Education Management's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Aug. 4.11 | About: Education Management (EDMC)

Education Management (NASDAQ:EDMC)

Q4 2011 Earnings Call

August 04, 2011 9:00 am ET

Executives

James Sober - Vice President of Investor Relations

Todd Nelson - Chief Executive Officer and Director

Edward West - President and Chief Financial Officer

Analysts

Brandon Dobell - William Blair & Company L.L.C.

Maria Karahalis - Goldman Sachs Group Inc.

Jerry Herman - Stifel, Nicolaus & Co., Inc.

Amy Junker - Robert W. Baird & Co. Incorporated

Andrew Steinerman - JP Morgan Chase & Co

Jeffrey Silber - BMO Capital Markets U.S.

Kelly Flynn - Crédit Suisse AG

Sara Gubins - BofA Merrill Lynch

Peter Appert - Piper Jaffray Companies

Suzanne Stein - Morgan Stanley

Corey Greendale - First Analysis Securities Corporation

Steven Bachman - RBC Capital Markets, LLC

Reza Vahabzadeh - Lehman Brothers

Gary Bisbee - Barclays Capital

Operator

Good morning, and welcome to the Education Management Corporation's Fiscal 2011 Fourth Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Jim Sober, Vice President of Finance. Mr. Sober, please go ahead.

James Sober

Thanks, Amy. Welcome to Education Management's Fourth Quarter and Fiscal Year End 2011 Earnings Call. With me on the call today are Jock McKernan, Chairman; Todd Nelson, Chief Executive Officer; and Ed West, President and Chief Financial Officer. Following our opening remarks, we will begin a question-and-answering session.

Before turning the call over to Todd for his opening comments, I'd like to remind everyone that the information presented on this call contains forward-looking statements. These forward-looking statements include, but are not limited to, statements about our future plans and our future financial and operating results. Actual results may differ materially from these contained in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially are set forth in the cautionary statement included in the earnings release. Todd?

Todd Nelson

Thanks, Jim. Welcome to our fiscal 2011 fourth quarter earnings call. On today's call, I'll provide an update on our business operations and Ed will review our fourth quarter results, cover several operational topics and provide guidance.

For our recent July start, we had an enrollment of approximately 139,800 students, an increase of 1% over the prior year period. Excluding the 7 locations that are less than a year old, same-school enrollment was essentially flat. Students taking their classes in a fully online modality were also approximately flat at last year at 38,700 students, and representing about 28% of our total population. Further, new students for the 3-month period ended June 30, 2011, increased by approximately 2% over the prior year period, which continues to benefit from the diversity of our student population.

While we believe the breadth of our programmatic and degree offerings and our individually recognized and uniquely positioned institutions provide a degree of stability in the overall enrollment, we're not immune to either the broader economic and industry trends impacting certain segments of our student population or the significant factors, both internal and external impacting our business. While conversion and start rates remain soft, we believe enrollment trends should begin to stabilize over the next few quarters with growth rates improving by the end of our fiscal year. We'll benefit from easy year-over-year comparables and from various internal initiatives that we've undertaken over the past year, and are confident that business operations will ultimately adjust to the new regulatory environment. Further, we believe the long-term secular growth trends in our industry remain favorable as the need for post-secondary education remains very high, given an increasingly competitive global economy.

We have taken significant steps to enhance our academic offerings and the value we bring to students. Over the last 18 months, we've been proactive in our expansion of degree offerings. For example, by June 30, we received regulatory approvals and enrolled students in 142 new diploma and certificate programs at The Art Institutes and Brown Mackie College. Overall, during the 12 months of fiscal 2011, we rolled out over 350 academic programs across schools not currently offering them.

We continue to identify underserved market that provide an opportunity to expand our number of locations. I am pleased to announce that we opened 2 new locations, 2 new campuses during this fiscal fourth quarter. In May, Brown Mackie College began operations in Oklahoma City, which is the second Brown Mackie College located in the State of Oklahoma. Also because of strong demand, The Art Institute of Michigan, which began less than 3 years ago, opened a satellite location in Troy during June.

Let me now briefly provide an update on our graduate statistics. As I've said before, the economy and high unemployment remain significant challenges for our students and graduates. Of our undergraduates students available for employment who graduated during the quarter ended this past December, approximately 81% were employed in their fields or related fields within 6 months of graduation. The average starting salaries for graduates from our undergraduate programs for the quarter ended this past December, bachelors degree students obtained an average salary of approximately $33,000, while graduates from associates and diploma programs earned $28,000. Year-to-date, persistent rates continue to be down several hundred basis points from the prior year period. A major focus for this coming year will be improving persistence trends during our fiscal year.

We are glad that a gainful employment rule has been finalized and that it incorporated a number of the changes we have recommended. Now, the additional clarity is available on the requirements from the new regulation. We can update our assessment of the impacts of EDMC, our schools and students. While we believe the rule will negatively affect certain students, we are continuing to move forward to various actions to reduce our risk of compliance with the final regulation, which Ed will discuss in some detail.

We also look forward to continue to have constructive discussions with the Department of Education and Congress. While this is a challenging time and is causing a lot of variability in our industry, we feel good about our position in the marketplace. The strength of our brands and our diversity, all of which enhance our ability to continue to meet the needs of our current future students.

With that, I'll turn the time over to Ed.

Edward West

Thank you, Todd. In my comments today, I'll review our financial results for the fourth quarter of fiscal 2011, cover several operational topics and update our guidance. For the fourth quarter ended June 30, net revenues were $695.4 million, up 6.9% versus the prior year. EBITDA decreased 6.3% to $133.2 million. Operating income was $94.3 million and net income was $34.8 million, with diluted EPS of $0.26. Excluding the $4.3 million of expenses related to the extinguishment of our remaining senior subordinated notes, restructuring and lease termination costs incurred during the quarter, EBITDA was $133.8 million, net income was $37.4 million and diluted EPS was $0.28.

The effective tax rate was 40.1% for the quarter, which was higher than originally expected, primarily due to the phase-in of the production of the Canadian corporate income tax rate and changes regarding the utilization of those Canadian deferred tax assets.

The outperformance in relation to the fourth quarter EBITDA guidance provided during the last quarter's earnings call was primarily due to lower bad debt expense due to better collection trends than previously expected.

The revenue increase was driven by an increase in April enrollment of 6.6%. The increase in tuition rates was offset in part by the higher mix of fully online students, who typically take a lower average credit load as compared to on-ground students. During the fourth quarter of fiscal 2011, we incurred expenses of $3 million in connection with our repurchase of the remaining $47.7 million of our senior subordinated notes. We also incurred expenses of $600,000 related to a restructuring in order to centralize certain operational functions and we wrote off about $700,000 of capitalized assets at one of our institutions due to the termination of a lease. The after-tax net effect of these items was approximately $2.6 million or $0.02 per diluted share. These items are detailed on our earnings press release. Please note that my comments on the fiscal fourth quarter's income statement will exclude these items that I just mentioned.

Total expenses for the fourth quarter were up 10.4% to $599.8 million versus last year. Looking at expense categories in more detail. Educational Services were up 10.3% to $367.4 million. As a percentage of net revenues, Educational Services expenses increased by 166 basis points versus the prior year quarter. The increase, as a percentage of revenue is primarily due to the previously outlined changes for our fully online students, including the rollout of a non-term academic structure as South University and Argosy University in graduation-focused teams.

Within Educational Services, bad debt expense represented 4.1% of net revenues for the quarter, down slightly from last year when including the expense related to the adult program a year ago. General and administrative expenses were up 10.6% to $194.2 million versus the prior year quarter, an increase of 94 basis points on a percentage of net revenue as basis. This increase was primarily due to the higher advertising expense and higher legal and consulting expenses we continue to incur. Within G&A expense, marketing and admissions cost represented 23.7% of net revenues, an increase of 71 basis points from the prior year quarter, primarily due to higher inquiry volume.

Depreciation and amortization increased 10.8% year-over-year to $38.2 million. As a percentage of net revenues, D&A expenses increased 20 basis points versus the prior year quarter to 5.5%. EBITDA decreased 5.9% to $133.8 million for the fourth quarter. The EBITDA margin was 19.2%. EBITDA, which we used to measure operating performance is a non-GAAP financial measure and a reconciliation to reported net income is included in the quarterly earnings press release.

Net interest expense were $33.2 million in the current quarter, an increase of $6.4 million for the prior year quarter due to the higher spread on the amended and extended portion of our term loan facility.

Looking at selected cash flow and balance sheet detail, cash flow from operations for the fiscal year ended June 30, 2011, was $399.7 million compared to $307.1 million in fiscal 2010. This increase in operating cash flows as compared to the prior year period was primarily related to improved operating performance. Cash proceeds from the sale of our Education Finance loan portfolio and the management agreement termination fee that we paid in fiscal 2010. Cash paid for CapEx was $138.1 million or 4.8% of net revenues for the fiscal year ended June 30, 2011, down from 7% during the same period last year.

During the fiscal fourth quarter, we repurchased 4 million shares of common stock at an average price of $21.32 totaling $86.3 million. Since the inception of our share repurchase program in June 2010 through June 30, 2011, we have repurchased 13.3 million shares of the 23 million shares of common stock issued during the initial public offering at an average price of $17.02. At June 30, approximately $23 million remained on the $250 million share repurchase program that we originally announced in June 2010, and amended in March of 2011.

Looking at the balance sheet, as of June 30, cash and cash equivalents balance was $403.2 million. We had $79 million outstanding under our revolving credit facility, which was fully repaid on July 1. Long-term debt stood at $1.48 billion. Net accounts receivable DSOs for the quarter were 23.6 days as compared to 26.3 in the prior year.

I would now like to provide updates in several key areas of the business. Regarding investments in new locations, during the fourth quarter, we incurred approximately $3.7 million in losses from startups and operation less than 24 months as compared to losses of $5.2 million in the prior year period. During the course of fiscal 2012, we plan on opening 5 or 6 new locations.

We continue to take steps to strengthen the long-term competitive position for our online programs. As we discussed on our earnings call last quarter, we began to transition Argosy University online students to a non-term academic calendar during the fourth quarter. The transition is progressing and we expect all students to be on the new non-term calendar by the end of the second quarter of fiscal 2012. The transition to non-term that began in January for South University Online students is now complete.

As a result of the shift to non-term for our online students, we are seeing a number of changes in our reported metrics. From an accounting perspective, under non-term, we typically carry a larger advance payment balance. However, most of this is recorded as restricted cash due to the fact the student is billed one section at a time. This increase in restricted cash will result in year-over-year fluctuations and cash flow from operations given the timing difference.

From a student enrollment perspective, under non-term, we have increased the frequency of starts from twice per quarter to every 2 weeks. Given the fact that there are now numerous student cohorts at a given point in time, we have also changed how we are reporting our online enrollment from a starting student body at the beginning of the academic quarter to a 2-week look back at students that met our attendance requirements over that period of time. As a result of these changes, in the near term, we expect to see higher level of variability in year-over-year new student and total enrollment growth due to the fact that enrollment would have been more front-end loaded to the beginning of the quarter versus now, wherein it is smooth.

Absent market forces, over the next few quarters, we are likely to report increased variability in our new student results, positive and negative. It is largely the timing of the starts and the transition to non-term that is driving this variability. This will even out over time, as we fully transition to the new structure and the prior year periods become completely comparable. We will continue to monitor our metrics closely, but we believe this approach will continue to provide the best indicator of future revenue.

Now updating on gainful employment. We're glad that there is some clarity with the final rules and that the department incorporated some of our comments such as the bias against the longer degree programs. We have updated our analysis of the potential impact related to gainful employment to reflect the final rules and are assessing those results relative to the actions that we have already implemented. That said, it is important to note that we still do not have repayment data calculated by NSLDS at the program level by OPID, nor do we have actual Social Security income data. As mentioned previously, we have been taking action across the organization over the last year in an effort to mitigate the potential impacts of these rules to the students and our institutions. These actions include, while not negatively impacting student outcomes, we have streamlined and restructured hundreds of our associate and bachelor level programs at most Art Institute locations, which should reduce student cost and debt and allow students to graduate quicker.

We have added 142 new certificate and diploma programs at locations of The Art Institutes and Brown Mackie that utilize our current infrastructure and content, and are tailored to market demand and employer needs. We have lowered the cost of education by the elimination of several fees, rolling out e-books and reduce the cost of supply kits. And we have been transitioning our fully-online students to a non-term academic structure, which limits the amount of over borrowing.

The rule has reinforced the need for continued investment in career services, financial aid and debt management, all of which we consider best of practices. We believe the significant increase in new programs that rolled out in fiscal 2011 will help offset some of the impact from loss programs in the future. In addition, we are making additional investments in career services and debt management, which we believe will further benefit our graduates. We believe the actions that we have taken and are planning to take should reduce the risk of noncompliance.

And regarding guidance, our first quarter annual guidance for fiscal 2012 reflects variability in new students that I previously mentioned due to the non-term and the timing of starts. It continues to incorporate the near-term margin pressures related to the investments and changes resulting from the gainful employment rule, higher staffing levels to support the transition of a non-term academic structure and graduation focused-team initiatives for our fully-online students and company-wide centralization of certain student financial services.

Over the course of the year, we currently expect an improving trend in the back half of the year, and anticipate that overall enrollment across EDMC will be roughly flat on average for the year. Our guidance for fiscal 2012 excludes the impact of restructuring and nonoperating expenses, which may be incurred during the fiscal year, including approximately $5 million to $6 million of pretax restructuring expenses anticipated to be recorded in the first quarter.

For our fiscal 2012 first quarter guidance, we are expecting EBITDA to be between $107 million and $113 million, net income to be between $25 million and $28 million, and EPS to be between $0.19 and $0.22 per diluted share. For the 12 months ended June 30, 2012, we are expecting EBITDA to be between $593 million and $613 million, net income to be between $197 million and $207 million, and EPS to be between $1.49 and $1.57 per diluted share.

We are proud of all the efforts and achievements made by our employees during this challenging time. Their achievements can be seen via our results on a relative basis. We will continue to make proactive changes in the short-term, which will have long-term benefits for our students and institutions. Lastly, as Todd noted, we continue to have constructive discussions with the Department of Education and Congress, and remain optimistic on the long-term demand for post-secondary education.

Todd, back to you.

Todd Nelson

Thanks, Ed. Operator, we'll now take a few questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Brandon Dobell with William Blair.

Brandon Dobell - William Blair & Company L.L.C.

Wonder if you could focus on the impact of the changes to incentive compensation to enrollment counselors, both I guess looking backward into the quarter we just finished, as well as your expectations for what it might mean in the upcoming September and December quarters.

Todd Nelson

Sure. Good question, Brandon. We -- as we've said in the past, with the new regulation regarding incentive compensation, we would expect productivity on an enrollment counselor basis to go down. And that basically is what we have been experiencing to this point. And the good news is that with the guidance that Ed provided, we have tried to factor in those productivity decreases. And as we have in the past, we'll continue to monitor it very carefully. We've spent a lot of time and effort, especially training the management of our enrollment staff to make sure that they're managing very carefully. Because it probably is the one area that going forward, is a key area of emphasis to make sure the productivity remains stable. But again, as we factored in what we believe would be the productivity levels for this coming year.

Brandon Dobell - William Blair & Company L.L.C.

Okay. And then to kind of cut into that. Ed, you talked about enrollment kind of flat on average for the year. I guess, that assumes down to the first half, up in the second half in general. What kind of variation or trajectory should we expect? Are we going to see a significant decline in the first half or a moderate decline? And then maybe in the context of what you saw here in the June quarter, maybe we can kind of think about or talk about the first half of this year, both in terms of total enrollments, as well as starts?

Edward West

As I mentioned, Brandon, overall on average for the year roughly flat, given where we are this past quarter and then improving on the back half. That would imply a somewhat negative year, in the front half of the year. And Todd spoke about our new student enrollments and I mentioned the variability that we see for our students, largely driven by the non-term. So somewhat down here in the front half, and then expecting improving trend in the back.

Todd Nelson

One other thing, Brandon, I might add to that, is one of the things that we've noticed is there's far more stability in the traditional-age student than in the adult student. And so I think because of that, you'll see probably a more moderate fluctuation than maybe what we've been seeing in our industry, which again we think is a positive reflection on the diversity of programs that we offer.

Brandon Dobell - William Blair & Company L.L.C.

Okay. Then final one for me. You talked about persistence being down again, which is a kind of a trend everybody is seeing. What kind of efforts do you have in place to fix that? And how much of the persistence, or how much of a persistence improvement are you guys banking on to get that enrollment trend going back in the right direction in the second half?

Todd Nelson

Well, the good news is, we built in with what we have for guidance. We're not expecting anything significant in the increase. But it's a major focus of ours. I think one of the goals of the non-term conversion was to enhance significantly at online, our persistence and we hope that, that comes about. We also have as a company, we've appointed someone, who is -- that is their sole job to focus across the education systems, to help in that regard. One of the nice things we have is with the 4 different education systems, some programs are working more effectively than others. But to try and use best practices across all 4, we feel pretty confident, we're starting to see some good results. But again, we don't want to bank on those this early in the year. But we feel optimistic about it.

Edward West

Just to elaborate on a couple of specific examples. As we talked about for the last 2 quarters, the investment on the graduation-focused teams has been in investment, and we obviously expect to see improvement there as a result of that. And then separately, as we mentioned rolling out and transitioning to a non-term academic calendar. One of the negatives there is, there are students there who have been, we believe reliant on some stipends and excess over borrowing by this transition that eliminates that. And you would -- I mean, we have been seeing some of those students exit over time that were removed out of our system, and we should see improvement on a year-over-year basis.

Operator

Our next question is from Gary Bisbee with Barclays Capital.

Gary Bisbee - Barclays Capital

I guess, the first question, just in terms of the traditional student or the out-of-high school student, can you give us a read on how that's looking for this fall or this summer and fall? Sort of in aggregate, is that looking to be flattish, up? How should we think about that?

Todd Nelson

Well, again, we don't give real specific guidance on each of the education systems but we're encouraged that it's flat to slightly up. And so one of the things, again, if you look at that trend as I said earlier, it's remarkable how stable that is, say, compared to some of the programs within the adult market. That doesn't mean that, again, the adult market won't come because I think the favorable comps that we'll be facing especially in the second half of the year help there. But again, the stability there is encouraging for us. But we also see inquiry and lead flow from not only our high school representatives but the web-based leads that are in that particular -- for that particular segment of the population also continue to be up, which is good.

Gary Bisbee - Barclays Capital

A lot of your -- I realize you have a different mix than most of the industry. But a lot of people have cited parents declining willingness to use PLUS loans or to help finance the education. Is that a big reason why things have decelerated here a bit or you're not seeing that at a big level?

Edward West

Actually, it's a very good question, Gary. It's actually the opposite. I think as Todd was saying here, that stability, the traditionally-aged student really is a differentiator, I think, for EDMC and having such a large concentration of traditional age. And that stability there relative to the non-traditional has been helpful. On the student funding standpoint, for this past fiscal year, we've actually, one of the largest areas of increases that we've seen year-over-year has been the funds coming from PLUS loans, which has been very encouraging. Obviously, we've seen -- also have seen higher increasing cash payments this past year relative to 2010. So, and again, it gets back to that traditional-age students that parents have been supporting, recognizing the quality of the institution and helping both on the PLUS loan and cash, which are both encouraging trends.

Gary Bisbee - Barclays Capital

Okay. And then just one last one. I know in the fall every year, you put out a PowerPoint with sort of mix and how things are looking by school. Are you willing to, ahead of that, give us any sense of how the various school brands have been performing?

Edward West

Well, I would say just regarding the programs that you'll see, continued growth and on the health sciences, growth in business programs. And obviously, just from the size. Overall, some of that growth has come from some of the design.

Operator

[Operator Instructions] Our next question is from Jeff Silber with BMO Capital Markets.

Jeffrey Silber - BMO Capital Markets U.S.

You mentioned marketing cost being up because of volume of inquiries being up. I wonder if you can talk about cost trends on the marketing side.

Todd Nelson

Again, what we're seeing is relative stability in the cost of increase. Conversion rates, obviously are, a little more challenging and we don't think it's necessarily because of degradation of the quality of inquiries. But it is back to at the earlier question about the new compensation plan for enrollment. We just think, again, a little less productivity and therefore, you'd expect that to come up slightly. As far as our high school representatives and the inquiries generated there, that's relatively flat, which is encouraging. But again, you're seeing some softness in the conversion rate, as well as the start rate. Again, we think that's reflective of the -- probably more of the compensation plan change than it is the real change in the cost of generating leads.

Jeffrey Silber - BMO Capital Markets U.S.

Okay, great. That's helpful. And just a couple of quick numbers question. Can you tell us what you're budgeting for capital spending in fiscal year 2012? And also, you mentioned the traditional-age students, roughly what percentage of your student base does that group comprise?

Edward West

Well, on the latter, on the traditional age, the -- it's the majority of the students, almost 60%. Over 60%, at The Art Institutes. On CapEx, near -- it's in the press release, near 5%.

Operator

Our next question is from Peter Appert with Piper Jaffray.

Peter Appert - Piper Jaffray Companies

Todd, apologies, I may have just missed this. But did you give the percentage change in starts in the fourth quarter?

Todd Nelson

2% growth.

Peter Appert - Piper Jaffray Companies

And then, Ed, the 5% to 6% -- $5 million to $6 million, excuse me, in restructuring charges potentially in the first quarter, what would that cover and is there more to come once that scale and the possible spend?

Edward West

Yes, I mean, there's a bunch of things that are covered in that from a few employment contracts that were not renewed, that are little more costly on an individual basis, as well as certain centralization of other services that would eliminate some of the redundancies that exist in some of the schools. And at this point, there wouldn't be, in addition to that, anything anticipated. But again, we'll wait and see. But there was an effort to try and consolidate as much of what we were doing in this next quarter versus stringing it out over several quarters.

Todd Nelson

It's severance related to realignments across the organization.

Peter Appert - Piper Jaffray Companies

It's not representative of sort of, more broad-based or the beginnings of more broad-based cost restructuring efforts in the context of the change dynamics you're seeing?

Edward West

Well, we have -- we actually have been implementing changes. If you'll recall year ago, we had a realignment in our corporate group, when the first changes we saw coming on. We did announce this past quarter some restructuring in one of our education systems, and this implies additional actions that are being taken. They've already actually started taken in one of our education systems this quarter. So we believe based on all the work that we've done, visibility to the actions maybe taken and those are being implemented as we speak.

Operator

Our next question is from Sara Gubins with Bank of America Merrill Lynch.

Sara Gubins - BofA Merrill Lynch

I wanted to follow up on the earlier discussion about expectation that enrollment trends should start to look better in the second half of the year. Are there any indications that you're seeing now that give you confidence in that? Or is it more the comparisons got a lot easier?

Todd Nelson

Well, I mean, there's a couple of factors that are important to us. One is we have now seen the impact of the new compensation plan. I guess, the early indications, but you're starting at some level of expectation for productivity and that allows you to model that a little bit better. We also, with the fact that with non-term in there and some of that fluctuation, it works itself out as you get into -- getting into where you're a year-over-year comparison. Those are things that, again, we just feel inquiry flow, we to continue to see and be able to project that with a high level of confidence. We're feeling better about knowing what the level of productivity is, and then also looking at the prior year's comparable, I think, those are things that give us some level of confidence.

Sara Gubins - BofA Merrill Lynch

Okay. And then as I think about revenue in 2012 overall, if you got fairly flat enrollment, is it reasonable for me to think that you're expecting revenue up 1-ish percent, given tuition increases? Or would we see continued pressure on that as students are taking fewer courses at a time and online?

Todd Nelson

We currently anticipate that unit revenues would be slightly ahead of enrollment.

Operator

Our next question is from Corey Greendale with First Analysis.

Corey Greendale - First Analysis Securities Corporation

Question not stemming from your quarter, but will be a topic of the day because of another company. Can you just comment on your practices around confirming placement rates and salary data, and how confident you are that those are fully vetted and accurate?

Todd Nelson

Well, we have focused -- that's been a focus of EDMC for many, many years on both these areas. And you know we feel, also as we had earlier this year, a particular -- employees have challenged that. And so we did some significant research at that point in time just to make sure. And again, we have a very high level of confidence that what we have reported is accurate per the formula that we have reported. And if we have any accrediting body that requires specific guidelines, we're very careful with all of those.

Corey Greendale - First Analysis Securities Corporation

Okay. And if I could ask, I'm not sure you can do this at this point. But I realize you're still going through the GE. But is there any way you can put some parameters around what percentage of programs or how many programs might be affected by GE?

Edward West

Yes, as you know, we continue to assess the impact from the rules and the regulations. But putting a percentage that would imply a static environment, which obviously it's not. We've been putting in place all these actions over the last year in effort to mitigate this to the greatest extent possible. And we actually feel very good about our progress and we know -- to realize these changes. And as a result -- in addition to what I've already talked about earlier, shifting to other programs that should be compliant, changing the cost and the duration of plans, of the programs and also the tuition levels, emphasizing transfer of credit and emphasizing clear services and debt management. So we remain encouraged by the progress that's been made and being able to manage through this. Obviously, there will be some programs that are likely to be thought out over time, but those will be replaced in large part with some of the programs, the 142 that we've introduced this past year. And the goal is just to be able to manage through that with this, and try to minimize the impact as to the greatest extent possible. And clearly, there was a cost of doing so and that cost so far is implied in our guidance.

Todd Nelson

I would just add one specific example. In meeting with the head of our Art institutes, some questions about some of their programs that may be impacted and as a result, we talked about the shorter programs in length and duration and introduced many of those this past June. And we've been very encouraged by the number of students that have enrolled in those and the outcomes in those, again, should help mitigate if some of those programs might not be eligible.

Operator

Our next question is from Reza Vahabzadeh with Barclays Capital.

Reza Vahabzadeh - Lehman Brothers

Just in terms of enrollment starts, I mean, do we anticipate what type of trends in the coming year for your business?

Todd Nelson

Well, as we mentioned earlier, we don't give specific guidance on that. But we would expect given the conversion to non-term and other things, and just some general headwinds in the industry that you would see fluctuation both negative and positive. Probably if putting in the context of others, we probably won't see what some of the others have experienced. But you'd probably see a little bit more of that in the first half than the second half.

Edward West

And overall as we mentioned, enrollment itself on average for the fiscal year to be roughly flat, that's what our current expectation is.

Reza Vahabzadeh - Lehman Brothers

Got it. And as far as the mix, do you see a significant change in your mix of enrollments?

Todd Nelson

Not necessarily. I mean, our view as we said earlier is that we're seeing that the traditional-age students more stability than at the adult -- for the adult students. But we continue to and we'll continue to as we see other programs that are -- there's a more favorable demand for it, we'll shift resources there, as well as what's going on with our own internal changes regarding gainful employment. If there were a certain programs that are not as positive as we think may be effective as positively, we are not going to devote the resources to that. So as I said, that would be a self-inflicted change. But one of most encouraging things we see is that, we continue to see strong demand across most of our programs.

Edward West

It is important to note here, which we really haven't mentioned, you'll remember this past year, we've been implementing a lot of changes. We also held off on making investments this past year because of the uncertainties surrounding the rules, and held off on making some investments in certain programs, rolling those programs out and also rolling out some of the campuses. Now with clarity, obviously, we -- and the confidence around certain programs that we've begun and incorporated into our guidance the cost of rolling out some of these programs and also opening up some new locations.

Reza Vahabzadeh - Lehman Brothers

Got it. And as far as advertising rates and generally speaking, your marketing expenses, any comments on what you're seeing out there?

Todd Nelson

Again, as we said, relatively stable, you'll see some things both up and down. But in general, ours is relatively flat.

Edward West

On a unit basis, but as Todd mentioned earlier, we do expect overall expenditures to be up largely driven by the lower productivity from an admission standpoint.

Operator

Our next question is from Andrew Steinerman with JPMorgan.

Andrew Steinerman - JP Morgan Chase & Co

Could you just go over student persistence. You mentioned it's down this quarter. It's been down for a couple of quarters. And I did catch Ed saying, part of that is the conversion to non-term. Can you just give us a big picture view of why student persistence is down? And it was, if you could quantify it for us, I know we have a way of quantifying it that you wouldn't think it's fully accurate. But if you could quantify it by your metrics, how much is due to persistence?

Todd Nelson

Sure. Let me just comment on the first thing that you asked. If you look at -- you can't argue with the general economy that's more difficult for students to get funding. So you would expect that to challenge a student as they get in and as their funding gets tight, that affects persistence and that continues. That's been for sometime now and until you start to see a change there, I think that will continue. Ed mentioned with our change to non-term, there were certain folks who were enrolling for stipends, again, those who -- you're starting to see those come out of the system, which also affects persistence. And just the overall nature of us, as Ed said, not investing as much as we have has also had some impact. The elimination of our EFL program, again, all of those have a collective effect on persistence. But the overall economy in particular, we feel, is probably the most challenging of those. As far as quantifying it, again, I won't comment on your model versus ours but as I said, it's down a couple, several basis -- 700 basis points from the prior year.

Andrew Steinerman - JP Morgan Chase & Co

Right. And do you have any sense of when that could turn?

Todd Nelson

Well, again, don't want to give guidance on that but we're encouraged by the things that we're doing, and we certainly have a hope that we'll see that in the second half of the year starting to come back.

Operator

Our next question is from Amy Junker with Robert W. Baird.

Amy Junker - Robert W. Baird & Co. Incorporated

I just wanted to follow up on the revenue per student and I think Sara's question. We saw it down, I guess, more than what we were thinking it would be this quarter. Is that entirely due to the shift to borrower base? Or is there something else that's taking you -- that's impacting that? And I guess, why would you expect that to reverse as we head into 2012 and end up with positive revenue growth?

Edward West

So first on the non-term, we're already borrower based. So, yes, some of the driver there is actually, yes, to non-term, on average fewer credits there during the financial quarter for the online students, is a driver in that. And then also in our guidance, we have incorporated any tuition changes both up and down into the system and into that forecast. So there will be pressure on year revenue but based on what we know today and what we've incorporated, and what we've incorporated from a tuition standpoint, we still expect unit revenues to be slightly ahead of enrollment growth.

Operator

Our next question is from Suzy Stein with Morgan Stanley.

Suzanne Stein - Morgan Stanley

Can you just confirm that the changes that you're making now to comply with GE addresses the rules beyond the transition period or will you need to make further changes before 2015?

Todd Nelson

Well, a couple of things. One is you're -- as Ed said, there is some data that's not available yet, and so obviously as that becomes available, we would obviously make additional changes if necessary. But from our point of view, with the data that we have and the clarity that exists with the rule at this point, we feel that we are making the changes necessary. As we -- as you often see enrollment shift into other programs, and you find that maybe that's not necessary in time. We would probably see that shift. An example would be -- for example, in culinary, where we're enrolling a lot of students in certificate and diploma programs, but as things progress as more data is available. The ability to have those students transition into bachelors programs and other programs is something that we would -- so in response to your question about, would you make additional changes, the answer is yes. But based on what we know now, we feel we have the right changes in place.

Edward West

Just to add to Todd's last point, in terms of continuing to make changes as I mentioned earlier, it's not a static environment. And, yes, we will continue to do so. The changes that we're making now impact both the short term and long term. But as we have better information in time and see results, we'll continue to make changes. Clearly the impacts, the changes we're making now do impact that kind of intermediate period.

Suzanne Stein - Morgan Stanley

Okay. And then just a clarification on guidance, are you including any buybacks in your guidance?

Edward West

We've incorporated from the EPS standpoint, where we are as of the end of this past quarter in terms of the share count.

Suzanne Stein - Morgan Stanley

Okay. And then I'm not sure if you're willing to comment, but any updates from your private equity partners in terms of their kind of long-term plans?

Todd Nelson

Last I spoke with them, they said they loved the company. Maybe you should ask them.

Operator

Our next question is from Jerry Herman with Stifel, Nicolaus.

Jerry Herman - Stifel, Nicolaus & Co., Inc.

Question guys is really focused on online. And first, how much of an impact did the non-academic shift have in the quarter? And maybe frame that against what sort of influence the generally older student had on those numbers. And then a sort of a forward look in terms of expectations on online just generally.

Edward West

I would say with respect to the latter obviously, having the nontraditional-aged student, the older student is where we've seen more of a variability impact to enrollment and therefore, obviously we're seeing more stability at the traditionally-aged student. With respect to the investments and the changes that we've had on our online operations, yes, they did have an impact this past quarter overall to performance. Our EBITDA, we think it was the right changes to make, it's the best long-term as to the long-term durability of the enterprise. Those changes will continue to be made and that's incorporated into our guidance over the next several quarters. But because of the year-over-year impact of these investments that we've been proactive in making, we should see some benefit of that in the latter half.

Jerry Herman - Stifel, Nicolaus & Co., Inc.

So just to clarify, we should think about perhaps greater volume on -- or greater pressure on student volumes in online even though, I guess, it's secularly growing but greater pressures on student volume and online nearer term?

Edward West

You can see actually greater variability as I mentioned in the previous comments around the new student growth because of the timing of the starts versus -- historically, the emphasis has been to 2 starts of the year principally, the start at the beginning of a quarter, now we have starts every 2 weeks. And the number of those starts may change from quarter-to-quarter because of the calendar. Thus, you're going to have more variability on the new student growth. Over time, that's going to smooth out. And then we see long-term demand and growth on that aspect of the business.

Jerry Herman - Stifel, Nicolaus & Co., Inc.

And then just a follow-up, sort of a numbers question. With regard to the restructuring, does your guidance include savings associated with that restructuring even though it doesn't include the front-loaded charges?

Edward West

Yes, longer term. I mean, obviously, you see that benefit over time through some of the changes. And the guidance does incorporate some of those actions that we've taken in the past 4 quarters as well.

Operator

Our next question is from Maria Karahalis with Goldman Sachs.

Maria Karahalis - Goldman Sachs Group Inc.

I wanted to ask if you could give us your thoughts on the broader tuition outlook. I think you commented that it might be up for some and down for others. Can you talk to us a little bit about how you're thinking about that going forward?

Todd Nelson

Sure. I mean, as we've always done in the past, we do pricing studies to see where and how competitive our programs are priced, as well as if we're needing to make certain investments in those programs, and we'll continue to do that. Given the impact of gainful employment, there are obviously some programs that we would look at and consider some tuition reductions. But that's comment about you'll see some that will be going up and some -- a few that will be going down.

Maria Karahalis - Goldman Sachs Group Inc.

But those changes haven't been implemented yet? That's something you're still evaluating?

Edward West

That's -- those were incorporated into the guidance.

Maria Karahalis - Goldman Sachs Group Inc.

They're in the guidance, okay. And the related, perhaps the related question is, I think, you also commented that the new programs will offset lost programs in the future and in terms of the lost programs, are these programs that you've already started to take out? Or are waiting to see data to determine what you should take out? How should we be thinking about that?

Todd Nelson

So again, we didn't say that they would completely compensate for that. But we're saying that we are offering additional programs that we believe will be eligible for those that may not be eligible. And we are offering many of those new programs already. And as we've said in prior meetings, the impact on some of the programs that we weren't sure about their eligibility, what affected us -- in the short-term we've been that we delayed rolling out some of those programs versus teaching any of them out.

Maria Karahalis - Goldman Sachs Group Inc.

So you've delayed rolling out programs but haven't necessarily taken decisions on which ones to eliminate?

Todd Nelson

No.

Operator

Our next question is from Kelly Flynn with Credit Suisse.

Kelly Flynn - Crédit Suisse AG

I have a few actually. So, Ed, I think you've answered the question about revenue for the year and saying, it should be slightly higher than enrollment growth. But I'm hoping, can you be a little more specific on what you mean there in terms of the revenue per student? Do you think it's going to be up kind of 1-ish percent or is it going to be like more like high -- mid-single-digit.

Edward West

As I said, it's slightly had -- growth slightly ahead of enrollment growth.

Kelly Flynn - Crédit Suisse AG

Right. But I'm trying to find out, what do you mean by slightly? Is it...

Edward West

It's a minor amount, low-single digits.

Kelly Flynn - Crédit Suisse AG

Okay, great. And then what about for G&A? I think you're around $195 million for the quarter. I mean, can you give us kind of a rough run rate assumption that you're using for the first quarter?

Edward West

For, I'm sorry, for which area? You broke up a little bit there.

Kelly Flynn - Crédit Suisse AG

Sorry, G&A.

Edward West

So for, overall, for in that -- obviously the longest component in that is our marketing and admissions cost. And as I mentioned for the period, we do expect overall for that category to be up for the year, largely driven by additional inquiry volume related to the conversions and start rates that we've been experiencing in the last few quarters.

Kelly Flynn - Crédit Suisse AG

Okay. And then for starts, I know others have asked you this and you said, you're assuming some declines in the first half of the year. But could you put some numbers on that? What's the worst decline roughly that you think you're going to see? Is it something like high single-digit decline or something a bit more in the first half?

Edward West

Again, we talked about variability that we expect because of non-term. As Todd mentioned earlier, we don't expect it to be -- currently, as we sit here today and what we've been reading about some of the others, and that's because of our platform the traditionally-aged students. That said, we've introduced other things, have introduced some of the variability with non-term.

Kelly Flynn - Crédit Suisse AG

Okay. Just changing gears, do you anticipate going to non-term with Art Institute at some point?

Todd Nelson

Well, it's certainly, in online, it's a possibility. But in the on-ground locations, we don't see that in the near future.

Operator

Our next question is from Bob Wetenhall with RBC Capital Markets.

Steven Bachman - RBC Capital Markets, LLC

This is Stephen Bachmann in for Bob. If you could comment on the marketplace, have you noticed some increased level of competition for students either from other for-profit or even not-for-profit schools in the sector relative to a few quarters ago? Or do you feel that it's been relatively unchanged?

Todd Nelson

We certainly heard those as we've been listening to what other companies are experiencing. For our traditional-age students, we've not really seen any change from the nonprofit sector. As far as the, at the adult level, certain programs, you see a little more competition. But a lot of our core programs, we haven't really noticed any material change in the competition over the last several quarters. Again, I think that there are -- some of the competitive issues out there, maybe some of the programs that we are not -- we don't have a lot of students in those programs. But for what I would consider to be our kind of core programs, not seeing really any material change in our competition.

Steven Bachman - RBC Capital Markets, LLC

Okay. Much appreciated. And on a more granular basis are there any other incremental costs in the structure that you feel you can take out to help support the operating margin, particularly as legal expenses are increasing and enrollment is expected to be kind of flat the next few quarters? And if that's true, any color you could provide will be really appreciated.

Todd Nelson

Well, as Ed reported, there are several things that we're doing already that we feel will have impact. He mentioned about the centralization of some of our support functions that we think will have an impact. Again, some of the realigning of different responsibilities, that should have an impact. Then obviously, going forward, we hope the investment in the grad teams, as well as at non-term, we think over time actually will reduce our cost per student. And then I would hope anyway, that some of the legal and regulatory expenses we hope to start to see those go down as well, which as you know is the fallout of some of the many regulatory changes that have taken place this last year to 18 months. So those are all things we think in time will be helpful.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back to Mr. Sober for any closing remarks.

Todd Nelson

Thanks. This is Todd. Again, thanks for joining us. We appreciate you taking the time this morning. We know there are a lot of companies reporting, and we look forward to speaking with you again next quarter.

Edward West

Thanks, everyone.

Operator

The conference is now concluded. Thank you for attending today's presentation. Please disconnect your lines.

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