Good day, ladies and gentlemen. And welcome to the American Public Education, Inc Third Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will follow at that time. [Operator Instructions].As a reminder, this conference is being recorded.

I will now like to turn the conference over to your host Chris Symanoskie, Vice President of Investor Relations. Sir, you may begin..

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 2015.

Presentation materials for today's call are available in the webcast section of our Investor Relations website and are included as an exhibit in our current report on Form 8-K filed earlier today.

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 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 limitations, statements regarding expected growth, amounts in nature of anticipated charges, expected registration and enrollments, expected revenues, expected earnings and plans with respect to recent and future 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 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, even if new information becomes available or other events occur in the future. On the call today we will also discuss certain non-GAAP measures and outlook for the fourth quarter of 2015.

Although these non-GAAP measures are not intended to be substitute for GAAP results, we believe they will allow investors to better compare results to prior year period. 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.

Also available for questions today is Harry Wilkins, Executive Vice President, Chief Development Officer and CEO of Hondros College of Nursing. Now at this time, I'll turn the call over to Dr. Boston..

Thanks, Chris. Good evening, everyone. In today's call, I'll provide a summary of our recent results and commentary on our strategic priorities. Then our CFO, Rick Sunderland will discuss our financial results and provide perspective on the company's outlook for the fourth quarter of 2015.

Before we begin, I want to take a moment thank Harry Wilkins for his service to our company. Harry recently informed that he will retire in December from his current role as Chief Executive Officer of Hondros College of Nursing and Chief Development Officer of American Public Education.

Harry's involvement with APUS and APE goes back to 2001 when he was hired as a consultant. Harry was instrumental in helping the company receive private equity funding in 2001 and 2002, helped us attain approval for participation in a Federal Student Aid program and he served as a Board member through 2006.

Harry became our CFO in 2007 and ably guided us to an IPO later that year to Sarbox compliance and to secondary offerings in 2008. He led the team that identified in a core Hondros College of Nursing and he led Hondros as a CEO since November of 2013.

More importantly to me, Harry introduced and recommended me to APUS in September of 2002 and two of us have worked together since that time. I want to thank Harry for his service to our companies. I wish him well on his retirement and I appreciate his willingness to work with us as we transition to new leadership in Hondros.

It has been a wonderful experience working with you Harry. In the third quarter of 2015, overall net course registration at APUS decreased in 6% and net course registration by new students declined 19% year-over-year. The overall decline was primarily driven a 35% decrease in net course registration by new students using Federal Student Aid.

We believe that efforts to improve our quality mix of students through new student, through new admissions processes, more targeted advertising and increased competition for civilian students contributed to the decline in net course registration in the third quarter of 2015.

It is also important to note that overall net course registration by returning students declined only 3% year-over-year indicating that our goal of attracting better students is working. Net course registrations by new and total students using military tuition or TA decreased year-over-year by 7% and 3% respectively.

We believe the decline is primarily result of decreased utilization of military tuition assistance benefit by active duty military professionals. That said in the third quarter the year-over-year decline represents sequential improvement over the year-over-year decline we experienced in the second quarter of 2015.

Furthermore, we believe that the perceive risk of a government shutdown has lessen for the bipartisan budget agreement recently passed by Congress.

Although we expect continued volatility in TA course registrations, we are pleased that the volume of net course registrations by students using TA has turned positive thus far with December advance registrations.

Although net course registrations by new students using veterans benefits were approximately flat year-over-year, total net course registrations by veterans increased nearly 10% in the third quarter of 2015.

We attribute this increase to AMU's strong reputation among military affiliated communities and increased retention of students using GI bill benefit. Our net course registrations by students using cash and other sources were approximately flat year-over-year.

Net course registrations by new students using cash and other sources increased by approximately 5% compared to the prior year period. We believe that this increase was aided by our ongoing efforts to pursue corporate and strategic partnerships.

We launched new academic programs at APUS during the quarter including an MS in Nursing as well as MS and BS in health information systems to expand our presence in the growing healthcare field. We continue to focus on several key initiatives to increase student persistence and to attract students with academic intent and greater college readiness.

It appears that these initiatives are positively influencing our quality mix of students as evidenced by a 19% year-over-year increase in the first course path and completion rates of under graduate students at APUS and continued reduction of bad debt expense.

In September of this year, we changed the method by which we disperse Federal Student Aid from a single disbursement method to a multiple disbursement method for first time APUS under graduate students.

In the fourth quarter of 2015, Hondros College of Nursing increased student enrollment by 3% year-over-year while new student enrollment declined by 11% year-over-year.

ADN program enrollments at Hondros declined as a result of strength and completion requirements in the practical nursing program which is the primary source of new ADN students in the practical nursing program and the addition of night and weekend courses which is resulted in students taking fewer total courses each academic term as some students have would otherwise studied on full time basis are now pursuing courses on a part time basis.

We believe that the negative revenue impact could continue in future periods. Additionally, Hondros' transition to LMS and IT systems, those also currently used by APUS and the new evening programs which were launched by us well continue to be very popular with new and current students. Moving on to Slide 4.

Recently we've increased our focus on four important areas of our strategic plan and increased our emphasis on managing cost.

Although our lead flow has increased year-over-year, we believe that among other cost control efforts it is prudent to continue to selectively target our advertising spend while we work to improve the application assessment processes and/or until our conversion rates improve.

With several initiatives already underway we hope to realize improvements in our conversion rates next year. In addition to cost management we are seizing the opportunity to further increase our focus on four strategic priorities. Number one, optimizing targeted outreach. Number two, refining the assessment and application process.

Number three, improving student engagement. Number four, enhancing the university experience. We made good initial progress on these priorities. In the third quarter of 2015, we were again able to generate a year-over-year increase in lead.

That said, we continue to adjust our marketing outreach by reallocating marketing dollars to more cost effective channels and utilizing enhanced geographic targeting and analytical capabilities and outreach the prospective students who have a greater potential to succeed.

In addition, we believe we are seeing signs of improvement and persistence related impart to the changing quality mix of students and the use of clear path, civil task and other initiatives aimed at increasing engagement and interactivity. We continue to be challenged by low conversion rates and competitive market conditions for civilian students.

Thus we are allocating additional resources to the early stages of the lead to enrollment lifecycle. Specifically, we are working to optimize and improve the effectiveness of our online application process and our new admissions course.

We plan to launch new version of the admission assessment and release updates to our application form by the end of the year which we hope will result in an increasing conversion rate in 2016.

Once these tasks are completed and our conversion rates increased, we may then increase our outreach efforts to yield a better return on investment and marketing and attract more qualified students to our institutions. As you know, we are laser focused on creating a best in class student experience.

An experience that is affordable and differentiated from our competition. Our native classroom app, APUS mobile is just one example of our efforts. I am pleased with the increased in the adoption rate of APUS mobile which is now installed on over 20,000 Apple and 14,000 android devices.

In October, there were more than 1.2 million average weekly page views within the applications. In addition, I am pleased that we have opened our learning relationship management system clear path to all of our under graduate students.

As of October 30 there were more than 21,000 under graduates students using the platform and will soon be inviting alumni to join the network. Our focus and success is also reflected in the growing recognition that we receive each year. From the rankings in U.S.

news world and world report to the awards from the online learning consortium, I am very product that AMU, APU and Hondros regularly earn the recognition of our students, alumni in the various communities we serve.

Given our focus on key priorities, we plan to suspend a majority of our international development efforts until we see great or normal stability at APUS. Our certain relationships will continue to move forward. We plan to reduce our international outreach investment thereby allowing us to focus more on key initiatives.

In closing, we believe the pieces of the puzzle for our future stability is starting to come together as an academic institution with a higher purpose, we just make sure that we manage the institution with a long term perspective, build to over come big challenges and ensure that we continue to serve our deserving students and other audiences with distinction.

At this time, I'll turn the call over to our CFO, Rick Sunderland.

Rick?.

Thank you, Wally. On the Slide 5. American Public Education's third quarter 2015 consolidated financial results include a 9.9% decline in revenue to $76.3 million, compared to $84.7 million in the prior-year period. Both our API segment and our HCON segment reported revenues, declines in revenues when compared to the prior year period.

In the third quarter our API segment revenue decreased 10.4% to $69.2 million compared to $77.2 million in the prior year period. The decline in API segment revenue is due to the decline in net course registrations. HCON segment revenue decreased 5.3% to $7.1 million in the third quarter of 2015 compared to $7.5 million in the same period of 2014.

The decline in HCON segment revenue is primarily due to decreased enrollment in HCON's ADN program and the addition of evening and weekend classes which is resulted in students taking fewer total courses each academic term as they pursue their studies on a part time basis.

On a consolidated basis, costs and expenses decreased 6.1% to $65.8 million, compared to $70.1 million in the prior-year period. The decrease was primarily due to a decrease in selling and promotional expense in our API segment.

On a consolidated basis, operating margins decreased to 13.9% in the third quarter of 2015 as compared to 17.2% in the prior-year period. The year-over-year decline in operating margin is due to our revenue decreasing at a rate greater than a decrease in cost and expenses.

For the third quarter, consolidated instructional costs and services expense or ICS as a percent of revenue increased to 38.2%, compared to 36.2% in the prior-year period. The increase is due to our API segment’s ICS expenses declining at a rate less than a decline in revenue.

At APUS, the cost of course materials continued to decline year-over-year to approximately $22 per net course registration in the third quarter of 2015, compared to approximately $28 per net course registration in the third quarter of 2014.

Selling and promotional expenses or S&P as a percent of revenue decreased to 18.4% of revenue compared to 21.2% in the prior year period. Year-over-year S&P cost decreased 21.2% to $14.1 million compared to $17.9 million in the prior year period.

Accordingly, the year-over-year decrease as a percent of revenue is due to S&P costs declining at a rate greater than the decline in revenue. General and administrative expense or G&A as a percent of revenue increased to 23.1% from 20.6% in the prior year period.

Our G&A expenses increased 1.7% to $17.7 million, compared to $17.4 million in the prior year period. The increase in G&A expense was the result of an increase in G&A expense in our HCON segment.

For the three months ended September 30, 2015 bad debt expense decreased to $2.6 million or 3.4% of revenue compared to $4.3 million or 5% of revenue in the prior year period.

We believe the improvement in bad debt expense is a result of a change in our mix of net course registrations away from students using Federal Student Aid, as well as by our ongoing efforts to attract students with greater academic intent and college readiness.

During the three months ended September 30, 2015, 31% of net course registrations were students using primarily Federal Student Aid compared to 36% in the prior year period. Income from operations before interest income and income taxes decreased to $10.5 million compared to $14.6 million in the prior year period.

In the third quarter of 2015, net income was $6.8 million or $0.41 per diluted share, compared to $8.8 million or $0.51 per diluted share in the prior year period. Total cash and cash equivalents as of September 30, 2015 were approximately $113.8 million with no long-term debt.

For the nine months ended September 30, 2015 capital expenditures were approximately $19.6 million, compared to $15.3 million in the prior year period. The large increases were related to our new IT center located in Charles Town, West Virginia and increased investment in software development and academic program development.

The new IT center is now occupied and we do not anticipate any major new building projects in the near term. Depreciation and amortization was $14.2 million for the nine months ended September 30, 2015 compared to $11.9 million for the same period of 2014, an increase of 19.3%.

During the third quarter of 2015, we repurchased 129,849 shares of our common stock under existing repurchase authorizations. As of September 30, 2015 we had approximately $12.1 million available for stock repurchases. On to Slide 6. Our outlook for the fourth quarter of 2015 is as follows.

APUS net course registrations by new students in the fourth quarter of 2015 are expected to decrease between 22% and 19% year-over-year. Total net course registrations are expected to decrease between 10% and 8% year-over-year compared to the prior year period.

We believe these declines are primary a result of increased competition for students and the various measures we have put in place too improve quality mix of students as well as our targeted approach in advertising spend as we work to improve our student conversion rates.

In the fourth quarter of 2015, total student enrollment at Hondros is forecast to increase by approximately 2% year-over-year. However, new student enrollment is expected decrease by approximately 11% year-over-year.

In the fourth quarter of 2015, we anticipate consolidated revenue to decrease between 10% and 6% year-over-year compared to the prior year period.

In the quarter ending December 31, 2015 we anticipate that we will incur a charge of approximately $1.8 million in connection with a work force realignment which we anticipate will result in approximately $3 million in savings in the year ending December 31, 2016.

WE also anticipate that we write off approximately $1.4 million in information technology assets in our API segment during the three months ending December 31, 2015.

EPS for the quarter is expected to be in the range of $0.40 to $0.45 per fully diluted share which includes the impact of anticipated charges that are estimated to be approximately $0.11 per diluted share. Excluding the impact of the anticipated charges non-GAAP adjusted EPS is expected to be $0.51 to $0.56 per fully diluted share.

Management believes that the adjusted EPS guidance for the quarter ending December 31, 2015 which excludes charges for employee realignment and the write down of information technology assets is useful because it will allow investors to better compare results to prior year periods. On to Slide 7.

At the start of 2015, we outlined several key initiatives for the year. I am pleased that we have completed most of these initiatives including the initial rollout for clear path, civil task and other student retention pilots.

The launch of APUS mobile, the introduction of a new student assessment course, the launch of multiple disbursements for under graduate first time APUS student using Federal Student Aid and the previously announced tuition increase.

Recently, we decided to suspend our investment in international outreach to manage cost and we made improving conversion rate by optimizing our application and assessment processes under our current priorities.

API continues to be challenged including the challenges associated with increasing competition, a difficult regulatory and unfavorable core profit environment and matters relating to attracting students with academic intent and college readiness.

However, our initiatives to improvement our quality mix of students and students' persistence appeared to be gaining traction. We believe API is in position to stabilize enrollment in the future and execute our strategic plan. For the balance of this year and into next, we will continue to explore ways to optimize our operations and manage cost.

At the same time, we plan to refocus our efforts on four key areas to aid and stabilizing our enrollment and help us emerge as a more competitive and efficient organization in the long run. Our management team remains committed to our mission.

In particular, the success of our students, the quality and uniqueness of our academic program and creating effective and engaging learning experiences that will set us apart from a competition.

We believe these are essential to creating long-term value for all stakeholders including more than 57,000 alumni working around the world to improve their lives and lives of others. Now we would like to take questions from the audience. Operator, please open the line for questions..

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

Yes, thank you. This is Ken on for Corey. So it sounds like the international enrollment initiatives are kind being sunset at this point.

Do you think you could comment a bit more on that and what's kind of driving this decision?.

Well, I don't -- we still relieving our enrollment open and what we are really not doing is opening new countries. We found when we went to utilize agents that by utilizing agents we needed to be compliant in every country where there was an agent.

And so the country by country compliance given that our tuition is low while that would seem to be attractive, the cost of doing it didn't appear to provide us with a return.

So while on the good news side is we have some partnerships in place and we have legal agreements indicating that we will be in compliance with regulations of those countries, we decided that this time not to add new countries..

Okay. And let's see another question I had.

Do you feel that your tuition increase in July had any effect on your enrollment so far?.

We don't know of any negative impact on our enrollment. We did note in our Q that with the July increase that only 20% of our students actually receive the increase because we grand father our tuition rates of students using tuition assistance as well as military spouses and veteran..

I would also point out that was effective for registration after July 1. And so it really didn't affect the entirety of the third quarter..

Sure, okay, that's helpful. And maybe just one last one for me. Just any color that you could give us just on changes in the competitive environment that you have observed might be helpful..

Well, I think I guess there are couples of big things. First of all, the cost of buying lead related to online education has gone up -- these are leads through Google and Yahoo and other sources has gone up 20% a year for the last two years indicating more people bidding on them and bidding on those terms.

And at the same time, we have seen a decline in our conversion rate. So to me I think that we have the same group of internal people buying those leads at a bottom in the past. We've judiciously thrown away leads that don't work for us. Either they cost too much on a net student basis or they are just ineffective.

And we managed to get our leads up but with our applications are down because the conversions are down. That indicates to me there is just many more options as well as something we did mention but I have seen mentioned several times is that when the economy starts to improve, working adult tend to not go back to school..

Thank you. [Operator Instructions] Our next question comes from Jeff Silber of BMO Capital Markets. Your line is open..

Thanks so much. You address the competitive landscape a little bit earlier but I just want to drill down one specific area.

I think it was about month or so ago the military put one of the larger company, one of the larger core profit schools I guess on probation because of some issues in terms of they recruiting -- I know it is early but have you seen any impact of that move on your leads or potential enrollment? Thanks..

Jeff, not anything that we have seen and could attribute to that.

We've seen a pick up in our TA registrations but we believe that's attributable to the start of a new fiscal year, so our returning TA student zone only declined by 2% this quarter which was basically a 7% improvement over the quarter before but I think that lot of that was our retention initiatives and then what we are seeing so far particularly in November, December for TA students is good registration rates but we think that's because there is no potential knock on wood of a budget problem at least through this presidency..

Okay. Then a quick question on Hondros and your guidance for new student enrollment to be down by 11% in the fourth quarter is a substantial deceleration from where you have been trending.

Is there anything specific? Is it just tough comps or is there something else going on?.

Yes. This is Harry. And we actually were up a little bit with our LPN students; the LPN program which is kind of the way we are building Hondros is that the LPN program leads to progression to the ADN program, leads to the BSN program.

What we've seen is a large decline in BSN students, new BSN students and I think it seems like we had a big backlog of alumni that were interested in the BSN program, and I believe we've gone through that now. We haven't still -- we haven't had enough ADN graduates yet go on to the BSN program.

So we had a rather large almost 30% decline in BSN enrollments for new students in the fall. We don't know yet whether that's long-term trend or just a blip.

That really contributed -- we also increased the requirements need to graduate and help ADN program to matriculate into AVN program and we think that's cause a little bit of a delay and some students who like to matriculate into the AVN program been able to do that and we thought we needed to make the changes in the program to improve the quality of the program.

So the decline was really in ADN and BSN students. The LPN program which is our -- a real key to us going forward actually increased a bit. So that's what cause and hopefully that will work its way through the process and those increase they will end student will go on keep get additional degree..

All right. Thanks for that. And just some numbers questions really quick. Your selling and promotional expenses declined pretty dramatically. I think you said is because of decrease in advertising expenses.

Is this kind of new normal rate we should be looking for going forward or whether there are some timing issues?.

No. I think we tried to explain Jeff that while we are targeting advertising specifically so talking about radio and TV advertising, we are also looking at whether or not in the markets we are doing that advertising. We are getting acceptable conversion rate.

I think once we can pick up the conversion rates in those markets, we would actually spend more. So it is just a matter of tinkering with our targeting and where it beginning to work we will spend more. And if it is not working we are just going to hold back..

Okay. And then you mentioned the savings because of the employee realignment.

Which line item should we expect to see that in next year?.

It is across line..

Okay and then just one more and then I'll jump back in the queue. Your EPS guidance for the current quarter, what tax rate and share count that you are anticipating? Thanks..

Tax rate is about 38, share count probably 16, yes; I would say it is about flat with where it is. It will be outside, we are still repurchasing share..

Thank you. I am showing no further questions. I'd like to turn the call back to Chris Symanoskie for closing remarks..

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

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day..