Following is the transcript of the Apollo Education Group, Inc. (NASDAQ:APOL) first quarter 2015 earnings call made on Thursday, January 08, 2015, 8:30 AM ET. The company reported financial results for the three months ending November 30, 2014.
Apollo Education Group, Inc. (NASDAQ:APOL) was founded in 1973 and is now one of the largest private education providers globally. The company, through its various subsidiaries, owns several educational institutions which offers higher education programs throughout the United States, Europe, Australia, Latin America, Africa, and Asia. It is a pioneer in offering higher education programs and services focused on the more diverse population of working learners.
Host
Beth Coronelli – Vice President of Investor Relations, Apollo Education Group, Inc.
Company Representatives
Greg Cappelli – Chief Executive Officer, Apollo Education Group, Inc.
Brian Swartz – Senior Vice President (SVP) and Chief Financial Officer, Apollo Education Group, Inc.
Analysts
Peter Appert – Piper Jaffray
Paul Ginocchio – Deutsche Bank
Sara Gubins – Bank of America Merrill Lynch
Jerry Herman –Stifel, Nicolaus & Company, Inc.
Henry Chien – BMO Capital Markets
Tom Bakas –First Analysis
Trace Urdan – Wells FargoSecurities, LLC
Nick Nikitas – Robert W. Baird& Co.
Phil Stiller –Citi
Operator
Good morning and welcome to the Apollo First Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. This conference call is being recorded today, January 08, 2015, and may not be reproduced, in whole or in part, without permission from the company. There will be a replay of this call available through January 16th at www.apollo.edu.
I will now like to turn the call over to Beth Coronelli,VP of Investor Relations. Ms. Coronelli, please go ahead.
Beth Coronelli, Vice President of Investor Relations, Apollo Education Group, Inc.
Thank you for joining us. Participating on the call are Greg Cappelli, Chief Executive Officer of Apollo Education Group; and Brian Swartz, Senior Vice President and Chief Financial Officer. As we discuss the results today, unless noted otherwise, we will be comparing the first quarter of fiscal 2015 to the first quarter of fiscal 2014.
I’d also like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of Apollo Education Group that involves risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in our quarterly reports and Form 10-K filed with the SEC, which is available on our website. The company disclaims any obligation to update any forward-looking statements made during the call.
Additionally, we may refer to non-GAAP measures which are intended to supplement, but not substitute, for the most directly comparable GAAP measures. Our press release, available on our website, contains the financial and other quantitative information to be discussed today as well as a reconciliation of the GAAP to non-GAAP measures.
And with that, I will turn the call over to Greg.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Okay. Thank you, Beth, and good morning everyone. As we talk about our first quarter results, I will share an update on the progress we are making on our strategy. I will also provide clarity on the disruption related to the implementation of our new classroom, which has infact enrollment and obviously our business outlook for 2015. I will then provide a bit more color on the substantial progress we have made fixing the issues and turn the call over to Brian.
As you know, our long-term strategic plan is based around these four objectives. Student success and career outcomes and player solutions, diversification for Apollo Global and targeted growth initiatives, and operational excellence.
First, student success and career outcomes. Our long-term success is dependent on improving student retention, graduation, and relentless refocusing on career outcomes at our schools worldwide. As part of this effort, University of Phoenix is making meaningful progress on implementing the college operating model. We’re modernizing our curriculum and expanding our offerings. This includes modifying the sequence and structure of our entry level courses which now include gaming within these courses.
We are enhancing student support systems, increasing our full time faculty where appropriate, and realigning our orientation program. We are addressing affordability to the Phoenix scholarship reward program to support students as they progress, which we believe can improve our completion rates overtime. We are creating partnerships with organizations such as the Gates Foundation and others to better collaborate around improving student outcomes, and then share these results more broadly.
Now in terms of employer solutions, we continue to build new and exciting relationships with Fortune 500 companies so that we can better align our programs to respond to their human capital needs. Our goal is to help employers better identify, develop, and retain their employees to ensure their future competitiveness.
Recently, the Wall Street Journal reported that the number one ranked concern among CEOs at their Seventh Annual CEO Council was actually their ability to find employees with the key skills necessary to fill the jobs they need to grow their businesses. To that end, we were pleased to announce this quarter the launch of the Hilton Military Internship Program. It’s an exciting partnership with Hilton worldwide and Goodwill industries. This collaboration allows participants to earn a certificate in hospitality management from the University of Phoenix business school. They participate in a six-month paid internship at Hilton Worldwide properties and upon successful completion, be guaranteed the opportunity to interview for a full-time position. This program demonstrates the ability of industry, higher education, and non-profit services to come together and address real employment needs.
Although it’s just getting underway, we are excited to be part of this collaborative effort. We believe that it can lead to additional opportunities with companies and other industries. Diversification is also an important component of our strategy through Apollo Global and other targeted growth opportunities.
Let me just touch on Apollo Global for a minute. It is a real bright spot and is meeting or exceeding our expectations across all their institutions. Global remains on target to achieve a $400 million revenue run rate in 2015, and 20% annual growth over the next several years. We continue to believe Apollo Global can be a $1billion plus business within three to five years through organic growth and potentially more than that, including strategic acquisitions and partnerships along the way.
In December, we welcomed FAEL in Brazil to Apollo. FAEL is small today, but is a high quality institution with exceptional management and fits well within our asset-wide business strategy internationally. FAEL currently offers blended post secondary programs in business, education, and technology and has licenses to significantly expand its course on offerings online. Brazil is a strong growth market and offers an exciting opportunity to expand our global learning network.
Other Apollo Global highlights include the addition of successful new relationships with key U.K. employers at BPP. Also at BPP, we are expanding the degree and professional qualification offerings into numerous countries globally and are now actually recruiting international students into their programs.
There has been strong collaboration with our teams working together to help Milpark in South Africa develop its online programs with new short courses launching in April. Regarding our 2014 acquisitions, Open Colleges Australia and Milpark are both exceeding all key operational and financial plans. Finally, at Bridge School of Management in India, inaugural graduation ceremony for the first cohort of students was held in early November.
Now to talk about other areas of targeted growth. The University of Phoenix is doing this through their new college operating model by developing new relevant programs to connect more directly to careers. Additionally, we are expanding the breadth and depth of our offerings to deliver more than just degree granting programs. We are addressing options to use our campuses more strategically through hybrid and career offerings, to name a few. We are evaluating opportunities to leverage our global presence to actually potentially recruit international students into the University of Phoenix.
We are partnering with other institutions like Thurgood Marshall to provide our specific online courses to their students who are enrolled at those institutions and supporting our students and developing new offerings to our new exciting career platform called the Phoenix Career Guidance System.
We have also recently launched our professional development business. Although it’s early, we have already created an IT boot camp and are exploring approaches to competency-based learning and plan to offer additional non-degree granting programs in the second half of the year. We are also supporting emerging opportunities through Apollo Education Ventures, which was recently launched to invest in innovative products, services, and technologies.
The final component of our strategy is achieving operational excellence. We are streamlining and simplifying business processes and had better aligned the organization to increase efficiency and performance which we expect will lead to lasting and measurable results.
We are also getting better at identifying best practices and sharing them across our institutions globally in areas of retention, marketing, and delivery. We continue to prudently manage our cost base and are focused on healthy margin expansion over the longterm, which Brian will cover in more detail just shortly.
Last, but very importantly, let me provide some additional clarity around the near-term disruption from our new online classroom at the University of Phoenix. As I mentioned last quarter, the University recently completed and rolled out a new modernized classroom, which was a massive undertaking. This platform overall will be an enormous upgrade to students and faculty as it is significantly more advanced in functionality and learning capabilities. It will allow us to capture and analyze data around the science of learning, which we can then use to further improve the student experience and outcomes.
Unfortunately, the conversion to a brand new platform is more challenging than we originally anticipated, specifically given the size and scale of the implementation, and that resulted in a greater than expected impact and retention. Again, Brian will address the financial impact on that in just a moment.
We are 100% committed to fixing all the issues relative to the new classroom as quickly as possible, and infact, our teams have already made substantial progress. We are on track with our plan to aggressively address the technical issues related to the classroom and have also accelerated future enhancements. These include ensuring the classroom is compatible with a broader range of browsers and our other operating systems at all times and that course content is more readily accessible when accessed through third-party providers.
We will continue to improve usability with additional upgrades to provide enhancements throughout fiscal 2015, enhancing the ability to quickly provide the tools and training that our students, faculty, and grad teams need to maximize the benefit in the new classroom and platform. Beginning in January, we started the roll out focused effort to help bring some of those students impacted by their classroom back to the University and we will provide an update next quarter on our progress in this important area.
In closing, our management team is actively addressing our near-term challenges as well as executing on our long-term strategy. We are excited about the future and our ability to expand across the globeover the next several years. As we sit here today, there is over seven billion people in the world, and some 25% have a full-time job. Within the next five years, there is going to be a projected 250 million people vying to gain access to higher education. We are building our company to help educate and connect these students to important careers throughout the world.
I will turn the call over to Brian.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Thank you, Greg, and good morning everyone. I will review our financial results, provide an update on our two largest business units, and then share our outlook for 2015. To quickly recap our consolidated first quarter results, revenue was $719 million, operating income was $61 million, and net income from continuing operations was $34 million or $0.31 per share. Excluding special items, operating income was $83 million, and net income from continuing operations was $48 million, or $0.44 per share.
Focusing first on the University of Phoenix, revenue in the first quarter was $593 million with operating income of $94 million. There were 39,600 new student enrollments, down 5% year-over-year, a slight improvement from the fourth quarter.
As we expected, first quarter revenue per student was down 8.5% year-over-year. RPS was impacted by the increased number of students who withdrew or did not attend class in the quarter due to the disruption related to the new online classroom roll out. As Greg discussed, we’re on track with a plan to aggressively address the new classroom issues impacting students. We anticipate second quarter RPS to be down at about the same rate as the first quarter with more meaningful improvements beginning in the third quarter and moving towards flat by year-end.
Discounts in the first quarter were 11.5% as a percentage of revenue. They were higher year-over-year primarily due to positive response we continue to experience from our Phoenix scholarship reward program as well as additional programs to support students through the new classroom transition. We expect discounts to trend slightly higher in the second quarter with the second half returning close to the level experienced in the first quarter.
In the first quarter, the University of Phoenix operating margin was 15.8% or 17.6%, excluding special items. We expect the University of Phoenix full year 2015 margins, excluding special items to be in line with the first quarter.
Moving onto Apollo Global, we are pleased with Apollo Global’s operating performance as they continue to outperform the market in key global markets. First quarter revenue was $115 million, an increase of 26% year-over-year. This growth was a result of acquisitions and organic growth slightly offset by foreign currency.
In the first quarter, the Apollo Global operating loss was $5 million and adjusted operating income was $7 million. Excluding Open Colleges high growth operating performance which has an adverse impact on the near-term financial results, Apollo Global adjusted operating income was $10 million representing a year-over-year improvement. We expect Apollo Global to be operating cash flow positive by the end of fiscal year 2015.
Now turning to our operating expenses, in the first quarter total operating expenses excluding special items decreased approximately $10 million year-over-year primarily as a result of lower enrollments as well as a reduction in our marketing cost. Admissions advisory expense increased due to market adjustments and wages and the incorporation of the 2014 acquisitions. Bad debt expense as a percentage of revenue was 2.4%.
As new enrollments continue to improve, we expect bad debt expense to be in the 2% to 3% range. We have been diligently managing our cost base, and I will provide some commentary related to this, to the full year in a moment. With respect to the consolidated balance sheet and cash flows, we continue to maintain a well-capitalized balance sheet. At quarter end, our cash and marketable securities were approximately $864 million and our outstanding debt was $63 million. Free cash flow for the quarter was down year-over-year in line with operating income. Additionally, we invested $29 million for the acquisition of FAEL and $18 million in share repurchases.
Now, I’d like to spend a minute on our business outlook. Based on our current view, our financial outlook range for fiscal year 2015 is as follows. Net revenue of $2.74 to $2.8 billion and operating income, excluding special items of $250 to $290 million.In the second quarter we expect to report net revenue between $580 million and $595 million and an operating loss excluding special items of $25 million to $30 million. Regarding the outlook, we have adjusted our revenue and operating profit ranges primarily as a result of the disruption due to this classroom conversion. The conversion has impacted enrollment by approximately 7000 incremental students. As Greg mentioned, we have already addressed the most pressing classroom issues and have now implemented efforts to help students re-enroll. The current outlook reflects a range of outcomes related to our ability to re-enroll these students. Given the majority of the remediation has recently been completed and the re-enrollment efforts have just begun, it’s too early to precisely determine how successful these efforts will be.
We do anticipate the University of Phoenix will end fiscal year 2015 with roughly 220,000 students plus or minus a few percentage points. With respect to new enrollments, similar to prior year, December is our seasonally softest month of the year and therefore, the quarter is generally very back end loaded. Therefore, it’s too early to comment further where we think we’ll end the second quarter. Our goal remains to improve the rate of decline in new enrollments in fiscal year ‘15 versus ‘14. Our outlook for 2015 reflects a reduction in our cost base of atleast $50 million as compared to 2014. We are focused on being as efficient and effective as possible while continuing to innovate and invest in our students with very long-term success. Excluding the impact of special items and the potential release of uncertain tax positions, we anticipate our tax rate to be about 43% for the full year of 2015 with the second quarter benefit in the mid-30% range due to our expected operating loss and the mix of U.S. and foreign earnings.
As we discussed on our last conference call, we continue to expect our 2015 financial results to be weighed in more towards the back half of the year. This is primarily due to the expected timing of the University of Phoenix recovery along with the full year impact of our 2014 acquisitions and the anticipated timing of the growth in our professional development business. We continue to expect third quarter to be our strongest quarter in 2015 with the second half of 2015 representing about 80% of our annual profit. Our goal is to address our operational challenges in 2015 and work towards getting back to our original plan of growing Apollo Education group in 2016 and beyond.
And with that, I will turn the call over to the operator and we’ll take your questions.
Question and Answer Session:
Operator
Certainly. (Operator Instructions) Our first question comes from the line of Peter Appert with Piper Jaffray. Your line is open.
Peter Appert, Piper Jaffray
Thanks. Greg, can you give us anything more tangible and specific in terms of the steps being taken to address the problems and maybe just what gives you confidence that you can get those things fixed on a relatively near-term basis?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thanks, Peter. We are going to get it fixed. The very structure of the University of Phoenix continuous enrollment 25,000 plus faculty, obviously thousands of courses across nine colleges,make developing anything new a pretty healthy challenge. As I said, they haven’t had this kind of major platform upgrade in years to the online classroom. We have been assured that the structure and architecture of the new platform is solid from outside experts but we have moved from a system that generally use centrally developed content, was completely controlled from the inside to one that frankly is much more dynamic. It allows faculty and students to access and bring all kinds of slightly new content from third parties and outside providers and every time there is an update to a browser or third-party link or other areas that can change, our own system has to be capable of upgrading along the way.
Basically, in every course we offer — and those are the major fixes that are being made –our teams thought they had a cover. We obviously learnt some valuable lessons on the way, but we put every necessary asset on it. It is our number one area of focus. It has obviously caused disruption. We are meeting the timelines or the deadlines we have set to fix the issues in hand and expect better results going forward and we have a lot of data, right? We’re not guessing in terms of how this emanated, where the problems are, what it did to NPS score or to student disruption. We have lots of communications going out to faculty and students about timelines and data so that they feel comfortable that this has been addressed, fixed, and it won’t be disruptive going forward.
Peter Appert, Piper Jaffray
Got it, okay. I guess a concern might be that perhaps this is masking, to some extent, just the competitive issues or competitive pressures that might be exacerbating the start and enrollment performance. What do you think about that?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Well, I’m certainly pleased that the intakes are improved from prior quarters. We significantly like expanding the overall environment. As I said before, we will improve it. It is choppy. In this industry, with some weeks better than others, we continue to execute on our plan to differentiate our schools so we can stand out. But we are not guessing. We have a lot of data as to what caused the disruption. We know the timing of when students dropped out. Generally speaking, if it’s more competitive type issues, that happens very early on in courses, Peter. These are students that have been pretty well into their courses where there has been disruption. Again, we are using lots of data and analytics to track down the issues to make sure we understand what the issues are and we will certainly continue to do everything necessary to remediate that.
Peter Appert, Piper Jaffray
Got it. Thanks, Greg.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Paul Ginocchio with Deutsche Bank. Your line is open.
Paul Ginocchio, Deutsche Bank
Thanks for taking my question. Brian, can you just talk about revenue per student, how much of that is the 8.5% down? How much of that is because of the internal systems issues, and also maybe talk about. It looks like some of your cost line items are up Q-on-Q, how much additional costs are going in to fix the system so we could maybe see the underlying cost trends as well? Thank you.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. To answer the first part of that question, Paul, a significant portion of the 8.5% reduction is related to the persistency issues and the retention issues in the classrooms, so that is a significant portion of the 8.5% and might even be a majority on the RPS. Your second question in terms of the cost to address and rectify these issues, we have been putting some capital in there, if not significant or overly material. It is really a reprioritization of enhancements. We also have put in a handful of $1 million kind of thing, not a significant number in the context of the financials to accelerate as many of the fix as we can.
Paul Ginocchio, Deutsche Bank
Okay. I look at theG&A and had been sort of trending down in the last quarter, recently spiked back up, and in your instructional cost have started going back up, so there is not a lot in there for that fix?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
In the instructional cost that’s where the fix would be.
Paul Ginocchio, Deutsche Bank
Okay.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Again, there is not a significant amount of the incremental dollars solely related to a fix. In general, with respect to those specific line items overall, I would expect instructional to be down in line with the variable cost over the course of this year. G&A should be down as we progress through the year. It is down on a year-over-year basis sequentially. There is up a little bit, some of that just timing in terms of when certain expense is there.
Paul Ginocchio, Deutsche Bank
Great.
Greg Capelli, Chief Executive Officer, Apollo Education Group, Inc.
Paul, there is investments going into the new college operating models as well that are important to the future.
Paul Ginocchio, Deutsche Bank
Okay, great. Just finally on marketing, you’re still down year-on-year, but not as significantly as maybe last year. It is still going to be down year-on-year, is this first quarter a good number to look at for the year?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. We will be down over the course of the year. You have to remember a lot of the…this isn’t solely University of Phoenix anymore, some of it is a lot of our international operations. It includes marketing to support. I mean, they are in a growth mode, virtually all of those businesses. There is a little bit. At the University of Phoenix, we do expect it to be down. We are being very pretty real. We also are looking for opportunities to the extent it makes sense and the returns are successful to put additional money to work as well in the marketing and advertising area.
Overall the dollars will be down. I do not want to commit that it will be down in line with where they were Q1 year-over-year because we do look at that periodically and make decisions that are in the best interest in the longterm.
Paul Ginocchio, Deutsche Bank
Great. Finally, I would like to ask about Apollo Global, particularly Brazil. It looks like the Brazilian government changed the payment patterns. I think they did it overnight. Are you aware of that? Was that factored into your valuation when you looked at it?Just may be explainwhat happened if you are…
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah, Paul, despite any near-term changes in Brazil, we’ve been looking at this market for years. This was a very small amount of capital that we put into the market into a very high quality team that has developed a great platform and has access through a delivery model that we’re very interested in. It’s asset light that we think is going to help modernize the Brazilian system going forward in terms of higher education. Yes, we did factor in pretty much everything that we looked at in terms of diligence going into Brazil. Obviously, this is a small acquisition to put us on the map in Brazil right now.
Paul Ginocchio, Deutsche Bank
Thank you.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Sara Gubins with Bank of America Merrill Lynch. Your line is open.
Sara Gubins, Bank of America Merrill Lynch
Thanks. Good morning. First, do you think that any of the disruption is related to moving to the new college model or is it really all related to the new learning management system?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Well, Sara, I think there is some related to that, but we have pretty specific data to show the time lines. We have information from our technical assistance center, right?When thing spiked up, what that information was about why there was frustration. Yeah, of course, we had expected some from moving to a new college operating model. We think that’s the right thing to do for the long term and are excited about that from the competitive standpoint. The quality of what I’m seeing there is very substantially improved and exciting. The majority of this disruption, we feel very confident is from the explanation of the classroom.
Sara Gubins, Bank of America Merrill Lynch
Okay. Then last quarter you mentioned that you saw the macro environment was getting slowly better for University of Phoenix, it may be difficult to tease out given the internal issues right now, but I’m wondering if you’ve got any updated views on that?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Yeah. Look, I think it is, I mean, I think it’s hard to say week-to-week what’s happening with the external environment. As I said in my earlier comments, it’s still choppy in the external environment. I think that’s to be expected in our industry right now. Obviously, there are signs in the economies, there’s areas that are improving. I would say there are some areas that are better and some areas we’re still waiting for. It also varies by program and courses.
We have some areas that I’m not going to go into a lot of detail on that are doing better than others as we continue to modernize. I’d say, in general, we’ve had a period where intakes have been improving, but obviously it’s an industry that continues to evolve and that’s why we think it is so important to be able to differentiate and to be able to listen and learn from our partners that are employing our graduates to develop and deliver exactly what they need to hire our graduates so that we stand out. We can sign important agreements like the ones I spoke to earlier in my more formal remarks. Because that’s what’s going to help organizations like ours drive through any kind of environment.
If you’re connecting thousands and thousands of people from education to careers where there is huge demand, I think you’re going to have a very competitive offering and have the ability to stand out in this industry even when there is some noise like there is now.
Sara Gubins, Bank of America Merrill Lynch
Great. Then, on the regulatory front, the final gainful employment regulations are out. Do you think that you don’t have to make any meaningful changes to address the final rule?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
We still don’t have all the data that’s necessary to conclude – give you a conclusive answer there, but I feel good that we’re in a good position and we’ll make any adjustments we need for gainful employment and make sure we’re in compliance moving forward.
Sara Gubins, Bank of America Merrill Lynch
Okay. Then just last question, should we expect M&A to remain the main area of focus for cash after investing in the core business or do you think we might see more share repurchase?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. I mean, it could vary Sara. We have been I think pretty diligent over the course of last year, year and a half, trying to do it, return capital to shareholders on kind of a consistent basis. As you know, our top priority is investing in our existing institutions to support them and help them grow and differentiate, then secondarily investing in acquisition opportunities to move the enterprise value of the business, and then after that returning capital to shareholders.
We’ve been pretty consistent I think on our philosophy there. It could move around. I don’t want to make any commitments, but we definitely would like to put more money in the acquisitions both internationally and domestically.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Only when they make sense on a return long-term value creating sustained basis to our shareholders.
Sara Gubins, Bank of America Merrill Lynch
Okay. Thank you.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Jerry Herman with Stifel. Your line is open.
Jerry Herman, Stifel, Nicolaus & Company, Inc.
Thanks. Good morning, everybody. I hope you can give more granular on the student experience and exactly what the sticking point is. You reference you have a lot of data, but at what point in the process were they prone to dropout or what did they experience that caused them to dropout?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Yeah, working adults who are working during the day, coming home and have busy evenings with families and kids in many cases and get online to study in the evenings, well, into the evening hours need to have a seamless experience. If you’re not, for some reason or another, able to access the content, the course work, the syllabus, for any reason, it gets to be frustrating. That’s what some experienced and that’s why we’ve had some issues and that’s what’s being addressed and being fixed.
Jerry Herman, Stifel, Nicolaus & Company, Inc.
Okay. Great. With regard to your second half guidance, the operating income guidance suggests that the second half of the year will be flat to up. Brian, you reference some of the components of that, three in particular, the timing of the recovery, UOP acquisitions, and the growth in the professional area. Can you talk to each of those and your confidence level and each of those turning more favorably in the second half of the year?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. The acquisitions are performing very well. As we’ve said, the two acquisitions from fiscal ‘14 are performing very, very well. Professional development is relatively small today, but we’re excited about it, they’re gaining some great traction. The team doing a terrific job. University of Phoenix, obviously our largest component there, as Greg mentioned, many of the fixes have been put in place with respect to the classroom. We are just now in the last week or two embarking on calling many of the students who were previously impacted to see if they’re interested in returning to school. We need to see how that plays out.
Our expectations are we will be successful there. We’re very focused on that. We’re also focused on putting the next versions of the platform in place so that their usability and experience going forward for both the faculty and the students is very positive and improves from here. There’s a range of outcomes, right now, Jerry, as I mentioned in my comments. We’re very focused on doing the right things for students and moving forward.
Jerry Herman, Stifel, Nicolaus & Company, Inc.
Just a real quick one, Brian. D&A and stock comp for the year? Give some guidance there?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah, stock comp should be pretty consistent with, I think, prior year was kind of in the mid-40 range, flat with fiscal ’14. D&A should be down a bit, although on the D side the amortization side might be up particularly as we finish some of the purchase accounting related to the recent Brazil acquisition.
Jerry Herman, Stifel, Nicolaus & Company, Inc.
Great. Thanks guys. I’ll turn it over.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.
Henry Chien, BMO Capital Markets
Hey, good morning. It’s Henry Chien, calling in for Jeff.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Hi, Henry.
Henry Chien, BMO Capital Markets
If you could elaborate a little bit more on the initiatives. I know you just mentioned that you would be reaching out to some of the students that dropped out. What other kind of things are you are planning to do to sort of try to bring back those students?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Yeah. Let me just start by saying, Henry, that the most important thing is to get the issues fixed so that when students do re-enroll, they’re having a better experience. That’s been our primary focus. Brian, you want to talk about some of the…
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. I mean, Henry, the links with the third party content providers that Greg mentioned, that has been fixed for the majority of the students that are participating in the courses, the actual number of courses that are out there. We will be releasing, as we mentioned, some additional enhancements, the next version of the platform later this spring that will significantly enhance usability of the platform for both the faculty and the students to create a better experience.
We have rolled out some other items that Greg mentioned such as gamification; we did that actually in fiscal ‘14 for the third course in a student sequence with us. Their new introductory sequence we now rolled it out to the first and second course. We had very good success with that in fiscal ‘14, so we feel good about that as well. I think we’ll reach out to the students. We will provide some level of financial incentives if that makes sense for them to come back as well, because they didn’t have a good experience initially and we want to try to fix that for them and have them re-enroll if they’re interested.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
There has also been upgraded training in all areas to make sure that there is training around all these issues, also very good communications to keep people updated along the way.
Henry Chien, BMO Capital Markets
Got it. Thanks for the color. If I could do a quick one around. You mentioned you’re hoping or aiming to achieve around 220,000 total enrollments, does that factor in improvements in retention and related to that could you comment on, I know its early, but any color around start trends that you’re seeing so far this quarter? Thanks.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. The 220, its 220,000 plus or minus a few percentage points, so I’ll call it plus or minus 6,000 students or so on either end of that 6,000 to 7,000 students. The lower end would align pretty closely with the lower end of our revenue range and the upper end would obviously align closer with the upper end.
In terms of new student trends, I made the comments on Q2. Q2 is so seasonally back-end loaded and we’re just here at the beginning of January, even the next several weeks are really a critical part during the quarter, so it’s very hard to comment on Q2, but we are very focused on focusing all of fiscal ‘14 and have that trend improve in fiscal ‘15 relative to fiscal ‘14. We will play the year out and we will see how it goes, but we are certainly pleased with the performance in Q1.
Henry Chien, BMO Capital Markets
Great. Thanks very much.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Corey Greendale with First Analysis. Your line is open.
Tom Bakas, First Analysis
Hey, guys. This is Tom Bakas, on for Corey. I was hoping you just maybe talk a little bit about an update on the corporate partnership initiatives and how those conversations have evolved over time?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Yeah. Thank you. I’m very pleased with those conversations and the number of relationships that we’re building and the level to which we’re building them. We are gathering and learning a great deal of what is concerning employers, both large and small, around the country in various parts of the world. We are beginning to build to those specifications and those issues and we think that we can more quickly and efficiently solve their problems than many others. So, that is an important part of our future initiatives here at the Apollo Education Group both domestically and internationally.
I’m pleased with where things stand right now. I think we will continue to get traction. I’ve discussed one of the big announcements or a couple of them we have this past quarter and we’re looking to deliver more on that going forward.
Tom Bakas, First Analysis
Great. Thanks. Then just quickly, could you just talk about sort of the uptake of the certificate programs and the boot camps, any comments around that?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. I mean, the boot camp specifically has performed very, very well. I mean, our first cohort graduated a couple of months ago and we were able to – they were successful in getting jobs. We are very pleased with the results of that and we are well into rolling into the second cohort and then extending from there. So we’re very pleased with where we’re out there.
Tom Bakas, First Analysis
Thanks, guys.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Trace Urdan with Wells Fargo. Your line is open.
Trace Urdan, Wells FargoSecurities, LLC
Thanks very much, Brian. I’m going to start by calling you out a little bit on this discussion around the 220. You were kind enough to give us the over/under there. Obviously, that also includes some similar assumptions around starts and retention. Can you share some of that with us in terms of sort of best case/worst case that you’re looking at right now?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Yeah. I mean, it’s a good question, Trace, I mean, I think as we said, our goal here – we’ve had several quarters behind us of improving rates of decline in that trend. It would be nice to see that continue. Our real goal – it might be – there could be some quarterly fluctuations here and there. It maybe not be exactly linear, but in general, we would expect certainly to end fiscal ‘15 at a lower rate of decline than we did in fiscal ‘14, which we’ve obviously done in Q1, which we’re,as I mentioned, pleased with. I don’t want to give more quantified specifics on that, but hopefully it gives you a perspective in terms of what we’re shooting for forthe rest of the year.
Trace Urdan, Wells Fargo Securities, LLC
Okay. Fair enough. Then in terms of the new classroom issues just so I understand this clearly. The drop in RPS is reflecting students scaling back on their course load. I guess I gather also reflecting some students dropping out altogether. Is it having any kind of an impact on new student starts, from your perspective?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
It’s hard to say exactly if it’s had any impact on new students. You’re talking about the classroom issue. Most of the impact, Trace, we believe, has come with the existing students who are actually pretty well under their courses.
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
Yeah. In some cases several classes or even a year plus into their course and their studies, Trace.
Trace Urdan, Wells Fargo Securities, LLC
Okay. Fair enough. Then, I wondered if… You made some reference to goals of… the work that you’re doing in terms of employment outcomes and how important that is to the future of the business and sort of your strategy going forward. Now we’ve got gainful employment that is sort of coming on to the books. Have you taken any steps to improve your own kind of proprietary measures of job placement and starting salary and can you speak to that a little bit. I know that it’s not a requirement of your accreditation, but I’m wondering if you are looking to try to get better data as far as those numbers are concerned?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
That’s a great question, Trace, and I’ll tell you that first of all, we worked very hard to put ourselves in a good position on gainful employment. We’ve had our own gainful employment system built in. At the University of Phoenix, we’ve tried to ensure that there is complete and total transparency on the front end, that students understand the cost, where the jobs are, how much their paycheck is going to come out. In those specific jobs that they can choose a course and a program that feels right for them in terms of percentages that they’re going to have to use their beginning paychecks to pay back those loans. That’s very important to us on the front end.
The other statistics that you bring up, yeah, you’re right, there’s not requirements, but we’ve been pretty transparent in saying that whether there’s the University of Phoenix or there are institutions around the globe that we run and operate, it is critical for us to make sure that we are building to a future that takes the appropriate levels of education whether they’re degree or non-degree or both in some cases. Make sure it’s delivered in a modernized fashion and make sure that employers have been brought into the process, right, in the development of that content and those programs because they are frustrated with the college system here and abroad.
They feel like nobody is listening to them. We are listening to them, and if we deliver on that and we make sure that we can demonstrate outcomes not just you’re finished with the program or you’ve graduated, but you have the skills, you have gained the skills necessary to do these jobs in a career that you want, that is what they’re looking for. We know that there’s a skills gap of millions of millions of people here and even larger in many international countries. We connect those two together which we are determined to do. That’s where I think the future of this sector is going. That’s what we’ve been working so hard to invest in and to deliver on.
Trace Urdan, Wells Fargo Securities, LLC
Okay. Thanks, Greg.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the Nick Nikitas with Robert W. Baird. Your line is open.
Nicholas Nikitas, Robert W. Baird& Co.
Yeah. Good morning. Just looking at the persistent decline and realizing you guys stopped reporting enrollment by degree level, but any commentary you can provide or material differences in retention by degree levels?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
That’s a good question. I would say, no, there is not. We don’t have information that suggests why fluctuations between the degree areas at this point.
Nicholas Nikitas, Robert W. Baird & Co.
Okay.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
There’s always going to be some movement in any given year or any given quarter, but nothing that stands out materially that I can share with you at this point.
Nicholas Nikitas, Robert W. Baird & Co.
Okay. Then just switching gears to the Global. On a positive note, it sounds like continued solid results there. Outside of Open Colleges, where are you guys seeing the strongest growth?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
In all areas to be honest with you.The most mature market is certainly in the U.K., but even in a market that has had declines, they are gaining market share in all areas. Again, one of things that excites me about the U.S. is we have learned some significant things from different parts of the world where they’ve already built college-based systems that are delivering market share gains in their areas like we hope to do in the U.S. throughout our goal platform. Pretty much all of the areas within Apollo Global are now growing. There are some faster. I think Australia is probably our fastest growing right now, but pretty exciting.
Nicholas Nikitas, Robert W. Baird & Co.
Okay. Thanks.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thank you.
Operator
Your next question comes from the line of Phil Stiller with Citi. Your line is open.
Phil Stiller, Citi
Hi, guys. Sorry, I joined the call late, so apologize if my questions were answered, but I guess last quarter you talked about the revenue per student changes inflecting towards the back half for the year based on some pricing adjustments and then in the Q today there were some reference to changes made in the first quarter. I just want to make sure there were no incremental changes from what we discussed last quarter. Is the expectation still for kind of a positive exit rate for this year?
Brian Swartz, SVP and Chief Financial Officer, Apollo Education Group, Inc.
The answer to your first question is there were nothing new that we didn’t talk about in the October call, it happened during the quarter so you saw it again in the 10-Q which complies with the disclosure requirements and consistency in MD&A, so nothing incremental from what we talked about last quarter, Phil, on the pricing side. The second question, I’m sorry, what was it again?
Phil Stiller, Citi
I guess last quarter you talked about the exit rate being positive year-over-year in the fourth quarter?
Brian Swartz, Senior Vice President and Chief Financial Officer, Apollo Education Group
Yeah. In my prepared remarks I’ve indicated that the second quarter rate of decline in RPS should be consistent with Q1 which was down 8.5% and we would see improvements in the back half getting close towards zero at the end of the year.
Phil Stiller, Citi
Okay. Then the second question is just on the admissions advisory expense was up quite a bit year-over-year. I don’t know if you gave some color on what was driving that?
Brian Swartz, Senior Vice President and Chief Financial Officer, Apollo Education Group
Yeah. This starts to get into the mix between domestic, international operations principally, so what you’re starting to see is that our international operations which, as I mentioned earlier, and in the answer to one of the other questions, are growing, so areas like marketing and admissions advisory and particular academics and instructional, so those are increasing. Obviously UOP is still the majority of our Company today. Much of the growth there, the admissions advisory, much of that growth is for those international operations.
Phil Stiller, Citi
Okay, great. Thanks, guys.
Brian Swartz, Senior Vice President and Chief Financial Officer, Apollo Education Group
Thank you.
Operator
Your next question comes from the line of Trace Urdan with Wells Fargo. Your line is open.
Trace Urdan, Wells Fargo Securities, LLC
Hey, thanks. Could you talk about, and I know this came up last quarter as well, that as a function of the new university structure, you are seeing some additional investment spending, some request from the newly created divisions for things that they want to do. I get a lot of questions from investors about the sort of the changing dynamic on the expense side and the fact that there is more spending this year.
Is it possible without giving up anything to proprietary that you could sort of give us some examples of the kinds of things that you are spending money on now that you have this new organization and sort of what some of these investments involve?
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Trace, it’s a very good question. I don’t want to go on to a lot of detail there. I will tell you that the university has brought in some extraordinary talent. By the way, starting with Tim Slottow, the President, and that is beginning to show up in ways where they are asking for investments and capital into specific areas of the schools where they now have better information than ever about their industry; the size, the competitive nature, what businesses and employers are looking for, connecting that content to careers, exactly and specifically how they think they can take market share back which the university has lost over the years and not just under one umbrella by school.
That excites me, because it tells me that you look at any of the individual college areas, there is a lot of demand in this country and abroad for people with the right skills if they are connected to careers and they can do those jobs and they can do them well. Whether it’s tough areas of investments into new modernized content, into gaming, into adaptive learning or math, there are too many categories to discuss on this call, but I’m very excited about the fact that they’ve identified those areas and we can begin to intelligently invest in them knowing that we will only do that if we’re going to get a return off it to make us more competitive, and I believe those things are going to start to show up over the next year.
Trace Urdan, Wells Fargo Securities, LLC
Great. Thank you.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
We’ll get into some more detail too as we move forward and some of them become more mature.
Trace Urdan, Wells Fargo Securities, LLC
Fair enough.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
Thanks, Trace.
Operator
There are no further questions at this time. I’ll turn the call back over to Greg Cappelli for closing remarks.
Greg Cappelli, Chief Executive Officer, Apollo Education Group, Inc.
All right. Thank you everybody for joining us early this morning. I can assure you that we are very, very focused on the tasks at hand. We remain very excited about the future both domestically and internationally. Thank you for being with us and we will keep you updated along the way. Take care.
Operator
This concludes today’s conference call. You may now disconnect.
