Adtalem Global Education Inc (ATGE) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to your third-quarter 2007 DeVry earnings conference call. At this time, all lines are in a listen-only mode, and towards the end of the conference call, we'll be taking questions. (OPERATOR INSTRUCTIONS).

At this time, we will turn the call over to your host, Ms. Joan Bates, Director of Investor Relations. Ma'am, please proceed.

Thank you, operator. 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 provisions 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 import. 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 most recent annual report on Form 10-K for the year ending June 30th, 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 website, located at www.DeVryInc.com. Telephone and webcast replays of the call are available until May 10th. The domestic replay for the call is 888-286-8010, and the passcode is 7224-4859. A replay is also available via webcast through the IR portion of our website.

I will now turn the call over to Daniel Hamburger.

Thank you, Joan, and thank you all very much for participating in our third-quarter fiscal '07 earnings call. I will provide a brief introduction and Rick will discuss our financial results, and then I will come back and provide an update on operations before we open it up for questions.

We believe that our results this quarter and in the first nine months of fiscal 2007 demonstrate that we're executing on our five-year strategic plan. While we have a way to go, we achieved good results in the quarter, and have made significant progress this year. Overall enrollments were strong, and we're improving operational efficiencies.

Our financial performance reflects continued positive progress in new student recruiting at DeVry University and at Ross University. At DeVry University, the spring term represented our seventh consecutive positive new enrollment performance, and the fourth positive total enrollment result. New student enrollment faced a tough comparison since we experienced unusually high growth in spring 2006. However, we're making good progress, as the number of total student enrollments continued to improve in the spring.

At Keller Graduate School of Management, total course takers in the January and March terms were both up over the same period in 2006. And at Ross University, we had another strong performance, with solid increases in new and in total students.

With our strategic plans solidly in place, we continue to focus on realigning our cost structure with our revenue streams. While overall enrollments and revenues are improving, we have not seen this turn in the core undergraduate campus-based operation.

In line with our plan, we're responding to this reality, and have offered a Voluntary Separation Plan to certain campus-based employees. This plan has enabled some of our employees to retire early, with strong medical and severance benefits. We're also implementing an involuntary plan which we announced today. Even with these staff reductions, we're confident in our ability to serve our students with quality and to continue to serve a growing student population in the future.

Rick will provide more details in a minute, but I want to emphasize the big picture, which is that we don't take these difficult personnel actions lightly. These actions have been deliberate, thoughtful, and conducted with respect for each individual. We believe we're being responsible managers and are conducting these programs in accordance with DeVry's values, which is the best way to build long-term value.

So overall, this was a quarter where we made good progress in the execution of our strategic plan, with good earnings results, continued positive progress in new student recruiting, and also where we took difficult, yet necessary, steps to improve our financial position.

Now before turning over to Rick, recently there has been a lot of coverage in the area of student lending. And while not material to our financial results in the quarter, I'd like to provide some perspective on this topic. DeVry University has recently adopted the new College Code of Conduct, established by the New York Attorney General's office, because it formalizes best practices in student lending, and is consistent with DeVry's longtime approach.

The Attorney General has focused on preferred lenders. Our internal review determined that about three years ago, DeVry University received $88,122 in revenue sharing fees from one of our nine preferred lenders at the time, Citibank. Citibank had already been on the preferred lender list at the time the revenue sharing agreement was established, and received no special consideration relative to other preferred lenders.

We have not received fees from any other lender, and it's been our policy since that time not to accept such fees. We will continue that policy moving forward.

And going forward, DeVry will pay all expenses for student financed staff who attend conferences and seminars regarding financial aid issues or attend lender advisory board meetings.

Our overriding objective is doing what's best for students and their families. That's what we've always done, and that's what we will continue to do.

So with that introduction, let me turn the call over to Rick for the financial results.

Thanks, Daniel, and good afternoon, everyone. I'm going to take the next several minutes to walk you through our third-quarter and year-to-date financial results. As Daniel mentioned earlier, we continued progress this quarter. All business segments achieved enrollment gains, and contributed to our top and bottom line results.

And here are the headlines. Revenue of $248 million grew 12.5% in the third quarter, and was up 12.6% year-to-date. Third-quarter net income of $22.9 million was up $7.2 million over last year, or increased by 46%. And earnings per share of $0.32 in the quarter compared to $0.22 last year were up about 45%.

These profit results included two discrete items that basically offset one another in the quarter. In line with our real estate optimization plan, we recorded a pre-tax gain of approximately $1 million from the sale of excess land at our Tinley Park campus in Illinois. This gain was offset by a severance charge of $1.1 million before tax related to the Voluntary Separation Plan we announced last month. I'll further expand upon this topic in a few minutes.

Third-quarter results also include expense related to share-based payments of approximately $1.2 million pre-tax, or $1 million net of tax, compared to $1 million pre-tax or about $900,000 net of tax in last year's third quarter.

Year-to-date net income of $60.2 million was about double last year. However, these results include the first quarter gain from the sale of our West Hills facility in California. This gain was $19.9 million pre-tax, and $11.8 million after-tax. Year-to-date net income was still up over $17 million or 55%, excluding the impact of this gain.

Our effective tax rate was 25.5% in the quarter, consistent with our effective rate through the first half. This ongoing effective 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 third quarter by 8.9%. As a result, gross margin, which is revenue minus the cost of educational services, increased from 47.6% last year to 49.2% in the current quarter.

Meanwhile students, services and administrative expense increased by 11.5% in the third quarter, and 12.8% year-to-date. The growth in recruiting, marketing, and system-related costs somewhat moderated, but we continued to make investments to improve our service levels and fuel future growth while delivering a strong bottom-line performance.

Now let me walk you through some highlights of each of our business segments, starting with DeVry University. Third-quarter revenue increased by $17.6 million, or up a little over 10%. Year-to-date revenue within DeVry University was up about 9%. This growth can be attributed to improving undergraduate and graduate-level enrollments, particularly at DeVry University online and at the DeVry University centers.

Third-quarter operating income of $13.1 million was up $4.6 million, or 54%. This profit growth is driven by both improved gross profit margins, as well as achieving some operating leverage within the quarter of operating expenses.

Year-to-date operating profit of $39.9 million was up about $25 million versus last year. However, once again, this includes a $19.9 million gain from the West Hills sale, along with the impact of the Tinley Park land sale and severance charge. Year-to-date profits are still up almost 38% excluding all these discrete items.

Now, while this profit growth is encouraging, we still have significant opportunity for further improvement. DeVry University's operating profit is well below the level achieved during the peak four or five years ago. This is due to the fact that our cost structure is not appropriately aligned with our revenue streams, with the profitability at our campus locations well below historic levels.

As a result, we announced the Voluntary Separation Plan for certain campus-based employees last month. We incurred a $1.1 million charge in the third quarter related to this plan. This charge reflects severance costs for 19 individuals who accepted the Separation Plan as of March 31st. The window for accepting the Voluntary Plan closed earlier this month, and an additional 51 people accepted the program prior to the deadline, resulting in a $2.6 million charge to be taken in the fourth quarter, bringing the total charge to approximately $3.7 million for both quarters combined.

Today, we're announcing an involuntary workforce reduction. This reduction will impact about 145 additional employees at DeVry University campuses, where we still needed to realign our cost structure. We estimate that this action will result in an additional $2.6 million severance charge in the fourth quarter. Taken together, severance charges from both workforce reductions will total approximately $6.3 million and result in expected annual savings of approximately $10 million next year and beyond.

I'd like to remind you that we will likely continue to add staff for new programs or other growth areas of the business, and this would partially offset the expected annual savings.

Let me shift now to our medical and health care segment, which continue to post strong results, given the demand for our medical, veterinary, and nursing programs. Third-quarter revenue of $38.1 million was $7.5 million higher than last year, or up about 24%, with year-to-date revenue up 27%.

Operating income of $13.5 million was up approximately $1.2 million, or 9%. This growth is lower than prior quarters, largely because of start-up advertising and recruiting costs associated with opening of our Chamberlain Columbus, Ohio campus. Year-to-date operating income of $39.3 million was 28% higher than last year.

Within our professional and training segment, the Becker Professional Review business continued to post strong results on top of a very strong performance last year. Third quarter revenue of $17.6 million was up $2.5 million versus last year, or up about 17%, bringing the year-to-date revenue growth to 31%. Operating income of $7.2 million in the quarter was up $1.5 million versus last year, or up by about 25%. Year-to-date operating income of $17.6 million was 39% above last year.

This strong operating performance, combined with focused asset management, enabled us to eliminate all of our outstanding debt during the quarter. We started the fiscal year with $125 million of debt, which was reduced to $50 million at end of the first half. And we're now debt free at the end of the third quarter.

Interest expense was $774,000 in the quarter, down about $1.7 million versus last year. Meanwhile, our cash balance remains strong at about $136 million.

We are currently utilizing available cash to execute our $35 million share repurchase program. We were in a closed trading window following the plan approval last November through the end of January, and began buying back shares in early February. During the quarter, we repurchased approximately 194,000 shares at a total cost of about $5.3 million, which more than offset the dilution impact of option exercises during the quarter. This stock repurchase program, combined with our recent dividend initiation, reflect the Company's strong cash flow, long-term growth prospects, and focus on enhancing shareholder value.

Accounts receivables continue to be closely managed, as net receivables were $5.4 million higher than last year, or up about 6%, which is less than half the 12.5% growth in revenue. Year-to-date capital spending was $27.5 million versus $16.3 million spent during the same period last year. Capital spending for the year is expected to be in the 35 to $40 million range, which is a bit lower than previously communicated, principally due to some project spending shifting into next fiscal year.

We are currently working through the capital plans for next fiscal year, but early indications point to higher-than-historic spending due to the timing shift, and spending to support future growth needs.

That concludes my review of the quarter and year-to-date results. We continue to deliver improving results, while at the same time, making the appropriate and sometimes difficult actions to deliver continued growth and improved profitability in fiscal 2008 and beyond.

Now let me turn the call back over to Daniel to provide some additional perspectives on our operating performance.

Thanks, Rick. Let me begin the operations review with DeVry University. During the quarter, we continued to focus on improving our execution in recruiting. And to that end, we implemented a new system to eliminate duplicate leads and to better qualify leads, resulting in savings and lead acquisition costs and more effective use of our admissions advisors' time.

Additionally, we're continuing to work hard to recapture our core high school market while maintaining our strong position with adult learners. To help strengthen our position with the high school market, one of the things we're doing is offering tuition-free courses at our campuses to high school students. Some of these students then go on to enroll at DeVry University after they finish high school.

Based on the success of this program, school districts in Chicago and Columbus have partnered with us to launch the DeVry Advantage Academy, where students take both high school and college courses throughout their junior and senior years, and emerge with both a high school diploma and a college associate degree at no cost to the student. This innovative public/private partnership is part of our mantra of doing well by doing good.

Part of our five-year strategic plan is also to aggressively grow in online education. We're growing faster than the market for several reasons. First, we have been told we have the most interactive, most effective online learning experience in the industry, as well as the best technology, which is what you would expect from DeVry.

Second, we're one of the few with a national footprint and the seamless ability to mix and match coursework online and on-site. And most importantly, we have the best faculty recruiting, training, and quality assurance process.

During this quarter we launched the Master of Science and Educational Technology program online. We also continued to make investments in our online customer service to support improved retention. We are reorganizing our student advising personnel to create dedicated student service staff. And we're instituting an automated call system to reach out to students who have been absent from class.

As a result of executing on these strategies, our results are improving, including enrollments and graduate employment outcomes. New undergraduate enrollments in the spring increased 6.9%, with total students increasing 5.5%. At Keller Graduate School of Management, total course takers were up over 10.9% in the January session and up over 5.2% in the March session. Finally, online course takers grew 22.5% in the spring.

Keep in mind that all these enrollment increases are facing a tougher comparison with last year's higher increases, which were in part attributable to the academic calendar, whereby we had an additional week of recruiting last year.

Now in terms of employment outcomes for our students, we have added information to the operating data section of our press release, which provides our most recently reported graduate employment statistics. These figures show we continue to deliver on the value of a DeVry University education.

For the past year, over 91% of our grads were employed in the field of study within six months of graduation at an average starting salary of $40,674 a year. This is not a one-year phenomenon. We've analyzed these statistics all the way back to 1975, and determined that since that time, [two hundred nineteen five hundred and forty-two thousand] students have graduated from DeVry University with an average of 90.1% of them employed in their field of study within six months of graduation. We believe DeVry University is one of the only universities in the world that can make this claim.

I'll turn now to our medical and health care segment at Ross University. We continue to see strong interest in our medical and veterinary programs. One of Ross's competitive advantages is our three intakes per year. However, it's more difficult to attract med and vet students to nontraditional start dates -- that is, January or May, versus the traditional September start. I'm proud of the efforts of the Ross team, who delivered a 28.2% increase in new students in January.

Total students were up 14.8% in January over the same period last year. And we're also very proud that our June graduation at Lincoln Center in New York will be the largest combined graduation class in our history.

Our marketing and branding efforts have resulted in increased awareness of Ross as a high-quality medical and veterinary (multiple speakers) [school]. To further bolster these efforts, this quarter, we hired a new director of alumni affairs, who will focus on harnessing the power of our large and growing alumni network.

Because of sustained demand and all the growth we've had, we will be facing near-term capacity constraints at Ross. To address our growing student population, we're making investments in the near-term that will provide a return in the longer-term.

At the medical school, we're building a new student center, a new multipurpose center, and additional faculty offices, which are all scheduled to be completed this summer. The multipurpose center will be used for group studies, for individual study halls, and for student activities.

At the vet school, we have new student housing opening in May with a pilot group of students, and we expect further ramp-up in September.

At Chamberlain College of Nursing, our RN to BSN online degree completion program is growing nicely. And we're taking advantage of the synergy of supporting it from DeVry University's online group.

To support expansion and attract high-quality faculty, we're implementing several marketing programs using the Internet, radio, billboard, and direct mail.

Earlier this month, I had the honor and privilege to be part of the grand opening of Chamberlain's new campus, collocated with DeVry University's Columbus campus. And I just want to share this experience with you.

The students are tremendous. They are so bright, so motivated to become nursing professionals. They expressed profound appreciation to us for opening this campus and for giving them the opportunity to pursue their dream when they have been unable to clear the waitlist at other nursing colleges, given the severe shortage of seats.

Chamberlain is a great example of the power of the market-funded model of education. We're able to respond to society's education needs without asking taxpayers for a dime of the investment capital.

Because the demand for seats in nursing programs continues to be strong, it's our goal to open at least one new Chamberlain site per year. Currently, we're awaiting approval from Illinois with the goal to open next year.

At Becker Professional Review, we had another strong quarter, and the future outlook is good. Order volume is ahead compared to a year ago, and we have a healthy mix across our three delivery channels of on-site, online, and self-study CD learning.

At Becker CPA Review, the results of the exams given in 2006 are in. And seven of the top 10 scores on the CPA exam were Becker students.

Becker's strong performance reflects continued robust demand for accountants and the results of our efforts to strengthen relationships with the top 100 accounting firms. As an example, two of the big four accounting firms approached us with an important need. They have a large number of professionals who are ready for promotion to manager, except that they're not yet certified, which is a requirement for promotion. Due to the demands of their jobs, they had not found the time to prepare for the CPA exam.

Becker delivered the solution. We created customized courses for each firm, tracking their candidate's progress throughout their coursework, and preparing them to succeed on exam day.

At the Stalla CFA review, we continued to experience strong growth as well. We recently signed an agreement with the India CFA society to serve as their educational partner and to provide coursework to their membership.

So in summary, we've made good progress on our five-year strategic plan, which is demonstrated by this quarter's significantly improved operating results, strengthened financial position, and continued positive progress in new student recruiting.

Just before I ask Joan to open the call for questions, I would like to invite you to join us May 23 for our investor day in Miami. You'll have the opportunity to hear more detail on our five-year strategic plan, visit campuses of DeVry University and Ross University, and most importantly, you'll have the chance to hear directly from the students of both universities.

Joan?

Thank you, Daniel. We're going to take the next half-hour to answer questions. And to allow ample time to take everyone's question, we'd like you to please limit yourself to one and then jump back into the queue if you have anything further. So Jeanne, if you could give the instructions on how to get into the queue for questions.

(OPERATOR INSTRUCTIONS). Matt Litfin, William Blair.

Congratulations on a strong quarter. A two-part question -- within the large undergraduate DeVry campus segment, how far away are you from prior peak margins? I know that you said you were below.

And number two -- this is a corollary question -- if you got there, to those prior peak margins in that segment, would the Company's overall operating margin now be above or below the overall high teens that you were at several years back there in operating margins?

I would characterize it as we're pretty far away. And I would say that long-term, our goal is to get back to the historical performance that we've achieved in the past. And we believe that as we improve at DeVry University, along with the strength that we're seeing in the other parts of the organization, that we can achieve that.

Mark Hughes, SunTrust.

I think you had suggested that the recruiting and marketing costs moderated somewhat in the quarter. Was that, you felt, more efficiency, the ad costs themselves were down; you got kind of eased back a little bit on intensity? Could you expand on that?

Sure. Part of it is, as we mentioned, we made some investments which are starting to pay off. And those are systems investments. There's also people investments. We didn't mention here, but in the past, we've talked about some of the role specialization and training that we've done to make our recruiting personnel as efficient as we can. We're certainly not where we want to be, but there has been some improvement. And we reflected a little bit of that in the quarter.

But the investments continue. And we want to see that continue to improve.

Jeff Silber, BMO.

I got a quick question on Ross. You had mentioned the capacity constraints. Can your remind us roughly what is current capacity at Ross, and what do you expect it will be once you expand the area?

Well, we are -- we haven't put a number of what the exact capacity is, so I can't give you an exact number. But I can tell you that we are a little bit of a victim of our recent success. So the growth that we have had has put a bit of a strain on it.

But we're confident that we can -- and we are investing in not just the physical facilities, which I commented on a couple minutes ago, but also the human resources in terms of course faculty and all the other positions that are required. So that we can continue to grow the program.

Howard Block, Bank of America Securities.

Congratulations on the solid quarter. I was hoping you could just reconcile what seems to be sort of an enthusiasm for the high school market in terms of, as you said, recapturing the core high school market and investments in that market with sort of the ongoing rationalization of expenses in the big box, which I would think is the place where you would be placing these high school students, if you are successful.

Yes, thank you. I can understand why you would ask that question. And that's important, because what we're seeing is that we're being responsible managers and matching our cost structure to our revenue structure. And as we've looked at it, we've found that we had more capacity. We've had more capacity relative to the enrollment levels that we do have, particularly at the large campuses.

At the same time, we're putting in place, and have been putting in place initiatives to grow in the campuses. And with this series of actions, we still have the ability to serve not only today's students with high quality, but also tomorrow's students.

So we do expect to grow. And that, I hope, provides some explanation to doing two actions at once. You have to sort of chew gum and walk at the same time on this one.

And just a tiny follow-up, if I'm still there. Is the 145-person reduction evenly distributed by geography or by campus --?

No. It's all in the campuses. But certainly we don't apply -- we haven't applied, and we won't -- a one size fits all.

So this has been driven by our local managers who know their markets the best, and all working together as a team. We're treating different markets different ways based on a matching of the cost structure in that market to the revenue streams in that market and the enrollment in that market. So it does vary.

Mark Marostica, Piper Jaffray.

Nice job of the quarter. Regarding the deceleration in online course takers, Daniel, that you talked about, I understand the tough compare argument. But it looks a little bit more pronounced this quarter than perhaps the last couple.

With that said, I'm curious whether or not you're seeing anything different this quarter, and perhaps if you could comment on online retention as well.

I think that's a great question because of that numerical [difference] (multiple speakers) sequentially. And I would cite in addition to the factor of the additional week of recruiting and the tough compare a third factor, which is -- particularly at the undergraduate level, we have been around for about 10 years, but we've really been at a significant size for at least several years now.

And we are starting to see more graduates from our undergraduate program at DeVry University online, which is a good thing. And that does, though, relative to the earlier years, change the dynamics of the growth curve a little bit. So I guess that's another factor.

In terms of overall, though, we're very much focused on growing aggressively in online education, certainly at DeVry University, but not just at DeVry University. We see growing in online education across our different operations, and also taking advantage of that synergy of leveraging the center of excellence, taking what has been DeVry University, and now it's serving Chamberlain. It will be serving Ross and other parts of the organization as we go forward.

So we're very enthusiastic about online. And those are some of the factors.

And just to clarify, Daniel, was student attrition in online this quarter in any way different than the last couple of quarters?

The only thing I would tell you is it's better. (multiple speakers) It wasn't worse. That wasn't a factor in that number that you saw.

Amy Junker, Robert W. Baird.

Can you just talk a little bit more about how the high school recruiting efforts are going? Are you starting to see students sign up at this point, so you get a sense of if your efforts are working, or is it a little early for that?

Yes, it's too early for that, Amy. And I think at this point, what we've seen is just -- the story continues to be pretty good growth with the adults market, and are not doing as well as we need to, and as we know that we can, and as well as we've done in the past with the high school market.

Sara Gubins, Merrill Lynch.

Could you give any detail about -- within the new student enrollment IT versus non-IT students? And in addition, some thoughts on the IT market and if you're still seeing fairly strong trends there?

Again, it's the same story. The majority is an adult relative to the high school. The majority of the growth is in the non-technology relative to the technology. And the story continues that the trends are very good, that the outcomes are very good. Our technology programs -- the employment results, and I've cited the overall average. The technology programs would have -- would be above average. And we're having excellent outcomes and are having wonderful employment opportunities. So that's a little bit of color on what's going on in technology.

Okay. Any reason to think it would improve more as we get closer towards the fall?

That is certainly what we're shooting for, but there's nothing else I can give you at this point.

Jerry Herman, Stifel Nicolaus.

Sort of a three-parter related to online, if I can use that art of combining questions. The first is, can you guys give an indication of how many of the course takers are virtual -- and other words, how many are just taking coursework online? And then secondly, some of the numbers we run would suggest that all of the enrollment growth is coming from online, which implies sort of flat or possibly even down utilization throughout the campus network. And then maybe just talk about margins and online as the mix shift moves towards that business.

Okay. So -- (multiple speakers)

And thanks for letting me do that.

Yes, sure -- they were related. I think that was very (multiple speakers) --yes, well done.

I would tell you that in terms of breaking out those who takes only online courses or 100% onliners relative to mix-and-matchers, we've never done that. And the reason is -- and it's interesting; a lot of people are talking about blended learning. We have been talking about that for ten years, since we started up online.

We've always had a blended, integrated, hybrid approach to online and on-site learning, because even ten years ago, before my time, that was the vision that DeVry had, was that was the way that education was going to go. And lo and behold, that's the way it's going. And now you're hearing everybody talk about a blended approach.

So there's so much mixing and matching going on that it's just not meaningful to break it out that way. And so we don't. So that's the first piece.

In terms of all the growth being at online, that's not the case. There is growth going on online and on-site. It's just -- in terms of on-site, it's certainly more pronounced at the DVUCs, the DeVry University Centers, and small campuses than at the large campuses.

And I'm throwing small campuses in there as we have been doing for some time under the leadership of Dave Pauldine, President of DeVry University, who has been leading the charge here to help everybody think about this not just in terms of either a large campus or a DeVry University Center. There's a very strong delivery channel in the middle called the small campus. And we'll talk a little bit more about that at our investor day, I'm sure.

And then -- yes, in terms of margin, clearly the margin is higher at online. And so as there is a mix shift going on, that is part of the dynamic that is helping drive margins to go up, which they have been doing for us. So --

Yes, okay, the only thing I would add is that you can look at the average margin; you can look at the incremental margin. So if we add a person on-site, that incremental margin is, I would say, higher than online, because we have excess capacity. We can do that without -- with very little added cost. Whereas online is more of a semi-variable model. So you would have some incremental costs along with that.

Trace Urdan, Signal Hill.

Good afternoon. I wanted to focus if I could in the margins and the health care and in the professional review segment. They seem to be pretty impressive. And I'm wondering how you think about where those margins could go long-term, and maybe you could comment on the drivers of margins -- and related to that, whether the incremental expansion of the facility at Ross could drive those margins a little bit lower on a near-term basis.

You know, I would say that they are -- respectable margins. And we intend to make investments to drive growth as well as do the things that we need to do to deliver a return. And as we all know, there are some trade-offs there.

But I don't think that the near-term investments per se in the medical and health care segment would have a huge impact on that. One of the things that [we're set about] forces an expansion of the nursing program. And so there, although it's significantly smaller than the Ross University portion of the medical and health care segment, it is an important part of that segment, and a faster growing part of that segment. That's something that we'll all need to pay a lot of attention to as we go forward.

But there are investments that are being made there in brand-new campuses. And because of the strict regulatory framework that you have in the world of nursing, there, more than in many other segments, we need to advance well ahead of an opening. So you do have a little bit of the phenomenon I think that you are referring to there.

And in professional education and training, the largest portion of which of course is Becker Professional Review, the driver of growth -- the driver of profitability continues to the growth in operating leverage, I would say. So we're certainly making investments there, but we think that we can continue to deliver the way we have been.

Is there a way to think about where those margins could go at some point? Do they top out, and then we're just dealing with the topline growth as a driver?

You have topline growth as a driver. I'm not in a position of course to give you any specific numbers or guidance on that, Trace. But you have that. You have tuition increases over time. And you have operating leverage, as you cited. So those would be the factors.

Gary Bisbee, Lehman Brothers.

I guess actually just one cleanup question, I missed the number, and then the real question. But the first one -- what was the revenue at DeVry University in the quarter?

The revenue at DeVry University in the quarter?

The segment revenue; yes, I just missed it -- you ran through the numbers.

It was $192.1 million.

Okay. The question then just goes to that segment data. It seems like an outside portion of the margin expansion in the last few quarters has been coming from Becker and the medical business. And as of last year at least, DeVry University was under 3%, which is obviously way off its highs.

I guess the question is, with these cost cuts you're putting in, if we assume that it continues to be a challenge over the next 12 months to grow revenue in the big boxes, how much margin expansion can you really get from the DeVry University segment? It seems like it's at an awfully low level, or even if the other parts of the business grow, is this still going to be a real issue for you?

Let me start, and then Daniel can take it from there. But I would say, as I mentioned, we're well off the peak that we were four or five years ago in terms of the operating profit margin or absolute dollars of profit in DeVry University. And so I can say that's an issue.

I see that as a big opportunity, because some of the actions we're doing with our cost structure will shore up the margin. Some of the investments we're making in recruiting and advertising systems will pay dividends in terms of enrollments. And I think we can see significant improvement in profitability and margin in that business segment in the coming years.

And so I do see that that is -- where we are right now in our margin level, not as a place where we would want to be. We want to get back to where we have been.

If you go back a couple more years when the Company used to break out the DeVry Institutes versus Keller, the Keller business was in the low 20s margin. Even if we assume that's come in a lot, it potentially looks like the big boxes continue to actually lose money. Is about a fair way to think about that?

I think given what we've said as far as our labor costs, which we're dealing with; our real estate optimization strategy, which we're done some things, we will continue to do more things -- yes. I think the on-site operations are not making the money that we think they should be making. And through these actions that we announced today, through more real estate optimization efforts, and through putting more enrollments, more students through the door, we will see that profitability improve significantly over time.

Ryan (technical difficulty), ThinkEquity.

Can you give us an idea of how enrollments have been trending at the newly co-located Chamberlain school in Ohio?

Sure. We got approval to open the doors and begin to recruit only a few weeks before the opening. So the initial class was very small, just because we just didn't have time to process all the applications through.

But I can tell you that the interest level was very high. The waitlists, as I mentioned earlier, at nearby schools -- in that case, for example, Ohio State University is nearby. Columbus State is nearby. The waitlists are large, and so many of our students are those who have the opportunity to come off the waitlist.

And so they're highly qualified, and motivated students who can come on in and start. So we're quite confident that we can achieve our goals in terms of recruiting at the next class, and then beyond that.

Also, the other dynamic -- I know you asked about Columbus, but I'll just broaden it as long as we're talking about Chamberlain, is the online RN to BSN degree completion program. That's for those nursing professionals who have an RN, a registered nursing licensure, but do not have a bachelor's degree. They might have an associate degree. They might have a diploma from a hospital program. And increasingly, they are seeking to go back for a bachelor's degree.

And we have a very strong, high-quality program there. And that's growing quite nicely as well.

Corey Greendale, First Analysis.

Daniel, I'm interested in your perspective on the competitive front, particularly online, if that becomes a bigger part of your business, if you are seeing -- or foresee that traditional schools are becoming or will become more active and a more formidable competitor.

You know, Corey, that's a very interesting question, something that we certainly do our best to watch very carefully. And it's a question that we been asked and we asked ourselves for years now.

So we continue to watch that, but to this point we haven't seen that phenomenon be a major impact on the recruiting process that we go through with our students -- and specifically, the part of your question where you asked about traditional schools.

That's not to say it's not competitive. It is very competitive. But still, the most aggressive competition in general -- and while there are some traditional schools who have been in there, but they've been in for a while; it hasn't changed a lot lately -- most of the competition does come from other market-funded schools.

Brandon Dobell, Credit Suisse.

I wonder if we could focus on the sales reps, the reps for a second, and maybe some color around the labor markets having any impact there? Are you happy with kind of the distribution of talent across the reps that you have? And then what kind of people are you thinking most effective, especially as you think about trying to ramp that high school enrollment. Have you changed how you've thought about what kind of rep makes the most sense there?

Yes. And Brandon, thanks for the question. Just for clarification, when we talk about admissions advisors or enrollment advisors -- that's what we call them in our terminology. (multiple speakers) And those -- different organizations have different names, so no problem.

The advisors -- we're very happy with the advisers that we have. We been adding to the ranks. We have been investing a lot in training.

One of the things that we have focused on directly to your question is the role itself. And it used to be in the old days, I guess I will call them, that you had to the Superman or Superwoman to be one of these advisors.

In other words, you would go to the high schools. You would form relationships with guidance counselors and with the principal and with the teachers. You would then go and make high school presentations or lectures in the classrooms or in the assembly halls. You would then follow-up with the resulting inquiries that might come from students. And then you'd counsel those students all the way through the process. And you'd be working from -- crack of dawn until after dark. And it's a really tough job.

And we still have people who do that, but increasingly, wherever we can, up and where it's appropriate, we've gone to more of a role specialization, where we've broken up that job. And one person is more the presenter, so they do more of the relationship building and the presenting side. And then they hand over the inquiries that come from prospective students to the enrollment advisor, thereby making that advisor -- productivity all the higher.

So that's one of the things that -- or initiatives we been working on. And we're starting to see some good outcomes from that. But it does take some time to get that fully matured. So we're still in the early stage of that.

Any concerns about the labor market? I know some companies are having trouble finding good, qualified people. Any concerns from your perspective there?

Yes. Unemployment is pretty low right now. On the other hand, graduate employment statistics at DeVry University are pretty high right now. So as an employer, you bemoan that fact. And as an educator, you cheer the fact.

So it -- but I think we're able to attract -- we are very [attract] -- at DeVry University specifically, but I would say this also applies to Chamberlain College of Nursing and to Ross University, our recruiting organizations have very good reputations not only for competitive compensation, for a good working environment, but also because of the high levels of integrity, training, professional development. So people come to us. And DeVry's recruiting organizations are a good place to be if that's the career path you're seeking.

Mark Hughes, SunTrust.

Just curious now that you have paid down the debt, what sort of acquisitions should we expect, and when is it going to happen.

I can speak a little bit, and Rick maybe can speak about other uses of cash just to broaden a question a little bit. Other people may have a similar question.

As we have been saying, we do have an active acquisition posture. We have in the past period of time beefed up our capability, our in-house capabilities. And our business development department is active and is staffed. Our external resources, in terms of professional services firms who help us, are up to speed, and are engaged with us. We're actively a participant in that, where we're known to be such a participant, and therefore pretty much, most of the actively marketed organizations that are out there will find their way to our desk.

We're -- I think pretty well positioned to execute on acquisitions, especially with the good work that Rick and his team have done to restructure our financing vehicles, so that with very, very -- with rapid speed, he can bring to bear the resources that we need to execute on an acquisition.

And in line with our five-year strategic plan, the areas that probably most likely -- where you're most likely to see that kind of activity are in the area of diversification, which is that third part of the five-part plan, and the fourth part, which would be international expansion.

How big is the India CFA society?

I don't have the exact figures. But they're an important society in an important part of the world. By the way, the CFA is over 50% now international -- over 50% of the candidates sitting for the CFA, the charter financial analyst certification that many of you on this call probably carry, and you should be proud; it's an extremely difficult, grueling three-part, three-year exam -- but over half now of the candidates are international. So in that category, it's Asia -- the biggest growth. So China, India -- so that's a very important relationship for us.

Jeff Silber, BMO.

I was hoping to get a little more color on the DeVry Advantage Academy you mentioned in Chicago and Columbus. Is it done on-site at the schools itself, at your schools or at the high schools? And also why wouldn't a student do this? There's no cost -- you get an associate degree. I mean, why wouldn't you have thousands of people doing this?

You absolutely are right. We have many more applicants for the program than those who are admitted. So we have pretty rigorous standards. Those are administered -- we work jointly with the schools.

I'll speak -- I know the Chicago one a little bit better, so we work with CPS, the Chicago public school system, in that selection process. The students do come to school at the DeVry campus, the Chicago campus of DeVry, which is in the city of Chicago.

They come -- we are actually now -- and the formula changed a little bit in the first couple years. We're now in our fourth cohort -- where now, we're actually a registered official high school. The DeVry Advantage Academy High School is a CPS high school, which is very interesting.

And so the students do come to campus, and then the teachers come, too, from high schools -- come from around the city. Some students come from as far as -- I heard of one student bussing and taking the L train two hours to get to this program. And the teachers come too.

And so they take their high school courses, I think, in the morning, and then the college courses in the afternoon, if I've got it right. And then they also go through the summer between junior and senior year, which shows you something about the motivation of these kids. And the outcomes have been phenomenal in terms of graduation rates and persistence -- grade point averages. And then they're going onto college, whether DeVry University or another university.

And roughly how many students do you have in this, and what's the capacity for it?

It's not a huge program. It's in the hundreds. And it's got that kind of capacity. And we are very interested as we have gone from Chicago now to Columbus to expand this to other cities around the country.

And what you said is exactly right. Why wouldn't more students, why wouldn't more school districts be interested in doing this? We hope that they are. And we're working through those sometimes long processes to do that.

But it is a great example of a partnership between the private sector and the public sector to address what's one of our biggest issues. We spend so much time here talking about post-secondary education -- hey, K-12 education needs a lot of work too.

And so we're trying to do our part. And it's good for DeVry, and it's good for society, and it's good for the CPS, and now for Columbus.

Great. And I know it's a small number, but are those folks included in your enrollment counts?

Yes, they are. They matriculate.

Jennifer Childe, Bear Stearns.

Rick, has [SF&A] spending peaked, both as a percentage of revenue and year-over-year growth?

Has it peaked? I would say in year-over-year growth, we're still double-digit. And we have double-digit year-to-date. We're somewhat less than that in third quarter -- I think we said 11.5%.

So our goal is to continue to make the appropriate investments, but at the same time, manage our costs and continue to drive some leverage in the P&L. So the hope would be that we would continue to see strong topline growth, continue to make the investments, and gain some operating leverage to see that double-digit growth get down to single digits long-term.

Brandon Dobell, Credit Suisse.

Just a quick one. If you look at Keller in January and March, [those are] two very different growth rates for enrollments. Anything that happened there? Is there is strange comp from last year, or something with one of the programs that didn't repeat or something like that? Just trying to get a better idea of why there is such a big delta on those growth rates.

Yes. Duly noted, and it is partially the comp. March of last year this time, it was up 12.3%, and this year, 5.2.

It's partially that, and it's partially that, as we've seen in the past, Keller has had some choppiness or ups and downs. So it's gone as low as 3.3% last November -- or, I should say, two Novembers ago, November of '05. And then it bounced back right afterwards.

So no, there's nothing fundamental within that. It's just a little bit of the ups and downs of life, along with a little bit of that tougher comp -- and I guess also the additional week of recruiting that we had last year at this time, just because of the academic calendar. It's kind of like -- what is it, the Gregorian and the Julian calendar -- they have to true them up every so often. And that's what happens with an academic calendar. Every few years, you have to -- you add a week or you subtract a week or you move a week in order to get back adjusted again. And that's what happened last year.

Okay, so in terms of looking forward in the near-term, anything that you guys are seeing that would tell you that, hey, March is more indicative of momentum than January is? Or is it just more of a little timing tweak (multiple speakers) numbers?

As with most things in life, Brandon, it's probably somewhere in between.

Dana Walker, Kalmar Investments.

And I'm getting the high sign that this, operator, may need to be our last question, because I think we're a little past 4:30. (multiple speakers) Hello, Dana.

Good afternoon -- sneaking under the deadline. My question relates to the academic calendar wrinkle. If I'm a student, and I'm considering enrolling at DeVry, to what degree does that one less week in the hands of the recruiter affect my decision-making? And maybe you can correlate that to how important that might have been in your new student start figure versus it not being an issue.

No, it's a nonissue from a student perspective. It just means that the start date was such that there was an extra week of time where we were working with students who were interested in starting for that particular session relative to the normal amount of time that we have. It's just an anomaly of the calendar, one extra week. And it happens once every four or five years. So it really has no impact whatsoever on the advising that we do with our students on when the start or whether to start or if a DeVry education is -- or a Keller education is right for them.

And yet, I believe I have heard you say that it quite likely depressed the year-over-year comparison in your new starts?

Not so much that it depressed, as that last year was particular -- was unusually high, in part because of that extra week.

(multiple speakers) extra week of recruiting for the advisors talking to students. So instead of having whatever the amount of time is, (multiple speakers) eight weeks, they've got nine weeks to get a number of students into that class. The population is still the same, but the ability of the recruiter to go out and get those students has expanded.

Your point, then, would be that last year was more amplified than this year being depressed.

Exactly. Yes, thank you -- you said (multiple speakers)

If you go back and look at the absolute numbers, and you do a two-year compound growth on new students, you'll see that actually the spring stands up quite nicely compared to the other terms.

Thank you. And is that -- I think we are at the end of our time. I think -- it to me it's to say thank you, and to let you know that our next conference call will be held on August 13. And at that time, don't forget we will announce not only fourth-quarter, but year-end financial results, as well as the summer enrollment. And I want to thank everyone for joining us on the call. We will talk to you next time. And see you in Miami.

And ladies and gentlemen, thank you for joining us on the call today. You may now disconnect your phone lines.