American Public Education Inc (APEI) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the American Public Education Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. And as a reminder, this conference is being recorded.

I would now like to turn the floor over to Chris Symanoskie, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good evening, and welcome to the American Public Education conference call to discuss financial and operating results for the fourth quarter and full year 2016.

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, seek, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include, without limitation, statements regarding expected growth, expected registrations and enrollments, expected revenues, expected earnings and plans with respect to recent and future initiatives, investments and partnerships.

On our call today, we may discuss certain non-GAAP financial measures in connection with our GAAP results for the twelve months ended December 31, 2016 and 2015. These non-GAAP financial measures are not intended to be a substitute for GAAP results. However, we believe they will allow investors to better compare results to the prior-year periods. American Public Education urges investors not to rely on any single financial measure to evaluate its business and to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that were included as part of an exhibit to our current report on Form 8-K to be filed shortly.

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 factors section and elsewhere in the Company's Annual Report on Form 10-K, quarterly report on Form 10-Q and the Company's other SEC filings. The Company undertakes no obligation to update publicly any forward-looking statements for any reason, unless required by law even if new information becomes available or other events occur in the future. This evening, it's my pleasure to introduce Dr. Wallace Boston or President and CEO and Rick Sunderland our Executive Vice President and Chief Financial Officer.

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

Thank you, Chris. Starting with slide 3, recent highlights and results, our fourth quarter 2016 results reflect our progress in improving student persistence at APUS and achieving new student enrollment growth at Hondros, while maintaining our focus on quality and attracting students with greater college readiness.

Although we continue to experience challenges with respect to enrollment at APUS, we are encouraged by the possibility of an improved regulatory environment with less anti-for profit rhetoric, the potential of a more favorable outlook for the administration of the DoD voluntary education program, and the prospect for success with our efforts to re-engineer certain enrollment management processes.

In the fourth quarter of 2016, net course registrations at APUS declined 10%, compared to the prior period. Although net course registrations by new students declined 29% year-over-year, net course registrations by returning students decreased 7% compared to the prior year period. We believe that the difference in the rate of decline of registrations by new students and that of returning students relates at least in part to improvements in persistence and the change in our quality mix of students.

For the three months ended December 31, 2016, the first course pass and completion rate of undergraduate students using Federal Student Aid or FSA at APUS increased approximately 19% compared to the prior year period. We believe the year-over-year improvement in first course pass and completion rates is an indicator that our efforts to attract and retain students with greater college readiness are working.

The overall decline in net course registrations by new students at APUS was primarily driven by a 46% year-over-year decrease in net course registrations by new students using FSA and a 19% year-over-year decrease in net course registrations by new students using military tuition assistance or TA. We believe the decline in net new course registrations by students using FSA was due to several factors including our efforts to improve our quality mix of students through changes to our admissions processes and adjustments to our marketing activities that may have negatively affected enrollment in our programs and to increasing competition for online students.

We believe the decline in new students using TA is primarily the results of changes in the administration of the TA program by the Department of Defense or DoD and by various DoD rules that impeded our ability to support both enrolled and prospective students on military installations. Net course registrations by new students using veterans benefits decreased 3% year-over-year and net course registrations by new students using cash and other sources decreased 10% compared to the prior year period.

In the fourth quarter of 2016, total enrollment at Hondros College of Nursing declined approximately 13% year-over-year. However, new student enrollment increased approximately 1% compared to the prior year period. This is the first year-over-year increase since the second quarter of 2015. The team at Hondros is executing well in the pursuit of its long-term goals. However, we still have work to do.

As previously noted, the NCLEX licensure exam pass rate for Hondros' ADN program has not met the requirements of the Ohio Board of Nursing or OBN for the previous four years. As a result, we expect that Hondros' ADN program may be placed on provisional approval status by the OBN in March of 2017. As a result, the OBN may proposed to continue provisional approval for a set time period or may propose to withdraw approval pursuant to an adjudication proceeding.

Loss of OBN approval would restrict HCON's ability to recruit or enroll students in certain states or result in other sanctions being imposed. That said, Hondros has been implementing changes, including curriculum changes and its NCLEX pass rates for the PN and ADN Programs have increased in recent periods.

In addition, Hondros has applied for and is pursuing initial accreditation by the Accrediting Bureau of [Higher] Education Schools ABHES, a national accreditor for allied health schools. This is a particularly important development given that Hondros' current accreditor ACICS has ceased being a recognized accreditor enabling Title IV eligibility and the Department of Education has given institutions 18 months to find another accreditor.

We are excited about the turnaround that Hondros is experiencing. New student enrollment for the March 31, 2017 or winter term of 2017, increased 22% year-over-year and Hondros opened its new Toledo campus in January. Excluding students enrolled at the new Toledo campus, the same campus new student enrollment growth for the winter term was 12% year-over-year.

The team at Hondros is focused on increasing its NCLEX pass rates, earning ABHES accreditation, and further improving quality and placement rates in addition to executing its long-term strategy to offer new programs and open new campuses to serve the nursing and public health community. That said, we want to note that on February 24, Hondros received a letter from ACICS with respect to the placement rate for the practical nursing program at Hondros' Independence Ohio location in the suburbs of Cleveland.

To give you some perspective on the Independence location, enrollments for the term in the practical nursing program at that location increased 19% year-over-year. Based on the policy that became effective in December of 2016, ACICS has indicated that unless Hondros notifies ACICS that it is discontinuing the practical nursing program at the Independence location, then ACICS expects to issue a show-cause letter requiring Hondros to demonstrate why ACICS approval of the practical nursing program at the Independence location should not be withdrawn.

We are in discussions with ACICS about the applicability, timing, and operation of the new policy. However, we believe that if we continue our practical nursing program, then we will have an additional year to come back into compliance with the placement rate standard, during which time, we will have to submit a variety of reports to ACICS and notify current and new students at the Independence location about our status and placement rates.

At this time, we are unable to quantify the impact of the program being on a show-cause status or any future action that will result in our ceasing to enroll students at the Independence location. Similarly, at this time, we cannot quantify the impact of any such developments on other programs, including those for which students in the practical nursing program serve as a feeder or on our application to APUS.

Moving on to slide number 4 and summarizing the full year 2016 results, I'm pleased by how we've maintained our focus on quality and affordability while working diligently to overcome important challenges. Although, affordable tuition has its own inherent challenges, the benefits to the families and communities we serve are immeasurable. We estimate our total cost of tuition books and required fees are approximately 19% less for undergraduate and 38% less for graduate students than the average published in-state cost at public four-year institutions.

Of course, affordability is nothing without quality. In the face of increased competition for online students and rapid regulatory change, we believe our unwavering focus on quality has helped advance our reputation throughout the higher education community. In 2016, we enhance our offerings through a course redesign project that aim to help increase the interactivity of our classrooms. We utilize CIVITAS, our predictive analytics tool, to improve student engagement and persistence and we expanded the use of ClearPath by Fidelis, our advising and mentoring platform to help boost student engagement and persistence. We also revised our application and assessment processes to more effectively enroll students with greater college readiness.

We have deployed several initiatives since 2013 with the goal of attracting students with both academic intent and college readiness, and in more ways than ever before to help them succeed. The result has been a significant improvement in the undergraduate first course pass rate and completion rate of students utilizing FSA each year since 2013. We believe that, among other factors, the increase in persistence, our improved quality mix of students and a change to the multiple disbursement method of disbursing Federal Student Aid to first time APUS undergraduate students, also helped to reduce our bad debt expense this past year.

Most of all, I am proud of our hardworking students. In 2016, APUS conferred degrees to approximately 11,000 students, who join the ranks of more than 70,000 AMU and APU alumni worldwide. And our 2016 end-of-program survey, 95% of the respondents indicated that they were very or completely satisfied with the education they received. Moreover, 91% of our seniors who participated in the 2016 National Survey of Student Engagement or NSSE, indicated that if they had to start their education over again, they would choose APUS.

In addition to these impressive results, we made strong additions to our leadership team in 2016 in order to advance our enrollment management processes, diversify our program offerings, and make strategic investments in support of our long-term strategy should such opportunities arise.

Going on to slide number 5, APUS enrollment stabilization. Looking ahead, we plan to focus on three major initiatives to achieve our goal of enrollment stabilization at APUS. First, we intend to reengineer our enrollment management processes. Our recently hired Senior VP of Enrollment Management will be leading our efforts to better integrate front-end systems and improve processes to facilitate efficient student onboarding and student service. The enrollment management team intends to refine our marketing techniques with predictive modeling overlaid with channel data to boost lead capture, scoring and conversion. Part of our plan also includes creating greater engagement with prospective audiences by mapping segmented personalized messaging to student audiences, according to their unique decision journey. Finally, we aim to sharpen our digital marketing campaigns to leverage relationships with military and other high-value student populations, especially in segments where we have built a strong presence.

Second, we intend to continue expanding our program offerings in areas where demand is growing and where employers struggle to find talent to fill job openings. APUS's new provost is leading the charts to develop these program offerings, with an eye towards innovation and course development and creating a high level interactivity to drive student engagement and success.

Lastly, we believe APUS is well positioned with its affordability and quality to help employers advance the capabilities of their workforce and lower the cost of human capital in addition to helping jobseekers close significant skills gaps and find employment and/or advancement. The demand for such offerings may further intensify given the magnitude of the skills gap in America and the new administration's focus on jobs and employment. In fact, to support this growing need, we recently launched our new competency-based program under initiative we call Momentum, with the first courses starting on March 6, 2017. We believe our competency-based program is differentiated from others and that it is built into an adaptive learning platform where students take a diagnostic pre-assessment for each competency. This assessment functions to drive the student's personalized learning content, as well as provide important information to faculty mentors and subject matter experts as they guide each student's learning pathway toward a final mastery assessment.

The final mass reassessments are framed in real-world situations called authentic assessment. Students entering the Momentum program must possess an associate's degree or higher. While financial aid will not be available at the programs launch, we hope to be able to offer it in the future. Dedicated advisors and specially trained admissions representatives will ensure students understand how the Momentum program differs from a traditional degree pathway. Our strategic outreach team has directing engagements and relationships through which we reach nearly 300 companies and organizations. We recently created the Center for Applied Learning or CAL to support our corporate and workforce development efforts. Through CAL, we plan to deliver customized just in time professional learning solutions in a mobile platform to help bridge the gap between workforce potential and corporate performance. This, of course, is in addition to degree programs we already offer to strategic partners.

In closing, we are pleased by the progress we have made with respect to improving student persistence and reducing bad debt expense at APUS and by the new student enrollment growth at Hondros. We are encouraged by recent developments, including the possibility of a more favorable regulatory environment with less anti-for-profit sentiment, as well as the potential for the elimination of the sequester on defense spending. Of course, stabilizing total enrollment at APUS and returning to growth is of critical importance to our organization. With a strong leadership team in place, including in the areas of enrollment management and academic innovation, we have a dynamic group. These individuals and all of the team members at APUS bring tremendous academic and business credentials to the reengineering of our enrollment management processes, improving the quality and depth of our program offerings and implementing our long term investment strategy. Furthermore, we believe the growing emphasis on workforce development and competency-based learning, combined with the expansion of our strategic relationships, will also help us reach our goal of enrollment stabilization.

At this time, I will turn the call over to our CFO, Rick Sunderland. Rick?

Thank you, Wally. Going on to Slide 6, financial results summary, American Public Education's fourth quarter 2016 consolidated financial results include an 8.5% decline in revenue to $78.6 million, compared to $85.9 million in the prior-year period. Both our API segment and our Hondros segment reported declines in revenue, when compared to the prior year. In the fourth quarter, our API segment revenue decreased 9.1% to $71.1 million, compared to $78.2 million in the prior-year period. The decline in API segment revenue is primarily attributable to a decrease in net course registrations. Hondros segment revenue decreased 2.5% to $7.5 million in the fourth quarter of 2016, compared to $7.7 million in the same period of 2015. The decline in Hondros segment revenue is primarily due to a decline in enrollment at Hondros.

On a consolidated basis, costs and expenses decreased 4.0% to $67.4 million, compared to $70.2 million in the prior-year period. For the fourth quarter, consolidated instructional costs and services expense, or ICS as a percentage of revenue increased to 38.2%, compared to 34.6% in the prior year. The year-over-year increase as a percentage of revenue is due to a revenue decrease during the period, and an increase in ICS costs at Hondros due in part to start-up costs at the Toledo campus, which opened in January 2017.

Selling and promotional expense, or S&P as a percentage of revenue increased to 18.4% of revenue, compared to 17.7% in the prior-year period. Year-over-year, S&P costs decreased 4.4% to $14.5 million, compared to $15.2 million in the prior year. Accordingly, the year-over-year increase as a percentage of revenue is due to S&P costs declining at a rate lower than the decline in revenue. General and administrative expense, or G&A as a percentage of revenue increased to 22.8% from 21.2% in the prior-year period. Our G&A expenses decreased 1.3% to $18.0 million, compared to $18.2 million in the prior year. The decrease in G&A expense is primarily related to decreases in compensation costs and a period-over-period reduction in bad debt expense, partially offset by higher professional fees, while the increase as a percent of revenue is due to revenue declining at a rate greater than the decline in G&A expense.

For the three months ended December 31, 2016, bad debt expense decreased to $1.2 million, or 1.5% of revenue, compared to $2.0 million, or 2.3% of revenue in the fourth quarter of 2015. For the full-year 2016, bad debt expense decreased to $6.7 million, or approximately 2.1% of revenue, compared to $12.7 million, or approximately 3.9% of revenue in the year ended December 31, 2015. We believe the improvement in bad debt expense, as a result of our ongoing efforts to attract students with greater college readiness, the change in our quality mix of students, and the change to the multiple disbursement method of disbursing Federal Student Aid to first-time APUS undergraduate students.

In the fourth quarter of 2016, we reported income from operations, before interest income and income taxes of $11.3 million, compared to $15.7 million in the prior-year period. In the fourth quarter, we reported net income of $6.9 million, or $0.42 per diluted share, compared to net income of $9.8 million, or $0.60 per diluted share in the prior year. Net income for the fourth quarter of 2015 included $1.6 million of expenses related to a workforce realignment and a $2.1 million expense for a write-down of information technology and other assets in our API segment. The fourth quarter of 2016 did not include comparable expenses.

Cash generation remains strong. For the 12 months ended December 31, 2016, net cash provided by operating activities was $56.0 million, compared to $57.2 million in the prior-year period. Capital expenditures declined to approximately $13.8 million for the 12 months ended December 31, 2016, compared to $26.0 million in the prior-year period. Depreciation and amortization was $19.4 million for the 12 months ended December 31, 2016, compared to $20.5 million for the same period of 2015. Total cash and cash equivalents as of December 31, 2016 were approximately $146.4 million, compared to $105.7 million as of December 31, 2015. And we have no long-term debt.

Going on to Slide 6, first quarter 2017 outlook, our outlook for the first quarter of 2017 is as follows: APUS net course registrations by new students in the first quarter of 2017 are expected to decrease between minus 25% and minus 19% year-over-year. Total net course registrations are expected to decrease between minus 11% and minus 9% year-over-year. These expected declines are largely the result of anticipated decreases in net course registrations by students using Federal Student Aid and by students using tuition assistance. That said, the expected rate of decline in net course registrations by new students using FSA and to a lesser extent TA is expected to be sequentially better when compared to the fourth quarter of 2016.

In the first quarter of 2017, new student enrollment at Hondros increased by approximately 22% year-over-year, and total student enrollment decreased by approximately 8% year-over-year. As Wally indicated earlier, we are pleased to see the turnaround in new student enrollment growth and the resulting improvement in total student enrollment at Hondros, though we are continuing to evaluate the situation with respect to the practical nursing program at the Independence location. Hondros' new student enrollment clearly benefited from the opening of the new campus in Toledo, Ohio. However, on a same campus basis, new student enrollment increased 12%, compared to the prior-year period.

For the first quarter of 2017, we anticipate consolidated revenue to decrease between minus 12% and minus 10% year-over-year. Net income for the first quarter of 2017 is expected to be in the range of $0.25 to $0.30 per fully diluted share prior to taking into account the effective impairment, infrequent or unusual transactions, if any, including as a result of the current discussions regarding HCON's -- Hondros' Independence location.

Please also note that our adoption of ASU 2016-09, also known as improvements to employee share-based payment accounting, may increase our income tax expense between $400,000 and $700,000 in the first quarter of 2017 and between $600,000 and $900,000 in the first quarter of 2018 as a result of the expiration of stock options with an option priced greater than the current stock price.

For the full-year 2016, API's operating margin benefited from a $6 million decline in bad debt expense compared to the prior year. We do not expect a year-over-year decline of this magnitude in 2017.

In closing, we are pleased with the reduction of bad debt expense in the full year 2016, the continued improvement in persistence rates at APUS, and the new student enrollment growth at Hondros. Enrollment stabilization at APUS is our top priority and we are focused on re-engineering our enrollment management processes, improving conversion rates, and at the same time, advancing our long-term strategy.

Our quality and affordability remains strong drivers of the value proposition we offer students. Lastly, we are excited about the launch of our new competency-based program Momentum, and the unique capabilities of APUS, such as the affordability and uniqueness of our programs to address the long-term workforce and skills development opportunities in the marketplace.

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

(Operator Instructions) Corey Greendale, First Analysis.

Hey, good afternoon. So, a few questions, first, in terms of the trend in FSA. So I think I heard you said that new students from FSA, using FSA was down 46% in Q4 and I think you said it's going to be better in Q1. Can you just give us some color on it and the things affecting that, but maybe, the things affecting the sequential trend, why it got worse in Q4 and why you think it's getting better in Q1?

I think our base for Q1 is a much lower number, so that's why the difference in the decline rate between Q4 and Q1. We continue to work on making sure we're increasing this first student pass rate by changing our admissions assessments and looking at ways that we can improve that quality mix. And until we come up with the right formulation, and I think, given our new Senior VP of Enrollment Management's experience with Maguire & Associates, where they advise a lot of traditional universities on enrollment management. I think that we'll continue to be tweaking it, but we do have a --

So Corey, the number for the guidance is -- on new FSA is minus 31%. So that compares to the minus roughly 46% in Q4. I don't have that parsed out between, sequentially how much is an improvement versus just the lower comparable, but sequentially you are seeing a lower percentage.

Okay, that helps. And then in TA, I think you said that the decrease is, at least in part due to a change in administration of the program that makes it tougher to support students. So, first of all, can you elaborate a little bit on what that is and just why a change in supporting students is affecting the new enrollment number?

I think we referred to basically some DoD policies on base access as well as the sequester itself. President Trump has proposed a $54 billion increase to the DoD budget. We think if that goes through or some semblance of an increase goes through, historically commanders have preferred to purchase equipment or refurbish their equipment rather than put extra money into things like education. So we just think that's a plus.

Sequentially, it's modest improvement. New TA in Q4 was minus roughly 19% and we're guiding to minus 18%. So it's a modest change for the first quarter.

And I know the new administration is trying to move quickly on something. Have you seen any change in how FSA is being administered or anything else that would affect you already in the military market?

Actually not. We're little -- I guess that wasn't their first 30 day priority. Our understanding is there will be a number of executive orders coming out in the first 100 days essentially reversing some or many of the executive orders of the previous administration. So we're hopeful but we haven't seen a specific one yet.

Do you have any expectation for -- within the $54 billion, would there be any change in terms of amount per creditor or number of credits or it's just an increase in the size of the active duty population?

Well, I think size of active duty population more so than changing in the credit reimbursement. I think they found that that number exceeds, in some cases, by more than double what the community college number is and that's where a large amount of enrollees can be directed to. I think that, from our perspective just talking to some of the retired generals on our board. Adding that additional amount in addition to possibly stemming the decline in personnel should take the pressure off on finding money for equipment.

This next question, I'm not looking for guidance beyond Q1. This is more of a mathematical questions, which is, given -- I think assuming you meet the guidance for Q1, you're going to have something like five of the last six quarters where new student registrations at APUS are down 20% or more in that range. So you may not be able to offset that on total enrollments with the persistence improvement. How long that can that continue? In other words, should we be expecting that the total will start to converge with the new trend at some point soon?

That's our goal. Nobody is saying without refill in the pipeline, how much longer can we continue to make up through returning students, the large decrease in new students.

Yes, I don't think we can do that for too many more periods.

That's, Corey, the plans related to the enrollment management process, the marketing -- shifted marketing approach, if you will, because we understand the imperative to slow the decline of new students and reverse that trend.

Yes, and I understand that. I just have one last question for you Rick, and I'll turn it over. If I'm doing my back-of-the-envelope math right, it looks -- and I try to add in that tax impact you talked about, it looks like the guidance implies operating margins down something like 900 bps year-over-year in Q1. Does that sound right to you? Can you talk -- I see you're doing a lot of things to re-engineer processes, a lot of that is to reignite enrollment growth.

Yes, so, without actually agreeing with that number, I think directionally you are correct. And I think our current perspective is, we see some positives on the horizon, be it the internal initiatives or the change in administration, so we're going to continue to spend into that. If we get to later in the year and those things are materializing, then we'll look at the cost side of the equation. For right now, our primary focus is not the cost side, it's the registration and revenue side.

Jeff Silber, BMO Capital Markets.

I'm going to ask the glass half full question. So, you point out some of the processes you plan on putting in place to stabilize enrollment. First of all, are we talking about new enrollment or total enrollment, and is there a timeframe for when you think you might get there?

I don't think we have a timeframe, Jeff. We do have a goal that we'd certainly like to get there in 2017. Our new Senior VP of enrollment management started in December, but he did hit the ground running. We had him in periodically prior to that. And I think that, it's really a question of looking at that mix and replacing students who the military, either for financial purposes or other reasons, made it more difficult to register for online classes and which we had a 70% referral rate to, and replacing students who are coming in at a 70% referral rates or students coming in at a 30% referral rate, meaning that we have to up our advertising game and find ways in advertising to bring in a student that consistently took so many classes a year and persistent. So that is complicated, but we really hope to get there by the end of the year.

But Jeff, you were asking about new and total, I would parse it as follows. Certainly, the change in marketing approach is meant to stabilize the new. As we approach optimization or improvements in the enrollment management process, that will of course affect both new and returning. So one is, we clearly directed at the new. The other is going to be impactful positively, we expect, I guess, both new and total. Does that answer your question?

That's actually very helpful. I appreciate it. You'd cited a couple of programs where there could be, I guess, regulatory related issues. One was the Practical Nurse program and in independent and then the other one, I think it was - and forgive me, you were speaking very quickly, was it the ADN program in Ohio?

The ADN program.

So there is two separate matters. There is NCLEX scores related to the ADN program which is governed by the Ohio Board of Nursing and then the Independence Ohio, which I call Cleveland. I don't know where Independence is, somewhere near Cleveland I think. So that's related to an ACICS, which is the accreditor standard. So it is two different sets of standards related to two different programs.

Yes, I understood that. I was going to actually ask you, it is possible to get some sort of quantification in terms of how large these programs are now and I know you mentioned that Practical Nurse program could be a feeder to other programs, but I just want to see what we're talking about?

Well at Independence only for the last two quarters, 74% of our ADN program students have actually come from the outside. They've not been coming from the PN program, if that helps for Independence. And I think -- and by the way, we track what percentage of our students continue on from the PN program to the ADN program and it varies by location and some locations it's totally different in that percentage.

But again, how large are those two. How many students do you have in your PN program in Independence?

Can't tell you off the top of my head, but we'll see if we can look at it and if we can answer that in the questions somebody else will bring that back up.

All right. I'd appreciate it. And the same question about the ADN program in Ohio.

Okay.

All right, great. And then just a couple of modeling questions. The share counts that's implied in your first quarter EPS guidance is what?

$16.2 million.

$16.2 million, great. And then, what kind of tax rate and capital spending are -- well, tax rate for the first quarter in the year and capital spending for the year should we expect? Thanks.

So, let's go with the effective tax rate absent the impact of the new accounting pronouncement. I'd go [38.5% from 39%]. And then we gave you the dollar figure (inaudible) as a range on the ASU. And CapEx, I don't want to talk about the first quarter, but as you look at the full year, I think we'll be north of roughly $13.8 million that we did in 2016, maybe in the mid-teens someplace, maybe a little bit higher than that, but below what you have seen is our historical numbers, due to change a in our approach to our IT strategy.

(Operator Instructions) Peter Appert, Piper Jaffray.

So, Wally, you mentioned increased competition is a factor and I'm just wondering, if you just -- just don't take this the wrong way, but you are just sort of throwing that out generically or if there's something that's really changed in terms of the competitive environment that you'd call out in the last quarter or two?

No. I mean, more -- if you look at the data that is -- the data is reputable, I think there was a Stanford Research study publicized that a lot of people are questioning whether or not the researcher on that study had an accurate number for online students. But if you look at the more reliable data, I mean the share of online students that are being taught by public institutions has increased and the share of online students who are taught by for-profit institutions has decreased. But we can't exactly attribute that to increase competition as -- but we also can't rule it out. I think that, in our case, there -- particularly with our TA students, as I mentioned, there were roadblocks, I mean, for example, the army had a registration system that they spent tens of millions of dollars on and some of the large providers like us had to spend seven figures on to convert to, and they've resorted to people having to get a piece of paper signed to get entry into that automated system, which is a roadblock. You got to find your ESO to sign a piece of paper, so you can log-in where they're doing that. So it's not as easy to sign up for classes. Some of the other service branches were saying, you know what? We're not going to let you to sign up for TA until you do your second enlistment. So, there were roadblocks over there.

On the FSA side, we were trying to find quality students, because we had an influx of students who were one timers, they were coming in, staying active and, of course, long enough until they could get a refund check through federal aid and basically dropping out and flunking, and so we wanted to try to find ways to stop that.

And then you had some very large non-profit providers who spend a lot of money on advertising and the first thing you see on their ads, non-profit sort of playing against the democrats, a particular rhetoric on that for-profits are bad. So, we've had a quite a lot of it and I'd say, to precisely give you a reason on the competition, it's less precise than it's just this is the atmosphere.

Okay, fair enough. And then, Wally, on the competency-based program, so those are just being introduced as of the first quarter, correct?

Yes.

Yes.

Got it. And is there -- I would imagine there might be an incremental cost to you guys [who are] providing programs like that, is that fair or not, or should we think about some economic impact from the rollout of these new programs?

There's some overhead cost to start them out. I mean, we -- I don't think we're going to give guidance just from a competitive reason on how many enrollees we need to hit breakeven, but I think once we get to the breakeven number, we should have a contribution margin, but I would tell you that without offering specific comments on our program that the competency program roll out has been slower at most institutions whether they're for-profits or non-profits, then the press roll out has been on how great it would be to have competency-based programs. So, we were encouraged by academics either at our accrediting body or elsewhere to participate given our reputation for innovation. We looked at it and said that in certain channels, for example retail management, this looks like it could be good for potential students but I would tell you we are going in with our eyes wide open. We're not trying to say that this is going to be a home run as much as we're doing this to see if it's part of a changing trend. And I think that we've entered it in a way that it won't be a significant overhead burden for a while and hopefully we can -- particularly when we get approved for Federal Student Aid for those programs, which -- as you may know, they're very hard to get a accrediting approval for and they're almost just as hard to get financial aid approval for it. So we got the first stage done and we're offering them for cash only and/or employer reimbursement, and we'll see where we go as soon as we get the FSA approval.

Okay. So, very specifically, the rollout of the competency-based programs is not a particularly meaningful factor in terms of the pressure you're anticipating on first quarter margins?

No, not at all.

Okay. And then in terms of the Hondros' re-accreditation, and I may have missed this in the discussion, but just remind me where we are in that process.

Hondras's re-accreditation?

You heard about (multiple speakers)

Yes, getting enrolled from ACICS.

Yes. We are in process. We were provisionally accepted by (inaudible) and I believe that they've -- I don't know that I have a date, but they've talked about a date sometime later this year for a preliminary visit, and I think sometime in early 2018 formal approval if the visit goes okay. So, we actually -- we anticipated it, so we got our application in before everybody else did and we anticipated ACIS not potentially winning their appeal. So, we were ahead of the curve.

So you're not anticipating any gap then from an accreditation standpoint and, therefore, no loss of access to Title IV?

We have no information to anticipate that, correct.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Chris Symanoskie for any closing comments.

Yes, operator. I just want to answer one question Jeff Silber asked, what our percentage of ADN enrollment was? It's 35% of earning enrollment for the State of Ohio at Hondros.

(inaudible) thank you, Wally. That will conclude our call for today. We wish to thank you for your participation and for your interest in American Public Education. Have a great evening.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.