Adtalem Global Education Inc (ATGE) 2005 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the DeVry third quarter conference call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, Thursday, April 21, 2005.

I would now like to turn the conference over to Ms. Joan Bates, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Operator.

With me on the call today are Ron Taylor, Chief Executive Officer; Daniel Hamburger, President and Chief Operating Officer; and Norman Levine, Senior Vice President and Chief Financial Officer.

A copy of our press release including detailed financial statements is available on our website for anyone who might not have received a copy.

Before we begin, please be advised that this call may include forward-looking statements pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. Potential risks and uncertainties are detailed in the Company's latest filings with the SEC.

I'd like to remind you that telephone and webcast replays of the call are available until May 6.

With that I'll turn the call over to Ron.

Thank you, Joan.

Good afternoon, and thanks for participating in our third quarter fiscal 2005 conference call.

During the first part of this call, I will provide you with a brief overview of our financial results and spring enrollments. Later in the call, Norm Levine will review the financial results in detail. And then Daniel Hamburger will give an update on our turnaround plan and highlight several new initiatives we have implemented to reduce our cost structure and stimulate revenue growth.

So, let's start with a summary of third quarter financial results.

Although results for the quarter remain below historical levels, this quarter is an improvement over the second quarter, despite taking a charge of approximately $2.9m for severance costs. These costs are the result of previously announced voluntary and involuntary separation plans, with the principal savings to be realized beginning in fiscal 2006.

DeVry Incorporated revenues for the third quarter were $201.9m compared to $196.8m one year ago and $194.5m we reported for the second quarter of fiscal 2005. While we don't normally mention the sequential growth, I think for the purposes of this presentation it is representative of the progress we've made in fiscal 2005.

Net income for the quarter was $11.9m, or $0.17 per diluted share, compared to 16.3m, or $0.23 in the third quarter of fiscal 2004, and 5.9m, or $0.8 per diluted share, reported for the second quarter of fiscal 2005.

For the first nine months of fiscal 2005, revenues were $584.8m compared with $584.8m one year ago. That's not a typo. It was the same.

Net income for the first nine months was $22.1m, or $0.31 per diluted share, compared with $42.4m, or $0.60 per share, in the first three quarters of fiscal 2004.

As you will recall, our second quarter results included a $2.2m pre-tax charge for severance and other costs associated with reducing our workforce, principally at corporate headquarters and in central administrative functions.

As expected and as mentioned during our January call, we took an additional charge of $2.9m related to this initiative in the third quarter. As a result of this workforce reduction, we will have estimated savings in fiscal 2006 of more than $10.5m.

In the fourth quarter, we implemented another voluntary separation plan and expect to take a charge related to this workforce reduction, which should be similar to the charge taken in the third quarter of fiscal 2005.

Turning to our enrollments. I'm happy to report that spring new undergraduate enrollment at DeVry University increased 6.4% to 8,902 students, compared to 8,366 in the spring of 2004. Total student enrollment declined 6.8% to 38,083 students, compared to 40,870 students in the previous year.

So, while we achieved positive year-over-year new student enrollments in the spring, our financial results reflect lower total enrollments, which was caused by previous underperformance in recruiting and a greater proportion of part-time students in our recent classes. Our total enrollment in the spring is also disproportionately impacted by the continuing effects of the decline of 8.3% in the fall term last year.

At Keller Graduate School of Management, the number of coursetakers increased by 5.8% to 12,496 in the March 2005 session. Coursetakers again increased 5.8% in the January session. With the addition of Emphasis, which Daniel will talk about later, as our new marketing partner, we are focusing their attention specifically on the Keller operation.

At DeVry University Online, the number of coursetakers increased 79.1% to 19,759, compared to just over 11,000 last year. We are very pleased with the continuing strong growth of our online operation.

At Ross University, the number of students enrolled in the 2005 January term declined 3.3% to 3,122, compared to 3,229 last year. This was the result of higher admission standards and increased academic progress requirements.

We are making changes in our Ross admission criteria and satisfactory academic progress standards to ensure that Ross graduates will be high-caliber, qualified physicians and veterinarians. We believe that these changes will positively affect the quality of Ross graduates and facilitate their entry into the profession.

The revised admission and academic policies are expected to have a modest negative impact on raw student enrollment in the May 2005 class.

We have placed a significant amount of emphasis on creating positive momentum in new student enrollments. The return to positive growth in undergraduate new student enrollment in the spring is primarily due to continued strength in online and at our DVUCs, but does not yet reflect renewed growth at the large campuses.

The spring class does include significantly more part-time adult students. As we have discussed previously, part-time degree students represent a good news/bad news situation with lower revenue per student in the short-term but with a revenue stream anticipated to extend over a longer period of time.

In terms of program mix, new student technology enrollments were down 24% from the prior year, comparable to the 25% decline we reported in the fall term. At the same time, new student enrollments in business and healthcare-related programs were up 20% from the previous year.

For the summer, we expect continued growth in new student enrollments at DVUCs and online, but do not yet know the impact of our marketing and recruitment programs on improving full-time day school enrollments. We anticipate some variability in enrollment results as we implement various initiatives to stimulate enrollment growth, but we remain cautiously optimistic about the summer class.

We are continuing to implement the DVUC growth plan, which we have previously articulated to you and which targets six to eight new centers per year. We now operate 74 locations, including 23 large campuses and 51 teaching centers.

Thus far in fiscal 2005, new DVUCs opened in Florida, Texas, Georgia, Pennsylvania and Minnesota. And we recently announced plans to open a second center in the Twin Cities area this summer.

We have received operating authority in the state of Massachusetts, so we have begun the process of selecting a DVUC location although no opening date has been set.

We have also announced a plan to open a new center in San Antonio, Texas pending necessary approvals, with an opening expected to occur in July of this year.

With that I'll turn the call over to Norm, who will provide additional details on our third quarter financial performance.

Thanks, Ron, and good afternoon to everyone on the call. The press release and Ron's overview gave you a good summary of how we performed during the quarter, but I'd like to spend a few minutes reviewing some of the highlights in more detail.

Our third quarter financial results trailed a year-ago period, but represent an improvement from the second quarter. Compared to the second quarter, revenues increased in each of our three segments. Compared to the third quarter of last year, revenues increased at Ross University and at Becker, and you'll recall that in the third quarter of last year, Becker's operations were adversely affected by the change in the CPA exam schedule. But at DeVry University, revenues still trailed last year's level.

Operating income in the third quarter, though trailing the year-ago period, represents an improved performance from the second quarter. Compared to the second quarter, operating income increased at each of our three segments and also increased compared to last year's third quarter at Becker and at Ross University. DeVry University segment earnings remain affected by the total undergraduate enrollment decline that we've already discussed.

Included in our third quarter results was a charge of approximately $2.9m for workforce reductions following the $2.2m charge taken in the second quarter. Approximately $2m of the third quarter charge was included in the cost of instruction, and the remaining $900,000 was included in the SG&A expense category. And although there were some wage savings from the workforce reductions as employees left during the third quarter, more meaningful savings will not be fully realized until fiscal year 2006. And as Ron commented earlier, another workforce reduction is occurring in the fourth quarter and creates additional charges, mostly in the cost of instruction line. And although the number of employees affected by this reduction and the costs associated with it are still in development, I would estimate the costs to be similar to those recorded in the third quarter.

And as we have said numerous times, expense control and matching of expense to revenues remains a focus for all of us here. If you exclude the workforce reduction costs from the cost of instruction category, then this category has increased by only 3.3% from last year, even as we add new DeVry University Center operating locations and add staff to support the growing online enrollments.

Excluding the intangible asset amortization expense and the workforce reduction costs from the SG&A line, the increase in the third quarter of last year was approximately 8.4%. This increase is consistent with the rate of spending increase in the first half of the year.

Increased marketing and administrative expenses, including those related to audit and internal controls, have contributed to the increased spending in this category. This includes additional costs related to Sarbanes-Oxley requirements.

And despite a reduction in long-term debt, interest expenses increased sequentially and from the previous year as short-term interest rates continue their upward climb in response to continuing Federal Reserve actions. Compared to last year, we've seen our interest rates increase by approximately 1.5%.

Looking ahead to the balance of the year, remember the fourth quarter revenues and earnings are driven principally by undergraduate spring enrollments for a term that began in March. Compared to fall enrollments, total enrollments in the spring are sequentially lower, reflecting the normal seasonality. Historically, earnings are highest in the second and third quarters and lowest in the fourth and first quarters of our fiscal year.

Turning to the balance sheet, you'll note a significant increase in our accounts receivable. At DeVry University, the processing of financial aid for the March term got off to a slower start this year than last, but that gap will close as we progress through the balance of the term. And since tuition rates have increased from last year, we do expect that there will be higher receivables at year-end than last year, and we've been providing bad debt reserves accordingly throughout the year.

Also, at Becker, there's a $5.4m increase in receivables from last year. This simply reflects the changing pattern of revenues from last year, last year when third quarter revenues were just over $1.9m, compared to this year, when revenues were more than $10.7m.

The acquisition of Deaconess College of Nursing is included in our balance sheet, with most of the purchase price allocated to intangible assets and goodwill.

On the liability side of the balance sheet, you see that we continue to do a very good job of managing the components of our working capital. Almost every category of liability is higher than last year, with the exception of debt, which we want to reduce.

Both the level of earnings and higher student receivables adversely affect cash flow from operations. Still, we've generated much more cash than we consumed for capital spending and acquisitions. And as we narrow the gap on the increased student receivables versus last year through the fourth quarter, the decline in cash provided by operations should improve somewhat versus last year.

That finishes up my review of the financial statements, so I'll turn the call over to Daniel for an update in our operations.

Thank you, Norm, and good afternoon to everyone.

First, I'd like to provide a progress update on our five-point plan for turning around results at our DeVry University division; then I'll make some brief comments about Becker Professional Review and Ross University.

At DeVry University, we continue to work on improving our marketing and advertising. And I'd like to update you on three of the activities that fall into this category.

During the third quarter, our Chief Marketing Officer, Paul Eppen, hired three new marketing firms -- Emphasis Integrated, a full-service marketing and communications company, will focus on our Keller operation; Critical Mass, a top web design agency, and Eye Prospect, a leading search engine marketing agency.

Having this stable of agencies enables us to tap into the best expertise in each specialty area of marketing, thereby improving the quantity and the quality of our lead-generation efforts.

Critical Mass is working with us to redevelop our website to be more engaging and to deliver more high-quality leads in our current site.

Also, we are re-designing the online application to make it easier for prospective students to use and to automatically link the data they enter into our operating systems.

As part of our initiative to deliver more targeted marketing, new campaigns have been launched which are localized and focused on high school seniors. A good example of this more local approach is events-based marketing, including the recent national DeVry Days event.

During DeVry Days, we hosted a campus videogame competition, which was co-sponsored by Vivendi Universal, a major game maker. The event coincided with our upcoming launch of the new game and simulation programming degree program. So there's a natural tie-in there.

DeVry University and Vivendi gave prospective students the opportunity to go head-to-head with fellow gamers in a competition at 21 DeVry locations nationwide all on the same day. Both DeVry and Vivendi invested in this event, and the response appears to be positive.

Another promising initiative involves DeVry University's partnership with Cisco Networking Academy. DeVry University will offer scholarships to high school and community college students who successfully complete a Cisco Networking Academy course. To date, we've awarded 34 scholarships in the first three months of this program, with most of those students planning to start in the July 2005 class.

The second area of the plan is regaining and improving upon our recruiting productivity. And John Holbrook, our new Vice President of New Student Enrollment, is spearheading this effort.

Our objective is to better focus our recruiting personnel by having them perform more specialized roles. To do this, we now employ a team whose primary responsibility is to follow up with prospective student inquiries, to qualify them, and to set appointments for them to interview with our admissions advisors. The admissions advisors now have a more focused role, which is to advise the prospective students through the process of applying to DeVry and starting school. The net effect is to increase our overall recruiting productivity.

The third area of our turnaround plan is to make our programs and delivery options more competitive. One element of this strategy is rolling out programs to more locations, and rolling out more programs to online delivery.

We are continuing the rollout of our biomedical programs, which are two bachelors, biomedical engineering technology and biomedical informatics, and an associate's degree in health information technology, or HIT. During the current spring term, we also began offering HIT through DeVry University Online. Offering this popular program online was an important step in our online program expansion. And it's worth nothing that as we roll out programs online, we're not just attracting pure online students; we're also enhancing the competitiveness of our programs for site-based students. This is because our best-of-both approach, whereby students can seamlessly blend online and onsite courses, enhances schedule flexibility and speed to degree.

The second update in this area involves the affordability of education. As we continue to listen to our students and their families, one concern that's top of mind is the increasing cost of tuition. So, we're testing a program that freezes tuition for students who start in July and maintain full-time continuous enrollment throughout their degree program.

Onto the fourth area of the plan -- improving operational effectiveness and reducing costs. Our strategy here includes workforce reductions and other cost-cutting moves and also improving our operational effectiveness, particularly in the area of customer service. As Ron discussed earlier, we implemented a voluntary separation plan aimed at matching staffing levels to current levels of revenue. This was in addition to similar staff-reduction actions taken earlier in the year.

We have also implemented a plan to centralize certain functions and outsource some other activities, such as in student finance. Centralization in outsourcing will reduce our costs and also improve our service levels and our ability to monitor and control these activities.

Now, the fifth area of the plan focuses on increasing capacity utilization by adding new programs, both internally developed and through strategic acquisition.

During the quarter, we announced our acquisition of the Deaconess College of Nursing. While this transaction was small in terms of current revenue and student population, Deaconess further establishes DeVry's position at the intersection of technology and healthcare. Deaconess will be an excellent addition to our current offerings in healthcare and should provide exceptional growth opportunities.

According to the U.S. Department of Health and Human Services, the shortage of nurses reached 100,000 in the year 2000. In addition, strong demand for qualified nurses will continue and is expected to outpace supply through 2020. So, this is a long-term growth opportunity for us.

Deaconess has approximately 450 students and offers both associate and bachelor's degree programs in nursing. In addition, Deaconess offers a bachelor's degree completion program designed for Registered Nurses who have previously completed an associate degree. Classes are offered both on campus and online. And after conducting thorough research, we found that Deaconess was the only proprietary nursing school in the country accredited by the Higher Learning Commission of North Central Association, the National League for Nursing Accrediting Commission, and the Commission on Collegiate Nursing Education. Given the scarcity of high-quality platform acquisition opportunities in nursing, we're particularly pleased to have completed this transaction.

As an update on our progress with Deaconess, our acquisition team has done a great job. We are currently in the process of transitioning certain administrative processes, and this is proceeding on or ahead of plan. The acquisition is consistent with our plan to develop and acquire high-quality educational programs with the potential to co-locate them at existing DeVry University locations, thereby improving capacity utilization at those sites.

While it will take time to roll out this co-location strategy across our campus network and to secure appropriate approvals, we have already established a process for referring nursing inquiries received by DeVry Admissions to Deaconess Admissions' staff.

So the net of all five areas of the plan is that we're making solid progress. Our management team has met with the entire organization in person and through video to review the key elements of the plan and to get their ideas for improving our operations, and the organization is fully engaged in execution.

Let me move on to DeVry University Online, where we announced back in November that we acquired a 108,000-square-foot building on a 10-acre site in Naperville, Illinois. The building will house DeVry's expanding online operation, which will re-locate from the Company's more expensive Oakbrook Terrace headquarters. All online operations personnel will move into the new Naperville facility in May. And the admissions personnel for online are scheduled to move in September. DeVry University Online continues to be a strong operation for us with spring enrollments up 79%, as Ron mentioned, and with positive trends in retention.

Let's now turn to Becker Professional Review. Becker has really turned around from last year's anomalous loss, and now has become consistently possible. The demand for new CPAs remains at very high levels, and Becker remains the leader in preparing candidates for the exam.

At our Stalla review for the CFA exam division, we are seeing some softness in the overall number of candidates sitting for the CFA exam. Despite this market decline, Stalla continues to grow. So, we feel good about our recent repositioning of Stalla as the provider of a complete study system for the CFA exam, and we are seeing our students do very well on this challenging exam.

Finally, I'd like to briefly comment on operations at Ross University. Looking past the short-term effect of increased requirements for entrance to the medical school, which Ron mentioned earlier, the prospects for Ross remain bright as the fundamental supply/demand in balance continues in both the medical and veterinary fields. We are continuing to invest in additional capacity at both schools to provide for future enrollment growth.

That concludes my remarks. And I'll turn the call back to Joan.

Thanks, Daniel.

We're very happy to answer your questions. So if the Operator can give the instructions, we'll begin the question and answer portion of the call.

Thank you. Ladies and gentleman, 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 pushbutton phone. If you'd like to decline from the polling process, please press the star, followed by the 2. You will hear a 3-tone prompt acknowledging your selection, and your questions will be polled in the order they are received. If you are using speaker equipment, we do ask that you please lift the handset before pressing the numbers. One moment for our first question.

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

Good afternoon everyone. Nice job on the quarter.

Hi, Mark.

First question. I know, Ron, you talked about the upcoming summer and fall semesters as lacking clear visibility. But I'm wondering with the initiatives you've implemented thus far, do you have any indications from these early recruiting efforts as to receptiveness to the message, perhaps feedback from high school visits, or leads at this point in the cycle compared to last year? I know it's early, but any color would be very helpful.

We think we are doing a much more effective job of communicating our message and of interacting with potential students. And to the extent that that holds true throughout this recruiting period, it will augur well for those classes.

But you have to remember, the high school seniors, who are the most important driver for new full-time enrollments in the summer and the fall, have been solicited and have interacted with our admissions people throughout the academic year beginning last -- late August.

So, as I said, we are cautiously optimistic. I don't want anybody to go off the deep end, but we think the initiatives that Daniel has brought up put us in a better position to recruit more students.

And you didn't ask about it, but frankly, I think what is beginning to be more visible is that the technology area of our economy is beginning to get more attention.

So, all the way around, we feel good about the things we've done, and we'll see how it goes. We are seeing strength, though, in the online and DVUC recruiting.

And then just as one follow-up -- I'll sneak it in -- regarding, Daniel, your comment about freezing tuition starting in July, I just want to clarify. Is that for all new undergraduate students that potentially would enroll?

Yes.

Yes, that is for all new students starting in July who maintain full-time, continuous enrollment throughout their program.

Okay. Not for any existing students, but it's just new students. And then have you ever tried this before? And if you have, what has been the result?

No, we haven't tried it before, Mark.

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

Thanks.

Thank you. And our next question comes from Bob Craig with Legg Mason. Please go ahead.

Good afternoon, everybody.

Hi, Bob.

Just a question for you, Ron. If you look at all the metrics and/or processes that you are seeking to improve, which ones do you think you've made the most and/or the least progress on? Take a look at cost per start, some of the other metrics that you would eye-up.

Well, the things that we have focused on, I think, really are the - the first place that we would see improvement in the metrics, and that includes initiatives that have come to us through Paul Effen. That is to say in the advertising area. I think this was the first place we put some additional scrutiny, and that's the first place we are likely to see changes of the metrics.

The next things that we should be looking for as we go along are improvements in the productivity of our admissions activities. And I think we will see those as we go along. Daniel indicated some of the ways we're dealing with that.

And then, finally, perhaps the slowest to be evident, but an important part, will be the impact in the future of the workforce changes that we're making now.

So, those are three areas where, I think, sequentially we'll see some improvement, and it will be visible -- it will become increasingly visible to outside parties, investors, and others.

Probably -- you asked about least. Probably in corralling the CEO; very difficult to get the CEO to do what anybody wants.

We can only imagine. Just a quick follow-up. Ron, have you noticed any meaningful improvement in conversion rates?

It's either too early to tell, or I wouldn't tell you anyway.

That's fair enough. Thanks a lot, Ron.

Thank you. Our next question comes from [Sarah Guvins] with Merrill Lynch. Please go ahead.

Hi. Thank you. Good afternoon. A question about Keller. The enrollment growth slowed sequentially, and it was somewhat below our expectations. And I'm trying to get a sense of what was driving that, if it was increased competition or perhaps an advertising issue?

No, I don't think it's an increased competition. I would say two things, Sarah. One is there is a natural ebb and flow, and so I think there's a little bit of that.

But the other thing is that we went to a 6-start-per-year schedule, and that affects -- that has affected to a greater extent the willingness of students to take a semester -- not a semester, but an 8-week term off. And we're still sorting through that.

Sometimes if people are engaged in accounting, for example, they might take the term off where the tax season is a big issue. But we did cite, if you recall during our presentation, one response to this. And that is we now are taking some marketing resource that's new, fresh thinking, and we're really putting the emphasis of Emphasis on Keller Graduate School. So, I don't think this is - it's true, it's clear. But I don't think it's cause for alarm.

So, the thought is that you might be able to get back to kind of the 9, 10% growth rate? Or would you expect it going forward to be more in the kind of the mid single digits?

I have such confidence on Emphasis that they are going to just make things better and better.

Okay. And then one other question. The incremental layoffs. Had those been planned, or was that a sign of business not returning in some of the areas where you might have previously expected it to?

It was planned. Let me explain that a little bit. This separation plan is principally focused on the campuses. And there is a set of policies that govern the way that we interact with faculty and staff at the campuses. And the application of that policy was such that we did not feel it appropriate to implement any separation programs for the campuses at the time we did the previous separation. So, this is principally focused on the campuses.

Okay. Great. Thank you very much.

Thank you. And our next question comes from Howard Block with Banc of America Securities. Go ahead.

Thank you, Operator. Good afternoon, everybody. Norm, my apologies; my pencil point broke while you were chatting, and I missed the explanation for the DSO growth, I think, in the piece around Becker and so forth. Do you mind just running through that again?

No. I think the largest of the increases is at DeVry University, which is, of course, the largest of the revenue components of the Company. And here with the term that starts in March, you're viewing receivables on the balance sheet at a point fairly near to the start of the term. And quite simply, we just got off to a somewhat slower start in receivable collection than we did a year ago, at which time I think we probably got off to a fairly good flying start.

And as we progress through the fourth quarter, we would expect to get a year-over-year increase to reduce materially but still remain above the level of receivables of last year. And the comment I made was that we are providing a bad debt reserve and expectation of that higher receivable level and potentially increased losses. And we've been providing it throughout the year so that there are no surprises awaiting everyone in the fourth quarter, when we publish our financial results there.

With respect to Becker, you'll recall last year's third quarter, we reported revenues of $1.9m. This year, revenues for Becker were 10.7m, and the change obviously causes a rather significant increase in receivables that flow with it. And about $5.4m was, I think, the amount that I mentioned. And that's simply a reflection of the change in the pattern. Last year's third quarter, if you will recall, was the quarter most affected by the change in the CPA exam schedule.

Okay. The change in the mix to more part-time students, I know you mentioned, Ron, that obviously that has a short-term effect of sort of diluting the revenue per student. Can you quantify it a little bit? Maybe even just turn it into credit hours per fiscal quarter for these new part-time adults versus, maybe, credit hours per core campus young adult?

We really haven't given that, Howard, in the past. And let us try to think about a way that we can give you the flavor for that. I don't know that we want to sort of be focused on that so much. It is an important aspect, but how to talk about it, I think, is something we should think about.

Okay. But I imagine it's going to -- the trend is going to persist for some time, because this is--

Yeah, well, online is growing at 79%, and the bulk of those students are part-time. The bulk of Keller Graduate Students are part-time. And the bulk of the DeVry University Centers, which are oriented toward adults, both at the undergraduate and the graduate level, is part-time. So, when you have a shortfall in your full-time day school students, technology or otherwise, and you have significant growth in these other divisions, it's not unexpected that you would have a greater percentage of part-time students.

But I think it's worthwhile, us giving a little thought to how to give you some sense of quantification in that.

Thank you. But it's part-time, not in a financial aid sense. These are still full-time students for financial aid purposes, but--

No, no. It's part-time for all purposes.

So these are students that aren't qualifying for as much financial aid as a result of being a part-time student? We're not talking 12 hours versus 16 credit hours. We may be looking at 8 credit hours versus 16?

Yes. They are basically adult learners by and large.

Okay. And then--

There's still financial aid, just to make sure [indiscernible]. It's just at a part-time level rather than at a full-time level.

Right. Okay. And then in terms of the--

We'll give you one more, Howard.

Okay. I'm sorry. Thank you.

Norm, in terms of the SS&A line growing 8.4%, and you had mentioned the implications, to some degree, about Sarbanes, any sense as to what the growth in that expense line would have been if we sort of controlled for the higher Sarbanes level?

Well, we did have significant -- we've had significant costs in that line through all three quarters of this year. And, in fact, I think, we were probably starting to spend significantly in the latter part of last year.

In any one quarter, it might account for as much as 1 or more percent of the increase from year to year. It's not an insignificant sum, Howard. It is very real and very significant spending in order to prepare the Company for the audits and the opinion that follows, and that doesn't even speak to the diversion of resources that would be used somewhere else.

Okay.

We're pretty much in the same ballpark as most other corporations, but it does impact our financials, and maybe someday somebody who is implementing all these rules will realize what they are doing.

All right. Thank you, guys.

Yes.

Thank you. And our next question comes from Gary Bisbee with Lehman Brothers. Please go ahead.

Hi. My question is just, I wonder if you could give us a little more color on the types of people who have accepted these early retirement and what impact that has on the depth of the organization, if any, or if you are comfortable.

I'll tell you, you can have a lot of depth when your enrollments are higher, but you develop some depth that you don't want when your enrollments aren't what you want.

The people that have accepted the voluntary programs are long-service people. The previous voluntary program was for people with 20 years or more of service. The current one is for people with 15 or more years of service. The involuntary program was targeted at service departments where either we have centralized or consolidated or outsourced or where the demand from full- time students has been diminished as a result of lower enrollments.

So, there's no real characterization in the sense of demographics or anything like that. It ranges from older to younger throughout the mix of types of people and throughout the various service departments that are here.

And then did you give a sense as to the expected savings from this second round of--

No, I didn't, but it will be -- we haven't put a number out yet. And part of the reason we haven't put a number out yet is we have just given people the option on the voluntary separation plan to accept that or not, and we don't know how many will accept. You have to give people 45 days to respond. So, we don't want to be making guesstimates without information.

Okay, and if I could sneak one more in there. We haven't asked -- no one's asked about the Canada teachout in a couple of quarters. How are the costs ramping down there? What's the outlook for '06? Is there going to be any cost, or is that pretty much done?

There will be a few residual small costs, but it's pretty much done. I think we're down to about 30 students left who have any teachout responsibilities.

Great. Thank you.

Thank you. Your next question comes from Trace Urdan, Robert W. Baird. Please go ahead.

Hey. Good afternoon, gentlemen and Joan. Norm, I heard you say 10.7 as the segment number, I think, for Becker. I'm wondering if you have the other segment information to share with us?

Yes, the 10.7 being the Becker revenues?

Right.

I can give you a rough breakdown. I think I have them here somewhere. And they're -- understand, the numbers I'm going to give you now are preliminary, as with pretty much all financial statements that are released at this point in time. By the time we finalize the review and publish our 10-Q in another couple of weeks, there may be some small changes but nothing significant.

As I said, the professional and training segment, which includes the Becker operations, had revenue in the third quarter of 10.7m. Ross was just a shade under 21m, and the DeVry University, which is the largest of the--oh, I'm sorry. Let me try that one again. Ross was a little over 23m in the quarter. The professional and training, which is the segment that contains Becker, was 10.7, 10.8m. And the DeVry University segment was almost -- was just short of $168m.

Okay great. Thank you for that. And then I wondered if you could give us -- share with us updated thinking on the tax rate on a going-forward basis.

Well, the tax rate now for the first couple of quarters is reasonably stable. Year-to-date cumulatively through the third quarter, we're looking at a tax rate that approximates 23%. And that reflects a blend of the earnings from Ross at its distinct near-0 tax rate, and then in proportion to the earnings from the rest of the Company, which are taxed at the normal U.S. Federal and State Tax Rates.

If that relationship changes as we go forward, the tax rate will move either up or down depending upon the shift in those proportions.

Right now, I'd expect the relevant range to be, perhaps, 22% as an effective tax rate on the low side, and perhaps as high as 25% on the high end.

Okay. Great. Last question. This is real minutiae. Does the move to the Naperville site for online result in any kind of material change in your occupancy costs?

Yes, it will be cheaper as we -- the costs of ownership of that building are significantly less than the costs currently being incurred for rental in the facility we currently occupy.

Great. And I presume that's all sort of part of the savings that you're thinking of on a collective basis?

You may not see it. Some of it -- it's going to be -- I think before, when we first announced it, we said we'd save about $1m. It may be over $1m relative to what it would have cost to continue to operate in the existing facility.

I see. Okay that--

So that cost avoidance, and some of that is recognized savings. So, it's a little tough to break that out, Trace.

Okay. Fair enough. Thank you.

Thank you.

It's just more indicative of where we're going.

And our next question comes from Richard Close with Jefferies. Please go ahead.

Great. Thanks. Ron, you stated that new students in tech was down 24%. That was close to the -- down 25% in the fall. What quarter did you guys show the worst decline, if you could remind us there? And I guess I'm trying to get a gauge of when you're really beginning the last -- the worst.

Well, we had a pretty bad fall term this last time. And I would say in terms of impact, that was bad. About a year ago, we had a little bit of a head fake, where there was an improvement, and then the fall was down. You're trying to make a judgment about the bottom, and so are we. I think the kinds of initiatives that Daniel took us through are really -- you need to make an assessment as to whether you think those make sense. And if you do, you would, I think, likely come to the conclusion that that, in combination with some demand in the technology area, which we're seeing, would likely produce gains in the future, or at least less negatives.

Okay. And then Norm, with respect to the $2m -- well, you had 2.9m charge, I guess, here. 2m, you said, was in the cost of instruction line. Taking that out, I guess, you'd be at like 53.8% of revenue. Is that something we should be carrying over into future quarters? Or, I guess, another part of that question is, of the 10.5m in savings, how much is it in the cost of instructional line item?

Well, I think the savings will probably be roughly in proportion to the split of the charge; that is, we had a $2m charge in the cost of instruction line and about 900,000 in the SG&A line. I think that's probably indicative of the relative proportions by which the wages themselves will be saved, which tells you that the lion's share of the cost reduction is in cost and instruction.

Okay. And then did you mention the cost savings from the initial reduction back in the second quarter?

They were all part and parcel of the 10.5m in wage reductions that we've talked about in the aggregate.

Okay. And then just a final question. Maybe you could clarify. On new program openings, how many of the larger boxes are offering the healthcare programs? And maybe a little bit more clarity in terms of how many you're rolling out, new programs, here this year?

Richard, it's Daniel here, and the healthcare-related programs are soon to be offered in all 23 of the large campuses, which is part of that third area of the plan that I talked about, that rollout.

Okay. And just, finally, on that, when you talked about the new student enrollments, you didn't really mention the healthcare, I don't believe. How are those programs being received in the marketplace?

I think Ron split it between technology and non-technology. So the business and the healthcare were lumped together. I would say, in general, that they're good. We're excited about them. That's why we continue to roll them out, and that's why we also are rolling out the HIT, which is that associate's-level health program to online delivery.

Okay. Thank you.

Thank you. And our next question comes from Jack Sher with SunTrust Robinson Humphrey. Please go ahead.

Hi. Good afternoon. I was just wondering, could you talk a little bit about what you're seeing in terms of placement rates for your IT students?

As with the other indicators that I mentioned of demand, we are seeing increased placement rates. We are seeing employers showing up at the campus in larger numbers. It is fairly clear to me that we're in some early stage, or in a stage of recovery in IT hiring in the United States.

And has that accelerated since the previous quarter then?

No, it's -- it's the same. We've made similar kinds of noises in the previous conference call. I suppose, Jack, if it was really great, we would have put it in our presentation, but it's better than it was. And we've had pretty good placement all the way through, except in the depths, you know. No matter what you say, a DeVry degree still means something and is a high-quality degree. Employers like it. So, that's just a fact.

Thank you.

Thank you. And the next question comes from Bradley Safalow with J.P. Morgan. Please go ahead.

Hi. Good afternoon. I just wanted to ask a question on the accelerated programs -- the ECT and CIS and anything else that you guys are streamlining. Where do you stand from a regulatory approval process? How many schools are now offering the ECT program? How many schools do you think could offer both ECT and CIS, and again, whatever else you have on the dockets for the summer?

Sure, that's continuing to roll out, Brad. The reception so far has been positive. It's very early days with the re-designed ECT program. And just as a reminder, that's where we're including other factors. We've gone from the 5 days to a 3-day schedule. Also introducing the laptop to that program, which is exciting to the students and also good from a learning, a pedagogy standpoint. So, that continues to roll out.

You mentioned accelerated programs. Just to clarify, that would be kind of a separate category. That really is targeting more of the working adult segment of our students. And that's rolling out through our continued role of DVUCs, DeVry University Centers, at the rate of six to eight per year. We're happy with how that's going as well as online, which we talked about as well. It's going pretty well.

We've got about four more minutes in our self-imposed deadline, so if you guys can skinny this down from three questions per person to one or two.

All right. I'll just add one more quick one for Norm. You referenced bad debt expense. You are reserving at higher levels. What was the number during the quarter?

We don't separately disclose bad debt expense separately from the provision for refunds. They are actually interrelated. But if you look at the cash flow statement, you can see the combination of the two. And you'll see that it is inching up from previous years. The point I'm making here is not so much that it's higher than last year, which indeed it is, but we've recognized this since, you know, at the start of the year, there were likely to be increases in receivable levels as we progressed through this year. Having acknowledged that, we've made appropriate accommodations in our financial statements to reflect that reality on a ratable basis across the year.

Okay. I'll turn it over.

Thank you. And our next question comes from Jennifer Childe with Bear Stearns. Go ahead.

Thanks. I was hoping you could give us a sense of the percentage of students enrolled at DeVry University Centers versus the big-box campuses?

Well, that's a moving target, and let me just think here a second. I would say that we may be at -- I don't want to give you a bad number, Jennifer, which is why I'm hedging a little bit. But -- and most of the people at DVUCs are part-time. So, it sort of depends on how you count it. But we're approaching the time where DVUCs and campus students are about equal.

Great. And what's the key to re-invigorating growth in Ross enrollment? And when might we see the impact?

The key to Ross's growth is to ensure that we are providing a high-quality educational experience for the veterinary and the medical students, which is what we're very focused on, and we feel good about that.

As Ron mentioned, and I alluded to as well, we did make some changes to our admissions department as well as our academic progression standards. We thought that was important, and we're willing to take and we have taken or made the near-term investment to support long-term growth. So, that's the key.

The other things there are investing in the facilities to support growth and investing in the people.

Yes, the one other thing I would add, Jennifer, is there is significant demand for seats in medical schools. And one of the tasks we have is to assure that people who want to go to medical school but have not gotten into a U.S. medical school understand that there's a high-quality alternative that uses U.S. -- basically U.S. curriculum, U.S. faculty, U.S. students, and where you are eligible for financial aid. So, in addition to the things Daniel has mentioned, it's a communication issue to make sure that targeted audiences hear that there's an alternative.

So maybe targeting a different audience than you've been targeting previously?

Yes, and doing a better job of articulating why you would want to go to Ross.

And any sense of when we might see positive new enrollment growth?

Yes, in the fall.

Oh, okay. Thank you.

Do we have one more, Operator, or no? Or are we --? We're sort of--

Our next question comes from--

Well, now, this is the last one. I'm sorry, Steve or Corey or whomever.

Our next question comes from [Abbey Fischer] with Harris Nesbitt. Please go ahead.

Hey, thanks for taking my call. New enrollment was up 6.4%. Can you sort of break out what percent of that was full-time and what was part-time? Or give some -- was more of this full-time? Was more of that part-time?

More of it was part-time. As I said, the growth was driven by the DeVry University Centers and DeVry Online, and so--

And like you said, the UCs are mostly --

Yes.

--part-time. And do you think -- as you see your marketing message getting stronger, do you think it's being helped by the regulatory problems of your peers?

No. We're -- you know, I don't think that that is much of a factor. That gets a lot of attention, and it's probably important in a significant way, but in terms of how we portray ourselves, we're positioned as a high-quality provider. Some people criticize us for being too focused on that. I understand that, but we want to provide something that has value. We think we will. We think we can provide returns that are appropriate, and that's our intent.

If I could just squeeze in one more bookkeeping. The 2.9m charge, what tax rate should we apply to it to debit (ph) the EPS (MULTIPLE SPEAKERS)?

That's entirely subject to our U.S. tax rates, which would approximate -- somewhere between 38 and 40% is the blended federal and state rate.

Super. Thank you so much.

We're going to have to end our call now. But we did want to mention before we sign off that we've tried to reach out to everyone via invitation for our Analysts Day on May 6, which is going to be held at our Fremont campus. If you have not received an invitation and would like to receive details, please email me, jbates@devry.com, or you can call me at 630-574-1949.

So, thank you to everyone. And we will speak with you later.

Thank you. Ladies and gentlemen, this concludes the DeVry third quarter conference call. If you'd like to listen to the replay of this conference, you may dial 303-590-3000 or 1-800-405-2236. You'll need to enter the access code of 11027823 followed by the pound sign.

Once again, thank you for participating in today's conference, and at this time, you may now disconnect.