Strategic Education Inc (STRA) 2011 Q1 法說會逐字稿

Good morning everyone and welcome to Strayer Education, Inc. first-quarter 2011 earnings results conference call. This call is being recorded. Following today's call we will for the opportunity for questions and answers. At this time for opening remarks and introductions, I would like to turn the call over to Strayer Education Senior Vice President of Corporate Communications, Ms. Sonya Udler. Ms. Udler, please go ahead

Thank you Operator. With us today to discuss the results are Robert Silberman, Chairman and Chief Executive Officer for Strayer Education; Karl McDonnell, President and Chief Operating Officer; and Mark Brown, Executive Vice President and Chief Financial Officer. For those of you that wish to listen the conference via internet, please go to strayereducation.com where the call 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 PM Eastern through Thursday, May 6. The replay is available at 800 642 1687 conference ID 54712198. Following Strayer's remarks, we will open the call for questions and answers.

I would like to remind everyone that today's press release contains and certain information on this call may contain, 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 paragraph on forward-looking statements at the end of this 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 10K and its other filings with the Securities and Exchange Commission. Copies of these filings and the full press release are available online and upon request from the Company's Corporate Communications Department. 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 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 will then ask Mark to report on our first quarter financial results and Karl to comment on our operational results, including our enrollment statistics for the Spring academic term. Finally, I'll provide an update on our growth strategy and the Company's earnings outlook for Q2.

Strayer Education is an education service company whose primary asset is Strayer University. A 55,000 student, 90 campus post-secondary education institution, founded in 1892, which offers Bachelor's, Master's, and Associate's Degrees in Business Administration, Accounting, Computer Science, Public Administration, and Education. Unlike traditional universities, Strayer University students are working adults who are returning to college and graduate school to further their careers and improve their lives.

Our revenue comes from tuition payments and associated fees. Approximately 75% of that revenue comes to us from Federal Title IV loans issued to our students. Our expenses at Strayer Education include the cost of our professors, our admissions and administrative staff, marketing expenses, and facilities and supplies cost. We serve students in 20 states through physical campuses, as well as, in all 50 states and over 30 foreign countries through our online courses.

Strayer University is accredited by the Middle States Commission on Higher Education. Now Mark is going to run through the financials.

Sure. Before walking everyone through our financial results, I would like to highlight the changes in the financial statement presentation, which we implemented beginning in the first quarter of this year. The company changed its presentation of our operating expenses and re-classified prior periods to conform to the current presentation. Specifically, we divided the marketing and admissions expense into two separate line items. We also grouped all campus related expenses, except for admissions, in the instruction and educational support line. Bad debt expense, which had been included in G&A, is now included in the instruction and educational support line.

Also effective during the first quarter of 2011, the company changed its presentation of tuition receivable and unearned tuition in the balance sheet. Prior to the change, the company recorded tuition receivable and unearned tuition upon registration of the student. Effective with this change, tuition receivable and unearned tuition are not recorded until the start of the academic term. Therefore, at the end of our reporting quarters and our academic terms, our tuition receivable will now represent amounts due from students for educational services already provided. While unearned tuition will represent advance payments received from students for academic services to be provided in the future.

We believe these changes are preferable because they provide more meaningful information, increased transparency of our operations, and improve the comparability of results with others in our sector. The changes have been reported retrospectively for all periods presented and had no impact on income from operations, net income, EPS, working capital, retained earnings, stockholders equity, or on net-cash provided by operating activities. Nor did they affect the company's revenue recognition policies.

Now I'll share with you our financial results for the quarter. Revenues for the three months ended March 31, 2011, increased 9% to $172 million, compared to $157.9 million for the same period in 2010. Principally due to increased enrollment and a 5% tuition increase which commenced in January of this year. Income from operations was $59.2 million, compared to $59.9 million for the same period in 2010, a decrease of 1%.

Operating income margin was 34.4%, compared to 38% for the same period in 2010. Net income was $35.8 million, compared to $36.4 million for the same period in 2010, a decrease of 2%. Diluted earnings per share was $2.80, compared to $2.65 for the same period in 2010, an increase of 6%, reflecting a lower share count due to share repurchases. Diluted weighted shares outstanding decreased to 12,794,000 from 13,729,000 for the same period in 2010.

At March 31, 2011, the Company had cash and cash equivalents of $71 million. The Company generated $67.2 million from operating activities in the first quarter of 2011, compared to $63.1 million during the same period in 2010. Capital expenditures were $11.4 million for the three months ended March 31, 2011, compared to $12.2 million for the same period in 2010.

On January 3, 2011, the Company entered into an unsecured new revolving credit facility with maximum out of borrowings available of $100 million and a three-year term. At March 31, 2011, the Company had $80 million outstanding under this facility. On April 4, 2011, the Company entered into an amended and restated revolving credit and term loan agreement. This credit facility, which is secured by the assets of the Company, provides for $100 million revolving credit facility and a $100 million term loan facility with the maturity of March 31, 2014. Proceeds from the term loan were used to pay off the $80 million outstanding at March 31, 2011, under the original revolving credit facility.

During the three months ended March 31, 2011, the Company invested $127.2 million to repurchase approximately 936,000 shares of its common stock, at an average price of $135.91, as part of a previously announced sock repurchase authorization. The company's remaining authorization for common stock repurchases was $80.5 million at March 31, 2011. During the three months ended March 31, 2011, the Company paid a regular quarterly common stock dividend of $13.2 million, or a $1 per share.

For the first quarter 2011, bad debt expense as a percentage of revenues was 3.5%, compared to 3.2% for the same period in 2010. Days sales outstanding was 13 days at the end of the first quarter of 2011, compared to 12 days at the end of the first quarter of 2010. Rob.

Thanks Mark. Karl, why don't you hit the highlights on operational results and then also run through the Spring term enrollment.

Sure. Total enrollment for the spring academic term was 55,974 students, flat versus the prior year. Our new student enrollment decreased 19% and our continuing student enrollment increased 4%. Continuation rate for the quarter declined 10 basis points. Enrollment at our mature campuses decreased 6%, while it increased 48% at our new campuses, and global online students increased 1%. Enrollments from corporate and institutional alliances increased 18%. In addition, we added eight new agreements during the quarter including a nationwide agreement with Starbucks.

During the quarter, we opened two campuses for the Spring academic term; one in the Indianapolis, which is a new market; and one in Dallas, Texas, which represents our third campus in that market. With these two campuses, we have opened five of our planned eight for the year. The remaining three will open for our fall academic term and we will announce their locations when they open.

Lastly in terms of student mix, approximately 70% of our students are enrolled in the undergraduate degree programs with Business and Accounting representing roughly 2/3 of that population. And graduate programs continue to comprise roughly 1/3 of our overall student mix Rob.

Thanks Karl . Just one comment on the financials, going back to Mark's presentation, from my perspective. For the first quarter, at $2.80, we earned $0.14 more than the midpoint of our forecast of 90 days ago. But roughly half that variance, or $0.08 was a result of the share repurchases in the quarter that Mark described and about $0.06 was based on higher operating margin than forecast. And then while net income was down slightly in the quarter, earners distributable cash flow was actually up around 10% on lower CAPEX versus the prior year as Mark mentioned and also some better working capital management.

Turning to a brief update on our growth strategy. I think 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, invest our human and financial capital in opening new campuses, particularly in new states and markets. Third, continue to invest in and build our online offerings. Fourth, increase our corporate and institutional alliances. And the fifth and final objective is to effectively allocate our earners capital.

Karl has already reported on our first four objectives. On the capital allocation, we announced this morning our regular dividend of $1 per share and also that we had repurchased, as Mark said, roughly a $127 million of our common stock during the first quarter at an average price of around $135. Again just to reiterate, we use cash on hand plus an $80 million draw on our line-of-credit to fund those repurchases. As Mark mentioned, shortly after the end of the quarter, we entered into a new $200 million credit facility with the term loan and revolving credit that Mark described. Just to be clear, we used that term loan to replace our previous line-of-credit which is the one that's listed on our March 31 balance sheet.

Finally, on the business outlook for the second quarter of 2011, based on the university's enrollment for the Spring term, we expect earnings per share of $2.36 to $2.38 in the second quarter and approximately 800 basis points of operating margin decrease versus the prior year. This is the effect of the lower enrollment that we described back in January that our investment plans and our expenses that we've incurred to build out the university, we don't really intend to adjust that significantly . We're comfortable with that variation in revenue, which is going to cause some variation in operating margin. And with that Operator, we can answer

Thank you ladies and gentlemen.

(Operator Instructions).

Andrew Steinerman; JPMorgan.

I'm going to take a risk here. I know your standard line is new enrollments tend to bounce around. The past two quarters, this and last quarter, new enrollments were down about the same amount. Do you feel like that might be a point of relative stability?

I just don't know Andrew. We now have three quarters in a row of new student enrollment well below the trendline of our campus expansion. So, clearly, there is some impact on demand that we're facing. But, as you said, we do feel like new student enrollment is likely to be variable and we're comfortable with that. So, I would just hesitate to describe anything as stable. Just because it's going to be based on when students want to come back to school.

We've got probably a little more insight into what's driving demand with now three quarters under our belt. But, it's not the sort of thing, in our judgment, is going to change any of our business plans or our investment plans for the university. We'll just continue to track it.

Okay. And, just a quick comment on student persistence, I think you mentioned the continuation rate. Do you feel like, prospectively, there's any variability in that area?

That's one that we feel stronger about and hopefully that is stable. And, it's remained quite high through this period. And is really for the last couple of years, been almost statistical as high as it can be. If that stays strong, we'll be quite pleased. If we see variability in that, we'll be much more concerned.

Thanks, Rob.

Thank you, Andrew.

Sara Gubins; BofA Merrill Lynch.

Rob, you just mentioned that you've gotten some more insight about what's driving demand trends. Could you share some of that with us.

Only in that we are now seeing phenomenon that is extending over a period of time. So, clearly demand has been constrained somewhat. We don't have any more clarity as to the relative importance of the sources, but after three quarters, it would be I think disingenuous not to recognize the fact that you've got probably some impact from the economy, some impact clearly with regard to regulatory uncertainty and discussion of the role of for-profit education. All of which is combined in some way to cause less students who contact us to want to enroll. And, again, it's not the sort of thing from our perspective, changes significantly our view of enterprise. But, it is I think helpful when you have several quarters in a row to be able to have some increased sense of the causes. And, obviously, we'll continue to look at it for the next couple quarters, as well.

Okay. And, then, with the announcement that year round Pell Grants are going away, could you comment on what your thoughts on how that might impact enrollment or where students would get funding from.

Well, taken in reverse order. For our students, I assume that a reduction of some thousand dollars or so in actual Pell availability, that would be made up with Title IV borrowings. Or, for those students who are part of corporate alliances that they would have that source of credit. We're not particularly concerned about Pell Grants as a source of driving students toward Strayer University. As a matter of fact, in many respects, I find that the more the student has invested in their own education, the more likely the student is going to be successful. And, so, due to the fact that it's a grant, we can't really control how much is taken from that. But, we're certainly not concerned about that being lowered. As a matter of fact, we're frankly mildly in favor of that.

Okay. Thank you

Thank you

Arial Sokol; UBS.

Hi. Good morning. Congratulations on the quarter.

Morning.

So, just going to the financials and the new presentation, I was hoping you could walk us through, in a more granular fashion, the job functions and, or the activities, that go into instruction and educational support, from marketing and general administration and bad debt expenses is obvious. But, what exactly is in that line item now that would be very helpful.

Yes. So, Arial, what we now have in that line item is essentially all of our costs related to campus operations, with the exception of -- excluding admissions. Where as before, we had for example our business office operations in the GNA line. And, we had some other student support activities in the marketing line. Those are now in the instructional and educational lines. So, that's truly our campus operations, excluding the admissions function.

I apologize, can you give more detail. What do you mean by student supports that used to be in the marketing line? What was the actual function, just so I can get a sense of flavor for it?

Sure. We have a couple of individuals at each campus, who, while they're not involved in admissions, are there almost ombudsman's, consumer advocates, from that standpoint, who deal with existing students on non-academic matters just sort of helping them get through the balance of work life necessary to go back to college as an adult. And, it's a couple of people per campus and so we've adjusted those over.

Basically, what happened was on this whole income statement presentation, I was impressed with the way Apollo did there's a quarter or two ago. And, Mark and I looked at it, and said, look this would be more helpful for everybody else. We see this detail anyway. To see the break out of actual marketing expense versus admissions staff. Once we looked at that we decided, we really hadn't looked at it in 10 years, to do a complete scrub and make sure that we had positions aligned appropriately. And, then, that lead into a look on the balance sheet with regard to the accounts receivable and the unearned tuition. Where there, frankly, we're just taking the same way we always adjusted for days sales outstanding, and rather than making the adjustment, just giving the visibility on the balance sheet so you all can see it, as well.

One follow up then. Do you guys intend to file perhaps a 10K showing what the presentation would have been for perhaps the last four to eight quarters.

So, clearly for the comparable periods, we've obviously included that in the filings. And, we're evaluating whether to in this 10 Q provide that same information for all of last year. It's something we're evaluating. If we do it, it will be in this Q.

Otherwise, it will be in each release.

Great. Thank you

Jeff Silber; BMO Capital Markets.

I wanted to focus on operating margins. Rob, you had mentioned that some of the EPS upside surprise came from better than expected operating margins. I'm wondering where that surprise came and in what specific line items? And then also in terms of your business outlook for the current quarter, where do you think we're going to see the most pressure on operating margins?

Sure. It wasn't that big a surprise. It was 20 or 30 basis points better than we thought it was going to be. And, with the size of our business in the small share count that tends to have large cents per share impact. But, it was not large enough and not specific enough to any one given line item to really stand out. In general, I think that we have the little more revenue and a little better cost control. And, just a little bit, with only 12 million or so shares tends to have a multi cent impact.

Going forward, for the next quarter where we know what our revenue is, most of that impact is in the INE line because you've got a university that is been build out and, or were in the process of building out, with quite a few new campuses, five this year plus 13 last year. And, slightly lower student count per campus, and per class, and we're not eliminating full-time faculty. So that's where you see most of the negative impact

Great. That's helpful. In terms of the term loan, are there any restrictions on early payoff?

No.

And, then for your business outlook for the second quarter, what share count are you using?

We're using, basically, the share count that we have at the end of the last quarter. Any activity we do in the current quarter we'd let you know in July when we do our second quarter release.

Great. Thanks so much.

Maria Kera Harris; Goldman Sachs.

Good morning. Two questions. The first, is there any color that you may provide us on enrollment trends that gets us some clarity on what's going on at the program level? And, the second question is also a little bit of color on what you're seeing in bad debt expense trends and how you are thinking about that going forward?

Sure. Well, again, in reverse order. The bad debt expense, there wasn't really anything out of the ordinary. Our collections in the current quarter was actually quite strong. A little bit of deterioration in the recoveries for previously written off accounts. We saw that about 18 months ago, similar kind of situations, but really not enough to move the needle significantly for us one way or the other. On the enrollment trends, well, Karl why don't you talk to that.

As I said in my comments, our macro-level trends are essentially unchanged. Within business, there is small amounts of movement from accounting to business administration for example. Our Criminal Justice Program, which we launched a couple of years ago, is essentially in the 5% to 7% range of the student body. So, there haven't been any sharp trends in this quarter that have caused it to move dramatically at the highest level.

Or the other way to say that is the trends were consistent across all. Because it did move dramatically just particularly with regard to the new students but it wasn't specific to anyone program.

Okay, that's helpful. Thank you very much.

Suzi Stein; Morgan Stanley.

Good morning. It seems like you're opportunistically taking advantage in the drop in your share price with the level of buy backs in the quarter. Can you talk what of financial leverage you're comfortable with just given the were heading into a period of increased regulatory uncertainty?

Yes. These businesses could sustain significantly higher levels of leverage then just on a financial basis, then I've been comfortable with on a university or academic basis. So, we're not close to a concern that I would have in terms of cash flow management. As it runs the other way, our interest rates on these loans on a after-tax basis are so much lower than our dividend yield on our stock that it kind of cries out for action.

But, in general, our view is that as we're expanding this university we need to bear in mind that our capital structure needs to be reflective of a university and sensitive to those kinds of interpretations. That's really what sort of governs us as opposed to a straight debt to EBITDA ratio that's kind of normal financial metrics that businesses look at.

And, then kind of going back to the issue of competition. Are you seeing increased competition from other for-profits? Would you say that that's a big factor of the weakness in starts?

It's interesting that you ask that because when I think about the causes of lowering of enrollment. Period. And also starts. Logically, if it was a significant cause of it was increasing competition, you'd expect somebody to be gaining market share and growing very fast. Since everybody seems to be shrinking at some level, it's hard for me to imagine that the logical explanation is not more related to demand than competition.

We'll continue to look at this over the next couple of quarters. We've always felt that there are a number of opportunities for students who are going back to school to choose from. And, the other investor funded institutions are rarely the largest set of opportunities that a student has in a market that we operate in. That really hasn't changed.

Okay, if I could just sneak one more in. Going back to the first question that I asked. Is there any issue with respect to the financial responsibility ratio? With regard to either taking on more debt to buy back shares? I know that it gets kind of tricky in terms of the balance there in terms of the ratio. Is there anything that would limit you in terms of being able to buy back more shares?

Yes. The amount of debt you take on and the amount of shares you buyback does financial responsibilities score and we are cognizant focused on that.

But, how close are you? Should we expect this to look slowdown as a result of that?

We only have -- we used a big chunk of our Board's authorization at this point already. So, you would expect it to slow down. Just based on using up the annual authorization. But, there is nothing with respect to the financial responsibilities score right now that would affect that.

Okay. Thank you.

You bet.

Bob Wettenhall; RBC.

Wanted to ask a question. Is it that the number of students who are coming in are taking more time to make a decision to attend Strayer because they are looking at other options? Or is the absolute number of students who are applying starting to decline? Or is it both?

It's a little bit of both. It's hard for me to know that the impact of students taking a longer period of time. And, actually, I'm not even really sure that that's based on what we've seen, Karl, is that accurate. We have a number of the students who are enrolling within a three month period is actually increasing slightly. So, I think, as best as we can analyze right now after sort of nine months is there is a general decrease in demand. And, that's reflected in the fact that less students are enrolling.

But, again, it's not something, from my standpoint, fundamentally changes the realities that propel this as an institution. We are comfortable with that variability. I don't think the value of education is shrinking. I think it's increasing. So, if we continue to focus on the things that we can control, which is the quality of our academics and the capacity of our teaching apparatus. Over the long-term our view is, is that building a nationwide university is a good use of our owners' capital.

In tandem with that, do you think there is a normalized level underwhelming growth after you move past this cyclical impact you're experiencing currently?

I've always thought that the normalized level of enrollment growth is roughly related to the rate at which we expand our university. The rate at which we open new campuses. And, then, once the campus is open, they tended to grow at a fairly predictable rate year-to-year until they cap out at roughly 1,000 students. So, that the normalized, or sustainable rate of enrollment growth, is going to be based on that rate of expansion. And, then, once you finish expanding, it's going to be fairly flat once you've filled up those campuses.

And, you're still comfortable committing capital to grow the campus-based in the next three to five years?

We have already done that. Committed to that. And, we're completely comfortable on a financial basis. It is limited almost solely by the availability of human capital because that is how you determine that you are going to maintain a level of academic quality. And, then, in this last year, there was some additional limitation that we felt based on the regulatory uncertainty. Once that gets clarified, then I think our view is that moving back to a capital employment plan that takes full advantage of our human capital is exactly what we intend to do.

Thanks very much.

Thank you, Bob.

Peter Appert; Piper Jaffray.

Just on the buy backs again for a second. Is the expectation then that the $80.5 million in repurchase authorization left. You are going to use that all this calendar year?

We don't comment on future share repurchases, Peter. It'll depend on the analysis that we always do, which is what's intrinsic value. And, what's the appropriate use of excess capital that really we hold in stewardship of our owners.

Got it. Okay. And there seems like there's some action in Congress again trying to push for a delay, or elimination of gainful employment. I was just wondering if you have a point of view, in terms of how you think that plays out?

Well, I certainly have a point of view. I'm not sure how relevant it is. It's certainly something that is beyond our capacity to control. We've always felt that this is a very heavily regulated industry. More than anything else, I think the publicity associated with this process I'd like to see stabilize and go back to more of a focus on real academic outcomes as opposed to people that are trying to push one agenda or another. But, I just don't know. We've been waiting now for several months and I'm assuming that when the department and the administration feels like they've completely vetted what they need to vet, and taken in all of the viewpoints that are necessary, they'll come forward with something.

Fair enough. Thank you.

Thank you, Peter.

Corey Greendale; First Analysis Securities.

I was hoping to slice the enrollments a couple of different ways. Could you comment on the relative strength of enrollment through corporate partners and community college articulation agreements? I'll start there. Could you comment on that?

I think we did. But, go ahead, why don't you repeat that Karl.

Our total corporate institution alliances total enrollment was up 18%. So, obviously, that's quite a bit higher than flat growth for the overall university. As I said also, we added eight new agreements in the quarter. So, the rate at which we're expanding agreements is increasing and we also saw more enrollments from our existing accounts. So, that's a part of the university that's continued to hold up quite well.

All right. Sorry if I missed that. And, the same second question is, I gather that new campuses probably aren't ramping as strongly as they were a year or two ago, but are they still meeting your nominal model?

Yes. Which is important, Cory. These conversations tend to get wrapped around year-over-year and quarter-over-quarter comparisons. It's really not how we think about this is as an enterprise. It's a return on invested capital judgment that we're applying and the return on invested capital, at this rate of expansion, in opening new campuses, is by far the best thing we can do and is very attractive. But, for regulatory uncertainty, if we've got the human capability to ensure academic quality, we're going to continue to do that.

Okay. And, one last slightly random question. Did you ever hear back anything on your Freedom of Information Act request to the Department?

We haven't received the information that we've asked for.

Okay. Thanks.

Thank you, Corey.

Gary Bisbee; Barclays Capital.

I guess the first question, have you undertaken any sort of substantive changes, in terms of how you go about your marketing to try to combat this reduction in demand? Or, I know you're always tweaking it. Or, are you sort of maintaining similar to what you've done in the past and just trying to be prepared for when the demand environment changes?

It's the latter. We are always tweaking it. We haven't anything specific beyond our normal market-to-market and channel-to-channel tweak. And, we have a comfort level, that, as I said, the value of education is not decreasing, and demand is going to fluctuate based on some external factors. But, in the long run, it's a very attractive use of owners' capital.

Do you do any surveys of students who decide not to attend? And, is there anything you can tell us that's sort of changed? Or is it much more that the numbers of inquiries and applications is dropped?

We do surveys. I tend not to be that focused on individual surveys. But, we're now three quarters into this and it's pretty clear that there is sustained economic pressure. The decision to go back to school is clearly, at least for our students, a big, big decision. It's a big financial commitment. You don't do it unless you've got some amount of economic uncertainty. But, then, again, it's also an expression of faith that you're ultimately going to be in a position where the investment that you make, not even financially, but just in terms of your time, is worthwhile.

So, there's a certain amount of impact that I think we're starting to see that's based on sustained economic under performance. There's clearly been a lot of questions -- questioning and discussions of whether the capital structure of the university is conducive, or is it providing the right academic outcomes. And, then, there's a smattering of other things.

It's the sort of thing, that on the quarter-to-quarter basis is not going to affect how we think about our marketing challenge. I just -- I'm sure there are other people in the space that are a lot better at it than we are, but our view is the decision to enroll in a university is a much bigger decision than is going to be affected by the choice of marketing channels. And, that, basically, the most important thing we can do is comport ourselves and define ourselves in a way that students understand what it is they're engaged in, what they're signing up for. And, students will self-select to be the kind of students that are going to be successful.

Okay. And, then I guess I'd just say I really encourage you to provide us a historical breakdown on a quarterly basis for at least 2010 in the new reporting. Otherwise, it's pretty difficult to model the business. And, on that note, is there anything that you want -- that you'd tell us about the seasonality or anything about these new costs breakout that we should think about? Or is it -- ?

There's nothing seasonal about them. It's -- they're very minor switches and they would be the same in the same way quarter-to-quarter that our other ones have been. Mark, let's mark down Gary as a vote for putting in the 8K.

You got it.

Kelly Flynn; Credit Suisse.

Morning. I'd like to add my in name to the list of people who would like an 8K.

Thanks.

Put Kelly down as a yes vote.

So, okay. I want to go back to, Rob, your answer to, I think it was Sara's question about some of the drivers of the new enrollment decrease. I think you mentioned the economy and then the regulatory stuff. Can you elaborate on both points? On the economy, I think you implied later that you think definitively the economy is hurting. Bad economy hurting as opposed to some cyclical good economy hurting. If you could clarify that it would be helpful. And, secondly, on the regulatory comment, are you talking about the bad press stuff you mentioned a while back? And, or, are there any internal things going on whether it's just productivity hit from some of the bad press? Or just clarify, did you make any changes to any of your business practices that might be playing a role there?

Yes. We haven't made any changes to our business practices over the last nine months or so, or six months. Whenever this thing started. The -- and, we just don't think of it as productivity. It diminishes the importance of the decision that the student makes. And, so, we're not organized or focused around that kind of discussion.

I do think that the first part of your question is important in that I've never felt, at least for Strayer University, that we're countercyclical. I've always felt that we're relatively a-cyclical. But, you have to bear in mind, and the reason is that there's countervailing impacts from changes in the economy. As the economy slows, there's more economic uncertainty and that drives students to go back to school.

But, by the same token, the student whose truly unemployed is less likely to enroll because of his sense of commitment necessary for our demographic of student who tend to be older, they've got families, they've got responsibilities. Going back to school may not be a option if you're out of work. Not the least of which is to not to be able to afford it. But, because you have to be looking for work in order to support yourself and your family at that age.

And, so, what we are hearing a little bit, in some of the surveys that we do, is that the sense of confidence that's necessary in order to make that commitment can been waning, particularly in certain markets. We've got some markets where, particularly in the upper Midwest, where the economic impact has been more severe. And, we've certainly hear that as a reason either for or against enrolling in university. Roughly, a-cyclical over the long-term. But, in a sustained economic down cycle, it certainly affects the willingness of certain students to enroll given their other responsibilities.

Okay. Great. And, then a different question related to basically where your students come from. Can you give us an update on the -- I don't you don't like to use the term leads, but for lack of a better word -- where the leads are coming from right now? What percentage of referrals versus other sources? And, then I know you said you haven't seen market share shifts, but have you seen any cost shifts? Is it costing more to find students as a result of competitive dynamics in some of the channels?

Well, again, I think you and I just think about it differently in terms of describing it as an enterprise. Because we're spending the amount that we intended to spend on brand building and putting the of Strayer University out there. If you get less students by definition, it's costing you more per student. We're not adjusting the spend in one way or another. That cost per student is a derivative of the amount that we're spending that we intend to spend. We think it's a good long-term investment and the number of students that we get.

We tend not to categorize inquiries, or the initial contact from the students, by channel or media source because generally they come to us from a lot of different sources. What we do spend a lot of time with is understanding how many of our students who ultimately enroll have contacted a current student or alumnus, or a faculty member, as part of that enrollment process. And, that number is quite high. It's always very high. In fact, it's virtually a 100% percent. It's just not that kind of a decision that a student would make without checking with somebody. And, we describe them as referrals. And, that's obviously what we find the driving force as to why the student is enrolling.

But, for the absolute initial contact, that's spread across. They may have heard about it from somebody else. They may come from a corporate alliance partner and may have heard about it that way. We do spend money on radio and TV ads in brand-new markets to get the name out there. A lot of times, it's just driving by and seeing the building. And, the sign on the building that cause people to come in. There's nothing significant or changing with regard to that mix right now. In general, it's a lower number across the board.

Okay. And, then, lastly, the consumer confidence issue you cited. Have they caused you to reassess the 5% price increase, or is that something you plan to do again?

We always look at that decision with our Board of Trustees. We won't do that for another several months with regard to 2012. We've put it in place for 2011. I don't personally think there's a whole lot of price elasticity. As long as you're generally within a range, that is both a good value to the student, in terms of their long run earnings potential increase that comes from having a university degree.

And, is it relatively in balance vis a vis the other opportunities they have in a particular market? In our overall price point is frankly a more important analysis for us than the rate of change. If our price point, we thought was way out of balance then obviously that would affect the rate of change. But, at least for 2011, we're comfortable with that.

Okay. Thanks a lot. Appreciate it.

Thank you, Kelly.

Jerry Herman; Stifel Nicolaus.

I'll vote yes, too, guys. Good morning. The first couple are strategic questions Rob. And, the first one is maybe a different version of the marketing investment. You guys are decidedly below the peers in the sector. And, now that you are resembling more of a national university and you're faced with negative publicity. Does it in fact make sense to step up concepts like brand building and such?

Well, brand building is always valuable. There is nothing specific about the current political or economic environment that strikes me as deserving of much larger or lower expenditures in those areas. Again, the student that we want enrolled, Jerry, is a student who has convinced themselves. And, so, we just want to have a little bit of their mind share when they decide that they think they need to go back to school. And, that's what our marketing spend is based on.

And, then the second question is, noting in some of today's comments and also in your shareholders letters that so many of your graduates come from the area of business. As you think about the long run, does it make sense for the programic offering to be more diversified?

Well, it depends on what you're concerned about. We want to be a great nationwide university for working adults. We know that we teach business administration well. And we're quite confident and excited about the possibility of doing that on nationwide scale. You know we're comfortable with the variability in short term. And, so, a desire to have more of a portfolio to balance that out is just not of that much concern to us.

So, if we thought we could teach something very, very well and it would add to our academic credentials and our reputation as a university, we're certainly not opposed to it. But, it's -- we don't think about adding academic offerings to balance out decreases in student enrollment or lower revenue in operating income because over the long term we think it's going to be great.

Okay. Great. Mark, just one quick one. What was the share count the end of the quarter?

It's in the release. Okay. The DSOs and the actual share count are on the balance sheet.

Okay. No adjustments. Okay.

Trey Urdan; Signal Hill.

Hello, good morning. I just wanted to say thank you for the, I think, an improvement in the disclosure on the cost side. I do think it's an improvement, so, thanks for that.

Mark says you are welcome

Related to that, it's kind of interested so I just wanted to ask a couple questions. In terms of the increase in the marketing and admissions advisory, they're both higher year-over-year on an absolute basis, as well as a percentage basis. And, I'm wondering if that in your mind is solely attributable to the increase in campuses? Or whether there's some additional increase on top of that, just what we would otherwise expect from new campus rollouts?

The admissions line will be purely based on the increase in campuses. The marketing line is really more related to the increase in markets. But, in both cases, they are almost solely related to our new campus opening plan.

Okay. And, then, similarly on the GNA decline on an absolute basis, given the increases that you just mentioned, that seems notable, and I'm wondering what you can tell us about the absolute decline in GNA there?

It's based on a anticipation of a significantly lower incentive compensation. For the senior executives. We don't have it below the senior executives.

Got it. Okay. And, then, the final question, Rob, is that we've seen a number of other schools have made a shift from a term based system to a borrower base system, in part because they think that, that different method of doling out loan dollars to students actually helps those students become better stewards of their own tuition dollars and may in fact improve outcomes in a number of ways. And, I wonder if that's something if you guys have ever looked at or contemplated.

We are on a borrow base year, aren't we?

I am sorry. That's my mistake then. I apologize

We've always been on a borrowed based year.

I think I got confused because you have fixed terms.

What's important there, Trace, is several years ago, must've been four or five years ago, we were looking at a situation where in some markets students were borrowing significantly. They were borrowing many terms for one term of tuition. And, that just looked to us to be a recipe for misuse of funds. So -- but, that was at least five years ago, if not more. So, as long as I can remember, we've been on a borrowed based year.

Got it. Thank you.

You bet.

Gordon Lasik; Robert W. Baird.

Hi. Thanks for taking my questions. First question, I just want to come back to persistence for a minute. It looks like sequentially, it really did rebound from the last quarter. It was better than what we were expecting. Can you give a little bit more color on what's driving that? And, then, relative to where starts are obviously trending and the graduations you expect to go through the system, do you expect that to remain under pressure for the next several quarters?

Well, the answer to the last part of the question is yes. Because as you enroll less new students, and as the students that you enroll two years ago graduate, on an absolute basis, which is how we report these continuation rates, that's going to go down. By the same token, and in a period in which you have new student growth, it goes up at a faster rate, too.

We try and look at it net of graduations and then net of academic failures. And, in those circumstances, both of which has been relative have been relatively stable, and, so, our effective continuation rate of those students who are capable of continuing, has remained about as statistically high as it can get. So, what we're just hoping is that they will stay there. We'll have some absent continuation rate that goes down with the lower new student enrollment. And, then it's about a multi year process for that to work itself through.

Great thanks for that color. And, just one more question. Different question on surveys. But, have you compiled the results of your 2010 alumni survey yet? And, if so, can you share those results?

We have as a matter of fact. We just got it last week. And, I don't have it in front of me. But, I think the key headline, which Karl and I talked about yesterday, is that the annual salary is about the same as 2009. It's about $50,000 for a Bachelor's and slightly higher for a Master's. And, what was the unemployment rate?

It was, our graduates for the entire class of 2010, it was about 86% were employed full-time, which I think is down maybe just a couple hundred basis points.

So, it's like a 14% unemployment. But, that 14% unemployment, when that's calculated through, it's got the average salary of $47,000?

$48,000.

$48,000. Very similar to 2009.

Great.

Thank you. And, ladies and gentlemen that is all the time we have for questions today. I would now like to turn the conference back over to Robert Silberman for any closing remarks.

Well, actually, Ben, if there are other questions we're happy to take them. We don't mean to cut off right at the hour. So, if there's anybody else in the queue, just let them ask questions.

I do have the queue clear.

Okay. Terrific. Well, then, thank you very much. And we'll look forward to talking to you in July. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program. You may now disconnect.