Adtalem Global Education Inc (ATGE) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the DeVry, Inc. fiscal 2007 second-quarter earnings conference call. My name is Michelle and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to your host for today's conference, Ms. Joan Bates, Director of Investor Relations. Please proceed, ma'am.

Thank you, Michelle. With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer, and Rick Gunst, Senior Vice President and Chief Financial Officer.

Before we begin, please be advised that statements made on this conference call may constitute forward-looking statements subject to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by phrases such as DeVry Inc. or its management believes, expects, anticipates, foresees, forecasts, estimates, or other words or phrases of similar importance. Actual results may differ materially from those projected or implied. Potential risks, uncertainties and other factors that could cause results to differ are described more fully in Item 1A, Risk Factors, in the Company's most recent annual report on Form 10-K for the year ending June 3h, 2006 and filed with the Securities and Exchange Commission on September 13, 2006.

As a reminder, our press release and preliminary financial statements are available in the Investor Relations section of our Web site located at www.DeVryInc.com. Telephone and webcast replays of the call are available until February 8. The domestic replay number for our call is 888-286-8010 with the passcode 63995954. The replay is also available via webcast through the IR portion of the Web site.

I will now turn the call over to Daniel Hamburger.

Thanks, Joan, and thank you all very much for participating in DeVry's second-quarter fiscal '07 call.

I will provide a brief introduction. Rick will discuss our financial results. Then I will come back and provide an update on operations before opening it up to your questions.

Let me start out by saying that we are very pleased with the revenues and overall strong profitability we achieved in the second quarter and in the first six months of this fiscal year. Overall, we had a good quarter in terms of driving operating results, strengthening our financial position, and further developing our financial strategy to drive shareholder value.

We continued our focus on improving operating margins in the near-term while also focusing on long-term growth of our enrollments and profitability by making investments in recruiting and information systems. We made good progress in our five-year strategic plan, which we discussed during our annual meeting. If you'd like a refresher on the plan, the presentation materials from that meeting are available on our Web site.

In summary, the plan includes, first, optimizing our core business, that is achieving full potential at DeVry University; secondly, pursuing aggressive growth in online education; third, continuing our diversification in both vertical curriculum areas and horizontal levels of education; and fourth, expanding internationally. These four growth drivers are supported by an underlying fifth strategy that involves building the financial, technology and human resource infrastructure necessary to support our growth initiatives.

With that introduction, I will turn the call over to Rick for the financial results and for progress on our financial strategy.

Thanks, Daniel, and good afternoon to everyone.

I will take the next several minutes to walk you through our second\-quarter and first-half financial results. I'm happy to report that DeVry recorded another strong quarter. Revenue of $237.5 million grew 13.2% in the second quarter and was up 12.7% through the first half of the fiscal year. All three business segments achieved enrollment gains and contributed to the growth.

Profits were also up significantly with second-quarter net income of 16.4 million, up $5.6 million over last year, or increasing by [61]%. Earnings per share was $0.23 in the quarter, compared to $0.15 recorded last year. Net income of $37.3 million for the first half of fiscal 2007 increased by $21.8 million over last year.

Now, remember our first-quarter results included the gain from the sale of our West Hills facility in California. This gain was 19.9 million pretax and 11.8 million after-tax. First-half net income was still up $10 million or 64%, excluding the impact of this gain.

For your reference, please also note that the second-quarter results include expense-related and share-based payments of approximately $2.1 million pretax, or 1.6 million net of tax. This is higher than last year's option-related expense of 1.1 million pretax or about 900,000 net of tax, primarily due to the timing of our annual option grant this year compared to last year.

Our effective tax rate from ongoing operations declined to 25.5% in the second quarter. This change reflects the varying mix of income from our DeVry University and professional and training segments, which are subject to full federal and state income taxes, compared to our medical and healthcare segment income, which is taxed at lower overall effective rates. Also, remember that this ongoing effective tax rate excludes the impact of the sale of the West Hills facility recorded in the first quarter.

On the cost side, cost of Educational Services increased in the second quarter by 8.2% as we continue to focus on driving operating leverage with our facilities and staff. As a result (technical difficulty), which is revenue minus the cost of educational services, increased from 46.9% last year to 49.2% in the current quarter. Student services and administrative expense increased by 13.8% in the second quarter and 13.5% through the first half.

As we mentioned during our call last quarter, this increase represents investments being made to support future growth and profitability in recruiting, marketing and systems enhancements. The increase in spending, which began to ramp up in the middle of fiscal 2006, is focused on increasing enrollments and improving our systems and service levels to fuel growth in fiscal 2007 and beyond.

Let me now walk you through some preliminary highlights for each of our business segments, starting first with DeVry University. Second-quarter revenue increased by $15 million, up about 9%. DeVry University's first-half revenue was up 8%. This growth is attributed to improving undergraduate and graduate-level enrollments.

Second-quarter operating income of $7.8 million was up $1.1 million or 16%. The benefit of the revenue increase and gross margin leverage is being partially offset by the investment spending in recruiting, marketing and systems. Operating profit for the first half was 26.9 million, or up 20.2 million versus last year. Again, however, this includes the 19.9 million gain from the West Hills sale. First-half profits are up about 5%, excluding this gain.

Our medical and healthcare segment also continued to post impressive results with demand for medical, veterinary and nursing programs driving revenue growth. Revenue of $36 million was $7.7 million higher than last year in the quarter, or up about 27%, with first-half revenue up 29% versus last year. Operating income in this segment continued to be a strong contributed to the Company's overall performance with segment income of $14.6 million, up approximately 3.9 million in the quarter, or up 36%. First-half operating income of $25.8 million was 41% higher than last year.

Within our Professional and Training segment, the second quarter is typically not that strong, but Becker Professional Review recorded exceptional results on the strength of its CPA and CFA review courses and growing CD-ROM sales. Demand for accounting talent is so very strong with in public accounting and industry, helping fuel the demand for Becker services. Second-quarter revenue of $14.9 million was up $4.9 million versus last year, or up about (technical difficulty), bringing first-half revenue growth to 40%. This strong topline growth helped fuel profits with operating income of $3.5 million in the quarter, up $1.1 million or 48%. First-half operating income of $10.4 million was 51% above last year.

Now, let me shift from our business results to talk some about for the key components of our financial strategy. Specifically, I'd like to spend a few minutes to take you through the recent developments in our [debt] strategy, capital structure and asset management. Debt was once again reduced during the quarter to $50 million, down from $85 million last quarter and $160 million at the same time last year. As you can see in the chart included in our press release today, debt has been consistently reduced over the past several years, since the $290 million level in 2003, when the Ross University business was acquired. The remaining $75 million of senior notes were prepaid during the quarter utilizing available cash and an increase in our revolving credit facility.

Interest expense was approximately $800,000 lower than last year. The favorable impact of the lower debt level was partially offset by higher floating interest rates and a write-off of unamortized deferred financing costs related to the prepayment of our senior notes of approximately $500,000.

To further enhance our borrowing capability going forward, in January, we amended and restructured our revolving credit agreements. This move was possible given the Company's much-improved financial position, combined with an attractive and receptive debt market. The restructuring resulted in reducing the spread on applicable interest and fee rates, extending the remaining term from two to five years, revising and loosening certain financial covenants, and also providing increased flexibility for acquisitions, dividends, and/or share repurchase activity.

Now, speaking of dividends and share repurchase activity, as you know, last November, our Board of Directors approved DeVry's first-ever dividend payment along with a share repurchase program to buy back up to $35 million of our stock over the next two years. We paid our first dividend of $0.05 per share on January 12. This equated to a total payment of a little over $3.5 million. Our intent is to declare dividends on a semi-annual basis going forward. We have not repurchased any shares yet since the trading window for stock transactions has been closed since we announced the program. The initiation of the dividend and stock repurchase program both reflect the Company's strong cash flow, long-term growth prospects, and focus on enhancing shareholder value.

Our available cash balance was $171 million at the end of the second quarter, more than offsetting our outstanding debt. Our strong cash position is driven by our improved operating results and the proceeds from the West Hills sales. Also, net Accounts Receivable were $25 million lower than last year despite the 13% increase in revenue, as our heightened focus on receivable collections is really starting to pay dividends, no pun intended.

Year-to-date capital spending was $16 million versus $11 million spent during first-half last year. The pace of capital spending should pick up during the balance of the year with total capital spending for the year expected to be in the $40 million range.

Now, that concludes my review of the quarter and the first half of the fiscal year. We feel good about the progress we made in our businesses as well as the return being provided to our shareholders. Now, let me turn the call back over to Daniel for more detail on our operations and the progress on executing our strategic plan.

Thanks, Rick. I will begin the operations review with DeVry University, where our growth strategy comprises four priorities. The first is market-driven local strategies in promotion, price and programs. This quarter, we announced the opening of a second location in Tampa, Florida and a new location in Memphis, Tennessee, giving us a total of 84 sites. Our goal is to respond to the specific needs of each market by delivering the right mix of programs at each location. So while the Tampa facility will focus on Bachelor's and Associate degree programs, the Memphis location will offer Bachelor's and Masters degree programs.

In terms of new programs, during the quarter, we added a concentration in technical communication to our Bachelor's degree programs in Business administration. This new concentration was developed to meet the increasing demand for individuals with formal training to write scientific and technical materials.

DeVry University's second growth strategy is to recapture our core high school market while maintaining our strong position with adult learners. In the first half of this year, we've improved our activities aimed at outreach to high school students. We've added more high school presenters and advisors, and we developed a new high school presentation. Because we are recruiting high school juniors and seniors today for enrollment in the next school year and beyond, we may not see the impact of these efforts until late 2007 and into '08.

The third DeVry University growth priority is to focus of execution, including the recruiting process, customer service and retention, and graduate employment results. During the quarter, we made investments to better integrate our marketing and recruiting efforts with the long-term goal of higher conversions.

The fourth priority at DeVry University is optimizing our real estate configuration to ensure that we have the right mix of large campuses, small campuses, and DeVry University centers.

As an update, we plan to complete the move of our West Hills, California facility to the new Sherman Oaks location in March. Part of this priority also includes colocation of operations to better utilize our large campus facilities. Recently, we completed the colocation of our central academics function and a portion of our recruiting team to available space at our Phoenix, Chicago, and Addison, Illinois campuses. As a result of executing across these four priorities, our results are improving. As we announced last month, new undergraduate enrollments in the fall increased nearly 12% with total students increasing almost 5%. Since we don't have a conference call when we release fall enrollment, we've provided a chart in today's press release to give you some perspective. As you can see, there's a lag between investments made in marketing and recruiting today and when we see the results from those efforts. It takes several periods of positive new student enrollment growth to lead to positive trends in total student growth. The fall represented the sixth positive new enrollment performance and the third positive total enrollment result.

Finally, DeVry University, one of the things that motivates us here at DeVry is the, as our cofounders Dennis Keller and Ron Taylor like to say, we are doing well by doing good. Well, one of the good things we do, better than most universities in fact, is that we provide access to education and to career success for minorities. We are pleased to report that the magazine Diverse Issues in Higher Education has release its ranking of colleges and universities that are top degree producers of minority graduates with DeVry University campuses holding three of the top ten spots. While you won't see DeVry in the top ten football charts, this is a top ten list we would much rather be on. We've provided these rankings in Chart 3 of our press release today, and we congratulate employees across the DeVry University system for their dedication to our students' success.

I will turn now to Ross University. Our marketing and branding strategy is focused on increasing awareness of Ross as a high-quality provider of medical and veterinary education. To further bolster these efforts, this month, we welcomed a new vice president of marketing and recruiting for Ross, Peter Goetz. Peter will oversee enrollment management, marketing and alumni relations. The demand for seats in med and vet schools continues to be strong, and our efforts to increase Ross' brand recognition have been quite effective. As a result, applications at the medical school are up significantly. Part of our strategy is to highlight the advantage that we have relative to most other med and vet schools, which is our three intakes per year. We are launching new programs to encourage students who are on wait lists for September and January to consider the May class, which is typically smaller. This should help to smooth out student intake periods and to improve capacity utilization.

Because of sustained demand, we will also continue to expand our capacity, adding additional classrooms, student facilities and faculty in advance of student population growth. Again, this is an example of making investments in the near-term that will provide a return in the longer-term. We are pleased that the highly regarded Tufts University has agreed to become a vet school clinical affiliate. We now have such relationships with 24 of the 28 AVMA accredited universities in the United States.

To strengthen our growing alumni network, last quarter, we held our first ever vet school alumni meeting at our St. Kitts campus, and we joined forces with North Carolina State University and the North Carolina Veterinary Association to provide continuing education for our vet school alumni.

At Chamberlain College of Nursing, we recently received approval to establish a new Columbus--a new campus in Columbus, Ohio, and we plan to begin classes in six weeks. We've colocated this new Chamberlain location with our DeVry University campus as part of the real estate optimization strategy I described earlier. We recently appointed a campus dean for the new location as well. Further, to Chamberlain's geographic strategy, we've now applied for expansion in Illinois. Pending approval, we will colocate Chamberlain with our DeVry University campus in Addison, Illinois.

At Becker Professional Review, we are extremely pleased with the strong results in the second quarter. Becker's strong performance reflects continued robust demand for accounting and finance professionals and the results of our efforts to strengthen relationships with accounting firms. We extended the term of our direct bill relationship with big four accounting firms and renewed existing agreements with two other firms. This direct bill relationship makes us more competitive, because students don't have to pay out of pocket.

We continue to experience strong growth at the Stalla Review for the CFA as well. This quarter, we signed an agreement with the CFA Society of Minnesota, and in line with our strategy to expand internationally, working with a firm based in France, we ran our first ever live CFA review course in Paris. Most recently, we finalized a contract with the CFA Society of Poland. To date, Stella has signed deals with some of the top CFA societies in the world, including Chicago, Hong Kong and Singapore. Finally, on the international front, we are working on a new version of our CPA course, which includes supplemental study materials in Chinese. That wraps it up for the operating review.

In summary, we've made good progress on our five-year strategic plan, which is demonstrated by this quarter's improved operating results and strengthened financial position.

With that, I would like to ask Joan to open the call for questions.

Thanks, Daniel. All right, it looks like we have about a half an hour to take questions if you would just limit yourself to one question and a related follow-on and then jump back into the queue if you have any further questions after that. So, if the operator could give the instructions, we will begin.

Thank you. (OPERATOR INSTRUCTIONS). Matt Litfin, William Blair & Company.

Good afternoon, Daniel, Rick and Joan. Congratulations on a good quarter. My question has to do with the online area. I wonder if you could address what trends you were seeing in the area in recent months.

Thanks, Matt. We reported last month that our growth in online course takers was around 33%, year-over-year. We feel pretty good about that because the market is growing probably in the 20% range or so. One source of that would be Eduventures' data. So we think we're growing faster than the market and we think the reason for that is a couple of reasons. One is our high-quality online learning platform. We think we have the best technology in the business for online learning. The other is the high-quality faculty. I think our process for faculty recruiting, development and ongoing quality assurance is--we feel that's very, very strong. So when you put those two together, we think we have a very strong value proposition for students. So we are continuing to invest in online education; it's one of our four main growth strategies.

Thanks. My related follow-up is I wonder what you're seeing on the hiring front for your graduates, specifically in the IT area versus your other curriculum areas.

Well, we are seeing improving results in the employment market generally at both online related to your first question, as well as at our on-ground campuses and centers. We're very proud of what we call the DeVry 90/40, which is that 90%--or over 90% of our students are employed in their field of study within six months of graduation at an average starting salary of over $40,000 per year. In fact, it's actually 91/41, but 90/40 is easier to say. But it's actually a little bit better than that. That is definitely boding well for the future.

Thanks, great job.

Thanks, Matt, and thanks for jump back in the queue if you have other questions; I appreciate that.

Greg Cappelli, Credit Suisse.

My question is, well, do you have any--can you provide any color just on how applications for technology-based students are looking this quarter, or trimester I guess I should say?

Overall, I would say that we are moving along. We continue to invest in high school recruiting to recapture the high school market, as we stated in our strategy, investing in people, the presenters and the advisors as well as a new presentation and many other things. Things are moving along pretty well. Last spring, we grew 16.4%. That, to some extent, sets up a little bit of maybe a tougher comp.

Right, okay. I'm just assuming that on your way to that program is where you want it to be right now and on target.

Yes. Generally speaking, that's starting to move and we are pretty much on track with where we want to be. But there is definitely more room for improvement.

Okay. Just one quick follow-up for my question--you know, I'm wondering if you have any additional thoughts on if you guys have thought about perhaps closing or moving any more of the big boxes in '07 or '08 as part of the plan, as you continue to open up the DVUCs. If you have any color there.

Yes, sure. What we're doing is taking a look at each market and then more specifically each location within each market to make sure that we have a large campus with the full range of student services that are appropriate for high school students in those geographic areas where we're really trying to target the high school student, and then DeVry University Centers that are targeted to those areas where we are really trying to serve the working adult.

We have some centers that are focused just on graduate programs from the Keller Graduate School of Management, where that is the need in that particular geographic market. So that's how we're going about it. That analysis is proceeding. We are actually adding resources to that endeavor. We will communicate more just as soon as we have a little bit more to announce on that.

Okay, great. Thanks a lot, guys.

Sarah Gubins, Merrill Lynch.

Good afternoon. The first question that I had related to--was related to cost expectations going forward, particularly within cost of Educational Services. It looks like that dollar amount was fairly steady in the first and second quarters. I'm wondering if that is a reasonable guideline for the second half of the year or if that tends to bump up more in the second half.

Well, Sarah, this is Rick. That will tend to bump up as we expand with more locations and as we need more faculty to support growing enrollment, but you know we should continue to get some leverage out of that cost going forward.

Okay. Your comments from last quarter about the seasonality of earnings reverting back to pre-2005 levels, does that still stand as you think about the rest of the year?

Yes, I think the comment was more about the flow of the costs and the earnings that followed, but I think that we (indiscernible) the same position we had back three months ago.

Okay, great. I will jump back in the queue.

Kirsten Edwards, ThinkEquity Company.

My questions are actually about the tax rate going forward. I understand that Ross was performing stronger and that's impacting the tax rate favorably. Should we expect this rate going forward? In particular, you had mentioned, in the fourth quarter, that you might have a stronger Ross May intake. Would that cause an incremental improvement in the fourth quarter?

The tax rate that we've booked quarter-to-quarter is based upon an estimate of the full year with any other type of discrete items taken into account. So whatever expectations are for each of the businesses is melded into our tax rate assumption.

Okay, is this quarter's level a good level to forecast going forward?

This quarter reflects adjusting our tax rate on a year-to-date basis to get it to an appropriate level, and then we continue to monitor it based upon the performance going forward. So it should be pretty representative.

Okay, great. Thank you.

Gary Bisbee, Lehman Brothers.

Good afternoon. I guess the question is following up a little bit on Sarah's question. Can you help us understand what the drivers of the gross margin expansion you've been getting are? Clearly in '06, we know that you had real big gains from the cost cuts or the people saving staff cuts that you made. You continue to put up really good numbers. I know you probably don't want to quantify the different things, but what's coming from just filling up some capacity in places that were underutilized, versus mix shift to maybe online or the university centers, or can you give us some ballpark sense as to what the big drivers of that are?

Yes. Rick, do you want to comment on that?

Yes, I think everything you mentioned is pretty appropriate. We did some things in the past that are paying dividends today, and we continue to look at making sure that the cost structure, whether it be labor facilities or associated costs in our operations, are being managed tightly so that we are matching our faculty with expectations and programming. I think the mix shift of what's going on in terms of what our enrollment is in campus and the growth in online also have some favorable impact in our future outlook.

You know, do you think it's reasonable to project the type of expansion you had the last two quarters, which was about the same in each quarter, forward, or are there some things that might not allow you to get quite that much as we think about the next three or four quarters?

No, it's Daniel here. I would be a little careful there. We are just continuing to improve profitability as we go to sort of the natural leverage and the operating leverage that's endemic to the business. But remember as well, for perspective, which I know you know, that we've been coming out of a period of somewhat depressed margins, so you know, I wouldn't project anything in a straight line.

I guess the only thing I would say to that is they peaked at double where they are now so you could make the assumption it could go a lot more (multiple speakers).

Well, certainly our goal is to improve and to get back to our historical performance, as we've said before, but whether the pattern of that is a straight line or sort of a non-straight line I think is my response to the question of what should we expect in terms of straight line.

Okay, that's helpful. Thanks.

Bob Craig, Stifel Nicolaus.

Good afternoon, everybody. A question on capacity utilization in lieu of the fall intake--I think the last read was somewhere around 55% or so of practical capacity in the undergrad campuses. Has that needle moved much?

Yes, Bob, thanks. It's hard to quantify that and so I'm not going to try to do that. I would say that it has not moved much\. There's still plenty of capacity at the large campuses and even at some of the centers, some of the larger ones. Capacity is flexible there anyways, so we can continue to expand it.

So no, we're not satisfied. We are continuing to push forward and our strategy is to improve that capacity utilization both--most importantly by the top line of that equation, the numerator of that equation, namely enrolling more students and retaining (technical difficulty) serving them and graduating them, but also through the denominator, which means in some cases restructuring some of our facilities or moving to a smaller facility, like we did in West Hills, California. We just moved a few miles down the road to a smaller facility but it's very much adequate to the needs of that particular marketplace--as well as through colocation, whether it's internal operations like our academics group that I mentioned or some of our recruiting teams moving into owned facilities. Why pay rent if we can move them into an owned facility? Or whether it's location of other school operations like we're going to be doing--like we are doing with Chamberlain moving in with DeVry Columbus. So it's a multipronged approach to improving that capacity utilization.

That's helpful. As a follow-up, could you talk a little bit about the focus of the current program development efforts from a curriculum point of view, and/or provide some quantification of the development pipeline, either in absolute terms or relative to what it's been in the past?

Yes, I would say, at the top level, think of it--that's what we call our vertical diversification strategy. So at the topmost level, think of it in terms of the major verticals--technology, where we started 75 years ago. We've diversified to business programs more recently and to health programs and going forward, we see two main thrusts to continue that diversification. One would be a little bit more tactical kind of line extension, so programs that are at the intersection of those circles of business technology/ health. The biomedical programs at DeVry University are one good example of that, combining expertise in a couple of verticals and creating new programs.

Then the other way to expand would be whole new circles added to that chart, whole new verticals. Some of the areas we've got our eye on, as we mentioned before, are the applied arts and education, so teaching degrees. So that's kind of at the broadest level how we think about the program strategy.

Okay. Again a quantification of the pipeline relative to the past or in absolute terms, X number of programs in that pipeline?

Yes, quantifying it I don't think would give you the color maybe that you are looking for because it's not so much the sheer number of programs; it's really the quality and the opportunity within each program. For example, in the last couple of years, we launched a gaming simulation program. So it's one program, but it's doing quite well. So that might have the power of two or three programs that didn't have this much demand. So I'm not sure that quantifying just the sheer number of programs would quite (technical difficulty).

Okay, Dan. Thanks.

Howard Block, Banc of America Securities.

Good afternoon, everybody. The first question is, just with regards to sort of relative growth, how was the intake for the January 8 period, let's say relative to the growth rates we've been seeing in the prior enrollment periods?

Well, we will be reporting that as part of our spring enrollment that we will be doing in April. So, stay tuned, please.

I wasn't trying to get numbers in absolute terms, Dan, just getting a sense (indiscernible) the trends and sort of the year-over-year growth--because we don't know how many students you took in last January so the number wouldn't mean much. Just trying to get a sense for the growth rate.

Yes, overall, things are going well. One thing that I can comment on, because I really can't comment on any further than this--is just say that January is what we call a B session. We have done a better job in the last few years, better and better job of enrolling students in our B sessions. It used to be traditional A starts of November, March and July. Now we've got September, January and May--and I think a better and better job of utilizing those--that increased number of intakes.

Okay, that's helpful. Thank you. Then with regards to the spending you've discussed in terms of for the On Your Way campaign and where all the initiatives around academic advising and student finance, student services--could you give us a sense as to when those initiatives will begin to hit the P&L? Will they just sort of bleed in gradually over the next 12 months? Is there sort of a light switch that's going to go off in the third quarter?

No, I wouldn't expect a light switch effect. In fact, we talked about investments and we've used that term broadly to mean investments that we're making, some of which are P&L investments and are hitting the P&L immediately. Others are investments in the classic sense of the word into the capital expenditure that is going to be depreciated. So for that reason and others, I wouldn't expect a light switch, and it's sort of a combination of both factors.

Well, did it begin to hit the P&L already? Is it sort of just going to gradually increase? You know, when will the manifestation I guess of all those initiatives be at its peak?

Oh, yes, well, we've--it's already been happening. Actually, that's why we've been commenting here, as we mentioned in our earlier remarks here on this call, that we've been making investments; we are making investments. Some of those showed up here in this quarter in terms of investments in marketing, recruiting, systems, technology systems and so forth. Again, some are CapEx and some of them are P&L and that's one of the reasons that we've mentioned it. It does impact our margins in the short-term but we think they are investments--again investments--their spending that will pay off in growth for the long-term.

Great, thank you.

Amy Junker, Robert Baird.

Just a couple of quick questions on Chamberlain, if I could? How many other Chamberlain locations are you currently in negotiations for opening aside from the Ohio that you just announced?

Thanks, Amy. Right now, we've announced the Ohio, which has just been approved, just in the last few days, so we're quite excited about that. We've also announced that we've made applications formerly to Illinois. We are very, very careful here, as we are in all of our operations, not to get ahead of ourselves and not to comment on any pending actions where we are working with our regulators or with our creditors because that is just a really bad idea in this endeavor that we are engaged in.

So, just rest assured that our strategy is to expand Chamberlain geographically as well as online. Where we expand geographically, our intent and our strategy and our plan is, in general, to colocate the new campuses of Chamberlain with DeVry University large campuses. Not to say that will always happen, but most of the opportunities that we see where there's large nursing shortages and opportunities for us to open a new campus happily happen to coincide where DeVry University has a large campus. So we think there is a very good opportunity for us to do that.

Can you just speak to how long the process took in order to get the approval in Ohio and if you think that's a pretty good benchmark in terms of going forward?

Yes. Unfortunately, it takes longer than any of us would like. I mean, we are all here about--you know, our task is to help solve the nation's nursing shortage. We would certainly like to see it go faster, because we've got a lot of money here ready to invest in building facilities and hiring faculty and hiring everybody else, to train more nurses which is what this country needs. But this probably took us at least a year, (indiscernible) on a year I would say. You know, they all--each state varies. Some states actually have actually proscribed processes and it's document--it will take this long. Other states, it's a little bit more open-ended. In no state would I say it's a very fast process, so on the other hand, the first one is always the toughest. So now that we've got this one under our belt, we are feeling more and more confident that we've got the wherewithal to do more.

Perfect, thanks so much.

Mark Marostica, Piper Jaffray.

Hi, it's Mark [Scotovich] for Marostica. How are you doing, guys? Rick, I believe, in your commentary, you had mentioned that the window is not yet opened for the buyback. Could you just comment on when that will open?

Since we announced our third-quarter (indiscernible) right on heels of that, we announced at our December--in December, we announced our fall enrollments, so we've enclosed for that period of time. Now that we are announcing our second-quarter earnings, we will be opened up the middle of next week, so than we will be open basically for the month of February.

Okay, great. Then one additional questions regarding tuition trends in the industry--could you just comment on when you last raised tuition rates and when you anticipate the next increase, and by how much?

Sure, thanks. We last raised them July 1. We typically do that in conjunction with the beginning of our academic year, so that's our cycle typically for DeVry University. Chamberlain used to be on a different schedule but we're migrating them to the DeVry University academic calendar by the way as well, which is another opportunity to [co-sit] some students so they will up on the same program. Then Ross is on a slightly different schedule a little bit--about three months later. I think you were referring to DeVry University. Our expectation is probably roughly similar rates as to what we've had in the past.

Okay, great. Thanks, guys.

Mark Hughes, SunTrust.

Thank you very much. I don't know if you touched on this, but any change in the mix of high school versus adult students that you've seen either in the fall or this January B session?

Yes, well, we've continued to see a mix shift towards several years ago where it was--the mix was much more heavily skewed toward high school students. Then we really ramped up our efforts to serve the working adult population. So therefore, by virtue of the rapid growth there, the mix has shifted more towards the working adult, and that's continuing, not at the same rapid rate just because now we are operating off larger numbers on the adult side, but we do have faster growth rates at DeVry University online and in our DeVry University Centers, or DVUCs. So the mix is continuing to shift a little bit that way.

Right. Then I don't know if you talked about the growth in starts in the fall by type of curriculum I guess mainly tech versus business. Any comment there?

We are seeing some resurgence in demand for Computer Information Sciences, CIS, that program, which is good news, and so that's one of the technology programs. But in general, I would say not a huge shift, that's just one piece of color that I could offer.

Thank you.

Cory Greendale, First Analysis.

Good afternoon. The first question, Daniel, with the implementation of the dividend and the share repurchase authorization, could you just comment on where you would put acquisitions at this point as a--you know, how you would prioritize that as a use of capital?

Sure, and no one should interpret our initiation of the dividend and share repurchase strategy as impacting in any way on our acquisition strategy. It's just that we believe our growth prospects and our strong cash flow gives us the opportunity to enhance return to shareholders in this way. But we are mindful of our acquisition opportunities. We've actually added to our team here, our corporate development team, in the last couple of years, so we have an active process there.

As we've said in our five-year strategic plan, acquisitions are a part of the way we may implement some of these growth strategies (technical difficulty) probably most notably in the area of diversification and potentially a little further out of international expansion. So those would be some of the areas where it would make the most sense.

Okay, and the follow-up is for Rick. Could you comment on bad debt trends as best one can follow the from the cash flow statement? It looks like that has bounced around somewhat. Can you just comment on how that has trended and if it's where you want it to be or if you're trying to manage it in one direction or the other still?

Well, I think our bad debt provision on a year-to-year basis is up slightly as a percent of revenue but not big-time, not significantly at all. As I mentioned in my discussion earlier, we've seen some positive improvements in our Accounts Receivable, given the focus in that area over the last six to nine months. So as that starts to continue to be addressed and reduce, that should help with our bad debt provision as we go forward.

Thank you.

Jennifer Childe, Bear Stearns.

Thanks. It looks like your healthcare segment has been responsible for most of your margin expansion recently. I'm wondering how much higher those margins can go, understanding they're some seasonality (multiple speakers) or maybe alternatively, what capacity level are you operating at within that segment?

Feel free to jump in but Jennifer, I would maybe just first speak to the premise of your question, which is just to say that I don't think it's necessarily true that all of the margin improvement is coming from that segment. If you look at the Professional Training statement, there's a contribution, and also from DeVry University, albeit off of a depressed base of where we were, margins are improving. So really all three segments are contributing at this point, although at the two-year point, there is a nice contribution coming from the health and medical segment.

Then to the second part, we do need to expand capacity and we're in the process of expanding capacity in response to the demand that we are seeing. So we're at a pretty high rate of capacity utilization, which is the opposite problem of the other capacity utilization that we talked about. Both are problems but this is a good problem to have, and so we're putting capital and P&L spend to work to make sure we've got the physical facilities, the classrooms, the labs and the people power to expand capacity at the medical and veterinary schools.

Okay, thanks. As a follow-up, Rick, could clarify the statement that you made last quarter and this quarter about the progression of EPS? Is it EPS or is it revenues or both that you're talking about that should revert back to historical levels?

Yes, I was talking both about the earnings flow quarter to quarter, as well as the overlaps we had (technical difficulty) our spending on operating expenses year-over-year, that we've started to ramp those up the middle of last fiscal year, so we will be overlapping those higher growth in the second half of the year. From an EPS perspective, just looking at the historical seasonality of EPS rather than the last couple of years.

Okay, thank you.

Trace Urdan, Signal Hill.

Thanks very much. I'm not sure who it is in your midst, but it sounds like somebody is in desperate need of a Chamberlain grad in there! (LAUGHTER). To that point, I was hoping that Rick might just repeat one number from his speech related to the segment operating income for the Professional Training group. I think there was a cough right at the same moment.

Specifically what are you looking for?

I didn't catch the--when you were going through the segment revenues and operating income numbers, the Professional and Training line, the operating income numbers there if you have that.

Yes, the operating income for Professional Training, operating income was 3.5 million in the quarter, up 1.1 million. That's 48% in the first half (technical difficulty) income was 10.4 million. That's up 51% over last year.

Great, I appreciate that. And then, a question for you, Daniel. I was wondering if you could describe sort of where you are in terms of Associate programs. I know you've introduced some. Are there more to come?

Then related to that, I'm wondering to what extent the relatively strong enrollment at DeVry reported for the November quarter--you know, how much of those might have been attributable to Associate programs versus Bachelor's programs?

Sure. We are emphasizing the Associate degree programs as part of our strategy, part of that horizontal diversification. We want to emphasize and are emphasizing programs at all levels of education, including Associate degrees. I appreciate your interest in that. We now have four Associate degree programs at DeVry University, plus a fifth position degree program at the Chamberlain College of Nursing. We have plans for more Associate degree programs and are also wherever possible looking to articulate those, if you will--that's a term of ours--to move those in a 2 + 2 perspective so that students can go from the two-year Associate, get the second two and get the four-year Bachelor's degree program.

At this point, it's still a relatively small portion of DeVry University undergraduate enrollment, so I would say, looking back to the fall numbers, it wasn't a--it was a contributor but not the main contributor to those results.

Okay, great. Thank you.

Dana Walker, Kalmar Investments.

Good afternoon.

A buy side investor!

Imagine that! Someone creeping in.

You know, everybody's welcome!

I have two questions. Could you talk about the parameters of what a nursing class might look like as you take this to Ohio, to Illinois and elsewhere? When does it become economic?

Well, it becomes economic once you've got a reasonable class size, and it shouldn't take too long. So there's about a 200,000 physician shortage in industry right now for nurses around the nation, projected to grow to as much as 1 million nurse shortage within the next 10 to 15 years, so the demand is clearly there. So, we certainly are expecting that we will be able to recruit students in a reasonable way to the new campuses that we open and be able to get to a breakeven point reasonably quickly.

Could you better define the "R" word "reasonable"?

Yes, I think we aren't talking about years and years. We might be talking about, you know, a year or two. But it can vary, so--.

Does that mean a class size, though, of a couple hundred people per location? What does that mean?

Yes. You know, you don't need to have thousands. It can be in the hundreds and you'll be fine. So you may recall that when we acquired the college, they had around 400, 450 students. So that's where they were at that point. You don't need to be in the thousands.

Remind us what the annualized tuition is for a nursing student?

You are in the--for an academic year--where are we at? About--somewhere in the plus or minus $10,000 an academic year.

My second question related to the comment that Rick made a few moments ago where the count in your admissions advisors and your recruiters began to rise in the latter part of last fiscal year, the early part of calendar '06. Is that another way of saying that your comparisons for your SSNA expense ought to moderate, meaning that they ought to be easier to leverage as we work our way through '07 and into '08?

My comment wasn't just specifically on that piece of our spending--operating expenses but generally speaking, that's true. The rate of growth was higher in the first half of this year and I would expect the rate of growth to come down from the level we have today. We are still looking for the right opportunities and we're not going to be shy to make the right type of spending if the opportunity comes along.

By the way, when should your--I noticed the Web site now has the "On Your Way Today". When should we see more media activity with that tagline?

Yes, thanks. It's actually starting to come in now. We don't generally do kind of a Big Bang approach. What we do is test and control. As things work, we step on the accelerator and if they don't, then we step on the brakes and try something else. So, it's already starting to hit but you may not have seen it in whatever particular market that you--where you are watching TV.

Thank you very much.

Okay, I think that's going to wrap it up for today. I'm going to turn it back to Daniel for some closing remarks.

Thank you, Joan. I think we actually went a little bit over, so I'm glad we were able to accommodate as many questions as possible.

Well, DeVry's next conference call will be held on April 26, when we announce third-quarter financial results and spring enrollments. Thanks, everyone, for joining us on our call today. Talk to you next time.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.