Corinthian Colleges Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: Corinthian Colleges, (COCO)

Corinthian Colleges (NASDAQ:COCO)

Q4 2013 Earnings Call

August 29, 2013 12:00 pm ET

Executives

Anna Marie Dunlap - Senior Vice President of Investor Relations and Corporate Communications

Jack D. Massimino - Chairman and Chief Executive Officer

Robert C. Owen - Chief Financial Officer and Executive Vice President

Analysts

Jeffrey M. Silber - BMO Capital Markets U.S.

Peter P. Appert - Piper Jaffray Companies, Research Division

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

David Chu - BofA Merrill Lynch, Research Division

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal 2013 Corinthian Colleges Earnings Conference Call. My name is Said, and I will be your conference coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn conference over to your host for today, Ms. Anna Marie Dunlap, Senior Vice President of Investor Relations. Please proceed, ma'am.

Anna Marie Dunlap

Thanks, Said. Good day, everyone, and thanks for joining us. I'm here today with Jack Massimino, Chairman and Chief Executive Officer; Bob Owen, Chief Financial Officer; and Ken Ord, Chief Administrative Officer. This call is being webcast, and an audio version of the call and transcript will be available on Corinthian's website for 30 days. In addition, a telephonic replay of this call will be available until Tuesday, September 5. The details for accessing the replay are included in the press release we issued this morning. Please note that during this conference call, we may make projections or other forward-looking statements regarding a variety of issues. These statements are based upon current information and expectations. Actual results may differ materially based on a number of risk factors, which we have identified in our filings with the SEC.

With that, over to you, Jack.

Jack D. Massimino

Thanks, Anna Marie, and hello to everyone on the call. In fiscal 2013, we made significant progress in a number of areas while working through the loss of Ability-to-Benefit students. We remain focused on student outcomes and achieved an incremental increase in our company-wide graduate placement rate. In our campus operations, we focused on continuous improvement of key processes through increased standardization and automation. This sort of work doesn't make headlines and it isn't glamorous, but it is essential to building an effective and sound operational infrastructure for the long term. Among numerous examples, we made progress in automating compliance reporting, organizing the flow of information and projects from the corporate office to the campuses, standardizing hiring procedures for ground school faculty and career services staff and implementing new service center technology for online learning. We achieved a positive increase in non-ATB new enrollments during the fiscal year as a result of our ongoing marketing efforts and new program launches.

In addition, several competitors taught out or closed schools, and we accepted hundreds of transfer students and benefited from less competitive markets in several of our service areas.

In the fourth quarter, our financial results were within our most recent guidance range for diluted earnings per share. Results were below guidance for revenue and new enrollment, driven mainly by lower-than-expected enrollment of exclusively online students. As Bob and I move through our remarks today, I'll review our progress and performance in more detail and provide an update on regulatory matters. Bob will then review the fourth quarter operational and financial metrics and provide guidance for the first quarter of fiscal 2014.

I want to spend a few minutes now discussing our fiscal 2013 progress, starting with student outcomes. For our schools and students, employment upon graduation is the most important measure of success. Approximately 69% of our 39,000 graduates in calendar 2012 or 27,000 individuals found employment in their fields of study as of June 30, 2013. This placement rate is for continuing operations and is up slightly from the previous year. We're striving to do even better, but in light of the weak economic recovery, we're proud of what we helped our graduates achieve. We have over 750 career service employees who assist our graduates in finding employment. We continued our career services reengineering project in fiscal 2013 by implementing a standard hiring process across all Everest schools, establishing a centralized online resource for career services staff and enhancing our compliance and reporting procedures. To expand the career opportunities available to our graduates, we signed 12 externship agreements and 8 new partnerships with regional and national employers during the fiscal year. In total, we've signed 90 such agreements with large employers over the past 2 years. During calendar 2012, about 15% of our graduate placements were attributable to our partnership agreements. In addition, at the campus level, we have relationships with thousands of small to midsized employers. We expanded our program offerings to students by introducing 6 new diploma-level programs in business, criminal justice and information technology. To help reduce the cost of student debt, our outside lenders reduced interest rates on GAAP financing. As of September, the new rates range from 2.9% to 9.9%. As a result, the average payment that students make on their private loans while in school was reduced by approximately 40%. We also lowered pricing for diploma-level programs in Florida and for full-time students at Heald and online. Our new deployment programs were offered at a reduced tuition level as well.

In October 2012, we launched a free GED program at 60 Everest campuses in the U.S. The program is helping to address the widespread high school dropout problem in the communities we serve, and early indications are that the program will result in some new enrollment for our campuses.

For our exclusively online students in fiscal 2013, we developed an initiative to increase student engagement and connectivity with faculty. The initiative called online student success is currently being implemented and it includes a substantial increase in a number of full-time online faculty, as well as the creation of academic teams. Among other benefits, when the academic teams are fully implemented, faculty will have additional management support and instructional resources. Each year, we conduct an employee satisfaction survey, and this year, 85% of our workforce responded. This was an excellent response rate, and given another challenging year of belt-tightening, we're pleased that overall employee satisfaction was consistent with the previous year.

Further, our employee turnover continued to improve, dropping nearly a point from 25.7% in fiscal 2012 to 24.9% in fiscal 2013. In addition, Corinthian was recognized as the National Top Workplace in a survey of over 500,000 employees in companies across the United States. The survey was jointly sponsored by 30 major newspapers. In Orange County, California where our headquarters is located, Corinthian has been designated a Top Workplace for 5 consecutive years. In the area of accreditation, we received reaccreditation for 27 campuses during the year. Of those, 8 campuses had 0 findings, which is the equivalent of a perfect score from the accreditation agency. In addition, 6 of the 9 campuses up for reaccreditation by ACCSC, 1 of our 2 national accreditation agencies, were designated schools of distinction, indicating 0 findings, as well as an extraordinary commitment to the accreditation process and standards.

Over the past few years, we focused on continuous improvement of our internal audit function and have successfully reduced an average number of negative accreditation findings per campus. In fiscal 2013, the average number of findings on reaccreditation visits was 1.3, down from 1.5 in the previous fiscal year and 3.7 3 years ago. Also, in the regulatory area, we successfully made the transition to the department's new 3-year measurement of cohort default rates. Draft rates were published last March and none of our institutions exceeded the required threshold. We have achieved this improvement in part by establishing a robust in-house cohort default prevention program. Our program includes financial literacy training provided to students while they're in school, counseling-related repayment options and early intervention in the default process.

As part of our plan to diversify our revenue sources, we acquired QuickStart Intelligence in August 2012. QuickStart offers continuing education courses in the field of information technology. The courses are short term, cash pay and not for credit. And they have historically served more than 20,000 IT professionals and software developers annually. During the year, we worked through the loss of Ability-to-Benefit students, which was particularly challenging for our Everest campuses in the United States. We absorbed the loss by continuing to align expenses with our current and anticipated student population and selling or teaching out underperforming campuses. We also focused on growing our student population and posted a 4.2% gain in non-Ability-to-Benefit new students for the year. Overall, given the operational and regulatory challenges we faced during the year, we're pleased with the progress we made in all the areas just discussed.

Next, I'm going to move to a discussion of enrollment trends. As we reported earlier today, new enrollments decreased by 5.8% in the fourth quarter of fiscal '13 versus the same quarter last year. This is below our guidance range of negative 3% to negative 5%. Overall, the decrease was primarily driven by the loss of Ability-to-Benefit students, and this, relative to guidance, was the result of a slightly worse-than-expected decline in new online enrollment.

In the fourth quarter, we enrolled 357 Ability-to-Benefit students compared with 2,941 new Ability-to-Benefit students for the same period last year. In the quarter, our non-Ability-to-Benefit new enrollments were up 4.8% versus the same quarter last year. With respect to Online Learning, we continue to work through the implementation of new service center technology and related reengineering workflows. In addition, we're moving ahead with the online student success initiative that I discussed earlier. Taken together, we believe these steps will help position online for improved performance. Although we expect new online enrollment growth to turn positive in fiscal '14, we expect it to remain negative in the first quarter of the fiscal year. In the first quarter of last year, online had near-record new enrollments, so it's a challenging comparable. In our Everest, Heald and WyoTech ground schools, prospective student inquiries remain consistent with last year.

A number of initiatives are contributing to growth, including a less competitive environment in several markets, the rollout of new deployment level programs and our GED program. I'll address each of these individually. We continue to see competitor school closures and industry consolidation activity as a result of several factors, including cyclical enrollment declines related to the economy, deteriorating financial performance and regulatory compliance issues. In Everest service areas where competitor school closures have occurred, our new enrollment results continue to indicate that our schools are gaining share. In fiscal 2013, we believe that approximately 2,000 new students enrolled as a result of competitor closures. And as discussed previously, we expect that having fewer competitors will also make it easier to help our graduates find jobs and to develop externship in clinical sites for our students.

Turning to new program rollouts. In total, we launched 68 brand-new deployment level programs during the year and an additional 20 programs from our core curricular. These program approvals were slower than expected during the year as a result of regulatory delays at the Department of Education. We're also making good progress with our GED Advantage program. Approximately 1,600 students are currently enrolled, up from about 1,100 at the end of March. 330 students have passed their GED exam since the program's inception and over 600 are in the exam process. Of those who have already passed the GED, about 20% have enrolled at one of our campuses thus far. Some of our campuses are having greater success with the GED program than others. In fiscal 2014, we plan to continue developing and growing the program, in part by disseminating the best practices of campuses with the most successful GED programs.

Looking ahead to the first quarter of fiscal 2014, we expect total new enrollment to be down 6% to 8% compared to the same period last year. The main reason for the decrease is the expected double-digit decline in Online Learning's new enrollment. The ground schools are expected to report positive new enrollments in the first quarter, but their growth will only partially offset online's decline. We expect online and the company as a whole to report positive new student enrollment growth for the fiscal year.

I'll turn now to an update on regulatory issues, starting with the Department of Education's ruling on our composite score. As we reported in an 8-K last week, we received a decision from the Department of Education related to both our fiscal 2011 and fiscal 2012 composite scores. Overall, we view the department's determination to be positive. For fiscal 2011, the department has calculated our score to be 0.9, and for fiscal 2012, they've calculated a score of 1.5.

On the strength of the 2012 score, the department will not require us to post a letter of credit. The fiscal 2012 composite score is subject to further review related to borrowings under the student notes receivable sale agreement. We remain ready to assist the department with its review, although they have not given us a time frame for completion. Although we appreciate the department's decision regarding the letter of credit, we continue to differ with them on the interpretation of regulations associated with their composite score calculations for fiscal 2011.

Our senior credit facility requires the company to maintain a composite score of no less than 1.5. Our fiscal 2011 composite score of 0.9 could be considered a technical deferral of our credit facility for that year. However, we've discussed the department's determination with our lenders and they've grant us a waiver for that year. Our composite score of 1.5 for fiscal 2012 meets credit facility requirements.

Next, I'll provide a brief update on compliance with the 90/10 Rule, which requires no more than 90% of our revenue be derived from Title IV funds. The 90/10 Rule is calculated for each OPEID or institution of which we have 37 in continuing operations. Each OPEID consists of the main campus and its branches. As expected, the 2 OPEIDs that exceeded the 90% threshold in fiscal 2012, Everest College Phoenix and Everest University Tampa, did not receive a second strike in fiscal 2013. An institution must exceed the 90% threshold for 2 consecutive years before it loses Title IV funding. Two of our other OPEIDs did exceed the 90/10 threshold in fiscal 2013. Combined, these institutions had 521 students at fiscal year end.

With respect to regulatory inquiries, we've previously disclosed inquiries from various State Attorneys General, the CFPB and the SEC. We continue to cooperate with these regulatory authorities although no resolution has been reached with any of them. More background on these inquiries can be found in our fiscal 2013 10-K.

With that, I'll turn to Bob for a more detailed review of the fourth quarter and guidance.

Robert C. Owen

Thanks, Jack. Let me preface my comments by saying that the results I'm about to review are for continuing operations, unless otherwise noted. In the quarter, 3 additional campuses were taught out and placed in discontinued operations. We were not able to sell the 2 WyoTech campuses that were previously up for sale. We taught out the WyoTech Sacramento campus and reclassified the WyoTech Daytona campus back into continuing operations. In addition, in the fourth quarter, we recorded $1.5 million in severance charges. More detail in our financials can be found in our press release and our annual report on Form 10-K, which we expect to file in the next few days. We will also post reclassified continuing operations, quarterly income statement and population data to our Investor Relations website.

So let me start with a discussion of fourth quarter revenue. Net revenues in the fourth quarter declined by 2.7% compared with the same quarter of the prior year. The decrease is primarily due to an 8% decrease in the average student population, offset partially by a 4.7% increase in the average revenue rate per student during the period. Jack has already discussed our new enrollment trends and the reasons behind the decline in student population. The student population at June 30, 2013, was 81,284 students, down 10.5% from 90,794 at June 30, 2012. Our exclusively online student population was 27,740 at the end of fiscal 2013, down 10.8% from 31,114 at the end of fiscal 2012. The decline is due to a combination of factors including a lower new student enrollment, higher attrition and a larger number of graduates. In the fourth quarter, the average student population was 84,585, down 8% from the same quarter last year.

We reported fourth quarter diluted earnings per share from continuing operations of $0.05 versus guidance of $0.03 to $0.05 and $0.08 from the same quarter last year, excluding impairment facility closing and severance charges for both quarters. The operating margin, again, excluding impairment and severance charges in both time periods, decreased to 2.1% in the fourth quarter from 3.7% in the same period last year. The decrease is primarily the result of lower revenue driven by student population declines.

Next, I'll move to cost trends, starting with marketing and admissions. As a percent of revenue, marketing and admissions decreased to 24.2% in the fourth quarter from 24.9% in the same quarter a year ago. In terms of total dollars, marketing and admissions expenses were down by approximately $5.2 million or 5.4% in the fourth quarter of this year versus the same quarter last year. Our marketing cost per new student was flat in the fourth quarter this year, and total marketing and admissions expenses for new students were flat as well.

General and administrative expense decreased by $5.3 million or 11.8% in the fourth quarter this year versus the same quarter last year. As a percent of revenue, G&A expenses were 10.4% versus 11.5% last year. The decrease is primarily the result of expense controls.

Educational services expense increased by $6.7 million or 2.9% in the fourth quarter versus the same period last year. The increase is mainly attributable to an increase in bad debt expense. As a percent of revenue, educational services expenses were 63.3% of revenue in the fourth quarter of fiscal 2013 versus 59.9% in the same quarter last year. Bad debt was 4.1% in the fourth quarter of fiscal 2013 versus 2.8% for the same period last year. Bad debt was unusually low in the fourth quarter last year, the result of expediting file processing associated with the pending OPEID merger in Florida. That merger is still pending. The 4.1% we reported in the fourth quarter this year is the more normalized level for bad debt expense.

With respect to income taxes, the effective tax rate in the fourth quarter includes benefits from 3 main items: return to provision adjustments, the release of certain reserves due to statute expirations and adjustments to loss carryovers.

Moving now to capital expenditures. In fiscal 2013, capital expenditures totaled $44.1 million, above our previous guidance of $35 million to $40 million. The increase is primarily due to the timing of expenditures. In fiscal 2014, we expect CapEx to be approximately $40 million.

I'll move now to the balance sheet and cash flow statement. At June 30, 2013, we had approximately $46.6 million in cash and cash equivalents. Total debt as of June 30, 2013, was $139.1 million, which included capitalized lease obligations of $12.2 million. Total debt as of June 30, 2012, was $149 million, which includes capitalized lease obligations of $12.9 million. Net days sales outstanding in the fourth quarter were 19 days. On the cash flow statement, cash flow from operations was $41.5 million in fiscal 2013 versus $152.8 million in fiscal 2012. The decrease is primarily due to the timing of cash receipts and payments.

To close out my comments, I'll turn now to first quarter guidance. As a reminder, our guidance is based upon continuing operations and excludes any onetime charges. We expect first quarter results to be as follows: we expect new student enrollment to be down 6% to 8% versus the first quarter of the prior year. We expect revenue to range from $372 million to $382 million. We expect a diluted loss per share of approximately $0.06 to $0.09 in the first quarter. And we're assuming approximately 88.4 million diluted shares outstanding in the first quarter. Tax rate is expected to be approximately 40%.

For fiscal 2014, we expect results to be as follows: as Jack said earlier, we expect the rate of new student enrollment to be positive versus fiscal 2013, and we expect diluted earnings per share of approximately $0.10 to $0.15 in fiscal 2014. In addition, given the decline in average student population during fiscal 2013 and the anticipated decline in new student enrollment in this first quarter, we're implementing an expense reduction plan. On an annualized basis, we expect to reduce expenses by approximately $40 million. These anticipated savings are included in our earnings per share guidance for the fiscal year.

I'll now turn the time back to Jack for closing remarks.

Jack D. Massimino

In closing, we remain focused on the success of our students, and we made a slight improvement in the placement rate of our graduates. We continue to strengthen campus operations through increased automation and standardization. We are receiving high marks during our reaccreditation reviews, and an increasing number of our campuses are achieving perfect scores on their site visits. New student growth has turned positive on our ground schools, and we're making progress in fixing online's operational issues. We remain confident about the vital role that our schools play in the postsecondary education landscape. As our industry continues to consolidate, we have the opportunity to grow stronger in several of our service areas and provide quality career training with even more students in the years ahead.

Let's move now to the question-and-answer session. [Operator Instructions] I'll turn it back to you now, operator.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Jeff Silber from BMO Capital.

Jeffrey M. Silber - BMO Capital Markets U.S.

Wanted to dig a little bit further into the first quarter guidance. The revenue guidance that you're giving is roughly in line with what we saw in the fourth quarter, yet you're looking at a loss per share and I know there were some tax issues this time. Is there anything else different specifically on the cost line we should expect in the first quarter relative to the fourth quarter?

Robert C. Owen

Yes. Marketing and admission seasonally, we tend to spend more at the start of the fiscal year. So you'll see a higher marketing and admissions cost, primarily.

Jeffrey M. Silber - BMO Capital Markets U.S.

Okay. That's the major difference?

Robert C. Owen

The major difference, yes.

Jeffrey M. Silber - BMO Capital Markets U.S.

And again, I know you're not giving specific guidance for the rest of the year in terms of specific quarters but it looks like you're looking for a sizable change, especially on the EPS line. You mentioned the expense reduction plan. When will we start to see the benefits of that? And do you think that the second quarter will show a positive EPS or a loss?

Jack D. Massimino

Jeff, you'll start to see that in the first quarter. Actually, we'll see some come through in the first quarter and then it progresses over the course of the year. We're just not giving guidance for the out quarters. We're happy to do that when we announce earnings in October. We'll give you all that information.

Operator

Our next question comes from Peter Appert from Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

So Jack, I was interested in your comments on the competitive dynamic and the benefit you're seeing from that. Do you think that was a onetime thing in fiscal '13? Or do you think there's some residual benefit in fiscal '14 from that?

Jack D. Massimino

No, we're already -- Peter, we're continuing to see that benefit in those markets where competitors have exited the marketplace. We're seeing continued growth. And it is significant. So yes, we continue to see it. We expect to continue to see it in this next fiscal year.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. And then just focusing on the starts again, so you're up 4.8% in fourth quarter for the campus-based -- or excluding the ATB. Is that sort of a benchmark that you think we should think about for fiscal '14 on a full year basis?

Jack D. Massimino

I don't think I'd go that far because we're having issues in the online arena. Remember that what happened to us in the fourth quarter was we were below in our online enrollment. And so the combination of both online and ground, historically, got us to that 4.8%. Grounds coming up. Our ground schools are doing better, and online is not doing quite as well. And we've guided you down in online in the first quarter. So that will have a little bit of an impact on that.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. And then just last thing. Can you remind me the enrollments online versus campus, what the numbers are?

Jack D. Massimino

I'll give you a rough number. Close to -- well, you know what? Before -- instead of doing that, I've got last year's number in my head. Before I do that, we'll just get back to you in a bit. It used to be around 28,000 online and 40,000 ground. Yes, about 40,000 out of 110,000. But I mean, out of it. Yes, I'll get it to you, Peter, and what's exact. But I think it was close to 28,000 online and about 41,000 ground. But there's also Heald in there and so you've got to add that back in. We got WyoTech. I mean, there a number of pieces that I'm leaving out of that total number for you. So I can give you an absolute breakdown. I have it, but I don't have it right in front of me.

Operator

And our next question comes from Trace Urdan from Wells Fargo Securities.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

The $40 million of cost reductions, are you talking specifically about fixed cost reductions? Are you including variable cost reductions that you would expect to see on lower revenues in fiscal '14?

Jack D. Massimino

Both, Trace. I mean, both fixed and variable.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

So net -- I mean, when we think about the total cost in fiscal '14, it should be net down $40 million from fiscal '13?

Jack D. Massimino

I think that's the way to think about it.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

Okay. And then, could you elaborate a little bit on what you see as the primary issues affecting the online starts at this point and what steps you're taking or what confidence you have in being able to turn that around?

Jack D. Massimino

Yes. I'll go right through it. We don't expect to see the high-growth rates that we've seen in the past, but we certainly do believe that some part of our slowdown in our new online enrollment relate to operational issues that are a little bit self-inflicted. We continue to implement new service center technology to better manage call volume staffing ratios. We're improving our service to our students, and we're improving our performance in analytics and efficiency. All of those things really have an impact on what's taking place in the online arena. We've seen a pretty steady flow of interest in the online area. I mean, our transfers are actually up year-over-year. So we don't see a real degradation in the market. We think a lot of this is related to some of the actions we've taken with new systems and process. I think last quarter, we told you that we weren't staffed up appropriately. We brought that back to the right levels this quarter. But we still are moving through this whole new implementation process, and it's quite detailed. And it's a big change because a lot of the stuff we did historically was manual and now we've got a really automated operating system over there. And so it just takes a little time for people to come up on it. So we believe that that's a big part of what's taking place because we do see transfers actually up year-over-year.

Operator

Our next question comes from David Chu from Merrill Lynch.

David Chu - BofA Merrill Lynch, Research Division

So what attributed to the weaker-than-expected online starts? Is it more a lead flow issue, conversion rates or both?

Jack D. Massimino

David, as I just mentioned to Trace, our transfer rates are up year-over-year. We really believe this is due to a lot of the change we've made operationally in our online arena. We brought some real system technology to that process over there. And it's -- you have leadership that have done things one way for a long time. Now we've overlaid a new process. We're implementing new systems, new technology. They've got to learn that. So there's a natural downturn in that. So I think that's a part of it. The other big part of it was that last quarter we just weren't staffed up to the right level. We were significantly below where we needed to be. We're now staffed up so we think that has an impact on it. As I said to Trace, I think some of this was self-inflicted on our part. The transfer side and the interest side appears to be pretty darn stable.

David Chu - BofA Merrill Lynch, Research Division

All right. So when you're saying transfer, what do you mean by that? Is that -- are you saying lead flow or...

Jack D. Massimino

Yes, yes. We call it transfers internally, but lead flow seems to very consistent, actually up year-over-year.

David Chu - BofA Merrill Lynch, Research Division

Okay. So it sounds as if it's more an internal issue than something macro-driven.

Jack D. Massimino

I think that's right, yes. Look, I think we've got to figure out the internal stuff first and then we can see what else is happening. But our belief is we've got internal change that's taking place. We're getting on top of it. We've hired up the staff. We know that our lead flow is consistent to up year-over-year. So yes, we think it's us as much as it is anything.

David Chu - BofA Merrill Lynch, Research Division

Okay. And thinking about your 1Q guidance, I mean, do you expect ground starts to deteriorate sequentially or should that improve?

Jack D. Massimino

No, we think ground starts -- I think we said it in our comments. Ground starts are going to slightly increase year-over-year.

Robert C. Owen

First quarter.

David Chu - BofA Merrill Lynch, Research Division

Or how about on a sequential basis?

Jack D. Massimino

Yes, yes.

David Chu - BofA Merrill Lynch, Research Division

I'm sorry?

Jack D. Massimino

I'm sorry. Yes, we expect them to increase sequentially.

David Chu - BofA Merrill Lynch, Research Division

Okay. Got it, got it. And so just thinking about the model overall. I mean, after return to start growth, about how many quarters would you expect before returning to enrollment growth?

Jack D. Massimino

I'll tell you, we'll give you that information quarter-by-quarter as we see it out in front of ourselves. What we've said on the call already is our expectation is that we're going to return to growth as an organization this year. So you'll see it as we report quarterly. You're going to get updates.

Operator

And our next question comes from Jason Anderson from Stifel.

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Just want to clarify on FY '14 guidance on new students. Do you mean to be positive for the entire year or at some point within the year?

Jack D. Massimino

No, for the entire year, yes.

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Would that imply maybe the remaining 3 quarters being up mid-single digits to get even into the positive?

Jack D. Massimino

Well, I think you have to think that way. If we guided down as significantly as we have in the first quarter, absolutely. Okay?

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And I know you're attributing some of the online struggle there to your internal factors or internal operations. But I guess, externally, you mentioned inquiries are okay, but do you see any reason? Or are you contemplating any other moves to enhance affordability, scholarship, pricing of any sort?

Jack D. Massimino

We always evaluate those routinely. We don't have anything on the horizon at the moment but we evaluate market to market. That's a routine process here.

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. I guess, along with that, and I don't know if you can provide a little bit more color on FY '14 on RPS. What should we look for there generally? I mean, is it -- the fourth quarter up 4% to 5%, would it be wrong to extrapolate that through '14 to be something more modest than that?

Robert C. Owen

It would be something more modest than that, yes.

Jason P. Anderson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then also with persistence, there's been some pretty good degradation there, obviously, some relating to ATB, rolloffs and that sort. But should we think about continued persistent challenges throughout all of '14?

Jack D. Massimino

No, I think that you're going to see persistence improve. When you -- persistence, the way you guys measure it, is a combination of 3 pieces, as Bob said during his comments. The first thing is growth, student growth. The second thing is graduation. Graduation plays a big role in that as your population decreases and you have bigger population behind you that's graduating has an impact on persistence. And then attrition is a part of it. So it's all 3 of those pieces that have an impact on it. And our view going forward is that we'll see continuous improvement there.

Operator

And our next question comes from Paul Ginocchio from Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

I guess, 2 questions. First, on the discontinued operations, the number was small in the first quarter and was the largest of fiscal '13 in the fourth quarter at minus -- just over $5 million. I think you said you put 3 more in the disc ops -- 3 more campuses in disc ops in the fourth quarter and maybe took 1 back out.

Robert C. Owen

That's correct, yes.

Paul Ginocchio - Deutsche Bank AG, Research Division

Okay. So as we look into fiscal '14, should we expect higher numbers in each quarter than we just saw?

Jack D. Massimino

Yes -- no, I think it's fair to say that we evaluate that obviously again on an ongoing basis and there is a possibility you'll see more in fiscal '14.

Paul Ginocchio - Deutsche Bank AG, Research Division

And I guess, a higher number than the $5 million in the fourth quarter based on a throughput?

Jack D. Massimino

Based on where we are currently? No.

Paul Ginocchio - Deutsche Bank AG, Research Division

Okay. And then just on the financial responsibility score, I'm just trying to -- I don't know how to exactly calculate it but your net income is slightly down last year but your net loss -- on a continuing basis, but on a net loss basis you've improved. Your net debt is a little bit bigger but your shareholders' equity is slightly higher. So it's sort of in the same range. When will you know when the DOE kind of looks at your fiscal '13? When would that come out?

Jack D. Massimino

It won't come out until actually January of '14. We have to file all those documents by December of this year. And so they'll be reviewing it in that first quarter of 2014.

Operator

Our next question comes from Jeff Silber from BMO Capital.

Jeffrey M. Silber - BMO Capital Markets U.S.

I know you're not going to give the quarterly statements until you file your 10-K but some of us have to work on the models beforehand. Can you at least give us, on a restated basis for first quarter '13, what revenue starts and EPS are?

Robert C. Owen

Revenue for the first quarter?

Jeffrey M. Silber - BMO Capital Markets U.S.

Yes, 1Q '13.

Robert C. Owen

Yes, I have $408.2 million. Starts of 31,543. Let me find the EPS. Let me...

Jack D. Massimino

Let's take another question. He'll find the EPS, Jeff, and we'll come back to you with it.

Jeffrey M. Silber - BMO Capital Markets U.S.

Okay. I can take this offline, if you can't get it.

Jack D. Massimino

Okay. That would be good, Jeff, thanks.

Operator

And our next question comes from Trace Urdan from Wells Fargo Securities.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

Paul had the same question I had, whether or not you guys had at this point an anticipated score, but it sounds like you're not there yet.

Jack D. Massimino

Yes, we do have an anticipated score. We think we're going to be at 1.5. Paul didn't quite ask it so I didn't answer it, but that's what it is. The other thing too, Trace, really quickly. It'll be in the K, which will be out in the next couple of days.

Robert C. Owen

Sorry, just getting back on the question. EPS restated for the first quarter of fiscal '13 was $0.08 on a diluted basis for continuing ops.

Jack D. Massimino

Okay. Listen, operator, thank you, and thanks, everybody, on the call. We appreciate your participation, and we look forward to seeing many of you at upcoming conferences and at the time of our first quarter report in late October. Thanks, everybody.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect, and have a wonderful day.

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