American Public Education Inc (APEI) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, welcome to the first quarter 2015 American Public Education Incorporated earnings conference call. My name is Denise, and I will be your operator for today.

(Operator instructions)

As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Mr. Chris Symanoskie, Vice President of Investor Relations. Please proceed, sir.

Thank you, operator. Good evening, and welcome to American Public Education conference call to discuss financial and operating results for the first quarter of 2015. 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.

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 statement can be identified by words such as anticipate, believes seek, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include, without limitation, statements regarding expected growth, expected registration and enrollments, expected revenues, expected earnings and plans with respect to recent and future investments and partnerships.

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 Factor section and elsewhere in the Company's annual report on Form 10-K 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 Rick Sunderland, our Executive Vice President and Chief Financial Officer. Also available for questions today is Harry Wilkins, our Executive Vice President, Chief Development Officer, and CEO of Hondros College of Nursing.

Now, at this time I will turn over the call over to Dr. Boston.

Thank you, Chris. Good evening, everyone. I will begin today's call with a brief commentary on the progress we are making with respect to improving student success and a summary of our recent operational results. Then, our CFO, Rick Sunderland will discuss our financial results and provide perspective on our outlook for the second quarter of 2015.

In our last earnings call, we outlined several key initiatives that we believe will improve the average college readiness of our incoming students, further improve the success of current students, and it advance the online learning experience. We believe that realizing these goals will help stabilize the student population at APUS, improve the financial performance of our overall enterprise, and further differentiate our programs from others in the long run. I am pleased to report that we have made progress in implementing and impairing these initiatives.

Since January 2015, we have continued to expand our pilot programs to improve student persistence, including an extensive course innovation project and the rollout a new learning relationship management, LRM system, we call ClearPath. We recently launched an initiative to enrich our top-40 high-enrollment courses by adding enhancements such as new rich media, simulations and other enhancements to increase student engagement and increase the appeal of our courses. We plan to enhance approximately 1,100 of our remaining courses the next 18 months.

As discussed last quarter, students who use ClearPath completed the enrollment and transfer credit process at a higher rate, had lower course withdrawals and drops, exhibited a higher GPA in their initial courses and registered for subsequent classes earlier than those in the larger student population. As result of these preliminary findings, which were based on a self-selected sample, we opened ClearPath to all new APUS students in the first quarter of 2015. We now have more than 8,500 students using learning management system. We expect to transition most current and returning undergraduate students into ClearPath by the end of 2015.

We also recently launched APUS mobile, our native classroom app that allows students greater flexibility with regards to how and where they study and interact with faculty and classmates. We believe the app has unique features not found at other universities, such as calendar integration, access to classroom content while off-line, classroom interaction, custom configuration and customized push notifications about updated classroom content, as well as selected classroom interactions like forum postings, messages and grade postings.

The response to our new app has been very positive and is now available in the Apple App store and the Google Play store. We expect to continue to enhance the features available through the app, as well as make it available to prospective students at some point in the future.

To support our continued investment in information technology and academic learning, we recently announced a tuition increase, our first undergraduate increase since the year 2000. Effective July 1, 2015 APUS undergraduate level course tuition will increase by $20 per credit hour to $270 per credit hour and graduate level course tuition will increase by $25 per credit hour to $350 per credit hour.

Despite the increase, our combined tuition, fees and books remain roughly 17% less for undergraduate students and 37% less for graduate students than the average published in state rates at a public university, according to the College Board 2014 trends in college pricing. We announced a tuition grant designed to keep tuition at the current rate for active-duty servicemembers, veterans, National Guard members, reserve members and military spouses and their dependents.

Directionally the tuition increase is expected to impact approximately 45% our current APUS net course registrations, where alternatively we expect the tuition increase over a 12-moth period starting in July to represent approximately 3% or APEI segment revenue.

In April of 2015, we implemented additional assessments of student readiness by requiring that prospective students complete a free, noncredit admission assessment if they are not active duty military or veteran applicants, graduates from a certified federal, state and local law enforcement and public safety academy, or prospective students with at least nine hours of transfer credit with a grade of C or better for each course from an accredited institution.

It is too early to determine the completion rate of students participating in the required assessment and the admission rate for applicants that require credit transfer or transcript verification given that these requirements were recently put in place. Moreover, it could take a month or more for students to complete the assessment and/or for applicants to order transcripts from other institutions.

That said, these strategic admissions requirements give us yet another tool to influence our quality mix of students, and in turn may allow us greater flexibility with regard to the breadth of our future outreach campaigns. With these assessment requirements in place, we plan to reallocate resources to more cost-effective channels and further utilize our enhanced targeting and analytical capabilities in outreach to potential students. Lastly, we continue to prepare for changing the method by which we disburse federal student aid to a multiple-disbursement method for first-time APUS undergraduate students in the fourth quarter of 2015.

In the first quarter of 2015, we continued to see initial signs of improvement in persistence at APUS as judged by recent declines in the new undergraduate failure and withdrawal rates of students using federal student aid. In addition, the average GPA of new undergraduate students has also increased. While these initial signs are encouraging, we must continue to achieve higher rates of persistence and more data points are needed to determine if these favorable trends are sustainable.

As expected, overall net course registrations at APUS decreased 6% year over year and net course registrations by new students declined 16% year over year in the first quarter of 2015. Net course registrations by new and total students using military tuition assistance decreased year over year by 15% and 10% respectively. We believe the decline is primarily due to the various changes in the administrative processes of the TA program.

Net course registrations by new and total students using federal student aid decreased year over year by 26% and 11% respectively. We believe this decline is largely a result of our efforts to influence our quality mix of students through a more targeted demographic approach to advertising as well as a result of increased competition in the market.

While net course registrations by new students using veterans benefits decreased approximately 1% year over year, total net course registrations by students using veteran benefits increased 9% in the first quarter of 2015.

Lastly, net course registrations by new and total students using cash and other sources increased 17% and 0% respectively. We believe the increase is, in part, attributable to our efforts to build strategic relationships with corporations, associations and public service organizations in 2014.

In the first quarter 2015, APUS formed several new relationships, including with the Scholarship America Network, which helps corporations, foundations and individuals create and manage education assistance programs that have served more than 1.3 million students worldwide. APUS, now, has more than 200 strategic relationships with corporations, nonprofit associations and community colleges.

Lastly, I am pleased that Hondros College of Nursing continues to perform well. As of March 31, 2015, new and total student enrollment at Hondros increased 15% and 22% year over year respectively. As we wait for the change of ownership approval from the Department of Education, Hondros will continue making improvements to its academics, marketing and overall operations. This includes offering evening and weekend classes at two additional campuses and continuing to expand its strategic outreach.

Moving on to slide number 4, we have invested considerable time and resources in initiatives designed to better attract and admit students with academic intent, improve the average college readiness of incoming students and increase overall student success. We believe that these efforts are beginning to pay off as evidenced by the recent increase in our first course pass and completion rates and by the increase in the average GPA of new APUS students. We are excited to see that the first course completion and pass rate for undergraduate students using federal student aid has increased approximately 28% from March 2014 to March 2015.

Additionally, in the first quarter of 2015 enrollment of our new FSA students with a 3.0 GPA or better increased approximately 29% year over year, whereas new FSA students with a GPA less than 3.0 declined approximately 42% compared to the prior-year period. This increase in the first course pass rate is particularly noteworthy because we enhanced our College 100 course over the last few years as a result of our ongoing assessment in persistence initiatives. The GPA results relate more to our more focused marketing initiatives to improve the quality of our new students.

From an academic and financial standpoint, it is important that we continue to work towards continued improvement and persistence and in our quality mix of students. We believe doing so makes APUS stronger academically and financially. In addition, achieving these goals can improve the learning experience in the classroom for all students, strengthen the lifetime value of the student, and lower bad debt expense among many other benefits.

Moving on to slide number 5, in summary, we believe the highlights of the first quarter are improved persistence, positive results from our more targeted marketing initiatives, lower bad debt expense as a percent of revenue, and the growth at Hondros School of Nursing. Furthermore, we made good progress with respective to many initiatives that we believe will increase the college readiness of incoming students, further improve student success and differentiate our courses from the competition with a best-in-class university experience.

We believe achieving these goals, in addition to continually improving academic quality and remaining a champion of affordability, will eventually lead to a more stable student population and improve financial performance.

We anticipate continued volatility and softness in enrollment by students using federal student aid and tuition assistance in the second quarter 2015. While we continue to be confronted with these and other challenges, we now have more tools and strategies at our disposal to positively influence our quality mix of students, and over the long term, possibly our future financial performance. At the same time, we will continue to advance our long-term strategy to provide a unique and advanced learning experience to students and to explore new opportunities in higher education.

In 2014 more than 10,400 students earned a degree from AMU or APU, an increase of more than 800 students over the prior year. This June I am pleased that we expect to celebrate the graduation of all of our students over the past year in Washington and hope that another year of record conferrals by year-end 2015.

At this time, I will turn the call over to our CFO, Rick Sunderland to discuss our recent financial results and second-quarter outlook in greater detail. Rick?

Thank you, Wally. Going on to slide 6. American Public Education's first-quarter 2015 consolidated financial results include a 3.6% decline in revenue to $85.4 million compared to $88.6 million in the prior-year period. The decrease in revenue was the result of a year-over-year decrease in net course registrations at APUS, partially offset by higher enrollment at Hondros College of Nursing.

In the first quarter, our APEI segment revenue decreased 4.7% to $77.5 million compared to $81.3 million in the prior-year period. Hondros segment revenue increased to $8.0 million in the first quarter of 2015 compared to $7.2 million in the same period of 2014.

Our consolidated basis, APEI costs and expenses decreased 1.1% to $71.0 million compared to $71.8 million in the prior-year period. The decrease is primarily due to lower costs in our APEI segment resulting from lower net course registrations, lower advertising costs and lower bad debt expense.

Changes in revenue, period over period, resulted in an operating margin decline in our APEI segment and improved operating margins at Hondros. Consolidated operating margins decreased to 16.8% in 2015 as compared to 18.9% in the prior-year period.

For the quarter, consolidated instructional costs and services as a percent of revenue increased slightly to 35.5% compared to 35.4% in the prior-year period. The increase as a percent of revenue was due primarily to a decline in revenue in our APEI segment that was partially offset by lower instructional costs and services expenses and the revenue mix change as Hondros has a higher cost as a percent of revenue due to its campus-based model. At APUS, the cost of course materials continue to decline year over year to approximately $23 per net course registration in the first quarter of 2015 compared to approximately $26 per net course registration in the first quarter of 2014.

Selling and promotional expense as a percent of revenue increased slightly to 19.9% of revenue compared to 19.3% in the prior-year period. Year over year, selling and promotional costs were unchanged at approximately $17.0 million, accordingly the year-over-year increase as a percent of revenue is due to a decline in revenue.

General and administrative expenses as a percent of revenue increased slightly to 22.4% from 22.0% in the prior-year period. Despite a decrease in general and administrative expenses dollars in our APEI segment, the increase in general and administrative costs as a percent of revenue was a result of lower revenue during the period. The decrease in general and administrative expenses in our APEI segment was a result of the decrease in bad debt expense, which was partially offset by an increase in compensation costs.

For the three months ended March 31, 2015, bad debt expense decreased to $4.1 million or 4.8% of revenue compared to $5.1 million or 5.7% of revenue in the prior-year period. Directionally, we believe the improvement in bad debt expense as a percent of revenue is a result of a change in our mix of net course registrations away from students using federal student aid as well as by our ongoing efforts to attract students with greater academic intent and college readiness on average. During the three months ended March 31, 2015, 33% of our net course registrations were by students using primarily federal student aid compared to 35% in the prior-year period.

In April 2015, APUS began to transition its financial aid processing to a third-party vendor, Global Financial Aid Services, the vendor that we used prior to the transition to in-house processing. Currently, all new students are being serviced through Global, and we expect the transition to serve all active students to be completed by the end of the year.

For additional information about our operating expense ratios by segment, please see the appendix to the PowerPoint presentation that was made available on our website and in the 8-K filed earlier today.

Income from operations before interest income and income taxes decreased 13.2% to $14.5 million compared to $16.7 million in the prior-year period. In the first quarter of 2015, net income was $8.8 million or $0.51 per diluted share compared to $10.4 million or $0.59 per diluted share in the prior-year period.

Total cash and cash equivalents at March 31, 2015 was approximately $112.3 million with no long-term debt. Capital expenditures were approximately $5.3 million for the three months ended March 31, compared to $4.6 million in the prior-year period. Depreciation and amortization was $4.6 million for the three months ended March 31, 2015 compared to $3.9 million for the same period in 2014.

During the first quarter of 2015, we repurchased 100,000 shares of our common stock under existing repurchase authorizations. As of March 31, 2015 we had approximately $13.4 million remaining on our existing share repurchase authorization.

Going on to slide 7. Our outlook for the second quarter of 2015 is as follows. APUS net course registrations by new students in the second quarter of 2015 are expected to decrease between 23% and 19% year over year. Total net course registrations are expected to decrease between 10% and 7% year over year compared to the prior-year period. We believe these declines are a result of challenges of the military market accompanied by increased competition for students as well as by our more targeted approach to advertising that is intended to attract students with greater college readiness.

In the second quarter of 2015 we expect new student enrollment at Hondros to increase by approximately 5.5% year over year.

We anticipate consolidated revenues for the second quarter of 2015 to decrease between 8% and 6% year over year compared to the prior-year period of 2014. In the second quarter 2015 we anticipate total consolidated earnings per share to be between $0.42 and $0.46 per diluted share.

Given the recent improvement in persistence and the launch of the new admissions assessment, we plan to expand our marketing outreach by reallocating marketing dollars to more cost-effective channels and by utilizing our enhanced targeting and analytical capabilities to reach quality students. We believe that the return on our investment in advertising dollars is directionally increased by improvements in persistence.

Although we continue to explore ways to optimize our operations and adjust costs, we continue to believe that investing in new programs, our information technology infrastructure and our student services during this time of lower revenues makes long-term sense. While this may adversely impact our margins in the near term, we believe the continued investment will help us emerge as a more competitive and efficient organization in the long run. Our focus remains on the success of our students, the quality and uniqueness of our academic programs, and on creating effective and engaging learning experiences that will set us apart from the competition.

Now, we would like to take questions from the audience. Operator please open the line for questions.

(Operator Instructions)

Adrienne Colby, Deutsche Bank.

Thanks for taking my question. I was just hoping to delve a little bit more into your guidance for second-quarter new enrollment or any course registrations, rather? I'm just wondering if the step down that you're seeing, if you can quantify how much of that is due to the environment versus the admissions changes and the tuition increase that you've made?

I don't think we tried to differentiate between the two. The number is so large, Adrienne, that we have the benefit, in this particular forecast, of having done our first two months, both April and May drops, so we know what the net course registrations are for those two months. So we are simply forecasting the addition of June to April and May. It's really an aggregate forecast rather than trying to break it apart.

Sure, maybe to ask it a different way. Do you feel that you are seeing changes in the overall level of competition? That's something that you've mentioned in prior quarters. Just wondering if you're seeing some changes to those headwinds that you've already flagged?

We, certainly, in recruiting civilians, particularly through our Internet lead-gen, both the costs of those leads as well as the -- if the cost of the leads is up and the conversion rate is down. There are a lot of people in the online arena, and certainly, we are seeing a lot more competition. I have not seen that really change from quarter to quarter. If we gave those exact conversion rates, I don't think I would expect to see a change from the first quarter to the second quarter.

Okay, and if I could ask about Hondros? Again, the expectation there is for some slowdown in new enrollment growth. Didn't know if you could speak to some seasonality there or if there's something else that's driving that slowdown?

Harry, do you want -- ?

At Hondros we fined it's more traditional type enrollment type, and the spring is a little bit slower quarter, traditionally. It was last year, probably a little seasonality there. But overall, I think that the growth is about what we expected and it's 5.5%. It's down from 15% in the first quarter, but Hondros tends to be a little more seasonal, good fall enrollment, good January enrollment but weaker in the spring and summer.

Thanks. Just a quick numbers question. Just wondering, again, if you think bad debt expense is sustainable at these levels, and if you expect tax rate to be closer to 39% or 40% going forward?

I think the tax rate will stay at 39%, right around that. Bad debt expense, I don't think I have a prediction on where it's going. We're happy, we're pleased that is moving down after a period of it going the other way, but I don't think we've given --

We believe that our initiatives to bring in a more quality FSA student over the long term will bring bad debt expense down. Quarter to quarter, we're not providing advanced guidance because it's much -- the way we analyze our bad debt, we do it in arrears.

Thanks for taking my questions.

Corey Greendale, First Analysis.

First, just quickly, I apologize. I missed the new TA registrations number. Can you just give that to me again?

The new TA was down 15% quarter year over year.

Got it. Then, I hear you about challenges in the military market, but I was hoping you might be able to put a finer point on that? What are the continuing challenges that you're seeing now?

Well, they put in a new MOU process. That MOU process restricts base access. It also limits -- it puts new caps on how many courses people can register for. In some cases, like the Army, it requires another piece of paper they have to -- the Army spent millions developing an electronic system, now before you can sign on to that system you actually have to get a piece of paper signed. We view it as ways to manage the budget down.

While there's not been an open statement from the services as to that, that's what it's clearly doing is it's making it much more difficult for service members to use their TA. In a few isolated instances that we know of, we know that some soldiers, instead of using TA, have gone to VA or just paying out-of-pocket if they have a few course left. It's sad to see that, whether it is the budget from the sequester process or it is the MOU process as conducted by the administration, it's just sad to see a system becoming less efficient and much more difficult for soldiers to enroll.

Given what you're seeing now, as you move into Q3 and the end of the federal fiscal year, is there any reason to think that there will be more money left so you might see more of a bump in Q3, or will the money all have run out so you'll have to go the other direction in Q3?

I don't know. Most of what we heard is that the money is being allocated quarter by quarter, so the Marines, in particular, have had months where they've run out, in a quarter where they say that, we have no more money for this quarter, implying that they have money for the next quarter. As a general rule, if you ignore the year where they had to sequester implementation and they cot off funding in both April and October, for the most part they try to find ways to come up with monies at year end. But given that it seems both like the actual total dollars budgeted this year are somewhat in the dark. No one's really released that number, as well as the process are much more difficult. It's really anyone's guess, but I certainly haven't heard any rumors about a massive expenditure of all the funds before year end.

Then, a question for Rick, I guess, or whoever wants to take it. I think I heard you say that given what you're seeing, you expect to increase marketing activity? Does that translate to increase marketing dollars? What would be your thoughts on S&P spent in Q2?

No, we're not -- I think what I said was we believe that in our targeted marketing approach, now that we have an admissions process in place, that in some of the markets that we abandoned, we may be able to move back into those markets because we have something to screen for qualified applicants.

I see. In other words, don't expect anything out of the trajectory we saw in Q1 as far as Q2 sales and promotion spending?

Yes, I think that's fair.

Just one other quick one on the -- just to set expectations on the revenue per registration at APU. I saw in the Q that you are no longer giving the $50 per course tech fee grant to veterans, so that is incremental above and beyond the 3% increase that you mentioned? Is that right?

The 3% increase would be the annual effect of the tuition increase, which is going to later on this year.

Right

So to answer the question, it is incremental, but it's earlier in the year and I think the dollar impact is probably pretty small given the relative size of our VA population to our overall population.

If I just multiply 50 times veteran registrations that will give you the impact, right?

Close. We don't give out the number of registrations per veteran versus civilians, but yes close.

Just one other last one, and maybe I think it was actually Harry who brought up this concept a few years ago, so when you have a colander shift year over year sometimes that can affect the revenue per registration. It looks like the first Monday of September is considerably -- it's like a week later this year than it was last year. In the past, I think that resulted in a revenue per registration hit relative to the year-ago quarter, just because of the timing. Do you know if we should be expecting that this year?

We book our revenues by day, so if the semester starting in September starts on the 7th and last year it started on the 1st, it would impact it by six days.

Okay, good. I will get back in queue. Thank you.

Jason Anderson, Stifel.

Good evening, guys. On the 2Q guidance on new, is there anyway you could split out -- I think you might have done it last quarter, what you are looking at for FSA, at least for a percentage change FSA and TA?

If we have it. So, it looks like FSA -- the TA is down around 14%, so call it low double digits. The FSA number is slightly higher. It's coming in around 30% down.

Okay. Then just re-clarify, and I know you talked a bit about it already, but you cannot really ascertain yet what the impact of the new pre-admission course is?

No, but let's talk about having a bigger impact. In August of last year, we began are much more targeted -- after bringing a statistician on board and looking at reams and reams of data. We began selectively targeting for a higher-quality profile FSA student, and I really think that had a greater impact over the last five months of 2014 on our FSA enrollments. When you compare, quarter over quarter, the difference between this second quarter versus a year ago, most of that impact that we're projecting is due to the targeted marketing and not the admissions impact.

In fact, so far, while there is a slight impact in admissions, it's relatively small. We don't have any weeks. We've only got three weeks of experience, but it's relatively small. We think that it's probably due to the fact that we really honed in on both the demographic profile and a market profile for a higher quality of FSA student and that had a bigger impact so far than our admissions requirement.

Okay. Then the marketing impact, I think you might have said it last quarter, that laps, your initial or your change, your targeted marketing, that laps in 3Q 2015, is that correct?

It laps?

As far as when you started doing it, it was 3Q 2014, is that correct?

Yes, it started in August of 2014.

That's right, yes. I guess on persistence, obviously, you're doing a lot of initiatives to help there and you're seeing some traction. I'm just wondering, could you maybe help us maybe frame where persistence has been and where it is now and where it's going? Before, when you are heavily impacted by T4, Title IV abusers, I'm sure -- I'm guessing persistence was maybe at your lower levels? Maybe what you've seen that come to now, and maybe where it can go to? I'm just trying to gauge how much headroom, maybe, there is? Or anyway you could frame that for us would be great?

Well, the academic literature doesn't even frame persistence consistently. We look at persistence in just about every way you want to look at it. I would tell you that over the years our failure and withdrawal rate for military students has been really consistent. That's because the military has a screening process in place. That number is of the mid teens. And, that our FSA number, we believe because of the open enrollment status prior to have an admissions requirements, we had targeted before we had the stipend chasers, a target number of double the military rate. So, if the military rate was in the mid teens, let's just use 15%, for example, we were targeting about 30% for FSA because there was less selectivity.

It's been much higher than that, so we're trying to bring it down. We have a target goal to get it to, which we haven't gotten to yet. We're hoping that both the more selective marketing as well as the admissions process helps us get there one day.

We haven't reached that ceiling yet. There's room for improvement.

Great thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much. If I look at Hondros and I take revenues per student -- unfortunately we're using an ending number, but it looks like revenue per student went down year over year. Was there a mix shift issue? Is there something going on on the tuition side that we need to be aware of?

What's happening at Hondros is we launched, at two campuses, the largest two campuses, Columbus and Cleveland, this fall. In 2014 third quarter, we launched evening classes for the first time, actually fourth quarter, I guess. The evening students are going -- they're taking less courses. They're part time. So, we have a significant population we're building of the evening program. The good news is, they seem to be persisting a little bit better than the full-time day students, so they will be students for a good while, but with less revenue per student on average because they're taking fewer courses.

Okay, I get that. Then shifting back to APUS, and again, I'm not sure if we're calculating this correctly. But based on the data that you disclosed, if I try to calculate that so-called sequential retention rate, it looks like it was down year over year when I compare it to last year at this time. You talk about all the persistence improvements. Maybe I'm missing something in terms of graduates. I'm just wondering, in terms of overall trends, how retention or persistence is doing at APUS? Thanks.

I don't remember whether we gave that number or not, but persistence has improved. I think it was about 6%, but I don't know whether that was in the script or that's just my recollection. But we did see increased persistence. That's all payer classes, Jeff.

Okay. I'll circle back on that. Thanks so much.

And maybe it is due to increased graduations.

Okay. Thank you.

(Operator instructions)

Peter Appert, Piper Jaffray.

Yes, you've got John Crowther on for Peter. Just a short-term question here and a longer-term question. On the short term, as I look at Q2 guidance, and you talked a little bit about the pricing increase happening in the back half of the year and the tech fee impacting relatively modest. But it looks like the guidance suggests that revenue per course registration is going to be getting down in the second quarter. So just wondering, is there a mix issue there? Or how we should be looking at that versus longer term versus the pricing increase? Then longer term, you talked about more competition, but also going after a more targeted, better quality FSA student. Combine that with the military as you said, managing down the budget there. How do you view the long-term growth profile of APEI now, given those mix of confluences, once you get through the near-term headwinds right now?

We're not giving long-term guidance, we haven't done that in forever. I think that competition in online is at the greatest that I've seen it in 12 plus years that I've been here. More and more schools -- it was for a while that the initial competition we had was at the master's degree level. More and more schools have started to put bachelor's degree programs in place. I guess on the good news perspective, is that we're still substantially under priced, the four-year schools, not necessarily the associate's degree programs, but we never try to compete in that particular market.

I would say it's a little too soon to figure out the headwinds. I think that we've been pretty open about how we try to target our marketing expense and market the degrees that differentiate us a heck of a lot more than paying to market a business degree, which just about everybody has or a criminal justice degree, which just about everybody has. Rick, do we have some color? I don't know why we would have --

I don't think we do. The guidance is down and 7% on APUS net course registrations and total revenues down 6% because there's a small offset for the increase at Hondros. So, I think the two actually line up.

Okay. Thank you. I appreciate it.

We have no additional questions. I will now turn the call back over to Management for any closing remarks, please proceed.

Great. Thank you, operator. That will conclude our call for today. We wish to thank all of our callers for participating and for your interest in American Public Education.

This concludes today's conference. You may now disconnect. Have a great day, everyone.