Strayer Education's (STRA) CEO Karl McDonnell on Q4 2015 Results - Earnings Call Transcript

| About: Strayer Education, (STRA)

Strayer Education, Inc. (NASDAQ:STRA)

Q4 2015 Results Earnings Conference Call

February 04, 2016, 10:00 AM ET

Executives

Robert Silberman - Executive Chairman

Karl McDonnell - CEO

Daniel Jackson - EVP and CFO

Analysts

Corey Greendale - First Analysis

Trace Urden - Credit Suisse

Sara Gubins - Bank of America Merrill Lynch

Peter Appert - Piper Jaffray

Jeff Silber - BMO Capital Markets

Operator

Good morning, everyone, and welcome to Strayer Education Incorporated Fourth 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.

Robert Silberman

Thank you, Operator, and good morning, ladies and gentlemen. We’re going to begin this morning with Karl, discussing both our company's operating results for the fourth quarter, as well as a little more detail on our acquisitions of the New York Code and Design Academy which we announced in January.

Dan will then report our financial results for both the fourth quarter and the full year and I’ll conclude with some comments on our capital allocation over the last year after which we’ll stay for as long as you have questions. Karl?

Karl McDonnell

Thanks, Rob. Good morning, everyone. First, I would like to make a few comments about the financial results that we reported this morning. Our revenue per student was down 3.9% for the fourth quarter and 3.1% for the full year. Both of these declines were better than we originally anticipated and are primarily due to slightly more seats per student which is the result of the slight mix shift to undergraduate students who tend to take two courses per term as opposed to one.

The overall declines in revenue per student attributable to our lower undergraduate tuition has mostly worked its way through our income statement at this point. The expected decline in 2016 is estimated to be about 100 basis points.

We also continue to be very focused on cost management. In the fourth quarter our total operating expenses were down 1.5% from the prior year notwithstanding the fact that our enrollment was 2% higher.

For the full year, operating expenses were flat despite higher enrollment as we were able to offset incremental investments we made in the Jack Welch Management Institute and Strayer@Work.

Turning now to our enrollment results for the winter academic term. Our total student population increased 40 basis points to 40,872 students. Our new students decreased 5% from the prior year and our continuing rate was flat.

The reduction in new students was entirely concentrated in the universities unaffiliated students as new students from our national accounts increased 4%. New students from the Jack Welch Management Institute increased 55% and we also added several 100 new students from Strayer@Work for which there is no annual comparable.

With regard to the Welch Management Institute, in addition to their 55% growth to new students, total enrollment increased 36% and student satisfaction remains incredibly high with their most recent net promoter score coming in at 77%. We were also pleased the JWMI was just named the number one most influential education brand on LinkedIn in the world.

Strayer@Work continues to gain more attraction in the B2B space as they sign nearly a dozen new engagements over the past quarter.

Lastly, I'd like to comment on our recent acquisition of the New York Code and Design Academy or NYCDA as we refer to it, one of the country's leading providers of web development, mobile app development and design training.

Although we looked at many opportunities in the coding space, we were most interested in NYCDA based on their focus on producing outstanding learning outcomes for their students and their focus on superior customer service, both values that we share. NYCDA's current management team will remain in place and will work with our team to create as many synergies as possible.

Beginning this year, in subject to regulatory approval, based on what we see is rapidly increasing demand and significant projected shortages of web developers and designers, we will start a multi-year expansion strategy to bring NYCDA's programs to as many markets as possible leveraging our campus footprint in existing infrastructure. NYCDA's financial results will be included in our consolidated financial statements beginning in the first quarter of this year.

For the full year 2016, we expect modest dilution of between $0.20 and $0.30 per share, half of which is non-cash amortization of items related to the transaction. We think this is a great long-term opportunity for us and we're thrilled to have NYCDA as part of the Strayer family.

And with that, I'll ask Dan to talk about the financials in more detail.

Daniel Jackson

Thank you, Karl. Good morning everyone. I'll start with revenue, which for the fourth quarter was $113.7 million, a decrease of 2% from 2014. The decrease was driven by lower revenue per student, which was down 4% offset by 2% total enrollment growth for our fall term.

And as Karl mentioned, the decline in revenue per student was better than expected due to higher classes taken per student as our mix to students shifted slightly towards undergraduates who take more classes per term.

Our income from operations was $21.7 million compared to $22.6 million for the same period last year. Our operating margin was 19.1% for the quarter compared to 19.5% in 2014. Bad debt expense was 3.3% for the quarter compared to 4% for the same period last year.

Net income for the quarter was $13 million compared to $12.9 million in 2014. Net income this quarter was helped by lower interest expense resulting from the payoff of our term debt in the third quarter. Earnings per share for the fourth quarter was in line with 2014 at a $1.21.

Moving on to our full year results total enrollment for the year was up slightly while revenue per student declined by 3% contributing to a 2.6% decline in total revenue to $434.4 million compared to $446 million in 2014.

Income from operations was $69.7 million for the year compared to $81.7 million in 2014. Excluding non-cash adjustments to our liability for losses on facilities that we seized using in 2013, income from operations was $69.3 million in 2015 and $77.6 million in 2014. Excluding the non-cash adjustments, our operating margin for the year was 15.9% compared to 17.4% last year.

Net income was $40 million for the year compared to $46.4 million in 2014. Excluding the non-cash adjustments net income was $39.8 million this year compared to 43.8 $ million in 2014. Diluted earnings per share for 2015 was $3.73 compared to $4.35 last year, a decrease of 14.3%. Excluding the non-cash adjustments EPS was $3.70 this year compared to $4.12 last year, a decrease of 10%.

We ended the year with $106.9 million of cash and no debt. For the year we generated $76.9 million in cash from operations compared to $77.6 million in 2014. Cash flow from operations this year was impacted positively by fewer lease buyouts in non-cash lease adjustments relative to 2014.

We spent $12.7 million on CapEx during 2015 compared to $6.9 million in 2014 and as I said before the large increase in CapEx this year was related to our investment in academic programs including the RN to BSN program, investments in our technology infrastructure and a few campus renovations.

We expect to sustain a maintenance level of CapEx in the range of 3% to 4% of revenue on a go-forward basis. And finally we continue to maintain $150 million and available credit on our revolver. Rob?

Robert Silberman

Thanks, Dan. Just to put Dan's numbers on cash for the full year and little more of an narrative form. If you think about it, we started the year with $162 million in cash from our balance sheet and we had $10.7 million outstanding and we had that large term loan $119 million of principle was outstanding at the beginning of the year.

As Dan mentioned we generated $77 million in cash from operations during the year. We think about that pool of cash as a bucket of resources which essentially belongs to our owners but we try and invest on behalf of our owners. And what we did this year was roughly $80 million in investments inside the business if you aggregate the CapEx, the maintenance CapEx, the academic technology.

We decided to prepay our term loan. We paid off the entire $119 million. We wanted to be debt free going into the year and as part of that transaction, we did secure a new five year $150 million revolver which extended our access to that liquidity far into the future.

And then consequently at year-end, we had – little over $100 million of cash from a balance sheet. We did not repurchase any shares during the year so still $10.7 million shares outstanding and as Karl mentioned we've already used some of that cash to accomplish our New York Code and Design Academy or NYCDA acquisition which we did in - couple of weeks ago in the first quarter.

So, for the balance of the year, we are going to continue to compare all of our potential uses of this owners distributable cash because we do believe that we'll have a healthy cash flow during the year from our operations in 2016.

All these potential users which includes internal investments, acquisitions, we are very excited about NYCDA and the opportunity to put capital work in areas that have higher growth, less regulatory risk, more of the diversification for us.

And then finally return of capital owners and we think about all three of these equally. They are all uses of owners cash and we allocate capital on the basis of what we believe will be the highest long terms return to our owners on a risk adjusted basis and that's how we will look at it for the upcoming year as well. So the issue that we talk about every quarter with our Board and it gets a high amount of attention.

And with that Liz, we would be pleased to answer any questions.

Question-and-Answer Session

Operator

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

Corey Greendale

So, first, quick, Karl, I just had a clarifying question. I think you said you signed nearly a dozen new engagements in the last quarter for Strayer@Work. I just want to make sure I am getting my terminology right. Strayer@Work, that is still a relatively small pool as opposed to the national accounts, which is a larger pool, is that right?

Karl McDonnell

Yes, the national account agreements are essentially tuition discount programs that we have with large companies. We have over 300 of those. Strayer@Work is a dedicated team of professionals that are designed on implementing customized learning solutions for Fortune 1000 companies.

Corey Greendale

Okay. So I think that you only had a couple of those going into the quarter? Is that wrong?

Karl McDonnell

No, that's not wrong. It's still a relatively new entity, just crossing the one year anniversary, so they are starting to get some good traction. They have completed several engagements with some very positive reviews on the part of some of our clients and in fact among the 12 are some repeat engagements inside the same company. So we see that as a vote of confidence for the work that they are doing.

Corey Greendale

When you say repeat, you mean that the arrangement is - have a finite duration and they are re-upping? Or what -

Karl McDonnell

Slightly different, so part of what the Strayer@Work team does is work with companies to create a specific engagement to solve a specific problem inside of a company. And so it’s a fixed duration, it could be six weeks, it could be 12 weeks depending on the complexity and then that engagement will close.

In several cases the companies for whom we provided those services have said we really liked that, there is a different part of our business we would like you to tackle and you know we would like to engage with you to do that.

And so although the FCA deal garnered the most news because that’s what we consider to be what we call Degrees@Work product and we do have companies that were talking too about that, there is another part of the Strayer@Work portfolio which is all around creating customized learning solutions for these companies - non degree training programs.

Q – Corey Greendale

All right, that is very helpful. And then, just a couple questions about 2016, which you may or may not be able to answer, but I appreciate the thoughts on the dilution from New York Design. Can you give us some sense of the revenue contribution?

Karl McDonnell

No, I really can't Corey. First of all we don’t comment on forward looking revenue but in this case there is just a lot of moving pieces that we’re still working through and will obviously I will comment on it once we start our expansion strategy.

Corey Greendale

Okay. And I imagine if you were going to do this, you would have done it, but this last year, you gave us some sense of where you thought revenue would come out for the year. Anything you can give us for 2016?

Karl McDonnell

No, we’re not providing any forward revenue visibility.

Robert Silberman

Corey, on New York Code and Design Academy, as a kind of a narrative or as a illustrative example and thinking about the dilution it reminded me very much when we first started talking about this of the analysis and the strategy and the decisions we made in the summer of 2001 about rolling out campuses where we looked at the business that we had, we're excited about expanding that business in the new markets, recognize that you’re going to have operating losses in the early quarters or years of operations in those markets and happily accepted that dilution if you will or those operating losses because we were excited about the business that we thought it could build.

And that on a much smaller scale that’s essentially what we are looking at here with the NYCDA.

Corey Greendale

Yes, that makes a lot of sense. And actually that leads into my other question about NYCDA, which is - can you give us - so, the - clearly, there is some great supply/demand characteristics to that area, to the - helping people learn how to be better - how to code at a relatively low cost.

Can you just give us some sense how this particular one differentiates from some others in the market, like General Assembly or others? Or is there so much demand that you don't actually need to differentiate that much?

Karl McDonnell

They are a small entity and they are young in their life cycle. To our knowledge they are one of only two coding boot camps that’s licensed presently in New York which provides some regulatory differentiation.

We did a considerable amount of diligence in this space Corey and what we found was NYCDA's outcomes were superior and that got very strong relationships with employers with whom they worked to provide services for their students.

And mostly once we were confident that there was strong outcomes and to your point we know there is strong supply demand characteristics, then it came very much down to a cultural fit, the management team is very strong and we see that capitalizing on our existing infrastructure, our expertise in running multi site operations is something that we can help NYCDA with and we just think it’s a really good natural fit for us and we will provide some very good long term growth prospects.

Corey Greendale

Great, thanks for taking my question.

Operator

Our next question comes from the line of Trace Urden with Credit Suisse. Your line is now open.

Trace Urden

I would like to stick with the NYCDA theme, if I may, initially here. Can you talk a little bit about the buy versus build decision there because the NYCDA brand is not that broad, in our estimation. And I wondered if you looked at what it would cost you and what the timeline would be for you to simply enter the market on your own versus going out and buying in entity. It strikes me as a fair amount of dilution for a business that is as small as NYCDA is at the moment.

Karl McDonnell

It's good to hear from you Trace. Yes we looked very hard at whether or not we should build this organically ourselves. Our current IT programs in the degree side, the Strayer University side are not necessarily aligned to web development, mobile app development, web design and so forth.

So it's not a natural sweet spot from us, from a talent perspective. We’d have to go acquire that talent and we’d want to be comfortable with who we’re having or who we're hiring I should say. And at the end of the day Trace, I think what it comes down to is we wanted to enter this market more quickly. I think entering it on ourselves will be a multi-year effort.

And when you juxtapose the opportunity to quickly expand something that already exist across our existing infrastructure, our existing campuses, our marketing expertise, our operating expertise. In our estimation over a 5 to 7 year period, the synergies created by NYCDA-Strayer combination looked a lot more favorable to us than us trying to do it on our own.

Robert Silberman

Trace, one other clarification to it. The actual dilution that I care about, which is the cash dilution would have been the same. That probably would have been more on a build because the dilution is the operating losses associated with rolling out the programs.

The non-cash amortization is actually related to a clawback provision. Because we really liked this management team. We want them to stick around. And so buy versus build is always a right way to look at it. But it wouldn’t have affected the cash dilution in my judgment in terms of choosing one over the other.

And as Karl said, the speed to market, the cultural fit with these young entrepreneurs that we felt, we thought this made more sense.

Trace Urden

That's great, thank you. That's very helpful. I wanted to also go back to the Strayer@Work discussion. Obviously, the buildout of helping companies over time is an attractive revenue stream, but I think the sexier part of Strayer@Work is certainly the deal that you have with Chrysler.

And I am wondering if you can characterize your sense of the market's appetite for more deals like that, whether you can speak to what the pipeline looks like for that potential - more potential to breed deals like that one that might be in place?

Karl McDonnell

Sure. Regarding appetite among companies, I think it’s growing every day. More and more companies are reaching out to us to learn more about the FCA arrangement.

Degrees@Work, the FCA arrangement is really designed to solve two problems for companies. One, attract the best people and their space and then obviously retain those individuals over long period of time. And so within industries or companies that experience high levels of turnover degree that work we believe is a very strong antidote to the turnover that they experience.

So the appetite is growing. It’s a complicated product. It requires a lot of coordination amongst ourselves and whatever company we are working with. So it’s not something that is able to be stood up in what I’d consider to be a short amount of time, meaning several weeks, it’s months.

And to answer your question around “is there a pipeline?” Yes, there is. We are talking to several large companies at a scale equal to FCA, if not slightly larger. But I can't comment to when we think another one might come because obviously, we don’t know but we are actively talking to many organizations about it.

Trace Urden

Do you think it is a reasonable expectation that you could add one more FCA-like deal in the course of 2016?

Karl McDonnell

I can’t speak to when we think another degrees of our client will come in but I do anticipate that over time, we will have more than FCA as a client with that product line.

Trace Urden

Okay. I mean, last question for me, I don't think anybody doubts your commitment to returning cash to shareholders, Rob, when you made those comments. But I am wondering more specifically, the outlook that caused you all to eliminate the dividend, I am wondering if that -- if those conditions are still in effect in your mind? Or what you think the Board needs to see in order to reconsider that decision? Are there sort of external factors that you look to that would say, okay, now it is time, now we feel confident enough to turn the dividend back on again? Or to be more active on the share repurchase program?

Robert Silberman

I actually think the larger issue there, Trace, is the availability of opportunities to reinvest capital into related businesses, but ones would supplement our key skill sets. And for a long time, we wanted -- it wasn't so much cash that we were concerned about, it was management bandwidth to fully take advantage of the opportunity of our traditional post-secondary education. In the last four years to five years, it's clear that demand for post-secondary education has been muted.

And so we now look at -- at in that time period, we didn't want to dilute management attention away from that mission in terms of acquisitions. We are less concerned about that now, because we feel like we're doing everything we can to run a first rate University to get great learning outcomes, protect this brand, build for the long term. And we have the opportunity to look at some other areas that are in higher growth than more diversification as Karl has mentioned.

So on one hand you've got the return of capital to owners versus implementing it or investing it in terms of acquisition. And so the opportunity for acquisitions will, in some measure, dictate our willingness in terms of return of capital to owners.

But then the direct answer to your question that you are driving at is, we've been bouncing along the bottom. We haven't really shown -- the economy hasn't firmed enough to generate organic demand for education at a rate that is anywhere close to what we had before. And we've always felt the trying to generate demand through aggressive marketing is the wrong way to run a University.

So I would say that we've felt like we have reached the bottom and have bounced along it for the last 18 months. And if we continue to be at that bottom or to grow off of it, and we don't have other opportunities to invest capital through acquisitions then that will make myself and the Board I think more -- the return of capital will be in a more attractive use of cash for us at that point. But we're not in a position to say that at this point.

Trace Urdan

Okay, thanks. I appreciate that thoughtful response.

Operator

Our next question comes from the line of Sara Gubins of Bank of America Merrill Lynch. Your line is now open.

Sara Gubins

Could you break down the start trends at the undergrad versus graduate level?

Karl McDonnell

This particular quarter, they were fairly even. And I'll just like, maybe amplify some thoughts on the new student results that we had. Our view of the new student performance, Sara, we try to look at that over a much longer trend period, say three years to five years. In over a three years to five years period, there were quarters when we were up 20% and there were quarters when we were down 20%.

So if you contextualize that over what we've seen over the last year, the volatility has been substantially reduced. And having a quarter where we were down 4% or 5%, that to us is not just an acceptable, but perhaps a normal level of variability that we've always said that we are willing to accept and to Rob's point, not being overly aggressive on marketing to draw in students who perhaps are qualified enough.

So in the broad sense, we continue to think that our normal results were stabilizing, but we accept that they'll bounce around a little bit quarter to quarter.

Sara Gubins

Okay, great. And then you mentioned that the declines were really because of unaffiliated Bachelors. Could you quantify what unaffiliated Bachelor new student declines were?

Karl McDonnell

I don't have the exact number, but given the offsets that we had with the national accounts in JWMI and Strayer@Work, it probably would have been down 8% -- 7% to 8%

Robert Silberman

More than 5%, anyway.

Sara Gubins

Right, right, okay. On the cost side, based on your initial 2016 budget, could you talk about how we should think about your costs this year? I am assuming -- and maybe excluding the amortization associated with the recent acquisition?

Karl McDonnell

If we exclude NYCDA, I would anticipate costs would be anywhere from 1% to 2% up. As we continue to invest in Strayer@Work, JWMI and then layering and whatever we decide to do and what is required for NYCDA's roll out.

Sara Gubins

Okay, great. And then for the acquisition, will you report the number of students in that in your overall count? Or should we not expect to see that included?

Karl McDonnell

No and that's a good point. NYCDA is not a part of the University. It's a wholly-owned subsidiary of area of Strayer Education Increase. So their students will not be reported as part of the University's enrollment.

Robert Silberman

It will just be in Other, Sara, until it gets to be meaningful. And then we will break it out.

Sara Gubins

Okay, okay, got it. And then, just two more. One, getting back to your comments about not wanting to be overly aggressive or particularly aggressive in marketing as a way to drive enrollment, I fully appreciate that. But it's interesting, because we have seen ramped marketing from nonprofit schools, particularly for their online programs over the last several years. And we will often hear from lead providers that those schools are acting almost the way that proprietary schools had been in the past.

And so, I wonder from a competitive perspective, how do you look at the changing overall environment, recognizing that you don't want to push too hard on marketing, because it might not drive -- for students that would retain, but that the environment from an overall marketing perspective is changing?

Robert Silberman

Well, Sara, for a long time we have had a policy of not commenting on other competitors and I consider traditional Universities competitors in this format. And so I -- we wouldn't comment on their strategies in terms of lead acquisition or anything else. I can say that having spent 15 years watching this enterprise and balancing out the inputs and the outputs to create value, the worst thing you can do is try to peg a certain rate of growth for a University and move leverage around like marketing to trying to achieve that, because ultimately you end up with students who will not succeed and do not belong.

It's just the nature of trying to maintain those balances and I don't care how good your brand is or how long it's existed as traditional University. That will hurt your institution long term if that happens. And so the competitive pressure that you describe is one that we see and have a very deliberate strategy in terms of dealing with, but the strategy is based on building a brand around Strayer University, attracting the kinds of students that we want to attract that we -- not all of which will be successful, but we have the best opportunity to get successful students and doing it in a way that creates value over a long term. So it's not going to -- it doesn't really matter what they do, it's not going to change our view of that.

Sara Gubins

Okay. And then just last question. There have been some press reports about the economics around the Fiat/Chrysler relationship within Strayer@Work. I am assuming you're not going to give us a lot of details on economics, but I am wondering, from a financial perspective, does Strayer have any incentive or disincentive to enroll more students? Meaning, is there a point at which you would have negative economics if more and more students signed up?

Karl McDonnell

It's really complicated, pricing structure, Sara. And there are scenarios where the economics would be unfavorable to us for a fixed period of time. And I say that because as part of this arrangement with FCA, we were able to not reset, but change the price or adjust the price as needed --

Robert Silberman

On a go forward basis.

Karl McDonnell

…on a prospective of basis. If we got to a situation where more students than we had thought were enrolling in there for the economics start working. I mean FCA is a great partner, they understand that this is not a program we can operate at a loss. It's certainly the program that's got smaller margins then perhaps the core University, but it's complicated.

But to answer your question, we want as many FCA students as possible. There is no scenario with which we would try to diminish enrollment from that program because we personally we all think that this is a very innovative product that could be one model of the future of how per secondary education is delivered so we want as many students as possible to come from not just this agreement but future ones as well.

Sara Gubins

Great, thanks so much.

Operator

Our next question comes from the line of Peter Appert with Piper Jaffray. Your line is now open.

Peter Appert

Good morning. Just sticking with Strayer@Work for a second, I was thinking beyond the Degrees@Work programs that the - of the training-oriented programs are probably below what you have done historically at the University, just because there is the customized costs associated with that. So the question is, number one, is that true? And then does the growth therefore of Strayer@Work suggest just a little bit of pressure on overall level of margins for the Company?

Karl McDonnell

I’d say that that’s actually not true Peter. As more in more engagements are signed up and then completed, we're creating a body of work and expertise if you will that enables us to shorten the amount of development time for example that exists. We're able to in some cases repurpose content and so in the early part of Strayer@Work they would be some margins that would be smaller but not unlike what we see in the other part of the university.

Marginal contributions are growing as we get more and more clients and were able to leverage our body of work across, what's becoming a growing client base.

Peter Appert

Okay. Got it, that is helpful. Thank you. On the Code Academy, can you give us any color in terms of price of typical program, duration of the programs, current enrollment numbers?

Karl McDonnell

Current enrollment numbers are pretty small and as Rob said, we're not going to really break that out until it gets to the – of a more material size but typical programs are they have full time, day time programs that run anywhere from 8, 10, 12 weeks. They also have part time evening programs. The daytime full time is their sweet spot today and they’re offering these programs anywhere from $8,000, $10,000, $12,000. It’s not title for eligible and the value proposition as reported by the students is very high.

Peter Appert

Okay. And then just on the reporting of this, Rob, I think you said something about it being in the other category. So you have a separate line item in revenues of - for NYCA?

Robert Silberman

Well at this point no because it’s so small but once it gets to a level of materiality, we will have a separate line item, yes.

Peter Appert

Okay. And then can you give us a snapshot of the current mix in your enrollments? I am thinking about national accounts versus Welsh, versus @Work versus unaffiliated.

Robert Silberman

Well national account related enrollments - institutional national account related enrollment is still nearly a third of our student body. Graduate students is roughly a third – is little bit of double accounting there.

The Jack Welch Management Institute crossed over 1,000 students a couple of quarters ago and its growing pretty rapidly. That's going to increase as a mix percentage both within graduate and just overall Strayer. Those are the rough numbers, I don’t have the specific mix in front of me Peter but that kind of outlines broadly where we're at.

Peter Appert

Okay, so which would imply then that the unaffiliated students would still be the biggest percentage of total enrollments, right?

Robert Silberman

They have been over the last few quarters, the largest share of the new cohort coming in.

Peter Appert

Right, okay. And then last thing, I know this has never been a specific focus, but can you just give us a sense of how you are thinking about margin levels in the business, and just conceptually, what you think appropriate levels of margin for the Strayer business are?

Karl McDonnell

We're not targeting a specific margin. To Rob's earlier point we're making all the investments that we think we need to make in the university in the way of faculty, curricular programs, technology and so forth.

The resulting margin obviously will be a result of whatever the enrollment is. We think we've made really strong progress on the retention side. I think we're into - beyond two years of continuation rate expansion.

The new students bumping around a little bit so that ultimately is going to be the determinant of whatever the margin is but we don’t set a margin target necessarily and then work to that and try to solve for it backwards.

Robert Silberman

Just, Peter, I mean mathematically, we probably have physical asset online based that could easily search 60,000 students. We've got 40,000 now. If it went to that, the margins would trend back up to around what our high points were and it's fairly mathematical. It sound linear, but it's mathematical from that standpoint. It's an outcome not a objective, but that's how I would think about it.

Peter Appert

Okay, thank you.

Operator

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

Jeff Silber

Thanks so much. Just some quick follow-up questions. In your remarks earlier about the coding school, you mentioned that you would be willing to operate this as an operating loss for a while. From an EBITDA perspective, though, is this an EBITDA-positive business? Or would you have an EBITDA loss as well in the near-term?

Robert Silberman

It would be modest and the economic characteristics of NYCDA, although it's very analogous to the Strayer campus expansion strategy over the last decade. The capital requirements are substantially less. And we believe the time to breakeven is much quicker. And so we can't really provide too many details around what that "notional model" might look like on an NYCDA basis, because frankly we're still working through it.

But as I said in my prepared remarks, we think the cash dilution is relatively modest and the investment capital required on any given market or any given single site is relatively low given we're able to utilize predominantly existing resources and infrastructure.

Jeff Silber

Okay, that makes sense and it's very helpful. Just in terms of the incremental amortization impact, is that something you can quantify for us so we can update our models?

Daniel Jackson

Yes. For 2016, Jeff, as Karl mentioned earlier, the $0.20 to $0.30 dilution about half of that is amortization related.

Jeff Silber

And that - the tax rate for next year is pretty much the –

Daniel Jackson

39% to 39.5%, I think you’re safe in that range.

Jeff Silber

Got it. All right. That is helpful. And then just one more. It's more of a high-level question. Given you guys are down in Washington and most of us are not, are you hearing any type of maybe a mindset change on how the different regulatory bodies are looking at the sector these days?

Karl McDonnell

I think, Jeff, it's - first of, I doubt our exposure to us is any greater than anybody who lives in Minneapolis or New York or Chicago or anywhere else. I think it's fair to say that this is a heavily regulated industry and that there is a certain amount of skepticism about the way this model operates and that we have to prove ourselves to regulars and creditors everyday in terms of our commitment towards academic outcomes versus any other stakeholders results. And I haven't seen that change intensify lessen over the last year or so. I think it's pretty strong.

Jeff Silber

Okay. It's helpful. Thank you so much.

Karl McDonnell

And I was chuckling by the way on your question on the amortization, because the two of these guys were looking at each other - about who is going to answer.

Jeff Silber

I appreciate it.

Operator

We have a follow-up question from the line of Trace Urdan with Credit Suisse. Your line is now open.

Trace Urdan

Thanks. I think you maybe addressed this a little bit with the parsing of transcript. I am just going to ask it in a more straightforward way. Should we expect you to see you guys rolling NYCDA out to Strayer campuses, to separate physical locations? What might we expect to see in terms of your taking that offering and making it more broad across your network?

Karl McDonnell

Well, as part of our discussions with NYCDA, we obviously shared with them our campus footprint. They shared with us research that they had done on what they believe to be attractive markets and this was considerable similarities between the two and so there is clearly as opportunities in markets like Washington D.C. and Atlanta and Philadelphia and others where we know that there is strong demand for web development.

So to answer your direct question Trace, we plan to heavily rely upon our campus network to accelerate the ability to expand into these markets but it doesn’t necessarily mean that it will only be end markets where we have campuses because they are strong demand for web developers and designers obviously in markets outside of our campus footprint and we’ll look at those as well.

Trace Urdan

Does that imply, Karl, a shared location strategy? Or not necessarily?

Karl McDonnell

No, we absolutely have contemplated a shared location strategy and to the extent that we were to open NYCDA in a market where there is no campus, and that perhaps could be an excellent opportunity to have a cobranded facility. That would be both NYCDA and Strayer University and obviously leveraging two different brands with one investment, one infrastructure if you will helps the economics of both of those.

Trace Urdan

Okay, great. Thank you.

Operator

And I'm showing no further questions in queue at this time. I would like to turn the call back to Mr. Silberman, for closing remarks.

Robert Silberman

Thank you, Liz and thanks everybody for participating. We look forward talking to you again, I believe late April, right Dan, on our next call. Thanks very much.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.

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