American Public Education, Inc. (APEI) Q3 2008 Earnings Report, Transcript and Summary

Welcome to the Q3 2008 American Public Education, Inc. earnings conference call. My name is Kim and I’ll be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question-and-answer session towards the end of today’s conference. (Operator Instructions) I would now like to turn the presentation over to your host for today’s conference, Mr. Chris Symanoskie.

Welcome to American Public Education’s third quarter 2008 earnings release conference call and webcast. Before we begin please note that an electronic copy of the PowerPoint presentation that accompanies this conference call is available in the webcast section of our Investor Relations website and is included as an exhibit to our current report on Form 8-K filed earlier today. Also please note that statements made in this conference call regarding American Public Education or its subsidiaries that are not historical facts are forward-looking statements based on current expectations, assumptions, estimates and projections about American Public Education and the industry. These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Forward-looking statements can be identified by words such as anticipate, believe, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include, without limitation, statements about the fourth quarter and the full-year 2008 outlook and statements regarding expected growth. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors including the risk factors described in the risk factor section and elsewhere in the company’s annual report on Form 10-K filed with the SEC. The company undertakes no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future. Today our speakers are Wally Boston, the CEO of American Public Education, and Harry Wilkins, Executive Vice President and CFO. Now at this time I’d like to turn control of the call over to Wally Boston.

I am pleased to report that during the third quarter of 2008 our revenues increased 56% to $27.4 million. This growth was driven primarily by strong growth in registrations from new and returning students. Net registrations from new students increased 55% to 10,400 and net registrations increased by 54% to 38,900. Overall our student enrollment increased to 41,100 students at the end of the third quarter. Our operating margins increased to 22.6% in the third quarter compared to 20.3% in the same quarter of last year. We were able to improve our efficiency while making investments in new programs and while expanding our marketing and branding efforts especially in the field of education. This quarter our net income increased to $3.8 million a year-over-year increase of approximately 72%. We reported earnings of $0.20 per diluted share which is $0.02 above the high end of our previously issued earnings guidance. This positive earnings surprise is primarily attributable to outperformance in the military market. Our solid results give us confidence to raise our full year guidance. Today we announced that we are again increasing our full year 2008 earnings outlook to be between $0.81 and $0.82 per diluted share. Needless to say our organization feels fortunate to be in a position to increase our full year guidance in light of the obvious challenges faced by the broader US and global economy. Going to Slide 5 our unique value proposition offers sustainable advantages. Our high military concentration serves to reduce our sensitivity to economic cycles. Overall we believe that the characteristics of our business, our programs and our students position us well for growth during times of economic expansion and contraction. Increasingly affordability and flexibility matter. At the undergraduate level our tuition is priced well below the tuition of private universities and is comparable to that of the average tuition at state universities. Additionally we offer undergraduate students a book grant program relieving the financial burden of high student textbook costs. Our tuition at the Masters level is significantly below the averages for both public and state universities. We believe that there is a large population of potential students who want a higher education but do not pursue it because of their belief that tuition is unattainably high. There is a very good opportunity for us to get the word out about our affordability in order to attract new students from this market segment. A major aspect of our mission is to be affordable. We currently have no plans to increase tuition. Our growth is the result of increasing student enrollment driven in part by our compelling value and flexibility. The American Public University system offers a great solution to our country’s problem of rising tuition costs. As a fully online institution we offer courses that are eight and 16 weeks in duration with monthly starts. We are able to offer academic credit for certain types of military training and we can accept up to 75% of total degree program credits as transfer credit from other regionally accredited institutions. Our students can complete their degree at their own pace. They can apply academic credits earned at other institutions towards their degree. Our policies and programs allow a student great flexibility to complete their degree in a manner that is right for them. Our program offering is diversified. While we specialize in unique degree fields such as public safety and national and homeland security we are not over-concentrated in any one discipline. We offer liberal arts, history, psychology, sports management and education programs 73 degrees in all. Our programs are respected with proven results. Our outcome assessments show that our graduates perform above national norms. Our referral rates are at the high end of the education industry at over 50%. The graduation rate of our undergraduate students who continue after completing the first three courses is over 80% and 25% of all of our graduates return for a second degree. We focus on serving the higher education needs of the military and select segments of the civilian market. The military uses higher education benefits as its primary recruitment tool and it has identified online education as an attractive option for its highly mobile active duty members. Successful military operations require highly educated and trained soldiers to operate new technology and asymmetrical warfare requires greater expertise and critical thinking skills. Active military duty professionals selection of a higher education institution relies heavily on the opinions of key influencers and leaders within the military. In the civilian market we address the needs of certain segments such as police, fire and teaching professionals. Many of these segments are in industries that have positive dynamics even in difficult times. Often professionals in these fields seek credentials and knowledge for advancement and higher earnings. They are looking for unique degrees that are affordable. Their selection of a higher education institution relies heavily on the opinions of key influencers in their field. We also enjoy a significant number of operational advantages. Our relationship marketing strategy allows us t attract students using a more targeted and low cost approach to advertising. We have a low reliance on lead aggregators which are an expensive way to generate low quality leads. Instead we focus on precisely targeting professionals in each segment, expanding and deepening our relationships with key influencers in target markets and on generating referrals from alumni as well as industry leaders. Our proprietary partnership at a distance or PAD system which is a type of ERP allows us to efficiently communicate with students, provide customer service functions and manage a wide variety of business processes. This creates operational efficiencies that generate cost savings that ultimately improve margins and keep tuition affordable. Our margin expansion has primarily been the result of G&A leverage. We have a low overhead and a focused strategy. In preparation for our future growth we have made major investments in management and infrastructure that can be leveraged. At the same time we will continue to plan for the future by investing in new products and entering new market segments. Our current financial position is strong. Our military students fund their tuition through the Department of Defense Tuition Assistance Program a very stable source of tuition funding. Due to our low tuition and book grant program active duty military can earn a degree from American Public University system with minimal out-of-pocket expense. Our veterans often fund their tuition through the GI Bill. During the Presidential Election President Elect Obama confirmed his support to fund veterans’ benefits. The new GI Bill which will soon increase the tuition benefit for veterans illustrates the strong political support of higher education benefits for vets. Our balance sheet is strong with no debt, $41.4 million in cash and cash equivalents and our bad debt expense is less than 1% of revenue. In summary we have a lot of characteristics that make us a strong organization. We are a leader and innovator in online higher education with proven transparent results and we have a straightforward strategy and a business model that puts us in a great position for growth. Now I will turn the call over to our CFO, Harry Wilkins, to provide you with more detail on the quarter’s results and to discuss our expectations for the remainder of the year.

As we previously stated our strong results are due to a 55% increase in net course registrations. We have a slide, Slide 7 in the presentation, that points these things out. We have a 54% increase in net course registrations. Strong increases in net course registrations drove revenue growth of 56% to $27.4 million compared to $17.6 million in the third quarter of 2007. Income from operations before interest income and income tax increased approximately 73% to $6.2 million in the third quarter of 2008. The bottom line is that net income increased 72% to $3.8 million compared to the same quarter last year. In the third quarter we earned $0.20 per diluted share. This was 2% above the higher end of our guidance and is the result of higher than expected registration from military students. Our civilian student population growth is tracking as we expected. Thus the concentration in percentage of revenues derived from active duty military decreased slightly to 64% in the quarter compared to 65% last year as we’ve grown our civilian market. We have not yet detected any measurable changes in civilian student behaviors as a result of the challenging economy. Of course we expect our success at reaching out to and attracting civilian students to continue. Registrations from Title IV student increased 89% in the third quarter and have increased 106% for the most recent nine month period. Net course registrations from Title IV students represent 14.2% of our total net registrations in the third quarter. This compares to 11.6% for the same quarter in 2007. If you look at Slide 8 we talk about margin expansion. Instructional costs were slightly lower than expected in the third quarter under our variable faculty pay model adjuncts faculty are paid per registration. During the third quarter certain full time faculty members who were paid a salary shifted more of their required workload form administrative functions where they were developing and improving our classroom product to more classroom instruction. So the effect of this shift caused a slight reduction in the amount of adjunct faculty we needed for the third quarter as the full time faculty totaled a higher percentage of total registrations. This is a one time thing. We don’t expect that trend to continue in the fourth quarter. G&A costs were slightly higher than expected due to the timing of Sarbanes Oxley costs. We incurred much of this testing for the Sarbanes Oxley, which is expensive because we’re having third parties do it, and much of that testing is done in the third quarter. The second half of the year actually is when we do the vast majority of the testing. As anticipated we increased our selling promotion expense to 13.1% of revenue. During the third quarter we continued to advertise our new Masters of Education programs and make additional investments in the APU brand. Despite increases in our marketing spend our operating margins increased by 230 basis points to 22.6% in the third quarter of 2008. If you look at Slide 9 we’re giving you some fourth quarter outlook. In the fourth quarter we expect net course registrations from new students to increase between 38% and 42% to between 9,500 and 9,800. We anticipate the net course registrations will increase between 45% and 47% to between 40,400 and 40,900 net registrations for the fourth quarter. We expect this to drive revenue growth of between 39% and 46%. It is possible that we experience a slight decrease in operating margins as a result of our increased marketing spend in the fourth quarter of 2008 compared with our unusually low marketing spend we had in the fourth quarter of last year. As we stated during our last quarter earnings call we expect advertising spend related to our new education degrees and our new drive to brand APU to cause selling and promotional expenses to be approximately 14% of revenue in the fourth quarter. Net income is expected to increase between 37% and 45% year-over-year to between $4 million and $4.3 million. We’re also introducing our fourth quarter earnings per share outlook of between $0.22 and $0.23 per diluted share. Slide 10 we give our full year outlook for 2008. We’re increasing our full 2008 outlook. We expect net course registrations to increase approximately 54% for the full year and net course registrations from new students to increase 47% or more in the full year 2008. We expect revenues of between $105.2 million and $106.6 million which is an increase of between 52% and 54% for the year. With a slight improvement in margins and an expected tax rate of 41%. We also believe selling and promotion expense as a percentage of revenue will be approximately 12% for the full year. We anticipate net income of between $15.2 million and $15.4 million which will be an increase of between 73% and 76% year-over-year. EPS is expected to be between $0.81 and $0.82 per diluted share. Depreciation and amortization expense is expected to be $4.1 million to $4.3 million and cap ex is expected to be $7.9 million to $8.9 million. This is a bit higher due to the recent purchase of some facilities in Charlestown and our continued build out of leasehold improvements to help provide facilities for our growth. Looking ahead and in conclusion we plan to remain focused on our current strategy to expand in civilian markets, to continue to penetrate the military market, launch new programs and enter new market segments. Now Wally and I would be happy to answer questions from the audience. Operator, can you please open the line for questions?

(Operator Instructions) Please stand by for your first question. Your first question comes from Mark Marostica – Piper Jaffray. Mark Marostica – Piper Jaffray.: My first questions relates to the military course registration growth which again much like last quarter exceeded expectations and continues to outperform. I just wanted to go for a little more detail on that point. Why do you think you’re seeing that growth at such a high rate?

One reason is the Navy is coming along nicely. We have said all along that being admitted into their distance learning program would be an attractive proposition for us and so they’re growing at an above average rate for each of the branches. We continue to see strong penetration in the other branches where as we have said in a number of our calls that the military thinks that the tuition assistance program students will eventually, about 75% of them will be in online probably by the end of 2010, 2011. We’re positioned with attractive programs. We’ve aligned ourselves with the military and we think that we’re favorably received in all the branches. Mark Marostica – Piper Jaffray.: A question in regards to your Masters of Education programs that you’re now promoting those out there and I’m just curious, are you seeing the uptick in leads and starts as you expect? Are those performing as expected or better or worse? Could you give us a sense?

I think they’re performing about as expected. We were late with the launch, so if you look at where we are this year versus where we thought we’d be when we started the year we’re a little behind. The one thing that’s notably different for those programs is all of our programs, whether they’re undergraduate programs or current Masters programs with the exception of the education programs, are open enrollment programs where the students simply have to generate proof of graduating either from a high school or a high school equivalency at the undergrad level or an accredited college at the graduate level. The Masters of Education degrees for licensure reasons are much more complicated depending on the state that the student is in. Some states for example require fingerprinting, some states require background checks. We have a number of students that are still in the admissions pipeline depending on the state that they’re from and as we get through the nuances of this and get much more efficient at processing them. We still have high regards and anticipate that the education degrees will fuel our future growth. Mark Marostica – Piper Jaffray.: One last item and I’ll turn it over, with the selling and marketing expense at 14% in Q4, it begs the question as you look out to ’09 and I know you’re not giving guidance for ’09, but generally speaking should we expect selling and promotion expense to be hovering around this level now or are you sensing that you’re at this point more or less pushing for the next few quarters and then you may back off? I would love to get some color on that.

Mark, we said when we went public last year that we thought we could keep even in the civilian marketplace, we thought we could keep selling and promotion about 12% of revenue. I think our guidance right now is saying it’s going to be about 12% of revenue in 2008. We’re sticking with that right now, but we’re not giving any guidance yet in 2009 but we don’t see any reason to change our game plan. What’s happening is different in the fourth quarter and the third quarter is that we’re really marketing APU as a separate brand for the first time and we’re really going into a market that’s a brand new market for us, the education market with a brand new product and that’s going to require a little bit more spend and it’s not going to have the revenue coming in yet that offsets that spend. We think that’s a one or two quarter anomaly. We don’t think that’s going to change our long term guidance.

Your next question comes from Bob Craig – Stifel Nicolaus. Bob Craig – Stifel Nicolaus: Just following up on that last question from Mark, how you are attacking the marketing of the Masters programs either, if you want to term it in terms of media mix you’re using or some of the avenues you’re exploring to penetrate that market?

We’ve said all along that our culture is relationship marketing and so in our marketing department when we set up new programs we hire program managers who are people with a background in the particular industry sector that we’re entering. Those people begin networking with key influencers which can be anywhere in the military a key influencer might be an officer in charge of a particular division or in the civilian sector a key influencer might be someone who heads up a trade organization or who has a group of those type of people reporting to them in one way or the other. We hire two program managers in our education program. They’ve been networking quite nicely since the summer once we knew when we would have the programs up and running and we continue to do the door-to-door sales thing. We’re pleased with the progress, we’re pleased with the doors that we’re opening. As we’ve said before these degrees are about half the price of what anyone else is offering them online for. So we’re getting quite a good reception. It does take a while when you’re a new entrant to a field and our School of Education is new compared to all the other ones that have been out there for 40, 50, 60 years. At the same time when you have something that’s regionally accredited and approved for licensure and you’ve got a nice price point, we’re being favorably received and we expect good things out of these degrees. Bob Craig – Stifel Nicolaus: Any read, I don’t expect specific numbers here, but any read or trend in terms of cost per start in the civilian side, at least how that’s trending relative to your expectations?

We don’t really give specific information on that but what happens with the civilian students is we don’t get the referral rates we get with the military. So there is a little more cost for new student start. But the civilians for the most part are Title IV students and they have to take more courses. Our military students take two or three courses a year on average and the civilians to be eligible for Title IV have to take at least six courses every nine months. While it might cost a little more to market to those students they produce a lot more revenue in any given period so that more than offsets the marketing costs plus the mix is different toward our graduate programs. The civilians are opting much more between 35% and 50% of our civilian students enroll in graduate programs. We have a much higher margin in those programs. So those factors of increased revenue per student and the higher shift to a higher margin business really offset the marketing costs for the civilians. Bob Craig – Stifel Nicolaus: Was there anything unusual this quarter between the new versus returning students that you saw?

Anything unusual with this quarter new versus returning? Bob Craig – Stifel Nicolaus: Yes, you mentioned strength in both and I know one quarter in particular maybe a couple quarters had an unusually heavy tranche of returning students. I just wonder if there’s anything unusual there.

You have a good recollection. The first quarter we had more returning students. In fact my recollection without being accurate was we were about $1 million over in revenues and almost all of it was due to higher returning students than expected. The numbers are remarkably similar for the quarter, they’re not much more than two percentage points difference between returning and new and they’re both awesome growth rates. We tend to continue to promote retention efforts on the academic side and those results are panning out well for us. We talked about our graduation rates as well as our students coming back for a second degree. On the marketing side, we’re pretty pleased. We continue to expand our market share in the military and we’re a very good choice in the branches there. On the civilian sector, the sectors that we’ve been in we continue to expand our market share and I would say that any percentage that we’re growing at in education is a ridiculous percentage to look at positively but very small numbers. We continue to grow there. I would say there’s nothing notable to report in the third quarter as far as the difference between returning student growth and new student growth. Bob Craig – Stifel Nicolaus: Last one and I’ll turn it over, any conversation rolling around Washington, Wally, at all regarding any possible increases in tuition assistance for the military with the Obama regime?

I haven’t heard anything since the election, Bob. We did hear some grumblings right around the time that the GI Bill was passed that there was some considerations to make changes particularly with the budgetary pressures on the public universities. That was around the end of July, first of August and we’ve not heard anything since.

Your next question comes from Trace Urdan – Signal Hill. Trace Urdan – Signal Hill: I just want to make sure that I understand, it sounds to me like the marketing effort around APU got started a little bit later in the quarter than you had anticipated. Is that a reasonable statement?

Later in the quarter or later in the year? Trace Urdan – Signal Hill: My understanding was that that effort was kicking into gear in the third quarter particularly in terms of your spending activity and I wondered did I get that right?

You did get that right, yes. Trace Urdan – Signal Hill: What I’m getting to is I want to know if the level that you’re anticipating for Q4 is something like a run rate for your APU marketing effort?

No, I think Harry articulated that we thought that we would need a two quarter spend increase so our third quarter of 13.1% and our fourth quarter of 14%. We still like for the year of 2008 the 12% number and obviously we can’t give our 2009 guidance at this point in time, but we’re not backing off on that. We needed to put some money behind APU because when you enter a new segment pretty much the teacher segment is all civilians and that APU brand had not been promoted to our other sectors of law enforcement and fire and emergency management. Trace Urdan – Signal Hill: I think I heard you say this but I just want to ask it more explicitly, do you feel like the qualitative data that you’re getting back from the marketing in terms of marketing the education program is validating your perception that a lower price point is a compelling differentiator in that marketplace?

I’m glad you said qualitative versus quantitative because it’s too early to tell on the quantitative side. I would say that anecdotally that the signs are good that we have an attractive price point but it’s such a small base of numbers at this point in time that I wouldn’t want to do a statistical model on it. Trace Urdan – Signal Hill: So you’re still in the learning phase, is that fair to say in terms of?

Yes, I think that’s fair to say. Trace Urdan – Signal Hill: Wally, you periodically talked about the pace of student growth and registration growth and one of the potential issues in growing too fast might be attracting concern or undue attention maybe from your accreditors. You still seem to be running at a fairly even and hot pace relative to that. I’m just wondering is there a check in there and ask if the 50% plus growth in new course registrations is something you’re comfortable with, with respect to the different issues that you had cited previously about going too fast.

Let me just tell you that we’ve always been focused on maintaining our quality and when we gave guidance originally for the year we put our guidance I think in the 38% to 42% range and felt that I think it was a 38% number or something we were comfortable with and we’ve had some successes that are beyond our guidance but I have stated in previous road shows that managing a high octane, high growth entity like this in higher ed is a little different than running an Internet company for example in the sense that you do have to watch out for professional development and make sure that you’re able to hire and maintain quality faculty and that students are getting a quality experience. I might note for those who are unfamiliar with the terms of the Higher Education Opportunity Act that just passed this summer that there is a provision in that Act that requires accreditors to look into institutions that grow over 50%. Now, that’s not been defined and there rule making committees that will have hearings and look into more specifically. For the first time ever Congress has put some pressure on accreditors and I would you say you’d be at a heck of a disadvantage if you had very low enrollment with that particular point of the law. But I think it sort of supports our contention that we were pretty comfortable at a 40% clip and if you accidentally get a little higher than that and you can justify that you maintained the quality and we certainly have done that with a number of our initiatives and a number of the test scores that we’ve published with our seniors. I feel pretty good about it. Our guidance we just gave on this call was 38% to 42% new student growth in the fourth quarter. 40% growth is something we were very happy with and the surprise is we’ve had about $0.02 each quarter so far of surprise and growth higher than we thought from the military. We don’t know if that’s going to continue and we don’t really give guidance if that’s going to continue. That’s been a pleasant surprise but it’s not something we model or expect.

Your next question comes from Brandon Dobell – William, Blair & Company. Brandon Dobell – William, Blair & Company: A couple quick follow ons from previous comments, any trends within your students, either military or Title IV in terms of skewing towards eight week or 16 week courses? I know there was a general trend toward shorter courses. Do you see this continuing or do you think there’s any difference in behavior between the different types of students you’re enrolling?

I’ll tell you, Brandon, the trend is for eight week courses. We have some courses that we think are better off for going 16 weeks but whenever we’ve offered both eight and 16 week options to our students, they’ve almost always overwhelmingly gone for the eight week courses. The faculty also like to each the eight week courses it seems more than the 16 week courses. That definitely is the trend and I think that we will continue that trend. We haven’t seen any difference in the quality or the student outcomes. It seems like the students learn just as effectively in the eight weeks, the more accelerating courses. It’s the same amount of material being taught, the students have to work a little harder. But we expect that trend to continue. People want their education, they want it to be affordable and they want a quality education as quickly as they can. I think that’s probably a trend that’s going to stay. Brandon Dobell – William, Blair & Company: As you look across the different types of students that are enrolling these days particularly in the Title IV part of your business, any particular programs that are sticking out for you? You mentioned good progress within education but are you seeing particular interest in certain types of, let’s call it military programs for the traditional student or is it pretty broad based?

I think it’s pretty broad based. I think we had said on an earlier call that about 40% to 45% of our Title IV students were civilians and doing graduate programs versus I think about 26% of our overall students are graduate students. We’re seeing a higher concentration in the graduate programs and a higher percentage of civilians.

It looks like the civilians like our liberal arts programs. There’s not many universities offering liberal arts programs. We have 73 programs and we have a large liberal arts population of students and they seem to like that. I would say that’s the biggest difference is that the civilians are opting more toward our new IT courses and our liberal arts programs. Brandon Dobell – William, Blair & Company: Final question for you, as you look at the number of student you’ve been adding and the rates of growth, are you guys still comfortable with where you stand from a process and personnel perspective? I guess in one respect from the financial aid process or in terms of your ability to make the PAD a part of your business. Will it still work as effectively and efficiently as it has historically as the student mix changes and those kinds of things, put different pressures on those systems?

We’re really a CQI type organization and we have our student satisfaction [quotium] which is our quarterly incentive plan for employees that we have approximately 20 measures that we look at in any quarter and the idea is that we pay out in incentive plans all full time employees assuming that we’ve improved over the previous quarter or the previous year depending on the measurement that we’re looking at. As we do that we have suggestions for example over the past year we’ve digitized all of our student records to make the processing of student records and transcripts for the 98% of our students who transfer in credits from other institutions or from military service. We continue to look at ways to get efficient and provide better service in operations, not just to benefit the company but also to benefit our students.

What we’re finding, Brandon, is that we can always improve and that we do have to spend more and more money every year to upgrade our system and we do spend that money. That’s why our cap ex continues to creep up a bit but we think we have a great system and we have the ability to improve it and we’re continuing to do that. This year with Sarbanes Oxley compliance we had to make some system changes that we didn’t anticipate really that were pretty expensive. Next year if we do get more into PhD programs, you have to make system changes to accommodate that. Or if we want to develop some type of variable pricing model for our Masters programs if we decide to increase tuition at some point, we’ll make some system changes. We can make the changes when we have to, we just have to spend some money to do it.

Your next question comes from Paul Condra – BMO Capital Markets. Paul Condra – BMO Capital Markets: I just had a couple questions since most of my questions were answered. I wondered if you could go over the, you mentioned something about a shortage of adjunct faculty.

What we said was we had margin improvement that we hadn’t anticipated really in the third quarter from our faculty, our instructional costs and services line item. That was because we actually were able to better utilize our full time faculty to teach courses over the summer. We didn’t have to hire as many adjuncts as we thought. Our full time faculty are salaried and by using them more we didn’t have to pay extra to hire additional adjunct faculty this summer. We hadn’t factored that in and that was a one time thing. It caused margins to be a little higher in the third quarter that we don’t anticipate happening in the fourth quarter. Paul Condra – BMO Capital Markets: The other question is what would have to happen for you to decide to increase your tuition rates? Maybe you don’t want to talk about that, but I’m just curious.

What would have to happen for us to decide to increase our tuition rates? Paul Condra – BMO Capital Markets: Right.

At the undergraduate level we have pretty much stated that we’re passionate about providing an affordable product for the enlisted military person who is seeking an undergraduate degree. So as long as the military sets is tuition assistance reimbursement rate at $250 a credit hour, that’s where we intend to stay as long as we can afford to do that. We have no intention at increasing that. At the same time should the military decide that it’s been a while since they’ve done that and they want to increase the reimbursement rate, we’ll take a look at that if and when it happens. At the graduate side though we have said for a while now that we continue to monitor that our graduate degrees are so significantly priced lower than even state university’s graduate degrees that we intend to ask our marketing department in the first and second quarters of 2009 just to evaluate those on specific programs. We have over 20 graduate degrees so doing it for every program is a bit of a stretch, but we’ll look at some of the programs where we think we might actually have some issues by being set too low and we’ll make a decision once we get the market data in as to whether or not we may consider something at the Masters level.

Your next question comes from Jeff Silber – BMO Capital Markets. Jeff Silber – BMO Capital Markets: Unfortunately I missed most of the prepared remarks and forgive me if you’ve covered this, but did you talk at all about persistence rates in the quarter specifically in the civilian market?

Jeff, we didn’t. We talked about what our returning student numbers were but we didn’t break them out between civilians and military. We had a healthy increase in returning students for the quarter and it was pretty close to the rate of increase for our new students. Jeff Silber – BMO Capital Markets: Was there any difference between the civilians and the military or you’re just not willing to talk about that?

I actually don’t have the information in front of me. If I had in front of me I might consider doing that but I don’t have it in front of me. Jeff Silber – BMO Capital Markets: Also on the GI Bill, I know it doesn’t really kick in until the summer, is the company doing anything differently to position yourself to maybe get access to that funding over that time period? Are you marketing any differently, etc.?

I would tell you that we are positioning ourselves but to give out much more information than that given that there are a number of people who try to copy what we do, I’d prefer not to do that at this time. Jeff Silber – BMO Capital Markets: I saw that there was an S-1 that was filed around the same time that you released earnings again. If you commented on it, that’s fine. But if you haven’t I was wondering if we could any more color on that?

We think the S-1 and the company press release speaks for itself. We did not comment. You’re the first question and that’s our position.

Your next question comes from Jennifer Gillis – Credit Suisse. Jennifer Gillis – Credit Suisse: I’m wondering how the provisional certification that now goes through September 30th of 2010 might affect your program roll out, specifically your doctoral degrees?

I don’t think it’s a big deal. It’s a requirement when you have a change in ownership and we had a technical change in ownership with ABS Capital going down to below 25%. It is a different type of provisional certification than when you initially become a participant in Title IV. When you’re an initial participant you can’t add any new degrees at all. When you get this type of provisional status you just have to go to the Department of Education and get their permission to add degrees. We’ll see, we said that the doctoral degrees weren’t going to launch pending their approval until late ’09 or early ’10. It may be just a non-event.

Your next question comes from Scott Halgon – Tigue Capital. Scott Halgon – Tigue Capital: The announcement of this secondary in addition to the earnings today, can I just confirm what ABS’ holding will be assuming you get that secondary finished?

Based on my math it would be zero if they finish the entire thing, if and when they do it. Scott Halgon – Tigue Capital: Will the second VC down on the list still have some ownership or will they be all the way out?

We don’t know. They’ve had a 10B51 that from time has kicked in based on share values or whatever and the last reported filing I saw they still had a few hundred thousand shares. I do not know.

It’s really an insignificant percentage of our ownership at this point.

I would now like to turn the call back over to Mr. Symanoskie for closing remarks.

I want to thank everybody for their time and their interest and that will conclude our call for today.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.