Strategic Education, Inc. (STRA) Q1 2011 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to Strayer Education Inc.'s First Quarter 2011 Earnings Results Conference Call. This call is being recorded. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Strayer Education Senior Vice President of Corporate Communications, Ms. Sonya Udler. Ms. Udler, please go ahead.

Thank you, operator. With us today to discuss the results are Robert Silberman, Chairman and Chief Executive Officer for Strayer Education; Karl McDonnell, President and Chief Operating Officer; and Mark Brown, Executive Vice President and Chief Financial Officer. For those of you that wish to listen to the conference via the Internet, please go to www.strayereducation.com, where the call will be archived for 90 days. If you are unable to listen to the call in real time, a replay will be available beginning today at 1:00 p.m. Eastern through Thursday, May 5. The replay is available at (800) 642-1687, conference ID 54712198. 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 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 Corporate Communications department. And now, I'd like to turn the call over to Rob. Rob, please go ahead.

Thank you, Sonya, and good morning, ladies and gentlemen. As is our custom, I'd like to begin this morning with a brief overview of both our company and our business model for any listeners who are new to Strayer. I'll ask Mark to report on the first quarter financial results, and Karl to comment on our operational results, including our enrollment statistics for the spring academic term. And finally, I'll provide an update on our growth strategy and the company's earnings outlook for Q2. Strayer Education is an education service company whose primary asset is Strayer University, a 55,000-student, 90-campus postsecondary education institution founded in 1892 which offers bachelors, masters and associates decrease in Business Administration, Accounting, Computer Science, Public Administration and Education. Unlike traditional universities, Strayer University students are working adults who are returning to college and graduate school to further their careers and improve their lives. Our revenue comes from tuition payments and associated fees. Approximately 75% of that revenue comes to us from federal Title IV loans issued to our students. Our expenses at Strayer Education include the cost of our professors, our admissions and administrative staff, marketing expenses and facilities and supplies costs. We serve students in 20 states through physical campuses, as well as in all 50 states and over 30 foreign countries through our online courses. Strayer University is accredited by the Middle States Commission on Higher Education. Now Mark, run along through the financials?

Sure. Before walking everyone through our financial results, I would like to highlight the changes in the financial statement presentation, which we implemented beginning in the first quarter of this year. The company changed its presentation of operating expenses and reclassified prior periods to conform to the current presentation. Specifically, we divided the marketing and admissions expense into 2 separate line items. We also grouped all campus-related expenses, except for admissions in the instruction and educational support line. Bad debt expense, which had been included in G&A, is now included in the instruction and educational support line. Also effective during the first quarter of 2011, the company changed its presentation of tuition receivable and unearned tuition in the balance sheet. Prior to the change, the company recorded tuition receivable and unearned tuition upon registration of the student. Effective with this change, tuition receivable and unearned tuition are not recorded until the start of the academic term. Therefore, at the end of our reporting quarters and our academic terms, our tuition receivable will now represent amounts due from students for educational services already provided, while unearned tuition will represent advanced payments received from students for academic services to be provided in the future. We believe these changes are preferable because they provide more meaningful information, increased transparency of our operations and improve the comparability of results with others in our sector. The changes have been reported retrospectively for all periods presented and had no impact on income from operations, net income, EPS, working capital, retained earnings, stockholders equity or our net cash provided by operating activities, nor did they affect the company's revenue recognition policies. Now I'll share with you our financial results for the quarter. Revenues for the 3 months ended March 31, 2011, increased 9% to $172 million compared to $157.9 million for the same period in 2010, principally due to increased enrollment and a 5% tuition increase, which commenced in January this year. Income from operations was $59.2 million compared to $59.9 million for the same period in 2010, a decrease of 1%. Operating income margin was 34.4% compared to 38% for the same period in 2010. Net income was $35.8 million compared to $36.4 million for the same period in 2010, a decrease of 2%. Diluted earnings per share was $2.80 compared to $2.65 for the same period in 2010, an increase of 6%, reflecting a lower share count due to share repurchases. Diluted weighted shares outstanding decreased to 12,794,000 from 13,729,000 for the same period in 2010. At March 31, 2011, the company had cash and cash equivalents of $71 million. The company generated $67.2 million from operating activities in the first quarter of 2011 compared to $63.1 million during the same period in 2010. Capital expenditures were $11.4 million for the 3 months ended March 31, 2011, compared to $12.2 million for the same period in 2010. On January 3, 2011, the company entered into an unsecured new revolving credit facility with maximum amount of borrowings available of $100 million and a 3-year term. At March 31, 2011, the company had $80 million outstanding under this facility. On April 4, 2011, the company entered into an amended and restated revolving credit and term loan agreement. This credit facility, which is secured by the assets of the company, provides for $100 million revolving credit facility and $100 million term loan facility, with the maturity of March 31, 2014. Proceeds from the term loan were used to pay off the $80 million outstanding at March 31, 2011, under the original revolving credit facility. During the 3 months ended March 31, 2011, the company invested $127.2 million to repurchase approximately 936,000 shares of its common stock at an average price of $135.91 as part of a previously announced stock repurchase authorization. The company's remaining authorization for common stock repurchases was $80.5 million at March 31, 2011. During the 3 months ended March 31, 2011, the company paid a regular quarterly common stock dividend of $13.2 million or $1 per share. For the first quarter of 2011, bad debt expense as a percentage of revenues was 3.5% compared to 3.2% for the same period in 2010. Days sales outstanding was 13 days at the end of the first quarter of 2011, compared to 12 days at the end of the first quarter of 2010. Rob?

Thanks, Mark. Karl, why don't you hit the highlights on the operational results and then also run through the spring term enrollment?

Sure, total enrollment for the spring academic term was 55,974 students, flat versus the prior year. Our new student enrollment decreased 19%, and our continuing student enrollment increased 4%. Continuation rate for the quarter declined 10 basis points. Enrollment at our mature campuses decreased 6% while it increased 48% at our new campuses and global online students increased 1%. Enrollments from corporate and institutional alliances increased 18%. In addition, we added 8 new agreements during the quarter, including a nationwide agreement with Starbucks. During the quarter, we opened two campuses for the spring academic term: one in Indianapolis, which is a new market; and one in Dallas, Texas, which represents our third campus in that market. With these two campuses, we have opened five of our planned eight for the year. The remaining three will open for our fall academic term, and we will announce their locations when they open. Lastly in terms of student mix, approximately 70% of our students are enrolled in undergraduate degree programs, with Business and Accounting representing roughly 2/3 of that population, and graduate programs continue to comprise roughly 1/3 of our overall student mix. Rob?

Thanks, Karl. Just one comment on the financials, going back to Mark's presentation from my perspective. For the first quarter at $2.80, we earned $0.14 more than the midpoint of our forecast 90 days ago, but roughly, half that variance or $0.08 was the result of the share repurchases in the quarter that Mark described, and about $0.06 was based on higher operating margin than forecast. And then while net income was down slightly in the quarter, owner's distributable cash flow was actually up around 10% on lower CapEx versus the prior year as Mark mentioned and also some better working capital management. Turning to a brief update on our growth strategy, I think, many of you will remember that our strategy is based on 5 objectives: the first is to maintain enrollment in the company's mature markets; second, invest our human and financial capital on opening new campuses, particularly in new states and markets; third, continue to invest in and build our online offerings; fourth, increase our corporate and institutional alliances; and the fifth and final objective is to effectively allocate our owner's capital. Karl's already reported on our first four objectives. On the capital allocation, we announced this morning a regular quarterly dividend of $1 per share and also that we had repurchased, as Mark said, roughly $127 million of our common stock during the first quarter at an average price of around $135. And again just to reiterate, we used cash on hand plus an $80 million draw on our line of credit to fund those repurchases. And as Mark mentioned, shortly after the end of the quarter, we entered into a new $200 million credit facility with the term loan and the revolving credit that Mark described. And just to be clear, we used the term loan, that term loan to replace our previous line of credit, which is the one that's posted on our March 31 balance sheet. Finally on the business outlook, for the second quarter of 2011, based on the university's enrollment for the spring term, we expect earnings per share of $2.36 to $2.38 in the second quarter, and approximately 800 basis points of operating margin decrease versus the prior year. This is the effect of the lower enrollment that we described back in January that our investment plans and our -- the expenses that we've incurred to build out the university, we don't really intend to adjust that significantly and we're comfortable with that variation in revenue, which is going to cause some variation in operating margin. And with that, operator, we'd be pleased to answer any questions.

[Operator Instructions] And our first question comes from Andrew Steinerman of JPMorgan. Andrew Steinerman - JP Morgan Chase & Co: I'm going to take a risk here. I know your standard line in new enrollments tend to bounce around. The past 2 quarters, this and last quarter, new enrollments were down about the same amount. Do you feel like that might be a point of relative stability?

I just don't know, Andrew. We now have three quarters in a row of new student enrollment well below the trend line of our campus expansion. So clearly, there's some impact on demand that we're facing. But as you said, we do feel like new student enrollment is likely to be variable, and we're comfortable with that. And so I just would hesitate to describe anything as stable just because it's going to be based on when students want to come back to school. So we've got probably a little more insight into what's driving demand with now three quarters under our belt. But it's not the sort of thing that, in our judgment, is going to change any of our business plans or investment plans for the university so we'll just continue to track it. Andrew Steinerman - JP Morgan Chase & Co: Okay. And just a quick comment on student persistence. I think you mentioned the continuation rate. Do you feel like prospectively that any variability in that area?

Well, that's one that we feel stronger about and hopefully, that is stable. And it's remained quite high through this period and is really for the last couple of years, been almost is statistical as high as it can be. If that stays strong, we'll be quite pleased. If we see variability in that, we'll be much more concerned.

And our next question comes from Sara Guinness (sic) [Gubins] [BofA Merrill Lynch]

Rob, you just mentioned that you've gotten some more insight about what's driving demand trends. Could you just share some of that with us?

Well, only in that we are now seeing a phenomenon that's extending over a period of time. So clearly, demand has been constrained somewhat. I mean, I think that the sources of that are probably -- we don't have any more clarity as to the relative importance of the sources but after 3 quarters, it would be, I think, disingenuous not to recognize the fact that you've got probably some impact from the economy, some impact clearly with regard to regulatory uncertainty and discussion of the role for-profit education. And all of which is combined in some way to cause less students who contact us to want to enroll. And again, it's not the sort of thing that from our perspective, changes significantly our view of the enterprise, but it is, I think, helpful when you have several quarters in a row to be able to have some increased sense of the causes and obviously, we'll continue to look at it for the next couple of quarters as well.

Okay. And then with the announcement that year-round Pell Grants are going away, could you comment on what your thoughts on how that might impact enrollment or where students will get funding from?

Well, it's taken reverse order. For our students, I assume that a reduction of some thousand dollars or so in actual Pell availability. That would be made up with Title IV borrowings or for those students who are part of corporate alliances, that they would have that source of credit. We're not particularly concerned about Pell Grants as a source of driving students towards Strayer University. And as a matter of fact, in many respects, I find that the more the student has invested in their own education, the more likely the student is going to be successful. And so due to the fact that it's a grant we can't really control how much is taken from that but we're certainly not concerned about that being lowered. As a matter fact, we're frankly mildly in favor of that.

And our next question comes from Ariel Sokol of UBS.

So just going to the financial in the new presentation, I was hoping if you could just maybe walk us through kind of in more granular fashion the job functions around all the activities that go into construction and educational support from marketing and general administrative. I think bad debt expense is obvious, but what exactly is in that line item now, would be very helpful.

Yes, so Ariel, we now have in that line item is essentially all of our cost related to campus operations, with the exceptions -- excluding admissions. Right. Whereas before, we had, for example, our business office operations on the G&A line, we had some other student support activities in the marketing line, those are now in the instructional and educational lines so that's truly our campus operations excluding the admissions function.

Maybe just to -- apologize, if you can give us some more detail. What do you mean by student supports that used to be in the marketing line? What was the actual function just so I can get a sense and flavor for it?

Sure. We have a couple of individuals at each campus who, while they're not involved in admissions, they are almost -- what would you call them, Karl? Sort of ombudsman -- sort of like consumer advocates from that standpoint, who deal with the students on a -- existing students on non-academic matters such as helping them sort of get through the balance of work-life necessary to go back to college as an adult, and it's a couple of people per campus and so we've adjusted those over. Basically, what happened was on this whole income statement presentation, I was sort of impressed with the way Apollo did theirs a quarter or two ago. And Mark and I looked at it and said, "Look, it would be more helpful. We see this detail anyway. It could be more helpful for everybody else to see the breakout of actual marketing expense versus admissions staff." Now, once we looked at that, we decided, "Now we really hadn't looked at it in 10 years to do a complete scrub and make sure that we had positions aligned appropriately." And then that led into a look on the balance sheet with regard to the accounts receivable on the unearned tuition, where there frankly, we're just taking the same way that we always adjusted for days sales outstanding, and rather than making the adjustment, just giving the visibility on the balance sheet so you all can see it as well.

Thank you all, then, one follow-up then. If -- well, do you guys intend to file perhaps an 8-K showing what the presentation would've been for perhaps the last four to eight quarters?

It's in there.

Yes, so clearly for the comparable periods, we've obviously included that in the filings. And we're evaluating whether to, in this 10-Q, provide that same information for all of last year. It's something we're evaluating. If we do it, it'll be in this Q.

Otherwise, it will be in each release.

Each release, right.

Our next question comes from Jeff Silber of BMO Capital Markets.

I wanted to focus on operating margins, Rob you had mentioned that some of the EPS upside surprise came from better-than-expected operating margins. I'm wondering where that surprise came and what specific line items? And then also in terms of your business outlook for the current quarter, where do you think we're going to see the most pressure on operating margins?

Sure. Well, it wasn't that big a surprise. It was, I don't know, 20 or 30 basis points better than we thought it was going to be. And with our -- the size of our business and the small share count, that tends to have large cents per share impact. But it was not large enough and not specific enough to any one given line item to really stand out. In general, I think that we had a little more revenue and a little better cost control, and just a little bit with only 12 million or so shares tends to a have a multi-cent impact. Going forward, it depends on -- well for the next quarter, well, we know what our revenue is, most of that impact is in the I&E line because you've got a university that has been built out and -- or we're in the process of building out with quite a few new campuses, five this year plus 13 last year, and a slightly lower student count per campus and per class, and we're not eliminating full-time faculties. So that's where you see most of the negative impact.

Right. Great, that's helpful. In terms of the term loan, are there any restrictions on early pay off?

No.

No.

Great. And then for your business outlook for the second quarter, what share count are you using?

Well, we're using basically the share count that we have at the end of the last quarter. Any activity we do in the current quarter, we would let you know that in July when we do our second quarter release.

And our next question comes from Maria Karahalis from Goldman Sachs.

Two questions. The first is, is there any color that you may provide us on enrollment trends that gives us some clarity on what's going on at the program level? And the second question is also a little bit of color on what you're seeing in bad debt expense trends and how you're thinking about that going forward?

Sure. Well, again, in reverse order. The bad debt expense, there wasn't really anything out of the ordinary. Our collections in the current quarter was actually quite strong. A little bit of deterioration in the recoveries for previously written-off accounts. We saw that about 18 months ago, similar kind of situation, but really not enough to move the needle significantly for us, one way or the other. On enrollment trends, Karl, why don't you talk to that?

As I've said in my comments, our macro level trends are essentially unchanged. Within business, there's small amounts of movement from Accounting to Business Administration, for example. Our Criminal Justice program, which we launched a couple of years ago, is essentially in the 5% to 7% range of the student body. So there haven't been any sharp trends in this quarter that have caused it to move dramatically at the highest level.

Or the other way to say that is the trends were consistent across all the -- because it didn't move dramatically, just that were triggered with regard to the new students, but it wasn't specific to any one program.

Okay, that's helpful.

Our next question comes from Suzie Stein of Morgan Stanley.

It seems like you're opportunistically taking advantage of the drop in your share price with the level of buybacks in the quarter. Can you talk about what kind of financial leverage you're comfortable with, just given that we're heading into a period of increased regulatory uncertainty?

Yes. I mean our -- these businesses could sustain significantly higher levels of leverage just on a financial basis than I'd be comfortable with on a university or academic basis. So we're not close to a concern that I would have in terms of cash flow management. So, it runs the other way. Our interest rates on these loans on a after-tax basis are so much lower than our dividend yield on our stock that it kind of cries out for action. But in general, our view is just that as we're expanding this university, we need to bear in mind that our capital structure needs to be reflective of the university and sensitive to those kinds of interpretations. And that's really what's sort of governs us as opposed to a straight debt-to-EBITDA ratio, the kinds of normal financial metrics that businesses look at.

Okay. And then kind of going back to the issue of competition, are you seeing increased competition from other fall classes? Would you say that, that's, I guess, a big factor of the weakness of the starts?

Well, it's interesting you asked that because when I think about the causes of lowering of enrollment period and also starts, I mean, logically, if it was a significant cause of an increase in competition, you'd expect somebody to be gaining market share and growing very fast. Since everybody seems to be shrinking at some level, it's hard for me to imagine that the logical explanation is not more related to demand than competition. But we'll continue to look at this over the next couple of quarters. We've always felt that there are a number of opportunities for students who are going back to school to choose from. And the other investor-funded institutions are rarely the largest set of opportunities that the student has in the market that we operate in. And that really hasn't changed.

Okay, If I can just sneak one more in. Going back to the first question that I asked, is there any issue with respect to the financial responsibility ratio?

With regard to what...

With regard to just, you are taking on more debt to buy back shares. I know that it gets kind of tricky in terms of the balance there in terms of the ratio. Is there anything that would limit you in terms of being able to buy back more shares?

Yes. The amount of debt you take on and the amount of shares you buy back does affect your financial responsibility score, and we are cognizant and focused on that.

But how close are you? I mean, should we expect this to slow down as a result of that?

Well, we only have -- we used a big chunk of our board's authorization at this point already so you would expect it to slow down just based on using up the annual authorization. But there's nothing with respect to the financial responsibly score right now that, I think, would affect that.

And our next question comes from Bob Wetenhall of RBC.

Wanted to ask the question, is it that your number of students who are coming in are taking more time to make a decision to attend Strayer because they're looking at other options? Or is the absolute number of students who are applying starting to decline? Or is it both?

It's a little bit of both. I mean, it's hard for me to know the impact of students taking a longer period of time. And actually, I'm not even really sure that, that, based on what we've seen because -- that accurate. I mean, we have the number of the students who are enrolling within a three-month period is actually increasing slightly. So I think as best as we can analyze right now after sort of nine months is there is a general decrease in demand, and that's reflected in the fact that less students are enrolling. But again, it's not something that, from my standpoint, fundamentally changes the reality that propels us as an institution. I mean, we are comfortable with that variability, and I don't think the value of education is shrinking. I think it's increasing so if we continue to focus on the things that we can control, which is the quality of our academics and the capacity of our teaching apparatus, over the long term, our view is that building a nationwide university is a good use of our owner's capital.

Do you -- in tandem with that, do you think there's a normalized level of enrollment growth if you move past this cyclical impact you're experiencing currently?

I've always thought that the normalized level of enrollment growth is roughly related to the rate at which we expand our university, the rate at which we open new campuses. And then once the campus is open, they've tended to grow at a fairly predictable rate year-to-year until they cap out at roughly 1,000 students. So the normalized or sustainable rate of enrollment growth is going to be based on that rate of expansion and then once you finish expanding, it's going to be fairly flat once you filled up those campuses.

And you're still comfortable committing capital to grow the campus base in the next three to five years?

Well, we have already done that, committed to that. And we're completely comfortable on a financial basis, and it's limited almost solely by the availability of human capital because that's how you determine that you're going to maintain a level of academic quality. And then this last year, there were some additional limitations that we felt, based on the regulatory uncertainty, once that gets clarified, then I think our view is, is that moving back to a capital employment plan that takes sole advantage of our human capital is exactly what we intend to do.

And our next question will come from Peter Appert of Piper Jaffray.

Bob, just on the buybacks again for a sec, is the expectation then that the, I think it's $80.5 million in repurchase authorization left, you're going to use that all this calendar year?

We don't comment on future share repurchases, Peter. I mean, it'll depend on the analysis that we always do, which is what's intrinsic value and what's the appropriate use of excess capital that really we hold in stewardship of our owners.

Got it, okay. And it seems like there's some action in congress again about trying to push for delay or elimination of gainful employment. I'm just wondering if you have a point of view in terms of how you think that plays out?

Well, I certainly have a point of view. I'm not sure how relevant it is. I mean, it's certainly something that is beyond our capacity to control. Yes, we've always felt that this is a very heavily regulated industry. More than anything else, I think the publicity associated with this process, I'd like to see stabilized and go back to more of a focus on real academic outcomes as opposed to people that are trying to push one agenda or another. But I just don't know. I mean, we've been waiting now for several months, and I'm assuming that when the department and the administration feels like they've completely vetted what they need to vet and taking in all of the viewpoints that are necessary, they'll come forward with something.

And our next question comes from Corey Greendale of First Analysis.

Was hoping to slice the enrollment a couple of different ways. Could you comment on the relative strength of enrollment through corporate partners and community college articulation agreement, well, I'll stop there. Just could you comment on that?

I think we could, but go ahead, why don't you repeat that comment?

Yes, our total corporate and institutional alliances, total enrollment was up 18%. So obviously, that's quite a bit higher than slight growth for the overall university. As I said also, we added eight new agreements in the quarter so the rate at which we're expanding agreements is increasing. And we also saw more enrollments from our existing accounts. So that's a part of the university that's continued to hold up quite well.

Alright, sorry if I missed that. Then the second question is, I gather that new campuses probably aren't ramping as strongly as they were a year or two ago but are they still meeting your nominal model?

Yes, which is important, Corey. These conversations tend to get wrapped around year-over-year and quarter-over-quarter comparisons. It's really not how we think about this as an enterprise. It's a return on invested capital judgment that we're applying and the return on invested capital at this rate of expansion in opening new campuses is by far the best thing we can do and it's very attractive. But for the regulatory uncertainly, if we've got the human capability to ensure academic quality, we're going to continue to do that.

Okay, and one last slightly random question. Did you ever hear back anything on your Freedom of Information Act request to the Department [Department of Education]?

We haven't received the information that we've asked for.

Our next question comes from Gary Bisbee of Barclays Capital.

I guess the first question, have you undertaken any sort of substantive changes in terms of how you go about your marketing to try and combat this reduction in demand? Or, I know you're always tweaking it, but are you sort of maintaining similar to what you've done in the past and just trying to be prepared for when the demand environment changes?

It's the latter. I mean, we're always tweaking it. We haven't done anything specific beyond our normal market-to-market and channel-to-channel tweak. And we have a comfort level that, as I said, the value of education is not decreasing, and demand is going to fluctuate based on some external factors but in the long run, it is a very attractive use of our owner's capital.

Is there -- do you do any surveys of students who decide not to attend? And is there anything you can tell us that sort of changed? Or is it much more just that the number of inquiries and applications has dropped?

We do the surveys, and I tend not to be that focused on individual surveys. But we're now three quarters into this, and it's pretty clear that there is sustained economic pressure. I mean, the decision to go back to school is clearly, at least for us, because, I mean it's a big, big decision. It's a big financial commitment. You don't do it unless you've got some amount of economic uncertainty. But then again, it's also an expression of faith that you're ultimately going to be in a position where the investment that you make, not even financially but just in terms of your time, is worthwhile. So there's a certain amount of impact that, I think, we're starting to see. It's based on sustained economic underperformance. There's clearly been a lot of questioning and discussions of whether the capital structure of the university is conducive or -- to providing the right academic outcomes. And then there's a smattering of other things. But again, it's the sort of thing that on a quarter-over-quarter basis is not going to affect how we think about our marketing channels. I just -- and I'm sure there are other people in the space that are a lot better at it than we are, but our view is the decision to enroll in a university is a much bigger decision than it's going to be affected by the choice of marketing channels. And that basically, the most important thing we can do is comport themselves and define ourselves in a way that students understand what it is they're engaged in, what they're signing up for, and students will self select to be the kind of students that are going to be successful.

Okay. And then I guess I just say I really encourage you to provide us the historical breakdown on a quarterly basis for at least 2010 in the new reporting. Otherwise, it's pretty difficult to model the business. And on that note, is there anything you want to -- that you'd tell us about sort of seasonality or anything about these new cost breakout that we should think about? Or is it, going to be...

Yes. There nothing seasonal about them. They're very minor switches and they would be the same, in the same way quarter-to-quarter that other ones have been. [Indiscernible].

And our next question comes from Kelly Flynn of Credit Suisse. Kelly Flynn - Crédit Suisse AG: Okay, I want to go back to, Rob, your answer to, I think, it was Sara's question about some of the drivers of the new enrollment decrease. I think you mentioned the economy and then, kind of the regulatory stuff. Can you elaborate on both points? I mean, on the economy, I think you implied later that you think definitively, the economy is hurting. Again, bad economy is hurting as opposed to some countercyclical good economy hurting. If you could clarify that, that'd be helpful. And then secondly, on the regulatory comment, are you talking about the bad press stuff you mentioned a while back? And/or are there any internal things going on, whether it's just kind of productivity hit from some of the bad press? Or just clarify, did you make any changes to any of your business practices that might be playing a role there?

Yes, we haven't made any changes to our business practices over the last nine months or so, six months, whenever this thing started. And we just don't think of it as productivity. I mean, again, it diminishes the importance of the decision that the student makes. And so we're not organized or focused around that kind of discussion. I do think that the first part of your question is important in that I've never felt, at least for Strayer University, that we're countercyclical. I've always felt that we're relatively acyclical, but you have to bear in mind -- and the reason is there's this countervailing impacts from the changes in the economy. As the economy slows, there's more economic uncertainty, and that drives students to go back to school. But by the same token, the student who is truly unemployed is less likely to enroll because of a sense of commitment necessary for our demographic of student who tend to be older, they've got families, they've got responsibilities. Going back to school may not be an option if you're out of work, not the least of which is to not be able to afford it but also, because you have to be looking for work in order to support yourself and your family at that age. And so what we are hearing a little bit in some of the surveys that we do is that the sense of confidence that's necessary in order to make that commitment can be waning, particularly in certain markets. We've got some markets where, particularly in the upper Midwest, where the economic impact has been more severe and we certainly hear that as a reason, either for or against enrolling in a university. So roughly, acyclical over the long term but in a sustained economic down cycle, it certainly affects the willingness of certain students to enroll given their other responsibilities. Kelly Flynn - Crédit Suisse AG: Okay, great. And then a different question related to, basically, where your students come from. Can you give us an update on -- I may not like to use the term leads but for the lack of a better word, kind of where the leads are coming from right now? I mean, what percentage are referrals and which are other sources? And then I know you said you haven't seen market share shifts but have you seen any expense or cost shifts? Is it costing more to find students as a result of competitive dynamics in some of the channels?

Well, again, it just we -- I think you and I just think about it differently in terms of describing it as an enterprise, because we're spending the amount that we intended to spend on brand building and putting the name of Strayer University out there. If you get less students, by definition, it's costing you more per student. We're not adjusting spend in one way or another. That cost per student is a derivative of the amount that we're spending, that we intend to spend. We think it's a good long-term investment in the number of students that we get. We tend not to categorize inquiries or the initial contact from the student by channel or media source because generally, they've come to us from a lot of different sources. What we do spend a lot of time with is understanding how many of our students who will ultimately enroll, have contacted a current student, an alumnus or a faculty member as part of that enrollment process. And that number is quite high. I mean, it's always very high. It's frankly virtually 100%. It's just not that kind of a decision that a student would make without checking with somebody. And we described them as referrals. I mean, that's obviously what is the -- we find the driving force as to why the student is enrolling. But for the absolute initial contact, that's spread across -- they may have heard about it from somebody else, they may come from a corporate alliance partner, they may have heard about it that way. We do spend money on radio and TV ads in brand new markets to get the name out there. A lot of times, it's just driving by and seeing the building, and the sign on the building will cause people to come in. There's nothing significant or changing with regard to that mix. Right now, in general, it's a lower number across-the-board. Kelly Flynn - Crédit Suisse AG: Okay, and then lastly. The consumer confidence, as you just cited, have they caused you to reassess the 5% pricing increase? Or is that something you plan to do again?

Well, we always look at that decision with our Board of Trustees. We won't do that for another several months with regard to 2012, we've put in place for 2011. I don't personally think there's a whole lot of price elasticity. As long as you're generally within the range that is, it's both a good value to the student in terms of their long-run earnings potential increase that comes from having a university degree, and is it relatively in balance vis-a-vis the other opportunities they have in a particular market. And our overall price point is frankly a more important analysis for us than the rate of change. If our price point, we thought, was way out of balance, then obviously, that would affect the rate of change, but at least for 2011, we're comfortable with that.

And our next question comes from Jeremy Herman (sic) [Jerry Herman] from Stifel Nicolaus. Jerry Herman - Stifel, Nicolaus & Co., Inc.: The first couple of strategic questions, Rob, and the first one is just maybe a different version of the marketing investment. You guys are decidedly below the peers in the sector, and now that you're resembling more of a national university. And you're faced with negative publicity, does it, in fact, make sense to step up concepts like brand building and such?

Well, brand building is always valuable. I don't -- and there's nothing specific about the current political or economic environment that strikes me as deserving of a bit or much larger or lower expenditures in those areas. I mean, again, the student that we want to enroll, Jerry, is a student who's convinced themselves. And so we just want to have a little bit of a mind share when they decide they think they need to go back to school. And that's what our marketing spend is based on. Jerry Herman - Stifel, Nicolaus & Co., Inc.: And then the second question is noting in some of today's comments and also in your shareholders' letter that so many of your graduates come from the area of business. As you think about the long run, does it make sense for the program offering to be more diversified?

Well, it depends on what you're concerned about. We want to be a great nationwide university for working adults. We know that we teach Business Administration well. And we're quite confident and excited about the possibility of doing that on a nationwide scale. We're comfortable with the variability in short term, and so a desire to have more of a portfolio to balance that out is just not of that much concern to us. So if we thought we could teach something very, very well and it would add to our academic credentials and our reputation as a university, we're certainly not opposed to it. But it's -- we don't think about adding academic offerings to balance out decreases in student enrollment or revenue or operating income because over the long term, we think it's going to be great. Jerry Herman - Stifel, Nicolaus & Co., Inc.: Okay, great. And Mark, with just one quick one. What was the share count at the end of the quarter?

It's in the release.

Yes. Well, the DSOs and the actual share count are on the balance sheet. Jerry Herman - Stifel, Nicolaus & Co., Inc.: Okay. No adjustment then, okay.

Our next question comes from Trace Urdan of Signal Hill.

I just wanted to say thank you for the, I think, an improvement in the disclosure on the cost side. I didn't hear anybody say that but I do think it's an improvement so thanks for that.

Mark says, "You're welcome."

Related to that, I just think it's kind of interesting, so I just wanted to ask you a couple of questions. In terms of the increase in the marketing and admissions advisory, they're both higher year-over-year on an absolute basis as well as percentage basis. And I'm wondering if that, in your mind, is solely attributable to the increase in campuses? Or whether there is some additional increase on top of that than just what we would otherwise expect from new campus rollouts?

The admissions line will be purely based on the increasing campuses. The marketing line is really more related to the increase in markets. But in both cases, they are almost solely related to our new campus opening plan.

Okay. And then similarly on the G&A decline on an absolute basis, given the increases that you just mentioned, that seems notable, and I'm wondering if there's what you can tell us about the absolute decline in G&A there.

It's based on anticipation of a significantly lower incentive compensation, after the senior executives, we don't have it below the senior executives.

Got it. Okay. And then the final question, Rob, is that we've seen the number of, a few other schools have made a shift from a term-based system to a borrower-based system in part, because they think that, that different method of doling out the loan dollars to students actually helps those students kind of become better stewards of their own tuition dollars and may, in fact, improve outcomes in a number of ways. And I'm wondering if that's something you guys have ever looked at or contemplated?

We are on a borrower-base here, aren't we?

I'm sorry. That's my mistake then, I apologize.

Yes. And we've always been on a borrower-base here. And as a matter of fact...

I think I got confused since you had such fixed terms.

Right. No, and what's important there, Trace, is several years ago, it must have been four or five years ago, we were looking at a situation where in some markets, students were borrowing significantly -- they were borrowing many terms for one term of tuition. And that just looked to us to be a recipe for misuse of funds. And so, but that was at least five years ago, if not more. So as long as I can remember, we've been on a borrower-base here.

And our next question comes from Gordan Lasic from Robert W. Baird. Gordan Lasic - Robert W. Baird & Co. Incorporated: First question, I just want to come back to persistence for a minute. It looks like sequentially, it really did kind of rebound from the last quarter. It was better than what we were expecting. I guess, can you give a little bit more color on what's driving that? And then relative to where starts are obviously trending and the graduations you expect to go through the system, we sort of expected that to remain under pressure for the next several quarters.

Well, the answer to the last part of the question is yes, because as you enroll less new students and as the students that you enrolled two years ago graduate on an absolute basis, which is how we report these continuation rates, that's going to go down. By the same token at a period in which you have new student growth, it goes up at a fast rate too. We try and look at it in net of graduations and then net of academic failures. And in those circumstances, both of which has been relatively -- both of those other categories have been relatively stable. And so our effective continuation rate of those students who are capable of continuing has remained about as statistically high as you can get. So what we're just hoping is that it'll stay there, we'll have some absolute continuation rate that goes down with the lower new student enrollment. And then it's about, I think, our average stay is 10 quarters, Mark or Karl, so it's a multiyear process for that to work itself through. Gordan Lasic - Robert W. Baird & Co. Incorporated: Great, thanks for that color. And then just one more question, different question on surveys. But have you compiled the results of your 2010 alumni survey yet? And if so, can you share those results?

We have. As a matter of fact, we just got it last week, and I don't have it in front of me but I think the key headline which Karl and I talked about, I guess, yesterday is just that the annual salary is about the same as 2009. It was about $50,000 for a bachelors and then slightly higher for a masters. And then when you -- and there was about a 10% to -- what was the unemployment rate?

It was -- of our graduates for the entire class of 2010, about 86% were employed full-time, which I think is down, maybe just a couple of hundred basis points.

So it's like 14% unemployment but that 14% unemployment, when that's calculated through, it's got the average salary, it was like $47,000?

$48,000.

$48,000, so very similar to 2009.

Thank you. And ladies and gentlemen, that is all the time we have for questions today. I would now like to turn the conference back over to Robert Silberman for any closing remarks.

Well, actually, Ben, I mean, if there are other questions, we're happy to take them. We don't mean to cut off right at the hour so if there's anybody else in the queue, just let them ask questions.

I do have the queue clear.

Okay, terrific. Well then, thank you very much, and we look forward to talking to you in July. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program. You may all now disconnect.