Adtalem Global Education Inc (ATGE) 2005 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the DeVry Inc. fourth quarter and year-end conference call. Ladies and gentlemen, 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. [OPERATOR INSTRUCTIONS]. And as a reminder this conference is being recorded today, Thursday, August 18th of 2005. I would now like to turn the conference over to Joan Bates, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Joining me on the call today are Ronald Taylor, Chief Executive Officer; Daniel Hamburger, President and Chief Operating Officer; Norm Levine, Senior Vice President and Chief Financial Officer. Our call today we'll begin with prepared remarks from management, followed by the Q&A session. Before we begin, please be advised pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, that this call may include forward-looking statements. That the actual results might differ materially from those contained in the forward-looking statements, and that potential risks, uncertainties, and other factors that could cause actual results to materially differ are detailed in the companies Securities and Exchange Commission filings. As a reminder, our financial statements for the fourth quarter and year-to-date are included with our Press Release, and also are available with the Press Release on our website in the Investor Relations section located at www.devryinc.com. Telephone and Webcast replays of the call are available until September 1st. The domestic replay number for the call is 800-405-2236, and the passcode is 11036783. The replay is also available via Webcast through the Investor Relations portion of the website. And with that, I will turn the call over to Ron Taylor.

Thanks, Joan. Good afternoon, and thanks to everyone for participating in our fiscal 2005 fourth quarter and year-end conference call. Today I will provide an overview of the financial results for the fiscal fourth quarter and total year, and 2005 summer enrollments. Norm Levine will provide additional detail on our financial results, and Daniel Hamburger will give an update on the progress of our growth plan. Although we are not satisfied with the fiscal 2005 financial results, we are pleased with the significant steps we have taken to prepare the Company for improved financial results in fiscal 2006, and for the future. Among the most critical steps taken is the development of a new and refocused management team. Significant changes have been made throughout the management structure. Actually starting last July with the CEO and COO, me and Daniel, and extending to the new General Counsel, Interim CIO, Chief Marketing Officer, Chief Compliance Officer, Vice President of New Student Recruiting, and many other significant operating and staff positions. The effect of these changes will extend far into the future.

In addition, we have transitioned the Company from a technology-oriented, large campus, delivery model to a more diverse, multichannel, multi-product, educational system with significant new growth opportunities in healthcare, and in the online delivery mode. Among other positive developments during 2005, I would cite the steady progress we are making with both geographic and programmatic expansion, which will be described later. Also, better targeted marketing and improved lead conversion by a better managed and reorganized student recruitment staff are beginning to show positive effects, and with two large-scale staff reductions during the year operating efficiencies are improving. While we expect to see continued increases in new undergraduate student enrollment, DeVry University's three-year programs create a lag between increases in new undergraduate students and increases in total undergraduate enrollments. This will be more clear when we discuss summer enrollment results. Despite this lag effect, however, the growth plan is now showing real progress, and we believe that we are through the enrollment trough created by previous recruitment shortfalls.

With that brief overview, let's review where we are with fiscal 2005 fourth quarter and year-end financial results. DeVry Incorporated revenues for the fourth quarter decreased to 196.5 million from 200 million one-year ago. Net income for the quarter was 6.4 million, or $0.09 per diluted share, compared to 15.7 million, or $0.22 per share for the fourth quarter of fiscal 2004. For the full year, revenues were $781.3 million, down from 784.9 million a year ago. Net income for the year was $28.5 million, or $0.40 per diluted share, compared to 58.1 million or $0.82 per share in fiscal 2004. These fourth quarter results include $1.5 million in pretax charges related to the proposed sale of a facility in Denver, and $3.3 million for severance and other costs associated with reducing our workforce during the quarter. For the full year, severance costs were approximately $8.8 million, and Norm will tell you more about that later.

Let's turn now to the summer semester student enrollment results. We're pleased to announce that DeVry University new undergraduate student enrollments increased 7.3% to 11,293 students, compared to 10,522 last summer. Nonetheless, total undergraduate students were down 4.8% to 36,220 students, compared to 38,036 in the previous year, essentially as the result of the lag effect I mentioned previously. Graduate student enrollments have improved during the summer. For the May 2005 class, Keller Graduate School of Management course takers were 12,113, an increase of 8.7%. For the July session, course takers increased by 11.3% to 11,434, which I think demonstrates good progress being made in our new marketing efforts at Keller Graduate School. Continued strong demand for online programs generally, and a continued focus on improved online marketing, recruiting, and student service resulted in a 67.3% increase in online course takers, reaching 21,068 course takers at DeVry University Online in the summer semester. All DeVry online functions have now been consolidated in our new Service Center Facility in Naperville, Illinois. This consolidation is beginning to produce improved operational efficiencies and, of course, results in reduced occupancy expense for online operations.

As you know, and as we have discussed in previous calls, we have made a number of changes to admission and promotion criteria at Ross University. As a result, the number of students enrolled in the May 2005 term declined 8.5% to 3,029, compared to 3,310 last year. While this short-term negative impact on enrollment is completely expected, we believe that our actions, in combination with the changes we have made within marketing, recruiting, and student service, will better position Ross as an attractive and high-quality alternate for potential medical and veterinary students. This high-quality position is critical if Ross is to grow in the long-term and compete for good medical and veterinary students. As you can see, we are placing significant emphasis on creating positive momentum in new and total enrollments. New student enrollments at our DeVry University Centers and online have been strong. However, most of these new students are part-time adult students, while enrollments on campus, which are primarily full time, have declined. This increase in the proportion of part-time students means that revenue per student is currently lower than it has been historically. All of this reinforces the need to improve our recruiting of full-time, campus-based students, and we are working hard to achieve this objective.

Looking ahead to the fall semester. We expect the continued strong lead flow and more efficient lead workage will be followed by additional growth in new full-time, campus-based undergraduate students. In addition, we firmly believe that the technology environment is improving, and that demand for technology education will continue to grow. This should help us significantly, and a recovery in this area would create additional operating leverage for us. We have seen recently an increase in employer recruiters on our campuses, but there are other indicators of improvement in the technology job market. Many of you have seen articles that have appeared. In a recent interview cited in BusinessWeek, Scott Melland, CEO of Dice.com stated, quote, demand for tech workers is rising again. The unemployment rate for tech workers is 3.7%, which is much lower than the national rate of 5%. At the same time, universities and community colleges are turning out fewer people. As this environment, the technology and employment environment improves, the demand for DeVry degrees should grow, and tech enrollment should follow.

I would like to briefly review geographical expansion and program enhancements we made in fiscal 2005. We now operate a total of 78 locations, including 23 campuses and 55 DeVry University Centers. In-line with our previously announced expansion plans, we opened seven new centers for fiscal 2005, and we've already announced plans to open additional facilities in Ohio, California, North Carolina, and Oklahoma in fiscal 2006. Another key to our growth plan is to develop new programs that target key growth professions, and enable our students to proceed into their careers with the skills most in demand by employers. To that end, we have added several important new programs in 2005 that leverage our core competency in technology education. This year we significantly enhanced our Electronics and Computer Technology Degree program. We began offering the Associate Degree in Health Information Technology online. We developed a corporate program for the emerging radio frequency identification market. I bet some of you didn't even know there was such a market. And we began operating a Bachelor's Degree in Game and Simulation Programming. Additionally, we added to DeVry Incorporated's offerings in healthcare through the acquisition of Deaconess College of Nursing.

I truly am excited about the progress that DeVry continues to make toward achieving our goal of returning to past performance levels in student recruiting, profitability, and growth. The positive results achieved in 2004 -- 2005 -- actually 2004 was -- had some positive results, too. But what we're talking about is 2005, and they are directly attributable to the hard work and dedication of the DeVry, Becker, Ross, and Deaconess teams. During fiscal 2005 we made significant changes to our management and employee team, and as we begin fiscal 2006, I am optimistic that this management team and every employee of DeVry will deliver on the strategic growth initiatives that are beginning to yield positive results. With that, I'll turn the call over to Norm, who will provide additional details on our fourth quarter and year-end financial performance.

Thanks, Ron. And good afternoon to everyone on the call. The Press Release and Ron's overview give you a good summary of how we performed during the fourth quarter and for the full year, but I would like to spend a few minutes reviewing some of the highlights in more detail. And please keep in mind that these statements, the financial statements, are preliminary and may be subject to classification or other adjustments before they're finalized in our 10-K filing. Unlike previous year's audits, compliance with the requirements for maintaining and demonstrating appropriate internal control means that the audit process and the rendering of the final audit opinion is not over until we have filed our 10-K with the SEC. Therefore, the preparation of financial statements and the numerous disclosures surrounding it has prolonged the process for everyone. And while it is improbable, there could be reclassifications or other changes to the financial statements we have included with our Press Release today.

Now, a few comments about our reported results. Effecting both the fourth quarter and the total year is an approximately $1.5 million pretax charge related to one of our former Denver area campuses. You may recall that this campus was acquired in 1999 with our purchase of Denver Technical College, but was replaced in 2003 when we built and opened a new and more modern facility to serve the Denver area market. Although still used for classrooms and offices, the original building is not well-located, nor is well-suited to our operations as is our newer facility. We concluded that selling the building represented a better deployment of our assets. Now, we previously announced a $1 million write-down in the fourth quarter, based upon an offer to purchase the building, but when that offer was withdrawn, we wrote down the book value of the building by an additional $0.5 million through its expected current market value.

Also included in the fourth quarter is approximately $3.3 million of workforce reduction charges, bringing the total workforce reduction charges for fiscal 2005 to 8.8 million, which includes final employee termination charges in connection with the teach-out of our former Toronto area campus students. The previously announced workforce reduction charges at DeVry University in the fourth quarter were expected to be about $2.5 million, an additional charge of approximately $800,000 represents workforce reductions in other operations. Looking at some preliminary revenue results by segment, DeVry University revenues of approximately $159 million in the fourth quarter trailed last year by approximately $9 million, and for the year, DeVry University segment revenues of 645.5 million were lower than last year by about $20 million. Remember that the fourth quarter revenues are driven in large part by the spring term total undergraduate enrollment, which we previously announced was 6.8% less than in the spring of the preceding year. Also, earlier this year, we completed outsourcing of the last nine DeVry campus book stores to follow it, so that revenues in the other educational line reflect the change in reporting to commissions on those sales, rather than the reporting of the sale itself.

You can get some idea of how this affects revenue totals by looking at the fourth quarter where other educational revenues declined by more than $1 million compared to last year, even as product sales at Becker were increasing. In the Professional and Training segment, Becker professional review continued its rebound from last year. Segment revenues increased by for than $2 million in the fourth quarter to about 12.6 million, and for the year, record segment revenues of over 44 million increased by more than $8 million from last year when the business was affected by the change in schedule for the administration of the CPA exam. And finally, our newly-named Medical and Healthcare segment now includes not just Ross, but also Deaconess College of Nursing since its acquisition in late March. Deaconess contributed about $1 million to segment revenues, which were nearly $25 million for the fourth quarter, but Deaconess made no significant contribution to our earnings during this period.

We have talked numerous times about expense controls and spending restraint. You can see it best in cost of educational services. In the third quarter, these expenses after adjusting for the workforce reduction costs increased by only 3.3% from the prior year, even as we opened more DeVry University Centers, and expanded our online operations. In the fourth quarter, excluding the Denver building charge and the workforce reduction costs applicable to this category of expense, we actually spent a bit less this year than in last year's fourth quarter. And excluding the amortization of intangible assets, included in the student service and administrative expense category, this category increased about 9.4% from the fourth quarter of last year, which is about the same rate of spending increase as we experienced earlier in the year. Contributing to the increase in spending is the higher marketing expenditures to drive higher new student enrollments as we've done successfully now for both the spring and summer semesters, while carefully managing the costs to achieve these enrollment increases.

Interest expense increased in both the fourth quarter and total year from last year. Although borrowing levels were lower throughout the year compared to a year ago, short-term interest rates in which our debt rate is based have increased significantly over that period. For example, at the end of June, the interest rate on our Senior Notes was 4.44%, versus just 2.42% last June. The rate increases continue with yet another one now attempt such action by the Federal Reserve just last week, and our plan is to use our cash to aggressively reduce debt levels to minimize the affect of rising interest rates. Our tax rate on pretax income for the fourth quarter was just under 23% compared to 23.1% for the full year, and the rate simply reflects the mix of U.S. sourced income subject to federal and various state income rates, and offshore income tax to much lower rates. We expect the tax rate in fiscal 2006 to increase two to four points from where it was in fiscal 2005.

Turning to the balance sheet, a couple of points worth noting. Of the 225 million in borrowings at year-end, we've subsequently repaid 35 million, and expect to make further repayments before the first quarter is ended. Accounts receivable increased by about $11 million from last June. You may recall that we talked about this increase in the third quarter conference call. Higher tuition rates combined with an increase in part-time students whose financial aid eligibility is less than full-time students contributed to the higher receivables, particularly at the DeVry undergraduate level. In addition, we have extended payment plans to better service our military and adult students. Becker also had increased receivables, up by more than $3 million from last year when enrollments, revenues, and the resultant receivables were all depressed by the affects of the change to the new CPA exam schedule and format. And recognizing that receivables were increasing as we went through the year, we provided the appropriate reserves for collection losses throughout the entire year.

Cash flow from operations was 87.6 million, and is negatively affected from last year by almost $30 million less in net income, and an increase of about $11 million in net accounts receivable. But still we generated more than enough cash to fully fund our capital needs, reduce debt, and we have more cash in the bank at year-end than we had a year ago. And speaking of capital spending, this marks the third year in a row with spending maintained in the low $40 million range. Spending in this year included about $8 million for the purchase of an office building near our corporate headquarters to more efficiently and cost-effectively house our growing online operations. Spending this year also reflects the completion of the dormitory facility on-site at our Fremont campus. Dorm construction is now completed and students attending our summer semester have moved in. As you may recall, we built this facility to help attract new students to the campus, as housing opportunities in the Silicon Valley market are constrained. There are no plans for additional dorms at other DeVry University locations.

Looking ahead to fiscal 2006 with no major facility additions or expansions currently contemplated, capital spending should increase only modestly. However, all critical capital projects are being fully funded. Again, looking ahead to fiscal 2006, let me remind you that the first quarter DeVry undergraduate revenues are driven by summer enrollments, which reflect the increasing new student enrollment that Ron talked about earlier. But let us not lose sight of the fact that although new students increased, total student enrollment is 4.8% lower than a year ago. And while this is certainly an improvement from the 6.8% decline in spring total enrollments versus the previous year, nonetheless, that lower enrollment is what drives revenues and earnings in the early part of the year. Even as new students increase, there's a lag effect with total student enrollment, and therefore, it should be expected to move more slowly.

And a final note, like many other companies, our first quarter of fiscal 2006 will incorporate the expense related to stock-based compensation in the body of the financial statements, not just as a disclosure. We're still evaluating the actual expected cost of previously-issued options and any further option grants we expect during fiscal 2006. But based upon preliminary data, I expect it to approximate about $0.06 a share under this new accounting standard, and we expect to restate prior periods as if the standard had been in effect for those years. That concludes my review of the financial statements, so I'll turn the call over to Daniel for an update on our operations.

Thanks, Norman. I would like to begin by providing an update on our five-point growth plan at DeVry University. First, improvements in marketing continued in the quarter. Part of our strategy is to increase our emphasis on local marketing, and as we had discussed on our previous update call, we hired two regional marketing directors to help drive this strategy. Well, based on the success of this model we have now hired another regional director to handle local event marketing and outreach in the third area of the country. We're allocating increased funding to local marketing initiatives as we continue this strategy in fiscal 2006. Since we last spoke to you, we have delivered a completely redesigned website for DeVry University. Not only are we pleased with its design and efficiency, the result has been a significant increase in online application. And the data from these applications is fed directly into our operational systems accelerating the process of following up with these perspective students, which brings me to the second area of the plan improving, recruiting productivity. As we indicated earlier, our plan included the specialization of certain recruiting roles to gain greater efficiency. That goal has been realized with a major reorganization of the high school recruiting force with a focus on creating specialized roles in lead generation, appointment setting, and advising. So I feel we've made a lot of progress in these key areas of the plan, marketing and recruiting.

Next, I would like to update you on the third area, enhancements we are making to our academic programs to make them more competitive. We're rolling out the computer information systems, or CIS program, in a new eight-semester format. In addition, the new CIS program will now have concentrations from which students can choose. Examples of these concentrations include computer forensics, web design, and information systems security. We believe these design features will have a broader appeal to students, as well as expand the number of employment opportunities afforded to them in these growing fields. Further enhancing program competitiveness is the increased access afforded by our online program, which we feel is best in class. This fall we'll offer additional programs in the online format, an Associate Degree in Network Systems Administration, or NSA, and a Bachelor's Degree in Network Communications Management. Pending state approval, we'll also be offering Game and Simulation Programming online in early 2006. Now, I would like to point out that the NSA associate program is now our second associate's degree online, and it has been redesigned to allow students to more seamlessly progress into the network communications Bachelor's program. So we are following up on our previously announced strategy to grow our associates level offerings online, and we see opportunities to further serve these students at the Bachelor's level.

Fourth, we're focused on improving operational effectiveness, which means both cost reduction and process improvement, including customer service. We recently undertook a number of important projects to improve customer service. For example, we expanded the hours at our central online service center by two additional hours per day, at select on-site locations we have piloted a service innovation that we call Student Central. Student Central enables students to take advantage of the variety of services we offer all in one location. So rather than having to go to departments for the registrar, student finance, career services, housing service, and so on, students can access all these services in one place. A further initiative launched recently to improve operational effectiveness is electronic books, or eBooks. Now, I demonstrated this at our recent analyst day in Fremont in via Webcast. eBooks not only provide better service to students to enhance functionality, but they're more economical for students and will enhance margins for us as well, as we eliminate the cost of paper, print, and binding. We're taking a careful approach to ensure quality to student satisfaction as we move forward with eBooks.

Improving capacity utilization is the fifth element of our growth plan. As Norm mentioned earlier, we recently announced our intent to sale a facility located in the Denver area. I would like to add that we have no intentions of leaving any of the markets we serve. At the same time, we are focused on improving asset utilization. So we're evaluating each market to determine the best way to serve the students in these markets. This includes a process of program optimization where we're re-examining which programs we offer at each locate.

Let me move on now to the Becker professional review division. Becker had a record year in terms of revenue and operating income. An exciting development at Becker was the acquisition of Gearty CPE a provider of high quality, continuing professional education or CPE programs in accounting and finance, predominantly serving Fortune 500 companies. We view the CPE business as a perfect complement to the existing Becker products, with over 300,000 Becker CPA alumni around the world to market to. Partially this is because most CPAs must take CPE credits each year to maintain their license. But our CPE program actually serves non-CPAs as well, meeting their needs for training in accounting, tax, finance, and ethics, with recent growth driven by Sarbanes-Oxley requirements. Internally we've been calling this CP Plus, because it's much more than CPE. We have a real opportunity to be a single source for both exam review and training in accounting and finance to CFOs, controllers, and their staffs both here in the U.S. and internationally.

At the Stalla review for the CFA exam, several investment analyst societies, such as, Toronto, Washington D.C., Chicago, and Hong Kong have adopted Stalla as their preferred provider and in some cases sole provider of CFA test preparation courses. And we have recently added several prominent investment firms to our client roster, including Morningstar, Prudential Equity Group, and Barclays Capital. Clients and partners have told us that the redesign Stalla Study System is the best solution in the market for their candidates to pass this difficult exam.

Turning to Ross University and Deaconess College of Nursing now. During the last several terms Ross University has experienced weaker enrollment as we implemented more stringent entrance and progress requirements. These changes are helping us continue to improve outcomes for Ross students as they move through the many requirements and examinations on their path to becoming physicians or veterinarians. Despite the weaker enrollments, there are a number of exciting things happening at Ross. As we have done with DeVry University we're making a number of changes in the marketing and recruiting areas. First, we're simplifying and improving the admissions process. This includes a new document imaging system that is speeding up the processing of applications. We have recently begun working with a new marketing partner and we've also made important changes in marketing and recruiting personnel.

I'm very pleased to tell you that recently Ross signed articulation agreements with Rowan University, Fairleigh Dickinson University, and Delaware Valley College. These agreements provide seamless transitions for students as they prepare for their medical or veterinary degrees. In addition, we have also signed a dual degree enrollment -- agreement with Fairleigh Dickinson for their students who have successfully completed 90 credit hours of a Bachelor's program. Provided these students also meet our entrance requirement, they're automatically eligible to gain admission to Ross. Then, after the first year at Ross, Fairleigh will award the Bachelor's Degree to the student, allowing the students to save a year provides a real competitive differentiator for Ross. Because of these changes and others, we are optimistic about new student enrollments at Ross in the September term. But just is the case for DeVry University as Norm pointed out, remember that as new students increase, total student enrollments do not immediately follow that increase, there is a lag affect.

At Deaconess, we're enhancing the delivery of the colleges online core score by outsourcing it to the DeVry University Online organization, which can better support their growth. DeVry University will provide a spectrum of services to Deaconess, including the platform for Deaconess courses, customer service, and faculty recruiting. We think this is a scalable model that we can use with other online operations in the future. I would like to conclude my comments by saying that we remain committed to execution of the growth plan, and we appreciate your continued support. I'll turn the call back to Joan.

Thanks, Daniel. We have about 25 minutes to take your questions, so if the Operator could give the instructions we'll begin that portion of the call.

Thank you. And ladies and gentlemen, [OPERATOR INSTRUCTIONS]. Our first question comes from Matt Litfin with William Blair & Company. Please go ahead.

Yes, good afternoon.

Hi, Matt.

Hi, can you give us a rough estimate of the percentage of DeVry students that are now at the 23 big-box campuses versus the DVUCs? And where would your -- where would you guess that your utilization of those campuses stands today? Maybe that's a question for Daniel.

I think the -- it may be a question for Daniel, but I'll answer it. I think the utilization has not improved any from what we've said before, which is about or just under 50%. And the mix shift with that [indiscernible] and 6 to 8 new DeVry University Centers, and DeVry University Centers designed typically for 4 to 600 students, you can sort of make a guesstimate as to what that is likely to be.

Okay. Great. And one follow-up if I might on bill -- on tuition increases. What are your plans for the next year or so on that?

Well, we pretty much have been stable in our pricing over the last several years. I don't think we'll probably change from that. As you know, our strategy in the past has been to increase our prices at just under the average of price increases at traditional schools as announced in the Chronicle of Higher Ed each year, and we'll probably continue to think about our pricing in those terms.

Thanks, Ron.

And our next question comes from Howard Block with Banc of America Securities. Please go ahead.

Thank you, Operator. Good afternoon, everybody. I wanted to maybe follow-up on that question. I was just looking at some historical data for you guys, and this is the first, I would say, material growth rate you've had in the summer in about four years. In 2001 you had about 6% growth in the summer, now about 12,000 students new then, versus 11 something this quarter. At that time, though, you didn't really have any DeVry University Centers, and you said earlier in the call that most of the new students are in DVUC versus big box. Would the proportion that you were sort of guiding Matt to on the earlier question be consistent on the new student front as well, or would it even be more disproportionate to where most of these -- the great majority of the new are being channeled through DVUC?

A great majority of the new are being channeled through DVUC and online, and they tend to be adult learners, and they tend to be a higher proportion of online -- of part-time. And so, until the full-time day school students recruitment turns around we're going to continue to have that trend.

Okay. And if we look back to four years ago, again, that was sort of the last full year of healthy growth in enrollment, both new and total. We should have by now via year four, sort of anniversaried all of the graduations of all those new students and shouldn't we expect some improvement in the total by now?

In total, we really didn't start seeing the improvement in the new until just a couple of terms ago. So you sort of have to look at it -- first of all, I think your general premise is right. We were getting strong increases all the way through 2001, that's when we began to hit a wall. Took us a while to respond to that in an effective way, but you really should begin to see what you call anniversarying, which I think is right. But I think you are seeing that, and you're seeing new students coming in at higher rates, and you're seeing what I would call something that portends a positive -- or growth in total students; namely, the reduction and decline of the total students. But it really is a question of when does the increased number of new students in each term out weigh the declining number of students in the more advanced terms.

Okay. And then just last thing. On the persistence of these newer students with the different profile of your legacy new student, is their persistent rate the same, worse, or better than let's call your legacy 2001 new student?

Well, in online, the early triers of online, we had a lower retention rate than in the more traditional delivery modes. But as we have grown in our ability to serve those students, the retention rates, I would say somewhat surprisingly, have come to be pretty much commensurate. So we have got improved retention in online, about the same in DeVry University Centers, and the campuses.

Great. Thank you very much.

And our next question comes from Jeff Silber with Harris Nesbitt. Please go ahead.

Thanks. I know it's a little bit too early to look at the fall semester, but I wanted to just ask a question about that, especially with the big push that you've done in the high school recruiting side. Can you give us any indication of how that went and how things are lining up for the fall semester?

Fantastic.

It's not too early.

No, I mean we won't know, Jeff, until the results are in. We think we're doing things that are reasonable. We think we have programs that are appealing. We've added concentrations. We've, I think, done a better job of communicating with students in those high schools that we visit. I think we have reached out in ways that we haven't been effective in the last couple of years. I'm optimistic, but it remains to be seen, really. I wish I could give you a number or something like that, but I don't really have one.

Okay. And just a follow-up. Actually this one is for Norm. I just want to clarify on the two charges you took in the quarter, the 1.5 million for the Denver facility and the 3.3 for the workforce reduction, which line items were those in on the income statement?

The $1.5 million write-down of the value of the Denver building is included entirely in their cost of educational services. And of the 3.3 million in workforce reduction charges, I believe about 2.5 million of that relates to cost of educational services, and about 800,000, if memory serves me, would be in the student services and administrative expense line.

And we're not going to see any more of those charges in fiscal year '06, at least nothing planned as of yet?

I would be surprised if you saw anything, but we're going to manage the business as efficiently and effectively as we can, and I wouldn't rule out anything particularly.

Okay. Fair enough. Thanks.

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

Hi Ron. Hi, guys.

Hey, Greg.

I just wanted to clarify, the comment you made on technology. So if the prospect on the job front is there, but you have not yet started seeing it in the classroom in terms of a slight pick up in technology enrollments?

Really, the technology enrollments are up slightly, but not enough to tout it or to mention it in a call like this. But if and when that environment significantly changes, and what I was trying to convey to you there is we're seeing indications that it's getting better and better and better. I think as that penetrates the consciousness of high school counselors, high school kids, parents, that we will benefit from that. Now, you could say to yourself, well, why haven't you benefited already, if it's starting to turn around? Well, I think we have benefited a little, but I'm not sure that the concept that there really are opportunities in this career field is as broadly disseminated as it might be to us sitting around watching each of these metrics

Okay, I understand that. And then just -- maybe just a refresher. So when you think about technology based enrollments, if that does pick up, are the majority of those likely to come in, or more likely to come in as full-time students versus part-time? And I guess just as it relates to how you've got the program structured at this point.

I really think we would get interest in both. If there's a recovery in hiring and technology, I think we will have adult part-time students who will want to come to school to make a career switch. But the students that we're targeting are what we call a "career entrance," and they're principally students who are coming out of high school, or sometimes out of community colleges, and they are students that want to get their school and degree completed so that they can enter the market place -- the career market place. And so those tend to be full-time students. And we're putting a lot of emphasis on recruiting them.

Okay. Just final question. Back to Ross. The comment was made about -- I guess when you talk about the changes to the marketing recruiting and student service there, could you give us just a little bit more detail on what some of those things were that you've done there?

Sure. It's Daniel here, and I would point to a couple of things that we've done at Ross. We're improving the admissions process. I talked a little bit about that. We're putting in -- we have put in and successfully deployed document imaging to speed up the process of moving the applicants paperwork from where they're interviewed at different sites around the country to the campuses and back and forth. We're quite excited about these articulation agreements. And we've made a number of personnel changes, including a new marketing person who has jumped right in, and is making some changes including hiring a new marketing partner and some others. So those are just a few things as we get increased focus on marketing and recruiting at Ross.

As we see it, Greg, the demand for the seats is not the problem. The problem is assuring that we communicate that there are some alternatives to the traditional schools, and so part of what we have to do is to assure that people who are candidates understand that Ross exists.

The second thing that we have to do, and this is perhaps even more important in the long-term, is that we have to have those people who are qualified recognize that Ross offers a high-quality program and that when they get to the time of taking the exams and going through their clinical rotations, that they, if they go to Ross, will be adequately, or more than adequately prepared. That's critical, given that we have a Caribbean LOCUS to our medical schools and we think that that will benefit us in the long-term. Even though right now it probably is not helping as we try to recover on the -- from some of the choices that were made prior to the time we owned it.

Okay, that's what I was looking for. Thanks a lot.

Thank you. And our next question comes from Mark Marostica with Piper Jaffray. Please go ahead.

Yes, thank you. I was wondering if you could comment on the success of your recent promotions whereby DeVry alum can be granted course exemptions, and whether or not it drove some of the growth in Keller course takers this recent showing?

It's been something that has been relative -- it's okay, but it hasn't created any major stirs, Mark. We have had a number of major promotions, some of which that are oriented toward the Keller students that you're talking about. I would say they've been okay, and the growth in Keller that we've seen in the last couple of classes really hasn't reflected a lot of that. It's been more of the blocking and tackling. In the undergraduate, we've had some fairly interesting nationwide promotions. We had a National Game Day promotion, and that has been pretty successful except -- I say that with an asterisk, we'll see how successful it is in the fall class, really. But right now, we're pleased with the results we got early on in that promotion. So I would say we have maybe a single or two, perhaps a double, but we'll wait to see if any of them are extra base hits.

Okay. Great. And then, Norm, could you give us a little more color on the EPS impact of those charges that you described earlier in the quarter?

Well, the two charges in the fourth quarter total about $4.8 million. You can apply an approximate 40% U.S. tax rate to that and compute the EPS effect.

And lastly, just to the housekeeping item, amortization of intangibles in the quarter?

Yes, it was about 3.2 million this quarter, down slightly from whatever it was roughly, I guess three -- it was about 3.6 million in the third quarter, and in the fourth quarter dropped to 3.2 million.

Great. Thanks. I'll turn it over.

Thank you. Our next question comes from Mark Hughes with SunTrust. Please go ahead.

Thank you very much. Ron, did you suggest that your outlook for full-time campus undergraduates in the fall was for positive growth?

Yes, we would be disappointed if the full-time initiatives that we've had, including the promotion I was just talking about before, and the extra attention we've had to full-time day school, we have what we call a full-time day initiative at each of our campuses. I would be very disappointed if we didn't get positive results from them.

Now, is that population, or starts?

It's got to be starts. I mean that's the thing that you impact. And as you go along -- we've emphasized this lag effect, I don't want to over emphasize it, it's not that big a deal. But it is true as you continue to digest underperformance from previous semesters, it takes more than one semester of positive new results to overcome the accumulations of the negative results. I already got a couple of good results in the bank but, nonetheless, when you slice it down to sort of a narrower scope, which is what the full-time day, and then full-time day technology enrollments really are about, it -- you can't just do that in one -- well, you can, but it's unlikely that you would do that in one fell swoop.

Right. You had suggested technology enrollment is up slightly. Were you thinking sequentially, or year-over-year?

Year-over-year.

Right. So last quarter, I think you were done 14%, or last enrollment period. So this quarter, or this period, you're up slightly. So that's a pretty significant change?

I don't think that's exactly right. I think we are down, but not down very much. It's a -- call it essentially flat. Certainly by comparison to 14%, it's a lot better. Don't tack me to the wall on whether it's exactly flat or down a little bit or up a little bit.

Right.

But it's significantly improved.

A final question. A sense of what the full-time campus undergraduate starts have been the last couple of periods, if you expect them to be positive in the fall, what have they been recently?

Well, we haven't really made progress. That's why we keep talking about it. The progress we've made has been online and DeVry University Centers. This is the crucial lever point, really, for us, I think on a going-forward basis. We can do better with the initiatives that we have, but the time that we are going to do significantly better is the time when we get the -- begin to get throughput in our technology full-time day programs at the campuses.

I understand. Thank you.

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

Yes. Thank you. Norm, I was wondering if you could just hit me with the option expense again for the first quarter that you're expecting?

Well, we've not really categorized it by quarter. I'm expecting for the year -- our preliminary calculations suggest it's about $0.06 a share. That would -- and it would be roughly distributed evenly between the four quarters, but not exactly, but close enough for this purpose.

Okay, so $0.06 for the entire year?

Yes, that is our current expectation. I mean it may turn out to be a little different. And whatever it turns out to be will be disclosed. But that is at least the rough order of magnitude.

Okay. And then with respect to the Ross, just a little bit of clarification. It deteriorated I guess from the spring quarter, down 8.5% year-over-year here. Is there something more happening there, or -- I guess I need to get a little bit more comfortable with what's going on there.

Yes, Richard, it's Daniel. It's nothing more than what we've described, which is the increased admissions and increased progression or progress requirement that we put into place. And as expected, this is all things that we've talked about in the last couple of calls, in fact, and at the Investor Day in Fremont when we went through that in pretty good detail. So we do expect -- we are optimistic about the upcoming September class, and that with all the changes that I described and others that we didn't have time to describe that improvements -- we will see improvements in new student recruiting.

Okay. And then just one final one. I guess on part-time and full time and the impact there, maybe if you guys could give us some sort of details with respect to what is the revenue difference between a student, I guess, full-time and part-time student in a quarter?

Well, I would say a part-time student on average across everything is going to be roughly on the order of 60% of the full-time student.

Okay. Great. Thank you.

Thank you. Our next question comes from Sara Gubins with Merrill Lynch. Please go ahead.

Hi, thanks for letting me sneak in. Two quick questions. First, do you expect -- were there any savings from prior headcount reductions in the fourth quarter?

Yes, there were. Especially on the early takers of the first voluntary program, but it was not very much. We'll really begin to see the impact of those four programs, two voluntary and two involuntary in '06.

Okay. And then just a follow-up on that. You've talked about 16.5 million in savings from the various workforce reductions. Is that something that you would expect to be spread out fairly evenly across the quarters, or is there any seasonality to that?

No, what you're doing is taking out the compensation elements for the people that were involved. And so they would presumably be fairly constant across the year, except if you really tried to slice it fine, you would think to yourself, well, those people are likely to have increases and perhaps some other compensation elements that might increase the later on you go in the year.

But that really is pretty much spread ratably across the year. And it's modulated, if you will, or moderated, if you will, by the fact that we continue to invest a fair amount of time and money in hiring people to grow our online business at 60 or 70% a year, to expand our DeVry University Centers, which we're doing seven or eight per year, and it's a pick up. It's a change. It's a restructuring. But it's also a re-emphasis of our human resources, our human capital in online and DeVry University Centers.

Okay. But I mean those are two parts of your business that you've been focused on growing certainly over the last year or so. So it is -- do you think it's fair to assume that you will get all of the 16.5 million in savings recognizing that there will be increased costs in other parts of the business?

Oh, yes, I don't see why not. The people are identified. The salaries are identified. They're gone. We're not going to pay those salaries. We've taken the charge for the severance. Of all the expense savings you could enumerate, that's one that's pretty much in the bag.

Okay. Thank you very much.

And ladies and gentlemen, that does conclude today's question-and-answer session. I would like to turn the conference back to management for any concluding comments. Please go ahead.

Yes. Thank you for everyone that's still here, and for your time today. Our next earnings call, I know you are all looking forward to it, is scheduled for October 20th, and we will announce fall enrollment on December 6th. I would like to conclude today's call by just thanking the DeVry managers and employees for their hard work and dedication during a challenging time. However, it is absolutely clear to me that we have the plans, the programs, and the processes in place to return DeVry to its preeminent place in our industry. I might say our rightful preeminent place in our industry. So with that, thank you for participating in the call, have a great evening. See you.

And ladies and gentlemen, that does conclude the DeVry Inc. fourth quarter and year-end conference call. If you would like to listen to a replay of today's conference you may dial 1-800-405-2236, or 303-590-3000. And use passcode 11036783#. Thank you again for your participation in today's conference, and you may now disconnect.