Strategic Education Inc (STRA) 2007 Q1 法說會逐字稿

Welcome to Strayer Education Inc.'s First Quarter 2007 Earnings Conference Call. At this time all lines are in listen only mode. Later we'll announce the opportunity for questions and instructions will be given at that time. (Operator instructions). At this time I'd like to turn the conference call over to Sonya Udler, Vice President of Corporate Communications for Strayer Education.

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 StrayerEducation.com where the call will be archived for 90 days. If you are unable to listen to the call in real time, a replay will be available beginning today at 1:00 p.m. Eastern time through Monday, May 7. The replay is available at 888 203 1112 pass code 5468450. Following Strayer's remarks, we'll open the call for questions and answers.

Please note that today's press release contains statements that are forward looking and 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'd like to turn the call over to Rob. Rob, please go ahead.

Thank you, Sonya, and good morning, ladies and gentlemen. As it is our custom, I'd like to begin this morning with a brief overview of both our Company and our business model for any listeners who are new to Strayer. I'll then ask Mark to report on the detailed financial results for the first quarter after which I will comment on our enrollment results for the spring academic term, provide an update on our growth strategies and finally end up with the Company's earnings outlook for Q2, 2007.

Strayer Education is an education service company whose primary asset is Strayer University, a 32,000 student, 47 campus, post-secondary education institution which offers associates, bachelors, and masters degrees in business administration, accounting, computer science, and public administration. Strayer students are working adults who are returning to school to further their careers. Our revenue comes from tuition payments and associated fees.

Approximately 55% of our students are receiving federally insured Title IV loans. 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 12 states in the eastern half of United States as well as throughout the world over the Internet through Strayer University Online. We serve students in all 50 states and over 30 foreign countries through Strayer University Online. Strayer University is accredited by the Middle States Association of Colleges and Schools. Mark, you want to run them through the financials?

Sure. Revenues for the three months ended March 31, 2007 increased 20% to $80.2 million compared to $67.1 million for the same period in '06 due to increased enrollment and a 5% tuition increase which commenced in January of this year. Income from operations was $28.9 million compared to $25 million for the same period in '06, an increase of 16%. Operating income margin was 36.1% compared to 37.2% for the same period in '06. Operating income margin before the impact of FAS 123R expense was 39.2%, unchanged from the same period in the prior year. Net income was $18.8 million compared to $16 million for the same period in '06, an increase of 18%.

Diluted earnings per share was $1.30 compared to $1.10 for the same period in '06, an increase of 18%. Diluted weighted average shares outstanding decreased to 14,490,000 shares from 14,559,000 shares for the same period in '06. At March 31, '07, the company had cash, cash equivalents and marketable securities of approximately $151 million and no debt. The Company generated $28.5 million from operating activities in the first quarter of '07.

Net cash provided by operating activities on March 31, '07 statements of cash flows is reduced in accordance with FAS 123 R by a $9.1 million reclassification of a tax benefit from stock options exercised during the quarter. However, the favorable cash flow affect of this tax benefit will not be realized until the second quarter of '07 when the company begins making '07 estimated tax payments. Capital expenditures were $3.9 million in the first quarter.

During the first quarter, the Company spent $8 million to repurchase 68,000 shares of common stock at an average price of $117.41 per share as part of a previously announced common stock repurchase authorization. The Company's remaining authorization for common stock repurchases was $24 million at March 31, '07.

During the three months ended March 31, '07, the Company paid a regular quarterly common stock dividend of $4.6 million and received $10.9 million upon the exercise of approximately 284,000 stock options. For the first quarter of '07, bad debt expense as a percentage of revenues was 2.6% compared to 2.5% for the same period in '06. Day sales outstanding, adjusted to exclude tuition receivable related to future quarters, was 12 days at the end of the first quarter of '07 compared to 10 days at the end of the same period in '06. Rob?

Thanks, Mark. Just a couple of amplifying comments on the Q1 financials. Revenue growth was basically right on our model. We had reported 16% enrollment growth for the winter term plus the 5% tuition increase driving 20% revenue growth. We had just a slight increase in the percentage of our students who are pursuing graduate studies. We're up to 28% now versus 27% in the winter term last year. So most of that tuition increase does translate down into revenue growth.

On expenses, we were almost exactly on budget. We are very pleased with our bad debt expense trending down to the 2.6% as we successfully worked through the lower collections from the summer term that we've been talking about for the last couple of quarters. Our operating margin in the first quarter before the impact of FAS 123 was exactly even with last year. So the growth and profitability of the campuses that we opened in previous years is offsetting the losses associated with the newest campus openings that we did at the end of last year and the beginning of this year.

We did a little better on investment income to round up to $1.30, but we were basically right on the forecast that Mark made in February, which From our standpoint, is what we're trying to do given the predictability of this business. As Mark said, our increase in cash flow during the quarter is masked by the reclassification out of net cash provided by operating activities and into net cash provided by financing activities of a cash tax benefit which makes perfect sense, except we haven't received yet. We won't receive it until this quarter and that anomaly in our cash flow from operations will correct itself on our June 30th balance sheet and cash flow statements. From Mark's and my standpoint that's probably the metric we look at most closely so we want make sure everybody understands that.

Turning to the spring term enrollment results, we had a strong quarter. Total university enrollment increased 16% on a year over year basis. Continuing student enrollments were up 16% and our new student growth was up 17%. With the continuing student enrollments you can infer we had basically even retention rates, basically maintaining the high rate that we've been delivering over the last several quarters. So all the programs that we've put in place for that seem to be performing about where we would have hoped.

With regard to student mix, the business administration, accounting and economics degree seekers have grown to almost 70% of our student body for the spring term with Computer Science degree candidates at just below 20% of the total student population. The three new graduate programs are little over 7% of our student population. As I mentioned, overall graduate population is up to 28%. That again is almost triple from the time we started.

I think when we started, Mark, it was about 10% of our student population were in the graduate programs. Those three new graduate programs add about half of that, a little less than half that growth and then it's just in our newer markets that we've done quite well on the graduate MBA and master's in accounting and master's in computer sciences.

We were very pleased to announce this morning that the Strayer University Board of Trustees has elected Dr. Sondra Stallard as the 15th President of Strayer University. Sondra is replacing Dr. Chris Toe who many of you may remember resigned approximately one year ago to serve as the Republic of Liberia's Minister of Agriculture. Sondra earned her Ph.D. in Education from the University of Virginia and she comes to us from that institution where she has served for approximately the past 10 years as the dean of the University of Virginia School of Continuing and Professional Studies. Prior to that, Sondra was a faculty member at UVA's Curry School of Education and at Darden Graduate School of Business Administration. We're quite excited to have her on board.

Dr. Joel Nwagbaraocha who has been our interim university president for the past year will remain with the university as our Provost and Chief Academic Officer and we're very grateful for the double duty that he's pulled for the last year as interim president.

Turning to update on our growth strategy, many of you will remember that our strategy is based on five 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 into new states. Third, invest in and build up our online offerings. Fourth, increase our corporate institutional alliances and the final objective is to effectively redeploy our owner's capital.

On our first objective for the spring term, we continue ahead of that target of at our mature campuses. We showed 6% growth. Over the last year, that has sort of consistently inched up. Part of that is the result of some of the campuses which we count in the mature category which are only four, five or six years old which are still in a fairly high growth stage. And also part of it was just even in the D.C. market in our fully mature campuses we actually did quite well for the spring term.

With regard to new campus activity for the spring term, we opened two campuses in the Orlando, Florida market. We're also pleased to announce that we've been approved by the state of New Jersey to open campuses there as well. We announced this morning our planned campus openings for the latter half of 2007, which include two campuses in New Jersey, one in Knoxville, Tennessee and one in Atlanta, Georgia. The Atlanta campus in 2007 will be our fifth campus in that market. So we're starting to really have an impact in Atlanta as well. Depending on the timing of final regulatory approvals, we'll either open these campuses in the summer or the fall of 2007 and we'll know that in the next month or so.

In the out of area online unit, our growth rate was 21%. On capital redeployment we announced this morning our regular quarterly dividend of $0.3125 cents per share. We also announced we have repurchased approximately $8 million worth of our common stock during the first quarter so we continue to be an active redeployer of our owner's capital.

On the business outlook for the second quarter, based on the university's strong enrollment growth for the spring term, offset partly by the increase expenses of opening new campuses which we've been through before, we estimate our second quarter EPS will be in the $1.13 to $1.14 range. That will include approximately $0.11 of stock based compensation expense. In the second quarter, we again expect roughly stable operating margins verses the prior year. We are opening eight campuses this year versus eight last year and so we get a little bit of a margin benefit from that standpoint.

With that, Operator, we'll be pleased to answer any questions.

Thank you, sir. (Operator instructions). We'll take our first question from Mark Marostica with Piper Jaffray.

Thank you. Good morning. A question on the selling and promotion line. As you kind of look at that line item and think about it going forward considering you have to weather the storm in opening these new campuses in new markets, how should we think about that over the next several quarters in terms of its relationship to revenue growth?

First off, we don't think about it as weathering the storm. We think about it as an advantage. It's probably the best investment we can make in expanding the university. It's entirely dependent, Mark, on the number of new markets relative to the number of established ones. This year we're opening eight campuses and we're opening five new markets. So that selling and promotion line will grow relative to revenue and grow at a faster rate than revenue.

In years and which we're opening either less new campuses or more importantly less new markets, then we would get some leverage on that as existing markets continue to expand. That is the key financial leverage in the operating model is the fact that we're investing by building our brand in these new markets and the more that we do in a given year, the more margin compression or rate of growth of selling promotion higher than revenue then we would have in a quarter or year in which we don't have that much expansion. We like the expansion. We'd like to do as much of that as we can.

As we've said in the past, the constraint there is not our willingness to spend money on that line but our capability of finding sufficient academic and administrative staff to make sure we're providing a quality educational experience.

Rob, just one follow up on that point of academic and administrative staff. How would you categorize or make a comment on your bench strength of staff to support your growth over the next several quarters?

Certainly over the next two quarters we're quite comfortable because we've announced the eight campuses and we think we're well prepared for that. We'll begin the process of thinking about '08 in a few months when we do our summer planning retreat. We've got a lot of programs in place to try and strengthen and amplify our ability to grow academic and administrative leaders. I'm cautiously optimistic with regard to their efficacy, but we really won't make any of those decisions until we sit down in a very discreet way and think about individuals and opportunities and try and match those up and see what we look like for '08.

Great. Thank you.

Thank you, Mark.

We'll go next to Amy Junker with Robert Baird.

Good morning. Just a quick follow up on that line. Who primarily is making the decision in terms of who gets promoted? Is it you, Rob, or is Karl McDonnell playing an increasing role in that as well?

Karl certainly plays a key role in that. We have our senior academic leadership. Dr. Joel is our interim university president and Randy Rice who is our senior vice president of academic administration and then there's a number of people who also report to Karl on the administrative side. It's kind of a key strategic decision we make each year so it's not something that I'm unaware of, I guess would be the way I'd describe it.

Okay. That's helpful. Have you announced what markets you're going to be entering in New Jersey?

No. It's likely that what we're going to do is concentrate on at least early on in southern New Jersey and the general Philadelphia market. We think Philadelphia, like Atlanta, is a really attractive market. It deserves additional investment. We haven't been able to serve students directly across the river over the last several years and this would give us an opportunity to do that.

Even though that would be considered a new market, it seems like you would be able to leverage at least some of your sales and marketing because you're just not that far away. Is that the correct way to think about it?

Yes. If we're concentrating in southern New Jersey near Philadelphia, we will get some benefit on that being in the same media market.

Great. That's all I have. Thanks.

Thank you, Amy.

We'll go next to Jerry Herman with Stifel Nicolaus.

Thanks. Good morning, everybody. Hi, guys.

Good morning, Jerry.

Rob, can you give us an update on Middle States and your confidence level that those approvals will come through in June when they have their meeting.

We work very closely with them. We think that's an important part of our ability to ascertain ourselves how we're doing on academic quality. We've hosted a couple different visits in the last few months; one as recently as last week. We're hopeful that we'll get the accelerated reaffirmation in June, but that's something that -- it's a Commission and they act really on their own schedule. We'll just continue to provide them with the information that they need and focus on our side on running the university properly and we'll see what happens.

Would they have the ability to grant approval to open new facilities without the full accelerated reaffirmation?

Absolutely.

Okay. Great. A question on retention. I know that you made a point of that in your shareholders letter. Can you maybe fill us in or give us some additional color on what implications that 1.5% increase year over year last year had for graduation rates or the lifetime value of the student?

It's a good question. It's not an exact correlation, because increasing the retention rate is really just measuring the rate at which a student is enrolled in one quarter and enrolls in the next quarter. That really has to compound across eight, nine, 10 quarters to have that translate directly into graduation rates. But, our graduation rate continues to increase and it increases at a rate or at a scale commensurate with our increasing retention rates and that's basically our plan.

That's our hope that as you put programs in place that make it easier for the student to find the sources of support necessary to perform academically and get through the program then over time you're building a bow wave that will go through our average student stays about eight or nine or 10 quarters because they have, in many cases, roughly half of their credits already earned at other institutions, particularly if they come from a community college. Increasing that retention rate should over time drive graduation rates up. It is doing that now.

I think I answered a question last quarter with regard to how high can the retention rate get. We think it's pretty full right now. We measure it net of graduations. We continue to watch it quite closely and more importantly make sure we're investing in the educational support functions necessary so that it stays quite high and then that graduation rate flows from that.

Are you guys willing to quote a rate at this point on graduation?

It depends on how you define it. What I would consider our actual graduation rate is in the mid to high 60%. That's not the way the Department of Education calculates it because they specifically focus only on first term students that have zero college credit, full time. We just have very few of those kinds of students. I think that number is in our K; I forget what that one is, Mark.

It's around 20, I think.

It's about 20%. It's a really irrelevant statistic given that it measures about 1% of our student population.

Then just one last question. Kind of a general question with regard to online as it grows its importance in your business. Can you talk generally about the scalability and how you're feeling about the infrastructure of that business at this point?

Sure. There's really two aspects that question. One is I think much more important than the other. The technical scalability, particularly given on the asynchronous side we outsource that. I think that's quite scalable. I think the people that we work with are very capable of keeping up with our growth.

The much more relevant and difficult question is our ability to scale our academic infrastructure to hire and train and mentor enough faculty, not just who are good teaching faculty but who are capable of teaching on line. That is always, as we've said in the past, the gating factor. We continue to work at that, but given the rate of the university expansion that we're certainly in the last couple years experiencing, we haven't had difficulty keeping up with that and providing sufficient amount of online faculty. We look at it very, very closely.

Great. Thanks guys. Appreciate it.

We'll go next to Matt Litfin with William Blair.

Good morning, Rob and Mark. I wondered if you could speak to the success of the new campuses opened in the past year as measured by enrollments, maybe comparing that with the year one results that you were getting on new campuses just a few years ago. And then just talk about why you think those trends are occurring?

Well, they have been positive. The performance of the campuses that we opened in '06 is one of the main reasons why in opening eight new campuses this year we're enjoying roughly stable operating margins. Those campuses are profitable at a faster rate than our model would suggest. A lot of that depends on the caliber of people that we have in there. I think we have some really good choices and some really good locations. It continues to increase our confidence level and our ability to effectively expand the university.

The interesting point that I'd make on that is it's a little bit of an unintended benefit and it doesn't really change our view of the attractiveness of employing our owner's capital and expanding the university. If they weren't performing ahead of schedule, if they were just performing on schedule, we would still open as many campuses as we could commensurate with our ability to source the individuals. It gives us a little bit of a benefit on a year over year basis, on operating margin and a few cents of profitability, but in the long run it's secondary in benefit to the fact that if you look over time think about it from a market standpoint.

We started six years ago in Washington, D.C. We're now a major provider of educational opportunity in the Philadelphia, Baltimore, Charlotte, Raleigh, Atlanta. We're talking about a fifth campus in Atlanta; what would be a sixth or seventh campus in the Philadelphia market. That's really for me the longer run generation of value which is driving our focus. But it is nice to have the ones that we opened just last year doing quite well and gives us a little more positive benefit on the reported financials.

If I could just dial in on that just a little bit with one more question. Are you able to put any kind of scientific or quantitative analysis on those, obviously, positive trends in new campus openings to decide whether it's the people that you have that are causing that success or whether it's the markets you're in?

Well, in the past when we studied that it's always been the people. We've got a little bit of data from the standpoint of taking people from one market to another; a market which maybe hadn't looked positive all of a sudden looks very positive when you've got the right academic and administrative leadership on campus. These are cultural service organizations. They're sort of different from any other business I've ever looked at.

If you have the right atmosphere and you're engaging the student in a way that they feel is valuable to them, you're going to grow that campus pretty quickly because there's a high demand for what we do and if you do it well it spreads by word of mouth. In situations where it's not quite as strong, the atmosphere is not quite as strong as it might be, it grows a little bit slower.

From a purely financial standpoint as I said earlier, you're really talking about increasing levels at the margin of profitability and within our base model you're still going to manage this business in a way that you redeploy your owner's capital as quickly as you can in the business. It is nice to have, to know that when you get the right team in place we have campuses that have been profitable literally in the second quarter after they open.

Thanks, Rob.

You bet.

We'll go next to Trace Urdan with Signal Hill.

Good morning, Rob. Some folks have been talking about the sense that there is a shift in the ambient demand for online. That somehow the acceptance of on line and online education has kind of turned some sort of corner and it's getting easier to attract people to those kinds of programs. Would you endorse that view or has there not really been a change from what you've seen over the last couple of years?

I'm not sure I'd say that we've seen a change, but one important caveat is that so much of our online offerings are accessed by students who are also taking physical campus based classes. They, the students, cannot differentiate that in their own mind. If it's more convenient for them to take a particular class online, they'll take it online. It also tends to self select. Some of our students really like studying and taking classes online. There's others who don't.

Our view has been that if you provide the full menu to them that the student is going to be best capable of deciding which learning medium works best for them. Because of that we haven't really tried to distinguish online education from our classroom based education. It's one university. It's one degree.

In terms of acceptability, one wouldn't even know on the outside. The student is the only one who knows how many classes they took online or how many that they took in a classroom. Except for that percentage of our students, about 15% that are out of area online, where it's quite obvious if you live in Boise, Idaho, we don't have a campus in Boise, Idaho. So if you went to your boss and said you just got a degree from Strayer you'd have to explain it was on line. It's a relatively small portion of our students. For the rest of our students it's just Strayer University, whether they're taking classes online or in a classroom.

I'm glad you brought up the out of area online. That was the second question I had. You guys have always been a little bit ambivalent about that as the source, meaning that it's a secondary source of revenue and growth for you and you focus most of your efforts on your in market activities. I'm wondering can you talk to us a little bit about how you manage out of area online as a business unit. How you set targets for it? What your expectations are for it? Are you trying to wean yourselves from it over time? Can you just comment on that?

I certainly wouldn't say we're trying to wean ourselves from it. We think it's an attractive and exciting way to enroll students who we otherwise would not be able to enroll. What I have said in the past is that over time the geography that our out of area online unit serves shrinks because as we expand our campus network we administratively manage those students through a campus.

Now at some point in the future when we have campuses throughout the United States, then conceivably that out of area online could only be an international function. We're certainly not trying to wean ourselves from it. We're trying to support it the best way that we can. Bear in mind that we make a lot of investment in our campus structure which is sunk investment which is then made available to the out of area online without any additional cost.

In other words, we're building a brand presence in a lot of markets and some of the ways that we do that is by having a presence on the Internet, on the Web. So we'll just attract students from places where we don't have campuses just on the basis that they happen to be searching on the Web for education and they find us. In the same matter, we hire a lot of faculty and teach them to teach online because a lot of our campus based students want to take online classes. So we got that sunk costs in a trained online faculty or a better way to think about that is we've cross trained much of our campus-based faculty to also teach on line.

So again, if a student reaches us from San Diego or Tokyo or some place we have an infrastructure we already paid for in place to support them. That's really how we think about it. It's almost an infinite return on top of the investment that we're making in building out our campus network.

Right. But given that, you could presumably increase your level of investment in out of area online and grow it more aggressively. Do you try to manage to a certain level of profitability for that business?

No. As I've said in the past, we can't be that concerned about short term profitability. We manage our growth of out of area online to the level at which we think we can prudently and carefully support those students in a way that they have a real university experience. That's our governing factor across the whole organization.

Is that about the class capacity then?

No. Our class capacity exists already because the classes are set up and scheduled and the professor doesn't know until after the class starts how many of those students will be in Tokyo and how many are in Washington, D.C. It's really more about that administrative function. For those out of area on line students, by definition, I don't mean to restate the obvious, but you don't see them. You're only interaction with them is either over the phone or over the Web.

Coming back to school as an adult is a difficult thing to do. It's a difficult decision to make and if you do it right it's a challenging experience. We find that the interaction that you have with an out of area online student is not as fullsome as you have with a student who is walking into the classroom once a week, so you have to really focus and build up a support structure which is necessary to do that.

It's also not a process that we think lends itself to being oversold. The student has to really want to be in school. They have to want to put the effort in and in many cases the support structures that reinforce that desire that you have in a campus network, that sense of community; you don't have in the out of area online. We let it grow at the rate at which it naturally grows, Trace, is the way I would describe it.

Okay. Thanks, Rob.

We'll go next to Gary Bisbee with Lehman Brothers.

Hey, guys. Good morning. I guess a couple questions. Given that you continue to generate lots of cash, any thoughts on a more aggressive return of capital, whether it be a special dividend or potentially a tender for a larger chunk of shares than you're able to buy?

Well, we think about return of capital all the time. We know that's an important way in which you generate returns for your owners in a business that generates more capital than it can use. We've said in the past that in years in which the market doesn't allow us to repurchase shares at a discount to its intrinsic value, we don't have any problem. We're completely agnostic about returning that capital to owners in a special dividend. We haven't been in that situation yet.

We also believe that as a business we're benefited by having an overcapitalized balance sheet. There's a lot to running a university in the same organization that's also a publicly traded company that requires or demands certain types of financial management that might not look exactly the same as other types of businesses. We're pretty comfortable that we're being quite aggressive with making sure that excess capital, when I say excess, I mean capital which is beyond what we can use internally, is returned to owners in the most value enhancing tax efficient manner. But it's also something we look at each quarter.

Okay. Going back to the New Jersey approval, a couple others who've had approvals there the state has [spoken to onerous] restrictions on them like a much higher percent of full time faculty then what normally would be the case and other things like that. Is there any in your approval that changes the financial model of those schools? Or are you pretty happy with how that turned out?

We're delighted with how it turned out. The only distinction for us is that ours for the first couple years will only be undergraduate programs, but there's no difference to our model with regard to how many full time faculty we have or library resources or anything of that nature.

Okay. Two last quick ones. The tax rate is 38% a better number, or if we're thinking 38.5% prior to this quarter. Is that still the right number?

Gary, as you know it depends on our investment income which is lack largely in tax exempt. It depends on our apportionment of State tax expense. I think 38% is probably a good number to model in.

Okay. Lastly, I remember a couple years ago now you did an alliance with UVA and had students do part of their education there and then complete it at Strayer. How is that going? Has that been a good enough experience to look and try and find other opportunities like that as you expand into other space?

It was originally a joint MBA. We subsequently expanded it down into the undergraduate -- there's a joint bachelor's and business degree. We don't market it outside the state of Virginia. It's gone fine. We are quite pleased with it.

The fact that we are able to provide students who otherwise because of their location in the state of Virginia would not be able to achieve degrees from the University of Virginia in various program areas, is for us an important benefit that we can provide in what's one of our most biggest and important markets. We haven't really looked at the graduate or bachelor's level for other kinds of arrangements like that. We didn't really look for this one. They had originally had come to us.

We do have a very extensive program of trying to link up with community colleges and enter into articulation agreements where students will graduate from the community college and matriculate directly into Strayer's bachelor's program. We have -- what? 80? -- some big number; a large number of community colleges around the country that we do that with.

Okay. Thanks a lot.

Thank you, Gary.

We'll go next to Corey Greendale with First Analysis.

A question first on the programmatic mix. I think that's been pretty stable between IT and business lately and it sound like it kind of shifted more this quarter. Any thoughts on what might have caused that?

I really don't know, Corey. That's one where again it's like the online verses campus based. We put the inventory out there and let the students decide what they want to take. It was a little bit more of a shift in this quarter. We've had a slow and steady growth on the computer science programs and we've had much more rapid growth on the business and the graduate business programs. We also saw a little bit of an up tick in economics which is generally not that large of a degree for us. I don't really have an explanation nor would I predict that it stays in any given mix going forward.

But if you look over the last six years, when Mark and I started, about half of our programs were Information Science students and now it's down to under a quarter. But again we talked about this in the past one of the reasons we've expanded out of the Washington, D.C. market which is a very IT centric market and we've gone into other communities that have less of an IT focus and I think that may be partly the explanation as well.

Okay. Do you think there's any change in the perception of the Strayer brand that it's come to be known as more of a business brand?

Well, I wouldn't have thought of it as more of an IT brand when I started. I don't think that's the case. It was Strayer Business College before it became Strayer University. No, I wouldn't say that there's anything of a shift there.

Okay. Can you comment on trends in cost per lead/cost per start in the quarter?

Our cost per student inquiry was down quite a bit. Our cost per student acquired was basically even, maybe up just a couple of basis points. The cost per student start was actually better than our budget because again, back to Mark's original question; that selling and promotion line growing as a percent of revenue happens because you're going into brand new markets where you don't have any name recognition and you spend the same amount on brand building in the first quarter as you do 10 years later, but you just don't have as many students.

We expect our cost per student acquired to go up in years where we're opening a lot of new markets. It really hasn't this year and that's a benefit which runs through the income statement. The cost per student inquiry, lead as you put it, being down is really just a measure of the effectiveness of our marketing staff and our regional marketing managers and the way that they are buying brand building media.

Thanks, Rob.

Thank you, Corey.

We'll go next to Brandon Deval with Credit Suisse.

Hi, guys. This is actually Chris on for Brandon today.

You didn't make the first payment with Brandon?

He had to duck out. Sorry about that.

He's going to pay for that.

He'll explain later, believe me. The first question is maybe if you could talk a little bit about the Philly and Atlanta markets. I know that a lot of the for profit players are pretty big at least in the Atlanta market. Just wondering what you guys find attractive about those markets?

A lot of students. A lot of qualified faculty. Growing opportunity. They're behaving about the way we thought; maybe a little bit better then when we laid out this plan six years ago. At the time, we had probably nine campuses in the Washington, D.C. market and we looked around at the other markets around the country and said by that ratio, how many students should you be able to attract in a market of similar size.

All of it depends on the caliber of your classroom experience and particularly when you're starting off new the way in which those first few students and alumni feel about the education, but if that goes well we think the demand for working adult focus post secondary education is quite high throughout the country. You've got to market with sufficient population size it ought to grow pretty well. That's been our experience.

Okay. Just one follow up. Can you maybe give us a little more specific detail on the timing of the new campus openings? Are you still expecting three or four of those to happen in the fourth quarter as opposed to two and two? How should we think about marketing spend depending on the timing?

I think the most likely scenario is marketing spend in the third and fourth quarter and enrolling students for the fall term; if we can do it earlier, we will. If we have to delay, we will. It will be sometime in the next six months and we'll just work with the Department of Education and the accrediting bodies to do it as efficiently as possible.

Thank you.

You bet.

We'll go next to Mark Hughes with SunTrust.

Thank you very much. I don't know if you gave the Title IV exposure. Could you say that again?

It was about 55% of students and it's about

Mark, it's 65% to 70% of revenue roughly.

I got you. Okay. Thank you very much.

Thank you, Mark.

(Operator instructions). We'll go next to Howard Block with Banc of America Securities.

Good morning. This is Aramie Dimm for Howard. Just to get back to the new campuses in New Jersey and elsewhere, can you comment on what types of areas these campuses are in, whether its commercial development, residential, etc.?

What we try and do with our campus locations is find locations that are near where working adults either live or work or are on a commuting pattern between one or the other. In our New Jersey campuses we expect that those locations would be consistent with that. We haven't finalized them yet. We'll have to pin that down. If you look at, for instance, across the Delaware and Philadelphia we've got one campus downtown. We've got three in suburban areas around the city. We have one down in Wilmington. It's where people live or work is what we look for.

Great. Thanks. Could you comment a little bit on this idea of shifting summer starts to later in the second half?

I'm not sure I understand.

Something was mentioned on the last call.

This wouldn't be summer starts. This would be opening of the campuses. In the past, we've timed campus openings to take their first students for the summer term in July. Those tend to be seasonally lower terms anyway. So you end up with some expenditure that might be better saved to start the term in the fall.

In this case, we will almost certainly be doing that this year. We'll look at it with regard to next year whether it makes more sense to time the openings evenly through the year or try and focus them on the period's of the academic calendar year where students are most likely to enroll, which would be basically the fall and winter. A lot of it is dependent upon balancing the administrative imperative of making it as easy as possible to open a large number of campuses in a given year. In some cases it's just easier to spread it out and you just accept that cost as part of the cost of investment of having a light start in the summertime.

Okay. If you do go ahead with that this year we might expect to see some cost shifting around a little?

It's not that much cost, actually. You end up, for instance, we will be investing in brand building in those markets with the exception of Knoxville which is a brand new market. It's kind of small, but we'll be doing that anyway. It won't have much of a cost impact.

Great. Thanks for clarifying.

Thank you.

And ladies and gentlemen, at this time we have no further questions. I'd like to turn it back to Mr. Silberman for some closing remarks.

Thank you, Richard. We appreciate everyone's participation and look forward to talking to you all again in late July. Thanks very much.

Ladies and gentlemen, this will conclude our teleconference for today. Once again we do thank you for your participation and you may disconnect at this time.