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Corinthian Colleges, Inc. (NASDAQ:COCO)

F4Q12 Earnings Call

August 20, 2012 12:00 AM ET

Executives

Anna Marie Dunlap - SVP, IR

Jack Massimino - Chairman and CEO

Bob Owen - CFO

Analysts

George Tong - Piper Jaffray

Gary Bisbee - Barclays

Trace Urdan - Wells Fargo

Paul Ginocchio - Deutsche Bank

Jeff Meuler - Robert W. Baird

James Samford - Citigroup

David Chu - Bank of America

Jeff Silber - BMO Capital Market

Jason Anderson - Stifel Nicolaus

Operator

Good day ladies and gentlemen and welcome to the fourth quarter fiscal 2012 Corinthian Colleges earnings conference call. My name is Sayed and I will be your conference coordinator for today. At this time, all participants are in a listen only mode. Later we will conduct the question-and-answer session. As a reminder, this conference call is being recorded for replay purposes. I would like to turn the conferred over to your host for today, Ms. Anna Marie Dunlap, Senior Vice President of Investor Relations. Please proceed ma'am.

Anna Marie Dunlap

Thanks Sayed and good day everyone. Thanks for joining us. I am here today with Jack Massimino, Chairman and Chief Executive Officer; Bob Owen, our Chief Financial Officer and Ken Ord our Chief Administrative Officer.

This call is being webcast and an audio version of the call on transcript will be available on Corinthian’s website for 30 days. In addition, a telephonic replay of this call will be available until Monday, August 27th. The details for accessing the replay are included in the press release we issued this morning.

Please note that during this conference call we may make projections or other forward-looking statements regarding a variety of issues. These statements are based upon current information and expectations. Our actual results may differ materially based on a number of risks, which we have identified in our filings with the SEC.

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

Jack Massimino

Thank you Anna Marie, and hello to everyone on the call. We made considerable operational progress in fiscal 2012 while continuing our transition to new federal regulations. We remain focused on student outcomes and achieved a slight increase in our placement rate company wide. A recent Associated Press study found that half of all [our recent] [ph] college graduates in the US are underemployed or can't find work at all. In light of this challenging economic environment, we are very pleased to report that more than two thirds of our nearly 49,000 graduates in calendar 2011 found jobs in the field for which they were trained.

During the year we also strengthened our financial position and balance sheet and better aligned expenses with revenue. We continue to improve the efficiency of administrative processes by implementing our common student information system at Heald bringing student financial aid processing in-house and furthering refining our cohort default prevention program. We implemented policies and procedures in response to new regulatory requirements in a number of areas primarily marketing, admissions and student finance.

We continue to focus on improving the student value proposition while complying with the 90/10 Rule. Finally, to help increase enrollment in the ground schools, we developed several new deployment programs and a GED program for the general public.

Our fourth quarter results were within our most recent guidance ranges for revenue and diluted earnings per share. Our new student enrollment increase of 8.4% was above guidance. As a reminder, our guidance is for continuing operations and excludes one time charges. In the quarter, we recorded an impairment and severance charge of $1 million. For the full year, diluted earnings per share for continuing operations were $0.32 excluding charges versus our guidance of $0.28 to $0.30 per share.

As we move through our discussion today, I'll review our fiscal year progress, enrollment trends, growth plan and regulatory issues. Bob will then review the fourth quarter operational and financial metrics in more detail and provide guidance for the first quarter of fiscal 2012.

I want to spend a few minutes now discussing some of our fiscal 2012 achievements starting with student outcomes. We continue to dedicate substantial resources over 700 employees and $50 million in fiscal 2012 alone to assist our graduates in finding employment. For students who graduated in calendar 2011, 68.1% or more than 33,000 graduates found employment in their field of study. This is up slightly from 67.6% the previous year and the current run rate for calendar 2012 grads is higher than in 2011.

To help our graduates find employment, in fiscal 2012 we signed 16 partnerships and 15 externship agreements with regional and national employers. In total, we signed 70 such agreement with large employers over the past few years. In addition, at the campus level, we have relationships with thousands of small to mid-sized employers.

Strong student completion remains an area of focus and in fiscal 2012, we kept completion essentially flat with the prior year. We also continued to monitor student achievement in our campus and take action as necessary to ensure that our standards are met. During the year, we completed the teach-out and closure of one campus and began to teach-out at two others which did not meet outcome standards. In addition, we closed seven programs which did not meet placement standards.

Every year, we conduct a survey of employee satisfaction and this year 86% of our workforce responded to the survey. Given a difficult year of cost cuts and layoffs we're pleased that overall employee satisfaction moved up slightly compared with the previous year. Employee turnover continued to improve as well, dropping from 29.5% in fiscal 2011 to 25.7% in fiscal 2012. In addition, Corinthian was recognized as a national top workplace in a survey of over 500,000 employees in companies across the US. The survey was jointly sponsored by 30 major newspapers.

In Orange Country, California where our headquarters is located, Corinthian has been designated the top workplace for four consecutive years. Employee development remains a company priority and during the year we've guided nearly 116,000 hours of functional training in the areas of leadership, career services, faculty development, admissions and financial aid. In addition, over 700 employees participated in tuition reimbursement and more than 1,500 participated in our tuition scholarship program.

Given the excess capacity in our ground schools, we continue to align our expenses with revenue. Over the past two years, we've taken actions which reduced annualized operating expenses by approximately $150 million. This reduction has been primarily in the areas of employee compensation and bad debt. In fiscal 2012, total operating expenses excluding charges were down $95.5 million compared with the prior year. Of the total, general and administrative expenses were down 29.6 million in fiscal 2012 compared with the prior year.

We strengthened our financial position and balance sheet during fiscal 2012 by renewing our line of credit at favorable rates. Completing a sale leaseback of five Heald facilities for approximately $40 million and extending by two years our agreement with ASFG to provide loans to our students. In addition, we made the decision to sell or teach out nine underperforming campuses. In the fiscal year we continued to become more efficient in our financial aid processing and as a result, continue to reduce bad debt as a percent of revenue. Bad debt in fiscal 2012 was 3.3% of revenue, down from 5.4% in fiscal 2011. We continue to make progress in cohort default prevention and no longer consider cohort default rates to pose an immediate risk to our company.

In the area of accreditation, we have several achievements to report. 26 of our Everest and WyoTech campuses were up for reaccreditation in fiscal 2012. Of those, nine had zero findings which is the equivalent of a perfect score from the accreditation agency. In addition, six of the 11 campuses up for reaccreditation by ACCSC, one of our national accreditation agencies, were designated Schools of Distinction indicating zero findings as well as a strong commitment to the accreditation process.

Over the past few years, we’ve increased the rigor of our internal audit function and have been successful in reducing the average number of accreditation findings per campus. Today, the average number of findings on reaccreditation visits is just 1.5 per campus, down from 3.7 two years ago.

At our recently accredited institutions, Everest College Phoenix was removed from show cause and given a three year grant of accreditation from the Higher Learning Commission last fall. And last, but certainly not the least Heald College received accreditation from the Western Association of Schools and Colleges Accrediting Commission for Senior Colleges and Universities or WASC Senior in June. Heald has been accredited by the Junior College division of WASC since 1983. The Heald team is to be congratulated for this achievement which was more than two years in the making. WASC Senior accreditation allows Heald to offer Bachelor level degree program in addition to associate degrees and diplomas.

Overall, given numerous regulatory changes and other challenges we face during the year we’re proud of the progress we made in all of these areas just discussed.

Next I'll move to discussion and enrollment trends. As we reported today, new enrollments increased by 8.4% in the fourth quarter of fiscal 2012, above our previous guidance of 4 to 6%. The improvement is a result of several factors including growth at the Everest ground schools, continued solid growth in exclusively online enrollment and an easier prior year comparable. As discussed in our last call in fiscal 2013, we're facing a number of obstacles relating to the enrollment growth from continued economic headwinds to the loss of title for fundings for new ability to benefit students as of July 1st of this year. under the new law however, ability to benefit students who are eligible to receive Title IV funding prior July 1st, at any institution, may continue to receive funding that is acceptable to be a smaller number of students.

To help offset the loss of ATB students, as well as negative macroeconomic factors, such as continuing weakness in the labor market and reluctant first consumers to take on debt, we continue to pursue a number of initiatives. When the process of growing our new diploma level programs in the average ground school, as discussed on our last call we expect them to beginning contributing new enrollments in the second half of fiscal 2013. These new programs are in healthcare, business, criminal justice and information technology.

In online learning, student enrollment growth are heading strong. Although there are several factors in the mix, we continue to believe in online growth as a result of the overall demand for online education, our focus on associate degree programs which have less competition in bachelor degrees and graduate programs, providing a better value for full time students and improved education. We opened two new Everest schools in fiscal 2012 and new enrollment at these schools as grown as planned. We expect to open one campus in the first quarter of fiscal 2013 which has been in process for over a year. For the balance of fiscal 2013 however, we plan to focus on filling the capacities of existing facilities rather than opening new schools.

We're also moving ahead on our initiatives to offer free GED preparation service to the general public. Today, one of every five adult Americans, about 39 million people, do not have a high school diploma and the problems are getting worse. One of every four high school students will drop off before graduating the figures are even higher for inter-city students. On the other hand, we know that those who received their GEDs are more likely to go on to some form of college and will earn more than high school dropouts. One recent study by the GED testing service showed that recipient for the GED will earn 3,500 more in annual personal income than those with less than a high school education.

Even though GED programs is vitally important, funding cut backs and public education have reduced the availability of such services. We have historically provided free GED preparation service for our ability benefit students and plan to build upon that experience as we begin to offering services to the general public.

In September, we expect to begin enrolling out our new program called GED Advantage at 60 Everest campuses nationwide. We believe that some portion of those who enroll in one of our programs and succeed in passing the GED exams, could potentially enroll in post-secondary education at Everest or elsewhere and since most of our Everest campuses already offer GED services for ability to benefit students, we anticipate that the additional cost of marketing and offering GED Advantage will be minimal. We believe this is a classic win-win situation for Corinthian and for the communities that will be served by GED Advantage. We believe the initiatives just discussed will help offset the macro economic challenges and the loss of ability to benefit students. The diploma programs and GED preparation services will not be fully implemented until the second half of fiscal 2013, we currently expect new enrollment growth to be flat in the first and second quarters of fiscal year versus the same time period in fiscal '12. For the full year we expect new enrollment growth will be up slightly.

Next I'll discus recent campus closures and plan on disposition. We continue to nationalize operations based upon several factors including student outcome, financial performance and excess capacity in certain markets. In late February, we reported our plan to sell four Everest campuses and teach-out three others. The sale process is ongoing and we've completed the teach-out of one campus Everest Fort Lauderdale, which has been placed in discontinued operation. The teach-out at Everest Arlington are ongoing, additionally in June we reported our plan to sell the WyoTech campuses in Sacramento California and Daytona Beach, Florida and that sale process is also underway. In total the fiscal for salability in (inaudible) is discontinued operations while being incur.

I'll now turn to an update on regulatory issues beginning with gainful employment. As widely reported by the media, the new gainful employment rule has begun to effect in July 1st, 2012 that as we all know was struck down by US District Court on June 30th. A few days prior to the court decision, the department of education had released informational data related to the new rule. For Corothian's programs, the data was as expected with diploma programs faring better than associated degree programs under the gainful employment criteria. A small percentage of our programs would not pass the criteria but we had been taught out some of these programs and made pricing adjustments to others. Of course given the recent court decision, the future of the GE rule is uncertain, irrespective of the rule status however, we plan during the focus on ensuring that our students continue to receive value for their educational investment.

Next I'll provide a brief update on compliance with the 90/10 rule which requires that more than 90% of our revenue can be derived from title forefront. The 90/10 rule is calculated for each OPEID institution of which we have 44 in continuing operation. Each OPEID consists of a main campus and its branches. Two of our OPEIDs exceeded the 90% threshold in fiscal 2012, Everest College Phoenix at 94.1% and Everest University in Tampa at 92.4%.

Combined, these institutions had 10,550 students at fiscal year-end. An institution must exceed the 90% threshold for two consecutive years before it loses title for funding. Given the information currently available, we do not expect either these OPEIDs to exceed the 90% threshold for a second year.

We believe we will all progress second strike in these institutions through several revenue. We generate non-title for revenue from multiple services from in-school cash payments to workforce investment act funding. The continued focus on growing that revenue, particularly in markets that are close to 90/10 threshold.

As I discussed earlier, we extended our student lending agreement with an independent third party and loans issued into the program qualifies non-title for revenue. In addition, we recently acquired a highly regarded training company, QuickStart Intelligence. QuickStart offers short term, certificate training courses in the field of information technology and we plan to begin offering these courses through several of our institutions in the second quarter. QuickStart provides training for more than 20,000 IT professionals and developers each year.

Moving now to inquiries from state attorneys general, we have positive news to report. The Attorney General of Oregon closed its investigation of Corinthian with no enforcement action. We continue to cooperate with the other ongoing AG inquiries that we've previously discussed; we'll keep you updated of significant development.

Last, I'm going to discuss changes in the Cal Grant program. In what we believe is an ill-conceived discussion, the California legislature approved the budget in June which eliminated Cal Grant eligibility for new students in certain for-profit institutions beginning with the 2012-13 academic year. In addition, the maximum Cal Grant award amounts for continuing students was cut by 24%. Most of our Cal Grant funding is concentrated at Heald College. Heald's California students received approximately 17 million in Cal Grant funding in fiscal 2012. Given the changes in Cal Grant eligibility, new Heald students will now have to replace Cal Grants with alternatives such as federal and private loans.

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

Bob Owen

Thanks Jack. Let me preface my comments by saying that the results I'm about to review are for continuing operations unless otherwise noted. In addition, in the fourth quarter we recorded a $1 million impairment and severance charge. More detail in our financials can be found in our press release and in our annual report on Form 10-K which we expect to file later this week. We also expect to publish restated quarterly enrollments and financial information at that time.

I'll start with a discussion of fourth quarter revenue. Net revenues in the fourth quarter declined by 3.3% compared with the same quarter of the prior year. The decrease is primarily due to a 2.6% decrease in the average student population and a 0.7% decrease in the average revenue rate per student during the period. Jack has already discussed our enrollment trends and the reasons behind the decline in student population. In addition, revenue was negatively impacted by a mix shift towards degrees primarily, the result of continued strong growth and exclusively online enrollments. As a reminder, degrees generated lower revenue per student per month than diplomas.

Total new student enrollments increased by 8.4% in the fourth quarter versus the same quarter last year. The total student population at June 30, of 2012 was 91,460 students, up 1.1% from 90,507 at June 30, 2011. Our exclusively online student population was 31,114 at the end of fiscal '12 up 19.2% from 26,100 at the end of fiscal '11. In the fourth quarter, the average student population was 92,833 down 2.6% from the same quarter last year. We reported fourth quarter diluted earnings per share from continuing operations of $0.10 versus $0.17 in the same quarter last year excluding impairment facility closing and severance charges for both quarters. The operating margin again, excluding impairment and severance charges in both time periods decreased to 4.4% in the fourth quarter from 5.6% in the same period last year down from 6.5% in the third quarter but up from 3.3% in the second quarter and 0.7% in the first quarter. The decrease was a result of lower revenue and an increase in marketing expenses.

Next I'll move to cost trends starting from marketing and admissions. As a percent of revenue, marketing and admissions increased to 24.5% in the fourth quarter from 22.5% in the same quarter a year ago. In terms of total dollars, marketing and admissions expenses were up by approximately 4.9 million or 5.3% in the fourth quarter of this year versus the same quarter last year. We increased marketing spending in the fourth quarter and this investment paid off in terms of new enrollment growth although our marketing cost for start increased in the quarter compared with the same quarter last year, total marketing and admissions expenses per start declined by 2.9% primarily the result of higher conversion rates and admissions.

General and administrative expenses decreased by 0.1 million or 0.3% in the fourth quarter this year versus the same quarter last year. As a percent of revenue, G&A expenses were 11.3% versus 11% last year, the slight percentage increase is primarily the result of a lower revenue base versus the same period last year.

Educational services expense declined by 12.6 million or 5.1% in the fourth quarter versus the same period last year, the decrease is attributable to a reduction in bad debt expense and other cost reductions. As a percent of revenue, educational services expenses were 59.8% in the fourth quarter of fiscal 2012 versus 60.9% in the same quarter of last year. The decrease as a percent of revenue is primarily due to decreased bad debt partially offset by a lower revenue base versus the same period last year.

We continue to see a marked improvement in bad debt which was 2.9% revenue in the fourth quarter down from 4.5% reported in the same quarter last year. The improvement is primarily the result of bringing student financial aid processing in-house.

Moving now to capital expenditures. In fiscal 2012, capital expenditures totaled 42.2 million within previous guidance of 40 to 45 million. In fiscal 2011, CapEx was 110.7 million. We reduced capital expenditures primarily by slowing the opening of new facilities, in addition, we are no longer spending as much on information systems because the implementation of our commons student information system was completed by fiscal year end and our new financial aid system has also been completed.

I'll move now to the balance sheet and cash flow statement. At June 30, of 2012 we had approximately $72.5 million in cash and cash equivalents. Total debt as of June 30, 2012 was 149 million which included capitalized lease obligations of 12.9 million. Total debt as of June 30, 2011 was 331.8 million which includes capitalized lease obligations of 13.6 million. Net day's sales outstanding on the fourth quarter was 22 days.

On the cash flow statement, cash flow from operations was 152.8 million in fiscal 2012, versus 15 million in fiscal 2011. We increased from the prior year as primarily due to an increase in cash provided by working capital of 138.5 million. The change in working capital was primarily due to the timing of Title IV disbursements and other cash receipts and payments.

Our previous guidance for cash flow from operations was 225 million in fiscal 2012. We fell below that guidance for three primary reasons. First, a wild fire caused us to close our Colorado Springs service center operation which shut down financial aid processing at that site for several days during the last week of June. Second, timing of vendor payments and third, the conversion of Heald to the new student information system which also disrupted financial aid processing for a short period. All of these issues affected the timing of cash flows to lend them until the first quarter of fiscal '13. In addition, the combination of the Colorado Springs fire and the Heald systems conversion increased DSOs by approximately nine days.

Moving to the bank credit agreement, in May, we renewed our line of credit Bank of America. This new arrangement replaces the credit facility that was set to expire in October of 2012. The new credit facility expires July 1, 2015 and provides aggregate commitments including borrowings and leverage of credit of up to 145 million of which 135 million is domestic facility and 10 million is a Canadian facility.

Next, I'll make a few comments about the extension of our student lending agreement with ASFG. As previously reported, in late June, we extended our agreement with ASFG by two years through June of 2015. ASFG intends to fund approximately 650 million in new student loans over the three remaining years of the program. Under the amended agreement Corinthian is required to pay certain ancillary fees to ASFG which are approximately 8 to 10 million of higher per year than the fees we paid for third party administration of our previous Genesis lending program. As a result of these incremental fees, and the full year impact of the ASFG program, we expect these fees will be approximately $7 million higher in fiscal 2013 than in the previous fiscal year. These fees will be included on the income statement as other income expense.

To close out my comments, I’ll turn now to first quarter guidance. As a reminder, our guidance is based upon continuing operations and excludes any one time charges. We expect first quarter results to be as follows. We expect new student enrollment to be essentially flat, which we define as up or down 1% versus the first quarter of the prior year. We expect revenue to range from 395 million to 405 million in the first quarter. We expect diluted earnings per share of approximately $0.03 to $0.05 in the first quarter. We assume approximately 87.2 million diluted shares outstanding in the first quarter and we expect our tax rate to be approximately 40%.

In the past, it has generally been our practice to provide guidance for the new fiscal year when we report our fourth quarter. However, we continue to operate in a rapidly changing environment, both internally and externally and we've decided not to provide full year guidance at this time. Internally, we continue to make the transition to new federal regulations while conducting a major launch of new diploma and GED programs. Externally, the outcome of the election this November could create additional uncertainty and the future of the gainful employment rule has not yet been resolved. For these and other reasons, visibility is more limited and we plan to provide quarterly guidance only.

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

Jack Massimino

In closing, we continue to make progress on a number of fronts. We're making meaningful implements in graduate placements and student completion. We continue to strengthen operations and become more efficient, making substantial improvements in bad debt and cohort default rates. We're making a transition to new federal regulations and remain focused on compliance. We have a number of initiatives in place to help address the loss of ability to benefit students and generate positive new enrollment growth beginning in the back half of fiscal 2013.

So move now to the question and answer session. As in the past, please limit yourself to one question and one follow-up. If time permits, we'll get back to you for a third round of question. Operator, I'll turn the time back to you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Peter Appert from Piper Jaffray.

George Tong - Piper Jaffray

This is George Tong for Peter Appert. Could you give us a sense of how much you expect your new ground school diploma programs and your new GED prep programs to add to starts’ growth in the second half of fiscal '13?

Jack Massimino

George as we said, first of all, we're not giving a whole heck of a lot of guidance going into next year, but what we said so far is that our expectation is for our online business to continue to grow and be flat for the organization in the first half and to be slightly up in the second half. You can draw your own conclusions from that. We've got a long way to go with regards to the ATB refill and we're rolling out a whole series of new programs and our [extensive] [ph] program rollout, really, we don't have a whole heck of a lot of it, so this is really the first attempt at that for us. We've rolled out programs that we've had historically in the organization, but these are brand new to the company. So we'll give it to you as we get closer to it and we'll let you know how that's shaping up.

George Tong - Piper Jaffray

Could you give us an idea of what your marketing strategy is heading into fiscal '13 in terms of branding versus lead gen and what your direction of marketing spend will be versus prior year levels? Thanks.

Jack Massimino

Our expectation is to continue doing what we're doing. We have spent a lot of time and energy on our lead gen efforts. We do a lot of work with regard to shipping back leads that have no value. About 50% of our leads are now totally exclusive to us. So we're continuing down the same trail. I'm not anticipating any big shift in how we approach it. We have made a change internally in how we monitor our lead flow. We look more transfers than we do general leads. Transfers are much more important. These are students who are actively interested in speaking to someone. So over the course of last year or 18 months, we really have been focused on those. And we're going to continue to do that. We actually have seen a marked increase in our transfer rate.

Operator

Thank you. And our next question comes from Gary Bisbee from Barclays.

Gary Bisbee - Barclays

Let me follow up on the first question that you just got there and in terms of the new programs can you give us a sense of how different they are? The areas you said they are in sounded pretty similar to a lot of the areas you already teach programs and are they areas that will have, you think, better employment prospects or how did you come to these, because it sounds like you’re banking on this quite a bit to rejuvenate the campus overall performance.

Jack Massimino

Gary, I'm happy to, I mean, a number of these programs obviously have spun out of our existing associates degree programs that we already have in place; is a shorter version to those with specific training towards the goal for IT for example or accounting. We're going to roll out about 300 of these programs over the course of the next 18 to 24 months and probably close to 150 or so in the second half of this fiscal year. The big issue for us is, we've not rolled out new programs. We've got a whole lot of work to do around those programs themselves and so our best estimate this time is to what we're going to see in terms of enrollment. We're very excited about them because we do have experience in these arenas at the associate level but not necessarily at the diploma level.

Gary Bisbee - Barclays

And then just a commentary on starts being flattish and then maybe slightly up in the second half of the year. I guess that would seem to indicate given how well online has been growing, that you're going to expect the campuses to continue to decline. Would it be reasonable to think that campus starts will be growing in the year or is it stemming the losses and maybe trying to grow in the next year?

Jack Massimino

Well I think at the moment we're stemming losses. As I mentioned in my prepared remarks, we do have some limited ability with the ability to benefit students. If the student had prior Title IV revenue or Title IV opportunity they are eligible to come back to school. That could be helpful. We don't know the magnitude of that. We don't think it's going to be a big deal, but that could certainly help in terms of a soft landing with regards to (inaudible) [benefit students] [ph] and it can certainly help those students who want to come back to school or give them a continuing opportunity to get through school. The new programs really won't be rolling out until the second half and they are really between those and GED programs that really is a replacement strategy for the ATB students. So I think it’s a combination of all those things. We've done some pricing things down in Florida. We've talked to you guys earlier about a pricing pilot that we did in Florida. We, as a result of the pilot this year, we've taken a fairly significant reduction, pricing for our diploma programs in the Florida marketplace. All of those are leading us around with regard to what we think this year is going to do for our ground school.

Operator

Thank you. And our next question comes from Trace Urdan from Wells Fargo.

Trace Urdan - Wells Fargo

Just for starters, can you tell us what that prior year discontinued revenue was in the September 2011 quarter?

Jack Massimino

So how about if I just give you the restated September ‘11?

Trace Urdan - Wells Fargo

Even better.

Jack Massimino

So total revenue restated was 398.2 million.

Trace Urdan - Wells Fargo

Okay. And then Jack I'm wondering if you could describe with the ground campuses and specifically the Allied Health area, are you seeing any sort of regional differences there? It seems that there is some campus closures in Florida. Is Florida particularly weak market in that area or can give us any color on where there may be differences regionally in the ground school?

Jack Massimino

We're really not seeing big regional changes or differences; the campus closure we did in Florida was just to consolidate two schools that were just a few miles apart and the Fort Lauderdale school was really a pretty small school. So we just consolidated those students into a facility that was literally several miles away. So we're not seeing big regional differences in the medical.

Trace Urdan - Wells Fargo

And then the last question I had was that, you mentioned that it took Heald two years to get that Senior WASC accreditation and I am wondering if the first application was denied and what kind of feedback you received along the way that you eventually addressed in order to gain that accreditation?

Jack Massimino

Yes, no, it was not denied. We actually were expecting to receive accreditation in around May of this year. We got a letter at that point in time with several questions that they had for us that were pretty general in nature, dealt with the new IT system we're rolling out for example. When the visiting team was there at the campus, the program had not been rolled out yet and they were curious about what some of those screenshots were going to look like and then subsequently we were approved in June. So we did not get turned out along the way.

Operator

Thank you. Our next question comes from Paul Ginocchio from Deutsche Bank.

Paul Ginocchio - Deutsche Bank

First, the cash flow for the first quarter. How much is that nine days of DSOs do you think they'll get back in the September quarter? And then second on WyoTech for the operations that moved into the discontinued operations, what are the losses on those WyoTech operations? Thanks.

Jack Massimino

With respect to your first quarter, we expect all of the cash flow from the disruptions to come through. Actually it’s already come through in July. So we expect that to come in Q1. With respect to WyoTech, I don't have that information handy and I don't think we typically publically disclose that.

Paul Ginocchio - Deutsche Bank

But we can sort of back into it based on that most of that $0.08 is associated with WyoTech or also the teach-outs?

Jack Massimino

Yes, it’s got teach-outs and also the other four schools that are available for sale. So it's all of those components in disc ops.

Paul Ginocchio - Deutsche Bank

And is there any way to split that? Is it mostly WyoTech that's up for sale or is it mostly the teach-outs?

Jack Massimino

Well, remember too in disc ops there would have been impairment charges associated with those schools up for sale as well. So again, I don't have that information handy in front of me as to the break out of what's in disc ops. It's fair to say the WyoTech facilities are larger and they are longer term leases. So you can drive your own conclusions from that.

Operator

Thank you. And our next question comes from Jeff Mueller from Robert W. Baird.

Jeff Meuler - Robert W. Baird

Are guys going to be providing quarterly historical financials for fiscal '12 or fiscal '11 to account for all of the operations that you’ve moved into discontinued ops?

Jack Massimino

Yes, we are Jeff. When we will follow our 10-K later this week and at that same time will also publish our restated quarterly financials as well as new student enrollment and total enrollment information by quarter.

Jeff Meuler - Robert W. Baird

And then I know you're not providing much guidance on fiscal '13, but how should we be thinking about the puts and takes around free cash flow. Obviously you get to catch up on the working capital that you didn’t have this last quarter but also you have the expansion of the ASFG program. What else should we be thinking about for your fiscal '13 free cash flow?

Jack Massimino

I think you’ve covered it Jeff, I mean you’ve got the pieces in place, while we've a bit of a pick-up in the first quarter that we would other had in the fourth quarter of last year, growing is going to come from operations, so I think you've covered it. There will be a little bit of pick up in the ASFG, but that's all to think about it.

Jeff Meuler - Robert W. Baird

Okay and then the cost, the 7 million increase in ASFG program expense. But should we be modeling a pretty similar amount in the other expense line item to what it was this quarter going out into fiscal '13? You know like 5.4, 5.5 million on a quarterly basis?

Jack Massimino

Yes, that's not unreasonable, yes.

Operator

Thank you. Our next question comes from James Samford from Citigroup.

James Samford - Citigroup

Is there any way you could provide us with the September prior year total enrollment and the starts ahead of the K?

Jack Massimino

The prior year September quarters enrollment starts? So restated quarter starts for Q1 of 2012 was 30,386 and restarted and in population was 91,107.

James Samford - Citigroup

And just a follow-up. As you shift a little bit more towards the longer-term degree programs versus diploma, understand there should be a headwind to revenue per student? Should we essentially be expecting sort of longer term drag as that mix shift continues?

Jack Massimino

I would say for the year think about revenue per student rather flattish. It’s a combination of pricing that's taken place, we've got some price decreases, some prices increases, we've got some shift, we've got some new diploma programs coming out, diploma obviously generates more on a per student basis, so for the year I think flattish.

James Samford - Citigroup

Great and I guess one last one. I think you said your placement rates continued to improve despite the difficult economy. I was wondering if you could highlight any particular program areas that were successful and how well you're positioned to capitalize to marketing to those programs.

Jack Massimino

I would tell you James, it's as it has been in the past. We don't have any big standouts, but a lot of worse has been done, national employer relationships, healthcare and WyoTech degrees, they are all about as they have been historically. Obviously a lot of work is going into as I said in the call, we're spending about $50 million and over 700 people dedicated to placement, we're in the process right now of reopening and thinking around it, trying to just get better at what we do. We are a large placement organization as we sit here today. So it's time to get more creative and curious about how to do it better. We're looking at everywhere outside relationships, just the whole series of things that make it better and we've done a lot last year and as I have said, in my prepared remarks also, placement year-over-year for the cohort as we sit here today is running nicely ahead of what was last year. We just need to hold on to it for the whole year.

Operator

Thank you. Our next question comes from Sara Gubins from Bank of America.

David Chu - Bank of America

Can you provide an update on how lead flow in conversion rates are trending at this point on a year-over-year basis?

Jack Massimino

Lead flow is about the same as it has been historically up a little bit, but as I said earlier David, we really are focusing on transfer and we're getting a very nice pick up in our transfer rate which is more important frankly than the lead flow. And you other question was, I am sorry?

David Chu - Bank of America

Just on conversion rates.

Jack Massimino

Yes, we actually saw a pick-up in conversion rates in the fourth quarter.

David Chu - Bank of America

How does that compare with the last few quarters? Have you been seeing the uptick or was this the first time that you're seeing the improvement?

Jack Massimino

I think it's kind of we've seen a little bit of an uptick before in the third quarter, a little bit more in the fourth quarter, a little bit not an uptick in the first quarter. So we're seeing progress being made across the board. A lot of effort being put into a new transfer increase really has a lot to do with that.

David Chu - Bank of America

And as a follow-up, was there a significant amount of starts move forward from 1Q to 4Q '12, due to the loss of ATB?

Jack Massimino

No.

Operator

Thank you. And our next question comes from Jeff Silber from BMO Capital Market.

Jeff Silber - BMO Capital Market

I know you're not giving specific guidance for the rest of the year, but based on what you expect in terms of the enrollment trends the way you defined it, should we expect total cost and expenses to stay relatively flat, go up or go down for the rest of the year? Thanks.

Jack Massimino

So Jeff you know me and I would say, you can expect me to continue to focus on cost over the course of the year. We will continue to make it in line.

Jeff Silber - BMO Capital Market

Maybe you can at least answer it in terms of modeling health. What should be modeling for capital spending for the rest of the year and for the tax rates for 2013?

Jack Massimino

About 50 million CapEx and I just assumed a 40% tax rate.

Jeff Silber - BMO Capital Market

And then you also talked about the expenses related to the ASFG deal, what were they in 2011, you said they went up I think about 7 million in 2012.

Jack Massimino

We expect it to be about 7 million and higher in 2012 and so if you look at what we report as other income expense on our financial statements, that's where the fee is related to our lending program are and you can expect those to be about 7 million higher in fiscal '13.

Operator

Thank you. And our next question comes from Jason Anderson from Stifel Nicolaus.

Jason Anderson - Stifel Nicolaus

Wondering if you could help us out with the number of ATB suites you saw in 4Q and was it around 8% of starts and also could you provide us ATB starts quarter by quarter over the past year?

Jack Massimino

What I can tell you is that for the full year, ATBs were about 7.5%. They were about 10% in new enrollments in the quarter. I don't have it prior quarter for the whole year in front of me.

Jason Anderson - Stifel Nicolaus

Also, could you comment on the Cal Grant situation a bit more. Is the 17 million it quantified, could you put that in percentage basis of Heald's revenues and also are you seeing that impact here as we get into heading into the new academic year you're seeing any impact on Heald?

Jack Massimino

I won't give you the percentage, because I don't give out Heald's revenue generally speaking but what I can tell you is, remember the Cal Grant program is continuing, it's for new students coming in. there is a discount rolling out and so the new students will see a decrease in their Cal Grant activity but our students at Heald have access to additional Stafford and Pell, as well as our own Genesis program. So I think that we'll be replacing those Cal Grants with additional lending opportunities for the students. So we're not anticipating a revenue impact as a result of it.

Jason Anderson - Stifel Nicolaus

So just to paraphrase I guess back, you've not seen a negative impact at the front end of the pipeline here in the early stages?

Jack Massimino

No. Not at this stage.

Operator

Thank you. This concludes our question-and-answer session for today. I would now like to hand the conference back over to Mr. Jack Massimino for closing remarks.

Jack Massimino

Thanks everybody. We really appreciate your time on the call today. We look forward to seeing many of you at upcoming conferences and at the time of our first quarter and I will reportedly give you more information in October. Thanks again. Bye.

Operator

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

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