Strategic Education Inc (STRA) 2016 Q2 法說會逐字稿

Good morning, everyone, and welcome to Strayer Education, Inc., second-quarter 2016 earnings results conference call. This call is being recorded. For those of you who wish to listen to the conference via the Internet, please go to strayereducation.com where the call will be archived.

With us today to discuss the results are Robert Silberman, Executive Chairman for Strayer Education; Karl McDonnell, Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. 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 assumptions, uncertainties, and risks that the Company has identified in the paragraph on forward-looking statements at the end of its 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 investor relations department.

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

Thank you, Operator, and good morning, ladies and gentlemen. We're going to begin this morning with Karl discussing our Company's operating results for the second quarter, including Strayer University's summer term enrollment. Dan will then report on our detailed financial results for the second quarter and then we will stay as long as you need for questions. Karl?

Thank you, Rob. Good morning, everyone. I would like to begin by providing some additional details on our second-quarter financial results that we reported this morning and specifically comment on the roughly $6.5 million of increased operating expenses.

First, roughly $3 million of the increase was related to the expansion of the New York Code and Design Academy having received regulatory approvals faster than we had anticipated. As a result, we have accelerated our expansion plans and now plan to open seven new NYCDA locations by the end of this year. This includes locations in Washington, DC; Philadelphia; Atlanta; Raleigh, North Carolina; Austin, Texas; Salt Lake City; and Seattle, Washington. In every case except Seattle, these new NYCDA locations will be housed in existing Strayer University campuses to operate.

Based on this accelerated growth plan, dilution related to NYCDA in 2016 will exceed our previous range of $0.20 to $0.30 and will more likely be approximately $0.40.

Another $1 million of the increase was used to fund additional investments in our academic programs and the remaining increased spend was marketing and advertising investments to support NYCDA, Strayer@Work, the Jack Welch Management Institute, as well as Strayer University. In every case, the increased marketing spend generated results above our expectations, which means we will likely continue to invest additional dollars to support our growth initiatives in the balance of the year.

Taken together, these investments will result in full-year operating expenses growing approximately 4% to 5% versus the prior year, as opposed to increasing 1% to 2% as I had previously indicated.

Turning now to our enrollment results for the summer academic term, total enrollments increased 4% from the prior year to just under 39,000 students and our new students increased 6%. Our continuation rate increased 250 basis points, which is on top of the 210 basis-point increase we had in the same quarter last year. The increases in student retention are the result of the investments that we have made in our faculty, our technologies, and the use of our predictive analytics.

The retention gains have also been helped by the Strayer University Graduation Fund. As of the second quarter, more than 7,000 students have redeemed free courses worth more than $15 million of tuition, substantially reducing the cost of their degree and lowering the amount of their outstanding student loan debt, just as we had intended when we introduced the program. Three years after its introduction, the Graduation Fund is unquestionably aiding our long-term retention.

A couple of updates on some other key segments. New student enrollment at the Jack Welch Management Institute grew 18% and total enrollment grew 29%. They also had a 200-plus basis-point increase in continuation rate as well.

Our national accounts continue to outperform the broader university. Total enrollments in national accounts increased 18% versus the prior year and new students grew 4%. However, that 4% growth includes one of our largest clients who had a labor dispute and workforce disruption during the quarter. Excluding the impact of that disruption, new enrollments in our national accounts grew 18%.

With today's second-quarter results, we are halfway through 2016, and we have now seen multiyear highs in our enrollment, student learning outcomes, and retention. This performance across all of our quality metrics has given us increased confidence to invest more dollars and to accelerate those investments in order to grow the overall Company, including in areas outside of the university. We believe the long-term value of these investments will significantly offset the near-term dilutive impact on our reported earnings. Dan?

Thanks, Karl, and good morning.

I will start with revenue, which for the second quarter was $108.5 million, down 1% from last year due to a decrease in revenue per student, which was down about 2%. Our income from operations was $12.9 million for the quarter, compared to $20.9 million for the same period last year. Operating margin was 11.9% for the quarter, compared to 19.1% in 2015. The roughly 8% increase in total operating expenses, as Karl mentioned, was the result of accelerated investments in NYCDA, academic content and delivery, and brand awareness initiatives.

Our bad debt expense was 3.8% for the quarter, compared to 3.2% for the same period last year, reflecting slower payment by some of our corporate alliance partners during the second quarter.

Net income was $7.8 million, compared to $11.9 million in 2015. Consistent with the first quarter this year, net income in our second quarter benefited from lower interest expense resulting from the payoff of our term loan in the third quarter of last year. Earnings per share was $0.72 for the quarter, compared to $1.11 for the same period in 2015. Our ongoing investment in the growth of NYCDA resulted in about $0.11 of dilution to our Q2 earnings.

Moving to our year-to-date results, revenues decreased 1% to $219.7 million, compared to $221.6 million for the first half of 2015, due to lower revenue per student, which was down about 1%. Income from operations was $33 million for the first half of 2016, compared to $40.8 million in 2015, a decrease of 19%.

Our year-to-date results include non-cash adjustments to our lease liability. Excluding these adjustments, income from operations was $31.3 million this year. Excluding non-cash adjustments, our year-to-date operating margin was 14.2%.

Net income was $20.2 million for the first half of this year, compared to $23.3 million last year, a decrease of 13%. Excluding non-cash adjustments, net income for the first half of 2016 was $19.1 million. Diluted earnings per share was $1.87, compared to $2.17 for the same period in 2015, a decrease of 14%. Excluding non-cash adjustments, EPS was $1.77 for the first half of this year. And year to date, our investment in NYCDA has resulted in about $0.17 of dilution to EPS.

Our diluted weighted average shares outstanding for the first half of 2016 increased 1% to 10.790 million from 10.721 million in 2015. We ended the quarter with $117.4 million of cash and no debt. Our cash from operations for the first half of the year was $22.4 million, compared to $43.8 million in 2015, and as I mentioned last quarter, our cash flow from operations for the first half of the year was negatively impacted by a couple of one-time events, including our investment in NYCDA, of which a portion was treated as a reduction to operating cash flow, as well as the unfavorable timing of 2015 tax payments made in the first quarter of this year.

Regarding capital expenditures, we spent about $4 million during the first half of 2016, compared to $7 million in the same period in 2015. The lower CapEx for the quarter is mostly due to timing and we continue to expect full-year CapEx to be up slightly from last year, in the range of 3% to 4% of revenue.

And finally, we continue to maintain our $150 million available revolver. Rob?

Thank you, Dan. So just to summarize at a very high level before we throw it open to questions, when we as management and a Board looked at our business over the last quarter, a couple of important themes stood out that I would like to share with you.

First, increased new student enrollment and sustained increases in student continuation rates mean that we are starting to firm up and grow our total student enrollment, which has been a multiyear process of bottoming out.

Second, we received regulatory approvals faster than we anticipated, as Karl mentioned, for our new Code Academy investment, so we're happy to ramp up those expenses in that area a little faster than we had planned.

Third, we intend through the balance of the year to continue to invest in all of our growth initiatives -- the Jack Welch Management Institute, Strayer@Work, the New York Code and Design Academy, as well as continuing to support improvements in academic outcomes at our core asset, Strayer University. Our increase in instructional and educational support expenses on a year-over-year basis largely reflects a lot of the work that Karl and his team are doing in predictive analytics and in academic support functions.

Fourth, our multiyear decline in revenue per student is starting to level off as the impact of Strayer University's reduced undergraduate tuition, which we put in place in 2014? Late 2013, late 2013, including the Graduation Fund, as that rolls through.

And finally, I would just reiterate, as Dan described, since it is very important to us as a Board, that our owners economics are actually better in the first half of the year than the GAAP statement suggests with regard to distributable cash flow, due to that categorization of half of the purchase of NYCDA as a reduction in operating cash flow versus the more intuitive use of it as a cash and investing activities, and as well as by the timing of tax payments on a year-over-year basis, as Dan mentioned.

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

(Operator Instructions). Peter Appert, Piper Jaffray.

Hoping you guys might give us a little more color on the current and projected economics of NYCDA. What are the current revenues? What are the current enrollments? What are the unit economics associated with opening these new locations?

It is quite small now, Peter. They have operations in New York City and a very small activity overseas in Amsterdam, just a few hundreds of students.

The economics of opening of the new units, I think directionally, as we thought about it, are similar to what we saw or experienced as we started our campus rollout plan, but at a much lower level. The most important reason is that most of these units we're going to open up during the day inside of our physical campuses. So, it will be -- we don't have anything to share at this point because, frankly, we are still modeling that out, but I would say directionally it will be quite a bit less than our previous campus rollout strategy where we had operating losses of around $1 million or so in the first year or year and a half before we broke even. We expect these to be lower and to break even faster, but as an entity when they get to maturity they're probably going to be smaller as well.

Okay. So it sounds like, though, since you are rolling out a significant number of new locations all at the end of this year, it sounds like the operating cost burden probably steps up, then, meaningfully on a full-year basis going into 2017? Is that fair? And therefore, the dilution would likely be higher?

Let's talk about operating costs and then dilution. Certainly, operating costs for the latter half of this year and 2017 will be significantly higher if we get all nine units opened. Dilution will depend on how quickly the revenue ramps.

Right. What are you seeing in terms of enrollment momentum within the existing locations?

In New York, it's strong. That's one of the reasons we were attracted to it.

Right, can you can you quantify it? Because if it is a few hundred students, it sounds like -- I'm not -- hard to extrapolate, given the small scale of it, currently.

As I said, it is relatively small, and as we have more data and more experience on this, we will share it. At this point, it is fully consolidated. We haven't broken it out. It is a nascent operation at this point.

Got it. All right, thanks. I will let someone else ask some questions.

Trace Urdan, Credit Suisse.

I am going to keep pushing a little bit further, Rob. I think -- I mean, it seems clearly the case that when the Board contemplated this investment, there was some kind of ROI that was contemplated around what this level of investment would return. So, I think it's a fair question to ask how you guys are thinking about that. Is this the kind of thing where it is going to be incremental investment for several years before we begin to see a contribution to overhead or is this the kind of investment where you think that it is going to be more rapid and we might actually see a positive contribution to overhead beginning in 2017?

When you say -- you mean a positive contribution to operating income?

Yes, yes, to your fixed-cost base, right?

You're going to see a --

So it is going to be generating cash.

Yes, you're going to see an impact on overhead immediately if you think of the operating costs. But, yes, we -- as I said, we expect -- based on what we understand about this business, we expect this to break even at a faster rate than our original campus strategy.

And so if we are successful and if the -- again, it is important -- these are educational functions, so before we get too wrapped up around the revenue and the contribution to operating income, what we really need to establish is, are we teaching coding well and are the students achieving the learning outcomes and are they -- in the case of a Code Academy, are they achieving the employment outcomes as well? And so our focus over this first year is to make sure that we do it right and that we get those both learning outcomes and employment outcomes.

But, to your point, we would not have made the investment if we didn't think it did have a very attractive return picture, a very attractive return on investment, and in terms of seeing that, we are going to -- if we have the nine campuses open by the end of this year, we are going to see that increase in expenses certainly in the latter half of this year and it will be in our expense base in 2017. As the revenue ramps, which we hope it to do in 2017, you will start to see some positive operating income as well.

I guess that -- I'm going to try one more time. So, I don't think anybody disputes this is a good thing for you to be doing. I think that what I am struggling with -- I can't speak for Peter, but what I am struggling with a little bit is the scale at least as far as you're contemplating it, right? So, I get that making an incremental investment at an existing campus, you'll get to breakeven on that incremental investment faster than you might for a bigger scale if you were opening up a new university like you used to.

But I am more interested in the kind of multiyear. Conceptually, how large an opportunity is this relative to your core business, in your view, and how large a scale investment are we talking about? Or is it just that you don't know the answer to that question yet?

Let's try it step by step. To try and scale out the size of the investment, again it will be significantly less than opening new campuses because we have got the physical facility. The ultimate size, which I think you're asking, is how big could this get, we (multiple speakers)

I am less interested in the unit economics of a single campus than I am in terms of the overall arc of this business that you are clearly investing in this year, possibly next year. Many years of investment is appropriate if the scale of the opportunity is large enough, but I'm just trying to get a handle on that.

Right. I don't have anything specific for you right now, Trace, but suffice it to say that when we looked at the coding business, we think that it has some very positive characteristics, particularly relative to the core university in terms of both supply and demand. We think that the -- our ability to teach it well fits into our core competency and we do feel as if it can be a meaningful part of the enterprise going forward, but it is a relatively small investment right now. It has outsize impact to visibility because a lot of it runs through the income statement versus the balance sheet, and as we have more data on this, we will certainly let you all know.

What we can tell you now is that because our regulatory approval process happened quicker than we anticipated and because what we have seen so far from the New York experience is positive, we are happy and eager to go ahead and open up these units through the balance of 2016, and then I would say that we will have a better view as we get into the middle part of 2017 as to ultimately what the top end of this could look like.

Okay, I have hogged enough time. I will let you guys move on. Thanks.

(Operator Instructions). Corey Greendale, First Analysis.

This is beginning to feel like a little bit of a dead horse, and then I will move on to a different topic, but maybe a little different angle on the same question. So with the campuses, historically you were very deliberate in terms of the number of new campuses, gradually increasing, the number of new campuses gradually increasing every year. So going to such a big number quickly I think is at least part of what I am surprised by.

Can you just talk about the operating model? So in the campuses, the concept was you would cultivate leaders at existing campuses and transplant them to new campuses. Is there some equivalent of that or what is the personnel and human capital required for each new campus?

It's a great question. Karl, go ahead.

Yes, Corey, the staff investment for these first locations is quite low. One of the key roles that we hire almost immediately is somebody who is focused, to Rob's point, on the outcomes for the program completers, the graduates, if you will. Part of the value proposition in this business is that people are career switching, and so it is incumbent upon us that we make sure that we are working with employers to find good job opportunities for the people that are completing. So that's a hire we make almost immediately.

We are finding or going into this believing, I should say, that we're going to be able to leverage some of our existing personnel to help with inquiries, inquiry management, so we are not at this point contemplating that we would be hiring additional people to interact with prospective students. We think that we can use existing assets to do that.

So the upfront investment, particularly in a location where we have a campus, which is all of them but Seattle, is very low. And in New York, there is essentially two products, the full-time daytime product and a part-time evening product. So, the blended revenue per student is $8,000 to $10,000. So when you have got relatively fixed -- relatively low fixed investments initially, one or two people, and you have got revenue per participant $8,000 to $10,000, to Rob's point it is not going to take that long to break even, but this is a brand-new business for us.

We believe that the supply/demand economics are very favorable in coding and web development and mobile app development and so forth, so we're eager to do it, but we would like to get these open and get all the information, and to Rob's other point, we would be happy to share it once we have it.

The other thing I would say, Corey, to just put in perspective your question, the process of teaching a 10-week coding skill to someone who probably already has a college degree is, in our judgment, a less risky academic endeavor than opening up a brand-new university unit in which case close to two-thirds of those students are adults who do not have a -- they only have a high school degree. They have been out of the classroom for a very long period of time and you're going to have to engage with them over a multiyear process, in which there are a number of opportunities for that student to bail out.

So the human capital charge, if you will, I think is a little easier in this business than in expanding the university. But we're also pretty new at this.

And your point about nine at once is a good one. We thought long and hard about that, but because they are relatively smaller and the caliber of the student that is coming in is more prepared, and we're going to have more immediate feedback as to our success and to be able to make course corrections, given that it is only one 10- or 12-week course, is -- gave us the willingness or the confidence to go ahead and roll this out this quickly.

Okay, so I understand that. That's very helpful. I will ask one more about this, then I promise I will move on to something different.

We don't mind being ridden like a horse. It's fine.

That's a bizarre visual image, but okay, good. The quality, so you're going to have to hire people in all these new markets, getting -- people who are mission driven are interested in teaching, but still, if you are a capable coder, there is a lot of job opportunities out there at high pay for you. So, how are you thinking about scaling the instruction and ensuring the quality of instruction when you're opening this many at once?

It is probably by far the biggest operational risk. Karl?

Yes, I can just say, Corey, that when we went into this, we identified that as a constraint and potential risk. I can say that so far our experience has been that we've been able to find people that we in fact think are well qualified, and we're having discussions with individuals who we think will be great instructors in all of these markets, but it is something that we will definitely keep our eye on as expansion continues.

You have correctly identified what could be a risk. So far, our early experience has been that we are able to find people that we think are going to be very effective instructors.

Okay. Good, so then a couple other things. Bad debt was higher than it has been in the past several quarters. Is that because of NYCDA or what caused that?

That was a couple of our corporate alliance partners had a pretty big outstanding balance by the end of the term and we had slightly lower recoveries from previously written-off balances. So it is still within our stated range of 3% to 4%, but yes, it was up from last year.

Is there actually a risk of nonpayment from corporate customers?

Not really, but we still reserve it. Usually, it is a pretty small number. If it were to become a regular impact, then we would look at whether or not it makes sense to reserve. But our practice has been to reserve it.

Okay, and, Dan, should we expect -- how should we think about what bad debt will look like for NYCDA as that scales?

Right now, it's small, but as it grows, it will definitely be -- there will be some bad debt, we expect, but I think it's too early to say.

It's small relative to our overall because it is so little revenue. But, Corey, this is not Title IV supported. That was one of the attractions to it for us. Which means that we do have to think hard and look at in each quarter what kind of credit we are extending to students. In general, these are probably more creditworthy students than some of our core university students, but as Code Academy gets bigger, it could have a bigger impact on our bad debt if we're not careful with regard to our credit policies.

Okay, I appreciate you taking all my questions. What are the cash flows? Do people pay up front before they start class or is it installments or how does that work?

It's a combination of both of those. So many of the students will pay cash at the beginning of the course and then we do have students that pay throughout the course. All of the students are required to pay by the end of the course.

Okay. So once you are out, you should be fully paid up or else you are --

You would be out of terms, based on the payment plans that are presently offered.

Okay, understood. And then, I just want to make sure, Karl, when you said operating costs up 4% to 5% in 2016, that was all in? That is including the dilution from NYCDA?

Yes.

Okay, all right. That's very helpful. Thank you.

Jeff Silber, BMO Capital Markets.

To use your analogy, I am going to jump back in the saddle here. So just focusing on the coding school, you mentioned in terms of, including management, you would be helpfully using the same personnel in your existing campuses in the locations that you are co-locating. But are you targeting a different student base or can you at least use some of the leads you may have gotten for your graduate school programs in those locations?

It's a good question, Jeff. We get thousands -- let me back up. Within Strayer University, we get thousands of inquiries a year for people who are interested in technology-related degree programs. Clearly, not all those individuals enroll.

To the extent that some of those individuals may have an interest in a coding or web development, mobile app development, type field, then, yes, in those cases we see that there is a good opportunity to make them aware of NYCDA and maybe that's a good fit for them and maybe it isn't. So, we will certainly communicate to students with whom we already have a relationship, based on their inquiry to the university.

Other than that, the typical NYCDA student looks quite different than the average Strayer University student. They tend to be younger. To Rob's point, most of them from an educational attainment standpoint already have degrees. For the most part, these are people who, for whatever reason, were not able to find a job in their degree field when they graduated, and so they are coming in to get a web development background so they can change careers and get a better job. That's what we find in the New York case.

Okay, fair enough. And then just, I am sorry, one question about the dilution. For the remainder of the year, is it roughly going to be split between 3Q and 4Q? Are there any timing issues?

Higher in Q3.

Yes, it will be a little bit higher in Q3 versus Q4.

And any specific line item?

It is concentrated up in I&E, Jeff. But there is some in all of the line items, but I would say more than half of it is in I&E.

Okay (multiple speakers)

(multiple speakers) fairly big in marketing.

Got it. And then, moving back to your core business, in terms of the strong start and enrollment growth that you saw, can we get a little bit of color or any difference between grad and undergrad, business and IT, et cetera?

JWMI, at the graduate level, grew 20%. Strayer University graduate students were down slightly, so given JWMI's size, really all of the bulk of the growth that we had was from the undergraduate students.

And then, business versus IT, any meaningful change?

I don't have that, Jeff, unfortunately.

No worries. I can follow up. Thanks so much.

I took a look at it. It was pretty standard. It was pretty equivalent.

Okay, great. Thank you so much.

Sara Gubins, Bank of America.

Sorry if I missed this, but could you give us an update on how your unaffiliated bachelor student starts and enrollment trended during the past term?

Yes, they were up on a year-over-year basis probably 8% to 10%. We have done a lot of work on outcomes, learning outcomes, for our unaffiliated students, so their continuation rates are up substantially, both quarter to quarter and on a cohort basis, based on their first term, whenever they start, and a year later. So we have made a lot of improvement in our ability to really teach the unaffiliated undergraduate students. The performance has been pretty strong.

And that 8% to 10%, that's enrollment or new students?

New student.

That's new student, okay. And then, you talked about how you are seeing marketing being effective and so therefore continuing to invest in it. Can you talk about what you are doing that may be different or just in general what you are seeing that is working?

We're always experimenting with different approaches to branding and advertising, and we do that both from a messaging standpoint, as well as the channels in which we advertise. We continue to use a pretty balanced blend of traditional media, television, radio, combined with digital.

And we have seen strong interest on the part of prospective students, but we had strong interest on the part of prospective students last quarter and our new students were down. So our marketing team, their primary goal is to just focus on brand awareness, and what we would like to see is just any time that there is a prospective student out there contemplating returning to college to complete a degree, that Strayer University will be somewhere on their mind share so they will come in and talk with us. So the bulk of the advertising is always core Strayer University branding.

I would also say you are starting to get some traction with regard to the B2B and Strayer@Work. That's spilling over into the brand recognition with regard to the university, too.

Yes, good point.

Okay, great. So maybe just to follow up on that, then, can you give us an update on Strayer@Work, how many students are enrolled in it and how that has been growing? Any more details as it evolves in what the economics of Strayer@Work look like?

There is three components of Strayer@Work now. One of them is our relationship with FCA Degrees@Work. That program continues to perform very well. Students are faring well on the classroom. There is very high levels of student satisfaction. We have some early data out of FCA that suggests that the program is working from a turnover standpoint, as well as the performance of the individuals enrolled in Degrees@Work.

So, that appears to just be a great program. It is certainly great for us, and our feedback from our partner at FCA is that it is really working for them as well. That's one part.

The second part is we continue to do engagements with large Fortune 100 companies. The Strayer@Work team is active on probably a half-dozen of those engagements now. We will be working on those through the end of the year.

The third component, which is a new component, is more of a product focus, where we are taking the research information that we learn by working with these Fortune 100 companies and we're going to be creating more standardized products that we will be able to leverage across multiple companies. And we are planning on launching the first product within, say, the next 30 days, and we will have more to say about that on our next call, once this particular product is launched.

And Sara, one important point on that is those products are non-academic revenue, so to speak, but my earlier comment was about the more we do things like that and we are successful at it, that builds brand equity. That helps your ability to have Strayer University on the top of the employers' minds, who are then influencers to their employees as they are thinking about going back to school. So, we think of it holistically as being part of a broader marketing effort.

Okay, great. And then, just a last question on revenue per student. I think you had mentioned that revenue per student should be down about 100 basis points in 2016 when we exclude the impact for Strayer@Work. It was down closer to 2% last quarter. Would the delta for that be attributed to Strayer@Work?

Yes. It's just -- it's timing of Strayer@Work revenue. There was a little bit less in the second quarter from the Skills@Work engagements than there was in the first.

Got it. Okay, great. Thanks very much.

Trace Urdan, Credit Suisse.

Kind of a follow-up to Sara's question, I wondered if it might be possible for you guys to comment. So in the last couple of years, Strayer University is actually now a portfolio of a lot of diversified offerings, right? You've got JWMI. You have Degrees@Work. You have affiliated students. You have unaffiliated students. And each of those presumably involves different levels of marketing expense. They come in at different price points.

And I am wondering if you could just holistically speak to what the trend looks like in terms of the overall economics of your business, without trying to get too detailed, because I know you won't, but just maybe talk about what the varying rates of growth across these different types of offerings and what the implications are, maybe, over the next few years for what your margins might look like as a result?

Sure. Let's start with the core university, Trace, where we serve both affiliated and unaffiliated students. There, we feel very good. As I said in my comments and to echo some of what Rob said as well, we are seeing multiyear highs now in student achievement in the classroom and student retention, and with our summer enrollments, we have now grown our total enrollment for five consecutive quarters, so over a year. So we definitely feel good about that.

JWMI is becoming a very meaningful contributor now to our results. There are well over 1,000 students. They are growing 30% a year. They have got very high outcomes and very high satisfaction on the part of students. And I say that in the context of students reporting professional outcomes in the way of promotions and salary increases and so forth, and they have got an 85%-plus NPS score. So we are very willing and happy to continue to invest behind JWMI to support its future growth.

And then, in addition to those two assets, we have got Strayer@Work, which is really deepening our long-standing ties into the corporate world in the B2B space. And we have got some really interesting insights that we've been able to generate by working with some very large companies, including Dow components.

And the next phase of that will be to try to productize those learnings into more scalable solutions. It is nascent. It is early. It is minimal investment today, but we think it has got the opportunity to be a very exciting and a compelling part of our B2B outreach.

And then, finally, as we have been discussing this morning, we have got NYCDA and all the potential that we think that has.

And then, lastly, to your very direct question on where could margins get, given that in the near term, let's say over the next few years, we feel like we have got the infrastructure in place to handle tens of thousands of more students than we have today with very little incremental investment, other than the variable cost of additional instructors, likely. So to the extent that enrollment were continue to grow, we would expect that we would see margin expansion in that scenario.

I can't really speak to where could margins get, because obviously it depends on what the enrollment is and what the overall expense is, but we have an infrastructure that can support many more students than we have today and we would expect in a scenario where we are continuing to see enrollment growth that our margins would begin to grow as well.

So, I appreciate all of that commentary, Karl. Thank you. I didn't phrase my question well enough, I think.

What I was really asking was there are a lot of puts and takes on margins, right? I think each of these products that you are offering at the moment has a different contribution, and though you haven't disclosed what each of those looks like, we can make some educated guesses, right? We know that the Degrees@Work program works because there is a minimal investment in student acquisition cost, right, and it's at a pretty heavily discounted price, we presume. So, that has one type of margin associated with it.

The JWMI student is different, right? That is a premium-priced product and we don't really know what you spend to acquire that kind of student. Maybe it is a little bit more, and so that presumably has a different level of contribution.

And so, I was asking about the puts and takes on the margin from the different (multiple speakers)

Yes, okay.

-- from what's our portfolio versus the old days, which is a much more straightforward product. And I get -- I think your overall point is, listen, the thing that really matters to margins is filling up our campuses. And I get that. I was just asking for just maybe a little bit of color in terms of this emerging portfolio and what the implications of that are for margins. That's all.

Sure, well, the biggest impact on our margins is the core university, so to the extent our enrollment grows, that is going to have the biggest impact on our margins.

I can tell you that JWMI at this point, with its size and the acquisition cost that we see there, that helps our margins. Degrees@Work probably lowers our margins slightly, but, again, that's something that we are pleased with just because of the relationship with an organization of the stature and size of the FCA, so that probably puts a little pressure on our margins. The Skills@Work business is probably just very tiny margin compression and we would expect to be flat to up in the back half of this year heading into 2017. And NYCDA remains to be seen. We know that it is dilutive, obviously, this year and we will have to see how the revenue ramps up to see if it is going to be accretive or dilutive in 2017.

Right. Okay, thanks for your patience, Karl. I appreciate it. That was very helpful.

Corey Greendale, First Analysis.

Thanks for taking the follow-up. This may be simpler, but I actually want to ask a similar question to what Trace asked, but backward looking. I am not sure that I can fully articulate why EPS was down $0.39 year over year. I know there is the $0.11 dilution from NYCDA. I think you said $1 million spend on new products. I know the bad debt is higher, but can you -- and that accounts for half of it. Can you just maybe put a little more fine point on the rest of why EPS was down $0.39?

We had a 1.5% decline in revenue per student, and in addition to that we had, call it, $6.8 million more of operating expense, which we bucketed essentially into the three broad categories, Corey, NYCDA expansion, about $1 million invested into our academic programs, and then the bulk of the remaining into increased marketing and advertising.

It is probably helpful, Corey, to state -- I would think for long-term shareholders and viewers of our enterprise, this would -- this is understood, but I think it's probably helpful to restate, which is we have a relatively small share count, deliberately so. We have repurchased a lot of shares. And we have an enterprise that has a lot of opportunities we think for growth and we have never been particularly motivated by earnings-per-share change in the short term.

So if you spend $6 million more, you have got a pretty hefty impact on your earnings per share if you don't have much revenue growth. And we spend that when we think it has a high return, a high, long-term return on investment.

And so, you can have a fairly wide variation in earnings per share, and with the small share count on the negative side, it becomes particularly high and, frankly, on the positive side it would do the same thing.

So just like our new student number, we are comfortable as a management team and as a Board with a relatively high level of volatility in terms of our short-term earnings, and so the necessity or the importance of explaining that and its impact in the short term on margins hasn't really been a high focus for us. We believe that we are making prudent investments, which will raise owners' value over the long term, and that volatility, I think, will certainly be there in the latter half of this year, as both Dan and Karl have suggested, given the types of investments that we are interested in making.

That's helpful. Both Rob and Karl, that's helpful. The last bucket, the increased marketing, that is totally independent of NYCDA, and that is increased marketing for the existing university and Strayer@Work and prior offerings. Is that correct?

Some of that is accounted for -- affects NYCDA, but, yes, it is broader, more -- a higher investment in marketing across particularly Strayer@Work, a little bit for JWMI and the broader university.

Okay, all right. I appreciate it very much. Thank you.

I am showing no further questions in queue at this time. I'd like to turn the call back to Mr. Silberman for closing remarks.

Thank you, Liz, and thank you, ladies and gentlemen, for participating. We are available for other explanatory calls, if you have questions, and we look forward to talking to you again in October. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.