Adtalem Global Education Inc (ATGE) 2003 Q1 法說會逐字稿

Good afternoon. My name is Anthony, and I will be your conference facilitator. At this time I would like to welcome everyone to the DeVry Inc. first quarter fiscal 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer period. If you would like to ask a question during this time, than please press star and the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two on your telephone key pad. Thank you. I will now turn the call over to Miss Joan Bates-ph, director of investor relations. Thank you, ma'am, you may begin.

Thank you. On line from DeVry Management today is Dennis Keller, Chairman and CEO. Ron Taylor, President and COO, and Norm Levine, Senior Vice President and CFO.

Be advised that this call may include forward looking statements. Potential risks and uncertainties are detailed in the company's latest filings with the SCC. Also, management's remarks, and the contents of this call are copyrighted and under the sole protection of DeVry Inc. Any reproduction, sale, or transcription of such content not specifically authorized by DeVry is strictly prohibited. Telephone and webcast replays of the call are available until October 31st, by accessing the website at DeVry.com. I'll now turn the call over to Dennis Keller.

Thank you Joan, and thank you all. And good afternoon, everyone. Welcome to our conference call to discuss our first quarter fiscal 2003 results. As those of you who have had a chance to read the press release know that income was 11.2 million or 16 cents a share for the first quarter of fiscal 2003. Compared to 14.1 million, or 20 cents a share in the same period last year. First quarter revenue was 163.3 million, compared to 154.6 million one year ago.

One factor contributing to these results was fewer undergraduate students in the summer term. For the first time in our history as a public company, we had a year to year decline in total enrollment in our undergraduate programs. The decline was 4.1 percent with new undergraduate student enrollment declining by 14.2 percent.

Earnings during the quarter were also restrained by cost associated with operating two developing campuses in the Seattle and Washington D.C. areas. And expenses related to the opening of the Philadelphia and Miami, Fort Lauderdale area campuses.

We are currently in a very difficult and challenging environment. Well known technology companies have continued to announce major work force reductions which have been widely reported in the press. We believe the layoffs at these companies have directly impacted new student enrollment in our technology programs. Despite the Department Of Labor's projection that software engineering and other computer related jobs will be among the fastest growing occupations between 2000 and 2010, many potential students are reluctant to enter a technology program today.

I'm sure many of you have seen recent news articles supporting the fact that technology programs at other colleges and universities have also been impacted by these student perceptions. While we're focused on reinvigorating undergraduate enrollment in our technology programs, the DeVry brand and high quality course offerings continue to attract a growing number of students to our undergraduate and graduate business programs. And to Becker Conviser professional review courses. At Keller Graduate School Of Management, the number of course takers for the September term increased more than 20 percent, to 10,713, compared to 8,893 one year ago.

We're taking steps to enhance revenue and counteract the effects of the technology recession on our undergraduate enrollment. This year we've made fundamental changes to our advertising strategy, and implemented a new campaign during the first quarter of fiscal 2003. We introduced an exciting new scholarship program for the 2002, 2003 school year that should increase our success in high school recruiting in our most productive markets, our local campus communities.

We will expand into the Miami, Fort Lauderdale with a new campus in Mirimar in November, next month, 2002. And we will open a new facility in the Denver area in March of 2003. And fiscal 2003 will increase the number of undergraduate programs offered online. And continue expanding the delivery of undergraduate and graduate degree programs through DeVry University centers.

During the first quarter, we also took several actions to better align costs to our lower anticipated revenues. This included staff and budget reductions. We eliminated about 70 staff and 100 unfilled positions throughout the company. In addition we've reduced discretionary spending in a number of areas, and we are currently reevaluating the timetable for further campus expansion.

While our overall leads, number of leads, are up moderately since mid August when we, uh, launched our new advertising campaign program, conversions of those leads to enrollments remain below our historical levels. Accordingly, we expect fall term new undergraduate student enrollment results to be similar to those of the recent summer term.

In the longer term, we remain very confident in our DeVry strategy and business model. As I conclude my remarks, I'd like to stress that DeVry, over many years, has built numerous successful programs in a name synonymous with quality in career focused higher education. We're also confident that we'll manage through the current difficult environment. We'll focus on increasing enrollment and managing expenses. We'll continue to manage our resources to produce quality educational outcomes for our students, while seeking to provide growing returns for our shareholders.

To give additional detail on our first quarter financial status, I'll now turn the call over to Norm Levine.

Good afternoon. I'd like to take a few minutes to review some additional highlights of our financial performance beyond those of that Dennis has already covered for this first quarter of our fiscal year 2003.

For those of you who have not yet seen them, uh, complete details of the financials statements, which include a comparative income statement, a balance sheet, and cash flow statement are appended to today's press release, and appear on our website.

Total revenues of DeVry Inc. for the quarter were up 5.6 percent from last year. Tuition revenues, which represented more than 92 percent of total revenues, increased at a rate of 4.4 percent. At DeVry University undergraduate tuition revenues were up by less than two percent, as reduced student enrollment for the summer term offset the July price increase. Graduate student tuition revenues were up over 32 percent as enrollments for the graduate term that began in late June increased almost 23 percent. And our professional and training position revenues increased by almost 15 percent as the Becker Conviser CPA exam enrollments continued to increase.

Expenses for the quarter, other than interest expense, but including an approval for severance for the 70 staff positions that were eliminated. Increased in total by 10.2 percent from the first quarter of last year. There were increase costs associated with the two new undergraduate campus openings his year, plus the cost associated with teaching upper term courses on the campuses opened last year, and the year before, which are just now approaching the full range of course offerings.

In addition, an increased number of teller centers, and expansion of the undergraduate online program, and DeVry University Centers also generated additional costs. To help put these cost increases into perspective, the rate of cost increase in this first quarter is less than it was in seven of the last eight quarters. Our tax rate on income, at 40 percent of tax income for this quarter, is higher than the rate in the first quarter of last year at 39 percent. And higher than the total year rate last year of 39.4 percent. And it's likely to remain at a higher level throughout this year as a result of the effect of various state taxes on income, and the changing rules by which state taxable income is determined.

Lower net on this quarter is simply the result of expenses, including especially the fixed cost component, and expenses from new or expanded operating locations growing at a faster, at a rate faster than revenues.

Now I know that many of you focus on receivable levels as an indicator of financial health, and our net receivables are substantially lower than they were last year. Last year's receivables were affected by the inclusion of money owed to us under various state and federal financial aid programs. This year, having done a better job of administering these programs, there is no such receivable. Even in these tighter economic times, we did a better job of collecting money from our students, and administering financial aid.

Cash flow from operations is the real proof of earnings, and DeVry's cash flow from operations has increased substantially this quarter, aided by the strong receivable performance. Capital spending is being moderated, along with our other spending, to provide an increased free cash flow from last year. And as you know, DeVry does not defer any of it's campus start up or marketing expenses.

And finally, as part of the process by which our financial statements are prepared and audited, Dennis and I signed the certification required by the [Sarbangs Oxley Bill] in conjunction with our 10K submission in late September. And in conjunction with our first quarter financial statements, we'll be signing an expanded certification attesting not only to the completeness and correctness of these statements, but also to the adequacy of the internal controls that help assure such statements are correct.

That about sums it up for me, and now I'll turn the call over to Ron.

Thanks Norm. And, uh, good afternoon to everyone. We would like to give as many people as possible an opportunity to ask a question in the next 35 or 40 minutes or so. Therefore, in fairness to everyone, we ask that you limit yourselves to a single question. And, in addition, if you have a specific question, which may not be of general interest, especially if it relates to your particular financial model, please contact Norm or Dennis or me after the call is over.

If you have more than one question, ask your first question, then return to the queque, and we'll, uh, answer the question as time permits. So with that, uh, I'd like to ask the operator to open the call for questions, please.

Yes sir. At this time, I would like to remind everyone, if you would like to ask a question, please press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question, Matt Litchman from William Blair And Company.

Good afternoon, uh, Dennis you mentioned that you were reconsidering your campus opening plans, given the number of new, under utilized campuses in your network. Uh, will you be able to postpone the, the Houston campus that was previously scheduled for July of next year, or is it too late for that at this point?

We can postpone it, uh, a semester without, uh, damaging any of the commitments that, uh, we've made, and that will help.

And are, are you, are you considering changing the overall growth plan of one to two per year, or is this just a, sort of more of a short term move around one campus?

We're evaluating, uh, whether we should change that. As you know, it takes, uh, a, a year and a half and sometimes more, uh, between, uh, the time when we start moving, uh, on a new campus and the time we can open the door to students. So we're really, uh, making decisions now that affect the fiscal year, even 2005. So, uh, we are, we are looking at that, we've not made any decision.

Not to dominate the, uh, the question queque. But maybe if you could just give us a little color around that? Thank you.

Ron is looking at me, he said I knew, his, his eyes said, I knew this would happen. We, we follow on questions, uh, aren't going to give us time to cover everybody. And, and really we're not, we're, uh, we're in the process of working on, on your, on your fine question.

Let me just say Matt, that, uh, we, un, intend to continue to focus on expanding the business. We're unhappy with where we are now, obviously, in the first part of this year. Uh, had, it really is, uh, up in the air the rate at which we'll do geographic expansion in the next year to two. But, uh, there will be some geographic expansion. Uh, for lack of a better way of saying it, we might go from two a year to one a year, but it's our intent to continue to grow the business.

Your next question comes from Eve Glass from Merrill-Lynch.

Hi, thanks. I was just wondering if you could talk a little bit more about expectations for fall enrollment. And specifically total undergraduate enrollment, uh, for the fall given the expected declines. And then also talk about, uh, retention rate. Did that, did all that count as one question?

No, you, you snuck in an extra one, but I'll try to be quick and, and answer them. Uh, the, the retention right now with the data that we have, uh, looks like it's at or actually slightly better than what we have had in the past. I know there's been some speculation out there that, uh, that it's, uh, there's some deterioration in our retention. That's not the data that we see. And, uh, with regard to the class, uh, I think you'll likely see a, uh, um, a class that is, uh, about like the summer class. And you'd have to factor in the fact that the summer class is, is smaller than we expected. But right now, and of course there's still, there's still time. But right now, um, we're expecting a class that, uh, that is not as robust as what we want, and it's, uh, much like what we saw in the summer. We're not happy with that, but that's what we're expecting.

You remember that the summer term was down 4.1 percent in, in total students.

Right, but given the declines in new student, even if retention is sort of the same or better, we could expect to see, uh, increased declines in terms of fall total undergraduate enrollment. Is that true?

Uh, yes you have to realize that there are nine semesters worth of students, cohorts, still in there, on their way to graduation. So, uh, that's why you saw a more moderate, uh, decline in total than, much more moderate than the decline in new. Uh, but the, uh, but the same principal will hold for the fall.

Alright, I'll get, get back in the queque, thanks.

Your next question comes from Jennifer Childs from Bear Stearns

Thanks. Um, are you still experiencing any price sensitivity? You alluded to that on the last call.

Um, uh, thanks for the question, Jennifer. No, in fact the price as you know, probably, and there's been, uh, there's been articles about it as recently as, uh, yesterday and, or the day before in the Wall Street Journal. The, uh, the, the traditional schools are under significant pressure because of lower endowment returns. And, uh, state funding that is, that has gotten much more difficult.

So, uh, on average, prices across the traditional school spectrum is, is up a lot. Um, there's some speculation that, uh, private schools, uh, will follow suit. And there's also the implementation of, uh, significant increases in fees. So, the pricing is, is not, uh, something that we see as an issue right now.

But you, you hinted that you were losing some market share, potentially, to community colleges, which were...

Yeah, if, if that's what the question is, absolutely, uh, community colleges are far and away the cheapest alternative. And in an environment where, um, where people are laid off, where there are members of the family that, uh, that don't have jobs. There are a lot of students who are interested in, um, going to a community college, saving the money, working and then, uh, would pursue a baccalaureate degree at a later time. Uh, the, the bad news is, that probably impacts our new student recruiting today. The good news is, we think we offer them a, a good alternative when they finish their, uh, associates degree. And it may be that that's a pool of people that will, will help us, uh, in a year or two to drive the enrollment.

Thank you.

Your next question comes from Jeff Silber from Gerald Klauer.

Good afternoon. Um, I was wondering if you could tell us, uh, if you are considering any type of programmatic changes, whether in, within your current curricula and or maybe going into new areas?

Yeah Jeff, this is, this is a topic on everyone's, uh, lips. I'm glad you asked the question. Uh, basically we are adding, uh, a number of majors in the, the SBA, in this-ph spring implementation. Um, so expanding our, uh, what today is our most rapidly growing undergraduate, uh, area. We are rolling out a masters in, uh, public administration, which we, uh, just initiated. And, uh, so the, the public administration side of what we're doing. And we're also, uh, expanding and we're evaluating various additional expansions in the technology field, as you might imagine we're, uh, thoughtful about that given the, the technology, uh, disappointments in terms of our new student recruiting.

But we've added a four-course information security management concentration. And, and a variety of things like that. Uh, some of which are in the queque, and, and some of which, uh, will come later on. Uh, we have not, uh, done any of the, uh, what, what everyone seems to be asking about these days is whether we're doing Allied Health, like everybody else. And, uh, we have not initiated anything in that area other than in the BSBA we've expanded, uh, into a health services administration component that I think speaks to the interest in that area.

But, but, uh, we're, we're, uh, we are a technology, uh, provider, and we're going to continue to be a technology provider.

And in terms of the cost of these programmatic changes, would you expect development costs to be a little bit higher this year on a relative basis than in prior years?

No, we've been, uh, uh, making those investments along. We have the, uh, the overhead in place, and they've been coming out with, with new elements and new components to our various programs. Uh, if somebody wants to know later on, we can take you through that. But it doesn't add cost. Uh, and, and, you know, it's one of the areas where we would be reluctant to, uh, eliminate or cut that back in a huge way. Because it is the future lifeblood from a, from a programmatic currency and relevancy standpoint.

Alright, thanks Ron.

Your next question comes from Gary Besby from Lehman Brothers.

Um, thanks, uh, given the, you know, what seems to be very strong cash flow, I wondered if you could give us some updated thoughts on what your plans are for reinvesting that cash and whether you would, you know, reconsider your past stance against repurchasing shares at some point.

Yeah, we have, we haven't had a, uh, stance against, uh, repurchase. We just felt like, uh, the, the resources ought to be retained in the business to put into thinks like, uh, two new campuses per year. Um, share repurchase is clearly on, uh, on everyone's mind. And it's on our mind as well. We have a, uh, board meeting coming up in a couple of weeks, and one of the topics will be that. And just briefly, um, share repurchase is certainly, uh, one of the elements of what we would consider. It is a way to get, uh, it, it's a capital decision in many ways. Capital allocation decision.

We can get money to shareholders in that way. We can, we could get money to shareholders in different ways. All of which we will consider. But the bottom line is, uh, we don't have any problem with the share repurchase, per se, it's on the agenda for discussion. And, uh, it may very well be that, uh, there's some activity in that regard. Especially with our stock price at what it is currently.

Thanks.

Your next question comes from Bob Bridges from Sterling Capital Management.

Could you elaborate on, on the cost that, um, that have been rising at the two new developing campuses in Seattle and Washington. Is there anything going on there that's different from prior openings of other recently opened campuses?

There's, uh, there's, the only difference, really, is that the, uh, pace of, uh, enrollment growth has been less significantly than what we had budgeted for, and what we had planned for. And, um, we've, we've been looking, as you might imagine, quite extensively at, uh, at both of those. Uh, our Freemont, we had summer starts in the last four years, and Freemont, Kenley Park, Seattle, and Philadelphia. And, uh, Freemont and Kenley Part were great openings. Seattle was okay, and Philadelphia has been, uh, weaker than we wanted.

Uh, it may reflect the technology recession. It may reflect, um, a variety of choices that we've made, uh, with regard to location and, and the amount spent on, uh, initial advertising and marketing. Uh, some of which we can correct as, as we come to conclusions about it.

Fall starts in New York, West Hills, Orlando, and Crystal City. New York, West Hills and Orlando were all, uh, very nice openings. Crystal City was weak, and if you remember that was affected by the, uh, September 11th. Uh, I think that right now Crystal City is, is, um, is one that we would expect to accelerate in growth as we go forward. We did make, uh, a fairly significant commitment, and, and really didn't get the, uh, enrollment that we wanted there to begin with.

So I don't think it's anything, uh, structural in terms of those openings. Uh, there may have been choices, uh, or judgments made about what was necessary in the local markets that, that now have to be tweaked. And I think it was, that both of those were impacted by the overall weakness in the, in the heart of what our programmatic offerings are.

Great, thanks a lot.

Your next question comes from Fred MacRay-ph from Thomas Weisel Partners.

Ron, Dennis, Joan, Norm. How are you all? Um, quick thoughts, I know we talked earlier about share purchase, but in terms of alternative uses of cash, any view towards smaller acquisitions and purchasing, um, programs that you might be interested in terms of spreading your wings a little bit at the undergraduate level? Um, and uh, maybe you could elaborate on certain program areas that you might find attractive if that, if in fact that's something you're considering.

Yeah, I, you know, the, if you just look at the menu of possible uses of cash, share repurchase is one. Acquisitions is another, dividends is a third. There's, there's, and reinvestment in the business is a fourth. Those are the major categories that we see. Um, we look at acquisitions regularly. We see a lot of acquisition. I would say that we have been, um, reluctant to, uh, make acquisitions where we thought the price was high, or where we thought the growth rate in the acquisition might dilute the growth rate that we, uh, were experiencing.

As you might imagine, when your growth rate declines, some, uh, some of the potential acquisitions begin to look a little, uh, a little more attractive. And I would, I would say this, uh, Fred, it is not our interest to run out and make an acquisition to fuzz up, uh, the performance that we're unhappy with now. However, there are certainly, uh, organizations and entities that have brand identities, market positions, or programs that would serve our interest. Both in terms of growth, or in terms of new verticals, or in terms of, uh, a particular presence in the marketplace.

We, um, have not chosen to go down that path very much in the past, but in today's environment, and where our performance is, it certainly is something that we, uh, are likely to be much more on to, and, uh, and I think if we can find things that, uh, fit into one of those categories that we think will fit into our goal to increase shareholder value we, we would do them.

Thanks so much.

Your next question comes from Mark Ferano-ph from First Analysis.

Um, good afternoon. As I recall last academic term, one of the comments you made was that the, the show rate, the ultimate show rate of the students was below the, the historical norm. And I'm just curious, does your expectation for negative 15 percent on the new student number for November, does that, does that have an assumption that a lower show rate continues?

Uh, thanks for the question...

It's the, no, we're, we're looking at, uh, we're looking at recent history. But, uh, recent history we're defining not just as one term, but the last several terms.

Okay, so you're not assuming the show rate declines year over year.

We're, we're assuming show rates that are about what they were in the summer. We're, we're not assuming any, un, increases. That's for sure. And, uh, but we're working our tail off to, uh, try to make sure that show rate's as high as it can be.

Okay, thank you.

Your next question comes from Richard Close from Sun Trust Robertson Humphrey.

Just to follow onto, uh, the show rate. Maybe if you could give us a little help in terms of, uh, what you're doing exactly to maybe, uh, get those conversions taking place. And then, um, the interest levels in the business programs.

Um, the, uh, the principal thing that, uh, is likely to increase show rate is, uh, that we have increased the intensity of interaction with new applicants, uh, uh, along the line, to assure that all of the little glitches that might prevent someone from showing. And that ranges from financial aid to housing to part time jobs. It's, uh, and, uh, advising on their academic program, are handled, uh, on a timely basis and with good advice, and with positive advice.

So, the principal, uh, thing in affecting show rate is taking the hand off, in effect, from the recruitment force and, uh, moving those students into the academic environment at the school. With the minimum disruption to their, uh, to their thoughts about what their doing, and to the reality of dealing with the problems the have. Whether it's financial or academic, or anything else.

That's the, the principal area, Richard. And there are other things, uh, our development programs, we've tweaked those a little bit. And we put into place some other, uh, programs to assist students. But, um, the biggest thing has to do with the, with the handoff from recruiting to academics.

And we keep statistics about the number of students who are tested who's financial aid is complete, and, uh, we are, we measure ourselves to, uh, on those statistics, and those statistics are in better shape than, uh, than the prior semester. So the, that, that's, uh, that's the heart of what we're doing.

And is there, uh, increased interest in the business program?

Is this, is this your second, uh, question?

I tried to slip one.

Did you go all the way through the line again?

You snuck in there, Richard, but, uh, while we go to the next person, uh, interest in the business programs is up. The, the real issues for us are in our technology, and in our, our serious technology programs. And in our telecommunications management.

Thanks, guys.

Your next question comes from Bob Craig-ph from Legg Mason.

Good afternoon everybody. Um, I just wondered if anything's being considered to temporarily use some of the excess capacity you have in some of your schools. IE, opening some of the schools to some training activity, and partnering with some, some outside providers? Anything of that sort?

Yeah, there's, uh, lots of proposals on that. Most of which take the time to get into place. And normally they don't have, uh, uh, enough scope to really move the needle. The biggest thing in that regard, Bob, is to, uh, is to combine the activities that we have going on in Keller Graduate School, and [inaudible] Professional Review, and our undergraduate programs.

And we are doing that, the DeVry University Centers, uh, uh, do that to some extent. And it's a, uh, it's principally looking to being more efficient internally. But there are opportunities that, the problem is you don't want to dilute, uh, what we are with, uh, training activities that, that may or may not, uh, sustain themselves for very long. And, uh, if you spend a lot of resources trying to do that, you detract from the basic business right now that we're engaged in, which is trying to grab this technology market, figure out what's causing it, uh, causing our enrollments to be soft while other people are, are hanging in there. And, uh, and put more people into our campuses.

Great, thanks, Ron.

Another issue is that, uh, you're talking to somebody about doing that, and you tell them, look, you're going to have to be out of here on a few months notice. Uh, in hopefully not too long from now, it's not very interesting to them.

Thanks again.

Your next question comes from Greg Capelli-ph from First Boston.

Hey Ron, I only have one question with 27 subsets, is that alright?

I knew you'd come in with that.

Um, I just wanted to ask about, you know, funding right now. Um, do you think it's a problem at all, just in terms of, you know, is there, is there, is there enough out there, I know Title Four is talked about a lot, but the private payers coming, and Sally Mae. But when I think about, you know, the models, you've got, you've got people coming from distances, and you've also got people that are, maybe, worried about cost of living as well. They're coming from out of town.

And I'm just curious, do you, is that, is that fully covered, or could that be an area where you know, it's posed with some of the challenges as well, to the enrollments.

There are challenges with that, and, uh, principally in the states. Some of the states that are the major, uh, finance, that provide major financing for students are under pressure. Uh, an example, of course is Illinois. Where we have, uh, uh, three, uh, campuses, and a variety of graduate school locations. So, uh, that is the case. One of the things that we are committed to, is that we provide with our revolving credit arrangement, which we call Edu-Card, financing for students who have a short fall from the total cost, uh, in their federal and state and other sources of financial aid.

Um, you can measure the efficiency of that readily by looking at our receivables, and as Norm, uh, pointed out, our receivables are down. We're doing a pretty good job of supplying that funding, uh, but not getting stuck with the outstanding debt which we can't collect.

Okay, so the ability to fund further beyond Title Four is there?

Yeah I think that, that is an issue that people look at. It's certainly, uh, something that as we go forward I understand that people might be concerned about. I don't really think today that that is a, uh, risk that, that's likely to, to impact this, this overall activity in a significant way. We, we've gone beyond, at least so far, the inner sector rivalry for funding. And I, I think we're okay on that.

Okay, thanks a lot.

Your next question comes from [Alan Schlang-ph] from LJR Great Lake Review.

It's Elliot Schlang-ph. I was, I was encouraged by, uh, the comment in the release and that you just made a second ago of inquiries being up, though only modestly. But surprised that they're not, uh, coming through with more conversions to enrollments. What action do you take when a student makes an inquiry, and, uh, then you don't hear from them? Is there a pattern that you follow there? And what are you learning from why the students are not coming through with an application after making an inquiry?

One of the things, Elliot, that's a really great question, thanks. One of the things that, uh, I think we're seeing is that sources of inquiries are, are changing. And as the, uh, the place that people inquire from are the means by which they contact us adjust, we have to adjust the, uh, mechanism by which we get back in touch with those inquiries. Um, let me just give you an example. If, if a kid is, uh, on the computer, and uses his mouse to click on DeVry, he wants information, he or she wants information right now. And our ability to respond to them is going to impact the extent to which they, uh, um, uh, the extent to which they're ready to respond to us when we do contact them.

So part of what we are looking at today, and what we're trying to, uh, to make adjustments to our, our recruitment and contact procedures, is to be back in touch with those people who inquire immediately. So we have an automated response now built into our, uh, our contact list. We have, um, next day contact from a recruitment person. And I would say by and large we have made some adjustments over the last three to four months that I think will allow us to better, uh, um, affect the inquiries and turn those into, uh, enrollment.

The, the, it remains to be seen, though, honestly. And we've made some changes, we'll see how that goes. We'll make some other changes if, if the need, uh, is still there. But I, I hope that gives you sense of, of how it is that you can have leads that come in, and then, uh, contact them. But if they come in through different media, you, you, you need different ways of contacting them.

And the market research as a follow up to why they're not following through is, is too inconclusive at this point.

Yeah, we're, you know the, uh, the first time, we've seen some erosion over the last year. But, uh, the first, uh, shocker, really, probably to any of us was in the summer class. We, believe me, we've been scurrying around, uh, trying to figure that out both with regard to focus groups and, uh, and analysis of our internal processes and procedures. We're trying to look at everything. And, uh, we'll make the changes that we have to make. It's, uh, it's just not clear yet. And, you know, the, the, the, the bad thing is, it'll be clearer when you see the results, uh, and then of course it's too late to affect the results for that class.

So right now we're, we're doing all we can to figure out what's going on. And, uh, we're putting into place some changes, we'll put into place more changes as we understand what we have to do.

Thank you.

Your next question comes from Brady Enright from Capital Research.

Uh hi, just kind of a follow up on that same topic. Um, I mean effectively what it sounds like is you're getting more leads, but they're lower quality leads. Or they're certainly, I mean that, I think that's what we'd have to say since they're not converting into students as well. Whatever you're paying for them, they're not worth as much as the ones you were getting before. Uh, and I guess the question is did that you lead you to any thoughts on changes that might still need to be made to the marketing effort?

Oh yeah. I mean we're, we're all over that, believe me. And, uh, the conclusion that you came to is one conclusion. And another conclusion is the leads are still, uh, capable of being converted at the same rate, and, and they're just not being converted because your sales force isn't being as effective. Or, you know, there's a, there's a, a variety of things that could impact that. But I think it's true that to the extent that people get, uh, leads from new sources, uh, you probably have a requirement to retrain or, or reorient your sales force. And we are actively, actively in the process of doing that to assure that if there is an issue with the leads, that we have our sales force capable of dealing with those variations.

And, um, again, it, it remains to be seen. We, uh, think we understand that, and we, we think that we will be able to do something with it. But it remains to be seen.

The other thing about this, uh, Brady is that if, if we were experiencing problems across, completely across all of or program sets, well then we'd say to ourselves, well maybe we have a, a, some sort of internal issue that we haven't figured out yet and we need to deal with it. But the fact of the matter is, we're really getting good, effective results from our business programs at a, at the graduate level, et cetera. And so I, I really think, notwithstanding what other people may be saying, that we have a limited, uh, issue. It may be a lead issue, it may be an execution issue, but it's limited. And the only thing is, it's in the heart of what we do, uh, which is high quality degree programs in technology.

So, um, we're, we're trying to figure out where the squeaks are. We're going t put some oil on them, and we're going to put a new tire on if we have to do that.

So it's fair to say that it sounds like you think that the issue lies more in the execution than in the lead generation at this point?

Uh, no, there's been changes in the lead generation. But I, I'm not dismissing the fact that there is execution issues. And to the extent there is, we're going to fix them.

Thank you.

Your next question comes from Howard Brach-ph from Bank Of America Securities.

Good afternoon everybody. Um, the first question is, I was wondering, when during fiscal '03 do you intend to offer fiscal '03 guidance? Detailed guidance?

Well the next period of guidance for the fiscal year is going to come, uh, when we announce the numbers for our fall class on the fifth of, of, uh, December. As you know, that's our largest class. That, uh, the summer class is, is, uh, around for three semesters to the end of the fiscal year. The fall class, the largest one around for two. And then the spring class, the smallest, around for just one. So it's, uh, it's going to tell us what we have to work with. And, uh, and we will, uh, we will be releasing that number and you'll know what we have to work with, also.

So we should expect a detailed financial guidance perhaps with the December, or the Q2 earnings release? Or with the December 5th press release?

We, we'll try to give you some guidance. But the, the basic thing I think you should take away is that, uh, A, the, the, uh, results in the fall class will be an important component. And B, as I hope you see from the first quarter results, which are at the, at the high end of the pre-announcement guidance, we're, we're working hard to adjust our expense categories to meet whatever the revenue levels are that we have.

So, um, you'll, you'll see what the likely revenue flow is from a, the fall class in conjunction with the spring class, uh, summer class. And, uh, just know that we're working on the expense side of the equation at the same time.

Um, well I know I'm cheating on the questions, but it's late in the call. On, on the DeVry University Centers, if, if we, if we look at Keller's growth and how well it's doing, and your business programs are doing in general. And then when you try to reconcile that, obviously, with the struggles, with the traditional DeVry Institutes Programs. Can, can we learn anything from looking so far at how well DeVry University Center enrollments are evolving? And as you answer that, maybe you could offer some guidance with regards to how many are open now, how many you think you'll have open at the end of the year. What sort of capacity is for a DeVry University Center. And, and perhaps how it may be served as a nexus, if you will, between the traditional side of your business, and then the, uh, maybe the more progressive business side of it.

The, the, uh, we have the, I'm sure we have the numbers here. But I, I believe we have now 11 open, uh, of those centers. We had four at the beginning. The capacity of those centers is typically in the plus minus 300 for incremental undergraduate adult learners, uh, over and above the, the three to 400 graduate students in the, uh, and we will be opening additional, uh, students, additional DeVry University Centers after the first of the year. Uh, through the end of this year we'll, our plan is to, to complete that sweep through the 33, uh, uh, through the 33 centers that weren't changed with the first four centers of a period of, that would be maybe up to two years from now. So we're moving along as fast as we can on that.

It's early to, uh, uh, to, to give you numbers on the 11 that have opened since, in the last two months. Or, the, the seven that have opened in the last two months. But the, but I also want to clear up any thought, uh, about the, uh, the programs that are available there. These are the programs that are most interesting to adult learners, that the, uh, business administration programs, and, and, uh, management programs, that the centers focus on. So I picked up in your question that you wanted to know what the difference of demand among center customers, i.e., adult learners in technology was versus, uh, uh, the, the on campus demand. We'll be adding in the centers technology programs, but that won't be until the early part of 2003.

Great, thanks Dennis.

Your next question comes from Adrian Mellie-ph from Farley Capital.

Hi guys, I just had another follow up to the, uh, comments on the declining conversion ratio. I was kind of wondering if you guys had any thoughts on, uh, where those students might be going that aren't deciding to enroll in DeVry?

I, I think it's, uh, very clear that a lot of the students who otherwise would choose to go to DeVry are choosing to go to the, uh, least expensive alternative. And basically that's community college. Community college enrollments are surging. Uh, it is a place that people can go, pay the least amount of tuition, live at home, and, um, sort of hold their place so that in a year or two years when they have, uh, whatever they get, then they can proceed on. And hopefully they will understand that the, uh, environment for technology graduates is good. Hopefully then it's better. And, um, I, there may be people that are going to other traditional schools, there's probably people that are going to, uh, apparently if you believe everything, uh, everybody wants to be a cook these days. But, uh, it, it, I think the real answer is, they're going to community colleges.

Alright, thank you.

Your next question comes from Eve Glass from Merrill-Lynch.

Hey, um, Norm, I was wondering if you could just talk about, uh, expectations for cost for the rest of the year. If you think the absolute dollar amount, um, would stay sort of similar for the rest of the year? Or as a percent of revenues? I mean I, I understand you're taking costs out of the system. But just trying to, to model for it. And then also could you just comment on your comfort with first call consensus for Q2, which is 22 cents, and for the year which is 83.

Well first, Eve, with respect to absolute levels of expenses, the level of expenditures in each of our quarters reflects a seasonality as have the revenues. You know, and you can see that in each of the past years. To give you some idea of where you might expect future expenses, expenses in future quarters to be, I think you can take some, some, use, using the first quarter as an indicator, and looking at that rate of increase year over year, being the lowest rate of increase in any of the, as we've said, the last, any of the seven of the last eight quarters. I mean, and you can work through, you should have the data. Um, we've had, you know, cost increases year over year in those, in those quarters ranging from 13 or 14 percent up to over 20 percent, I believe.

Um, so you can see we're, you know, we've got a clear moderation of costs. And as Ryan said, we'll continue to examine the, the activities, uh, in light of the, the student enrollments as we go forward.

Okay, and then on first call consensus?

I think, uh, basically that's, uh, people who have, uh, tried to thoughtfully go through this and make an estimate. And the only thing I would say is, uh, based on the summer, and based on, uh, the current expectations, uh, that we've tried to give you some guidance on for the fall, I, I think it would not be smart for people to be overly optimistic. Um, beyond that, we're going to, we're going to work to try to make it what we can, and, uh, do the best we can in the short term without mortgaging the long term.

But, um, I, I don't see any reason for, for people to get, uh, to get overly optimistic on the up side.

Yeah, as soon as there's some reason to do that, we'll tell you. Yeah, we'll, we'll be the, we'll be the first to be really excited. But, uh, in the meantime, what we're doing, as Ron said earlier, is just looking at every possible way to increase revenues and reduce expenses while maintaining the level of quality that is the Hallmark of DeVry.

Your next question comes from Jennifer Childs from Bear Stearns.

Thanks. I was hoping you'd give us a little more color on the success of the advertising campaign. What I've seen of it, it seems like more of a general brand building campaign versus, um, technology specific. Um, your, your thoughts on that?

Um, it, I think the, uh, first ads that, uh, have come out in the first part of the ads are certainly, um, have as part of their, uh, objectives, trying to assure that, uh, we, we tell people exactly what, uh, DeVry University is. And trying to, uh, better communicate through, uh, through new messaging the, the value proposition of DeVry. Uh, we've, we've got themes in there that communicate the collegiate aspects of DeVry. We have themes that try to differentiate, uh, DeVry in terms of the ties to industry which we have. The availability of, uh, mix and match, of on site and online programming. The practition of faculty that we use, and the real world value of a DeVry experience. All those are, are important, uh, elements in, uh, messaging that we have for the new campaign.

But we're also trying, uh, in those ads to, uh, to take that new messaging and develop through, uh, a new media mix, or a little expanded media mix, um, the opportunities for us to appeal to specific groups of people. Whether it's, it's women or, or minorities, or ethnic, uh, groups, or community college grads, whatever it might happen to be. And I think if you look at those ads carefully you should, you should see that.

And then, last, we certainly are spending more, uh, and paying more attention to trying to, uh, develop new sources of, of leads. As many in, in the education industry are. Certainly, uh, internet advertising is one component of that. And so I, I think it may be true that, uh, specific ads, um, have that more general flavor to them. But taken as a whole, the new campaign, I think, will, um, will accomplish the kind of objectives I just talked about with regard to target, with regard to value proposition, and with regard to, uh, uh, positioning the business programs, uh, for DeVry University, where, where people tend to think of DeVry as a, as a technology, uh, question.

We have time for about two more questions. And, uh, Eve and Jennifer both got two in, so that's great. And, uh, I think we have one, two more that we'll take, and then we certainly are willing to chat with anyone. If, uh, if you want to give us a call, and uh, and explore any of this in more detail, or if you want to test your model, Norm will be happy to, to provide you lots of guidance, I'm sure.

Your next question comes from Gary Besby from Lehman Brothers.

Hi, just a, a question actually from your 10K you filed a, a while ago. Um, you gave the segment data so that we could really see the results of, of the Keller business and the Becker Conviser business. Both of which did exceptionally well last year. I get two quick questions around that. Um, you know, the Becker business, it looks like it grew, I think the revenues was 16 and a half percent in the last fiscal year. And you just said 15 percent in the fist quarter. Uh, I know you bought [Stala] half way through the previous year. But can you give us a sense as to, as to, you know where that growth is coming from in that piece of the business?

And, and the second part of the question is, in terms of the profitability, there was also real strong profitability growth for both Keller and Becker. And are you comfortable with those levels, you know, going forward?

If you think about the, the, uh, last couple of years at Becker, one of the things that impacted us was the implementation of the 150 hour rule. And, um, as that went through the system it impacted our, our revenues and subsequently our earnings. So I think we're, we're proceeding through that. The biggest states have, uh, already made that change. And so I think, uh, Becker is, is, uh, at a level and, and is doing fine.

[Stala] is one of the two, uh, most important competitors in the CFA business. We've got a lot of changes going on in the securities business. But I, the bad news is, there, uh, there may be a lot of people on the street in that business. Uh, the good news is, people on the street may feel like they can, uh, they can position themselves for a job better if they have a CFA, or, or are part of it.

So I, I think [Stala] delivered through the Becker, uh, system, which is very good and very efficient, will be a contributor. And yes, I think that Becker and Keller should contribute along the same lines as they have in the past.

Thank you.

Your final question comes from [Greg Capelli-ph] from First Boston.

Hey guys. I just wanted to get your thoughts on Canada at this point. And, uh, you know, uh, how it's doing, and, un, and, and what would cause you to actually just get out of Canada all together?

Um, Canada...

Other than the people, of course.

Yeah, Canada, uh, the, basically what we've done in Toronto is that we've consolidated, um, [Misasauga] and Scarborough into one location. And that is, uh, a two semester process. It has a short term negative, uh, visual effect in the sense that, um, instead of recruiting students for two locations, you're recruiting for only one. And you have a tail of expenses that, uh, that continue. But we've sublet the Scarborough facility so we're, uh, relatively in good shape with regard to the expenses on that side. And by consolidating, we think we will get better earnings performance up there.

Um, we're still in sort of a limbo, honestly, there in the sense that the Ontario government has not, uh, awarded anyone, uh, degree granting authority. Although they said they would. And, um, I, we're, we're not inclined right now to, uh, talk about getting out of Canada. We certainly have a, a nice operation in, uh, Calgary, Alberta. Um, but we, we, we are disinclined to continue, uh, losing money at the rate that we have in the past. The consolidation into one location, I think, will help. We may need to move that one location to a facility. And, and we'll likely do that before we would talk to anybody about, uh, about whether we want to maintain a position there.

Okay, very helpful. Thanks a lot.

Thank you everyone.

Yep, we very much appreciate your time. And, uh, and your interest, and we simply want to say again that, uh, we will keep doing everything we can possibly do to enhance our revenue and control our expenses and manage through a very tough time for us. And, uh, do it with quality and with attention to our, uh, our share, our long term shareholder returns. So thanks again, and we'll talk to you later. Bye bye.

Ladies and gentlemen, thank you for participating in today's DeVry Inc. first quarter fiscal 2003 earnings conference call. This concludes today's conference call. You may now disconnect.