Strategic Education Inc (STRA) 2012 Q1 法說會逐字稿

Good morning everyone and welcome to Strayer Education Inc's First Quarter Earnings Results Conference Call. This call is being recorded. Following today's call, we will offer 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's Senior Vice President of Corporate Communication, Ms Sonya Udler. Ms. Udler, please go ahead.

Thank you, Operator. With us today to discuss to the results are Robert Silberman, Chairman of the Board and Chief Executive Officer for Strayer Education,Karl McDonnell, President and Chief Operating Officer, and Mark Brown, Executive 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 1PM Eastern through Thursday, May 3rd. The replay is available at (855)859-2056, conference ID 39822016.

Following Strayer's remarks, we will open the call for questions and answers. I would like to remind everyone that the 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 Provision 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 it's 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. 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 it 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'll 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 which we have just started. 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 50,000-student, 94-campus, post-secondary education institution, founded in 1892, which offers masters, bachelors and associates 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 university's professors, our admissions and administrative staff, marketing expenses and facilities and supplies costs. We serve students in 23 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. Mark, do you want to run them through the financials?

Sure. Revenues for the three months ended March 31, 2012, decreased 13% to $149.5 million compared to $172 million for the same period in 2011, principally due to lower enrollments.

Income from operations was $40.9 million, compared to $59.2 million for the same period in 2011, a decrease of 31%. Operating income margin was 27.3% compared to 34.4%for the same period in 2011.

Net income was $24 million compared to $35.8 million for the same period in 2011, a decrease of 33%. Diluted earnings per share was $2.09 compared to $2.80 for the same period in 2011, a decrease of 25%.

Diluted weighted average shares outstanding decreased 10% to 11,477,000 from 12,794,000 for the same period in 2011. At March 31, 2012 the Company had cash and cash equivalents of $52.7 million.

The Company generated $36.5 million from operating activities in the first quarter of 2012, compared to $67.2 million during the same period in 2011. Capital expenditures were $4.1 million for the three months ended March 31, 2012, compared $11.4 million for the same period in 2011.

During the three months ended March 31, 2012, the Company paid a regular, quarterly cash dividend totaling $11.9 million or $1.00 per share. For the first quarter 2012, bad debt expense as a percentage of revenues was 3.8% compared to 3.5% for the same period in 2011.

Days sales outstanding was 14 days at the end of the first quarter of 2012 compared to 13 days at the end of the first quarter of 2011. Rob?

Thanks Mark. Karl, how about hitting the operational highlights, and also make sure you cover the spring term enrollment?

Sure, for our spring academic term, our total student enrollment declined 9% to 50,896 students. Our continuation rate was flat in the quarter and that led to a 13% decrease in our continuing students.

Our new students grew 12%. A couple comments on our new students. New graduate students increased 21%,and that represents the third consecutive quarter where we've seen growth there.

New students from our national accounts grew 31%. And the growth from our national accounts was fairly widespread, meaning we had growth both in new accounts, as well as significant growth from our existing accounts.

Normally, we would find three to five new national accounts in any given quarter. However, this quarter, we signed seven new agreements, so it was pretty productive from that standpoint. Among the new national accounts that we signed were agreements with Farmers Insurance, ServiceMaster, and E*Trade Financial. We also signed three new articulation agreements with community colleges, and new students from our articulation agreements grew 20%.

Today we also announced our first four new campuses for 2011. All are for the summer academic term, which we're enrolling students for now.

Two of these campuses are located in Minneapolis, which is a new market, as well as a new state. And the other two are in the Chicago market, representing our third and fourth new campuses in that market. We will announce the remaining four new campuses when the open later this year.

Lastly, a couple of comments on student mix. Given our continued growth and our new graduate students, total graduate students now comprise roughly 32% of all students, which is up about 400 basis points over the last year. Students from national accounts in our institutional alliances now comprise over 25% of all students. And that's up about 500 basis points over the last

No real changes on undergrad. 68% of our students in undergraduate programs,with business and accounting comprising roughly two-thirds of that population. Rob?

Thanks, Karl. Just back on the financials. Both the revenue and expenses were really right on our forecast of three months ago.

The quarter sort of went right down the glide path from the that standpoint. So I don't think any additional comment is needed there. Turning to a brief update on our growth strategy.

Many of you will remember that 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 into new states and markets, third continue to buildour online offerings, fourth increase our corporate and institutional alliances, and the fifth and final objective is to effectively allocate our owners' capital.

Karl has already reported on the first four objectives. I would like to add, however, that we were to announce this morning the appointment of Dr. Daniel Shapiro as Dean of the Jack Welch Management Institute at Strayer University. Dr. Shapiro is currently the associate dean of the executive MBA program at Cornel University. And he'll be joining us June 1st.

On capital allocation, as we announced this morning, our regular quarterly dividend of $1.00 per share for the upcoming second quarter. And finally on our business out look for the second quarter of 2012, based on the University's enrollment for the spring term, we expect revenue to be down approximately 10% versus the prior year with approximately 600 basis points of operating margin decrease and earnings per share in the $1.84 to $1.86 range

With that Sean, we'd be pleased to answer any questions.

(Operator Instructions). Our first question comes from Corey Greendale with First Analyst. Please go ahead with your question.

Hi. Good morning.

Good morning, Corey.

First of all, on the new student enrollment side, I know Rob, that's variable. I guess we're just not used to seeing variability weight from negative 8% to positive 12%. So, I was hoping you might be able to just comment a little bit more on maybe, I understand that institutionalizes were quite robust this quarter, but a little bit more on what might be driving the improvement and anything you might be able to say about the implications going forward.

Well, it's pretty simple, Corey. Karl's reported over the last several quarters that our graduate students were growing, and our institutional alliances were growing. What was shrinking was our unaffiliated bachelors students, and they stopped shrinking compared with the prior year. As a matter of fact, they grew slightly.

So when you add that in to the strong growth that we've had, really through most on last year on the graduate and affiliated or alliance students, that translates into new student growth. We don't comment on future quarters, but we are obviously delighted to see 12% new student growth and frankly, we're pretty excited about the rest of the year.

Just on the quarter that you did report though, so on the unaffiliated bachelor side, is there anything you point to as changing other than just quarter to quarter variability?

Well, it didn't really change. In other words, we gapped down in that area in the winter of 2010 -- or 2011, and it bottomed -- it troughed there. And it stayed there really through most of 2011. And each quarter, you had a comparison with the year before where we had quite a bit of growth. So you continually saw those negative numbers. And you're comping against that now. Plus you have a little bit stronger activity in some of our new campuses that we opened in 2011. And so that compared with strong growth that we had through most of the latter half of 2011, as I said in the graduate and corporate alliance area. That translated into 12% new student growth.

That's helpful, thank you.

You bet, Corey.

Our next question comes from Bob Craig of Stifel Nicolaus. Pleas go ahead with your question.

Yes, Rob, I know what you mentioned in your shareholder letter about the graduate side and the relatively low unemployment rate there, but your performances, flying in the face of what some others are generating these days, but could you maybe just talk about some of the key factors behind your success in grad relative success?

Well, as you said, I tried to spell that out in the letter to shareholders. I think that the largest impact on demand, at least in the students that we tend to attract, was high rates of unemployment, and particularly high rates of unemployment for individuals with a high school degree and no college degree. That's certainly effected our enrollment. And it's effected graduate students less.

We don't mean to be frustrating in terms of how you guys try to understand the space. We just want to be as clear as possible in terms of what we're trying to accomplish. I really do believe that over time the one issue that really matters is quality of supply. There's plenty of demand out there. There was less demand in 2011 for individuals, at least in our case, who were unemployed.

An unemployed student has never been a particularly solid student for us. The economy hasn't really gotten much worse and so that sort of troughs. When the economy gets better, I expect that source of students to do better. And in the mean time, as long as we're doing a great job the classroom, and the quality of our academics and the satisfaction of our existing students remains high, we're going to generate growth, there's really nothing more complicated than that.

Are there any curriculum areas or majors within graduate that are stronger than any others?

No as Karl said, it was pretty even across all of them.

Okay. I know what you said last call about scholarships really haven't increased all that much, but have you quantified that?If you have, forgive me, I've forgotten it. But as a percentage of student or percentage of revenues ?

Well I'll let Karl answer that directly, but the evidence of it is our revenue per student. But that's -- there's also two other major contributors to the dampening on revenue per student growth. The most important of which you've already described, which is as our graduate students are growing at a very fast rate, and at the latter half of last year our bachelor students were not growing, now they are growing but at a slower rate.

Our total student population shifts, it's mixed towards more graduate students, and those of you, Bob, like yourself, that have followed the company for a long time will remember back in 2004, I think it was, Mark, where we had a similar situation, because graduate students take less courses, revenue per student from a graduate student is lower and that will have a dampening impact on our revenue per student.

The second is again, the increase on a relative basis in our alliance partners, students who come from our alliance partners, for which most of them we have a modest discount. It's usually about 5%. On top of that you've got some scholarships, but Karl, is there anything specific that --

No. I mean as we said, we have scholarships. We've had scholarships in the past, and we'll continue to offer them in the future.

Okay. One other quick one, Rob. Does this mix shift if you will, throw off your notional model ?

No.

Okay. Thanks.

You bet, Bob.

Our next question comes from Andrew Steinerman with JPMorgan. Please go ahead with your question.

Good Morning. Could you compare how campuses that were open at Strayer University in 2011 are doing in 2012 compared to how campuses opened in circa 2010 did during 2011.

A little bit slower Andrew. Part of that I think is geographic. I think we've talked in the past something with -- the campuses that we opened in 2011, several of them were in the upper Midwest in areas that were a little harder hit economically.

The campuses that we've opened in Texas in 2011, I think have done slightly better and more consistent with our 2010 openings. but all of them, -- all of our campuses were affected, I think by the increase in unemployment and the downturn in under graduate enrollments, unaffiliated under graduate enrollments in 2011. And all of them are being helped on a relative basis by fact that that's no longer hurting us and we're getting pretty significant growth in other areas.

Right, but you did mention new campus openings as being helpful to the inflection in new enrollment growth.

Well, they always are but we didn't have any yet for this year.

Right.

In other words, all of our new campuses for 2012 will come online in the second half of the year.

No, I meant from the campuses from 2011. When you were listed reasons why new enrollments returned to [growth]. You talked about a lot of things, and the last thing you said and helped by (inaudible) new campuses from 2011. Is that a sign that things are finally kicking in?

I wouldn't describe it as finally kicking in. They were performing fine last year. We were attracting students at a rate which was very satisfactory to us. We're pretty patient about this, Andrew. The students will come when they decided to come. And if you try and force it any faster than that you end up with less productive, less academically successful students. So I think this is part of the normal ebb and flow of building out a nationwide university. And we're quite pleased with it.

Makes total sense, Rob. Thank you.

Thank you, Andrew.

Our next question comes from Sara Gubins of Bank of America Merrill Lynch. Please go ahead with your question.

Hi. Thanks. I'm [trying] to get an update on retention, and whether or not you're seeing any change in the academic failure rate.

The academic failure rate was fairly consistent. It was 9%, 9.5%, something like that. And Karl, I think you mentioned the retention, didn't you?

The continuation rate was flat to the prior year, so --

Okay. And then separately on the last earnings call, I think you had talked about a that operating margins would be down 500 basis points year over year in the first quarter, and they were down 700. Obviously, you came in inline with your expectations, but the margin decline was more than expected. So I'm just wondering were there were any costs that ran more than you might have anticipated?

No, actually Sarah, and that's on me. That's my fault. The financials actually performed exactly as we expected. I didn't have Mark on the call last time and I frankly, just read the wrong numbers. I apologize for that. And the worse part about it is a couple of you called me afterwards and said your models wouldn't work. And I kind of dismissed you, because I don't really pay that much attention to the operating margin as a separate number, but it was just a sheer mistake. And Mark has checked my math and it's 600 basis points for the -- for Q2 is accurate. So, you can count on that.

Okay, that makes much more senses. Thank you.

You bet.

Our next question comes from Gary Bisbee of Barkleys. Please go ahead with your question.

Hey, guys, good morning.

Good morning.

Just one more quick one on the new students. Can you just give us how much the Jack Welch Management Institute contributed to that, and also how much trailing 12 month new campus opening [fits]? In other words, was this more broad based felt across the older, established campuses, as well ? Or geographies, I should say, not just

Yes it was fairly broad based But again, what's broad based is particularly strong growth is called described in certain channels. And than a stability in the unaffiliated bachelors, which that -- then comps against a lower number. The -- we definitely -- the Jack Welch Management Institute probably added about four points to our graduate growth rate. We had a few hundred of those students, and they would have been maybe a point or so to our overall new student rate.

Okay. And for the second quarter in a row, the costs across most of your lines declined year over year, and I guess it was more than what we saw last quarter. I understand why you've been doing that, and I know you don't want to talk about the future. But if the Company was to have new student growth continue and persist throughout the year, which areas would the costs that you've taken out need to come back in more quickly, and which areas of this cost production you've done is just you being more efficient as a company and might be sustainable at those levels?

Well Gary, we don't mind talking about the future. We don't predict specific enrollment, but our future is fairly well established and planned. And we discuss all the time. We're building a nation wide university. We're going to do it deliberately and patiently. And what you're seeing is the results of that. In terms of the expenses this quarter versus last year. The reduction in the instructional and education was just fewer classes. We had fewer students, so you end up with fewer classes. In the marketing -- I mean it was pretty close, frankly and I don't really know -- Karl, it was like $500 thousand less than last year. I get -- anything specific about that?

No I think it's just timing seasonality.

On the admissions advisory line, part of that is variable again. Because some of the costs in there are the filming costs of catalogs and things that, when you have student you're going to send to them, but that's actually increasing costs. In general, I guess just better efficiency. And then on G&A, again, there's nothing really specific that I would point to. It's variability and efficiencies.

The part of your questions in terms of future. What I can't say is if we perform in the summer and fall term as we did in the spring, I.E., if we had 10%, 12% new student growth, we would break even in terms of revenue -- enrollment and revenue, and have growth over of the prior year in the fourth quarter. If that happens, all of the costs in here that are variable, and that go with volume would go up, and most of those are in I & E. I don't expect marketing would be particularly effected. And that's probably where you'd see it.

Okay great. And just one last one. The corporate alliance continues to be a great channel. We're hearing an awful lot of the peers talk about focusing on that,How do you go to market, or how do you sell into these people? What's sort of a competitive advantage? Is it the geographic footprint, or are there some other angles that you're taking that's allowing you to continue to win these engagements?

The problem, Gary, is that we just think about a different way. We don't think about it as a sale. We've got a number of these relationships that we've had for a long time, long track record, long history. A lots of others develop out of fact that we end up with students from those organizations that are satisfied, and they go back and they talk to their colleagues. We have a very small group that, in along with Karl and myself, that are engaged and are involved in talking to heads of HR training or CEOs that might be interested..

And then frankly, we've probably had some advantage in terms of the Jack Welch Management Institute, because its the first time we've had a focused effort on actual corporate training,as opposed to pure providing of university level education to employees. And so it's like the rest of our organization. It's going to grow deliberately and patiently as we build out this nationwide university. We just don't get that wrapped up around wins versus last quarter, differentiating against other people. We're delighted to have other universities providing that. Education is a benefit. I don't see, Gary, this industry as being one which is effected over the long-term by a paucity of demand. The problem is quality of supply, and if we improve quality of supply across the whole educational sector, All the participants will be benefited, as will the country.

Okay. Thanks.

Thank you, Gary.

Our next question comes from Jeff Silber with BMO Capital. Please go ahead with your question.

Thanks so much. I just want to continue focusing on some of the national accounts and the alliances that you mentioned. You mentioned the roughly 5% discounts that those folks get. Are there any other nuance or guarantees in these relationships that we should be aware of?

Well, they're all different. I mean, they run the gamut from situations where we actually teach on a company's facilities to ones that are merely sort of affiliations.

And so the only thing that's significant from a financial modeling standpoint is that, we do tend to provide discounts of around 5%, and we do that because for the most part, both our marketing and our collection costs, our credit quality is so much higher with these accounts. So from a margin basis, it doesn't really have any impact, but you have slightly lower revenue and slightly lower expenses.

Great, and then just shifting gears a bit. I just wanted to clarify something regarding the Jack Welch Management Institute. If I look at your press release, and look at that student enrollment detail, are the Jack Welch management numbers in there, and if so where?

Jeff, It will still be in line with our original estimate of $25 million to $30 million.

Alright. Fantastic. Thanks, so much.

Thank you, Jeff.

Our next question comes from Peter Wahlstrom of Morningstar. Please go ahead with your question.

Good morning, thanks for taking my question. Sticking on the national account theme,very quickly, are you finding that when you head into a new region such Minneapolis, that having relationships with those corporate international accounts actually helps you gain a little bit of traction, more quickly than you otherwise would if you were starting with more of a greenfield operation?

Yes.

And how, can you help me think about how quickly a campus may reach maturity, instead of thinking about it in the one to three year bucket versus the older than three year bucket?

They don't really reach maturity in three years. Again that's an artifact of the -- in order to try and make things simpler, you all, we only have two categories. The real way that we think about these campuses is they tend to grow, and add about a hundred student per year on average for about 10 years. And that's when they've reached the saturation point at about 1,000 students. And that's when we actually consider them mature.

The presence of corporate partners or government institutions partners in new markets, as I said in the answer to your first question, is helpful. It doesn't really change the dynamic in terms of that growth pattern. Remember, we are talking about a few dozen students in the first year or so. And it is helpful to maybe get a few half-dozen or dozen more when you have those relationships,but it doesn't fundamentally change the investment profile of opening a new campus for us.

Very good. On the announcements of the new articulation agreements with community colleges, Assuming there's a pretty long runway for growth here, how are you thinking about targeting this opportunity ?

Well, we find that community colleges are perfect partners with us, and we don't really compete with them. We do offer associates degrees. It's a very small part of our university, and what we've found over time is that those student who go to a community college, gain the associate 's degree, and then enroll in Strayer in the third year of a bachelor bachelor's degree, uniformly perform better accademically. And that's what we're all about is achieving the highest academic outcomes. So our desire is to have a partnership agreement with every community college that would have the appropriate academic rigor that would satisfy our accreditors. Most community colleges are regionally accreded, and most of themI think, will meet that. But we've got a focused academic team underneath Dr. Plater, the President of our university, who looks at those, and our objective is to get all that we can.

Very good. And finally, I know there are a lot of [puts] and takes that go into this decision, but was there an overarching reason behind the decision. not to repurchase shares in the quarter?

We never comment on share repurchases until after they're done.

Okay. Very good. Thank you.

Thank you, Peter.

Our next question comes from Jeff Meuler with Baird. Please go ahead with your question.

Thank you. Other than having Jack Welch this quarter, are you guys doing anything differently on how you approach corporate alliances, or do you have more resources there? Just trying to figure out if this is natural variance or a result of Jack Welch, or a result of something else in terms of getting the seven new this quarter..

Well we like having Jack as a partner but other than that, no, nothing different.

I doubt that at a 5% these new student numbers will be significantly different.

Thank you.

You bet.

Our next question comes from Kelly Flynn of Credit Suisse. Please go ahead with your question.

Hi. I wanted to go back to the scholarships question. As you guys probably know, there are a lot of questions in the investment community right now, but this $17,000 scholarship that I think I guys launched maybe this quarter or last quarter. So, I was hoping you could just help us think about that. Two questions. One is are you saying that did not have a significant impact on new student for the quarter. And then, secondly is it's $1,000 per term, which either does seem significant to overall revenue per student, but it seems that simple math is maybe notthe right way to look at it. So, can you help us understand why it's not a big deal? If you will, thanks.

You bet, Kelly. All of our scholarships are important in terms of attracting the types of students that we want to attract. I think what she's talking about, Karl, is that was the continuing student one. Right?

It is it's for students who have prior collegiate experience.

Right. I don't think that has a significant impact on the new student growth numbers. But what it is helpful for is getting students who we think are most likely to have academic success. Which at the end of the day, is really the only metric that's important in the long term. Because as I've said before, I'm fairly confident in the overall demand. We're not that concerned about adjusting it on a quarter to quarter basis. But your graduation rates are going to be improved by having students who come in with significant academic credit already. And so I think that's why Karl and his team have that particular one in place.

Okay. And then, I mean does it -- as we think about it as how the year progresses. I know you don't give guidance, but ifmore an more student take this on, I think the investment community may come to the conclusion that you're going to see a big revenue per student hit. And I just want to give you the chance to explain why that would not be the case ?

Well, we're delighted to have the investment community draw whatever conclusion they do, and the aggregate based on their own judgment, as Mark and I said at the beginning of the year. We would expect that we were not going to have significant revenue per student growth during the year. Not really because of the scholarships, because of the mixed shift towards graduate and corporate alliance students that already have that 5% discount in there. Beyond that, we're happy to answer any specific questions that individual members of the investment community have. But I think our view on revenue per student is fairly well stated.

Okay. Fair enough. Thank you.

Thank you, Kelly.

Our next question comes from Peter with Piper Jaffray & Co. Please go ahead with your question.

Thanks, Rob. So a lot of your peers have talked about a changing competitive dynamics and more intense competitive environment. And it sure seems like from your numbers you're posting today, that maybe you're seeing less of that. So, could you just give us your big picture commentary on what you are seeing from a competitive standpoint?

I'm delighted, Peter. It's always been a very competitive marketplace. In the last ten years that I've been here, that is a constant. There are a number of opportunities for working adults who are going back to college, in most of markets that we operate, to choose from. So I don't think it's gotten significantly better or worse. It's always been a full slate of competitive offerings. But as I said in the answer to Gary's question, I think it was Gary's question. I don't think over the long term that this is a sector which is significantly impacted or it's prospects are determined by demand.

I think there's very high demand there. The value of a college degree, I think, is fairly well established. In the short term, I hope it's the short term, you've got a sort of great depression level recessionary impact, which certainly has impacted everybody's enrollment in what I believe is a limited period of time. But over of the long term, what's going to affect your ability to operate in an institution like this is not demand, it's the quality of supply. If we do a good job in the classroom, there are plenty of people who are benefited by going back to college. And that's what we try and stay focused on.

Yet, the number of choices students have, I would argue, is potentially, substantially more today than it was three, five years ago. What do you hear back from student in terms of them choosing choosing versus alternative universities?

Well, we hope they've done significant research. Again, the most effective students that we find are the ones that have done the most work and have self-selected to be at Strayer. So what we hear is that they started the process when they decided to go back to school. They generally had some name recognition, which is of a number of institutions, which have caused them to do research. That research tends to be both visiting websites and Internet based research, as well as talking to student, and alumni and faculty. And over time, I think that is what's really going to drive students' decisions. And it's precisely where we're focused in terms of making sure that we have a high quality academic product and offering, and one which will be attractive over time to the type of students that want to work hard.

And one last thing, Rob. On the national accounts again, do you have a thought in terms of what the scale of the opportunity is there. In terms off of how big maybe as a percent of enrollments you think that opportunity could be ?

Well it's always been around 20%. Let's say between 50% and 25%. It's increasing now, but it's not because it is growing faster than it did in the past. It's maintained this high growth rate. And it's always been at this rate. What's happened is the unaffiliated student have fallen off precipitously. And that's just the simple math.

But it would suggest that it's going to grow, or it has grown a percent of the total ?

It certainly has, and if the impact of the economy remains, say for the next ten years, then I would expect a higher percentage of our students to have come from corporate affiliations. Remember, a lot of them are government agencies, as well. Not just corporations. But I have a high degree of confidence in the resilience of the American economy without regard to the political leadership. I mean, over --this country has gone through a lot. And I don't expect that we're going to have these levels of unemployment over a decade long period. So our planning horizon is things get better.

So as a matter of strategy growing national accounts as a percent of the total is not really the focus then ?

No. A matter of strategy serving all of our students the best way we can with the highest quality academics. And particularly with national accounts where you've go an influence (inaudible). If you serve badly it is has an amplifying impact on the negative reputational impact. So as a strategy, serving them well is important, but not growing them as a percent in that manner.

Okay. Thanks, Rob. thanks opinion.

Thank you, Peter.

Our next question comes from Brandon Dobell with William Blair. Please go ahead with your question.

Hi, Brandon.

I think I'm not last this time, which may set some sort of a record.

Well, at least you figured out how to dial in, so --

They gave me a whole new set of buttons on my phone. They actually said -- it says, "Hit here for conference call." So, I think I got it squared away, now.

Good.

First, I just want -- I guess a definitional question. Readmit students for you guys. I would imagine those don't show up in the new enrollment number, but they would show up on a continuing population number. Is that the right way to think about that definition?

It depends how long they've about out.

What is the criteria (inaudible).

If they've been out a year, they would be a readmit. Less than a year, it's a reinstate.

Which is a continuing student. So if you're over a year, you count as a new student?

Correct.

Okay. Was there any -- I guess within the undergrad population, in particular, any change in I guess students coming back into the institution after being out for a year or more?

No, not significant.

Okay. And then your conversations with the national accounts and community colleges, have you gotten any sense that they feel there is more price sensitivity from their students? So community college advisors or HR personnel saying we're looking to get more out of our tuition reimbursement. We're looking to get the best deal we can for our students. And I guess as a corollary to that,.

the summer scholarship program that you guys are going to be putting in place, how would that interact with the national account pricing that you have in place right now?

I don't know how to answer that second question. Karl, how does that work.

Typically a student qualifies for one benefit. It's either the --

Only one. Yes.

program we have with their employer or one of our scholarships.

Okay. Right.

I wouldn't say we've head a significant amount of price sensitivity from the employers, so to speak. Again in answer to a previous question, I think there's a general price sensitivity to the cost of education in the period where the economy has really taken a whack. And as a public policy matter, I think it's more important than ever that academic institutions institution don't reap the entire amount of pricing power that they have. That they do so in a prudent and conservative manner, which is really focused on providing the highest value to students.

Okay. And then final one for me. Given that the -- I think the implied revenue guidance, I think, did you say kind of down 10% this quarter,looks about like the first quarter's revenue results. With the EPS guide, let's call it $0.20 or below the first quarter number, is there a particular line item, marketing or instructional and ed support because the new campus openings that we should think about as being up materially quarter on quarter?

It's got to be I&E doesn't it, Mark?

Yes.

If you've got four new campuses.

Okay, just want to make sure.

Okay. Thanks guys.

And there would be a little bit in marketing, because you've got one new geographic market, too.

Okay. Great.

(Operator Instructions). Our next question comes from Suzi Stein with Morgan Stanley. Please go ahead with your question.

Hi. I know you won't be specific on this, but can you give us any guidance on marketing spend, just for the rest of the year. And I question is were you conservative with your marketing spend just given the uncertainty in the environment. And would you possibly be more aggressive with that just given what you saw this quarter as the rest of the year rolls out. And then maybe just what you expect as far as channel mix.

I'm happy to be specific on this, Suzi, because it really is -- it's not the way we think about the business.

We do not surge these marketing dollars in response to what we would see as higher enrollment, nor do we cut it based on lower enrollment. We set a budget at the beginning of the year based on the amount of advertising dollars that we want to expend in each geographic market to build brand, build name share, and then that's what we stick with. We don't really touch it during the year. It will rise or fall as a percent of revenue based on how many student we enroll. And we're very happy with that volatility.

In terms of mix, I think we've talked about this before. We don't really dictate that at a central level. We have regional marketing managers who are very effectiveunderneath a very solid central marketing team. And we obviously want object as efficient as possible, but change it a little bit in each market all the time. So, I can't really tell you that there's a specific switch toward one channel or the other. We want to be effective in all the channels that we use. And we want to really be based on building a brand recognition that then allows students, prospective students, applicants to just know us. Know us as opportunity, and then do a lot of real hard research and decide where they want to go to school.

Okay. Thank you.

Thank you, Suzi.

I'm not showing any other questions in the queue at this time. I'd like to turn it back over to Mr. Silberman for closing comments.

Thank you, Sean. Thanks to everybody for participating. As I said,we're looking forward to the rest of the year, and looking forward to speaking with you again in July when we do our third quarter conference call. Thank you very much..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference, you may now disconnect. Good day.