Career Education Executive Insights: Career Op Loss, Share Buybacks

On Friday, Career Education Corporation (NASDAQ:CECO) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analysts and investors.

Career Op Loss

Jason Anderson – Stifel Nicolaus: I was wondering if you could provide may be a bit more color on the change in the guidance on the Career op loss to the $120 million. I mean is there more demand change in the negative leverage or is it also – I mean expense weighted also or a combination of both?

Michael J. Graham – EVP and CFO: I think it is a combination of all the factors. I think as Steve discussed earlier in the call, many, many moving parts between the industry and between our model. Significant changes put in place, Jason, (for reason) as those of you who have experienced in the past and Investor Relations has done a great job with the Health team to put in steps. These steps of the team are over 19 different steps to improve the institution. As we look to add the new student demand that’s out there across the Allied Health industry and around United States, the current programs we’ve put in a lot of changes. We are taking costs out, especially metrically driven costs that are aligned closely with student population and new student starts while again investing back in what we need for outcomes. So this is a base of introductory base and all the changes we have made we are giving our best current estimate of what the combined ground school trajectory would be.

Jason Anderson – Stifel Nicolaus: One other on the tax rate, should we assume then that this is going to continue through the remaining quarters of ‘12 or is any other color you could give us on that?

Michael J. Graham – EVP and CFO: Let me give you some color, it’s just very difficult given where the numbers are, you’ll have to do some modeling yourself. But as you model out the tax rate, I would focus on domestic income as traditionally tax number between 35% and 37%, and our international income is probably at a mid teens rate. So as you look at your models and look at your blend, every quarter I would apply that and then on an annual basis, you will come back to our rate. But it’s probably easier to compute out the income tax expense and then back into a percentage number.

Share Buybacks

Suzanne Stein – Morgan Stanley: On the share buybacks, are there any restrictions either regulatory related to financial responsibility, or with respect to the credit agreement that would preclude you from being aggressive with buybacks? On the credit agreement have you had any discussions regarding the covenants on your existing agreement or on putting a new agreement in place?

Michael J. Graham – EVP and CFO: On the repurchase, there are some restrictions, there is a restriction in our current revolver around net worth or net equity and so we’ll have to always be conscious of that. There is, also the Department of Education restrictions on buybacks and as we’ve talked about in the last several years our buybacks have traditionally run around the level of net income. So, we do have those constraints. Within the credit agreement itself, the credit agreement expires on November 1st. We are in discussions with our banks. We’ve put some color there in the 10-Q in terms of where we stand on certain covenants and where we stand on the revolver, but we will hopefully have more news next quarter about where he stand with renewal extension or new revolver for the Company.

Suzanne Stein – Morgan Stanley: And then you talked about some of the issues that are driving the weakness and starts but you didn’t mention competition. I am just wondering if you could comment on this on this.

Steven H. Lesnik – Chairman, President and CEO: On the competition that we are experiencing. We are finding the marketing that most of our peers are stepping up their marketing efforts. In this difficult environment with students taking longer to decide and some students being sort of talked off going to postsecondary education. We are finding heightened experience by the competition. At the same time we are pinpointing our own efforts to students that we think have a better opportunity of persistent completion and placement.

Suzanne Stein – Morgan Stanley: If I could just sneak one more. In terms of the timing of the teacher outpost some of the help schools, when do you think we’ll get to kind of a normalized environment for health.

Michael J. Graham – EVP and CFO: We have not announced any teacher out of health schools beyond one school that we’ve decided to teach out upon exploration of its fees in the St. Louis area. We had talked about to teach out of certain programs. That we’ve initiated, those programs typically run in length between nine months and 15 months of duration, but again we made no announcements to teach out of school simply certain programs.