Career Education's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Career Education Corporation (CECO)

Q2 2012 Earnings Call

August 1, 2012 11:00 AM ET

Executives

Mike Graham – EVP and CFO

Steve Lesnik – President and CEO

Analysts

Jeff Silber – BMO Markets

Sara Gubins – Bank of America

Jerry Herman – Stifel Nicolaus

Brandon Dobell – William Blair

Thomas Allen – Morgan Stanley

Jeff Meuler – Baird & Company

Corey Greendale – First Analysis

James Samford – Citigroup

Presentation

Operator

Welcome to the Career Education Corporation’s Second Quarter 2012 Earnings Conference Call. My name is Christine and I will be your operator for today’s conference. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note today’s conference is being recorded.

I will now turn the call over to Mike Graham, Executive Vice President and Chief Financial Officer. Sir, you may begin.

Mike Graham

Thank you, Christine. Good morning, everyone, and thank you for joining us on our second quarter 2012 earnings call. Also with me on the call this morning is Steve Lesnik, our President and Chief Executive Officer.

Following the remarks made by Steve and I, the call will be opened for analysts and investor questions. This conference call is being webcast live within our Investor Relations section of our website at careered.com. A replay of this call will also be available on our site. If we don’t get to your question during the call, please call our Investor Relations department at 847-585-3899.

As part of recently announced changes in leadership, John Springer, formerly Vice President of Strategy and Investor Relations has joined our Senior Leadership Team at AIU, American Intercontinental University. He serves as Vice President of Finance, Strategy, and University Operations for AIU reporting to the University President, Dr. George Miller. I’m pleased to announce that Matthew Tschanz, our Director of Corporate Finance has worked with John and I in Investor Relations over the past year will now partner directly with me in leading our IR efforts.

Now, before I turn the call over to Steve, let me remind you that yesterday’s press release and remarks made today by Steve and I may include forward-looking statements as defined in Section 21E of the Securities Exchange Act. These statements are based on information currently available to us and involve risks and uncertainties that could cause our actual results – our actual future results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements. These risks and uncertainties include, but are not limited to, those factors identified in our annual report on Form 10-K for the year ended December 31, 2011 and subsequent filings with the Securities and Exchange Commission.

Except as expressly required by securities laws, we undertake no obligation to update those risk factors or to publicly announce the results of any of these forward-looking statements to reflect future events, developments or changed circumstances or for any other reason.

With that now, now let me turn the call over to Steve.

Steve Lesnik

Thanks, Mike. Good morning, everyone. Thank you very much for joining the discussion this morning of our second quarter year-to-date financial results. Last February, during our call with you, I said that 2012 would be a year of transition. I also suggested that it would be a year of results erosion. Both of those predictions have certainly turned out to be true.

It’s a year of transition as we and others in the private sector education deal with public criticism, as well as regulatory initiatives aimed at limiting the sector’s growth in providing post-secondary education in America. Those and a number of other factors including the weak economy, uncertainty about employment, negative publicity regarding student loans, and in our case, some missteps last year have meant an erosion in student enrollment in our schools leading to declining revenues to extent greater than costs can be correspondingly controlled.

I also said at that time the long range prospects for our universities and career schools were strong, as we had and continue to have, an array of advantages from technology to academics that benefits our students and enables them to realize aspirations and improve their lives.

I remain optimistic about the long-term. Why? It’s simple. Our nation needs more people with post-secondary education. As the former chairman of one of the nation’s largest publicly education agencies overseeing all the colleges and universities here in Illinois, I know our public institutions across the nation are terribly starved for funding and will remain that way for the foreseeable future.

I also believe these institutions consume more public funds than their private sector counterparts do. So the private sector must be part of the solution to produce better educated, more career ready citizens.

Now, let me tell you what we are doing currently at Career Ed through the second quarter. As you know, when I assumed this role last November, Career Ed was being buffeted by regulatory and accreditor issues. Many have been resolved and as a result of efforts throughout the company, much progress has been made. Yet, challenges remain stemming from those same issues. On the whole, however, I am satisfied with the progress we have made in dealing with the challenges we faced at that time.

I’m satisfied from the standpoint of changes we have made internally to be a consistently compliant company with the goal of zero defects, if you will, and also from the standpoint of getting on a fresh more trusting and transparent footing with our many regulators and accreditors. I hope everyone, both inside and outside this company knows that we are committed to putting our best foot forward to make the right decisions on behalf of our students and to communicate openly and thoroughly about our policies and procedures, the impact of those on our students and about our students academic progress and employment prospects. But this progress, much of it being led by new leaders in the company, is coming amid a trying economic period and as I’ve said, considerable external headwinds.

Specifically, these external factors have dramatically lowered our overall prospective student inquiries, starts and enrollments; lowered revenue projections well below our expectations at the beginning of the fiscal year, particularly among our career institutions and underscored the need to improve significantly our methods and channels for identifying and attracting qualified prospective students. In short, we stand with all higher education institutions amidst a difficult economic environment and resulting declining trends across many key metrics.

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