For-profit educator Corinthian Colleges (NASDAQ:COCO) is likely feeling a lot like a second-semester freshman these days. Just back from winter break, having squeaked out passing grades on its final exams in (Department of) Education 101 and Introduction to the Department of Justice last semester, young master Corinthian now realizes that it's still a long way from graduation back to respectability among investors.

The company published its first half (1H) of fiscal 2005 results today, and while revenues look pretty good (up 29% year on year), the company's undergrad performance still has a ways to go to match its 4.0 high school record. For the year to date, net income for Corinthian as a whole has fallen 6% over the equivalent time period from last year. On a diluted per-share basis, the decline was less than 5% as diluted shares outstanding fell more than 1% over the past year. The result was that diluted EPS slipped slightly, from $0.44 last year to $0.42.

Net margin erosion caused the earnings results to diverge from the revenue rise. Year on year, net margins have dropped precipitously from 11.2% to just 8.1% as a result of several factors, of which hefty legal bills were only one. The company's marketing costs have jumped 42% over the past year, and the cost of operating its campuses has leapt almost as much -- 36%.

Ordinarily, I would consider both of those last two numbers bright red flapping flags, outpacing revenue growth by significant amounts as they do. However, it needs to be borne in mind that Corinthian is in a rebuilding phase right now. It's not just rebuilding and refocusing its attention on the future and away from the regulatory difficulties of the past. It's also rebuilding the businesses of the 71 underperforming institutions that it acquired in August 2003.

Those new schools will prove the key to Corinthian's success (or failure) in the future. The company must integrate them into its business model and bring them up to its own past standards of efficient profits production, or its revenues will continue to get sucked up by expenses long before they can fall to the bottom line. But if Corinthian can get its new schools on track, then shareholders may well find themselves doubly rewarded. Not only will earnings increase, but they'll do so against a backdrop of the pretty severe underperformance of the past year. And nothing warms Mr. Market's heart like double- and triple-digit improvements on year-ago results.

Read more about Corinthian's (historic) legal woes with:

Fool contributor Rich Smith holds no position in Corinthian Colleges.