Adtalem Global Education Inc (ATGE) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the DeVry fourth-quarter and year-end conference call. At this time, all participants are in a listen-only mode mode. Following today's presentation, instructions will be given for the question-and-answer session. If anyone should need assistance at any time during the conference, please press the star, followed by the 0 and an operator will assist you. As a reminder, this conference is being recorded today, Wednesday, the 18th of August, 2004. I would now like to turn the conference over to Miss Joan Bates, Director of Investor Relations. Please go ahead, Ma'am.

Thank you. With me on the call today are Ronald Taylor, CEO; Daniel Hamburger, President and COO; and Norm Levine, Senior Vice President and CFO. Our format today will begin with some prepared remarks from Management, followed by the Q&A session.

Before we begin, please be advised this call may include forward-looking statements pursuant to the Safe Harbor provision of the Private Securities and Litigation Reform Act of 1995, potential risks and uncertainties are detailed in the Company's latest filings with the SEC. As a reminder, our complete financial statements for the fourth-quarter and the year-to-date are appended to the press release and also are available with the press release on our website in the Corporate/Investor section. I would like to also remind you that these financial statements are preliminary and subject to classification adjustments, excuse me, between account categories as we complete our final review. Telephone and webcast replays of the call are available until August 27. The domestic replay number for the call is 800-405-2236. Passcode is 11004930. And replay is also available via the Investor Relations portion of the website at www.investor.devry.com. With that, I'll turn the call over to Ron Taylor.

Thanks, Joan. Good afternoon to everyone, and welcome to our fiscal 2004 fourth-quarter and year-end conference call. Before we review our quarterly and year-end financial results, I'd like to formally welcome Daniel Hamburger to our call, and to congratulate him on his new position as President and Chief Operating Officer of DeVry, Incorporated. At the same time that Daniel assumed his new responsibilities, which was on July 1, we announced that John Skubiak would assume the title of President of DeVry University. These changes strengthen our senior management team and give us the management resources necessary to achieve our objectives.

Daniel brings a lot of energy to the position and has extensive leadership experience in both high-growth start-ups and in large organizations with successful internet and technology-based ventures. He was previously Chairman and Chief Executive Officer of Indeliq, a developer of simulation-based training software, which merged with Accenture Learning in 2002. From 1998 to 2000, Daniel was President of W.W. Grainger's Internet Commerce division. Daniel received his MBA from Harvard business school and holds a Master of Science degree in Industrial and Operations Engineering from the University of Michigan. John Skubiak has been with the Company since 1975, serving in a variety of increasingly responsible positions. Keller Graduate School achieved significant growth under his leadership, and John conceived and initiated the DVUC expansion and the Metro consolidation while he managed DeVry University.

In addition to these senior operating management changes, we have also taken steps to strengthen our corporate governance by separating the roles of Chairman and CEO. My long-term business partner, Dennis Keller, will continue as Chairman of the Board, and I am very excited to be CEO of DeVry, Incorporated. This change initiates our succession plan, provides for a smooth management transition, and establishes a structure to support a more independent Board of Directors. This will enhance information flow, provide better oversight from the Board, and facilitate meeting the requirements of Sarbanes-Oxley. In addition to the managers I have already mentioned, Paul Eppen's appointment, this spring, as our Chief Marketing Officer expands our team strength in this important area. Paul comes to us with significant previous background in large, national direct-response marketing programs. Over the last few months, he has directed a comprehensive analysis of our marketing programs, lead generation activities, and conversion rates. The initial results of this analysis show that we've made good progress in many of our targeted areas. It also confirms much of what we have known about the ongoing decline in technology enrollments.

In an environment where new technology hiring is weak, and where technology job loss continues to dominate the media, overall reported enrollments continue to be negatively impacted, and some unwanted choppiness in future technology enrollments can be expected. An improving technology environment is what we all expected at this point, but frankly, we have been disappointed in the rate at which the technology environment has improved. And we have been unhappy with the resultant drag on our overall student enrollments. However, we are encouraged by the growth patterns predicted by the U.S. Department of Labor for employment in technology fields. The Department predicts that, quote, employment growth will be driven by the increasing reliance of businesses on information technology and the continuing importance of maintaining system and network security. Among all occupations in the economy, computer and healthcare occupations are expected to grow the fastest over the projection period. In fact, healthcare occupations make up 10 of the 20 fastest growing occupations, while computer occupations account for 5 of the 20.

Like most other post-secondary providers, DeVry is seeing increased competition from both from traditional and for-profit schools, increased marketing costs, and a shift in lead sources from traditional media to the internet. To offset the increased costs of generating outsourced leads, we are diversifying our provider base and our lead sources to limit expense and achieve better results. During 2004, our total lead volume increased nicely, in the range of 10%. However, the majority of this growth occurred from sources where the conversion rate is lower. We are revising our internal training programs and lead handling processes to reflect the current lead sources.

Now let's turn for a moment to our summer term enrollment report. At Devry University, the number of new undergraduate students increased by .9% to 10,522 students in the 2004 summer term. Total undergraduate students declined, however, 5.8% to 38,306, versus over 40,000 in the same term last year. While we are disappointed with these overall Devry University results, enrollments in our other operations increased significantly. For the 2004 July term, Keller Graduate School of Management course-takers were 10,276, an increase of 8.4%. The total number of online course-takers for the 2004 summer term increased 92.8% to 12,590, compared with about 6,500 in the same term a year ago. The total number of students enrolled at Ross University for the 2004 May term was 3,310, an increase of 16.1%.

For the year, Becker Professional Review had enrollments of approximately 43,600, with improving enrollment trends during the fourth quarter, and thus far during the first quarter of fiscal 2005. As you may recall, as a result of the new schedule and computerized test format for the CPA exam, Becker experienced a one-time reduction in enrollments during the third quarter of fiscal 2004. As candidates take advantage of the more flexible timetable, we expect that Becker enrollments will be more evenly spread out over multiple testing periods. We are also receiving very positive student feedback on the improvements we made to the CPA review program to reflect the new computerized test format, with the consensus being that our case-based simulations closely mirror the actual exam. We continue to show excellent growth at Ross University, DeVry Online, and at our DVUCs, as well as our full-time, campus-based business and healthcare enrollments. But we continue to have weak, full-time technology enrollments, which hampers our goal of restoring the total undergraduate student population growth to a positive trend.

The DVUC delivery model, as well DeVry Online attracts more part-time students. While there is less revenue visibility with these programs, they do have higher margins, which is mitigated margins, which have been depressed recently by under-utilization of our large campuses. Although our large campus model continues to be a large component of our operations, the growing number of DVUC locations makes it easier for us to expand our offerings at our most popular sites, and to reach a more dispersed and diverse target audience. In all of our delivery modes, we are working hard to eliminate the hurdles that may have prevented students from choosing a DeVry education. Our diversification into business, and more recently, in the health-related technology programs also continues to positively impact growth.

In April of this year, we announced the partnership with Chicago Public Schools, which we call the DeVry Advantage Academy. This program allows high school students with an aptitude for math and technology to earn an associate degree while completing high school. After completing our Advantage Academy, students graduate with both a high school diploma and an associate degree in Network Systems Administration. This initiative has been extremely popular with high school students, and we see the opportunity to replicate this program in other markets. It also indicates that high school students respond positively when they are made aware of DeVry offerings.

I'd like to end this portion of our conference call by telling you that our management team is excited by the opportunities that exist for DeVry, and we are fully committed to implementing our strategic plan of growth through measured expansion, increased program diversity, improved marketing, and efficiencies in outreach, lead conversion, and retention across -- excuse me -- all DeVry University, Ross University, and Becker Professional Review activities. Our mission has always been, and continues to be, to effectively manage our business with integrity, accountability, and with a vision for creating long-term shareholder value. With that, I'll turn the call over to Norm Levine who will give more detail on our fourth-quarter and year-end financial results.

Thanks, Ron. And good afternoon to everyone. Let's start with a quick review of some summary statistics. Revenues for the fourth quarter were $200 million, compared with 174.4 million a year ago. Net income for the quarter was 15.7 million, or 22 cents a diluted share, compared to 12.1 million, or 17 cents, in the fourth quarter of fiscal 2003, which included pre-tax charges of approximately $2.6 million related to workforce reductions in the U.S. and Eastern Canada. Revenues for the year, ended June 30th, 2004, were 784.9 million, compared with 679.6 in the prior year. Net income for the year was 58.1 million, or 82 cents a diluted share, compared to 61.1 million, or 87 cents per share in fiscal 2003. And you'll recall that we benefited last year from a non-recurring tax benefit of 12 cents a share associated with our Canadian operations. There were no non-recurring tax benefits in fiscal 2004. We indicated during our last conference call for the third quarter, that we would benefit in the fourth quarter from a realignment of Becker's fiscal calendar to that of DeVry, Inc. However, we believe the appropriate accounting treatment is to report it as the change in accounting policy at the beginning of fiscal year 2005. This change will result in an addition of approximately 2 cents a share to earnings for the first quarter of fiscal 2005, which will be separately identified and reported as a single line net of taxes.

Let me spend a few minutes now elaborating on some of the highlights of our financial statements for you, starting with the 2 statements of income, 1 for the fourth quarter and, then, secondly, for the total year. Our net income in earnings per share for the fourth quarter this year were significantly improved from the fourth quarter of last year. And if you'll recall, the fourth quarter of 2003 included approximately $2.6 million of charges related to workforce reductions in the U.S. and Eastern Canada, but even after eliminating this charge from last year, the year-over-year improvement in the fourth quarter was significant. As we indicated in the press release, the flow of CPA exam candidates is recovering. In fact, we were able to recoup the losses sustained in our third quarter. These losses were fully recouped during the 5 months of operation following Becker's third quarter, which in fiscal 2004 ended in January, before realignment of their operating calendar. But even though we've recouped our losses, the professional and training segments still trail the operating earnings level of last year by about 2 and a half million dollars in this fourth quarter.

I know that many of you focus on the student services and administration line as a percentage of revenues. On the surface, it appears that this percentage relationship remained flat with the fourth quarter of last year at 35.2%. However, keep in mind that our amortization of intangible assets is included in this category. And for the fourth quarter of the current year, this amortization was approximately 3 and a half million dollars, versus only $2 million last year. So that the actual spending on student services and administration this year was $66.9 million, or 33.4% of revenues, versus 59.3 million, or a slightly higher, 34% of revenues, in the fourth quarter of last year. The fourth quarter of fiscal 2004 also benefited from a lower effective tax rate this year, 28.3% this year, versus a higher 38.7% last year. You may recall that last year's fourth quarter included only about 6 weeks of Ross financial performance from its mid-May acquisition date. And the 28.3% rate in the fourth quarter this year is consistent with the previous quarters, and within the range of our expectations for an ongoing effective tax rate.

Turning now to the total year. Remember that the comparison of this year's 82 cents per share to last year's 87 cents per share should take into account fiscal that 2003 included approximately 8.1 million, or 12 cents a share, in non-recurring tax benefits from actions taken relative to our Canadian operations. Total year operating income in the DeVry University segment trailed last year's income as a result of lower earnings in the first and second quarters, caused by the decline in campus undergraduate technology enrollments that Ron discussed. However, as you may recall, the Devry University segment improved -- earnings improved from last year in the third quarter. And in the fourth quarter of fiscal 2004, the segment's income, again, improved from last year, and was almost equal to last year's continuing operation level before they were reduced by the charges for workforce reduction that we mentioned earlier. The costs of our continued operations in the Toronto area, in conjunction with the agreement with RCC College of Technology, are included in our financial results. Remember that we did not admit new students to this campus after the July semester of 2003. So that the enrollments and revenues are declining each semester until all the remaining students have completed their course's study by June 2005. With the benefit of the RCC agreement, our losses at the Toronto campus remain lower than they might otherwise have been.

Interest expense for the year, of course, increased sharply from last year when we were debt-free until mid-May, even though we used our cash flow from operations in fiscal 2004, mostly to pay down the Ross acquisition borrowings. Looking ahead, interest expense should continue to decline each quarter, compared to 2004, as we pay down the debt still further, even as we continue to feel the upward pressure on interest rates.

Turning to the balance sheet. The picture is one of considerable financial strength. We have a lot of cash, over $146 million of it, at year's end, although we still had $250 million of debt at that time. Driving this cash level is very strong cash flow from operations during the year. Cash flow from operations increased by about 34% to 134.4 million from last year, that was adversely affected somewhat by the inclusion of our -- of Ross into our balance sheet for the first time very near the June 30th, 2003 reporting period. Perhaps the better comparison is with the cash flow from operations in 2002, from which we have an increase of over 9% a year for each of the 2 years in that period, driven by asset and liability management, which we accomplished in the face of increasing revenues. Perhaps more significant, the excess of cash flow from operations over capital spending remains very high, permitting us to pay down debt or invest in improvements and expansions as the opportunities present themselves. Using our strong cash flow, today our debt has been further reduced to $215 million.

Accounts receivable increased, but only at about the same rate as revenues for the year. And, remember, that our receivables represent the sum of amounts owed by three different business segments, each with its own operating cycle, and each at a different point in that cycle as of June 30th, so that day sales outstanding, while they can be computed, are not particularly meaningful. Capital spending remained moderate at 42.8 million for the year, actually slightly lower than it was the year before, and this includes spending for facility expansion at Ross. Looking ahead, capital spending is currently expected to remain in the range of the spending in each of our past 2 years. And that concludes my remarks about the financial statements. So I will turn the call over to Daniel for additional comments.

Thanks, Norm. And good afternoon, everyone. First, I want to say that I am very excited about the future of DeVry. And I believe we'll be successful in implementing change and meeting our goals. As I go around our organization, I feel a renewed sense of urgency and enthusiasm, and I want to reiterate Ron's earlier statement that integrity, accountability, and quality will underpin our approach.

I'd like to review a few of the key elements of our long-term strategy across our 3 operating divisions, beginning with Devry University, in the following 7 areas. First, we plan to reignite the growth of our full-time, day student enrollments. Shifts in marketing spending to better communicate with full-time, day students will aid in this effort, as well as continuing to enhance the recruiting process through, among other things, a renewed and more segmented high school program. Second, we will reengineer our programs to better appeal to the student segments that we serve. We will offer more programs in an accelerated format, with online augmentation and flexible delivery methods, while enhancing the quality of our academic delivery. Third, we will be offering our daytime undergraduate programs at our DVUCs, our DeVry University Centers. Increasing the total -- the number of full-time students is a key to restoring continuous growth in total enrollments.

Fourth, we will also work to better communicate the value and affordability of a DeVry education. The quality of a DeVry education is part of our brand appeal. In an environment of sky-rocketing tuition costs, more students and their parents are looking for a school that can help the student complete a program efficiently and have a marketable degree after those years of study. DeVry University can and will meet those needs through enhanced student finance advising. The fifth area, expansion, also remains an important part of our strategy. We remain committed to opening six to eight new DVUCs per year. This expansion ,does indeed, continue as we announced last week, that we are opening a new center in Broward County, Florida in September. This center will offer an array of degree programs, including baccalaureate degree programs in business administration and technical management, and the University's full complement of master's degree programs through our Keller Graduate School of Management.

The sixth part of Devry University's long-term strategy is enhancing our Level II Center model. Now, the Level II Center model, which can serve up to 1500 students, can function as a stand-alone center without an anchor campus and allows us to efficiently enter new markets. Our management team believes that as we move forward, this model will become a more important part of our success. And finally, at Devry University, we plan to fully support Devry University Online's growth by increasing and enhancing student services and support. We believe the future of online education is our hybrid model, leveraging the best of both on-site and on-line offerings. And with an increasing number of adult learners and programs, I believe we will achieve our goal of being best in class in offering online education. So with over -- with 71 locations across North America, the ability to market on a national basis, and with the strong brand in technology and business education, Devry University is extremely well-positioned to increase its student population and to return to historical enrollment growth rates.

Turning now to Ross University. Ross continued its strong performance during the fourth quarter, and we are now increasing faculty and facilities to meet increased enrollments. New classrooms and exam rooms have been built for the medical school, and we'll commence construction of 2-500-seat lecture halls and housing for 350 to 400 students in fiscal year 2005. Similar expansion is occurring at Ross University's School of Veterinary Medicine, where we recently acquired 5.4 acres adjacent to the veterinary campus, and just broke ground on housing for 150 students. As you know, we are conducting a search for the new President of Ross University, and I believe that we have several excellent candidates. We hope to make an announcement soon.

Becker Professional Review. Enrollment at Becker Professional Review is occurring at a healthy rate. The growth drivers for the CPA profession continue to be strong, with significant increases in the number of undergraduate accounting majors. In addition, the demand for entry-level accountants is the highest it has been in many years, with most accounting firms recruiting interns at record levels to ensure that they meet their recruiting needs at graduation. And we see a number of growth -- of demand drivers within our Stalla division, which as you know, prepares candidates for the CFA exam. The CFA exam is a difficult multi-level, multi-year exam and the pass rates are now at an all-time low. In June 2004, 2 out of 3 candidates who sat for the exam failed, compared to 5 years ago, when 2 out of 3 candidates taking the exam passed. With its recently enhanced comprehensive study system, Stalla has a unique opportunity to provide the needed prep courses to meet the changing demographics and growing demand in the CFA marketplace. So with that brief overview of the -- of key elements of our strategy across our operations, I'll now turn the call back over to Joan.

Thanks, Daniel. We'd like to answer as many questions as possible. So we -- we have about half an hour. So just -- if you're in the queue, we ask that you ask just 1 question and then jump back in for your second question. So, Operator, we'll open the call for questions. Thanks.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. If you have a question, please press the star, followed by the 1 on your push-button phone. If you would like to decline from the polling process, press the star, followed by the 2. You will hear a three-tone prompt acknowledging your selection. If you are using speaker-phone equipment, you will need to lift the handset first. And our first question comes from Matt Litfin from William Blair. Please go ahead.

Good afternoon. You guys talked about refocusing your marketing and sales efforts on some specific audiences. Can you maybe drill down a bit as to what exactly that means? And also what do you see as the major changes that Paul Eppen will be making to DeVry's marketing programs? Thanks.

The biggest thing, Matt, is that we have a need to have more attention paid to our high school student population. We've focused the last couple of years on our adult learners, and that's been an important positive for us, but we would like to sharpen our message to our high school audience, and we also think that we will be able to tailor the -- the message to the specific needs of high school students in different areas. What we found is that a high school student in New Jersey may respond differently and have different needs than a high school student in California, let's say. Paul Eppen has taken the task, and it's a good -- it's a good task for a new person who isn't in the middle of and developed our previous marketing plans, to take a critical eye to those plans. We will have a different communication message in our next advertising activities, which will be out by the end of this month, and we are also very thoughtful about the dynamic in the outsourcing of leads. I think most of the major players in our space had some pick-up during the time leading up to this last class that derives from some market dynamics in that area. So, we want to take some actions to prevent DeVry from being impacted in the same way. You know, there's a lot more, but it is not appropriate to go into it on this call.

Okay. Thank you.

Our next question comes from Mark Marostica with Piper Jaffray. Please go ahead.

Thank you. I just want to stem from the last point, Ron, that you made concerning the dynamics of outsourcing of leads. Could you comment on the percentage increase in lead generation costs in the quarter? And then, perhaps, give us some level of quantification on the impact on these students services and admin expense line of that increase.

What our focus will be, Mark, is in trying to assure that we do a more efficient job with about the same level of spending. So even though there has been a -- an increase in the cost of internet source leads, again, I think across most of the people that use that source, we are taking that into account. We're adjusting our media mix, and trying to assure that if there is a dislocation in the pricing in the future, that -- that we have a -- a response to that already prepared. I think if you look carefully, or when you look carefully, if you haven't already, that the order for '04 SS&A was less as a percent to revenue than quarter 4 of '03.

Correct.

Norm mentioned this before. And so, I think that's indicative of the fact that we're not just going to let marketing expense run away from us, but we're going to try to do a more efficient, more effective job under the guidance of a pro in national direct response programming.

Would it be fair to say, then, as a follow-up, that you altered your lead generation mix, you know, intra-quarter in reaction to the higher web source lead costs?

We certainly were reacting to that, again, I think as many people in our space did. And, yeah, that would be an appropriate thing to say.

Okay. Thank you. I'll turn it over.

Our next question comes from Bob Craig with Legg Mason. Please go ahead.

Good afternoon, everybody. Ron, you mentioned in your comments about diversifying your provider base. I take it that refers to using other vendors on the marketing side, rather than just Draft Worldwide?

That's correct.

Okay. Okay. And just as a quick follow-up, is there any type of break-out that you can offer right now between your technology enrollment and your business and healthcare enrollment?

We haven't traditionally done that, Bob, as you know, and -- but what I will say is that this -- as we have tried to indicate that the real weakness in our enrollments has been in the technology. Technology is still a very important part of our enrollment mix, but because of the growth in our business in healthcare, it's a declining percentage of our enrollment mix, and I think we've talked on previous conference calls about where we are in the overall technology environment. I don't think we're so much on the down slope, although we certainly could get some downs and ups. I mentioned that we expect some choppiness as we go forward. But I think we're -- we're at the bottom of that curve, or near the bottom of that curve. And there's a lot of -- there's a lot of information in the media about the recovery in certain places, and yet you look and Hewlett Packard is struggling, and some of the other people are struggling in this space. The NASDAQ tech stocks are low. Maybe they're not at an all-time low, but I think it's indicative of a transition through a bottom, and we're -- we're not going to sit back and wait for something to happen. We're taking a lot of actions. We're diversifying our programs. We're changing our media mix. We're changing our marketing approach. But we still are influenced by changes in the technology environment, and when that recovers, we'll get a lot of operating leverage. In the meantime, we're going to do a lot of things to make sure that we achieve the objectives we have for ourselves. I realize that's a long answer to your question, but the percent -- the net is the percentage of technology enrollments is down in our overall business.

Okay, great. Thanks, Ron.

Our next question comes from Greg Cappelli with Credit Suisse First Boston. Please go ahead.

Hi, Ron.

Hi, Greg.

As you pointed out, it looked like core enrollment, obviously, slipped some after seeing nice improvements over the past several quarters. Two things here. First, was that more of an issue on -- you know, generating the leads and the lead forefront, or was attrition also, you know, a factor here, or a combination of, I guess, both?

It is really a combination of both. We -- we were impacted by the hiccup that occurred in internet lead flow through one of our providers, that's generally active in the business. But if you think about it, our total student enrollment is still impacted by the fact that we had very large, and increasingly large, classes that we enrolled through about 2001. Well, we offer programs that are 3 years in length. 2001 plus three years, 2004. So our total student enrollment is impacted by, sort of, the last few terms of large graduating class that reflect the robust growth that we had in the technology area through 2001. I think we're transitioning through that. We've talked about the pig through the python. The python is -- is getting tired of having the pig around, and I think we're about finished with that.

Okay. And then just a quick follow-up. The DVUCs, you're successfully rolling those out. You've plans for more. Do you see in any -- in the early stages as they ramp up, any cannibalization from the bigger DeVry?

Oh, sure. I think there's people that -- as you open new Devry University Centers, if they're closer to someone's home or where they work, they might take classes there. There's probably a little cannibalization from people who otherwise would come to a large campus, who are taking courses online. But, really, that's not -- that's not the critical driver, and that all gets wrapped up in the total enrollments, anyway. We're actually going to expand our ability to deliver undergraduate on -- programming during the day at our DVUCs. And I think that that will help to make our on -- our daytime programs -- I keep wanting to say online -- maybe I'll get to that in a minute -- but to get our daytime programs going a little bit more rapidly than they have been growing recently, by offering more convenient and more flexible scheduling our students.

Okay, got it. Thanks a lot

Our next question comes from Fred McCrea with Thomas Weisel Partners. Please go ahead.

Ron, Norm, Daniel, how are you?

All right.

Good. Thank you.

Fine.

Did you change your name from McCrea to McCree?

Just two days ago.

Okay.

Quick question, Ron, in regards to, and kind of following up on the last couple. Obviously, we'd seen some nice improvement in terms of the new undergraduate student starts over the past few quarters.

Yep.

A little dip there. Was that primarily impacted by just deceleration of trend on the technology side, or is there a change in trend, in terms of the DeVry University Center trend, as well?

No, I really think we're just choppy at the bottom, and we sort of got blind-sided by the interruption in our lead flow and the increase in the internet lead costs.

So that did play into the DVUCs programs?

Yeah. Yeah. I mean, you'd like to think that you're -- you're instantaneous reaction -- you know, I still have my cat-quick reflexes, but I am getting a little older now, so we're reacting, but not as quickly.

Perfect. I'll follow-up.

Okay.

Our next question comes from Richard Close with Jefferies & Company. Please go ahead.

Yeah, congratulations. I was wondering if Norm could give us some sort of look into fiscal 2005 on the student services line? Should we see something similar to what happened in the fourth quarter? Or -- and, you know, any guidance on that front.

Well, I think you have now seen 2 consecutive quarters in which, of the student services and administration, after you remove the effects of the amortization, have trailed the year-ago level, and that gives you, I think a pretty good indication of the ongoing level of spending. If you'll recall, we didn't really ramp up that student marketing spending until the second half of fiscal 2003. So we're beyond those comparison points now. And I think you're looking, you know, within a range of where we are now. And remember, there is a seasonality to this that you really can't look at the quarters sequentially. You have to look at them in comparison to the year-ago periods because both our revenues and our expenses are a function of the part of the operating cycle in which we find ourselves.

Okay. And then just a follow-up. On the re-engineering of the classes. I think you mentioned accelerated and online programs. If you could maybe just elaborate on that, and how quickly you can roll those out?

We are in the process of continuing to ramp up the DeVry University Center model and that's synergistic with our online capabilities. The online capability gives us the opportunity to open up a center faster, and in potentially smaller markets, than in the past, where you didn't have the online to fill in the schedule and allow students to maintain a schedule and complete their degree quickly. On the online side, we continue to see good growth there. We're pleased. We're never satisfied, but we're pleased with the growth that we're seeing there and with our continuing process improvements, student service improvements. We are very optimistic about the future at Online.

Okay. Thanks.

Our next question comes from Gary Bisbee with Lehman Brothers. Please go ahead.

Yeah, thanks. I wondered if you -- I know you historically have not, but if you would be willing to comment, at least directionally, on the profitability and enrollment levels at the 24 big-box campuses, versus where they were a year ago? I think -- why I respect the decision not to have done it historically, it's increasingly difficult for us to have a clue what's going on within your numbers if the Devry University Centers are doing -- you know better year-over-year, and those continue to struggle. So I wondered if you'd comment on profitability and enrollment levels year-over-year.

We are not trying to be mysterious on that. We're just trying to be reasonable in what depth of data we actually give people. I think it's pretty clear that the large campuses are under their capacity, and that their capacity utilization is probably off another few points as the -- the technology enrollments, which have been the principle driver for that continue to be weak. Without that drag, we -- our performance would be pretty interesting. I think it's -- it's interesting enough -- well, it's interesting as it is, but it would be very interesting if we get the large campuses to be a little better performers. And I would say by comparison to a year ago, they're -- they're weak.

Okay. And I mean, are you going to -- do so -- are you going to consider at some point, if that trend continues being more aggressive around diversification, to try to stem some of the -- some of the -- the -- you know, falling enrollments, it sounds like at those campus? Or you continue to think that technology will turn around eventually?

Well, I think -- first of all, I do think technology will turn around, and I don't think it's eventually, like when you and I are 80 or something. But sooner, than later. In fact, I thought it would be much more robust today, but if you think about it, Gary, we -- we have been responding in a variety of ways. We've changed, dramatically, I would say, our delivery method. We've added the Devry University Centers, and we've expanded, pretty dramatically, I would say. We haven't -- we haven't flogged it within an inch of its life, but we've expanded pretty dramatically and online. We've diversified our product mix. We've added, importantly in business, and, more recently, in healthcare. And so, I think if you -- if you really sit back and analyze it, and look at it in an overall sense, adding Ross University, adding DeVry University Centers, add Online, adding biotechnology, there's a lot that's been going on. We have not been sitting on our hands. Now, I will say, and it's just part of the game today, that technology is not at the top of high school kids' minds when they think about careers. If you look -- well -- if you -- if you just think about where people are going, they're into vocational programs and community colleges, where the cost is less. But I can pretty much assure you, or at least I'm convinced in my own mind -- mind's eye, that we're not going back to -- to rotary-dial phones. We are not going back to abacus. You know, technology is marching along, and all of us on this call, and all of the students coming out of high school and that are getting their degrees, are going to need more and more technology in their everyday life. And DeVry is going to provide those people. And DeVry, importantly, if you think about it, is going to provide technology as it's applied to healthcare. And we've got an aging population. We've got a population of physicians that are getting older. And where insurance and other reasons are causing fewer physicians to be practicing. And the way we're going to respond to that as a society, and ultimately as a world, is to be able to bring technology to healthcare. DeVry is going to provide the people who make that happen.

Okay, thanks for the honest answers.

Our next question comes from Corey Greendale with First Analysis. Please go ahead.

Good afternoon.

Hey, Corey.

Ron, in adding the daytime, undergrad programs to DVUCs, can you talk a bit about how widespread and how rapid that rollout would be, and whether there are any accrediting body approvals that you'll need then, and the magnitude of any additional hiring you would need to do to serve those students?

Yeah. We have said that we would plan for 6 to 8 DeVry University Centers per year, and I don't see any reason why we wouldn't be in that -- that category. You know, it could be 5 one year. It could be 9 one year. 6 to 8 is our planning model. We've been doing that every year. I think we'll continue to do that. Accreditation for DeVry really has not been an issue. We've gone through multiple accrediting visits. We completed our last North Central visit, and got a 10-year Reaccredidation. Our attack of ABET accrediting is up-to-date. We work closely with all the states that we're in, and we actually operate in some states that are not as friendly to for-profit education, because they see the strength of our model. We're not, necessarily, trying to be the most aggressive-growth guys, in the short-term, for sure. We think the combination of quality and results that we get, posture us very well to be able to expand at the kind of rate that we're talking about, working closely with accrediting and authorizing agencies, and we think we can continue to do that on about the scale that we've been doing in the past.

And that goes for rolling out the daytime, undergrad programs to the existing DVUCs, as well?

Yeah. We'll do 5 in September in that mode, and so that's really our initial foray. I think the demand will be pretty strong, and it will be something that we'll rely on over the next couple of years. While we think we'll continue to experience weakness at the large campuses.

Okay. Thank you.

Our next question comes from Erika Guvins (ph) with Merrill Lynch. Please go ahead.

Hi. Good afternoon. It's Sara Gubins from Merrill Lynch. A question about, you mentioned that competition was increasing, and I'm wondering if you're see that more on the on-ground side or more on the online side? And then, given increased competition, do you think that that limits your ability to increase average tuition on an annual basis?

Competition is coming all over. On-ground and online. And it is not just coming -- and I really don't mean to apply it's coming from for-profit education, although that's true, as well -- but it's coming from traditional schools as well. I think we -- we have a -- a significant number of people who are operating in their online. I was looking at an article that was in one the news media, and they said something like, a million students in online education in the next school year, and that 90% of four-year public schools, and more than half of four-year private schools offer some form of online education. Well, it's not going to be enough to just say, I have the capability of delivering programs online. And I think that DeVry is going to be one of the people that survives in this environment because we've been preparing for it. We have a national brand. We have very good and strong and well-recognized positions. We have high-quality programs. We have the support services that are necessary. And so the competition is heating up. There's a lot more providers, but in the end, you -- you -- you're going to live or die, based on your ability to provide a high-quality service. We're a degree provider. We're an accredited degree provider. We're a degree provider that supplies people to employers who want them to be able to perform. We do that. Other people may or may not, but we do.

And just a follow-up on the pricing side. Do you think there's any need to try to compete on price? Or can you still pretty much raise prices every year?

Yeah. You know, when there's a competitive market, there will always be people competing on price, and so it wouldn't surprise me at all if we began to see that. In the on-ground portion of this business, there's just no way to compete on price with the community colleges. That's a built-in advantage they have. You and I and all the rest of the people contribute to that competitiveness through our taxes. That's just the way it is. We wouldn't want to compete in that environment. Online, we -- we want to provide a high-quality product, and people will pay for a high-quality product. There're some people that want to buy Yugos, and there's some people that want to buy Mercedes. We're going to supply Mercedes.

Thank you.

Our next question comes from Dana Walker with Kalmar Investments. Please go ahead.

Good afternoon.

Hi, Dana.

If we were to go back in time to the mid-'90s. One of the things that helped you, aside from the inflexion point of demographics, was the downsizing of the military.

Yeah.

Would the increasing intensity of engagements of people that are in your age group that are forced to stay longer in the military, how do you apprise -- or how do you appraise that possible effect on your undergrad trends?

Daniel?

Yeah. One of the things that we put increasing emphasis on is serving the military. And serving military -- active-duty military students to both our on-site and our online programs. Particularly the online programs are appealing, as those personnel are moving around geographically. But if you think about it, we've got on-site capabilities in all the major, military markets in this country, where the major bases are, where the major population centers of where the military folks are stationed. So that makes us an attractive provider of educational services for them. So that is a trend that we picked up on, and are putting increasing emphasis in that area.

Would you suppose, though, that that is an obvious negative here, compared to last year or more recent trends?

I haven't perceived that, and I think that, you know, Dana, our -- our emphasis on trying to take advantage of serving that -- that population probably counter veils that, if not, overtakes it.

You know, I don't know, Dana, I think that if you're in a desert somewhere, and somebody's shooting at you, you probably don't have time to take a course, and it's -- maybe, at least in my experience, which is a long time ago, but -- and yet, there are lots of people who are trying to expand opportunities for currently active servicemen to take courses online. And there's, of course, more availability. That's -- that's pretty small. Well, the way I see it is, there's a build-up of demand that exists in the form of people who are in the military, who, when they get out of the military look around and think about their career and their life. And I -- I really do think there is a pool of people that, somewhat like the mid-'90s, when -- if we get to the point where we don't have so many people engaged in throwing bombs at each other, that this -- this will represent a group of people to whom DeVry and other schools like us will be attractive.

Would you also, on another topic, talk about the Keller numbers that you've reported? Are these now truly comparative, or maybe just offer some insights there.

Yeah. I mean we -- we -- the interesting thing about the Keller numbers that -- that -- or the Keller situation is that we now have the schedules aligned between Keller and DeVry University. And so that the numbers get more comparable and are comparable on a course-taker-basis with the previous year. And we're -- we're -- if you just look on an annual basis, the growth rate in Keller is significant and is very good.

But when you reported your spring numbers --

We're going to -- Dana we're going to have to let --

Okay. Fair enough.

You can clarify if you want, if it is right's on that point, but otherwise, we only have a minute or two, so --

Is that number, though, when you're up 8% -- is that an 8%-type increase or --

No, on an annual basis, if you take the annual basis, given 6 terms versus 5, it's up about -- mid 20%.

Okay. That's what I wanted to know. Thank you.

And our next question comes from Brad Safalow with J.P. Morgan. Please go ahead.

Hi. Thanks for letting me squeeze in here. Obviously, a lot of questions on the lead flow and the generation. I was actually hoping you could provide some more detail on the conversion side. This has been an area, I know, you've been working on over the last 6 to 9 months, in terms of you referenced the training programs, improving that metric. Can you talk about what you saw in the summer term, and, you know, where you stand in that -- in those efforts?

Yeah. We were not happy with what we saw in the summer term in that regard. Conversion is a function of the skill and ability of the people you have recruiting, the interest level of the people who respond, the quality of those leads. So there is a mix of issues. I think that Paul Eppen -- this is one the areas that -- that we anticipate that we're going to get our money's worth from Paul Eppen. The whole question of how you generate leads that are interested enough, and that are congruent with the skills and ability of your sales force, is a very interesting, challenging, dynamic part of our business. Anybody that's in this business knows that this is one of the -- the important areas that people spend their time on. I would say we're -- no, we're not happy with where we are. What we've done in the past has been good, but it's not good enough. We're going to get better.

And just in terms of looking at the starts overall, you know, if we broke it down between the lead flow generation versus the conversion rate, which was the larger contributor to, kind of, the stalled momentum from the spring term?

Well, I would say in this particular class, it was the lead flow. Because we had a hiccup, and it wasn't really our fault. It wasn't really something that we could control. We just had a hiccup. And whatever your conversion ability, and whatever your lead processing, if -- if there's that kind of a situation, you know, you can get mad, you can get even, you can do all those things, but you can't recover. And so I would say in this class, for this time, it's probably disproportionately higher on the lead flow side than on the conversion rate side.

Great. Thanks for the detail.

Now we're -- we're about at the end of the time, and we just appreciate the -- the fact that all of you are on the call. We believe in what we're doing. We don't do anything right, but there are opportunities for DeVry in the future. We have a pretty significant growth plan. We've got some smart, young people on the job taking over for us dumb, old people. And we're -- we're going to make sure that the operations at DeVry achieve the kind of objectives that create shareholder value for all of us. Thanks for being on the call. We appreciate it, and we'll talk to you later.

Ladies and gentlemen, this concludes the DeVry fourth-quarter and year-end conference call. Thank you, once again, for your participation. You may now disconnect.