Adtalem Global Education Inc (ATGE) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to DeVry's fourth-quarter fiscal 2010 conference call. My name is Jeremy and I will be your coordinator for today. (Operator Instructions).

As a reminder, the conference is being recorded for replay purposes. At this time I would like to turn the presentation over to your host for today's call, Ms. Joan Bates.

Thank you, Jeremy. With me today from DeVry's senior leadership team 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, or that management believes, expects, anticipate, foresees, forecasts, estimates or other words or phrases of similar import.

Actual results may differ materially from those projected or implied. Potential risks, uncertainties and other factors that could cause results to differ are described more fully in Item 1A, Risk Factors, in DeVry's most recent annual report on Form 10-K for the year ending June 30, 2010 -- 2009, sorry, and filed with the Securities and Exchange Commission on August 26, 2009.

Telephone and webcast replays of the call are available until August 26, 2010. To access the replay please refer to today's release for information.

Today Daniel Hamburger will begin the call with a quick overview, followed by a financial and operational review by Rick Gunst. Daniel will then provide an update on DeVry's five-year strategic plan before opening up the call for your questions.

With that I will turn the call over to Daniel.

Thanks, Joan, and thanks everyone for joining us today. We are pleased to announce another quarter and another year of strong performance, which has been driven by the continued execution of our diversification strategy that I want to talk about a little bit more, and by our focus on academic quality and excellent student services.

We, of course, are in constant dialogue with many of you, and we know that you have questions about the notice of proposed rulemaking, the NPRM, and the senate Health Committee activities. So let me make some remarks about these items right up front.

You have seen our comments on Part One of the proposed rules, and we are analyzing Part Two. We have been very consistent over many years in not speculating on the outcomes of pending regulation, or how it might impact your schools or our program, and we are going to stay with that long-standing policy.

I caution you not to read anything negative into this approach, because we continue to be very comfortable with the value proposition offered by our programs. We deliver programs that lead to employment and long-term careers for our students.

Just a few examples that illustrate why we say this. The top five employers of DeVry University graduates over the past five years are Fortune 100 companies, like AT&T, Verizon, General Electric, Intel, IBM, all premier companies that need highly skilled employees.

The overall graduation rate for Carrington College and Carrington College of California is greater than 60%, so most of these students are progressing into the workforce within three years.

And Chamberlain College of Nursing, well, you know the story there, a high demand field that commands strong salaries. These are just a few examples of why we are very comfortable that our programs lead to a strong return on educational investment for our students.

Now the comment period on Part Two of the Gainful Employment Proposal is still open and we haven't submitted our comments yet. One thing I will say is that we continue to believe that robust disclosure is the most important way to help prospective student consumers make informed decisions. We were pleased to see those provisions included in Part One of the proposed rule.

Now let me make a few comments on the so-called incentive compensation proposals. I say so-called, as there seems to be a misperception that the current Safe Harbor allow for employment-based bonuses, and that the supposed rules would ban them. It is not so. Such payments are already prohibited.

Now we support the Department's efforts to refine regulations and to ensure Congress' intent per the statute is carried out effectively. Consistent with current regulations, we don't pay commissions or bonuses based on enrollment. We pay salaries to all of our employees, who also receive annual performance reviews and are rewarded on merit.

While we support the Department's intentions, we do think there are three points that could further enhance the proposed rule. First, quanitative performance measurements should be permitted to play a least some part in the judgment that institutions make about base salary adjustments.

Second, restrictions on compensation practices should apply only to employees directly engaged in enrollment and in awarding financial aid. Third, we should permit compensation that is linked to shared societal and institutional goals, like program persistence and graduation.

Let me also touch briefly on the Senate Health Committee activity. As you know, we were the only private sector organization invited to testify before the committee to date. We very much appreciated that opportunity to discuss your views with the committee. We think it is essential if the committee is going to get a balanced view of the sector for them to hear from institutions like DeVry that have a proven track record of delivering programs that lead to employment and long-term careers for our students.

So we will continue to work constructively with the committee, and the next aspect of that will be pulling together the information that they have asked for.

So overall we understand that there are concerns with unaffordable debt levels, with the quality of some programs, with the recruiting practices of some personnel at some institutions, but stepping back, let's remember the big picture. We need more quality educational capacity to meet our workforce goals. In fact, just this week the President reemphasized his goal, our goal, our nation's goal of having 8 million more college graduates by 2020.

Private sector schools play a vital role in adding capacity with quality outcomes at a lower net cost to taxpayers. All schools, private sector, public sector and independent must be held accountable for quality outcomes and for value. So we support high standards, rigorously and evenly enforced.

The key point is that any policy, regulation or legislation must be crafted not only to address problems, but to enhance the ability of compliance rules to deliver this much-needed quality educational capacity. We must avoid unintended consequences. Let's not throw the baby out with the bathwater.

So with that as an overview, I would like to turn the call over to Rick for a review of DeVry's financial and operational highlights.

Thanks, Daniel, and good afternoon everyone. Well, another fiscal year has come to a close, and we are very proud of our strong performance, driven by our focus on academic quality. Full-year revenue hit a record $1.915 billion, up approximately 31% versus prior year. Organic revenue growth was about 27% versus prior year, excluding the Carrington and DeVry Brasil acquisitions that occurred last fiscal year.

Net income for fiscal 2010 was $280 million, up 63% versus last year. And earnings per share were $3.87, up 64%, excluding last year's discrete items.

Our after-tax income margin for the year was 14.6%, up from 11.3% last year. Over the past 10 years our after-tax net income margin has averaged about 9%, with fiscal 2005 as a low point at 2.3%. So we are real pleased with our performance this year.

We will be focusing on our after-tax net income margin as our key margin metric, as this accounts for the over $130 million in federal and state income taxes paid during the past year.

Fourth-quarter results were also very strong and reflect strong topline growth, continued operating leverage and a focus on reinvesting in academic quality and long-term growth initiatives.

Revenue of $507 million was up about 28% versus last year. This was all organic growth, as we have now overlapped the DeVry Brasil acquisition, which occurred April 2009.

Net income of $72 million was up 78% versus last year. And earnings per share of $0.99, up 77%, excluding last year's discrete item. And our net income margin was 14.1% in the quarter.

For your reference, fourth-quarter results include expense related to share-based payments of approximately $2.2 million pretax compared to $1 million last year. For the full year share-based expense totaled $10.1 million versus $7.6 million for fiscal 2009.

Our overall effective tax rate was 32.2% for the year and 28.6% in the fourth quarter. The full-year tax rate was up from the 30.4% tax rate for fiscal 2009, primarily due to the continued increase in domestic source of income. Our fourth-quarter rate was lower due to year-end tax true ups of state tax accruals and reserves.

Cost of educational service expense increased 23% for the year, and student service and administrative expense was up by about 24% for the year. While we are still making investments to drive future growth, such as systems improvements, new location and program rollouts, and investments in academic quality, we expect expenses to continue to grow at a lower rate than revenue again in fiscal 2011.

Also, for perspective, I would like to point out that educational service expense was 3.7 times the amount spent on advertising and marketing for the year. There is a lot of misinformation out there, so I want to be clear, again, that our spending on instruction was 3.7 times our advertising and marketing expense.

Now let's move to some of the highlights of our segment results, which are further detailed in our release. The Business, Technology and Management segments had very strong results with total enrollment up 22%. As expected, new student enrollment has begun to moderate, but still up 10% versus the tough comparison in the prior year.

As we have stated in the past, our goal is to achieve approximately 20% annual compound earnings growth for DeVry as a whole over the long term. We achieved these results for 40 straight quarters back in the 90s, with enrollment growth of 7.5% on average, and expect enrollment growth at DeVry University to return to the high single digits over the long run.

Revenue in the segment was up about 32% versus last year in the quarter and 28% for the fiscal year, driven by continued online expansion and strong on-site enrollments.

Segment earnings which are, of course, pretax were up about 140% for the quarter and more than doubled for the year, excluding last year's discrete items, driven primarily by improved operating leverage from the strong enrollment growth.

Persistence at DeVry University improved yet again this quarter, in part because of the success of the Student Central Program being implemented across our campus locations. Student Central provides students with a one stop destination for curricular, career and financial services. We have accelerated the rollout of the program because it is so helpful to our students and it is such a great investment of our resources.

Within the Medical and Healthcare segment revenue was up 23.5% in the quarter and about 40% for the year. Revenue growth for the year would have been about 33%, excluding the impact of the Carrington acquisition. The strong revenue growth was driven by strong demand for Chamberlain Nursing programs with total enrollment up 65% in the summer. This growth was offset by a modest decline in new students at Carrington during the period, as inquiry volume decreased in advance of the name change, and the expected moderation of new student enrollment at Ross University, as we make investments in academic quality and capacity. Ross' total enrollment was up 2.1%, which was in line with management's expectations.

Segment earnings were down slightly in the fourth quarter, because of startup expenses for the two new Chamberlain locations, which are DeVry University co-locations in Arlington, Virginia and Chicago. Also, expenses associated with the Carrington name change and startup costs and investments associated with Carrington's online programs. Segment earnings for the year were up 21%.

Our Professional Education segment results continue to show signs of improvement as revenue was up about 9% in the quarter, and up slightly for the year. A nice improvement from the negative trends we have seen in the past 18 months or so.

While some of this growth may be activity in advance of the CPA exam change in calendar 2011, we are encouraged that the negative impact of the economic downturn may be abetting. Segment earnings were down less than 1% in the quarter and down 13% for the year, but the pretax margin for the segment remained above 30%.

Finally, the other Educational Services revenue was up about 15% in the quarter, and contributed about $60 million for the year. Advanced Academics had a challenging quarter as school district budget constraints adversely impacted summer school enrollments. DeVry Brasil experienced good revenue growth.

Segment earnings for the quarter were only about $400,000, as Advanced Academics' revenue softness and investments to drive future enrollment in both operations negatively impacted earnings. These investments included facilities, training programs for academic support at DeVry Brasil as well as more efficient processes in student financial aid that we have implementing.

Shifting to cash flow and the balance sheet, cash flow from operations for the year was $392 million versus $250 million last year. These strong cash flow results drove our cash and marketable securities and investment balance to $323 million at the end of the fiscal year compared to $225 million last year.

This balance includes about $13 million of auction rate securities, but this remaining balance was redeemed at par in early July, so we no longer own any of these auction rate securities.

We also used our positive cash flow generation to pay off all our outstanding debt. You may recall that we borrowed about $200 million in September 2008 two help fund the US Education, and now Carrington acquisition, and ended up paying off all of the debt in less than two years.

Our net accounts receivable balance was about $119 million versus $104 million last year. 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 receivables per account was down about 17% versus last year thanks to the focus and efforts of our campuses and student services staff.

Bad debt expense was 2.6% of revenue for fiscal 2010, which is at the lower end of our historical range of 2.5% to 3%. We are very proud of these results, especially given the difficult economic conditions. And believe our programs' strong value proposition and return on investment contributes to our students' ability to pay off their account balances.

We continue to invest in quality and growth initiatives, such as Project Delta, our new student information system. As an update on Project Delta, we have implemented the first major module in the fourth quarter. Overall it went very well, and we are realizing benefits such as improved response time and service to students, as well as increased productivity.

Other investments in quality and growth include facility improvements in new locations at DeVry University, Carrington, Chamberlain and DeVry Brasil, along with investments in facilities and infrastructure improvements at Ross University to support capacity expansion.

We will continue to invest a significant portion of our earnings back into operations to improve the student value proposition. As an illustration of this, while we earned about $165 million in fiscal 2009, our capital spending was over $131 million in fiscal 2010. So this year's earnings fund next year's investments in quality and growth initiatives. We expect capital spending for fiscal 2011 will likely be in the $140 million to $150 million range.

Finally, during the quarter we continued to execute our third share repurchase program. Through June 30, we have repurchased approximately 422,000 shares of our common stock at a total cost of $25.4 million. We have been repurchasing shares more rapidly under our structured plan, given the fairly large stock price movements over the past few months, as I know all of you are very aware of, and are over halfway through our $50 million program at the end of June.

At this pace we anticipate completing this program well ahead of the December 31, 2011, authorization period, likely by the end of this quarter. As we announced in today's release, DeVry's Board has authorized a fourth $50 million program to commence once the existing program is complete, so there is no lapse in our program.

Investing in our shares at these levels reflects our belief in the long-term value we are creating. And again, that value is based on delivering value to our students.

Lastly, we anticipate another increase in our effective tax rate next year, given the growth in domestic source income, likely of about 200 basis points or so. So after-tax earnings will likely grow at a lower rate than pretax earnings next year.

That concludes my overview of the very strong operating and financial results for fiscal 2010. As we look to the new fiscal year, we still feel very comfortable with our long-term financial objective to deliver double-digit revenue growth and roughly 20% compound annual earnings growth over the next few years.

So with that let me turn the call back over to Daniel.

Thanks, Rick, well done. Recently we met with our Board and they approved our five-year strategic plan, so I would like to spend a few minutes now sharing some highlights.

In recent years we have set out to diversify and transform the organization so that we are positioned well for the future. We have added Advanced Academics, Carrington Colleges and DeVry Brasil to our family of schools over just the past couple of years. We are now much more diversified across curriculum areas and degree levels. We are well-positioned to make investment in our future in order to drive academic quality and student outcomes, and to take advantage of opportunities to further expand our programs, services and geographic footprint.

So how do we take this momentum and all of these positive attributes and focus them to realize our future objective, while helping to solve society's unmet need for high-quality education? Let me walk you through in broad strokes our strategic plan for the next five years.

Now to start, our vision is that DeVry will become the leading global provider of career-oriented educational services. We believe this creates value for society and all of our stakeholders by delivering high-quality educational programs that are supported by best-in-class student services.

Our strategy to accomplish this vision can be summed up in just three words, achieve, grow and build. First, we will achieve superior student outcomes by providing both high-quality education and student services. This is in line with our operating philosophy that quality leads to growth.

How it works is, as we invest in academic quality we help students achieve excellent outcomes, and we help meet the needs of society and the employers who hire our graduates. This in turn results in better student retention and referrals and continued enrollment growth. And all of these things generate the financial resources which we reinvest right back into the quality of our programs and services. So it is a self reinforcing cycle of sustainable growth. And it all begins with academic quality.

An example of this strategy is the Student Central Program that is being implemented across all DeVry University campuses, and Rick mentioned this earlier. We invested nearly $9 million in this initiative, and we have hired approximately 200 additional career services advisors, financial literacy consultants and student Central personnel.

Another example of our strategy at work comes from Becker Professional Education. And as you may know, and Rick mentioned earlier this as well, the CPA exam will expand to include a much broader range of subjects for 2011. So in response we are making a major investment in one of Becker's largest redevelopment efforts ever. And as a result all of our programs and materials for the 2011 CPA exam contain the latest information that our students will need to prepare for the new exam.

And at Carrington College, by pursuing this strategy of achieving high-quality academic outcomes, eight out of nine eligible campuses qualified for honor roll status. This was during a reaffirmation of accreditation by Carrington's accreditor, ACICS. Given that ACICS awards this honor to less than 20% of its schools, we were very proud to have eight out of nine of our schools.

The second strategy is to grow and to diversify into new curriculum areas degree levels and geographies. Chamberlain College of Nursing is expanding locations and launching new programs. The new RN to MSN degree program will respond to the increasing demand for nurses prepared at the Masters level. And through a joint program with DeVry University's Keller Graduate School of Management, Chamberlain is launching an online MSN and BA degree program.

At DeVry Brasil we are growing by adding 30 new degree programs in the fields of healthcare, engineering and IT. These high demand programs are a tremendous opportunity for us to meet student needs in Brasil.

So diversification drives growth, and diversification mitigates risk, because we are less vulnerable to economic cycles, and they are not overly dependent on any one program area. In fact, in the back of today's press release we included some charts showing the progress we have made in our diversification strategy throughout curriculum areas. And there is a chart on degree levels and geographies.

So whereas in 2002 we were 70% technology programs and 0% healthcare, we are now broadly diversified across technology, business and healthcare curriculum. So achieve student outcomes, grow and diversify, and lastly, build a high-quality infrastructure to support our growth and to compete in the increasingly competitive market. This infrastructure comprises four areas -- technology, online educational platform, a strong reputation and human resources, HR.

Project Delta is the largest investment we are making in our technology. This large-scale upgrade to DeVry University's and Chamberlain College of Nursing's IT infrastructure will both make our operations more efficient and save our students time that they can use to focus on their studies.

Over the past several years DeVry Online has done an excellent job of providing high quality, centralized services to support DeVry's schools. Our strategy is to further leverage this capability at Carrington and by increasing the rate of new program development across all our schools.

The third part of our structure is our reputation, our brand, if you will. What we stand for. One we were building this is through increased civic engagement. We are giving back. We recently announced a major partnership with America's Promise Alliance, which was founded by General Colin Powell. And with the support of President Obama and Secretary Duncan, the alliance is focused on solving our country's high school dropout crisis.

Over the next three years DeVry will be donating $1.5 million to the alliance, and making additional in-kind contribution of up to $750,000 per year in each of the 10 cities where the alliance operates. A key focus of this partnership will be expanding the Advantage Academy's dual enrollment model in those cities.

When we announced this partnership I got e-mails from across the DeVry family full of excitement and pride. It is emblematic of how DeVry's people are doing well by doing good. And that leads me to the fourth element of this growth infrastructure, and that is our human resources.

Our goal is to be the employer of choice in education. Our diversified array of schools offer six exceptional career development opportunities for our people. Two recent announcement illustrates this. John Roselli, who will be Becker's new President in the fall, has a tremendous foundation at Becker to build upon thanks to the work of his predecessor, Tom Vucinic, whom I personally would like to thank for his many years of exceptional service to DeVry.

Also, this fall Steve Riehs will become President of a new organizational structure that will include Advanced Academics, Becker Professional Education, DeVry Brasil and our overall international business development efforts.

So part of this HR infrastructure is our culture. DeVry's culture has always been founded on quality and integrity. So when I think of building the growth infrastructure I think of building a house. You don't build it from the top down. You start with the foundation, the infrastructure, so that as you build and grow you are on a solid foundation.

So that is our strategy, achieve superior student outcome through academic quality and student services. Grow and diversify into new program areas, levels and geographies, and build a high-quality infrastructure to support our growth.

So heading into next year, into this new fiscal '11 for us, our priorities are aligned with the strategy. And these are, first, achieving our academic quality goals, including exam results, higher retention and graduation rates, as well as expanded student services.

Second, in the growth category, expanding our healthcare programs in locations to address the strong demand for medical professionals. Expanding our Becker Professional Education segment into new markets. Continuing to develop internationally with DeVry Brasil. And strengthening our high school programs, while increasing synergies between Advanced Academics and our post secondary school.

In the build category, continuing to rollout Project Delta, continuing to develop a new online programs, and strengthening our talent development and succession planning. So that is our strategy.

And, lastly, I would like to take a moment to thank the more than 17,000 employees at DeVry for helping to empower our students to achieve their educational and career goals. We delivered a very strong year of academic results in fiscal 2010, and it was due to their focus on our students.

So with that we would be happy to take any questions.

Thanks, Daniel. I am very happy to let everyone know that joining us for the Q&A portion of the call today is Sharon Thomas Parrott, our Senior Vice President of Government and Regulatory Affairs, and our Chief Compliance Office.

So, Jeremy, if you will give our callers the instructions on asking questions, we will begin.

Of course, Joan, I would be happy to. (Operator Instructions). Bob Craig, Stifel Nicolaus.

A question for you on the regulatory environment and perhaps changing economic environment. Have either caused any meaningful changes in your mind in terms of how you approach the growth agenda or spending plans for fiscal '11?

I would say no. I would say that we continue to invest in quality initiatives and in growth initiatives. And that is really driven by the demand for career-oriented education that we see. So that has not been impacted by the regulatory environment.

You mentioned the economic environment, that remains to be seen. It is -- that is -- I would say that is a bit of an open question.

I will try a second one here. Rick, your comments on new students, I certainly understand the tougher comparisons, but the rate of slowdown was a little bit greater than what we had anticipated. Perhaps it is just our fault. But how did new students on the DeVry undergrad side compare with your plan, and were there any unusual trends that developed by other curriculum area or by credential level?

The results -- we said all along that we don't anticipate being able to sustain new student -- for that matter, total student growth rate at these levels down into the future. So the fact that we are overlapping 20 and high teens growth, we can't continue to grow at those levels for the sustainable future.

As I said in my remarks, we anticipate leveling off in the high single digits over the long run. So this period having 10% new student growth and 22% total student growth is still above those long-term trends, and it is not out of line with what we expected.

I would just add one more piece of color on that, and it sort ties back to the previous question you asked me about the economy. DeVry overall, the DeVry family is really much less countercyclical than a lot of people think. We have talked about that. We are really -- the diversified strategy allows us to grow throughout good and bad economic cycles.

Then the other piece to your question to Rick about the new student results, one of the things that we noticed at DeVry University specifically, where you're asking, was a very nice balance across business and technology programs.

Remember, a few years ago that wasn't the case, and the technology was struggling a little bit. And it has been the case for a good period of time now, nice, steady growth in both the technology as well as in the business programs.

Great, Dan, that's helpful. Thanks. I will turn it over.

Sara Gubins, Banc of America - Merrill Lynch.

A quick question on gainful employment. I know that you're not commenting on the potential impact, given that it is not finalized yet, but I'm just wondering how you internally been able to assess the impact of the proposed rule?

Sure. Well, to some extent we have. Of course, we don't have all the data at this point. But we have certainly been busy doing as much analysis as we can. That is internally. It is not -- I just learned a long time ago that answering hypothetical questions is just never a good idea.

Okay, but you've got enough that you're comfortable with the type of impact it might have?

What I am saying is we are comfortable that we provide high quality value proposition for our students, which is what this whole thing is aimed at making sure that schools are doing. So we're very comfortable with the value proposition and the employment and the career results that our students are achieving across all our schools.

In terms of undergraduate and new student enrollment trends, I am wondering was there anything done in terms of slowing your advertising spend? And what happened to the cost to acquire a student in the term?

No real major trends to report there in terms of marketing spend, so pretty steady as she goes here in terms of the expense per new student.

Okay, and then -- thank you.

Amy Junker, Robert W. Baird.

Daniel, can you just talk a little bit about -- with a little more color perhaps on Carrington? We saw a little continued deceleration from what we saw last quarter in terms of starts. And I know you talked about some of that was due to the name change, but do you think that there was any lingering impact from the capacity or execution issues that you talked about last quarter?

I do, and I think we deserve for any criticism that you might want to heap upon us on that. We did have some internal execution issues there during implementation period of the name change. That turned out to be a major, major project. It was very resource intensive. Executed very well, it just, I think, took a little bit more resource, and maybe we took our eye off the ball a little bit on our day-to-day execution in the process.

Now having said that, as we look at the results of it and what we see now, we do see a very good acceptance of the name in the marketplace. We have seen of late the inquiry volume coming back. And so we don't have an overarching concern. Really the capital [piece], it was really -- it was more executionally driven.

So there is still good -- there is demand out in the marketplace. There is a huge need and an unmet need for career-focused education in the career college area and healthcare focused programs that Carrington Colleges -- schools provide. So I think it really was more of our own internal execution and nobody is more upset about that than we are.

So do you think that the start growth can turn back positive in the current quarter, or is that something that it may still be another quarter before we see that turn in the right direction?

No, it certainly can. There is nothing that would preclude that.

Great. Then one last one on -- with respects to Ross, can you just talk a little bit about the impact from the new rules that are being proposed for US aid to students at foreign institutions?

I know that some of the rules are talking about raising the percentage of graduates that must pass the US medical license exam. I know you guys have very good metrics on that, but can you just maybe talk a minute about what, if any, impact that would have on Ross?

Sure, and again, the overarching comment is until the rules are finalized we can't and won't speculate on the impact to DeVry on its programs and students and so forth.

But, you're right, the 75% benchmark is out there. The USMLE Step 1 pass rate for Ross University School of Medicine students are well over 90%. So it just gives you -- that gives you an indication and a feel for how we might view that.

Great. I will pass it over. Thank you.

Jeff Silber, BMO Capital Markets.

Just to circle back on Ross, in the press release you talk about moderating new enrollment growth while the initiatives are completed. Do you have some sort of timeframe when that will be done?

Yes, as we said, it will be at least through January here. And we will keep you posted as we go. Some of this is within our own control, and we take responsibility for that. Some of them are outside our control, and we just have to work through the regulatory, the accreditation processes. So until we have more capacity, we are going to do the right thing for our students and limit the enrollment growth to that which we can support and can continue to maintain and enhance the quality educational outcome.

Okay, that makes sense. If I could switch gears to Chamberlain, you had some phenomenal growth numbers. Is it possible to break out just same school growth both in terms of new enrollment and total enrollment? And I am also wondering how the placement trends are for those schools? Thanks.

Sure, for Chamberlain and in terms of placement -- and by the way, if you'll forgive me, we like to use the word employment results. Because -- and it is very important. It is not just trying to be cute or anything, and words matter. But we are very adamant internally and externally when we talk to our teams, and we talk to students, we don't place graduates. We provide them with the skills to conduct a lifelong career search.

In today's world most of us will go through career changes more than one time. So we make sure that we educate students on how to conduct a job search. And they go and get that job, we don't place them. So we like to use the word, employment statistics or graduate employment statistics. And they are strong at Chamberlain.

Obviously there is a lot of need, and that is only going to grow for nursing graduates. In terms of the growth, I am not able to break it out in terms of a same campus, new campus, online for you. We just haven't broken out yet.

Gary Bisbee, Barclays.

I guess a couple of questions on the margins. First of all, on the professional business with the revenue stabilized, and, I guess, quite a bit better than stabilized this quarter, is it reasonable to expect the profitability to continue to decline there as you're making investments or is there some change in the business model? Or would we be -- would it be reasonable to expect that margins might start to flatten out if you continue to have positive revenue there?

It is Rick. As we look forward to -- this fiscal year I think we don't expect a robust improvement on the top line, but we hope that we would see some growth on the top line and likewise at the bottom line, and margins being about flat, would be, I guess, our general perspective on that.

On the DeVry University segment, another incredible performance on the margins and the incremental operating margin. I guess it seems reasonable that revenue growth could decelerate quite a bit, but you probably still have pretty healthy incremental margins. Is that the right way to think about it, and we've got some were margin gains in store? Are there any big, big investments that you're planning to layer on that might really decelerate the pace of the gains in the next few quarters?

Well, I think we will continue to have margin improvement in that segment, but not at the same level, by any means, that we have seen this past year in fiscal '10, or fiscal '09 for that matter. Because as you mentioned, the topline growth will begin to slow down. It will still be very robust, but not be as strong as it was this past year.

The one major investment that we will start to realize the expense for would be the Project Delta. The depreciation and the training costs we are going to have in fiscal '11 will be hitting a good portion of those costs -- hit DeVry University or the Business Technology and Management segment directly.

But still with all that, we would expect to see our expenses grow at a slower pace than the topline growth and see margin improvement next year, just not the same level of improvement that we saw -- the dramatic improvement this year.

Then just one last question. I understand the desire to grow and diversify and I think it is the right strategy, but adding $50 million to the buyback, given how weak the stock has been and how strong your balance sheet and cash flows are, it just doesn't really move the needle. I guess I wondered, Daniel, if you could speak on behalf of the Board, why not consider being more aggressive, given that you've got an awful lot of cash to deploy and M&A or other strategies as well?

Well, we are mindful of all of the potential uses of the cash. And we are DeVry, remember, so there is a conservative Midwest attitude here that has served us very well over the long term. We have been criticized many times in the short term, but over the long term usually people say, oh, now I get it.

So, yes, there are acquisition opportunities. There are investment opportunities in quality and growth initiatives. And then certainly there is money still left in deferred share repurchase program, and now we are launching a fourth in four years, our Board felt it was appropriate. So it is actually more than $50 million going forward.

But the main thing is, yes, the intent of it, maybe we weren't successful in demonstrating that to you, but I think you should know the sentiment behind it was, as Rick said earlier, that we certainly believe in making the investment in those shares at these levels.

I guess I would add that if you look at this program we are currently almost -- more than halfway completed the third program. That was authorized just several months ago, and it was supposed to last for two years. But we have it on a structured program, so that we are buying back more shares as the price fluctuates down. And thanks to all the negative cloud that has good out there, we have been more active in the market. So that is why we are going to be completed with this third program likely in another month or so.

So the Board authorized another $50 million, and we will maybe -- if things don't move we will complete that quicker, and that doesn't mean that they can't add another one on top of that.

So it is just -- I wouldn't read into the $50 million anything more that it is just a continuation of the program, and we will be buying back more at these attractive levels.

Okay, I appreciate the comments. Thanks.

Andrew Steinerman, JPMorgan.

I think one of the huge highlights here is how much persistence have soared. Daniel, course, I heard your original comments of why that is happening with Student Central. My question is about sustainability. Do you feel like the next few semesters should have a similar rise in persistence? And how far do you think we are along in benefiting from the effects of Student Central?

Thanks, Andrew, for those comments. We are very proud of that increase in persistence. That is what we are here for it is to support our students and help them to persist through to graduation. Especially for many of the other students that we serve in many of our schools, who are often first in their family to go to college. And you think about it, I came from a family -- I was very fortunate, you are going to college. And there is a big support network there.

Many students in -- that is not America today. There is many, many students who don't have that support network. And so we have to provide that level of support, and we have made a huge investment in providing those kinds of support services. And that is going to continue.

I can say that the improvements that we have seen is not the end of our goal. Our goals are still higher. So I can't predict in the near term exactly what that translates to, but I can tell you we do aim higher in that regard.

Right, but Daniel, just speak again. I mean, this semester was just such a large rise. I mean, by my calculations it is actually the largest year-over-year rise that DeVry has seen going years back. Do you feel like that type of rise in any way is an anomaly, or do you feel like that is in general how we are entering the fall semester, for example?

I don't think it is an anomaly or an accident. It is due to a lot of hard work on the part of our professors and all of our people. So I don't think it is just going to just sort of proof and then go away. I think we are going to continue to be persistent in improving persistence.

Right, so you think it is going to be a theme in the current fiscal year?

It is a huge theme, and it is job one in our strategy. That is the strategy number one, achieving our high-quality academic outcomes in Student Services is all in support of persistency. It is important to recognize this at academic quality and Student Services. We have to match the excellence in the classroom with excellent in all of the surrounding services that go around that.

It is a combination of both, world-class customer service, which is not something that you get from many public sector universities and others, that is the winning formula.

Perfect. Thank you.

Corey Greendale, First Analysis.

First, a couple of quick numbers questions. Last quarter I believe you said that you thought 20% EPS growth in fiscal '11 was reasonable. Is that still your thinking?

Yes, as I said at the end of my comments, looking at 20% earnings growth, the challenge might be that, given the increase in our tax rate that we anticipate, given the fact that our domestic source income will be growing faster than the international income because Ross will be flattish, even down, that puts a little pressure on the EPS number, but operating income should be still in that 20% range.

And in terms of the thought about high single-digit growth at DeVry University, you are talking about overall enrollment, not necessarily new student enrollment?

Well, over time, new student and total student growth tends to come together. But that period I mentioned in the 90s with 7.5% for new student growth and 7.5% for total student growth, so as it works through the pipeline it intends to equilibrate.

I am just wondering if you look over the next couple of terms the comp gets tougher on the new student enrollment, so I'm just wondering if people should be keeping that in mind and looking for a deceleration over the next couple of terms in that metric from what you just reported?

Well, again, we don't give guidance on that regard, but as you start to level off on that, and we have been doing better than that for the past many quarters and periods, I wouldn't be surprised if maybe we dip a little bit below.

But again, we've got -- the good news is that given our persistence that we just talked about, and our strong pipeline of new students that we've had over the past several semesters, that should help our total enrollment growth that drives our total revenues.

Then another topic. DeVry certainly has a good reputation in the industry. Could you just talk about what controls you have in place to ensure that none of your admissions personnel are misrepresenting anything to students? And how confident are you that those controls are preventing any such misrepresentations?

Sure, I will take that. Thanks for that question. DeVry does have a very robust, multilayered compliance program. We've had that for years and decades. The details of it go far beyond the time that we have available on this call.

Although we know our compliance program is very effective overall, we also know that exceptions can occur. That is true for any organization. So what is equally important is what we do when an error occurs or a problem occurs. The answer is we take immediate corrective action. We walk the walk and we talk the talk on that.

Many examples, and we talk about that explicitly within DeVry as part of continuing to maintain and enhance our culture of accountability and integrity. An example, a couple -- several years ago we became aware of an issue at one campus that related to this.

Once we investigated it, we promptly notify the Department of Education and terminated the employees that were responsible in that case. So we do the right thing, and we deal with it. And I think that is what any organization has to do.

I was at a meeting of business leaders a couple of months ago, and Jeff Immelt of GE was there. And he said, look, I've got 250,000 employees. I can guarantee as sure as we are sitting here, 25 or 30 of them are doing something that I don't want them to be doing. He is making sure that is an exception, but also making sure, what do you do about it when it happens?

So these things can happen, but the key is how you deal with that, and the key is how do you make sure you've got an overarching training and compliance program to ensure that it's very much the exception and not the norm.

Okay, I appreciate it. Thank you.

Kelly Flynn, Credit Suisse.

With respect to Carrington, last quarter I know you talked about the execution issues impacting starts. So you also talked about counter-cyclicality, which is not something that you mentioned this quarter. Can you just address what role you think that is playing, and maybe with hindsight even what role it played last quarter? And how you think about that at Ross?

Actually then actually related to that, in response to Amy's question you said you think starts growth can reaccelerate. My question is, do you think it will reaccelerate in this coming quarter?

If we have been a little bit -- and I have been a little bit wishy-washy on that, I would accept that criticism, because it is a little hard to read the tea leaves of the economy right now. It looked like it was getting better and now -- just today we had new unemployment claims go up again. So everybody is getting all squirrelly about the economy and worried about that, and might that have a countercyclical tailwind reemergence for those kinds of programs at Carrington.

Again, the DeVry family overall, not really countercyclical. But for Carrington specifically, yes, a little bit countercyclical.

And at the same time we have had internal things going on, so it has been a little tough for us to get as strong of a read on that as we normally would, because we have data points clouding our instrumentation here.

The thing that is particular to us is this name change. We do think that is going to be strong for us. The early read is a very positive response to that, and an increase in inquiries from prospective students. So, yes, it is possible, and certainly that is what we are working towards is to turn that around and get the positive new student, and of course maintain total student enrollment growth at Carrington College Group.

Sorry, I don't fully understand that. On the countercyclicality thing, do you think it has played a role in the past couple of quarters or not? I understand broadly it could play a role, and it is a little bit uncertain, but looking at the past two quarters did it play a role in your view or not?

Well, the thing is that over the past period of time we had a countercyclical tailwind at Carrington. That -- yes, we had that. What we said last time we are starting to see that probably beginning to flag. I would still say that. I don't think you're going to see it quite as strong as it was in the depths of the great recession.

All I am adding to that is at the same time we have our own internal execution issues, plus we have got -- on the negative side -- plus we have got the name change on the positive side. So that is three factors all sort of merging together. And when you have that it makes it a little bit more difficult to read. So I accept that we haven't been crystal clear as we usually like to be on that, but overall that would be the way we characterize it.

Okay, that makes sense. Then just a quick -- I guess an easier one for Rick. On the tax rate for next year I just want to make sure I heard you correctly, you think it will be a few hundred basis points higher?

I said it could be around 200 basis points higher.

Okay, all right. Great. Thank you very much.

Paul Ginocchio, Deutsche Bank.

Thanks for taking my question. Other risk factors for students I would assume that the people at legacy Apollo and Western have higher risk factors. Under obviously the Gainful Employment Proposal it becomes a little more risky for a company to accept those types of students. Has that changed your view on admission standards for the lower level degrees?

No, no. We still think there is a very strong need, an unmet need, for career-oriented education in the career college segment in particular. We still think there is a very strong return on investment for those students, and so we are not looking at making any changes to really do anything in that regard. And so we are going to continue to power along. We are just going to keep focused on serving those students.

Okay, great. Then just -- you have collected quite a bit of salary data over the history of your Company, and you have quite a good amount of detail because of accrediting. How do you think that salary data stacks up against Social Security data or IRS data?

I am sorry, how does it stack up -- is it higher --?

How do you think it matches up against potential IRS or Social Security data? Do you think it could be a big deviation?

No, it is probably in a range, but the real answer is we don't -- I am just really just speculating, because I don't know. We just don't have that data. Until we get the data and we see it, we can't really say for sure.

Scott Schneeberger, Oppenheimer.

Could you guys please address just how you're looking at pricing on the go forward basis? Any change to whatever you have spoken in the past with regard to how you think about it?

Not really, no. The way we look at tuition and the pricing is from, at least, two lenses. One is the competitive set. And our schools often compete with -- actually a lot less with other publicly held organizations that you might be very familiar with, and much more so with many of the publicly -- public sector institutions, state schools. And Carrington might be at the community college level, for example.

So we look at the competitive tuition increases that are out there, and we certainly have seen pretty good big numbers. Here in Illinois I think like 11%, and some mid teens. Even in California, over 30% tuition increases.

So that certainly puts one perspective on it. Like with any endeavor in life, you look at what the competitors and what the others are doing. Then the other lens that we put on it is more internal, looking at our programs and the value proposition that our students receive.

So we have, I think, previously shared ROI or ROE, our return on educational investment for our student. We shared however a 30-year period time if you take a look at the salaries that our graduates achieve, the kind of return on investments that they get, even with paying the tuition that they pay. That is, for many of our schools, are in the high 20s, even over 30% return on investment.

Again, other than DeVry shares, I am not sure what else I could find that would have such high return on investment. So we look at it from both those perspectives. And that continues, no change there.

Okay, thanks. One more if I could. With regard to CapEx, it looks like the guidance for next year up $10 million, $20 million year-over-year. Not taking us too far out, but is that going to be an unusually high year, or is this consistent on the trend? And what are the components that are taking as higher, is it primarily stuff in the Caribbean or Project Delta, Rick, if you could just give us a little elaboration. Thanks.

Sure. For next year we've got continuation of Project Delta, and that will be -- there might be some carryover into fiscal '12, but the bulk of that spending will be behind us as we exit fiscal '11.

But the other main reason for the continued higher level of spending is a lot of support of the expansions we talked about -- new locations at DeVry University, Chamberlain, Carrington. Real estate improvements and expansions at a number of facilities in DeVry University and others. The capacity add that we talked about at Ross, and continued other investments in DeVry Brasil.

So all these things add up to spending in this range. I would expect it to not maybe be at this level in fiscal '12, but definitely as a percentage of revenue consistent with what it has averaged the last two or three years.

We have about time for just one more, before wrapping up.

Bob Wetenhall, RBC.

Really nice quarter. Can you -- just to refresh, what is the breakdown between what you're expensing and capitalizing on Project Delta, and what is the full dollar spend going to be?

Project Delta is principally capital spending, and to date we have spent about $46 million -- hold on a second, I've got it here. Yes, to date -- in fiscal '10 we spent about $33 million. To date we have spent about $46 million. The total cost will be -- capital -- will be in the $65 million to $70 million range. And there is about $10 million to $12 million in expenses in total for the project, you know, mainly training dollars that have already occurred or will occur next year.

Just understanding does that flow through like Student Services mostly?

It is both. It is both Student Services and cost of instruction.

You guys did a really good job on cost of Educational Services, bringing it down year-over-year as much as you did. How much -- is there any more low hanging fruit there, or is the improvement we're going to see due to favorable sales leverage going forward?

I think we saw a some leverage there, but the cost of Educational Services still was growing greater than 20%, so we are investing in our Educational Services pretty significantly. And I think we have been able to, through our utilization of our capacity been able to get more leverage out of that the past few years.

And, as I alluded to with the capital spending, I think -- one of the offshoots of the enrollment growth that we have had is that we need to invest in some of our facilities for expansion and some of our centers that have shown nice growth and enhancements in infrastructure and square footage in some other locations. But we have seen nice improvement in our capacity utilization, in our square foot per student that we have been tracking.

With the capacity utilization improvement though that should offset the cost of reinvestment in the business, is that fair?

Yes, although, again, I think as evidenced by our capital spending, we need to invest more today than we did in the past, because we don't have as much excess capacity as we did three or four years ago.

One final question for Sharon. Do you have any expectations that you would feel comfortable sharing on what the impact of [help] is likely to be if it s likely to develop into legislation, or would you take the view that is not?

At this point I think you guys probably know as much as we do. I think that we are comfortable providing information. We are, of course, actually happy to share information with the committee to give them a better understanding of the sector, and particularly of DeVry, but speculating on where it's going is not in my crystal ball.

Fair enough. Great quarter, thanks very much.

Thank you very much. And I know we went about five minutes over, but we wanted to make sure we got all the questions in that we could, and thank you for those. A reminder that our next conference call will be October 26, where we announce first-quarter results and enrollment for the period.

Thank you for your continued support of DeVry.

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