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#Thank you, Rob, and good morning, everyone.
I want to start by noting that consistent with last quarter, our earnings release and 10-Q reference as reported or GAAP results and adjusted or non-GAAP results.
This format is intended to illustrate both the financial performance of the core business as reflected in the adjusted numbers and our GAAP results, which in the first quarter of 2018, reflect the impact of our ongoing merger with Capella and associated transaction and integration expenses.
No such expenses were incurred in the first quarter of 2017.
Now for our Q1 results.
Revenue for the quarter grew 1% to $116.5 million from $114.9 million last year.
Revenue per student declined approximately 5% in Q1, in line with our expectations, and driven primarily by higher scholarships stemming from scholarship programs introduced in fall 2017.
Our GAAP income from operations for the first quarter was $11.3 million compared to $18.4 million last year.
GAAP income from operations in the first quarter includes approximately $5.3 million in merger-related costs.
Excluding these cost, adjusted income from operations was $16.7 million.
Our adjusted operating margin was 14.3% for the quarter compared to 16% in 2017.
GAAP net income for the first quarter was $9.5 million compared to $10.6 million in 2017.
Excluding merger-related costs, adjusted net income in the first quarter of 2018 was $13.9 million.
Our GAAP earnings per share was $0.84 compared to $0.95 in 2017, and our adjusted earnings per share grew 30% to $1.23 for the first quarter of 2018.
Diluted weighted average shares outstanding increased 2% to 11,311,000 from 11,121,000 in 2017.
The effective tax rate for the first quarter of 2018 was 18.5%, reflecting the new lower federal tax rate, tax benefits associated with restricted stock that vested during the quarter and the impact of nondeductible merger costs.
Excluding the nondeductible merger costs, our adjusted effective tax rate for the first quarter was 18.1%.
For the remainder of the year, excluding the tax impact of merger costs and other discrete tax adjustments, we expect an effective tax rate between 27% and 28%.
Our bad debt for the first quarter was 5.5% compared to 3.8% in Q1 2017.
And as I reported last quarter, bad debt has been negatively impacted by an anomalous increase in the proportion of our students selected by the Department of Education for financial aid verification.
We saw a slight decrease in this volume during the first quarter and expect it to recede further through the balance of the year as the department indicated they are adjusting the verification algorithm back to normal levels.
We ended the quarter with $165.9 million of cash and no debt.
We generated $17 million in cash from operating activities during the quarter compared to $24.5 million during the first quarter of 2017.
Regarding capital expenditures, we spent $4.2 million during the first quarter compared to $3.8 million in the same period last year.
We expect full year Capex to be in the range of 4% of revenue.
And finally, we continue to maintain a $150 million in available credit on our revolver.
<UNK>.
Thanks, Dan.
Good morning, everyone.
In addition to Dan's comments, I'd just like to add that we continue to be very pleased with our enrollment results.
In the first quarter, both our new student and our total enrollment grew 6% versus the prior year and our continuation rate increased 50 basis points.
Our outlook for the second quarter's enrollment is for new students to grow approximately 7% and our total enrollment to grow 8%.
That would be the strongest overall growth rate that we've had since 2011.
We also announced this morning that we've successfully opened our first new campus in several years in Macon, Georgia, and we're already seeing pretty strong demand in that market.
We're also on track to open 4 additional new campuses in the second half of 2018.
I'd now like to provide more commentary on the integration planning for our pending merger with Capella Education Company.
The Strayer and Capella management teams had been engaged in detailed integration planning since December of last year, following our announcement of the merger agreement in October.
At the outset of our planning, both companies established business continuity as a key priority as we work to build our integration plans.
And with this morning's announcements, I'm pleased that both Strayer and Capella have reported strong enrollment and financial results during a period, where many representatives of the companies' respective management teams have been involved in detailed planning of the integration.
The integration planning itself is organized into 3 primary categories: First, we're conducting a detailed cultural assessment to understand the unique attributes of each organization's operating model that must be preserved, while also identifying opportunities to immediately port over best practices and other proprietary insights and methodologies.
The second major work stream involves identifying the synergies resulting from combining our corporate back office functions post close, such as finance, legal, human resources and IT.
Our planning has been ---+ sorry, and the third area is preparing for day 1 close itself to make sure that all of our systems and processes have been stress tested.
The planning has been highly collaborative, rigorous and detailed, and presently our plans call for the following.
Overall, we have identified $50 million in run rate savings to be fully implemented by the end of 2019 or approximately 18 months post close, pending our final pre close regulatory approval in June.
Of the $50 million in run rate savings, approximately $20 million will be implemented in 2018 and the remaining $30 million achieved in 2019.
Excluding transaction-related expenses, we estimate the integration cost will equate to the synergy savings themselves at roughly dollar-for-dollar.
Finally, I'd like to thank both the Strayer and Capella teams for their professionalism, hard work and ongoing commitment to the merger's success, which ultimately we believe will create the best platform to serve our students and learners in the years ahead.
And with that, operator, we'd be glad to take any questions.
Sure, <UNK>.
This last quarter, we saw strength across the board really.
We continue to see the strong performance at the undergraduate level.
We've also seen a turnaround at the graduate student level led by the performance of the Jack Welch Management Institute, which continues to grow 25% plus per year.
Our corporate partnerships were up, the degrees at work enrollments were up.
So we've seen strength really across the board.
<UNK>, they're going to likely recede throughout the year each quarter.
Probably slowly, but it will even continue into 2019 to some extent because the students that receive them in the fourth quarter of '17 will keep them as long as they are enrolled.
Affordability has always been something that we focus on considerably.
Obviously, with the 20% reduction in undergraduate tuition and the implementation of the Graduation Fund in late 2013, we feel like we're fairly priced.
But moving forward, it is something that we want to maintain a strong focus on and make sure that our programs are not just accessible but also affordable.
I think on a year-over-year basis, marketing could be up 5% to 10% on a full year basis.
There is some timing depending on the activities, the advertising activities.
In any given quarter, we could move some of those dollars around, but on full year basis, I think marketing expenses will grow somewhere between 5% and 10%.
We were right now fine-tuning the model, it's relatively small.
So I would say it's not really significant for the year, especially since most of new ones are going to be back-end loaded.
And as we continue to fine-tune it, we'll have more to tell you about broader kind of economic impact of the new campus rollout strategy.
No, no.
They are teaching their first academic term, and we're running a couple of on-ground classes as well as serving students online.
No, I mean, it's early.
We have tested the layout of the campus.
We tested that on existing students in <UNK>, Mississippi.
We know the feedback has been quite strong.
They're in literally their first term of instructions.
So we're very early there, but we expect that these smaller footprint campuses are going to be well received.
Well, I ---+ we were encouraged, obviously, by their new students results.
And we have a lot of respect for the work that they've done.
And beyond that, I wouldn't think it's appropriate to comment on their results.
I'd say for the full year, you're going to be somewhere in the neighborhood of 3%, 3.5% down.
It's hard to say.
But I think once that problem is resolved and it's back to normal levels, I think we're ---+ we expect to see something closer to 4% or below, I mean, it's kind of what we're looking at.
Sure, Jeff.
Depending on the location, they'll be somewhere in the 4,000 to 5,000 square-foot range.
And Jeff, I would just add, we've designed these compasses purposely to have a breakeven level of approximately 50 students.
Sure.
The business is doing quite well.
So far in 2018, we expect that they will achieve breakeven in the second quarter of this year, and begin contributing to our earnings, albeit, on a very small basis on the back half of 2018.
We think they have a very good ---+ great product.
I just feel like the Coding Boot Camp space is still quite nascent.
And it's going to take some amount of time for the demand to organically grow to levels where you'd have meaningful sizes of revenue and ultimately earnings, but they are performing well and we're very happy with what they're producing in the way of outcomes for students.
That's it for pre-close.
And our understanding is, they meet the last week of June.
And we understand that the merger is on their agenda and we'll just wait to hear from them following their meeting.
It's going to be in the quarter that it's incurred, Jeff.
So there will definitely be a big part of it in the third quarter but it will ---+ integration costs will continue through the end of the year and into next year as that integration plan is executed.
Jeff, just to be clear that's different from the actual transaction costs, which will be booked in the third quarter right away.
Third quarter will have the majority of the transaction costs.
