Perdoceo Education Corporation (PRDO) Q1 2014 Earnings Report, Transcript and Summary

Welcome to the Career Education Corporation First Quarter 2014 Earnings Conference Call. My name is Don, and I will be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Doug Craney. Mr. Craney, you may begin.

Thank you, Don. Good morning, everyone, and thank you for joining us on our first quarter 2014 earnings call. With me on the call this morning are Scott Steffey, our President and Chief Executive Officer; and Colleen O'Sullivan, our Senior Vice President and Chief Financial Officer. Following remarks made by management, the call will be opened for analyst questions. This conference call is being webcast live within the Investor Relations section of our website at careered.com. A replay of this call will be available on our site. You can also contact our Investor Relations department at (847) 585-3899. Before I turn the call over to Scott, let me remind you that this morning's press release and remarks made today by our executives include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to us and involve risks and uncertainties that could cause our actual future results, performance and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include but are not limited to those factors identified in our annual report on Form 10-K for the year ended December 31, 2013, and our other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, we undertake no obligation to update those risk factors or to publicly announce the results of any of these forward-looking statements to reflect future events, developments or changed circumstances or for any other reason. In addition, the remarks made today may refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. Our press release and slide presentation, which accompany today's call and contain financial and other quantitative information to be discussed today, are available within the Investor Relations section of our website at careered.com. Now let me turn the call over to Scott.

Thanks, Doug. Good morning, everyone, and thank you for your interest in Career Education. Let me just state at the outset, I've got a little bit of a cold I've been battling and, if I stop talking, I didn't go away, I'm just trying to clear my throat and not burden everybody. So if you'll bear with me, we'll muscle through this. A few weeks ago marked my 1-year anniversary at Career Education. As I reflect back on my time, I'm proud of the progress and accomplishments we've made. At the same time, I'm even more excited about what's in store for the future. We are doing what we set out to do when I began this journey to make Career Education a highly respected, financially sound educational provider. Simply put, we are here to enroll, educate and place our students into a better position to succeed professionally. Closing the gap between students and employers is the goal of all of our efforts and we must do so in a professional manner that always puts student interests at the forefront of every decision. We know that student success will drive Career Education's success. On this morning's call, I will provide highlights from the first quarter results and share the progress we have made in meeting the 4 main objectives that we are focusing on to help return Career Education to profitability. We are once again utilizing slides, as I did last quarter, and I will share certain forward-looking information that I believe is important to further demonstrate the headway we are making in our turnaround strategy. I will not always provide forward-looking information but at this point in the turnaround, I believe it is relevant and appropriate. Following my remarks, I will turn the call over to Colleen for greater detail on our financial results before opening the call up for analyst questions. Before I get to our first quarter results, you may recall last quarter I talked about forthcoming changes to the way we report new student enrollments. This resulted from terminating our 21-day student readiness program, which didn't accomplish its purpose, and replacing it with a new student orientation process, which we believe provides a better and more engaging experience for our students. This enhanced process has already been implemented at AIU and CTU and is being instituted on a modified basis at most of our ground campuses. 2013 new student enrollment numbers that we discuss today have been recast to conform to how and when we account for a new student enrollment under our current methodology. Throughout the call today, our greatest attention and focus will be on our ongoing operations, which exclude Transitional Schools that are in the process of being taught out. This is the foundation from which our turnaround strategy is based upon and from which we intend to grow. Moving on to the first quarter 2014 student metrics. Slide 3 of the presentation shows a 3% increase in new student enrollments within University when compared to the first quarter of 2013. This growth rate is consistent with the preliminary first quarter 2014 new student enrollment data that I shared with you on our fourth quarter 2013 call at the end of February. Slide 4 of the presentation shows the sequential improvement in total new student enrollments, excluding Transitional Schools, over the course of the last 5 quarters. As shown, we continue to make steady progress in slowing the rate of decline in total student enrollments. Our focus on operational execution and better service to students is beginning to materialize in these improved total student enrollment numbers. While economic and other challenges have had negative impact on our business for some time now, the first quarter of 2014 saw an additional challenge in the form of severe weather. Much of the country, including traditionally warm southern states, felt the effects of an extremely cold and snowy start to 2014. We experienced 96 weather-related campus closures and delays in the first quarter throughout the U.S., including campuses in Dallas, Houston and Atlanta. This created scheduling challenges for current students and also made it more difficult for prospective students to meet with our advisors and tour our campuses. Despite the obstacles created by the extreme winter weather, we were able to generate another quarter of improvement in many of our key metrics and, overall, our results were in line with our expectations. We continue to see positive traction in other metrics as well when comparing the first quarter of 2014 to the same period in 2013, excluding Transitional Schools. For example, we saw a higher percentage of prospective students apply for admissions to our institutions and programs, led by our University segment, which also recorded lower enrollment costs per student. Revenue from continuing operations, excluding transitional services, decreased 10.4% to $235 million in the first quarter compared to the prior year quarter. Our operating loss, excluding Transitional Schools, was $36 million in the first quarter of 2014 compared to a loss of $14 million in the first quarter of 2013. Our turnaround strategy focuses on 4 main objectives in 2014. Together, these items will help us achieve our goal of our going operations becoming EBITDA positive in 2015. They are outlined on Slide 5 as follows: generate modest university total student enrollment growth; stabilize career school enrollments; reduce organizational cost structure; and successfully complete the teach-out of our Transitional Schools group, significantly lower in the financial losses associated with these campuses. I'll now update you on our progress in meeting each of these 4 objectives. For the past several quarters, I've spoken about the efforts we've made to better appeal to and serve prospective students, thus improving the number and percentage of those individuals who apply to our institutions. However, I cautioned then and want to remind you now that there is a lag time between some of those early positive indicators and when we'll begin to see positive student -- total student enrollment metrics. While this continues to be true, we are beginning to see positive traction within University. Slide 6 shows total student enrollments within University over the last 5 quarters. While there will be ups and downs by quarter along the way due to graduation and other factors, the data demonstrates how total enrollments have begun to stabilize at AIU and CTU. In addition, AIU and CTU both had starts in April that increased by more than 10% from the prior year April start, helping to further stabilize and grow student enrollments in future quarters. We do believe that, that will start to reverse itself later in the year as we start to get into the time period when we changed our new student enrollment process, which happened last year. Our new student enrollment comparisons become a bit more difficult in the coming months as that anniversary begins to take place and the changes in that intake model lap. But our main objective is to grow total student enrollments and we expect CTU to be total-student-enrollment positive in the third quarter of this year and AIU to be the same in the fourth quarter. This projected positive total student enrollment growth comes from a combination of increased new student enrollments as well as improved retention of our students. A key area focus for us is to improve the graduation rates at all of our institutions. Now turning to Career Schools. As I spoke to last quarter, there are 2 primary components of Career Schools, Career Colleges and Culinary Arts. Before sharing results from the first quarter, let me talk about some of the actions we took during the quarter to help stabilize Career Schools. During the first quarter, we expanded the mission of our 3 brands within Career Colleges: International Academy of Design & Technology, Brown College and Sanford-Brown. In doing so, we went from single discipline-focused institutions to more comprehensive institutions. And in March, we executed a name change so that all of our comprehensive career colleges are now named Sanford-Brown. Our campus locations are provided on Slide 7. I spoke about this plan on previous calls but we have now taken action and made it happen. We are currently working to expand program offerings at many of these campuses to reflect the comprehensive mission of each institution. The goal is for our Sanford-Brown institutions to offer programs in allied health, business, information technology and art and design. Where necessary and appropriate, new program applications will be submitted to our regulators and accreditors for approval as the year progresses. Expanding the program offering at each campus will provide students with greater educational options and allow them to be part of a larger, more diverse student population. The expanded mission also allows the campuses to maintain greater flexibility in their course offerings to better serve students and accommodate local workforce needs. Finally, we will benefit from efficiencies and a lower cost structure related to supporting one brand name. While we have made these changes with student interests top of mind, we feel that we have adequately prepared students and faculty for this change. There may be temporary disruptions and volatility. Despite the challenges, I'm very proud of the team that worked so diligently to make this happen and I'm excited about the future possibilities for Sanford-Brown. Within Culinary Arts, we have intensified our communications with local high schools, something that we had not put enough attention towards in the recent past. We've also begun to change our creative and media strategies and are testing new concepts to better attract prospective students. Finally, we are beginning to shift our marketing strategy across our portfolio of Career Schools, which we believe will have a positive impact later in 2014 and mostly in 2015. We are moving away from a national approach to marketing and becoming more localized in each of our markets. As part of this change, we engaged a new marketing firm that will provide fresh ideas and a new perspective on our brands, including a plan to broaden the scope and appeal of Sanford-Brown. This shift in strategy could result in temporary disruptions to our lead flow volumes but is the appropriate thing to do and I believe will pay dividends in the future. Another item to note is that total student enrollments within Culinary Arts will benefit as we begin to anniversary the reintroduction of the associate's degree program, as these students will remain in the program for another year. We reintroduced the associate's degree program because of demand from students and employers, as the added skills and experience that students receive in the program is valued by both our students and the restaurant and hospitality industry. In terms of the quarter, Career Colleges reported lower new student enrollments of 6% compared to the prior year first quarter. However, these schools generated strong double-digit growth in the fourth quarter of 2013 when compared to the prior year quarter. This was partly due to the prior year impact of Hurricane Sandy, which affected the fourth quarter of 2012 and the first quarter of 2013. Students at many campuses in the Northeast who were scheduled to begin classes in the fourth quarter of 2013, which is when Hurricane Sandy struck, instead opted to begin the first quarter of 2013. If you combine the fourth quarter of 2013 and the first quarter of 2014, new student enrollment growth was approximately 1% compared to the same period from the prior years. Culinary Arts reported an 18% decrease in new student enrollments in the first quarter of 2014 compared to the same period of 2013. I mentioned last quarter how this business has a longer lead time from application to new student enrollment. We have also found that there is change in our student mix within Culinary Arts, as there is stronger interest in the associate's program. It should be noted that these programs tend to have a lower show rate than students reentering the shorter duration certificate programs. In summary, our Career Schools have a lot of moving pieces and, as a result, this segment will likely have some ups and downs along the way. However, over the long term, I believe we are on the right path to better serving our students, improving student outcomes and stabilizing this business. We made additional progress on lowering our operating expenses. As shown on Slide 8, expenses decreased $19 million in the first quarter of 2014 as compared to the same period in 2013. Approximately $13 million of the decrease was attributed to lower Transitional School expenses. The remaining $6 million is a function of actions taken by management to lower costs, including rightsizing and reengineering the company, real estate consolidation and generating other organizational efficiencies. In addition, we benefited from lower metrically driven costs as a result of lower total student enrollments. We continue to believe that we will reduce our operating expenses in 2014 by at least $75 million as compared to 2013. Taking into account our operating expense savings in 2013, we estimate that we will have eliminated more than $275 million of operating expenses from our organization over the last 2 years or approximately 20% of our 2012 cost structure. While we remain committed to pursuing other cost savings opportunities, I'm pleased with the progress that we have made to date on this front. We've also made significant progress within Transitional Schools. In the first quarter, 9 campuses completed the teach-out process. Colleen will explain the accounting details later but, as a reference point, in fiscal year 2013, these 9 campuses generated operating losses of $21 million. We remain on track to close a total of 20 campuses in 2014, as shown on Slide 9, including 7 locations in the second quarter, which means approximately 7 weeks from now, we will have successfully taught out over 1/2 of our Transitional Schools group. I've mentioned it before but it bears repeating that we've also received positive feedback from our accreditors and regulators about the manner in which we are teaching out these campuses. We are affording students reasonable opportunity to complete their academic programs and placing a high priority on the success of every last student. On that note, I'd like to turn the call over to our CFO, Colleen O'Sullivan, who will take you through additional details of our results for the first quarter.

Thanks, Scott. Good morning, everyone. This morning, I'll take you through our financial operating results and provide some additional details for the quarter. Before I get started, as a reminder, we have changed our segment reporting, effective January 2014, to align with the manner in which we are managing the business. Our reportable segments are: AIU; CTU; Career Colleges, which is the combination of our previously reported Design & Technology and Health Education segments; Culinary Arts; and Transitional Schools. In February, we provided recapped quarterly and full year results for 2013 and 2012 under this new reporting structure. Revenue, excluding Transitional Schools, decreased 10.4% in the first quarter when compared to the prior year, as total student enrollments, excluding Transitional Schools, were lower by 8%. Including Transitional Schools, consolidated revenues decreased 14.5%. Operating expenses decreased by $19 million in the first quarter due to lower Transitional School expenses, lower metric-driven costs and benefits of our rightsizing and reengineering efforts. Our first quarter results also include approximately $6.8 million of legal charges related to preliminary settlements reached on outstanding legal items that Scott will summarize shortly. Absent these legal charges, our cost savings would have been greater. First quarter operating losses, excluding Transitional Schools, were $36 million compared to a loss of $14 million in the prior year quarter. Turning to financial results by operating segment. First, our University group. In the first quarter of 2014, CTU revenue of $87 million was 3.5% lower than the first quarter of 2013, as total student enrollments at CTU decreased 4% compared to last year. Operating income was $14 million in the current quarter compared to $16 million in the prior year quarter. Revenue at AIU of $53 million was 20.7% lower versus the first quarter of 2013, mainly due to a 14% reduction in total student enrollments. First quarter 2014 operating loss at AIU was $4 million compared to operating income of $3 million in the prior year quarter. Now turning to Career Colleges. In the first quarter, revenue of $53 million decreased 11.3% versus the prior year quarter, while operating losses were $17 million in the current year compared to a loss of $15 million last year. The revenue's decline can be largely attributed to lower student enrollments. Culinary Arts revenue of $42 million decreased 8% compared to the prior year. Operating losses of $18 million deteriorated from a loss of $12 million in the prior year quarter, primarily due to a 2% decline in total student enrollments. If you exclude Transitional Schools and focus on our ongoing business, you will see on Slide 10 that revenue has begun to stabilize and flatten out over the last several quarters. This, together with anticipated modest university total student enrollment growth, stabilization of Career Schools and reduced organizational costs represents a position from which we believe we can build upon. Now turning to our Transitional Schools segment. Revenue decreased to $8 million from $22 million in the first quarter of 2014, as campuses continue to wind down their operation. Operating losses of $12 million in the current year quarter were close to the prior year quarter operating losses of $11 million. We continue to focus on managing our expenses as these schools finish their commitments to students. The 9 Transitional Schools that completed their teach-out in the first quarter of 2014 have been reclassified to discontinued operations. Together, they accounted for $10 million of losses, of which approximately $8 million was related to future lease charges after taking into consideration sublease assumptions. As we have 20 campuses scheduled to close in 2014, it is important to understand that these campuses will be reported in discontinued operations after they close. Therefore, of the estimated full year 2014 Transitional School losses of $70 million that I provided in February, approximately 1/2 of those losses will be reported in discontinued operations at the end of 2014. While the majority of the $70 million in Transitional School operating losses will be related to cash items, a portion of it, approximately 20%, relates to estimated future lease charges recorded at the time of closure. As the company remains in a 3-year cumulative loss position, we are not in a position to benefit from our current year losses. As such, our effective tax rate in 2014 is expected to be close to 0%. Any tax benefit associated with our losses in 2014 will be offset by a corresponding increase in our valuation allowance. However, once we return to profitability, we can begin to reverse the valuation allowance and recognize these tax benefits. Let me now update you on our financial position and liquidity. As of March 31, 2014, the company had cash, cash equivalents and short-term investments of $315 million. This number is net of a tax payment we made in March for approximately $15 million, primarily related to the 2013 gain on the sale of our International business. It also includes the receipt of approximately $10 million of tax refunds that we had recorded as receivables at the end of 2013. Net cash flow used in operating activities for the first quarter ended March 31, 2014, were $35 million compared to $14 million in the prior year quarter. The additional usage of operating cash can be mainly attributable to a higher net loss in the first quarter of 2014 as compared to the first quarter of 2013. This was due to lower total student enrollments. In addition, net payments of income taxes and timing of other payments contributed to the decrease. Capital expenditures in the first quarter were $3.5 million. And so with that, I'll turn it back to Scott.

Thanks, Colleen. So now I'd like to take a few minutes to talk about a few other items that are important to understand. As I mentioned earlier, we have been making steady progress on improving the business on a number of fronts. This will continue to play out over the course of 2014, as we move further along the timeline of our turnaround strategy. In the first quarter, we continued to test various price disruption strategies at AIU. I talked about our AIU milestone grant last quarter as being a trial basis test. Upon reviewing the initial results of the trial program, we did not see a significant benefit of students progressing to the next section. As a result, we intend to test other options. We plan to introduce an intellipath adaptive learning MBA program at AIU and are considering self-paced learning options, as well. As I've said before, we will be experimenting with a number of strategies aimed at improving student outcomes and the affordability of a college education. Today, we offer scholarship opportunities to students across our portfolio of schools. All of these students-focused programs are designed to help students offset a portion of the cost of their education. We continue to make progress on resolving outstanding litigation, addressing several cases and putting them behind us. We resolved matters with the New York Attorney General case in 2013. The securities class actions and related derivatives cases were finalized in early 2014, and the final approval of the court has been granted. With respect to some of our legacy litigation, we have reached settlement with the Vasquez, Amador [ph] and related cases in California, putting behind us litigation, which has been active for years. In addition, we continue to make considerable progress in resolving our remaining legacy litigation. The litigation cloud that hung over the company when I first started has been greatly diminished. We will remain active in working with all parties to resolve any remaining cases and will continue to defend ourselves vigorously against cases that lack merit. Colleen updated you on our cash position earlier but I have a few additional points I feel are important to clarify. The first quarter of this year was a large drain on operating cash than the fourth quarter of 2013, despite revenue being relatively flat. There are a number of factors that caused this, which can mainly be attributed to timing of cash flows, including higher advertising investments, annual incentive payouts and net tax payments. As we look forward over the course of the year, and absent any unique items, we are expecting our rate of operating cash burn to significantly diminish. There are certain unique cash outflows in the second quarter related to the resolution of some of our legal items that I discussed earlier. That outflow is estimated to be approximately $25 million, a portion of which may become recoverable from insurance at a later date. In today's press release, I stated that I believe our ongoing operations are trending towards being EBITDA positive in the fourth quarter of this year. This is based upon the current trends I am seeing in the business. It excludes the effects of any unique items such as legal settlements, real estate consolidation activities or other strategic actions which may take place. The last point that I'd like to make before opening the call up for analyst questions relates to our capital structure, which frequently generates questions from investors. Our Board of Directors and myself regularly evaluate our portfolio of assets to assess where best to deploy our capital and how to structure our organization to provide the greatest opportunity for maximizing sustainable shareholder growth and value while upholding the interests of our students. While a number of variables need to be considered in any such decision, one that cannot be overlooked is our financial responsibility ratio. This annual calculation required by the Department of Education is intended to measure the financial health of education institutions. A key input to this calculation is shareholder equity, which has been under pressure as of late due to our operating losses and the deferred tax valuation allowance that we recorded in the fourth quarter of 2013. There are a number of strategies that we can choose from to optimize our capital structure, including investing in new business technologies, long-term borrowing options, acquisitions or divestitures, modifying our equity structure or considering other organizational changes. As CEO, it's part of my responsibility to position Career Education in the best way possible and to do so with the understanding of what impact these decisions have on our financial responsibility ratio, gainful employment outlook or other regulatory constraints. Any potential change would be done with the intention of accelerating growth and better positioning ourselves and our shareholders for the long term. On that note, I would like to open up the call to questions.

[Operator Instructions] Our first question comes from Jerry Herman from Stifel. Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division: Colleen, I was just wondering if you can help us a little bit more with the cash flows associated with the Transitions Schools. You were helpful in saying that about, I guess, by implication, 80% of the $70 million is related to cash burn this year and I was hopeful that you would give us some reasonable ballpark figures on next year?

I think, as we've said previously, we're not giving too much in the way of guidance. But suffice to say, as we talked about, we have 30 campuses in total that are in the process of being taught out, 20 of which are expected to be closed here by the end of 2014, 10 of which then flow through '15, '16, those that have more of a 4-year degree, where we're allowing students to complete their courses of study. So from that perspective, I think, thinking about the losses as they decline, as the schools close their doors from an operation perspective may be a way to think about cash flow burn in future years. Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division: And then, therefore, reaching 0 at some point in 2016?

Yes, there is some -- there's one, I believe, that goes to 2017. We provided a listing of the dates of closures in our February call. But also, keep in mind that we do have some remaining lease obligations that we're working actively on to look for alternatives to exit space. But that will be something that we also have to focus on as it relates to a number of the campuses that close. But from an operational perspective, yes, those losses will cease to 0 in '17 but they're declining faster from '15 forward. Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, great. And, Scott, question on the -- sort of the regulatory side. As you reposition programs in the environment of gainful employment 2.0, how are you guys thinking about that regulation in terms of probability analysis on whether it goes through as currently described or what changes might occur?

We're, like everyone else, preparing our comments, which we're about to submit. We've done a lot of scenario planning around gainful employment and I feel comfortable that based on where -- I'm not trying to predict where this thing pans out. What I tell everybody, that if -- as I look at the world, I think if you had single definition with regards to Title IV, do whatever you want on gainful employment and the world would work out just fine from the standpoint of having the outcomes that you want on the use of Title IV money across the education industry. But having said that, I'm not trying to predict where this thing comes out. I'm just trying to make sure that we've got appropriate action plans in place for whatever the eventuality is. We've done a lot of scenario planning associated with it. And as soon as we get a good handle, a definitive handle on what it is going to be, we're going to be able to execute on best positioning the organization on a going forward basis and I think we'll be -- there are some scenarios that have some impact on us and there are some scenarios that have very de minimis impact on us.

Our next question comes from Jeff Silber from BMO Capital.

In your prepared remarks, you mentioned you expect total enrollment to be up at CTU and AIU by the second half of that -- of this year. I'm just wondering if you can give us some color on what gives you the confidence that, that will happen?

Well, the businesses -- CTU is really performing in a very predictable fashion. AIU is also. And as we look at improvements that we've made to retention activities and a variety of other metrics, student outcome entities, the way that we model out the businesses and the way that they're tracking on their business cases has CTU as a total enrollment positive. In the second half of the year and towards the end of the year, AIU becomes total enrollment positive. So it's a result of improvements on the front-end, as well as improvements in how we're educating our students and retention efforts and graduation efforts.

So if that would be the case, and I guess specifically on AIU with a pretty sizable operating loss in the quarter, would AIU be generating positive operating profit once we see total enrollment up?

On a going forward basis, it will. It may not at that instant. But, yes, it becomes a total enrollment positive organization, it becomes a positive contributor.

Okay. You mentioned a couple of other things. I just want to make sure I have the dates. You talked about a change in the intake model last year. Roughly when was that? I just want to see when we're going to be anniversary-ing that.

It started in June.

June. And that was at both schools?

It started in June and mostly -- it started in June and mostly with AIU. And then, eventually, we made changes more in the July, August time frame with CTU. But it first started with AIU in June.

All right. Great. And then in terms of the reintroduction of the associate degree, the Culinary Arts program, when was that?

It started this time last year, but it wasn't consistent throughout all of the schools. There are several schools where we are just now getting to the point of reintroducing that program. A couple of places, we had do some modifications facility-wise to be able to accommodate the program. And so when we went to a certificate program, not every place had associate degrees at that time. And so as we went back to the associate degree program, reintroduced it, there were a few places that were facility-constrained in being able to accommodate the reintroduction of the associate's program. And we're still solving that at a couple of places. So the crux of it happens -- the majority of it is starting to happen. But it does have a phase-in effect across several campuses throughout the year.

Okay. And, Colleen, one for you. What should we be budgeting for capital expenditures for this year?

We're looking anywhere from, consistent with what we said before, 2% to 3% of revenue.

Our next question comes from Trace Urdan from Wells Fargo.

I wondered if, Colleen, you could maybe update us on the lease termination expense. Is there any change from your perspective on what you're anticipating those are going to cost as you get kind of closer to the end here?

At this point, I don't have anything new to provide. What I will say is we have started a couple of things. One, we are seeing, and I think we spoke about it in February as well, the market in general picking up from a real estate perspective. But we also have begun the efforts to be more aggressive with exiting out from under those. So to the extent that we have information to share, we'll provide that on the next call. But at this point, nothing significant. We have seen -- we are exercising, where we can, early termination options and the like. But really, I would think the back half of this year we'll see, in earnest, some of those efforts coming to fruition.

Okay, great. And then, Scott, I wanted to ask you a question about Culinary. Prior management had made the change away from associate degree programs, primarily, I think, in response to gainful employment, with the sense that the shorter programs would clear the hurdles a little bit more easily. You guys are now reversing direction and going back towards the associate programs. Can you just comment on that factor as it relates to that decision?

Yes. I understand what you're -- the crux of your question. And what I can tell you is we've done a lot of work around that. I think there are a variety of different options that we have as we know what it is. And this is the best decision from the standpoint of students and employers, as well as from the profitability of the company, for how we're seeing the world right now. Based on what happens in that area, I think we'll have -- we'll be able to manage to whatever the outcome is of that. And so it's a manageable problem for us to deal with, depending if everything falls within the scenarios that have been outlined to date. And so I understand the issues that the associate program has with regards to discretionary income measurements but I also feel that we have the quivers in place to manage to a successful place if the rule comes out that way.

Our last question comes from Corey Greendale from First Analysis.

This is David Warner for Corey. I just wanted to dig in a little bit more on the target for Q4 EBITDA breakeven. What are you assuming there in terms of starts either in the Culinary or in the University segment? Can we -- do we assume double-digit starts growth in either one of those segments? And then are graduations going to be up in 2014 versus 2013? Anything you could give us on retention, as well.

Yes, I'm not giving that kind of forward guidance right now. The forward guidance that I feel comfortable with is to say that the core business is trending towards being EBITDA positive in the fourth quarter. I'm managing the business for total student enrollment population growth. And we saw some very good lead indicators from AIU and CTU in the beginning of the second quarter, with over 10% new student enrollment growth. But as I said, we've come up against some tougher year-over-year comps as we change the new student intake process. That's impacted those entities in the beginning part of the second half of the year. And so I expect that stuff to level out a bit. And our advertising spending and the like is really geared towards accomplishing new -- total student enrollment growth for the enterprise.

Okay. And then just a question on the advertising spending. Was there any timing impact there, either pulling it earlier -- forward earlier into the year or was it related to consolidation of Sanford-Brown? What was the, I guess, impetus for the advertising expense growing so much?

There was an advertising expense that we did pull into the front part of the year that was different from previous years from the standpoint of how we were targeting that new student population.

Okay, great. And just lastly, on the student readiness program, just a little bit more color. How would you characterize it in terms of length of the program, its rigorousness, whether you expect any impact on early student retention from a new program or anything you can give us?

Yes to all of the above. What we've done with that program and what we have found with students, and frankly, it's, from my experience, historically been true with students, is that the sooner that you engage them once they've made the decision to enter school, the sooner that you engage them and get them involved in activities and get them emotionally invested outside of whatever their financial commitment, you get them emotionally invested, where they're doing an assignment, where they're learning how to learn in your system, the more that their length of stay, their opportunity to graduate, their potential to graduate, all increases. And so what we're doing is, as soon as students say that this is something that they want to commit to, we want to get as much from them from the standpoint of educating them as to what it means to be successful at the institution of choice that they've come to us on. And so we're making those assignments as meaningful as we can. We're making them as much of a requirement, frankly, as we can with the students without doing anything negative to them but really pushing them very hard to make a commitment and to stay with the commitment. And that is showing very good signs over at AIU and CTU. It's part of learning what it means to learn on intellipath and how to be successful with that adaptive learning technology. And that has had positive retention results for us in our trials and as we worked it out. I told you, we expanded -- last quarter, we expanded a little too quickly at AIU. We've done a lot of rebalancing of that and fixing that, and we're seeing now carryover of what our trial stats were of people learning on intellipath at CTU as well as at AIU. And, yes, it does have positive implications and improvements on their length of stay and potential for completing their programs. We think it is a very positive product. And everybody we've shown it to, including people at the Department of Education and other regulators, have strongly agreed with us, that it's a fantastic product in that regard. What we're doing over on the campus side is even a lot of our campus students aren't necessarily technology savvy, and so we're devising orientation programs. We're increasing a lot of the bandwidth at our campuses now, IT bandwidth, so that we can accommodate some additional teaching, Internet teaching, some additional hybrid teaching to incorporate our intellipath product. But we're looking at ways as to how we take that same adaptive learning tool and best use it in a campus environment with that type of student. And we're making very good progress on that in our orientations. We've still got a fair ways to go, which is great because there's a lot of upside to it for us. But we're doing the same type of thing at the campuses and we believe that we'll see the same types of results that we're seeing at both CTU and AIU.

We have a follow-up question from Jerry Herman from Stifel. Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division: Colleen, I'll start with the numbers question again. Is the D&A and stock comp run rate in the first quarter a good proxy for the full year?

Yes. It should be a relatively good proxy for how you think about the remainder of '14. Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, great. And, Scott, you mentioned some of the strategic things you're contemplating, including acquisition and divestiture. How would you categorize that environment right now? And have you solicited interest in any of your assets or started a process in any way?

I would characterize the environment as interesting from the standpoint -- I've said that every quarter that I've been CEO. And I believe -- I said when I first came on that I believe it's part of the job of a CEO. Nothing's changed. It's still part of the job of the CEO to understand how you've deployed your assets and whether you've deployed them as to the best benefit of your shareholders or not. And so nothing in that regard has changed.

Thank you. I will now turn the call back over to Scott for closing remarks.

Okay. To wrap up, the first quarter represented another step forward in our strategy to return Career Education to profitability through an understanding of our long-term success is rooted in the collective success of our students. We generated enrollment improvements in our largest segment, University. We further lowered our cost structure and have identified specific strategies that we are executing within Career Schools to continue to stabilize that business. And we've made substantial progress on our Transitional School closures. Thank you once again for your time today and feel free to give us a call with any follow-up questions.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.