Corinthian Colleges' (COCO) CEO Jack Massimino on Q3 2014 Results - Earnings Call Transcript

May. 6.14 | About: Corinthian Colleges, (COCO)

Corinthian Colleges (NASDAQ:COCO)

Q3 2014 Earnings Call

May 06, 2014 12:00 pm ET


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


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

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

David Chu - BofA Merrill Lynch, Research Division

Adrienne Colby - Deutsche Bank AG, Research Division

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

Barry L. Lucas - G. Research, Inc.


Good day, ladies and gentlemen, and welcome to Corinthian Colleges Third Quarter 2014 Earnings Result Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the conference over to Ms. Anna Marie Dunlap, Senior Vice President, Investor Relations.

Anna Marie Dunlap

Thank you, Sayed. 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, May 14. 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.

And with that, I'll turn it over to you, Jack.

Jack D. Massimino

Thank you, Anna Marie, and hello to everyone on the call. As Bob and I move through our remarks today, I'll provide a strategic overview, a regulatory update and a discussion of enrollment trends. Bob will then review third quarter operational and financial metrics, including the deferred tax asset valuation allowance and progress on our student lending RFP. He'll close with guidance for the fourth quarter.

I'll turn now to a strategic overview of the company. As for those of you on the call are well aware, our company continues to face a number of challenges. A variety of factors, some industry-wide and some unique to Corinthian, has combined to decrease new student enrollments, reduced revenue and pressure margins significantly. The regulatory and legal issues facing the company are serious and we're working diligently to resolve them. Our near-term operating and financial challenges are equally pressing.

The good news is that Corinthian has resources that deliver value to students and that have the potential to, once again, create value for shareholders, including an experienced management team, skilled instructors and staff, well-equipped modern facilities and employment-focused curricula. We believe that we have a number of initiatives underway that have the potential, over time, to rejuvenate enrollment growth and restore revenue growth and profitability.

But the immediate task is to further rightsize the company to adjust to a smaller student population, which will help stabilize our financial position and give our growth initiatives adequate time to take hold. As we continue to downsize the organization, we're doing so in a manner that preserves our ability to help students achieve their desired educational outcomes and to assist our graduates in finding employment in their fields of study. We believe that if our students and graduates succeed, our value proposition will be compelling for all stakeholders.

We're also sensitive to the critical need to remain in compliance with many complex regulatory requirements that govern our company and its schools. In short, this is a job that we have the management experience and capability to do, but make no mistake, it's a complex job that requires a measured approach and a thorough understanding of the environment in which we operate.

We're intently focused on further rightsizing the company. In the third quarter, overall operating expenses were down 11% versus the same quarter last year, reflecting, in part, the sizable cost reductions we made early in the fiscal year. During the third and fourth quarters, we embarked on a new major round of cost reductions and operational restructuring to further align our costs with our current student population.

As reported on our previous call, in order to better align expenses with current and anticipated enrollment in our online programs, in January, we made substantial cost reductions in advertising and eliminated approximately 350 online admission and student finance representatives. In addition, in March, we restructured the operating units for the Everest ground schools in the U.S., reducing the number of divisions from 4 to 2. This restructuring reduced overhead substantially, without sacrificing services required by our campuses and our students.

Some of you may recall that we brought student financial aid processing in-house during fiscal years 2010 and 2011, which increased processing efficiency and reduced bad debt. We also created a new subsidiary, Socle Education, to provide student financial aid processing as well as cohort default prevention services for our schools.

Socle also provides student finance services to a group of institutions, outside of Corinthian, and we expect that business to grow, over time. During the current quarter, we're expanding Socle's scope of services to more fully automate financial aid processing for Corinthian schools. This initiative is expected to eliminate duplicative financial aid processing and collections positions at the campuses and online service centers and reduce staffing.

In addition to cutting costs, this change is expected to further increase efficiency, productivity and quality. Student finance planners will remain in place at the campuses and online service centers to help counsel students regarding their financial aid alternatives, payment plans and default prevention.

We have achieved other expense reductions through increased efficiencies in marketing, eliminating or renegotiating a number of purchasing and professional services contracts. In total, since January this year, we have reduced the workforce by approximately 1,350 employees and annualized operating expenses by approximately $125 million.

In addition to pursuing the cost reductions just described, as I mentioned earlier, we also have initiatives in place to help stabilize and grow new enrollment. The most important of these measures is in the area of pricing. As we discussed on past calls, prospective student inquiries for our programs would likely remain flat to slightly down for the ground schools. Demand for our online programs is down, driven, in large part, by our reductions in online marketing and admissions.

Macroeconomic conditions are improving, which has created a headwind to new growth. In addition, consumers continue to be better versed, and this has led to increased price sensitivity and competition in our markets. In response to market conditions, some of you may recall that in fiscal 2013, we reduced the tuition pricing of diploma programs at several of our Everest schools in Florida. This price reduction helped stabilize and grow the diploma program enrollment of these schools for well over a year. Based upon the success of that pilot and current excess capacity, on March 1, we reduced pricing for diploma programs at 19 additional Everest campuses. The reduction is for new students only. To breakeven on the price reduction, new student enrollments must increase by at least 11% at the 19 schools, and the initial results are above that level. Assuming results continue to come in as expected, in the first quarter of fiscal '15, we plan to roll out the price reduction to diploma programs at all remaining Everest campuses.

In addition to potentially stabilizing or increasing new enrollments in diploma programs, tuition price reductions will also have the benefit of reducing the total amount of gap financing that our students require. Historically, about 40% of our students require gap financing, and most of these are in diploma programs. By reducing the gap, we'll minimize our reliance on third-party lenders or our internal Genesis loan program.

In addition, in our online and Heald degree programs, in fiscal years 2012 and 2013, we implemented more favorable pricing for students who choose to attend full time. Those pricing structures remain in place.

To increase our ability to reduce prices on a larger scale, as well as to diversify our sources of revenue, we must continue to increase our non-Title IV revenue. Historically, we've encouraged students who can afford it, to pay for, at least, some part of their tuition in cash. We'll continue to do so through financial literacy training and counseling.

In addition, we're pursuing other avenues to increase non-Title IV revenue. In the first half of 2015, for example, we'll be piloting short-term cash-pay programs in truck driving and certified nurse assistants. There's currently a skilled labor shortage in both these occupational areas. The Bureau of Labor Statistics has projected 192,000 job openings for truck drivers and 321,000 openings for certified nurse assistants every year between 2012 and 2022.

Training programs for these occupations are short-term and do not qualify for Title IV student financial aid, thus, they do not require the Department of Education approval, although, they do require other regulatory approvals prior to launch.

We're also in the process of creating a continuing education division, which will include our QuickStart subsidiary. As part of our new thrust in continue education, we plan to expand Quickstart's complement of short-term information technology programs as well as its geographic reach.

Quickstart programs are currently offered through Everest College Phoenix and Heald. In addition to QuickStart, we're developing continuing education courses for health care occupations and expect to begin offering one or more of these courses in the first quarter of next fiscal year.

To help make one of our largest programs, medical assistant, more appealing to prospective Hispanic students, we're developing a pilot program that focuses on students who speak English, but who our not completely proficient in the language. In our current medical assisting programs, many of our instructors are bilingual, but the textbooks and other instructional materials for students are in English. In the pilot program, under development, textbooks and supporting materials would be provided in Spanish and English and will be taught by bilingual instructors as well. We believe that providing these added instructional support will help more Hispanic students succeed and attract additional students through our programs.

This initiative is particularly significant when you consider that, today, about 28% of our students are Hispanic, and that percentage is even larger in California, Texas and Arizona. In California, alone, Hispanics represent 38% of the total population, or 14 million residents. This is one of the fastest-growing segments of the population. When it comes to higher education, Latinos are also underserved population.

One study we commissioned indicated that, between 2012 and 2022, over 410,000 Latinos will be denied access to community colleges in Los Angeles and Orange Counties due to lack of capacity. We believe this represents a substantial opportunity for private sector career schools like ours.

In terms of new Title IV eligible programs, our program approvals continue to be on hold, as the result of we inquiry we received from the Department of Education in January of this year. We provided a significant amount of data to the department and we'll continue to cooperate with them to respond to their request. Until then, we expect new Title IV program approvals to remain on hold.

To close out my remarks on company strategy, I want to respond to shareholders who have asked whether we've sought independent advice relative to our current strategy and direction. The Corinthian Board of Directors have authorized management to retain Barclays, an investment bank to explore strategic alternatives to help maximize shareholder value.

I'll turn now to an update on regulatory matters, starting with the Massachusetts AG lawsuit.

As previously reported, on April 2, the Massachusetts Attorney General filed a lawsuit against the company and we're mounting a vigorous defense against it. We believe the complaint disregards substantial evidence that our 2 schools, in Massachusetts, have a strong record of providing students with quality career education and placement. Our graduation rates, at these 2 schools, far exceed those with programs with the Massachusetts Community College system, and our placement rates for graduates range from 57% to 88%, depending on the instructional program.

We've calculated these rates in a manner that is consistent with accreditation standards and other applicable regulations. According to the Massachusetts Office of Private Occupational School, which regulates career colleges in the States, since 2003, more than a decade, there have no regulatory actions, of any kind, related to our campuses. In fact, earlier this fiscal year, we were approved to accept transfer students from a Massachusetts competitor that has failed and closed its doors. More information about our position, relative to the Massachusetts AG lawsuit, can be found on our company website at

Turning to the multistate AG action, as we reported in January, the Iowa Attorney General's Office is leading an investigation by 13 Attorneys General into our business practices. In April, the Iowa AG notified us that 3 additional states have joined the multistate investigation: Colorado, Hawaii and New Mexico, bringing the total to 16 states. We continue to cooperate with the investigation.

To close out my discussion on regulatory issues, I'd like to briefly touch upon the proposed gainful employment rule. As written, we do not favor the proposed rule, which is even more onerous than the first gainful employment rule. As most of you are aware, the previous rule was promulgated in 2011, but it was partially overthrown by a U.S. district court before it could go into effect. The current proposed gainful employment regulation, 841 pages long, singles out career colleges like ours and hold them to complicated, unreasonable standards that do not apply to most programs at traditional colleges and universities.

In a report published last week, Mark Kantrowitz, of Edvisors, stated that, if the proposed rule goes into effect, 42% of programs of for-profit schools would fail or be placed in an improvement zone, which is tantamount to failure. In addition, more than 1.1 million students are currently enrolled in programs that will lose eligibility for Title IV federal student aid, under the proposed regulations. And compared with the previous rule, the Kanterwitz report said, that current proposal represents a fivefold increase in the number of programs ultimately losing eligibility for the Title IV aid.

Corinthian, along with ABSQ and others in our industry, have mounted campaigns to modify the rule. If a rule passes in its current form, it would have a material adverse impact on our students, our schools and on the communities we serve.

Next, I'll discuss our new student enrollment trends and outlook. As we reported earlier today, new student enrollments decreased by 13.1% in the third quarter versus the same quarter last year. Our previous guidance had been that new enrollments would be down 9% to 11%. The guidance miss is the result of temporary school closures associated with severe winter weather. You may recall that the weather helped drive economic growth down to a crawl, the increase in the U.S. gross domestic product was just 0.1% for the first quarter this calendar year. Excluding weather-related school closures, our new enrollment decline was approximately 10%, at the midpoint of our guidance range. Mother Nature aside, the overall decline in new enrollment is the result of several factors, including our cost reductions in admissions and marketing for online programs; lower unemployment and debt aversion among prospective students; and the transition to our new in-house inquiry management system.

As I've already discussed, market conditions in the front-end cost reductions and online, but I will briefly discuss our progress in transitioning to the new system. As a refresher, our transition to an in-house system for certain inquiry management functions slowed the flow of prospective student inquiries to our ground schools and online programs, particularly, in the second quarter.

During the third quarter, the timeliness of the new system continued to improve. We estimate that system-related issues reduced new enrollments, by less than 1% during the quarter. Over the next several months, we expect the new system to surpass the performance of the outside vendor used previously.

Looking ahead to the fourth quarter of fiscal 2014, we expect total new enrollments to be down 16% to 18% compared to the same period last year. Over half of the decline is the result of our initiative to reset online marketing and admissions expenses to align with the current and anticipated enrollment trends. This guidance anticipates a continued impact on the reductions we made in admissions and marketing for online programs, continued softness in conversion rates; due to market conditions; and no regulatory approvals for new programs.

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

Robert C. Owen

Thanks, Jack. Let me process my comments by saying that, the results I'm about to review are for continuing operations and they exclude severance and other charges, unless otherwise noted.

In the third quarter, we recorded $7.7 million in severance-related charges, related to workforce reductions. In addition, we recorded a $71.3 million noncash charge against continuing operations, to establish a valuation allowance related to certain of the company's deferred tax assets. We recorded an additional $5.2 million noncash charge to establish a valuation allowance related to discontinued operations. The total deferred tax asset valuation allowance in the third quarter for continuing and discontinued operations was $76.5 million.

In assessing the need for the allowance, we considered evidence related to the likelihood that the deferred tax asset would be realized, including cumulative profitability over a 3-year period. We're establishing the allowance because we expect to be in a 3-year commutative loss position at June 30, 2014, including both continuing and discontinued operations. The expected 3-year commutative loss is driven solely by the loss in discontinued operations.

As a result of establishing the valuation allowance, we believe our tax provision will be reduced to approximately $2.5 million in the fourth quarter. The valuation allowance puts the company in noncompliance with certain of its bank debt covenants, but we're currently seeking a waiver from our bank syndicate. Although there can be no assurance, we expect to receive the waiver before we file our third quarter 10-Q later this month.

The deferred tax asset valuation allowance will also have a negative impact on the annual composite score calculation required by the Department of Education. Our expectation is that, including the valuation allowance, which reduces equity in the calculation, our composite score will be in the zone, or between 1.0 and 1.5, for fiscal 2014. Without the allowance, we had expected our composite score to be approximately 1.5. The score in the zone may require additional monitoring by the department, but it does not require the posting of a letter of credit. Also, if we do not achieve the 1.5 composite score, it will constitute an event of default under our credit agreement. Along with the waiver that I just discussed, we are working on amendments to the credit facility, which we expect to file with the SEC, prior to reporting our fourth quarter results.

I'll move now to a discussion of third quarter revenue. Net revenues were $349.8 million in the quarter, down 11.7% from $395.9 million reported in the same period last year and slightly below our previous guidance range of $350 million to $360 million. The guidance miss is mainly the result of fewer new enrollments associated with severe winter weather, as Jack discussed earlier. The decrease is primarily due to a 12.4% decrease in the average student population, which was 76,407, and a 0.6% increase in the average revenue rate per student during the period.

Jack has already discussed our new enrollment trends and the factors behind the decline in student population. The total student population at March 31, 2014, was 74,498 students, down 13.7% from 86,297 at March 31 of last year. Our exclusively online student population was 23,280 at the end of Q3 of '14, down 22.5% from 30,054 at the end of Q3 last year.

Excluding severance charges and the deferred tax asset valuation allowance in the third quarter, we reported earnings per share from continuing operations of $0.03 versus guidance of $0.04 to $0.06, and $0.06 per share in the third quarter of last year. The guidance miss is the result of lower new enrollments associated with severe weather, which reduced earnings by approximately $0.02 per share.

The operating margin, again, excluding severance charges in both time periods, decreased to 3.2% in the third quarter from 3.9% in the same period last year. The decrease is primarily the result of lower revenue associated with student population declines.

Next, I'll move to cost trends, starting with marketing and admissions. As a percent of revenue, marketing and admissions increased to 26.2% in the third quarter from 25.5% in the same quarter a year ago, reflecting the decline in student population and revenue, relative to fixed costs. In terms of total dollars, marketing and admissions expenses declined by $9.3 million or 9.2%.

Total marketing and admissions expenses per new student increased 4.4%, primarily as a result of lower conversion rates associated with the market conditions Jack discussed earlier. Given the substantial cuts we made in marketing admissions for online programs in January, the 4.4% increase is a significant sequential improvement. We reported an increase of 16.5% in total of marketing and admission expenses per new student in the second quarter.

General and administrative expenses, in terms of total dollars, decreased by $1.9 million or 4.7% in the third quarter of this year versus the same quarter last year. As a percent of revenue, G&A expenses were 11.2% versus 10.4% last year. The increase is due to the reduction in revenues.

Educational services expense, in terms of total dollars, decreased by $30.8 million or 12.9% in the third quarter versus the same period last year. The decrease is mainly the result of lower compensation, bad debt and lower variable costs. As a percent of revenue, educational services expenses were 59.4% of revenue in the third quarter of fiscal 2014 versus 60.3% in the same quarter last year, primarily due to lower bad debt expense.

Bad debt was 2.7% in the third quarter of fiscal 2014 versus 3.4% for the same period last year.

Moving now to capital expenditures. In the third quarter, capital expenditures totaled $10.1 million and $35.9 million in the first 9 months of the fiscal year. For fiscal 2014, we expect CapEx to be approximately $45 million. This is higher than our previous guidance of $40 million due to timing of investments in IT upgrades and student service center technology.

I'll move now to the balance sheet and cash flow statement. At March 31, 2014, we had approximately $28 million in cash and cash equivalents. Total debt as of March 31, 2014, was $100.8 million, which included capitalized lease obligations of $10.9 million. Total debt as of June 30, 2013, was $139.1 million, which included capitalized lease obligations of $12.2 million. Net days sales outstanding in the second quarter were 17 days.

On the cash flow statement, cash flow from operations was $54.6 million in the first 9 months of fiscal '14 versus $128.8 million for the same period last year. The decrease is due to a reduction in net income and a decrease in cash provided by working capital. The decrease in working capital is due to lower student population, and a decrease in cash flow, associated with the ASFG student lending program of approximately $14 million.

Next, I'll provide an update on our student lending program. Over the past several quarters, we have taken several steps to reduce our reliance on third-party gap financing. As Jack discussed earlier, we've implemented a price reduction plan for certain diploma programs and, if current results hold, expect to expand the plan to all Everest schools in the first quarter of fiscal 2015. Our initiative to expand non-Title IV revenue are expected to drive greater pricing flexibility, over time.

In addition, as previously reported, we're soliciting prospective lenders, through requests for proposal process, and to-date, several companies have completed the RFP and are in the due diligence phase. We expect to complete the RFP process by the end of June and, in the interim, we have reinstituted our company-financed Genesis loan program.

Thus far, the program has reduced cash flows by approximately $7 million per month. Subject to negotiating acceptable terms with potential lenders, buyers, we intend to sell the majority of loans generated by our loan program prior to the end of the current fiscal year, which will help offset the cash flow impact of funding the loans ourselves.

To close out my comments, I'll turn now to fourth quarter guidance. As a reminder, our guidance is based upon continuing operations and excludes any onetime charges. We expect fourth quarter results to be as follows: we expect new student enrollment to be down 16% to 18% versus the fourth quarter of the prior year; we expect revenue to range from $340 million to $350 million. We expect diluted earnings per share of approximately $0.11 to $0.13 in the fourth quarter; we're assuming approximately 88.9 million diluted shares outstanding; and as I discussed earlier, we expect our provision for income taxes to be approximately $2.5 million in the fourth quarter.

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

Jack D. Massimino

In closing, I'd like to reiterate that we continue to focus on areas that are most critical to improving our performance. The achievement and commercial success of our students, rightsizing the organization to align with a smaller student population, implementing initiatives to help stabilize from historic lows; and the resolution of numerous regulatory investigations now underway. Further, as I mentioned previously, our board has authorized management to retain an investment bank to explore strategic alternatives and help enhance shareholder value.

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

Question-and-Answer Session


[Operator Instructions] And our first question comes from Trace Urdan from Wells Fargo Securities.

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

Jack, given that you have sort of opened the door on considering strategic alternatives, can you help investors -- I mean, there's no surprise, your stock has fallen to incredibly low levels. So I'm wondering if you can maybe give us some sense of the condition of each of the different operating assets within the company? I mean, you guys, historically, have not reported revenues by school or enrollment by school, but you think you might reconsider that now, given that you've identified that you're going to seek strategic alternatives?

Jack D. Massimino

I think, Trace, it's pretty straightforward. What I'd tell you is that everything's on the table. We're instructing Barclays to explore all the options that will help increase the shareholder value, as well as seeking alternative sources of capital. So they're going to be looking at all of that information, whether we've provided, in any kind of detailed level, to the Street, at this time, I don't think that's going to happen. But they'll have the information, we'll obviously, put together a data room and people interested will have access to that information.

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

And can you then maybe just, on a qualitative basis, just give us a rundown on how each of the businesses is fairing in the market right now?

Jack D. Massimino

Yes. I would tell you that all the businesses, all the different lines, or the different brands are sharing well. I mean, with all the costs that we put into place, the least performing are the smaller organizations like our WyoTech program. It's only half a dozen schools with 5,000 or 6,000 -- 4,000 or 5,000 students in it. So they perform the least well in the group. The ground schools are doing okay, not as good as we'd like. We have a lot of capacity still in those facilities. And as you well know, every new dollar in there helps us and, hence, we put together new pricing program to try and drive more revenue into those schools. Our online business is beginning to stabilize and Heald continues to operate as it has in the past, not as good as it was at the high point, like everybody else, but continues to operate.


Our next question comes from Jeff Silber from BMO Capital Markets.

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

This is Henry Chin, calling on behalf of Jeff. I just wanted to dig in a little bit in terms of your EPS guidance. Given part of that is due to lower tax rate, I was wondering if you could provide any guidance in terms of the specific expense lines that you are expect to drop from third quarter to fourth quarter?

Jack D. Massimino

We typically limit our guidance to revenue EPS and new enrollment growth. But I think, if you look seasonally, you can expect that margin in admissions typically seasonal in the fourth quarter, its a little lower. And again, the expense reductions that we've talked about will play in -- will have an impact on all the expense lines. So ...

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

Got it. And if I could just have a quick follow-up, kind of in terms of 2015, I know you don't give guidance, but can we model in or expect a similar run rate for 2015 from 2014?

Jack D. Massimino

It's a little early for us to be talking about 2015. We haven't even -- we've just began our budget process. Once we get through that process and we announce in August, we'll give you that guidance.


Our next question comes from the David Chu from Merill Lynch.

David Chu - BofA Merrill Lynch, Research Division

Can you give us some more details around the restructuring of the ground schools?

Jack D. Massimino

Yes. What we've done is we moved from 4 divisions to 2 divisions, effectively. And then, we layered in regional operations people, admissions people, finance people, as we have in the past. So we eliminated a significant amount of overhead. When we restructured, we really didn't do anything that would impact the educational quality, the financial information program that we put together for our students, all of those programs, placements, those are all still in place. What we really did was consolidated those divisions from 4 to 2, and eliminated a lot of overhead in that regard.

David Chu - BofA Merrill Lynch, Research Division

Okay, thanks. And I know it's early, but any thoughts on revenue per student in fiscal '15? Or do we have to wait until you guys kind of finalize your plans around the lower pricing?

Jack D. Massimino

Yes, I think you're going to the wait for that.


Our next question comes from Adrienne Colby from Deutsche Bank.

Adrienne Colby - Deutsche Bank AG, Research Division

It's Adrienne Colby for Paul Ginocchio. I was just wondering if you give us a little bit more clarity on your expectations for revenue per student and persistence behind your fourth quarter guidance? It seems like you're expecting some improvement there?

Jack D. Massimino

I'll deal with persistence, Bob can talk a little bit about the revenue per student. Our persistence year-over-year is pretty flat. We had a nice move in the right direction last quarter. A little bit of timing change this quarter, and we expect improvement in the fourth quarter. So we think persistence is going to be flat to slightly better for the year, as we move through this fourth quarter. And Bob can talk a little bit about revenue.

Robert C. Owen

Yes. In revenue per student, again, we're not taking price increases, but with the shift in mix is online, we talked about the online enrollments, as that becomes the smaller piece of the business, you'll see a natural move for revenue per student to be higher, because that has the lowest revenue per student per month in all the different business lines.

Adrienne Colby - Deutsche Bank AG, Research Division

Okay. And as a follow-up, could you just talk about what a big implications your outlook for fourth quarter new enrollment has on your profitability outlook for fiscal 2015? Just wondering if there's a lot more room for cost savings with what seems like a sequentially more negative outlook.

Jack D. Massimino

We're going to give you fiscal '15 information in August, but what I will tell you is, a lot of these cost reductions flow into next year. We don't realize the full value of them, obviously, in the fourth quarter, but we will see the full value of those roll into the next fiscal year, so the benefit of that entire $125 million will have more impact next year than it's having this year.


And our next question comes from Jerry Herman from Stifel.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

Jack, can you talk about 90/10 compliance in the context of lowering price and offsetting that with the cash programs? And what the models might look like, the business and revenue models. Might look like in those cash-pay, short-duration programs like truck driving and nursing?

Jack D. Massimino

Yes, Jerry, I can talk a little bit about it. We already have QuickStart in place and we -- those programs are actually operating through our Everest College in Phoenix, as well as our Heald organization, both by regionally accredited organizations. And we also, as you know -- historically, we've collected cash from our students, and that also helps offset it. What we did this year in the pilot that we rolled out, the first 19 schools actually we're in a pretty good place from a 90/10 perspective. And so as a result, we're not expecting any impact this year from those 19 schools, in addition to those 33 we did last year. On a go forward basis, obviously, we're going to need to continue to collect cash from our students and roll out these new programs. These truck driving programs and certified nurse assistant programs, these are not high dollar programs. They range anywhere from $3,000 to $5,000 per student, in total tuition. Mostly they're cash-pay programs. And as a result, the margins on those programs are pretty good. We have the facilities. We have the equipment. We're not building any new infrastructure to deal with them. This is just about the charges for the faculty and books and things of that sort. There will be some capital cost in the truck driving side, but we're going to lease most of that. Our first truck driving school will open this summer out in San Bernardino. And so, we have a rollout program that we're putting together right now. It does require us to get accreditation approvals, and so we're in that process. But that one has been approved and it's rolling out. I hope that helps you.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay, great. And just one quick follow-up. The $125 million in cost saves annualized, how much will be realized this year, this fiscal year?

Jack D. Massimino

That's a good question. We're going to get -- we will get some piece of it in the fourth quarter, but we'll get the vast majority of it next year. We've taken some of that action, as recently as just this last week, so you're not going to get all of it in the fourth quarter. You might get a month and a half's worth in the fourth quarter and the balance in the next fiscal year.


[Operator Instructions] And our next question comes from Barry Lucas from Gabelli & Company.

Barry L. Lucas - G. Research, Inc.

I just have a couple of Jacks, since most of them have been answered. But the first one, maybe you can refresh our memory, or my memory, in terms of strategic review process. What kind of approvals might be needed for any campus sales or divestitures or anything like that?

Jack D. Massimino

It really depends on how it works out and who the potential acquirers could possibly be. It can roll all the way up to the Department of Education, it could go through the same kind of approach that any transaction might have. So there's a wide range here. If we were just divesting, or closing schools, or just divesting individual schools, they have to get approved. Ultimately, the buyer has to get approved, but it's a much simpler process than if we were selling the company. As an example, where you have to go through a whole process like we did back in the days when people were acquiring. There's a whole detailed process that you have to go through. It's not a short-term kind of quick turnaround operation.

Barry L. Lucas - G. Research, Inc.

Great. Just the second thing on the -- trying to get the waivers. You certainly sounds like there's a high degree of confidence that you can get this done over the next week or weeks. And just wondering what gives you that level of confidence? What of preliminary discussions with the bankers' been like? Any color or light you can shed on that would be helpful.

Jack D. Massimino

Yes, we are optimistic that we're going to get it done. We've been in conversations with the banks for a while. We've had a number of meetings with them. We have, I think, a very good relationship with our lead bank, Bank of America. And so, our expectation is that we'll have this done. But there have been lots of conversations around this issue. So there's been conversations about line of credit with the banks from back in the time when we were looking to the potential to have to bring on a letter of credit. So there have been ongoing conversations with the banks about a variety of issues.


I'm showing no further questions at this time. I would like to hand the conference over to Mr. Jack Massimino for closing remarks.

Jack D. Massimino

We'd like to thank you guys, for everyone who participated today, we really appreciate it. And we look forward to talking with you, again, when we report our fourth quarter earnings in late August. Thanks, everybody.


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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