Strategic Education Inc (STRA) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Strayer Education, Inc. second quarter 2004 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions, and instructions will be given at that time. (OPERATOR INSTRUCTIONS).

At this time, I will turn the call Sonya Udler, Vice President of Corporate Communications for Strayer Education. Please go ahead.

Thank you operator. Good morning. With us today to discuss the results are Robert Silberman, Chairman and Chief Executive Officer for Strayer Education, and Mark Brown, Senior Vice President and Chief Financial Officer.

For those of you that wish to listen to the conference via the Internet, please go to www.StrayerEducation.com, where the call will be archived for 90 days. If you're unable to listen to the call in real-time, a replay will be available beginning today at 3 PM Eastern time through Tuesday, August 10. The number for the replay is 888-203-1112, pass code 166923.

Following Strayer's remarks, we will open the call for questions and answers. Please note that today's press release contains statements that are forward-looking, are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act.

The statements are based on the Company's current expectations, and are subject to a number of uncertainties and risks that the Company has identified in the press release, and that could cause the Company's actual results to differ materially. Further information about these and other relevant uncertainties may be found in the Company's annual report on Form 10-K, and its other filings with the Securities and Exchange Commission.

And now I would like to turn the call over to Rob. Rob, please go ahead.

Thank you, Sonya. And good morning, ladies and gentlemen. As is our custom, I would like to begin this morning with just a brief overview of our Company and our business model for any listeners who are new to Strayer. I will then ask Mark to report on the detailed financial results for the second quarter, after which I will comment on the enrollment results for the summer term, provide a (sic) update on our growth strategy, and finally, end up with the Company's outlook for Q3.

Strayer Education, Inc. is a for-profit education service company whose primary asset is Strayer University -- a 20,000-student, now a 30-campus post-secondary education institution which offers Associate's, Bachelor's, and Master's degrees in business administration, accounting, information technology, public administration, and education.

Strayer students are working adults. They are returning to school to further their careers. Our revenue comes from their tuition payments and associated fees. Approximately 55 percent 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 campuses in 8 states in the mid-Atlantic region, as well as throughout the world over the Internet through Strayer University Online. We serve students in all 50 states, and 39 foreign countries through Strayer University Online.

Strayer University is accredited by the Middle States Association of Colleges and Universities. Mark?

Okay. Revenues for the 3 months ended June 30, 2004 increased 27 percent to 46.8 million, compared to 37 million for the same period in 2003, due to increased enrollment and a 5 percent tuition increase which commenced in January of '04.

Income from operations rose 31 percent to 18.4 million, from 14 million for the same period in 2003. Operating income margin was 39.2 percent compared to 38 percent for the same period in 2003.

Net income rose 29 percent 11.4 million, compared to 8.8 million for the same period in 2003. Earnings per diluted share rose 25 percent to 75 cents, compared to 60 cents for the same period in 2003, as diluted weighted average shares outstanding increased to 15,164,000 from 14,779,000 for the same period in 2003.

Revenues for the 6 months ended June 30, 2004 increased 26 percent to 92.9 million, compared to 73.7 million for the same period in 2003, due to increased enrollment and the 5 percent tuition increase effective for 2004.

Income from operations rose 31 percent to 36.9 million, from 28.1 million for the same period in 2003. Operating income margin was 39.7 percent, compared to 38.2 percent for the same period in 2003.

Net income rose 29 percent to 22.9 million, compared to 17.7 million for the same period in 2003. Earnings per diluted share rose 26 percent to $1.51, compared to $1.20 for the same period in 2003, as diluted weighted average shares outstanding increased to 15,128,000 from 14,709,000 for the same period in 2003.

At June 30, 2004, the Company had cash, cash equivalents, and marketable securities of 116.7 million and no debt. The Company generated 26.3 million from operating activities in the first 6 months of 2004. Capital expenditures were 5.1 million for the same period.

In the second quarter, as part of a previously announced common stock repurchase authorization, the Company spent 21.2 million for the repurchase of 180 568 shares of common stock at an average price of $117.22 per share. The remaining amount available for repurchase under this program is 15.6 million.

In the second quarter of 2004, bad debt expense as a percentage of revenue was 2.2 percent, compared to 1.9 percent for the same period in 2003. Days sales outstanding, adjusted to exclude tuition receivable related to future quarter, was 9 days at the end of the second quarter 2004, compared to 7 days for the same period in 2003.

Rob?

Thanks, Mark -- so 180,000 shares. If we had only bought 180, we would have paid a lot per share.

Just a couple of other comments on the financials -- our revenue growth of 27 percent was basically consistent with our model. We had announced a 23 percent enrollment growth for the spring term, and a 5 percent price increase.

As Mark mentioned back at our investor day, we no longer have interest income on Strayer-owned student loans, because we've sold that loan portfolio, running through our revenue line. But that was partly made up by some increased fee income on application fees and other fees. The seats per student ratio, which is the thing we watch the closest, actually came in about what we predicted.

We did report a 120 basis point increase in operating margin in the quarter. However, if you back out the effect of the accounting re-class, which Mark had also talked about, in the previous quarter, where we are no longer running scholarships and awards and things of that nature through the revenue line -- and also, as an expense, we just deduct them from revenue.

If you back that accounting re-class, revenue growth would have actually been a little over 28 percent. And the operating margin increase would have been about 50 basis points.

So similar to last quarter -- we talked about this last quarter. About one-half of our operating margin improvement is real increased operating leverage in the business. And the other half is a result of the accounting re-class.

Now, that real increase in operating margin -- the 50 basis points -- which, as I said, is not related to an accounting re-class, but is better leverage in the business -- was mostly caused by the fact that we actually reduced our marketing spend about halfway through the quarter, because we had reached the upper end of our lead targets.

And actually, Mark -- and I don't like being that far off on EPS from that range that we gave you 90 days before. As I have said in the past, this is a fairly predictable business on quarter-to-quarter basis.

But in this case, Lysa Hlavinka, our Marketing Vice President and her staff -- they were very effective, particularly in some of our new markets, in bringing in a cost per lead well below our budget and an increased lead flow. So we just didn't spend as much. And that ran through to the bottom line.

Our bad debt expense came in slightly higher that we like, at 2.2 percent. Our second quarter bad debt expense is always seasonally our highest as a percent of revenue, because we are writing off uncollected receivables from the fall term, which is our largest quarter.

It was also affected this time by what was, in this case -- many of you may remember -- a higher than normal drop rate in our fall 2003 quarter because of the no-shows from hurricane Isabel. So we sort of expected that tracking through.

But Mark and I will obviously keep our eye on it. It is a statistic that we look at closely -- frankly, not so much on the financials like, but because students who don't pay their tuition don't graduate. And it affects our graduation rate. So we really try and keep that number down at a very low rate.

Our increase in free cash flow, which I defined as the cash from operations minus CapEx necessary to support the growth, was 67 percent. That was well above the 29 percent increase in net income.

Most of that increase was a cash tax benefit associated with stock option exercises which were used to fill the over-allotment in our secondary offering in the first half of the year. But we were clearly at least on our pace of generating free cash flow at or slightly above our net income.

Finally, on the financials, is -- as Mark pointed out, our EPS increased to 25 percent. It is below our net income increase of 29 percent, because of that increase in our weighted average shares outstanding.

That increase is mostly caused -- almost entirely caused by the preferred stock dividends that we paid during the past year. We were able in the quarter to successfully force the conversion of the remaining preferred stock.

So our capital structure is, once again, made up of 100 percent common stock and no debt. We no longer have the preferred stock on our balance sheet.

Turning to the summer term enrollment results -- our total enrollment increased a little over 22 percent on a year-over-year basis. Both our new student enrollment and our continuing student enrollments were about 22 percent. It was a pretty good balance this quarter in both those statistics.

Our out of area online enrollment was up 63 percent over the previous year. In this quarter, we did continue to see high demand from campus-based students for online classes.

I try and emphasize each quarter that that is not a number that we are trying to affect one way or the other. We are not trying to push students in one direction or the other. We want our students to take classes in whatever format they find most convenient.

I would point out, though, that in this quarter, it does appear as if that mix shift of campus-based students taking online classes is starting to slow a little bit. And we seem to be honing in on an equilibrium that is probably around 40 -- 35 to 45 percent of our campus-based students taking all of their classes online in any given quarter.

With regard to the student mix, our business administration and accounting degree seekers continue to account for slightly over 60 percent of our students in the spring term; computer information science degree candidates, a little below 35 percent.

Our graduate population increased to 24 percent of our student mix this quarter. That is up from 21 percent a year ago. So that number is continuing to climb. The graduate programs are proving quite popular, particularly in some of our new markets.

Turning to an update on the growth strategy, many of you remember that it is really based on 5 objectives. The first is to maintain enrollment in the Company's mature markets. Second is to accelerate the rate of growth of new campuses, particularly in the new states. Third is to invest in and build up our online offerings. Fourth, to increase our corporate and institutional alliances. And the final objective is to look selectively at potential acquisitions and the ultimate reallocation of our owners' capital. I would like to just speak to each of these briefly, and give you all an update on the first objective.

For the summer term, we had a solid quarter at our mature campuses. We showed 5 percent growth. That is ahead of our -- of what we hold a sort of a breakeven target. The mature campus students did continue to exhibit a preference to take online courses in their later terms. I think that is a fact of life. And we're definitely adjusting our facility structures associated with that.

With regard to do campus activity, we opened 2 campuses in the summer term, both in the Atlanta market. Our plan is to open a third campus in the Philadelphia market for the fall term. That campus, that facility is actually already -- it is not quite open. It is under construction -- the leasehold improvements. But we have the team up there. And that will bring our new campus openings for the year to 5, which was our plan.

In the out of area/online, our growth for the fall term at 63 percent is ahead of our nominal 50 percent target. We are still pretty early, though, in that rollout, so we have the benefit of smaller numbers at (sic) this case.

In the area of capital redeployment, as Mark mentioned we were able to repurchase to a little over 180,000 shares in the quarter, or about 1.2 percent of our outstanding shares. This, in itself, will increase our return on shareholder equity for the year by about 300 basis points.

And with the final conversion of our preferred shares, we did announce today an increase in our annual dividend from 26 cents to 50 cents a share. That will be prorated from July 1.

This increase in our common dividend will not have a meaningful impact on our cash generation for the year. It's almost fully funded with the cash portion of the preferred dividend, which we no longer have to pay, having forced that conversion into common.

As I mentioned in my letter to shareholders this year, the Board and I are convinced that our business model allows us the luxury of fully funding a strong organic growth strategy and still making a periodic return of capital to our shareholders.

Now we, as a management team and a Board, continue every quarter to weigh all uses of cash to determine the most value-enhancing, after-tax return on our owners' capital. And we are pleased to be able to nearly double the size of the dividend going forward. And as I said, we will continue to look at that on an ongoing basis.

Finally, on our business outlook for the third quarter, due to the University's strong enrollment for the summer term, offset partly by increased expenses associated with the 2 new Atlanta and the new Philadelphia campus openings, we estimate our third-quarter EPS will be in the 31 to 33 cent range.

And with that, Stephanie, we will be glad to answer any questions.

(OPERATOR INSTRUCTIONS). Bob Craig, Legg Mason.

Congratulations. A couple of questions for you -- a hot topic of discussion lately has been attrition rates, retention, persistence -- however you want to call that. Have you noted any change in your system in those metrics?

No -- actually, it was slightly higher. Our retention rate for the spring into the summer term was about a point higher than it had been historically. But not meaningfully a change in either direction.

And you mentioned, Rob, 24 percent in graduate programs. I take it the reception to those newer -- 3 newer masters programs has been very favorable?

Actually, most of that growth is in the MBA and the Master's in information technology. We really haven't marketed the 3 new programs. I want to get through at least one cycle of teaching them to make sure that we actually know what we are doing. We have had pretty strong unmarketed response. We probably got -- well, we've got several hundred students in those programs. But the big surge in the graduate level is, I think, more the MBA and the Master's in information technology and accounting.

Okay. Has Philadelphia crossed breakeven?

Well, the summer term is always the lowest term. We expect that it will in the fall term.

Okay. And the initial reception and Atlanta? Obviously, recognizing again it is a slower term?

We had a strong start in Atlanta. We are pleased that.

Okay. In your cost per lead per start and Atlanta versus Philly -- have you noticed much difference?

No. Not much difference. As a matter of fact, all of our new markets were better this quarter than last. And trying to think back to last summer, last fall what we started Philadelphia -- I would say that Atlanta was probably close to that.

Greg Cappelli, Credit Suisse First Boston.

Complete shock that you did everything you said you were going to do in the quarter. (laughter) Congratulations. I guess just a few things -- I wanted to go back to your comments on the online versus off-line mix. Just to clarify -- sounds like it has been a few years now since that trend started.

Obviously, you began offering quite a bit more courses online over the past, I guess, year, year and a half. So I guess is the point -- you're going to be settling into this sort of 45 percent, maybe 50 percent mix here? And if that is the case, we probably it would start to see the brick and mortar, just as a function of this pick up, in terms of growth metric here?

Yes, well, as long as we show growth in our mature campuses, once the mix shift from physical classroom seats to online seats stops, or once it stabilizes, then in both cases, we would expect to see whatever the growth rate for the mature campuses to be the growth rate in both of those categories.

I think that -- clearly in our new campuses, where we don't offer all of the classes in the classrooms, just because of not having enough students, we will, I think, always have a very large -- a meaningful percentage of our students taking 100 of their classes online at a new campus. It runs 50 to 55 percent.

At the mature campuses, it has been steadily increasing. But that increase seems to be slowing. And yes, I would -- it is pure speculation. We don't know what it is going to be. But if you just look at the trends, it looks like it is probably going to settle in the around 40 percent.

And when that happens, as long as we are showing growth in the mature markets, in the mature campuses, we would expect both the classroom based students and the students taking 100 percent of their classes online through that campus to show whatever that single digit growth is.

That makes sense. And then just course load per student -- I think you mentioned it. I didn't hear it, but I just wanted to get your thoughts on it. I mean obviously you've had some shifts more towards graduate programs. They take fewer classes. And I wanted to get your thoughts on it, if that's kind of stable here or if it continues to tick down a little bit.

I think that it ticked down at about the same rate that it did the last quarter. I think that it was like 1.95 or 1.97 or something like that. But --

Do you see that getting much lower?

Well, I suppose if our graduate student population continues to grow at a markedly higher rate than the undergraduate, then it would go lower, because the graduate students tend only take one course. But we will just have to track that. I don't really know the answer to that.

Than again, they are paying more money, also, for those courses.

Correct.

Okay, just 2 more -- your thoughts on -- I enjoyed hearing about the dividends, and your thoughts on increasing that potentially going forward. And that versus, maybe, stock repurchases -- how you're looking at the two --?

And then, you mentioned this is a business that you can grow at a rate, and still have the opportunity to do this, because you're throwing off more cash than you need even to the grow the business. But why not put more capital into the out of area, sort of online opportunities? Or do you think you are maxed out there?

Well, the out of area/online is really very similar to the campus-based population in terms of the limitation to growth. It is not capital. It is our ability to hire administrative personnel and professors at a rate at which I know I can ensure the quality.

So it is certainly and easier place to put more capital to work when we expand human the infrastructure. And we are intending to do that through the latter half of this year and into next year. But it is not -- it is certainly not a capital constraint. So it is clearly a decision on our part not put the capital at work in that area, until and unless we are absolutely convinced that we can do it in a way in which the student performance and the learning outcomes will be equivalent to what we hold ourselves to.

Last question, a quick one -- 35, maybe $40 million in free cash flow -- a good estimate to use for this year?

Yes. In distributable free cash flow -- we had, as I said, some stock option exercises which generated some more cash. And then, you offset that with what has been a $40 million authorization for share repurchases, of which we have used about 23 so far, I think.

Howard Block, Banc of America Securities.

Congratulations. Again, another great quarter. The first question, Rob, is this fact that you have passed 50 percent on the online. Probably not a necessary question, but one that I will ask anyway. You guys feel very confident that the loophole that you have sort of identified on the 50/50 -- you are okay on, meaning that 50 percent of your courses will never be online?

Yes. Although, Howard, I think I would object to the term "loophole." There is a pejorative interpretation of that. But yes, our understanding of how the rules work, which has been confirmed in writing from the Department of Education, it is quite clear. And we are not concerned about that.

Great. And then a couple of perhaps aberrations in the enrollment I wanted to ask about. One is that the new population as a percentage of the total dropped this quarter relative to the past couple. And I don't know if that had to do with some weird seasonality it in the new schools, because they are all in the hot weather climates, or what it may be --?

I am not sure that I understand the question. What we saw this quarter was that our continuing student improvement and our --

I am sorry. I meant new campus population, as a total of --

I see. I don't know the answer to that, actually, Howard. I hadn't really thought about it. (multiple speakers) Our new students -- our new campuses ramped at about the rate at which we expected -- in some cases, a little bit higher.

So I would have to go back and look at our notional model and see if, mathematically, that shifts as -- it is probably because you get more of the older new campuses moving into the mature category. And they are generating a higher enrollment growth (multiple speakers) for another year or so. Go ahead, Mark.

We have moved 2 campuses into the mature category (multiple speakers)

Yes, we move to 2 campuses into the mature category. (multiple speakers) So I guess that in itself would do some of it.

To know what those were, Mark?

Chesapeake, VA; end Owings Mills, which is outside Baltimore.

Chesapeake is down by Norfolk.

And something else that may or may not be an aberration, but the number of online courses declined for perhaps the first time in history. Again, I didn't know if that was, again, seasonal, because of the summer programs, or if you felt you had reached some sort of equilibrium, and we will see this oscillation, or what --?

No, that is seasonal. We have less students across the whole system in the summer. And we are getting a really full, very high seat per student count in online. But we are basically filling them all. So that would be the result of that.

And then the last question -- the comment earlier that you actually cut marketing when your lead float reached, let's say, a limit that you had set. Is that because, as you said a moment ago, that you didn't have the administrative personnel and professors in place to handle more students?

Yes. And the fact that we, as a business, we invest in generating a certain number of leads. Once -- I think of them a somewhat of a perishable asset. So if we are not going to work them, and we are not going to get them into students, then hat we don't spend above that.

This is actually the first time we have ever kind of broken through that and pulled back on dollars. So I wouldn't suggest it as a trend. And we will go the other way, as well. I mean, we will put more money into marketing during the quarter if we need to. But in this particular quarter, things worked quite well in all of our programs.

So you don't ever hold an interested student in abeyance in some way until you have the capacity?

No. And that is exactly the point. A student that is an applicant who has shown a high level of interest that wants to enroll -- we are not going to turn them away. And we try to squeeze them into classes.

But you are -- essentially, your marketing programs are generating big batches of students, only some percentage of which are actually going to be interested. And so when you know that you're going to have enough of that proportionally to generate the students that you want to generate, then we go ahead and just turn that off -- and particularly in specific markets.

Fred McCrea, Thomas Weisel Partners.

Interesting questions about Lysa's efforts this quarter. Maybe you could walk us through a little bit in terms of her use of various media mixes and kind of where her creative marketing had really helped, particularly in these new markets?

Well, we went through it in some detail at the Investor Day. And we have got a broad mix. You know, the Internet marketing continues to be, I think, quite helpful for us. We have a lot of other direct methods. And they all seem to click pretty well.

Any changes, though, relative to what you talked about in the April time frame in regards to overall mix this quarter?

No. Nothing significant enough to discuss.

Corey Greendale, First Analysis.

Rob, you talked about adjusting the facility structures as the mature campus students show a preference for online. Could you put a little more color on that? Have you recently either moved campuses or downsized leases or anything in particular?

We moved 2 campuses in the quarter -- 2 existing campuses -- one of our Baltimore campuses, the oldest one; and our Prince Georges County campus, which is right outside of Washington D.C. In both cases, we adjusted the lease space that we obtained, as well as changing the interior configuration of the campus to more support a student who's going to take a certain number of their courses online during their period.

So there is more student counseling, faculty advising, lab -- because a lot of the students who take online courses actually take them at the campus. They use the computer facilities at the campus -- library and learning resource facilities. So it is both a slight decrease in leasehold and a change to the interior of the leases to configure the campuses to the way the students want to take classes.

Are there any others planned for the near-term?

Yes, there are. We are going to go through all of our mature campuses -- basically, the campuses I inherited, within the next couple of years.

Okay. And then, you talked about the marketing spend -- on the G&A, that was down on absolute dollar basis sequentially. Last year it was flat. Sequentially in this term -- could you just talk about anything that led to the drop sequentially?

We are definitely getting more leverage. But that, you know, is more on revenue over the absolute expenses. There is nothing specific. We have got people, maybe, shifting from the corporate staff down to the campuses. That would occasionally happen and shift those dollars into the INE (ph) line. But nothing specific.

Richard Close, Jefferies & Company.

Congratulations, Mark and Rob. Just a couple of quick questions -- full-time/part-time -- I don't know if you talked about that at all. What are the trends there?

Full-time/part-time for students?

Yes.

I don't think there is a meaningful change. I mean, most of our students are part-time. I mean, most of them are 2 or below classes. I mean, our average is 2. So that, by definition, is part-time.

You know, when you accelerated the campus openings to 5, I guess, a couple of years ago, you were saying what prevented you from doing that earlier was the human capital. What are you seeing on the human capital front? Are you going to be able to open up 5 or so campuses going forward on an annual basis? Do you still feel comfortable there?

I would like to, Richard. And I certainly feel comfortable for this year. Mark and I will take a look when we put the budget together in the next 6 weeks or so at both our financial and our human capital -- more importantly, the human capital -- and make a determination along with the rest of the senior management team sometime in the September/October time frame, before present our budget for next year to our Board.

And then we do our next earnings announcement in November, traditionally we both update the full year, because we have our enrollment for the fall, and then give some look at the next year in terms of the number of facilities we intend to open.

Okay. But you're not seeing any type of slowdown in attracting good people at this point?

We are not seeing a slowdown. But it is always hard. (multiple speakers) And it is clearly the limiting factor, I think, on the successful execution of these business plans.

And just one final one -- can you just give us an update on which campuses have yet to reach profitability, or that maybe reached profitability in the current quarter?

Well, the current -- the summer quarter, the one that we are in right now, is seasonally lower. So a lot of our campuses -- all of them are less profitable in the summer than they would be in the other terms. So it is not really the right one to look at.

You know, we would expect that in the fall term, all of the campuses, except for the ones that we opened this year, would be at our quite near breakeven, or some of them, certainly quite a bit above.

Congratulations again.

(OPERATOR INSTRUCTIONS) Gary Bisbee, Lehman Brothers.

My congratulations, as well. A couple of quick ones -- first of all, is there any update on the UVA program our alliance you announced last quarter?

(multiple speakers) It is being pretty heavily marketed, particularly by UVA. (indiscernible) And so -- with the students will be accepted for the fall term. And so we don't announce anything for the fall until we do our third quarter earnings announcement.

But I know one of our executives who is enrolled in the program. So I am getting a little bit of color on how they are going out to it. And we are pretty excited about that. We think that might have some real promise.

Okay. You said that the cost per lead, cost per start or whatever in Atlanta didn't seem materially different. At least in terms of the number of for-profits there, it appears to be a lot more competitive market than many of the other ones. Is there anything else anecdotally that has changed that experience? Or are you still feeling like the key is just for you guys to get yourself there and have the right people running it, and you can still be real successful in markets like that?

Well, I certainly think that is the reality, Gary. I mean, I don't think Atlanta is any more competitive than Philadelphia or D.C., or a lot of the other places that we operate -- Nashville. Most places have a lot of both traditional and for-profit players. And the beauty of this business is there is an awful lot of demand. So at least at the working adult level. So we are quite pleased with that.

Okay. As you look to '05, can you give us any sense as to what additional states or what markets you think might be potential at this point? Or what states you have applications in, maybe?

Well, we don't comment on the states until they are approved. But we have said that we intend to try and expand up and down the East Coast, and then move west. In there isn't (sic) any states that we wouldn't be interested in.

We have got a lot of unmet demand in the states that we are approved in. So we have to balance that against getting new states opened, and causing a vacuum there. So we try and keep a good balance with that. And as soon as we have any anything to announce, we will do that in the next earnings release.

I guess just 2 last quick ones -- the first is in terms of marketing to military people -- I know you have had a fair amount, just given some of your markets.

But it seems like that has been driving growth, or a factor helping drive growth -- a lot of your competitors in online. Are you doing anything in particular to market to that group? And can you give us any sense as to how meaningful that is within maybe your out of market online population, if you know?

I do not think it is that different from our campus-based population. I think we calculate that 3 or 4 percent of our student population are active duty military. And it is a great demographic for us. And so we use a lot of different methods to market to them. But I don't know of anything specific that we are doing with regard to the out of area/online on that, that would be different from what we're doing with regard our campuses.

Okay. And can you remind me when the classification of scholarships changed, was that last quarter? So we still have two quarters of this? (multiple speakers) Going forward?

Yes -- we did it on January 1.

It appears there are no further questions at this time. I would like to turn the conference back over to Mr. Silberman for any additional or closing remarks.

Well, I would like to thank everybody for participating, and look forward to talking with you again in November. Thank you.

This does conclude today's teleconference. We would like to thank you for your participation. You may now disconnect.