Good day, ladies and gentlemen, and welcome to the Second Quarter 2018 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] And as a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Chris Symanoskie, Vice President, Investor Relations. Sir, you may begin.

Good evening and welcome to American Public Education's discussion of financial and operating results for the second quarter of 2018. Presentation materials for today's conference call are available via the Webcast section of our website 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 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, 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 most recent Annual Report on Form 10-K and subsequent 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. Good evening everyone. I will begin our call today by discussing our recent operating performance starting with Page 2 of our slide deck. Our CFO, Rick Sunderland will then report on our second quarter financial results and outlook for the third quarter of 2018. In the second quarter of 2018, net course registrations by new students using Federal Student Aid or FSA at APUS declined 13.4%, compared to the prior year period. However, net course registrations by new students excluding those utilizing FSA increased 3.5%, compared to the prior year period. This increase was driven by a 9.5% year-over-year increase in net course registrations by new students utilizing cash and other sources, a 6.1% year-over-year increase in net course registrations by new students utilizing Veteran’s benefits, and a 0.6% year-over-year increase in net course registrations by new students utilizing military tuition assistance or TA. Overall, net course registrations by new students at APUS declined by approximately 1% in the second quarter of 2018, while total net course registrations and net course registrations by returning students were both approximately flat year-over-year. Although future volatility in net course registrations can be expected, I am particularly pleased by our progress in stabilizing enrollment at APUS. We believe this goal was achieved in part by the continued improvement in student persistence and recent increases in conversion rates that resulted from reengineering student onboarding processes and expanding student service hours. Furthermore, we believe the initiatives that we have launched over the last several years aimed at improving student success and the overall quality of our offerings also contributed to our success. For the three months ended June 30, 2018, or the spring term of 2018, total enrollment at Hondros College of Nursing or HCN increased approximately 17% year-over-year and new student enrollment increased…

Thank you, Wally. Going on to Slide 4. American Public Education’s second quarter 2018 consolidated revenue increased 1% to $72.8 million, compared to $72.2 million in the prior year period. The revenue increase was due to a $1.2 million or 15.4% revenue increase in our Hondros segment, which was partially offset by $0.6 million or 1% revenue decrease in our APEI segment. The Hondros segment revenue increase was primarily due to an increase in student enrollment, whereas, the APEI segment revenue decrease was primarily due to a decrease in APUS net course registrations. Cost of expenses for the three months ended June 30, 2018 were $64.8 million, a decrease of $1.1 million or 1.7%, compared to $65.9 million for the three months ended June 30, 2017. The decrease in cost and expenses was primarily due to decreases in instructional materials costs, employee compensation costs, and advertising cost in our APEI segment, partially offset by increases in professional fees and additional stock-based compensation expense related to certain employees reaching retirement eligibility in our APEI segment and increased employee compensation costs in our Hondros segment. Consolidated instructional costs and services expense as a percentage of revenue decreased to 39.8%, compared to 41.3% in the prior year period. Selling and promotional expense as a percentage of revenue decreased to 18.2% of revenue, from 19.4% in the prior year. General and administrative expense as a percentage of revenue increased to 24.2%, compared to 23.1% and bad debt expense for the three months ended June 30, 2018 was 1.2% of revenue, compared to 1.3% of revenue in the prior year period. Depreciation and amortization was $8.9 million for the six months ended June 30, 2018, compared to $9.5 million in the prior year period. Our effective tax rate during the second quarter of 2018 was…

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

Hey, good afternoon.

Hi, Corey.

So, a couple of clarifications. So, Rick, you said, Q2 includes $700,000 in cost associated with an acquisition. You decided not to pursue. Did I hear that right?

Yes, that’s correct, Corey.

I am sorry, did you say that that is included in the EPS guidance or excluded?

It’s included in the EPS guidance.

Okay. And I missed the first number given at the beginning of the script. What was new FSA students count in Q2?

New FSA was down 13.4%.

13.4%. Thank you. So, it sounds like, there was a temporary issue that's impacting Q3 with the Air Force. Is there any way of estimating kind of what the impact to that was and what you’d expect new students to be doing in Q3 if that work for that Air Force’s glitch?

We didn’t try to do that for this call, Corey. Typically, the Air Force is about 40% of our military TA enrollment. So, I mean, maybe we could get back to you. We don’t have that number, Rick do you?.

No, well, it’s certainly impacted August registrations, right. So how many of those then come back and register in September, I can’t tell you. If there is going to be an offset and if there is what it’s going to be, but to Wally’s point, it is 40% of our total TA registrations.

Okay, and that is – it’s still ongoing or it was resolved now?

It was resolved on August 2. It was about two week periods that was down, Rick?

Yes, it was just a little over two weeks.

Okay. And then, I had a question on pricing generally. So, maybe start with the Hondros side, I scanned into the Q and saw that Hondros is now offering institutional loan program, which - as opposed to just offering scholarships, which would seem more in keeping with kind of a philosophy of low cost. So just, why the decision to offer institutional loan program?

I think, we tend to be overly conservative on compliance. So, we wanted to make sure that we dotted our i's and crossed our t's for people who might have temporary needs. And long-term, Corey, I think, we just have to see what the market is.

Okay. And in terms – Rick, in terms of the accounting for that, I don’t know, if there is a question about collectability, does that impact revenue per student at Hondros?

We are not anticipating it’s going to, Corey. But obviously, we’ve got to build a record there looking at the payment experience. So we'll be watching that very closely.

Okay. And on the APUS side. Obviously, all the things you say are true in terms of the differentiation with the lower tuition point, but, obviously there is pretty wide gulf between where you are at and where a lot of – most of the market is and if you raise a little bit, that would give us more to invest in student services and sales of marketing and stuff. So, maybe just philosophically and I am sure this - I know that comes up repeatedly, but why not raise tuition prices somewhat in the civilian markets you have that excess to invest?

I would say, Corey, that we look at this not monthly, but couple of times a year. One of the reasons why we have not done much over time is that, we would still keep our tuition at the same rate for military or military affiliated, which includes veterans and spouses. When you put all those numbers together, there are 70%, 71% of our total student population. So, we continue to look at it. It’s a very good point. We are not oblivious to it. We just have to make sure that it’s worthwhile going through the initiatives.

Okay. Great. Thank you

Thanks, Corey.

Thank you. Our next question comes from the line of Peter Appert of Piper Jaffray. Your line is open.

Hey guys, this is Kevin Estok. I am in for Peter Appert.

Hi, Kevin.

Just – hi, so, my first question has to do with corporate partnerships. I just wanted to know how you are developing those to drive enrollment growth and maybe if you could give a little color on the percentage of the total enrollments that currently come through that corporate channel and also, where that percent could go going forward will be helpful. Thank you.

I think it’s about half of our current cash and other that comes through corporate partnerships. We are pretty optimistic that that area will continue to grow. It is – as I’ve said on this call before though, it’s really tough sliding, because there is – it’s very difficult to get a unique – to be the unique sole provider to any corporation. So, we try to focus on corporations where we are just one of two, three or four that we can get a substantial number of prospective students. So, but, currently it’s about half of that cash and other category.

Okay. All right, thank you. And my second question has to do with the margins. They’ve obviously improved quite a bit this quarter and which is very encouraging. And I guess, I was wondering what your views are on driving margin leverage going forward?

I think, we always looking at ways at improving efficiencies and driving that leverage with the one exception being that, in the first quarter, we’ll have higher benefit cost for payroll. And then, in quarters like the third quarter, which is typically a seasonal dip in enrollment versus other quarters, we want to spend into the fourth quarter which is usually our best quarter from an enrollment perspective.

So I think, we are – as I said in my comments, it is really – it is tracking towards the high end of the range that we discussed earlier in the year. I think that’s having an effect on the current quarter, second quarter versus the prior year. The longer term trends have remained positive for both, we call it instructional materials, it’s really books, as well as bad debts. Although, our bad debts are getting to a point where it becomes a meaningful additional improvement.

Okay, great. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from the line of Alex Paris of Barrington Research. Your line is open.

Hi, this is Chris Howe, sitting in for Alex Paris. Good afternoon.

Hi, Chris.

I just had a question, as we think about student persistence and student retention moving forward, some of the operational things that are going on behind the scenes and what type of successes are you seeing or different types of challenges that are presenting themselves either in this past quarter or moving forward?

Well, the good news is that, while the new students using FSA are down, the returning student number is much, much lower decline, closer to even and what we are finding with the returning FSA students is, we are getting some signs and we are getting an improved lifetime value on those students. So, I think our strategy to really focus on students who were capable of completing college for our FSA student recruitment is paying off.

So, I think there is multiple levers here. So you’ve got conversion rates where you convert applications to students and then you’ve got student success metrics once they become a student. And so we’ve reported over many quarters at this point, the latter of the two which is the first course pass rate for first five FSA students I mean, non-FSA, no FSA students – excuse me. And so, we’ve made great strides there. The reengineering of the enrollment process which is multi-faceted and ongoing has resulted in improved conversion rates. So, the marketing function is identifying students that are on average, more college ready. The reengineering of the enrollment process is delivering higher conversion rates and the quality of the students that we are enrolling is delivering better student success. And so, it’s the combination of those two that’s driving in my opinion, driving the overall, I’ll say, getting to basically even on total net course registrations.

Okay, that’s very helpful. Thank you. And, do you quantify this metric on an internal basis to see how retention is improving year-over-year? I don’t know, it’s even, I guess, just on a comparable basis, how did retention – how is retention moving versus the prior year and can we expect further improvement next year?

Retention continues to improve. It’s a complicated calculation and different institutions calculate it differently. But I would tell you that across the board, we are seeing improvements in retention, how we measure it. And I think, you can see the difference between the new student numbers in FSA and the returning student numbers in FSA as a specific category. And we didn’t provide numbers in other payer categories. But we use our own metrics in our data warehouse. We use a program from Civitas. We participate in our crediting body, the HLC’s Persistence Academy. So, we have multiple initiatives going on in which we analyze and implement processes to mentor, monitor and to recruit students who are going to persist.

Okay, thank you for taking my questions.

Thank you and at this time, I am showing no further questions. I’d like to turn the conference back over to Mr. Chris Symanoskie for any closing remarks.

Thank you. That will conclude our call for today. 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. You may now disconnect. Everyone have a great day.