Perdoceo Education Corp (PRDO) 2007 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2007 Career Education earnings conference call. My name is JA Kula, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). We will conduct a question and answer session towards the end of this conference. I will now like to turn the call over to Ms. Karen King, please proceed.

Thank you. Good morning, everyone, and thank you for joining us on our second quarter, 2007, earnings call today. I'm Karen King, Vice President Investor Relations and with me today are Gary McCullough, our President and Chief Executive Officer, Pat Pesch, Chief Financial Officer, Steve Fireng, Group President for our University, Academy and College Segment and Paul Ryan, Group President for our Culinary and Health Education Segment. Following brief presentation by management, the call will be open for analysts and investor questions. This conference call is being webcast live on the Investor Relations section of our website at careered.com. The replay will also be available on our site. If we are unable to answer your questions during the call, please call our Investor Relations Department at 847-585-3899.

Before I turn the call over to Gary, let me remind you that today's press release and the presentations made by our executives may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on information currently available to us and involve risks and uncertainties that could cause our actual 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 first quarter earnings -- in our second quarter earnings release and in our annual report on form 10-K for the year ended December 31, 2006, and from time to time in our other filings with the Securities and Exchange Commission. Except as expressly required by Securities laws, we undertake no obligation to update such 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. Now let me turn the call over to Mr. Gary McCullough.

Thank you, Karen. Good morning, and thank you for joining us on our second quarter earnings call. As you saw from our release, we have both encouraging news in areas of opportunity we must address as we move forward. The good news is that several key indicators of our future growth are all positive. Starts were up 16%. the highest growth rate we've seen in two years. Population is up by over 4%, the first time our population has increased in over a year. Show rates were up overall and in an all segments, with the exception of the college segment, and where we've seen increases they range from the mid single digits to the mid teens.

Attrition is continued to improve as well. In the second quarter, it improved by almost 2%, which is similar to the improvement we saw last quarter. However, the choice we made last year to grow the associate degree program in the university segment has contributed to a decline in revenue per student and profit margins continue to reflect the challenge of the past that we must address.

I'll spend a few moments discussing some of the specifics impacting the quarterly results. Pat Pesch will then go into more detail considering our financial results. When he's finished, I will take you through how we're moving forward to ensure we have a strategy and action plans in place to deliver value for our students and shareholders and to enhance our brands. As you will know from reviewing our quarterly report on form 10-Q, during the quarter we continued to work the to resolve certain legal issues.

Importantly, we continue to avoid material regulatory issues. AIU is on track with its plan to address remaining SACS recommendations. From a process point of view. AIU will submit its monetary report to SACS by September 7th. A SACS visiting team is scheduled to visit certainly of AIU's campuses in mid October. A decision from SACS should be rendered by about mid-December. In addition to preparing a SACS report, the university is also developed a plan to relaunch its brand following the December decision. It will be an important-- it will be important for AIU to rebuild its reputation over the long-term.

Now, let me share with you some of the key factors behind our results this quarter. First, as most of you know, because we decided to teach out the two campuses at Brooks College these campuses have now been moved from discontinued operations back into continuing operations. Because we were not able to identify an appropriate buyer for the the school, we made a decision to teachout Brooks College. We believe that a teachout was the right thing to do for our students, staff and faculty and for the company. We continue to move forward in divesting the schools which are no longer a good fit for our portfolio. The sales process is proceedings through negotiations and due diligence with interested parties. We'll continue to provide you with periodic updates on the sale process.

Second, we've recorded a one-time charge of $13.1 million in connection with the probable settlement in the near term of certain legal matters. The settlements, which have not yet been finalized, reflect the choice we have made to resolve outstanding legal and regulatory issues. We look forward to putting these and other matters behind us as they take up a significant amount of time and effort.

Finally, let me address head on, issues relating to our margins. Pat will provide more detail, but our margins are unacceptably low for several reasons. First, as we see significant start growth of front load in nature of student acquisition costs has driven down margins. Our cost per student-- excuse me, our cost per start actually decreased 14% in the quarter. But I believe they're still too high in some of our divisions.

Second, our marketing and related costs are too high. We'll continue to address inefficiencies in our marketing spending and we've seen better returns in some areas. But we've been very ineffective in capturing the improved effectiveness and driving it to our bottom line. We're working to address this issue.

Third, as we discussed last quarter, and as expected, the university's segment is still feeling the effects of both the change to a. 2 plus 2 model in the associate degree division of CTU online and the fact that CTU online's margins who are lower then AIU online continues to grow at a faster rate then AIU online. CTU's online starts were up almost 30% in the quarter, while AIU online was up 8%. That said, we're pleased with the university segment's continued progress in student population growth, retention rates and other key metrics. As stated previously, we believe we'll see a return in profitability towards the end of this year. Finally, there are specific schools with some challenges that have resulted in overall drag in margins in some of our divisions. We're working closely with those schools to address those issues. With that said, I'll it over to Pat Pesch now.

Thank you, Gary. During the first and second quarter, and continuing through July, we have seen a number of encouraging trends in our operating metrics, some of which Gary has shared with you. The reduction of student acquisition costs was driven by improved conversion and show rates along with modest reductions in advertising and admission spending.

Second quarter campus-based start activity was up 13% from the prior year and online starts increased for the first time in six quarters, up 19%. July starts were up about 14% versus the prior year, with increases in campus-based and online starts. Improved start performance along with continuing year-over-year improvements in student retention has resulted in a further stabilization of student population levels, which first became visible last quarter. Last quarter, I indicated that the cumulative losses of volume in our AIU online operations will continue to be a significant drag on year-over-year comparisons in profitability for at least a few quarters. And while this remains true, this stabilization of population, and continued growth in starts, has established a foundation for resumed revenue growth. This is a first step in restoring operating leverage in significantly stronger profitability in the future. However, many of you have asked questions about the changes in university group margins and the impact of lower price associate degree programs on the prospects of recovering our profitability.

The probation of AIU and the related loss of population has been the most significant factor in declining profitability, having a profound impact on both online and campus profitability. To provide some insight into this. we've included 10-Q data breaking out AIU online population which shows that AIU now accounts for only 51% of fully online students.

Meanwhile, CTU has nearly as many students but it lags in profitability because of the following factors. First, it offers a slower paced program with less revenue per student on a quarterly basis. Because of its recent and rapid growth, CTU has not yet received substantial financial benefit from revenue which will be earned later in students' programs when variable costs to obtain and service those students will drop significantly. Secondly, CTU has yet to have large numbers of associate degree graduates who can be moved up to higher-priced bachelor degree programs and, therefore, the current associate/bachelor mix is immature and less profitable then it will be with maturity. We expect CTU to steadily improve its profitabilities as it gains more scale and as its student population matures.

Now, let me provide a few details on the second quarter. With respect to revenue from continuing operations. Second quarter 2007 revenue of $405 million was down 10.5% from the second quarter of 2006 versus a 12.5% decline in the first quarter. Online student revenue for the second quarter decreased 24.5%. This compares to a decline of 28.8% in the first quarter. In campus-based revenue was again down slightly by 1.2%. This compared to a decline of 1.7% in the first quarter.

With respect to operating profit from continuing operations, there is an operating loss margin of 4.8% for the second quarter of 2006, which included a good-will impairment charge which reduced the margin by 18.8 percentage points. Excluding this charge, margin would have been about 14 % Operating profit margin percentage of 2.9% for the second quarter of 2007 includes the impact of $13.1 million in legal settlement provisions which Gary discussed, and approximately $800,000 in operating losses from the Instituto Marangoni acquisition. Adjusting for these two items would result in an operating margin of 6.4% versus the 14% in 2006.

In addition I can point out that about 60 basis points of the decline was caused by increased startup activity during 2007. I will also point out that the legal settlement costs are most significantly effecting our college and university segments. I'll also point out that our 10-Q for the second quarter which was filed last night includes substantial detail including new disclosure about segment profitability. This information can be found in the segment reporting foot notes of the financial statements and in the disclosures about income from continuing operations in the MB & A section of the 10-Q. Specifically the university segments fully on-line platform's income from operations declined to $30.9 million during the second quarter of 2007. From $67.6 million during the second quarter of 2006. Revenue from on-line students was down 25% from the second quarter of 2006, with AIU on-line revenue down 33% versus 38% last quarter and CTU on-line revenue down 5% the same as last quarter.

July population for on-line students is up 8% versus down 3% at the end of April. AIU on-line population was down 11% versus 18% down last quarter and CTU online population is now up 39% versus 26% last quarter. On-line operating profit margins are 23%, down 15% from the second quarter of 2006. AIU on-line was down 18% versus 15% last quarter and CTU on-line was down 5% versus 9% down last quarter. The adverse impact of operating profit margins of the factors discussed above, was offset in part by a decrease in bad debt expenses a percentage of revenue. Bad debt declined approximately 100 basis points from the second quarter of 2006 from about 3.7 to about 2.7%. Day sales outstanding were at 12 days, up one day from the prior year.

I would also like to comment a little further on expectations for the Instituto Marangoni acquisition. The operating losses from the acquisition were driven by amortization of short-lived intangible assets acquired, and large reductions of deferred revenue balances which were recorded on the opening balance sheet and which have been substantially rolled over during the first six months of ownership. Ongoing results of Maragoni will include amortization of intangibles for about 18 months following the purchase date this past January, but these charges alone will not prevent the school from positive contributions beginning in the fourth quarter of this year.

With respect to discontinued operations which include 11 schools and campuses currently held for sale, we had a loss of $5.9 million for the second quarter of 2007 compared to $7.5 million loss in 2006. The sales process for these schools is progressing as Gary described earlier. At the time we announced our decision to divest these schools, I indicated that substantial remaining lease commitments at these schools and significant excess capacity within the schools would be a substantive issue in the ultimate divesture of these schools. I stated the magnitude of the lease issue was approximately $100 million. This issue remains, although it is still uncertain as to whether or not and how lease obligations will transfer to the buyer and what financial impact this will have on the transaction. In any event, we expect a significant loss either in connection with the sales transaction or in connection was a separate arrangement or arrangements to eliminate any remaining lease exposure. As the material terms of any contemplated sale transaction remain uncertain, applicable l accounting standards precluded us from recognizing this loss during the second quarter of 2007.

Moving on to our repurchase program. During the second quarter of 2007, the company repurchased 2.3 million shares for approximately $75 million at an average price of $32.34. From inception of the buyback program through June 30th, the company repurchased 14.7 million shares for approximately $491 million and has remaining authorization as of June 30th of approximately $309 million. With respect to capital spending, capital expenditures decreased to $14.5 million or 3.3% of total revenue during the second quarter of 2007 from $25.6 million during the second quarter of 2006. We expect some increase for the full 2007 calendar year due to the renewal of startup campus activity, but excluding startup campus CapEx, capital spending was less then 2% of revenue during the quarter. With that, I will turn it back over to Gary.

Thanks, Pat. I've been at CEC for just over five months now and I remain convinced that we have a potential to grow profitably and generate value for all of our constituencies over the long-term. Our people know this business and they know the markets in which they operate. We have quality brands and our balance sheet is sound. That said, it's clear we have a lot of work to do. We must address talent gaps in some areas and we have to continue to enhance our systems and controls, our educational offerings and our reputation. We have a company with tremendous strengths, and yet our company has been unable to consistently leverage those strengths for sustainable growth. And while the last two quarters have shown good progress on several key metrics, our goal must be to sustain that progress while delivering acceptable, top and bottom line growth.

When I started at CEC in March, I said I would take time to learn about our company and our industry and I did take that time. It became apparent early on that our company was missing a meaningful strategic frame work that would provide direction to each of our segments while also allowing enough flexibility for them to operate in their respective markets. I have worked with senior management and others within the organization to candidly assess where we are and where we need to go . We agree that as an organization, we are in fact, a career-focused educational company. You've heard us talk about careers of passion. Well that's what we're about. We believe we are at best when we're educating student for jobs in specific fields.

Moving forward we are aligning our actions around five strategic choices. Our five choices aren't complicated, nor do they represent radical new thinking. But, they are clear, and they reflect the fundmental work that we must do in the near term. They also are flexible enough to allow more complex activities as we improve and as we grow. We'll do the following things and I'll provide a bit of context on each in just a moment. We'll work to grow our core educational institutions and improve our academic and operational effectiveness. We intend to enter new markets. We will work to build our reputation and our external relationships and we'll grow and develop our people. On the surface would be easy to look at these choices and say so what, the real change becomes what actions we will take, or chose not take,as a result of making these choices.

So let me talk about each of them briefly. What do I mean by grow our core educational institutions? We have more then 15 different school brands. Some with multiple locations, some in a single place. Some are large, and some are small. Our schools are not equal, but internally we have treated them as though they are. We've resourced them democratically, we've expected similar growth rate and we've pushed them for similar profitability, even though there was little chance of those things happening. We have homogenized and forced academic programs into certain schools which negatively impacted their focus and their equity. For the choice to delineate core institution is new to CEC . This means we will focus time, energy and resources on the five brands that generate in excess of 80% of our revenue and profit. It does not mean we'll starve the others, they should be adequately resourced, but we'll be more judicious then we have been in allocating our internal resources and in prioritizing certain functional activities. We have a number of smaller institutions that are in jewels, quite frankly. They're terrific schools with clear missions and superior financial results. We'll insure they continue to receive their share of resources, but we also continue to have schools that are small, with less then stellar performance on a number of fronts. We'll work with them to improve performance at threshold levels. If we fail to improve them, at some point we'll need to determine whether they have a long-term place in our portfolio. In terms of improving academic and operational effectiveness. This means simply that we'll striving for continuous improvement. While the term continuous improvement is not considered overused and trite to some users, the concept applies here. Earlier this week two of our culinary schools were selected as schools of distinction by their accreditor. This designation recognizes institutions that have demonstrated a commitment to the expectations and rigors of a accreditation in a commitment to delivery of quality educational programs. We were pleased to see that. Because we believe our schools do a fine job at meeting and often exceeding the needs of our students. However, our development of new curricula and program is inconsistent and we have not instituted a systemic way of sharing learning or best practices. As a consequence, we reinvent the wheel unnecessarily in multiple places around the organization. This is inefficient and costly. Operationally we are only just beginning to evaluate processes and systems to identify opportunities for improving service or to drive out costs. 75% of our schools have now been integrated into our central processing center or CPC which is one way to reduce internal touch points and the opportunity for errors in processing new and concurrent students. We expect to integrate the remaining 25% of schools into the CPC by the end of 2007. We believe there are other ways to leverage technology to eliminate repetitive tasks and automate processes, and we are actively working to identify and prioritize those.

When we talk about entering new markets, it means we will seek to grow our educational brands though a geographic and programmatic extensions. We're currently in 22 U.S. states and just five countries outside the U.S. We believe there are, and that there will continue to be, robust growth opportunities. So far in 2007 we've opened four new schools. Three on ground and one on-line. We expect to open Le Cordon Bleu Dallas in Boston in early 2008 as well as two Kitchen Academy schools within the same time frame. Over the next five years, we intend to open at least four, but ideally six new schools per year. I have authorized the hiring of a few individuals to enhance our ability to identify potential opportunities in Asia and Latin America. However, in the near term, you should expect us to remain focused on the directing the issues of our current business.

It's critical that we work to rebuild our reputation and external relationships. Obviously, we have legal, regulatory, and accreditation challenges over the past couple of years. The best way to avoid these things is to ensure that our schools and our operations are above approach. However, we have not works proactively to build long-term relationships in our communities and with our key stakeholders, which leads to mistrust of our organization and incremental scrutiny. We've got to do better in this area. We are addressing this internally by being clearer with our organization on what's expected and acceptable, and what's not.

My expectation is that we will be committed to making operational decisions at all levels of our organization, which will better protect and enhance our schools and CEC's reputation. We have developed and are beginning to deploy a set of core values that will help guide daily business decisions and actions. In terms of building our reputation and external relationships, since our last call, I personally met with heads of three of our accrediting bodies including SACS, several key contacts in the Department of Education and with four members of Congress. My goal is simple. If or when issues arise, and I expect they will, I want to learn about them quickly and ideally from somebody I personally met.

Finally, I said on our last quarterly call that I was concerned about our high levels of turnover. This was an indication to me that we have issues to address with respect to how we grow, develop and manage our people. Our turnover in the second quarter was down slightly from prior quarter but it remains unacceptably high. In the short-term, however, my key area of focus around people has been to access and address our leadership needs. On my arrival I had 14 direct reports. I've reduced that number to nine and I'm in the process of recruiting to fill several key positions that will report to me. I expect to conclude these searches very soon. I just spent considerable time talking in broad strokes about our strategies to go forward. Each of our functions and operating units have developed much more specific action plans with goals, measures and owners to drive the business. This is the discipline that has not existed in our organization. We're also in the process of developing a five year plan.

While it's early, I want you to know how the forecast is rolling up from our operating units. We still have work to do to validate certain assumptions, but over the next five years, our population growth is expected to be in the upper single digits. Our revenue growth is also expected to be in the upper single digits, and our operating profit is expected to grow in the mid teens to about 20%. Again, we have considerable work to do to deliver on our own expectations, but I'm encouraged by what I see. And with that, we'll

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Gary Bisbee with Lehman Brothers. Please proceed.

Hi, good morning, guys and thanks for all the color. I guess a couple of questions on the on-line margins if I could. The-- Pat , you addressed why the CTU margins fell so much year-over-year, how long do you expect this to continue or is this something that you think can improve over the next couple

We actually expect that we'll see year-over-year improvement in CTU margins in the third quarter. And then really continue from there. The AIU on-line margins and AIU brick and mortar margins for that fact, are going to continue to compress until really we get off of probation. And it's just a little more uncertain at that point in terms of how quickly we'll be able to recover population in revenue after that occurs and I say that kind of with a positive mind set towards this December event.

Okay, and I guess over the next couple of quarters it's probably safe to assume that the mix shift will keep that margin heading somewhat lower but now that you've lapped the AIU price cut probably the dramatic year-over-year reductions were passed that? Is that a reasonable way to think about this?

I think it's a reasonable way to think of it and I think we should think about it in terms of when you talk about year-over-year, one basis but also we think about it somewhat more sequentially, I think we'll see improved profitability in CTU sequentially. And some stabilization in the operating performance at AIU. Keeping in mind that within AIU, you do have some seasonality that's associated with the number of revenue days in the quarters.

Okay. And just the question on the campus margins as well. Thanks for the color in the 10-Q about what the startup cost did to that and I guess they weren't nearly down as much as that. How do we think about that? You have now returned to population growth for two quarters. Are we likely to have a margin rebound if you can maintain and accelerate this population growth modestly at some point in the next two quarters?

I think the answer is yes. The one thing I think we do have to look at and Gary did talk about the fact that we have some individual underperforming campuses again and I know we've used that term before. But,as we kind of turned around a lot of the operating metrics there have been, for a lack of a better description, a few laggards in the turn and they are disproportionately holding back the return of year-over-year improvement in the margins. But, we think that we will begin to pull those along with the rest of the improving schools.

And then just one last one for Gary. I wonder if you could comment on what areas or what roles you're looking to fill. Thanks a lot for all of the color.

We initiated the search for general counsel which I think people have expected us to do for some time. I'm looking at consolidating our marketing and admissions activity under one person and another key role I'm working at the this point is someone on the organization effectiveness and administration side, almost a CAO-type of role.

Thank you.

You're welcome.

And your next questions in from the line of Edward Yruma] of of J.P Morgan. Morgan please proceed.

Hi, thanks for taking my questions. You've seen some really nice growth in healthcare and culinary arts. Is this something we should expect to continue going forward and can you talk about some of the underlying drivers there.

This is Paul, Ryan. I believe that the strategies that we put in place at the end of last year, relative to margin improvements, are now taking seed. I'm also very proud of fact that we had very nice carry in population into the year, which we've been able to maintain. And, with the addition of us overachieving our starts for the first couple of quarters, that certainly needs to draw better results, although this division has performed very well this year. I think we should see some improvement relative to the stability of these populations and then with these increased starts.

On the culinary side, I'm very pleased with the performance of culinary. Pat mentioned a moment ago that there are some laggards. I have one of those laggards in culinary. The majority of the schools are over year-over-year. They're starts, their basic business metrics are above what we've been performing in 2006 and we have a full-court press on this one school that's dragging the overall division down. So, I know that division and the school has plans for recovery with that particular school.

One last thing I will add to that. You look forward as I said in my comments we have two new culinary LCB schools opening up early next year and we've got two Kitchen Academy schools. So, when you think about just the culinary division overall, we expect continued new growth and. the healthcare schools are, as Paul indicated, doing well and we believe there's more upside there.

I think, again just to add an additional comment. We do have information now in the 10-Q to identify the revenue levels and operating loss levels for startup campuses. So, we will continue to provide that. So, you'll be able to very clearly kind of see how continuing schools are performing or same schools are performing on a year-over-year basis, as well as the investment in new campuses. And, that's not just culinary, that will be across all of our segments.

One more question if I might, Gary. You had talked about re-focusing on some of your core schools particularly with the investment levels. Is there any kind of additional asset rationalization implicit in that comment or are you pretty confident at this point you've identified the campuses you would like to divest. Thank you.

It's a good question and here's what I would tell you. There's no current plan to rationalize any other part of the portfolio. We have schools that are for sale, and we want to complete that process. But, I think healthy organizations, as they move forward, periodically look at their operations and decide what's in, what's out based upon performance. And, so, we at some point in the future, probably next year or the year after, we'll look as we work with some of these schools that aren't performing as well as we would like, and, if we're not able to improve them, we will have to decide whether we're going to keep them or not. So, nothing planned today, but as we go forward I wouldn't rule that out if we aren't able to improve our performance (inaudible).

Great. Thank you very much.

You're welcome.

Your next question comes from the line of Corey Greendale. with First Analysis Securities Please proceed.

Good morning. I had a couple of margin questions related to other parts of the business. First of all, the --- In terms of what we should expect from the losses on the school that's are being taught out. Is the Q2 level the worst of it or will they continue at this rate going forward?

I would expect those costs to be fairly--- , fairly stable through teachout. The one thing I will just tell you on a perspective basis, generally if there's any kind of lease over hang you really can't recognize that until you essentially abandon the facility In the teachouts that's are currently in progress,. There are no substantial lease overhangs at the end of those teachouts. And then the one other thing is, I did mention that of the legal charge that we took that most of that was within the college and AIU segment, and so the numbers that you see in the segment data for colleges, do include a substantial charge related to that or their allocation

Got it and on the --- on-line losses. First of all at IADT on-line. What should we expect there. Is it possible that you'll see more of this , start up lots becomes larger as you roll that out and market it? And on AIU, assuming you do get off of probation, could you actually see profitability there go in the wrong direction first because were you able to start marketing more effective then you

This is Steve. I'll answer the questions. In terms of IADT online, certainly our first start and our beginning part of our enrollments have kind of exceeded our expectation for this. We are in the process right now of working in our 2008, and with our early success, certainly there will be an investment in marketing and admissions costs on a go for basis in '08, as we build--- as we've done with our other on-line schools. I wouldn't say it's substantial, because we've done a lot of startup costs already and building a platform and some of the initial startup costs obviously is a large percentage. Now it's really just the marketing admissions and building the new programs. But we feel like the IADT online based on kind of marketing competitive analysis can be as much as 5,000 students at maturity once this grows and so we really feel good about the initial startup in the future with IADT on-line.

In terms of AIU post SACS., certainly there's going to be an investment in rebuilding the brand. We have worked on new positioning statements. We are in the process of working on, as Gary mentioned, significant ad campaigns and really to work in the first quarter to really rebuild that brand. So, there will be obviously some costs associated with rebuilding that brand as we come off the probation period.

Okay, and if I could give one last one for Gary. First of all, you said that-- I think you called margins unacceptably low. What margin level would be acceptable to you at this point and in those longer term targets that you talked about, the high single digit revenue and enrollment growth. The fact that those both are high single digits, does that mean that you're not anticipating any pricing power are you just assuming that the mix shift for lower price programs continues.

Let me start with the first one. When you think about where we want to get from a margin point of view. I look at where we've been historically and I look at some inefficiencies I see within our organization and I believe that being in the high teens approaching 20 is where we have to target over the long haul. We're not going to get there immediately but that's what we set out as acceptable. We're working on it right now what the bottom looks like because we've got schools frankly that are not doing well and we want to make sure they understand what the threshold level should look like. Would you repeat the last part of your question, please?

When you gave the longer term targets you talked about high single digit enrollment growth and revenue growth. But, the fact that both are high single digit, does that mean you're not anticipating having pricing power long-term, or does it mean that your are just assuming this mix shift towards lower priced programs continues?

Pat's going to take that one.

I think we're going to see -- I expect we will see continued price increases, although in a more moderate level then we have historically. Historically we've talked about 4 or 5% and in many periods have done better. I think something more in the 2 to 3% range. The current type of environment continues, which I expect it will, will be more likely. In addition we've got some disproportionate growth or you call it the mix change. For instance our healthcare programs, I think can be some of our largest growers in there, some of our lowest revenue per student programs and I think we'll continue to see strength in this associate degree market as we continue to attack that as well.

Thank you very much.

You're welcome. Thank you.

And your next question comes from the line of Brandon [Dobell] with William Blair. Please proceed.

Thanks. A couple of quick kind of follow up ones for you. Maybe, Pat looking at the G&A, how you think about the G&A costs this quarter in the context of what you guys have talked about the past couple of quarters relative to cost savings and head count reduction. And, how we should think about that dollar spent, not in percentage of sales, but dollar spent perspective-- how to think about that , the balance of the year-- what happened this quarter, a little bit higher than we looked for. Just trying to get some

When you look at the G&A this quarter, I mean you really have to look at the legal settlement charges that we recorded.

Yep.

Because if you -- and I know we always say if you take this out or if you take that out, but when you look at kind of apples to apples spending, on a year-over-year basis, we're actually down pretty measurably within our G&A line. And we've seen reductions in what we would look at as a pure administration line. Advertising in the second quarter was down very modestly.

Admissions was down several million dollars. So we've seen substantial reductions in the admin and the admissions line in particular. And we're not looking at anything in the near term that would reverse that trend. So part of what's giving us the result is some of the corporate reductions that we've talked about previously. We've also, within the individual schools, made adjustments to spending based on changes in the revenue base. Don't see that changing in the near future.

Okay. And then, if you look at the information you provided about the July enrollment data. In the context of your comments about retention, show rates, all of those kinds of things. Safe to assume that those trends have kind of continued here in recent times or is that really a comment about the Q2 stuff.

The comment I made was the trends that we've seen through the first two quarters and continuing through July. I can't-- I don't have any specific comments August yet. But up through then, all of those trends are continuing.

Okay. From a bad debt expense perspective going forward, any change in how you guys are thinking about that metric as I use the capital or not use the capital or just doing a better job of getting the students packaged up. What's driving the change and how we think about that, the back half the year..

I think that's one area you look at on somewhat of a lagging basis. It was an issue for us a number of years ago where we those-- the bad debt expense and receivables investments had gotten too high. And it was kind of a long-term effort. A lot of changes in blocking and tackling that really gave us those results.

As we talked about changes in some of the credit standards and as we've applied them to healthcare and our culinary divisions most notably. We've seen some increases in those costs but not inordinate and we've also maintained strong control over our receivables exposure. As long as we keep our DSOs down and right now we're talking about 12 days, we keep that exposure down, the bad debt.-- the bad debt levels are going to stay in reasonable range of where they're at today.

A final question for Gary. From a philosophical perspective, how patient do you expect the company to be as you're going through the process of looking some of the underperforming schools. Now not looking for hey it's 90 days and we're going to make a decision here. But, I guess, looking at thing historically versus perspectively. How should we think of your approach to assessing the progress that some of these assets are make ing or not making.

It's a fair question, Brandon. I think the answer becomes it depends the situation, (A) because you have to see yourself reasonably through to getting the good performance or you've got to cut your losses pretty quickly. I think on a an annual basis we should be looking at our portfolio and making a determination about where we are. As I said, we're engaged in the process right now and we've got to conclude that process.

We're going through a period right now where we're looking at strategically, and tactically with some of the things that we're doing. We called out some of the schools that are of issue. We'll work a plan to address them and sometime in the next year, if it's not working, we'll have to have a conversation about that. I think it's probably an annual process, but I don't want to start multiple processes when we have something going right now and it would be premature because, it's only now that we're beginning to say this is what acceptable performance looks like going forward. we got to give people a change to respond to that.

Okay. Then one final one for you. Talked about the upper single digit enrollment growth targets. In the context of that perspective, what kind of assumptions have gone into that for retention, show rate, how far away are you on those kind of metrics, now versus where you need to be to support that kind of a long-term growth perspective?

I don't have all of the data in front of me and one of the things I said in my comments is that as we are going through trying to understand the assumption that's are here, but that said, I think on all of the measures you just talked about, we're not as good as we need to be going forward. What we've done is we've rolled up the input we've got from each of the operating units, they made across the segments assumptions of each the businesses about what they believe is feasible and doable. Now, I'm trying to go back and understand whether that performance still looks good in the context of their history and whether it looks good in the context of the marketplace. So, that's work that needs to be done and, I will be honest with you, we won't have that concluded until probably sometime in September or October. But, I think across those measures you just talked about we're not as good as we will need to be.

Great, thanks a lot.

You're welcome.

Your next question comes from the line of [Trace Urdan] with Signal Hill Group. Please proceed.

Good morning. This question is maybe for Steve or Pat. First off, Pat, you talked about being able to better leverage the marketing costs across CTU once you get to the place where those students can effectively migrate into a four-year program. I'm wondering if you guys have any kind of early data on the first associate cohorts through there, in terms of completion rates and of those folks who complete, how many are likely to go on and get an AIU degree.

In terms of CTU, we start our associate graduate in mid 2008, is about the approximate time when students start to move on to the higher-priced bachelor's degree program at CTU. At AIU, of the associate degree students that graduate from the program, approximately 50% continue on and continue on to their bachelor's degrees and of those students, approximately 75% of those students are retained. approximately 50% continue on and continue on to their bachelor degrees. And, of those students, approximately 75% of those students are retained.

So of the 50% that go on to the BA, 75% of those make it all the way through.

Well, 75% would be combining people who are -- we took a snap shot combining student that's are currently in school today and perspective students who have already graduated. So, it's actually a combination of students today who are in school and actual graduates.

Okay and-- just backing it up to the line a little bit. What are the completion rates looking like at the two on-line associate degree programs.

Well, for the CTU programs you really -- we're not through the first real cohorts on the associate degrees.

Right, so the number could get worse but it won't get better, right? I'm just wondering if you could give us any data on how well those folks are sticking in the program.

Well, if you look at-- globally if you look at our retention rates overall, even though we've had a mix change at CTU, we have had an improvement overall in our retention rate at CTU. So, even though we've moved to this, we've had an overall improvement in the retention rate.

Okay. All right, and then Gary, maybe I could ask a question of you. You talked about sort of focusing resources on the five principal brands but I also hear about plans to go elsewhere internationally, and discussion of new Kitchen Academies opening up. So, how do you reconcile those two, because it seems as though branching out further internationally is at odds with the notion of sticking with the five--- maintaining your resource spending with the five core franchise.

Let me reiterate what I said. I said that I have authorized us to look at things, but I also said in the short-term we will focus on what we have, because I think we need to do that and prove we can operate what we have-- we're caught betwixt and between. We believe there's opportunities abroad to broaden our portfolio and to grow our company. And to not at least begin the prospect and understand what's out there would probably not be a smart thing to do. Executionally, I would have concerns about doing things at this point in time. But, I think we'll prospect and continue to look.

We will focus on the five brands. There are some things that we've had in process long before I got here. There were LCBs that were in process as there were Kitchen Academies, 'cause as you know, these things take somewhere between 12 and 20 months on good timing to bring up to speed. We were unable, in some cases, to expand because we had restrictions that had been placed on the company. We were simply completing some of that work. The smart thing for us to do-- a lot of the investments had been made some time ago. But, as we go forward, as I said, we'll be more judicious and work to not have things at odd with the choices I just talked about. But again we were caught squarely betwixt and between things that's were in process and moving, and the direction (inaudible) the company as we speak.

Fair enough. I'll let you move on.

Thanks for your questions.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of [Neil Macker] with Robert W.Baird.

Good morning, guys. Just a quick followup here on the institute market (inaudible). Pat, did you say--- Is that a operating problem within the operating loss or is that an acquisition cost?.

No, no, what I was really-- If you're asking the question then I probably didn't do as good as job as I hoped to in explaining. The-- what we're really seeing-- We're very encouraged by the operating results so far for that acquisition. Very, very pleased. But what we--, there are two things that are dampening short-term profitability.

One, as part of the purchase price allocation, we've identified certain intangible-- short-lived intangible assets that need to be amortized and the amortization period on those is about 18 months. So those charges will continue that's kind of a more modest piece.

The second piece in our opening balance sheet, essentially we had to reduce the recorded carrying value for deferred revenue based on some of the purchase accounting rules. And, by having to reduce that deferred revenue, it essentially depressed our recognition of revenue over the first six months of ownership. So, really we acquired it in late January so most of that is by (inaudible) -- see a smidgen of it, really in the third quarter. So, those are non -- what I would definitely look at as non-operating-type costs. The other thing I'd mention, they do have what we would look at in a more traditional academic calendar so a good portion of the third quarter the school's dark. So, their performance in the third quarter is going to be limited. That's why I indicated we should start seeing some positive results from them in the fourth quarter.

Okay. Thank you for that. Gary, just follow ing up up on the schools that are underperforming now-- what divisions or what segments are they in, and are any of them sort of at the point where you'd be considering teaching out, because I noticed you have decided to teachout three schools in last quarter.

If I could, we've got within the culinary group, which Paul mentioned and then the other place would be within the colleges group. You know, there's nothing that we're seeing now that's driving us towards a teachout scenario. One of the things that we looked at in making teachout decisions was what I would-- might refer to as kind of chronic under performance and when we look at the under performance today, these are schools that have operated in good markets, have operated very, very profitably in the past and that needs some adjustments in terms of focus and some management changes. But none of them kind of fall into the category of chronic under performers. So, it's our belief we can get them turned around better then some of those schools that went into teachout mode.

I would add to this that part of what we have to do is when we have situations like these, we have to get on top of it quickly so they don't become chronic under performers where we find ourself in a situation where we're beyond the point of no return so to speak. So, these are schools--- and again, you can look at them fairly strategically and say they need work and we want it make sure we get on top of it so we're giving them the attention we believe-- and the help we believe they need to improve. If it persists we'll have to make choices down the line but we're not at that point right now.

Okay. Thank you.

You're welcome.

And your next question comes from the line of Jerry Herman with Stifel Nicolaus.

Good morning, everybody. A couple of questions I wanted to dig into the online margins again. It's kind of a comprehensive one. But I first wanted to verify that the margin degradation is almost exclusively related to price or mix and there isn't some other cost structure issues there. It's counter intuitive and on-line but I wanted to at least verify that and secondly and thirdly and fourthly, I wanted to just verify the anniversarying of the pricing decline at AIU. Talk about the CTU part-time program and the effect it's having-- and I understand you might be eliminating that, and then finally, what you might expect the mix of bachelor's and associates to ultimately look like there.

With my increasing age, I'm not sure I can keep track of all of those separate questions.

I had to write it down, too ,

I'll start off at the beginning and you'll refresh our memory as we go. In-- in terms of the what we're seeing in the margins within CTU, it is clearly driven by price, not by cost. As we've lowered -- as we've looked at the associate degree students more associate degree students at a lower price point. that's come without a lot of benefit on the cost side. So, and again part of the benefit also for some of the growth there is over time. So I think you understand a lot of our costs are really front-end loaded.

So, when you look at all of the advertising and marketing, your student acquisition costs are all front-end loaded, a lot of your administrative cost in terms of financial aid processing, what you do in terms of reviewing students as they come in. getting them on board. getting them into their original schedules, etcetera, all of those are more front-end loaded.

The costs that are more variable with course load and academic instruction has stayed very much in line. So, we've seen -- we've actually seen reductions in terms of expense on a dollars-per-student basis over time. But with this front end loading, we just haven't gotten the revenue flowing through and that's really part of the explanation I provided in my prepared comments.

Hey Jerry, I wrote down on a help pad, a little bit-- but the anniversary for the AIU, we've changed the price in July and then we had a fall we adjusted the price with our current students in August. So, people who started in July-- and then we made an adjustment with our current students and so, the anniversary is kind of in that third quarter. You can kind of look at it from the price reduction at AIU.

In terms of the Stonecliffe part-time, we did make it -- we made a change as you know. We rolled this out-- we did roll this out as a part-time option and pretty much every student that enrolled into our Stonecliffe auction was enrolled as part-time. We've changed that and we've made dramatic impacts with that. Just a few quarters ago or with 80% of our students who were starting were part-time students. Today it's less then 15% of those students.

So we've changed the model where somebody comes in, they're enrolled into the full-time accelerated model and then if, for in some reason, because of financial packaging, because of lifestyle, because of time, we make the adjustment after the fact but you start off with that next dramatically impact and if you look at our RPS--. we've improved our RPS quarter-by-quarter on our associate level-- just our associate level-- on a revenue per student, 17%. So we've improved that with this change. The last thing is in terms of the mix.

Currently, we're at-- approximately 50% of our on-line students are taking associate degree which obviously is up from what it has been in the past. We will see an increase in our associate degree in '08, but what will happen is as those students begin to start graduating. What will happen is-- the shift will go down because those students will begin to matriculate into our higher priced bachelor's degree program. So, we will see an uptick, but it will level off as soon as those students begin to graduate. I hope I answered all of your questions.

Yes, I appreciate it. Gary a question for you. You said you had met with accreditation leaders. Maybe could you just describe the tone of the meetings and your gauge on their perception on your company?

Yes, I'll do that. Actually, I was encouraged by the tone of the meeting because they were all positive and I think in each case they recognized that we were making progress in our work and so I was encouraged at each one. There were two in the D.C. area I went to see and then I made the trip down to Atlanta. Each of them made clear, particularly when I was at SACS-- that with regard to decision making they weren't decision makers. I made it clear to them that we were running a corporation but that we do recognize that the schools have some degree of autonomy So they--- overall, the tonality was favorable and positive and they each recognized they saw in their working relationships with us-- improvements in the relationship -- improvements in the way we respond to them and so I was very encouraged.

Great. Thanks, guys.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed.

I know it's late, I'll try to be quick. Just to drill down a little more on the associate side, can you tell us roughly what the associate represent as a percentage of your total population, where you will think that will be going and also, just to understand the difference between the associate program at AIU and CTU in terms of comparing, I guess, kind of the average length of stay of student over there, that would be helpful? Thanks.

Yes, in terms of the pricing and length, the programs are priced pretty similar, they're in the low 20 and $21,000 in terms of the price and that's kind of an all end. The difference is the associate degree at AIU was 13 months versus the associate degree at CTU being at 15 months. There's a two month difference. I think your first question was the mix percentage-wise?

Yes, for the total population associates as a total of percentage.

Jeff, if you're talking total on-line. about 50%.

Again for the total company?

Total company, give me a second here --

I think it was 35% at the beginning of the year. I'm assuming it's gone higher?

Yes, at the end of March it was about 38 and now it's about 42.

Great, and we should expect that to continue to go up from here until as you mentioned some of those folks graduate and go onto bachelors.

That's correct?

In terms of the revenue per student you mentioned some of the mix shift issues. Were there any dot tuition discounting did that have an impact as well?

Well, there are no new programs. There's level of discounting offered certain corporate partners in the military basically have a discounting programs but there's nothing-- nothing really new that was added this quarter.

If I take a look at your percentage of gross margins did she change at tall?

No, nothing meaningful there.

Okay and in terms of the startup campuses. The new three campuses on-line. Did that have a major impact in your start and population growth on a year-over-year basis?

All right, repeat that for me, Jeff.

I'm sorry, you had three new startup campuses this year and you have a new online parament. If I'm trying to take that out of the year-over-year increase in your starts and population, you can kind of gauge what that is for us.

It certainly benefited the start but it would not have been something that had a dramatic impact.

Okay, great, one more. What share count should we be using for quarter?

We've got, in -- the second quarter of 2007, the diluted share count was about $94.7 million.

I was trying to gauge when you bought back stock and -- if that's.

Are you talking about perspectively. You can assume that the shares we repurchased during the second quarter were done pretty randomly over the quarter and there's a little bit of fluctuation because of the movement of price and everything, but it was fairly even through the quarter.

One more, given where the stock is right now, when does the window open for you to continue your buyback?

We've really made a practice of not commenting on specific open windows just because to do so would really indicate if there's a reason that we -- that there's some reason that we won't be in the market in terms of any undisclosed information. Our -- what I will call our mandatory trading window or trading blackout begins late in the quarter and continues until two trading days after we release earnings. So that's why the window would open up Monday. That's a mandatory every quarter and then there could be other reasons for the company to be blacked out.

Fantastic, thanks.

Your next question comes from the line of Sarah Gubins with Merrill Lynch. Please proceed.

Hi, thank you. Healthcare start growth in the month of July was actually flat year-over-year, which is a bit of a down trend from recent start growth and so, I'm wondering if there's anything going on there or if I'm just looking at only one month of data and it doesn't tell us too much.

I think-- you're looking at one month of data and the healthcare schools have frequent starts throughout the year. Roughly about every five weeks and so, you really have some timing issues and things like that, but Paul you might want to add.

It'd absolutely a timing issue. Part of the schools, which are our safer brown colleges, do not have starts in two of the months and that's one of them and then December is another one. So, that's really one of the -- it's a narrow window plus that's the factor.

No change in the tone of the market in terms of what you're seeing for healthcare demand.

We're comfortable healthcare that nothing happened in July that's taking us off past performance trend lines.

Okay. And then AIU-- assuming that you do get off of probation, given that you've cut back on your enrollment advisors. Do see a near term need to ramp up enrollment advisors ahead of presumably perspective growth.

Yes, I think obviously we talked earlier about kind of the rebuilding of the brand, the certain brand activation strategy that's are there, certainly it would not be prudent to jump and just start adding representatives at the rapid rate, but there is nothing to say that obviously if probation's listed that we can't continue to grow. We expect to grow and obviously adding representatives would be part of that growth strategy long-term for A.I U.

Okay, last question, the growth at CTU on-line has really been phenomenal and picked up from the last couple of quarters this quarter. Can you talk about how sustainable you think that growth is? Is this really filling unmet demand in the associate degree market. Is it a particular marketing push that you're making there? I think the sustainability would be helpful.

I think a couple of things. CTU on-line went through-- it changed their admissions model. a few quarters ago. And, we termed kind of the pure model, we broke out the job a little bit which has helped the overwhelm turnover of our admissions advisors. So our admissions advisors are there for a longer period of time. We also-- with the change in the mix to Stonecliffe, we've had a significant increase in our show rate, over 31% increase year-over-year in our show rate. So, although we're increasing enrollments, we're getting a nice pickup in the show rate.

But. to your point-- certainly the Stonecliffe associate degree strategy does fill a need because really cause that's why the growth where education-- where the opportunity is right now is in that associate level. People who are--- certainly have started school or maybe haven't graduated, that's the biggest segment of the market out there today So CTU really is capturing that strong segment of the market and then-- we talked about the improved retention even with those students has been able to maintain the growth. Certainly growing 39/40% quarter-over-quarter, although we would like to have that probably not a sustainable rate to have that kind of growth every single quarter, but we do feel the CTU on-line will continue to grow at really nice rates in future.

Thank you very much.

Thank you, Sarah.

Your next question comes from the line of Jennifer Childe with Bear Stearns. Please proceed.

Thanks. A couple clarifying questions. The 17% improvement in revenue per student at CTU. Over what time period?

That's a first quarter-- a second quarter compared to our first quarter in '07.

Okay. What drove the increase in administrative spending within the university segment? And, was that one time in nature?

Can you repeat that, Jennifer? What drove administrative .

In the notes it suggested that 5 or $7 million in administrative spending.

One of the things that I said was that we've had--- of the legal settlement charge, that basically was divided between the college-- predominately between the college and the AIU.

The current corporate expense run rate-- is that a good run rate or are there additional savings.

There's going to be some changes in spending levels. Gary talked about some new positions and things like that, but on an overall basis, you shouldn't expect any significant fluctuations from here.

And, Gary, you mentioned to a previous question you responded that perhaps culinary isn't going to be one of the five principle brands. Did I read you wrong?

You did read me wrong. It is clearly one of the places that we see growth. Our core brands just to be clear, would be AIU, CTU, La Cordon Bleu, and the culinary business there, the Sanford Brown schools and AIDT. Those are the ones that represent the lion's share of our business and we simply have to make sure they do well.

Okay and any tuition changes implemented or contemplated either up or down.

Yes, we've been continuing to do what we've done historically which is we don't have to have a lock-step program across all the schools and all the divisions, so within individual schools in the division they are raising prices. We would expect that would continue to do that in 2008, but as I commented earlier, probably at more modest levels than we have historically.

And no decrease is contemplated.

We're not contemplating a decrease in '08. You always get a look at market dynamics in any changes, but I've indicated before-- last year we really did have to take a comprehensive look at pricing across the system and the bulk of any of those changes occurred within the associate degree programs, within our university group and then also within the Gibbs division which is discontinued.

Maybe just a last question. In the colleges segment, I know on the cost side there's been some one-time expenses in there, but from an involvement standpoint, it seems like things are getting worse on pretty easy comps. Any comments you can share with us or .

This is Steve. I think I indicated on the last quarter that this was going to be a slower turnaround with these schools. We do have some significant challenges at-- pretty broadly across the college group. Although we have some of our jewel brands, they have suffered significant challenge operationally, some reputation issues in their local market and really, it's going to take a few more quarters really to start showing any sort of growth in those colleges and we have kind of zeroed in on some PR plans, some branding plans, really to build back their reputation in local market.

We've added some extended payment programs in select schools where we feel like that there are some funding opportunities and then obviously there are some select schools that are getting some of the online capabilities to offer some hybrid programs that will assist their school but as I said last quarter this is going to be a slower turnaround for this brand.

And Gary, also mentioned in his comments about some strategic choices. That in certain schools we've gotten in terms of new program offerings, we've gotten some cases a little bit too broad and not focused enough in the offerings and that's kind of sticking with the traditional strength of that school in its market and part of this for these schools is kind of returning to that core strength where they really had built their historical reputation.

Thanks, that's helpful.

Thank you, Jennifer.

And your final question comes from the line of Mark Marostica with Piper Jaffray. Please proceed.

Thanks for taking my questions. Regarding the underperforming campuses, Gar, , that you mentioned. I don't recall you mentioning exactly how many there were and then if you could give us a sense of the impact on margins in the quarter for those

If I recall we've had several conversations they are probably three or four that are real significant drags across primarily colleges and I think one in culinary that we focused on. But in terms of their actual margins, I'll pass it along with the (inaudible) in just a second. Again, I would tell you that I would expect that every quarter we'll be saying there's some school or some schools that we're not satisfied with and ideally we'll do some work on these and next quarter I'll probably tell you again there's schools we're not satisfied with in working with those. But I want to reiterate that none of those have had the same sustained level of under performance or such a significant drag that we don't believe we can't fix them. And Pat's scurrying right now for the actual number, It's in one of our documents, it'll take one second.

Maybe as Pat's looking for that I'll ask my next question too. Regarding the legal settlements you thought they would be concluded near term. If you could define near term and as a follow on to that, what should we expect going forward for the next few quarters in terms of this type of situation. I know maybe it's hard to predict, obviously, but should we expect this type of charge to be kind of an ongoing item for the next few quarters or is this a one quarter thing do you think.

I'll start with the last one first. I don't expect we'll do this on a consistent basis. The thing that I'm gratified to see is we are moving to a conclusion on some things. There are some things that have been decided in our favor that we feel great about. No, I don't expect that to be the case. When I say near term, I'm hopefull that within the next several weeks, we'll conclude these and get these behind us. But this is not going to be an ongoing thing. Our goal is to not have significant legal issues as we go forward, but there are things that have been a drag on us for quite the time now. And we want to conclude them and move through them so we can focus on running the business.

Great, and then one other question regarding the CTU program, what's the margin differential between the associates and bachelor's programs at CTU and outside of not having a large graduate population to drive significant bachelor degree student growth at CTU until perhaps mid '08, are you doing anything on the new program front or marketing front to enroll potential students into CTU bachelor programs directly. Is that something we could expect over the next few quarters or am I marching down the wrong path with that thinking.

You're on the right path. A couple things. The associate degree program is not at maturity in terms of trying to right now kind of give you the differences between the margins because in such a growth pattern a lot of investments and stuff have been done with that. It's probably not a fair comparison at this point.

Obviously, it's lower for obvious tuition and length of program reasons, but to kind of go back to your next question. There are two different strategies we have employed to enhance our upper division courses. First of all, we'll be rolling out our master's degree program, something under the brand of institute of advanced study, which is really to try to distinguish our masters degree programs at the CTU brand. It's something that we've used on the ground side and it will be rolled in on both the onground side and on-line side. It really gives some distinguishing factors in our masters degrees population which we feel like there is still a tremendous opportunity there.

We've also -- the other thing is we've modified our -- some of our lead purchases, basically we've always bought by best cost for enrollment and best cost for start. We now have vendors that we are really pursuing that give us a higher percentage of students who have an associate degree or higher and in some cases -- I'll pay more for that inquiry because the yield on that giving me more bachelor's and master's degree outweighs-- or outpays the price increases. So, we're being very strategic in a few vendors that have a higher demographic in terms of education and really going after those to increase that population in the meantime of kind of this adjustment with mix. One other thought if I could on the question maybe more specifically on the question of bachelor versus associate degree margins.

I mean that all really comes down to an exercise of how you allocate cost and because when you--- in terms of the marketing programs which is one of the real significant costs, there's really no good way to kind of allocate costs in terms of the leaves generated and the productivity of those leaves, and then figuring out how many students really progress from associates to bachelor programs. So it becomes a cost allocation exercise. I think the one thing that you could look at most specifically is-- is--- you've got probably roughly a mid teen's difference in terms of revenue per student--- that's probably the most objective thing to look at, because the cost to service them are not materially different.

Got it. And then Pat, I don't know if you were able to get the answer to the other question.

The question in terms of kind of the underperforming school. This is not something where we're looking-- again we're looking at the colleges segment and the culinary segment. It's not something where we're looking at hemorrhaging-type schools in terms of losses. These are schools that have had profitability that have fallen off from it. So in some cases we're kind of hovering around a break even kind of notion and other cases we're bounced substantially year-over-year but still profitable.

And then just attached to that are you thinking the impact on margins is it material-- , I guess is the question. Is it something you can give us a little

I think within those you're talking about -- you could be talking about a couple points. In the margins for a segment.

Okay, not for the overall company. Okay. Very good, thanks for taking my questions.

Okay. Thank you,.

There are no further questions in queue at this time. I would now like to turn the call over to Mr. Gary McCullough for closing remarks. Please proceed.

First of all want to say thank you very much for participating on our call this morning and asking your questions. We appreciate your interest and we look forward to the work that we're doing over the next quarter or two to (inaudible) the next conversation.. I just want to reiterate a couple of things. First of all, I talk about choices that we are making and the question came up about us looking at things overseas or doing those things and I would tell you that our focus has to be on our current business and making sure that we are managing that well.

But we wouldn't be doing our job and I wouldn't be doing my job, if we didn't somehow lay the foundation for other places that we believe we can grow the business and in near term we'll focus on our core business, but we will continue to look at things that will, over the course of the next several years grow our business significantly. We are very focused right now on our margins and looking at the issues that are impacting your margins and committed to taking action to deal with that. But, that said, we are happy about some of the positive growth metrics that we've seen. Our strategic plan is to develop, not fully flushed out at this point, so we've got work to do and we'll be talking about that more as we go along.

I remain committed to that as I said in the beginning and as I said last quarter when I first came to the company that we have a terrific company here. We believe that we can be terrific and best in class in some areas. So we'll work at making that happen. If there is anything material to update you on between now and the next call we'll find ways to get things out into the marketplace for you, but we believe we can consistently deliver on value to our shareholders and provide a great place to work for our employees and thank you very much for your time. We appreciate it and we'll talk to you at the next quarter.

Thank you for your attention to today's presentation. This concludes the conference. You may now disconnect. Good day