Strategic Education Inc (STRA) 2013 Q4 法說會逐字稿

Good morning, everyone, and welcome to Strayer Education, Inc.'s, fourth-quarter 2013 earnings results conference call. This call is being recorded. (Operator Instructions)

With us today to discuss the results are Robert Silberman, Executive Chairman for Strayer Education; Karl McDonnell, Chief Executive Officer; Mark Brown, Executive Vice President and Chief Financial Officer; and Daniel Jackson, Senior Vice President and Treasure. 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 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 assumptions, uncertainties, and risks 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 Forms 10-K and 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 Investor Relations department.

And now I would like to turn the call over to Robert Silberman. Mr. Silberman, please go ahead.

Thank you, Ben, and good morning, ladies and gentleman. We're going to begin this morning with Mark commenting on our company's financial results for the fourth quarter, including providing a detailed crosswalk on the impact of the restructuring charge we reported this morning.

Karl will provide an update on operating results and I will conclude with some comments on our capital allocation over the last year. And we will try to leave as much time as possible to answer your questions. Mark.

Thanks, Rob, and good morning, everyone. I will start with revenue. Revenue for the fourth quarter 2013 was $124 million, which was a decrease of 13% from 2012. The decrease was primarily driven by lower enrollments, which were down 17% in our fall academic term, and partly offset by higher revenue per students of about 500 basis points.

Although we did see a revenue per student increase in the fourth quarter, we fully expect this decline in 2014 -- we fully expect revenue per students to decline in 2014, which Karl talked about on the last call, as our newly-introduced lower tuition levels for undergraduate students and our graduation fund roll through. Revenue per student was up in the quarter, partly due to the phasing out of the previous scholarship program offerings as well as higher student retention in the quarter.

As previously announced, we implemented a large restructuring in the fourth quarter in order to reduce our expense base in 2014 and beyond. This restructuring resulted in a pretax charge to earnings of $55 million. $48 million of this charge relates to lease abandonments and asset write-offs at the campus and corporate locations. The remaining $7 million relates to severance and other employee separation costs.

To make it easier to understand the impact of the restructuring, we did include an additional table in our earnings release which highlights our fourth-quarter and full-year results with and without the impact of this $55 million charge.

As you can see about two-thirds of the restructuring charge is recorded in the I&E line, where we report our campus-based expenses, and most of the balance is in G&A where we report our corporate-based expenses.

For the fourth quarter, including the impact of the restructuring, we are reporting a loss from operations of $30 million, a net loss of $19 million, and a loss per share of $1.80. Excluding the $55 million restructuring charge, our income from operations is $25 million, net income was $14 million, and EPS was $1.32.

Looking at the full-year in a similar fashion, including the impact of the restructuring, we are reporting income from operations of $33 million, net income of $16 million, and EPS of $1.55. Excluding the restructuring charges, our income from operations was $87 million, net income was $49 million, and EPS $4.64. Lastly, I would like to point out in the fourth quarter our cash flow from operations was approximately $6 million lower as a result of the restructuring. Rob?

Thanks Mark. Karl, run through the operations?

Sure. Thank you and good morning, everybody. I would like to begin this morning by expanding on Mark's comments regarding our expense reduction initiative and just provide a little more detail.

Our restructuring plan consisted of two primary elements; a reduction in our workforce, which was completed in mid-October, and the closing of 20 physical campus locations whose collective enrollment represented about 5% of our total student population. 19 of the 20 locations taught their last on-ground classes at the conclusion of our fall academic term which ended in December. The one remaining location will teach their finals on-ground class at the end of the winter academic term in late March.

The transition of our on-ground students in these locations to our global online region has gone smoothly, but obviously we will continue to provide whatever support these students may need moving forward. Based on the implementation of our plan, we expect to achieve the full $50 million of reduced operating expenses targeted for 2014 and beyond.

Now turning to operating results for the winter academic term, our total enrollment of 41,098 students represents a 14% decline from last year, our continuing population decreased 17%, and our continuation rate was basically flat. It declined about 10 basis points.

And although the continuation rate for our fall cohort of new students improved, we still think it is too early to assess the impact to the graduation fund given that we only have two cohorts of students in the program. And, realistically, I think it could take at least a full-year data to get our first solid read on that program's impact on our retention.

Our new student enrollment decreased 2% versus the last year and within that number our new undergraduate students decreased 7% and that compares to the 26% decline we had in the fall term. New graduate-level students grew 15% year over year and that is comparing to a 13% decline that we had in the fall. Now also, graduate students now comprise 37% of our total enrollment.

Although we are encouraged by the improvements in both our continuation rate and new enrollment, we feel is important to point out to our owners that moving forward these numbers in themselves will be a less reliable predictor of future revenue growth due to the reduction in our undergraduate tuition and the graduation fund. Instead, we believe the strongest indicators of future revenue growth will be our total enrollment and our revenue per student.

And although our revenue per student increased 5% in the fourth quarter, as Mark pointed out, we are planning to see year-over-year declines in each quarter this year, again as more students at the undergraduate level enroll in our lower tuition. The rate of decline will obviously depend on the number of new students enrolling, as well as the mix of our graduate and undergraduate students.

I would also like to make just a couple of comments about the Jack Welch Management Institute. We have seen continued strong interest and solid growth in the JW MBA program throughout 2013, and earlier this month we were pleased to announce a strategic partnership with Skillsoft, a global leader in corporate learning solutions. Over the next 10 years, they will be the exclusive distributor of our Welch Way management training product, which today consists of six courses designed by and featuring Jack Welch, the Executive Chairman of JWMI.

In addition to our six courses, Skillsoft will have the ability to create new Welch Way-branded products and services to serve their customers' management development needs. And given their large global salesforce, proven track record, and the fact that they serve more than 19 million employees across more than 6,000 customers, we think this a great partnership and we're looking forward to working with them in the years ahead.

Finally, although we don't normally comment on future enrollment, I did want to mention that we have experienced some weather-related disruptions across our footprint over the past few weeks and that many of our largest markets have been impacted, including Atlanta, the Carolinas, Washington DC, and the Northeast. Clearly, we won't know if there is any impact and what that impact is until the end of the quarter, but given the number of days and locations involved, there is some chance that our enrollment will be impacted. Rob?

Thanks, Karl. Just a brief comment on our allocation of capital in 2013. We started the year with $47 million in cash on our balance sheet, 11.4 million diluted shares outstanding, and $125 million in principal outstanding on our bank term loan.

During the year we generated $84 million in cash flows from operations. As Mark mentioned, the impact of the restructuring charge was only like $6 million of that was reduction in cash. And we use that $84 million during the year as follows.

First, we invested $9 million in academic technology, routine maintenance, and CapEx. Second, we used $3 million to make principal payments on our term loan. Third, we invested $25 million in the repurchase of shares of our company's stock. And, finally, the remaining $47 million was added to the $47 million we started the year with to bring our total cash and cash equivalents on hand at year-end to $94 million.

And at year-end 2013 we had $122 million of principal outstanding on our term loan, no draws on our $100 million revolver for a net debt position of $28 million, and 10.6 million diluted shares outstanding as a result of the share repurchases.

And with that, Ben, we would be pleased to answer any questions.

(Operator Instructions) Sara Gubins, Bank of America Merrill Lynch.

Thank you, good morning. I am wondering what you think drove the improvement for the new student enrollment for undergrad if the decline is getting better and the growth that you saw in the graduate program.

Well, I can't speak to any specific levers, Sara. We continue to focus on just building the best possible university that we can. Make sure that the student experience is as good as we can.

I can say that we have seen, at the undergraduate level, significant favorable feedback from students on the lower undergraduate tuition. In terms of graduate students, we have had strong graduate student performance for well into the last year and so we weren't completely surprised to see the growth there.

And partly JWMI.

Clearly JWMI is a big help.

Okay. But just to make sure I understood what you were saying on the call, new graduate students grew 15% but in the fall they were down 13%.

That is correct.

So that is a pretty big improvement and it is not coming from scholarships because you're not doing more scholarships there, correct?

We are not doing anything on scholarships at the graduate level. And as Rob pointed out, we have seen strong growth in JWMI's MBA program throughout 2013. They are at a level where they are making contributions to the total Strayer graduate students.

We also had growth in new students and graduate students earlier in 2013 as well. So the fall term was down, but there were previous terms where we had graduate new student growth.

Okay. Could you give us a sense of how many graduates you had in 2013 and what your expectations for 2014 are?

A little over 8,000 graduates in 2013. I don't have that. Do you have the number for 2014, Karl?

I don't have that number.

It is likely to be lower just because enrollment was lower.

Right, okay. Then in terms of -- as we think about costs for 2014, you have obviously got the benefit of the $50 million in cost savings. Excluding that, is it reasonable to think that your other costs would be relatively flat or are there other areas that might be more variable as your revenue is lower?

Yes, Sara, of course, it will depend on how many students we have enrolled and are teaching next year, so there is a variable component to it. But I don't anticipate a whole lot of other wild swings in our costs next year.

Okay, and then just last question. You mentioned that students who were attending the campuses that were closed were shifting over to the online program. Could you give us any sense of what the retention rate of those students who were at campuses, who were attending on-ground have, in fact, moved online?

Sure, there was a -- to begin with, a large percentage of those students were already online and at the end of the quarter the continuation rate of that cohort of students in these 19 campuses was almost flat, actually. We were just slightly below the continuation rate that we had in the prior year, so the bulk of students retained and are with us online now.

And that is around 80%, right?

Yes.

That's great. Okay, good. Thanks a lot.

Thank you, Sara.

Jeff Volshteyn, JPMorgan.

Thank you for taking my question. So I wanted to ask a high-level question. In the past, when you look at your model, we thought about online delivery and campuses really supplemented the online delivery. When you entered new markets there was a certain base of students already there that you knew and you could quantify.

Now that you have scaled back campuses, what is the long-term strategy for your campuses and your online institutions? Are you shifting more in line? Will we kind of see more of campus closures or we will see selective openings? Help us frame the strategy going forward.

Sure. Well, first, we think campuses are a critical part of our delivery and the experience for students. In any given quarter we have tens of thousands of students that are taking on-ground classes and the feedback from the bulk of the students is that that is why, in large measure, they chose Strayer because we do offer the flexibility to learn either at a brick-and-mortar facility or online.

We don't have any plans to close any more campuses. When we were putting our plans together for the restructuring plan that we have just completed, we feel that the $50 million plan is sufficient across a range of scenarios that we looked at as being somewhat likely.

And so, to answer your question Jeff, we think campuses are critical. We don't have any plans to close any additional campuses. And whether or not we open campuses, or when we open campuses, that is something that we look at on a year-to-year basis. As we have said in the past, we would want to see some enrollment stabilization for our existing set of campuses. We want to see some additional clarity on the regulatory front and we would like to see the macro economy at large show some signs of improvement.

That is helpful. So what percentage of your students is online now?

Well, in terms of classes, just under about 60% of our classes in any given quarter are online. But that is a very fluid number in that the absolute number may remain somewhat flat, but you have a lot of students going in and out of the modality. So a student who may take all their classes online one quarter, in the subsequent quarter they may decide to take all or part of their classes on-ground.

Actually, over the last year we have seen a pretty large increase in what we call hybrid modality, which is a student taking one of their classes online and one of their classes on-ground. Our view on that is we are fairly agnostic. As long as we are confident that the learning outcomes are similar in both modalities, we like to leave it up to student to have choice of where he or she will take their courses.

Great. If I could ask a couple of number questions; do you have a 90/10 [rate share] for 2013?

We don't yet, Jeff.

And a draft rate for the CDR?

Well, we do have that, but as you know, we choose not to disclose it. Primarily because the number can change the time it goes from draft form to the time it gets finalized.

The last number we have on 90/10 is the 2012 number, correct?

Correct.

And that was mid-70s.

Mid-70s, correct.

And we don't anticipate that going up in 2013, Jeff.

Okay, thank you very much.

Jeff Silber, BMO.

Thanks so much. I missed at the beginning of the call your explanation for the increase in revenue per student. If you just don't mind going over that and providing a little bit more color that would be great.

Sure. Well, as Mark pointed out, Jeff, it's really due to a combination of things. We had the rolling off of some of these scholarships that we had offered in 2012. That was a component.

There were fewer drops by students within the quarter, which helped, and we had better retention. And so a combination of that resulted in the 500 basis point gain in revenue per student.

Okay, great. I appreciate you going through that again.

In looking at your balance sheet, you have been building up some cash over the course of the year. I'm just wondering is there a minimum amount of cash that you need on the balance sheet and what you would do with the excess in terms of your priorities for future capital allocation.

Well, there is a minimum amount, Jeff. But as we have said in the past, this is a relatively cash positive business that has positive working capital. We did I guess a couple years ago enter into a bank term loan because we thought we had very favorable interest rates and we thought as a cost of capital that made more sense for us.

We have been in a position, particularly going through this restructuring in terms of -- we really wanted to make sure that we had adequately funded the operations of the business, which we think is probably the highest return we can for our owners. And then, as we build cash, our strategy for capital redeployment hasn't really changed.

We look first at high-return investments that we can make in the business. As Karl mentioned, we have got a few concerns with regard to the overall economy and the regulatory structure at this point and we have a couple of initiatives that we are working through and we would like to see with a little more clarity what those results are. But, in general, those opportunities that we have right now in the business where we can apply capital we are doing it.

Above that we look at our overall cost of capital, our debt level. And with a cash which is purely access to our needs and with an ideal balance sheet, we look to return it to owners in the most value-enhancing way. And that really hasn't changed.

Okay, great. Just a couple quick numbers questions. I'm just wondering what you're budgeting for capital expenditures in the current year and also what we should be modeling for depreciation and amortization.

Jeff, our CapEx will be in the range of -- our current forecast is in the range of $10 million to $12 million at this point. In terms of depreciation, if you back out the impact of the restructuring on depreciation, which was about $11 million, then the residual is pretty much what we would expect into 2014.

Okay, great. Thanks so much.

Thank you, Jeff.

Paul Ginocchio, Deutsche Bank.

Karl, just a question around the scholarship and reworking old leads. Have you sort of gone back and reworked now all the previously sort of unconverted leads? And is that process over or is there still more to go? Thanks.

Sure. The way that our admissions functions work, Paul, is our admissions officers are responding to students who have inquired with the university. And to the extent any individual who had previously inquired and for whatever reason wasn't interested in attending at that point, should that individual express interest again then, of course, we would be talking to them.

But we don't have an admission engine in the way that you might be thinking about it, where we are costly going back and try to talk people into attending because maybe they didn't feel it was the right point of time for them whenever they first inquired. Really, the entire admissions process here at Strayer is designed just to try to work with individuals who have, for the most part, in that specific quarter expressed some interest in attending the university.

Paul, we can't really be any clearer on this. The student that you have to convince to enroll through some newly-effective marketing function is just less likely to be a successful student. It is just how we think about it and probably the best way to understand our institution.

Okay. Then, second, did you have any students who saw the scholarship and -- existing students who saw the scholarship and were then kind of asking questions about how I get that price or how do I get a refund for the last year?

No, we haven't experienced any feedback like that. What I would point to is that our continuation rate variance over a year-over-year basis basically being flat is probably the best variance that we have had in over a year. And if there were going to be some dissatisfaction for any reason, including anything having to do with tuition, I would expect you would have seen that in that continuation rate variance.

Well, most of those students were on the higher scholarship.

Many are.

Okay. Then just finally, can you break out -- how much did Jack Welch help the graduate? I'm just trying to understand; is it across all your graduate programs or is it mainly Jack Welch driving that? Thanks.

No, it was pretty widespread. We saw a growth really across all of our graduate programs, JWMI being one of them. Strayer's core MBA grew, but so did several other of our graduate programs.

And maybe if I could ask one more follow-up on the core MBA. I mean the MBA, traditional MBAs online -- I think everyone, MBA applications, everybody is struggling in MBA. How are you able to grow that when I guess the rest of the industry is down quite significantly?

Again, I don't know that I can point to any specific factor, Paul. To Rob's point earlier, with the exception of the fall term where we were down 13% on graduate students, we have seen pretty good graduate-level interest throughout most of 2013. There was a lot of interest, clearly, in the winter quarter. I can't really equate it to any one item, other than what we have already said that JWMI is a positive contribution there.

But the Jack Welch Management Institute right now is relatively small, so I mean it was a positive contributor but I don't think it was dispositive.

If you look at our recent history through the downturn, our graduate programs have always been relatively strong. We think partly that is a result of the fact that we think our undergraduate programs have been diminished and hurt by the higher rates of unemployment.

If you listen to our calls, you read our letters, it is pretty clear empirically that is what is driving things. With a better employment picture for people with bachelor's degrees, doesn't surprise us that our graduate programs would be stronger over the last three years than our undergraduate.

Thank you very much.

Thank you.

Jason Anderson, Stifel.

Morning, guys. Could you give us any color on how inquiries and conversions or applications are looking in the intra-quarter period here heading into next quarter? Any color?

No, Jason. We do not provide any forward-looking commentary other than what I said in prepared remarks. The only reason we provided that is it is something that we have experienced and it has been quite unique, at least if you look at the trends in weather that we've had over even a 10-year period. But we don't provide anything other than that.

Okay. Thought I had to give it a shot anyway. Also, could you give any color on national accounts, maybe what the start growth looked like there?

And also, in the market in general, are you seeing the competition in that market, whether it be employer or community college partnerships, getting tougher? Because, as you are well aware, many in the sector and beyond are trying to get heavier into that market.

Yes, sure. Our new students from national counts grew 8% year over year so that continues to be a very bright spot for us. We added several new national accounts in the quarter and the growth of 8% in the new students really came from a mix, both from adding new accounts but also just having more students from some of our existing accounts.

In terms of competition, I have heard that there are a lot of institutions that certainly have an interest in it. But I can't say that we have really encountered a lot of resistance, at least from our existing accounts where our relationships tend to be pretty strong.

And I also think that the Welch Management Institute has helped there as well. The branching out into essentially corporate training programs, which is what the Welch Way courses are that are going to be distributed by Skillsoft, reinforces that brand and I think helps us with those relationships.

Great, thanks. And one additional, and that segues into my next one here on Welsh Way and the partnership with Skillsoft. Could we see meaningful impact in 2014 with the training courses due to that partnership?

Well, I don't know. It remains to be seen exactly what Skillsoft's delivery of that product will be. I can tell you that it has been rolled out across their company. I attended the launch to their internal team down in Florida a week ago.

Jack and myself will be attending a similar event for some of their top clients next month, but I can't speak to whether or not it will be a meaningful amount of revenue to either Skillsoft or us. It will obviously depend on the take up of their clients with this product.

Great, thanks for the color.

Sure.

Corey Greendale, First Analysis.

Good morning. First, I want to ask about the cost savings. Given that the vast majority of the campuses taught out their final classes in the fall term, should we expect to see almost the entire full run rate of that $50 million savings in Q1?

Yes, you should.

Okay. Second question, the improved new student results came despite what I would have thought could have been a couple of headwinds that I was hoping you could comment on. One is your historical strength with the federal government; given that the shutdown happened during Q4, did you see any negative impact from that?

There might have been pockets of areas in our footprint where that could have had a slight negative impact Corey, particularly maybe in the DC market, the Washington DC area and Northern Virginia. But, overall, we saw strong interest, both at the undergraduate and graduate level.

Okay. And I realize it may be hard to parse this, but how would you evaluate the results in the geographic areas where the 20 campuses were shut down?

Well, if you were to exclude the impact of the 20 campuses, our total new student enrollment would have increased year over year by about 4.5%.

Okay. And just generally the results in global online new students in the areas where the campuses shut down was it kind of consistent with what you would have expected had those campuses remained open?

It was a little better.

Yes, I would characterize it as slightly better.

I mean overall it was worse, Corey, because you lose the brand of effect of having the campuses. But, with regard to global, it was better because you had areas where we have invested in brand and we had expended the capital, even though we were writing it off then, that were just shifted into the global online unit.

Okay, and last one for me. When we're thinking about how to model revenue per student in 2014, are there any factors we should be thinking about other than the undergraduate/graduate mix and the 20% tuition cut after the Jan 1 for new undergrads?

Graduation.

The graduation fund. Yes, those are the primary levers, Corey. What we see is that it will obviously depend on the number of new undergraduate students who enroll and the mix of undergraduate and graduate students, as you point out.

But if you were to assume a constant sort of one-third graduate, two-thirds undergraduate mix of students, we would expect our revenue per student to decline about 8% over the course of two years.

Okay. And filtering in, so it is presumably smaller than that, a lesser decline at the beginning and then increases as you get more students getting the new tuition price level?

That is right, yes.

Good. That is really helpful, thank you.

Sure.

Peter Appert, Piper Jaffray.

So the 20% reduction is exclusively for new students, correct?

New undergraduate students.

New undergraduates, right. And I guess this would be a follow-on to the early question. I guess it sort of begs the issue of why existing students wouldn't take note of that and find it objectionable.

I mean is there some procedure where a student could drop out and then reapply and that might allow them to capture that price reduction.

Well, Peter, first off, welcome back. We haven't heard you in a while. It is nice to have you.

The timing of your call has been difficult, but I'm back.

As I mentioned before, most of those existing undergraduate students are on even more concessionary scholarships that we put in place in 2012, so there is really very few that would fall into that crack. We are dealing with students in ways that we think are most appropriate for them and help their process of continuing through to get their bachelor's degree.

Then how about on the graduate level, what have you done pricing-wise there recently?

Well, we have kept our -- the Strayer University tuition, meaning excluding Jack Welch Management Institute. We haven't taken any tuition increases there over the last year so that has been flat.

And as part of JWMI's program we actually increased the tuition there last summer and so their tuition levels are slightly higher than Strayer University's.

They are more than slightly. That is a premium-price degree. But the other way to say that, Peter, is that we did not reduce price at our core -- the Strayer University MBA program, but we didn't increase it in 2014.

Got it. Have you guys quantified a level of operating margin that you think is appropriate to the business in the context of the changes you are making and all the changes that are taking place industry-wide?

Actually, I think the most important way to think about that Peter is that it depends on the utilization for us of our existing asset base. As Karl mentioned, we think that the physical campuses are an important adjunct to the academic mission. They cost money and they are like an airplane that flies. The empty seats hurt your operating margin and as they fill up it helps.

So at a fully-utilized campus network our operating margin would be significantly higher. Beyond that, we want to make sure that our tuition is priced appropriately for our students, that we are creating value for students. And we think that in doing that you will generate, both a healthy operating margin and consequently a healthy return on capital investment to your owners.

So the financial metric you are really focused on is the enrollment growth rate. You are not trying to manage the margin level?

Correct.

Yes.

Yes, absolutely.

Got it. Okay, thank you.

Thank you.

Trace Urdan, Wells Fargo.

Thanks. You guys have answered this question about existing students being unhappy with the price reduction the same way in both cases and I'm a little struck by it. Because the answer seems to be that there is no difference in the pricing for the new students coming in and the other students who have been on these additional scholarships. But that can't be correct, is it?

Is there no effective difference in pricing, it's just about the messaging?

Well, they are two different programs Trace. In 2012, you will recall that we had various scholarship programs, one of which offered students the opportunity to have $1,000 off at the undergraduate level for up to 17 terms. And so, I think Rob's point when he is saying it's even more generous, is if you're taking two courses and you get $1,000 off, as a percentage that is a steeper discount than what our undergraduate tuition reduction is that we undertook recently.

We have a lot of students that are still attending the university and they are still enjoying that benefit. So I can't really say it any differently other than that --

But then you terminated those programs in 2013 for a period of time before you then introduced the new graduate scholarship program.

Yes, we did. And we also introduced the graduation fund, which was up to a 25% reduction in the cost of tuition, albeit constructed differently, for somebody to benefit in the last 10 courses of their education.

We're not saying that there is not any students who don't have some benefit, that is not what we are saying. What we are saying is we have not heard from these students that they are dissatisfied.

Okay, fair enough. I wondered if you could give a little bit more context to the -- you suggested that at the undergraduate level the pricing has had a positive impact and that is in large part what sort of the improvement in the rate of decline can be attributed to. Can you put some context around that?

Is it manifesting itself in terms of improved inquiries? Is it improved conversions? Is it both? Are you seeing the show rate improve or is it sort of all three dimensions are better? Can you comment on that?

What I can say is that throughout 2013, even in period where we had lower new student enrollment, we still saw that there was a lot of interest in various programs. And for the winter academic term there was strong interest on the part of prospective students and a less back percentage of those students on a year-over-year basis decided to enroll.

Let's not get ahead of ourselves here, Trace. We are still negative.

Yes, I understand but, Rob, the improvement in the rate of decline is pretty remarkable.

It is large compared to the prior quarter, but we try not to be too myopic on this. And we have openly said enrollment is volatile and we are comfortable with that. We, most importantly, don't want to -- I don't want anybody to misinterpret Peter's comment on our -- how we think about this business.

In other words, we are comfortable with the fact that students, for their own purposes and their own reasons, will decide to come when they come. And if you spent a lot of time obsessing over trying to manage that process for either a relatively smooth progression or even an upward progression, you're going to end up with students who are less successful in the long term.

The best way to describe how we're thinking about managing this business is we are creating a healthy cohort of graduates, because that over the long term, we think, creates the most value for the institution which, ultimately, creates the most value for the owners. And I think the other point I would make with regard to the performance in the winter term enrollment is our graduate degrees, our graduate enrollment, for which there was no discounted tuition, was up significantly.

We spent a lot of last year and the before trying to determine what the optimal tuition level was to help our undergraduate students be in a position to complete their degrees and achieve status as graduates. We think we have found that now, particularly with the graduation fund which over time will work itself in. And, ultimately, we are hopeful that will result in a level of enrollment that will drive the university.

Okay, thank you.

Thank you, Trace.

Timo Connor, William Blair.

Thank you. The 5% of enrollment that was affected by the campus closures, was that just on-ground and hybrid? Wanted to clarify that.

If you take the collective total enrollment of the students that were attending in these 20 campuses, it represents about 5% of our total student population.

Okay. So it didn't include maybe the online students in those areas?

It did. It is their total enrollment.

So the 650 basis point headwind that you said those campuses represented from a new enrollment perspective seems to be larger than the total enrollment. I'm just trying to reconcile those numbers given that those sounded like they were underperforming campuses.

I didn't understand what you said.

So you said new enrollment would have been up 4.5% had it not been for the campus closures, is that right?

That is right, new student enrollment.

New students. So that was basically 650, 6.5% difference in the new enrollment you reported, but it was only 5% of students that were impacted. So I am just trying to understand those numbers given that I thought those were sort of underperforming campuses.

Well, it is 5% of total students.

Right. And the headwind from new students was larger than that 5%, is that right?

As a percent of the new students.

Right, okay. I'm just trying to reconcile those numbers to try to figure out why that would have been such a new enrollment headwind, given that it was only 5% of enrollment.

Because there was a lot of new students previously in those new markets relative to the newer campuses.

So were those campuses still ramping? Is that fair to say?

I think we talked about this on the last call. The problem with those campuses were some were ramping. They weren't ramping at rates that we thought were going to be in a position to achieve our returns on capital. And given the fact that the overall economy in those markets was weak, we just didn't like the early indicators there.

Some had been ramping and then turned down, which we thought was a significant issue, and others were not ramping. So it was a mix of all of that.

Okay, thank you, that is helpful. Then can you walk through again the 8% revenue per student decline you mentioned? Over exactly what time period would that be?

We think that will occur over the next two years, meaning 2014 and 2015.

Okay. So comparing full-year revenue per student for 2013 to full-year revenue per student for 2015?

2016 really, because it is going to work its way through over that timeframe.

Okay, got it. Thank you very much. Appreciate it.

Thank you. Ladies and gentlemen, that does conclude our Q&A session. I would like to turn the conference back over Mr. Silberman for any closing remarks.

Thank you, Ben, and thank all of you for participating. We look forward to talking to you again in May.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of your day.