Apollo Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Apollo Education (APOL)

Apollo Group (NASDAQ:APOL)

Q1 2012 Earnings Call

January 05, 2012 5:00 pm ET

Executives

Beth Coronelli -

Gregory W. Cappelli - Co-Chief Executive Officer, Director and Chairman of Apollo Global Inc

Brian L. Swartz - Chief Financial Officer and Senior Vice President of Finance

Charles B. Edelstein - Co-Chief Executive Officer and Director

Joseph L. D'Amico - President

Analysts

Paul Ginocchio - Deutsche Bank AG, Research Division

Suzanne E. Stein - Morgan Stanley, Research Division

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Trace A. Urdan - Wunderlich Securities Inc., Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division

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

Corey Greendale - First Analysis Securities Corporation, Research Division

Unknown Analyst

James Samford - Citigroup Inc, Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Peter Wahlstrom - Morningstar Inc., Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Operator

Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] This conference call is being recorded today, January 5, 2012, and may not be reproduced in whole or in part without permission from the company.

There will be a replay of this call available through January 19, 2012, beginning approximately 2 hours after we conclude today. The replay number is 1 (800) 642-1687 or (706) 645-9291 internationally. The conference ID for the replay is 35168260.

I would now like to turn the call over to Beth Coronelli, Vice President of Investor Relations. Ms. Coronelli, you may go ahead, please.

Beth Coronelli

Thank you for joining us today to discuss our first quarter results. Today on the call are Greg Cappelli, Co-Chief Executive Officer for Apollo group and Chairman of Apollo Global; Chas Edelstein, Co-Chief Executive Officer; and Brian Schwartz, Senior Vice President and Chief Financial Officer. Our President, Joe D'Amico, is also here and will be available during the Q&A portion of the call.

As we discuss our results today, unless noted otherwise, we will be comparing the first quarter of fiscal 2012 which ended November 30, 2011, to the first quarter of 2011. I'd also like to remind you that this conference call may contain forward-looking statements with respect to future performance, financial conditions, regulatory compliance and other matters regarding the business of Apollo Group that involves risks and uncertainties. Various factors could cause actual risks of the company to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed under risk factors and also in the company's most recent 10-K and subsequent 10-Q reports filed with the SEC and available on our website at www.apollogrp.edu. The company disclaims any obligations to update any forward-looking statements made during the call.

Additionally, during the call, we may refer to non-GAAP financial measures, which are intended to supplement but not substitute, for the most directly comparable GAAP measures. Our press release, which contains financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures is also available on our website. With that, I will turn it over to Greg.

Gregory W. Cappelli

All right. Thanks, Beth. Good afternoon, everyone. I'll share a brief overview of our business and an update on a number of our initiatives, and then turn the call over to Brian, who will review the financial results, and then to Chas to discuss our priorities as we move forward.

It was at the beginning of the first quarter a year ago that we better aligned the evaluation process and the compensation of our admissions advisory teams to our student's success. We also rolled out the University Orientation on November 1 in that same quarter. And both of these initiatives have had a meaningful impact on our student intake this past year. And we've also made some great strides in enhancing our student protection, elevating the student experience, supported by our technology advancements and delivering high-quality educational offerings to help promote the academic success of our students.

Looking at a couple of key metrics for the quarter, we're encouraged by an improvement in our admission advisor effectiveness. Through training support and clarifying expectations, we continue to see an improvement trend. We effectively shifted to a new approach over the past year and credit our advisors for making meaningful change in elevating the service we provide to our students. We're also pleased to report positive new Degreed Enrollment growth for the first quarter of fiscal 2012, as we're committed to reaching students who we believe can be successful in our degree programs. Whatever the new student intakes are in any given quarter, we remain focused on our initiatives to continue to enhance the student experience, and provide industry-leading student protections.

Retention's a primary area of focus, and this begins with the students we attract. In order to identify and enroll students that ultimately will be successful, we continue to work to build a personal connection with our students. This begins with the first contact, through admissions and University Orientation and continues to their academic progression, graduation and beyond.

Given higher levels of graduation anticipated in 2012 as a result of historical enrollment trends, total enrollment growth is expected to continue to remain negative on a year-over-year basis throughout 2012. We did see some retention improvement with the mix of enrollments moving towards more bachelors having the most impact in the retention metrics for the period reported. And Brian is going to provide some more detail on that and the other retention drivers in just a moment.

Now I'd like to update you on our efforts to differentiate University of Phoenix, through our enhanced academic experience, including aligning learning outcomes with students and employer needs, and opportunities to expand our global reach, providing educational offerings in India.

First on academic experience, we're working to differentiate University of Phoenix and Apollo Group through an enhanced academic experience. Early this quarterly, we closed the Carnegie Learning acquisition. The University of Phoenix team has launched a step-by-step math review. It's free to our students. This new resource incorporates adaptive learning with online units to help our students prepare for the first general education math course. This is a milestone in our efforts to incorporate adaptive learning into our academic platform. Additionally, this quarter, we launched the mobile app offering for the Android platform and piloted new technology to provide a more customized experience for prospective students. We also continue to expand course offerings on our new learning platform and pilot our new classroom concept.

Aligning learning outcomes with students and employer needs is important. Our call to action here is to deliver high-quality educational offerings that align learning outcomes with employer needs. We have the platform and the people to help narrow the workforce skills gap, and we're investing to help more of our students and alumni get jobs. This quarter, we launched Phoenix Career Services, a comprehensive career resource to guide our learners in their professional journey. We are initially rolling the service out in the School of Business and to our alumni. With nearly 700,000 alumni we found in our alumni surveys, the career services and networking are the most important areas that our alumni are looking for support from the University. This aided in our decision to roll this new career services resource out to this important group.

We're also developing alumni chapters to create a unique networking opportunities for alumni to meet and connect. Now, in connecting education to careers, we continue to build academic-related relationships with employers through Workforce Solutions. This supports our efforts to attract students that will be successful in our programs, contributing to retention. Aligning workforce solutions by academic program, we now have teams focused on healthcare, manufacturing, education, hospitality, and we'll soon launch teams in criminal justice and security and technology.

This specialization offers added expertise to our partner employers and a strong alignment with academics. It also combines the benefit of national scale with our local campus connection. Our priority is to continue to build deep relationships with our current partners to help them develop a better educated, competitive and skilled workforce. And our goal is to also significantly increase the number of new relationships in 2012.

On to India. On the global front, we continue to expand our business, extending the reach of our educational offerings to India. We announced in early December the signing of a joint venture agreement, which is subsequently closed with HT Media Ltd. to provide educational services and programs. Based in New Delhi, HT Media is one of India's foremost media companies, and is publisher of 3 leading newspapers in the country. I personally spent time with our new partners this past month. We're extremely pleased to have the opportunity to work closely with them to develop this 50/50 joint venture.

A couple of interesting statistics, 70% of the population in India is below the age of 35. The income of the middle class is growing. There's a need for an educational workforce, and India is expected have the largest working age population by 2030. Many of the current projections show that the country has over 500 million people under the age of 21. We see tremendous opportunity in India over time, and are honored to work closely with such an innovative, highly respected partner.

In closing, we're excited about our efforts to provide high-quality educational offerings to our students. We continue to focus on differentiating our platform, further elevating the student experience, helping our students succeed in their life journey, and we see opportunities just like our joint venture in India to expand our reach and grow our business.

With that, I'll turn the call over to Brian, to share some more details about our financial results.

Brian L. Swartz

Thank you, Greg and good afternoon, everyone. I'd like to review our first quarter financial results, and then I'll spend a few minutes on our business outlook. During the first quarter, revenue decreased 11%. The decrease was primarily the result of a 15% decline in Degreed Enrollments at the University of Phoenix to roughly 373,000 students, which was partially offset by selective price increases.

Year-over-year, new Degreed Enrollment growth was positive in the first quarter, increasing almost 13% as compared to a 33% decrease in the fourth quarter of 2011. The increase was favorably impacted by the University Orientation, which we rolled out November of 2010, resulting in less than a full quarter of new enrollments during the year-ago quarter. Excluding the benefit from orientation, new Degreed Enrollment would've been about 6%.

Revenue per student based on average enrollment during the quarter was up about 6%, approximately 4% of this increase was due to price and 2% of it was due to favorable shift in our student body to higher degree level students.

Based on quarter end enrollment, revenue per student was about 3.5%, also reflecting increases due to price and mix, however the increases were offset by a decrease in average nights of attendance at the associate level due to more students electing to take one course at a time, versus the typical 2 courses.

For the first quarter, income from continuing operations was $149 million or $1.14 per share, compared to income of $236 million or $1.61 per share in the year-ago quarter. I'd like to highlight 2 items that had an impact on our first quarter results. First, as we indicated in an 8-K we filed during the quarter, we were recently notified of a loss of accreditation at our Chile-based university UNIACC. As a result, we recorded asset impairment charges of about $17 million.

Second, as I discussed last quarter, we are continuing the implementation plan of our real estate rationalization project in Phoenix to streamline and better align our operations with our business strategy. In relation to this plan, our first quarter financial results included approximately $6 million of restructuring charges. We anticipate there will be approximately $15 million of additional charges in the remainder of 2012, as we exit 2 additional facilities, and we expect to realize $10 million to $15 million of annualized savings from this plan once it is fully implemented.

Excluding these items, as well as the other special items from the prior year, our operating margin declined 670 basis points to 24.3%, income from continuing operations decreased 30% to $167 million, and EPS was $1.28 per share compared to $1.63 per share in the first quarter of 2010.

Next, I'd like to spend a minute discussing our first quarter operating expenses. In instructional student advisory, costs per faculty and student advisor compensation were down associated with lower total enrollments. This was offset by increases and other instructional costs to further enhance our academic content, continue our investment in technology, including our recent purchase of Carnegie Learning, as well as other initiatives to enhance the student experience.

In marketing, we continue to reduce our spend on the Internet and regional advertising initiatives as we focused on improving lead source effectiveness in both our direct and affiliate Internet media channels. Offsetting some of the reduced advertising spend was an increase in investment for our teams focused on developing academic-related relationships with employers.

I would like to point out that our marketing costs for new enrollment were down 11% year-over-year. Admissions advisory was lower, primarily due to lower headcount associated with our lower new enrollment levels. G&A was up as a percentage of revenue primarily related to share-based compensation. However, it was slightly lower than anticipated due to the timing of various IT infrastructure projects. We expect G&A in the second quarter will be slightly higher than in the first quarter due to the timing of these IT projects.

Share-based compensation was $21 million in the first quarter. For the full year, we continue to expect share-based comp to be approximately $80 million to $85 million.

Bad debt expense as a percentage of revenue was 3.5%, down 80 basis points from the prior year. This is consistent with the trend we experienced throughout 2011 as a result of the positive mix shift in our student body, the implementation of University Orientation and improved collection rates.

For 2012, we anticipate our bad debt expense as a percentage of revenue will be about the same as 2011. Finally, depreciation and amortization increased due to increased capital expenditures in recent years related to information technology, as well as intangible amortization associated with the acquisition of Carnegie Learning during the quarter.

Our effective tax rate was 44% in the quarter. This increase was primarily attributable to the UNIACC asset impairments for which we did not receive a tax benefit. We anticipate or effective tax rate will be approximately 41% in the remaining quarters for 2012.

Turning briefly to the balance sheet and cash flows. We continue to maintain a well-capitalized balance sheet. At the end of the first quarter, we had unrestricted cash and cash equivalents of $1.2 billion. Our outstanding debt was approximately $114 million dollars, versus about $600 million at the end of last year, as we repaid the borrowings under our U.S.-based credit facility. Excluding Apollo Global, our days sales outstanding for the quarter decreased to 24 days from 26 days in the first quarter of last year due to reduced domestic accounts receivable.

For the first quarter of 2012, our free cash flow, which we define as cash flow from operations less capital expenditures, decreased by 17% to $278 million, compared to $335 million in the prior year, primarily as a result of lower operating income and a high level of CapEx in the year-ago quarter.

During the first quarter, we repurchased 1.7 million shares of our stock for $78 million, at an average price of $46 per share. Subsequent to November 30, we repurchased an additional 2.6 million shares for $128 million. As of today, we have approximately $294 million remaining on our share repurchase authorization. Since the beginning of fiscal 2011, we have repurchased approximately $1 billion of stock.

Before I discuss our business outlook, I'd like to provide an update on our retention metric, ACEPS, or average credits earned per student. As a reminder, our 26-week ACEP metric measures the average number of credits earned by newly enrolled students over their first 26 weeks of attendance. This metric is for our undergraduate student population, and is reported 2 quarters in arrears.

Our 26-week ACEP metric in the third quarter of fiscal 2011 was 4% higher than the prior year, which is on top of a 10% gain from the year before. The third quarter of 2011 was the first quarter to fully anniversary the implementation of first-year sequence, which benefited previous quarters’ comparison. A majority of the improvement in ACEPS was a result of a positive mix shift in our student body. We have observed a moderation in the increase in the ACEP metric for the third quarter of 2011, due in part to more students at the associates level electing to take one course at the time as opposed to 2.

As I stated in prior calls, it's important to remember that since ACEPS is a measure of year-over-year improvement, we would expect the rate of improvement to level off once initiatives have been in place for a full year.

Now, I'd like to spend a minute to provide some commentary on our business outlook. Regarding new enrollment, in the second quarter, we will benefit from one extra calendar day for new enrollments compared to last year, which, coincidentally, will have a similar impact as to what we saw from University Orientation during the first quarter. We expect reported new Degreed Enrollment growth in the second quarter to be about the same as the first quarter. Excluding the impact of the extra day in the second quarter, we would therefore expect the underlying growth to be in the mid-single-digits. We also anticipate new enrollment growth to continue to remain positive year-over-year in each quarter of 2012.

As a reminder, the third quarter will have one fewer day than the prior year third quarter. Despite the resumption of growth in new enrollments, we continue to expect year-over-year total enrollment and revenue growth rates to remain negative throughout 2012. Furthermore, we expect persistence for the whole student body to decline reflecting the impact from graduating students and the overall portion of our student population shifting in newer students and generally have lower retention rates, and the more tenured students who are closer to graduation.

Regarding our cost structure, we continue to identify opportunity to be more efficient and improve our profitability over time. Based in our current view and anticipated future trends in new enrollments, retention rates and expenses, our financial outlook for fiscal year 2012 is revenue of $4.1 billion to $4.3 billion and operating income of $655 million to $750 million.

We've narrowed the range on our operating income outlook in part to reflect continued investment in academics, as well as investments in the second half of the year to enable process efficiencies in future years. The operating income outlook excludes any special charges, including the anticipated $15 million of additional restructuring charges related to the real estate rationalization program that I mentioned earlier. And with that, I'll turn the call over to Chas

Charles B. Edelstein

Okay, thank you. Brian. Greg and I have certainly seen considerable change in our time here at Apollo within the company, and also in the sector overall. We set the strategy to differentiate University of Phoenix, and thoughtfully expand our business to help us move into the future. It is that future I want to talk a bit about today.

We often get the question, “What will Apollo look like in the future? Or what do you see on the other side of the mountain?” It's clear that we've chopped some wood over the past year, and these are very reasonable questions as we journey through this period of transition.

Here is what we see going forward. Number one, academic quality. We will continue to invest to create better outcomes for our students, enhancing academics and the classroom experience to deliver a high-quality education to our students. Innovation, such as accelerating our adaptive learning capabilities, is the cornerstone of our efforts to differentiate.

Second, student success. With a significant need to connect education to jobs, we must adapt solutions to provide opportunities to more students, work to retain these students through graduation and help to ensure that when students do graduate, they have the skills necessary to compete in today's workforce. This alignment between educational skills and career outcomes is among our very highest priorities.

Third, sources of growth. In the current environment, we see that 2/3 of the jobs being created require a degree, yet only 1/3 of Americans have attained a degree. This situation is one of the reasons that there are over 3 million jobs available but unfilled in the U.S. alone.

Internationally, we know the gap is even larger. This gap exists because people do not have all the skills required to succeed. The demand we see for our services provides the opportunity that any growth company would seek. We're still moving through a period of transition, and as such, it's too early to provide specific long term growth targets.

We are pleased to see the new Degreed Enrollment growth we reported this quarter, given the current environment and retention continues to be critical to our revenue growth. This ties back to the students we attract and how we ensure their success all the way through to graduation. Also, the key component to our growth strategy is to continue to leverage our core capabilities, expanding beyond University of Phoenix.

Fourth, continuous improvement. We will identify opportunities to continually refine our operations, these are opportunities to be more efficient and improve the student experience. As we achieve the benefits of these efficiencies, we expect to reach more students with an even better student experience and, at the same time, improve our profitability.

Fifth, do what's right. We've implemented industry-leading student protections, and are committed to always doing what's in the best interest of our students.

Before I close, I'd like to comment on today's announcement of the timetable for my retirement from the CEO role of the company in August of 2012 -- the co-CEO role. Thereafter, after August, I will remain as an advisor -- in an advisory role, through February of 2013 to help the company in whatever way is necessary. I came to Apollo to focus on 2 primary things. First, help set the strategic direction, which will provide the base for Apollo's quality growth for many years to come. And second, to build a world-class team to execute on that strategy.

I feel great about what Greg and I have done to accomplish these goals over the past 3 years, and I'm honored to have the opportunity to serve as co-CEO here at Apollo. What I'm most proud of is how we've all come together as a team, a team which Greg and I brought together by combining the accomplished skill set of long-standing Apollo employees, and the best practices and insights from our newest team members.

I have every confidence that this world-class team under the stewardship of my lifelong friend and the very capable Greg Cappelli, will make me even more proud than I am today. I look forward to making progress in 2012 to achieving our mission, which is so important to the people of our nation and around the world.

Gregory W. Cappelli

Thanks, Chas. Just before we turn it over to questions, on behalf of John and Peter Sperling, our Apollo Group Board of Directors and our management team, I'd like to personally thank you for all you've done to help make Apollo Group a stronger company over the past few years.

As you've pointed out in your remarks, we've come a long way, but we still have a lot to do in order to accomplish our lofty goals. And I'm glad you'll be here throughout the year to help us continue to execute on what we started. You're a great business partner, and more importantly, a lifelong friend to our families and many of us here at Apollo. So thank you.

I strongly believe in our strategy and the long term plan that you talked about, and our steadfast belief that if we always put our students first, regardless of any short-term fluctuations and any financial results of our company during the coming years, the best will certainly be yet to come.

So thank you to all of our management team and everyone that's worked so hard this quarter and the entire year. We'll take some time to open it up for questions from the operator.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Paul Ginocchio from Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

Just maybe what led to the decisions, or what created the decisions to invest another $30 million in the quarter? I guess that was. And then second, if you could just sort of -- the $750 million of the top end of the guidance range, how do we think of that in relation to your profit goals that you released recently of $661 million, $882 million with a target of $764 million. Is there anything that we need to do to adjust those profit goals back to your EBIT guidance of $750 million?

Brian L. Swartz

Yes, Paul, it's Brian. Let me address the first question first. I mean, what we – as the year has progressed here, we've identified some opportunities in the investment area to invest in certain areas that will allow us to drive process efficiencies in future years, which obviously is important to the entire management team of the company to help drive future leverage in the business. And so those investments in the second half, coupled with just further investments in academics, which is really, really obviously very important and one of our number one priorities, is what led us to take on the higher end of the range. In terms of your second goal, the principal difference between the numbers that were in the 8-K is there are some adjustments in the operating income between the bonus plans, the principal one being that we actually add back bonus expense as part of the bonus definition in the 8-K, and there are some other adjustments, too. So they're not comparable to the financial outlook that we provide or provided on this call.

Gregory W. Cappelli

Nor are they intended to be guidance.

Brian L. Swartz

That's correct.

Paul Ginocchio - Deutsche Bank AG, Research Division

It's just that you hit the last 4 years, the maximum target. It's just looks like with your new top end of the guidance range, you're not even going to hit your target and get 100% cash bonus relative to salary.

Gregory W. Cappelli

We hope that's not the case, Paul. We're working hard every day. We work with our Board to set targets and we get great perspective from a lot of people on the Board. So we'll do the best we can.

Operator

Your next question comes from the line of Suzi Stein with Morgan Stanley.

Suzanne E. Stein - Morgan Stanley, Research Division

What do you think is driving the strong start growth? Are you seeing any change in demand? Is it some of the operational improvements? I'm assuming it's a little bit of everything. But if you can maybe just give us a little more color on what you're seeing there?

Gregory W. Cappelli

I'd like Joe to comment on this from an operations perspective. But I think it's the culmination of a lot of things come together over the past year. In my opening remarks I talked about -- it was over a year ago that we changed some things with our enrollment advisors, obviously, on how they're reviewed and compensated. Certainly, the orientation program. The training takes time. It takes time -- when something’s been done a certain way in an industry for 20 or 30 years. We knew it would take some time. And we think that's coming together. People on our teams are getting more comfortable with the way that we are trying to attract students and enroll them into our universities for the reasons that we want them in the university. But I'd like Joe to add on to that as well.

Joseph L. D'Amico

I think you pretty much hit it, Greg. I think it's a maturing of the group. And I think we're beginning to execute at higher levels with more efficiency and more effectiveness in a lot of different areas, including advertising and other areas. So I think some of the good things we've been doing that we've talked about are all coming together.

Suzanne E. Stein - Morgan Stanley, Research Division

And then if you could just also address the marketing cost per enrollment. That seems to be declined this quarter, I think it declined last quarter. How should we think about that going forward?

Brian L. Swartz

Well, Suzi, it's Brian. I think -- we had a pretty substantial spike in both marketing and total cost to enroll, including admissions advisers over the course of fiscal 2011. I think it was up well in excess of 2x from historical levels. I mean, as we said on prior calls, and in prior conversations, we do -- we hope that -- we expect that to come down. We're seeing that to come down. Marketing is down about 11%, as I mentioned in my comments, and it's down about 15% if you include the admissions advisors and marketing. So we're pleased on the trend we see. And hopefully, it will continue on a similar trend.

Operator

Your next question comes from the line of Andrew Steinerman with JPMorgan.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Greg, could you talk more about student persistence? Obviously, we have our way of calculating it. But you mentioned graduations are going to be a drag. To what extent are they a drag? And how long until we see kind of the persistence come through and kind of the way that we calculate it?

Gregory W. Cappelli

Okay. I understand. Actually, Brian, why don't you check the numbers.

Brian L. Swartz

You've seen a deterioration in the growth and persistence for the last few quarters. I think it was up about 100 basis points plus a couple of quarters ago. Last quarter it was 70, now it's up 20. We do expect that to go negative here during fiscal 2012, and it is a function of those graduates, number of students that are graduating and leaving the student body. So once we work through those graduations, and depending on how fast new enrollments continue to grow in the future will determine when and if that turns around from going negative, which is what we expect to be positive again.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

Right. And to what magnitude are the graduations this year different than past years?

Brian L. Swartz

Well, in fiscal '12, we will hit a historical high of graduations just given the last few years. But the levels of enrollments over the last few years, not fiscal '11, but in prior years after that. So we will hit a historical high this year.

Andrew C. Steinerman - JP Morgan Chase & Co, Research Division

We have to count graduations as a good thing.

Gregory W. Cappelli

We certainly are.

Operator

Your next question comes from the line of Gary Bisbee with Barclays Capital.

Gary E. Bisbee - Barclays Capital, Research Division

A couple of questions. The starts -- I know it's a small number at this point, but actually grew faster at associates than bachelors, which was I guess surprising, given the desire to continue to move the mix. Is there anything in particular driving that? Is that something we might expect to continue? Or do you still want to move the mix quite a bit more towards bachelor, if I'm thinking out over the next couple of years.

Brian L. Swartz

Yes, Gary, I had mentioned, obviously, in my remarks that we had a favorable impact in orientation this quarter. So we grew new enrollments at like about 13%. But that includes that favorable impact, without it, it's about 6%. Keep in mind that, that disproportionally benefits the growth of the associates level because most of the students at the associates level go through orientation. So that is one anomaly that you're seeing in those growth rates for new enrollment at the associate level this quarter.

Gregory W. Cappelli

Just one thing I would add to that, Gary, is that I don't think we would necessarily characterize it as that we have a desire to move the mix. I think we'd be delighted to have all the associate students that are prepared, and can benefit from the program as we can get. So I wouldn't think of it that way.

Joseph L. D'Amico

One of the things that are difficult to control from a quarter-over-quarter perspective is the mix of students that you are enrolling with the exact numbers of credits. For instance, this quarter, we had more true freshmen enrolled the last couple of quarters. And that will probably shift again next quarter. And that affects ACEPS, that affects a number of things. So we'll obviously be watching that closely and try to comment as we see those one quarter is not a trend, but as we see that happen.

Gary E. Bisbee - Barclays Capital, Research Division

And then following up on an earlier question on the marketing and admissions advisory expenses per student start, is there any reason to believe once you get the reps back into I guess fully optimally efficient in the new model that you would not be able to get back at some point to where you were a few years ago? Or should we think of this as likely being a somewhat higher, maybe it improved like it did this quarter for a while, but somewhat higher cost over the next few years than it was historically?

Gregory W. Cappelli

The advisor effectiveness is something that we put a lot of effort in. And we are seeing improvement there, which is one of the reasons for the decline in the new Degreed Enrollment, the cost for new Degreed Enrollment. We expect that to continue, and we do expect to get back to the historic levels.

Gary E. Bisbee - Barclays Capital, Research Division

Okay, great. Then if I could sneak just one last one in. Can you give us any more color on what the process improvements are that you're going to invest in later this year? And is that -- do you have any sense as to what the magnitude of the savings might be down the road?

Gregory W. Cappelli

Why don't we give an example of some of the things we're trying to do?

Brian L. Swartz

Yes, Gary, well I mean, for example, we've talked a little bit about this I think from time to time on prior calls, is in the area of financial aid and the processing of financial aid, we think there are some real opportunities both to enhance the student experience, whether it involves more self-service activities for students to go through that process and make it a little more user-friendly, for a lack of better word. We think there are some opportunities, not only to enhance the student experience, but also to reduce the cost. So that is one area where we are focused and then there are a lot of others that we are looking at.

Operator

Your next question comes from the line of Trace Urdan with Wunderlich Securities.

Trace A. Urdan - Wunderlich Securities Inc., Research Division

I was wondering if -- I know you're getting asked a lot about the start performance. I am wondering if you could speak a little bit to what the dimensions that were different from what you expected. Because I think you generally gave us an expectation of mid-single-digit start growth, and we obviously exceeded that. And I understand the explanations, but not so much the, how you were surprised by those expectations. I wonder if you could speak to that?

Gregory W. Cappelli

I think to put it simply, November was probably a bit better the last time we spoke. We had talked about it breaking into single digits. We also specifically said we consider it fragile recovery and we know things are going to move around a bit, whether it starts up or down a little bit each quarter or ACEPS, or whatnot, we expect some of that. But to answer your question, it's probably November.

Trace A. Urdan - Wunderlich Securities Inc., Research Division

And then Greg, could you talk a little bit about Masters? I know this kind of comes up periodically on the calls. But it feels as though you have a bigger challenge there than you do on the other parts of your business. And I'm wondering sort of how you think about it, and what you might be doing to get out that issue?

Gregory W. Cappelli

It's a good question. It's frustrating. It is probably the most competitive area, especially the MBA. All you have to do is take a commuter from DCF to New York and look at the back of the magazine -- this magazine in the seat back and you'll see about 65 or 70 advertisements for masters programs from all different kinds of schools, traditional and nontraditional. So #1, it's just a very competitive area. Two, we haven't put the most of our focus in that area, we've put it more in obviously bachelors, and then refining and changing our associate programs. There is more focus going on that. So we -- our goal is to grow Masters again. But it's been -- the performance hasn't been there that's acceptable for us, I'll let Joe comment on it well because he's been focused on it.

Joseph L. D'Amico

Trace, I'd say one other thing that needs to sort of kick into a higher gear but is trending in the right direction is just very small still is the impact of our Workforce Solutions groups efforts with corporations. That's what we're going to get, I think, are...

[Technical Issue]

Operator

Your next question comes from the line of Sara Gubins with Merrill Lynch.

Gregory W. Cappelli

We'll finish answering Trace's question. What Joe was trying to say is on that exact point was our Workforce Solutions group is helping to build relationships with corporations that we hope will naturally fill spots for more of the MBA type programs and Masters types program area. So sorry that we got caught up in the middle of that for the technical difficulties.

Sara Gubins - BofA Merrill Lynch, Research Division

It's Sara Gubins. I'm hoping that you can give us some more color on why you think you saw associate degree students taking only one course at a time versus the typical 2. And if you've seen any recent change in that?

Joseph L. D'Amico

This is Joe. I can maybe address that. I think one key thing to understand, Sara, is that our advisors are taught to do the right thing for students, and we empower them to do what they think is appropriate to help students complete. And we know that we have students at that times struggle one way or another for a lot of reasons. So taking a single course for some students is the right thing to do. And we put a bit of an increase in that over the last few quarters. But the key to it is it's good for the student, and we hope that, that will increase their retention and their opportunity to graduate.

Sara Gubins - BofA Merrill Lynch, Research Division

Is there any reason to think that it's economically driven?

Joseph L. D'Amico

None that we have seen at this point. Typically, when a student does this, I mean, if you come in and you're taking 2 classes at a time, typically, what we see is you're doing well in one and not so well in another one. I think it's a time issue for students as well. And at this point, what I believe our counselors are doing is trying to help students understand that if you're having trouble in one of your classes, it's okay to take one and not 2 at a time.

Sara Gubins - BofA Merrill Lynch, Research Division

Okay, great. And then on the cost side, just 2 quick questions. On bad debt, given the improvement that you got in the first quarter, I'm wondering why don't think you'll see that later on in the year. And then in instructional and student advisory recognizing that there’s seasonality, I'm wondering is generally the right run rate, if we should assume these costs are fairly flat year-over-year?

Brian L. Swartz

Yes, let me try to add a little color and that, maybe taking your second question first on instructional and student advisory. If you look at it sequentially, it was up I think a little less than $20 million. Keep in mind, Carnegie came in this quarter. About half of their cost is intangible amortization down depreciation amortization, the other half is virtually all instructional. So that was a big component of it. And then having slightly higher revenues sequentially, obviously, drove some higher faculty and other variable cost. So I don't know if that helps at all, but it gives you a little more insight. And then in terms of bad debt expense, we obviously would like if bad debts continue to improve year-over-year. We think, overall, as I've mentioned that the full year '12 will be similar to the full year '11. A lot of that is just a function of the rollout of University Orientation last year. And then also, this year we are growing new enrollments which are the opposite of last year. And it generally those students don't persist the way more mature students do. And as a result, that generates some additional bad debts. So year-over-year, we do get a pretty big savings. Last year, and we expect it to be about the same level this year.

Operator

Your next question comes from the line of Kelly Flynn with Crédit Suisse.

Kelly A. Flynn - Crédit Suisse AG, Research Division

A couple of questions. So the first one relates to I think what you said, Brian, about some of the one-off growth benefits in the first quarter. I think you said from kind of orientation timing in the second quarter, you anticipate the benefit from the extra start. Just to clarify, you're saying each of those benefits is sort of in the mid single-digit range, is that right?

Brian L. Swartz

Yes, let me make sure that's clear, Kelly. So this quarter’s reported in the enrollment growth is about 13%. You can see that in the numbers. And if you exclude the benefit from orientation in Q1, it's about 6%. So when we look forward to Q2, we'll have an extra day in Q2 of 2012 versus Q2 2011. And we expect the reported new enrollment, basically consistent in that mid-teens range at 13% kind of range mid-teens. And when you adjust for the day, coincidentally, the day adjustment is about the same 700 basis points change and gets you back to approximately -- get you back to the mid-single-digits kind of an underlying growth basis.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay, great. And then I guess just building on that, as we think about the third quarter, you talked about one last day year-over-year. So I guess if we sort of start with an underlying mid-single-digit growth rate and then back out a day, are we looking just sort of very slight low single-digit growth based on kind of the map you laid out? I just want to manage expectations on that, just for third quarter.

Brian L. Swartz

Yes, I mean, there will be one less day, as you mentioned and I'll mention my comments. In terms of exactly what that will mean on reported and kind of underlying growth, we'll have an opportunity to talk about that during March, and it's just too early for us to comment on it.

Kelly A. Flynn - Crédit Suisse AG, Research Division

And then just a different question, building on Sara's question about the revenue per student. Can you tell us what's implied by your guidance for revenue per student at the associates level and overall for the rest of the year? Basically, do you expect this trend to continue?

Brian L. Swartz

Yes. I mean, generally speaking, we don't believe it will turn around or change for that matter. There's nothing indicating that it will. We did not change our revenue outlook. And we obviously grew new enrollments more than we thought we would on the call at the end of October. So hopefully, that gives you some kind of directional feedback. We are assuming those trends continue to the extent they get a little better, that would be great. They might get a little worse, we need [indiscernible] over time.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay, great. And then just a couple of quick ones on the expenses. Depreciation and amortization, I know you explained why it's higher. Do you expect it to go higher yet from here? Or is this kind of a good stable level?

Brian L. Swartz

Yes, I mean, there's nothing structural out there that would change it. Obviously, this quarter we had the addition of the amortization from Carnegie Learning that will be here for a while, now that we closed that transaction. But nothing that we should structurally change it.

Kelly A. Flynn - Crédit Suisse AG, Research Division

But was it fully reflected, I guess, in the first quarter? I just want to make sure.

Brian L. Swartz

Yes, it was, for the most part.

Kelly A. Flynn - Crédit Suisse AG, Research Division

And then what about other line items? I guess we could combine marketing and admissions. As we think in a sequential basis from, are those kind of move up slightly as the year progresses or do you think those come down or flatten? How should we think about those?

Brian L. Swartz

In terms of the admission line, we have gotten our team members and associates have done a fabulous job as we talked, as Greg mentioned on the call, around increasing their productivity levels and all those trends are going in the right direction. So we feel good about that. We hope and would certainly like to see some additional improvements. So I wouldn't expect those -- that line item on a dollar basis to go up dramatically.

Gregory W. Cappelli

Kelly, what we can't control, obviously, is any of the outside marketing. However, the presidential election takes course the coming months and year, we’ll just have to deal with those things as everybody else will. But we'd have been working out a lot everything else that we can't control.

Kelly A. Flynn - Crédit Suisse AG, Research Division

On the admission advisory front though are you building headcount at this point or sort of flat for the rest of the year?

Brian L. Swartz

No, I mean, it's down year-over-year. We'll have to see how trends go. If we need to hire someone, we certainly will. But like I said, the performance of the teams have been terrific.

Operator

Your next question comes from the line of Bob Craig with Stifel, Nicolaus.

Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division

Just to double back on I think a question from Suzi where she asked about underlying demand, I think you categorized it on the last call as being relatively stable. Is that still applicable?

Joseph L. D'Amico

Yes, I think that's a good way to put it. Week-to-week, month-to-month, it's tough to put it in very short increments. But I'd say it's stable. I mean there are going to be outside factors that affect enrollment from quarter-to-quarter. But I wouldn't say the environment has changed a lot from last quarter.

Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division

Okay, that's helpful. The only other one I had was -- I know this is going to be evolutionary, it's going to take a while. But I think you mentioned on the last call that you're working to collect data in this regard. But any early reads on the effectiveness or your brand building and differentiation efforts?

Gregory W. Cappelli

Yes. It's not what we want it to be, but it is improving.

Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division

No specific data points that you can share?

Gregory W. Cappelli

Not that we want to share right now. It's kind of the collection of everything we've been working on. We really, truly believe internally that the brand is so critical and what we stand for and what it means to students. And then the public, because that has a big impact. People have been asking about the cost to acquire student. Well, that's going to have a big impact on it. So and that starts with corporations, with our Workforce Solutions Group, communities that we're involved with. There's lots of things. You can't just go out and throw some adds on TV and in effect alter your -- and so I think what is starting to happen is in general, people are starting to see that we are not just talking. Our actions are speaking louder than our words. And what we're willing to do for the University of Phoenix and the students that we are taking into the University of Phoenix and how we're treating them and what we're doing to our business over time. And that's just going to have to continue to evolve.

Operator

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

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

I just wanted to circle back to I think Sara's question about the number of courses that were being taken by your associates. Are you seeing similar trends in some of the other programs as well some of the other levels?

Brian L. Swartz

Yes, the other levels, they generally take one course at a time. So the associate have a block, they take 2 courses traditionally. So we're not seeing that any unusual trends on the other levels. Not applicable.

Gregory W. Cappelli

Remember when the associate degree was created under Axia was 2 9-week classes versus one 5- or 6-week class at the University of Phoenix.

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

Great. In prior quarters you had given us some metrics on the University Orientation program in terms of how the students were progressing to the program. I was wondering if you can circle back and review those?

Brian L. Swartz

Absolutely. I think a couple of metrics we gave. The first one was how many students complete orientation and ultimately enroll with us. That number traditionally has been around 80, and is holding at that level. We still have about 80 out of about 100 students that who enroll in the University Orientation ultimately, enrolled in university and start course. The second metric was the retention rate that we talked about for those students that do enroll. And we continue to have retention rates that are greater for students that enroll with us after orientation than we did without orientation. We saw a slight dip this past quarter in terms of the rate of that improvement, but it's still better than before orientation. So we're very pleased with the results. We're always thinking, constantly thinking about how we might adjust orientation to make it more effective, and we haven't done anything dramatic yet. But obviously, we'll do that with time, if it's appropriate.

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

If I could just sneak in just one more numbers question. What are you budgeting for capital spending for the year?

Brian L. Swartz

Yes, the CapEx for Q1 was a bit low, as you can see on the cash flow statement. I would point out that there were a pretty significant amount of non-cash CapEx, which you can see at the bottom of the cash flow statement related to tenant improvements. But that aside, we still expect, at least over the long run, for CapEx to kind of be in the 3% to 4% revenue range. There is nothing that has come up yet that would indicate that's going to change structurally.

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

And it should stay within that range for this year as well?

Gregory W. Cappelli

Yes. Things might move around a little bit with some of our IT spend. But at this point nothing would be outside that range, below at or above it.

Operator

Your next question comes from the line of Corey Greendale of First Analysis.

Corey Greendale - First Analysis Securities Corporation, Research Division

Just circling back to one of Kelly's question since she was asking about Q2 versus Q3 starts. I just wanted to clarify. I know you're not going to get specific Q3 guidance, but you do expect that to be positive in all 4 quarters, is that correct?

Gregory W. Cappelli

That is correct.

Corey Greendale - First Analysis Securities Corporation, Research Division

Secondly, I think one point I'm going to hit on [indiscernible] G&A. I would go back to that. I think last quarter, Brian, you said that you expected G&A to be down about $10 million sequentially. Obviously, I know the timing the result today being lower than that. But I'm just wondering what kind of the right run rate, 90, 85 or what the right quarterly run rate?

Gregory W. Cappelli

Absolutely. So Q4 we were just short of $100 million. And there were some unusual items in there that we talked about last quarter. We were a little bit light this quarter in terms of where G&A came in. Just south of $80 million. A lot of that was just the timing of some spending in IT that we think we'll pick up here in Q2. So as we go forward we don't expect any structural change in G&A. We're obviously looking at all of our cost to reduce them, but at this point the run rate that we're currently at are probably good indicators for the future on a dollar basis.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. And then just sort of one management structural question with Chas. I imagine the rest of you are already working pretty constantly. Is there a plan to bring someone new in or bring someone up to fill some of the roles that he's been doing or transfer some other stuff to someone else or what's the plans?

Charles B. Edelstein

Greg and I have really been managing the CEO office together and jointly so. We don't expect a need for sort of a traditional sort of transition plan that you'd have when there's CEO and they're leaving. Since Greg and I have been doing it together, it should be quite seamless when Greg takes over by himself.

Operator

Your next question comes from the line of Jeff Miller [ph] from Baird.

Unknown Analyst

I just wanted to ask a follow-up on ACEPS. If you normalize for the impact of the Associates students taking -- more Associates students taking one class instead of 2, is the retention in that 0 to 6-month period pretty similar to where it's been trending at in the last 1 to 2 quarters?

Brian L. Swartz

I mean, the short answer to the question is no. The 1 to 2 course did impact it. But you have to keep in mind, this past quarter was first quarter we anniversary-ed first-year sequence. So the 12% growth that we've reported the last 2 quarters for the 2 quarters behind those quarters, we had the benefit of having first-year sequence in the latter period, but not the earlier. So the 1 to 2 course did impact associates. We're not saying exactly how much. You should know that it impacted it but not to the extent. We do not represent the difference between 12 and 4 because of the anniversary of first-year sequence.

Gregory W. Cappelli

I think it's that and it's also just a greater number of true freshmen this quarter. And that could change in the coming quarters. But we happened to get that in this quarter as well. We certainly are very, very focused on retention on a number of different levels. So we'll continue to work at it.

Unknown Analyst

And then now that a lot of the operational changes were a year or more ago in the past, anything that you can say about what student retention is kind of from the 6-month point in terms of their life with Phoenix to say the 12-month point. I guess what I'm trying to get at is how much of the improvement is driven by students self-selecting out through the orientation process that probably otherwise would've dropped anyway in the first 6 months or so versus how much of the improvement is something on top of that?

Gregory W. Cappelli

It's a good question, and it's not just all orientation with that. Let me make one comment. I'll also ask Joe D'Amico to comment too. But one of the things that we've talked about with orientation, we talked about this improvement of 500 basis points on average. If that went to 0, which we hope it won't, but if it did, orientation is still a really important part here for us because what it's done is it's created an environment where incoming students are recruited really if they don't have any experience, true freshmen into orientation, not really right into the University. And if they're going to be dropping early on in 5 or 6 weeks or 8 weeks, not only is that very bad for us, but it's bad for them. And that debt never gets taken on early on. So even if they're moving through the cycle, they're not coming in and saying, oh, I didn't realize what I was getting myself into. So that is such a huge part of it. Now, if you're dropping out at 9 months or a year or 1.5 year later, you knew what it was all about. You did a lot of work along the way and something got away with your life and you dropped. That's the part where now we're trying to come in and do things more with technologies, adaptive learning. We know that when people get the math, it's a really tough drop sort of time in their careers with us. So now, we're coming in the different types of things once you're in to figure out if there are more helpful ways to retain you. So we don't have all the data after one year. But certainly we're not just relying on orientation to do all the work of retention for us.

Unknown Analyst

And I appreciate that, Greg. I guess what I was trying to figure out is are you starting to see an impact from some of those other factors besides just orientation having a favorable impact on retention, kind of in that 9 to 12 months timeframe?

Gregory W. Cappelli

We certainly saw a big impact from the first-year sequence. I don't know, Joe, if you want to comment anything else or Brian? That was the largest.

Brian L. Swartz

Yes, the only other thing I would comment on, and then, Joe, if you have anything, as we track students that do come out of University Orientation, we talk about retention in the first few courses, but we track it obviously longer than that and we'll only develop because we've ruled out University Orientation about a year ago. But the retention rates for students that go through orientation are still greater than the retention rates of students that did not go through orientation before we had it, even well into their third, fourth, fifth, and sixth courses. So the rate is still bigger, which we think is a positive.

Operator

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

James Samford - Citigroup Inc, Research Division

So an hour into the call and not a single question on regulatory environment, how about that? I guess my take on that is, is it all in the past now or are you hearing anything interesting out of D.C. I’m hearing lots of things about Pell Grants being cut? How would that impact her decision-making things like pricing or even 90/10 in gainful employment?

Gregory W. Cappelli

One thing I'd say about regulatory environment is we expect to be a regulated industry for a very long time. So when I get the question is it over, the answer is no. But it certainly is more balanced, and that's really certainly is a pleasure. We're definitely keeping an eye on the negotiated rule-making that's going to be going on again to see what comes out of that. Don't know yet what that will be. But there will be continued processes. I would say that the -- you asked in your question about the Pell Grants. Don't really know exactly what the impacts there will be. But for us, that will certainly, we'd expect to be more muted than maybe it would be more broadly because some of the features, like the elimination of the ability to benefit situation doesn't impact us because we don't have a program for ATB students. But other than that, we just watch the environment and we're part of a dialogue, which is gratifying.

James Samford - Citigroup Inc, Research Division

A quick follow-up on India. My understanding is that India's sort of Department of Education or their equivalent thereof is sort the publicly rejected the for-profit model. Does the JV help you sort of ease that into the system over there? Or why India?

Gregory W. Cappelli

Well, India, for sure, because of its size and importance in the world and its growth in the world, they'll have the largest population of the world. They created the United States of America population in the last decade. Population rise. So -- and they have a great need. It's a complex country. It is complex from a regulatory situation. We would never go into the country, or try to go in without a partner. We found a great partner. We're very happy with them. We know it's going to take some time to build it organically the right way. But certainly, no, I don't believe there's been a rejection outright of any type of for-profit education. In fact, we're seeing more encouragement through certain avenues that this is a country that would need to build 50,000 traditional universities to serve 500 million kids. So we wouldn't be spending the time or the money if there were an outward rejection of for-profits. We are going in with the JV and a partner, and that is, that is helping us on many different areas.

Joseph L. D'Amico

Not only because of their capabilities, but because their values are so well aligned to ours that it just feels like this is a wonderful partnership.

Operator

Your next question comes from the line of Peter Appert from Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

Two questions. Brian, the investment in academic improvement process efficiency in the second half, should we think about that as continuing cost permanent increases in cost? Or is there some flow-through benefit to profitability in '13 for that?

Brian L. Swartz

Yes, Peter, that’s a good question. I mean, what we're doing is we're making some investments this year with the intent that we would capture savings and growth profitability in future years. Exactly, when that comes, would that be '13, what quarter in '13, we'll have to go through that process of analyzing some of those opportunities to look at timing in terms of operational implementation and everything else. But we were making these investments with the expectation that it will help us in the future become more efficient and more profitable.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. And then second thing. Greg, you mentioned competitive dynamics around the Masters and MBA programs. And my sense, I think, is that the competitive dynamics broadly in the post secondary market have gotten a lot more intense. Can you just speak to that issue and the implications of that, if you agree, to the growth dynamic going forward?

Gregory W. Cappelli

I certainly think that the market, in general, is certainly more competitive than it was several years ago, certainly not from my perspective in the last year is there anything. It is competitive marketplace and we said on this call -- these calls over and over again, there's 2 ways to go here. You can try to offer the cheapest product possible if you want to go that route or you can try to differentiate and offer something that stands out, and that has capabilities that some others don't. And that's the route that we're going. So we've been investing, we've been building. We expect to get leverage off of that going forward. I think that students have enormous choice right now. There are nighttime programs, there are online programs, there are lots of different opportunities to go to school. That being said, not everybody does it the same and not everybody does it as well. So we know that the lessons we learned from the '70s and then the '80s with online and '90s with e-books, we need to follow-up on those. And that's why we're doing what you're doing with the depth of learning and social media, coast-to-coast presence along with online. There were some things that we didn't do as well along the line. Workforce Solutions, working with corporations, tying in incredibly important relationships, coast-to-coast. So we're here to compete. We think that if you have a great product and a great service, students will choose us. Chas mentioned the numbers. The numbers are there. There's a lot of companies operate in industries that would love to have the growth characteristics of this industry, but you got to do it the right way and you have to have a great product. And if you, I think they'll choose you.

Operator

Your next question comes from the line of Peter Wahlstrom from Morningstar.

Peter Wahlstrom - Morningstar Inc., Research Division

Quickly, when you mentioned the continuing alumni outreach program and alumni being mentors, could you talk a little bit about some of the feedbacks that you're received, maybe some measurable progress? And maybe both from the current student perspective if you're seeing an increase in retention and maybe job placement? And then down the road, if there's an opportunity for some of those alumni to interact with prospective students as well?

Gregory W. Cappelli

Joe do you want to talk a little bit about the alumni?

Joseph L. D'Amico

Yes. We do actually connect alumni with our students. We have, I think, it's 30,000 alumni who volunteered to be mentors to our students. And obviously, not all students take advantage of that. But those who do provide great feedback. And our idea here is to connect our, continue to connect our alumni with our students. So it's a great program, and the success is good.

Peter Wahlstrom - Morningstar Inc., Research Division

I guess maybe just a follow-up. It seems like it's a relatively new program that you've spent a little bit more time and effort on in the last couple of quarters. And I'm just trying to see maybe what inning you're in terms of ramping up and if there are some goalposts or things that you're internally measuring as to the success of that program?

Joseph L. D'Amico

Well, I'd say we're early in the ballgame. I'd say we have a long way to go. First was really to reconnect with all of our alumni, or as many as we can. And we've made great progress in doing that. The next steps were to set up the alumni groups, chapters. And we have a number of them set up now. And we have programs now for those alumni. The third piece to this is connecting them into the whole careers area. And so that's in its early stages as well, but we’ve begun that. And finally, it's in getting them as incorporated or connected to our students as we can because we know that, that having a mentor makes a big difference in terms of students progressions. So we still have a ways to go. We're not really giving out measurements on that at this point. I think it's really a little too early.

Gregory W. Cappelli

One thing I'll add, Joe, and this gets back to Peter's question, That the alumni is an incredibly important way for us to be competitive within an industry that was more competitive over the years. And that is we've got touch points all over the country. You heard us talk about almost 700,000 of our graduates, many working, many in good jobs and bringing them together, it can be more powerful than any marketing messages that you try to get out throughout the year. So the fact that we have a team that's bringing this together, organizing it, there's a lot of good things, I think, that will come from what Joe has said. That's an area we're investing in and very excited about.

Joseph L. D'Amico

And I'd offer also a competitive advantage. No one has a level of the alumni we do. And we now from our surveys that they're very satisfied.

Operator

Your next question comes from the line of Scott Schneeberger from Oppenheimer.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

I guess, could you guys speak to how you anticipate using cash going forward? Your commitment in the new term to go global and new geographies and then buyback.

Gregory W. Cappelli

Sure. We talked about the permit approach we've used in past quarters for the University of Phoenix has been our highest returning and most important asset at Apollo Group. That gets all the capital that it needs. We've talked about wanting to depreciate the University of Phoenix. So we are obviously continuing to invest there. Secondly is to certainly diversify Apollo group so that it's not so exposed to one area or title 4, if you will. And with that becomes Apollo Global, and its importance and certainly Apollo Educational Services that we've talked about on past calls as well. They're both getting some capital as well. There are some areas -- other areas of investment that we're looking at. We have also repurchased close to, I think, $1 billion in stock since the beginning of fiscal '11. So we understand that if we can't use the cash, that we'll get it back to shareholders in the most tax efficient way. But we do want our managers coming back to us saying we have good opportunities to use capital in areas that can help either the University of Phoenix or the other businesses within the Apollo Group. And we do have those opportunities right now.

Brian L. Swartz

Scott. it's Brian. Just a little bit more specifically, just so you know, I mentioned this. It's in the 10-Q. Subsequent to the end of the first quarter we did purchase an additional $100 million, $125 million in stock, which was not in first quarter results. And we also funded the settlement of our lawsuit. So that took about $145 million. Both of those are disclosed in the Q, but I did want to point it out in terms of Q2 cash flows.

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

One more, if I could. I'm guessing the answer is too early to have any meaningful data. But the 20% that don't make it through the University Orientation, do you see them come back? Is there any meaningful number of perspectives students that come back? And if so, how do they fare?

Gregory W. Cappelli

I will let Joe take that.

Joseph L. D'Amico

Yes, we have experience with a small percentage of the students who go through it who don't complete it the first time will come back. And the reasons for that are numerous. But most of the time, they figure out that they need to change something that they hadn't anticipated. Life gets in the way sometimes. What we have is good feedback from our students that those going through it are helped by going through it. And that's one of the reasons they come back. So that continues to work well.

Operator

There are no further questions at this time. I'll turn it back over to Greg Cappelli.

Gregory W. Cappelli

All right. Thank you, operator. Thank you, everybody, in the call for bearing with us through the technical difficulties. A special thanks to our Co-CEO and partner here, Chas. And this is going to be an exciting next year. So we're ready to roll our sleeves up and get back to work here. Hope everybody had a tremendous holiday and happy new year to everybody. Take care.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!