Adtalem Global Education Inc (ATGE) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter and fiscal year 2007 DeVry earnings conference call. My name is Jeremy 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 this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Ms. Joan Bates, Director of Investor Relations. You may proceed, ma'am.

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 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, perceives, 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 call results to differ are described more fully in Item 1-A, Risk Factors, in the Company's most recent annual report on Form 10-K for the year ending June 30, 2006 and filed with the SEC 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 web cast replays of the call are available until August 27. The domestic replay number for the call is 888-286-8010 and the pass code is 97269503. A replay is also available via web cast through the IR portion of our web site.

I will now turn the call over to Daniel Hamburger.

Thank you, Joan, and thank you all very much for participating in our fiscal fourth quarter and full year 2007 conference call. I will provide a brief introduction and Rick will discuss our financial results, then I will come back and provide an update on operations and then we'll open it up to your questions.

We delivered strong financial results in the quarter and the year. In 2007, we moved beyond the turnaround phase, achieving record earnings this fiscal year just two years following the launch of our turnaround plan. I'm pleased to say that DeVry is now back, back in growth mode, and our team is energized and focused on executing our plan. This was a year in which we focused on improving our margins, increasing student enrollments across all divisions, building our infrastructure for future growth and increasing shareholder value.

An important element of our strategic plan is building our growth infrastructure. This includes building a scalable technology platform, having a sound financial strategy and developing the best team in the industry. This is the infrastructure that will support our growth to a multibillion dollar organization. In a few minutes, we'll update you on the progress we've made in the financial and technology areas, so let me focus here on our human resources strategy and recap our accomplishments in this area.

We're making great strides to position DeVry as the employer of choice within our industry. This means having competitive compensation and strong training programs that will help us to grow the managers and leaders of the future. As we look back over the past year, we accomplished a great deal. First, we successfully completed a number of planned management successions, including transitioning the roles of CEO, CFO and President of DeVry University. Also, we promoted Dr. Donna Lorraine to the Chief Academic Officer position.

Second, we attracted several talented professionals to DeVry from both inside and outside the education industry. Dona Jennings joined us as Vice President of Human Resources. During the fourth quarter, we hired Sergio Abramovich as Director of International Business Development. In early July, we appointed Greg Davis as our new General Counsel. Greg was formerly General Counsel at La Petite Academy. In addition, [Rob Paul] joined DeVry University as Vice President of Operations. Bob was formerly a regional vice president with the University of Phoenix. At Ross University, we welcomed to Dr. Mary Coleman as Dean of the School of Medicine, and in addition, Peter Goetz joined Ross as the Vice President of Marketing and Recruiting.

During the fourth quarter of 2007, we continued to bolster the Ross team, hiring a new Dean of Clinical Affairs at the med school and a Dean of Faculty at the vet school. So these are just a few examples of many of internal promotions and the new team members who joined us this year. We have a management team focused on the successful execution of our growth strategy and continued margin expansion in 2008 and beyond.

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

Thanks, Daniel, and good afternoon everyone. I'm going to take the next several minutes to walk you through our fourth-quarter and full year fiscal 2007 financial results. But before jumping into the numbers, I want to inform you of a relatively minor revision in the presentation of our income statement we're making concurrent with our press release today. We're moving interest income out of revenue and presenting it next to interest expense on the income statement in order to more appropriately measure our operating revenues and better link interest income and interest expense. This also enables us to establish and define an operating income line within our income statements. We'll be making this change for segment reporting purposes as well with segment revenue and operating income results reduced by the amount of interest income previously attributed to each business segment.

Of course, our bottom-line net income remains unchanged. An 8-K has been filed today which provides the revised income statement presentation for the last three fiscal years in total and for fiscal year 2007 and 2006 by quarter.

With that in mind, let's go through the results. Fiscal 2007 was a very successful year for DeVry as we delivered strong top and bottom line performance while making the appropriate investments for the future. Here are the headlines. For the full year, revenue of $933.5 million, again excluding interest income, was up 11.2%. [We] reported record net income of $76.2 million, up about 77%. And earnings per share was $1.07 versus $0.61 last year, or up about 75%.

For the fourth quarter, revenue of $232.8 million was up 8.5%, reported net income of $15.9 million was up 35% and reported earnings per share of $0.22 was up $0.05, or 29% versus last year. Now as we have mentioned in the past, these profit results include discrete items related to asset sales and severance charges. The full-year results include the gains from the sale of our West Hills facility in the first quarter of the fiscal year and the Tinley Park (inaudible) plan on the third quarter, totaling about $20.8 million before tax. Partially offsetting these gains is the $6.3 million severance charge related to the work force reductions at our DeVry University campuses with $1.1 million occurring in the third quarter and $5.2 million in the fourth quarter, which is right in line with what we announced back in April.

Earnings per share for the quarter would be $0.26 excluding the impact of the severance charge, or up about 53% versus prior year. Earnings per share for the full year would be $0.94, or up 54% excluding the impact of the severance charges and real estate gains. Furthermore, note that net income, even without these discrete items, hit a new record of $67.3 million. So in just two years from our low point of performance, execution of our turnaround plan has bought us to an all-time high.

Fourth quarter results also include expense related to share-based payments of approximately $1.1 million pretax, which is about the same as last year. For the year, option-related expense totaled $5.4 million pre-tax versus $4.3 million for fiscal 2006.

Our effective tax rate was 27.4% for the year and 20% in the quarter. However, these effective rates are impacted by the real estate gains and severance charges within DeVry University. The effective tax rate from ongoing operations excluding these discrete items would be 24.9% in the quarter and 25.5% for the year, which is slightly higher than the full-year fiscal 2006 rate of 25.1%.

Cost of educational services increased 4.9% in the fourth quarter and student services and administrative expense increased by 6.5%, both below the 8.5% revenue growth delivered in the quarter. This enabled us to achieve operating leverage and improve our pre-tax profit margin in the fourth quarter from 7.2% last year to 10.8% this year, excluding the severance charge impact. For the full year, the pre-tax profit margin improved from 6.8% to 9.7% excluding both the real estate gains and severance charges.

Now let me walk you through some highlights for each of our business segments, starting with DeVry University. Fourth quarter revenue was $178.8 million, up about 5.5% versus last year, while full-year revenue at DeVry University of $728.4 million was up about 7.8%. The growth was driven by higher undergraduate and graduate level [of] enrollments. This enrollment growth was partially offset by lower average course loads, largely driven by a higher mix of working adult students. In addition, some bookstore sales shifted from June into July because of more just in time e-books.

DeVry University operating income was up 52% in the quarter and full-year operating income was up 33% excluding the impact of the real estate gains and severance charges.

Let me shift focus to our medical and health care segment, which concluded a very strong year, driven by Ross University's medical and veterinary programs combined with the expansion and growth at Chamberlain College of Nursing. Fourth-quarter revenue of $34.2 million was up over 19% with year-to-date revenue up 24%. Operating income of $9.8 million in the fourth quarter was up 17% versus last year with full-year operating income up over 23%. The profit growth was a bit lower in the quarter due to investments in advertising and recruiting costs to drive future growth within Chamberlain.

Within our professional and training segments, the business delivered another record year on both the top and bottom lines. These excellent results were driven by growth in the Becker CPA Review, Stalla CFA program and strong international growth. Fourth-quarter revenue of $19.9 million was up over 20%, bringing full-year revenue growth to about 27%. Operating income of $8.9 million in the quarter was up $3.2 million versus last year, or up 56%, while full-year operating income of $25.8 million was up about 43% above last year.

Shifting from the P&L to our balance sheet, I'm happy to say that our financial position remains quite strong. Our cash flow from operations was $125.2 million for the year versus $90.8 million last year due principally to our improved earnings and asset management. We ended the year with zero debt and a cash balance of $129.2 million. As a result of our debt reduction, interest expense in the quarter was down $2.3 million versus last year, while interest income was $300,000 higher at $2.1 million. For the year, we had net interest income of approximately $2.7 million -- that's net interest income with interest expense -- as compared to net interest expense of $6.4 million last year, or a positive swing of $9.1 million. And thanks to some very focused efforts across the organization, our net accounts receivable balance of $43.1 million, actually down $3.5 million versus last year despite the 11.2% revenue growth.

Capital spending for the year came in at $38.6 million, a bit below our original plans as some spending shifted into fiscal 2008. Capital spending in fiscal 2008 will likely be in the 50 to $55 million range due to the shift in higher spending than expected within our medical and health care segment to expand facilities and to support systems improvements at DeVry University.

We have continued to utilize our strong financial position to enhance shareholder returns. In July, we paid our second dividend to shareholders totaling approximately $3.6 million. In addition, during the fourth quarter, we repurchased approximately 162,000 shares at a total cost of about $5.2 million, bringing our total repurchases in fiscal 2007 to $10.5 million. In addition to delivering some strong operating results, we're proud of our focus and accomplishments on our control processes and finance infrastructure. Throughout the year, we implemented several process improvements to increase our efficiency and effectiveness across the organization. We heightened our (inaudible) focus and strengthened the depth, talent and capabilities of the finance team.

That concludes my review of the quarter and the full year fiscal 2007 results. We achieved strong results on almost every performance factor, improved our financial position and delivered excellent shareholder returns. We're poised for another strong year of continued growth and improved profitability in fiscal 2008.

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

Thanks, Rick. I will begin the operations review with DeVry University and its Keller Graduate School of Management, covering summer enrollment results and updating you on the progress we have made with several elements of DeVry University's strategy.

As we announced in today's release, new undergraduate enrollment in the summer increased 9.7% with total students increasing 9.8%. This term represented the eighth consecutive positive new enrollment performance and the fifth positive total enrollment result. However, we continue to see the majority of our growth at the DeVry University centers and online.

Graduate course takers increased 8.7% in the May 2007 session versus last year. In the July 2007 session, graduate level course takers increased 11.1% over the prior year. We're continuing to work hard to increase enrollment of recent high school graduates while maintaining our strong position with adult students. As some of you saw at our recent investor day, we're carrying the look and feel of our On Your Way Today campaign to the large campuses and we've completed renovations at most locations.

Now we're turning our focus to the next step in the evolution of the campaign, stressing the DeVry 90/40 value proposition, which is, that 90% of DeVry University graduates are employed within their field of study within six months of graduation at a starting salary of over $40,000. We have added data on our employment results to the press release. You'll note we're running ahead of the 90/40, and overall, it's at about 92/41.

As we recently announced, Paul Eppen, DeVry University's Head of Marketing, has left us to pursue interests outside the education industry. We're currently conducting a search for his replacement. In the meantime, we have a strong marketing team in place in place that is moving forward and building upon the improvements in marketing that we've made this year.

Another key element of our strategy is real estate optimization. In addition to opportunities like West Hills, California where in 2007 we sold an owned facility and moved, we're also addressing our leased facilities and executing co-locations to improve utilization.

During the fourth quarter, we signed a sub-lease deal at our Calgary site for about one-third of the space there. We anticipate savings of about $700,000 per year from this transaction. Additionally, I would like to announce that in July, we signed a new lease at our Dallas campus and are reconfiguring the space to use only about 60% of what we previously used. Beginning this fiscal year, we should realize annual savings of approximately $900,000 from this reconfiguration.

In the fourth quarter, we announced the opening of a new DeVry University Center in Nashville, which starting in September, will offer both undergraduate and graduate degree programs. Also in July, we announced a new university Center in the Detroit area which will offer a bachelor's degree completion program that can be completed in as little as one year. As a Detroit native, I'm particularly pleased that DeVry University is responding to the needs of the Detroit market as many auto industry professionals there are looking to change careers. And just last week, we announced the launch of the Bakersfield, California center with classes starting in September, bringing us now to a total of 87 locations in North America. We anticipate opening four to six new locations in fiscal 2008.

As we've discussed in the past, another element of our growth plan is to re-establish a strong presence in the large and growing associate degree market. Responding to increased interest by employers for technology graduates, in 2007, we launched an associate program in Web graphics design, which is currently offered on-site in four metro areas and will be offered online in November.

A part of our five-year strategic plan is to aggressively grow in online education. That includes supporting all DeVry divisions with our high-quality online platforms. This year, we reached that goal as our online operations began the process of supporting Ross University with their supplemental online learning, in addition to supporting Chamberlain, Becker, and of course and DeVry University. Our goal is to continue to grow our online enrollments faster than the market and we maintain this trend quarter course taker growth for the summer increasing 26% over last year, compared to the 22.5% growth rate we posted this past spring.

Let me turn now to Ross University where we continue to see strong demand for our medical and veterinary programs. For our May, 2007 enrollment, total students were up 9.9% and new students were down 5.2%. The decrease in new students is attributable partly to capacity constraints and partly due to the fact that in the May, 2006 term, Ross enrolled 109 transfer students from another medical school. Excluding transfer students in both years, new students would have increased 13.6%. Because of sustained demand, we're facing near-term capacity constraints at Ross, and in response we're making investments to respond to the growing student population. At the vet school, new student housing opened in May and all first semester students will reside there by September. At the med school, our expansion plans include a new building for study space and faculty offices and a new student center.

Also at Ross, to strengthen our goal growing alumni network, we're joining forces within North Carolina University School of Veterinary Medicine and the North Carolina Veterinary Association to provide continuing education for our vet school alumni. We'll also host a med school reunion in conjunction with the University of Puerto Rico. Speaking of alumni, our recent June graduation was our largest ever with 700 med and 250 vet graduates. It was also our last ceremony at [Avery Fischer] Hall at Lincoln Center as we have now outgrown their capacity.

Looking back over the year at Chamberlain College of Nursing, we accomplished a great deal. We successfully launched a new identity and implemented a branding campaign. We opened our first new location by colocating it with DeVry University Columbus and we made applications in Illinois and Arizona.

Because the demand for seats in nursing programs continues to be strong, our summer 2007 enrollment results were also very good -- 1089 students this year versus 594 last year. To meet this demand, it's our goal to open at least one new Chamberlain site per year and to grow our online programs.

At Becker Professional Review, the fourth quarter was very good, making 2007 our third record year in a row. We also had annual enrollments of more than 47,000 students, up from about 43,000 students last year. The Becker CPA Review hit a milestone during the quarter, celebrating its 50th anniversary. The secret to its success and longevity is that Becker has been highly responsive to the needs of its students and to the firms that they work for. For example, Becker CPA is one the only providers with online, CD-ROM self-study and nearly 300 on-site classroom locations in 27 countries worldwide, enabling students to seamlessly mix and match across these delivery channels.

Becker's performance in fiscal 2007 reflects the continued robust demand for accounting and finance professionals. It also reflects our intense focus on customer service and the results of our efforts to strengthen relationships with accounting firms. For the year, Becker secured new relationships with 25 firms, bringing us to a total of 77 of the top 100. We're working continuously to meet the demands and meet the needs of accounting firms. And to that end, we developed a new system that tracks their students' progress. This new system enables firms to stay on top of their employees' progress and to encourage them to complete the course and to take the exam.

An additional accomplishment this year was reaching an agreement with the University North Carolina to teach their CPA review course.

At Stalla CFA Review, we continued to experience strong growth as well. We recently signed agreements with St. Louis, Virginia, Tampa Bay and Minnesota CFA Societies. Internationally, we signed agreements with the CFA Society in Qatar, the CFA Society of Poland and the CFA Society of Vancouver. Today, Stalla has relationships with eight of the top 15 CFA societies in the world.

And in addition to the divisional results, this was also a year in which we invested in the infrastructure to support our growth to the multibillion dollar level. In addition to the finance and human resource aspect of this infrastructure, our vision is to develop a world-class technology platform into which we can plug all our operations, as well as newly acquired ones. A good example of this in fiscal 2007 was Chamberlain. They had relatively weak technology and we were able to plug them into the DeVry IT infrastructure rapidly, which saved us time and money. The second example is our online platform which is enabling us to serve the needs of all our divisions. Finally, this year we are launching an effort to revitalize our core student system, called Project Delta, which will be a multi-year multi-million dollar project and one that we expect to yield significant process improvements and enhanced customer service.

So all in all, in 2007 we did an excellent job of renewing our organization, maintaining our reputation as a high-quality education provider and building the foundation for creating long-term value. As we look ahead to fiscal 2008, we'll continue to execute on our five-year strategic growth plan with particular focus on increasing margins at DeVry University, maintaining the strong momentum achieved at Becker, Ross and DeVry online; expanding Chamberlain as a national system; carrying our diversification strategy to the career college market, and to international markets; and finally, enhancing our technology infrastructure to support our growth.

We are excited to take your questions, but if you will allow me just one last comment, I would like to say thank you and I would like to thank those who made possible our strong performance in fiscal 2007. First, the students who put their faith in us; second, the committed employees of DeVry, I want to say thank you. And also, we'd like to thank you, our investment partners, who provide the market investment capital to finance our growing operations.

So we'll now open the Q&A, although we had so much Q&A at investor day on the marathon bus ride, you may be all questioned out. But somehow, I doubt that. So Joan, let's go to the Q&A.

Thank you, Daniel. We're going to take the next half-hour to take questions. And as always, to allow people time to take everyone's question, if you could just limit yourself to one question and then jump back in the queue if you have more questions. So, Jeremy, if you could give the instructions, we will begin.

(OPERATOR INSTRUCTIONS). Amy Junker, Robert Baird.

Daniel, if you could just take a quick minute and talk a little bit more perhaps about revenues at the DeVry University, or the DeVry segment, increasing 5.5%. That was a little bit lighter than what we were looking for. And I'm wondering maybe if you could just share with us perhaps the percentage of working adults population in this quarter versus last to give us a sense of what that impact really was. And as a follow-up to that, what your enrollments are looking for, it's the new high school market or your core student. That would be great. Thanks.

Amy, I understand that question and I understand why you asked that. The results that -- of course, just as a background, that we report today, these enrollment results, we will be seeing the flow-through of those revenues going forward. Looking back at Q4 as Rick mentioned in his comments, one of the drivers of that revenue per student being a little bit lower was course load per student. So that gives you a little bit of an indication. Though we don't break out the adult versus the high school graduate segments per se, it does give you an indication that it was more on the adult side. And also, most of our growth continues to come from that segment who are mainly served at the DeVry University centers and at DeVry online. So the course load dimension was behind that revenue growth that you saw.

Does the 10% increase in new enrollments reflect success in the high school student class, or will we see that more next quarter?

Yes, you will see it more going forward, that's right. And yes, it does reflect increasing momentum in both segments, in both the working adult and in the recent high school graduate class.

Mark Marostica, Piper Jaffray.

Daniel, I just want to follow-up on that last question. What percentage of your full-time high school enrollments, or new students starts I should say, are recorded in the summer numbers compared to the fall numbers? And I'm getting at what you will ultimately report for the two combined. But I know you get some proportion of your high school starts in the summer.

Yes, one way -- thanks, Mark -- to look at that is that, traditionally, the spring is the smallest piece of the pie, as I'm sure you're probably aware. Summer is the biggest, fall is in between. So if you look back at the historical patterns, that would probably be a good guide to -- you know, there's not a major change in that pattern going forward.

Right. So are we hearing correctly that your full-time high school grad start for this coming fall then based on what you're seeing so far this summer should look better than what you have been experiencing in past falls?

I'm not saying [imagine]. Since we don't give forward guidance, it's not possible for me to directly respond to that. But to your earlier question, you were -- seemed to be going for, what's the percentage of the sizes of the classes, and that's the way it would will break out, would be summer being the biggest. So fall would be a little bit of a smaller class traditionally, but pretty close, and then spring is much smaller. But combining your question and Amy's previous question, we are seeing the momentum turning and the results of our efforts and the strategy we put in place to attract more students from -- graduating high school students to attracting them, and more of those are taking higher course loads and are full-time students, and we're seeing good response to the marketing messages and to the changes that we have made in our high school recruiting. But are we all the way there yet? No, we have a long way to go.

Edward Yruma, J.P. Morgan.

Can you talk a little bit about some of your capacity expansions at Ross? I know that you have added a couple of buildings. Has it actually increased the capacity? And if not, what's your time line and your thought process around this? Thank you.

Sure, Ed. The moves that we're making in investments in physical capacity, physical buildings, and that impacts the capital expenditure and we wanted to provide a little color on that, so you heard something about that. Our one aspect of the investment, and they are part of increasing the actual capacity, but that is not the end of the story. Probably the most important investment we're making is in people and continuing to recruit high-quality and experienced faculty to both the medical school and the vet school, as well as investments in educational technology. And all three of those are part of enhancing quality, enhancing the outcomes, and yes, enhancing the capacity of the schools.

Sarah Gubins, Merrill Lynch.

It looks like your persistence rates in undergrad improved pretty significantly, given the new student enrollment trends and the total undergraduate enrollment trends. Can you comment on that a bit?

Sure. I think that's not the only factor. Part of it is just the cumulative effect of now eight in a row positives. There's that lag effect and we talked about it a lot when we were on the other side of it and we want to continue to point that out to investors who may be newer to the education industry that that lag effect works in both directions. So now we're starting to see some of the benefit of the cumulative effect of those previous new student classes over the past now eight terms since the turnaround time, and now five in a row positive are following. And, yes, we're putting a lot of effort into retaining the students who we have already recruited to do a better job of serving them. We have always done a good job in the classroom and some of the things we have needed to add on top of that are some of the areas of customer service outside the classroom, and those efforts are starting to pay off. But I would say just starting.

So, it doesn't sound like you're seeing -- you didn't see a significant jump in retention rates in the quarter?

No, we didn't.

Okay. And then just one follow-up question. The cost on both -- instructional cost on services and SG&A were up much less than they had been for the rest of the year. And I'm wondering if you can talk about whether or not there was anything that shifted as a result of timing or if that was the plan for cost increases and whether or not that is at a level that we can think about going forward?

I think as we talked in previous calls, we were expecting the rate of growth to moderate somewhat as we got into the back half of the year, and we saw a little bit of that last quarter and a bigger impact in this quarter as we overlapped some of the -- increases that were made in investment spending in the prior quarter of last year. So this was not a surprise. We expected it to come down somewhat and in fact it did.

I know you don't give guidance, but can you give any comment about whether or not those kinds of rates are something we could expect to see going forward?

When you look at the direct costs, going forward we're going to get the benefit of the workforce reductions that will impact us. And as we said before, that we're expecting savings of about -- approaching $10 million a year on the direct costs. And then we hope to continue to leverage our operating expenses at a slower rate than our revenues.

Thanks very much.

One piece of color I would add on top of that is, we will continue to make investments in the near-term in order to drive grow growth for the long-term. So as we see those opportunities, we'll continue to do that as we have in the past. So that's just a little bit more color on that, it's not a straight line.

Mark Hughes, SunTrust.

How much was the impact of the sales shift in the bookstore?

The sales shift was really a timing impact of book store sales that shifted between June and July. It looks like it's plus or minus about $1 million.

And then, of that mix shift in favor of more part-time students, adult students, how far have we gone in that mix shift? How much more is left to go? Could you give us some sense of that?

You know, that's very difficult to predict. The world has shifted, it's not just DeVry. And if you look at the world of education, it's pretty hard to find a "traditional student" who's not -- somebody who's not working and going to school at the same time. And particularly among the students that we serve, and most particularly with DeVry University and our focus on serving students who are career-focused and many of whom are supporting a family or a single parent at the same time and so forth; these people are truly amazing people with what they're able to do. That is just a fact of life. So we continue to see that trend. So I don't think it's the end of that trend. So I think there is some more room to run on that.

Trace Urdan, Signal Hill.

Daniel, you guys have been operating an ad campaign with some pretty dramatically new creative, and I'm wondering in light of the success that you've had with the traditional high school students in the summer, whether you're satisfied with that campaign or whether we might be seeing changes to it as you go forward?

Thanks, Trace, and we're never satisfied. We have had some good results there, but of course one thing about marketers is we're always tweaking it and we're always testing it. So you probably will see some changes there. One of the changes I alluded to in my comments about -- in the operating section, which is that we're taking this campaign to its next step of evolution, and that is to hit harder the message of -- I'm speaking specifically to DeVry University here -- of that which is DeVry University's true, maybe its biggest competitive and most defensible competitive advantage, and that is its long history and demonstrated history of delivering value to students in the area of career success for the long-term. One piece of evidence for that of course is the statistics and the strong performance that I spoke about, that 90/40, which we're actually doing a little bit better than 90/40, but that is just one aspect. It really is a lifelong set of career services that our graduates and alumni can tap into. And we need to do a better job of -- I don't think we've done -- we don't feel we've done a good enough job of communicating that to the marketplace. So that's one of our challenges and one of the things that will probably evolve in the communications going forward.

As you go forward, do you still think about your audience being split into this working adult population and this high school, population, or is it more the challenge with the big boxes around trying to get students to take more courses each semester?

It's really more the former part of your sentence. Think of it in terms of the customer segments, and it's just that we're serving the same customer segments that we served in the past, or student segments, which we simplify -- we oversimplify when we segment them just into two segments of working adult and recent high school grads. It is much more nuanced than that, but for simplicity's sake and discussion purposes, we'll leave it at that, but we have more segments that we look at internally. It's just that we're serving more of the high school student, for example, at some of our DeVry University centers or online. So you can't just equate campus with high school and, let's say, DeVry University center with working adults. It's not that simple.

Jeff Silber, BMO Capital Markets.

I have a follow-up on the earlier question about the slower growth in the DeVry University business, and I know it wasn't that slow. But you had mentioned I guess the mix shift in terms of more working adults. I'm assuming that mix shift has been going on for awhile. Did the rate of that mix shift change this quarter? Or even when we drill down into the working adults and the recent high school grads, are you seeing a lower course load per student in either of those verticals?

Yes, I think we did. We saw lower course load per student, so it was the revenue per student, a little bit of an issue there. And as we have said many times, it's not a straight line. Our progression and our -- formerly, our turnaround and now our growth strategy, neither one of them is a straight line. There's some choppiness around the mean, and I think we saw a little bit of that in the fourth quarter.

Okay, that is fair. And in terms of tuition increases, can you just remind us what kind of tuition increases you installed in fiscal '07, and what's planned in fiscal year '08. Thanks.

Sure. At Ross University, it was in the order of 5, 6%, and we don't -- I'll just tell you what we did, and in general, there aren't massive changes planned for the near-term in the future. Ross University was on that order of magnitude, Chamberlain College of Nursing similarly, DeVry University a little bit less than that, in the four-ish, plus or minus range. We always say a range, because these things vary, particularly at DeVry University, by -- there's some regional pricing and some programmatic differences. So that's why we always say a range, it's not just one single point. And then Becker Professional Review, also in the four or five kind of a range.

And Keller?

Keller was a little bit lower than DeVry University as a whole. Keller of course is part of DeVry University, but it was a little bit lower than the undergraduate side.

Gary Bisbee, Lehman Brothers.

Hi, guys. Congratulations on a successful year. I guess just one question in two parts. You made another -- I guess actually a bigger real estate transaction you announced today, and you've done a bunch of smaller ones last year. When you look forward over the next 12 months or so, is there likely to be a stream of additional actions taken to reduce some of the excess real estate you have? And then the second part the question, just wondering if you would update us sort of generically how you think you are in terms of the capacity at the big box campuses that you're still operating?

Sure, Gary, yes, and Rick, jump in here too if -- something here, probably will. I would say, not so much an increase, but just a continued stream of activity. We've at this as a continuous process over the past year in a major way and this is an analysis on a market-by-market, location-by-location basis. So we take a look at each one of our locations. And first of all, each one of our markets we like. So there is no market that we don't like. I don't know how many ways to say this, but we're committed to every market that we serve, and even where we have sold a facility or sold a building, we didn't sell a campus, we just moved a campus, like from West Hills, California, we moved a few miles down the road. In some places, we may sell a facility and then take back a smaller proportion of the space where we own it. In some cases where we lease it, we may renegotiate that lease. Dallas is a great example of that, in leasing back a smaller portion. There may be some opportunities to sell a facility and then lease back some portion. We're not generally interested in just a straight sale leaseback with the same exact amount of space. That's just a pure financial transaction, we're not in a great need of cash, as you can see. We're more interested in positive -- well, we're only interested in positive MPV projects. So even if there's a project that looks good from a P&L perspective that's not positive MPV, we won't do it. If there's something that is positive from an MPV perspective and it results in a near-term accounting charge, then we are likely to do it. We look at it as economic owners, first and foremost. So that's a little bit of color around that.

And I guess part of the question was, are we likely to see a continued stream of these things? Do you have a lot more in the pipeline?

Yes, we are likely to see a continued stream of these activities across the owned facilities, the leased facilities, as well as colocations which could happen at either one of those categories.

And then, can you tell us what the -- where you are in terms of percent of the big boxers that are being used right now, capacity?

Well, in terms of a number, numeric percentage capacity, no, we don't break that down and we don't release that. And the reason is, that's not an operating metric that we look at per se like I have in my past experience in other industries in manufacturing, where the plant, you can measure capacity utilization very precisely. It's much more fluid than that, particularly as we -- if we go from a facility that used to offer only evening and weekend programs, and then we open up day programs, the capacity utilization is very different. Or, as we add mix and match, that changes the capacity utilization. But I would say that we are still far from full utilization of the DeVry University large campus facilities. And at the other and of the spectrum, we are very tightly utilized at Ross University. But yes, DeVry University, it's a much lower level of utilization than we plan to be or than we expect to be.

Jerry Herman, Stifel Nicolaus.

Dan, first question is I guess more quantitative. Could you give maybe more specific color on course loads, either the percentage change year-over-year or the absolute course loads this year versus last? And also, you in your 10-Ks typically talk about volume of high school presentations. Will those be higher this year? And if so, by how much?

The course load, we don't break out that particular statistic publicly for competitive reasons, so I can just tell you that it is down from the past history and we are not happy about that, we're not satisfied with that. We don't think that -- we think that we can do a better job of advising our students, doing academic advising and financial advising with our students on how to finance their education to ensure that they're taking the course load which best suits their needs. And in the last couple of years, we think that some students have taken a lighter load because we haven't done a good enough job of advising them on how they could take a bigger load and progress through their education and achieve their educational and career goals as fast as they would really like to pursue them. And so that has really been something that we're putting a bigger effort on improving systems, changing processes that are training and supporting our people and supporting our students. So that's a long-term effort, and it took some time for that particular metric to decline, and it will take some time for it to turn around. I think we've demonstrated that we've had that phenomenon in other areas where it took as some time to decline and we declined, but we put and effort on it and we turned it around. And that's what we're going to do in this area, too. We're going to turn that around.

In terms of high schools, that is another area that we're in the process of turning around. And we had allowed a number of high schools that we reached, and thereby, the number presentations we make in each high school and the number of students we reach in total as a result of those factors. We had allowed all of those factors to decline and then we set about turning that around with new management, new processes, segmentation of roles and specialization of roles, a new high school presentation and a number of other factors. And we're now seeing that turn around. We provided a little bit of color of that at the investor day recently and showed that the number of high schools visited and the number of responses or inquiries or leads coming from the high school students has passed the bottom, is now the upward slope. So we are optimistic that that will continue to -- not overnight -- but over time, turn around and we'll get back to the levels we achieved in the past, and then the next goal will be to surpass that.

Great, thanks. And just as a follow-up, you guys I guess planted the seed at the investor day that you're looking at some external opportunities. You mentioned [current] colleges and the international side with your international person in place now for some time. Could you give us some additional color on those endeavors? And how do you think about your capacity to borrow and the upper limits that you would borrow on an acquisition?

Why don't I take the first part, and then Rick can talk about borrowing capacity because we think about that a lot. We are intent on getting back to a strong position in the career college market. We define that as associate degrees and below. We've been there before, that's a lot of our history and we moved away from that to some extent, we moved up the pyramid and we're now much more weighted toward bachelors, masters and doctoral level degrees. In fact, we wanted to provide more information and color on that, and for the first time, have, in response to requests for more information from investors and from analysts, we're trying to be responsive to that. If you look at chart three in the press release, you will see across DeVry Inc. our degree-granting institutions, you will see that now broken out by degree level and by programmatic area. So that's the horizontal and the vertical diversification. We wanted to give you some benchmark to measure our progress in those two dimensions.

So you can see that the exposure we have to the associate degree market is relatively small, and we intend on retaking a strong position in that market. We think that there is a lot of -- even though some might argue, well, there's a lot of competition there, but there's competition everywhere. We think there's a strong -- there's a great opportunity for a high-quality positioned player in the career college market. We intend to accelerate our progress there through acquisition and our business development department under John Roselli's leadership and his internal and external resources is in full gear and we are looking at I think all or most of the opportunities that are out there in the marketplace are hitting our desk now. And they weren't before because people didn't know that DeVry was interested in career college acquisition opportunities, and now they know that we are and we're seeing those. So that's the progress report there.

The progress report in international is that John and Sergio are out and traveling and racking up the frequent-flier miles. We're quite interested in many parts of the globe, but in particular, I think that any international strategy in education has to take into account China and India, and as well we're interested in Latin America and some of the opportunities down there and Sergio has a lot of experience there. In terms of implementing that acquisition strategy, certainly being able to finance acquisitions is a key part of that. And maybe Rick, you might want to comment on our firepower there?

With the credit markets, I'm not going to try and give some type of prediction into the future there, but the good news is, for small to medium-size acquisitions, we have a revolving credit agreement that gives us capacity to go out and in a very short period of time raise some funds for those acquisitions. If we go larger than our credit facility, we've looked at it in the past, and again, it's a week-by-week, day-by-day type of thing. But we think we can finance a pretty sizable acquisition, probably less than $1 billion, and be in good shape going forward, given our strong financial position and our strong cash flow.

Chris [Schutler], William Blair.

I just had a question about Ross. Just wondering how much of the issue this quarter, I know that you gave a little bit of color on it, but maybe you can give a little more in terms of the transfers. I was just wondering this quarter what the number of transfers were as compared to a year ago?

We get transfers pretty much every semester. It's very difficult to predict. Unfortunately, there are other medical schools out there that have struggled in all parts of the world. And whenever that happens, we tend to get applications from those unfortunate students because Ross's reputation is known and is out there, and we certainly try to offer that opportunity. That's part of our mission is to offer opportunity for those who are qualified to be a physician in the United States. And so we do get those transfers. So it's a lot less in this comparable term than it was a year ago, and that's why it made that new student comparison look a little bit funny. So, these things are going to bop around and be up and down on us as we move forward.

Fair enough, I just wanted to make sure it was kind of a onetime issue.

Yes, it's more of a onetime issue.

And then, as a follow-up, I was just hoping you could maybe give a little bit of color on conversion rates and show rates?

On what?

Conversion rates and show rates.

We don't break those out as numbers as some others do for competitive reasons, but we are seeing improvements in -- we'd see improvements in those metrics as we are in overall productivity across marketing and recruiting, and we are encouraged by that. So -- and given that we're going to continue to make investments in marketing and recruiting to fund future growth. So that's what I was alluding to earlier, that that metric as a percentage of revenue might move around a little bit up and down around the mean as we move forward over the next few quarters.

Corey Greendale, First Analysis.

I am looking at the chart that you provided, and thank you for providing that, the degree level, the breakout by degree level and by program area. Have associate's degree continued to grow as a percent of mix since then? And as those grow, does that impact the revenue per student?

That would impact -- yes, it could impact the revenue per student. It certainly would impact the lifetime revenue per student if the student is (technical difficulty) associate degree and does not go onto the bachelors level, but probably not as significantly as some other schools that you might follow who have a very different tuition pricing level for those associate programs. Those are generally at similar levels.

Just as a reminder, while we're talking about this, as recently as maybe four or five years ago, we had one associate degree program at DeVry University in electronics and computer technology. We now have seven associate degree programs, just for a little bit of background for everybody; six now at DeVry University, and then the associate in nursing at Chamber of College of Nursing. So you can see that we are putting an increasing emphasis on that portion of the pure (inaudible) of education.

So in any given quarter, there's a slight differential in the revenue per student for associates from the other levels, but not a large one at that?

I would say that as you're thinking about it and modeling things, that's not a major driver of -- a bigger driver would be the course load per student and some other factors.

Okay. And my second question is, given there's a lot of different opinions and factors affecting the economy right now, from the point of view of your students, Daniel, do you think generally the economy and the tech environment, is that still an improving factor and driving people more towards you, or is that starting to level out and go in the other direction?

We don't see it leveling out and going in the other direction. We see it continuing to be -- it's more of a positive than a negative, whereas two or three years ago, it was much more of a negative than a positive. It's a little frustrating that it has not turned around in a big way because the jobs are there and you can see it in our employment results which continue to go up and up and up and into the 90s. And in those technology programs, in several of them and in many locations, it's high 90s or 100% in some programs. So it's -- the jobs are there, the translation to the front end sometimes does take some time. We are seeing growth in the number of technology students, the number of new technology students. It is there, but certainly not as much as we would like and as much as our society needs in terms of technologists, be they programmers, be they health and information technologists or what have you. So it is a positive factor, not as positive as any of us would like, but it is positive.

Daniel, we have time for just one more question.

Paul Beland, Citigroup.

Just a quick question regarding the credit issues out there. Have you seen anything different on the private lending for your students?

No, we have not seen the headlines and some of the things that we're all reading about and hearing about on TV impact our ability to help our students finance their education, no.

Just one final question. As far as discounting in the quarter, anything kind there versus last year, anything different that could have led to that revenue per student decline?

Well, in the general area you're asking about might be scholarships that we provide or special pricing levels, such as those for military students or for corporate education partners. Those would be large corporations like a Quest or a Verizon or somebody like that where we struck a partnership to make it easier for their employees to take advantage of tuition reimbursement programs and come back to school or go to school for the first time at DeVry University. And some of those programs are associated with a lower tuition pricing level than others. So, yes, those are factors in the revenue per student as well, and yes, so that would be a factor. Yes, that was a factor.

Okay, well, that's it. So thank you, everyone. I want to remind you that DeVry's next conference call will be held on October 25. That will be first quarter financial results, and also the September enrollment at Ross University and Keller Graduate School of Management. Thanks everybody for your continued support for DeVry and the students of DeVry. Take care.

Thank you for your participation in today's conference Ladies and gentlemen, this does conclude the presentation and you may now disconnect. Have a wonderful evening or day.