Good day, ladies and gentlemen, and welcome to the American Public Education Fourth Quarter 2016 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. As a reminder, today's program is being recorded. I would now like to turn the floor over to Chris Symanoskie, Vice President of 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 fourth quarter and full year 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 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, seek, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include, without limitation, statements regarding expected growth, 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 may discuss certain non-GAAP financial measures in connection with our GAAP results for the 12 months ended December 31, 2016 and 2015. 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 year 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 GAAP financial measures that are included as part of an exhibit to our current reports on Form 8-K that we filed shortly. 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, quarterly report on Form 10-Q and the company's other SEC filings. The company undertakes no obligation to update publicly 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 it’s my pleasure to introduce Dr. Wallace Boston our President and CEO and Rick Sunderland, our Executive Vice President and Chief Financial Officer. Now at this time, I'll turn the call over to Dr. Boston.

Thank you, Chris. Starting with slide three, recent highlights and results. Our quarter of 2016 reflect our progress in improving student persistence at APUS and achieving new student enrollment growth at Hondros, while maintaining our focus on quality and attracting students with greater college readiness. Although we continue to experience challenges with respect to enrollment at APUS, we are encouraged by the possibility of an improved regulatory environment with less anti-core profit rhetoric [ph] the potential of a more favorable outlook for the administration of the DoD voluntary education program and the prospect for success with our efforts to reengineer certain enrollment management processes. In the fourth quarter of 2016, net course registrations at APUS declined 10% compared to the prior period. Although net course registrations by new students declined 29% year-over-year, net course registrations by returning students decreased 7%, 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 the change in our quality mix of students. For the three months ended December 31, 2016, the first course pass and completion rates of undergraduate students using federal student aid or FSA at APUS increased approximately 19%, compared to the prior-year period. We believe the year-over-year improvement in first course pass and completion rates is an 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 a 46% year-over-year decrease in net course registrations by new students using FSA and 19% year-over-year decrease in net course registrations by new students using military tuition assistance or TA. We believe the decline in net course registrations…

Thank you, Wally. Going on to slide six, financial results summary. American Public Education's fourth quarter 2016 consolidated financial results include an 8.5% decline in revenue to $78.6 million, compared to $85.9 million in the prior year period. Both our API segment and our Hondros segment reported declines in revenue when compared to the prior year. In the fourth quarter our API segment revenue decreased 9.1% to $71.1 million, compared to $78.2 million in the prior period. The decline in API segment revenue is primarily attributable to a decrease in net course registrations. Hondros segment revenue decreased 2.5% to $7.5 million in the fourth quarter of 2016, compared to $7.7 million in the same period of 2015. The decline in Hondros segment revenue is primarily due to a decline in enrollment in Hondros. On a consolidated basis, cost and expenses decreased 4.0% to $67.4 million, compared to $70.2 million in the prior year period. For the fourth quarter consolidated instructional costs and services expense or ICS as a percentage of revenue increased to 38.2% compared to 34.6% in the prior year. The year-over-year increase as a percentage of revenue is due to a revenue decreased during the period, an increase in ICS costs at Hondros due impart to start up costs at the Toledo campus, which opened in January 2017. Selling and promotional or S&P as a percentage of revenue increased to 18.4% of revenue, compared to 17.7% in the prior year period. Year-over-year, S&P cost decreased 4.4% to $14.5 million 15.2 million, compared to $15.2 million in the prior year. Accordingly, the year-over-year increase as a percentage of revenue is due to S&P costs declining at a rate lower than the decline in revenue. General and administrative expense or G&A as a percentage of revenue increased to 22.8% from…

Thank you. [Operator Instructions] Our first question comes from the line of Corey Greendale from First Analysis.

Hey, good afternoon,

Hi, Corey.

Hey, Corey.

So a few questions. First, in terms of the trend in FSA, so I think I heard you said that new students from FSA, using FSA was down 46% in Q4, I think you said its going to better in Q1. Can you just give us some color on FSA, the things affecting that, but maybe I think is affecting the sequential time lag are worse in Q4, why things getting better in Q1?

I think our base for Q1 is a much lower number, so that’s why the difference in the decline rate between Q4 and Q1. We continue to work on making sure we're increasing this per student pass rate by changing our admissions assessments and looking at ways that we can improve that quality mix. And so we come up with the right formulation and I think given our new Senior VP of enrollment management experience with McCord & Associates [ph] where they had advised a lot of traditional universities on enrollment management, I think we'll continue to be tweaking it. But we do have a - the number for the guidance is on new FSA is minus 31, so that compared to the minus roughly 46 in Q4. I don’t have that parse out between you know sequentially how much is an improvement versus just the lower comparable. But sequentially we are seeing a lower percentage.

Okay. That helps. And then in TA, I think you said a decrease is at lease in part due to change in administration of the program, that makes it tougher to support students, so first of all, can you elaborate little bit on what that is and just why a change in supporting students that’s affecting the new enrollment number?

I think we referred to basically some DoD policies on base access, as well as the sequester itself, President Trump has proposed $54 billion increase to the DoD budget, we think that if f that goes through or some samples of an increase goes through, historically commanders have preferred to purchase equipment or refurbish their equipment rather than put extra money into things like education. So you know, we just think that’s a plus.

Okay…

So sequentially…

Sequentially it’s a modest improvement TA Q4 with minus roughly 19, we're guiding to minus 18, so it’s a modest change for the first quarter.

I know the new administrations are trying to move quickly on something, have you seen any change in how FSA is being ministered [ph] or anything else that would affect you already in the military market?

Actually not, we're a little - I guess that wasn’t their first 30 day priority. Our understanding is it will be a number of executive orders coming out in the first 100 days, essentially reversing some or many other executive orders of the previous administration. So we're helpful, but we haven't seen a specific one yet.

Do you have any expectation or within the $54 billion, will there be any change in terms of amount per creditor, number of creditor is just an increase in the size of the active duty population?

Well, I think size of active duty population, more so than changing in the credit reimbursement. I think they found that, you know, that number exceed in some cases by more than double what the community college number is and that's where a large amount of enrollees can be directed to. I think that from our perspective just talking to some of the retired generals on our board, adding that additional amount in addition to possibly stemming the decline in personnel should take the pressure off on finding money for equipment.

Good. And then this next question, I am not looking for guidance beyond Q1 [ph] its more of a mathematical question, but just given, I think assuming you beat the guidance for Q1 you're going to have something like 5 in last 6 quarters where new students registrations at APUS are down 20% or more in that range. So you may not able to offset that on total enrollment with persistent improvement. How long can that continue, so in other words, should we be expecting that the total will start to converge with the new trend at some point?

That’s our goal, everybody saying without refill in the pipeline, how much longer can we continue to make up through returning students the large decrease in new students.

Yes, I don’t think we can do that for too many more periods.

Right.

Okay…

That’s Corey the plans related to the enrollment management process.

Yes.

The marketing - shifted marketing approach if you will, because we understand that the imperative to slow the decline of new student and reverse that trend.

Yes. And I understand that. I just have one last question for you Rick, then I'll turn it over. If I am doing my back of the envelope math right, and tried to add in that tax in fact you talked about, it looks like the guidance implies operating margin is down something like 900 bps year-over-year in Q1, does is that sound right to you and just can you talk at that - I see you doing a lot of things to reengineer processes, a lot of that to reignite enrollment growth…

Yes. So without actually agreeing to that number, I think directional you're correct and I think our current perspective is we see some positives on the horizon, to be at the internal initiative or the change in administration. So we're going to continue spend into that if get to later in the year, and if those things are materializing then we'll look at the cost side of the equation. But right now are our primary focus is not the cost side, it’s the registration and revenue side.

Okay. You actually answered the question I quite get asking. So thank you. Thanks for the help.

Thank you.

Thank you. And our next question comes from the line of Jeff Silber from BMO Capital Markets.

Thanks so much. I am going to ask the glass half full questions, so you point out some of the processes you plan on putting in place to stabilize enrollment. First of all, are we talking about new enrollment or total enrollment and is there a timeframe on when you think you might get there?. Thanks.

I don't think we have a timeframe Jeff, we do have a goal that we certainly like to get there in 2017. You know, our new Senior VP of Enrollment Management started in December. So - but he did hit the ground running. We had him in periodically prior to that. And I think that you know, it's really a question of looking at that mix and replacing students who the military, either for financial purposes or other reasons, made it more difficult to register for online classes and which we had a 70% referral rate too and replacing students who are coming in at 70% referral rate, the students coming in at 30% referral rate, meaning that we have the advertising gain and find ways in advertising to bringing of students that consistently took so many classes a year and persistent. So that is complicated, but we really hope to get there by the end of the year. So - but Jeff, you're asking about new and total, I would parse it as follows, certainly the change in marketing approach is meant to stabilize the new. As we approach optimization or improvements in the enrollment management process that will of course affect both new and returning. So you know, one is more clearly directed at the new, the other is going to be impactful positively, we expect I guess both new and total, does that answer your question?

That’s actually very helpful. I appreciate it. You had cited a couple of programs where there could be I guess, regulatory related issues. One was the practical nurse program, and independence and the other one, I think was the [indiscernible] you were speaking very quickly, was that the ADN program in Ohio?

The ADN program.

So there is two separate matters, there is NCLEX scores [ph] related to the ADN program, which is governed by the Ohio Board of Nursing and then the independence, Ohio, which I call Cleveland, I don’t know we're kind of this some where near Cleveland. I think – yes, so that’s the – that’s related to an ACICS, which is the accreditor standard. So its two different sets of standards related to two different program.

Got it. I mean, I understood that, I was going to ask – actually ask you, is the past more to get the sort of quantification in terms of how large these programs are now, and I know you mentioned a practical nurse could be aspired [ph] to the other programs, but I just want to see you know, what we're talking about?

Well, at independence only for the last two quarters, 74% of our ADN program students have actually come from the outside. They've not been coming from the PN program, as that helps for independence. And I think - and by the way we track what percentage of your students continue on from the PN program to the ADN program and it varies by location and some locations you know, its totally different than that percentage.

But again, how large are those, just how many students do you have in your PN program and independence?

Can't tell you, off the top of my head, but you know, we'll see if we can look at and if we can answer that in the questions somebody else has, we'll bring that back up…

I'd appreciate it. And the same question about the ADN program in Ohio?

Okay.

All right, great. And then just a couple modeling questions, the share count that’s implied in your first quarter EPS guidance is what?

$16.2 million.

$16.2 million. Great. And then what kind of tax rate and capital spending, well, tax rate for the first quarter in the year and capital spending for year should we expect? Thanks.

So let's go with the effective tax rate, as of the impact of the new accounting pronouncements…

Okay…

So I'd go 35 – 30, I am sorry, 38.5 or 39 and then gave you the dollar figure as expressed is a range on the ASU and CapEx, I don't want to talk about the first quarter, but as you look at the full year, I think will be north of roughly $13.8 million that we did in 2016, maybe in the mid teen someplace, maybe little bit higher than that, but below what you have seen is our historical numbers due to our - change in our approach to our IT strategy.

Okay. Great. That’s very helpful. Thanks so much.

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

Thanks. So Wally you mentioned increased competition is a factor and I am just wondering if you just - don't take this the wrong way, but you just sort of throwing that out generically, or if there's something that's really changed in terms of the competitive environment that you had call out in the last quarter or two?

No, I mean, more if you look at the data, that is the date that’s reputable. I think there was a Stanford research study publicized that a lot of people are questioning you know whether or not the researcher on that study had an accurate number for online students. But if you look at the more reliable data I mean, the share of online students that are being taught by public institutions has increased and the share of online students who were taught by for-profit institutions has decreased. But we can't exactly attribute that to increase competition, but we also can't rule it out. I think that in our case, there particularly with our TA students is as I mentioned there were roadblocks. I mean, for example, the Army had a registration system that they spent tens of millions of dollars on and were some of the large providers like us had to spend seven figures on the convert to and they resorted to people having to get a piece of paper signed to get entry into that automated system, which is a roadblock, you know, you got to find your ESO [ph] to sign a piece of paper, so you can login, while they are doing that. So it's not as easy to sign up for classes. Some of the other service branches were saying you know, we're not going to let you sign up for TA until you do your second enlistment. So there were roadblocks over there, on the FSA side, you know, we were trying to find quality students as we had an influx of students who were one timers, they were coming in you know, staying active in a of course long enough until they could get a refund check to federal aid and basically dropping out and walking. And so we wanted to try to find ways to stop that and then you had some very large non-profit providers who spend a lot of money on advertising and the first thing you see on their ad non-profit, so are playing against the democrats particular rhetoric on you know that for-profits are bad. So we've had to fight a lot of it and I'd say to precisely give you a reason on the competition, it’s less precise than its just - this is the atmosphere.

Okay. Fair enough. And then Wally and the competency-based programs, so those are just being introduced as of the first quarter correct?

Yes.

Yes.

March 9th.

Got it. And is there - I would imagine there might be a incremental cost to you guys of providing programs like that, is that fair or not or should we think about some economic impact from the rollout of these new programs?

There is some overhead costs to start them out. I mean, we – I don’t think we're going to give guidance just from a competitive reason on how many enrollees we need to hit breakeven. But you know, I think you once we get to the breakeven number, we should have a contribution margin. But I would tell you that offering specific comments on our program, that the competency program rollout has been slower at most institutions, whether they are for-profits or non-profits, then the press rollout has been on how great it would be to have competency based program. So you know, we were encouraged by academics either at are accrediting body or elsewhere to participate, given our reputation for innovation. We looked at it and said that in certain channels for example, retail management, this looks like it could be good for potential students, but I will tell you we are going in with our eyes wide open, we're not trying to say that there is going to be home run, as much as we're doing this to see if it's part of a changing trend and you know I think that we've entered it in a way that it won't be a significant overhead burden for a while and hopefully we can particularly when we get approved for federal student aid for those programs, which as you may know they are very hard to get accrediting approval for and they are almost just as hard to get financial aid approval for. So we got the first stage done and we're offering them for cash only or employer reimbursement and we'll see where we go, as soon as we get the FSA approval.

So very specifically, the rollout of the competency-based conservation programs is not a particularly meaningful factor in terms of the pressure you are anticipating on first-quarter margins?

No, not all.

Okay. And then in terms of the Hondros re-accreditation and I may have missed this in the discussion, but can you just remind me where we are in that process?

Hondros re-accreditation? Yes, we didn’t really about ABHES…

Yes, getting more from ACICS?

Yeah, we are in process. We were provisionally accepted by ABHES and I believe that they've – I don’t know that I have a date, but they've talked about the dates sometime later this year for a preliminary visit and I think sometime in early 2018 formal approval if the visit goes okay. So you know, we actually - we anticipated it, so we got our application and before everybody else did, you know, we anticipated ACICS not essentially winning their appeal. So we were ahead of the curve.

So, no – you are not anticipating in gaps in from the accreditation standpoint, and therefore no loss of access to Title IV?

We have no information to anticipate that correct.

Got it. Okay, thank you.

Thank you.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Chris Symanoskie for any closing comments.

Yes, operator, just want to answer one question, Jeff Silber asked what percentage of ADN enrollment was, its 35% of earning enrollment for the state of Ohio at Hondros. So Chris…

Thank you, Wally. That will conclude our call for today. We wish to thank you for your participation and for your interest in American Public Education. Have a great evening.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.