Good day, ladies and gentlemen, and welcome Fourth Quarter 2017 American Public Education Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I will now like to introduce your host for today's conference, Mr. Chris Symanoskie. Sir, you may begin.

Thank you, Operator. Good evening and welcome to American Public Education's discussion of financial and operating results for the fourth quarter and full year 2017. Presentation materials for today's conference call are available in the Webcasts section of our Web-site and are included as an exhibit to our current report on Form 8-K, furnished with the SEC earlier today. Please note that statements made in this conference call and in the accompanying presentation materials regarding American Public Education or its subsidiaries that are not historical facts may be 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, amount in nature of anticipated charges, expected registrations and enrollments, expected revenues, expected earnings, and plans with respect to recent, current and future initiatives, investments and partnerships. 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 and quarterly reports on Form 10-Q, 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, 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, I'll turn the call over to Dr. Boston.

Thanks, Chris, and good evening everyone. I'm pleased to report that consolidated revenues in earnings per share for the fourth quarter of 2017 were higher than we anticipated. This outperformance was driven primarily by better than expected net course registrations at APUS and a lower statutory corporate tax rate resulting from recent tax reform legislation. Although APUS experienced a year-over-year decline in net course registrations in the fourth quarter of 2017, the rate of decline less than compared to rate of the previous four quarters. Net course registrations by new students at APUS declined 4% and total net course registrations declined 3% compared to the prior year period. In the fourth quarter net course registrations by returning students also declined by 3% year-over-year. The overall decline in net course registrations by new students at APUS was largely driven by 21% year-over-year decline in net course registrations by new students using federal student aid. This decline was partially offset by 12% year-over-year increase and net course registrations by new students utilizing cash and other sources, a 7% year-over-year increase in net course registrations by new students utilizing better Veterans Benefits, or VA benefits, and net course registrations by new students using Military Tuition Assistance or TA, approximately flat year-over-year. In the fourth quarter of 2017 net course registrations by none FSA students were better than anticipated. Excluding net course registrations by student utilizing FSA is there primary funding source, net course registrations by new students increase approximately 3.5% year-over-year and total net course registrations were approximately flat compared to the same period of 2016. For the three months ending November 30, 2017 the first course pass and completion rate of undergraduate students using Federal Student Aid at APUS improved 16% year-over-year. We believe that the continued increase in this measure of…

Thank you, Wally. Going to slide 5. American Public Education's fourth quarter 2017 consolidated financial results include a 1% decline in revenue to $78.8 million, compared to $78.6 million in the prior year period. The decrease during the period is attributable to a 4.4% decrease in revenue in our APEI Segment, partially offset by 34.7% increase in revenue in our Hondros Segment, when compared to the prior year. In the fourth quarter, our APEI Segment revenue decreased to $67.9 million, compared to $71.1 million in the prior year period. The decline in APEI Segment revenue is primarily attributable to a decrease in net course registrations. Hondros Segment revenue increased to $10.2 million in the fourth quarter, compared to $7.5 million in the same period of 2016. The increase in Hondros Segment revenue was primarily due to an enrollment resulting from the opening of Toledo campus in January 2017 and increase demand for Hondros programs. On a consolidated basis, costs and expenses decreased 2.8% to $65.5 million, compared to $67.4 million in the prior year period. For the fourth quarter, consolidated instructional costs and services expense or ICS as a percentage of revenue decrease to 36.7%, compared to 38.2% in the prior year period. Our ICS expenses for the three months ended December 31, 2017 were $28.6 million, representing a decrease of 4.7% from $30 million for the three months ended December 31, 2016. The decrease in ICS expenses was primarily the result of decrease employee compensation and course curriculum expenses in our APEI segment, partially offset by increase in classroom, subscription services expense in our APEI segment and increases in employee compensation cost in our Hondros segment. Selling and promotional expense or S&P as a percentage of revenue decreased to 18.3% of revenue, compared to 18.4% in the prior year…

[Operator Instructions] Our first question comes from Corey Greendale, First Analysis. Your line is now open.

First, on the enrollment side Wally, I understand that there will be volatility but obviously it was a nicer quarter particularly on the non-FSA side and then probably you are guiding some more weakness, I was just wondering if you might be able to give some of the underlying causes of those trends?

Sure, I think typically the first quarter seasonally for our military population is always down a little bit, at least it was in ’17 and we are seeing similar trends in ’18. The other thing is that we have some reports from the field that some of the bases were hesitant to approve tuition systems requests for the March start related to the potential government shut down that fortunately was only a few days or the weekend but nonetheless that delayed some new student registrations we think that most of our returning students were able to get in. We’re just saying softness in the month of March in particular for the first quarter and some of that’s typical seasonal but, some of it we think related to hiccups in the system just due to our dependency on federal employees.

Do you think from what you’re saying, I know you’re not guiding beyond one quarter out but it sounds like the things in Q1 are more temporary in nature which makes it sounds like maybe we can, Q4 as the more kind of the indicative of the trend, do you say that reasonable?

Typically, Q4 is the higher enrollment quarter, so and without taking the time to analyze each of the four quarters for you and you know that since TA the sequester has been on the 30-day program where they don’t allow students to register more than 30 days out, so it's really though for us to see. But I think that we continue to reinforce the quality of students coming in our intake overall and that particularly influenced our FSA intake and our TA students I think, it's my understanding for example, that the federal budget for TA has not been distributed down to the bases yet, so I think once that happens things will pick up but until that happen we probably going to see some volatility.

Okay and then I wanted to ask about one the cost side on the selling and promotion historically, I think I think at least going back a few years, Q4 is a stronger quarter, certainly relative to Q3 for sales and promotional spend and I know you pulled back here is that, just what is the thinking on point back there relative to service seasonality and into that suggest on the first side that we been talking about that, may be that close to you softer enrollment because you did pull that promotion.

Actually, if you remember Cori when were in the third quarter, discussions we talked about our leads scoring and so accelerated some expenses in the third quarter using a new method of lead scoring to see, that that would have an impact on fourth quarter registrations and then we did pull back because we wanted to see the impact of that. So, I think that was that without going into a greater discussion on what we're finding from these scoring that we did an experiment, we accelerated the money in Q3 and then held back on some of that just from a budget prospective in Q4 until we could get registrations, from late through applications through students in the safe to see how it all went.

So, its sounds like you kind working that, should we be thinking as you go into 2018 that promotion expense will be up relative to '17 for the year or down or any help will be appreciated.

I think it's going to be flat, but that said we constantly say if we find the formula that works we will spend into it.

And could you just speak to within Q4 were there any more kind on permanent type of cost savings or anything you're looking to address in 2018.

Nothing specifically, just ongoing vigilance about managing cost relative to our level of registrations to be idea that we do based upon the activity is expected some point in turn of registrations. So, we are going to continue to invest and manage the business looking forward to that day.

Our next question comes from Alex Parrish with Barrington Research. Your line is now open.

Good afternoon this is Chris Howe in for [Alex Parrish]. My first question was in regard to the new programs. How are enrollments going? How were they going for January and what are your expectations for enrollments in May? And following up on that two when would you expect to see a return on these investments?

So, I think you are referring to the doctoral programs Chris…

Yes, that’s correct.

Yes, so we were pleased with our doctoral programs. I think our net starts for the two cohorts we are about 25 and Rick, 25.7 something like that.

No, I think the two are closer to that 30 for the first cohort.

But any way they made our start requirement particularly for our first class and starting in a time of the year when I think the more traditional doctoral starts are the fall. We planned for three doctoral starts January, May and September, we only marketed to our lumps because we felt like if we had any bugs that we needed to get out of the program that we never offered before we rather have people who were very familiar with our systems and how we operate. They started off with a residency, I participated in that residency the first weekend in January. It was very successful and we have a good flow of volume for the May start even though the stronger start we believe will be in September when we have that start but I think we are progressing for start in January, we can give you the exact number on that and since Rick thinks it's a little higher than I did. And then the May start which I think will be at least equal to January if not a little higher and then hopefully September will be in full steam, but so far, the students who are participating are enthusiastic, the pathway [ph] is enthusiastic and we look forward to continuing those programs. And by the way the ROI we haven’t disclosed that particularly but we are making progress towards our original performance.

I had another question in regard to just the trend that we are seeing the year-over-year declines sequentially for returning students and total students, just following along that, what is the internal expectation perhaps looking even further out for when enrollments will stabilize? And when should we I guess expect this breakeven point?

We don’t have a specific time period but we certainly like to crossover that date in the next 12 months if possible that barring any unforeseen circumstances. If you noticed our declines in new students or drastically influenced by FSA, we just -- our low price makes us attractive to people who really are much more enthralled with the amount of the refund cheque they can get from the federal government and not so serious about being students. So, we have tried to put all the processes in place to make sure that we get serious students and once -- if you notice the decline in returning students is a much lower percentage then the decline in new students particularly that FSA percentage which means that our initiatives on both retention and as far selecting more quality students and targeting our marketing that are working.

And as far as FSA what should be our expectations for Q1?

We haven't really broken down our guidance by payer type.

Our next question comes from Jeff Silber with BMO. Your line is now open.

Hey guys its Henry calling in for Jeff. Just I wanted a follow up on the FSA trends, is there any color on what's driving some of that weakness if there has been any change from this most recent and the prior quarter, it looks like the trend is relatively stable but as you find to that, do you have any color on transact.

Well I think you said about FSA specifically right, I think the trend on FSA is been improving would be plus negative, so if you track back over four, five quarters you see about new and total court registrations on a year-over-year basis that decline getting smaller. I think [indiscernible] the double negative to try this. So, FSA has been tracking consistent with what you're saying in overall for new and total.

I think further adding to what Rick said, if I'm looking at our actual numbers here for 2017 by quarter, the new FSA students went down in the first quarter 26%, 28.8% in the second quarter, 20% in the third quarter and then 20.5% in the fourth quarter, while the returning student numbers for FSA were down 14.6%, 12.0%, 9.2% and 9.0%. So, you can see the difference between the quality of the students while the new students are declining at a higher rate, the returning students are declining at a lower rate meaning that our process to find, try to find them higher quality FSA student is working.

That’s helpful and on after-tax reform, any thoughts on how you plan to use some of the incremental savings from lower taxes.

We have a board meeting next week, so we will discuss those ideas but at this point in time, we haven't finalized anything.

And just last one for me, it seems like the outlook for this defense spending, its seems to be quite positive, is there anything that we should be on the lookout for just from on the military side that could help tuition assistance going forward.

I know the outlook, the long-term outlook certainly is positive based on discussions that’s been holding Congress and proposals but at the same time my sources say that none of the budget for this year has been distributed out to the bases, particular for tuition assistance. So, while the signs are good, in the short-term, we’re not seeing that positive benefit.

[Operator Instructions] Our next question comes from Peter Appert with Piper Jaffray. Your line is now open.

This is Kevin [indiscernible] in for Peter Appert. My first question was I guess I was wondering if you guys could talk a little bit about any growth opportunities for Hondros College, just its obviously performing very well maybe additional campuses or programs you guys maybe looking into would help.

Sure, we successfully added our Toledo location last year, that location was approved by both Hondros’ current creditor the ACICS and the Department of Education but then when ACICS was giving its notification by the Department of Education Hondros and all the other ACICS schools were has to sign a provisional participation agreement which means during the time period that Hondros is in a transition stage from ACICS to [indiscernible] its crediting agency that’s currently in cadency with -- they cannot add new locations. But I think the addition of the Toledo location shows the benefit of Hondros which when we acquired it, it was a four-location company and with overheads around four that could probably easily going more than that. Toledo is proving that and we do have plans to add other locations but we are going to have to transition to a newer creditor and then get through what I believe is a 12-month waiting period before we can add new campuses. But we are seeing growth in the campuses, the system wide for Hondros growth absent Toledo, so its showing good results, stronger demand, improved demands for its programs in those other markets. And Kevin, correct me I don’t think any of those campuses were at capacity so I think it's still. And there is still room to grow enrolment at the campuses other than Toledo.

And we looked at states outside of Ohio as well as Ohio kind of interesting you can look at some of the other degrees, degrees other than nursing and the state projection need, and the needs that you are allow to offer the degree the certain needs not there you are not allowed to offer the degree. So that’s somewhat more regulated in some states but we are comfortable with the system. But we are looking at adding other locations we just have to be patient till we get our approvals.

And then my second question has to do with I guess how we should think about near and long-time pricing outlook? Or I guess how you guys might be looking at pricing in 2018?

You mean tuition pricing.

Exactly, yes.

It's kind of interesting because pricing is all over the blackboard for traditional institutions as well as non-traditional institutions. I just got a tuition increased notice from my alma mater Duke University that they are raising it next year by 3.9% they raised it last year by 3.9% and I think the total cost of attendance is over $70,000, if you are an elite school you can do that. But if you are competing for students you really can’t do that. We don’t have any intentions currently of raising tuition at APUS. We think we are positioned to compete. We also don’t think that we have to discount our tuition either at APUS. We think we are pretty solid where we are. And we think we are pretty solid where we are with Hondros because of the need for nursing. We are in markets that while competitive, aren’t saturated with competitors and back in a couple of locations we had competitors go out of business due to closure of ITT locations and [indiscernible] locations or nursing. We’re comfortable with our pricing but I would say that we’re not planning any increases in the short-term.

At this time, I'm showing no further questions. I would like to turn the call back over to Mr. Chris Symanoskie for closing remarks.

Thank you, operator. That will conclude our call for today. We wish to thank you for listening 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 all disconnect. Everyone have a great day.