Welcome to the Q2 2008 American Public Education, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Chris Symanoskie, Director of Investor Relations.

Welcome to American Public Education’s second 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 8K 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 third quarter and 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 results of various factors, including the various risks described in the risk factor section and elsewhere in the company’s annual report on Form 10K 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, 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 yet another quarter of strong financial and operational performance. During the second quarter of 2008, our revenues increased 55% to $25 million. This growth was driven primarily by strong growth in registrations from new and returning students. Our operating margins increased to 23% in the second quarter compared to 20% in the same quarter of last year. We were able to increase margins while making investments in new programs and expanding our corporate facilities to meet our administrative needs. This quarter, our net income increased to $3.9 million, a year-over-year increase of 93%. Our reported earnings of $0.21 per diluted share is $0.06 above the high end of our previously issued earnings guidance. The earnings upside is mostly attributable to higher than expected revenues, lower than expected expenses, and a lower than expected effective tax rate. These solid results gave us the confidence to raise our full year guidance. Today we announced that we are again increasing our full-year 2008 earnings outlook to between $0.76 and $0.80 per diluted share. Last quarter, we gained membership in the Navy’s distant learning partnership, a program that will give us broader access to Navy bases and greater visibility on Navy websites. I am pleased to report that the Navy’s main distance learning website has been updated with the list of partner schools at the URL listed on our slide. In addition, we are moving full steam ahead with our efforts to develop a stronger relationship with the Navy and its key influencers. Our team of outreach representatives has initiated a regular visitation schedule at Navy installations and been invited to attend numerous Navy education fairs. We expect it to take some time before we see a material impact on enrollment from this program; however, the Navy has been…

This quarter’s results represent the ten consecutive quarter of record year-over-year growth in net course registrations. Actually there’s been more than that, but since Wally’s been in charge, he’s done a good job. So I can direct you to the slide four. You can see that our growth was very strong for the quarter and that was really driven mostly by growth in net course registrations from new students, which came in at 60% increase over the corresponding three month period for 2007. This is a tremendous registration growth rate for what is seasonally a low quarter for us historically, as it is for more post secondary education companies. So we are obviously very pleased with that and we continue to grow in the military particularly, even a little bit more than we anticipated. So that gives us a year-over-year growth rate, 57%, and you can see that led to strong revenue growth and net income growth, which actually was 93%. So we’re very pleased with that. 50% increase in registrations year-over-year had led to a 55% increase in revenue. One of the reasons why revenue growth is trailing registration growth a little bit is because we have introduced a lot of lab courses, actually science labs, of which are available on CD-Rom for our students. It’s a very innovative approach to online labs, but as our civilian population has grown, we’ve seen a lot of growth in the humanities and science courses and those labs are only more point credit and we charge $250 for those courses. So for the expense, the labs are growing, actually they’re growing about 100 percent year-over-year and that’s caused our average revenue of course to come down slightly. Obviously we’re very pleased with the 55% revenue growth. The bottom line, again, that we…

(Operator Instructions) Your first question comes from Mark Marostica – Piper Jaffray. Mark Marostica – Piper Jaffray: My first question relates to a metric that you track pretty closely and that is the student satisfaction quotient and in particular I was wondering if you could comment on perhaps areas where you outperformed your expectation and any areas where you underperformed what you thought you should have done for the quarter.

You know we did do a presentation that we filed the transcript with during the past quarter that had some statistics from our student satisfaction quotient. I don’t remember all those off the top, but in many cases we were in the 95th percentile as far as satisfaction goes. We’re pleased with all the results. I would say that we didn’t have a single question that was below the 85th percentile of the 20 metrics that we track and there was only one in the 85th to the 90th and then almost all of them were in the 95th to 100. So from my perspective, there were none that I’m dissatisfied with. We have a great focus since all of our full-time employees are paid an incentive bonus based on that outcome. We do measure it every quarter. Our comp committee approved the bonus for the second quarter, which is the numbers you see and they were very glad. It was like the 8th consecutive quarter where we had improving results in that index. So there’s no particular ones that stand out. They’re all quite frankly pretty damn good and the one that’s below 90% is in the 85-90% so I’m not that upset about it. Mark Marostica – Piper Jaffray: With regards to your registration growth that you achieved in the quarter, could you give us a sense what the growth was in the title four area versus the military?

I can tell you our financial service students grew 87.5% over the corresponding three month period the prior year and that so far for 2008, it’s about 12.6% of total registrations and last year at this time it was about 9% of total registrations. So FSA is growing quite a bit, but the military is still growing. So as a percentage of our students, it’s a mitigated a little bit by the fact that our military growth continues to be robust, but that’s where it is now. Right now it’s about 12.6% of registrations, up year-to-date for the six months ended June 30, it’s up 119% over last year. Mark Marostica – Piper Jaffray: You mentioned that one of the reasons that you outperformed in the quarter was a result of deferring some marketing spend due to the delayed launch of a couple of education programs. Can you give us a sense for what your guidance implies in the back half of the fiscal year in terms of the spend on selling and promotion as a percentage of revenue?

I think it’s a penny each quarter. I guess I’d like to just talk about the justification though in general. We thought we would do something different with these programs, which was try to get each of our programs approved for licensure by the State of West Virginia and we were the first 100% online school to get these programs approved. So it took awhile and we actually didn’t get our final letter on the final programs until I think it was June 5th and because we pride ourselves on matching our expenditures through availability of programs, once we got those programs approved, we had to slot them into a schedule, so for the most part they’ll all be available in September and we are absolutely anticipating spending lots of money in the third quarter for those fall enrollments starting in September. So we think it’s about a penny for the third quarter and about a penny for the fourth quarter. Mark Marostica – Piper Jaffray: Over and above the run rate that you’re at as of the second quarter?

I think you should expect somewhere between 12 and 14% of revenue the remainder of the year for selling promotion. If you recall, at the beginning of the year, actually when we did our IPO last November, we said that our marketing cost we anticipate to be about 12% of revenue for the year. They’re running much less than that, but we’ll make that up in the third and fourth quarter. We’re really optimistic about the masters and education programs, which we feel are priced as much less than our competition for the same quality of product and our programs lead to certification for teachers, whereas others that are out there do not.

Your next question comes from Jeff Silber – BMO Capital Markets. Jeff Silber – BMO Capital Markets: I’m just going to follow up with Mark’s questions, just asking the same thing on G&A. What should we be looking for for a normalized G&A rate?

What we do say is that we think that’s where we can get some leverage as far as margin improvement goes. That G&A should not increase at the same percentage that revenue increases. So our G&A costs will continue to go up, but a much less percentage than revenue. I hesitate to give specific guidance beyond that. Jeff Silber – BMO Capital Markets: Some of the other companies in the states have been commenting about the effect of higher gas prices kind of boosting their online enrollment. I’m wondering if you’ve seen any of that with your civilian population.

We haven’t seen it in a noticeable way, but some of those companies have been mentioning those comments aren’t 100% online. We actually did have an article in one of the San Francisco newspapers where they quoted one of our students who was in New Jersey who basically said he chose our program because it was 45 minutes each way to the local college and he figured he was saving $400 a month and given our nice price point. He thought it was making his educational much more affordable. Quite frankly, we were surprised to see the article published and see a student quoted and we haven’t noticed any flood of inquiries from that, but I think it may be just the fact that we’re 100% online, so we don’t have any basis of business to shift from land to online. Jeff Silber – BMO Capital Markets: Harry, you’re still guiding for a tax rate of 41% for the year, but the first half year-to-date, it’s only about 37%. Does it make sense the tax rate on the back half of the year is going to be higher than 41%?

We should have 41% effective tax rate. Our effective tax rate for the year is going to be about 38.5 because of the impact of the adjustment to 2007, but going forward, if you’re doing quarter-by-quarter basis, it should be 41%, but because the second quarter is only 34% it’s going to annualize in 2008 to about a 38.5% rate. Jeff Silber – BMO Capital Markets: On capital spending, you had some comments on that. What are you budgeting for this year and what would a normalized rate going forward be?

Well I think this year is going to be high, because we really built out a huge expansion of our facilities in Manassas and we’re building out a large new building for our IT department in Charlestown. So we really think our CapEx maintenance, as we have said historically, is about $3.5 to $4 million dollars a year just to maintain our IT infrastructure and to develop new programs. This year with the development of PhD programs and our facilities, we’re giving guidance of about $7.4 to $7.9 million of CapEx for this year. Going forward, I would expect it to be a little less than that for next year. Beyond that, I don’t know.

Our next question is from Trace Urdan – Signal Hill. Trace Urdan – Signal Hill: Wally, could you speak to the impact that reenrollments are having in your enrollments and maybe remind us where those get categorized. Do they come back in to new students at some point and is there any kind of material trend that’s taking place in terms of reenrollments?

I’ll tell you what we said before, Trace, because I actually haven’t seen a change, but we disenroll a student after 13 months of inactivity and that’s following procedures prescribed by Aacrao and the trend prior to regional accreditation was that each month we’d get approximately 200 students reenrolling who had been disenrolled. Since our regional accreditation, that number has shot up to about a thousand students a month who are reenrolling. No one has reported to me that it has shifted from that thousand number. So we basically increased five fold once students who had disenrolled, came back, and found we were regionally accredited. They came back to us in a much higher percentage than they had historically. Part of the reason is, we can actually only give extensions for deployment up to a year. And so, the 13 month is a 30-day administrative procedure. So there are some people who get deployed who just need some downtime with their family when they come back to the states. They get disenrolled and then all the sudden they realize that maybe they don’t want to re-up or if they do that they want that degree to get promoted. The nice part about it I think is five fold increase in reenrollments has been reflective of the fact that getting the regional accreditation made their degree worth more.

Trace, just to reemphasize, reenrolled students are not included in new students with us. We don’t count them as new students. You’re only a new student once. Trace Urdan – Signal Hill: Could you give us color on what you felt was driving the new course registrations in the quarter which looked pretty strong?

Some of it was we reported that we had a little block with our FSA last quarter and so we had some FSA students who instead of going into March went into April. That was some of it, but we did have rather strong growth in the military. When you have a base as big as ours, making that estimate accurate and trying to explain it, it’ll take us more than a couple of months to try to explain it. Trace Urdan – Signal Hill: Last question, how many days has the website been up and running and can you see any change as a result of that?

The Navy website? I think when I gave a presentation right around the 25th of June when we were told we were going to be up we were not up and I believe it came up around the 20th of July. Somewhere about a month after we expected it to be up, it came up. Prior to us going on the website though, the moment the announcement was made, our field reps were giving access to just about all the basis and so really we saw the fruits of being placed in the program from having our reps get access, to participate in ed fairs, and set up office hours, and meet with prospective students. So we’re seeing the short-term early benefits of being in the program. Really it’s been not long enough to see what the benefits of being on the website would be.

Our next question is from Jerry Herman - Stifel Nicolaus.

Just a follow-up question with regard to the student volumes. Some of the stuff you guys said earlier and also what looks to be some verbiage in your 10K would indicate that really the military did drive the growth. Could you give us an update there in terms of where you are with the financial aid process?

We think we made all the process improvements we need to make for financial aid to open up the pipeline for the foreseeable future and we’re real pleased. Year-over-year we’re up 119% in financial aid students and that’s without having the impact of these masters in education programs which we think will lead to a lot of FSA growth. We’re happy with the path we’re headed for civilian students.

Can you talk about capacity?

It’s hard to put a specific number on it, because we have the IT structure in place now to handle as many students as we could get in. We are still relying on our third party loan servicer and our people now. So there’s a human aspect of it. So we’d have to add more people once we get to increased levels and it’s always a management decision when you add those people. Do you add them before you get the students or do you wait until the student demand is such that it warrants hiring more people. Right now, there’s no capacity issues with FSA.

Then with regard to selling and promotion, I know previously you talked about sort of a 12% range for the full year. Should we think about that sort of as the run rate for the second half of the year rather than some catch up in the second half of the year?

I think you’re right. We are going to have a catch up in the second half. We delayed some spending in the first half of the year and we’re going to spend that money in the second half to market these education degrees. The full year is going to be closer to the 12% than we had anticipated, which means there’ll be a catch up of between 12 and 14% in the second half of the year.

The new registration guidance is 37%. It seems conservative coming off the 60%, especially in light of some of the new program offering as well as the Navy.

We’re still fairly seasonable. The third quarter traditionally a weaker quarter for us and especially the civilian population that we rely on more seems to be a little bit more traditional in signing up for classes in the fall in the first part of the year and we’re comping on some really good quarters last year. Our long-term goal is to try to grow this business 40% top line and to do that we need new student growth to be in the 34 to 37% range and that’s what we’re trying to do as a management team. That’s our long-term strategy. It’ll remain to be seen whether the second quarter growth spurt was an anomaly or whether something that can be sustained, but our goal, is there’s nothing wrong with growing a company 40% a year, that’s what we’re trying to do.

The other thing I would add to that too, Jerry, is that some of you know that the TA program maxes out reimbursement at six classes a year and while there’s only a small party of our military students who take six classes or more a year, the month of September typically are students who take the most classes have actually maxed out and won’t sign up and register. So we can actually see some good wind in July and August and then we can sometimes see slack in September, because they have to wait til October for the new fiscal year to re-register for a class.

Our next question is from Corey Greendale – First Analysis Securities. Corey Greendale – First Analysis Securities: First want to ask you about the trends in revenue per student. You talked about the effect of the greater labs this quarter. It looks like the guidance for next quarter suggests that revenue growth will be back to above enrollment growth or course registration growth. So what’s offsetting the lab growth to cause that?

A lot of it’s just timing. We publish a balance sheet now. So the way you can normalize is to look at the deferred revenue liability. You have to factor that in, because we recognize revenue over the 8 or 16 weeks that the students are taking classes. So for instance, is June happens to be a really good enrollment month, we don’t recognize all that revenue in the second quarter. A lot of it is going to the third quarter and vice versa. So you really have to add in the change in deferred revenue to your estimated revenue from registrations to try to normalize that if you’re looking at one quarter versus another. Corey Greendale – First Analysis Securities: From what you know right now, you still think 12% is kind of the long run right percent to model for sales and promotion spending?

We do, and of course that’s a big increase in marketing expense dollars from one year to the next, about 12% of revenue is what we think we can sustain our growth with that kind of spend. Corey Greendale – First Analysis Securities: The masters, the 200 students, are those localized in a couple of districts that you particularly visited and built the relationship with or are those people who managed to find your programs on their own?

They actually managed to find the programs on their own. In fact, the gentleman that I mentioned who was quoted in San Francisco newspapers, the teacher in New Jersey who found our program in administration and supervision just by surfing the net, that was one of the two programs we had open. Corey Greendale – First Analysis Securities: A statement which said we expected a change of controllable occur in the near future as a result of future transactions in which we are involved or as a result of actions by ABS. Is there any commentary you can put around that or elaborate?

I think we said at one of our previous investor meetings or our last earnings release, prior to going public, we never saw acquisition opportunities and then since we’ve gone public it seems like some of your brother on the investment banking side and everybody else sends us a couple deals a week. So opportunities pass by our desk that never passed by our desk before we had public currency. We always said that I think by the end of 2010 that ABS capital had funds that had to be liquidated and so we did expect them as our primary and largest investor, that they would be liquidating their position over time. We have no control over that. So all we simply did was just point out the fact that since they’re just under 26%, that if enough executives exercised stock options or any other transaction might be done without them doing anything that they could potentially go below 25%. Corey Greendale – First Analysis Securities: The last question, on acquisitions, should we expect to do an acquisition that it would likely be another online post secondary platform or could you go outside that?

If we were to do one, I would prefer to say online is our environment. I like staying close to what we know best.

Our next question comes from Brandon Dobell – William, Blair & Company. Brandon Dobell – William, Blair & Company: Couple of follow-ups with the revenue per student. I just want to make sure I understand the assumptions that you guys are building into I think about the back half of the year. Anything in particular with the impact of either kind of starts, timing, during the quarter compared to where we were last year or the growth number of labs. Is that from a particular demographic in the student base you’re seeing? Is it FSA students or is it education students?

I think the lab courses are actually coming more from the civilian students who are coming through FSA. Our average military student comes to us with transcripts from between four and five colleges and in many cases they’ve gotten those courses out of the way. Brandon Dobell – William, Blair & Company: Okay. So fair to assume that as that civilian population grows, it’s at least in the near term a bit of a drag on the revenue per students. You’re seeing outsize growth from that part of the population until you see offsetting trend from graduate school enrollees?

I think that’s probably fair. Brandon Dobell – William, Blair & Company: as you look out the two to four quarters or so from a technology build perspective, anything that we should be aware that you guys are planning on doing?

I would say that, you know, we have a homegrown system for our backend, which we call pad and that process has been pretty good and quite frankly when we had the little bit of a hiccup with FSA was only because we grew so doggone fast that we exceeded where we had originally planned it, but we typically had very good success at our upgrades to pad. We will be doing something that internally we call Dr. Pad. So assuming that we get approval for our PhD programs, PhD students have a different tracking mechanism, a different billing mechanism. A lot of different things have to happen with PhD students to administer them through the program. So will be launching a new version of pad for Dr. Pad, but it will not impact non-PhD students. So as far as how it would impact the bulk of our 36,000 students, that’s not a big deal and we don’t anticipate starting PhD students til at the earliest September of ’09, assuming we get approval. So but we will be spending about a million dollars on Dr. Pad. Brandon Dobell – William, Blair & Company: Somewhat related to that I guess as you look at the programs you have now, especially as you move into the education space and other spaces that require some sort of in-class time from the students. How you expect some programs in those areas to play up in the next couple of years.

We’re not planning on doing any classroom instruction. There is like a teaching internship component of the licensing. We have worked out agreements and similarly we do now. We work out agreements to have exams for students too. We’re used to dealing in an environment where we’re hiring agents or working with agents to monitor student testing and we have worked out a system for helping students get internships and monitoring their progress and internships, but all of our instruction will still be taken place online. Brandon Dobell – William, Blair & Company: Harry, some update on headcount. Teacher counts or infrastructure counts, just trying to get an idea.

We’re able to find all the people that we need. I think we give some information in the K. I’m not sure that we have actual employee information by department in the queue, which I know we don’t. I think we do update that information every year. You can see from our G&A cost, our instructional cost, that our personnel cost, we’re getting some scalability there. We’re so far finding adequate personnel, finding adequate teachers has not been an issue. We still have hundreds if not a thousand teachers on the waiting list who want to teach with us and actually as we get more diverse, we really feel we’re one of the very few true online universities. We have I think 73 programs now online, degree and certificate programs. Not many schools have that diversity of programs and because of that diversity, we’re attracting a lot of people who wouldn’t ordinarily I don’t think go to work for an online school that only had four or five programs. It seems the larger we get and the more popular we get and the more people find out about us, the more we attract people to us.

Our next question is from James Maher – Bank Panmeir. James Maher – Bank Panmeir: Maybe if you could elaborate a bit on instructional costs and how you were able to get the margin gains. Was that simply leverage from higher enrollment or were you able to find some additional efficiencies?

I think both. I really think that last year was such a dynamic environment that we struggled to actually scheduling classes properly to keep up with the demand. I think we got a much better handle on it this year and actually we’re doing a better job of getting enough classes out there and our full-time faculty we’re doing a better job of making sure that they’re efficiently utilized. So that’s been a real emphasis for our prohost and he’s done a very good job in helping to get better leverage of our faculty. At the same time, we’re offering some programs like in IT that’s been booming for us since we started it at the end of last year. We have a full-time faculty committed. Because that was a fledgling program last year, they were a little bit underutilized and we still have the full salary costs. We may see something similar in the fourth quarter, however, as we launch these education programs. We’re going to have more faculty capability than we probably have students for the first quarter or two. So you actually may see that instructional costs and services go the other way just a tad in the third and fourth quarter, but we certainly think you’ll see the same thing happen with that program next year. As we build our programs, we really do get more efficient and utilize the faculty better. Of course by the fall of 2009, we hope to roll out PhD programs and you’ll see the same thing there. We will have to have a really high quality, full-time faculty committed to the program, but for the first few quarters we’ll have enough students to get good margins, but then we’ll see it as the program builds. James Maher – Bank Panmeir: In terms of referral rate, it seems like just with the growth that you’re experiencing that even having delayed the spending on the new education programs, the referral rate has to still be quite strong in order to be achieving especially the number of new students starts. Can you elaborate?

Our referral rate continues to be strong. I don’t have the number for the quarter in front of me, but typically that number has ranged between 56 and 54% in the six years that I’ve been with the company and based upon our SSQ payout for the second quarter I don’t recall it going down. It’s different between graduate and undergraduate and civilian and military. Probably the highest referral rate we have is in the military undergraduate and the lowest would be in the civilian graduate, because that’s a newer market for us. James Maher – Bank Panmeir: Therefore would it be reasonable to expect in the relatively near term as pickup in the Navy program begins simultaneously you’re picking up additional students in the education program that those might be relatively offsetting and the referral rate would be roughly equivalent?

It might net out. In other words, the Navy business because of word of mouth might net out against the education business, which until we get enough students in the program to start the referrals, we’re going to have to spend more money, which is why we project spending more money in the third and fourth quarters. Mathematically, trying to model that, it’s sort of a crap shoot, so which is why we said let’s plan on increase marketing spend in the third and fourth quarter.

Our next question is from Jerry Herman - Stifel Nicolaus.

Just a quick follow-up, guys. Is there any new news on the provisional status that was good through June of ’08?

We got off the provisional status at the end of June and I actually thought I made that announcement in a conference or on a call, but we didn’t issue a press release. We had some public announcement. We now have, and you can see in the queue, our status goes through June of 2012.

Could you talk about the productivity distribution of the program offering. Harry, you mentioned the 73. It was in a recent press release. Can you give us any indication sort of what percent of revenue comes from what percent of those programs?

I don’t know that we know that exactly. When we did our road show, we talked about the long tail and talked about how there were five degree programs with bachelors and masters. So it was really kind of our 73 degrees where we had just under 50% of our students in those programs, but at the same time we have 63 more degree programs and then we have certificates on top of that that has the other half of our revenues and that’s kind of how it’s been working, but we think with the theory of the long tail that as more civilians get to know our brand and see the fact that we have liberal arts degrees online, which a lot of schools don’t have, we think they’ll find them pretty attractive. We really don’t release that type of information by program, Jerry.

At this time, there are no questions.

Thank you. Since there’s no further questions, we will now conclude the conference call today. Thank you for your interest in American Public Education and have a great evening.