Good morning, everyone and welcome to Strayer Education, Inc.’s Fourth Quarter 2014 Earnings Results Conference Call. This call is being recorded. For those of you who wish to listen to the conference via the Internet, please go to strayereducation.com, where the call will be archived. With us today to discuss results are Robert Silberman, Executive Chairman for Strayer Education; Karl McDonnell, Chief Executive Officer; Mark Brown, Executive Vice President and Chief Financial Officer; and Daniel Jackson, Senior Vice President and Treasurer. Following Strayer’s remarks, we will open the call for questions and answers. I would like to remind everyone that today’s press release contains and certain information on this call may contain statements that are forward-looking and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act. The statements are based on the company’s current expectations and are subject to a number of assumptions, uncertainties and risks that the company has identified in the paragraph on forward-looking statements at the end of its press release and it could cause the company’s actual results to differ materially. Further information about these and other relevant uncertainties may be found in the company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission. Copies of these filings and the full press release are available online and upon request from the company’s Investor Relations department, Robert Silberman. Mr. Silberman, please go ahead.

Thank you, operator and good morning ladies and gentlemen. We are going to begin this morning with Karl discussing our company’s operating results for the fourth quarter and then Mark will report our financial results for both the fourth quarter and the full year. As we announced last July, Mark will be retiring on March 1. So, this will be his last earnings call. I encourage you all to direct the most difficult questions his way. Mark will be succeeded as CFO by Dan Jackson, who has our Senior Vice President of Finance for the last 5 years with Mark. Dan is also here with us today. So, feel free to rough him up as well. When Mark is done, I will conclude with some comments on our capital allocation over the last year and we will try to leave as much time as possible for your questions. Karl?

Thanks, Rob. Good morning, everyone. I’d like to begin this morning with a few comments on our fourth quarter and full year performance and first on revenue per student. The 4.2% decline in the fourth quarter and the 3.3% decline for the full year were basically right in line with our forecast. Revenue per student will continue to decline in 2015 as each cohort of new undergraduate students increases the overall mix of students who are on the lower undergraduate tuition. At this point for 2015, we are forecasting a decline in revenue per student of between 4% and 5%, which obviously is dependent on our enrollment performance and student mix. By the end of 2015, nearly all of our undergraduate students will be on the lower tuition and so we would expect any future declines in revenue per student to be quite minimal. We continue to do well with our cost management. In the fourth quarter, excluding last year’s restructuring cost our operating expenses were down 6%. About a third of that is due to savings in marketing with the remaining two-thirds coming from lower headcount and favorable bad debt expense. These savings helped our operating margin, which declined only 60 basis points despite the 6.5% reduction in revenue. Taking into account savings we began realizing in the fourth quarter of 2013, along with the savings throughout last year, we achieved slightly more than our $50 million operating expense reduction target. Regarding the marketing savings, I’d like to reiterate comments I have made earlier, which is that we don’t plan those savings in advance, which means they may or may not materialize this year. Our plan for this year is to spend at least as much as we did in 2014, if not slightly more. Turning to our enrollment…

Thanks Karl and good morning everyone. I will start with revenue. Revenue for the fourth quarter of 2014 decreased 6% to $116 million compared to $124 million for the same period in ‘13. The decrease was primarily driven by lower enrollments, which were down 2% for the fall academic term and lower revenue per student which declined 4.2% as Karl described. Income from operations was $22.6 million for the fourth quarter of ‘14 compared to a loss from operations of $30.1 million for the same period in 2013. Loss from operations in the fourth quarter of ‘13 includes $54.7 million in expense related to the company’s restructuring. Excluding these charges income from operations was $24.6 million for the fourth quarter of 2013. Our operating margin was 19.5% for the fourth quarter of 2014 compared to 19.8% for the same period in 2013 when the restructuring charges are excluded. Net income for the fourth quarter of 2014 was $12.9 million compared to a net loss of $19 million for the same period in 2013. Net loss for the fourth quarter of ‘13 includes approximately $33 million in after-tax charges related to the restructuring. Excluding these charges, net income would have been $14 million in the fourth quarter of 2013. Diluted earnings per share was $1.21 for the fourth quarter of 2014 compared to diluted loss per share of $1.80 for the same period in ‘13. Diluted loss per share for the fourth quarter of ‘13 includes $3.12 per share in after-tax charges related to the restructuring. Excluding these charges, diluted earnings per share was $1.32. Diluted weighted average shares outstanding increased 2% to 10,734,000 from 10,557,000 for the same period in ‘13. Revenues for the year ended December 31, 2014, decreased 11% to $446 million compared to $504 million for the…

Thanks Mark. Just a brief comment on the capital allocation for the last year and I put it in the context of Karl’s comments of what really is a firming business for us. Remember back 15 months ago at the end of 2013 we were faced with pretty significant declines in new students, which we knew were going to rollover into declines in total students in revenue throughout 2014. So, we started the year 2014 with $95 million in cash on the balance sheet and we were at the tail end of a fairly active share repurchase program. We had 10.6 million shares outstanding. When Mark and I started, I think it was about 16 million shares back in 2001. And we had $121 million in principal outstanding on a bank term loan. As Mark mentioned during the year, we generated around $78 million in cash flows from operations. We use that cash during the years for the $7 million in CapEx Mark mentioned mainly academic technology, routine maintenance. Our CapEx budget was down significantly without new campuses opening. And then we used another $3 million to make the required principal payments on the term loan. The remaining $67 million we added to the $95 million we started the year with. So at year end, we have $162 million in cash and only $118 million of principal on the term loan and no draws on the $100 million revolver. So, we have a net cash position of almost $45 million still with the 10.6 million shares outstanding. So, as you can see in a period of some uncertainty and transformation within the company, we significantly strengthened our balance sheet going from $28 million of net debt to $44 million of net cash. And we are confident we have sufficient reserves to take advantage of opportunities to both grow our business this year that we see and to return capital to our owners. And with that operator, we would be pleased to answer any questions and we will stay as long as we have questions.

[Operator Instructions] Our first question comes from the line of Jason Anderson of Stifel. Your line is open.

About the start there, the flat start and obviously, I know they can move around and you guys aren’t in the business of predicting your starts, but is there anything you saw in the market differently in this quarter? I realize you are going against a bit tougher comp than the last few quarters, but you had been seeing some growth and just kind of interested in your color on the trend there?

Sure, Jason. As I said in my prepared remarks, we were very pleased that our undergraduate students continue to grow. They were up 5%. And our national account channel continues to do very well. It was up 18%. We did see a decline in new graduate students, sort of low double-digits. That number has moved around a little bit over the last year, a year ago, it was up around 14%. It’s been up and down. And we have said that there is obviously some volatility in the new student enrollment, but we were particularly pleased with the growth at the undergraduate level.

Okay. And then so, sorry, did I cut someone off?

Well, I was just going to add to that, Jason. Just qualitatively for us, the sustained growth at the undergraduate new students is probably the most important trend that we are tracking, because it was the largest contributor to our overall downturn in enrollment starting in 2010. And if you think back to the impact of the downturn in the economy, although it started in early 2009, I think we had quite a bit of inertia rolling through 2009. It was really mid 2010 when it began to take a big chunk out of our enrollment. It was mainly focused on the undergraduate side. And as Karl said, our graduate enrollment has been up and down, but generally relatively strong. So, that flip in the graduate enrollment is of a lot less concern to us, particularly with the emerging strength of the Jack Welch Management Institute.

And then I guess maybe just even go a bit higher level, but in the similar lines, when you go to market, do you know – and this might even be interesting to know between undergrad and grad, why students are choosing you, maybe what your competitive advantages in the marketplace? And then or maybe conversely, when they don’t, do you know where you might be losing them too or why you might be losing them?

Well, over a third of students are coming to us from our national account, so those are relationships that we have with the large and medium size employers that definitely helps. Our campus footprint clearly is an advantage. Many of the students that come to us express the desire to have the flexibility to take their classes on ground or online along with very strong brand and a long history of teaching working adults. We don’t tend to get a lot of feedback from students who enquire and then subsequently don’t enroll. So, I can’t really comment on where they may have ended up if anywhere, but the students that do choose us typically articulate the flexibility, our reputation or our institutional alliances.

Great, thanks for that.

Sure.

Thank you. Our next question comes from the line of Corey Greendale of First Analysis. Your line is open. Please go ahead.

Hi, good morning.

Good morning Corey.

So, Mark, first I wanted to ask you about the update on FASB standards, subtopic 340-40?

We might ask to handle that offline.

But seriously, in the more than a decade, I have been covering the group, I think you are the last CFO standing, so congratulations on that.

Thank you, Corey. I appreciate it.

So, couple of questions on the quarter. So, I appreciate Karl that your update on the thoughts on 2015 and I also appreciate that the marketing spend as you pointed out that may or may not continue the trend we have seen, but I think last quarter you have said if trends continue, you expected operating expense to be flat to up 2%. Can you just comment on whether that’s still the case?

Yes, that is still the case, Corey.

Okay. And there was no – so, we should not expect, I had anticipated somewhat less of the decline in operating expense in Q4. And I understand some of that’s the marketing, but in other words we shouldn’t expect in Q1 that we are going to continue to see the same rate of decline?

No. Well, I can’t comment obviously on Q1, but the comments that I made about we expect our operating expenses to be generally up 1% to 2% on a full year basis, that’s still our view.

Okay. And then the revenue per student, am I thinking about it correctly that if the graduate mix were to continue in this direction or it sounds like things are directionally moving favorably for undergraduate and in the winter term less favorably for graduate. Would that suggest that the decline in revenue per student would be at the more negative end, since the tuition didn’t change for graduate?

That is true. Yes, that is correct.

Okay. And then Rob, I appreciate the perspective on the uses of capital in 2014 and your thoughts on ‘15, but should we be thinking mostly about a reimplementation of the share repurchase program at this point as opposed to re-initiation of a dividend?

Well, we talk about that at the board level every quarter. And we think of them as just two different ways of returning capital to owners and it really depends on – I mean, the first step is, do we truly have excess cash, do we – because our first desire is to invest our capital in the business in high return areas. If we are unable to do that and we have sufficient capital to both run the university and fund future growth and we want to return it to owners, then we look at both the intrinsic value as we can calculate it of the stock and whether it’s trading at a significant enough discount to the intrinsic value that it makes sense for us to take the optionality away from our owners by essentially dividing them more of the company when we repurchase shares or to take some amount of that excess capital and dividend it as actual liquid cash and let them make the decisions. We have done both in the past. It’s tended to be tactical. And based on our view of both the markets and whatever creates the highest after-tax return to our owners, so I couldn’t really give you any guidance right now. And we will be looking at through the year and also relating it to our operational performance and whatever other opportunities, Karl and Dan come up with, with regard to investing in the business.

Okay. And then one real specific thing which was – you just hit on Jack Welch, I think there is a channel partnership with Skillsoft. I was just wondering if you are willing to comment on how that’s going, or more broadly, other channel current partners or opportunities for the Jack Welch program?

Sure. We do have a relationship with Skillsoft and it’s designed to license our Welch Way management training programs that we initially developed, but then subsequently handed over to Skillsoft. They have completed – almost completed their first year with that under their auspices and they had a pretty good year. They hit the objective that they had set. And we expect that over time that could be a meaningful part of our business, but it will take years before it really builds up.

And to be clear, Corey, those are management training material as opposed to academic course offerings in the MBA program.

Yes, they are noncredit.

Got it, got it. Great, thank you.

Thank you. Our next question comes from the line of Sara Gubins of Bank of America Merrill Lynch. Your line is open. Please go ahead.

Hi, thank you. Good morning.

Good morning, Sara.

Could you give us start trends for the unaffiliated bachelor’s degree programs? So, I am assuming the 5% incorporates the benefit of the institutional relationships?

It does. I don’t have it broken down in front of me, Sara, but just given that the undergraduate population as a whole was up 5%, I suspect it was up, but I would have to look at the numbers and follow-up with you offline.

Okay.

But the trend was better if you are asking trends.

Yes, okay.

Of quantifying them.

Okay. And then I know graduate or anything really from quarter-to-quarter, term-to-term can be choppy, but any sense of what happened to the graduate programs? Were there particular areas where you saw more of a fall-off? Did you change your marketing approach during the term?

No, nothing changed from a marketing or advertising standpoint. It wasn’t really isolated to any one particular geographic area. And as I say, we have seen fairly choppy performance in that. It could be up 14% as it was in some of the quarters last year. It was down on the low double-digits this quarter. So, it’s moved around a little bit. And we are comfortable with that. To Rob’s point, what we were really focused on given the weakness we had over a multi-year period at the undergraduate level was tracking those undergraduate new students. And as I said, we were pleased that those grew 5%.

Great. And then last quarter, you have given us the underlying start growth, excluding the 20 campus closures, do you have that again for this quarter?

Well, we are no longer breaking that out. The bulk of the campus closures were essentially complete. By this time last year, there was a handful that might have worked its way through to the coming months a year ago. So, we have stopped breaking that out.

Okay.

Listen, I think I was going to say I think it’s fair though to say that there is probably still a little bit of a drag in those markets, which runs through our global online center that’s what we serve them now, because you have got you are a year removed away from having physical campuses there. I think it will be probably by the end of this year where that really is kind of an apples-to-apples basis.

Okay. And just last question on retention, so you have been seeing nice improvement in retention, do you think there is a significant runway for that to continue to improve?

Well, I definitely think there is continued room to improve. I think the gains that we have seen in retention are a result of a lot of efforts just to continuously work to make that classroom experience as strong as we can get it. We are looking at different ways to deploy our faculty in our courses. And those are things that are ongoing. So, we are going to continue to work to make that classroom experience as strong as we can get. And then I do think there is additional room for retention to improve.

Thank you.

Sure.

Thanks, sir.

Thank you. Our next question comes from the line of Jeff Silber of BMO Capital. Your line is open. Please go ahead.

Thanks. Just wanted to follow-up I think with on Corey’s question regarding revenue per student, so it looked like last quarter you thought it was going to be down or flat to down 2% for this year, now you are saying 4% to 5%. Is that solely because of this mix shift towards more undergraduate as opposed to graduate students?

Jeff, I think you might be referring to my comments on revenue for the year, which I said we would expect to be down sort of in that 2%ish range. Again, if those enrollment trends continue, just given the mix shift of undergraduate students on that lower tuition, as I said we are expecting revenue per student all things being equal to be down about 4% to 5% this year.

Okay, my mistake. I apologize about that. And actually just to confirm some other numbers for this year, can you give us what your budget is for capital spending, stock-based compensation and what tax rate we should expect for 2015?

Sure, Jeff. On the CapEx front, we are estimating $10 million to $12 million and on stock-based comp in the neighborhood of $10 million to $11 million and in terms of tax rate, we are modeling 39%.

Okay, great. And Mark, congratulations and Daniel, best of luck.

Thanks, Jeff.

Alright, thank you.

Thank you. Our next question is from the line of Trace Urdan of Wells Fargo Securities. Your line is open. Please go ahead.

Thanks. Good morning.

Good morning, Trace.

First question was if you could just briefly speak to the variance at the G&A line in the quarter, it was up year-over-year and sequentially is that compensation-related or something else?

Yes, Trace, it’s just a handful of things. It’s kind of not one thing in particular, professional services and handful of other things. There is nothing really, not one thing to point to.

Okay. And I wonder if you could elaborate a little bit on the decision to get into the BSN market, I am wondering sort of what kind of research you did that’s obviously a field that a lot of folks that are publicly traded are seeing strength in, but one that probably doesn’t continue at the current rate of growth forever and since you guys are sort of the most recent to get into it, I wondered if you might just sort of take a minute and talk about the opportunity that you see in entering that market?

I think he is calling you slow, Karl.

No, careful, deliberate.

Deliberate, I appreciate that. Sure, Trace. So, we have looked at that for quite some time. We do see and believe that there is strong growth in the nursing field across the United States. And so we think it’s an excellent program. We have studied outcomes. We have studied salaries of graduates from BSN program. So – and it’s not too far a foot from our core mission of educating business-related, managerial related components. So these are nurses that have already been licensed and are now coming to get their bachelors degree. And so it just seems to be a good fit for us.

And do you guys anticipate having any relationships with some larger healthcare providers in terms of national accounts for that program or is it too early to talk about that?

We already have some healthcare related national accounts, but it certainly could be an opportunity that we would look at and of course we would announce those when they are consummated.

Got it, alright. Thank you.

Sure. Thank you.

Thanks Trace.

Thank you. [Operator Instructions] Our next question comes from the line of Paul Ginocchio of Deutsche Bank. Your line is open. Please go ahead.

Thank you. Karl just a question about the new enrollment trends I just want to make sure I am clear on this, so it does look like you cycled a little bit of headwind from the branch closures, which should have been – which should have helped the Q1 or the acceleration, but is all the real change from third quarter and the fourth quarter around grads, because it does look like your ad spend was down about the same in both the third and fourth quarters, I am just trying to isolate the delta we saw from the growth in the third quarter to the flatness in the fourth quarter? Thanks.

Sure Paul. Yes, it really was isolated to new graduate students. The change in marketing dollars, I don’t think impacted the new students in anyway. And so we will – something we will watch moving forward, but for the fourth quarter it was just a reduction in new graduate level students.

Great. And you had reiterated that your view that new enrollment goes back positive. So I guess we can imply from that or infer from that the first quarter trends might reaccelerate or be better than what we just saw?

Yes. You mean total enrollment growth in the second quarter…

Which means new enrollment might be back positive here in the first?

Well, it could be, I mean obviously I don’t know and therefore can’t comment on it. But the largest driver of the change in our enrollment is the continuing population since that’s the bulk of our students. And given now that we have gone a year plus with improvements, my comments around should trends continue really puts a great deal of emphasis on those retention gains. And should those trends continue then, I think there is a strong possibility that we would breakeven on total students in the second quarter.

Even if we were flat on new students Paul, I think is the significance to that.

And last one just level of – number of graduates as you see them coming through in ‘15 versus ’14?

Probably going to be around 7,000 or 8,000 students.

And it’s slightly more than 8,000.

Relative to – sorry what’s the ’14 number?

It about 8,000. So we are – we have declining student population over the last 3 years, increasing graduation rates and relatively stable number of graduates.

So, 8,000 in ‘14, 8,000 in ’15.

Yes.

And finally Karl, if I can sneak one more in I don’t know if you want, just can you continue talk about sort of quarter-to-date trends or you just don’t want to talk about first quarter at all?

No, I prefer not to Paul?

Great. Thank you.

Sure. Thank you.

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

Yes. You have got John Crowther on for Peter. Just real quickly I apologize if maybe this was covered previously, but hopped on to the call late, but it sounds like on the grad side the new start issue potentially could have been a little bit of a tough comp issue. I am wondering what that sort of looks like if maybe you can just this remind us how that sort tracked through this year and how that would impact over the next year that trend line?

It’s, I can’t give you too much information on that John other than to say as we said earlier it’s got some choppiness in it. We have had quarters over the last year or year and a half where it’s been up single-digits, it’s been up double-digits. This particular quarter, it was down low double-digits, so it just appears to be a little bit choppy at this point.

Okay. And then just again I apologize if you have already addressed this, but in terms of the guidance for operating expenses to be sort of up modestly, wondering if you could maybe sort of talk about organic trends there versus maybe incremental spend around like the BSN program or any sort of internal investments you guys are doing to try and reaccelerate the business?

Sure. We do have incremental operating expenses associated with launching the new programs, so that’s baked into the roughly 2% increase that we are expecting. On the G&A line roughly speaking the numbers that we have had over the last couple of quarters, I think represent a good run-rate for this year. There is a handful of other things that we are experimenting with, with some technology, the classroom experience, all of that though is baked into our forecast to be up modestly around 1% or 2%.

Okay, great. Thank you.

Sure.

Thank you. And I am showing no further questions in the queue. I would like to turn the conference back over to Mr. Silberman for any closing remarks.

Thank you, Ben and thanks everyone for participating. We will all be available the rest of the day if you have any questions you want to follow-up on and look forward to talking to you in the upcoming quarter. Thank you.