Adtalem Global Education Inc (ATGE) 2006 Q1 法說會逐字稿

Welcome to the DeVry First Quarter Conference Call. [operator instructions] As a reminder, today’s conference is being recorded Thursday, October 20th, 2005. I would now like to turn the conference over to Miss Joan Bates, Director of IR. Please go ahead ma’am.

Thank you operator. Joining me on the call today are Ronald Taylor CEO, Dan Hamburger President and COO, and Norman Levine SVP and CFO. Our call today will begin with prepared remarks from management followed by the Q&A Session. Before begin, please be advised this call may include forward-looking statements subject to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied by these forward-looking statements. Potential risks, uncertainties, and other factors that could cause results to differ are described in the company’s most recent annual report on Form 10K for the year ending June 30, 2005 filed with the SEC on September 13, 2005. In particular, this information is set forth in the Section entitled Forward-Looking Statements at the beginning of Part I and in the Subsections of Items 1 Business entitled Competition, Student Recruiting, Accreditation and Approval, Tuition and Fees, Financial Aid and Financing Student Education and Career Services and Faculty. As a reminder, our income statement and preliminary balance sheet for the first quarter are included with our press release and are also available with the press release on our website in the Investor Relations Section at our website located at www.devryinc.com. Telephone and Webcast replays of this call are available until November 2nd. The domestic replay number for the call is 800-405-2236, and the passcode is 11040072. A replay is also available via webcast through the Investor Relations portion of the website. With that, I will turn the call over to Ron Taylor.

Thanks Joan. Good afternoon and thanks to all of you for participating in our fiscal 2006 first quarter conference call. Today I will provide certain commentary on some of our strategic initiatives, as well, as some interim enrollment results. Norman Levine will provide detail on our financial results, and Dan Hamburger will give an update on actions we have taken related to our growth plan.

Let me begin by saying that we are very pleased with the revenues and earnings we are reporting for the quarter. We have made significant progress to date on achieving the objectives of our growth plan. We believe that in 2005 we transitioned through the low point and are now on course to produce improved results throughout fiscal 2006.

Rather than reiterate financial information that you can read for yourself in the press release we issued today, I will simply remind you that our results in the first quarter now include accounting for stock option expense. We have restated first quarter fiscal 2005 results to consistently report this change. Norman will be providing more detail on that later in the call. Historically, it has been our practice to announce all fall term enrollments in December. But, because of recent investor interest and the effect of policy changes implemented at Ross University School of Medicine in fiscal 2005, we decided to make this year’s Ross enrollment information public as soon as possible.

Fall enrollment results for DeVry University and the November session at Keller will be reported as usual in early December.

At Ross University new medical and veterinary students increased 40.6% to 575, compared to 409 in the previous year. The total number of students enrolled in the September 2005 term was 3,227; 3.8% lower than the 3,353 enrolled last year. New student growth at both the medical and veterinary campuses reflects improved overall marketing communications and better recruiting processes. As is the case in all of our degree programs and as we discussed in last quarter’s call, and I know you’re all experts now, a lag affect exists between growth and new student enrollment and its impact on total students. Moreover, the fall class at Ross is typically the largest class of the year, with much smaller classes starting in January and May.

As we recently announced, we are pleased to welcome David Pauldene back to the DeVry family. David is joining DeVry University as EVP and will oversee the marketing and recruiting functions for the organization. David began his career with DeVry in 1979 as a recruiting advisor and has extensive leadership experience in for-profit post secondary education. He significantly strengthens our senior management group and will help us to achieve our enrollment objectives by better integrating our marketing and recruiting functions. Dave joins Paul Eppen our Chief Marketing Officer and John Holbrook Vice President of New Student Recruitment to form one of the strongest and most experienced teams in the industry. This addition to the senior management group also reflects our ongoing plan to attract talented industry experienced people to DeVry. Managers who embrace our vision of high quality applied education who can see that we are on the right track and who are excited about the excellent opportunities in front of us.

We’ve previously mentioned the significant expenditure of both money and management time on Sarbanes-Oxley Compliance. I am pleased to point to the unqualified opinion in our 2005 Annual Report, which includes Nonmaterial weaknesses in internal controls over financial reporting. While we have consistently endeavored to insure transparency and integrity in our financial reporting, even before the enactment of Sarbanes-Oxley Section 404. We believe it is indicative of the strength of our reporting and governance process and confirms the high standard of accountability that our shareholders deserve and expect. I think it also reflects very Well, on Norman Levine, our CFO and Sharon Thomas Parrott our Chief Compliance Officer. We have taken significant steps during fiscal 2005 to improve financial results in fiscal 2006 and in the future. These steps include better integration of the marketing and recruiting functions, a renewed emphasis on fulltime day school enrollments, and aggressive attention to the cost structure. As we look to the future, we believe that we are on course to achieve our objectives.

As I mentioned earlier, we have significantly strengthened our management team. We expect more focused marketing and recruiting efforts in 2005 to positively affect our fiscal 2006 fall undergraduate enrollments. Becker Professional Review has recovered from the affects of the CPA Exam changes, which occurred in fiscal 2004. Despite higher entrance requirements established last year, Ross University new student growth appears to be back on track. As we stated in our 2005 Annual Report, DeVry has a diverse and evolving program offering with best in class delivery models, national brand identity, and broad geographic coverage. We believe DeVry is Well, positioned to take advantage of the opportunities that exist in post secondary education.

As a management team our objective is to effectively management the company with integrity and accountability and with a vision to effectively serve our student constituency while creating long-term shareholder value. With that, I’ll turn the call over the Norman who will provide additional details of our first quarter financial performance.

Thanks Ron and good afternoon to everyone on the call. The press release describes our financial performance during the first quarter. Let me point out that our balance sheet is preliminary as we review the income tax effects resulting from the inclusion of share-based payment expense. We have not included a statement of cash flow as we’ve done in previous periods because we are still developing the proper presentation of the effect of accounting for share-based payments. The complexity centers on the determination of deferred taxes in and the effect on shareholder equity that arises from the required look back on options issued as far back as 1995. Let me remind you that we are among the first companies that must now include the affects of share based payments in our financial statements and as others follow suit I think that they too will acknowledge just how difficult it is with no easily copied precedent to follow.

And with that introduction let me review some of the highlights of the income statement and balance sheet in more detail. Let’s start with the summary of first quarter income. Revenues of $196.8 million increased by $8.4 million, or 4.5% from the year ago period. DeVry University contributed approximately one half of that revenue growth with the balance contributed by our other two segments. That income for the quarter was $4.7 million or seven cents per fully diluted share and that compares to $2.1 million or $0.03 per share in the first quarter of a year ago. And you’ll remember that the first quarter of last year included net income of $1.8 million or approximately $0.02 a share from the change of accounting for the fiscal year of our Becker Operations within the professional and training segment. Now beginning with the first quarter of this fiscal year DeVry adopted the Statement Of Financial Accounting Standards 123R, share based payment using the modified retrospective approach. We’ve included in the 2006 first quarter financial statements approximately $1 million net of tax as the expense associated with share based payments, namely stock options. The modified retrospective approach means that we, like many other companies, have restated the first quarter of last year’s financial statements to include in our case approximately $2.1 million net of tax for the expense related to share based payments in that period if the new accounting standard had been in effect at that time. Going forward we will restate each of the remaining three quarters of fiscal 2005 to incorporate the appropriate amount of this expense for those periods. And of course all future periods will now have that expense element included. This new expense element falls predominately into the student services and administrative expense line. And much like the income statement, the balance sheet and cash flow statements for previous periods are also being restated to include the effects of this new accounting standard and therefore will be somewhat different from what was originally reported last year. And to give you some longer range perspective on the costs associated with share based payments, we estimate the impact for all of fiscal 2006 to be approximately $0.05 to $0.06 per share, which is consistent with the estimate we gave you at the time of our yearend conference call in August. For fiscal 2005 we expect that the share based payment costs, which will be included in each of the restated four quarters of 2005 to total approximately $0.13 to $0.14 a share.

Segment results will also be affected by the inclusion of this new expense element and although we’ve not yet worked out the details the largest component in both the current year and the prior year is expected to fall within the DeVry University Segment.

At DeVry University both revenues and operating income improved from the year ago period. In July, total under graduate enrollments were bolstered by the second consecutive term of new student enrollment growth. And although total student enrollments were lower than in the previous year the decline is lessening, tuition rates have increased, and graduate enrollments within new segment continue to grow. In the professional and training segment Becker Professional Review continues to gain traction and rebound from changes to the CPA Exam format and schedule that negatively affected us in fiscal 2004 and part of fiscal 2005. Segment revenues and operating income both increased from last year. And this also includes a strong performance by the Stoller Review for the CFA Exam business.

In our medical and healthcare segment Ross University performance has improved with revenues driven by the strong recruiting results for the September class. Also included in this segment is Deaconess College of Nursing with revenues of approximately $900,000 in the quarter but with no significant contributions to our earnings as yet.

And we continue to demonstrate good expense control and spending constraint with only nominal increases in total spending versus the first quarter of last year. Although we’ve reduced our debt levels from last year, interest rates continue to climb and our interest expense increased in the quarter from last year. While we expect to continue to further reduce our debt if the Federal Reserve Board further increases interest rates we would not expect to see any lesser expense here for some time. With regard to presentation of debt on our balance sheet we have No mandatory payments until 2009 and 2110.

Our tax rate on pretax income for the first quarter was 27.5% compared to a rate of 23.1% for all of last year. The higher rate reflects a greater mix of U.S. source income from DeVry University and Becker operations, which are subject to Federal and various State Income Tax rates compared to the Ross University off shore income, which is taxed at much lower rates. We expect the tax rate for all of fiscal 2006 to be approximately equal to this first quarter rate and consistent with the range of rates we discussed in the August call. Turning to the balance sheet, a couple of points worth noting. Accounts receivable increased by $19 million dollars from last September. This is due in part to shifts in the student population as an increasing number of undergraduate and graduate students enroll in our accelerated eight-week sessions. New undergraduate students are subject to a thirty-day waiting period before their financial aid can be dispersed. So an increasing number of students starting in September contributed to the increase in accounts receivable at the end of the month. Nonetheless, our operating mangers are focused on reducing the accounts receivable balances to historical levels.

As I mentioned earlier, the first quarter cash flow statement will be affected by the presentation of the affects of stock based payment expense. Remember though that these are non-cash transactions and while we do not yet have the details of the statement in its final form, we generated more than enough cash flow in the first quarter to fully fund our capital needs and reduce debt by $50 million. With no major facility additions or expansions currently contemplated, we plan on capital expenditures of approximately $40 million in fiscal 2006, similar to spending in each of the past two fiscal years. For the first quarter, capital spending was approximately $4.6 million, which compares to $5.7 million a year ago. And that concludes my review of the financial statements so I’ll turn the call over to Dan for an update on our operations.

Thanks Norman. I’d like to begin by providing an update on several elements of our five-point growth plan at DeVry University that contributed to our results this quarter. In the marketing area our three new regional marketing directors have provided leadership at the local level, which helped each market to work more efficiently and effectively. With stronger and more focused marketing planned in each region, we’ve seen improvement in summer results and continue to be encouraged about enrollments in the fall.

Part of the plan included rebuilding the DeVry University Website and we recently reported that we had completed phase one of the redesign. In addition to improved look and feel and easier navigation, our specific goal was to increase the number of paperless electronic applications, which is a cost savings for us and a convenience for our perspective students. I’m very happy to report on the success of that initiative more than doubling our internal goal of electronic applications. We invite you to take a look at the site at DeVry.edu and we’d love to hear your feedback.

Finally in this area let me give you an update on the lead modeling and optimization efforts that we mentioned previously as a part of the plan. Through these efforts, DeVry television advertising has become more efficient and the number and quality of Internet leads have improved. This is due mainly to the elimination of None-performing vendors, a reduction in the use of average performing vendors, and an improved distribution system for these leads to the enrollment advisors.

The second part of our growth plan is to regain and to improve upon recruiting productivity. We’re working to improve upon the systems and processes that support the recruiting organization. An example here is a campaign management system that allows us to better track the status of leads and to optimize follow up communication in e-mail, phone call, or letter. We expect this system and these business processes, when fully implemented will ultimately result in better conversion rate. While we still have work to do to insure better results in the fall term and beyond, we are working on process improvements and management development with a focus on solid execution of the growth plan. The previously described reorganization of our recruiting force is going well, including the specialization of role such as high school presenters and appointment setters to better leverage our advisors’ productivity.

In our recent 10K we reported a lower number of enrollment advisors than in the previous year. And on several occasions we’ve been asked why. This does not indicate that we are reducing our resources that are focused on new student recruiting. Because we now have specialized role the entire recruiting process now has become more efficient and staff members formerly included in that group No longer fit within the categorization of enrollment advisor. So when you look at marketing and recruiting taken as a whole, we have increased the level of resources focused on new student recruiting and we are starting to see a positive momentum in this area.

We’ve also been focusing on making our programs and delivery options more competitive. In that respect, we’re developing new offerings within the Bachelors of Science and Technical Management Degree Program or BSTM. An example is a specialty Health Information Management targeted at holders of Associate Degrees in Health Information Technology, which of course DeVry currently offers, who want to obtain a Bachelors Degree in Health Information for career advancement. Additionally, based on student demand, we are planning to add more concentration within our Bachelors and Business Administration Program or BSBA.

And as an update on previously announced on-site programs that we have introduced on-line we’ve seen demand for the on-line networking programs at both the Bachelors and Associate levels and for the on-line Associate Degree Program in Health Information Technology. And we’ve had very good feedback from students about these programs.

I am pleased to report on improvement in operational effectiveness within DeVry University. Part of the plan was to streamline our customer service and student finance functions to better serve students and to reduce costs. We launched a cross-functional team to function on sharing best practices in customer service from across all our divisions and from outside our industry. Through this process we’ve been able to significantly improve response time for student inquiries received through phone, as well as through e-mail.

That does it for the update on our DeVry University Growth Plan. So, let me now turn to a review of our other segments. At Becker Professional Review CPA Exam order revenue and enrollments were up over the prior year. Distance Learning continues to grow as Well, We believe growth in this business can be attributed to candidates who previously procrastinated and who are now starting to prepare for the CPA Exam. However, we don’t expect that trend to continue in to the second quarter. We don’t teach in the classroom in December, so CD-ROM will likely be the primary revenue source in the latter part of the second quarter. Additionally, we recently released an updated version of the CPA product, which has been enhanced with more exam simulation, two complete mock exams for each of the exam parts, a new homework component and progress exams. Student response has been very positive so far. Our Stoller review for the CFA business has also been up significantly year-over-year with growth primarily occurring in full course enrollment. We believe that more students are finding a compelling value proposition in the full Stoller Study System and not just review books to help them pass this difficult exam. Recently, we signed additional business-to-business agreements, which included companies such as J.P. Morgan Chase, Putnam Investments, and Wellington Management Company.

At Ross University, the September class was the largest in the history of the Medical School and tied the all-time record at the Veterinary School. Good new student enrollment at Ross was attributed to the marketing and outreach effort we’ve made over the last few months, including a new marketing firm, an increased number of information seminars, and an expansion of the types of media we’re using to bolster interest in Ross.

Other recruiting at the medical school includes the Scholar’s Program. This is a special program designed for our students at the highest academic level allowing them to proceed at their own pace in some of the basic science course work. We’ve also begun using a new technology, which allows students to view and participate in a live class session online either from their computer or from the library. In effect, this expands capacity at the school in an innovative and capital efficient way.

Finally, in terms of infrastructure investment, the veterinary school housing facility is under construction and we’ve upgraded several classrooms at the medical school. With that, I’d like to conclude my comments by saying that we remain committed to execution of the growth plan and we’re confident about the prospects for future growth. We appreciate your continued support. So Now, I’ll turn the call back to Joan.

Thanks Dan. We have about, it looks like thirty minutes, to take your questions, so if our operator Jeff can give us the instructions, we can begin.

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press the star, followed by the one, on your push button phone. If you would like to decline from the polling process, please press the star, followed by the two. You will hear a three-toned prompt acknowledging your selection, and your questions will be polled in the order they are received. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. And our first question comes from Bob Craig with Legg Mason. Please go ahead.

Good afternoon, everybody. Hey Ron, I hate to ask this because you’ve already increased your disclosure, but we’re always never satisfied. Is it possible to give some qualitative read on the fall new student intake at the DeVry University undergraduate level?

Do you want us to predict the future?

Of course.

No. December 5th we’ll give it to you.

Okay, not even some read on the lesser intake and how that is progressing?

We, we can’t.

OK. That’s a good try, but--

I had to try. The second question would be and Keller side up 5%? How pleased are you with that number? It seems to be a little below the recent trend.

I’d be a lot more pleased if it was higher. It’s – you know nothing goes straight up and the days of every class being consistently on track are probably over. But we went to a sixth – as you know, everybody knows, we went to a six term start from a five term start a little over a year ago and what that means is that there can more swing in the individual classes. I don’t think it’s indicative of any trends. If you aggregate some of the numbers they are still pretty good.

Okay.

But, I would certainly be more pleased if it was higher.

Okay. A full benefit in the first quarter from cost reduction efforts; the work force reduction efforts that were taken last year?

Oh, we have No further severance costs. We accrued those all in 2005.

Okay, and given the addition to…

This is the fourth question…

I’m sorry; I didn’t know there was a limit.

Well, we didn’t limit it, so go ahead.

Okay, what would be -- is it possible to quantify what the annual net benefit of all those activities in light of your recent additions?

Well, we said that the $16.5 million was the estimate from the voluntary reductions.

Right, largely offset by additions, I take it, right?

Not largely offset but there are some additions and we have been continuing to invest in growth on-line. We’re continuing to add six to eight new DeVry University Centers and as I’ve sort of gave you a paragraph or so, we’ve added some senior management strength. So, there’s some offset but really it’s resources needed for growth.

Okay, great. Thanks Ron, I’ll turn it over.

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

Thanks and good afternoon.

Hi Mark.

They got your name right this time.

All right. My question relates to the fall recruiting effort. And, I won’t try to pin you down on the number; obviously I don’t think you’re going to go there. But what I’m interested in is what do you think you focused on this season from a qualitative point of view that you think will make the difference specifically in targeting the high school graduate that perhaps you just didn’t do as effectively last year?

Execution really. We’ve got a better communication concept. We’ve initiated some specialization in our recruitment force and we’ve got a, I would call it a much more focused management team organizing and managing the day-to-day effort. When we brought John Holbrook back this was a man who is schooled in the DeVry approach for many years and went out into the big, bad world but came back with those experiences and I think partially it’s just execution and management. It’s like a football team. It sounds dull and boring but blocking and tackling will get you a long way.

Sounds good, and then following up on your comments on Deaconess, what are your plans over the next year for Deaconess from a campus expansion perspective?

What we’ve told people, our plan is to go through the process of interacting with the accrediting agencies and the various regulatory bodies to assure that we have all that lined up and then we would like as it’s appropriate to recruit more students into our on-line programs, especially ASN to BSN students. And to the extent we can to expand nursing programs in places where there shortages of nurses and where we have facilities and resources to service them. So we would like to grow Deaconess.

Ron, do you anticipate adding any new Deaconess campuses this fiscal year?

Well, we’ll be better able to answer that when we’ve gone through all of the accreditation and approval processes.

Fair enough, and one last question for Norman; amortization of intangibles in the quarter?

Yeah, I’ve got that for you, because you don’t have a cash flow statement that’s a good question. It was down from last year’s as of course we knew it would be. It relates largely to the amortization of intangibles that were related to the Ross University. Let me see, I’m trying to find it. It was in the first quarter of this year it was about $2.6 million. That’s down about a million dollars from the $3.6 million included in the first quarter of last year.

Great. Thanks, I’ll turn it over.

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

I think it’s worth a full multiple point Ron that you agreed Not to rehash the press release in your conference call.

Well, it just shows how responsive we are to our analyst friends.

Well done. My question – first one is on Ross. You guys put, you know, big improvement there and you talked about the marketing and the recruiting process. I recall one of your goals along with them I just you to talk about how you did that along with your goal of actually making the admission process more rigorous at the same time. I think that was one of the things you mentioned you needed to do there. Is that correct?

That’s correct and I think you guys need to understand that the management team here did the right thing and took a few arrows in its back to assure that we had a high quality medical school program. We increased the entrance standards. We increased the promotion standards. And there’s a lot of managements that I can imagine that might have taken the easy path; let’s just get some students in here. It doesn’t matter. So, one of the things that’s important about what we did in 2005 is that we set the stage for this kind of performance and I think it’s important for people to understand that.

And so, you were able to basically effectively put the kind of increase you were up from marketing, which in effect more than offset even the increased higher standards- entrance standards?

Yeah, yeah they -– you know, as I mentioned, I think we said it a couple of times on a - I know I’ve said it to your customers and other customers that I’ve visited with. The demand for the seats is there. There’s about 16,500 seats in U.S. Medical Schools – U.S. continental schools. There’s about on average 40,000 applicants per year for those seats. Now, I can tell you that the 16,501 applicant is not dumb. These are smart kids. They are going to be perfectly good clinical physicians and they need a place to go. Ross provides a high quality alternative that allows them to get there. So the market demand is there for the seats. On the other end of the pipeline there’s about 25,000 residencies per year in U.S. hospitals. If you figure 16,500 graduates of U.S. Medical Schools and maybe another 1,000 osteopathic graduates, and in the past a lot of foreign medical graduates; those foreign medical graduates-- it’s much more difficult to get them into the United States through the immigration process. So there’s demand for the seats. There’s demand for the output. This is something that is a very good market for a quality performer like Ross. And we want to take that basic strength and exploit it. So if we have inadequate communication with the 16,501 through 40,000th kid, young person, and they don’t know about Ross then you’ve got a problem. So part of our effort is to make sure that these people who are not accepted to U.S. schools understand that there is a high quality alternative. They don’t have to go to a schlop place.

Okay and from what you’ve done, what’s the capacity now at the school -- at both schools?

Well, we haven’t been talking too much about that. But we have said that we are working on things that expand capacity and things that make the transition for students into medical school at the same time they’re transitioning into a second or third world environment much more acceptable to them.

Okay, but you’re not concerned about the – even if you’ve got the demand you’ve got the capacity to grow for the next couple of years at this point?

Well, we have to build in the capacity and that’s part of the investment, the strategy that we have.

Okay. Just two more quick ones; on the marketing and advertising side I notice in Student Services and Admin you got some leverage off that this quarter. Within that can you share with us the trend in the marketing and advertising in terms of the increase you might have had year-over-year there?

Well, we’re trying to be more efficient with our expenditures. What we’ve said is that we’re not necessarily going to reduce our expenditures there but we think we can get better performance with the kind of lead optimization and lead distribution that Dan talked about and to do it at a cost that does not increase as quickly as perhaps some of our fellow travelers in the space.

Okay. Final one. Dan talked about some of the things you’ve done in terms of the structure of the programs and I wonder if you could expand on that? Some of the things you’ve done to make your programs more attractive to students? I’ve heard obviously that in certain areas there’s a shorter school week. You know, you’ve got the accelerated programs. Can you just run through the things you think have been most effective when you’re actually marketing a student that are making the programs more effective to them?

Well, we’ve been trying to apply technology to the delivery of educational services across the board. And that means both on-line and on-site students. And so, we have many more students that are attracted to a situation where they can go get the kind of social interaction or interaction with a faculty member if they want it or go on-line in a well delivered, effective on-line program. So one of the things is just delivery of technology. The other thing is making sure that the scheduling is as attractive as we can. DeVry pioneered the morning and afternoon sessions to allow its students to go to work on the alternate time. Some of the other people in the space have gone to shorter program; three day delivery, that sort of thing. We’ve adopted some of that. And I think the other thing that we’ve done is we’ve tried to be sensitive to the needs of students who have multiple educational experiences or educational experiences at multiple institutions. Such that the articulation between their course work taken at other schools and our programs is much more easily applied. Those are the kinds of things we’re doing in that area.

Thanks a lot, Ron.

Okay, see you.

Thank you. Our next question from Matt Liftin with William Blair Company; please go ahead.

Yes, good afternoon. Congratulations on the improvements. What can you tell us about trends in student attrition and how that over time will affect that spread between the new student enrollment and your total enrollment growth in the future?

Well, attrition is one of those things that if you don’t pay attention to it, it can run away with from you. And we pay attention to it. We have a Vice President who is responsible for our student service and he has responsibility for maintaining an eagle eye on that. For all practical purposes there’s no significant change in attrition rates. You know, there’s some programs that have higher attrition and some that have lower but on average across everything it’s not really an area where there’s a big delta.

Okay, just following up on that. Wouldn’t it be true that prior smaller classes coming three or four years later now you would have fewer graduations? My question, I guess, is trying to define what is attrition? Are you counting graduations in there or…

No. When we talk about attrition usually we’re talking about people who withdraw from the program. But yeah, of course, if you have ten students three years ago you can’t have twenty students graduate. Well, you could I guess. We get resumes as well. But generally yeah, the big graduation outflows from the large classes that were at the end of the dot com bubble. Yeah, that’s all transitioned through. And the lag effect that we keep beating on the table to you guys about applies to graduation as well, sure. And three years later is when you get the impact of that.

Okay, thank you.

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

Hi, thank you. The first question I had was about the revenue in the other educational line. It was up pretty significantly year-over-year and I was a bit surprised because I know you outsourced your bookstore. So I was hoping to find out if there was something unusual in that item.

Sara, it’s Norman. There were two phenomenons that contributed to that increase. One is the significant increase in Becker, which it’s CD Rom product and course materials associated with the CFA Exam contribute to other educational sales. As well as the introduction of E-Books, which, you know, previously those textbooks would have been by Follett and we would have reported only a commission. But as we expand our utilization of E-Books we’re reporting the full sale revenue.

Okay. So as Becker continues the improvement and you grow E-Books it’s fair to assume that you’d actually get some real growth in that.

Yeah, I think that’s reasonable to assume that the decline that we’ve had over the past couple of years as we outsourced the DeVry University Bookstores to Follett is now – you know, that pretty much steady stated through the latter parts of fiscal ’05 and now you are seeing E-Books and a rise in Becker level of activity carrying it higher.

Okay, and then one other question; in terms of educational services is it fair to assume that we should see modest growth there for the rest of the year recognizing that you’re making investments in various activities and that’s partially offset by the saving that you’ve gotten by head count reduction but not entirely? Is that a fair way to look at it?

Yeah, I think that’s – I don’t know if it’s fair or not but it’s probably accurate.

Okay, thanks very much.

Operator. Thank you. Our next question comes from Howard Block of Banc Of America Securities. Please go ahead.

Good afternoon and then again congratulations on the improvements. The question that I had is with regards to Norman’s explanation for the higher DSOs. I was wondering if in that explanation we may have heard an indication growth is accelerating?

I suppose you did because if receivables are higher you could conclude that. But, it’s really more a function of the timing of when those students came in and the end of the quarter. But, you know, if you, and I know you have, if you look at receivables over the last couple of years they’ve been growing and it reflects some makeshift on-line and part time students and changes in our structure for processing what students owe us so it’s an area where the principal thing for this quarter was the effect of the timing of the student intake at the beginning of September. But, as a general matter it’s pretty more reflective of the increase in students and the mix shift.

Okay, and I know we’re not asking for any data but how do the mid-term, the B sessions, how do they normally correlate with the primary intake?

I don’t know if -- there’s -– I don’t have a scientific answer for you other than very closely correlated. They’re great.

Okay.

I don’t know Howard, it’s -- I’d have to look at that before I gave you something that you make a projection off of. I think I’d want to look at the data a little more.

Okay. And Norman, the growth in the SS and A line of spending in Quarter, I believe, was the lowest growth at least that I have record of. And even if you adjust for the lower amortization expense, it’s still very low.

Yeah, I mean you’re seeing the benefit in both cost of educational services and the student services line of some of the cost reductions that we implemented and took the work force reduction charges last year. You’ve also heard the discussion about how we’ve been able to moderate the growth in promotional expenses as we improve its productivity.

Okay, so is that a growth rate that’s sustainable for another three or four quarters?

I wouldn’t deem to sit here and project the appearance of our future quarter financial statements.

Howard Block. Okay. And then in terms of the revenue out performance; I know you don’t really endorse any of the estimates, but it’s my guess that you outperformed everyone’s tuition estimate in the quarter. If we try to perhaps have an order of magnitude here you said that half of it was DVU related.

That’s correct. About half of the year-over-year increase was at DeVry University.

So, what in the -- I guess you could say the earning rate per student did we sort of miscalculate? Is it something to do with a price points, something…

Howard, I think you know if you consider the summer term, which was the primary driver behind our first quarter revenues. Total enrollment was down about 3.8% from a year ago but there was a price increase implemented in July. In fact on the previous one prior to that was November so that yes, there were fewer students than a year ago but at an average higher price. And the combination of the two leads you to higher revenue. I think that flows very logically from…

Right. Okay, thank you very much.

Thank you. Our next question comes form Avi Fisher with Harris Nesbitt. Please go ahead.

Okay, thanks for taking my call. What a difference a year makes.

Yeah.

You gave the amortization. Do you have the D part of that?

Yes, I do. It too was down slightly from a year ago. Let me find that for you. It’s on the same piece of paper as the amortization. You can see that the moderation in our capital spending these last couple of years will result in probably no growth in depreciation expense from year-to-year here, certainly not in the current year. I’m struggling to find the piece of paper on which I have it all spelled out for us. Here it is; in the quarter depreciation – actually I think we might have answered this. Oh no, I’m sorry. The question I answered previously was with respect to amortization.

Right.

The first quarter depreciation expense was about $9.1 million. It’s down about a half million bucks from the first quarter of a year ago.

Okay.

Depreciation expenses are very slow changing. You know, you’ve got a -- it’s the sum total of expenditures for a goodly number of years depending on the life of the included assets so it moves and changes at a very slow pace.

Speaking of those included assets, how is capacity utilization in the quarter?

We’re still significantly under utilizing a large campus capacity and there hasn’t been much change. But we’re working on that.

Just one final question, any impact from the hurricanes either at Ross or any of the schools?

A little bit to the extent we had on-line people in Louisiana and Texas but basically we were not very impacted. We don’t have any big facilities down there.

Avi Fisher, Okay, thank God. Okay, thanks very much.

Thank you. Our next question comes from Richard Close with Jeffries & Company. Please go ahead.

Great thanks. Ron, I wonder if you could give us your perspective on competition in the market place maybe from not for profits, community colleges, state schools? And maybe how that competition varies based on the different degree levels?

The fastest growing segment of higher education is community colleges. And community colleges are very aggressive right now. They are the low priced spread. We pay for that as taxpayers and the cost to the student is a very small percent of the total cost of education. So community colleges are a quite aggressive competitor for new entrants. That’s the bad news. The good news is when those students come out at the end of two years and they’re looking for a transition into a baccalaureate degree program the kinds of changes that we’ve made have – make it very attractive for many of those students to move out of the community colleges and into a DeVry program. The state colleges are still impacted by reduced earnings on their endowment and reduced funding from the states by and large. They are more competitive; traditional schools across the board are notwithstanding – well forget what I was going to say. But, they have adopted more of the marketing approaches for profit education. And it’s now an accepted part of higher education. That really wasn’t the case five or ten years ago.

Do you think that deludes the overall message or, you know, makes it more difficult overall for you guys to attract students?

Sure. Oh yeah, it’s – we have to spend more money and we have to be more creative. That’s part of what we’ve been talking about the last couple of years. You know one of the reasons we spent more money on advertising in the last couple of years is what I called on several calls, the more noise in the market place. And so, that comes from traditional schools and also from for profit schools.

And then just one final one; with respect to maybe the general pricing trends in ad spots, whether it’s Internet or TV, radio, or direct mail, however you’re doing it. Have you seen those prices increase and maybe could you say that your optimization that you’ve talked about has offset the actual increase in price?

No, I wouldn’t try to characterize it that way. I mean, we don’t get in to the specifics in our advertising but I wouldn’t go too far down that road.

Okay, thank you.

Thank you; our next question from Mark Hughes with SunTrust. Please go ahead.

Thank you very much. In looking at the revenue in the quarter, which was a bit better than expected, the mix of full time versus part time you touched on previously. Has that stabilized or improved a little bit?

No, the DeVry University Centers, which we’re continuing to invest in and the on-line, which is a big growth engine for us are both higher proportions of part time students. So, I think that makeshift is not going to change a whole lot unless, and until, we get full time day school students back in to the large campuses in larger numbers.

Gotcha; latest thoughts on the recruitment and placement in the IT field?

You read a lot and I think we see evidence from time to time, or now that there are companies that are being more active in recruiting technology students. I think that it’s pretty clear that we’ve gone through the big bust and I think we’re going to head for a much more active and aggressive hiring environment for students with good technology degrees like from DeVry. If they have less good ones they probably won’t. How’s that; a semi joke?

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

Hi guys and congratulations on, I think, the first year of your operating margin expansion in thirteen quarters.

Good. It takes us awhile to wake up but once you have the giant awake you might get out of the way.

No, it looked good. I guess, you know, on that point I was wondering if you could help me understand the drivers of that. Specifically how much of the margin expansion we’ve seen here came from the modest revenue increase versus the cost cutting that you did last year?

Let me answer that real quickly because we might be able to get somebody else in. Basically this is the people business. If you want to affect your expenses the way to affect it is people. We took two big ugly bites last year and you’re seeing the effect of it this year.

And, in the year ago period would losses in Canada have been, you know, for year-to-year changes significant?

Yeah. The end of the Toronto phase out has a salutatory affect.

And then what about Sarbanes Oxley spending? Was that a big thing a year ago?

Well, it’s bigger now because we have more things going on but it was big last year too.

Okay and then second question, you know, you’ve never really given a student count of fully on-line students. I wonder if you could give that? If you’re not willing to I guess I’m wondering why?

You guys are greedy. I gave you a one-time picture on Ross. We’ll think about that but probably not for a while.

I guess just one other one. You talked about the professional training business being up both revenue and profits this year. As you look through-- and gave some color in second quarter. But, as you look through the rest of fiscal ’06 what’s your sense there? Is this business now positioned to have moderate growth and continued profitability gains going forward or was this more just that the comparison was such a difficult quarter that it looked a lot better here?

We’re trying to make sure all of our operations grow and are profitable and these are in that mix. We’re working ourselves to get that done.

Okay, thanks a lot.

We’re at 4:30. I don’t know if we can do…

We’re at 4:30.

Should we do one more?

Oh, sure.

We’ll take one more and anybody who has a burning question that’s really intelligent should call Norman Levine. But, we’ll take one more.

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

I like to think I’m really intelligent, so maybe I’ll call Norman after this but two real quick questions. The first is, Ron I know how much you enjoy predicting the future, but just a kind of order of magnitude, will you be disappointed if the new student growth at Ross comes down to, say, you know, the mid teens? Do you think this 40% is kind of where it should be or is this kind of a one time bump with the changes in the marketing and the processes?

Boy, I don’t know. If I knew that I could make a lot of money.

Okay. And the second quick question; you talked about this a little bit Norman, but excluding the impact from the change of the timing of the September starts. I know there were some other things going on with the change of the collection cycles; some processes you were working on. Can you just talk about where that’s at and whether excluding the timing from the start whether DSOs will be kind of flat, or coming down at this point, or still would be coming up?

This is Dan LaCorey. As Norman pointed out there is a large element of timing and a large element of makeshift going on in those receivable numbers that you’re seeing. And it’s internal. It’s an operational issue and it’s something that our operating managers are very focused on so that’s something that we’re taking a look at.

You know, I think it’s also a function of -– as tuitions go along you have people who have lots of demands on their financials and so, like anybody you stretch out your payments if you can. You do the things that are necessary. You might have financial aid that covers a lesser amount. I mean, there’s a lot of dynamics going on in the higher educational market today that probably affect us.

Thank you very much.

Well, thanks everyone, for taking the time to be on the call today. As I said, we’ll announce DeVry University enrollments on December 5th, and our next earnings call – you guys are probably really waiting for this –- is scheduled for January 27th of 2006. Thank you for participating in the call and have a great evening.

Ladies and gentlemen, this concludes the DeVry first quarter conference call.