Strategic Education Inc (STRA) 2002 Q1 法說會逐字稿

Good day and welcome everyone to the Strayer Education 1st quarter 2002 conference call. Today's call is being recorded. With us today from the company is the President and Chief Executive Officer, Mr. Robert Silberman CONNECT to BD-X Transcript Server at Fri May 3 09:56:58 2002OK - Ticker is STRAOK - Call name is 05-03-02 Q1 2002OK - Start time is 05/03/2002 14:00 GMTREADY - Start transmissionand Chief Financial Officer and Senior Vice President, Mr. Mark Brown. At this time, I would like to turn the call over to Donna Stein of Brainard. Please go ahead.

Thank you very much Jennifer. Good morning everyone and welcome to the Strayer Education 1st quarter 2002 Earnings conference call. For those of you who wish to listen to conference via the internet, please go to www.strayeredu.com. An archived replay of the conference will also be available at area code 888-203-1112, pass code is 638131 and this will be available for 48 hours. I'd now like to read you the Safe Harbour language which is also in today's press release. This press release contains statements that are forward-looking and are made pursuant to the Safe Harbour Provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on company's current expectations and are subject to a number of uncertainties and risks. In conjunction with the Safe Harbour Provisions of the Reform Act, the company has identified important factors with the that could cause the company's actual results to differ materially. The uncertainties and risks include the pace of growth of student enrollment, our continued compliance with Title IV of the Higher Education Act, competitive factors, risks associated with the opening of new campuses, and the timing of related regulatory approvals and general economic and market conditions. Further information about these and other relevant risks and uncertainties, may be found in the company's annual report, on form 10-K, and its other filings for with the Securities and Exchange Commission. All of which are incorporated herein by reference and which are available from the Commission. We undertake no obligation to update or revise forward looking statements. And with that I'd like to turn the call over to Rob.

Thank you Donna and good morning ladies and gentlemen. I'd like to begin this morning by giving a brief overview of the company and our business model for any of our listeners who are new to Strayer. I'll then ask Mark to report on the detailed financial results for the quarter after which I'll comment on our enrollment results for the Spring term, provide an update on our growth strategies and finally end up with a general discussion on the company's performance in Q1 and outlook for Q2 as well as the full year 2002. Stayer Education Inc. is a for-profit education service company whose primary asset is Strayer University, a 14,000 student, 20 campus, Post-Secondary Education Institution which offers Associates, Bachelors and Masters degrees as well as Certificate and Diploma programs in Business Administration, Accounting and Information Technology. Strayer students are working adults who are returning to school to further their careers. Our revenue comes from tuition payments and associated fees. Approximately 45 to 50% of our revenue comes from federally insured Title IV loans to our students. Our expenses include the cost of our professors, our admissions and administrative staff, marketing expenses, and facilities and supplies costs. We currently operate in Maryland, District of Columbia and Virginia, as well as throughout the world over the internet through our online university, Strayer Online. We serve students in all 50 states and 39 foreign countries through Strayer Online. Strayer University is accredited by the Middle States Association of Colleges and Universities. And with that, Mark would you run us through the detailed financial results for the quarter?

Sure Rob. Revenues for the three months ended March 31, 2002, increased 26% to 29.7 million, compared to 23.6 million for the same period in 2001. Due to increased enrollment and a 5% tuition increase, commencing with the Winter quarter. Operating income grew 3% to 11.8 million from 11.5 million for the same period in 2001. Operating income margin was 39.8% compared to 48.5% for the same period in 2001, reflecting operating expenses associated with the opening of three new campuses in 2001 and the funding of the company's announced growth strategy. Net income was 7.4 million, compared to 8.1 million for the same period in 2001. This decrease was largely attributable to a 1.5 million reduction in investment income, associated with the successful recapitalization of the company, which decreased the company's cash position and a lower interest rate environment. Earnings per diluted share were 52 cents compared to 53 cents for the same period in 2001. As diluted weighted average shares outstanding decreased to 14,381,000 from 15,470,000 for the same period in 2001. At March 31, 2002, the company had cash and cash equivalents of 54.4 million and no debt. The company generated 11.4 million from operating activities in the first quarter. Capital expenditures for the quarter were 12.8 million of which 12 million was for the purchase of 3 campus facilities. Bad debt expense declined from 1.6% of revenue in the first quarter of 2001 to 1.5% for the same period in 2002. Day sales outstanding adjusted to exclude tuition receivable-related to future quarters also improved from 8 days in the first quarter of 2001 to 6 days for the same period in 2002. Rob?

Thank you, Mark. Just a couple of comments on the financials. First, our enrollment growth at close to 26% was really in excess of our models since we had announced last quarter 17% -- I'm sorry, revenue growth since we had announced 17% enrollment growth and a 5% price increase. And that additional revenue growth above the combination of enrollment and price increases is really caused by two factors that we hadn't really calculated on. First, we had a higher class load per student. We averaged about 2.2 classes per student as opposed to 2. And second, we had a lower than historical drop rate of students during the quarter, students who signed up and then dropped out during the quarter for whom we actually refund some amount of tuition. And that lower drop rate was as a result of very strong management initiatives which our operating team here had -- had put in place. They took hold slightly earlier than we expected. The higher class count we were frankly surprised by. It was just a positive news to us that we hadn't really counted on. With regard to the balance sheet issues, Mark mentioned the product -- the positive trends on the DSOs and bad debt expenses for Q1 and we intend, of course, to really maintain our focus in that area. Just turning to the Spring term enrollment results briefly, the total enrollment of 19% on a year-over-year basis, the 11 mature campuses growing less than 1%. Enrollment of 6 new campuses increased 59% which was buoyed by the inclusion of the three campuses which were opened in 2001. Online of 92%. Same store growth was about 16% as those campuses that we opened in 2001 added about -- a little over 3% to our growth rate, which is about what we would have expected. Across the campus network, the new student enrollments at 17.4% and continuing student enrollments in 19.4%. Now, in terms of those numbers there's just a couple of points that I'd like to reiterate, one, that we again enjoyed very strong overall enrollment growth and that there was a nice balance between the new and continuing students, which is something that Scott Steffey, our Chief Operating Officer and I take a very close look at. The new campuses that we open in 2001, the one up in Baltimore and the two down in Norfolk, are ramping up nicely. We expect them to be at or ahead of their profitability schedule by the end of this year. And the -- at the mature campuses, basically just meeting our goal of -- of maintaining enrollment there. The online growth did exceed our expectations again, helped as it was last quarter by the performance of the asynchronous classes which I'll speak on a little bit more. I guess the other point I would make is similar to last quarter, this is the first time in the company's history as a public entity that the real number of students in the Spring term exceeded that of the Winter and the Winter exceeded that of the previous Fall. So we actually grew real enrollment all through the academic year in this year which again, is something that we're real pleased with. The lead flow for the quarter was up significantly. Our cost per lead and our cost per new student acquired were both slightly up relative to the previous quarter and on a year-over-year basis, but well within our announced ranges. You will remember from our last call that I thought actually I had probably cut that number a little finely in trying to manage down that and that the reality is we probably needed more leads and so we spent a little bit more money to make sure that we got our lead flow up for the Spring term. In terms of student preferences, we continued to see a very slight shift in our student preference. The Business and Accounting courses, the percentage of Computer Information Science declared majors, which is how we sort of track that issue, for the Spring term, relative to the Winter term fell from 51% to 48%. I guess the other way you can say that is that for the Spring term over half of our declared majors are in the Business and Accounting field as opposed to I.T. Turning to an update on the growth strategy, just to reiterate, the first step of the growth strategy was to maintain enrollment in the company's mature campuses. The second is to accelerate the rate of growth of new campuses, particularly into new states. The third, to invest in and build up our online offerings. The fourth, to increase our corporate institutional alliances and our final objective is to look selectively at potential acquisitions. I'll comment just briefly on each of these individually. On the first objective, we did show stability in our mature campus enrollment. In fact, they actually showed significant growth in new students at the mature campuses. However, particularly in our suburban Virginia campuses, our -- the Northern Virginia suburban areas, we're starting to see an inclination on the part of the students after one or two terms to start to take their classes online. I estimate that our mature campuses probably contributed about 10% to our online growth in this way -- and kept their own enrollment relatively flat although we are bringing in a lot of new students to those campuses. With regard to the new campus openings, the three new campuses that we opened in 2001 show very healthy growth for the Spring term, as I said, basically on or ahead of our schedule. We did announce back in March that we had received approval from the Middle States Commission as well as the University of North Carolina Board of Governors to offer our programs in that state. We plan to open three campuses in the state in 2002, two in Charlotte and one in Raleigh-Durham. We have executed leases on all three sites. We're in the midst of fitting those sites out right now with construction work and we will be offering classes at all three in time for the Summer term starting on July 1st. We did start an advertising program in those areas of North Carolina on April 1, and are seeing very healthy lead flow from that. In the online business, the growth continues very strong in the Spring term. The new asynchronous course program exceeded its targets by 27%. We had planned as I announced last quarter to offer 120 classes asynchronously. We actually filled 153 and we anticipate over 300 classes will be offered in the Fall and indeed all of our courses in our catalog, the University's catalog, will be available online asynchronously by Spring of 2003. On the Corporate Alliance front, during the first quarter we entered into corporate sponsorship arrangements with the World Bank and with Northrup-Grumman Corporation. In both cases, those alliances cover both in-area students at our physical campuses in the Mid-Atlantic region as well as internationally online. With regard to acquisitions, we continued to focus during that -- during the last quarter on our core businesses so not much to report there. Finally, on the business outlook, based on the strong enrollment growth for the Spring term, 19%, we're estimating 48 to 50 cents of earnings per fully diluted share for the second quarter of 2002. And then based on the stronger than expected financial performance in the first quarter we're rolling that through and increasing our full year 2002 estimate of fully diluted EPS to $1.74 to $1.78. Again assuming 14.5 million weight -- average -- weighted average diluted shares outstanding. And with that Jennifer, I would be pleased to answer any questions. Jennifer, you there?

Yes, sir. Today's question-and-answer session will be conducted electronically. Anyone who would like to ask a question may signal by pressing the star key followed by the digit 1 on your touchtone phone. Once again, that is star 1 on your touchtone phone. Our first question comes from Greg Cappelli with Credit Suisse First Boston.

Hi guys. Congratulations. Nice job on the quarter.

Thanks, Greg.

I just wanted to follow up on the online business a little bit here. It sounds like that's really going well and I -- I wanted to get a little bit more color. You had mentioned that really, it sounds like a lot of that or a good portion of it is being driven by your offline schools and I wondered if you could give us more color there and are you sort of officially offering, you know, a flex-type degree where, you know, you're encouraging people to take some online and some offline?

INAUDIBLE]. We don't have any specific flex degree. But we do consider the online program to be an integral part of the University. And as our students are working adults and convenience is the most important thing for them, we certainly encourage them to take courses in whatever way they want to take them. And we -- as I said, are seeing in some of our Northern Virginia campuses a -- an inclination on the part of students to take at least some of their courses and in some cases all of their courses online after they have been at the campus for one or two terms. One of the things that we think may be driving part of that is that if -- if you look at the Washington area, one of the biggest issues that the Northern Virginia and indeed some of the suburban Maryland areas have is very, very bad traffic problems. So we just think that that's probably exacerbating that. But from our standpoint, we really have no preference one way or the other. We want the student to take the course in whatever way it's most convenient and most attractive to them. We want to make sure that we are maintaining the same level of academic quality in both areas. And then obviously continue to grow the out-of-area online because that's the only way that the out-of-area student can participate.

Okay. and then Rob, what did you say the timing was for the three campuses in North Carolina?

We've accelerated that slightly.

You will.

So that will be July 1.

Okay. And I guess I just wanted to -- I guess one more question on that front. If you could just talk a little bit about the -- so you're basically going to have -- you're going be taking on losses from, I guess it would be six schools during the quarter?

Correct.

And you would expect that to sort of run to three in the third and fourth quarter or more towards the fourth quarter?

Probably the fourth quarter because even mature campuses tend to have lower operating margins in the third quarter because the enrollment is lower in the Summer so our belief is that the three campuses which we opened in 2001 will reach profitability in the fourth quarter. And then in Q3 we'll be running six campuses at a operating loss shifting to three in Q4.

Okay. And then do you have any other -- other areas you have been thinking about that are outside sort of the Mid-Atlantic States or what would be sort of the next area of expansion for you beyond North Carolina?

We think that contiguous geographic strategy makes a lot of sense for us. So're are looking up and down the East Coast as well as, you know, slightly west. And working on a number of states for our next state openings. I'd expect that by the end of this year, we should have more visibility we could share with the investment community as to where we think we're looking for 2003 and 2004.

Okay. Listen, thanks a lot and congratulations.

Great.

Our next question comes from Gerry Odening with J.P. Morgan.

Good morning. I know that one of the campuses, Washington, D.C., has had its ups and downs over the years. Unlike some of the Northern Virginia campuses, it had a slightly different student population? Can you talk about the impact online may be having on increasing capacity and/or getting better students in that campus?

Actually, the D.C. campus over the last five quarters has shown, you know, significant growth. We're not seeing as much of a migration there to online participation. I would guess that -- or it wouldn't be a guess. It's a pretty strong estimate that somewhere between 5 and 10% of the D.C. Campus takes courses online or solely online. And we're showing some significant new student growth there. So the actual students in seats in the D.C. Campus has been fairly robust over the last couple of quarters.

Right. So you're not anticipating that the online is going to have as much effect just in D.C. But largely the other campuses you opened in suburban areas?

That is what we are seeing right now, Gerry. We tracked it a little, you know, somewhat last year but it wasn't pronounced enough from my standpoint to really, to be able to make decisions off of or to report. This last quarter, Q4 we saw it and then the last quarter we saw it even more to the point where I now think it's a fairly predictable trend that, again, we don't have -- it doesn't trouble us at all. We're actually, you know, happy that the overall growth in the area is going up. But it does seem to us that in the suburban areas, particularly where there are traffic problems and you have high internet and PC penetration, that the desirability of these online courses is going to continue to grow.

And again, lastly on the online situation, looking at asynchronous as doing the bulk of the incremental growth here as opposed to simulcast?

It is growing much faster than the synchronous. I'm not sure I could calculate it it's the bulk of the growth because at 90 some percent growth, I think they are both growing pretty well. But the asynchronous is definitely growing faster.

Thank you very much.

Yeah, thanks.

We'll go next to Bob Craig with Legg Mason.

Good morning, everybody. Couple of questions for you. The size of the new campuses that you're going to open in North Carolina initially?

They'll be -- they will be similar to what we have traditionally done, Bob. You know, there're -- they're between 10 and 20,000 square feet and ramp up at hopefully at the rate that our other new campuses have started.

And what initial capacity for in terms of number of students?

The way we do it is we, and we have in North Carolina this way, we'll take an initial lease which gives us an opportunity to expand to our full 20,000-plus square feet. Which is about the footprint that we need for the thousand to 1200 mature campus size.

Okay. What do you suspect was the driver to greater course load per student in this period and how sustainable do you think that might be?

Well, I haven't adjusted my internal model. I think the driver was that the desirability of moving more quickly through the Bachelor's and Master's program led students to take more classes. I wish I could take credit for that was a metric that we had, you know, specifically set out to try and improve. But the honest answer is we didn't. We were focused on bringing more students into the program and making sure that our academic quality and content remains very high. And the -- to have the students sign up for more courses than they have historically I just thought was a very positive indication on that academic quality.

Right. At your investor day you highlighted a number of new programs including certificates and diploma programs and so on. Could you just generally comment on some of the demand patterns you are seeing for those new programs?

They've been very positive. I mean, they are definitely attracting students in although the fastest growing segment of our product offering is the Master's program and the Bachelor's. So they are growing faster than the Diploma and Certificate programs.

Okay, great. Lastly, would you care to quantify recent lead flow trends in percentage terms on a year-to-year increase?

Well, they've been healthy, I guess is about all I -- we really don't discuss the specific flow trends. They've supported high teens growth in the last two quarters, and we've been real pleased with it.

Okay, great. Thanks a lot.

Yep.

We'll now go to Howard Block with Banc of America Securities.

Good morning, guys. Great job on the quarter.

Thank you.

On the comments about their revenue per student growth that was higher than anticipated, you mentioned 2.2 classes per student. Is that something that we should anticipate increasing, stabilizing, going back to two?

You know, my -- I tell you, my long term model is based on two. And the reason is, is that you have a working adult who has got to go -- if he goes to two classes a quarter, he or she is taking nine hours of classroom time a week. And if you've got a spouse and kids and a job, that just seems to me to be sort of the -- the target that we are looking at. So, no, in my own mind, Howard, I'm keeping it at two in my internal model.

Okay. And then in terms again back on the pricing per student fee. There's nothing in terms of tuition differentials between programs that would drive revenue growth per student? It's only going to be in the number of classes?

Only between graduate and undergraduate. We charge more for a graduate course.

Okay. And then any early indications from North Carolina to give you a sense that these campuses will ramp faster or slower or inline with your traditional campuses?

Well, the lead flow has been what we would have expected relative to our startups in Norfolk and Baltimore and Richmond. You will remember we, about a year ago, started marketing the online program in both of these two markets, and we've had very strong response there. We've probably got over 100 students from those markets online. So I would say that, you know, we feel pretty good about where we stand right now on that.

Okay. And then your comment about opening in contiguous states suggests that you think there might be some sense of brand equity that creeps in from a neighboring state. Do you get any of that from feedback from the early leads or prospects in North Carolina?

Actually, my comment on contiguous states is really based more on execution. INAUDIBLE].

Okay.

Charlotte, there is a little bit -- there's probably more people who live in Charlotte who know people or have lived in Washington, D.C. than if you went to Dallas. But it's not really what we're relying on in that case.

Okay. And then I thought it was interesting your comment about the online growth may actually be driven in part by students from the mature campuses. Is it possible to go back a little bit on the online campuses and maybe let us know what -- the number of students that would really be new Strayer students, meaning new to the system?

I'm sorry, Howard, there was a plane going over when you asked that I missed the question. Can you ask it again?

Sure. On the online enrollment number, because some of the students clearly are coming from mature campuses, is there any way you could disclose or give us a sense of what percentage of the online enrollments are truly a new Strayer student, meaning new to the system and not moving from a bricks campus to the clicks?

Yeah. Let us go back and take a look at our data and see if we can't break that out.

Okay. And then, uhm, is there any Cap-X guidance for the rest of the year?

Mark?

Yeah. We're still operating within the original guidance that we had given excluding, of course, the 12 million purchase of the 3 campus facilities. So excluding those facilities, I think the original guidance was in the $5 to $6 million range.

Okay. And then, Mark, in terms of the G&A spend, that was the only line in the quarter that we sort of mis-estimated, if you will. Is there -- was there anything in the quarter that was sort of extraordinary about the G&A or is this sort of a run rate -- quarterly run rate we should look at for the rest of the year?

Howard, it was a little higher than what we have for our run rate for the rest of the year for a couple of reasons. One is that we had -- we accelerated a little bit early some of the spending on North Carolina but more importantly, we dealt with a one-time expense of some relocation expenses associated with several of the new management team.

Okay. And then lastly, on these corporate sponsorships that you mentioned, perhaps you could just elaborate with some more detail, I'm trying to get a sense if there is really a commitment of any sort in these relationships is there some sort of volume discount that you offer on tuition, any of the delivery costs we should keep in mind?

There is no real delivery cost impact. The range in terms of commitment to, you know, from no commitment to in the case of some of them, particularly if we're sending a professor to one of their sites, to a commitment of students, the -- in the case, for instance, of the World Bank, there is no specific commitment there. But in addition to the employees that they have there in the Washington, D.C. area, we're actively marketing to their employees worldwide through online and we're fairly successful in this last quarter in terms of picking up some of those students.

Great. Again, congratulations.

Thanks, Howard.

We'll now go to Peter [INAUDIBLE] with Deutsche Banc.

Hi, good morning, Rob. Congrats on the quarter. Couple of things. One, just on the relocation expense item that you just mentioned, could you quantify what that was?

It was couple hundred thousand dollars.

Okay.

Okay, got it. So not something that moved the needle on the margin in a meaningful way?

Secondly, the -- can you talk about the relative profitability of the online business versus the site-based business?

Well, where it has the most impact is on the incremental student in that we can expand the online program and every incremental student comes in at or above our highest operating margins of any of our campuses. Whereas, on a new campus obviously, the incremental students for the first 18 months or so have negative margins and then they ramp up after that. But in terms of long term planning, we expect that the online will continue to have about the average for our mature campuses, sort of a 40 to 50% operating margin because we expect to continue to reinvest in the academic quality and particularly in the customer and student services aspects of it because in the long run I feel that's the best way to create shareholder value, is to make sure that you're bringing these students in and they're satisfied as opposed to bringing them in at ever increasing operating margins.

Yes, although it does sound like perhaps the better than expected growth in the online business maybe does serve to some extent as an offset to the incremental startup costs of new campuses.

That is exactly the case, Peter. There is a very synergistic effect at this stage in our growth strategy with so many physical new campuses relative to our mature campuses to have the online growing as fast as it is.

Okay, And that sort of leads to the question of whether it perhaps might, you know, that fact plus the fact that you've done so well in Virginia and Maryland, does that perhaps encourage you to maybe move a little bit fastener terms of the new campus opening plans?

Well, given the returns on investment capital in opening a new campus, I'm going to go as fast as I can.

Okay.

And the real limiting factor for me is making sure that I have the right campus management staff and administrative staff that allows us to ensure that rate of growth in a way which, you know, provides the high level of academic quality. And so our viewpoint is over the next three to four years that we open three campuses per year. That is based on the rate at which we think we can grow and train campus managers. If we can accelerate that, if we get better at our human resource development, I'd certainly look at opening more than three per year because I just think that they're a great investments of shareholders' capital.

Right. Absolutely. And then just the last thing, are there any constraints in terms of getting faculty at this point?

None. We have definite constraints on our growth on the administrative side. We have more than enough applications by a large margin for all of our faculty positions.

Good. Thanks, Rob.

Yep. Thanks, Peter.

Our next question comes from Mark Farano with First Analysis.

Good morning and congratulations.

Thanks, Mark.

On online, just to ask a little follow-up, could you -- could you talk about the average class size in especially the async classes and then just a little bit about what you're seeing in terms of retention in the async classes, as well?

Well, the -- taken in reverse order, the asynchronous classes have only been around for five quarters so I don't know that I have a great data point but the retention has been as good or better than the synchronous and our synchronous over the last four or five years has been as good or better than our mature campuses so pretty good about that aspect. In terms of the class size, we cap the asynchronous class at a lower number than the synchronous because without the direct realtime interaction with the professor we think that limiting the number of students ensures an equivalent academic quality. So it turns out we actually have about equivalent class sizes. The average class size for the synchronous is about 25 even though we cap the students at 30. And the average class size for the asynchronous is also about 25 because almost all of them have filled up to the limit of 25.

Okay. And then just on the campuses, I assume Anne Arundel from what you said is still in the old category?

You mean the new category?

Yeah, in the new category. I'm sorry.

Hang on it'll be just a second. I think that's right but...

No Anne Arundel has shifted.

Okay. Okay. And then just lastly, could you tell us, what was the share count for the quarter?

Mark?

For the quarter, Mark, we were using 14,381,000.

Okay, thanks very much.

But, Mark, that increases each quarter with the preferred dividend.

Right.

The guidance we've given on a full-year basis was 14,500,000.

Okay. Thanks a lot.

Yep.

Once again, it is star 1 if you would like to ask a question. We'll now go to John Christianson with Kayne Anderson Rudnick Investment Management.

Yes, good morning.

Hey John.

In regards to new student enrollment growth, obviously, you guys are -- have been doing well on that DeVry has been very weak. How would you describe the discrepancies, the student profile or what? And the second question is, if we could get an update on this -- on the synchronous classes and how that's going in general?

Well, John, I don't comment on the other companies. Our student growth, I think, is reflective of the good match that we have between the market that we want to serve and the product that we're offering them. And, you know, we feel pretty good about that. In terms of the synchronous classes, the -- John, could you repeat the question on that?

I just wanted to get an update -- we've been talking about asynchronous a lot. I wanted to get an update on the synchronous.

Oh, okay. They're growing at a very healthy double-digit rate. And they are very well liked by the students who participate in them. They -- all of our courses are available on the synchronous mode now. The biggest limitation that the synchronous has is that of time convenience and particularly for our International and West Coast students, it's just -- we're finding that it's a lot easier for them to take the class on demand as opposed to realtime. But I do not foresee that -- we will not continue to have a very strong synchronous course offering for the foreseeable future. We think that's a major part of our academic choices that we offer right now.

Thank you.

Yep.

Our next question comes from Richard Close with SunTrust Robinson-Humphrey.

Congratulations on a good quarter, guys.

Thanks.

Question with respect to the online. You know, that's obviously becoming a greater part of your overall business and, uhm, you know, when do you -- are you exempt from the 50% rule with respect to online? When do you get concerned if you're not exempt with respect to that?

Well, we are not exempt from it. But the nature of our offerings don't fall into that limitation. All of our courses are available both online and in the classrooms. And the 50% rule refers to courses which are only offered online and separate from the University's program that they offer in the classrooms. So I don't -- we don't have a concern with regard to that. And, you know, we believe that the online is a very integral part of our academic experience, and dealing with the working adult student for whom convenience is the most important attribute, you know, we see as our charge continuing to maintain and improve the academic quality on the online, and then letting the demand go where it wants to go. I mean, we've got some students that like to go in the classroom and we have some that like to take it online. And the only person whose choice is limited is the person who is out of an area where we have a physical classroom because their only choice is online. But our intention is to expand our physical classroom base to make it more of a choice -- in as many places as we can.

Good. And, you know, a question with respect to on the administrative side, you mentioned earlier, you know, it's a little bit harder attracting people than let's say faculty. Maybe if you could give a little bit of color with respect to how you did in North Carolina in terms of maybe moving people around or bringing new people in and does that worry you going forward if you are entering new states being able to attract Presidents and what not?

Well, it doesn't worry me. But it's something that I think is a legitimate issue for us to focus on and make sure that we have adequately planned staff. We are moving two of our campus managers or people within our organization down to North Carolina and we're hiring one from the outside. And, you know, we feel that's a pretty good balance. In general, in expanding the organization, I just think it's always healthier to grow people from within. But we are growing at a rate at which it's probably just not completely practical. And it's also a good idea to bring in some good talent from the outside as well to continue to compare best practices and get some new looks at the situation. So... If we stay on our path, if we're successful on executing our goal of 2 to 3 campuses a year over the next 4 years, we'll have a major upsurge of talent from within and we'll probably attract some people from the outside, as well.

Okay. And then one final question, just a follow-up on Howard earlier with respect to the corporate side. I was wondering if you could give us maybe an example from one of the agreements you signed over the last year and how that progressed, you know, over that time period.

You mean in terms of the ramp or the students?

I guess with the students and what not.

Well, the -- for instance, U.P.S., we signed three or four quarters ago. And we've got a healthy flow of students from that. That's more of a -- what I would call a blue collar student, basically they're drivers who they're worried about the term rate and the retention rate of those drivers. They have high costs to recruit them and train them. So by providing a compensation benefit in terms of tuition reimbursement and in a convenient package with us, they basically increase their retention. We have other types of programs that we've signed up in the last year that might be more advanced refocus or technology focused, for instance Computer Sciences Corporation. One of the programs that we signed up is the United States Navy Audit Agency where we do most if not all of their undergraduate and graduate training in accounting for their auditors. So it kind of runs the gamut of all the course offerings that we have.

And do you have a dedicated sales force for that? Or... How's that?

Well, it's not a particularly large one, unfortunately. And we are moving some people in that direction. But we do have a dedicated sales force which is supplemented by Scott and myself as necessary to get deals done.

Okay. Great. Thanks a lot. And congratulations again.

Thanks, Richard.

We'll now go to Jeff Marsh with Matador Capital.

Hi, just had one question. Rob, I think in your earlier comments if I heard you right you said that you're continuing or saw a continued shift away from I.T. based programs. I think it was my understanding heading out of the last conference call that you hadn't seen any shift at that time. Maybe you could just elaborate on that a little bit and I think at last count, I.T. based enrollment represented about 50% of overall enrollment, is that correct?

That is correct. The exact count for declared majors in the last quarter was 52 to 51. And so we did see a -- I think I mentioned on the last call a very slight shift down. This one is 51 to 48. So... I -- I -- that is significant enough from my standpoint that, you know, it's something to report. And the -- in terms of the, you know, overall make-up of the program, it's still roughly 50%. Also, the classes that are taken are roughly 50%. The declared major I think is move an indication that it's relevant to the investment community as to how attractive the I.T. program is relative to the other one. But that's why the other way to put it is we had the highest rate of growth in the history of the company and it just means that the Business Administration, Accounting, Economics majors are growing at a slightly higher rate than the Information Technology majors are growing. And over half of our majors are now in that area.

Right. Yeah, that's pretty clear and a good job on that front. But any guesstimates as to what might be happening from your perspective in the I.T. field? Do you think that might be different than what's been echoed by some of the other public companies?

Well, I'm not sure what the other public companies have said. The -- from our standpoint we think that there is significant demand and continues to be significant demand particularly in the areas where we operate for Information Technology, Undergraduate and Graduate degrees. But again, remember, our students are working adults who are already essentially working probably in those fields and for whom the decision of their ability to get an entry level job in the field is not that much of a issue in their decision on what to study. But we found is that between Business Administration, Accounting, Economics and I.T., you know, you've really got the 80-20 rule. About 80% of students in the age group that we're trying to attract who want to come back to get a Bachelor's or Master's degree want to take courses in one of those areas, and from our standpoint, we really don't care where they take it. We want to maintain high academic excellence in all those areas, and we don't have a whole lot of fixed costs investment in offering one course or another. We really want to react to what the student wants to take.

Right. And maybe just as a follow-up, Is there any evidence that those that had once declared I.T. as a major are now declaring Business and Accounting as a major?

Okay. I appreciate it. Thank you.

Yep.

Our next question is a follow-up from Gerry Odening.

Hi. Thanks. Rob, what is your sense -- military has been strong but, not overwhelming percentage of enrollments. Can you just comment on where you see the trends with military enrollments and their interest?

It stayed strong in this last quarter, about 8% of our student population. You know, depending on where we put campuses, it could certainly increase. You know, I would expect that the Norfolk area campuses are likely to get very strong military participation, given the military bases down there. So I think it will sort of ebb and flow with regard to where our physical campuses get located but it is a very good demographic for us and is part of our geographic determinations, trying to be in areas where we can serve that student.

Right. That's it. Thank you very much.

Yeah, thanks, Gerry.

Mr. Silberman, we have no further questions at this time. I would like to turn the conference back over to you for any additional or closing remarks.

Okay. Thanks very much, Jennifer. Well, I appreciate everyone's participation in the call. I look forward to seeing you all over the next quarter and we will report again in early August and we'll talk to you at that time. Thanks very much.