Good day, ladies and gentlemen, and thank you for your patience. You’ve joined the American Public Education Q2 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would now like to turn the conference over to host Vice President of Investor Relations Mr. Chris Symanoskie. Sir you may begin.

Thank you, Operator. Good evening, and welcome to the American Public Education conference call to discuss financial and operating results for the second quarter of 2016. 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, seek, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include, without limitation, statements regarding expected growth, expected registrations and enrollment, expected revenue, expected earnings and plans with respect to recent and future initiatives, investments and partnerships. 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, quarterly report on Form 10-Q filed with the SEC and the Company’s other SEC filing. The Company undertakes no obligation to update publicly any forward-looking statements for any reason unless required by law, even if new information becomes available or other events occur in the future. This evening, it’s my pleasure to introduce Dr. Wallace Boston, our President and CEO; and Rick Sunderland, our Executive Vice President and Chief Financial Officer. Now at this time, I’ll turn the call over to Dr. Boston. Mr. Boston?

Thank you, Chris. Good evening, everyone. I would like to begin today’s call with a summary of our recent results and a review of the progress we’ve made with respect to our long-term goals. Then our Chief Financial Officer Rick Sunderland, will discuss our second quarter financial results and provide perspective on the Company’s outlook for the third quarter of 2016. Moving to slide number 3, in the second quarter of 2016, net course registrations at APUS declined 8% compared to the prior year. Although net course registrations by new students declined 22% year-over-year, net course registrations by returning students decreased only 5% compared to the prior year period. We believe that the difference in the rate of decline in net course registrations by new students and that of returning students relates at least in part to improvements in our quality mix of students. For the three months ended May 31, 2016, the first course pass and completion rates of undergraduate students using Federal Student Aid at APUS increased 28% year-over-year, this is the highest such rate since October of 2010. We believe the continued improvement in this and other metrics is a possible indicator that our efforts to attract and retain students with greater college readiness are working. The overall all decline in net course registrations by new students at APUS was primarily driven by a 38% year-over-year decrease in net course registrations, our new students using Federal Student Aid or FSA. We believe this decline was the result of our efforts to improve our quality mix of students through our admissions processes, marketing and multiple financial aid disbursements to first time APUS undergraduate students as well as to an increase in competition for new online students. Net course registrations by new students using military tuition assistance or TA…

Thank you, Wally. American Public Education’s second quarter 2016 consolidated financial results include a 4.5% decline in revenue to $76.7 million compared to $80.3 million in the prior year period. Both our APEI segment and our Hondros segment reported declines in revenue when compared to the prior year. In the second quarter, our APEI segment revenue decreased 4.2% to $69.5 million compared to $72.6 million in the prior year period. The decline in APEI segment revenue is the result of the decrease in net course registrations, partially offset by increased revenue from the July, 2015 tuition increase. Hondros segment revenue decreased 6.1% to $7. 2 million in the second quarter of 2016 compared to $7.7 million in the same period of 2015. The decline in Hondros segment revenue is due to a decreased enrollment at Hondros. On a consolidated basis, costs and expenses decreased 3.8% to $66.1 million compared to $68.7 million in the prior year period. The decrease is primarily due to a decrease in our API segment, bad debt expense and advertising expenses. On a consolidated basis, operating margins decreased to 13.9% in the second quarter of 2016 as compared to 14.4% in the prior year period. The decrease in operating margin was primarily due to a lower operating margin at Hondros, the year-over-year decrease in operating margins is due to expenses decreasing at a rate less than the decrease in revenue. For the second quarter, consolidated instructional costs and services expense or ICS as a percentage of revenue was 38% compared to 37% in the prior year period. The year-over-year increase as a percentage of revenue is due to revenue decreasing at a rate greater than a decrease in ICS costs. Selling and promotional expense or S&P as a percentage of revenue decreased to 19.5% of revenue…

Thank you, sir. [Operator Instructions] Our first question comes from the line of Peter Appert of Piper Jaffray. Your line is open.

Thanks, good afternoon. So Wally, I think the student enrollment declines that you're projecting suggests that revenue growth is going to continue to decelerate. So my question is how much more flexibility do you think there is on the cost side of the equation. Do you have comfort that you can maintain margins somewhere near the mid-teens levels they're running at currently?

Good question, Peter. I think that we have not a highly fixed model. We do have some fixed costs. So at certain stages, we may need to make adjustments for that, but for the most part, we're flexible on things like comp – equity compensation and direct student costs such as textbooks follow with revenue declines pretty directly. So I think we've done a good job of monitoring those and managing those over the past with a periodic look back to where the enrollment is.

Okay. And then on Hondros, I hear what you're saying about the changes curriculum, these other initiatives you've made to improve outcomes, but the changes in curriculum in particular, is this basically just to put you in line with industry peers. Do you feel your – you are now at a more rigorous, offering more rigorous program than peers. I’m just wondering how it changes your competitive positioning.

Sure. We had seen a number of proposals that, that have not been put into place yet that institutions offering career programs would have to pursue specialty accreditation. So we made a decision that because specialty accreditation academically is perceived as a higher level of accreditation that we would pursue specialty accreditation in all the degree programs that we’re capable of doing that for at Hondros. And so I don't believe that all of our competitors have the specialty accreditation that we're pursuing. I think some do, but we made the decision that we rather be ahead of the curve and force the regulation to do it afterwards.

Got it. And any specific implications associated with a new campus in Toledo, are there significant costs that might move the needle over the next couple quarters associated with that.

I'll let Rick answer that question. We're actually pleased that we finally got the approval for it. But I’ll let Rick answer the question of that cost. Rick?

Yes. I don't think its material. I think at the top end it's probably $0.01 to $0.02 in each of those quarters. We do think that given our modeling we look at that campus to breakeven sometime in kind of 18 months timeframe from when we open which will be right now is expected to be early 2017.

Got it. And any thoughts in terms of additional campuses beyond Toledo then.

I think we’ll take them one at a time, but our plan when we originally purchased Hondros was to take a small organization that had the overhead and capability to expand and where we saw opportunities, we would try to expand. So I think, we continue to look for that level of expansion.

Got it. Thank you.

Thank you. Our next question comes from Jeff Silber of BMO Capital Markets. Your question please.

Thanks so much. Just wanted to get a little bit more color on your guidance. I'm specifically starting at the top, what is embedded on a revenue per student basis for both of APUS and Hondros.

Jeff, I’ll let Rick answer that.

Yes. So Jeff at APUS it’s about 810 to 815 per student. On the Hondros side, I don't know that I have that metric or that we've given that out before I’m going to pass on that one.

Okay. I'm sorry, you said 10 to 815 was that a range of.

At somewhere Jeff around 810 or 815 on the APUS side.

I just missed the beginning of that. Thank you so much.

Okay, sorry. My fault.

No problem. And then again just going down a little bit further down the income statement, are there any specific expense line items you'd like to call out in order for us to try to get to the $0.26 to $0.31 in earnings.

I think Peter's question about managing costs, Jeff, we – in addition to the direct cost of teaching we’ll also make sure that we keep our marketing costs in line as well. So we try not to exceed 20% in the past. Rick, are there any others.

Yes, I would highlight. I would look at S&P costs which vary within the corridor, but if you look back to the third quarter of last year, it's probably a good proxy for where we think we'll be this year. We’ve been calling out bad debt expense. We see significant year-over-year improvements, but sequentially I think we've sort of gotten to a place where we're not going to see material improvements there. So you'll probably see some consistency. I think those are the ones I would call out.

Okay, great. That's helpful. And in generally I know folks would ask this question every quarter but I'll ask it. From a competitive perspective I know you talked about – only we didn’t talk about this, but maybe we can talk about it for both APUS and Hondros.

I’m not sure specifically what you mean Jeff.

I'm sorry, are you seeing any more competition in your markets.

Well, I think we're seeing more competition everywhere in online. The prices of search terms, the more common search terms have gone up 20% a year for the last two years if not three years. So we're trying to be creative and find ways to generate more organic content as well as continuing to improve our level of student services to keep our referral rate as high as it has been.

And it has a – has that competitive level gotten any worse or better over the past six months or so.

Well, I don't know about specifically six months. I think there have been some issues particularly as it relates to the military, whether it's budget related, whether it's base access related, whether it’s just the sequester, whether it's the pullback in forces with lowering the number of service members or active duty. I think we've seen a number of challenges there over the last six months that hopefully will stabilize in the near future.

Okay, thanks so much.

Thank you. Our next question comes from Corey Greendale of First Analysis. Your question please.

Hey, good afternoon.

Good afternoon.

Hey so, Jeff and I are under contractual obligation to follow-up on each other's question. I want to go back to the first question about the revenue per student and it is so I got the number that you're talking about Rick, but that's a huge year-over-year increase it's up like kind of 11% year-over-year. I'm talking about the revenue per registration at 8 is what. Can you talk a little about what would drive that?

Sure. So there was an 8% tuition increase in July of last year, right. So that didn't – that was registrations made after July 1. So as you know our students can register non-military up to five months in advance. So that didn't fully bake-in in the third quarter. So it’s a small effect associated with that. But Corey I think we've talked in the past about our normalized registrations. And so it will vary quarter-to-quarter based upon when Monday start is, so a start on a Monday that's the first of the month has a greater impact on the quarterly revenue than one that happens at the very end, which would be the eighth day of the month. So I believe there's also some effect associated with that. So that's – it's the combination of those two that are going to drive what you're observing.

Okay. And is there any mix impacts when you look at kind of relative strength to weakness FSA versus active duty.

In terms of the revenue per student?

Yes, just – I think you had a price increase for civilians and not for military.

Right. So what we've been disclosing as the pricing impact. The price increase impacted about 25% of our registrations. So there is a modest, I wouldn’t say its material impact due to the mix change with the FSA of course on our percentage or relative basis going down year-over-year.

Okay, right. That helps. And I just want to come back to the kind of I understand kind of what's been happening over the course of the year. It sounds directionally I think that actually may be getting a little weaker in Q3 and I'm coming from the point of view that I think you anniversaried some of the changes you made in your application process of all people I was expecting the new student decline to kind of narrow somewhat in Q3. So maybe you can just address that a little bit.

Wally, you want to talk…

Yes, I’ll start off. I think we certainly expected in Q3 some of that to come down, but part of the Q3 is actually being driven by TA, seasonally this quarter has been all over the map over the years with the services that they have extra money in their budget. We’ll have good registrations if they don't have extra money in their budget. We’ll have virtually no registrations for September, which is the last month. That's harder to predict now though than ever before because now they are due to budgetary constraints they haven't been allowing registrations more than 30 days in advance. So our Q3 has typically been our lowest performing quarter of the year from a seasonality perspective. But in the case of our projections here more of it is driven by TA than it’s typical. And so I wouldn’t say that while those other things have improved and should be settling down. They're not as big as a driver in this quarters as institutional systems.

Okay. And Wally, do you think going into the beginning of the next federal fiscal year. Is there reason to think to that should get better or does the factor we are in an election year impact that at all?

Yes. Then in the last time we had a presidential election, we didn't get our budget approved till January. So yes, I’m hopeful that doesn't happen, but this may be the most unique year for American politics that I've ever experienced. So I'm not going to try to predict anything Corey – other than we'll try to do business as usual and hope that there's no drastic impact by impasses in Congress.

Understood. All right, thank you.

Thank you. [Operator Instructions] The next question comes from the line of Alex Paris of Barrington Research. Your line is open.

Good afternoon. This is Chris Howe sitting in for Alex Paris. I just had a question around the Toledo campus for Hondros. Just kind of general overview what you saw in the Toledo marketplace that made it so attractive, understanding that it was up for approval with DOE. I just wanted to see how this may compare to some other opportunities that you have in your pipeline or that you are considering.

Sure. This is Wally. I’ll start out and then if Rick has any extra points to add. The state of Ohio is pretty good about projecting shortages in nurses and by major areas Toledo was one of those areas. We had also one or two competitors close locations in the state. One of those locations were that close was, it was in Toledo. And I think it was for regulatory reasons, not because of poor market conditions. And the other thing about Toledo it's actually pretty close to Michigan. In fact a lot of people who fly in and out of Toledo, fly in and out of Detroit's airport. So we like the location. We like the fact that people in that area are familiar with the Hondros brand because it’s been around in the state of Ohio for a while. So we're pretty optimistic that Toledo is a good choice for our next market. Rick, I don’t know if you have anything else.

I’ve just got to mention, Wally, that’s where Manor Care is headquartered, I don’t that any synergy associated with that relationship but possibly, yes.

Thank you very much.

Thank you. At this time, I'd like to turn the call back over to Mr. Symanoskie for any closing remarks. Sir?

Thank you, operator. That will conclude our call for today. We wish to thank all of our callers for participating and for your interest in American Public Education. Thank you and have a good evening.

Thank you, sir. Ladies and gentlemen, that does conclude your program. You may disconnect your lines at this time. Have a wonderful day.