Adtalem Global Education Inc (ATGE) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to DeVry's fiscal 2009 second-quarter conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions).

At this time, I'd like to turn the presentation over to your host for today's call, Miss Joan Bates.

Thank you, Jeremy. 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 as a view, objective, or outlook, or that 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 cause 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, 2008, and filed with the Securities and Exchange Commission on August 27. Telephone and webcast replays of the call are available until February 13th. To access the replay, dial 888-286-8010. Or for international, 617-801-6888, the pass code is 45698231. Replay is also available via webcast through the IR portion of our website.

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. I'll turn the call over to Daniel Hamburger.

Thanks, Joan. Thank you all very much for joining us on our 2009 conference call.

We're pleased to report that we delivered strong academic outcomes and financial results this quarter, driven by several factors. And of course, first among them was the double-digit enrollment growth in the fall at DeVry University. So let me start with some comments on the overall environment, and then turn it over to Rick to discuss our financial results. Then I'll come back and review operational highlights in the quarter, and look forward to opening it up to your questions.

I'd like to frame today's discussion with two topics that are on all of our minds -- the economy and the new Administration's stimulus package, and how those could affect DeVry. So in terms of the economy, we're certainly mindful of the challenging economic environment that we all face. In terms of its effect on DeVry, we're really more acyclical than countercyclical in that we perform well in good times and bad times, because there's always demand for high-quality education. Another reason for this is our diversified portfolio across multiple curriculum areas and educational levels. This purposeful, planned diversification strategy has served us and our shareholders well in a time of all this economic uncertainty.

Now, the weak economy does give us a bit of a boost, particularly in two areas, students going back for MBA's, and our Keller MBA program is one of the largest in country, so we benefit from that, and in shorter programs such as those at our Apollo College and Western Career College.

In terms of the stimulus package, certainly watching with great interest all the debate that's taking place in Washington, and there are a number of proposals, and several include increases in student funding. We congratulate our new President on his inauguration, and we commend him for making education one of his priorities. In addition to physical infrastructure, we believe human capital is one of the best investments that our government can make.

We also think Arnie Duncan was an excellent choice for Secretary of Education. Arnie knows DeVry well. We've worked together closely on the DeVry Advantage Academy, where high school students gets both a high school diploma and an associate degree, a great example of the private sector and government working together to meet educational needs. So we'll continue to watch these events as they unfold.

But in the meantime, we're certainly focused on what we can control which is making progress in our strategic plan. And I can summarize that plan in three words -- achieve, grow, and build. Achieve the full potential of DeVry University. Grow through continued diversification across the vertical curriculum areas, throughout the horizontal levels of education, and in new geographic markets, including international expansion in places like Latin America, as well as India and China. And then lastly, build the infrastructure to support this growth. And I'd like to give you just a few examples of the progress that we've made in the quarter in progressing our strategic plan.

We recently announced two transactions as part of DeVry University's ongoing real estate optimization program. The first is in Long Beach, California, where we'll relocate from our current site of about 100,000 square feet into a new 47,000 square-foot campus. The new location is scheduled for completion in March, 2010, and it's a green campus. For example, it's expected to attain Silver Lead certification, and it includes infrastructure for future solar power.

In the other real estate action, we agreed to buy out a portion of our lease at DeVry University's Long Island City, New York campus. So you can see that we continue to rebalance our capacity and to improve our asset utilization. I'm going to ask Rick to discuss the financial details of these transactions a little bit later.

Then in the area of building our infrastructure to support this growth strategy, let me give a quick update on Project Delta, which includes replacing the student information system at DeVry University and at the Chamberlain College of Nursing to increase levels of efficiency, and also to strengthen student service. The highlight this quarter is that we selected SunGard Higher Education's banner system. Of course, this is a huge and important project, and we think SunGard is going to be a great partner for us.

Now, as we've done in our recent calls, I'd like to offer a brief update on the student lending environment and how it's affecting DeVry. Well, despite the weak credit market, we continue to see very little impact on our new or total student enrollments, and one impact that we have seen is on average course loads. While we're not immune to what's going on in the credit markets, we believe we remain in a strong position for several reasons, and one of them is that private loans continue to make up a very small percentage of the loans used by DeVry students.

For fiscal 2008, private loans as a percentage of our overall revenues was just under 5%. It actually declined from about 6% in the prior year. There have recently been some other positive developments that improved liquidity for student loans, and these include Sallie Mae's recent securitization of $1.5 billion of private loans that happened earlier this month, and then the Federal Reserve Bank of New York's announcement last month to create a term asset-backed securities loan facility or TABS. That's intended to create market conditions for student loans. While there's obviously the credit crunch and that continues, we are seeing some signs that could indicate improving liquidity in the student loan market.

So with that overview and introduction, let me turn the call over to Rick for the financial results and progress in our financial strategy.

Thanks, Daniel. I'm going to take the next few minutes to walk you through our strong second quarter and year-to-date results. In doing so, I'll break out the impact of the recent acquisition of US Education, the parent of Apollo College and Western Career College, as well as some other items to give you a better perspective on the underlying operating results.

The headline is that we continue to deliver solid top line and bottom line performance results, while making appropriate and prudent investments for future growth. Quarterly revenue was a record of about $370 million, up 35% versus prior year, and up 19.5% excluding the impact of US Education. Revenue through the first half of -- of the fiscal year was up 28.5%, and 19.3% excluding US Ed. Net income was $43 million in the second quarter and earnings per share $0.59, both up about 20% versus prior year.

For the first half net income was $78 million, up 24% versus last year. However, last year's results included a loss of $2.3 million net of tax, or about $0.03 a share from sale lease-back activity. Year to date earnings per share were up 19%, excluding a discrete item from the prior year. Also, we estimate the earnings-per-share impact of the US Education business was positive by a penny or two, driven by incremental operating income, partially offset by the amortization of intangibles and impact on our interest income and interest expense. All these factors have been a bit more favorable than we originally projected when we announced the transaction.

For your reference, second-quarter results included expense related to share-based payments of approximately $1.7 million pretax or $1.4 million net of tax. This -- this is higher than last year's second-quarter expense of approximately $1.4 million pretax or $1.2 million net of tax, primarily due to the appreciation of our stock price over the past year.

I'd also like to point out that included in our second-quarter financial results is a net unrealized loss of approximately $1.7 million pretax related to our auction rate securities. Now in past reporting periods, any unrealized loss was reflected only in our balance sheet. However, in November of 2008, we entered into an agreement with UBS with the right to sell our auction rate securities at par beginning June 30 in 2010, if they have not been redeemed before that time. Even though this was a positive development, it had a negative accounting consequence in that these securities must now be reclassified, and the $1.7 million net unrealized loss must go through the income statement. This loss should reverse back into income over the next year and a half, when the auction rate securities are repurchased by UBS beginning June 2010.

Our overall effective tax rate moved up to 30.1% in the quarter, and 29.3% year to date, primarily due to the increase in domestic-sourced income realized and expected for the fiscal year. The cost of educational service expense increased by 35% versus prior year in the quarter, and was up 25% year to date, excluding the discrete item in the year-ago period. Excluding US Education, cost of educational services would have been up by about 14.5% in the quarter and 13.7% year to date, both lower than our revenue growth, driving improved gross margins. Student services and administrative expense increased by 36% in the quarter, or about 24% excluding US Education. As you'll recall, this higher rate of growth is consistent with the perspective we provided as we entered the fiscal year, with the growth in spending driven by timing shifts last year when we deferred some spending and had a number of open positions.

In the current year, higher costs were the result of online growth acceleration actions within DeVry University and the Chamberlain College of Nursing, increased advertising and brand-building across all our business segments, and investments in facilities, people, and systems to build our infrastructure and support customer service, quality, and future growth. Now, while still subject to further refinement within the first year of the acquisition, we currently estimate the US Ed amortization expense for the remainder of fiscal 2009 to be about $800,000 per month, versus the previous estimate of just less than $1 million per month, primarily due to a shift from intangibles subject to goodwill -- intangibles subject to amortization to goodwill.

Now, with that let me walk you through some of the key highlights of our operating segment results, which are further detailed in the earnings release. First, revenue within DeVry University's segment was up 18.9% versus prior year in the quarter and 18.7% year-to-date, driven by the strong enrollment growth, coming both from continued online expansion and improved on-site enrollments. DeVry University's segment operating income increased by 23.4% in the quarter and 26.5% year to date, excluding discrete items. This improvement was driven by gross margin leverage, offset somewhat by the higher marketing and recruiting spending versus last year.

Also, while I'm talking about the DeVry University segment, I'd like to provide a little bit more detail on the two real estate optimization actions that Daniel mentioned previously. First, we entered into agreements earlier this month to buy out a lease on approximately 40% of the space at our Long Island City campus in New York. We will -- we'll record a pretax charge of approximately $3.9 million within cost of construction in the third quarter, driven by a $2.7 million cash outlay and a noncash charge of $1.2 million related to the writeoff of lease total improvements. This action favorably impacts pretax operating income by about $1.9 million per year going forward, with a cash payback of less than two years. As you can see that we evaluate these real estate opportunities on an economic value basis, even if there's an accounting charge, and we're able to utilize our strong balance sheet and cash position to achieve this result.

In addition, we plan to relocate from our current 100,000 square-foot campus in Long Beach, California, to a new location at the end of our current lease. The new location is about half the space and about one-half mile from our current location. There will be little, if any, financial impact next fiscal year, given the timing of the move, but should yield about $400,000 annual - of annual savings in fiscal 2011 and beyond.

Within the Medical and Healthcare segment, our reported revenue was up 130% in the quarter, driven by the addition of US Education, but still up about 30% excluding the impact of US Ed. This growth was driven by Ross enrollments and Chamberlain's geographic expansion into Illinois and Arizona, along with the accelerated growth of the online RN to BSN program. US Education continued to deliver strong revenue growth of its own, up about 23% in the quarter. Second-quarter operating income for the medical and health care segment of $26.7 million was up about 75% versus last year. Income would have still been up about 43% excluding US Education.

Finally, our Professional and Training segment results continue to reflect the economic downturn, and impact on the financial firms Becker and (inaudible) [serve], with revenue up only 1.2% in the quarter and 4.6% year-to-date. Operating income was actually down versus last year in the quarter and year-to-date, as the impact of prior headcount additions and other investments such as expansion into Hong Kong were only partially offset by cost management actions. Nevertheless, the Professional and Training segment year-to-date operating income is still above 32%, and looking ahead, we expect the softness in revenue to persist in the coming quarters.

Shifting to our balance sheet, the cash marketable security investment balances totaled about $263 million at the end of the quarter, compared to $241 million last year. Despite the strong cash balance, interest income in the quarter was $1.7 million compared to $2.9 million last year, almost entirely due to the declining interest rate environment. Cash flow from operations in the first half of the year was $139 million versus $132 million last year, and we used some of that cash flow generation to reduce our outstanding debt to $155 million from $166 million at the end of the first quarter. As you may recall, our debt cost is pegged to LIBOR, which started the quarter moving up significantly to over 4% but has since fallen dramatically, with one month LIBOR at currently less than half a percent. Now we're paying 50 basis points over LIBOR, so our total cost of debt is currently less than 1%.

Our net accounts receivable balance was about $138 million versus $77 million last year. Now over half of this increase was the result of the addition of receivables of US Education. Another 20% or so can be attributed to the increased enrollment and strong revenue growth in the quarter. While we've made some progress resolving the issues around our new financial aid system that we noted during our last call, DeVry University receivables per account was still higher than last year as we worked through the remaining issues.

Capital spending through the first half of the year was $25.2 million versus $16.8 million spent last year. That's excluding the Alpharetta purchase and immediate sale leaseback transaction last year. Capital spending is expected to pick up significantly during the balance of the year, with the total capital spending for the year in the $65 million to $75 million range, including US Education. This higher rate reflects spending during the second half on our new student information system called Project Delta, spending associated with Ross's expansion into Grand Bahama, DeVry University and US Education spending on facility improvements and new locations, and continued geographic expansion within Chamberlain College of Nursing.

Also during the quarter we began executing our second share repurchase program, repurchasing approximately 98,000 shares at a total cost of $5.4 million, or an average of $54.62 per share, and we also raised our dividend by 33%.

So that concludes my overview of the continued strong results for the first half of the year. Our performance illustrates the benefits of our diversified portfolio.

While the Professional and Training segment has experienced some softness as results of the down economy, DeVry University performance continues to improve, Ross and Chamberlain are growing, and US Education is further strengthening our Medical and Healthcare segment. Overall, we feel very good about delivering positive results for the balance of fiscal 2009 and meeting our long-term strategic objectives. And as we look for growth opportunities, we're also focused on maintaining an appropriately conservative capital structure.

Now, let me turn the call back ever to Daniel for a little more color on the operating results.

Okay. Thanks, Rick.

Let me begin the operating review with DeVry University, where our focus remains academic quality and on responding to students' needs. And so first, I'm proud to report that DeVry University, including its Keller Graduate School of Management is now one of only 13 universities in the US and 21 internationally to be granted accreditation by the Project Management Institute, which of course is the world's leading association for project management professionals. Their work was based on a number of criteria, including faculty evaluations, proof of continuous improvement, and so forth, and if you think about that economic stimulus package, we expect to see increased demand for project managers to handle all that infrastructure.

And during the quarter, we continued to invest in academics including new programs. In March, DeVry University will launch three new undergraduate tracks in the computer information systems area - enterprise computing, health information sciences, as well as web game programming. Now enterprise computing prepares students to manage and develop applications for large-scale organizations and systems. This new track was developed together with IBM and their business partners. This new -- the new track in health information sciences prepares students to implement and support electronic health records applications. And again, back to that stimulus, we understand there's $20 billion allocated for health information initiatives, and if that's passed, it could stimulate demand for these professionals. So these are examples of being responsive to the needs of our employers and to the needs of society.

Now, also in terms of being responsive, the magazine Military Advanced Education recently recognized DeVry University as one of the top universities for military personnel. This honor recognizes the nation's most military-friendly schools. It's based on the number of military students served, the availability of scholarships, and other policies that benefit service members and veterans. DeVry's online services also played a major part in receiving this honor. And perhaps the most important measure of our academic success, and of the value we provide, is how our graduates are faring in their careers. We've got the latest three-term average now, and even in the midst of the weak job market, I'm pleased to report that 92.1% of DeVry University graduates were employed in their field of study within six months of graduation, and at an average starting salary of over $45,000. As they say, past performance is no guarantee of future results. So given the current economic environment, we're going to make additional investments in our Career Services Office to maintain these excellent outcomes.

Now turning to Ross University. Our first class of students started courses at our new clinical training center in Freeport Grand Bahama, and planning is underway for the permanent site as well. This is another example of what we mean when we say we are doing well by doing good, because not only is this a major achievement for Ross, it is also doing good things for the people of Grand Bahama. Our Dean is literally being stopped in the street by people thanking Ross for coming and investing in their country. So we're off to a good partnership there, and looking forward to future growth.

Like Ross, Chamberlain College of Nursing continues to respond to the huge demand for qualified medical professionals. The nationwide nursing shortage is expected to grow in the next 10 years to over one million nurses, and yet our educational system in this country is turning away 40,000 qualified applicants a year. At Chamberlain, we see this unmet need as an enormous growth opportunity, but more importantly we see it as a health care imperative for our country. So to fulfill the need, we're investing, and we're investing in facilities and faculty and in educational technology like patient simulators. Chamberlain has recently submitted an application for a new campus in Jacksonville, Florida which, pending approvals of course, we hope to launch in the fall. We're also expanding our program offerings at Chamberlain. In March, we plan to launch a new Master's of Science in Nursing, pending final approvals.

And the newest part of our medical and health care group is, of course, the recently acquired US Education, which comprises Apollo College and Western Career College. The integration is proceeding very well, and it's a testament to the strategic fit and the cultural fit of our organizations. You know, in my experience with acquisition integration, you often have performance hiccups in the first few months, and here this has not been the case at all. In fact, both schools are well ahead of plan, and we're moving ahead with our growth strategy including new programs. For example, Apollo College opened a new dental hygiene program in its Portland campus in November. Also we're expanding the space at our Mesa campus, which will allow us to offer a new program to students, diagnostic medical sonography, or ultrasound, at that location in Mesa.

Now, I'd like to move on to the Professional Education and Training segments, and of course Becker Professional Review. After experiencing strong growth over the last several years, Becker's rate of growth has slowed significantly, and this is due in large part to the slowdown in the financial services industry and the effect that that's had on our CPA and CFA exam review programs. We're not anticipating any pickup at Becker for the remainder this calendar year, but we do believe that its long-term potential remains strong, and therefore we are continuing to focus on long-term growth at Becker, looking at additional markets and products to further leverage Becker's strong brand.

Here's an example. Becker recently partnered with Howard University which, of course, is one of the nation's top historically black colleges and universities. There we're offering our students our fast-pass course on the Howard campus. The fast-pass course is designed to help students prepare for the CPA exam in a shortened timeframe. So we're proud to play a part in empowering more minority students to go into the accounting profession.

And then to end on a truly high note, as you may have seen, DeVry was selected by Forbes Magazine for their prestigious Platinum 400 list of America's best big companies. Forbes reviewed 1,000 publicly-traded companies with annual revenues of $1 billion or more, and they evaluated them on financial metrics, such as sales and earnings growth and outlook, both short term and long term, balance sheet strength, stock market returns, and importantly on the strength of their governance as well. Forbes selected top performers across 26 industries to make up the list. DeVry was the only education organization selected.

So in summary, while we're all sailing through turbulent economic seas, at DeVry it's steady as she goes. Our diversification strategy is helping to mitigate risks and helping us to achieve our objective and that's to be the best long-term risk-adjusted investment in the education industry.

So with that, Jeremy, let's go to the Q&A.

Thank you very much, sir. (Operator Instructions). And we will start off with a question from the line of Sara Gubins with Banc of America Securities.

Hi, thank you. Good afternoon.

Hi, Sara. The first time I've heard you introduced that way.

It's actually Banc of America Securities-Merrill Lynch, technically. But on Becker, it sound like you're taking a long-term focus, but I'm wondering if there are any shorter-term cost actions that's you're planning to take in order to stabilize operating margins?

Sure, absolutely, Sara. And as Rick pointed out, the margins are still very attractive there, they're certainly down from the very high water mark of last year. But in the long-term view, they're well above where we used to be just a few years ago. So you have to balance those factors. Certainly the management team of Becker is very much on top of the cost structure of the business, and they're taking a look at deferring items or non -- or discretionary spending, either cutting or deferring those things. We continue to review that on a very frequent basis right now, as we assess how the demand profile looks.

Okay. But no plans for kind of significant costs in that group?

No. Not at this point. Nothing drastic.

Okay. I know it's early, but any sense of Spring -- how Spring enrollment trends are looking? Are you continuing to see strong demand for programs?

We are, and of course we'll announce the Spring enrollments for DeVry University in April, and certainly can't make any projections now. But I would like to remind everybody that, given the large increases in percentage terms that we've seen in recent periods, eventually the comparisons on a percentage basis become a little bit more difficult.

Okay. Then could you give an update on your cost to acquire new students, and marketing costs in general?

Sure. The -- the cost to attract new students to DeVry University, Ross University, Chamberlain College of Nursing, to Apollo College, Western Career College, when you look across, we're pleased with how that's going. We're seeing our marketing teams do increasingly better jobs at identifying sources, at using sophisticated database marketing techniques, and so there are stable to positive trends in the efficiency of that process. And given that, and also for other reasons as we've outlined many times, because the cost to attract a student is X and the lifetime economic value is significantly higher than X, that is a very positive, value accretive way to deploy our owner's capital. So we're going to continue to invest in academic quality initiatives, first and foremost, but also here -- to your question, in ways to spur more growth through marketing and recruiting activities.

Okay. Thank you. I'll turn it over.

Okay. Thanks, Sara.

And Your next question is from the line of Bob Craig with Stifel Nicolaus. You may proceed.

Good afternoon, everybody.

Hi.

Hi, Bob.

A couple of questions for you. First, just to sort of broaden Sara's last question there, could you comment on the magnitude of growth investments you expect in the second half, at least relative to the last four quarters? And perhaps, Rick, if you could make some updated commentary as to your expectations regarding student services expenses relative to revenue?

Yes. I think our view is really on -- not changed from what we said as we entered the year. We expected our growth in student services expense to be higher than revenue in the first half of the year, and then get some leverage out of that in the back half of the year, and we still anticipate that to be the case, probably even more so in the fourth quarter than the third quarter. And so, you know, we're -- we're trying to be prudent in looking at what -- what's working, and continue to fuel that pump and -- and make adjustments, as Daniel mentioned to where -- on discretionary spending where we can. But we're trying to balance being aggressive in investing with being prudent in this environment.

Great. Is it possible -- I guess why don't we use the House version, since that seems to be, at least from what we've ascertained so far, a little bit more generous than the Senate version. But assuming the House -- the stimulus proposals fly, the low-limit increases and Pell increases, could you hazard a guess as to what impact that might have on your private lending volumes?

Yes. Of course, I just want to caveat the whole answer by saying that it's difficult to comment on the stimulus package until it's been finalized, and probably you -- you're just being speculative. So -- but as long as we're in the world of the hypothetical, if you asked about -- yes, we would expect that the private lending volume, small as it is, would go down, you know, even further. And that's been the case that we've seen with the past -- you know, the most recent increase in the -- in the loan amounts that -- one of the consequences of that was that our private loan volume, small as it is, actually went down.

But I take it that it wouldn't entirely eliminate it?

It -- probably not eliminate it. It would be in the very, very small -- there are always students across the different institutions that will have a need, and we're able to meet that need. It's not like private loans have gone away. They're still there, and we're still working with a number of lenders, it's not just one, multiple lenders there we're working with to provide those, you know, funds for students as parts of their package, where it makes sense for the student.

Okay. Last one, then I'll turn it over. Any thoughts, Dan, on how greater Title 4 eligibility for other foreign medical or nursing schools may change the competitive dynamic there?

Well, again, we're speculating because, you know, that -- that hasn't happened, and Ross University is one of only three international schools that has Title 4 eligibility, and it's also distinguished in many other ways and differentiated from other international schools, whether it's -- most importantly by the academic outcomes achieved by the students, and the -- the rave reviews received from their employers, the hospitals, who love the Ross grads. I just met another one recently, unfortunately through a personal situation that we encountered a doctor, and they said, "Oh, Ross? Love their graduates." And so there's a lot of ways to distinguish, and Title 4 is one of them. And if other international schools were to achieve eligibility by virtue of, you know, they have to -- you know, get over some very high bars and have excellent academics, and if they are able to do that, you know, that's fine. I don't think it would have a significant impact on Ross's ability to meet its recruiting goals at all.

Okay. Great. Appreciate the commentary. Thanks.

Uh-huh.

And your next question will be from the line of Mark Marostica of Piper Jaffray. You may proceed.

Thank you. A couple of questions here. The first one, according to my calculations, SS&A attributable to US Education came in at about $12 million in the quarter, and I could be wrong on that, so maybe clarify that for me. But based on that, is that a good quarterly run rate to think about going forward?

You know, again, we're not going to be in the habit of quoting our business unit advertising. Your number that you backed into is pretty close, though. If you look at the pro formas that we provided a month and a half ago, that gives you some historical context for the spending by quarter.

Okay. But is there any -- you know, reason that number should be up or down materially going forward? I know you're not giving specific guidance, but I just wanted to know if there's anything in the number that's more one-timish in nature?

I don't think there's anything one-time nature associated with that. But as we expand, we're going to be putting the money to expand in different locations with programs or -- or locations. So, you know, we hope to be more aggressive to continue to fuel the growth within Apollo and Western.

Got it. And then regarding Project Delta, can you give us a sense -- while I know it's early days with SunGard, can you give us a sense of any key milestones that you might have for the project implementation as you plan going forward?

Well, there's a host of internal milestones that, you know, that we're tracking, and I'm personally tracking. I mean, I'm personally, along with other members of the management team, staying very, very close to this, and we've assembled just a -- one milestone is assembling the right team. It's probably the most important milestone. And -- so far, so good on that, in that regard, in terms of the internal and the external team that's working on this. So what we've done for this project is actually pull some of our very best and brightest from around the system, cross-functionally, and it's not just a second hat that they're wearing. Oh, you've got a full-time job but in your part time -- spare time could you work on it -- no, we're not doing that. They're being pulled off full time, dedicated people, dedicated facilities that they're in, to focus on the project.

Then we have -- we have external resources, as well, including those from the Professional Services Group at SunGard Higher Ed, and -- and a personal commitment and a relationship, you know, CEO to CEO, Chris Conde over there is outstanding. He's got a great team, and we've met several times already on the project and also on just working together as partners generally. So those are some of the early milestones, and it's on track. It's definitely a long-term program, it's going to be a couple of years in the making. There will be milestones and deliverables along the way, so we'll start to get value before that time, and we'll do our best to keep you posted on that. But we will make sure that this -- this is successful.

So Daniel, perhaps is it a little premature to try to pin you down to a certain major implementation date of a certain module? Are we way too early for that, or do you have that --

Yes, and the thing there is we're -- I think we're doing a very good job of mitigating risk around any sort of major, big bang implementation where you turn the thing on, and then you have all these hiccups that -- you know, and I -- many organizations, not just in this industry but around the world, have gone through that, and I've gone through that, with a lot of pain, in past organizations. So it's going to be much more of an incremental approach to turning on this module and turning on this functional area, rather than turn on the whole thing at once. So that's just one among many other ways that we're mitigating risk on the project.

Okay. Regarding corporate tuition reimbursement, there's been some noise in the market around that over the last couple of days, Sprint canceling the corporate tuition reimbursement program. I'm curious, what is your exposure to corporate tuition reimbursement, and have you had any of your partners pull back or cut back on that item?

We have had one. We know of one employer who has stopped offering the benefit, and at this point -- we keep asking, and so far we have one that we know of. In terms of our exposure, we don't break it out, but I can tell you it's within the 20% or so of DeVry revenues that are in the category of tuition reimbursement, as well as self-pay and EDUCARD, and military tuition assistance I think is in that bucket, as well, yes. So, you know, it's in there.

You know, it's a direct relationship in many cases between the employer and the student. So it becomes -- it's not easy to pinpoint exactly, but what we have seen from talking to students and talking to employers is that, you know, with that one exception, you know, the -- the overwhelming majority are continuing to benefit, and what we've found from past experience and past downturns is that within that, this is -- if not the last, it's one of the last benefits as an employer that you want to cut. Really, it's very popular. It's very important to students, and employers that you have are already on it. It's very painful to then withdraw that. So we have not -- while we don't see it, you know -- it's very steady. It doesn't boom up in good times. At the same time, it doesn't dip way down or anything in bad times. That's been our experience with corporate tuition reimbursement.

One last question added to that. Can you mention what industry that particular partner was in?

What industry was that? Manufacturing -- the area of manufacturing, heavy manufacturing.

Okay. Thank you. I'll turn it over.

And your next question will be from the line of Andrew Steinerman with JPMorgan. You may proceed.

Hi, Daniel, Rick. Could you go over student persistence, what has been the kind of year-over-year trends in student persistence?

Sure. It's been positive, and that has been the case at all the institutions. That's another area where we get a little bit of a lift in a weaker job market. It does appear that in addition to new students, people going back to school if you will, you also seem -- also tend to see students staying in school at a little bit higher rate. But that -- at the same time, we have also been investing in improving the academic delivery and the student experience, student services that's surround the classroom, for quite some time before the downturn -- the economic downturn. So it's hard for us to tease out those two factors, because our own internal efforts, which are continuing, have been giving us improvement, and we expect to continue that. And then more recently, we've seen some lift from the economy.

Okay. Thank you very much.

Sure. Hope that was helpful color.

Yes.

And your next question will be from the line of Kelly Flynn with Credit Suisse. You may proceed.

Thank you. A couple questions. The placement rate, which was obviously quite strong, could you just remind us what the year-over-year change in that was? And then I have a couple other small ones.

Sure. It's pretty consistent. A year ago it was about 92/42 I think. We always talk about the 90/40 at DeVry University, sort of the minimum expectation is of 90% employees, at a salary of $40,000, and we've been running ahead of that. We've been overdelivering on that value proposition for some time. So last year, I think around 92/42, now it's about 92 or 92.1 and the $45,000 salary.

Okay. Great. Then a couple more. The -- the color you gave on student services was very helpful, but on the gross margin line, is there any way you could help us out this quarter, given that the -- the acquisition, you know, rolled in fully this quarter, on the gross margin and what you expect? Is it reasonable to extrapolate the year-over-year change in gross margin through the rest of the year, or are there any seasonal factors that you would highlight to move us away from doing that?

Well, I think part of seasonal effect would have been what I referred to in terms of some of the open headcount that we had in the first half of the year last year, and those positions were filled in the latter part of the year. And we have been continuing to open up new locations, DVUC's. So if you look at what I said in the first half, we had revenue growth excluding US Education about 19.5% across the rest of the portfolio, and our growth in cost of instruction was right around 14%. So we're getting leverage there, and we would expect to get -- continue to get gross margin leverage in the back half of the year, as well, maybe not to the same extent.

Okay. Great. And then could you just remind us what you said about the -- the goodwill, and you kind of ran through that quickly. What's the impact of that on the financial statements, the change in how you -- how you account for that?

You're talking about the amortization for US Education?

Yes.

Previously, you know, we based it upon our -- our initial estimates, preliminary estimates when we completed the transaction on various different pieces that would qualify for intangible accounting. Some of that's been shifted to goodwill that doesn't get amortized. And so going forward for fiscal 2009, it's going to be about $800,000 per month of amortization expense for US Education. Then as we go to next year, some of that will fall off. And so that will fall off in -- be a little bit more in the first half of the year, then fall off. It will be probably about $400,000 to $500,000 a month on average, a little bit more in the first half than the second half on that, average.

Okay, has it been -- was it 800 so far per month --

Pardon me?

It has been 800 so far per month and will --

We did an adjustment in the second quarter to get it to -- retroactively to get it to 800 for what we did, and that little bit in Q1, and then on a year-to-date basis, that's what it's been, yes. And there will be more detail in the 10-Q that we'll be filing in early September. We'll give you all the breakout of what we had before, what we have now, and -- and more of the detail in terms of the line items.

But just to be clear, in the second half of this year is the run rate different than what it was in the third -- in the second quarter?

No. The back half of the year, the run rate will be about $800,000 per month.

Kelly, just in case -- we're getting into some of the details, the big picture on US Education is that we're exceeding the initial expectation for its contribution -- its financial contribution that we laid out when we first announced the transaction.

Okay. Great. That's helpful. Thank you, Daniel.

Uh-huh. Yes. We try to do what we say -- say what we do and do what we say, and if we can do it a little bit better, even better.

Great. Thanks, guys.

And your next question will be from the line of Jeff Silber with BMO Capital Markets. You may proceed.

Thanks so much. Can you remind us what tuition increases, if any, are planned over the next six to 12 months or so?

We haven't announced that yet, Jeff. So there's nothing to remind other than that, you know, we continue to take a look at it in the competitive environment. We are in an environment where we're seeing pretty hefty tuition increases out there, and so, you know, we're mindful of that. At the same time, we've tended not to stray too far from, you know, the plus or minus 5% range. So we try balance all the factors.

And would any potential increase in loan limits in the stimulus package affect your thinking on that at all? For instance --

No.

if the 2,000 limit goes up --

No. Sorry to cut you off, but no. I'm so emphatic, no. The answer is no. We look at the competitive environment, and that's -- and we also look at -- we're constantly recalibrating and recalculating the return on educational investment, the ROI, that our students achieve. And so as that continues to improve, and that is exemplified for example by the 90/40 or in this case, 92/45, that is what in the long run underpins the ability to -- you know, we do -- it's not cheap to go to DeVry University, for example. It's not cheap to go to the Chamberlain College of Nursing, it's not cheap to go to Ross University School of Medicine or School of Veterinary Medicine. We understand that. But as long as that is underpinned by the value proposition that the students are achieving, then -- then it works.

Okay. Great. I understand. Dan, in your prepared remarks you talked about the impact on the average courseload per student. Can you just give us a little more detail? When did you start seeing that? Are any specific program areas being affected more than others?

Yes, and what we're talking about there, it's -- it's more color in that -- it's not like A times B equals exactly C. It's a little bit less. So a student who, for example, may have previously taken four courses -- I'm making up an example -- maybe now they're taking three courses. It's not all students, not across the board. But we're seeing a little bit more of that, as one -- probably the main impact of the economy that we've seen, just taking a little bit lighter academic load at DeVry University, you know, undergraduate in particular. So we're active on that. We're counseling students on the benefits of taking a heavier courseload in order to graduate sooner and achieve that value proposition, the 90/40 and the 92/45 now, helping to advise them on achieving co-borrowers and many other things to counteract that. But that is one piece of color that we wanted to provide.

Okay. And Rick, just one quick follow-up for you. You mentioned the net investment loss. Can you tell us what that was, either on an after-tax basis or per-share basis?

On a per-share basis, it's going to be about $0.015. So that's something that we wouldn't have contemplated as we entered, you know, the back half, or the second quarter. And on an after-tax basis, it's pretty much at a -- you know, US rate. So you take 60% of that, that gives you the -- so it is about $1 million after tax.

Okay. Fantastic, thanks so much.

Your next question will be from the line of Andrew Fones with UBS. You may proceed.

Thank you. I was wondering if you've noticed any impact from -- from the economy on those choosing an online course versus an on-ground course? Obviously, we've seen very strong growth in your online courses, and those seem to be very popular.

Yes, thanks, Andrew. And yes, we have seen very strong growth in our online programs. For example, at the Chamberlain College of Nursing, at the Keller Graduate School of Management at Devry University Undergraduate, just to name a few examples. It's a major opportunity, and I would say that some of that growth perhaps can be attributed to the economy, in that students are saying, well, instead of driving -- especially when we saw the high gas prices last summer, we heard some anecdotes about that. But it's basically anecdotal at this point.

I would say the much bigger factor is our own operational improvements, the -- the investments that we've made in marketing and recruiting. We talked about -- several people asked about the investments that we've made that show up in that SS&A line. Well, they're paying off because we're attracting more students. So I would say that's a much bigger factor in the online growth than the economy.

Okay. Thanks. And then just a follow-up to the last question, in terms of the number of courses that students are taking. Where you have seen students pull back in the number of courses they're taking a little bit, has that been at the more -- has that been for more expensive courses, would you say, and there's been perhaps a little bit less of that kind of activity with the -- the lower-cost courses, or any comments there? Thanks.

Sure. Yes, it's been a little bit more at DeVry University and not so much for example at, for example, Apollo College or Western Career College, with their Associate Degree or Certificate programs. So, yes, that's a good observation, Andrew.

Okay. Thanks.

Your next question will be from the line of Gary Bisbee from Barclays Capital. You may proceed.

Hey, good afternoon. I guess the first question -- with the interest rate on the line of credit so low, you know, are you going to continue to reduce debt, or does this make you, you know, look to maybe more aggressive buybacks or acquisitions and, you know, just given the cost of capital there is so low?

Well, you know, we have -- as I mentioned, we're back -- buying back our shares, so that activity is underway. We -- we are always open and looking at the opportunities that -- whether it be on the acquisition front or what have you. And so, you know, with -- with [barring] rates less than a 1%, and we're earning about the same in our money, there's less risk in terms of taking that out. So, you know, it's -- it's a good return. And we did give more back to our shareholders with the increase in our dividend, too. We had a 33% increase in our dividend that we paid out in January. So another way of using that -- that capital.

Okay. And so did I hear you say that the US Ed Corp deal was a $0.01 or $0.02 accretive so far, or in this quarter, or something like that?

I said in the current quarter it ended up being $0.01 or $0.02 better than what we had projected, and a large part of that is due to, you know, the amortization I talked about. Well, first and foremost, I think their operating results are doing better than we anticipated. The amortization's lower, like I said, by about a $200,000 per month.

And then when you look at the impact of the acquisition, the cost of the cash that we used and the cost of the debt is much lower than we would have projected back, you know, four or five months ago. So that helped sort of the accretion go from a slightly dilutive to accretive acquisition, when you look at it in a vacuum. Also keep in mind we still have pretty high cash balances, and so relative to last year, relative to, you know, our own internal projections of a few months ago, we're running less on that cash, too. So that's somewhat of an offset to that for the total Company.

Yes. And I guess then, though, unless something changes dramatically with your spending patterns, it -- the deal could likely be -- I hear you on the lower interest on the cash, but the deal could likely be a deal could likely be, I don't know, $0.05 accretive or something in the full year? Other than the interest income that you're earning on your cash being lower, is -- is there anything else that you would likely, you know, overspend on relative to your prior plan, if the deal does end up being quite a bit accretive? Or -- or, you know, is that already baked into your commentary around the back half, you know, margins potentially being better than what we've seen in the first half?

I think the deal will be -- will be accretive based upon the changes we just mentioned. Then when you look at it across our whole portfolio, we've got a lot of moving pieces, with the Becker Professional Review segments, you know, worse than we anticipated as we entered the year, given the economic situation. We're making up for some of that with strong results in US Education and DeVry University, and Ross and Chamberlain. So, you know, that's again the benefit of our diversified portfolio.

Yes. A quick comment I would make on that, Gary, if you'll indulge me, is that when -- we always knew US Education was going to be very accretive in the long run. We didn't know it was in the stub year of its first year with us, and now we're glad to see, as Rick said, the number one factor being their strong performance, that it does look like it will be accretive even in its very first year.

Okay. Then just one cleanup question. Could you go through the accounting again for this charge in the auction rate? So you -- you took the charge now. Are you going to get -- you said you'll get that back into income at some point. Is that over time, or is that going to be sort of a one-time shot when they buy this back from you?

Well, if everything goes as expected, you know, we'll -- and nothing happens in terms of redeeming these auction rate securities over the next year and-a-half, we'll sell these securities back to UBS at par in June of 2010. And so each quarter in between now and then, we'll go through a whole reevaluation process of those auction rate securities in this put option, and over time that $1.7 million of unrealized loss should come back into income, so that the end of it in six quarters from now we'll be back to a push.

Okay. But you would likely then break that out like you did this quarter, so we'll have a sense on an ongoing basis?

Yes.

Okay, great. Thanks a lot.

Bye, Gary.

Your next question will be from the line of Corey Greendale with First Analysis. You may proceed.

Hi, good afternoon.

Hi, Corey.

A couple questions. First of all, I know people have touched on the change in the courseload per student, but first of all, is there any way you can quantify that at all, like the percentage change in average courses per student or anything although that? Second of all, is that differential -- is there a differential between what you're seeing online versus on ground, or is a mix shift toward online maybe accounting for some of the change in the number in classes?

Sure. I'll just qualify it to say that we can't quantify it, but I think it's being overblown, like maybe even a lot here on this call and other calls that I've heard about. So, you know, it was just a little color. I'm just letting people know that, you know, enrollment times tuition increase -- you know A plus B does not equal C, exactly, it's a little bit less than C. In terms of mix shift, yes, there's also a little bit of mix shift because online undergraduate, this is not the case at the Keller Graduate School of Management, but online undergraduate the students do tend to take a slightly lower courseload, so there's a little bit of a mix shift to online that depresses the overall course load for the university. And then a little bit of a natural degradation. So it's a little bit of both.

Okay.

But I think -- we're getting a little carried away with it, I think.

Then I'll move on. Thank you. Second question is, you've been, you know, clear that you're looking at international acquisitions. Just operationally, would you be comfortable closing an acquisition or announcing an acquisition tomorrow, or would you rather wait until you've had US Education Corp. for little while longer, make sure there's no bumps there before you would do an acquisition?

We're very comfortable closing an acquisition today, tomorrow, we have the management team in place. So -- and that's been our stated strategy. And you mentioned international, that's not the only place that we could do that. But yes, specifically to your question about international, yes, we would be comfortable.

Okay. Then I wanted ask to ask, among your investments, could you quantify for us how much of that is in admissions reps, or just I guess more specifically how many more admissions reps you have now than you did a year ago, either a number or percentage?

Yes, I don't know if we've got that. But our -- I don't have the exact figure in front of me. Somebody has that or we can get back to you. I think we include that in our filings. But just to give you some color on that, the investments are in the -- the marketing and recruiting area generally, and it is sort of a continuous process. And those -- those groups work very closely together. So it's -- so that value chain sort of all has to go up together. So as you spend more on marketing, then you need to hire more admissions advisors to enroll the students -- or respond to the prospective students who inquire. You need more financial -- you know, student financial aid representatives to handle that, academic advisors, the whole chain goes up.

So the investments are sort of across-the-board, with then perhaps a little bit of additional investment, particularly at DeVry University, in grant building. And we are continuing to invest in enhancing this wonderfully powerful brand of DeVry University, that's this 78-year-old brand that just gets -- keeps getting stronger and stronger, based on the academic results. That's what gives the brand value. And we just think we haven't done enough, and there's more that we can do to communicate that value that's really embedded in that 90/40.

That's why the new tag line is, "We major in careers," which really is seeming to resonate with people. I think that was a very good choice on the part of our marketing team. So we just need to do a better job of telling that story, telling that message, and carrying that through all the different media, especially today's, you know, modern media, electronic, and so that's maybe a little bit of -- of extra emphasis on top of everything else that I mentioned.

Okay. That's helpful. Thanks, Dan.

Sure.

And your next question will be from the line of Trace Urdan with Signal Hill. Go ahead.

Thank you. Could you elaborate a little bit more on Project Delta? What prompted the decision to go with a new SIS system now? What kind of returns you're hoping to achieve after having this new system put in, how it's going to change your processes, make them better, more efficient, et cetera?

Well, we have not had satisfactory results from the former system that we put in, and we're dissatisfied with that, and we can see see that there is a very high degree of improvement in not just efficiency, that's certainly true and we're certainly interested in that, but even more importantly improvements in our levels of customer service, which is so critical and going to be absolutely a key differentiator more and more into the future of this world of higher education. So both efficiency and improving customer service, those are the drivers of -- of Project Delta.

And then also -- and this also applies in the sort of the -- what people typically think of the core of an SIS of enrolling students and scheduling them into classes and keeping track of all that, but it also applies upstream into what many people call CRM, Customer Relationship Management. So there's a lot of value that we can drive there and become much more efficient in that process, and throughout the enrollment process. So those are really the drivers and the value that we're looking to achieve with the project, Trace.

So when you were looking at this and evaluating it on an ROI basis, what were the factors that -- that went into that decision?

Well, it would be efficiency, you know, throughout that core process as well as the enrollment process, and -- and even more importantly, customer service gains that our students would see, enhancements in the level of service they are provided by our internal people, as well as enhanced self-service capabilities so students can serve themselves, which is the way many people, many students want to be served today; which has the double whammy of, hey, that's the way you want it, great, and it's more efficient because you're serving yourself as a customer. So those -- and then, you know, just some technical considerations in terms of scalability and reliability and then -- sort of efficiency from a technical capability -- standpoint in terms of servers and -- and that kind of efficiency.

And does the SIS, does it extend all the way into the enrollment process, or I mean, into the -- the admissions process, or is it just -- does it just start when a student actually enrolls?

It extends into the enrollment process. I guess I need do a better job of explaining that it includes that enrollment process, what we call CRM or Customer Relationship Management, in the IT world they would call it that. That is part of the project, as well.

So a system that the admissions counselors interface with, it will swap out what you have in there currently?

Yes.

Okay. One of the things that we've noticed, if you just look at the DeVry business in the segment detail, it looks like the -- the incremental margin on the incremental revenue in that business has been declining sequentially. In other words, you know, the -- the margin on the new revenue in the DeVry business keeps going lower and lower, and I presume that that relates to some investments that you've been making in that business, but I'm wondering if you might be able to speak to that? What -- what kind of incremental investments we're still experiencing in the DeVry business on a year-over-year basis, and when do you think the investment spending in that business might stabilize?

Well, I think, you know, the margins are still improving.

But the pace -- the pace is declining when you look at the new students coming in. Each new student is not as profitable as the one before.

Remember, last year we had a tremendous benefit from the reduction in force we had in our campus staffs and faculty at the beginning of fiscal 2008, and we benefited from that throughout the whole year. Also we had a tremendous amount of real estate optimization activity during that same time period. And so all that was a big one-time benefit that helped the year-over-year comparison, quarter-over-quarter comparison throughout fiscal '08. Now in fiscal '09, we're still showing improvement but we continue to make, as Daniel has mentioned, continued investments in inquiries and people and brand building to -- that does somewhat soften the increase, but still -- we're still showing improvement.

Yes. And if you -- Trace, if you did the microeconomic analysis, which obviously we have access that you don't, I can tell you the incremental student is accretive, is value-adding from an academic perspective and from a financial perspective.

No, I'm not suggesting they're not accretive. It's just that the pace of the accretion seems to be going backwards, and logic would suggest that it should go the other way, right? You're getting more --

Going backwards -- you're right that it might be slowing from what it was, but that again has been purposeful, and that's consistent with what we've been saying we're going to do in this --

I know it has. I'm just looking for some kind of guidance as to when you think that -- that might stabilize, when, you know, are you still sort of layering in new investments here?

Yes, you know, Trace, as you know from studying the industry as long as you have, whenever you're in growth mode, you're -- that dynamic is going to be there because you're adding new students at a faster rate. And we know that, you know, when you look at the life cycle of a student, an investment in a new student isn't accretive typically until the second year. So you're adding to your existing mix new students, who also don't persist at the same level as the old. So on a percentage basis, if you had a mature or slowing rate of growth, you'd see a nice pickup in your margin, but you wouldn't like it. So that's sort of -- as you're in the growth mode, which is where we like to be and we are going to continue to be, you'll see that dynamic when you look at it from the overall headline perspective.

Okay. Thank you.

Your next question will be from the line of Scott Schneeberger from Oppenheimer.

Thanks. And you know, very nice work on your progression of placement. I guess, though, that tracks up through probably the end of the summer, the 92 and the 45, and really before we get into the tough times. Is that what's driving your -- what you announced today as increased investment in career services? Could you elaborate on that a little bit more, please?

Sure. And I know -- we've been flagged that we're over time, but we're going to continue to make sure -- there's a couple more people, so we don't want to cut anybody off.

And Scott, your question about that -- that actually is not -- the last class is the June graduates, but we measure this through the six-month period following graduation. So that just closed. And that closed well after September 18th and the, you know, all the meltdowns in the market. So it is recent data. We don't break out each individual class, we give you the three-term average. But if we did, you'd see the most recent piece is in line with that average.

So what's driving my comments about increased investment in our Career Services Offices -- and by the way, I think -- I don't have this definitively, but I think DeVry University has the largest Career Service Office of any university on the planet. I'm trying to get that confirmed. There's over 125 career services professionals. But we are just being proactive, so it's not in response to a falloff. It's being proactive to say, "Oh, my God. Look at the world. If there's anywhere we want to invest, it's in that value proposition, and it's in academics, and part of that academic outcome is the -- career success." So we're looking to investment more in our career services offices across people, technology, other things we need to do, to protect and preserve that wonderful outcome.

Okay. Thanks. And real quick housekeeping follow-up. On -- the tax rate creeping up, Rick, can you speak a little bit to how we should think about that going forward? Thanks.

Sure. Well, as I said, the rate for the first six months is 29.3%, and that's our best estimate where we think the year's going to shake out. So the rate was a little bit higher in the quarter, because we had to catch up for the rate in the first quarter that was a little bit below that, and it's really a factor of the mix of income between domestic and international sources. And, you know, our rate of income on our tax-free holdings is also lower for our municipal bond investments, so that had a factor in it as well. But 23 -- 29.3% should be our current estimate for the full year.

Great. Thanks.

Your next question will be from the line of Brandon Dobell with William Blair. You may proceed.

Thanks for sneaking me in here. Going back to the corporate reimbursement question, you mentioned you'd lost, you know, one corporation. I guess the -- the question from my perspective is, has it made a difference? Do you see people that because of a corporate action say, well, that's it, I'm not going to school, or not taking a Becker or a [Stella] class, or they say, well, I can find the money someplace else and they keep going? And does that -- does that decision hinge on how far along they are in their degree program?

Yes, Brandon, it's the former. And just to remind everybody which was the former and which was the latter --

Yes, me too, please.

That's right. Whenever I do that to people -- I always forget which one I said first. The first one was that they're not stopping. They're continuing in their school. We're not seeing -- we're not losing students over it or anything like that.

Okay. Turning to Professional and Training for a second. Any sense of how the revenue trends should look in that business? I mean, does -- did December give you a better feel for what the right run rate should be, or what the right year-over-year decline should be? I'm trying to get a sense of how to model that business, or how much visibility you guys have looking out the next two quarters or so.

Yes. It's, quite honestly, a hard one to -- you know, put a real tight band on it. I mean, obviously the -- this is one of our segments that has the most direct impact on what's going on in the economy. Our -- our run rate on revenue, you know, last year we were double digits, low teens, and we were 7% in the first quarter down and 1% in the second quarter. You know, we think that we'll be roughly what we've been year-to-date for the balance of the year, but again in these changing times it's hard to really get a strong handle on it. But it's going to be give or take that amount of -- of compared to prior year.

Okay. And going back to the question about, you know, the hypothetical around the Stafford and Pell impacting EDUCARD or your private lending, any sense, Rick, of kind of what the bad debt is that you carry from the EDUCARD program or, you know, how should we think about the hypothetical impact on the P&L? Not just kind of from a cash flow impact, but how much bad debt we could expect that might go away if the --

Yes, we haven't really seen a major impact on bad debt over the past months or quarters. I mean, our bad debt has ranged historically in the 2% to 3% range, and we're in that range today. So we keep a look on it, we try and make sure that we've been appropriately factoring in what's going on out there, and looking at students that are in school and those that we have balances on ,and we feel confident that we've got it under control.

Okay. And final question, from a placement perspective, if you look at the stats from the most recent graduating classes, it would be a different way to look at it, would be the graduates, do they tend to find jobs in their local area? And did you see any significant variances around the different locations around the DeVry Universities, kind of based on what kinds of companies were in those local geographies or something like that? Or is it just too scattered to make that kind of an assumption, or will that kind of an analysis work?

Sure. We do see variability around that. And by the way, we call them employment statistics. We try avoid -- I'm not trying to criticize anybody, you know. We just -- we're not a placement office. It's a --

Right.

-- at a professional level, and It's employment statistics. They do vary by geography, and that gives us opportunities because we can compare best practices of what one employment -- one career services office is doing, and then transfer that best practice. We also have the opportunity to do that with, you know, newly-acquired friends like Apollo College or Western Career College and others. So there is quite a bit of variability around -- or not quite a bit, there is some variability around the mean there. And you would expect that, given the differences in the employment picture around this great country of ours.

Okay. And then final question for you. Since you guys spend a lot of time with -- with corporate partners in terms of, you know, identifying opportunities with the curriculum, how much visibility do you have into their potential need, or lack thereof, for your graduates? Looking out -- I would imagine they have a pretty good view looking out three, six, nine months? How much do those conversations color your judgment or your decisions to add more career service officers? Are you changing programs now that the economy has changed? I'm trying to get a feel for how much impact that back-channel information has?

It does have an impact. I spoke with an energy company yesterday, who is interested in talking to us about green jobs, and what is that going to mean? Biomedical engineering technology, which really seem to be taking off now. We were in that -- we might have been early. We were in it I think about four or five years ago, and now it does seem to be picking up. We're seeing with this stimulus and maybe with engineering projects, maybe mechanical or civil engineering, so we're taking a look at things like that as well, as I mentioned, the project management. Like we did with IBM, I mentioned the enterprise computing track. You know, you -- working with employers to actually help with us with the curriculum.

That's the strength of the market-funded institutions. They tend to be very responsive to the needs of employers. We're not the only one who does this, but I think DeVry University does it very well. Also I -- you have a company -- Chamberlain's President, Susan Groenwald, had several meetings with hospital CEOs and CNOs, Chief Nursing Officers, and at one a couple of weeks ago at the end of the meeting they said, "Oh, by the way, you're the only nursing company that's ever come in here and asked us what we're looking for." So we do change our curriculum based on the input of the employers, and certainly our Career Services Offices adapt, as well, and that informs where we go from a curriculum standpoint and launching new programs.

Okay. Thanks, guys.

So with that, I know we've gone way over, but that's in an effort to be responsive. I want to thank everyone for your questions, and remind everyone that our -- that DeVry's next conference call will be held on April 23, and that will be not only third quarter results but also the Spring enrollment results. So thanks again, everyone, and talk to you next time.

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