Good day, ladies and gentlemen, and welcome to the Third Quarter 2016 American Public Education Inc. Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Mr. Chris Symanoskie, Vice President, Investor Relations. Please go ahead sir.

Thank you, operator. Good evening, and welcome to the American Public Education conference call to discuss financial and operating results for the third quarter of 2016. Please note that statements made in this conference call regarding American Public Education or its subsidiaries that are not historical facts are forward-looking statements based upon current expectations, assumptions, estimates and. projections about American Public Education and the industry. These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Forward-looking statements can be identified by words such as anticipate, believe, seek, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include, without limitation, statements regarding expected growth, amounts and nature of anticipated charges, expected registrations and enrollments, expected revenue, expected earnings and plans with respect to recent and future initiatives, investments and partnerships. On our call today, we'll discuss certain non-GAAP financial measures in connection with our GAAP results for the three and nine months ended September 30, 2016. These non-GAAP financial measures are not intended to be a substitute for GAAP results. However we believe they will allow investors to better compare results to prior periods. American Public Education urges investors not to rely on any single financial measure to evaluate its business and to review the reconciliation of its non-GAAP financial measures to the comparable GAAO financial measures that are included as part of an exhibit to our current reports on Form 8-K filed earlier today. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors including the risk factors described in the risk factor section and elsewhere in the company's annual report on Form 10-K filed with the SEC, quarterly report on Form 10-Q filed with the SEC and the company's other SEC filings. The company undertakes no obligation to update publicly for any forward-looking statements for any reason, unless required by law even if new information becomes available or other events occur in the future. This evening is my pleasure to introduce Dr. Wallace Boston our President and CEO and Rick Sunderland, are Executive Vice President and Chief Financial Officer. Now at this time, I'll turn the call over to Dr. Boston.

Thank you, Chris good evening, everyone. I will begin our call today by discussing our recent operating results and reviewing the progress we've made with respect to our strategic goals. Rick Sunderland, our CFO will then report on our third quarter financial results and provide perspective on the company's Outlook for the fourth quarter of 2016. In the third quarter of 2016 net course registrations at APUS declined 10% compared to the prior year period. Although net course registrations by new students declined 23% year-over-year, net course registrations by returning students decreased 8% compared to the prior year period. We believe that the difference in the rate of decline of registrations by new students and that of returning students relates at least in part to improvements in persistence and our quality mix of students. For the three months ended August 31, 2016 and that's the period where we have the most recently available information, the first course pass and completion rates of undergraduate students using federal aid at APUS increased approximately 17% year-over-year with the month of August reaching the highest such rate since August 2010. Furthermore approximately 62% of new civilian students who started in January through August 2016 have started a second session compared to 55% for the same time period last year. We believe the continued improvement and persistence is a possible indicator that our efforts to attract and retain students with greater college readiness are working. The overall decline in net course registrations by new students at APUS was primarily driven by 34% year-over-year decrease in net course registrations by new students using Federal Student Aid or FSA and a 20% year-over-year decrease in net course registrations by new students using military tuition assistance or TA. We believe the decline in new students using FSA was…

Thank you, Wally. American Public Education, third quarter 2016 consolidated financial results, include a 3.3% decline in revenue to $73.8 million compared to $76.3 million in the prior year period. Both our APEI segment and our Hondros segment reported declines in revenue when compared to the prior year. In the third quarter our APEI segment revenue decreased 3.1% to $67.1 million compared to $69.2 million in the prior year period. The decline in APEI segment revenue is the result of the decrease in net course registrations, partially offset by the July, 2015 tuition increase. Hondros segment revenue decreased 4.5% to $6.7 million in the third quarter of 2016 compared to $7.1 million in the same period of 2015. The decline in Hondros segment revenue is due to decreased enrollment at Hondros. On a consolidated basis, cost and expenses increased 11.6% to $73.4 million compared to $65.8 million in the prior year period. The increase was primarily due to a $4.3 million loss on disposals of long-lived assets and a $0.8 million loss on assets held for sale in our APEI segment and a $4.7 million charge for impairment of goodwill in our Hondros segment. The $4.3 million expense related to disposal of long-lived assets was primarily due to a $4.0 million right off of student course registrations software development which resulted when it was no longer probable that the software would be completed and placed into service as a result of programming difficulties that could not be resolved on a timely basis and without additional cost. The $0.8 million expense on assets held for sale represents two buildings in Charlestown that are no longer in use due to the relocation of employees to a new facility. The company recorded loss of $0.3 million on the sale of one building and…

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

Thanks. Good afternoon. So, Wally I guess, I'm not fully understanding why the acceleration in the piece of decline at APUS in the fourth quarter and the contracts are getting a little bit easier. So what would you call out as the major factors?

I think we did call out the major factors Peter as a decline in FSA and a decline in TA. So, the FSA search is to continue to find ways to have a qualified student and academically qualified and prepared student and I'd say that we've talked about anywhere from five to six different initiatives that we've done over the last two years that's probably our biggest struggle and it's where our biggest decline is. And we're pleased that we're bringing in a nationally recognized enrollment management person who particularly has a lot of background with civilian student enrollment management. On the TA side, there's multiple explanations, but DOD has continued to change its processes and some of them are the same among the services, some of them are different. So we're not sure of the exact reasons whether it's the drawdown in staff that's happening in the Army, whether it's budget reasons that are no longer publicized at to what the budget is for the new fiscal year. Remember we have a continuing resolution that I think funds these types of expenses through like December 8, but there's no guarantee beyond that and I guess the election tomorrow will tell us whether there will a cooperative Lame Duck Congress are not so cooperative Lame Duck Congress. And then other processes such as the Army built a recommendation engine called [Via] and no one knows exactly how it works, it's a little too soon to tell. And then there's the base access issue that has been going on for a while. So the net of that is, is that no we have a decrease in our TA students. If I could give you specific explanations, I would but, hopefully we can find ways to stabilize that but in the past, we had such a high referral rate on TA students that our conversion rate on TA students who inquired who then applied and who then enrolled was quite high and in fact more than double what our civilian rate was. So, making up for finding those students in the civilian sector when we already have a process that we put in place to make sure we get qualified civilian students is just really hard.

Understood, one thing Wally as you’re trimming the selling and promotional expenses, I am trying to understand your attempt to protect profitability, but it seems like there is a disconnect in terms of trimming the marketing budget when you're trying to increase the flow of increase in students, can you talk about that?

Yes, I wouldn’t say -- the number is down Peter, but I would tell you that both Rick and I would spend more money if the process is that -- the processes that we're putting in place to find quality civilian students are such that by ramping up the spend, we could find more quality students. It's just right now that doesn't happen. We're experimenting with things. We're spending some money. Those amounts of money aren’t material, but when the things that we're spending money on to pilot a new student recruitment idea to increase that quality don't work, then we’re not going to throw good money after bad. And I would say that on the good news, the applications themselves are strong. So the things we put in place on the application side are very strong. It's just that our conversion rate is lower than it's been in the past and we're thinking that probably one explanation for that is competition, but we're looking in our processes and seeing if there's anything else that might explain it. For example we slower to get back with students than some of the other firms that we compete with, So, were looking into that, but on the good news side our application volumes are very strong.

And just one last thing, on the -- any insight in terms of the timing of an answer on the change in accreditation for Hondros?

No. We disclosed who we had send our application and within one of the requirements with them is that we not discuss the process. So we'll announce it as soon as we have something to announce.

Okay. Thanks Wally.

Sure.

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

Hey good afternoon. Couple question, can you just on the positive side, put a little more detail behind what drove the improvement in Hondros in students?

Sure. Management, we put in -- we took our COO and made him Interim CEO and then he went out and recruited new campus directors for all three of the four campuses as well as a Campus Director for our newly approved Toledo location and they're making a difference.

Any lessons learned or extrapolation you could apply to APUS?

Well, we don't have campuses with APUS. So it’s a different situation, but I think that and also the recruiting nursing student is very much different. There's a high referral percentage for marketing to nursing students. We don't spend as much money to do that at Hondros. There's a preliminary test that you have to take as well, but if I keep it simple, we have hired a new Provost who has a tremendous background in online learning and we have a new enrollment management person who has a tremendous background. We cited the institutions that he has worked for in the past as well as the premier enrollment management consulting firm. So, we're pretty optimistic that we might be make a difference with that.

Okay. And then on the revenue per registration per student was up high single digits as I calculated for both APUS and Hondros in the quarter, can you just give little bit on what drove that?

Yes, on the APUS side it has to do with the timing of starts. So, we recognize revenue based upon what we call normalized registrations, which are revenue generating registrations versus what we reported simply registrations. So, it's the interplay between the difference between registrations than normalized registrations.

Okay. And Hondros?

Hondros is the new curriculum facing in as having an effect on the mix between if you will between the day, class and the evening and weekend class, which is driving up ever so slightly the total revenue per enrolment.

Okay, And Rick sorry on that APUS if its riming, I think the guidance implies revenue per registration is going to up by similar rate in Q4. Do I have that right and is that going to be true, how many quarters is that going to be true for?

That's true for the fourth quarter. I don't know that I've days count going out beyond that. So I can’t comment on that.

Okay, And then I have a similar question about the competency based programs that I don't know figured out all the details yet, but could you give us some sense of how you’re position that relative to your existing programs and thoughts on pricing of those programs?

We haven't announced the pricing and as a matter of fact, while literally while we were on this call, we got an email indicating that they've been approved. Yes, thank you so, we will have to put out some information on the estimated start and what our pricing is, but the intent is to -- I would tell you this, the programs for competency are in areas where we already do regular degrees which are credit our -- clock hour based and we have very good relationships. I think we disclosed that the six areas in which we’ve submitted for approval and like I said we’ve got an email while I was on this call and so we believe that for our corporate and public sector partners in this area, this will offer a very relevant program for their employees with a lot of experience who may or may not have the time to do the credit hour, clock hour about based program, but have enough experience to pass the competency-based exams and assessment that we built into this program.

Understood, sounds like if you’re getting good news during the call, I can keep asking questions, may be you keep getting good news. I’ll turn it over. Thanks.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Jeff Silber from BMO. Your question please.

Hey good evening guys. It's Henry Chien on for Jeff.

Hi, Henry.

I just had a question, hey guys, I just had a question on the new enrolment. I guess management or strategy just wondering if you could put some more color on how you're targeting the FSA, if you had like a particular niche or strategy just looking -- just for some color there. Thanks.

It’s targeting is limited to certain geographical areas and to certain sectors with either public-sector or corporate clients that we have relationships with. So, I don't want to get really specific because we listen to other people's calls and try to find out what markets are pursuing pretty heavily. But that is a different strategy than two and half, three years ago when we primarily bought Google keywords that related to the degrees we offer and related to affordability and use that to bring in people from all areas of the country. We now are also requiring people who are not transferring in credit to complete an assessment that we have to make sure that they’re ready for college and that something different as well. So, there's probably a couple other things were doing that I'm not remembering here, but we've definitely taken a different approach for multiple reasons, accreditation reasons, regulatory reasons and yes we know that it's not favorable to our enrollments in the short term, but we believe it's very favorable for us reputationally and as well as a good quality indicator in the long-term. This has taken us little more, a little longer than then I would hope to stabilize what we can have as predicted civilian enrolments.

Got it. Okay, that’s fair enough. And just on Hondros if the ACIS or the ACICS I is not recognized or renewed what’s the thinking of how to, what to do if that happens?

Well, I think the thinking is that, once that decision is final, if it’s not appealed and goes through an appeal process, but once it's final, regardless of which way the outcome is, institutions who were accredited by ACICS at 18 months to obtain new accreditation. We didn't want to wait till the decision was final. So, we basically made a decision on who we to contact and why and our application is in process.

Got it. Okay, great and just lastly a quick follow-up, in terms of the -- sorry if I miss this, but for the net new course registrations for FSA and TA and other what were they again?

Are you talking about the fourth quarter guidance or the third quarter actual?

Third quarter actual.

Rick, do you want to give that…

So, I’m sorry you want new?

Yes, I think was it down 34% for FSA was that…

Federal Student Aid was down 34, TA was down 20, that’s on the new and on total, total FSA was down 15 and TA was down 9 for the third quarter.

Okay, got it. TA is down 9 and then other bucket?

Okay, back to the new, VA was down 1 and other was down 10. So, to wind all that together, we were down 23 and on total, VA was down seven and other was down eight. If you blend all that together, VA was up 1. I am looking at VA was down 7 I believe. Yes 7, sorry we’re looking at the chart.

Yes, we’re looking at two different chat.

VA was down 7, other was down 8, and you blend all that together, and you're down 10 on total.

Got it, okay. Great thank so much.

Thank you.

And this does conclude the question-and-answer session of today's program. I’d like to hand the program back to Chris Symanoskie for any further remarks.

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

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.