Robert Silberman - Executive Chairman Karl McDonnell - Chief Executive Officer Daniel Jackson - Executive Vice President and Chief Financial Officer.

Peter Appert - Piper Jaffray Corey Greendale - First Analysis David Chu of Bank - America Merrill Lynch Jeff Silber - BMO Capital Markets.

Good morning, everyone, and welcome to Strayer Education Inc. third quarter 2015 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 the results are Robert Silberman, Executive Chairman for Strayer Education; Karl McDonnell, Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. 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.

These 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 that 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.

And now, I'd like to turn the call over to Robert Silberman. Mr. Silberman, please go ahead..

Thank you, operator, and good morning, ladies and gentlemen. It was a pretty straightforward quarter from my perspective, so we'll go right to Karl, discussing our operating results, including our enrollment for Strayer University's fall term. Dan will report our detailed financial results for the third quarter.

And then we'll stay as long as you all need for questions.

Karl?.

Thanks, Rob. Good morning, everyone. First, I had just a couple of comments on the third quarter. The 3.8% decline in revenue per student was basically right in line with our expectations, slightly more classes per student help offset some of the reduction of more undergraduate students enrolling on the lower tuition.

And given we now have our fall enrollment, we expect revenue per student to decline approximately 4% in the fourth quarter and to be on the low-end of a range of down 3% to 4% for all of 2015.

We also had $1 million of additional marketing expense, which was used primarily to help support our growth initiatives at the Jack Welch Management Institute and Strayer@Work, and our total operating expenses were up 40 basis points versus the prior year.

For the full year, we expect operating expenses to be roughly flat, notwithstanding the fact that we have several thousand more students.

In prior quarters, we indicated should our enrollment results continue, we would expect revenue growth to follow enrollment growth by two or three quarters, given we now have back-to-back quarters of total enrollment growth. And assuming that trend continues, we do expect revenue growth in 2016.

Also in the quarter we received our official 2012 three-year cohort default rate, which is 11.6%, which compares to 15.8% for all proprietary institution, but it's also 10 basis points lower than the rate for all public institutions at 11.7%. It's also 300 basis points lower than the 2011 rate.

Turning now to our enrollment results for the fall academic term. We were pleased that our total enrollments increased 2%, aided by a 3% increase in continuing student enrollment, which included a 40 basis point gain in our continuation rate.

New students were down 70 basis points, although I should note that new graduate-level students were up 3% versus the prior year, which is an improvement from the down low double-digits we've had for the past several quarters.

When you include our fall enrollment results with the past several quarters, it appears to us our results have indeed stabilized. And we continue to invest in our student experience to generate longer-term gains and retention.

We also believe that our two large growth initiatives of Strayer@Work and the Jack Welch Management Institute are already having meaningful contributions to our results now, and we expect the level of those contributions to increase next year. The Fiat Chrysler and Strayer@Work partnership is going well.

We already have several hundred students from the southeast pilot area, and are still on track for a full nationwide rollout to all 2,200 U.S. dealerships before the end of this year.

Also, early indications are that the Fiat Chrysler dealer employees perform at very high levels in the classroom on all of the key academic metrics we look at, such as drop rate, completion rate, pass rates and retention, which obviously is very encouraging. Our national accounts continue to perform very well.

New students grew 9%, continuing students grew 13% and total national account enrollments grew 12% versus the prior year. We also added 12 new partnerships during the quarter. The Jack Welch Management Institute had another terrific quarter.

New students there grew 31% and total enrollment increased 35%, aided by an extremely strong student retention and a continuation rate of 94%. Their NPS score, which we use to benchmark against other world-class organizations, was 77, which places them in the top echelon of all organizations.

And several weeks ago, we announced the partnership between the Jack Welch Management Institute and the Thomas Jefferson Health System, which is a large provider of health services and education, based in Philadelphia.

In the near-term the partnership will allow doctors enrolled at the Jack Welch Management Institute to take courses at Jefferson, but in the longer-term the plan is to work on a potential joint MD/MBA degree program.

And with that, Dan, can you walk through the financials?.

Sure. Thanks, Karl. Good morning. First, I'd like to remind everyone that our financial statements continue to include the impact of non-cash adjustments to our liability for losses on facilities that we ceased using during the fourth quarter of 2013.

Consequently, we'll continue to describe our operating income, net income and earnings per share with and without these non-cash charges. Now, on to the third quarter. I'll start with revenue which for the quarter was $99.1 million, a decrease of 2% from 2014.

The decrease was driven by lower revenue per student, offset by total enrollment growth for our summer term. The decline in revenue per student, as Karl mentioned, was in line with our expectations, given the continued mix shift to lower tuition undergrads.

Our income from operations was $7.3 million compared to $9.2 million for the same period last year. Excluding non-cash adjustments, income from operations was $6.9 million for the third quarter this year and $7.7 million last year. Our operating margin was 6.9% for the quarter compared to 7.6% in 2014, excluding the non-cash adjustments.

Our bad debt expense as a percentage of revenues was 2.3% for the quarter compared to 3.6% last year. Net income for the quarter was $3.7 million compared to $5 million for the same period in 2014. Excluding the non-cash adjustments, net income was $3.5 million this year and $4 million for the same period last year.

Earnings per share decreased 25% to $0.35 compared to $0.46 last year. And excluding the non-cash adjustments, EPS was $0.32 this year compared to $0.37 last year. Our results for the nine months ending September 30 were consistent with the third quarter.

Total enrollment was in line with the same period in 2014, while revenue per student declined by 3%, contributing to a similar decline in total revenue to $320.8 million compared to $330 million in 2014. Income from operations was $48 million through September 30 compared to $59.1 million in 2014.

Excluding non-cash adjustments, income from operations was $47.6 million and $55.3 million for the first nine months of 2015 and 2014, respectively. And excluding non-cash adjustments, our operating margin for the nine month period was 14.8% in 2015 compared to 16.7% in 2014.

Net income was $27 million for the first nine months of the year compared to $33.4 million last year. Excluding the non-cash adjustments, net income was $26.7 million this year compared to $31.1 million in 2014. Diluted earnings per share for the first nine months of this year was $2.52 compared to $3.15 in 2014, a decrease of 20%.

Excluding non-cash adjustments, diluted earnings per share was $2.49 this year compared to $2.92 last year. We ended the third quarter with $86.9 million of cash and no debt. We generated $53.8 million in cash from operations in the first nine months of 2015 compared to $62.1 million during the same period in 2014.

We spent $9.6 million on CapEx through the end of the third quarter compared to $4.1 million for the same period in 2014. And as I mentioned last quarter, we've increased our capital expenditures in 2015 with investments in a few new programs, technology infrastructure as well as renovations to key campus facilities.

And finally, as I mentioned in July, we extinguished our term loan and put in place a $150 million five-year revolving credit facility at the beginning of the third quarter, and to date we've not drawn on this facility.

Rob?.

Thanks, Dan. So as I said, pretty straightforward quarter on a lot of moving parts. You'll see on the balance sheet, as Dan mentioned, cleaning up the term loan, which was done at the very beginning of the quarter. So the last numbers you saw included that term loan. Very strong position both in terms of cash and liquidity and a lot of opportunities.

So with that, operator, we'd be pleased to answer any questions..

[Operator Instructions] And our first question comes from the line of Peter Appert of Piper Jaffray..

You continue to see like the rest of the industry, some volatility in the start trends.

I was just wondering your perspective on this? And just any commentary on how you think the start numbers could look over the next going-forward periods?.

Well, I can't really comment, Peter, on the forward-looking trends. It's not something that we feel appropriate as to comment on. But I think if you can textualize the last several quarters, we agree with you that there is always some level of volatility on new student enrollment.

But our view of it is the amplitude of that volatility seems to have lessened over the last few quarters. And again, our view is the trend is stabilizing. From a demand perspective, we continue to get strong levels of interest and inquiries.

And as I said in my prepared remarks, the contributions from both the Jack Welch Management Institute, which now has over 1,000 students and the several hundred students that we already have from the Strayer@Work initiative, those are becoming meaningful contributions, which will likely only increase the impact that they're having, as we move forward into 2016..

And I'd also add Peter that, I don't think volatility in new students is anything new, at least in our perspective. If you go back 15 years, we would seemly would have 300 basis point, 400 basis point, 500 basis point changes in our rate of new students.

I think what's distinctive over the last few years is the economy has been rather soft, and so that amplitude has been around growth or no growth, but that's volatility. But as Karl said, it does feel like it's narrowing in on our pretty stable base.

And the new initiatives that you described that we have I think probably are best opportunity for some significant growth going forward..

And as I think about the economics of Jack Welch and Strayer@Work. Well, for Strayer@Work in particular, I think one of the advantages is lower acquisition cost per student. So theoretically some lower marketing costs, offset by lower revenue per student.

So how do we think about that flowing through the income statement? And when do we see the leverage from those efforts?.

Well, all of the new students will just be recorded on a consolidated basis, both obviously the Welch Management Institute as well as Strayer@Work. So they'll just be flowing through our income statement. You're correct. I wouldn't just say lower acquisition cost. There's virtually no acquisition cost on the Strayer@Work initiative.

And if you look at perhaps just contribution on a per student basis, it would be virtually unchanged from our other new students. So we expect, as Rob just said that, both Strayer@Work and Welch Management Institute will have significant contributions moving forward. And the impact of that will just flow through our income statement..

I wanted to add one other wrinkle to that, which is, your question I think was directed towards the margin per new student acquired. And I would say that our focus is really much more on the lifetime margin per student, which is significantly increased by a better student, a student who stays longer.

And what we're seeing in these two new areas are students that have better academic performance. So when you calculate for that, I think you're actually going to get a higher contribution per student over the lifetime of that student. And that will flow though our income statement as those become a greater share of our overall student population..

One last thing, on the revenue per student dynamic then, that will continue to trend a little bit lower, given this mix shift.

Is that correct?.

We had said in prior quarters Peter that, if you just factor in the ongoing mix shift of more undergraduate students on the lower tuition, we thought that that would have a negative 100 basis points change in 2016, excluding any impact from Strayer@Work.

So depending on how the Strayer@Work enrollment sort of matriculate into the university over the next year, that could have an impact, but we haven't modeled that necessarily..

Our next question comes from the line of Corey Greendale of First Analysis..

First, Karl, I apologize, I heard you say that, given the enrollment results you expect revenue to be up.

But I missed what period you expect it to be up in?.

We expect it to be up in 2016..

And then some of these are kind of in-the-weeds questions.

But the point about operating expense being roughly flat for the full year, are you including or excluding the adjustment to liabilities from exited facilities when you say that?.

We're including those..

And then on Strayer@Work, will you be press releasing any of those new arrangements or could there be additional ones we wouldn't know about?.

We are actively engaged with several large corporations on some customized training. We generally don't issue press releases for that type of work. We are in discussions with a number of organizations to have programs similar to Fiat Chrysler.

And depending on the organization, we probably would issue a press release in that case, and we'll just do that at whatever point the partnership is finalized..

A lot of times, Corey, it's really up to the partner. A lot of times they want to press release. I would say that, we would not normally do a press release unless something was material. And when they start, they tend to be too small to be material. But we basically ask with our partners as to what kind of publicity they want..

And actually mostly because it's helpful to kind of track the traction there. But I understand that's not the primary factor in deciding whether to issue a press release. And I'm also interested in the profile of these students, somewhat to the extent you can talk about this.

So with Chrysler so far, can you just talk generally about, are those people taking -- is it more undergraduate degrees mostly in business or what's the mix?.

It is mostly undergraduates. It is mostly business focused. And as I said, it's one academic term Corey across roughly 100 or so students for the summer academic term. And as I said in my prepared remarks, they are performing, I would say, much better than our non-affiliated undergraduate students on all the key academic metrics that we track.

So it's a very high quality employee coming to us from the Fiat Chrysler dealerships and we're just pleased to see how well they're doing in the classroom..

And I understand it's early, are the students primarily coming from areas that are regionally close to your physical campuses or are you seeing people go primarily online?.

Well, the pilot area was the Southeast, which is a pretty strong area for us in terms of our campus network. So the majority of these students would be, what we would consider to be, in our campus footprint, but that's not necessarily to say they are necessarily taking their classes on ground.

In fact, most of them are probably taking their classes online, but they live within the campus footprint..

Karl, when you talk about demand stabilization, is that true outside your national accounts in Strayer@Work and Jack Welch or is the stabilization coming from those initiatives primarily?.

It's both. So if you exclude the Jack Welch Management Institute and Strayer@Work related interest, just what we call organic interest, natural traffic coming to the strayer.edu website and so forth, that's been up all year and continues to be up..

And then just couple of quick last ones from me. On the marketing side, I think you said there was $1 million in additional marketing, just the implications for future periods.

So was that pull forward or just that was a kind of one-time $1 million spend, it doesn't change anything in the future?.

I can't comment on the future, Corey, but the additional $1 million was spent, as I said, really support the Welch Management Institute and Strayer@Work given the traction that those two initiative were having. We may or may not spend additional amounts in the future just depending on what our plans are in that given quarter..

And then my last one, with Strayer@Work, are the employers -- how are they marketing to their employers, are they sending out regular emails or how are they getting the word out?.

In the case of Fiat Chrysler, they are very aggressive in terms of marketing this benefit to prospective employees, in particular.

So we've heard from several large dealerships that it is a major benefit in terms of attracting the best people, which frankly is part of the way the program was designed, to not just retain employees, but also attract the best talent that you can. And all the feedback that we're getting is that it's very successful in that regard..

They had a bumper sticker on the Pope's Fiat, Corey..

You've got a lot of luminaries between the Pope and Jack Welch..

Exactly..

Our next question comes from the line of Sara Gubins of Bank of America Merrill Lynch..

This is David Chu for Sara. So starts were down 1% after being up 4% last quarters, based on your prepared remarks. And it sounds like that was due to weaker trends at undergrads.

Just wanted to confirm that that's correct?.

Yes, that's correct. Our new graduate students were up about 3%, and I believe new undergraduates were down roughly 3%, and netting it all out we were down, as I said, about 70 basis points. I mean, it's really a few dozen students, David. I mean, I just wouldn't get too wrapped around the axle on that trend..

And the new grads, being up 3%, is that excluding Jack Welch?.

That's including Jack Welch and that is definitely helped by Jack Welch..

Can you give me the rate excluding Jack Welch?.

I don't have that..

And then just second, so for the purpose of calculating persistence, how should we think about graduations in upcoming quarters? Just wondering, if we should see an uptick in the near term given the like firming demand?.

I don't have any of that detail with me. I can't envision anything that would dramatically change the rate of our graduating students. So I would just model sort of the consistent rates that we've had over the past few quarters..

And I guess, just along those lines, do you feel like there is a lot more room there to improve retention or are you getting here like max level at this point?.

We feel like there is still room to increased student retention. We're focused obviously on what we think of as being long-term retention over several years and into degree completion. We've made a lot of gains over the last, call it, 18 months.

We plan to make a lot of investments in our academic content, in our faculty and the overall student experience 2016, and we believe that those investments can result in higher student continuation rates..

Our next question comes from the line Jeff Silber of BMO Capital Markets..

Just going back to Strayer@Work and Jack Welch Management Institute, is it possible for you to quantify the impacts so far maybe in terms of the number of students on those programs?.

In the case of Jack Welch Management Institute, they're well over 1,000 students. They're growing, as I said, 35% a year and given the Rob's point that in the case of the fall academic term, the 70 basis points decline is just really several dozen students.

As they began to enroll more and more new students, we expect that that impact will be several hundred basis points per quarter of impact. And in the case of Strayer@Work, we already have several hundred of their employees enrolled in the fall term.

And if you just were to extrapolate out the participation rate that we've had in the Southeast when we go to a nation-wide rollout that equates to thousands of students. They may or may not enroll.

But if you just on a linear basis, assume you get the same kind of traction once the benefit is rolled out to all of their dealers, I mean, that's a significant increase from where we are today..

Jeff, I was to say, to make it simpler, conceptually, I would say that the core university business is relatively flat. It's not shrinking, but over several quarters, it's been slightly rolling or slightly shrinking. So on a trend line, it's been pretty flat. We're getting growth from these two initiatives.

And as they get to be a bigger part of the overall mix, they'll have a larger impact on growth.

And what we would expect frankly is, as we continue to improve our academic content and our student performance in the core university, when we get a little bit of tailwind on the economy, now that the sales are trends right now, and we're in a position to really benefit.

And in the meantime, we're really happy with the students we have, and we're particularly happy with increased academic performance, which ultimately drives everything around the institution, the brand, the student's success.

And then as I was saying earlier, it actually does drive the bottomline as well, because the life time margin for student goes up. And to Peter's earlier question, that runs to the income statement overtime..

Just shifting gears a bit, I know a few of the other companies in this space talk about receiving the debt data on gainful employment from the Department of Education. I'm wondering if you guys got that.

And how those numbers might have compared to your internal capitulations?.

We have the debt data, Jeff. And you can't do the calculations, because we don't have the income data, but the debt data was not surprising. It was inline, I mean technically, consistent. The schools had the debt data in the first place, they should have. You're just matching it up with what the department shows in NSLDS, so no surprises there..

I just wanted to make sure that the department was getting the numbers correctly, and it sounds like at least in your case it did.

And just one other question, I'm sorry, and it's just a bit of a nitpicky question, but if you paid down your term loan at the beginning of quarter, I'm just curious why you still had over $1 million in interest expense in the quarter?.

We paid down the debt, but we still had unused fee and we had transaction expenses from the refinancing, Jeff, that hit interest expense..

But going forward, should that number be going down to zero or close to zero?.

It will go down close to zero, but that will still be an unused fee..

Thank you. And with no further questions in queue, I would like to hand the conference back over to Mr. Silberman for any closing remarks. End of Q&A.

Thank you, Ben. I appreciate everybody participating. If you have any other questions, please contact us directly and we'll look forward to talking to you, again, at the end of the year or in February with our end of year results. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of your day..