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Apollo Group (NASDAQ:APOL)

Q2 2012 Earnings Call

March 26, 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

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

Gary E. Bisbee - Barclays Capital, Research Division

James Samford - Citigroup Inc, Research Division

Suzanne E. Stein - Morgan Stanley, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

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

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

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

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

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division

Operator

Good afternoon, ladies and gentlemen, and welcome to the Second Quarter 2012 Earnings Release Conference Call. [Operator Instructions] This conference call is being recorded today, March 26, 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 April 10, 2012, beginning approximately 2 hours after we conclude today. The replay number is (855) 859-2056 or (404) 537-3406 internationally. The conference ID for this replay is 56164637.

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

Beth Coronelli

Thank you for joining us today to discuss our second quarter results. Participating on the call are Greg Cappelli, our Chief -- our Co-Chief Executive Officer of Apollo Group and Chairman of Apollo Global; Chas Edelstein, our Co-Chief Executive Officer; and Brian Swartz, 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 second quarter of fiscal 2012, which ended February 29, 2012, to the second quarter of fiscal 2011. I'd also like to remind you that this conference call may contain forward-looking statements with respect to future performance, financial condition, regulatory compliance and other matters regarding the business of Apollo Group that involve risks and uncertainties. Various factors could cause actual results of the company to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed under Risk Factors and 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 obligation to update any forward-looking statements made during the call.

Additionally, the call may defer -- 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.

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

Gregory W. Cappelli

All right. Thank you, Beth. And good afternoon, everyone. You'll have to forgive me for a wonderful Phoenix spring cold and cough I picked up. So sorry about my voice. I'll do my best here.

I'd like to share a brief business overview, discuss our strategy and then we'll turn the call over to Brian, who's going to review the financial results. And then Chas will talk about our future.

Looking at the broader environment, we have experienced what many have called the most difficult 18 months in our sector's history. Education is changing based on the needs of a shifting U.S. workforce, particularly [ph] the changing economy and a continuingly robust competition.

So far, fiscal year '12 has proven to be volatile. We went into this year with good momentum, resulting in stronger New Degreed Enrollment growth in the first quarter that also carried into January. As you know, that rate slowed in the second half of this quarter that resulted in reported new enrollment growth that was up only slightly in the second quarter, but it was not at the level we had originally anticipated. If the most recent trends continue, our third quarter New Degreed Enrollment could break into the negative double digits. However, this trend has recently been particularly volatile, moving both positively and negatively over short periods of time. As such, this trend could change again before the end of this quarter.

And Brian will go into more detail in a moment. But now I want to talk about some of the things we're doing to improve our company and take it in the right direction.

First, we're working hard to differentiate the University of Phoenix as well as to diversify the Apollo Group. We're focused on attracting new students and supporting our existing students so that they retain and that they're successful. We believe it will be important for us to grow all of our institutions as this will result in many more people in the world who will better be prepared to do the jobs of today and tomorrow. It's also important for us to increase our profitability and to grow our cash flows.

And here are some of the things we're doing in the near term to accomplish this goal. First, we're continuing to forge corporate relationships. While it's still at a relatively small percentage of our New Degreed Enrollment, there is significant opportunity for growth in this area, and we're very pleased with the progress that's been made over the past year. Second, we're evaluating and reallocating our marketing spend, with some anticipated increase for the remainder of this fiscal year as well as reworking our advertising to reflect our innovations. Third, we're reengineering our processes with the goal of reducing costs while simultaneously improving the student experience. Chas is going to get into more detail on this shortly. And then fourth, we're implementing initiatives to connect education to careers.

Now we believe one of the most important things we can do going forward is to differentiate our institutions and deliver a strong value proposition to our students. Our top priority is to help our students achieve their desired academic and life outcomes. To that end, we're working hard to differentiate by providing a world-class education that connects to relative careers, which is accessible and affordable to our base of students.

Moving to the next career level, whether getting a job or receiving a promotion, is the most important issue for our students. We're aligning our programs and operations to fully support that goal. We can accomplish this by offering education wherein focus on long-term career success is built into every touch point with a student. These include: assessments as students enter the university, relevance of the classes to offer immediate applicable skills, faculty experts working in the field in which they teach, campus support services to help improve career outcomes and relationships with employers and alumni to help our students gain relevant skills and get jobs. This means supporting students, helping them understand how they can personally take their career, through education, to the next level.

Our students are working very hard to improve their lives for their families, making a better life for their children. We're a valued partner, helping them achieve their goals.

Academically, we're incorporating programs which make our curriculum even more relevant to today's workforce. Let me share just a couple of examples. First, we just announced this quarter that we teamed up with Cisco to deliver new network programs for students dedicated to providing a body of knowledge needed to attain the Cisco CCNA certification. Cisco is an industry leader in network support, and the associate-level CCNA certification is vital to those seeking to enter or advance in the high-growth field of system networking and support. Second, University of Phoenix and American Petroleum Institute entered into a formal education partnership in January to provide accessible educational opportunities for workers in the energy, oil and gas industry and to support workforce development efforts for API's 500-plus member companies, including global leaders in the industry. This is an exciting collaboration for us with more to report as projects are launched later this spring.

We're down the path in a number of additional initiatives, so look for more to come as we continue to roll out new programs to connect education to careers.

Now I'd like to discuss the value proposition. I'll touch on a number of our initiatives that enhance our students' experience and support our value proposition. For example, our new education platform is being piloted and rolls out later in the year -- excuse me, in the year, starting in our business program.

First, adaptive learning, which offers a highly individualized solution, will provide tools to help raise student achievement initially to help address the fundamental skills gap in mathematics. It's something that we're working hard on.

In our University Orientation, we're looking at the structure and content to ensure we are best serving students, including an additional way for students to demonstrate they have the skills and commitment to succeed in our programs without necessarily mandating a 3-week course.

Phoenix Connect is our online social network, now with over 600,000 users.

Our mobile applications. We launched Mobile 2.0 this quarter, with new features for students and faculty.

The Phoenix Lecture Series with new programs, and we're working to incorporate this high-caliber learning experience throughout the curriculum.

And then alumni mentorship programs, which connects over 600 students a week with an alumni mentor in their city or industry. We had a record 39% increase this quarter in new alumni mentors.

Speaking of alumni, we're pleased to announce that we surpassed 700,000 alumni at the University of Phoenix. We've conducted 62 alumni career workshops this quarter, and over 300 alumni have volunteered to start and lead new chapters. We have 7 active chapters and 27 in process of being launched across the country, providing extensive networking opportunities.

A quick data point. When our alumni is surveyed, the vast majority indicate that they would hire a University of Phoenix graduate.

Just a minute on diversifying Apollo Group. Before I close, I just want to focus on another cornerstone of our strategy, which is the diversification. Through Apollo Educational Services and Apollo Global, we're expanding access to more students by serving other schools in the U.S. and abroad. We're implementing our plan in both areas, building out a team and working to develop relationships with schools across the country. At Global, we were encouraged by the progress that BPP is making and are working on our newer ventures, such as India, to leverage our capabilities and increase access to educations for students globally. With that, I'd like to turn the call over to Brian.

Brian L. Swartz

Thank you, Greg, and good afternoon, everyone. Before I review our second quarter financial results, I'm pleased to report we were recently notified by the Securities and Exchange Commission that the informal inquiry initiated in October of 2009 has been completed and that the staff does not intend to recommend any enforcement action by the commission. We're certainly pleased with the result and glad to see this process concluded.

Moving to the results. Before the second quarter, revenue -- during the second quarter, revenue decreased 8%. The decrease was primarily the result of a 12% decline in Degreed Enrollments at the University of Phoenix to roughly 356,000 students, which was partially offset by selective price increases. For New Degreed Enrollment, we reported year-over-year growth of 1% as compared to 13% increase for the first quarter of 2012. Adjusting for available start date year-over-year, our New Degreed Enrollment decreased about 5%. There was one extra Tuesday in the second quarter of 2012 compared to 2011, which impacted enrollment at the bachelor's and master's level. As a reminder, in the third quarter, we have one less Tuesday in the current year compared to the prior year.

Revenue per student was up about 5%, reflecting increases due to price and mix, offset by a decrease in average nights of attendance at the associate's level due to more students electing to take 1 course at a time versus the typical 2 courses. For the second quarter, income from continuing operations was $64 million, or $0.51 per share, compared to a loss of $67 million, or $0.47 per share, in the year-ago quarter. As a reminder, last year's second quarter loss resulted from recognizing a $220 million goodwill and intangible asset impairment charge at our BPP subsidiary.

Regarding our real estate rationalization plan, as anticipated, we recorded approximately $16 million of restructuring and other charges in the second quarter. We have now completed our Phoenix-based real estate rationalization plan and do not anticipate having further charges related to this plan. We expect to realize $10 million to $15 million of annualized savings from this plan in the next several years. Excluding the restructuring charge as well as the other special items from the prior year, our operating margin declined 630 basis points to 12.6%, income from continuing operations decreased 38% to $74 million and EPS was $0.58 per share compared to $0.83 per share in the second quarter of 2011.

Now I'd like to spend a minute discussing our second quarter operating expenses. In instructional and student advisory, the increase resulted from our various initiatives, including technology, to more effectively support our students and enhance their educational outcomes. This was partially offset by lower faculty compensation costs associated with lower total enrollments. For clarification, as a percentage of revenue, approximately 13% of our instructional and advisory costs are directly variable with revenue changes and are related to faculty and curriculum.

In marketing, the increase was related to costs associated with developing academic-related relationships with employers and community colleges. Additionally, during the second quarter, we reduced our advertising spend year-over-year with the expectation of achieving higher conversion rates. Although we did achieve higher conversion rates, they did not reach the levels we had planned. This reduced spend will continue to impact our New Degreed Enrollment growth in the near term. We're focused on mitigating the effects, as Greg mentioned earlier, by increasing our ad spend, adjusting our mix and, in particular, by improving the creative aspects of our ads.

Admissions advisory decreased primarily due to lower headcount associated with our new enrollment levels.

G&A expense was essentially flat year-over-year. We currently anticipate third and fourth quarter G&A will be similar to the second quarter, although we are focused on identifying opportunities to reduce our G&A costs and expect do so over time.

Our second quarter share-based compensation was $20 million. We continue to anticipate our full year share-based comp will be approximately $80 million to $85 million.

Bad debt expense as a percentage of revenue was 3.2% down 110 basis points from the prior year. This is consistent with the trend we experienced throughout 2011. We expect our full year bad debt as a percentage of revenue will be consistent with 2011.

Finally, depreciation and amortization increased primarily due to higher intangible amortization associated with the acquisition of Carnegie Learning.

Our effective tax rate was 41.7% in the quarter. We anticipate our tax rate will be approximately 40% in the remaining quarters of 2012 and 42% for the full year 2012.

Turning briefly to the balance sheet and cash flows. At the end of the second quarter, we had unrestricted cash and cash equivalent of $801 million. Our outstanding debt was $128 million versus $599 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 was 22 days, consistent with the second quarter of last year.

For the second quarter of 2012, our free cash flow decreased by 4% to $44 million compared to $46 million in the prior year. This was impacted by the decline in operating income, excluding special items, and an increase in capital expenditures in the current quarter, partially offset by lower cash tax payments.

During the quarter, we funded $145 million into a restricted common fund. This amount represents the settlement of our securities class action lawsuit, which is subject to final court approval with a hearing scheduled in the third quarter. Upon final court approval, the amount will reduce our free cash flow.

During the second quarter, we repurchased 6.4 million shares of stock for $329 million. Subsequent to February 29, we repurchased another to 2.2 million shares for $93 million. On a year-to-date basis, we have repurchased 10.3 million shares of stock totaling approximately $500 million at an average price of approximately $49 per share. For your reference, assuming no additional share repurchases and assuming a price consistent with today's closing price, our expected share count is anticipated to be approximately $122 million for both the third quarter and fourth quarter.

Before I discuss our business outlook, I'd like to cover 2 additional topics. First, the University of Phoenix draft cohort default rates. The draft 2-year 2010 rate is 18%, which decreased 80 basis points from the 2009 draft rate of 18.8%. We believe our investment in student protections and repayment management services have had a favorable impact on the rate. Starting in September of 2012, the U.S. Department of Education will publish the official 3-year cohort default rate, in addition to the 2-year rates, beginning with the 2009 cohort.

We continue to see upward pressure on our draft 3-year cohort default rate. The draft 3-year rate for the 2009 cohort is 26.7%, which increased 560 basis points over the trial 2008 3-year rate of 21.1%. We anticipate the rate would decrease due to historic growth in our associate's degree program during that period, the challenging economic conditions and the manner in which students loans are serviced. Although the rate has increased, it has done so at a slower rate in the recent years due to the initiatives I mentioned a moment ago. Based on currently available data, we do not expect our 2010 3-year rate will exceed the 30% statutory level.

Secondly, I want to provide an update on our retention metric, ACEPS or average credits earned per student. As a reminder, our 26-week ACEPS metric measure the average number of credits earned by newly enrolled students over their first 26 weeks of attendance. The metric is for our undergraduate student population and is reported 2 quarters in arrears. ACEPS in the fourth quarter of fiscal 2011 was essentially flat compared to the prior year and down slightly adjusting for mix. As I stated on prior calls, it is important to remember since ACEPS is a measure of year-over-year change and as first-year sequence and University Orientation both anniversary, we would expect the rate of improvement to level off. Given this, going forward, we will begin to discuss ACEPS on a more limited basis.

Now I'd like to spend a minute to provide some commentary in our business outlook. The initiatives we implemented during fiscal 2011 have and will continue to impact our financial results. Regarding New Degreed Enrollment, with strong new enrollment growth in the first quarter of 2012 and lower-than-anticipated levels in the second quarter, we have and continue to experience significant volatility. Our third quarter New Degreed Enrollment change could break into negative double digits. Our ability to affect the third quarter is -- in a significant way is more limited than the fourth quarter. As Greg mentioned earlier, we are working hard to turn this around. If the actions we are taking are effective, we hope to have an impact on the fourth quarter.

Based on our current view of future trends in new enrollments, retention rate and expenses, our financial outlook is consistent with what we provided at the end of February. For fiscal 2012, we expect revenue of $4.1 billion to $4.3 billion and operating income of $625 million to $725 million. With that, I'll turn the call over to Chas.

Charles B. Edelstein

Okay. Thank you, Brian. And critical to our future growth and industry leadership is our ability to continue providing access to our students and to invest in strategic innovation even during times of transition. This is what we've done for decades. Our students have come to expect a lot from us, and our teams are firmly committed to their success and always doing the right thing for our students.

We are working to continually improve our services to enhance student educational experience and outcomes. This is supported by our strategies of differentiation and diversification. A third leg of our strategy, which will help strengthen and position us for future growth, is optimization. Our proven record of results has been based on 3 distinct principles: imagination, innovation and investment.

While we are pursuing opportunities for increased operating efficiency and effectiveness, these principles are certainly paramount.

Our efforts to optimize are targeted to facilitate 3 objectives: first, invest in innovation to create new and better ways to reach adult learners; second, keep education affordable and accessible; and third, create business processes that are more cost-efficient and more effective in delivering the best possible experience and service to our students.

Well let me provide a bit more color around these 3 objectives for optimization. First, investing in innovation. We're focused on building the university experience of the future today. By optimizing, we can continue to invest in better ways to enhance our students' educational experience and outcomes. These investments are driven by value they deliver to our students. Here are some examples.

One, adaptive learning. Our teams are testing a number of courses that incorporate adaptive learning. A step-by-step math review has been integrated and uses the Carnegie Learning adaptive learning technologies to improve pre-algebra skills prior to students taking general education math courses. While not yet conclusive, initial results indicate use of the math review is associated with higher end-of-course scores.

Second, Classroom without Boundaries. We opened the John Sperling Center for Educational Innovation this quarter, which features the prototype of our new classroom platform. The Classroom without Boundaries is designed to advance student learning and retention, foster student engagement and serve as a teaching and learning laboratory to test innovations in educational technologies. It includes state-of-the-art student resource center and features technology that connects classrooms and encourages collaboration.

The second objective I spoke of, to keep education accessible and affordable, this is Apollo Group's mission, that is always -- it's always been to make education accessible. And while we talk about affordability, we need to price and differentiate our educational products and services according to the value a student receives. While we plan to increase price in line with inflation in July of 2012, it's all about focusing on delivering value to students. And that gets back to enabling them to achieve their academic and life outcomes.

The third area I spoke of is having a lower cost and higher service. We're reengineering and upgrading our online and ground educational delivery structure, evaluating every touch point with our student. We've hired a third-party management consulting firm to assist us in this process. With a commitment to make the educational experience for our student as seamless as possible, we're looking to optimize all administrative components. Examples include scheduling as well as the financial aid process and disbursement. Students should use their energy and time to focus on where it matters most, in the classroom.

We're pursuing opportunities to improve our operating efficiency and optimize our cost structure while delivering the best possible experience and service to our students. We've targeted these initiatives to have a substantial impact on our cost structure, beginning in fiscal 2013 with an even greater impact in fiscal 2014. We'll provide additional detail during our third quarter conference call as we finalize these plans.

In closing, we continue our focus on differentiating, connecting education to careers and offering a compelling value proposition. We believe that the implementation of this strategy and successful execution of our initiatives will return us to growth over time. We are committed to leading education into the future, providing a relevant, world-class experience, which will enable our students to reach their academic and their life goals.

And with that, let me open the call to your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Andrew Steinerman from JPMorgan.

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

I want to talk about the student persistence rate with the way we calculate it with graduates in there. I think given the rise of graduates, the rate would be down. But in fact, it was up. Could you talk about how much graduations drag that number? And the fact that it's up still, will it continue to be up in the second half of the year?

Brian L. Swartz

Yes, Andrew, it's Brian. Yes, it was up, I believe, the way you and many others calculate it, about 80 basis points. If we had excluded grads, the rate would have been higher. We do continue to expect it'll be go negative. I think I said that in the last call, perhaps in the last 2 calls. And because of the changes in new enrollment, the levels of new enrollments, it's impacting exactly when that will go negative. But as grads are relatively fixed for the rest of the year and the beginning enrollment is smaller, the grads as a percentage of the beginning will impact that and eventually will go negative. So we still expect that to happen. Didn't happen this quarter, but hopefully that gives you a little bit of color.

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

Okay. And do you think the graduation, let's call it bubble, will end with this fiscal year? Or do you think graduates will be a drag to this number into fiscal '13?

Brian L. Swartz

Yes, we do expect grads in fiscal '13 to be lower than grads in '12. So yes, it will go down next year.

Let me make just one other clarifying point in my remarks on earnings per share. I know -- I think I said $122 million. I meant to say 122 million shares outstanding, for everyone on the phone. Assuming today's stock price and no further share repurchases, that's the right shares outstanding to utilize for EPS purposes. I just wanted to clarify that.

Operator

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

Gary E. Bisbee - Barclays Capital, Research Division

So I guess the first question, can you give us a sense as to what level the decline in marketing spend was in the quarter? And how big of a factor was that in the somewhat weaker enrollment? I understand it sounds like kind of a bigger factor next quarter. But in addition to that, the second part is just can you -- a month ago given, or a few weeks ago, given several reasons why things were softening, and there are few listed in the press release. Would you be willing to sort of rank-order what were the biggest factors among all the issues that you've referenced?

Gregory W. Cappelli

Thanks, Gary. Let me just say a couple of things on that front. One, we have taken our -- we have a plan to take our marketing spend lower this fiscal year. And we have built into the plan improving conversion rates, which we've seen, actually, we didn't reach our goals on those, so that's an issue. We've also changed our mix. And we missed in our creative from our perspectives, and that's being worked on right now as we speak. And really, the key there is we had invested and made considerable innovations, which students are now enjoying at University of Phoenix. We need to get that on to the marketplace. And that's the next phase here, and you'll be seeing that in the future. So those are kind of the 3 things in that order of things that we can control. And we're doing the best we can to get speed to ball [ph] there and to look at our mixes and to look at our creative and look at our spend and see what's necessary to get our message out.

Brian L. Swartz

And Gary, just on the ad spend specifically, and our marketing dollars, as you can see, are up slightly, and I mentioned much of that is our investments in our -- building out our corporate relationship program. The actual ad spend, total ad spend, was down about 5% in the quarter and about 5% for the first half as well.

Gary E. Bisbee - Barclays Capital, Research Division

Okay. And then just one follow-up. I guess the operating income guidance for the year, I understand why you've got a wide range at this point. But it seems to imply a pretty major acceleration in cost growth from what's been flattish the last 2 quarters to what, I guess, would seem to imply at least mid-single-digits growth or maybe as much as low teens growth depending on the low or the high end of the revenue guidance for the year. Is -- I understand why you'd be conservative, but are there real areas that you expect costs to go up? I guess marketing is one, but any color on where the spend would be? How -- if you're already planning to spend it or just anything to help with that.

Brian L. Swartz

Yes, I mean, I -- what I did mention, just so it's clear to everyone, in my comments, our -- we talk a lot about variable costs, and our most directly variable costs are curriculum and faculty. They run about 13% of our revenue. So hopefully, that gives you a little bit -- and they are included in the instructional line item. Hopefully, that gives you a little bit of how to think about how much of that line item will flux with changes in revenue. Most of our other cost increases are really around strategic investments that we spend a lot of time talking about on these calls, this call and previous ones. And so most of those initiatives are going into the instructional line. So I would expect the balance of that line is where you should see much of the variation. I've commented a little bit about where we expect G&A to come out as well as bad debts. Marketing, obviously, fluctuates. So hopefully, that gives you a little bit of help.

Operator

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

James Samford - Citigroup Inc, Research Division

Greg, I think a while ago you talked about your end market as being sort of the -- there's a $5 million to $10 million potential end market that you're looking at. I was wondering if you could update us on that and whether competition from new, let's call it traditional campuses, coming online is impacting what you see as your end market right now.

Gregory W. Cappelli

Well, it's a good question. I mean, as the market change and evolves, we will, too. I think that when we were talking about those numbers, what we were saying is, I mean, this is a -- quite a large marketplace, and we were looking at the type of student that would fit our profile to go to the University of Phoenix in that case. I don't think that's changed. It's true there is competition. There's more competition today than there was a year ago. But some of this is in our control. Students will choose a university based upon what it does for them. That's going to be the value proposition that you provide. Our perspective, what we need to do, is demonstrate that value proposition, make sure that they understand it and they can evaluate that versus everything else. So I don't think it changes the target market for us, so to speak, although that evolves and we'll continue to look at our strategy as it evolves. But I think it's more of what's in our hands? What are the things we can do to help them understand what our value proposition is and to make sure that it's right for them?

James Samford - Citigroup Inc, Research Division

That's great. And Brian, I think -- can you just highlight just quickly again what you said? How many students are -- in the quarter were graduations out of the, I think, 66,000 students left this quarter? Graduation versus just stops?

Brian L. Swartz

Yes, I didn't quantify the exact grad number, but I did say that the implied persistence, which was plus 80 basis points, increased the way you calculate it. If you would -- if you excluded grads, that persistence number would have been higher.

Operator

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

Suzanne E. Stein - Morgan Stanley, Research Division

Can you give us some more detail on the corporate relationships? I know you said it's not very big, but can you sort of quantify that in some way and talk about how fast it's growing? And also, I'm just curious. How big is the discount on tuition in this category? Is this something we should be concerned about as far as revenue per student over time?

Joseph L. D'Amico

This is Joe, Suzi. Thanks for that. The corporate relationships are growing quite fast. And I think it's a tribute to what we're offering and all the things that Greg and Chas and Brian have talked about in terms of our strategic approach here. So corporations like that. Secondly, we're partnering with them in ways that are different. And we're not really getting into a lot of detail on that because I think it begins to give away some competitive things that we're doing. Because -- and I -- and the third thing I'll say is that it is -- that we had growth in -- year-over-year in those corporate relationships in terms of new enrollments. So while we were flat year-over-year in the enrollments we reported, that sector is growing. So we're very encouraged by that. So I think overall, we feel very, very good and very positive about the things we're doing there. And also -- but one other thing is the retention of those students is higher compared to the rest of the class.

Suzanne E. Stein - Morgan Stanley, Research Division

And then just a separate question. If the interest rate on loans goes to 6.8% from 3.4% in July, what do you think the impact on student demand will be? Do you think that'll be significant?

Gregory W. Cappelli

It's hard to tell right now. If you look at it historically, the interest rate has moved around, and the demand for higher education, that hasn't been enough to offset it. But right now, the market environment is fairly volatile, so it's possible, we don't have enough information to tell you one way or another right now. One of the keys for us, Suzi, is to -- we're looking at the marketplace, at competitors and pricing and value propositions and whether programs fit underneath student caps or whether they're over or not. And then it all fits into kind of what you're talking about. What do the rates do? So we are actually fairly aggressively studying the market from that perspective and won't be afraid to make changes if we need to. But right now, on that particular point, we haven't gotten enough feedback yet to say how it might affect us or the sector.

Operator

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

Kelly A. Flynn - Crédit Suisse AG, Research Division

I have a couple of questions. First of all, on the extra Tuesday, I think you said last quarter, that was 600 or 700 basis points benefit. Is that ballpark what we should think about and, likewise, for the negative impact in the third quarter on starts?

Brian L. Swartz

Yes, I'm sorry. Could you just repeat the question again?

Kelly A. Flynn - Crédit Suisse AG, Research Division

I just wanted to know in basis points how you'd quantify the impact of the extra Tuesday in this quarter and the negative impact that one less Tuesday would have in the following quarter?

Brian L. Swartz

Yes. For this quarter, we reported plus 1%. I think I had indicated without the extra day, it would have been about minus 5%. So it's about 600 basis points in the current quarter. We didn't quantify what the impact would be next quarter.

Gregory W. Cappelli

So we'll always give it to you when we have it on a same-day basis.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay, no problem. And then can I just go back to Gary's question? He was asking about expenses in the second half. I was hoping you might give a little more color on the marketing and the admissions advisory line items. Brian, I think you just said that jumps around, but trying to figure out if, based on what you're telling us, there's going to be a ramp in your marketing. Should we be modeling a significant increase in marketing spend in the back half?

Brian L. Swartz

Yes, I mean, I -- as Greg comments, mentioned and as I indicated, we did lower it about 5%, the ad spend. So we are planning on the second half increasing both the ad spend. We're obviously going to continue to move forward with our investments in our corporate relationships team, with a lot of that is people, internal, and our infrastructure. So I think it's fair to say that our marketing cost, we certainly expect to go up. We want to turn around the trend that we've obviously seen here in Q2 and expect for Q3 on new enrollments. One of the ways to do that is to put some additional money to work in -- throughout marketing in various channels so we can touch students and touch them in the right way to make sure they understand their options of going to school.

Gregory W. Cappelli

Well, I think part of that depends also, Kelly, on the timing of the creative and whatnot. As we look at it and get feedback from professionals, that's when we'll make any adjustments as necessary. What we won't do is chase things where the margin of return is not there for us. We know we missed in a couple of areas, and we're going to make improvements and get back to the market.

Brian L. Swartz

And then on the admissions advisory side, Kelly, your comment there, I mean, that's an area we do expect over time to get improvement. You've obviously seen some improvements. We brought down the total cost in that area from highs last year, well in excess of where they are now. And I think over time, we'd certainly like to see those numbers come down. It will just kind of depend on lead flows and efficiency levels of our enrollment advisory, so.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay. I guess just lastly on bad debt. You're seeing flat year-over-year, but it was down nicely in the first half. So are you guys are being conservative? Or is there something actually happening that might cause that to tick up?

Brian L. Swartz

Yes, I meant flat, just for clarity, as a percentage of revenue for the full year, not dollars.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Right. But I think as a percentage it's been down a bit.

Brian L. Swartz

Yes, it has been down in the first half. In the second half -- in the prior year second half, you might recall we talked a little bit about some campaigns we were running to settle some old receivables. So we have some kind of onetime benefit in those bad debt expense line items related to those settlements. Obviously, those aren't recurring at the same level. So I wouldn't -- I will not be surprised if in the second half it's up slightly year-over-year so that the full year is consistent as a percentage of revenue.

Operator

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

Peter P. Appert - Piper Jaffray Companies, Research Division

You called out the robust competition and a couple of people have asked about this. So I'm wondering how you think about this in the context of just the evolving economics of the business, the permanent need perhaps for increased ad spending, changes in pricing dynamics. And so can you give us any color on those issues?

Gregory W. Cappelli

Yes, it's a good question, Peter. I think that's going to continue to go in cycles. If you look at it over 20 or 30 years, it has. The industry has gone through its ups and downs. Certainly, there is robust competition. There's always been a lot of competition. There's more online competition now. But it gets right back to what we said, if you look at the economics of the business. You're going to have competitors like community colleges have done for years, which are heavily subsidized. They come out at a very low cost. And there's a certain value proposition there. And you're going to have other competitors under different brands that charge more or charge in the middle, and they offer a value proposition. So as we study the economics of the business and we look at the returns, as we call it, on education investment for students all over the U.S. and certainly ours, it's going to depend on the value you deliver to them and what they're willing to pay for it. It's no different than why you might go buy an iPhone 4S versus a cheaper model. They offer more at this point, and they've demonstrated that. You know it. They've demonstrated it. It's in their marketing. And I think we're in a similar boat, that we've made investments, we know there has to be a value proposition there to students, we need to get it out into the marketplace and make sure that people are aware of it. But it's a very good question. We do look at that. We do look at the returns on that and the value proposition regularly.

Peter P. Appert - Piper Jaffray Companies, Research Division

And Greg, would you call out the not-for-profits as -- what the delta has been over the course of the last 12 or 18 months? Is that really where the change is and the competitive dynamic?

Gregory W. Cappelli

I think so. I think that, that certainly, everybody isn't trying to -- I think, is trying to accomplish their goals in higher education. But if you look at the not-for-profits, more of them are online doing what we used to do, right? So that's -- so things -- where we do night programs or we put people online or facilitate with eBooks or a number of things, there are now more doing that in the marketplace. That's okay as long as you have new innovations that are available in the marketplace to differentiate yourselves. You're going to see competitors try to compete on price, perhaps they'll offer a different value or a different level of service to a student, and those that are going to be middle price or higher price and maybe offer something different. We know what we need to do in order to make this valuable to our students.

Peter P. Appert - Piper Jaffray Companies, Research Division

So for the last thing. For the July price increase, I think you said with inflation. So that would be similar to what you did last year, correct?

Gregory W. Cappelli

Correct. CPI, I think, was 2.9% or 3%, right about where we are.

Operator

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

Corey Greendale - First Analysis Securities Corporation, Research Division

First, I wanted to ask about one of the other points you made in discussing enrollment trends, which is the economy. So there's been talk for a while about the downturn hurting enrollment. And now there seems to be talk about the improving economy hurting enrollment. So can you just talk a little bit about what leads you to believe that is one of the factors? And -- but what do you think this kind of -- what economic scenario should we be rooting for in order to be improving enrollment trends?

Gregory W. Cappelli

I think I understand the question. Yes, you're right. You -- we have certainly heard multiple accounts of whether the economy is hurting or helping. And I don't dispute that it could go either way depending upon where your programs are, who your student base is, where you're located. I'm sure that, that has different impacts for different organizations. What we said is that we believe that when there's a change, so the rate of change, the second derivative -- I guess to put it in math terms, when that moves and claims get a lot better, we think, because of our broad base across the U.S., that, that has impacted us. That's what our data show. That doesn't mean that you can't operate and you can't grow in that environment. But when there is a change, as we look at data for us, we think that has impacted us. Certainly, we don't think that's a permanent impact. We think when it changes one way or the other, we tend to see something happen in demand. Is that -- that's one factor. There are things that we talk about on this conference call that we've talked about that we think we can do regardless of the environment around us to create more demand for our product.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. The second question is about your own marketing. Can you just give us a sense how much in flux that still is? If you look at channels, what your marketing mix this year versus last year and how much that's still changing?

Joseph L. D'Amico

Well, the mix has not changed a lot, but we are looking at changes to it and have been over the last few years. There has been some trend away from the affiliate network, as we've talked about. But right now, I think, as Greg said, we need to make sure that the key differentiating points of our university are getting through to our students. We think we can do a better job of that. There a lot of great ads out there now for universities, so it's really important that our students or the prospective students see the value proposition of the University of Phoenix more clearly than maybe we've demonstrated.

Gregory W. Cappelli

Yes, I think that for -- the other thing is, Corey, every -- I'm assuming everybody made changes to how they use certain channels in marketing certainly over the past year, certainly with what everybody has been dealing with in terms of the rules and regs. And we're proud to have, we think, have led the way there and to take a conservative approach. I think the marketing team at the University of Phoenix and Apollo Group are fantastic, but they've been trying some different things as well. And as Joe said, you look at one channel, which for us is Workforce Solutions. Phenomenal all the way around. We wish it was a little bigger already, but it's been phenomenal and we'll continue to invest there. And we'll look at some other channels, which we won't get into a lot of detail on, and they haven't been. They've been a disappointment. We're going to move away from those. We're going to use some different creative. We're going to move to some other areas that we truly believe can be more impactful for us. And at our size, when you make moves like that, it matters. So we're quite hopeful that we can make some adjustments here, and as we move into the -- as we move to the second half and into next year, that these will start to have a positive impact.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. Just one more quick one. On uses of cash, do you expect that the board will re-up the authorization or reauthorize some more repurchases? And what is the near-term use of cash, given that you're about out of capacity there?

Charles B. Edelstein

Well, in terms of our reauthorization, so we'll certainly update you when we make any changes there and when our board meets. So that will be right on top of it. In terms of uses of cash, really it's same methodology we've been using to think about it right along, which is making sure that we're making these investments that we spoke about at the University of Phoenix where we have high return capabilities, and then looking at our other internal businesses where we have good return opportunities and other uses of cash, including giving them back to shareholders where we don't need them, which I hope you've seen we haven't been reluctant to do.

Operator

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

Sara Gubins - BofA Merrill Lynch, Research Division

As we start to think about 2013, I'm wondering if cost savings and hopefully improving starts could offset some of the growth in expense in second half of the year. And what I'm really wondering is if we could see operating income go lower in 2013 given the implied guidance for the second half of 2012.

Charles B. Edelstein

Well, this is Chas. I -- we haven't given any outlook for the operating income in 2013. But with regard to your question about the work we're doing in the area of cost, I think that it's -- when -- in our prepared remarks, we mentioned that the optimization program is really -- we think of it as a third leg of our strategy of diversifying and differentiating. And I think that, that was really intended to communicate just how much of a high priority that process is for this management team and how substantial we expect that to be. I would say -- and when we think about our top priorities, this is certainly one of them, I mean, right along with returning to growth through our differentiation and diversification strategies. But this is a top priority. So we're taking it seriously, and we'll be more quantitative about it in the next report. But I just want to communicate to you that this is substantial.

Sara Gubins - BofA Merrill Lynch, Research Division

Okay. And then secondly on Orientation, I'm hoping if you can just give us a more color on what's happening there. You've historically talked about 80% of students who go through Orientation then starting in at University of Phoenix. And it sounds like those numbers might have changed in the last couple of months. Could you give us some more color on what's happening there?

Gregory W. Cappelli

Got you.

Joseph L. D'Amico

Yes, they -- those numbers are pretty much holding, and we're looking at a second version now of Orientation. Plus, we're looking at some alternatives to Orientation that -- where a student may demonstrate in a different way to not go through the 3-week program. So we're exploring some changes there. And we're also looking at how to -- and connecting basically an individual's career path and career aspirations into that program as well.

Gregory W. Cappelli

I think -- Sara, I think what we've done is the Orientation has been so important for us in our organization because -- and it was put in place at an important time for us. But what we did is we hit it with a hammer, and we basically said there's going to be one path here for people who have less than 24 credits [ph]. We're learning as we go along. There are people that are very capable of enrolling and doing a good job at the University of Phoenix that we might be leaving out. And the reason for that is because they want to demonstrate their skills in other ways to us. But we're not ready to go into how we're going to allow them to do that. But if they can demonstrate that and their commitment to doing the work that's necessary, then we're looking at alternatives, certainly along with Orientation, that we can offer so that we can include -- so we don't intentionally exclude potentially very good students from the University of Phoenix.

Operator

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

Paul Ginocchio - Deutsche Bank AG, Research Division

Joe, I was wondering if the number of credits for the -- the average number of credits for the typical bachelor student has changed much over the last year. So today versus last year, has there been any decline in the average number of credits being brought in?

Joseph L. D'Amico

There is some movement in that regard. We're seeing an increase in the number of 0-credit or low-credit students coming through. But as a percentage of our total population, it's remaining about the same, maybe even a little better.

Paul Ginocchio - Deutsche Bank AG, Research Division

And that's specifically for bachelors?

Joseph L. D'Amico

Bachelors has a slight increase in -- I believe there's a slight increase in the number of people going through the Orientation program.

Operator

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

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

In your prepared remarks, you talked about if current trends continue, how new student enrollments could decline in the double digits. I know there's a lot of volatility around that. But are there specific verticals in terms of degree type that you might see more volatile than others?

Gregory W. Cappelli

Yes, but we're not breaking it down into degree areas. Jeff, what we can tell you is that I -- we'd love to give you more information in terms of exactly where it's going to end up. It's about what we see right now. But those movements can -- there can be movements that are pretty sizable week to week, so it's just hard to say right now. I think that when we get through the next quarter or 2 and we've done some of the things we've talked about in this call, potentially it will be more predictable. That's certainly what we are aiming for. But right now, it's volatile.

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

Okay. And then just a couple of other numbers-related questions. Brian, you were very helpful in some of the line items. Can you tell us in terms of depreciation and amortization and capital spending what we should be modeling for the second half of the year?

Brian L. Swartz

Yes, we don't see any certainly structural changes on CapEx. It's run -- runs 3% to 4% of revenue. We would expect that to continue or at least not structurally change. In terms of depreciation and amortization, we did see a jump up in Q1 of this year. And part of that was the Carnegie Learning acquisition, which I mentioned. There is in the 10-Q that was also filed today, and we also did it last quarter in our MD&A, we actually put a revised projected amortization table in there, given the Carnegie Learning. New amortization coming on as well as some runoff of the prior amortization of intangibles related to the older acquisitions. So I hope that helps a little bit.

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

All right, that's -- I'll check that out. If I could just sneak one more in. When the SEC notified you that it was ending the informal inquiry, was there any color given beyond that?

Brian L. Swartz

No.

Operator

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

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

I'd like to follow up on the earlier questions with regard to competition and focus on graduate programs. I think, Joe, you've mentioned in the past that it's a focus to become -- grow that business, but you've been a bit more focused on associates than bachelors. Could you give us an update there on where you stand?

Joseph L. D'Amico

Well, on the master's program you're asking specifically?

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

Yes, please.

Joseph L. D'Amico

Yes, master's is one that's been tough for us, and I think it's tough for all the schools right now because that's the program that a lot of the traditional schools have put first online. So it's difficult to attract those students. We're in the hunt and continue to try to do our best to do that. In fact, when we roll out our new learning platform, it's going to be rolled out there first because that's a group that's a little smaller and we can see the opportunities to enhance that experience with those first. And maybe, that will help us to go further. And I think at the end of the day, what -- as we continue to differentiate the university, that's where the master students will, I think, see that differentiation. They'll probably see it first, we hope, and find us to be an attractive place to go.

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

And then just a lot of investment done on internal initiatives. Should we anticipate M&A activity active in the Apollo Global? Or is it more looking within at the moment?

Charles B. Edelstein

Well, I think it's more likely that M&A activity would be in Apollo Global. We're spending more of our time there, but we spend sometimes in other areas, too. So I wouldn't rule out other areas at this point. So we'll keep you up-to-date, as you saw, for example, with our Carnegie acquisition recently.

Operator

And your next question comes from the line of Jeff Meuler.

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

This may be difficult given the changes in your marketing program, but I guess on a like-for-like basis, are you seeing any sort of changes in the quality of student that's applying? And what I'm wondering is, with employment prospects arguably improving, are students or prospective students that maybe are more likely to find a job that are currently unemployed may be the ones that are more hesitant to apply?

Gregory W. Cappelli

There's certainly more students that are coming to school in general without jobs given what's happened in the economy as you look over the past couple of years. But I think other than that, it's hard to say other than that if there's major changes in their capabilities or abilities to do well in college in general. And the reason we pay a little less attention to that, as you -- is because Orientation for us, if you don't have, right, some proof that you've gone through college or 24 credits of college right now to this point, we're just -- we're making people go through our program, our entrance program, to make sure that they're aware and capable of getting into the University of Phoenix and doing well.

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

Okay. And is there anything that you can say on the timing of the planned changes that you're considering for the University Orientation program?

Gregory W. Cappelli

The timing is now in terms of pilots and testing. And I don't have an exact date for you in terms of a rollout, but this is something that will not be a year away. It's being studied now, and I can -- we'll update you on the next quarter, let me put it to you that way.

Operator

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

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

I just have a qualifying question -- clarifying question rather. I think that I heard either Brian or Greg mention that you thought that conversion rates had actually improved in the quarter. Did I hear that correctly?

Gregory W. Cappelli

Yes, you did. Yes. Not to our expectation, Trace, but year-over-year, yes.

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

I understand. So I am I right to assume then that most of the volatility that you've been experiencing has really been on the inquiry side?

Gregory W. Cappelli

Yes, yes. That's...

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

And then last question related to that. Are you seeing any kind of erratic behavior or anything unusual with respect to what we would call show rates? People who enroll but then don't actually come to class?

Joseph L. D'Amico

Not that I recall. Maybe just slight deterioration there.

Operator

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

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Brian, I want go back to your new enrollment commentary. In, I think, the past call, maybe 2 calls, you've talked a little bit about seeing new enrollments positive for the year. I'm guessing the implication from your comments about the recent trends that, that's up for the full year commentary and even with last quarter's decent number, that, that's going to be difficult to hit. How should we think about the -- that -- I guess, your overall comment from the past 2 quarters?

Brian L. Swartz

Yes, Brandon, I mean, if I recall, I -- just so I'm clear on what you're referring to, I think on the last call, previously, we had said we still expected to grow new enrollments in fiscal '12. Is that our comment you're referring to?

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Correct.

Brian L. Swartz

Yes, I mean, obviously, depending upon what happens in Q3 or Q4, that could change exactly where those numbers come out. And Greg alluded to -- and, well, Greg said and I indicated that it's very, very volatile now and it can change. At least on trends we're seeing literally through today, we would expect -- it looks like it could break into low double digits. But a lot of that will change. And Q4 is still out there, too. Again, very, very volatile. The one thing I do want to point out, which is relevant, I think, for Q3, I had indicated that there was one less Tuesday in the third quarter, much like there was one extra Tuesday in the second quarter, just the number of calendar days. The numbers that we have indicated, based on trends through today, are on a reported basis. So with one less Tuesday in fiscal '12 compared to fiscal '11, the actual kind of organic, or underlying probably is the better way of saying it, underlying growth will be slightly less negative than whatever the reported number is. But our comments are directed at the trend at the reported number.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

No, no, that makes sense. Fair enough. Maybe stick with enrollments for a second. Since you gave some commentary about how February trended that you talked about thus far, has there been any weeks where you've seen that volatility to the upside in the recent trends? Or has it been just things have been tough, down 5%, 10%, 15% over the past, 6, 7, 8 weeks kind of thing?

Gregory W. Cappelli

No, we have been to the upside as well, Brandon.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Okay. Okay, fair enough. And then final question for me. Any sense on timing around the corporate solutions business where it may get to a point where you can give a little more clarity on kind of size and contributions and things like that? Is that going to be a next year thing that we should expect? Or do you think this year it gets to a point where you're comfortable talking about the effort, I guess, with more quantitative metrics around it?

Joseph L. D'Amico

Yes, I think as it becomes more significant, Brandon, and we see sort of a consistent trend of growth at levels that we think are important to disclose, then we'll probably give you more color on that. But we do expect over time for it to continue to be a bigger and bigger percent of our new enrollments.

Operator

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

Gary E. Bisbee - Barclays Capital, Research Division

Just one quick follow-up. You mentioned, I think, at one point some optimism around what's been going on at BPP and also your business serving colleges. Can you give us sort of a 1 or 2-liner on each of those? What's going on? Are you making progress? How do you feel about the outlook there?

Gregory W. Cappelli

I'm sorry, Gary, did you -- So Gary, I'm sorry, did you say BPP?

Gary E. Bisbee - Barclays Capital, Research Division

Yes, that. And then also, I think, Greg, you have made a positive-sounding comment on both that and then the -- within Phoenix or the business in the U.S. serving traditional colleges. I thought you made like a comment in passing about each of them.

Gregory W. Cappelli

Yes, I'm sorry. I didn't hear it clearly at first. I'll start on BPP and then Joe can take the other. I'll tell you, there's been some very good work being done at BPP. They went through a rough period certainly with the economy in Great Britain. But the team there is doing really an extraordinary job as far as I'm concerned. They stabilized the operations, they have brought in some terrific talent and things are looking up there. We'll continue to keep you apprised of the situation. But I'm pleased to say that the direction has reversed itself. They still have a lot of work to do, but they have -- and they have lofty goals, but I'm hopeful that the worst is behind them.

Joseph L. D'Amico

And on the Apollo Educational Services business, that actually has -- is being built. We have a number of people who've made inquiries of us. We're working closely with a few of them on rolling out our services to those organizations. So I think we're very pleased with the inquiries and what the -- what they're saying about our product. And we look forward to being able to tell you once we've closed the deal.

Operator

Your next question comes from the line of Jerry Herman from Stifel, Nicolaus.

Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division

I just wanted to pursue the notion of retention and persistence again. On one hand you guys said that ACEPS is flat. I guess the question there is, are you unhappy with that? Or should we think of that as being sort of tapped out, especially with some of the proposed or changes to the Orientation program? And then on the other hand, when you look at persistence, persistence x grads was up. And is there improvement with students sort of later in the pipeline? And just how much upside is left there, if at all?

Gregory W. Cappelli

Okay, let me just say one thing and then Brian wants to make a comment as well. Remember that we -- we've said for the last couple of quarters that we've made significant increases in ACEPS as we define it. And we knew that there'd be a period of leveling off, which is happening from that -- from the one metric we've given you in that area. Brian, do you want to make a comment on the back end?

Brian L. Swartz

Yes, I was -- just to clarify, too. And I think everyone knows this, but the ACEPS measurement is a measurement of new student credits earned. So it's really a function of what -- the retention on the front end, as Greg mentioned. But we're starting to anniversary some of those benefits and their year-over-year improvements. And to your point exactly, Jerry, the more tenured students are retaining well. And we don't, obviously, quantify that in any later-term ACEP metric like a 52-week measurement or something like that. We perhaps might do that in the future. But it is -- we do monitor that, we watch it and we are pleased with what we're seeing there.

Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And just one quick follow-up. I know it's late. You talked a little bit about competition. Is there any where -- way for you guys to measure the relevance of price in terms of the rationale for students to go elsewhere?

Gregory W. Cappelli

Yes, we have our people in the market doing that. We have our regions doing it, we have our campuses doing it. And it plays into our value proposition overall. So yes, we are measuring that. We have a handle on it, and we would make adjustments if we needed to. And we'll update you on that going forward, but we are where we are right now for a reason on that front. And the markets vary. Across the U.S., we are not "One price fits all" across the U.S. Some are. But no, we do look at that closely.

Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division

So do you find it as a significant reason for loss of a potential student?

Gregory W. Cappelli

We don't think so at this point.

Charles B. Edelstein

All right. Well, we appreciate your time, and we appreciate all the hard work of our team here. And we're going to really focus on these initiatives that we've spoken about and look to have some good things to report going forward.

Gregory W. Cappelli

Thanks, everyone.

Charles B. Edelstein

Thank you.

Brian L. Swartz

Thanks.

Joseph L. D'Amico

Bye.

Operator

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

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