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#Thank you, Rob, and good morning, everyone.
As we reported last quarter, our enrollment for the quarter ending <UNK>h 31, 2017, increased 6% to 43,387 from 40,872 in Q1 2016.
This enrollment drove 3% revenue growth in our first quarter to $114.9 million from $111.2 million last year.
Offsetting the impact of the 6% enrollment growth was a 3% decline in revenue per student due primarily to the continued shift to undergraduate students paying our lower tuition rate.
Our income from operations for the first quarter was $18.4 million compared to $20.1 million for the same period last year.
Income from operations in the first quarter of 2016 includes nonrecurring, noncash adjustments primarily related to our lease liability.
Excluding these adjustments, income from operations was $18.5 million for the first quarter of 2016.
Our operating margin was 16% for the first quarter of 2017 compared to 16.6% in 2016, excluding the noncash adjustments.
Bad debt for the first quarter was 3.8% compared to 2.8% in Q1 2016.
Net income for the first quarter was $10.6 million compared to $12.4 million in 2016.
Excluding noncash adjustments, net income in Q1 2016 was $11.4 million.
Net income in the first quarter this year was negatively impacted by a higher tax rate, which was 42.7% for the quarter compared to 38% in Q1 last year.
Recall that I mentioned last quarter that new accounting standards related to stock-based compensation will result in fluctuations to our tax rate this year.
These fluctuations occur as restricted shares vest at higher or lower values relative to their value when granted.
Notwithstanding this Q1 increase, we expect a full year tax rate of about 39.5%.
Diluted earnings per share was $0.95 for the quarter compared to $1.15 for the same period in 2016.
Excluding noncash adjustments last year, our EPS was $1.06.
Operating losses at NYCDA or New York Code + Design Academy contributed approximately $0.10 of dilution to our Q1 earnings.
We ended the quarter with $147.1 million of cash and no debt.
We generated $25.1 million in cash from operating activities during the quarter compared to $14.7 million in Q1 2016.
Cash flow improved significantly from Q1 last year as we anniversaried several events that negatively impacted our cash flow last year, most significantly, our acquisition of NYCDA and unfavorable timing of tax payments.
Regarding capital expenditures, we spent $3.8 million during the first quarter compared to $2 million in the same period in 2016.
The higher CapEx for the quarter is due to the timing of the projects that started in late 2016, that have carried over into 2017.
However, for the year, we continue to expect our CapEx to be in the range of 3% to 4% of revenue.
And finally, we continue to maintain our $450 million revolver.
Thanks, Rob and Dave.
Good morning, everybody.
I do just have a couple of comments before we turn the call over for questions.
First, we continue to be very pleased with our enrollment results, both for the first quarter, as Dan just noted, but also with our outlook for the second quarter, where we see new students up, approximately 8%, and total enrollment up, approximately 6%.
As a result of these enrollment trends, and to reiterate what we said last quarter, we expect to report double-digit earnings growth for the second quarter, and subject to these enrollment trends continuing through the balance of the year, we also expect double-digit earnings growth in the third and fourth quarter as well.
We continue to be pleased with our ongoing efforts to improve student learning outcomes and retention, specifically the performance of our new online course format built by Strayer Studios.
Having tested several of these new courses over the past couple of terms and seeing quite favorable results, our team is in the process of building and launching 2 to 3 new courses per quarter.
And by the end of 2017, more than 15,000 students will have completed one of the new courses which, again, in our tests had significant gains in student achievement and retention.
The Jack Welch Management Institute continues to perform very well.
They had 30% enrollment growth in the first quarter, and we expect a similar increase in the second quarter as well.
Finally, the $0.10 of dilution from the New York Code + Design Academy in the first quarter was an improvement from the $0.20 of dilution that we had in the fourth quarter of 2016, and basically, it's in line with our internal plans.
We expect dilution in the remaining quarters to decrease, and our goal is to get that business to break even by the end of 2017 this year.
And with that, Liz, we'd be happy to open the call up to questions.
Sure, <UNK>.
First, on outcomes, we continue to see very favorable outcomes.
The placement rate is in the mid-90% with strong salaries ---+ entering salaries, anywhere from, call it, $60,000 to $80,000 on the part of the program completers.
Enrollment has been quite strong in the locations that we are operating in.
We've been oversubscribed in some of our larger markets.
The team there recently added a new product, a part-time web development program, which has also seen pretty strong demand.
So we're pleased with the trajectory of where that business is right now.
We're not breaking out the revenue.
We don't think it's a large enough component of our business now.
And in any given quarter, <UNK>, per location, we might be running 2 to 5 classes, with anywhere from 15 to 40 people per class.
5 locations.
No, we have other locations where we just are not presently offering the classes this quarter.
Sure.
That part of the business remains quite healthy and strong.
We continue to add new corporate relationships.
As I said before, in any given quarter, we'll add anywhere from probably 3 to 8 new relationships.
It continues, in our opinion, to be a big differentiator for us, and so that channel remains very healthy.
Well, partnerships and JWMI is probably approaching 30%.
It would be ---+ I'm just doing the math in my head, <UNK>, so if I exclude JWMI, it's probably 25% to 27%, and then another 3% to 5% for JWMI.
Yes.
<UNK>, you'll note, if you look back at Q4, we reported 4.6% bad debt.
And we'd said at that time ---+ I said at that time it was due to a continued shift to undergraduate students.
That passed a little more slowly.
We were actually encouraged to see the decline from the fourth quarter to the first quarter, notwithstanding the increase year-over-year.
Jeff, yes, we do see increased competition from state schools or what you might refer to as traditional institutions.
But that's a trend we've seen growing over the last several years.
My expectations are that more and more institutions over time will certainly migrate with online programs.
Whether or not they want to serve working adults, that remains to be seen.
But we're just focused on building the strongest brand that we can.
We feel like we have a very rich history and a strong track record of educating students.
And so we're quite proud of that and think that, that will be a differentiator for us moving forward.
I think it's too early to project long-term margins in that business, Jeff.
We're very happy with it, we know that the long-term supply demand fundamentals are quite favorable to web development and coding generally.
So we'll have a better perspective on that as we get into 2018 and beyond.
Well, let's start with the priorities, and then work into the latter part of the question, Jeff.
And the priority is, first and foremost, return on capital, and having it sit on the balance sheet at very mediocre returns in the conservative investments we have is, obviously, not the highest return on capital we could have, but it's ---+ we think the value of liquidity is quite high.
So we're prepared to pay that price.
The highest return that we have seen over time has been improvements in our academic product.
It tends to drive longer and more sustainable returns on capital because our core asset is the University, and a University's returns is never going to be higher than the returns that the student gets on their learning outcomes.
And so ---+ <UNK> and ---+ has described in the past, a number of the investments that we make, not the least of which is the Strayer Studios, the revamp of our online courses.
And a reasonable and predictable use of capital inside the business, I think is ---+ it will be our first priority.
The second priority is to look for areas of high return, growth and expansion outside of the core business.
I think it's safe to say we're not prolific acquirers, but we're constantly looking.
And we're looking for assets that complement what we do, which is to teach and to provide educational opportunities.
And then, exhausting both of those 2 requirements, truly surplus cash, we think, should be returned to owners in the most value-enhancing way.
We reinstitute ---+ the board reinstituted our dividend at the end of last year because we felt like having navigated through some fairly stormy economic and regulatory seas over the last 5 or 6 years, things looked a lot calmer.
And we had, frankly, built up a very strong balance sheet.
In terms of share repurchases, a share repurchase is really just a dividend, because what we care about are the remaining shareholders, and you're dividending more of the company.
It's slightly more tax efficient, but you take away optionality, because I can always just dividend more cash to the owners, and they can decide to buy more shares.
So we look for a large discount to intrinsic value that's worth taking away that optionality to the shareholder, and we tend to be relatively opportunistic on that, and so we're always looking at it.
We have an existing authorization.
And as our internal opportunities arise and we measure those against the return of capital to owners, that's how we make that decision going forward.
So I noticed after covering Strayer for 15 years or something, that the language changed a little bit in your enrollment disclosure.
It's always been stated as kind of a [pact], like a [fact] with enrollment.
I think this time you said, expected.
I'm just wondering what changed with the way you're reporting enrollment.
Or why the language changed.
There's really no change, <UNK>.
The ---+ what we decided to do is we had so many questions from your colleagues and peers and owners who are used to seeing the enrollment results match directly to the financial results, that we essentially have just added, we've restated the preannouncement of enrollment that we did last quarter with regard to the winter term, and that's what Dan referred to.
And then, <UNK>'s essentially is a preannouncement of our spring term enrollment, because we've already started the term.
So the number that <UNK> has described is essentially what that enrollment will be.
We don't really have a whole lot of movement.
We have students who drop during the quarter, but that's always reflected in essentially our reduction in term revenue, which flows through.
So there's really no ---+ that's just the restatement of what was already stated last quarter, so that you all can match the enrollment results directly with the reported financial results.
Understood.
That was just set in my ways after so many years, so needed to figure out what the change was.
And then on NYCDA, which you've already answered a bunch of questions on.
When you talk about getting into breakeven, is that entirely revenue-driven, and are the costs still going up.
Or is there anything on the cost side helping with that.
It's primarily revenue-driven.
We're certainly not in a major cost-cutting mode on something that we're trying to grow.
We always want to be productive and make sure that we're judicious in our expenses.
But we want this business to break even on the basis of revenue and then grow from there.
Got it.
And <UNK>, also after covering the company for so long, I know better than to ask for guidance that you're not giving.
But when you talk about potentially double-digit earnings growth, I think the 3 of us on the call, our consensus is significantly double-digit earnings growth, like 30% in 1 quarter, even 79%.
So anything further you can say beyond ---+ I'm assuming that doesn't mean we should be modeling like [teens-growth] or something like that.
I wish I could help you there, <UNK>.
Unfortunately, I can't comment on that.
Let me give you a little help, <UNK>.
I mean, you've got our enrollment.
I think Dan described revenue per student.
There's nothing really significantly going on with expenses.
So we'll give you the actual results when we have them in 3 months.
But there is nothing that's out of the ordinary here.
Right, fine.
And then, just last.
Maybe for Dan.
The cash flow was quite strong in the quarter.
It looks like some of those was timing of tax payments.
But anything ---+ I assume you're not going to be growing cash as well from ops at this rate for the full year.
No.
Correct, <UNK>.
It'll be stronger quarter-to-quarter this year relative to what we're seeing last year on a year-over-year basis, but the first quarter is particularly strong for a handful of reasons, some of which is the timing of tax payments, which we'll give back a little bit in the second quarter.
And again, <UNK>, a good rule of thumb is, when we're operating normally, our distributable cash tends to be relatively close to our net income.
It'll move around a little bit quarter-to-quarter based on timing, but that's a pretty strong rule of thumb in terms of cash-generative capacity of our business.
