Adtalem Global Education Inc (ATGE) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter fiscal 2010 DeVry earnings results conference call. My name is Jeremy and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session 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, Ms. Joan Bates. You may proceed, ma'am.

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 has a view, objective or outlook that management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrases of similar import. Actual results may differ materially from those projected or implied. Potential risks, uncertainties and other factors that could cause results to differ are described more fully in Item 1-A, Risk Factors, in the Company's most recent annual report on Form 10-K for the year ending June 30, 2009 and filed with the Securities and Exchange Commission on August 26, 2009.

Telephone and webcast replays of today's call are available until November 10. To access these replays, please refer to today's press release for information.

I will now turn the call over to Daniel Hamburger.

Thanks, Joan, and thank you all very much for joining us today for our fiscal 2010 first quarter conference call. I'll provide a brief introduction and then ask Rick to discuss the financials, and then I'll come back and review a few operational highlights in the quarter before opening it up to questions.

Now, during the first quarter our focus on academic quality continued to pay off in the form of higher student enrollment and increased retention. From a financial perspective margins increased largely as a result of the strong revenue growth and we continued to invest for the future in online and geographic expansion as well as in recruiting and branding and in technology.

Let me highlight three important developments of this first quarter, and the first one is the appointment of Bill Hughson as President of DeVry's Medical and Health Care Group. Acquisition of Apollo College and Western Career College last year, combined with Ross University and Chamberlain College of Nursing, has significantly increased our presence in the health care sector. DeVry's Medical and Health Care group serves over 20,000 students across 30 locations and generates revenues approaching $500 million. This was zero five or six years ago. So this segment has become an increasingly compelling part of our growth and diversification strategy and we needed a leader to help us leverage the synergies across these institutions and Bill has strong experience in health care and experience with both large organizations and high-growth start-ups. So, given the enormous potential of our Medical and Health Care segment, his experience is highly relevant.

The second item -- as you saw in today's press release, we are continuing to implement our real estate optimization strategy by actively pursuing co-location. Now our Phoenix campus is a great example of a co-location of DeVry University, Chamberlain College of Nursing and Apollo College, and it illustrates the synergies we expect from this strategy. We look forward to showing it to you in person on November 16 and 17, when we host DeVry's education day in Phoenix.

And the third is, I'd like to offer an update on the current regulatory environment because, as you may know, after Congress passes a new education law, the Department of Education sets the rules around how this law will be administered through a process called negotiated rulemaking, or neg-reg for sure. And by the way, some people seem to have misunderstood this and think it means negative regulation or something like that, but it doesn't. What this is, is the department seeks input from those stakeholders most affected by the proposed rules.

DeVry has been fortunate to participate in this process over many years, and most recently, through the testimony of Sharon Thomas Parrott, our Senior Vice President of Public Affairs, and that was at hearings held by the department back in June. Recently, the department has selected Dr. Nancy Perri, Vice President of Academic Affairs at Ross University, to be part of the team focused on international schools. Again, some people have heard there's a negotiated rule-making process on international schools and they thought that there was some negative process being applied there. Quite to the contrary -- the law that Congress passed provides a process for more international schools to become Title IV-eligible, and this process is about defining the detailed rules for how that process will work. And we are honored that Dr. Perri was chosen as one of the participants.

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

Thanks Daniel, and good afternoon, everyone. As you have seen in our press release, we delivered very strong results in the first quarter of fiscal 2010. Record quarterly revenue of $431 million was up about 42% versus prior year. Organic revenue growth was still a strong 24% in the quarter excluding the impact of the U.S. Education and Fanor acquisitions. Net income of $54.7 million in the quarter was up almost $20 million, about 57%, versus prior year, and earnings per share of set $0.76 increased $0.28 or up about 58% versus last year.

Pre-tax income margin was a healthy 18.6% in the quarter, up 260 basis points versus a 16% margin achieved a year ago. Now, these results were obviously above most expectations, including our own. Let me provide some color to explain why this occurred.

First, during the quarter we made investments discussed in our last conference call on Advanced Academics marketing recruiting prior to the start of the school year, online expansion at Apollo College and Western Career College, Chamberlain startup in Jacksonville and spending on IT initiatives.

However, at the same time, revenue and associated earnings and margins came in stronger than anticipated, thanks primarily to DeVry University. Here, as we entered the fiscal year, we have seen a bit of softness in application volume for the September class. Due to some hard work at DeVry University and improved conversions, start rates and retention, we managed our way back to our plan and even exceeded it. We also had some delayed timing on certain marketing activities, further helping DeVry University margins in the quarter.

In addition, Apollo College and Western Career College enrollment results continued to benefit from the softer economy, leading to the upsides. For your reference, first-quarter results include expense related to share-based payments of approximately $3.6 million pre-tax or $3 million net of tax, a bit higher than last year. Our overall effective tax rate was 32% in the quarter, up from 30.4% rate for the full fiscal year 2009, primarily due to the increase in domestic sourced income. We continued to realize some gross margin leverage in the quarter as cost of educational service expense increased by 41% versus prior year, compared to the 42% revenue growth. The addition of lower gross margin results from U.S. Education and Fanor were a factor as cost of educational services would have been up about 17% excluding these schools.

Student Services and Administrative Expense increased by the 32% in the quarter or about 20% excluding U.S. Education and Fanor. SS&A expense grew at a lower rate than revenue, with or without the acquisitions, as we continue to make prudent, targeted increases in spending while still delivering leverage and efficiencies.

With that, let me now walk you through some of the key highlights of our operating segment results, which are further detailed in our earnings release. First, the Business Technology and Management segment revenue was up about 24% versus prior year, driven by the strong summer enrollment growth coming from continued online expansion, improved campus enrollments and increased retention, driven by our focus on student services. Segment operating income of $56 million more than doubled versus prior year. This improvement was driven by the revenue growth and resulting operating leverage as the segment's operating margin of 19.8% increased by 800 basis points in the quarter versus prior year.

Medical and Health Care segment revenue was up 120% in the quarter or 35% excluding the impact of U.S. Education, driven by enrollment growth and pricing at Ross University and Chamberlain College of Nursing, along with continued strong momentum at Apollo College and Western Career College. Operating income for this segment of $27.1 million was up $11.8 million or 77% versus last year. Operating income would have still been up about 26% excluding the impact of U.S. Education.

Our Professional Education segment results continue to reflect the impact of the soft economy in the accounting and finance professionals. Revenue was down 3% versus last year and operating income down 17% in the quarter. We don't expect performance to improve much really in 2010. Nevertheless, margins are still very healthy.

Lastly, results from our Other Educational Services segment reflected top-line contributions to growth from Advanced Academics and Fanor and the bottom-line impact of the increased marketing and recruiting spending within Advanced Academics, targeted to drive growth in the future.

Now shifting to the balance sheet, our cash and marketable securities balance was $340 million at the end of the quarter compared to $242 million last year. Cash flow from operations was $177 million in the quarter versus $97 million last year, driven by our improved earnings and working capital. These strong cash results enabled us to continue to decrease our outstanding debt to $105 million, down from $166 million a year ago and $125 million at the end of last quarter. Our net accounts receivable balance was $157 million versus $155 million last year. The Fanor acquisition added about $3.5 million of net receivables, so our base receivables were actually down slightly versus prior year. Receivables per account within DeVry University were also down compared to the higher balances last year during the conversion of our financial aid processing system, but they were also lower than the balances two years ago.

I'd like to take a second and recognize the outstanding performance of our teams in managing this area, particularly during these tough economic times. Related to this, bad debt in our legacy operations has not seen any deterioration, but the rate moved up slightly to 3.4% this quarter with the additions of U.S. Education and Fanor.

Capital spending was $26.5 million during the quarter versus $10.6 million spent last year. The spending was focused on Project Delta, facility improvements within DeVry University and U.S. Education and expansion within Ross University and Chamberlain College of Nursing. Total capital spending for the fiscal year is expected to exceed $100 million.

Finally, during the quarter we continued to execute our second share repurchase program, buying back about 235,000 shares at a cost of $11.7 million. To date we have repurchased over $45 million of our $50 million program at an average cost of $48.12 per share. This program will likely be completed next month, over a year in advance of the authorization period, and we plan on discussing a third program with our Board at our next meeting in November.

That concludes my overview of the very strong results for the first quarter. We're off to a great start and are confident in our ability to deliver strong top- and bottom-line results for the rest of the fiscal year. Revenue growth will remain strong, but the rate of growth will come down in the upcoming quarters as we have anniversaried the U.S. Ed acquisition.

Now, as we've said before, our long-term financial objective is to deliver earnings per share growth of roughly 20% per year. Our strong first-quarter performance puts us in a good position to likely exceed that goal for this fiscal year.

With that, let me turn the call back over to Daniel for some color on our operating results.

Thanks a lot, Rick. Let me begin the operations review with our Business Technology and Management segment. DeVry University and its Keller Graduate School of Management or, as many of you may have seen on prime time television and online social media of late, DeVry University launched a new awareness campaign in September. Over the past few years we've worked hard to grow DeVry University's curriculum and to enhance student services, including career services. The new communications are designed to emphasize the diversity of DeVry University's academic offerings and our positioning as the career university. In line with that positioning, we reported an 88.8% average graduate employment rate for the last three trimesters. And, while this is the first time we have reported results below 90% in quite a while, we believe we are holding up very well, given the job market, which is a true testament to the value that employers place in the DeVry University education, as well as to the hard work of our graduates in achieving their career aspirations. Given the job market, we are making investments to help our students find jobs in their field of study, once they graduate.

For example, on last quarter's call I mentioned our plan to hire 25 new career services advisors at DeVry University. While we have already hired most of these individuals and are in the process of filling the remaining positions, this will take us to about 150 advisors, one of the largest career services offices of any university in the country.

Also at DeVry University this quarter, we made plans for expansion through co-locating with Chamberlain campuses. DeVry University exited its lease in Jacksonville, Florida early in order to move forward with plans to co-locate with Chamberlain College of Nursing by the end of our second-quarter. DeVry University is also moving forward with plans to co-locate with Chamberlain in St. Louis and in Crystal City, Virginia, that's in the Washington DC area.

At DeVry University's Keller Graduate School of Management, for the September session we reached a record of over 20,000 total course takers, up more than 15% from a year ago. These figures illustrate our operating philosophy -- that quality leads to growth. By ensuring the quality of our program, we help our students succeed, and then these strong student outcomes help us retain current students and enroll new ones, leading to strong financial results which allow us to further invest in quality. The result is a virtuous cycle of sustainable growth.

Moving onto our Medical and Health Care segment, we are also seeing steady enrollment growth at Ross University, where total students increased 9.1%. To meet the needs of our growing student body at Ross, we continued to invest in our facilities at the medical school, adding space and adding more patient simulators to train our students in clinical skills. At Chamberlain College of Nursing we continued to invest in facilities, faculty and technology to meet the huge need for nurses across the country. Recently, Chamberlain applied to open two new locations, one in Chicago and the other in Crystal City, Virginia, as I mentioned. Both will be co-locations at existing DeVry University campuses.

Earlier this year, Chicago Mayor Richard Daley asked us to join a task force charged with addressing Chicago's growing nursing shortage. And we couldn't be more pleased to contribute both to the health care needs and to the economy of Chicago by opening this new Chamberlain campus.

Another highlight at Chamberlain this quarter was the outstanding scores achieved by our recent graduates on the nursing boards. At our St. Louis location, bachelor's degree graduates had a pass rate of over 94%. In Columbus, Ohio the first graduating cohort in the associate degree program achieved a 100% pass rate. Chamberlain also signed an articulation agreement with Keller Graduate School of Management where graduates of Chamberlain's Masters of Science in Nursing program will receive course credits toward obtaining an MBA from Keller. And lastly at Chamberlain, Dr. Stephanie Stewart, formerly of the University of Wisconsin, has joined us in a new position of Vice President of Academic Affairs.

At Apollo College and Western Career College, we launched six online programs this quarter, the first online programs at either school. These programs are a good example of the synergies we are creating by combining our strong central online services with these schools' existing curricula. In addition, Apollo College opened our new campus in Reno, Nevada, with a registered nursing program.

Now, moving to our Professional Education segment, ongoing economic weakness in the accounting and finance fields continue to affect results at Becker. And, while we don't expect conditions to improve in 2010, we remain well positioned for future growth. Despite the current economic environment, the number of undergraduates pursuing accounting degrees continues to grow. And thus, we believe that the population of future CPA exam takers will grow as well. Our Stalla Review for the CFA exam now has affiliations with 15 of the top 20 CFA societies in the world, and most recently signed deals with the principal CFA societies in Taiwan, Malaysia and Indonesia.

Turning to our Other Educational Services segment, at Advanced Academics we continue to make investments to meet the growing demand for online educational services in grades six through 12. Advanced Academics is well-positioned to meet this demand through its agreements with school districts in 30 states. In fact, during the quarter we signed new agreements with 10 new school districts, and we signed our first agreement to provide educational services to a charter school. This was in Sonoma, California.

And finally, at Fanor, our colleges in Brazil, we're proud to report strong enrollment results with total students increasing 10.6%. The integration is proceeding well. For example, improvements in marketing and admissions practices are underway. Fanor continues to expand its curriculum, received approval for a new psychology degree, program at its Fortaleza campus, which we plan to launch next semester.

Also, Fanor and Chamberlain are working together to provide nursing students from both schools with an opportunity to work with disadvantaged populations in Brazil. And meanwhile, students from Fanor are set to participate in a month-long international leadership program at DeVry University's campus in Sherman Oaks, California. We are pleased with how closely Fanor is working with other DeVry institutions.

And so, as you can see, our focus on academic quality and student service has led to strong student outcomes as well as good financial results and we made solid strides this quarter in executing on growth and diversification strategy. And we look forward to seeing many of you in Phoenix next month at our education day, where we'll outline in further detail how this diversification strategy positions us for sustainable long-term growth throughout economic cycles, in both good and bad times. So now, Joan, we would be happy to take questions.

As Daniel mentioned, we're looking forward to seeing many of you next month in Phoenix at our education day, November 16 and 17th. So I would remind you, if you haven't registered we encourage you to do so very soon. The last day to register is this Friday, October 30. Visit the DeVry website at DeVryInc.com and look for the link on the homepage. That's where you can get the full agenda that will allow you to register for the event and make your hotel reservation.

So, with that, we are pleased to take your questions. Jeremy, if you could give our callers the instructions, we will begin.

(Operator instructions) Kevin Dougherty, Banc of America.

I wanted to see if you can just address the application softness that you talked about at DeVry University. Was that concentrated in any certain programs? Or maybe what drove that?

And then, related to that, if you can just address the delay in marketing activities and if we might see some sort of catch-up maybe in the next quarter.

Sure. It wasn't concentrated in any particular program; it was just a general phenomenon. And so we went to work, and I have to commend the teams at DeVry University across geographies and across the online programs as well, for digging in and doing what we do, which is manage the situation that we are presented and put an extra focus on advising students and improved the conversion rate and ended up managing our way back to plan, actually exceeded plan.

And then, in terms of your second part of the question, about the marketing, that was really -- we have had this program to increase the awareness of DeVry University and its positioning as the career university. You may have noticed an increasing presence in the multimedia program, including television, including online social media, LinkedIn and Facebook and other outlets. But, like anything else we wanted to make sure it was right and we always will make sure it's right. So whereas we had planned for a certain level of activity, it just wasn't quite ready when we thought it would be, and therefore that delayed the spending. So there is a timing element to that, so we would expect to see the plan continue to spend out here in subsequent periods of time.

And then just as a follow-up, maybe if you could just talk to the trajectory of some of your overall investments over the course of the year, relative to what you made in the first quarter?

Well, I think, as we've been saying all along, we are going to continue to make the investments to support the business going forward and to drive future growth. So, as we entered the year, we said that we're going to try and gain some more efficiencies this year than we have in the past on the marketing and recruiting and G&A side. So we anticipate seeing the rate of spending versus prior year on those lines to be less than revenue growth but still be growing versus prior year.

Okay, but no significant changes over the course of the year?

No. We're going to continue to make the investments that we think are prudent to support the academic quality and to drive -- and the progress we've had.

Robert Craig, Stifel Nicolaus.

I guess the topic of the last 45 minutes, which is revenue recognition, in light of Apollo's announcement -- has that, to your knowledge, ever been an issue either with this Company or with the industry?

Well, I've got to admit that we were not even aware of the issue because we've been getting ready for this call ourselves. So it might be your topic for the last 45 minutes; it hasn't been ours.

Our revenue recognition has never been in question. We recognize revenue throughout the term -- that the student's in school. So we don't have any issues with our revenue recognition and never have. We've had clean audits, and through our reviews with the SEC there's never been any comments even in the comments letter that was received in the past.

Just to build on that and speak to the second part of your question, Bob, in terms of the industry, I don't see any evidence whatsoever that there's something particular about this industry. This would certainly appear to be an organizationally-specific issue.

Well, sorry I had to ask and take up time on the call. But anyway, just to get back to your business, just -- I'll offer one more question here. Did you basically spend everything in the first quarter that you thought you would, perhaps with the exception of the delay in some of the marketing activity?

I'd say, as we entered the year, the major investments that we excited there in terms of Advanced Academics and some of the expansions and IT initiatives -- all that activity did occur. There was, as Daniel mentioned and I talked about, some delay on some of the DeVry University and marketing and a little bit of headcount openings here and there. But overall, the bigger activities that we had planned for did occur. Some of the headcounts might be a little delayed in terms of executing the hiring, but otherwise on target. The real upside was in the top-line revenue growth.

Okay, but that impact was small, of some of those delays in headcount?

Yes.

Relatively.

Relatively small. If you're looking to hire people and you want to hire 10 people and you only hire six, you're going to end up with some savings. But ultimately, that will catch up.

Corey Greendale, First Analysis.

I just wanted to go back a little bit to the question I think Kevin was asking earlier. So when you talk about being a little bit behind plan early in the quarter then catching up, are there any lessons to be taken away from that and any reason to think that that sort of thing could happen again as you approach the bigger starts in November?

No, not at all. It's just ongoing day-to-day management like anybody does in any organization. And that's the kind of thing that ebbs and flows, and there's always a certain amount of choppiness in any one period of time, any one month, anyone quarter.

And also, as we are entering the year, we make some planning assumptions on what type of start rates and conversions we're going to have. We've had plans to try to improve the efficiency and effectiveness of our spending and try and focus more on quality rather than quantity of inquiries. And so I think that proved out, that even though maybe the applications weren't to the level that we had thought they would be as we started out, we picked that up as time went on and we got better conversions.

And as far as looking at the Other Education Services line, I know that there was a lot of spending in there for Advanced Academics. Should that segment be profitable as we move forward?

Yes. This quarter, for both Advanced Academics and for Fanor, it's one of their lower profit, losing quarters, and so going forward we will be profitable.

Okay, I'll turn it over, thank you.

I was just going to add one thing about the season -- some people may not know or have appreciated the seasonality of Advanced Academics, as that is our high school program. It also serves middle school, but primarily high school, but in any case, pre-baccalaureate. It's not post secondary; it is secondary and to some extent primary school programs. You don't have much going on in the summer, as opposed to the post secondary, where most of our programs are teaching full schedules year-round including the summer, and that's how you get a four-year bachelor's degree in three years, for example, at Chamberlain or at DeVry University. You don't have that. And so Q1, for us, is a seasonally unprofitable quarter for Advanced Academics. I just wanted to add that color.

Jeff Lee, Signal Hill.

Do you plan to assume responsibility for cohort default collections? And then also, have you begun to specifically plan for the three-year measurement period versus the two-year measurement period?

Yes. Our focus there, Jeff, is to ensure that we do the best job that we possibly can helping to advise the students and educate students on their responsibility to repay the student loans that they may be taking out. So we've put an increased emphasis on that. We've added a lot of resources at some of the investments that we keep talking about, have been investments in this area of student finance and financial aid services and advising. So students know and families know, the parents know very well the obligations that they are taking on and the responsibilities that they're taking on, and that it's all very, very clear to the students and to their families. And that's an important part of managing that process.

And another part of managing that is just continuing to keep a focus on and an increased focus on student retention, staying in school and student success. And so the more successful students are in their endeavors and their educational endeavors and their career endeavors, the better their performance is going to be there. So I think DeVry University is a good example of that with -- since 1975, over 90% employment in field of study within six months of graduation. And then those graduates are working, and the most recent group at over $45,000 salaries. And then they tend to perform well from that perspective.

I guess I wanted to see, with the switch to direct lending, though, whether you plan to assume any additional responsibility.

No. This which to direct lending really has virtually no impact on the students themselves or on the school. It's really more of an administrative switch. We are fully prepared for that; in fact, we are already processing direct loans through the direct lending system. And so we don't anticipate any hiccup or problems or delays, if and when the total switchover, which is still not for sure, were to occur.

And then what about the switch to the three-year calculation versus two-year?

Well, that's just a different way of measuring it. And obviously, when you measure it over a longer period of time you're going to have a larger number of defaults. And when I say you, I'm talking in general, in the industry. So that applies to public universities, independent universities or private sector colleges and universities. They will all see those numbers go up. So they will have to -- everyone will have to recalibrate the standard by which you compare that.

And the thresholds move up accordingly.

Thank you. The thresholds to move up to reflect that. And I'm adding the mental, the psychological threshold or expectation needs to move up as well. And the Department of Education and members of Congress certainly understand that. The people that I've spoken with understand that.

Amy Junker, Robert Baird.

Could you just take a moment and maybe talk about your Medical and Health Care business? Now that we've [left] the U.S. Education acquisition, how should we maybe think about growth in that segment going forward? I guess I'm wondering, could that be a 20% revenue grower? And, just as you are talking about it, maybe touch on margins as well. Is it possible to get back to the 30% range, or is that unrealistic now, with the mix of U.S. Education Corp. in there now?

I think how we should think about growth there is steady and long-term. That's how I would think about growth there because there is a huge shortage of medical and health care professionals in both human and in animal medicine. So that's how we think about it. We think about this very much from a long-term perspective. We are going through our strategic planning renewal process right now, and we are taking a look at Bureau of Labor Statistics and other ways of looking at the needs. And for us, it's a matter of prioritizing. It's almost an embarrassment of riches in terms of the needs that are out there to be served.

So that's how we look at it. Yes, so robust growth. And the way that that growth will happen is by focusing on academic quality. It's the quality that leads to growth. We've often talked about Ross is a great example of that. We'll get into a lot more detail on this next month, when we have our education day, because it's really through the investments in academic quality that have led to the enrollment growth and the application growth that we've seen across that medical and health care sector.

The margins have changed; you can't really compare it because of this different mix now. When it was just Ross University, that was one thing. And then, when you had Chamberlain College of Nursing come in and it was in start-up mode, obviously it didn't make anything. So that changed the overall mix within the segment. And then you've got Apollo College and Western Career College, collectively U.S. Education, coming in, yet again changing that.

But I think we'll start to see a pattern emerge there, and that will be a positive improvement trend in margins over time.

And just as you brought up the meeting next month, can we expect that you will detail out for us maybe some clarity on how you think about each of those businesses, where the growth could potentially go? And not looking for guidance, but just more what your strategy is in each of those businesses and growth targets and margin opportunities, to help us better understand what DeVry, Inc. will look like on the back end of that?

We'll plan on giving some long-term perspective on that at the education day.

Absolutely. And I appreciate that question, Amy, because that's great feedback for us. And we've listened and heard feedback of a similar nature from others. So Rick was just smiling like, yes, he's working on that very issue to try to provide as much color and give you a flavor for that as we can.

Gary Bisbee, Barclays Capital.

Good evening, this is actually Manav and [Beth with] Gary. First question, on the expansion in the margins at DeVry University -- can you give us a little more color on what the primary drivers were for that expansion that sort of got the numbers ahead of your expectations? And also, what sort of visibility do you have for the next quarter in terms of just the segment results? And should we expect to see the second half of the year pull back with some of the investments that you're making?

The primary driver of the margin improvement, as I mentioned, is revenue growth. The enrollment and associated revenue increase, 24% increase in revenue, and again, keeping both our direct costs and our operating expenses growing at a slower rate drove that margin improvement. And some of the actions that we've been employing, whether it be the real estate optimization activities or pursuing marketing efficiencies, have paid off with those types of improvement in margins in the quarter.

And we would expect to see continuing margin improvement as we go forward, maybe not to the same extent, but to continue to see efficiencies in operating expenses and good growth for the balance of the fiscal year.

And were the co-locating strategies -- did that have any material impact this quarter? Is that something that should start flowing through the numbers going forward?

Well, we've had co-locations in several DeVry University locations in the past. Chamberlain College of Nursing -- they're in handfuls, here in the Chicago area, in Columbus, Ohio and Phoenix. And so that benefit has been realized in the past and continues to be there. And as we continue to expand with co-locations, that will be a factor going forward. And as we do more and more, it becomes a material impact. But each one individually may not be what I would call material.

Yes; I would put the co-location strategy in the category of one of the contributors to ongoing improvement in our results, both academic results and financial results. (multiple speakers) this is part of -- part of this diversification strategy and the benefits of it is that synergy that we get because the benefits are clear from both the academic and the financial perspective because what you get is the ability to have students co-sit in courses. You've got Chamberlain College of Nursing and DeVry University students co-sitting in general education courses. That adds to the richness of the academic environment. We have the ability to combine the resources of the two institutions in a combined library. So you've got a lot more academic resources there.

And also in just the environment, combining the student commons and the food services, all those other related student services that add to the students' overall experience and success all are then combined resources. So it really adds a richness to the campuses and we've been really pleased. It has exceeded our expectation for how well the co-locations have been going so far. And so we're going to continue that as part of the strategy.

And as part of that strategy, I guess you highlighted three locations. Is there a target number of locations that you plan on co-locating, or is it just as you go (multiple speakers)?

Yes. As we go, it's our preference wherever it makes sense, but without constraining any one institution's growth artificially, making it artificially constrained, to where the other ones are located. We would never do that. But wherever possible, we are trying to co-locate schools in where it makes sense. So Chamberlain is now in Columbus, Ohio; Phoenix, Arizona; suburban Chicago and Addison. It's going to be in Jacksonville, co-located (inaudible) downtown Chicago, co-located -- it will be in Washington DC, Crystal City. And then we are seeing Phoenix with a tri-location. You've got Apollo College and Chamberlain and DeVry University. We're looking at Western Career College in Southern California with a DeVry University campus.

So I think I just rattled off six or eight right there. So going forward, into the future I could see several, several, into the dozens and beyond as we go forward.

And finally, with your sort of healthy cash balance, I know you talked about going back to the Board for share repurchases. Is that -- like what are some of the other potential strategies that you are looking at in the near-term with sort of using that cash?

Sure. Our top priority is investments is either capital, computers, patient simulators, the investments that we make to improve academic quality and to meet the needs of our students. That's what we're here to do. So when we talk about investments, that's our number one priority. And those investments in quality are also growth investments, too. And then there's a -- part of that cash goes into scholarships. There's also a small dividend. There's some share repurchase. And from time to time, we've also seen opportunities to make acquisitions, as you've seen. That's how we think about the deployment.

We're going to have to move onto the next person in the queue, and we're going to ask you to try to keep it to one question, if possible. We want to get to everybody that's left.

Paul Condra, BMO Capital Markets.

Thanks and congratulations on the quarter. Since most of my questions have been answered, I just wondered, since you will have a representative at the neg-reg negotiations, do you have any more insight or detail at all about what the focus will be in terms of the international medical schools?

Yes, the scope there is that part of the Higher Education Act provided for an expansion of the Federal Student Loan program such that, if international schools could achieve certain milestones, they, too, could become eligible for that program. Our position and our opinion of that, my personal opinion, is what a great, great thing. That's wonderful, that's a nice endorsement, in a way, or a marker that there's a recognition that there is value being created there for those students and for society, where we badly need more physicians as well as nurses and veterinarians and the animal medicine side. So that is the scope, and that's what it's all about. And the neg-reg, or negotiated rule-making process, is about the how. Okay, so that's the what that's in the law. But then how do you interpret that? What are the specific details, milestones or markers or measures that will be used to administer that? And we are honored and pleased that Dr. Perri from Ross University was selected to be part of that team.

Bob Wetenhall, Royal Bank of Canada.

Good afternoon, great quarter. Just wanted to ask a specific question on the Business Technology and Management sector. It looks like you had huge earnings growth in that of $56 million, up from $27 million last year in the same period, but -- or a 107% increase, but revenues only grew 24%. What's driving that huge delta between the increase in operating income and revenue growth?

Really, it's the operating leverage, Bob, is the main dynamic that you're seeing there, particularly in the -- remember that DeVry University is primarily still an on-site university, in that we have 94 locations. We also have a very strong online program, but the majority of the students are still going in the on-site locations. And in that you have the phenomenon of operating leverage, where many of the classrooms where the students are attending are not at 100% capacity. And so, when you add another student, the operating leverage is there. And I think that is the main driver of that.

We did have a tuition increase this year, so that's a factor here. And there's other factors; there's the co-location that we talked about and the efficiencies in being prudent stewards of our resources, and those are all factors. But the number one would be the operating leverage.

Yes, we had like $55 million or so of increased revenue and about $30 million of increased profits. So it had very good incremental flow-through, for the reasons that Daniel mentioned. And by the way, we would not characterize the 24% as only 24%; that's a pretty darn good growth rate.

That's a fantastic growth rate. And concurrent with that, just to follow up, the operating margin and the segment saw 19.8% this quarter versus 11.8% last year in the same period. Do you think 800 basis points of margin expansion is going to be sustainable going forward?

No, I don't anticipate it's going to be sustainable. We made a big increase. We were overlapping a quarter last year that was a little bit lower than how we ended the year. So as we go forward, it's going to be harder to sustain that type of increase. But we do expect to see a nice increase for the full year.

What I mean is, do you expect the operating income margin for the BTM segment to be in the high teens going forward?

No, not for the full year, because this first quarter tends to -- last year, we ended up -- I can't remember exactly, 13.5%. So we expect it to be up versus prior year but not end up at 19.8% for the year.

So maybe like a mid-teens area?

I'm not giving any guidance on that.

Understood. Thanks, great quarter.

Scott Schneeberger, Oppenheimer.

This is actually (inaudible) for Scott. I wanted to ask about the enrollment in Fanor. How is that enrollment growth compared to its historical level?

I think that it's roughly in line. It's not a major increase or a major decrease.

It's basically organic growth because they have had some acquisitions over the past several years, but they've overlapped that. So it's pretty much totally organic.

Just to follow up, what is really driving the enrollment growth at Fanor? Is there a cyclical play as well, or is it more company-specific?

What's driving the enrollment growth in Fanor, which is the schools in northeast Brazil, is the ambient underlying demand for education in Brazil. And so, yes; it is sort of a sector wide phenomenon. It's not that Fanor is a standout and the only one who is growing.

The other thing to keep in mind about the post secondary environment in Brazil this, in addition to the 200 million population and 10th largest economy in the world and faster growing -- in fact, it's projected by the time of those Olympic Games -- and by the way, we hedged our bets here because we're in Chicago, but we had Brazil covered, too, in terms of the Olympic Games. But by the time of those games in 2016, some are projecting that Brazil's economy will grow from 10th to fifth biggest in the world. So, whether it happens then or a little bit later, it's growing fast.

So that creates a huge need, obviously, for an educated workforce, particularly the infrastructure, a lot of engineering. And so we have very strong engineering programs there. And that's what's driving the demand.

And then the government created a regulatory framework which welcomed private sector involvement and private sector investment. So the private sector colleges, like you have DeVry University or Chamberlain College of Nursing here, you've got private sector schools down there that actually have over 50% of all post secondary enrollment in private sector schools in Brazil, contrasting with about 9% here in the United States.

So you have a very good environment for what we do, and that's why -- that's a lot of the rationale for why we made that investment in Brazil.

Brandon Dobell, William Blair.

Any comments worth noting on the course load for students in the various segments? And kind of related to that is, if there is any movement there, do you -- have you thought of any necessary changes to pricing strategy or discounting, things like that, based on what you've seen from how the students are behaving?

We are seeing a stabilization there, I'd say. It's still no real change from the previous period. So that's good, because in the past we had seen some degradation. There's still a little bit of a mix phenomenon going on where some of the types of students who tend to take a little bit lighter course load are growing a little faster than the other segments of students, who tend to take a little bit bigger load. So you've got a mix shift phenomenon going on there. But within each segment we are seeing a stabilization. So that's encouraging. We've put some resources and investments into helping advise and counsel students on the benefits of taking a slightly heavier course load, the benefit that it can have in terms of speed to gaining their degree and getting out into the work world and so forth. And those investments are having some impact. But it's still fairly early days. But overall, that's how I would give you the color on that one.

Paul Ginocchio, Deutsche Bank.

Hi, it's Adrienne for Paul Ginocchio; that was close. Just wondering if maybe you could give us an update on the capacity at Ross, just wondering if the new facility there, if you have any sense about where enrollment can go.

Yes, thank you. At Ross our overall outlook is single-digit, high single-digit enrollment growth, like we've just seen. That would be a good expectation. And the great thing about Ross University with its school of medicine and school of veterinary medicine is they are not countercyclical. Nor, by the way, are they cyclical. They are completely acyclical; there is zero correlation to the economic cycle. Nobody wakes up, having lost a job, and decides to go to medical school. That just doesn't happen. It's a very long-term decision. Typically, it's people who are six years old running around with a stethoscope and wanted to be a doctor or a veterinarian their whole life -- or a nurse, for that matter -- is more the dynamic.

So nursing school, veterinary school, medical school -- these are differentiating factors for the DeVry education group. And we like that. We like that diversification, we like that steadiness. It serves us well in both good and bad economic times. So that's sort of the color on how I would look at the outlook for growth at Ross University.

Could you offer any commentary on how the ramp of the online programs has been at the Apollo and at Western Career?

Very similar to the ramp at DeVry University and at Chamberlain College of Nursing, which is to say pretty slow at the beginning, and purposely so. Our philosophy is prove it, then ramp it, not the other way around. And we will only ramp it up as we are sure that all the processes and the operating systems, the academic quality, the faculty development and training and recruiting processes -- that all those things are satisfactory. So we tend to take a pretty conservative approach at the beginning. But as the model is proven, then with that confidence it grows much faster. And that's exactly what we've seen, and seeing that growth, for example, now at Chamberlain College of Nursing, much more than it was at the early days of the online.

So we are in the very early days. But in terms of the longer-term, we are quite excited, based on the market data that we've seen and the facts, the market facts that we know to be true, since there is a demand for those associate degree programs as well as some bachelor's degree completion programs as a follow-on in the ancillary health and allied health professions, there's a real need there. So we're excited about the growth opportunities there for the long term.

Mark Marostica.

It's actually Mark Skitovich for Marostica. I just wanted to go back to your comments on the application softness that you saw in September at DeVry University. You mentioned, I think, a couple of things that may have contributed to the softness, one being delayed marketing. The other -- I believe you mentioned a focus on quality versus quantity. I'm just wondering, could you elaborate on which of these may have had a bigger impact on that slow start?

And then, on the quality versus quantity front, did you see a greater ratio of lower-quality apps this quarter than you've seen in the past few quarters?

No; Mark, it was actually the opposite. So what it was is a smaller quantity of higher-quality applications. And that's part of our purposeful strategy in this area. And we're just saying that, as we were going into the period, we did see a little bit lower or a little softer application volume than we had expected to see.

And so we went to work, and that's what we do. That's what we, as managers, do; we respond to the situations as they come. And I do commend the DeVry University teams who rallied and did their job, did a nice job of advising students on the opportunities at DeVry University. And ultimately, we ended up doing a little bit better than our plan. So that's really what happened there.

And then the delay in the marketing was -- our color there was just to let you know that that's part of the explanation for this outperformance in the quarter because that's really more of a timing shift on the expense side.

And more on brand awareness spending rather than specific inquiry volume. And keep in mind, too, the context of that comment. The application flow was, as we entered the fiscal year, was still a couple, 2.5 months, before the start of the semester. And we just, based upon what we saw, thought it could be a tougher challenge than we anticipated, and we put a lot of focus on it and got better results, leading to the upside.

And just maybe one follow-up on that. In terms of your recruitment standards, have they been modified in any way over the past few quarters with a greater focus on quality, in light of, obviously, the economic environment? Have standards changed in any way? Maybe if you can just comment on that as well.

No. Standards have not changed in any way -- academic standards have not changed in any way, admissions standards have not changed in any way. Academic promotion, in other words, progressing to the next level in your program, has not changed in any way.

I want to be very clear what Rick was referring to was more on the marketing side.

Yes.

In terms of working with vendors and advertising agencies and so forth, we put an increased emphasis on focusing on those marketing activities that may not generate quite the quantity of inquiries from prospective students as had been in the past, but with more -- with better quality or more highly interested -- a better, a more interested applicant or inquiry prospective student is what I'm talking about.

So, instead of having 100 inquiries and only X end up enrolling in school, you might have 90 but X plus a little bit actually enrolling in school. And so that's just a more efficient process.

Okay, I think we can wrap it up.

And there are no further questions.

Very good. Well, I would like to just make one final comment, which is to say thank you for your questions. As a reminder, that we'll announce our fall enrollment results on December 8. And our next conference call would then follow that in January 26 of 2010, when we report second-quarter results.

Thank you for your support of DeVry as we pursue our purpose -- to empower our students to achieve their educational and career goals.

Ladies and gentlemen, we thank you for your participation in today's conference. This does conclude the presentation, and you may now disconnect. Everyone have a great day or evening. Thank you.