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Executives

Beth Coronelli - VP of IR

Greg Cappelli - CEO

Brian Swartz - CFO, SVP

Analysts

Peter Appert - Piper Jaffray

James Samford - Citigroup

Suzi Stein - Morgan Stanley

Bob Craig - Stifel Nicolaus

Jeff Volshteyn - JPMorgan

Paul Ginocchio - Deutsche Bank Securities

Gary Bisbee - Barclays

Jeff Meuler - Baird

Corey Greendale - First Analysis Securities

Brandon Dobell - William Blair

Sarah Gubins - Bank of America Merrill Lynch

Jeff Silber - BMO Capital Markets

Kelly Flynn - Credit Suisse

Pete Wahlstrom - Morningstar

Trace Urdan - Wells Fargo

Apollo Group (APOL) Q1 2013 Earnings Conference Call January 8, 2013 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen, and welcome the first quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please refrain from entering the queue until those instructions are given. (Operator Instructions)

This conference call is being recorded today, January 8, 2013, and may not be reproduced in whole or in part without permission from the company. There will be a replay of this call available through January 22, 2013 beginning approximately two hours after we conclude today.

The replay number is 800-585-8367 or internationally you can dial 404-537-3406. The conference ID or the replay is 82100134. I would now like to turn the call over to Ms. Beth Coronelli, Vice President of Investor Relations. Mrs. Coronelli, please go ahead.

Beth Coronelli

Thank you for joining us today to discuss our first quarter results. Participating on the call are Greg Cappelli, Chief Executive Officer of Apollo Group, and Brian Swartz, Senior Vice President and Chief Financial Officer.

As we discuss our results today, unless noted otherwise, we will be comparing the first quarter of fiscal 2013, which ended November 13, 2012, to the first quarter of fiscal 2012.

I'd also like to remind you that this conference call may contain forward-looking statements with respect to future performance, financial position, regulatory compliance and other matters regarding the business of Apollo Group and its subsidiaries that involve risks and uncertainties.

Various factors could cause actual results of the company to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed under risk factors and elsewhere in the company's most recent 10-K and subsequent 10-Q report filed with the SEC and available on our website at www.apollogrp.edu.

The company disclaims any obligations to update any forward-looking statements made during the call. Additionally during the call, we may refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.

Our press release, which contains the financial and other quantitative information to be discussed today as direct affiliation to the GAAP to non-GAAP measures is also available on our website.

And with that, I'll turn the call over to Greg.

Greg Cappelli

Thank you, Beth. Thanks, everybody, for joining us this afternoon. Today I'll share and update on our progress as we continue to execute on our strategy to differentiate University of Phoenix from our competition, diversify Apollo Group and optimize our operations. And then Brian will discuss the first quarter financials and our outlook.

First quickly, let me recap our results. We reported revenues of $1.1 billion. That's compared to $1.2 billion as of the first quarter of last year. Our earnings were $1.18 per share or $1.22 excluding special items.

We entered the quarter with total enrollment of roughly 320,000 students. New degree enrollment for the quarter was 54,100. That was down about 15% compared to the first quarter of 2012.

Now, to talk about our business, in order for us to have success in this rapidly evolving industry, Apollo Group has to be nimble, we have to be focused on continuing innovation and offer value propositions that are distinctive, attractive, relevant and that provide a strong return on investment for our learners. We must also address the needs of employers to find appropriately skilled workers.

At Apollo Group, as an organization, we're committed to helping connect adult learners to their desired careers. As part of this vision, we are working to, first, provide a targeted education to career approach from the first touch point to help students find the best path to their desired career track.

Second, to deliver education that's highly competitive and relevant, value programs and services that enable learners to reach their academic and career goals and also support employers fulfilling their skills gap.

And third, expand our reach through US and global partnerships, acquisitions and education services focused on offerings that leverage our core strength and increase our ability to connect learners to careers.

As a cornerstone of this vision, we've made significant investments and advancements to differentiate University of Phoenix.

Over the past several years, we've invested a best-in-class student experience with high quality outcomes. It's affordable as it pertains to our value proposition and that ensures students can turn their education into a relevant career quickly and effectively.

Throughout our 40 year history, accessibility and convenience differentiated University of Phoenix. Today, both are still critical.

However, to stand apart, we’re repositioning to attract and retain adult learners who will seek out our universities because we are the educator of choice to connect their academic and career aspirations. Our education to career connection is taking shape, but it does take time to reposition the brand as well as established as the University of Phoenix’s, especially in an environment where there are many messages to education consumers.

Though we’ve been investing for some time to build that foundation around our value proposition, it’s only in recent months that we’ve rolled out new tools and resources and launched the first wave of our integrated “Let’s Get to Work” marketing campaign. We’ve trained our grad teams and faculty on the new career tools, changing the dialogue with current and prospective students. With these tools in hand, we can deliver the messages that make us different and what makes us better.

I’d like to share more information on what we’ve recently rolled out, and the products and initiatives that set us apart. First, our new suite of tools is designed to help students understand more about themselves, the job market, and their finances so that they can make a more informed decision about enrolling and their educational path. They include a career interest profiler, job market research tools, and tuition estimator, and are available on phoenix.edu today.

We’ve incorporated a tuition estimator into the undergraduate curriculum so that students create their own financial plan of how to pay for their entire degree and understand the debt service implications. This is another resource that supports our commitment to the financial success of our students.

We also launched My Career Plan. That’s a personalized career-building tool that helps students understand the relevancy of their academics, and it allows them to create a comprehensive roadmap and personalized development plan as they chart their educational journey to their career choice. We’ve incorporated My Career Plan activities into the classroom experience.

In addition to these tools, we’re providing new and innovative curriculum enhancements for university orientation, with a working skills inventory or grid scale measuring an individual’s perseverance, as well as adding career components. Also in the quarter, we continue to build new, and expand existing, relationships with over 2,000 companies, helping students from leading corporations meet their education needs, students motivated to excel and supporting corporations and their efforts to fill jobs, many that are closely aligned with our degree programs.

We’re collaborating with corporations and industry associations to develop curriculum relevant to today’s workforce that’s focused on core skills and competencies. This includes understanding the development needs of entire industries and designing programs in energy, hospitality, retail, criminal justice, healthcare, security, and manufacturing.

We also refined Phoenix Career Services and employer job listings. Today, for example, there are nearly 100 employees with active job postings on Phoenix Career Services. In December, we posted an average of 18,000 jobs. Also, we now have more than 42,000 alumni volunteering as mentors, providing students career knowledge and industry guidance. Our more than 770,000 alumni play a key role in supporting our mission to connect education to careers.  

Additionally, we’re committed to ensuring that obtaining a university education is accessible and affordable. University of Phoenix continues to selectively offer tuition grants along with the tuition freeze we announced earlier this year to remove financial obstacles for our students where necessary.

Shifting gears for a moment, I want to just briefly talk about our efforts to diversify Apollo Group. We are leveraging our capabilities and relationships to connect education to careers across all of our institutions. At Apollo Global, we’ve made progress, as an example, where we’re receiving a positive response from the new Working Learner programs in Mexico, and we’ve identified opportunities to expand this successful concept to other geographies within our global network.

Also, our Advanced Products Group within Apollo will launch this month the Innovator’s Accelerator. That’s a new executive education approach to teaching innovation. Featuring the three foremost authorities in innovation worldwide, Clay Christensen, Jeff Dyer, and Hal Gregersen, Innovator’s Accelerator focuses on building specific skills which make an individual more innovative and also helps organizations turn innovative ideas into reality. This is right on target with the skills employers have told us they need today. We plan to leverage the high-end curriculum in these offerings across our other platforms at Apollo Group.

Quickly, regarding our efforts to optimize our operations, we’ve made significant progress in reengineering our business and refining our delivery structure in support of our student-oriented mission.

We continue to anticipate delivering a minimum of $300 million in savings through 2014. We're positioning Apollo Group to be more nimble and competitive, creating an organization that clearly resonates with learners and is committed to providing a best-in-class experience.

Finally, before I turn the call over to Brian, I'd like to update you on our higher learning commission reaffirmation of accreditation for University of Phoenix, which has been in process over the past year.

We were advised informally by HLC just this morning that we should be receiving a draft report in the near term. We believe this draft report will include a recommendation to place University of Phoenix on notice status with HLC with respect to several areas of concern which will require follow-up reports and corrective actions.

Because we don't have the draft report yet, we don't intend to comment further at this time. But when we actually receive the draft, there is a process for us to review and respond to the report prior to any final decision being made by HLC.

Again, once we actually have the draft, we'll review it, evaluate it for additional disclosure as necessary.

Let me end my comments with this. We're committed to leading the way with student protection, including financial transparency so our students understand the complete cost of their education and can make a great decision for themselves when we continue to invest and implement new concepts like adapted learning and our new learning and services platform.

Our commitment is to become the educator of choice for working learners, connecting education to careers and all of this contributes to a winning formula positioning us for long-term success.

And with that, let me turn the call over to Brian.

Brian Swartz

Thank you, Greg, and good afternoon, everyone. I'd like to start by reviewing our first quarter financial results and then I'll share with you our business outlook.

During the first quarter, we recorded revenue of $1.1 billion, down 10% year-over-year. The decrease was primarily the result of a 14% decline in degreed enrollment at the University of Phoenix to roughly 320,000 students, which was partially offset by selective price increases.

For new degree enrollment, we reported a year-over-year decline of 15% for the quarter. We were up sequentially, enrolling 54,100 students in the first quarter compared to 52,800 students in the fourth quarter of 2012.

Revenue per student was up 3% year-over-year, primarily reflecting increases due to price and the student degree mix, partially offset by higher discounts. In the first quarter, the use of selected grants for students at the University of Phoenix, which are reflected as higher discounts, reduced revenue by approximately $4 million.

For the second quarter of 2013, we estimate revenue will decrease by about $25 million and discounts will increase as a percentage of revenue to roughly 10% and closer to 8% for the full year of 2013.

With this in mind, we expect year-over-year changes in revenue per student to be negative 1% to 2% for the remainder of fiscal 2013.

For the first quarter, income from continuing operations was $134 million or $1.18 per share. The first quarter results including restructuring and other charges of $24 million associated with our optimization efforts and a litigation credit of $17 million for the reversal of charges associated with the securities class action law suit.

Excluding these special items, our operating margin was 23%. Income from continuing operations was approximately $138 million and our EPS was $1.22 per share.

Now, looking at our first quarter operating expenses, as we anticipated, we experienced year-over-year decline in all of our operating expense line items. The declines were primarily due to the cost savings from our ongoing restructuring activities which contributed to the decrease in admissions advisory headcount, rent expense and depreciation expense as well as a reduction in variable cost due to lower net revenues.

As a reminder, about 13% of our cost as a percentage of revenue are directly variable in nature and are included in our structure and student advisory expenses. Other than marketing costs, which I will discuss further in a moment, we expect to substantially decrease our expense line items in fiscal year 2013 primarily due to the optimization efforts that we've discussed.

While we are focused on our cost optimization initiatives, in the first quarter we continued to invest in improving student outcomes and experiences. These investments are generally included in instructional and student advisory and include the development of our learning and student services platform which we expect to roll our in phases throughout fiscal year 2013 and into 2014.

As Greg mentioned, we also continue to invest in our education to careers initiatives. These investments are reflected in marketing and in the first quarter, were offset by lower advertising spend year over year, primarily in the affiliate channel, and certain cost savings from our optimization efforts.

In the second quarter, as we work to communicate the repositioning of the University of Phoenix around the new education to careers value proposition and support the launch of the new tools, we do anticipate increasing our advertising spend year over year. We expect these efforts to contribute to an increase of approximately 15% of total marketing costs in the second quarter of 2013 versus 2012.

This spend will include new radio and television ads rolling out in January. We are expanding our radio from 12 to 29 markets, and also increasing the reach and frequency of our television ads. These branding efforts are focused in the second quarter, and at this time we don’t anticipate marketing costs in the second half of the year to increase at the same level on a year over year basis.

Share-based compensation was $17 million in the first quarter. For the full year 2013, we now expect share-based compensation to be around $60 million.

Bad debt expense as a percentage of revenue was 3.2% in the first quarter. For fiscal year 2013, we expect our full year bad debt expense as a percentage of revenue to trend lower as we continue to implement process improvements.

Our effective tax rate was 42.2% for the quarter, and we anticipate our tax rate will be approximately 42% for the full year 2013.

Turning briefly to the balance sheet and cash flows, we had unrestricted cash and cash equivalents of $776 million. Our outstanding debt was $98 million versus $720 million at the end of last year, primarily due to the repayment of the entire amount outstanding on our revolving credit line. Our free cash flow in the first quarter of 2013 decreased to $183 million as compared to $278 million in the prior year, principally due to a decline in operating income.

Also in the first quarter, we repurchased the noncontrolling interest in Apollo Global for roughly $43 million, and continue to invest in technology and other capital expenditures totaling $28 million. We will continue to evaluate all investment opportunities and allocate capital to differentiate the University of Phoenix, diversify and expand our businesses both domestically and internationally, and as appropriate return capital to shareholders.

Before moving on to our business and financial outlook, I’d like to provide an update on our cost optimization effort. We are on target to favorably impact operating expenses by at least $300 million by the end of fiscal year 2014 when compared to our 2012 cost base. In fact, during the first quarter, we achieved much of our 2012 anticipated fixed cost savings earlier than expected, due to efficiently managing our headcount. As a result, we now expect to realize at least two-thirds of the annual cost saving in fiscal year 2013.

Consistent with my comments on the last call, we expect restructuring and other charges to total approximately $200 million. We anticipate most of these costs will be incurred in fiscal year 2013. As a reminder, in the first quarter we recognized about $24 million of restructuring charges.

Now I’d like to spend a minute on our business outlook. Based on our current view, our financial outlook for fiscal year 2013 is net revenue of $3.65 to $3.75 billion, and operating income of $500-$550 million, excluding restructuring and special items.

With regard to new enrollment trends, December did not meet our internal expectations, and we were down year over year at a rate higher than the first quarter. It’s important to note that December is our seasonally softest month of the year. Additionally, since it is so early in January, it’s too soon to comment precisely on where the second quarter will come out. But wherever it ends up, our goal is to reposition the University of Phoenix and return to new enrollment growth year over year by the end of fiscal year 2013.

To accomplish this, we are working hard to ensure our value proposition is communicated to, and understood by, our current and prospective students. This takes time, but the dialogs are improving. We believe this approach positions us to provide long term value for our stakeholders.

And with that, let me turn the call over to operator to answer your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Peter Appert - Piper Jaffray.

Peter Appert - Piper Jaffray

Greg or Brian, can you give any additional color on the phasing of costs and cost reductions over the course of the year? The margin -- I ask this in the context of your first quarter margin performance obviously was I think better than broadly expected.

I'm just wondering if that gives you more confidence in terms of margin outlook for the balance of the year.

Brian Swartz

We were very pleased with the performance in the first quarter on the cost side and, as I mentioned on the last call, we anticipated capturing about half of the annual $300 million in runrate savings in fiscal '13. Now we believe we'll capture at least two-thirds of that in '13.

We weren't able to -- really, the team actively managed headcount levels, particularly in our graduation teams with some of our enrollment advisors and our academic and finance advisors very, very effectively, particularly in light of the announcements we made in mid-October.

It was a pleasant surprise to us too and we feel good about capturing the savings both this year and next.

Greg Cappelli

I think as far as the timing of margin going forward, it will depend, as Brian said, on where ultimately enrollments end up coming out. You know what our goals are. His comments about the quarter so far, January and February are important and it will be important for us to see where those come out related to our -- and certainly the rest of the spring as well and how that relates to our cost initiatives so far as well.

So we'll definitely keep you updated on that. The margin is important to us and we're doing what we can there on the cost side, as you know.

Peter Appert - Piper Jaffray

Could I try asking it more explicitly maybe? You've given us some particular issues around the second quarter. As we think about the second half of the year, the year-to-year dollar reduction in operating cost you saw in the first quarter, would you expect to see similar rates of -- or similar magnitude declines in the second -- in the third and fourth quarters?

Brian Swartz

Yes, the way I would think about it, Peter, as you work through your models and others, is, first of all, pulling aside marketing costs for a moment, which obviously are a big part of our cost structure, I made some specific comments around the second quarter marketing cost to increase advertising in support of the repositioning efforts.

Outside of those costs, we had originally anticipated much of the cost savings we were going to capture were going to be in the second half of this year, so we were able to pull forward much of that cost savings. That's why we were able to capture more of it this year.

So I think it's important as you think through the modeling that you think about marketing costs separately, which are primarily advertising costs. With respect to the other cost reduction outside of marketing, I'd say it's probably more of a radical kind of capturing through the course of this year as opposed to being back-half loaded.

Operator

Your next question comes from the line of James Samford - Citigroup.

James Samford - Citigroup

Quick question on the school closures so far to date, how the students that are there have been responding to that. In particular, I think you said only 4% of the students would be impacted and many of the students would actually migrate either to new locations or go online. I was just wondering if you could comment on how that's going.

Greg Cappelli

Yes, my understanding from the Phoenix team is that's gone as expected. That is -- a lot of heavy lifting has been done and is in process, obviously. But it's as expected to this point.

James Samford - Citigroup

I guess just a quick follow-up on the -- you mentioned that revenue per student would be down for the back-half of the year. Is that a function of the holding of prices steady or is there some other mix issue going on there? I guess from a pricing perspective, how is all the noise around (mooks) sort of impacting the way you're thinking about pricing over all?

Greg Cappelli

Yes, I'll take your (mooks) second but, Brian, why don't you help James with the …

Brian Swartz

Yes, James, as you think about the revenue per student -- so we rolled out some selective grant programs in Q1. We are continuing many of those for the full year. Part of that, too, was the tuition freeze, which we talked about.

So as you think through, again, modeling for Q2, Q3 and Q4, on a year-over-year basis, the revenue per student should be down in each of those quarter 1% to 2%. And when you think about discounts as a percentage of revenue, as we outlined in our press release, those will hit a high point of about 10% we expect in Q2 and will level off closer to 8% for the full year when you look at the back half plus the first half.

So that's the impact primarily of those grant programs being rolled out to the student body.

Greg Cappelli

And then, James, as far as the (mooks) or just really all the -- there's a lot of -- noise is the wrong word.

There's just a lot of messaging and a lot of confusing messaging going out to consumers in higher education today, whether it's from a massive open online course or other players in the industry. And I think that’s why we’re so carefully trying to position our brand as - you know, historically it stood for something very important. It still does. But we know, from talking to hundreds of employers, thousands of employers, to people across the nation, what is important to them.

And there’s been a missing link here in higher education for many, many years. And that is it’s great to help people get a high-quality education. Translating that into a career, especially one that they’re looking for, and all the things that actually have to go into that, from the very first touchpoint to the end of that process, that’s where our message is. That’s where our focus is. That’s what we’re trying to drive home.

We know that’s very, very important to the regulators, the government. They’re right. To us as well. And that’s where we’re focused on trying to cut through some of the clutter and make our case to students going forward. We know that’s going to take some time. There’s been a tremendous amount of work that’s gone into it.

But again, I think to your point, there’s a lot out there, including the MOOCs, and it’s making sure that what you stand for, you get that messaging directly to your target audience, which for us is working learners and certainly our students that are already employed through companies that we’re engaged with across the nation.

Operator

Next to the line of Suzi Stein with Morgan Stanley. Your line is open.

Suzi Stein - Morgan Stanley

Hi, can you just talk a little more about the HLC notice? First of all, how will you communicate this? Will there be an 8-K when you have more specifics? And do you know if this is related to the three issues that they were already reviewing? Or could it be something new? And then I guess finally, what restrictions would be imposed if you are put on notice?

Greg Cappelli

Sure. Let me just say, I’m not going to speculate, in the absence of actually having the report. There was a communication made that the report is coming. Let me just make sure you know what notice status means. I’m sure you do, but I’ll just reiterate it. It means that the peer-review team has identified some concerns. If they were to persist, that could place any institution, including ours in this case, out of compliance with HLC’s criteria. If this is the final action, after a review process and whatnot, we would be required to take corrective action, and certainly to file a written report showing that we fixed this condition over a period of time. So that’s what it means.

We need to get it, look at it, understand what any issues are. This was a lengthy process. A lot went into this. And you know, we’ll certainly, when we get that information, there’ll be a process to review it, and to disclose as appropriate.

Suzi Stein - Morgan Stanley

Okay, and then this is the first quarter in a long time that you didn’t buy back stock. Can you just address that? And I guess it looks like there’s no authorization. What are the plans there?

Greg Cappelli

You know what? We will review that again at our board meeting. I want you to know, and I think we’ve certainly discussed this in the past on our calls, there is a process. Every quarter we look at our capital needs, we look at the highest priority, where capital is going to go. We’re in an industry right now where differentiation is extremely important.

And from my perspective, what’s positive is we didn’t just wake up to this right now. We’ve been working on this. We’ve been making investments. We’re looking at the future, both at Apollo Group, which is why it’s so important for us to continue to diversify Apollo and put capital into the other initiatives, as well as at the University of Phoenix, because we believe strongly that if we do reposition our brand and get it right in a high-quality way, good things are going to come, whether it takes time or not to do that.

So we’re looking at all those things, and potentially where capital might go. We certainly discuss that with our board, and at our board meetings. It’s important that share repurchases, which we’ve done billions of, over the past several years, as well as things like dividends and any other possible returns to shareholders are part of those discussions. So please don’t read into it, just because this quarter there didn’t happen to be any, that there won’t be next or in quarters going forward. Sometimes it’s just a timing issue for us as well.

Operator

Next we have Bob Craig, with Stifel Nicolaus. Your line is open.

Bob Craig - Stifel Nicolaus

I wanted to circle back to Peter’s question a little bit, and just make sure I understand something. The first quarter you beat pretty handily, and then you indicated you’re running ahead of expectations in terms of your cost savings. But then your operating profit guidance for the year is down by $25 million, and I’m just wondering if you could reconcile that for me.

Brian Swartz

Yeah Bob, it’s Brian. That’s a good question. I understand, potentially, some of the confusion. I think as we look at the full year and where trends are going, both from a cost optimization perspective, how much we're capturing, how much we expect to capture, and then, by the way, I did talk a little bit about the roll out of additional grant programs and that'll hit the highest point in terms of the financial impact in Q2.

So that is something that's new that wasn't contemplated the level it was at last quarter when we spoke.

And the other thing we're doing, which I also mentioned is in Q2, we do anticipate increasing a marketing spend really to drive that repositioning of the University of Phoenix principally in the offline market.

So (between) the increased ad marketing spend and the grant programs and all the other moving pieces of the outlook, that's where we ended up.

Greg Cappelli

You'll actually start to see some of the unique aspects of that, actually starting in the next week or two through the next phase of the campaign.

Bob Craig - Stifel Nicolaus

And Greg, talking about the grant programs and the tuition freeze, have you seen any impact of that on either student retention, persistence or trying to convince students to come to University of Phoenix?

Greg Cappelli

It's a little too early to say that yet. We believe it will. But it's early days still with it. Just on the 15th of November, we really put in place our entire process of education careers throughout the university and then there's training that goes into it and there's so many other things.

So it's early at this point, but we're expecting execution of progress there and to update you on that every quarter.

Operator

Your next question comes from the line of Jeff Volshteyn - JPMorgan.

Jeff Volshteyn - JPMorgan

Let me just follow up on one of the questions on campuses. Have you actually closed any campuses at this point?

Greg Cappelli

Yes, we have. Yes, it's in process.

Brian Swartz

The announcements have gone out. The actual closures are starting to happen but several have already to date, not the majority or anything but they'll happen over the course of the next several months.

Jeff Volshteyn - JPMorgan

And so the cost savings that we're talking about this quarter and perhaps in the next quarter in reserve, how much of that is coming from the closed campuses or that are about to be closed versus more general cost savings?

Brian Swartz

So there's a couple of different -- there's several pockets of costs savings. Some of it is related to -- much of it is related to people. And on the people front, particularly on what we refer to as our graduation team, the enrollment advisor, the academic counselor and financial advisor, we actually were able to execute on many of those cost savings earlier than expected. That's why we were able to pull forward some of those cost savings and realize more this year.

So that's one piece of the cost. The second piece -- a big piece of the savings is space, which you alluded to. Much of the space savings won't come or actually start (hitting) to us until we actually exit those facilities, which we've exited some but some of it will come in the latter part of the year as well.

When you look at the overall cost savings, the way to think about it, rather than it being, again, back-half loaded, the way I would think about it is more that it will happen equally over the course of those quarters given the timing of when some of the actions are taking place.

Jeff Volshteyn - JPMorgan

Let me follow up with just a question with student persistence. It seems to be getting less (bad) in this quarter and it seems to be driven by associate programs. Can you give a comment on student persistence, graduating classes in the next couple of quarters as well as underline student retention?

Brian Swartz

Yes, so from a persistence perspective, in terms of the way I assume you calculate it, Jeff, which I know many people do. I know persistence in the second quarter we expect to be pretty consistent with Q1, the actual percentage itself. Obviously it's best to look at it year-over-year from the seasonality but it should be relatively consistent in Q2.

The back half of the year we expect improvements in underlying retention with many of the initiatives we have and that will be somewhat offset in the persistence calculation with just seasonally higher grads during that time of the year. So that's how we expect persistence to roll out over the next two quarters.

Operator

Your next question comes from the line of Paul Ginocchio - Deutsche Bank Securities.

Paul Ginocchio - Deutsche Bank Securities

Brian, the $15 million off the top end of your revenue guidance range, I think -- am I hearing you right that that's mainly for the additional grants or is it at all related to the weakness in December you commented on?

Greg Cappelli

Paul, it's related to the grants, but obviously our (10) is up on the initial weakness in December as well and it's probably fair to say it's a combination of them both.

Paul Ginocchio - Deutsche Bank Securities

And Greg, does the 15% increase in marketing spend in the second quarter, is that at all related to the December or is that all about repositioning the brand? I'm just wondering if you're spending a little bit more to work back that weakness in December.

Greg Cappelli

It's not -- no, that's not about the weakness in December. It's about the TV and radio and some of the initiatives on the brand. We have spent a lot of time inside and outside with experts understanding what we are going to need to do to get University of Phoenix - which we’ve been talking about now with this group on calls for a number of years - what we want it to stand for.

Now, we know exactly what we want it to stand for. We’ve been putting these initiatives in place. And we must rebrand - that’s probably the wrong word, but brand it to stand for what we need. And that money needs to go into those areas. If anything, we’ve pulled back in some other areas that just haven’t been effective over the years from our standards. And yes, you might acquire students from it, but we’re cutting out those areas and going after this rebranding initiative that we think is going to be most important for us.

Paul Ginocchio - Deutsche Bank Securities

If I could sneak one more in, the admissions advisors, it’s a pretty significant reduction. Is that because you’re getting more productivity out of your existing ones? Or is it just to rightsize it with the size of the company?

Brian Swartz

It’s actually both. We did capture more of that savings earlier in the fiscal year, as I mentioned. That’s why it’s not all back half loaded. But in addition to that, the teams have been working very, very hard on the way they manage the various service offerings, both on the enrollment side as well as the financial aid and academic sides. And the productivity at least with enrollment counselors is up, and it’s on the right trend as far as where it’s headed as well. We have other opportunities where we think we can drive even more efficiency in the future.

Operator

Next we have the line of Gary Bisbee with Barclays. Your line is open.

Gary Bisbee - Barclays

Can you give us a sense, how is the new marketing campaign doing? How is being received? Lead flow? Commentary and anything like that? And just also, the second question, how can you have confidence, or maybe confidence is the wrong word, but continue to suggest you think you should have growth in new students by the end of ’13?

Greg Cappelli

Both great question. Go ahead Brian, on the first.

Brian Swartz

First of all, the ads themselves, the initial ads that went out, tested very, very well. So we did some extensive testing, our marketing team, with the agency that we utilize, and they tested very well. They haven’t been in market a ton of time right now.

And we’re actually rolling out some additional ads, the parking lot ad that perhaps you and others have seen. There will be new ones coming out here. I think next week is the launch. Several of them. And that’s why we’re increasing the spend, too, to support that repositioning and the new ads themselves.

So it’s a little too early to tell, but what we certainly can say is that they tested well. Now we need to see if they perform in the marketplace.

Greg Cappelli

As far as our internal goals, it’s really based off of everything that we’ve done to put in place and to model out. Our expectation is that to guarantee absolutely not. You know what’s going on in the industry. But we feel good about the process. We’ll keep you updated along the way. I want you to understand the strategy, the execution of the strategy, and certainly whether things go exactly month to month, or quarter to quarter, where we stand on the execution of that strategy over time. So our goal is to grow enrollment before the end of the year.

But more importantly, there’s a strategic plan behind that, and we’re doing the best we can to execute on that in, frankly, a challenging market.

Gary Bisbee - Barclays

Given that challenging market, I guess I wonder why you haven’t maybe been more aggressive looking to use the balance sheet and your cash flows to diversify. I think given the uncertainty around, I suppose you could say Title 4 overall, but certainly enrollment trends in the core business. One might argue you shouldn’t buy back stock. You shouldn’t consider dividends, and you should be looking to buy non-Title 4 revenue-generating businesses. Even if the core business is in decline, it likely would throw off a lot of cash that you could diversify and position the company to be sustainable and grow at some point. And why haven’t you been more aggressive? Is that likely to happen now that you own 100% of the Global? Any commentary on that?

Greg Cappelli

No, look, it’s a fair point, and I’ll get shareholders that will say the exact opposite as well. Just giving you that perspective. We get a wide range of opinions. There are some that believe you use every penny to buy back every share, and there are some that think what you’re thinking. We take a balanced approach, and a pyramid approach, to our capital, for the highest returns.

Look, we’ve put almost a billion dollars to work globally, and we’re seeing some really exciting green shoots out of certain areas of global. I want to give you the perspective, my perspective, which is we have people that are literally having conversations all over the world. Things have to come together. I watched as an analyst companies make mistakes on a lot of cases where they felt they had to rush out and use their capital because they had to make the quarter or make the year or whatnot.

We are not doing that at the Apollo Group. We have a plan. We have a global strategy. We know what we're good at, which is post secondary education. We are innovators. We think the world is changing. We see a huge skills gap that's increasing that we want to be able to close.

And I'll tell you there will be a point in time where those relationships we've been building, the right amount of capital and, by the way, the talent in those areas, whether it's startup or acquisition, will be in place to pull the trigger on certain things and certain areas but only if we believe we can create shareholder value that’s real and long-term and meaningful.

So those are the things that have to come together. I want to assure you that we have teams of people that are evaluating situations where we do have that opportunity to use the capital in those situations.

Gary Bisbee - Barclays

And then just a quick one, anything you can give us on BPP? Any update there?

Greg Cappelli

I think BPP is -- again, the market in the UK is better than it was in prior years. Is it great? No. They're making so much progress in so many areas. They have made some very key additions to their management team.

They're building up their infrastructure and presence in certain areas where they didn't have it in terms of international -- I say international outside the UK and the continent, working on building their business school, obviously the law school.

And the PE business is doing better than it did before. Brian, I don't know if you want to add anything to it.

Brian Swartz

I think you got the last piece but I just want to mention they're continuing to work on building relationships with -- on the PE side of the business as well and figuring out how to …

Greg Cappelli

They have a ways to go as well. Global …

Gary Bisbee - Barclays

Greg, didn't they just get a university status?

Greg Cappelli

Yes, they also have university status, Gary, which I think you're probably aware of. The other thing I just want to say about the global team is that they're doing some great things on the technology front within global that is getting rolled out as well as a proprietary model that you'll hear more about.

It is getting tested now in certain markets for working learners in places in Latin America and will be going overseas to Great Britain and whatnot and you will be hearing more about that and its effectiveness because it's really an important area for us going forward.

Operator

Your next question comes from the line of Jeff Meuler - Baird.

Jeff Meuler - Baird

I just wanted to ask a follow-up on admission and advisory in terms of the improvement in productivity. How much of it is due to I guess getting -- setting up baseline, following the regulatory changes and seeing some improvement from there versus -- I think you guys were also investing in technology and process automation. Where are you in terms of those investments?

Brian Swartz

Yes, well, we're seeing -- here's -- we're focused on it from many different angles. So the key for us is to make sure the enrollment advisors have the right thing in their hands to do their job most effectively.

We also want to make sure that we're using as much technology as possible to really manage what needs their calling on who they're calling on. And there are various need mergering strategies that we've implemented internally that can really optimize their efficiency and effectiveness. It actually makes the job a more effective job for them.

So there's technology investments we've made. Much of that is in place. We have talked a little bit about1 our service platform, which we have invested in and will start to roll out the latter part of this year and into 2014 and that service platform is a connected traditional SRM platform with a communications platform that should even allow them to become more effective into the future.

Greg Cappelli

I think the other thing, Jeff, that I would add is in pilots we're seeing some great results out of the education to careers initiative. Imagine -- and there's a lot of training going around with that. I just don't -- I don't want you to think that's completely gone and finished.

But imagine the conversation that an EA is having now versus six months ago with a perspective student. All students obviously call us. We're not cold calling students. But the ones that have an interest and have come in, that conversation is very different today than it was even six months ago.

That is unique and something that we can do better. In operating those cases and those pilots, productivity is much higher.

Brian Swartz

Jeff, let me add one other thing, too. There was a pretty -- as you think about that line item, that admission advisory is a certainly, not a variable, but a semi-fixed cost because over time we can obviously increase or reduce the level of admissions advisors through attrition and otherwise. It took a pretty big step down from Q4 to Q1. I don’t know the exact number, but I think it’s down about 16-17%. I would not anticipate that to continue for the rest of the year.

In fact, the leverage that it’s kind of at now, call it the low- to mid-70s level, is probably the right level for the rest of the year. The change incrementally that Greg is talking about based on our views of lead flow and growth will happen over time. It won’t be a structural step down or step up. At least that’s not what we expect today.

Jeff Meuler - Baird

And then a question on price or tuition price. I know you think in terms of value proposition, but tuition price point is part of that equation. You obviously recently instituted a tuition price freeze. It sounds like you’re doing more grant programs. I guess what gives you confidence that for University of Phoenix you’re in the ballpark in terms of price point versus potentially considering a larger price point reset. I know there’s 90-10 challenges, but I guess what gives you the confidence that we’re in the ballpark here versus the potential for a larger reset?

Greg Cappelli

That’s a fair question. All I can tell you is that our managers are out in the marketplace looking at price, talking to students, doing surveys in certain areas. We know price matters. You’re right. It’s part of the equation. It certainly goes along with what you’re offering students. We also know that when anybody evaluates price for us, they’re looking at what we offer.

In our case, we have a high-touch offering with very small classes, whether it’s on the ground or online. And it comes with a lot of service. Now, over time, if people don’t want to value and pay for that service, then we will make changes. But we think there’s importance to that, and that there’s value to that. But to your point, we’ve looked at some things in the marketplace.

Let me just reiterate what I might have said last quarter. Why did we put a tuition freeze in? Because we got a lot of feedback from students that said, hey, this is really important to me. When I start school, I have so many other things in my life - my job, my kids, all these responsibilities - I don’t want to have to worry about how my bills are going to change for the next two or three or four years. Boom. We got that message. We put it in place.

These are selective grant programs that we put in place, tailored to other messages that we’ve heard from people, but we will continue to be in the marketplace listening and adjusting our value proposition, which is the services we offer, augmented with the prices that we charge going forward. It will be an ongoing process.

Operator

Next we have Corey Greendale with First Analysis. Your line is open.  

Corey Greendale - First Analysis

Just a quick question on the gross revenue, which was still up. When did the tuition freeze go into effect?

Greg Cappelli

We’re going to check on that. I think it was November.

Corey Greendale - First Analysis

Okay, so you wouldn’t have seen the full effect in the quarter then?

Brian Swartz

You wouldn’t have seen the full effect, because it certainly was not in place at the beginning of the quarter. Plus, keep in mind the annual tuition increase happens in July. So this past July, the last time we raised prices, those are the levels we froze at. So when you look at it year over year, you would still expect to see some benefit there. It’s going into next year where it won’t have an impact. Does that make sense?  

Corey Greendale - First Analysis

It does make sense. And Brian, on the marketing expense, I know you said it’s going to be up more in Q2. Did you mean to say that it’s still going to be up year over year in the back half of the year? Or that could actually be down in the back half?

Brian Swartz

No, certainly in Q2 I indicated that it will be up about 15%, give or take, year over year. We think it will still be up in the back half of the year, but not at the same rate.

Corey Greendale - First Analysis

Okay. Can you just talk a little bit about whether there’s any variation among curriculum areas or key geographic areas in terms of what you’re seeing from demand? Or is it pretty soft across the board?  

Greg Cappelli

I don’t have any new perspective on that for you, to give you right now. Certainly the Phoenix team looks at all of that, through many different lenses. And you know the key areas of programs and curriculum. I will say that there are new areas of programs that will be coming out in 2013, that they have evaluated and looked at, where they know there is a demand. And those will be in various different forms. So we’re excited about those.

As far as where there's more demand than others, I don't have that exact data for you right now.

Brian Swartz

Corey, we did shack -- the tuition freeze went in place in mid-October.

Operator

Your next question comes from the line of Brandon Dobell - William Blair.

Brandon Dobell - William Blair

I guess I want to get a better idea on how the decision -- decision making process are going with the team in the context that on the Q3 call it sounded like some of the things that are now in place weren't being contemplated like bigger roll out on discounts, different repositioning on marketing.

It feels like the decision cycle on some of these bigger things is relatively short, so I'm trying to get an idea on how you guys are going through the different puts and takes on what seem to be some pretty large decisions around other spending P&L or marging points or strategic decisions, I guess.

Greg Cappelli

Really, honestly, the -- what we talked about -- actually, remember when we said last quarter we need to get things in the marketplace that we've been developing, working on, spending on, investing in because you've heard so much about that and we needed to get those into the marketplace.

This is a year of execution, as I said last quarter. It's not so much that decisions are changing, it's the speed at which we're moving to get what we've built -- what we've determined as strategy is. That has not changed.

So now what we will -- as I just said before -- what we will do is we'll look at the marketplace, which you have to do in this industry and make sure that you understand every market that you're in, what your market share is, what your students value and are willing to pay you for in terms of that value. That we're doing often.

Do we change our strategy every time we get feedback? No, we don't. In fact, our education to careers initiative has been in the pipeline. It's something we've been working on for quite some time. But actually getting it out, getting everybody trained on it, matching it with all the advertising that you see, that's the execution portion of it. That's what we're doing right now.

Brandon Dobell - William Blair

I think last quarter you guys talked a little bit about the impact of associate graduates moving into the bachelor ranks and thinking that that impact would be flat as you termed it this year versus last fiscal year.

Have you seen any change in the trajectory of those associate graduates enrolling in the bachelors programs and should we expect that that matriculation impact at some point becomes a headwind for bachelor starts or am I thinking about the impact of that looking out the next several quarters the wrong way?

Brian Swartz

Yes, Brandon, it's actually rolling out or occurring as we had expected, so there hasn't been any changes in it. So I don't think it will become a headwind any time in the near future but it's not going to be the drag that perhaps some people thought it would be, including us, last year because of the number of grads. So it's rolling out just as expected.

Brandon Dobell - William Blair

Then final follow-up on -- I think one of the questions were on the corporate -- it's called the corporate channel. Are you guys satisfied with how the partnerships with the corporations are pipelining up and what the impact to enrollments has been or are they taking longer or shorter to start hitting your marks in terms of what they're contributing to the population growth?

Greg Cappelli

Brandon, if there's one area that we're very pleased with -- and it's not been easy. It's been a lot of hard work, a lot of training, a great group of people but it's gone from nothing to significant for us and it's growing very nicely.

We wish it were larger than it is right now but it continues to grow nicely and that is the workforce solutions group, not only the number of corporations that we are building relationships with because we're listening to them and we understand more of what their issue is with the skills gap.

You might have heard me reference something like the innovator's accelerator that we talk about. We've been building this in conjunction with corporations. Three phenomenal academics from world class institutions.

But think about what a different conversation that puts us in than before. So we're listening, we're learning, we're building that. I think it will become a bigger and more important part of not only the University of Phoenix but Apollo Group as we look at building those channels not only here but at Apollo globally as well.

We've learned a lot and, again, they're executing and they're doing a beautiful job for us right now.

Operator

Next we have Sarah Gubins with Bank of America Merrill Lynch. Your line is open.

Sarah Gubins - Bank of America Merrill Lynch

In response to Corey’s question, it didn’t sound like there was anything particularly worth calling out around the weakness, the more than 15% declines in new student enrollment in December. So first I just wanted to confirm that. And second, kind of in conjunction with that, wondering if there are any program areas that you’re thinking about pulling back on, or cutting programs entirely, or generally scaling back as you shift the areas of focus to more career-oriented programs.

Brian Swartz

Just to be clear on what my comments were on the new enrollment trends, December didn’t come in as we had expected. It did come in a larger declining rate than the first quarter of 15%. That was the month of December. But it’s important to realize, we’re very early in the quarter. December is the softest month of the year, actually. So therefore, by definition, the quarter as well. And January, everyone’s getting back from the holidays now, and it’s even a big early for the month of January.

Greg Cappelli

That’s what we stated on the call. We don’t have all the data. \

Brian Swartz

Exactly. So that’s exactly consistent with what I had said on the call. Your second question, again?

Sarah Gubins - Bank of America Merrill Lynch

I’m just wondering if there are any particular areas that you’re seeing weakness in. Along those lines, I’m wondering if there are types of programs that you’re thinking about cutting that maybe aren’t getting the traction or results that you’d like to see as you prioritize other types of programs.

Greg Cappelli

It’s a good question. I don’t want to get into the details of competitively what they’re looking at, because the Phoenix team is doing some really innovative and interesting things. Again, market research, listening to employers, listening to students. Let me put it to you this way, there are things in areas that I know they are evaluating and pulling back, and there’s other areas that they’re aggressively going into. We know that students do not want to wait two or four years before they get some value out of all they work they’ve put into gaining knowledge. They want to be able to use that faster, in the marketplace. That’s an area of differentiation, where I know they’re working very hard to create a vehicle to do that in. And you’ll hear more about that going forward.

Sarah Gubins - Bank of America Merrill Lynch

Separately, I’m wondering if you could share your free cash flow expectations for fiscal ’13 with us?

Brian Swartz

We haven’t given exact numbers, but what I would tell you, consistent with prior years, our capex is generally in line with our depreciation and amortization. There’s some other noncash items out there, like stock based comp. But it should be relatively consistent, that cash conversion cycle that we’ve seen in prior years. So looking at historical trends, you could assume that should be consistent for this year.

Sarah Gubins - Bank of America Merrill Lynch

Okay, great. And then a just last quick question: the LMS rollout, can you talk about the plans for it and whether or not that has been pushed back? Or is it kind of planning on happening as you’d originally expected?

Greg Cappelli

The LMS rollout, first of all there’s been a lot of piloting, testing, small groups. And the full rollout is starting next month. And that will happen throughout, as we’ve said before, this fiscal year. And the reason why we want that to go very, very well, it’s a very different platform than anything we’ve ever had before. Curriculum has changed for it. There’s so much more optionality, and there’s so much more capability, that we want to make sure that it goes very smoothly, and that it’s being used appropriately, not only with students, but with faculty, and all the information that’s now going to be available to them, versus what we’ve had in prior years.

Operator

Next we have Jeff Silber with BMO Capital Markets. Your line is open.

Jeff Silber - BMO Capital Markets

Just a couple quick numbers questions. Brian, you said something at the beginning of the call that I missed, and I just want to clarify it. You were talking about revenue trends in the second quarter being down $25 million. Can you just explain that again?

Brian Swartz

Yeah, it relates to the impact of the grant programs. So if you look at discounts in our press release, as we present them, they’ve generally trended up about 100 basis points. I think the most current quarter, it was up to about 6.8%, give or take, which was up about 100 basis points year over year. Next quarter, because of the impact of the timing of those grant programs, it should hit revenue by about $25 million. It will drive that discount percentage up to about 10% next quarter, and then it will come down, so that the full year of fiscal ’13 is about 8%.

Jeff Silber - BMO Capital Markets

So we're just talking about the discount line, not total revenue.

Brian Swartz

Exactly.

Jeff Silber - BMO Capital Markets

In the last quarter, you were kind enough to give us some start assumptions. I think you said if persistence were relatively flat you would have thought that starts would have been down about 17% this quarter. Can we get the same guidance for second quarter starts assuming persistence is relatively flat?

Brian Swartz

Yes, at this time, Jeff, it's just still early. The seasonality within the quarter just makes that more difficult. So we talked about what we experienced in December and we need to see how the quarter plays out.

Greg Cappillo

The timing of when the starts come in and whatnot matters.

Jeff Silber - BMO Capital Markets

And in terms of CapEx for the year, what should we expecting?

Brian Swartz

Yes, pretty consistent with prior years. I know this quarter was a little lighter, but it should be around 3% or 4%.

Operator

Your next question comes from the line of Kelly Flynn - Credit Suisse.

Kelly Flynn - Credit Suisse

This is a large, open-ended question for late in the call but can you just talk, Greg, I guess high level about what you think maybe at this point causing the starts the weakness. Throughout the past couple years there's been talk of competition and the weak economy, various factors.

Given what you're seeing out there now, what do you put it to and what do you think changes as the year progresses that may improve the starts numbers?

Greg Cappillo

I wish I had all the exact answer for you. We look at everything we can, every piece of market data we can. As I said before, we're talking to employer students. Some areas are working for us right now, as I mentioned with workforce solutions.

I think if I had to summarize, you look at today versus three or four years ago and there are a lot of messages going to consumers about education in the marketplace and they're confusing.

You know what? As I said on some of our past calls, our messaging stopped -- it stopped standing out as unique and something that stood out with consumers and people that were interested in higher education the way it did when (John Spurling) was building this organization up.

And we've looked at all of that and we've looked at the market and, again, we're doing our research. We know what our capabilities are and what we're good at and we're trying to reposition the brand, which many in the industry have had to deal with the brand taking a hit over the past couple years.

We're trying to reposition that brand in a way that we know will represent what we've built internally and what we will be delivering from a value proposition to students going forward.

I think if we can do that then we can cut through the clutter of so many different messages to consumers right now that are, frankly, we know from feedback is very confusing.

Operator

Your next question comes from the line of (Ken) Wahlstrom - Morningstar.

Pete Wahlstrom - Morningstar

Just a quick follow-up from Brandon's topic on the corporate partners, what are they saying about the macro outlook for 2013 and maybe on a like-for-like basis, are they willing to expand their relationship with Apollo at this point versus maintaining the status quo or even pairing back a bit?

Greg Cappillo

First of all, as far as when you say what is their -- well, let me tell you what part of their message has been to us and I also put out a white paper this past quarter that talks about literally CEO interviews that my team did across the nation.

I can tell you unequivocally when you have 3.5 million plus jobs that are posted for hire and an unemployment rate of 8%, 23 million people that are unemployed or underemployed, their message is we can't hire the people we need for the jobs we're posting, which is why we're either not doing what we can do here in the US or we're going elsewhere in an economy that's global and you can now source this talent in other areas.

Look, we run into it in our own organization, the (inaudible) in certain areas I said last quarter. So their message has been you help us with the human capital but really where we need it, not just, someone has a bachelor's degree, that's nice. They're trained; their smarter.

Do they have the knowledge to do what we need them to do in specific areas? And are they prepared? Are they ready critical thinking wise? Do they understand what it's going to take to do the jobs that we need them to do. The whole process of interviewing people, ranking schools, getting people, that all needs to change. We’re working on that entire process for employers. It is a big process, but we know that it’s important to them. We know that that’s what they want, and we’re working very, very hard to do that. So that is one message that, for sure, we’re hearing. As far as their outlook on the economy and whatnot, you hear the whole gamut, the whole range of things, so I won’t go into detail on that. But it’s a good question, and that’s the best answer I can give you.

Pete Wahlstrom - Morningstar

Very good, and maybe one in a similar vein, but perhaps a little bit more near-term. Have you thought about contingencies or risks to government spending in the event of some of the debt ceiling discussions which are going to be hopefully occurring in the next couple of months?

Greg Cappelli

Again, it’s a good thought. It’s hard to speculate exactly where things are going to come out. Right now, we know the levels of spending that are in place. We’ll hear more about it with the debt ceiling talks, and what they ultimately come up with. I would expect, whatever the case is, if you look at the last 10 years of history, of whether there were increased amounts in Pell, reduced amounts in Pell, consumers are going to speak with their feet. They’re looking for a value proposition. That value proposition I think is changing as we go forward.

Students, consumers, they want jobs. They want you to recognize that up front. If you put that in front of them, and you show them that you understand that, and it’s important, then they’re going to choose you, whether they have to borrow some money to get that value, or whether there’s grants or whatnot. The other thing is that there’s going to be a reauthorization of the higher ed act at some point, and that will certainly take place at some point probably during the president’s term. It’s hard to say exactly when it will happen, because it’s been late in prior years, and hasn’t happened on a timely basis.

And then the corporate channels for that, it simply mitigates some of this for us as we grow that, because obviously what corporations are willing to do is willing to pay for more of it if you provide them value.

Operator

And your last question comes from Trace Urdan with Wells Fargo. Your line is open.

Trace Urdan - Wells Fargo

My question is going to be really mundane after that. Greg, I wanted to clarify something that you said in response to a question, and I’m not sure that I followed it. But I believe the topic was the new dialog that the enrollment counselors are engaging in with students. Did I understand that you’ve rolled that out on a test basis?

Greg Cappelli

Yes. It’s in pilots now, and it will be getting rolled out in the coming months. It’s just such a huge priority for us, because this is all part of our education to careers initiative, which has been in the process of being built and tested and piloted - and we’ve made some mistakes along the way. We’ve corrected those mistakes. But it’s just a totally different dialog for us to be having with students.

And again, there’s a lot of data that goes along with it. But we’re excited about the possibility of productivity there. Not only is it the right thing to do, but in this industry, there’s been a history of accumulating as much information as you can around who’s interested in going to school, and then you almost don’t have the time or the resources to have good conversations or get to as many of those students that you would even want to.

This allows us to be more selective in our process, with the folks that we know are most interested in pursuing education to careers with us. The new value proposition talking point really has just been put in place on a wider-scale basis. So I’ll be excited to give you more detail on that next quarter when we talk.

Trace Urdan - Wells Fargo

But you had indicated the early indications are positive, yes?

Greg Cappelli

Yes, they certainly are.

Trace Urdan - Wells Fargo

Okay. And then, again, really mundane question here, but I was struck by the fact that the new associate enrollments increased on an absolute basis from the prior quarter, and that was really the only group that had that. And I’m wondering if there’s something happening there, if you’ve perceived any kind of a difference in the way that particular market is behaving, or whether there’s something you’re doing

(AUDIO GAP)

In terms of the market data that we have. Sometimes just the mix can shift on you some quarter-to-quarter depending upon where the demand comes in. But I don't have a lot of data to give you on why the mix is what it was.

We certainly will look at that. I know the Phoenix team has looked at that in detail.

Trace Urdan - Wells Fargo

Are you talking about new enrollments or …

Greg Cappelli

New enrollments, yes. So the associates new enrollment year-over-year was down about 18%.

Trace Urdan - Wells Fargo

No, I was looking at the quarter-over-quarter number and there was slippage in most of the areas and that one was positive.

Greg Cappelli

I'm sorry, I don't have a lot of data to give you there on that yet but I know the Phoenix team will.

Operator

There are no further questions at this time. I turn the call back over to the presenters.

Greg Cappelli

Thank you, everyone, for joining us. We're hard at work here and we will look forward to updating you again when we talk next quarter. Thanks, again.

Operator

This concludes today's call. You may now disconnect.

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