Question-and-Answer Session
Operator
Your first question comes from the line of Sara Gubins - Merrill Lynch.
Sara Gubins - Merrill Lynch
What are your current thoughts on pricing and increases to that given what’s happening on the student lending side?
Jack Massimino
Sara, I think it’s a little early for us to tell with regard to what we’re going to do with pricing. We’re taking a look as we always have market-by-market. I suspect we’ll have price increases in some markets; in others we may not. But I think it’s going to be dependent on how this all shakes out for us from a mix of potential lenders who are going to come in that we have to guarantee. We have to determine the impact of all that over the next several months.
Sara Gubins - Merrill Lynch
Then a somewhat unrelated follow-up: educational services, the cost line was actually up as a percent of revenue in the second quarter in spite of some improvements in bad debt. I’m just wondering if there were any unusual items in there? I would have expected for you to maybe get some more leverage on that given the good start growth that you were getting.
Kenneth S. Ord
That really reflects the fact that our books and student supplies end up being expensed as a student enters, and with our high start growth, those books and supplies are really expensed in the first month of a student’s program, whereas the revenue is really recognized over the course of the program.
And in fact in the first month of the student’s course, we only recognize 50% of a month’s revenue. So until we hit an anniversary mark of these start growths at these levels, you’ll see a slight impact of those variable supplies and books.
Operator
The next question comes from the line of Jeff Silber - BMO Capital Markets.
Jeff Silber - BMO Capital Markets
I just wanted to get a little bit of color on the change in guidance that you announced last week. The $0.03 to $0.04 I’m assuming it all refers to bad debt expense. What are you assuming for bad debt expense as a percentage of revenues? If you can give us your thought process, how you got there, and is there any change in your enrollment assumptions or any other of the line items?
Kenneth S. Ord
Jeff, we’re not giving a specific percentage of revenue because it does depend on the mix of funding sources and the bulk of the increase would be in the fourth quarter. But as you recall we have a discount to gross revenues as a result of the Sallie Mae discount.
- To read the full transcript on Seeking Alpha, click here »
