Good morning and welcome to American Public Education’s Second Quarter 2012 Earnings Conference Call. Presentation materials for today’s call are available in the webcast section of our Investor Relations website and are included as an exhibit to our current report on Form 8-K filed earlier today. 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 2012 and full-year 2012 as well as other statements regarding expected future growth. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors including the risk factors described in the Risk Factors section and elsewhere in the Company’s annual report on Form 10-K, filed with the SEC. The Company’s quarterly reports 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, even if new information becomes available or other events occur in the future. This morning it's my pleasure to introduce Dr. Wallace Boston, our President and CEO, and Harry Wilkins, our Executive Vice President and Chief Financial Officer. Now at this time, I will turn the call over to Dr. Boston.

Thank you, Chris. Good morning, everyone. In today’s conference call, I will review the results of our second quarter operations, highlight recent academic successes, and discuss our current business strategy. Then Harry Wilkins, our Chief Financial Officer, will discuss our financial results in more detail and provide additional perspective on our outlook for the third quarter of 2012. For the three months ended June 30, 2012, net course registrations increased 18% in the second quarter of 2012 compared to the prior-year period, while course registrations by new students increased 4% year-over-year. Net course registrations by students using Department of Defense tuition assistance increased 6% year-over-year and net course registrations by students using veterans benefits or VA, increased 97% year-over-year. AMU’s continued success at expanding its presence among active duty and veteran communities is significant in light of the already sizable military population at AMU and the potential future budgetary constraints facing the U.S. military. That being said, based on current information we believe TA will likely be funded by all branches of the services for the remainder of the current DoD fiscal year and TA reductions next year, the fiscal year although possible, have not been announced. The company is also not aware of any significant proposals to modify veterans’ G.I. Bill benefits at this time. The 21 members of our military outreach team worked tirelessly to serve military students and build relationships with the military community. While registration growth in the military can be volatile at times, our relationship oriented approach has been highly effective over the long run and it is widely regarded as a more proper way to connect with members of the military. Recently three AMU graduates were featured on the cover of Military Times EDGE magazine’s July issue featuring the annual ranking of the most…

Thanks, Wally. Turning to Slide 6, the second quarter 2012 results, American Public Education second quarter financial results include a 23% increase in revenues to $74.6 million compared to the second quarter of 2011. The revenue increase was primarily driven by growth in net course registrations from civilian, military and veteran students. Since identifying and modifying the specific fraud prevention measure that may have deterred certain perspective students from enrolling, we continue to see improvement in net course registration trends, particularly in the month most impacted by this issue. We believe that the Title IV fraud and abuse prevention measures currently in place are generally effective and no longer appear to be deterring a significant number of students who legitimately seek a degree from enrolling. Operating income for the second quarter 2012, increased to approximately $15 million. General and administrative expenses increased as a percentage of revenue to 21.6% from a 17.9% in the prior-year period. The increase is largely due to an increase in bad debt expense, as well as to the cost of information technology enhancements in Title IV processing automation. The Company believes that bad debt was negatively impacted by the increase in course takers during the prior-year period and the bad debt expense is higher than it would have been otherwise absent this factor. In addition, bad debt was impacted by approximately $250,000 as a result of resolution of the Department of Education program review, which resulted in a receivable, which the Company does not expect to fully collect from its students. Selling and promotional expense as a percentage of revenue increased to 19.5% of revenue compared to 16.0% in the prior period. We believe the increase is related to a slightly lower than expected revenue growth rate, which may have resulted from the measures aimed…

[Operator Instructions] Your first question comes from the line of James Samford with Citigroup.

Great. Just a quick question and I apologize; I was jumping between calls here. Your guidance for next quarter implies some significant margin declines. I was wondering where the margin deleverage is expected to come from? Is it primarily sales and marketing? I assume, but just want you to comment on that please.

Yes, we continue as we did in the second quarter to expect that we’re going to experience some bad debt expense related to those abuse students we had in the second half of last year and the first part of this year as they move through the system. We also are increasing our marketing spend a bit as we normally do in the third quarter for -- to make sure we have a good September enrollment. And of course remember last year we had the tax benefit that we’re not getting this year of that $0.10 earnings per share. But overall, our IT’s -- we’re also spending little bit more on -- money on IT improvements and our financial aid automation process. So those factors are really what’s contributing to the increase in G&A. We expect to get some continued efficiencies on the instructional costs and services line item. But we’re spending a little bit more in selling and promotion and our G&A expenses were higher than it were last year.

And if I could just a quick follow-up, when should we expect maybe some of the impact of the tech fee to kick in at least to be material enough to move that TPA [ph] needle?

Mostly Q4, that’s going to be a Q4 event.

Your next question comes from the line of Peter Appert with Piper Jaffray.

Harry, can you remind me what the tech -- the magnitude of the tech fee and just talk about any other pricing adjustments you’ve made or you’re perhaps anticipating?

Yes, we don’t plan to raise tuition at all, but we’re going for the first time have a technology fee of $50 per class where -- the fees will be waived for active duty military and veterans. So it will mostly impact civilian students. We have a couple of corporate contracts that don’t allow for us to charge the fee, but for the most part it equates to about a 6% increase for about 40% of our students.

Okay. So it’s grad and undergrad courses, right?

Yes. That’s correct.

Okay. And then Harry you mentioned international expansion, you haven’t talked I don’t think too much about that in the past. Can you expand on what you’re doing there and how you scale the -- or how you see the opportunity?

Yes. What we have -- currently about 1% or 2% of our students, international students anyway, but we really do see an opportunity there because of our price point and because of the fact that we’re online, we do think there is a growing market, international market for U.S. accredited degree programs online. We’re starting to partner with some companies that could help us get access to those students, we will probably get more clarity on that in the third quarter call because we’re just starting some initiatives this fall, but we do think that’s a great market for us.

Yes, this is Wally. We, I guess, approximately 1.5 years ago we started presenting at international conferences, you may recall that last year our faculty and staff presented papers at over 400 different conferences and we initiated some contacts with schools that were interested in going online or expanding their online program and in that 18-month period, we’ve been sharing information back and forth and as you might imagine particularly its one of the concepts for doing international would be something like a dual degree program, traditional institutions whether they’re in the U.S. or elsewhere are rather slow to move, but nonetheless the number of opportunities that we’ve seen from either traditional universities or from organizations -- for-profit organizations overseas that like our price point are getting to the point where we’re hoping we will be able to announce some of those initiatives in the next couple of quarters.

Wally, do you have a view of what portion of enrollments that could be in 1 year or 2, and are there any cost implications associated with rolling this out?

I will answer the second question first. I don’t really think there is any significant cost implications rather than -- if we actually formalize agreements in other countries, so there will be some legal costs that we haven’t incurred because we typically don’t practice law in other countries. But as far as the enrollment projections, I think it’s a little too soon to tell as you might imagine there are some large institutions in other countries just because of the way the government scale this enterprises. But -- and while our future partners have indicated large numbers I would prefer not to make any assumptions based on their projections and just wait till we’re able to announce the deal and then we probably cautiously under project any number of student enrollments until we really get some traction 1 year or so down the road.

Yes, we can really feel it’s in the best interest of our Company, though to try to become less dependent on federal sources of financing for our students and that’s a good way to do that is to go international.

Your next question comes from the line of Patrick Elgrably with Credit Suisse.

I was hoping you could share a little more color on the trajectory of prospective new student registrations during the third quarter and specifically if you’re anticipating a significant variance in any particular month or will each of those look about the same?

Yes, the one thing that has really gotten different in the last couple of years is we're seeing three large fluctuations from one month to a next and not always -- can we explained that, as it seems to be fairly random, but -- and its true with those military and with civilian students, but, it’s -- so it makes a little bit more difficult to plan out and what our exact enrollment numbers are going to be, but obviously we’re comfortable with the guidance that we’ve given and we feel that that guidance implies, based on the percentage of students that we think were not legitimate students last year, who were really just signing up to get Title IV funds access. We really feel that, we’re growing our good student base in the mid-teens.

And then, just quick one on accreditation. I know you’re in good standing with the HLC. I am wondering though, if you’ve received any feedback from them in recent weeks in the wake of one of your peers setback?

Actually I get all the official mailings and I think the HLC’s position about that one particular circumstance is that it’s a -- it's an issue between it and that institutions they didn’t send out a general announcement to the membership about it at all, and they certainly didn’t send anything out to other for-profits, I think. The HLC’s criteria -- or the HLC’s criteria, we follow them every day and we were reaccredited in 2011 for 10 years as you’re aware of, so we take great pride in not only just meeting those criteria but having faculty and staff who volunteered to be evaluators to go on visits so that they deepen our understanding of the criteria.

Your next question comes from the line of Gary Bisbee with Barclays.

The third quarter guidance seems to imply a pretty significant or at least fairly large pickup in student persistence in the next quarter. Is, I guess, what’s -- why that or are you seeing that just having flushed out a lot of the stipend chasers you’re now getting back to more normalized level or?

Gary, it might be the latter. But, I’d like to think that my very lengthy detail about all the initiatives that we’re participating in, most of which relate to student persistence, is picking up. I’ve always believed that we would be able to spend in the long run let’s mark money and marketing if we improved our persistence and there is quite a bit of or I should say there is academic research that identifies students swirling with adult students particularly in the online area there is actually very little data that’s published. We’re doing our bit to try to collaborate with other institutions the SOC [ph] white paper project we collaborated with primarily non-profits UMUC and a number of community colleges on that project. The swirling is everybody’s problem in online because basically you don’t have to signal what your true home institution is, but you are pretty free to go take courses at this institution, or that institution, transfer them back and obviously if we think we have a student for the life and we only get him for 1 or 2 classes and it’s not an unsatisfactory academic result, it's just that they prefer to chose another institution as their home institution. What we ultimately need to do is to find ways to convince them to make us their home institution. So, I am proud of what we’re doing with the faculty and staff on retention initiatives and hope that you’ll see trends like this in quarters going forward.

Okay, great. And then, I appreciate the commentary about the impact of the stipend chasers 1 year ago September. Can you give us any sense how that was in the December quarter last year just as we think through modeling in that quarter too, is that a reasonable range to expect, was also impacting Q4?

Yes, we -- in looking at our analysis, we looked to Q4 as well as we think that 25% to 35% is a good range.

Okay. And then just one last one if I could, the eBook initiative are you still on track to be launching that and getting about $4 million benefit in the second half of the year?

Yes, we launched it and it will correlate pretty highly to our revenues and if you look at our revenues the last 4 months of the 6 months period, are where most of our registrations are concentrated. So that will -- it will probably be back-end loaded towards those 4 months.

Your next question comes from the line of Jeff Meuler with Baird.

I just want to ask a question, it sounds like you guys continue to fine tune some of the screening measures. Is this, kind of taking out measures that weren’t effective or is it even though your process is effective at this point, you just continue to fine tune them to kind of keep it a maybe like a moving target so that the rings couldn’t I guess game the system?

Well, I think the important, one interesting thing is, we’re one of the few schools that actually went out and talked about this openly. I was on a panel at a conference last Thursday and the provost at a significant non-profit institution told me that his institution had the same rings from the same state exhibiting the same trades and basically they never published anything about it, never told anybody. But they did cooperate with the OIG like we did and the sad part about that is when you don’t talk about it openly is that you don’t make the other schools aware so these folks go from one school to the other school. But, what I thought was very telling about this individual, he said, it’s really organized crime. It’s not a few individuals, but it’s a concerted crime ring and so we prefer not to talk about specific tactics unless the specific tactics like last quarter may backfire on us. But we’re constantly moving our tactics because we believe that any sign of weakness or any lowering of the guard that they will be back on us because of our low tuition price point relative to the amount of money they can borrow and so that’s also one of the reasons why we’re participating in the experimental sites projects with FSA, we’re hoping that that will discourage people as well.

Makes sense. And then on the technology fee, have you guys communicated it to the students at this point and presumably you’ve started to register some students for the September period, I would think. Is there any pushback there if you have communicated it?

Yes, I mean, I wouldn’t say that we haven’t gotten -- received any complaints, but the pushback is fairly minimal. I have actually only received one letter addressed to me as a complaint and so for the most part the students seem to be accepting it now. I would tell you that, you mentioned September. We actually -- it’s for students who register for courses on September 1 or later. So most of the students know that if they register for their September classes in August they won’t be charged the fee for September. So it’s based on the date you register and that’s a computer programming issue, but at the same time incentivize people to register for classes earlier.

Okay. And then just finally there was a comment about you guys thinking the stocks attractive at current prices you obviously have a ton of cash on your balance sheet, but you also were talking about some newer initiatives that you guys were exploring. Any thoughts on accelerating the pace of the buyback or how you’re thinking about the cash balance at this point?

I think we’re -- the Board is satisfied with the - they approved the $20 million buyback as of June 30, we still had $15.5 million left in that and I think they’re satisfied at this point because that’s a fair way to spend that cash. Now, we’ll make decisions going forward once you spend that money and whether we’ll continue to do it or not depending on our cash flow and how the stock price is doing.

Yes, by the way, though I will say that, based on the daily trading, the volume average for a period of 30 days or whatever. We haven’t been able to buy in volumes on most days because of a limitation that we have so, otherwise I think we would -- at these prices we would have been able to purchase more.

Your next question comes from the line of Jeff Volshteyn with JP Morgan.

Could you expand on your comments related to sort of broader conversations on TA and GI bill funding going forward?

Well, the DoD is very close-lipped. I just came back from attending the DoD Worldwide Conference in Las Vegas which they offer every 3 years. There were no statements whatsoever by any of the officials who spoke about where TA is heading. We continue to hear rumors none of which are credible about all different types of scenarios, but we believe at this point that what they had said last February about looking at this in relationship to all of the benefits that a soldier gets and that that process would take them through this fiscal year, so we don’t see it change by the way the fiscal year ends in September for them. And I think my personal belief is that the thing that might have the greatest influence is the sequestration process that if there is no compromising Congress on that, that will actually have deeper budget ramifications for anyone who deals with the Department of Defense, and so at this point I am -- we will provide it an 8-K if and when we get notice of a change, but we feel pretty good about what we’re doing and obviously with where it began as being the largest institution serving active duty with tuition assistance, we’re still growing.

If sequestration happens, do you feel that TA and VA funding will be cut sort of the same levels?

Well, my understanding of sequestration is that, you have to do down every line item in the budget and cut it a certain percentage. But, I might be wrong. I haven’t tried to dive into that in any great detail. But, if it's, at 10% or 20% cut, you cut that budget then you’ve got to find a way to do it. So, is whether -- some of the rumors that were out there before were that it would go back to 75%/25%, there were other rumors that it might only apply to undergrads and not for grad students. So, I think we just have to wait, we haven’t gotten any clear guidance and we think it’s important to our investors and we will, who reminds me that there is the top up and there have been no rumors that the VA or the GI bill is going to be impacted. So, we’ll just continue to be prepared for, if and when any changes are made or announced.

Okay. If I could squeeze in just one more on graduates. What are the expecting graduating classes over the next couple of quarters?

The expected graduating what?

Number of graduates over next 2 quarter?

It continues to increase. We don’t actually have a projection. We didn’t think about getting that for you guys, so we can try to find some numbers, but it’s a number that continues to grow. If I were ever going to make an estimate I would say we are going to graduate somewhere between 7,000 and 8,000 people this year.

Your next question comes from the line of Trace Urdan with Wells Fargo Securities.

Harry, I wonder if I could ask you to just walk us through one more time the economics that you expect from the ePress Initiative. How much you’re currently spending on books. How much you’re investing in this initiative and how long until we see the benefits impacting your income statement?

Yes, well our book cost is again for undergraduate students. We eat the books for our undergraduate students, we pay for the books ourselves. So, it has been running between $60 and $65 per class, per books, but we can use ePress Initiatives and maybe even open source material to get that cost lower. We think we can get it down to maybe an average of $35 per class. So, that’s the goal and we’re trying to do that over the next -- again that’s undergraduate classes only. We’re trying to do that for our top 25 classes this year and then we’re going to continue to grow. We have to teach 2000 courses, so it will be a while before we roll it out university wide. But our top 25 courses which represent about 40% of our registrations we’ll try and implement that over the next 12 months. So, we had said previously that we thought the impact of that would be about $8 million on an annualized basis. I think we’re sticking by that number, but it’s not going to be rolled out exactly linearly; it will be a little bit more or less depending on which course will be rolled out when. But, I think that’s a rough guide, I think you can expect going forward that we should see about $8 million of books saving.

That’s just for the top 25 classes or that’s when you get to the whole thing?

That’s what we think we’ll save over the next 12 months. Our goal was to do the top 25 classes starting in July.

Got it. And is there a pilot aspect to this, are your testing it or you’re committed to getting this done eventually everywhere?

We’re committed. Now what will happen is that, we’ll have the law of diminishing returns, we have budgeted about $500,000 for the cost of people to write these textbooks and to edit them and to get them published. So, we’re still on track with that number, but when we get to lower volume courses there may not be the ROI right here on the textbooks as there currently is for the higher volume courses, so we’ll just play it by year. But the goal is to not settle for an $8 million reduction ultimately we would like to be able to eliminate as much as the textbook cost without eliminating the benefit of providing textbooks to our undergrad students.

Okay, thank you for that remedial course on that subject, I appreciate it. While you spend a lot of time at the beginning talking about the various initiatives that you’re part of that are represented in effort to, it sort of measures student outcomes, prove student outcomes in the online sector. What in your opinion, where are we in the evolution of some kind of a common standard. Is it realistic to expect that we’ll ever get to a common standard? What inning are we in, in terms of people accepting measures of outcomes for online education would you say?

Well, where we need to be, Trace, is we need to have institutions who are willing to talk about it and collaborate and publish because, I find is shocking if there was anyone on this call in the investor field who doesn’t recognize that IPEDS only represents 15% to 20% of the actual college students studying today in America. It’s so antiquated because it tracks only the first time, full-time freshmen, but that the problem has been that whether it’s a reluctance to share the data or a lack of understanding from administrators about some of the academic research studies that tracks swirling adult students and track their persistence rate. The best thing that I’ve seen and the reason why we put the link here, this is SOC [ph] white paper. Now granted that the recommendations and the data there apply to military and veterans. But, I would tell you that they have identified the issue, such as people attending multiple institutions, also they have identified the issues like competency based construction or receiving credits for that, and the member schools that were part of that white paper and tend to begin publishing data along the lines of those recommendations. And what I think is encouraging for me is that the SOC [ph] white paper group in addition to running this by the voluntary education heads with all the branches of the military, they also ran it by the big six higher education groups based in DC, and did not get any pushback that this wasn’t a reasonable start for looking at metrics for online student completion. So, if we get a few people publishing these numbers, I think it’s a good start and I don’t know that I agreed with 100% of everything in SOC [ph] white paper, but I am - and the one thing that I specifically didn’t agree with, they recommended stopping tracking of student at 200% of normal completion time which would be approximately 8 years for an undergrad. We give undergrads 10 years to graduate. So, if the recommendation were up to me, I’d keep tracking for 10 years, but we’ll see.

And I just want a last question on this, how closely is the Department of Education following some of these initiatives or how wanted [ph] are they?

Well, I think they’re following it. I think they also have a dilemma coming to their defense that, it costs a lot to gear up going one way or the other and that’s why the SOC [ph] white paper group decided to take a stab at this and be out in front of it, and the department I think is saying why make wholesale changes that in 2013 we’re going to have another Reauthorization Act and some of these metrics may be addressed in the Reauthorization Act. You clearly can't have people who are on the hill whether they’re staffers or elected officials who all graduated from the lead institutions like most of the people on this call trying to model standards and graduation rates that reflect a totally different population than the schools that they went to.

Yes, just a little esoteric, I appreciate it, but are you - do you expect that when we get to higher education reauthorization there will be a better informed view on measuring outcomes, is there a sense that we’re headed in that direction?

I think so, even the department has talked about the fact that IPEDS needs to change and it needs to take into account these non-traditional students. So, the department is very well aware of it. What they haven’t done and I think they intend to have some open hearings to discuss this sort of thing and ideally if more and more institutions talk about the topic and publish white papers and even publish data will get the department on a track that it might not have gotten on.

Your next question comes from the line of Suzi Stein with Morgan Stanley.

This is Keith Paxton on for Suzi. I just wanted to follow-up on some of your TA comments earlier. Have you guys heard anything from any of the individual branches? Is there any chance that they could act before the Department of Defense does something?

I think after the Marine Corps debacle in February, I don’t think that any branch is going to act on its own. From time-to-time by the way it is typical at the end of the fiscal year that you might have a base that runs out of TA money. I am not aware of any bases that has indicated that to us yet, but that’s once in a while that happens and usually they quickly adjust and allocate funds from a base that has more money. But, as far as the change goes, I think they were pretty embarrassed when the Marine Corp went out and, if you don’t recall the Marines had put a temporary person in charge of their voluntary education program because the long-term person had retired after 30 years and this person really didn’t know what they were doing and they launched prematurely with some bad metrics. So, I think they’ll be very well-aligned and everybody will be in tune.

And just, have you guys hired any more fulltime faculty after I think fourth quarter last year you did or, if you haven’t do you see any need for that as the registrations keep growing?

Yes I think we did, we just gave our good numbers. We’re approximate 450 fulltime faculty now and those were all new hires and starting in the first quarter, but the additional ones were new hires. I think we had 305 or somewhere in the 305 category is what we had last year. So, we ramped it up -- we'd rather do it in advance and I think we talked about some of our margins being impacted in the first quarter, because we had to get people all have signed out and scheduled out and that takes a while, but we would rather do our boost at once from a quality perspective than have issues catching up later in the year.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

I know it’s late, I’ll be quick. Harry, in your comments about bad debt expense, you said it might be a little bit higher until you start to see the abuse, that the students that -- with the fraud rings run through the system. How long do you think that will take, when we start to see bad debt come down again?

I would expect it to start come down in the fourth quarter.

And is there any reason that it shouldn’t go back to levels where it was before?

Well yes maybe, we’re growing our civilian population. We have said all along that this time last year our dad debt was like 1% or something, now it’s like 5%. We have said all along, if we had 90% civilians we’d have 5% bad debt. The bad debt usually comes from civilian students who don’t succeed and you have to return Title IV funds and then you’ll have to try to collect them from the students. So the military we don’t have any bad debt. The veterans we don’t have any bad debt. So, as we get more civilian our bad debt will go up. I would think that right now it should be about 3% based on the percentage of civilians of our population, but its 5% because of this flash mob of abuse students we had last year. So, generally the bad debt trail, the students departure by that nine month, we try to collect it for six to nine months and then we write it off.

And then just a little bit more color on the guidance for the current quarter. What share count, tax rate and depreciation and amortization expense are you using to get to your EPS guidance?

For the share count, I think the fully diluted share count was like $18.1 million and the tax rate should be the same.

And I am sorry, depreciation and amortization?

Yeah, I think that it should be about the same as the second quarter.

And then just one more. What capital expense guidance should we be building in for the rest of the year?

Yeah, we haven’t given full-year guidance on any line items, I don’t think we’re going to start now, but we really should see less CapEx. The building that we’re building is an $18 million building. We have spent $16 million of that already. So, it opens, we’re going to move in, this September the 19th, so we only have about $2 million more to spend on that building after June 30, and then we really shouldn’t have any large building expenditures for the rest of the year. So, the majority of our CapEx so far this year has been for that building. We still have some IT CapEx, the maintenance CapEx and we still provide every time we hire somebody we give them about $2,000 worth of equipment. But our CapEx expense should come down maybe to the levels similar to where they were last year.

Your next question comes from the line of Corey Greendale with First Analysis.

This is David Warner for Corey. I was wondering with IC&S being down about $1.6 million sequentially, could you speak to what was driving that for the quarter, and additionally have you quantified the potential impact of the Title IV processing automation initiative and sort of what the timing would be around those savings if any?

Yes, the savings in the ICS are mostly from -- a little bit from our new textbook initiative. We’re starting to see some savings from that, and then better utilization of our factory. As well I said we hired about 150 new fulltime faculty on January -- to start in January but we didn’t actually, even though we were paying them their salary, we didn’t get them all scheduled to start in January. So, they started to -- now they’re fully scheduled. So, we have better utilization of our faculty is really where the savings are coming from for the ICS cost. Now, as far as the -- I don’t really have in front of me the dollar amount we spent on our financial aid automization process, but we’re going to continue to spend that. That will eventually result in savings if and when we decide to move away from the way we’re currently processing financial aid, which should result about $200,000 a month of savings once its fully implemented.

Okay. Is that in G&A or is that in the ICS?

Yes, some of that is in CapEx and some of it is in G&A.

Your next question comes from the line of Adrienne Colby with Deutsche Bank.

I was wondering if there is any way to quantify what percent of new students were screened out due to financial aid fraud in this quarter maybe relative to what you saw last quarter?

We didn’t actually look at that, but we do have -- as you might imagine we have special boxes that we throw those types of students into and make sure that we treat them according to the rules and regulations of FSA but also make sure that they meet what we’re looking for, but the current quarter is not complete. So, we don’t -- we’re still registering students for September and so we really couldn’t give you an estimate on that.

Do you have any sense of its going down or if - people are aware that you’re sort of raising some of the standards or at least some of the moves to block students if that’s something that affecting the level of fraudulent students that are trying to then register or is it …

Yes, it’s absolutely going down. I think we were -- at one point we were throwing 1,000s a month into those special mailboxes to figure out how to treat them and its below 1,000, I don’t know the exact number but it’s not in the 1,000s per month like it was before.

Great, that’s helpful. And if could just ask one more. You had commented in your guidance that you are expecting to see instructional cost and services to be down a little bit in the third quarter, and I’m just wondering if you could comment on that, in relation to seasonality I know in the past you’ve commented that some of the full-time faculty tend to take more time off in the summer and that can sometimes push up the hiring of adjuncts and put some pressure on the ICS line. So, just wondering what you’re sort of seeing and expecting for the third quarter?

Yes, we really should start to see some of our -- yes that’s a very good point actually that we didn’t bring up, and you’re right, that does happen. Because when our faculty who are salaried take off and most of them do take off, we give them off one month a year, we have to fill in with adjuncts, who we have to pay more, so actually doubling up the faculty cost. But, we’re seeing the textbook, we were anticipating that our textbook savings are going to start to hit in the third quarter in a good number, so that will offset that. So, we expect to continue to see improvement in ICS. We’re also getting good leverage with our Student Services Department, we have made a lot of initiatives there to automate TCE processing through scanning and through better technology that’s giving us some operating efficiencies there. TCE is transcript evaluation.

And your next question comes from the line of Jerry Herman with Stifel.

Roll with pronunciation. A question guys with regard to selling and promotion. In particular Harry, I appreciate your comments about what it looked like through the end of the year, but can you give us color on the long-term run rate there and the components within, i.e. advertising and advising what those trends look like? And then just to complicate the question, the S&P per new registration was up a lot this quarter and I am wondering if we should think about that as the new run rate and just the general question does it get more expensive to acquire students?

Well, there’s a lot of questions in there Jerry, I’ll try and answer what I think is the most important one. We had said that, we don’t intend to have our sales and promotion cost above 20% and that to me a very fine line, will we -- maybe hit 20.4% or something in a particular quarter because it’s tough to exactly control. But, I think the trend in higher education in general is lower prices. And you see that with some of the companies in the sector who were discounting their tuition. So from my perspective our insistence for our business model for the long-term strategy to hold the line at 20% that’s what we’re going to do, and we will have to find creative ways, we will have to find ways to continue to build the relationships to generate the referrals. But, everyone on my management team is committed to that. We have got a strategic planning retreat with our Board soon that we’ll talk about that but, I think you have a bad business model if you have expenses, sales and promotion cost in this environment because as I foresee there’ll be continued pressure on higher priced institutions to drop their prices or to fund scholarships and you can't do that if you’re serving adults and have a lot of student churn just by the nature of serving adults. I would love to have the student population that Harvard has, but that’s not my student population. So, we have to find ways to attract them at a lower cost. So, when you look at the breakout I would like to think that while we still may -- we may shift our -- right now we’re spending for example a lot of money this year on TV and radio advertising to build brand to enhance our interactive marketing which we do and have done ourselves, but it also enhances the ability of our people who are outgoing outreach whether its civilian outreach, corporate outreach, community college outreach because if you have a TV commercial going on in an area and you’re walking into a community college in North Carolina, they’ll know who you’re so, but over time we’ll lower those expenditures and we’ll probably put more money into people on the street who continue to help generate relationships and referrals.

Great. Just quick follow-up on the site program, the department site program and your ability to sort of monitor or cap loan activity. How expensive will that be and how impactful might that be for you guys?

Harry might have an estimate. But I would tell you, we signed up for those programs Jerry without even caring what it will cost us. I think it is so important to participate in those programs for a couple of reasons: one, to be able to, if you look at the whole FSA of abuses out there is because people have found out that the system allows them to borrow more money than what the tuition and fees are and they’re doing it and they have done it for a long time. It’s just now with this economy some professional ring leaders have figured out that scheme and they’re taking advantage of it, but I would much rather not have a student. My personal feeling is that institutions ought to be able to exercise professional judgment, well you can sort of do that but it’s very complicated if you’re a national university. If you’re a university that’s taking local students in a geographic area like New Jersey or Texas you can actually limit your cost to cost that you specifically identify. But when you’re a truly national institution like ours, you can't do that. So, this experimental project that lets us lower those loan amounts by up to $2,000, I think it’s a great way for us to say okay, are we going to lose the students over or are we going to basically limit ourselves to the best students which is what we want, the best students. The other program, the Experiment Five, I believe it is Harry allows us to vary the amount of disbursements, so we might be able to make our first disbursement only for tuition and then make the disbursement for the housing and other costs later. So once again, the abusers go away because we will find out that it will have to be participating in all the academics of the class and that’s not what they want to do if they’re part of an organized ring. So I don’t know what it’s going to cost us, Harry might be able to give you color on that. But from my perspective, these are two great experiments that we’re glad we got accepted in the program and we’re willing to do it regardless of the cost.

Yes, it’s not going to cost us anymore than we’re currently spending. When we keep talking about the Title IV automation project, that’s included in this, the ability to do multiple disbursements of uneven amounts is something that we couldn’t do under our old system that we’re automating to be able to do. So as Wally said, if you can limit that first disbursement to just tuition and books, it takes away the incentive for the abuse students, then if you make a subsequent disbursement after they complete - successfully complete a course, then it really - you’re not going to - the abuse is not be able to get the money. So that’s what we’re - one of the experiments we’re considering doing. That won't happen until July of next year, but we’re putting the systems in place now to implement that.

At this time, there are no further questions. I would now like to turn the call back to Mr. Chris Symanoskie.

That will conclude our conference call for today. We wish to thank all of our callers for their participation and interest in American Public Education. Thank you and have a great day.