Good day, ladies and gentlemen, and welcome to the First Quarter 2015 American Public Education, Inc. Earnings Conference Call. My name is Denise, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the conference over to Mr. Chris Symanoskie, Vice President of Investor Relations. Please proceed, sir.

Thank you, operator. Good evening, and welcome to American Public Education conference call to discuss financial and operating results for the first quarter of fiscal 2015. 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, see, could, estimate, expect, intend, may, should, will and would . These forward-looking statements include, without limitations, statements regarding expected growth, expected registration and enrollments, expected revenues, expected earnings and plans with respect to recent and future investments and partnerships. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various risk 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 and the company's other SEC filings. 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 evening, it's my pleasure to introduce Dr. Wallace Boston, our President and CEO; and Rick Sunderland, our Executive Vice President and Chief Financial Officer. Also available for questions today is Harry Wilkins, Executive Vice President, Chief Development Officer and CEO of Hondros College of Nursing. Now at this time, I'll turn over the call to Dr. Boston.

Thank you, Chris. Good evening, everyone. I will begin today's call with a brief commentary on the progress we are making with respect to improving student success and a summary of our recent operational results. Then our CFO, Rick Sunderland, will discuss our financial results and provide perspective on our outlook for the second quarter of 2015. In our last earnings call, we outlined several key initiatives that we believe will improve the average college readiness of our incoming students, further improve the success of current students and advance the online learning experience. We believe that realizing these goals will help stabilize the student population at APUS, improve the financial performance of our overall enterprise and further differentiate our programs from others in the long run. I am pleased to report that we have made good progress in implementing and preparing these initiatives. Since January 2015, we have continued to expand our pilot programs to improve student persistence, including an extensive course innovation project and the rollout of a new Learning Relationship Management, LRM system, we call ClearPath. We recently launched an initiative to enrich our top 40 high-enrollment courses by adding enhancements such as new rich media, simulations and other enhancements to increase the student engagement and increase the appeal of our courses. We plan to enhance approximately 1,100 of our remaining courses over the next 18 months. As discussed last quarter, students who used ClearPath completed the enrollment and Transfer Credit process at a higher rate, had lower course withdrawals and drops, exhibited a higher GPA in their initial courses and registered for subsequent classes earlier than those in the larger student population. As a result of these preliminary findings, which were based on self-selected sample, we opened ClearPath to all new APUS students in the first quarter…

Thank you, Wally. Going on to Slide 6. American Public Education's first quarter 2015 consolidated financial results include a 3.6% decline in revenue to $85.4 million compared to $88.6 million in the prior year period. The decrease in revenue was a result of a year-over-year decrease in net course registrations at APUS, partially offset by higher enrollment at Hondros College of Nursing. In the first quarter, our APEI segment revenue decreased to 4.7% to $77.5 million compared to $81.3 million in the prior year period. Hondros segment revenue increased to $8.0 million in the first quarter of 2015 compared to $7.2 million in the same period of 2014. On a consolidated basis, APEI costs and expenses decreased 1.1% to $71.0 million compared to $71.8 million in the prior year period. The decrease is primarily due to lower costs in our APEI segment resulting from lower net course registrations, lower advertising costs and lower bad debt expense. Changes in revenue period-over-period resulted in an operating margin decline in our APEI segment and improved operating margins at Hondros. Consolidated operating margins decreased to 16.8% in 2015 as compared to 18.9% in the prior year period. For the quarter, consolidated instructional costs and services as a percent of revenue increased slightly to 35.5% compared to 35.4% in the prior year period. The increase as a percent of revenue was due primarily to a decline in revenue in our APEI segment that was partially offset by lower instructional costs and services expenses. And the revenue mix change as Hondros has a higher cost as a percent of revenue due to its campus-based model. At APUS, the cost of course materials continued to decline year-over-year to approximately $23 per net course registration in the first quarter of 2015 compared to approximately $26 per net course…

[Operator Instructions] Our first question comes from Adrienne Colby with Deutsche Bank.

I was just hoping to delve a little bit more into your guidance for the second quarter new enrollment or new course registrations, rather. I'm just wondering if the step-down that you're seeing, if you can quantify how much of that is due to the environment versus the admission changes and the tuition increase that you've made.

I don't think we tried to differentiate between the two. The number is so large, Adrienne, that we have the benefit in this particular forecast of having done our first 2 months, both April and May, drops. So we know what the net course registrations are for those 2 months, and so we're simply forecasting the addition of June to April and May. So it's really an aggregate forecast rather than trying to break it apart.

Sure. Maybe to ask it a different way, do you feel that you're seeing changes in the overall level of competition? That's something that you've mentioned in prior quarters. Just wondering if you're seeing some changes to those headwinds that you've already flagged?

We certainly, in recruiting civilians, particularly through our Internet legion, both the cost of those leads as well as the -- the cost of the leads is up and the conversion rate is down. So there are a lot more people in the online arena. And certainly, we're seeing a lot more competition. I haven't seen that really change from quarter to quarter, but -- and if we gave those exact conversion rates, I don't think I'd expect to see a change from the first quarter to the second quarter.

Okay. And if you could ask about Hondros, again, the expectation there is for some slowdown in new enrollment growth, didn't know if you could speak to some seasonality or if there's something else that's driving that slowdown.

Harry, you want to...

At Hondros, we find -- it's a more traditional-type enrollment-type. In the spring, it's a little bit slower quarter, traditionally it was last year. So we're seeing a little seasonality there. But overall, I think that the growth is about what we expected. It's In the 5.5%, down from 15% in the first quarter. But Hondros tends to be a little more seasonal. Good fall enrollment, good January enrollment, a little weaker in the spring and summer.

And just a quick numbers question. I'm just wondering, again, if you think bad debt expense is sustainable at these levels, and if you expect tax rate to be closer to 39% or 40% going forward.

I think it'll stay at -- tax rate will stay at 39%, right around that. Bad debt expense, I don't think I have a prediction on where it's going. We're happy -- we're pleased that it's moving down after a period of it going the other way, but I don't think we've...

I mean, we believe that our initiatives to bring in a more quality FSA student over the long term will bring bad debt expense down. But quarter-to-quarter, we're not providing advanced guidance because it's much -- the way we analyze our bad debt, we do it in arrears.

Our next question comes from Corey Greendale with First Analysis.

First, just quickly. I apologize. I missed the new TA registrations number, can you just give that to me again?

So new TA was down 15% quarter-over-quarter -- or year-over-year, excuse me.

Yes, year-over-year.

Got it. And then I hear you about challenges in the military market, but I was hoping you might be able to put a finer point on that. What are the continuing challenges that you're seeing now?

Well, they've put in a new MOU process. That MOU process restricts base access and also limits -- it puts new caps on how many courses people can register for. In some cases, like the Army, it requires another piece of paper they have to -- the Army spent millions developing electronic system, and now before you can sign on to that system, you actually have to get a piece of paper signed. So we view it as ways to manage the budget down. While there has not been an open statement from the services as to that, that's what it's clearly doing is it's making a much more difficult for service numbers to use their TA. And a few you isolated instances that we know of, we know that some soldiers, instead of using TA, have gone to VA or just paying out-of-pocket. So if they have a few courses left. So it's sad to see that whether it is the budget from the sequester process or it is the MOU process as conducted by the administration. It's just sad to see a system becoming less efficient and much more difficult for soldiers to enroll.

And given what you're seeing now, as you move into Q3 and the end of the federal fiscal year, is there any reason to think that there will be more money left so you might see more of a bump in Q3? Or will the money all would run out so you see to kind of go the other direction in Q3?

I don't know. Most of what we heard is that the money is being allocated quarter-by-quarter. So the Marines, in particular, have had months where they've running out. In a quarter where they say that "We have no more money for this quarter, " implying that they have money for the next quarter. So as a general rule, if you ignore the year where they had the sequester implementation and they cut off funding in both April and October, for the most part, they try to find ways to come up with monies at year end. But given that it seems like both the actual total dollars budgeted this year are somewhat in the dark, no one's really released that number. As well as, the processes are much more difficult. It's really anyone's guess. But I certainly haven't heard any rumors about a massive expenditures of all the funds before year end.

And then a question for Rick, I guess, or whoever wants to take it. I think I heard you say that given what you're seeing, you expect to increase marketing activity. Did that translate to increase in marketing dollars? And what about your thoughts on S&P spend in Q2?

No, we're not -- I think what I said was we believe that in our targeted marketing approach, now that we have an admissions process in place, that in some of the markets that we abandoned, we may be able to move back into those markets, because we have something to screen for qualified applicants.

I see. So in other words, don't expect anything out of the trajectory we saw in Q1 as far as Q2 sales and promotion spending?

Yes, I think...

That's fair.

Yes.

Right. And just one other quick one on the -- just to set expectations on the revenue per registration at APU. I saw in the Q that you are no longer giving the $50 per course tech-fee grant to veterans. So that is incremental above and beyond the 3% increase that you mentioned. Is that right?

Well, the 3% increase would be the annual effect of the tuition increase, which is going in later on this year. So to answer the question, it is incremental, but it's earlier in the year, and I think it's -- the dollar impact probably pretty small, given the relative size of our VA population to our overall population.

Okay. Then if I just multiply 50x veteran registrations, that'll give you the impact, right?

Close. We don't give out the number of registrations per veteran versus civilians, but yes, close.

Okay. And then just one other last one and then maybe -- I think it was actually Harry who brought up this concept a few years ago. So when you have a calendar shift year-over-year, sometimes that can affect the revenue per registration. It looks like the first Monday of September is considerably - it's like a week later this year than it was last year. In the past, I think, that resulted in a revenue per registration hit relative to the year-ago quarter because the timing. Do you know if we should be expecting that this year?

Well, we book our revenues by day. So if the semester is starting in September, starts on the 7th, and last year it started on the first, it would impact it by 6 days.

Our next question comes from Jason Anderson with Stifel. Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: On the 2Q guidance on new, is there any way you could split out? I think you might have done it last quarter, what you're looking at for FSA is for a percentage change, FSA and TA?

If we have it. Well, so looks like FSA -- TA is down around 14%, so call it low double digits. The FSA number is slightly higher. It's coming in around 30% down. Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then just to re-clarify. So I know you talked a bit about already, but this is not really -- you cannot really ascertain yet what the impact of the new preadmission course is?

No, but let's talk about what's having a bigger impact. In August of last year, we began -- are much more targeted after bringing a statistician on board and looking at reams and reams of data. We began selectively targeting for a higher-quality-profile FSA student. And I really think that had a greater impact over the last 5 months of 2014 on our FSA enrollments. So when you compare quarter-over-quarter, the difference between this second quarter versus 1 year ago, most of that impact that we're projecting is due to the targeted marketing and not the admissions impact. In fact, so far, while there is a slight impact in the admissions, it's relatively small. I mean, we don't have many weeks. We've only got 3 weeks of experience, but it's relatively small, and we think that it's probably due to the fact that we really honed in on both the demographic profile and a market profile for a higher-quality FSA student, and that had a bigger impact so far than our admissions requirement. Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then the marketing impact. I think you might have said it last quarter, that laps -- I mean, kind of your initial -- or your change in more targeted marketing, that laps in 3Q '15. Is that correct?

It laps. So it started as a... Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: It laps as far as when you started doing, it was 3Q '14, is that correct?

Yes, it started in August of '14. Jason P. Anderson - Stifel, Nicolaus & Company, Incorporated, Research Division: Sorry about that, yes. I guess, on persistence -- I mean, obviously you're doing a lot of initiatives to help there and you're seeing some traction. I was wondering, could you maybe help us maybe frame where persistence has been and where it is now and where it's going? I mean, before, when you were heavily impacted by T IV, Title IV abusers, I'm sure -- I'm guessing persistence was maybe at your lower levels. Maybe what you've seen that come to now and maybe where it can go to, I'm just trying to gauge how much headroom maybe there is. Or any way you could you could frame that for us would be great.

Well, the academic literature doesn't even frame from persistence consistently. So we look at persistence in just about every way you want to look at it. I would tell you that over the years, our failure and withdrawal rate for military students has been really, really consistent, and that's because the military has a screening process in place. So -- and that number is in the mid-teens. And that -- our FSA number, we believe, because of the open enrollment status prior to having admissions requirements, we had targeted, before we had the stipend chasers, a target number of double the military rate. So if the military rate was in the mid-teens, let's just use 15%, for example, we were targeting about 30% for FSA because there was less selectivity. And it's been much higher than that. So we're trying to bring it down, and we have a target goal to get it to, which we haven't gotten to yet. And we're hoping that both the more selective marketing as well as the admissions process helps us get there one day.

Yes, we haven't reached the ceiling yet. There's room for improvement.

Yes.

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

It looks -- if I look at Hondros, and I take revenues per student, unfortunately, we're using an ending number. But it looks like revenue per student went down year-over-year. Was there a mix shift issues or something going on in the tuition side that we need to be aware of?

Yes, what happened in Hondros is we launched 2 campuses, the largest 2 campuses, Columbus and Cleveland, this fall. In 2014 third quarter, we launched evening classes of for the first time -- actually, fourth quarter, I guess. And the evening students are -- they're taking less courses. They're part-time. So we have a significant population we're building of evening program. The good news is they seem to be persisting a little bit better than the full-time day students. So there'll be students for a good while. But that's less revenue per student on average because they're taking fewer courses.

Okay. I get that. And then shifting back to APUS -- and again, I'm not sure if we're calculating this correctly, but based on the data that you disclosed, if I try to calculate, I guess, the so-called sequential retention rate, it looks like it was down year-over-year when I compare it to last year at this time. You talked about all the persistence improvements. Maybe I'm missing something in terms of graduates. But I'm just wondering in terms of overall trends, how retention or persistence is doing at APUS?

I don't remember whether we gave that number or not, but persistence has improved. I think it was about 6%, but I don't know whether that was in the scripts or that's just my recollection. But it was -- we did see increased persistence. That's all-payer classes, Jeff. Yes, and maybe it is due to increased graduations, so...

[Operator Instructions] Our next question comes from Peter Appert with Piper Jaffray.

Yes, you got John Crowther on for Peter. Just a short-term question here and a longer-term question. On the short-term, as I look at Q2 guidance -- and you talked a little bit about the pricing increases happening in the back half of the year and the tech-fee impact being relatively modest. But it looks like the guidance suggest that revenue per course registration is going to be down in the second quarter, so just wondering, is there a mix issue there? Or how we should be looking at that versus -- longer term versus the pricing increase? And then longer term, you talked about more competition but also going after a more targeted, better quality FSA student. Combine that with the sort of the military, as you kind of said, sort of managing down the budget there, how do you view the long term sort of growth profile of APEI now, given those kind of mix of confluences once you get back -- once you get through the near-term headwinds right now?

Well, we're not giving long-term guidance. We haven't done that in forever. But I think that the competition in online is at the greatest that I've seen it in the 12-plus years that I've been here. More and more schools. It was for a while that the initial competition we had was at the Masters degree level, and more and more schools have started to put the bachelor's degree programs in place. I guess, on the good news perspective is that we're still substantially underpriced the 4-year schools, not necessarily the associate's degree programs, but we've never tried to compete in that particular market. But I'd say it's a little too soon to figure out the headwinds. I think that we've been pretty open about how we try to target our marketing expense and market the degrees that differentiate us heck of a lot more than paying to market a business degree, which just about everybody has, or criminal justice degree, which just about everybody has. And Rick, do we have some color on -- I don't know why we would have...

I don't think we do. I mean, the guidance is down 7% on APUS net course registrations, and total revenue is down 6%, because there's a small offset for the increase at Hondros. So I think those two actually line up.

We have no additional questions. I will now turn the call back over to management for any closing remarks. Please proceed.

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

This conclude today's conference. You may now disconnect. Have a great day, everyone.