Adtalem Global Education Inc (ATGE) 2006 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the DeVry Inc. fiscal 2006 second quarter conference call. My name is the Latisha and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I'll now turn the call over to your host for today's call Ms. Joan Bates, Director of Investor Relations. Please proceed ma'am.

Thank you operator. Joining me on the call today are Ronald Taylor, Chief Executive Officer, Daniel Hamburger, President and Chief Operating Officer, and Norm Levine, Senior Vice President and Chief Financial Officer. Our call will begin with prepared remarks from management followed by the Q&A session, with our goal being to complete the call in about 40 minutes.

Before we begin, please be advised that our call may include forward-looking statements subject to the Safe Harbor provision 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 10-K 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 One, and then the subsection of Item 1 Business, entitled Competition, Student Recruiting, Accreditation and Approval, Tuition and Fees, Financial Aid and Financing Student Education, Career Services and Faculty.

As a reminder, our preliminary financial statements for the second fiscal quarter are included with our press release, and are also 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 February 9. The domestic replay number for the call is 888-286-8010, and the passcode is 32339202. A replay is also available via webcast through the IR portion of our website. With that I will turn the call over to Ron Taylor.

Thank you Joan. Good afternoon and thanks to all of you for participating in our fiscal 2006 second quarter conference call. Let me start by just saying that we are pleased with the revenues, earnings and operating margins that we are reporting for the second quarter and for the first six months. These financial results incorporate a decrease in our cost structure related to the voluntary and involuntary staff reductions implemented last year, and other costs discipline imposed this year.

We have also seen growing demand in each of our divisions. We delivered these improved financial results despite the negative impact on our campuses in the southeastern United States, particularly in Florida, and on our online students due to the hurricanes which occurred in the fall. We continue to believe that we are on course to produce improved financial results in fiscal 2006.

At DeVry University, we are experiencing strong student interest in the online program, and in programs offered at our DeVry University Centers. However, while we believe that conditions are right for recovery in our full-time campus-based enrollment, we're not yet seeing the enrollment gains expected in this channel. As a result, and in addition to our revenue generating activities, we are implementing a strategy for improving results in our large campus delivery system by making our facility usage more efficient. As part of this strategy, earlier this year we sold an under utilized facility in Denver. Recently, we announced we have offered our West Hills, California facility for sale. The West Hills campus will be replaced by one or more smaller more efficient facilities to continue to serve this important market.

Other steps in this strategy which we have taken include consolidation of our online operations into a new building in Naperville, Illinois, selling a parcel of land at our Houston site, and relinquishing higher cost office space at our corporate headquarters. These actions are initial steps to optimize our facilities and resources in each of our markets.

We are of course evaluating all of our facilities, whether they are owned or leased. However, I would like to make it perfectly clear to all that we remain firmly committed to every market we serve, and we will continue serving students in each of those markets. We are also committed to improving our products, our marketing and recruiting activities, and our student service system to better compete for new students and to participate in the growing demand for new technology workers.

Let me shift focus for just a second now. Many of you have heard or read that a proposed amendment to the federal Budget Reconciliation Bill could have affected Title IV eligibility for Ross students. This amendment is no longer part of the budget reconciliation package which the House is scheduled to vote on during the week of February 1. However, the proposal is still in the Senate version of the Higher Education Act Reauthorization Bill, but not in the House version. We fully expect a favorable result, and will continue to monitor this issue closely.

In terms of the environment in which we operate, market trends indicate a growing demand for DeVry programs. In the health-care industry, demand is growing for physicians, nurses and graduates with a combination of health-care and technology skills. Recent new student enrollment at Ross Medical School and in our undergraduate health-care programs reflect this growing demand.

As some other providers of IT training and education have recently indicated, we are seeing the beginnings of renewed student interest in IT fields. We believe that a technology hiring recovery and positive overall IT employment trends will greatly benefit DeVry over the next few years. In the news recently have been numerous stories about trends in IT and increasing demand for technology workers. According to recent articles in Crane's New York Business and Business Week new IT positions are estimated to increase significantly in 2006, as are the average salaries in these fields. Moreover, in terms of the general outlook the 2005 job outlook survey by the National Association of Colleges and Employers found that employers planned to higher 14.5% more new college graduates in 2005 and 2006 than they have hired in the previous year.

We are strongly committed to developing and expanding our already strong management team. Last week, we announced the addition of Harvey Leffring as Chief information officer. Harvey worked most recently as Vice President of Information Technology and Chief Information Officer at Siegel Robert Automotive in St. Louis. And interestingly, he earned his MBA from Keller Graduate School in 1991. His appointment reflects our commitment to improving our information technology services, which are critical to support our operations, and to expand our ability to provide a high level of service to our students.

At Deaconess College of Nursing, we created the position of Division General Manager to drive our expansion initiative. Susan Groenwald was hired to fill this new role. Susan holds a bachelor's and master's degree in nursing, and recently was the Director of Operations for Focused Health Solutions, a health-care company owned by Children's Hospital of Chicago. Prior to that position, Susan founded and operated GRO Enterprises, a direct marketing company that was successfully sold to Barter Trust.

Susan has a unique combination of nursing, education and business experience. And we're very pleased to put her talents to work in growing our newest health-care division.

For the past three years, Deaconess has offered an online associate degree in nursing. You recall, we acquired Deaconess just this last -- late spring. This program has been reviewed. That is to say the online associate degree in nursing program has been reviewed annually by the Missouri State Board of Nursing, and has operated under an interim approval status since its inception. In its most recent review in December, the Board withdrew its approval. This decision was based on test performance by students who entered the program prior to DeVry's acquisition of Deaconess. We have appealed this determination. Pending final action by the Missouri Administrative Hearing Commission on our appeal, the ASN program continues to operate as an approved program with initial approval status. We expect this issue to be favorably resolved, and point out that it only affects the ASN and online program, and does not affect the ASN on-site or the BSM online or on-site program.

In sum, we had a good quarter. And we continue to see good progress at DeVry University, DeVry University Online, Keller Graduate School of Management, Ross University, both the med school and the vet school, Deaconess College of Nursing, and Becker Professional Review. And we believe that we are well-positioned to participate in the positive trends affecting the technology, business, and health-care industries. So with that, I will turn the call over to Norm who can provide you with additional details on the second quarter financial performance.

Good afternoon to everybody on the call. The press release that we issued today includes both a summary table of revenues and earnings, as well as the more detailed financial statements that better describe our financial performance during the second quarter and first half of this fiscal year.

Let me remind everyone that these financial statements are preliminary, as we continue to review the results for completeness and appropriate expense classifications. Also remember that these financial statements include the effect of accounting for share-based payment expense in both the current year and the restated previous year.

So with introduction, let's start the summary of our second quarter income statement. Revenues of 209.9 million increased by 15.3 million, or 7.9%, from the second quarter of last year. This is nearly double the 8.4 million of revenue increase we reported in the first quarter. This is due to a continuation of positive new undergraduate enrollment from the previous year, and a lessening rate of decline in total undergraduate enrollments at DeVry University. In addition, Ross resumed its upward enrollment path with the 40% September term new enrollment increase that we previously reported.

DeVry University contributed more then 9.5 million of the year-over-year revenue increase, with the medical and health-care segment providing more than 5.5 million. Remember that the medical and health-care segment includes the results of Deaconess College of Nursing, which was not a part of our results in the second quarter or first half of last year.

And while tuition revenue has increased each quarter from the prior year, so has our other educational revenue. These revenues increased approximately $3 million in each of the first and second quarters due to higher sales of Becker CPA Review Courses on CD-ROM, the expanding sale of eBooks for undergraduate online and on-site courses, and higher interest charges on undergraduate accounts receivable under our [EduCard] Interim Financing Program.

Net income for the quarter of 11.7 million was just about double the year ago level, with revenue growing and expense controls remaining strongly in place, particularly in the cost of educational services, which continues to benefit from the workforce reduction actions of last year.

Beginning with the first quarter of fiscal 2006, DeVry adopted the Statement of Financial Accounting Standard 123R, share-based payments using the modified retrospective approach. Included in each of the 2006 first and second quarter financial statements is approximately $800,000 net of tax as the expense associated with the share-based payments, namely stock options.

To give you some longer range perspective on the cost associated with share-based payment, we estimate the impact of the full fiscal year 2006 to be approximately $0.05 a share, which is consistent with the estimate we gave you at the time of our year-end conference call in August.

To improve comparability we have restated the first and second quarter of last year's financial statements to include approximately 1.2 million net of tax in the second quarter, and approximately 2.1 million net of tax in the first quarter of last year related to share-based payment. We will continue to restate each of the remaining two quarters of fiscal 2005 to incorporate the appropriate amount of this expense for those periods.

While the first half of fiscal 2005 had approximately 3.3 million of added expense, the second half of last year will have just under 7 million of added expense. So for the year, 2005 restated earnings will be $0.13 to $0.14 per share lower than the originally reported $0.40 a share. The share-based payment expense falls predominantly into the student services and administrative expense line. And you can see it in more detail in our financial statements footnotes, which are included in our 10-Q filings.

Just like the income statement, the balance sheet and cash flow statements from previous periods are also being restated to include the effects of this new accounting standard, and will therefore be somewhat different from what was originally reported last year. Segment results are also affected by the inclusion of this new share-based payment expense element. The largest piece of the expense in both the current and prior year falls within the DeVry University segment.

In the DeVry University segment revenues increased more than $9.5 million, and operating income increased by about $5 million compared with the second quarter of last year. Gains in new undergraduate enrollments in the 2005 fall class contributed to the quarter’s improved performance. Because of DeVry University's fall term enrollments extend into the third fiscal quarter, historically third-quarter earnings levels have have been similar to or slightly higher than those in the second quarter.

In the training, professional and -- whatever -- in the professional and training segment, sorry about that, Becker Professional Review's second quarter of last year was favorably affected by the rebound from the exam schedule transition in 2004. And although Becker continues to improve in performance in the prior year, revenues came within several hundred thousand dollars of the strong quarterly showing last year. But more significantly, earnings were unchanged into the first half. Earnings remain ed about $1.7 million higher through the first half than they were through the first half of last year.

In our medical and health-care segment, Ross University's performance also continues to improve, with revenues up about $900,000 from the prior year, driven by the strong recruiting results for the September class. Also included in this segment is the Deaconess College of Nursing with revenues of about $1.7 million in the second quarter. Operating income from this segment was also a strong contributor to the overall Company performance. It was up about $2.6 million for the quarter compared to last year.

We continue to demonstrate spending restraint with increases in spending in cost of educational services. That is up just 1.7% versus the first half of last year. Student services and administrative expense increased by just 3.2% in the first half when compared to the same period last year.

And although we have reduced our debt level from last year, our interest expense increased in the second quarter and first half of last year, because interest rates have increased on our floating-rate debt. With regard to the presentation of debt on our balance sheet, we have no mandatory payments until 2009 and 2010, although we continue to make prepayments each quarter as cash flow permits.

Our effective tax rate on pretax income this quarter declined to 24.6% as we adjusted our year-to-date rate to the currently expected total year rate now of about 25.5%. The change in rate outlook reflects a varying mix of US sourced income from DeVry University and Becker operations, subject to federal and various state income tax rates, compared to Ross University offshore income, which is taxed at much lower rates. As we progress through the year there may be some further fluctuation in the tax rate as the relative proportions of actual earnings unfold.

Turning to the balance sheet, a couple points worth noting. We had about $10 million more cash and $30 million less debt than we had last December, demonstrating the further improvements and what was already a strong financial position. Accounts receivable at the end of the second quarter was 85.5 million. While this is an increase from the previous year, our operating managers are focused on further reducing the accounts receivable balance to historical levels.

Cash flow in the second quarter reflects a continued lower pace of capital spending, as most expansions in our online and DeVry University center operations where the capital requirements are low. Also during the quarter we completed the sale of the Denver facility, generating about $1.8 million in cash. In fact between the sale of the Denver building and the lower pace of capital spending, total land, buildings and equipment actually almost $11 million less than it was last December, which coupled with the improved earnings, gives our return on invested capital a strong boost.

That concludes my review of the financial statements, so I will turn the call over to Daniel for an update on our operations.

I would like to begin by providing an update on DeVry's divisional operations, starting with DeVry University. We continued to focus on improving productivity in marketing and recruiting. Under Dave Pauldine's leadership, we brought marketing and recruiting together under one organization. This will enable us to more efficiently and more effectively operate our lead generation and conversion processes.

Further, we have now moved our online recruiting of student services organizations together under one roof in our new Naperville, Illinois facility. Adding these groups together is helping us respond to student inquiries more quickly and more comprehensively. This is important as the sources of student inquiries are changing from media toward online. During the quarter we continued to extend our strong position in technology, business and health-care programs.

Let me update you on four new programs and concentrations that have recently been launched, or will be offered in the near future. First, our bachelor's degree in Game and Simulation Programming will now be offered at 11 sites and online in March. This relatively new program is off to a strong start.

Second, we developed a new technical specialty within the bachelor's of Science and Technical Management Program to be offered online in March. This is in Health Information Management. And it is aimed at holders of associate degrees in Health Information Technology, which DeVry currently offers, who want to obtain a bachelor's degree for career advancement.

Third, we just launched a new finance concentration within our bachelor's and Business Administration Program. This is a natural extension of the accounting offerings DeVry University has long been known for. This brings me to the fourth program update. DeVry University has a strong and differentiated value proposition for accounting students, enabling them to go seamlessly from a DeVry bachelor's to a Keller Graduate School Masters to a Becker CPA review program. Our accounting enrollments are growing across all three of these brands. And recently we've seen an opportunity to extend this value proposition even further to the associate degree level.

So, I'm pleased to say that we are launching a new accounting associate degree program. This program prepares students for a career in such areas as bookkeeping and cost accounting. And as you may know, accounting is the number one major among college freshman right now. So we see the addition of this program as an attractive growth opportunity.

At Becker Professional Review, revenues in the six months of fiscal -- the first six months of fiscal 2006 were up 6.6% year-over-year. At Becker CPA Review we don't offer classroom based programs in December, so the primary revenues source in the latter part of the second quarter has been our CD-ROM product. The CD-ROM self study program appeals to busy professionals who like the idea of taking the course, which is just buying books, but who need a self-paced learning solution.

We continue to experience enjoy strong growth at the Stoller Review for the CFA business. This is due in part to new business to business relationships we have established, including new preferred provider agreements with firms such as Credit Suisse First Boston, Price Waterhouse Coopers, and American Century. In addition Stoller has now partnered with 10 CFA societies across North America, as we recently signed agreements with the Vancouver CFA Society, the Hartford Society of Financial Analysts, and the Detroit CFA Society. Finally for Becker, we continue to strengthen our management team in order to provide the resources needed to continue to grow this business.

During the second quarter, [Stephen Choi] joined Becker as Director of International Operations. With more than half of all CFA candidates residing outside the United States, the largest pool is Asia. Our plan is to focus on Asia as well as Europe. Additionally, we recently hired -- added Program Directors for both the Becker CPA and the Stoller CFA program. And we hired a Marketing Director who will continue to build our Becker and Stoller brand.

At Ross University, we anticipate further improvement in student enrollments. I will announce January enrollment information with the next quarterly earnings release, but I would like to share some of the recent activities that have been underway to boost student enrollment. During the quarter, we recruited a new Vice President of Enrollment Management, Chris Buffalo (ph). Chris is responsible for new student recruiting, as well as the marketing efforts. On the recruiting front, we recently enhanced the quality of quantity of our perspective student information seminars, and implemented an improved on-boarding process for new medical school students. Given the success of these efforts, we will implement similar changes at the vet school. Now in its second semester, our med school scholars program has proven to be a success.

You may recall from last quarter that the program allows certain Ross students to proceed at their own pace in some of the basic science course load. We have seen strong interest in this program, and believe it's an effective and high-quality teaching and learning methodology.

On the marketing side, our overriding objective is to increase awareness of Ross' high-quality programs among perspective med and vet students. And to this end we recently launched a redesigned website with a new URL, www.rossu.edu. That is rossu.edu. We invite you to have a look, and we welcome your feedback.

We have updated the technology, added new search capabilities, and made it easier for perspective students to find an information seminar or to apply to Ross. In addition, we think the new sites better meets the need of current students by providing more of the information they want regarding program and study, academic policies and financial aid, thereby enhancing our customer service.

So with that, I would like to conclude my comments by saying we believe the steps we are taking each quarter to improve marketing and recruiting efforts and to improve operational effectiveness are driving results. So with that, I will turn the call back to Joan.

Thanks Daniel. We have a few minutes to take questions. So if, operator, you would give the instructions, we will begin.

(OPERATOR INSTRUCTIONS) Mark Marostica with Piper Jaffray.

My question relates to capacity utilization across your undergraduate campuses. Where are you at right now with the campus footprint?

What we think in terms of practical capacity is we are something around 50 or 55% of practical capacity.

And as you look out the next couple of years in terms of thinking about your enrollment targets for the larger campuses, where do you think you can go as far as capacity utilization? How much do you believe you can free up as well?

Well, in the best years we were over 100% of capacity. So we are not targeting that. But we should be operating at 85% capacity, give or take. And what I tried to imply in some of my remarks earlier is that we are making some adjustments today to the delivery methods that we are relying on. And I think you will see that continue to occur during the time period that you are asking about.

So to get to that 85% level, do you have in mind how much capacity or square footage you need to free up in this system over the next couple of years?

No, because this is not a single factor equation. You have got to make sure that you recruit the enrollment levels that you want, not just adjust your real estate assets. But I think with the kinds of trends that we see on the horizon, and with some adjustments to somewhat new strategy, we should have much better utilization of the real estate assets that we have. In the meantime, oh, by the way, we will generate some cash that will be good to put on the balance sheet or use for whatever.

Greg Cappelli with Credit Suisse.

Just too quick ones. Ron, you mentioned placement rates and technology and electronics are moving in the right direction. Any quantification on that? How much higher those are than maybe a year ago? And then historically how long does it take -- when you have seen jumps in job placement rate or better results from recruiters to actually flow through to new enrollment?

We release the actual data at three times a year. So I won't to try to give you specific data. But we're seeing a lot more interest. Just anecdotally we have programs where employers are coming in and asking for, in effect, all of the graduates we can produce. That is sort of a new environment from the last couple of years. But our -- what was the second part of your question?

Just maybe how long it has taken to flow through to new enrollments?

It depends really but I would say 18 months. In effect what you have to do is -- people have to begin to understand that. And then basically it takes you through an academic year to have the knowledge or the belief, whatever you want to call it, translate itself from parents from high school counselors into the student's thinking. And people can say it's faster than that, and for adult populations it is. But for the kind of full-time day, recent high school graduate students that we are targeting in this, I think 18 months is a good length of time to be talking about.

Just you had mentioned one of the strategies for the big box is as you wait for that full-time student that has come back. I think one of them --.

No, we are not waiting anymore.

That's good to hear. But it looks like you're going to be selling certain schools and opening up smaller ones. Was there more to the strategy than that? That was the one I think you mentioned -- but are there more things to go along with that?

Yes, I think that it's not just a function of the large campuses, although some of the large campuses are in places that are pretty attractive to developers today. But we did combine our online operations in Naperville. We are moving some of our folks out of what is class A, high price office space into office space that is more functional and more cost-efficient.

And really in no case are we planning to exit markets. What we are doing is were taking a very successful strategy -- delivery strategy which we have implemented, namely the DeVry University Centers, and a really strongly growing DeVry Online and using those to serve markets that we are in, rather than the large campus model, which was pretty great up through 2001. But as I said, we can't just sit around and wait. We are not going to sit around and wait. And we are going to be a lot more competitive with people for new technology students.

[Matt Roe] with Banc of America Securities.

Hey guys, it's actually Howard in for Matt today.

Howard, and it's from the line of Howard, what does that mean? Are you -- there is a long line of Howard's.

I'm looking for [Beacon foxes] outside my office right now. The question is with regards to sort of the earning rate that we call it for students, it's a bit challenging to model it quarter to quarter, because there's a lot of moving parts. And I was wondering if (multiple speakers)

You know, I found the same thing.

Is there some way you can give us a sense for maybe when things will more normalize? And when they normalize, would be at about your 5% growth?

Well, in a way. I'm not trying to avoid the question, but I don't see it "normalizing" anytime in the near future. Because we are pounding along pretty heavily on a whole host of delivery channels, product, marketing and advertising. I really don't think we would be satisfied as we go along, and we're trying to build a base rather than just shoot something up in the air and hope it is fixed, we are building a base and a foundation that we think we can sustain. And I would be disappointed frankly if 5% was a good number. Now in the short term, we are going to build -- 5% may be okay for that period of time. But I would not use that for any longer-term modeling that you are doing.

Norm, in terms of the stock-based comp the way we try to split it between the two expensive lines, is it still sort of that two-thirds SS&A, one-third --?

Yes, two-thirds, that's roughly still the split, right? Two-thirds in the selling, the SG&A, and about one-third in cost of instruction. That would be true both for this year and last.

Just a last question, again, back to the real estate. If you are starting from scratch, Ron, which I know you can't do. But if you could take a Mulligan would you have only leaner centers like DVUC?

No, and in fact the strategy we envision does not incorporate having only an online and only a DVUC delivery channel. We will have large campuses, but honestly we will likely have many fewer and with something of a different orientation in terms of the market catchment area and the student services provided. We will try to articulate that strategy in more detail as we go forward, and after we are far enough along that we don't take too many arrows from some of our friendly competitors.

We should hurry on with these questions, because we are going to cut this off in a couple of minutes. Everybody is very excited to hear someone else's question, but we are going to try do this in about five minutes.

Bob Craig with Stifel Nicolaus.

Ron, you are obviously a while into your five point growth plan, and obviously that is meeting with success. We are in your estimation have you been most successful, and where do you really still need to work?

I'm going to ask Daniel to respond to that, Bob.

Bob, I think we have seen that our efforts in marketing and recruiting, productivity are starting to pay off. And a lot of that is people, new leadership that we talked about over the last few quarters in the marketing and in thea recruiting areas. And then most recently with Dave Pauldine putting a capstone on that, integrating those two areas, as I alluded to earlier in this call. I also think that our focus on operational effectiveness, both efficiency in terms of cost reduction and so forth, and effectiveness in terms of better service to students, customer service are starting to pay off. And there is a lot more opportunity there particularly on our ability to provide better student services, customer service. Those would be the couple of areas that I would highlight for you.

Any place were you're really lagging in your expectation, Dan?

I mean you always want to go faster. Nothing is ever fast enough or good enough. But overall I think we're feeling that if we just keep our shoulder to the wheel and keep pushing it is going to pay off.

One last quick one. Any feel on the January 2nd [D start]?

Sure, we have a good feel.

But you won't convey it?

We will convey it at the appropriate time. I should just say I think the process improvements that Daniel and his team are leading are really proving to be effective. But we are making choices along the way that are traditional DeVry choices, namely we're trying to make sure we have quality programs. We're not doing things that are short term -- necessarily short term in nature. And the examples are the changes we made in admission and academic progress in our medical school. We could have turned a blind eye to that for awhile, but we are trying to make the choices that are appropriate for a quality institution. I think you will see the benefits of that over time. You are already beginning to see some of the benefits of that in Ross enrollment.

Jeff Marsh with Matador Capital.

Ron or Daniel, just talk about the new associate program in accounting. Just looking at the program offering by degree level, the Company has been pretty absent in the associate based market. I was wondering if this is a change in strategy? And as a follow-up to that maybe you can help us understand the importance of -- or maybe the size of this ultimate market, and how quickly the program is going to be rolled out, and where it will be rolled out to? And then I have one follow-up to that.

We have said -- this is back about a year ago -- that perhaps we didn't have as much exposure to the associate degree market as we should have. And we reaffirmed that, yes, we are committed to serving that need for associate degrees. It's an important market. It's important degree. It adds value, and we are committed to that. In fact, this is our fourth associate degree, just to let you know. We have the ECT electronic computer technology, the NSA, network security administrator. HIT, health information technology was rolled out in the last year. And now this accounting associate. That is four with two new ones just in the last year are so.

And accounting is -- currently it is starting of online and in one location in South Florida. Kudos to our team in South Florida for taking the ownership and initiative on that one. And we just think it's a great addition to the strong value proposition that DeVry, Keller and Becker have together. We've team working on continuing to strengthen that value proposition with the large demand for accounting that's out there today.

Can this program conceivably be installed in all locations including the campuses?

Sure, absolutely. Like I say it's being rolled out in one of the campuses as the pilot, the pioneer, as well as the online campus. I don't see any reason why it couldn't be rolled out everywhere. As there is demand, we will roll it out.

How quickly can that happen, or will it happen?

It happens as quickly as we see the demand. There is no constraint on us. We have the money. We have the resources. We have the talent. So as we see demand we will roll it out.

The other question is on Deaconess. The new position that has been created there, does that increase the likelihood that things will move faster in terms of getting Deaconess' programs installed or co-located at the campuses?

Sure, It is more resources and leadership to drive that. We have been working very diligently on doing the appropriate things, including accreditation and regulatory approval. And as those are granted we -- and at the appropriate time we will be providing more updates for you.

Ron, just one question on the sale of the West Hills, or pending sale of the West Hill's campus. Maybe you can help us sort of understand when that campus is sold and the new centers are opened up in that market is the target to actually expand the enrollment base that's currently in that market today?

Yes, the enrollment base today is much smaller than it should be. And certainly it is too small for the single facility we have in that marketplace. There is nothing that says we're going to replace a large campus with one DeVry University Center. It could be two, three, four or five. In some ways, what we are doing is segmenting the market geographically. Instead of trying to bring people from a wide catchment area to a single campus, we will bring students to a more convenient location, or locations, in that same marketplace. But do it at a much lower investment, certainly utilizing technology and having people closer to the marketplace. So I think it is a winning strategy, especially in a market like West Hills where there's huge developer interest in a nice piece of property like the one we own.

Has the Company identified at all what the gain or profit is on the sale of that campus? I am sort of curious why that campus in particular, how the sale actually came about?

We haven't sold anything yet. If you tell me what the sale price is, I can tell you what the gain is. I won't right now, but I could. We know it is on the books. And if it sold for $10, well that wouldn't be good.

There would be a gain. Okay, thank you very much. Good luck.

Gary Bisbee with Lehman Brothers.

I guess I have a question for Norm. You said last quarter that you expect 40 million in CapEx for the year. But I think you have done 9 or 10 year to date. Are you expecting a big pick up in that in the back half?

No, I'm not expecting a big pick up in the last half. I think my estimate previously, and you are correct, have been about $40 million is probably high. I'm not sure -- I'm not sure are I'm willing to extend fourth a forecast at this point, but it seems fairly certain that it will be considerably under the $40 million level.

Given that free cash flow then is going to look a lot better this year, are there any prepay penalties that will make it not -- that you wouldn't want to start paying down this debt a fair amount faster?

No, we have no prepayment penalties on either of our indebtednesses. I am not sure that is good English, but no, we can prepay at will.

Just one cleanup one. In the press release the cash-flow statement said that it was a quarterly data, but I wanted (multiple speakers).

That is six months, we apologize.

Last question. We have one more. We shot for 40 minutes. We are at 50 minutes, so maybe it is like everything else, you make progress in steps. But we're going to try to do these in 40 minutes in the future. One more question and then we will kiss you good bye.

Sarah Gubbins with Merrill Lynch.

Two quick questions. Just first can you talk about recent student retention rates? And then second, I must have gotten confused by this, but Norm I think you were saying that revenue in the medical division was up 5.5 million year-over-year. And I thought that was for the second quarter?

That includes the effect of Deaconess.

But then I thought you mentioned that Deaconess revenue was 1.7.

1.7 million.

And Ross revenue was therefore up by the difference, between the 5.5 and 1.7?

Let me take a look. Why don't -- someone will answer your first question and let me take a look.

We don't release the retention numbers.

Actually I was just looking for general trends. I wasn't expecting any numbers.

The only thing I will say is that as we have gone to a greater focus with our DeVry University Centers on adult learners and as we have moved to more alternatives for them to start and stop their program, we have students that will continue to take classes, for example, at Keller Graduate School where there is six terms per year now. We have students that make may sit out a term, come back a term. So there's a little bit more in and out. So the retention numbers are a little bit different than the time when we were reporting retention. That was sort of for a semester and that included a larger proportion of full-time undergraduate students.

But there has been no -- I would not come to you and say, oh wow, that is a huge gain in retention, nor would I say that there's a huge decline in retention. I think the real answer to the enrollment side of the coin has more to do with the new programs that we have implemented. And frankly to something that I know you all understand, but sometimes people don't pay much attention to, and that is we recruit students in our undergraduate programs, our larger programs, that are nine semesters in length spanning three years. So when you have a decline in a semester year-over-year that decline is going to persist over the entire three years. Well, we began a decline in 2001, and that decline has persisted over the last three to four years.

When you begin to get year-over-year gains, you also -- those also persist over three or four years or more. And so we have been through a cycle here of year-over-year declines in new enrollments. And now in the last three semesters we have had year-over-year gains. I think that is a much greater factor in the results that we have put out and the results we would expect than any variations in retention.

Sarah, back to your question. Yes, the $5.5 million -- actually it is a little more than that -- includes the 1.7 million that is Deaconess.

Okay, so when I -- I thought that I heard you say that Ross revenues were up 900,000 year-over-year. But that must not have been correct.

If I said that, that was a mistake. The revenues for the segment are up a little over 5.5 million, of which 1 million 7 is Deaconess, which was not included in our results a year ago.

All right, well I want to thank everyone for your time today, which is much more efficiently used. You have five extra minutes. Our next call is scheduled for April 25th, when we will announce fiscal 2006 third-quarter results and enrollment at both DeVry University and Ross University. So we thank you for your time and for participating on the call. Have a great evening everyone.

Thank you for your participation in today's conference. This concludes the presentation. You may all disconnect. Good day.