Perdoceo Education Corp (PRDO) 2015 Q2 法說會逐字稿

Good day and welcome to the Q2, 2015 Career Education Corporation earnings conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Sam Gibbons with Investor Relations. Please go ahead.

Thank you, Chad. Good morning, everyone and thank you for joining us. With me on the call today is Ron McCray, Interim President and Chief Executive Officer, and Dave Rawden, Interim Chief Financial Officer. Also joining us on the call are Jason Friesen, Senior Vice President and Chief University Education Officer, and Ashish Ghia, Vice President, Financial Planning and Analytics. Lastly, we have Todd Nelson with us today, who will officially become the Company's new President and CEO on August 12.

Following today's prepared remarks, the call will be open for analysts' questions. This conference call is being webcast live within the Investor Relations section at careered.com and a webcast replay will also be available on the site. You can also always contact the Alpha IR Group for Investor Relations support at 312-445-2870.

Let me remind you that today's earnings release and remarks made include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to Career Education and involve risks and uncertainties that could cause 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 Career Education's Annual Report on Form 10-K for the year ended December 31, 2014 and other filings with the Securities and Exchange Commission. Except as expressly required by the securities laws, the Company undertakes no obligation to update those factors or any forward-looking statements to reflect future events, developments, or changed circumstances or for any other reason.

In addition, today's remarks refer to non-GAAP financial measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. The earnings release and slide presentation which accompany today's call and which contain financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures, are available within the Investor Relations section at careered.com. So with that, I'd like to turn the call over to Ron McCray. Ron?

Thank you, Sam, and good morning, everyone. Thanks to everyone for joining us on this call. We have a full agenda for you today, with the detail we promised you last quarter when we first announced our transformation plan. But before we get into that discussion, I would like to introduce Todd Nelson, who will become our next Chief Executive Officer.

Todd was nice enough to join us today for the call even though he doesn't officially start for another five days. When the Board and I set out on the search for new CEO, we believed that we needed a true industry veteran. Our industry is undergoing massive transformation right now and finding a leader who has deep knowledge, experience, and a strong track record of leadership in navigating our business was important.

Further, finding a leader who has dedicated a large majority of his life to the education of hard-working students like ours was equally important. So I'm happy to introduce you to Todd Nelson, who will officially become our President and CEO on August 12. Todd has been a leader in our industry for over 25 years and we're looking forward to seeing him execute the remaining steps on our transformation and the returning the Company to growth in the future. Todd?

Thanks, Ron, and good morning. I cannot tell you how excited I am to actually be here. As Ron mentioned, I've been a leader in the industry for over 25 years. I've been through good times and I've also seen some tough times. I don't think anyone truly becomes a leader until you've lived through those types of cycles. No matter what business you are in, the industry is under intense regulatory scrutiny right now.

But the value of our industry, and in particular, Career Education provides to working, hard-working student adults, looking to better themselves is immeasurable. Many of our students have limited opportunities as they haven't followed a traditional path, but our programs provide them with an opportunity to expand their career paths and better provide for their families. As an industry and as an Organization, this is what has to motivate us every day.

The transformation that our industry is undergoing right now will make us much stronger. And the platform that Career Education has through high-profile brands like CTU and AIU, as well as dedication to student retention and excellent outcomes, makes me really excited about our role in the industry's transformation process.

With a balance sheet that will only get stronger as we work through this transformation, and a highly respected educational platform, I'm really excited about what we can do here at Career Education in the future. I will wrap up with saying I am looking forward to catching up with many of you, and again, as we progress through this 2015 and beyond. Thank you very much. Back to you, Ron.

Thanks, Todd. All of us here at Career Education want to welcome you to the team and we look forward to working with you. Let's get back to today's discussion. As many of you are aware, the Company announced its strategic transformation last quarter and we are now in the process of executing against that plan. Last time we spoke, we promised you that we would provide greater detail and an expected timeline for that process as soon as we had further developed our projections.

Today's agenda includes a discussion of those details, but first we would like to review the highlights of our 2Q results, which are strong and in line with our expectations. We'll then provide an update on our progress as it relates to executing our transformation strategy, which is focused on our University Group. Finally, Dave will conclude with a thorough financial review of our 2Q results, as well as the details surrounding our restructuring plans.

I would ask you to turn to slide 4 for a review of our 2Q highlights. As I mentioned, results were strong and in line with our expectations, and continue to underline the successful execution of our transformation strategy. Our University Group revenues of $138.2 million increased 2.6% compared to last year's 2Q, driven by increased total enrollments. These results are indicative of a strong competitive position of our University Group especially during a period of significant uncertainty in our industry.

We also continued to see ongoing success of our cost initiatives, with strong operating income performance in our University Group, which increased 50% year over year to $29.4 million during 2Q. Adjusted EBITDA for our University Group and Corporate also continued to strengthen, up $7.1 million, or 36.3%, to $26.6 million in 2Q.

This increase was primarily driven by ongoing cost improvement initiatives, which are partially offset by increased administrative expense as a result of general corporate overhead no longer being allocated to the LCB campus, which as you know are held for sale, thereby increasing the percentage allocated to the University Group.

Our Company's mission has always been to enable students seeking non-traditional career or job path to obtain a high-quality education that allows them to achieve their goals. We believe we have a significant opportunity to provide quality higher education to the adult student market through our degree-oriented higher education, offered primarily online through our regionally accredited universities, which is why we ultimately decided to focus our future around our two university institutions.

Our priorities for the future of our University Group start with continuing to invest in strengthening academic outcomes for students. We are achieving that goal through several investments, the most significant of which is our Intellipath adaptive learning technology. As we've talked to you about in the past, we believe this powerful technology will continue to serve as a key differentiator for our Company and will ultimately help us drive longer-term retention of our students.

We continue to invest in building brand awareness of our universities, as well. We also continue to grow relevant new programs where we see opportunities for students. For example, this quarter at AIU we announced the approval of a Master of Education degree program in elementary and secondary education. This goes along with the new Master of Nursing and Master of Healthcare Management rolled out at CTU in the first quarter.

As we mentioned last quarter, we will also be rolling out a new mobile application at CTU during 3Q, and if it is as successful as we anticipate, it could then be scaled for AIU at a reasonable cost. The strength of our university offerings is further evidenced by the growing number of corporations with whom we have developed partnerships that provide us opportunities to fill their unmet employment needs.

During 2Q, we signed 12 new strategic corporate accounts and now have over 100 strategic relationships today, which provide access to over 5 million potential students. The number of students coming from these strategic partners increased 55% over 2Q last year, which we believe further demonstrates the effectiveness of our programs in addressing the gap between the skills employees have and the skills employers are seeking.

But our corporate partnerships are much more focused on quality, as opposed to quantity, which is why both CTU and AIU continue to work diligently with our corporate partners about ways they can routinely engage and articulate the value of our education services to their key people. Additionally, as part of our efforts to resolve outstanding legal matters, we recently received good news that the Seventh Circuit Court of Appeals upheld a decision by the US District Court to grant summary judgment in our favor in connection with the Nelson False Claims Act case. This decision was an important decision for our Company, but also set a favorable precedent for other companies in and out of our industry facing False Act Claims.

Now I would like to shift gears and I would like to provide you with a little more detail on the financial implications of the transformation efforts that we have begun implementing. We've already shared with you that we expect this transformation to be accretive to 2015 earnings, excluding restructuring charges, but we are prepared to give you a longer-term perspective.

On slide 5, you can see a graphical representation of the three core pillars to our transportation (sic - transformation). The first and largest leg of the transformation from a cost perspective is the teach-out and divestiture of our Transition Group and LCB campuses. As most of you are well aware, we announced in May our intention to teach-out the remaining 15 Sanford-Brown campuses, including Sanford-Brown online.

We also announced our intention to divest or transfer ownership of our three remaining Career Colleges: Missouri College, Briarcliffe College, and Brooks Institute. We made great progress against that goal over the last few months, as we recently completed the sale of Brooks Institute. Further, we've also signed an asset purchase agreement for Missouri College and are working with a potential buyer for Briarcliffe College.

As it relates to our sale process for the Le Cordon Bleu Colleges of Culinary Arts, we have progressed to the next stage of discussions with multiple parties. Several of these prospective buyers have initiated their due diligence processes and we continue to expect to reach an agreement with the new owner before the end of this year. So that's the first leg.

The second leg of our transformation involves the right-sizing of our Corporate overhead. With a significantly smaller platform of schools to support, as our teach-outs are completed, we will be able to lower both Corporate overhead needed to support our schools and eliminate in entirety all of the localized administrative and marketing support that was previously provided to support our Career Colleges and LCB campuses.

Some reductions in Corporate overhead have been more immediate than others and have already reduced a significant amount of costs since we spoke to you last. As a reminder, teach-outs vary by length of programs offered at each campus, but we expect all campuses selected for teach-out to be closed or taught out by the middle of 2018. We will continue to support campuses and students through these processes and our Company has a track record of favorable feedback from state regulators and accreditors, faculty, and students regarding how we've approached teach-outs in the past. That's the second leg.

The third leg of our transformation involves our ongoing efforts to create more efficiency within our core University Group. Our strong results this quarter show that we are already making steps here and we expect to further expand these efforts over the next few years. Now, I know many of you would like to model this transformation year by year, but there are still numerous moving parts to this transformation, which makes it very difficult for us to quantify short-term metrics.

Dave will offer you more specific projections and directional guidance, but I want our investor to understand that this was a significant and well-thought-out transformation. As slide 6 depicts, and using annualized expenses based on our most recent quarter, we expect the three legs of our transformation to drive approximately $375 million of cost out of our business by 2018.

As result of these transformation efforts and with an offering focused primarily on online education, we expect to generate competitive operating margins as our teach-outs and divestitures are completed and our cost initiatives take hold. Based on these transformation efforts, we expect 2016 cash balances to be stable compared to 2015 and to grow in 2017.

Most importantly, with competitive operating margins and a sustainable cash generating business, we will be a stronger and a healthier Company. This will enable us to continue to invest in enhancing student outcomes and advancing education. With that, I will turn it over to Dave to provide a deeper dive into our 2Q results and financial impacts of our restructuring strategy. Dave?

Thanks, Ron, and good morning, everyone. I will start first with the 2Q University results. Then I will discuss the results of our Transitional Group and Discontinued Operations. After that, I will briefly review some of our consolidated results and provide an overview of our liquidity and balance sheet, and then finally, I will conclude with a more detailed outline of the expected costs and timeline associated with the restructuring initiatives we disclosed in May.

If you'll please turn to slide 7. All percentage [of variances] I mention will be comparisons to the prior-year quarter unless otherwise noted. Now, as Ron mentioned, total revenue for the University Group was $138.2 million, which was up 2.6% year over year driven by increased total enrollment. Operating income was $29.4 million, up 50% over the prior-year period, as operating margins expanded 670 basis points to 21.3%.

This was driven by increased revenues and continued execution at both universities of various cost control initiatives that were put in place late last year. Year-over-year operating margins improvements should continue for the remainder of year, although I'd remind you that quarterly margins are impacted by seasonality and marketing spending.

1Q and 3Q tend to be our highest advertising expense quarters. In 2Q, advertising expenses were $34.3 million compared to $37.4 million in Q2 of last year. Adjusted EBITDA for the University Group and Corporate increased 36% to $26.6 million during 2Q, driven by increased revenue and continued cost reduction initiatives.

If you will please turn to slide 8, you will see that total student enrollment growth within our University Group increased 2.3% year over year to 31,300 students. Our new enrollment data continues to be skewed by a methodology change we made to AIU last year, but excluding that, new enrollments were up 2.4% year over year. CTU's 2Q revenue increased 1.3% to $86.2 million, as total enrollments increased to 20,600 students, or up 4% compared to the prior-year quarter.

Operating income at CTU was $24.3 million, up 15.8% from last year, as operating margins expanded over 350 basis points to 28.2%. AIU's revenue was $52 million during the period, up 4.7% over the prior-year quarter. AIU produced operating income of $5.2 million during 2Q compared to a loss of $1.3 million in 2Q, 2014, as result of our team's continued execution against cost control initiatives that were put in place last year. This represents the first quarter of positive operating income from AIU in the last seven quarters.

Turning to Transitional and Discontinued Operations, adjusted EBITDA for the Transitional Group and Discontinued Operations, which includes the results of our formerly reported Career College segment and our LCB campuses, which are held for sale, was a negative $30.8 million in Q2 compared to negative $39.1 million in the prior-year quarter. The improvement was primarily as a result of favorable comparisons resulting from the wind down of previous operations, partially offset by impacts of the recently announced Career College teach-outs.

As far as taxes, as we've discussed on prior calls, given that the Company remains in a three-year cumulative loss position, we are not yet in a position to benefit from the current year losses. As such, our tax rate is expected to be close to 0%. We also continue to carry a significant valuation allowance. At the end of 2014, our valuation allowance was $150.4 million.

Once we return to sustained profitability, we will be in a position to begin to reversing these evaluation allowances and recognizing the benefits associated with these deferred tax assets. Capital expenditures in 2Q were $1.6 million, down from $3.6 million during the same period last year, and $3.4 million during 1Q of 2015.

Let's now discuss our financial position and liquidity. As of June 30, 2015, the Company had cash, cash equivalents, restricted cash, short- and long-term investments inclusive of Discontinued Operations, of $204.1 million compared to $282 million at the end of 2Q last year and $213.7 million in Q1 of 2015. Net cash flow used in operating activities for the quarter improved to $6.4 million compared to a usage of $45.9 million last year.

The current-quarter operating cash usage included the cash receipt of $14 million for an income tax refund. The prior-year quarter cash usage included a $21.6 million of payments related to legal settlements. We continue to expect to end 2015 with over $190 million in total cash, cash equivalents, restricted cash, and short- and long-term investments.

Let's move now to a more detailed discussion of our transformation. As Ron discussed earlier, we are now in a position to discuss in greater detail the financial impacts of our restructuring initiatives we announced in May. For purposes of these projections, we've provided you with slide 14 in the presentation today. And the key assumptions are as follows. We have assumed that we will have an agreement to sell LCB by the end of 2015 and all divestitures will be completed by early 2016.

We assume flat to modest growth in our University Group over time; however, as you'll see, we expect to have significant resources and opportunity to invest in this exciting platform in the future, but again for purposes of these projections and to be conservative, we've assumed flat to modest growth in the core assets. The rest of the assumptions, as you can see, assume general stability and consistency in the environment and historical patterns we've seen in operating our Business.

Now moving back to slide 9. You will see a reminder for you on the timeline for our projected teach-out schedule. We've updated this slide to start with 1Q of each year till we have a sense for how many schools we will begin the year with, in terms of teach-outs. This slide also shows you the impact to adjusted EBITDA that we're projecting from this year and 2016 for the negative impacts from our Transitional Group and Discontinued Operations, excluding LCB.

Prior to the announcement of the strategic transformation, we had expected our Transitional Group and Discontinued Operations to deliver adjusted EBITDA of a negative $62 million. However, despite the addition of over 20 campuses on top of that projection, we are now projecting an adjusted EBITDA for 2015 from the Transitional Group and Discontinued Operations excluding LCB to be approximately a negative $100 million. In 2016, the impact is expected to reduce to roughly a negative $85 million.

Now moving to slide 10. We've provided some more qualitative direction in terms of our key liquidity and business metrics. In the middle of the table, you can see our Transitional Group's impact as I've just described in 2015 and 2016. In 2017, as we wind down the Transitional Group continues and as teach-outs are completed, these negative impacts will begin to improve substantially. We expect only a small residual amount in 2018 as we complete the exit of our Career Colleges entirely.

The savings we expect for exiting Career Colleges and downsizing our Corporate overhead will equal or slightly exceed the restructuring payments we expect to pay in 2015. So as it relates to our cash balance, we still expect to have cash, cash equivalents, restricted cash, and investment balances of more than $190 million at the end of the year.

As we look beyond 2015, as Ron said, we expect 2016's cash levels to be stable compared to 2015, to grow in 2017, and further grow in 2018, as our transitional activities and our associated costs ramp down. As we move forward with flat to modest university enrollment trends, we expect to see a mid, single-digit operating margin in 2016.

As our teach-outs are completed over the next two to three years, we expect that the margin to grow and eventually approach competitive industry margins. Lastly, and as a reminder, we estimated last quarter that the cash and non-cash restructuring charges for our strategic transformation will range from $40 million to $50 million.

Today we are happy to announce that we are lowering that estimate to $32 million to $38 million, with $12.6 million related to severance charges that were recorded during 2Q and that will be paid over time through 2018. The other $20 million to $25 million in restructuring charges are related to lease obligations that will be recorded as campuses closed with cash payments continuing through 2023, which is when we exit the last remaining lease.

Again, the key assumptions behind the forward-looking expectations I just provided appear on slide 14. Note that these estimates do not include any additional progress we may make on the reduction of real estate obligations within our Transitional Group. We remain diligent on the real estate front in that regard. I will now turn the call back to Ron to offer some quick closing remarks. Ron?

Thank you, Dave. If everyone turns to slide 11, [you will] see a summary of the guidance and projections related to our transformation. Our Company has been forced to make some very difficult decisions over the past several quarters in order to secure our long-term future. I believe we are on the right path to stability and profitability that will benefit our students, employees, and shareholders.

I look forward to handing over the reins to Todd to guide our strong team and I will do will all I can as Chairman to support Todd and his leadership team. I'm confident that I will be turning leadership of the Company over to competent, capable hands and we are fortunate to be doing so with a clear path to a bright future. Career Education is approaching the returned to sustained profitability and the competitive margin profile with leading university academic offerings and a strong balance sheet.

I want to conclude by thanking the dedicated employees and faculty that continued to support our mission amidst a challenging time in our history. I would also like to express our gratitude to you, our shareholders, for your continued trust and support to these past several quarters. We hope the details that we have disclosed today surrounding our long-term financial plans has strengthened your confidence in our ability to meet our goals. With that, I will now turn the call over to the operator for your questions. Operator?

(Operator Instructions)

Jeff Silber, BMO Capital Markets.

Really appreciate the details on the plans. I know there's a lot of moving parts here.

But just stepping back and looking at recent trends where you have been able to grow enrollments. Can you give us a little bit more color how you think you have been able to do that while the rest of the industry still appears to be shrinking and what gives you confidence that you will be able to continue? Thanks.

Thanks, Jeff. Good to hear your voice and thank you for the note I read the last couple of days.

Single factor explanations rarely suffice to explain something as complicated as enrollment so I'm going to turn this over to Jason in a second, but -- so bear with us as we take you through that. Jason?

Sure. Good morning, Jeff. How are you doing?

As it relates to the quarter for University, what you are seeing is a reflection, as we've talked about in past calls, on executing the plans that we laid out. That has a couple of different elements. First, as Ron indicated, and talked about more in the script, we continued to strengthen academic outcomes through our use of Intellipath, and we are very optimistic clearly on that platform and what that can do overall to support our students.

The second element that you heard a little bit in the script is how we are continuing to identify new programs with good strong outcomes that our students are interested in. In Q1, as we highlighted, at CTU, that included a Master's of Healthcare Management and the Master's of Nursing. And now in Q2 at AIU, that's our Master's in the primary and secondary education spaces.

The third element there relates to how we are continuing to invest resources and grow our Corporate partnerships. As you heard, over the last -- in Q1, we grew about 40% year-over-year in terms of new student enrollments through those strategic accounts. Q2, about 55%, and over the past year plus, we have added about -- nearly 100 strategic accounts that have an employee base of roughly 5 million employees. That continues to be a really important component and we are seeing some of the benefits of that investment now.

Then we've also invested behind the AIU and CTU brands. We are back on TV, as you know, entering now the all-important back-to-school season. As you reflect back on Q1, you will recall that we talked a bit about how we were investing in some new creative for CTU, as well as at AIU, how we were back on TV in the first quarter for the first time in many years. So we are seeing some of that benefit.

Then clearly, we have had a dedicated effort around being more efficient and effective in how we are serving our students and how we are conducting activities to support those students and you are seeing some of that benefit on some of our cost metrics. In essence, it comes back to executing the plan that we laid out and we have been very focused on doing that over recent weeks and months.

The only thing I would add, Jeff, is Jason referred to the corporate partnerships. Quality has been more of an emphasis for us than quantity and so there's more stickiness to those relationships than might appear on the surface. So that is a sub-point under the corporate partnerships that I thought I would share with you.

I appreciate that. In your prepared remarks, when you talked about the longer-term plan, you used the words, you're going to hope to approach, I think it was comparative or competitive industry margins. Again, industry margins seem to be moving in the wrong direction, so maybe you could help us quantify where you think this business can get to from a margin perspective over the long-term? Thanks.

I will turn that over to Dave, but we do think we will be in a leading category, but fair point, margins are going in the direction that no one is interested in. But Dave?

As we took a look at this week, we asked those very same questions. The way I would look at it is the margins are -- we took a look at where the margins are today. We also took a little bit at the trends, but more where they're related to today and took them on the best in that group to see where we could end up with this transformation.

As we modeled it all out, we ended up among the best in that group when we are all said and done. Granted, the trends could come down, but right now we are modeling to be where we think they will be.

The only thing I would add is although we are not giving you a point estimate, I would add that we were looking -- we set this as a target before margins began to deteriorate, Jeff, so we are talking about significant change here.

Correct.

All right, fantastic. And Todd, just want to wish you best of luck.

Thanks, appreciate it. It would be good to catch up.

Okay. Will do. Take care.

Thanks, Jeff.

Peter Appert, Piper Jaffray.

Thanks, good morning. I'm just wondering if the cash estimates that you have given, the $190 million for example, going forward, assumes any proceeds from Cordon Bleu or other asset sales?

A fair question. I will let Dave respond to that. Dave?

It does not include any expected proceeds from the sale of LCB or any other assets.

Okay, great. Then you've given us estimates around the EBITDA losses for the transitional schools and I'm wondering, Dave, is a possible to correlate that to actual cash losses?

It is directionally correct. It is not totally specific to it, but directionally, yes.

Okay. On an unrelated topic, on gainful employment, any commentary in terms of operational changes or implementation or how you see it impacting the business?

Peter, this is Jason. What we've said on past calls is from an impact perspective that would have had much more of an impact on our Career schools and our Le Cordon Bleu schools. From a University perspective, we believe that has a much, much lesser impact.

We obviously have a very good handle on the debt side of the equation, recently submitting six years worth of the data to the department. As you know, a bit of unknown variable there's been a little less transparency on and so hard to give highly precise answer is on the income side in that the last time the department released that information, that was a number of years ago of social security date, so where that has moved is a little less clear.

I know there's an outstanding pending appeal that's out there, but we continue to move forward assuming that those regulations clearly are going to be fully implemented and that appeal wouldn't be successful. But we believe on our core assets moving forward, we don't think that will have a material impact on a go-forward basis.

Understood. Thank you. Jason, any other -- you called out a couple of new programmatic offerings -- any others in the works that we should be keeping an eye on that could be meaningful?

It is clearly an area of focus for us, is identifying those new programs that we are continuing on both sides, AIU and CTU, to identify those new programs. I don't want to get ahead at this point, because as you know, there's a process there of different approvals and different things you've got to go through, but that will continue to be an area of focus for us on a go-forward basis.

Got it, great. Thank you.

Thank you, Peter.

Corey Greendale, First Analysis.

Good morning and congratulations on the continued progress.

Thank you, Corey. How have you've been?

Doing well. Long time no see (laughter).

I just had a few questions. I hope you don't mind, I realize, Todd, you haven't even started yet, and ordinarily I would give you a free pass, but since I know you so well and since you know the industry so well, I just had a couple quick things I was hoping to hit. First and foremost, I was hoping you can just give some perspective on what attracted you to the CEC opportunity, and what do you see as the core opportunity there?

Sure. It has been interesting over the last couple of decades to look at the transformation of where the demand is coming. If you look at that combined with the regulatory environment that we are involved in right now, as well as the competitive landscape, I felt of all the companies with the transformation that's taking please here, this Company is well-positioned to take advantage of the environment that we are in. That combined with, as I've spoken with members of Management, the dedication to high-quality outcomes, laser focused on building retention, those are things we can build on.

You look at the macroenvironment right now and the demand for education and the value of education, regardless of all the noise out there about cost and return, which we understand, there is a huge demand. The ability for the traditional providers to meet that, it's just not possible. So for a high-quality education Company to be able to really support that demand, the best positioned Company is Career Education, so it was an easy decision for me.

Great. It is good to have the opportunity to talk with you again.

More broadly and anyone who wants can answer this question, as you look at what's happening in the space overall, at a high level, investors have a sense of what's going on. But there is some variance that's challenging to explain among the various companies in this space.

Can you just give at a high level your overview of what is that you think is resulting in your ability to grow the University segment at the moment as some others are still struggling more? And how sustainable it is and also how volatile it is, as we've seen some volatility at others, where things seem to be trending in the right direction and then there's an awful month, just what you are seeing on that consistency front?

Sure, Jason?

Yes, Corey, I had shared a little bit earlier in Jeff's response what we think relates to that key initiatives that are driving that, that being again, our focus on the academic outcomes and Intellipath, new programs, corporate partnerships, investing behind the AIU and CTU brands. Clearly, we believe very strongly, as both Ron and Todd have indicated, we have a very strong team that, despite some of the changes and other things and dynamics that have been going on here, has stayed very focused on our students and focused on executing our plan.

The combined effort of our team and that focus with the right plan and initiatives that we set in place is what you are seeing here in a second quarter. Obviously, we are optimistic on building on that momentum coming out of the second quarter.

As you know, we are entering the important back-to-school season, which will be important for how we not only this year, but going into next year. But we have been pretty clear in some of the slides we've shared with you what the assumptions are on what we use to build the information that we rolled out on a go-forward basis. Hopefully that helps you a bit.

It does, and actually, Jason, one follow-up on that, which is Intellipath, how aware are potential new students of the technology? And is Intellipath more helpful for outcomes and retention or do you think it really does move the needle on new students, as well?

Yes, as a new student, although we have dialogue with students about Intellipath and what that represents and how that can potentially help them be more efficient and effective in their learning and in their studies, as you know, as a new students, if you don't have necessarily a comparative basis that may or may not fully register with that benefit is, but we are clearly having that dialogue.

Where you see even more benefit is with our continuing students, the ability for those students to move through material that they already know and spend more time on that material that they don't. And how that is changing the information that we are able to provide to our faculty to enable a more specific coaching dialogue with those students. We feel very good about how that is setting us up on a go-forward basis to really support improvement in student outcomes and success of our students.

Got it. Just one quick bit of feedback.

I understand there is a lot of moving pieces, but presumably you have models that are leading to your confidence in what the cash balance is going to be at the end of this year and then going forward. To the extent you would be willing to put together some high-level quarter-by -quarter indication of what you think, where the cash goes, that would be helpful for people getting confidence in cash being stable and ultimately growing?

That's good input, Corey.

Great, thanks for taking my question.

Okay, thank you. Have a good weekend.

(Operator Instructions)

Dan Kaplan, Akanthos Capital.

Hi, guys. Congrats on the quarter and welcome, Todd, to the Company.

Quick question, the marketing expense that you guys have given out on the release, how much of that went for the University schools?

I would have to say virtually all of that. Some was spent on LCB and not much on the Career Colleges, obviously. But virtually all of it was spent on the University.

And that's this quarter, but what about, say, the quarter year ago? Did that dynamic change?

We still tend to spend the bulk of our spending on the University. It would have been higher proportion. We would've spent some on Career and some on LCB, as well, last year. But for the most part, at least in this quarter, it was almost entirely LCB and University.

Got it. And also just digging a little bit more on the cash guidance, just looking at the current run rate in the University schools, let's say, around $70 million in EBITDA times 2 and then minus $180 million from the transitional schools, that's about negative $40 million, yet your cash guidance is unchanged. So does that mean additional an $40 million coming from additional savings on University schools?

What it really gets into is the fact that you have a profitable University Group. We are making savings in the Corporate going forward, which we initiated starting in a second quarter, so you are see the annualization of those savings going through the rest of this year. Then we will have to spend, obviously, some cash on closing down the Career schools. So yes we're very comfortable with the $190 million.

Got it. But looks like a good amount of savings is coming in addition to savings this quarter. That's great.

Could you talk about your deferred tax allowance --valuation allowance? Where does it currently stand, and given your guidance, do you expect to reverse it in 2017, i.e., recognize the deferred tax assets?

You adjust that at the end of the year, so it still stands at $150.4 million. We will take a look at that when we do our 10-K next year to see if we provided enough indications that we can begin to reverse that. But as it stands right now, we haven't been able to -- one, we have not provided any guidance on that, but two, we are still in a position where we have to fully reserve that deferred tax asset.

Got it. Thank you so much.

Okay, thanks, Dan. Have a good weekend.

At this time there are no further questions, so I would like to turn the conference back over to Ron McCray for any closing remarks.

Thank you all again for your continued support of Career Education. We believe we are on a clear path toward long-term success for both our students and shareholders and hope the level of detail in the disclosures we provided to you today have brought you greater confidence in our ability to achieve our goals.

Have a great day. Thank you for your support.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.