length. So effectively having those classes start on a Monday, we recognize revenue over each day that we teach the class, so because they start as late as they can two months in a row, it has the impact of pushing some of that revenue back into the second quarter.

Yes, got it. I just got confused there for a second. One final question, on the Walmart relationship, just wanted to get some color on how that's developing. I believe you said it would kickoff really in earnest in Q1 and I assume your outlook includes some Walmart in there, is that correct?

Yes, we're not giving specific numbers on Walmart, but yes, Walmart began promoting it to Walmart associates in February, and Sam's Club associates in March, which they said they weren't for the fourth quarter because that's their big quarter. We're seeing signs of that activity, but we really think it's too soon to report specific result.

Great, I'll hop back in the queue. Thank you.

Our next question comes from Arvind Bhatia with Stern Agee. Please proceed.

Thank you and my congratulations on the quarter as well. My first question is on your learning management system, or I guess your Sakai, is that behind schedule? I thought you had said that everything would be converted by the middle of this year. I thought I heard you now say it's maybe by the end of this year. Does that have any CapEx implications or is that simply just going through the process and it's taking a little longer? Then my second question is, I think you said your faculty turnover was 5% last year. How does that compare historically? And then last one is on the program review from the Department of Education. Is that the first time ever that has occurred for you guys?

Yes. Let me take these questions singularly. On the LMS our actual schedule date for that is September, we just said end of the year in the script but September has always been our date. We converted out, the plan was to convert the grad courses first. Graduates are slightly under 25% of our total students, and then to convert the undergrads, but not to do a conversion in the month of February because of our sight visit for the HLC. We didn't want to have faculty member who might have to work on the conversion and at the same time report for our visit.

As far as historic faculty turnover rates, I'm not sure that we've given them, but within plus or minus a percent, the 5% is typical. We've had pretty good turnover rates over the years. We're pretty proud of our hiring process and the fact that we manage to get faculty who are competently trained. Then lastly, the program review, we signed our program participation agreement in September of 2006 and this is the first program review we've had. Typically our understanding they try to did it every three years and we're a little overdue.

Okay, great.

That's typical.

Our next question comes from Bob we did Wetenhall with RBC. Please proceed.

Hey, good afternoon. Can you just touch on increased spending levels that you might anticipate in the up coming quarter and your general expectations for marketing costs going forward?

Yes. As we said, I think in previous calls, we anticipate as we transition more to a civilian marketplace that our marketing costs would go up. We try to keep them under 20% of revenue historically and we think we can continue to do that. I think the results show that, around 17% in the fourth quarter. We don't give specific expense guidance going forward, but we're not anticipating a huge market increase. As we shift to more and more civilian and we're over 50% civilian now, our revenue is more than 50% from civilians in 2010, we're managing that transition quite well and keeping our marketing costs low.

I think we're so committed to this relationship marketing as we expand in the civilian sector we continue to track the expansion and the percentage of referrals that we get from that sector, just knowing that referrals take longer to build. So we may have to spend additional money on our internet outreach until we build some of those referrals. I think one of the reasons why we're doing well with enrollments and doing well with retention are because our referrals know that the people that they refer to us are going to be able do the type of work that we're asking them to do.

Could we just ball park it? That's going to stay 17%, 18% sales on an annual basis?

I can't predict what that is. You would have to use your own model since we are not giving guidance. Our stated goal is to keep it under 20%.

That's how we manage it. We see how the military growth is going, we see how our corporate relationships like Walmart are going and then we supplement that with civilian marketing. It's hard to say really.

On your G&A line, would it be fair to say for 2011 to expect $35 million in G&A costs?

We're not giving any guidance beyond the first, you mean for the first quarter?

I just meant that G&A is not really to variable on enrollment. I was trying to figure out off your fourth quarter spend if that's relatively linear through the year.

We're not going to give any guidance for the, if we get any margin improvement, it should come from G&A.

Just one final question. Is it fair to say you're feeling a lot more comfortable in terms of enrollment visibility on the military side than you were two quarters ago?

Actually not. We are feeling good that it was up in the fourth quarter and we've included it in our projection for the first quarter and we obviously had a good result when DOD numbers were reported at the CCME conference this week, but we still think the situation in Afghanistan and other hot spots of the world is volatile. We had a unit of Marines geared up to deploy over to Egypt, I don't know whether they deployed or not, but we try to react to that. Obviously, if they did deploy, we would have let them take a leave of absence from their classes. So we're not confident in that the volatility hasn't ended, but at the same time we do feel pretty good about the programs that we offer, about the together of our integrity of our programs, the integrity of our marketing, so we feel good about our position in that segment.

Your next question comes from Adrienne Colby with Deutsche Bank.

Thanks for taking my question. Can you update us on what investments you are making to your websites or if there are other initiatives that you're pursuing? In January I think one of your software development partners was disclosing that you had purchased a license for some of their concept management. Hoping you can provide color around that.

Sure. We're always, because we do our own internet leads predominately, we are always looking at ways with expanding our website and the content on it to help in some of our organic search results. The press release that you're referring to, SiteExecutive is who we use for our content management system and essentially what that allows us to do is that individuals in the Company who have received training in that product can update web pages and we don't have to get programmers to do it. So we got a master license for SiteExecutive that's unlimited that allows, regardless of our number of employees, if you're authorized to change a page you can change it, and over time we think that is going to help us because we can get faculty putting more content on academically oriented pages, and those academically oriented pages, whether they be papers, publications, will show up in searches and it will benefit us in the long run with our attractiveness on the web.

Great, that's helpful. If I can sneak one more in there. I'm just curious if you have changed any opportunities you're seeing with community colleges? It seems like everyday the news is full of budget cuts. Have you had any changes in terms of new articulation agreements or anything else that you're exploring?

We have made community colleges for years now a focus of ours. I don't know that we report the articulation agreements because mainly I think typically the community college, it's up to them whether they want to report it at all. We know that there are access issues in California and some other states where classes have been cut, and we have initiatives to be responsive to community colleges, but we just make it procedurally a point not to report specific ones mainly because if we do, we'll have some friendly competitors go knock on the door and ask for a similar articulation.

Our next question comes from aerial Ariel Sokol with UBS.

Hi, good afternoon. It seems like the for profit education sector isn't [flooding] and the questions people have these days are not as how good are things, but I hope it's not as bad as I think it is. With respect to you guys, it seems like you're doing pretty well. Can you speak to how you're going to take advantage of the environment and how you're going to think about future competition in the sector both in terms of pricing as well as sourcing leads?

Ariel, we've said since our IPO that we're in this for the long term. We don't try to do short sighted management decisions. So our focus on affordability, access and quality has been our mission and our mantra for years. We think that the entire higher education sector is seeing a migration to affordability. I just saw in today's chronicle inside higher ed that one of the traditional schools announced that it's cutting it's tuition for next year by 10% which is the first time in a while that I've seen a traditional school do that. I think that if you look at practices of others in the proprietary sector as well as practices in the nonprofit sector tuition increases are built in there.

We focused on keeping our undergraduate tuition flat and I think our affordability is really paying off big time for us. To me, our advantage is simply to keep on doing what we're doing and not to particularly change the level of aggressiveness. We'll try to manage once again to keep our marketing costs at reasonable levels under the 20% by continuing to focus on referrals and we think that those referrals will help us bring quality students into the fold versus students who are incapable of doing the work.

That's great and just a quick follow-up. I apologize. I don't think it was mentioned in the call. I think previously you guys talked about the percent of revenue, not net course registrations, but revenue coming from tuition assistance from Title IV and from other categories. If you could provide that, that would be fantastic.

Harry?

Yes, for the fourth quarter, we had 74% of our revenue came from Title IV. Our growth was 74%. 74% of our growth was from Title IV. Title IV is 29% of revenue, I'm sorry. 29% of revenue. Tuition assistance was 49%, cash was 15% and sponsored payments, and veterans benefits was 7%. So that was 29% Title IV, 49% tuition assistance from Department of Defense, 7% from V.A., and 15% from cash and other.

Thank you.

Now the growth rates were 74% in Title IV, 14% in TA, 85% in VA, veterans benefits, and cash was flat. If you follow that. There's actually a power point slide on that. It's slide number three with what we posted on the SEC per the 8-K filing today.

And our next question comes from Amy Young with Robert W Baird. Please proceed.

Hi, good afternoon. Thanks. Just a follow up to the revenue per student calendar shifts, Harry, can you quantify how much revenue you think is being shifted forward to the second quarter and are there any other shifts throughout the year? Because it seems like if you look at the calendar, most of the months, if they start on the first Monday are going to have this phenomenon. So do we just see it keep being shifted all the way forward?

Actually on the calendar we can do the math. If we recognize so much revenue per day and we recognize it from the start of classes, so if the classes start the first Monday of the month and, I guess we can kind of figure it out, but it just so happens because February has 28 days, it's rather unusual for us to have two months in a row where classes start on the seventh, which means that's about the best case scenario for pushing revenue back a quarter. I mean you would think the average would be starting around the third or fourth of the month, so we're pushing several days of revenue from both February and March into the next quarter.

Okay, great, that's helpful. One quick question. I'm curious if you have heard, Wally, if you've heard any anecdotes of students being advised in the military to avoid for-profit schools, not specifically AMU, but kind of negative publicity? Is that out reaching the military, and if so, what are you doing to kind of combat that, and maybe you're not seeing it but we've heard a few instances of that was happening?

I think the anecdotes that we have heard is that ESO's control access to military bases and there have been some aggressive players who may or may not be for-profits who have not adhered to the visitation rules and try to solicit students on those bases. And typically the ESO writes a letter to the CEO of that institution and may actually forbid the institution from participating in the Ed fairs that they host or if they have office hours, forbid them from doing office hours. I have not heard of any general edict going around about for-profits specifically. I think that the services in general leave the visitation up to the local ESO and base commander, and it's really your reputation and how consistent you are with your integrity and doing the best for the soldier.

And we continue the increase in market share. We're number one in the Navy, number one in the Air Force, number one in the Marines, number one in the Coast Guard and number two in the Army right now in terms of the Department of Defense dollars received. And we are increased it with (inaudible) , and we're increasing our market share. We haven't seen too much of a negative impact on that, but we have heard the same rumors that you

Our next question comes from Corey Greendale with First Analysis. Please proceed.

Hi. Congratulations on the quarter. Somewhat on the military side also, there's also been some indication that the VAhas cut some schools off from funding. I just want to verify that you are not among those schools.

We certainly aren't. Our understanding as to what Senator Durbin's referring to is that routinely the VA, the VA is organized in the regions that have state approving agencies and that over time with VA audits, et cetera, schools in those regions are disciplined for various reasons and not necessarily egregious recruitment practices. So our understanding is that he's referring to the routine list. We're not on that routine list. We're unaware of who is. I think that's typically between the VA and the school, so whether they're going to release it or not I guess is up to them.

Okay. And then interest in, with the HLC visit coming up, I imagine that's a pretty extensive review. So I was wondering, looking forward to Q2, whether that is, whether there's a potential that that's sufficiently distracting, that we might see some impact of that on Q2 results? Part B of the question is; in light of the fact that you mentioned that there's a lot of variables, a lot of moving pieces so you're not giving full year guidance. This may be splitting hairs but the guidance you gave for Q1 is actually more specific than you usually give, you usually give a range for enrollment and here you gave more of a specific number. Could you just square the relative less visibility with giving more specific guidance?

I think we gave a range on earnings and we gave a number for the revenues and the enrollments. You know, nothing magic there. We gave guidance as to what we think is going to happen and try to adjust for the volatility. Back to your question about the HLC, from our prospective we've been working on the self-study report for three years. You know, our mantra and mission is always quality and continuous quality improvement, so we believe we're ready for the visit. I'm not aware of anything related to that visit that would distract us for the second quarter.

Our next question comes from Paul Condra with BMO Capital Markets. Please proceed.

Great, thanks. Thanks for taking my call and good quarter. I wanted to ask about the share repurchase. Can we assume under this plan that these repurchases are going to be happening quarterly and can you give us any idea as to the size, what we can expect there.

Harry?

Yes. We issue, usually it's mostly in the first part of the year, we issue options. We have an equity incentive plan for direct level employees and hire. And what the intention is that our buy back program is going to buy back those shares as they get issued so there's no further dilution or share creep as some people refer, with our equity incentive plan. The buy back plan is designed to just try to buy back each year or for the foreseeable future. The board can change its mind at any time, but right now we want to file (inaudible) one time to buy back those shares that we issued with this years equity incentive plan.

To keep the total shares outstanding equal.

Okay so, just keeping that constant then?

Yes.

Okay, great. And can you comment at all about just across degree levels and programs? What kinds of trends are you seeing there? And are you seeing any changes? I guess competition, I guess for certain kinds of courses or degree levels? Thanks.

We typically haven't released that by degree level or program. I would say pretty much our increase for the fourth quarter and the projection, or overall projections that we really haven't seen any programs with decreases that I know of. I think that when you get over 80,000 students and 79 degree programs, there are people who are attracted to our bachelors degree in philosophy and there are people who are attracted to our MBA program and it's a different type of person. Even though there are many less people in the philosophy program, we happen to have one of three or four online bachelors degrees in philosophy. When you look across the United States and even internationally, that's a good thing.

Our next question comes from Jerry Herman with Stifel Nicolaus. Please proceed.

Thanks, good afternoon everybody. Hi guys. I would like to get your volumetrics on Walmart since it doesn't look like you are going to give that. But I do have a couple questions about Walmart. In particular, where are you at with sort of the program development? I know that they're looking at some very specific course work? Also, can you talk about the HLC visit and perhaps how inquisitive they were about your relationship with Walmart? And then also can you yet gauge sort of how those students are being funded? I imagine you're still pretty early in that. And then finally, just a long-term question about the Walmart relationship. How do you deal with it basically overwhelming the business, the potential to overwhelm the business and become just a very substantial part of the total?

Sure, I'll try to answer those in sequence, Jerry. As far as the courses, we agreed that we would put a retail management concentration in our management degree at the associates and the bachelors level and those courses have been developed and the concentration is there. As far as the HLC visit goes, we expect that because that particular contract has the potential to be material at some point in time that the visiting team will take a look at it. But we think that it's a sound contract, a sound relationship, and as any accreditation visit, they have a right to look at it and we're going to be transparent with the team that's coming in.

As far as the funding, I will leave that up to Walmart to disclose that. I believe their press release said they were going to spend $50 million over three years at a minimum and I don't know that they've announced anything subsequent to that. I choose to let them make that announcement. Then as far as the possibility of this overwhelming us, when we announced the deal, we announced that we were ratcheting up some IT costs and some student services costs early on because our philosophy on this was that if you're going to be a good partner to somebody you're going to be prepared.

So it ramped less than what we setup for mainly because they were right, that we weren't going to get students early on because of the looming holiday season, but we were prepared. We are tracking. Every one of the students has to come through a portal to portal arrangement, so we're tracking the volume. Because of our variable class model, we will increase our staffing proportionately. We think to the extent that enrollments increase substantially that we'll be able to deal with that and it will be a win-win for both of us.

Great. Thanks guys. I'll turn it over.

Our next question comes from Brandon Dobell with William Blair. Please proceed.

Hi, guys, how are you doing?

Doing good.

Good. A couple of questions on the faculty. If you talked a little bit about retention or attrition but I want to get a sense of any movement in compensation for the guy that's been around for a while? Any change on what they are paying them on a base level or for the part-time fellow, how you're thinking about paying those guys?

You know, we've made adjustments to our faculty levels over the last couple of years, Brandon. We don't give those disclosures, but we feel good that we have participated in a number of projects with nonprofit organizations looking at both the compensation and the workload of adjunct and full-time faculty teaching online. Dr. Karan Powell, who is our academic Dean, is currently involved I believe with Dana Offerman who is the provost at Excelsior College and a project sponsored by WCET which is a nonprofit organization.

I think there are 29 schools who have responded to that and they are actively soliciting additional schools to participate so I'm willing to mention this on this call because who knows, maybe some of our investors are endowment funds of traditional schools and they have online programs and they wouldn't mind participating. We believe that we pay at market and we pay it fairly. And whenever we think we need to tweak it but we also want to make sure that we have benchmarks in place and in the case where online teaching work load, there was no benchmark. We partnered with another school and a nonprofit organization and we hope we can publish some results on that soon.

Good. Shifting a bit to the marketing strategy. If you were to compare some new initiatives in terms of scope, magnitude or impact that you are thinking about now or maybe in the fourth quarter with where you were a year or two ago, how do we think about how big or how bold those new initiatives or kind of trials look for you guys these days compared to a couple of years ago?

I would say while we're not prepared to disclose any new initiatives right at this minute. But our opportunities have increased. Several years ago we had one person in our corporate relationship group and we have either three or four now. And we're following up on activities, some of which were stimulated by our partnership we announced with Walmart, so that's a benefit. To the extent that some of these appear to be material, we'll talk about them on a future call.

(Operator Instructions). Our next question comes from Trace Urdan with Signal Hill. Please proceed.

Hey, guys. I wonder if I might get you to give us a sense of how big your masters of education program has become, maybe in relative terms if you're not comfortable in giving out the actual number? Then I wondered if you could give a little bit of color on what you might be seeing there, whether you think that the, are you guys experiencing a little bit of resistance that some of the other schools are experiencing or are you in fact finding that the fact the your program is less expensive is turning out to be a driver of growth at the moment?

Trace, we typically disclose over in 2010 the education degrees at about 1% of our student enrollments. At the same time that doesn't represent the teachers that we have enrolled. And the reason that we have many more teachers enrolled is that most of the public school programs allow teachers to get masters and they don't have to be in education, so if you're all ready certified the liberal arts degrees that we have, particularly history, I don't have the exact number, but I'd say a substantial number of our history students are actually teachers who are getting their masters in history.

So I think from that prospective we are doing well in the non-education sector. The reason we believe that our education degrees only have currently 1% is actually related to the fact that you may or may not remember that we built those degrees to lead to licensure, so from an attractiveness prospective, someone who is already a teacher that's the bigger part of that market, so they're going to seek a degree that they can take and they don't have to go through all of the requirements for the licensure.

I see. But are you seeing resistance in teachers in general in your program or that's not?

I'm not hearing about that.

Okay. Great. Thank you, Wally.

Our next question comes from James Sanford with Citigroup. Please proceed.

Great. Thanks for the follow-up. I just wanted to touch on the recently passed GI bill changes, particularly the stipend benefits. When does that potentially kick in and is that a catalyst potentially for hiring enrollment conversion among the VA and military?

It kicks in either August, September, or October from what I read. They're a little ambiguous about the actual date. The bill was passed in August, so is it the anniversary date of the bill, the original bill was passed in August, or is it September, or is it the government's fiscal year which starts in October, so I can't give you an exact date. What I can tell you is that we've worked pretty hard with a consortium of other online schools, for-profit and nonprofit, to get some form of housing allowance restored. We thought that the original bill was flawed.

We thought that the active duty, given that nearly 70% of active duty soldiers were studying online, that disallowing a veteran when they return from the war of the housing allowance because they are studying online was a clear mistake delivered or otherwise in the original drafting of the bill. Fortunately, Senator Akaka, who we praised for his initiative, put forward a change that half of the housing allowance will be provided and we think that's better than where we were before so we're very happy with it. We hope that will lead to more veterans studying on line. There's still a choice between the old bill and the new bill. In some cases, veterans, because the old bill has a housing allowance in there, veterans who attend low-cost institutions like us or like community colleges can actually do better with that old bill then the new bill which pays a tuition directly and then gives a separate allowance. It's a little too soon to see what's happening on that but our hopes are that it will give us a positive benefit.

We do lose some students who, when they find out they don't have the housing allowance will go elsewhere. We don't think that will happen when the new bill takes effect.

If I could just squeeze one more in here. Forty-five enrollment advisors, it's awfully low. How should we think about that as you sort of transition more to civilian. Is that a sustainably low number or are we going to see that ramp up over time?

It has ramped up. I can remember when we had six. The fact of the matter is we've stated pretty emphatically that our admissions people are there to listen to someone who contacts us directly and not through some type of trickery or 1-800-go-to-school. They're advisers, they're listeners. Because we don't call from lists that we bought from sites that may or may not have qualified potential students, we simply wait for someone to contact us. Forty-five is all we need currently to the extent that our affordability makes us a more attractive target we'll increase that number because as admissions advisor can only handle so many calls.

From a compensation prospective, incentive compensation, have you made any changes there?

No, because we didn't have to. They were paid straight salary, no fluctuation or compensation based on achieving enrollment targets.

Great, thank you.

Our next question comes from Peter Appert with Piper Jaffray. Please proceed.

Thanks. These civilian enrollment numbers you're reporting are obviously very impressive in the context of what we are seeing industry wide. You touched on this a bit in your comments, Wally, but I'm just wondering what your market research tells you in terms of how important the pricing is in the driver of the civilian enrollment growth specifically?

I would tell you that, while we don't share specific market research, the sectors that we select, Peter, are sectors where we believe affordability is an issue, so military translates to law enforcement translates to fire and emergency management, translates to government workers, translates to teachers. Roughly the average pay in those sectors is between $45,000 and $50,000. I think affordability resonates pretty strongly. We could never afford to, or I shouldn't say we couldn't afford to, but it would really change our model if we decided that we wanted to market to everybody in the world. So we're continuing even with our internet advertising and even with our general advertising to a limited extent that we can afford it in certain cities, we're trying to look at attracting people in a certain niche and people for whom affordability resonates pretty strongly.

And apologies for not knowing this but is there a pricing differential between the civilian and military tuition rates ?

Actually there isn't because of the sectors we've pursued. We've always benchmarked our tuition against state universities and most state universities offer the same discounts to the fire and law enforcement that they offer to the military.

I know you will be offended by this buy I have to ask. It would appear that given the magnitude of the enrollment (inaudible) on the civilian side you might have some opportunity to tweak the pricing there. Is that in the thought process at all?

We strategically always evaluate that so we constantly look at it. Right now there's no intention to change our undergraduate tuition. We did talk about a $25 credit graduate tuition increase starting June of 2011.

Great. Thanks.

At this time, there are no questions and I would like to hand it back over to Mr. Chris Symanoskie.

Thank you, operator. That will conclude our call for today. We wish to thank all of today's callers for your 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.