Adtalem Global Education Inc (ATGE) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2009 DeVry earnings conference call. My name is Jeremy and I will be your coordinator for today. (Operator Instructions). At this time, I'd like to hand the presentation over to your host for today's call, Ms. Joan Bates.

Thank you, Jeremy. With me today 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 the 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 has a view, objective, or outlook, or that management believes, expects, anticipates, perceives, forecasts, estimates, or other words and phrases of similar import.

Actual results may differ materially from those projected or implied. Potential risks, uncertainties, and other factors that could cause results to differ are described more fully in Item 1A, risk factors, in the Company's most recent annual report on Form 10-K for the year ending June 30, 2008, and filed with the SEC on August 27, 2008.

Telephone and webcast replays of the call are available until August 27. To access the replay, dial 888-286-8010 or, for international, 617-801-6888. The passcode is 1995-4322. A replay is also available via the webcast through the IR portion of our website.

As a reminder, our press release and preliminary financial statements are available in the IR section of our website, and that's located at www.DeVryInc.com. With that, I'll turn the call over to Daniel Hamburger.

Thanks, Joan. Thank you all very much for joining us for our fiscal 2009 fourth-quarter and year-end conference call. I'll provide a brief introduction and ask Rick to discuss our financial results. Then I'll come back and review operational highlights before opening it up to your questions.

This was truly a year of accomplishment at DeVry. We continued to enhance academic quality, which led to outstanding enrollment growth and, in turn, improved financial performance.

Earlier in the year, DeVry's success was recognized when we were added to the prestigious Platinum 400 list of America's Best Big Companies by Forbes magazine. This quarter, we celebrated another important milestone when DeVry joined the S&P 500 Index, replacing General Motors on June 8. Before -- being selected to join the S&P 500 is a testament to the success DeVry has achieved by focusing on academic quality at each of our institutions.

We recognize that we owe DeVry's success to our dedicated employees, who are always striving for continuous improvement and who put our students first. Consistent with our culture of doing well by doing good, DeVry is commemorating its entry to the S&P 500 by offering 500 scholarships to workers affected by recent layoffs.

2009 was also a year of execution, and that is to say we had a banner year in executing on our growth and diversification strategy. We added two new institutions this year, US Education and Fanor, and in both cases, the integration has proceeded very well. These operations offer growth opportunities for us in areas of unmet educational need.

So overall, our diversification strategy has us well positioned to deliver consistent and sustainable growth through both good and bad economic times. Some of our operations are tied to economic cycles, like Becker, which has been negatively affected by the weak economy.

But at the same time, schools like those of US Education are more countercyclical. In addition, DeVry has schools such as Chamberlain College of Nursing and Ross University that are entirely noncyclical. In fact, DeVry is the only publicly-traded education provider that has a medical school or a veterinary school, such as those at Ross.

So when you look at the balance of all our institutions combined, the net effect of our diversification strategy has been to mitigate the impact of the economic cycle, which will serve us well as the economy improves.

As I've done for the last five quarters, let me provide an update on student lending. Back then, when many of our stakeholders were focused on the credit crisis and its potential impact on student loans, we said that we didn't foresee any loss in ability for our students to finance their education at DeVry.

Well, it's turned out just as we said. Our students have been able to secure the financing they needed, and we haven't seen any material impact on our operations as a result of the student lending environment.

Let me comment now on two pending matters in the legislative and regulatory environments. First, as we mentioned briefly when we reported earnings last quarter, there is the likely conversion from FELP to a direct lending program. This potential conversion is more of an issue for lenders than it is for students or for the schools that they attend.

We are prepared for the switch and don't foresee any operational issues, nor do we believe it will have an impact on our students.

Second, the Obama administration has proposed an expanded Perkins student loan program. The expanded Perkins program would increase funding from $1 billion to $6 billion.

Interestingly, DeVry University is one of the only market-funded education providers who participate in the Perkins loan program. Moreover, if you refer to chart two in our press release, you will see that DeVry University is currently the number-one administrator of Perkins funds in the nation.

So, given this, taken together with the recent change to year-round Pell Grant eligibility, we believe that there are good financing opportunities for our students.

I offer these examples of Perkins and Pell to illustrate that we believe there has never been an administration or Congress who is more supportive of education than our current ones. Just last month, President Obama unveiled a multibillion dollar proposal to boost enrollment in the nation's community colleges. We've received a few questions about this and how we believe it will impact our schools.

The answer is we applaud this initiative. It's good for students, and it will get more people to consider going to college. What's great is the growing recognition that all segments of our diverse higher-education system add value and are needed for the U.S. to achieve our educational and workforce goals.

And we have served many students who have community college credits or degrees at Chamberlain College of Nursing and at DeVry University. We look forward to serving future transfer students who choose a DeVry school to continue their education.

I've got several operational highlights that I want to share with you, but first, let me turn the call over to Rick for the financial results.

Thanks, Daniel, and good afternoon, everyone.

Well, another fiscal year has come to a close, and we are very proud of the strong financial results delivered as a result of our focus on academic quality.

Full-year revenue hit a record $1.461 billion, up approximately 34% versus prior year. Revenue was still up about 20% versus prior year, excluding the impact of the US Education and Fanor acquisitions.

Net income for fiscal 2009 also hit a record level of $165.6 million, up nearly 32% versus last year. Reported earnings per share for fiscal 2009 were $2.28 per share and $2.36, excluding discrete items, also representing record performance and up 33% versus last year.

Excluding discrete items, our pretax income margin for the year was 16.8%, up 70 basis points, versus 16.1% last year, and just shy of our all-time high of 17.1% in fiscal 2002.

I would also like to point out that our pretax income margin would've been 17.3%, excluding US Education and Fanor from the results.

Fourth-quarter results reflect strong organic growth, the impact of our recent acquisitions that boosted topline growth, along with continued focus on efficiency and margin improvement to increase the bottom line. Revenue of $396 million was up 43% versus last year, and still grew 22.5%, excluding the impact of US Education and Fanor.

Net income in the fourth quarter of $37 million was up 51% versus last year, with reported with reported earnings per share of $0.51, up 50% versus last year.

And the pretax income margin was 15% in the quarter, up 300 basis points versus last year, excluding discrete items from both years.

Now, the discrete item in the fourth-quarter results is a litigation reserve of $4.9 million. This relates back to the Department of Justice inquiry associated with recruiter compensation disclosed back in May of 2008. You may recall the DOJ investigated the allegations with DeVry's full cooperation, and declined to intervene.

Then the U.S. District Court dismissed the case. However, the case was then appealed by the plaintiff, leading to a potentially drawn-out, costly, and distracting litigation process. We participated in the required mediation through the Court of Appeals process, where we were offered the opportunity for finality with the settlement.

The settlement, pending governmental approval, will bring closure to the matter, and we decided that focusing our resources on our students, rather than litigation, was the right thing to do.

And finally, and most importantly, DeVry did nothing wrong, did not violate the False Claims Act, and our recruiter compensation system has been and continues to be fully compliant.

Now, earnings per share would have been $0.56, excluding this litigation reserve, or up about 65% versus last year in the quarter.

For your reference, fourth-quarter results also included expense-related share-based payments of approximately $1 million pretax, compared to $1.4 million last year. For the full year, share-based expense totaled $7.6 million, versus $5.7 million for fiscal 2008.

Our overall effective tax rate was approximately 30.2% for the year and 31.8% in the fourth quarter. The effective tax rate from ongoing operations -- that's excluding the discrete items -- was about 30.4% for the year, up from 27.4% last year, primarily due to the higher mix and growth of our domestic businesses, as well as the addition of US Education.

The cost of educational service expense increased by 45% versus prior year in the quarter, and was up 33% for the year, excluding discrete items. Cost of educational services would've been up by about 18.6% in the quarter and 15.6% for the year, excluding US Education and Fanor, both lower than our revenue growth, driving improved gross margins.

Student services and administrative expense increased by 29% in the quarter, or about 15%, including US Education and Fanor. The rate of growth of SS&A expense continued to grow at a lower rate than revenue, with or without the recent acquisitions. While we are still making investments to drive future growth, such as marketing, recruiting, systems improvements, and new programs, we expect SS&A expense to continue to grow at a lower rate than revenue again in fiscal 2010.

Now, before going through our operating results, let me take a minute to walk you through our newly-modified segment reporting classifications, which reflect our current structure and portfolio of educational offerings. First, we added a new other educational services business segment that currently includes Fanor and Advanced Academics. Advanced Academics was previously included in the DeVry University segment.

The DeVry University business will now be reported under the renamed Business Technology and Management segment. And the segment that included Becker Professional Review has been renamed Professional Education to reflect our broader focus beyond exam preparation and review.

The Medical and Healthcare segment remain unchanged, and include Ross University, Chamberlain College of Nursing, and US education.

Now we filed an 8-K today, concurrent with our press release, which provides two years of segment results by quarter under this new alignment. With that, let's move to the segment results.

Revenue growth within the Business Technology and Management segment was up 18.8% versus last year -- for the year, and 21.6% in the fourth quarter, driven by continued online expansion and improved on-site enrollments. Operating income was up about 57% for the year and nearly 150% in the quarter, excluding the discrete items, driven primarily by improved operating leverage from enrollment growth.

As a result, the full-year segment operating margin increased by 330 basis points versus prior year, to 13.7%. That's nice progress but we still have significant opportunity for continued improvement in the future.

Within the Medical and Healthcare segment, revenue more than doubled in the quarter and the year, driven by the addition of US Education. However, revenue was still up 32% for the quarter and 30% for the year, excluding the impact of US Education, driven by expansion at both Chamberlain and Ross University.

US Education continued to deliver strong growth as well, up 27% in the quarter.

Operating income more than doubled in the fourth quarter and was up 75% for the year. Operating income would've been up about 41% for the quarter and 37% for the year, excluding the impact of US Education.

Our Professional Education segment results have been negatively impacted by the economic downturn. Nevertheless, revenue was up 6% in the quarter and about 4% for the year. Operating income was down 3% versus last year in the quarter and down 9% for the year. However, segment margins were still quite healthy.

Finally, results for the Other Educational Services segment reflect the addition of Fanor in the quarter and also adding Advanced Academics to this new segment. Revenue in the quarter was just under $15 million, split about 60% Fanor and 40% Advanced Academics.

Operating income for the quarter was $1.4 million. Note that, as we move into fiscal 2010, Fanor's seasonality is rather smooth throughout the year with an expected bump-up in Q3 and Q4 with the start of a new class in Brazil.

Advanced Academics will see a dip in revenue in Q1 of fiscal 2010 relative to the fourth quarter of fiscal 2009. During the summer months, when most high school students are off, Advanced Academics continues to advertise and recruit in advance of the school year, and this yields a sizable operating loss in the first quarter.

I would also like to point out that amortization expense related to Fanor was approximately $700,000 in the fourth quarter and will be about that same amount per quarter and about $3 million for the year in fiscal 2010.

Shifting to our balance sheet, the cash, marketable securities, and investment balances totaled $225 million at the end of the fiscal year, compared to $276 million last year. The balance is lower, due to the US Education and Fanor acquisitions, higher capital spending, and share repurchase activity this year.

Cash is expected to be back up markedly in Q1 with the cash inflow from the summer class.

Net interest income and expense was $2.3 million in the quarter, below last year, due to the lower cash balance and low interest rate environments. Cash flow from operations for the year was about $250 million, versus $199 million last year. We continued to use our positive cash flow generation to reduce outstanding debt to $125 million from $135 million at the end of the third quarter.

Our net Accounts Receivable balance was about $104 million, versus $55 million last year. About 75% of this increase was the result of the addition of receivables for US Education and Fanor. The balance of the increase can be attributed to strong enrollment and revenue growth in the quarter, as receivables per account across our schools are generally in line or lower than prior year.

For example, DeVry University Accounts Receivable per account was down about 14% versus last year, thanks to the focus and efforts of our campuses and student services staff. Bad debt expense was 2.9% of revenue for fiscal 2009, which is within our historical range of 2.5% to 3%.

Capital spending was $74 million in fiscal 2009 versus $51 million spent last year, excluding last year's Alpharetta purchase and immediate sale-leaseback transaction. Spending will continue to increase in fiscal 2010, driven by Project Delta, our new student information system, DeVry University and US Education spending on facility improvements and new locations, continued geographic expansion within Chamberlain College of Nursing, and spending associated with our home office and data center moves.

Capital spending for fiscal 2010 is expected to exceed $100 million.

Finally, during the quarter we continued to execute our share repurchase program, buying back approximately 403,000 shares of our common stock at a total cost of almost $18 million in the quarter, or an average cost of $44.64 per share. We've been repurchasing shares more rapidly under our structured plan and we were about two-thirds of the way through our $50 million program as of the end of June.

So that concludes my overview of the very strong results for fiscal 2009. As we look back through -- as we look to our new fiscal year, we still feel comfortable with our long-term financial objectives to deliver double-digit revenue growth and roughly 20% compound annual earnings per share growth over the next few years.

We will be making investments in Advanced Academics, online expansion within US Education, and spending on IT initiatives, which are expected to be first-quarter hurdles, but we remain confident in our plan to drive quality, growth, and increase margins.

Now let me turn the call back over to Daniel for more on our operating results.

Thank you, Rick. Let me first highlight one change to our past practice, and that's based on feedback we've received from previous calls.

I won't reiterate the enrollment figures that are found in the press release. Let me simply say that the very strong enrollment growth across all of our schools demonstrates the value that prospective students see in the education they receive at one of DeVry's institutions. And moreover, we saw improved retention, which showed that the quality of our programs is meeting or exceeding our students' expectations.

Let me focus first, then, on our Business Technology and Management segment, which includes, of course, DeVry University and its Keller Graduate School of Management. Part of the value of a DeVry University education is its reputation among employers. They tell us how our graduates are making significant contributions to their companies, and have the skills and work ethic to succeed.

As you can see from the data in the press release, 90.8% of our undergraduate students at DeVry University are employed in their field of study within six months of graduation, with an average salary of more than $45,000.

While we are proud of these outcomes, we recognize that the sluggish economy and the higher U.S. unemployment rates are going to apply downward pressure here. So, we are investing to further strengthen our career services offerings.

During the coming months, we plan to hire 25 new career services advisors at DeVry University, taking us to 150 career services professionals in total. This will give us the largest career services office of any market-funded, bachelor's degree-granting university in the country.

We also recently held our first virtual career fair, which was a resounding success with attendance of more than 5,500 DeVry University and Keller alumni and students.

Last quarter, we talked a little bit about the change in our academic structure at DeVry University, which now organizes our various degree programs into five colleges. This is part of a larger initiative targeted at enhancing DeVry University's brand and aligning it more closely with our students' familiarity with traditional colleges and universities.

In addition, DeVry University is changing the images and messages of our communications to reinforce that DeVry University is the career university.

I will now turn to our Medical and Healthcare group, starting with Ross University. Ross delivered its largest May enrollment ever, with higher undergraduate GPAs and better scores on the GRE and MCAT exams than ever before, as well. This is a great example of our operating philosophy. That is, that quality leads to growth.

Since we acquired Ross, we have invested over $60 million and raised academic progression standards. The result? An increase in academic outcomes, such as our students' performance on the medical boards, leading to growth in applications. In response to this growth, we raised the entrance bar, and so again, it's a virtuous circle where quality leads to growth.

At Ross, we are continuing our physical expansion efforts to increase capacity. For example, at the veterinary school, two new 180-seat auditoriums are being built to accommodate more students. These facilities are expected to be completed this coming January.

As you may know, Ross Medical School is accredited by the Dominica Medical Board. It was also the first international medical school approved by all four states requiring such approval.

Ross graduates can and do practice in all 50 states, as well as in Canada and Puerto Rico. And in addition to this accreditation and these approvals, Ross recently reached another milestone, receiving full four-year accreditation by the Caribbean Accreditation Authority for Education in Medicine and other Health Professions. I know that's a mouthful. That's CAAM HP -- or CAAM, C-A-A-M, for short.

Full four-year approval is very significant because the typical path for other CAAM-accredited schools has been through provisional two-year approval. So this is a major accomplishment, and I would like to commend the Ross med school team.

Secondly in the Medical and Healthcare segment, enrollment at the Chamberlain College of Nursing continues to be very strong, as we look toward continued expansion in fiscal 2010. In terms of geographic expansion, Chamberlain plans on opening a new campus in Crystal City, Virginia -- that's the DC area, which will be a co-location with DeVry University. We've applied for the necessary approvals and intend to open in 2010.

And rounding out the Medical and Healthcare segment, we are pleased to announce another quarter of excellent enrollment growth for US Education at both Apollo College and Western Career College.

The biggest new development at US Education this quarter was the launch of our new online bachelor's degree completion programs in medical imaging and respiratory care. Both of these are the first online and the first baccalaureate programs Apollo College has ever offered.

Likewise, Western Career College is planning to launch online programs, adding four new associate degrees. Western has received approvals for these programs and is accepting applications.

Rolling out these new online programs illustrates the synergies we are achieving through our diversification strategy. That's because we are leveraging DeVry's centralized online services group, including their technology platform, the curriculum development, the structural design, and student services.

Let me give you two more examples of the integration of US Education and of the synergies that we are driving here. Western Career College has received approval to open a new campus in Pomona, California, and this will be a co-location with DeVry University's existing campus there.

Yet another example is the recent transitioning of Western's student financial aid processing operations from an external vendor to DeVry's internal central services group, which we expect to deliver meaningful cost savings.

So now, I'd like to turn to our Professional Education segment. We used to think of Becker as an exam review provider. Increasingly, we are redefining Becker as a provider of professional education and training to accounting, finance, and project management professionals.

To better reflect this broader focus, and to leverage the strength of the Becker brand, we have renamed the division to Becker Professional Education. Included in this change, by the way, for all the chartered financial analysts on the call and everyone else, will be a transition from the Stalla CFA Review to the Becker name over time.

Becker's quality reputation continues to grow. Each year, the American Institute of Certified Public Accountants provides awards to the top 10 scoring students out of over 85,000 who take the CPA exam. This year, nine out of 10 winners were Becker graduates.

And by the way, one of those nine was also a Keller student, illustrating another synergy area, in this case between Becker and Keller.

This quarter, Becker announced a partnership with Howard University. The partnership gives students from this premier historically-black university who plan to take the CPA exam access to Becker's world-class test preparation programs.

Becker also continues to have a strong international presence, and currently partner with 15 of the top 20 CFA societies of the world. During the quarter, Becker signed an exclusive provider agreement with the CFA Association of Taiwan to provide its CFA member candidates with our Stalla Review for the CFA exams' program.

Speaking of international, in the fourth quarter we welcomed the newest member of the DeVry family, Fanor, serving over 10,000 students in Brazil. Fanor's growth strategy includes new programs, new locations, and launching online courses.

When we announced the acquisition of Fanor, we describe the strong cultural fit with DeVry. I think we may have even understated that fit, because Fanor has completely embraced our mantra of doing well by doing good.

As an example, Fanor has already teamed up with Chamberlain students to provide healthcare services to underserved areas in Fortaleza, Brazil, with plans to add trips to more parts of the country in the fall.

So, in summary, in fiscal 2009 we delivered high-quality academic outcomes leading to strong financial results. We also executed key aspects of our growth and diversification strategy with the additions of US Education and of Fanor.

At this point, we've largely filled out the framework of curriculum areas, degree levels, and international diversification that we originally laid out five years ago. So our acquisition focus will shift to building within this existing framework, more so than expanding the framework itself.

As we look ahead to fiscal 2010, we will continue to execute on our strategy with particular focus on six priorities. One, achieving the full potential of DeVry University, enhancing academic quality and building our brand-value proposition. Two, growing our Medical and Healthcare programs, responding to the tremendous need for healthcare professionals.

Three, redefining Becker in Professional Education. Four, integrating and growing our Latin American presence. Five, continuing our growth in high school programs, and finally, supporting our growth by building our infrastructure in online education, in technology, and in human resources.

Now, we are anxious to take your questions, but if you will just allow me one last comment, I would like to recognize the many awards and honors that our school has won this year. I know I already mentioned the Forbes 400 and S&P 500, but I'm also very proud to announce that this year Apollo College's Tucson campus received awards from the Arizona Private School Association for best community service, best school of the year, and it named instructor [Marvon Ebert] as best teacher of the year.

These are the kinds of awards that paved the way for the S&P 500, and we've achieved this progress by virtue of our talented team of employees and their dedication to our students. So I would like to thank all of them for helping to make it such a great year. And with that, Joan, let's take the Q&A.

Wonderful. We are happy to take your questions, so if, Jeremy, if you could give the callers' instructions, we'll get that started.

(Operator Instructions). Sara Gubins, BAS-ML.

I wanted to ask about the growth at Chamberlain, which has been phenomenal over the last year. And I'm wondering if you would expect to continue to grow at such a rapid pace. Or if we would expect that to slow down a lot, given the size that you've now reached already?

Thanks, Sara. Clearly, as you get larger, the large numbers kick in, so yes, as a percentage I would expect that, over time, is going to come down.

But we'll continue to grow because we have to. We have to do our part to contribute to solving the nursing shortage. As I say, in this country, but really around the world.

Fanor has got a nursing program, too, and we look forward to growing that, as well.

This -- we're growing the -- our pre-licensure programs, and this is important because there are some others who have bachelor's degree completion programs, like we do, for those who have an RN but don't have a bachelors degree. And that's an online program for us, which is a distinction.

But we also have one of the largest pre-licensure programs. So that's where you as a student are going from scratch to getting your RN licensure, mainly at the bachelors level. Most of our programs are BSN. We do have one ASN program.

So we are growing that pre-licensure program mainly by adding new locations. I talked a little bit about that in my comments. So, that continues. Growth in that degree completion program at the bachelor's level continues, and then, we are pleased that we've recently rolled out a master's degree program, an MSN, Masters in Nursing with two tracks, one for nurse administrators and one for nurse educators.

So, we see continued growth across those dimensions, other programs that we can rollout, geographic locations, and then, continued online growth.

So, is there anything -- this year, you added almost 1,900 students to the total base on a year-over-year basis. Is there anything to suggest that that would slow down next year, just in terms of that absolute number?

No, I think -- on a percentage basis, it's always going to come down, but no, absolute growth can continue.

And then, I wanted to ask about the comment about expecting, longer term, to be able to continue to grow revenue double digits and earnings over 20%, or about 20%. Given the more challenging comparisons that you have from this year, do you think that's an achievable target next year?

And I'm also just wondering about the seasonality of that, given your comments about some initiatives presenting hurdles for the first quarter. I'm wondering if you are expecting margins to actually be down year over year in the first quarter.

Let me take a shot at that. I might ask Rick to comment as well. Just -- you're getting all the perspective here.

Yes, that's our long-term perspective and that's been consistent. That's the -- we've never given quarterly guidance since being the first school system to go public back in 1991, and that practice continues, and there is a very good reason for that, which is that this endeavor that we are embarked on only works for the long term.

And so, we just don't think that that's congruous with short-term quarterly guidance.

However, we give long-term guidance and probably give more guidance on our strategic plan than some others do. So, that's how we think about it, and that's -- so what Rick mentioned in the comments earlier was our long-term aspiration and goal for revenue and earnings growth. All of that being driven by our aspirations in improving -- maintaining and improving academic quality.

And we've always said that, within that long-term journey that we're on, there will be fluctuations year to year, quarter to quarter.

Yes, I think you hit the nail on the head. I think, as far as the year goes, we -- our long-term goal is just that, and we think next year we will be able to be in line with those goals. And for the first quarter, we've got some hurdles.

Could the margin be down in -- versus prior year in any one quarter? I think that's -- could be the case, but for the year I think we are expecting to improve our margins, but we are not managing, as Daniel said, quarter to quarter.

Okay, thank you.

Let me just interrupt for just a minute. We're going to need to probably limit everyone to at least just one question at first, and then, if you could just hop back into the queue. We've got -- I'm told we've got a long list of people in the queue, so we want to answer everyone's questions. So if you could do that, that would be great. Thanks.

Kelly Flynn, Credit Suisse.

I will just ask one. On bad debt, I know you only give it out annually, but given that investors are pretty focused on that, can you give us any more color on kind of how it progressed throughout the year? And also, just what you are seeing there. Are you seeing people who drop out less likely to pay or any impact from the economy that you could speak to qualitatively?

Sure. This is Rick. Kelly, I think, as I mentioned in my comments, we've done a really good job of -- at the campus level, within our central services group, of seeing -- really communicating well with the students, staying on top of any issues, business by business, sector by sector.

So we've got a couple of new businesses in our portfolio now with US Education and Fanor that have a little bit higher bad debt as a percent of revenue than what was the case within DeVry University. But as you look at it business by business, we've been able to stay within the historical range and have really not seen any movement up because our Accounts Receivable per account have remained relatively flat as well.

Ariel Sokol, Wedbush Morgan Securities, Inc..

In the last call, you talked about some internal process changes to improve persistence at DeVry University, but it appeared to have materially ticked up this quarter. I'm just curious to find how much runway is there for improving persistence at DeVry?

Thanks, Ariel. There is always opportunity to improve persistence and we always strive to do that. That's the goal.

I mean, improving the academic quality in the classroom and then, also, the more we go along, the more we learn how important it is to surround that with outstanding, world-class customer service that surrounds the classroom, and that's particularly important for many of the students who our schools are serving who may be first in their family to go to college, for example.

When that's the case and you are someone who doesn't have as much of the college-going culture or grown up with it, you might need a little bit more support. Student services, academic advising, housing services, part-time jobs -- all these kinds of services -- and career services -- are part of that because they help get part-time jobs while you're in school, not just help advise you when you graduate.

So, we are investing -- some of the investments we've been making over the last couple of years here that we've talked about a lot have been in these areas of student services. We talked a lot about having world-class customer service. That's part of job one, priority one that I mentioned at the end of my prepared remarks.

Our first priority remains achieving the full potential of DeVry University, and in turn, within that, the priorities are academic quality and world-class customer service so that we can continue to maintain and then enhance the retention. Thanks, Ariel.

Amy Junker, Robert W. Baird & Company, Inc..

Good afternoon, everyone. Daniel, I was hoping you could maybe just take a moment and try and rank order the priority of the investments across your portfolio. And I don't mean immediate term, necessarily. More over the next year or two, where you see the most opportunity.

And specifically, I would be interested in hearing any comments around expanding at the high school, which you mentioned is part of your strategy. What your strategy is there and how big you think that can get? That would be helpful.

Sure, thanks, Amy, and I would rank it as -- you know, number one is achieving the full potential of DeVry University. And that's why I listed it first, because there still remains a lot of opportunity there to achieve our full potential, to serve all the students within each geographic market that we are serving -- our fair share, market share.

Another very important priority is continuing to grow in our Medical and Healthcare programs. And that is because there is such a huge need. We all know about the nursing shortage. There is a growing physician shortage. Believe me, you're going to be reading more -- we already have been reading more and more about the veterinarian shortage, particularly among large animal vets.

You're going to see continued stories about the shortage among the other healthcare professionals. You might go to the doctor's office in the hospital. You meet with a doctor, you meet with a nurse, and then, there's two or three or four or five other professionals, respiratory therapists, maybe you need physical therapy. We are serving dentistry -- dental assistants, dental hygienists.

So Medical and Healthcare is definitely a huge priority for investment.

And then, you asked about high school. That continues to be very important to us. It's very strategic from a couple of dimensions. One is, obviously, our main -- our largest area of service is in the postsecondary level, and somebody a lot smarter than me back in the early 1970s at DeVry figured out that before they go to college, they are in high school.

Right? And so, we started the high school recruiting program, which was really, at the time, very, very much the first of its kind. Now we visit over 8,000 high schools. We see nearly 1 million high school students a year. And we are educating them on postsecondary opportunities and careers.

And part of that is our service to the community and part of that is also helping to recruit them to DeVry University, and now we also have programs like that at Chamberlain College of Nursing and Apollo College and Western Career College.

And that's why our move a couple of years ago to direct running of high schools, like the DeVry University Advantage Academy with its outstanding results, and the Advanced Academics online program is synergistic with that. So we've got a strategic interest in high school programs from a couple of perspectives, so that is something that we will be investing in here for quite -- for the long term.

And then, in particular, I think Rick mentioned, we are in investment mode with Advanced Academics. It's very high growth, but we're not managing it for near-term earnings. We are managing it for academic quality and for long-term growth. I hope that (multiple speakers) give you a sense of, maybe, ranking of investments.

Suzi Stein, Morgan Stanley.

Hi, it's Suzi Stein. Can you break down the $100 million of planned CapEx for 2010? Just trying to think of how much of that is one-time and how much would be ongoing? And also, if you could just comment on what you are seeing as far as courseload for students.

Okay, you got two questions in there, sneaking their way in.

But as far as the capital spending, the $100 million that we were looking at, part of it is we've got Fanor and we've got US Education in for the full year. So we've got the annualization of spending for both of those businesses.

We've got our Project Delta, our student information system project that we said is going to be a multiyear project. Next year, that's probably going to be in the neighborhood of $20 million -- the low 20s.

We have, as I mentioned on the call earlier and as we disclosed a few months ago, we've got -- we're moving our home office, and while we got a great deal, there is some capital spending associated with that move. It's purchasing of furniture and constructing the facility. That's going to be in the $10 million to $12 million range.

And then, the rest of it is due to some of our expansions. With Chamberlain expanding in Jacksonville, as we -- it just opened, and there is some spending that's continuing with that, as well as the new facilities that we plan for this year for them, as well as US Education and DeVry University making up, really, the biggest parts of that.

And I'll hit the credit hour load really quickly, Suzi. Just to say that while our revenue has grown -- pretty nicely, because the credit hour load per student is down, that just takes away a little bit. So it's a little bit lower revenue growth than we would've gotten if the credit hour load had been at historical levels.

And that is probably a little bit of function of the economy, as some students choose to take maybe one less course per term than perhaps they might have in times past. So, not a major. But a bit of a (multiple speakers)

Trace Urdan, Signal Hill Group LLC.

I was hoping you could comment on the competitive dynamic at Ross University specifically. I'm interested in whether you've seen any kind of change there as a result of the economy -- if it's changing how students are looking at prospective medical programs.

And I'm also interested, if you could, maybe characterize how you compete against other offshore medical schools, whether that is a relevant comparison. The students look across the schools and choose you? How does that work?

Sure, Trace, the economy has virtually no impact on Ross. Unlike some other, maybe very short programs, nobody sort of gets laid off from a job and then says, okay, I'm going to go to medical school. You know what I mean? It just doesn't work like this.

It's something people, almost from the age of six, they are running around with a stethoscope and toy medical kit and I want to be a doctor. It's that kind of a long-term focus.

So I would say to the first part of your question, really no impact on the students.

In terms of more competition, yes, it's a little bit more competitive perhaps than it used to be. In terms of how we differentiate or how students look at us, yes, they do compare Ross University, the school of medicine as well as the school of veterinary medicine, to other international schools.

And there's also a dynamic where they might compare us to an osteopathic school. Perhaps they applied first to allopathic, you know, M.D. school. And if they didn't get into their full choice, or they didn't get in, or they're waitlisted, then they might consider, oh, I have some choices. I could reapply -- I've got to wait a whole year, because most U.S. -- all U.S. medical schools have just one intake a year.

So one advantage that Ross has is three intakes per year. So, one choice I have is wait again another year. Another choice is D.O., and another choice is look at international schools.

So then, so now we are down -- we've sort of tunneled our way down to that level of decision-making. The student's saying, well, there's Ross University, there's some other schools international. What's the distinction?

Well, Ross University has outstanding academic outcomes. Ross University has an incredible faculty. Huge investment. I mentioned the $60 million. It's evident in our patient simulators, in the educational technology, the fact that they don't need to conduct their rotations outside the U.S.. They have only 16 months outside the U.S. and then they are coming back into the U.S., and can do all of their clinical rotations in the U.S..

They can practice and do -- and we have alumni that we can introduce them to in all 50 states, as well as in Canada and Puerto Rico. These are some of the -- you know, I could go on and on, but these are some of the competitive differentiators for Ross.

And can I -- if I could just ask about price in that evaluation process?

Price is not really all that different. I mean, it's expensive to go to medical school. People who want to be a doctor know that.

The value -- the IRR, if you will -- the value that you gain in terms of lifetime earnings relative to that investment, so think of it as an IRR. We calculated it. It's very high. Students understand that.

And so, and we help them. Obviously, we're one of the few. There's only three international schools that are eligible to participate in the student loan programs that we are all familiar with, and Ross being one of them is obviously a huge advantage.

Paul Ginocchio, Deutsche Bank.

Hi there. It's Paul Ginocchio. Just a quick question about some of the grants for students. Have you had to reserve against Ohio or -- I mean, and what are you thinking about for some of the other states, like California, looked out, or what have you already done? Thanks.

No reserve or anything like that. And what we're finding is the state budget crunches are certainly having an impact, and there are reductions in the state grants.

We're not seeing that impact our ability to attract new students. We're not seeing it impact on retention or anything like that. It's just -- kind of like I mentioned five quarters ago, six quarters ago, there was a reduction in private loan availability and a lot of people sort of asked a lot of questions, a lot of angst about whether students would stop going to school. And we said no, we don't see that.

It's sort of like that. We will work our way through it and help students finance their education. (multiple speakers) offset by increased availability of federal money. I mentioned Perkins, I mentioned Pell, Stafford loans. So it's an offsetting factor as well.

So even in Ohio, where it sounds like the governor gave the grants and then took them back, you still haven't had to write anything off there, either?

No write-offs.

Scott Schneeberger, Oppenheimer & Co..

I just wondered -- could you guys give us an idea of, by degree, your mix now? I think, for instance, associates was, in last year's K, about 10%. I imagine that's gone up a bit with the new acquisition of US Education. But any one -- where that is now and where that might be trending going forward?

Yes, sure. If you look at the percent by degree of -- you talking about doctorate, Masters, bachelors, bachelors is still the majority. It's a little over 50%, where associate and certificate are about 25%, Masters about 15% to 17%, and then doctorate about 5%.

And across the different programs, with the addition of US Education, our Medical and Healthcare is almost 30% of our degrees, business being about half and then technology being the remaining 25% or so. There will be a specific breakout in our 10-K that we'll be filing in another week or so.

Thanks, Scott. It's quite illustrative of the diversification that we've achieved through our strategy relative to where we were a few years ago. I think it's really going to serve us well. So thanks for that.

Gary Bisbee, Barclays Capital.

Given all the opportunities that -- and I guess room for investment that you've talked about, throughout the call, in the U.S., I guess I'm just trying to gauge how aggressively you are thinking about or planning for filling out the Latin American footprint.

One thing that investors, I think, have been fearful of for a lot of years around Latin America is that the schools, in many cases, look much more like traditional colleges in the U.S., i.e., much higher levels of CapEx, so the return on invested capital is inferior. How aggressive will you be? And can you do so in a framework that's somewhat similar, from an investment perspective, to what you've done with your U.S. business? Thanks.

Sure, Gary, love to address that because we don't agree with the assessment that some others that you cited there have.

We don't -- I guess that's just not been our experience, or maybe just not the kind of schools that we looked for as we conducted a two- or three-year search for the quality programs and strong management team that we found at Fanor.

The returns -- the economic returns that you're talking about, we don't see the sort of significant difference. It's not like -- it's similar to some, maybe, traditionals with all the accoutrements or museums or other sort of capital things that some people might see, no.

So we don't see that at all. These are very much career focused -- it's similar to -- and it's very much -- it fits, and we know -- it's very much in line with what we've done for a long time here.

So I know it always sounds so far away and it's very different. But it's amazing. You go down to Brazil and there's students. There are classrooms. There is computers, and there's professors writing on the whiteboard, and there is a library and there's a computer lab, and it's very, very similar, and we think we can add value to that by replicating some of the practices that we have here in North America there in South America.

And for all those reasons, I would answer the question about how aggressive, that we're going to be reasonably aggressive, and continue to grow at an appropriate rate, just the same way that we've done up here.

The first focus is making sure that the academic quality is there, and then, that quality leads to growth. So, and in particular, Brazil. Brazil has nearly 200 million people, the 10th largest economy, has not even gone into recession. Can you imagine? During this whole worldwide economic crisis, they have not, to my knowledge, have not had a quarter of negatives. They've not been in a recession.

And it's a very supportive government and regulatory environment, which we are -- we appreciate. So we are very happy with the Fanor acquisition, and with the management team especially. So thank you.

(Operator Instructions). Jeff Silber, BMO Capital Markets.

(Technical difficulty) Gary's question. When you mentioned earlier about your acquisitions in the future that you're going to be, I guess, filling out within the framework you have, within Latin America do you think the focus will be mostly on Brazil or should we expect acquisitions in other countries as well? Thanks.

That's our main focus. Yes, I think -- it's the biggest country. It's got, probably, the most opportunity that we see. So it's sort of -- I would expect the result to be in line with the opportunity.

And since that was such a quick one, I was hoping I could sneak one more in. In terms of the litigation settlement, what was the amount of the claim in full, relative to the settlement that you have?

No. No, that -- what we disclosed is the number that we can disclose.

Just thought I would try. Thanks.

Mark Marostica, Piper Jaffray & Co..

Hi, it's actually Mark Zgutowicz for Marostica. I just -- I was hoping you could comment on what ad expense was in the quarter with and without U.S. Education. And then, talk about what you are anticipating for growth there in FY 2010 versus 2009. And also, if you could include your expectation for salary growth, if you're expecting that to be reasonably higher in 2010 versus 2009. Thanks.

What was that last part there, Mark? For what growth? Stalla?

Salary. Salaries.

For salaries for our graduates?

No, no, no. Salaries in the expense line.

On the expense line. Let me take sort of just a broad shot at it, first. If you have any more color.

Just to say that we are going to continue to invest in marketing and advertising as appropriate. And the nature of that is -- you know, what's the reason for that? Why?

We actually are seeing very good results from the enhancements to the marketing and advertising that we've done recently. A good example of that is at DeVry University, and we've all seen some of the results in terms of the new student recruiting that's come from that. And it's both a numerical process as well as a qualitative, or -- the nature of it has changed.

And that is to emphasize the brand enhancement and the brand positioning of DeVry University as the career university. So, as things go on, I think you will see some changes and enhancements to the marketing and advertising that have led to both an improvement in the productivity, or the outcomes numerically, as well as allowing us to fund more brand enhancement. Anything else you want to add to that?

No, I guess -- in answer to your question, Mark, the advertising expense for the year -- for the year, advertising expense was about $179 million with both US Education and Fanor, and it'd be about $166 million without those two acquisitions.

Todd Young, Morningstar.

Looking at the total enrollment with US Education, it looks like, on a sequential basis, that there were some decline that doesn't seem to be seasonal when I look at the other March to July numbers. Could you comment on that some?

There was no decline in US Education enrollments.

You're talking USA -- you're talking specifically US Education?

Yes, the number -- the 10,644 compared to the 928, I believe, in March of 2009.

Yes, [I can] -- what happens with US Education, given their shorter-term programs and most students starting -- having a big start in the fall, we have graduates that fell out of the total in June and July, and new students help make up some of that slack, but typically there is a fall-off between the March period and the July period.

Oh, yes, okay, I'm sorry. I thought you were talking about year over year. Yes, there is a seasonality.

Yes, a seasonality because of the graduates.

Yes, and I think the reason for that, because the traditional fall start is the biggest. But if (multiple speakers) starts in the fall, it is in one of the shorter programs. Will come out within about nine, 10 months.

Okay, because I was just looking at it compared to the July to March last time. It didn't seem like there was that seasonal effect. It seemed like things still increased, so I was just wondering if something had changed in that.

I think about -- again, a year or 15 months ago is when US Education started to see some of the benefit of a softer economy, so that had a much bigger impact 15 months ago, a year ago, than it did most recently as things are starting to overlap.

Jerry Herman, Stifel Nicolaus.

I got a couple of, sort of, back end of the pipeline questions, including a follow-up to that one. Can you talk about exit metrics at US Education, i.e., graduation placements? And also, maybe update us on the clinical situation at Ross. As I know, there were some challenges there in the -- that you guys alluded to in the last quarter.

Okay. At US Education, both Apollo College and Western Career College, the graduation and employment statistics -- we don't say placements; we say employment statistics -- are well in excess of the industry average, the career college average, and the benchmarks set by the industry and by creditors.

So we feel very comfortable with that.

And then, in terms of the clinicals at Ross, I would not say that there is any real change from the previous comments that we've made, and that is that it has been and just continues to be an increasingly competitive environment, and that goes back to the question that Trace asked, as well, which I appreciate.

So because of that, the costs have gone up there, and that continues. So as you've seen, it hasn't -- we've been able to manage the rest of our operations in order to preserve our margins, but it is a challenge that we face. So far, we've been able to meet that challenge. But yes, that is one of the challenges that we have.

There are no further questions at this time, sir.

Okay, very good. Well, I just want to remind everybody that our next conference call will be held on October 27, and we will be announcing the first-quarter results and enrollments for that period. So thanks, everyone. We'll talk to you next time.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the presentation. You may now disconnect, and have a great day.