Adtalem Global Education Inc (ATGE) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to DeVry's third-quarter 2011 results conference call. My name is Amisia and I will be your coordinator today.

At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions).

I would now like to turn the call over to Ms. Joan Bates, Senior Director of Investor Relations. Please proceed.

Thank you, Amisia.

With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer; Rick Gunst, Senior Vice President and Chief Financial Officer; and Pat Unzicker, Vice President and Controller.

I will now review the Safe Harbor provisions of this call.

This call may contain forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements reflect, among other things, management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements. Please see our public filings with the Securities and Exchange Commission for more information about forward-looking statements and related risk factors.

Telephone and webcast replays of today's call are available until May 10, 2011. To access replays, please refer to today's 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 2011 third-quarter results call. I will give a brief introduction and then Rick and Pat will discuss our financial and enrollment results, and then I will review a few operational highlights in the quarter before we open it up to questions.

Well, here we are, three quarters into what's turning out to be a good year and I would like to address what's driving that. So today, I will start off talking about what we're doing to enhance academic quality which is core to our central mission of helping our students achieve their educational and career goals.

This emphasis on academic quality obviously begins with our Board of Directors, chaired by Dr. Harold Shapiro. We believe deeply in our investments in academic quality, and they work closely with senior management through the Academic Committee of our Board. And that is chaired by Dr. Connie Curran.

This committee is responsible for ensuring quality in each of our schools, and they meet regularly. They assess progress and identify areas for improvement and collaboration across our colleges. They encourage investments in our programs and classroom technology, in services, and in people.

Here are some examples of those types of investments that we made this quarter. We're building a Joint Simulation Center that will be used by both Ross and Chamberlain students at our new Miami, Florida location this summer. It's a good example of how we are providing our students with the latest technology and educational tools.

A second example is building on the career services success that's achieved at the undergraduate level at DeVry University. We are taking that a step further for our graduate students, through a partnership that we recently announced with CareerBuilder. This partnership will provide Keller graduates additional resources to find employment or also to advance their careers, including access to a personal career coach.

The third example is we are also making investments in our people. Earlier this quarter, we announced the appointment of Dr. Joe Flaherty as Dean of Ross University School of Medicine. Dr. Flaherty comes to us from the University of Illinois College of Medicine. U of I is the largest US medical school, and it has four locations. So Dr. Flaherty brings experience in running a multi-location med school.

We are excited to have someone of Dr. Flaherty's reputation leading the way as we continue to enhance the quality of our medical program.

With ongoing investments in quality of our programs, services and people, we continue to drive strong student outcomes and solid financial results. This spring, total enrollment across all our degree-granting schools was up 7.6% from a year ago, to nearly 130,000 students. This result points out the success of our diversification strategy. While we are currently experiencing some softness within DeVry University undergraduate and at Carrington, the growth at our other colleges is offsetting that. So again, our strategy is focused on high-quality academics and in diversified positioning.

Beyond the investments we are making in our colleges, we are also participating in several important discussions that will help shape the future of higher education. One is a group of colleges, including DeVry, from all sectors of higher education, that's working with the Gates Foundation to develop a set of metrics that will help the public and policymakers better understand student outcomes across all colleges and universities, whether public sector, private sector, or independent.

This group is developing metrics in the areas of completion, costs, and return on investment for students.

And the second is participation in a forum that will be hosted by Sen. Dick Durbin and Rep. Danny Davis later this week, to examine solutions to decrease student debt and default rates, and ensuring the value proposition of the degrees that students earn upon graduation.

But before I turn the call over, I'd like to emphasize that all of these efforts are rooted in our belief that we only succeed when our students do. This belief underpins our operating philosophy -- namely, that quality leads to growth. Let me give you an example of that.

Since we acquired Chamberlain College of Nursing six years ago, we've invested over $20 million in academic quality and growth initiatives. As a result, our students' performance on their licensing exams have improved, and these results enhance Chamberlain's reputation and lead to growth in applications. As our enrollments grow, so do our financial results, which gives us even more resources to invest back into academic quality and growth initiatives. So it's a reinforcing cycle where quality leads to growth.

This philosophy has served the hundreds of thousands of students we've educated over our long history. This is why we will continue our unwavering commitment to quality in everything we do.

So with that brief overview, I'd like to turn the call over to Rick and Pat for the financial results.

Thanks, Daniel, and good afternoon, everyone. I'm going to take a few minutes to highlight our enrollment and financial results for the third quarter and first nine months of fiscal 2011.

Our third-quarter revenue of about $563 million was up about 12% versus prior year, and up 16% year to date. Revenue growth was driven by total enrollment growth of 7.6% across our degree granting, educational institutions. After-tax net income of $93 million in the quarter increased 14%, and earnings per share of $1.32 increased 18% versus last year. Earnings per share were up 25% year to date.

For your reference, third-quarter results include expense related to share-based payments of approximately $2.9 million, pretax, or $2.5 million, net of tax. Our overall effective tax rate was 32.3% for the quarter and 33.7% year to date, up from 32.1% for the full year fiscal 2010 -- primarily due to the increase in domestic source income.

The tax rate was lower by about 220 basis points in the third quarter, due to a one-time impact from certain incremental tax deductions from prior years.

Note that our income tax provision for the first nine months of the year was about $130 million; and we had $91 million of capital spending invested in our schools.

The cost of Educational Service expense increased by 9% versus prior year in the quarter, and Student Services and administrative expense increased by about 15%.

We continue to invest resources to drive academic quality and enhance Student Services, consistent with our philosophy of Quality Leads to Growth.

With that, let me now walk you through some of the key highlights of our operating segment results, which are further detailed in the release.

First, the Business Technology and Management segment revenue was up about 13% versus prior year in the quarter and 18% year to date. The revenue growth came down a bit in the quarter due to softening new student enrollments, as undergraduate new student enrollments were down 15% versus prior year in the spring, with total enrollment up about 6%.

Keep in mind that we are overlapping very strong new student growth of 24% from the spring of last year. If you take a step back from the peaks and valleys and look at the long-term trend, the compound annual growth rate over the past three to four years is in the 7% to 8% range, which is right in line with our prior long-term expectations.

So new enrollment growth is slowing, and that was to be expected after achieving nine consecutive semesters with growth of 10% or more. And while we're not totally happy with these results, and there are broader external factors at play here, we believe that supply/demand relationship and the value proposition of our programs at DeVry University, undergraduate and graduate, remain strong over the long-term.

Enrollment at the graduate level grew about 9% for both the January and March sessions. Segment earnings were up 16% in the quarter and 29% year to date, driven by continued operating leverage and increased efficiencies. At the same time we delivered these results, we've been making appropriate investments in academics, new program development, and new location expansions, the benefit of which we will see beyond this year.

Within the Medical and Healthcare segment, revenue was up 7.5% in the quarter and about 12% year to date, driven primarily by the strong growth within Chamberlain College of Nursing. Chamberlain's new student enrollment was up about 32% in the spring term, with total enrollment up 48%. This growth was driven by the impact of the enrollment at our three new locations this year -- Chicago and Arlington, Virginia, which opened in July 2010, and Houston, which just started teaching in March.

Chamberlain's growth is also driven by continued increased enrollment at our existing locations and online, due to continued strong demand for nursing professionals.

As expected, Ross University new student enrollment declined about 8% for the January class, due to capacity constraints within the medical school campus in Dominica, but total enrollment was up 3%. As we look forward, new student enrollment growth rates are likely to rebound and bounce around a bit, but for the purpose of your models, you should expect total enrollment to be in the mid-single digits.

Meanwhile, enrollment at Carrington continued to decline with new student enrollments down about 23%, and total enrollments down 15%, driven by the challenging market and countercyclical nature of many of Carrington's programs, resulting in lower inquiry volume and conversion rates.

Segment earnings in the quarter came in as expected, down about 5% versus prior year and down slightly year to date, which reflects Chamberlain's growth offset by lower enrollment at Ross and Carrington. Cost containment initiatives have helped lessen the impact of these lower enrollments.

Within our Professional Education segment, revenue was up 7.5% in the quarter and about 12% year to date. Revenue in the quarter remained in the high single digits despite the unusually high revenue growth last quarter in advance of the CPA exam change. We anticipate hiring within the accounting and finance fields to continue to improve slowly, but don't expect a marked improvement in performance until hiring ramps up further.

Segment earnings in the quarter were up 12% and up 24% year to date.

Lastly, our Other Educational Services segment revenues were up 18.5% in the quarter, driven by very strong growth at DeVry Brasil. New student enrollments increased 41% and total enrollment grew 16% in the latest term, which is the main enrollment period in Brazil. The growth was driven by our enhanced admissions processes and best practice sharing, such as implementation of the Student Central concept which we call CASA in Brazil.

Advanced Academics revenue was up modestly in the quarter due to continued state budget pressures. And earnings for this segment were $2.5 million better than prior year in the quarter and about $1 million better than last year for the nine-month period.

So let me summarize this information in our segments as follows. While enrollment slowed at DeVry University undergrad and declined at Carrington, it grew at Keller, at Chamberlain, at Ross, and at DeVry Brasil. I think this really shows the value of our diversification strategy, as well as our ability to manage our schools for the long term.

To that point, we continually reallocate resources and reduce costs where needed, without impacting academic quality or student services. This balance allows us to deliver the results we've discussed and continue to invest in quality and future growth.

So before I turn the call over to Pat, with just one more quarter to go in fiscal 2011, we are in good shape to have another strong year. Looking ahead to the next fiscal year, the impact of the softer enrollment environment within DeVry University and Carrington will be mitigated by growth within Chamberlain, Ross and DeVry Brasil.

While enrollment growth is trending back to more long-term levels, we still believe we can continue to deliver top- and bottom-line growth.

So with that, I will turn the call back over to Pat to review our cash flow and balance sheet. Pat?

Thanks, Rick, and good afternoon, everyone.

Cash flow from operations for the first nine months was $485 million versus $481 million last year. Cash flow was up only slightly versus prior year, due to the timing of receivable receipts in the month of March. This strong cash generation drove our cash and marketable security balance to $599 million at the end of the quarter, as compared to $502 million last year. We also remained debt-free during the quarter compared to having outstanding debt of $45 million last year.

Our net accounts receivable balance was $224 million versus $156 million last year. This increase was mainly timing-related, resulting from a delay in March of the receipt of funds for DeVry University undergraduate students.

DeVry University's cohort default rate of 10.2% was slightly above the Department of Education 10% threshold, thus resulting in a couple weeks' delay. We expect accounts receivable balances to be back in line with year-ago levels at the end of the fiscal year.

Receivables were in line, aside from this timing issue that hit us right at the end of the quarter.

Our bad debt rates continue to reflect the focus on the receivable collection process, with bad debt expense for the first nine months of the year actually down to 2.7% of revenue, as compared to 3.1% last year, an indicator of our students paying back their accounts and the strong value proposition of our programs.

Capital spending was $91 million for the first nine months versus $102 million last year. We anticipate the rate of spending to continue to pick up this quarter, and expect spending to be around $150 million this fiscal year, give or take, depending on the timing of activities between June of this fiscal year and July of next.

This higher rate of spending is being driven by facility improvements to better serve our students across all of our schools, new locations planned at DeVry University, and expansion within Ross University and Chamberlain College of Nursing so that we can educate more doctors and nurses in this great time of need.

Finally, during the quarter we repurchased 571,000 shares of our common stock for $29 million or, on average, $50.82 per share. We have completed about two thirds of our [fifth] program, leaving just about $20 million remaining under this $50 million program.

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

Thanks, Pat.

Let me start off by discussing how we are managing our resources in our Business Technology and Management segment which, of course, consists of DeVry University and its Keller Graduate School of Management. We've been preparing for a normalization enrollment back to the long-term trend. So, we are improving processes and reducing costs in some areas, while redeploying resources in others to continue to improve the value proposition to our students and to enhance academic quality.

One area of particular focus is investments in improving the freshman year experience while also putting in place mechanisms to better track academic outcomes. We recently implemented direct assessment measures that will help us to better gauge our students' success early in their academic careers. And from these programs we hope to improve our student retention as we help them to achieve their academic goals.

We are also investing in faculty development and training. This week we are holding our Annual Faculty Symposium where DeVry University's thought leaders will learn from one another through white paper presentations on topics such as student retention and blended learning models. I'm really looking forward to spending time with the group this week.

And, a quick update on new locations at DeVry University. Our campus in the Houston metro opened in March, and we plan to open two additional campuses in July -- one in the Los Angeles and one in the Seattle metro.

Moving on to our Medical and Healthcare segment, Ross continues to experience strong demand given the overwhelming need for veterinarians and physicians in the United States. At Ross University School of Veterinary Medicine, for the last several years, we've been working on achieving an additional level of accreditation from the American Veterinary Medical Association -- that's the AVMA. We're very proud to report that we received full seven-year accreditation from the AVMA. This prestigious accreditation is the gold standard in veterinary medicine and reflects the investments we've made in academic quality and student services.

At Ross University School of Medicine, we've had capacity constraints in Dominica as Rick mentioned earlier and we've been making investments to address that. We just opened a new academic center with a state-of-the-art simulation lab.

At Chamberlain College of Nursing, we are continuing to see strong demand across all our programs. We believe the success at Chamberlain is the direct result of the investments that we continue to make in both programs and new markets.

We are in the process of launching a new informatics program certification which will provide students with education and patient electronic records and other technology-related healthcare services. This area is becoming an increasing focus as the healthcare industry continues to move towards digitization.

We also expect to launch a new DNP -- and that's a Doctorate of Nursing Practice degree -- during fiscal 2012; and of course, that's pending approvals.

So in the second half of the year we will be opening several new locations. In addition to our colocation with DeVry University in Houston, which just opened in March, we are opening a new location in Miramar, Florida with DeVry University and Ross's clinical site this summer.

Next fiscal year we are targeting a new location in Indianapolis, and a colocation with DeVry University in Atlanta. In the past, we mentioned that our target has been to open one to two new locations at Chamberlain a year. With the increased demand we are seeing for skilled nurses, we've invested in the infrastructure and the management team to do more, and we are now aspiring to open two to three new locations going forward.

Actually that reminds me of a story -- I was in a meeting when somebody asked Susan Groenwald, the President of Chamberlain, what's the secret sauce to Chamberlain's ability to open so many new locations in the last few years? Without hesitation, she immediately shot back, secret sauce is quality. And we are very proud of Chamberlain's growing reputation for quality.

And then lastly, in the Healthcare area, at Carrington Colleges I'd like to give you a little color on what we're doing to improve our results. We've experienced some challenges here, namely some execution issues associated with the name change and other internal factors, but we have a performance improvement plan in place. Our plan centers on enhancing our students' experience, optimizing our marketing process, and building new locations.

During the quarter, we expanded the use of simulation for our students with an offering that we've branded the [Simlink] experience. We've been receiving positive feedback from our campus test pilots in Albuquerque and in Mesa, Arizona.

In marketing, we are investing in a qualification center in Phoenix to improve response times for prospective students, and this is expected to be operational in the first quarter of fiscal 2012.

And our new location in the Dallas metro is on track to open later this year.

We will keep you posted on our progress. We believe in Carrington's long-term growth prospects, given the large demand for allied health and ancillary care professionals throughout the United States.

Separately, Rob Paul will be taking over as President of Carrington Colleges this summer, succeeding George Montgomery, who will be retiring. Rob has demonstrated strong operational experience at DeVry University, and he's a proven leader. We absolutely love promoting from within, so we are just thrilled for Rob and for the whole Carrington team.

Now moving on to our Other Educational Services segment, some comments about DeVry Brasil, where we experienced notable enrollment growth that significantly outpaced the overall Brazilian market. Now this was largely driven by sharing best practices from DeVry University at the DeVry Brasil campuses.

It really is a great example of creating value through an acquisition, and then sharing operating experience and infrastructure know-how to drive growth. And DeVry Brasil is very much on plan. In year one we set the strategy and focused on integration. In year two, we executed the plan, including implementing these best practices, and now in year three, we're starting to see the benefits of the plan.

Going forward, we will continue to focus on quality such as by expanding faculty training. And we will add course offerings and locations. We are currently building out a new facility at our Ruy Barbosa College, and we are undertaking our first organic expansion in the city of Sao Luis in northeast Brazil.

So to summarize, our focus on academic quality continues to position DeVry as a leader in providing high-quality education to our students. This focus, coupled with our diversification strategy, supports long-term growth and continues to serve us well.

But before I open it up to questions, I'd like to recognize and say thank you to all of my coworkers at DeVry. Their commitment to our students is the foundation of our success.

So, with that, we'd be happy to take your questions.

Great.

There are a number of people in the queue waiting to ask questions, so we're just going to ask everyone to just ask one and then jump right back in the queue, so that we can get as many of you as possible. Amisia, if you will give the instructions for the participants, we will begin the Q&A.

(Operator Instructions) Corey Greendale with First Analysis.

Good afternoon. Could you just talk a little bit about -- obviously there's a lot of factors impacting new student enrollment across the various businesses. But could you just give us kind of your high-level current thinking on the magnitude of the impact -- things like internal challenges versus the economy versus competition, etc.?

Corey, thank you, and clearly that varies by programmatic area as well as by level of education and so where we are seeing more of the challenge, or the biggest challenge, would be in the shorter programs, like Carrington Colleges offer. So certificates and associate degree programs. And those exhibit the most countercyclical pattern of any of the programs that you see out there in higher education, and so it's not surprising, as we've seen unemployment start to moderate a little bit that you see the trend there.

And it's quite a different picture at the other end of the spectrum in medical school and in veterinary medicine, where the growth trends continue at a steady rate. And there we have our own internal issue of our capacity constraint in Dominica that we're working through. In terms of gross demand, the question is not countercyclical at all. Similarly in nursing.

Then other programs sort of fall in between. And lastly I would just comment that DeVry University, part of this is, Rick mentioned, 10 semesters in a row of double digit increases. That's not in line with the long-term trend, so as we've been saying for a little while, we expect things to moderate back to the long-term trend in the single digits. And I think that's where we expect things to settle out.

In the graduate school, Keller Graduate School of Management, is continuing to do at a very nice rate.

So trying to cover the waterfront here, but it's just a variety of factors and it hits different programs differently, depending on their length, and their level and the curriculum area that they are in.

James Samford with Citigroup.

Thank you. Just wanted to touch on the healthcare side. I guess on the nursing side, you were facing some pretty significant comps here or tough comps here. And yet deceleration was pretty modest. I was wondering, how much is new location driven, and if you could touch on sort of what's going on in the online space in that segment. Is that a key driver of growth?

Yes. Feel free to chime in here if I miss something, Pat and Rick.

Remember that what's going on with Chamberlain, we have a relatively small number of campuses, and so you are adding two or three campuses on a smaller base. Whereas at DeVry University you have nearly 100 campuses, so even if you added four or five or six, it's on a much bigger base. So I think that helps to explain some of the arithmetic on the growth rate. So we've added new campuses, and you're seeing the maturation of campuses that opened up, say, a year ago. So, that's definitely a driver.

You also do have the online part, and that's where we do the post-licensure program. So again, on site, on campus is your pre-licensure program, primarily your Bachelors of Science in Nursing. Then online you have your RN to BSN completion program, and you have your MSN, Masters of Science in Nursing. So, pretty high growth rates on the MSN because it's a relatively new program. It just started a couple of years ago, and so it's growing nicely on smaller numbers, so it gives you those large arithmetic growth rates. So I think those are some of the factors that are driving Chamberlain's growth.

Great, thanks.

Mike Tarkan with FBR.

Hey, guys, just following up on Corey's question, can you maybe talk about the competitive landscape for new students at DeVry and Carrington specifically, and how that compares to, let's say, six months ago and then maybe a couple of years ago?

From a competitive landscape perspective, you know, I don't see more competition materially. I think it's really more -- so I don't see us losing share. We don't have any evidence of that. It's certainly possible, and we continue to monitor and analyze that. I appreciate your question; it's a good question, something we need to continue to look at.

We don't think we are losing share. We think it's more of a general -- a function of the overall market which I had commented on to Corey's question.

Okay, thanks.

Suzi Stein with Morgan Stanley.

Some of your peers have noted a sharp uptick in student acquisition cost. Can you talk about trends you're seeing in terms of cost per inquiry? And has your overall marketing budget changed as enrollments have slowed?

I will take that. I mean, I think our cost per inquiry has been up modestly, and cost per start up a little bit more than that but still not up from the single digits. So we haven't seen any marked uptick like that.

We have been making additional investments in brand awareness and brand programs beyond just the acquisition of inquiries. But we haven't seen the same phenomena that you mentioned.

Okay, thank you.

Maria Karahalis with Goldman Sachs.

I believe last quarter you had commented that you had been understaffed in some of your admissions teams during the fall recruiting period, and enrollment has been a bit softer at DeVry University.

Can you give us an update on whether you believe you are right sized today and have staff in the right seats? Thank you.

Generally speaking, we worked on that issue. We have gone ahead and hired the people that we needed to. It's a constant -- I would put it back into the normal course of constantly balancing your resources, relative to your demand. Some of those people might be a little bit newer. So and then, there's some other internal execution issues. We certainly are not satisfied with the performance and have plans to go to work to do a better job.

If I could just ask a clarifying question, does that mean that just like the enrollment softness at DeVry University, you would expect to keep a similar number of admissions staff in that particular -- to support DeVry University?

Yes, we don't have anything to report in terms of an action there, and questions like that I always have to put into the same category as are you going to do an acquisition, or are you going to do this, are you going to do that?

There's no guarantees in life. But short of a guarantee, I would say no, just the normal course.

Understood. Thank you.

Paul Ginocchio. Deutsche Bank.

Thanks, just two questions or one question about incentive compensation. Could you just talk about where you are on changing the plan to fit with the new regulations, and what if any impact that would have on enrollment trends going forward? Thanks.

Sure. Thanks, Paul.

Of course, when it comes to compensation regulations, we have been compliant, we are compliant and we will continue to be compliant with the regulations in that area. So we do not pay bonus or commission or anything like that today, and I'm not trying to tell you anything that you don't know. But I know there's just been a lot of misunderstandings and misinformation out there. So just take the opportunity to clarify that.

But we will be making some changes to our performance-management systems and processes in the areas that are covered under the Title IV regulations. And that could have some distractions for our folks. We do have people working on changes, so that certainly could be one of the factors that are included when I say internal factors earlier.

But to this point, I would see that as a major driver, but it's a factor. And we'll just have to see where we go in the future.

Great. And if I could just sneak in a follow-up. Is any way to quantify what percentage of your student inquiries or new enrollment comes from lead aggregators versus referrals? Thanks.

I don't have a number or color to give you on that.

It has been declining as a percent of the mix, less and less from lead aggregators across our schools, than what we've had in the past.

Is it safe to say the majority is from referrals?

No, I wouldn't say the majority is from student referrals, no. No, the majority is from the outreach and communications and advertising.

We get more and more from our advertising, that's for sure. We've increased brand awareness efforts. And that isn't a specific aggregator or inquiry generation in and of itself, but it does drive people to the website that drives inquiries.

Thanks a lot.

Peter Appert with Piper Jaffray.

The Company has done an impressive job in terms of holding, even improving margins here as revenue growth has slowed, so I'm wondering if, one, you see any possible need perhaps to be a little more aggressive on the cost side of the equation, given that the trends of slowing starts and enrollments you outlined. And two, just on a longer term basis, where do you have comfort in terms of where you think the margins can and should be?

Yes. I think the way we think about that is, first and foremost, by remembering the philosophy that we talked about of quality leads to growth. So even though growth is moderating back to the long-term trend, there's still growth. And we want to continue to grow and to serve more students who need the kind of career-focused education that we provide. And the only way to do that is to continue to invest in quality. So even though there's a moderation, we wouldn't look at just managing for the short term to maintain a certain margin for this quarter or for that quarter. So that's really the most important thing to keep in mind.

At the same time, we are good stewards of our fellow owners' capital, as we look at opportunities to be more efficient in the use of our resources and how can we maybe find a more efficient or streamlined process over here and, yes, reduce the cost of doing something? But typically the first thing then we will do is look to, where can we redeploy those resources and reinvest that in a quality initiative or growth initiatives. And sometimes, in a particular period of time, it might fall to the bottom line. But our first inclination is to look to, where can we redeploy those resources for positive return -- positive academic return, positive -- which also ultimately leads to positive financial return as well.

That's sort of the color, that's the philosophy that underpins how we think about that.

Thanks.

Sara Gubins of Bank of America Merrill Lynch.

Could you talk about student retention trends in undergrad? I know we can only look at persistence, which includes graduations, and it looks like it was down a little bit in the spring term. And I'm just wondering if there was anything happening there.

Do you want to comment on that?

Well, overall, our persistence continues to be pretty consistent with where we have been for the balance of fiscal 2011. It's somewhat softer but not -- nothing significant or anything unusual.

Okay, and then just as a follow-up, is there any way to talk about the fixed versus variable nature of costs for the undergraduate and Keller segment?

Sure. With respect to the fixed versus variable, our programs with online tend to be more variable but still at a step function in terms of how we are able to fill sections and our need for faculty, which tend to be more variable on that side, whereas of course the on-site tends to be more fixed. And we obviously see a bigger flow-through when we have more on-site enrollments, because of that.

Any way to quantify that?

We don't specifically break out our profitability between on-site and online delivery.

At the campus level -- this is Rick -- you have your facilities and your full-time faculty would be fixed. And then there's some other staff at the campus level, that are also fixed. So it's going to be predominantly majority fixed with some variable components associated with it.

Thanks a lot.

Bob Wetenhall with RBC.

Good afternoon. This is a particularly strong quarter, and it looks like you got a lot of operating leverage through cost of Educational Services, over 100 basis points. I was wondering, is this sustainable going forward? And also, too, something that Daniel had spoken before about -- is it likely that long-term enrollment will trend back to 7% to 9% in the next year or two? And is that kind of your target?

On the first part, do you want to talk about the (multiple speakers) --

Sure. In terms of the sustainability, we continue to see -- we would expect to see margin improvement as our total enrollments would grow, just based on how we answered the previous question, in terms of being able to continue to leverage our fixed cost base.

In terms of that rate of growth, that would certainly moderate as our overall enrollments grow. But we would continue to expect to see some margin improvement.

Yes.

One piece of historical color, Bob, that might be helpful is if you go back, many of our fellow owners and partners have been with us since DeVry was the first to go public back in 1991, and remember that decade of the 1990s where for 10 years in a row it was 20% or more earnings-per-share growth over that whole decade.

And if you go back, the enrollment growth average at -- then it was just DeVry University at that time -- we weren't as diversified as we are today -- but the average was in the 7% range. So, it's quite interesting to look back and see that that kind of a number, which is what you mentioned, was in the order of probably a magnitude to think about for long term.

And do you think the target earnings per share growth of 20% is still applicable in the current environment on a long-term basis?

I think -- you know, clearly we exceeded that over the past several years. We never predict the future -- we don't give forward guidance -- and right now we are also, as we all know, facing some uncertainty about where the final regulations will come out.

So I think it would be premature for us to try to speculate on that. But we will keep you posted.

Thanks a lot.

Brandon Dobell. William Blair.

This is actually Tom Dillon. A quick follow-up to Sara's question on retention. How is the retention trends at DVU online look these days?

We will give you the same answer. I mean, it's been improving and it's fairly consistent with what we've seen in the past.

All right, and then just one follow-up. How is job placement for DVU grads been lately?

Well, and we like to call it employment statistics, and the only reason that I'd just point that out is that when people say placements, that makes it sound like that the University is placing the student, so that seems to take the responsibility off the student. And really, it's a relationship that is a two-way street and the student is certainly responsible for that (multiple speakers) and we provide the services and empower them with the tools.

By the way, not just for their first career position after they graduate, but we provide lifelong career services. So that's why we always belabor the point here, and forgive me for doing that, but that's why we call it employment statistics.

But the employment statistics that we hold ourselves accountable at DeVry University is -- the goal is that of our graduates in the active job market, that nine out of 10 should be employed in their field of study within six months of graduation. Of late, in the tough job market, we slipped a little bit. It's at about 88%, and so when we say we hold ourselves accountable, that means that we are putting more resources into that area to make sure we provide our students with as much support as possible.

And that's why we've hired several dozen additional career services advisors. We've also announced this CareerBuilder partnership which we are very excited about. So that's where we are and we are putting more resources in there to continue to support our students.

Arvind Bhatia. Sterne, Agee.

Thank you very much. I just have a question on pricing and what your philosophy is on that front. Particularly for DeVry University in the coming years, just overall how you're thinking there.

You can [take that].

Yes. For pricing for DeVry University, historically it has been in the 3% to 6% range for undergrad and grad. For this coming year, our pricing is out already, and it's going to be in the lower end of that range, a little bit less than 3% on average for both undergrad and grad.

Okay, great. Thank you.

Jerry Herman. Stifel Nicolaus.

Thanks. Good afternoon, everybody. Hi, guys.

I was interested in your comments with regard to 2012 and your belief that top- and bottom-line growth will be delivered. And just want to address that, given the fact that 70% of the business is BMT and the trends there seem to be, for lack of a better word, deteriorating.

Help us with how you get to that level of confidence, given the fact that that's just such an important piece of the business. And also, as part of that, can you address sort of the technology versus business disciplines within that segment? Relative strength or weakness?

Sure. Well, for one thing, I think as we've diversified our portfolio, the 70% number is a little large. It's not quite as much of our revenue or earnings as it was in the past. But it is a big piece, there's no denying that.

And as we have been putting actions in place in the past, we've been investing behind the school and will continue to do so. But we will be able to garner additional efficiencies as we complete this fiscal year and go into next fiscal year to help us show improvement in the bottom line year over year, given what we know.

And again, obviously there is the elephant out there, which is whatever comes out of gainful employment that we don't think is going to have a big impact in 2012 in that assumption. And part of the benefit here is, we do have a diversified portfolio. As I mentioned, we will see some softening enrollments as you mentioned, in DeVry and Carrington, but they will be offset by growth in the other areas at Chamberlain, at Ross, and at DeVry Brasil. So that also helps us in being able to say [we know what we know] that we think we can deliver growth in both the top- and bottom-line.

And then Business versus Technology?

Yes, with respect to Business versus Technology, specifically within DeVry University undergraduate, 2011 versus 2010, that mix has been pretty consistent and pretty constant. But what is important to note is the growing Healthcare Tech programs within DeVry University undergraduates, and that soon will probably be a double digit number of the total student mix.

Great. Thanks, guys. Appreciate it.

Gary Bisbee with Barclays Capital.

You know, just following up on that last comment, Rick, that given what you know today you feel like there is an ability to grow profit next year, how are you thinking about the near-term enrollment trend? And is there any data you can give us to give us a sense how that might trend? It looks like DeVry University undergrad will have an easier comparison clearly next quarter, but is there anything like inquiry flow and how that has changed or anything else that could give us some comfort that maybe starts would trend better than this quarter, this term you have reported?

Well, again, we don't give guidance on enrollments, and just based upon the programs and plans we have in place and as we roll those up and take a realistic and usually conservative approach to that, we feel that we are going to be able to manage through this choppier period for DeVry University following the 10 semesters we had double-digit growth. You know, the total enrollment, obviously, is going to continue to come down a bit, but we still think that the combination of the enrollment growth, the impact of the price increases we mentioned earlier, and efficiency measures will give us the ability to deliver some growth on the bottomline next year.

And I don't think we heard an update this call on the student information system really as it relates to DeVry University. I think last quarter it was a little behind schedule, but maybe there was still some benefit you thought you would get on efficiency in 2012. Is that still a reasonable timeline, or any update you want to give on that? Thanks.

Sure, and that's -- we've been calling that Project Delta, and that's right. Just overall, the project is behind the original schedule, and over the original budget, which is not a shock for those who've implemented large business improvements and systems improvements. But since that time it is now trending on plan to our revised plan. So what's good there is that, even though it is behind schedule and behind plan, is that we are not going to release the modules until they are ready. And that's just so important to us and to me personally as I've worked in other organizations where they sort of jam it in, and then the organization is brought to its knees as a result. And we are just committed to not doing that.

So even though it costs a little bit more money, we are willing to do what it takes to do it right. And I just really appreciate the support of our organization and of our Board, in doing that the right way.

We are expecting to roll out subsequent modules and we'll continue to give you updates on that. We should have an update, I would expect, probably next quarter on the next module, and we do expect to have improvements in efficiency, improvements in customer service and quality of service as a result. So those are the kinds of -- that's in the category of things that Rick mentioned a little earlier about performance improvements, efficiency improvements that are part of our job as managers, to continue to improve our results as we move along.

So yes, that would definitely be in the category.

Trace Urdan. Signal Hill.

Rick, I was wondering if you could maybe quantify the impact of year-round Pell going away, to what extent you have students that are taking advantage of that and what you are anticipating will happen once it goes away, how that gap will be filled in other ways?

Thanks, Trace. It's Daniel here, and I would -- I'm glad you asked that question because I know a lot of people probably have the same question. And I'd really like to answer the question from two perspectives, what's the impact on DeVry and then more importantly, what's the impact on our students, and on students generally.

In terms of impact on DeVry and on our results, it is not material. And one way to look at that is, year-round Pell has only been in effect for about a year and a half, and the increase didn't materially affect our new enrollments then, so it stands to reason that the decrease won't materially affect our enrollments now.

Unfortunately, the impact is going to be more on students, and they will have fewer -- a smaller amount of grants, and bigger loans which, unfortunately, is sort of counter to where I think we want to go generally as a society. But in terms of impact on our enrollments or retention, we don't see material impact there.

In situations where a gap occurs, do you have --? I mean, will you all be stepping in with a loan program to help those students out?

We already have that, and we've had that in place for some time. We are comfortable with that. So yes, there is an institutional loan program that's there. That's typically the last layer in a student's financial aid package, but most of the -- of any increased gap that would open up would be in terms of Stafford loans, Trace.

The other thing is, there's been a lot of misinformation -- I'm sure it's not with you but some misreporting at least that I've seen in the press, that they've cut -- they didn't cut the maximum Pell Grant; they moved away from the year-round Pell eligibility. So for students who are going year-round -- and a good example would be Chamberlain College of Nursing, where we have a four year Bachelor's of Science in Nursing that you can do in three years, because of our trimester system or DeVry University, where you can get a four-year bachelor's in three years because of our trimester system.

So students under year-round Pell Grant could then get a second Pell Grant because they enter a second academic year within one calendar year.

So we think that it's very much in line with policy that wants to see more students graduate more quickly to have year-round Pell, and we are working with others to develop solutions around Pell that -- other ways of managing the program, but to keep year-round Pell.

So we'd like to see that come back but again, we've only had it for a year and a half and we didn't see a big or material spike or something like that then. And we don't expect to see a diminution in enrollment as a result now.

Great, thanks.

Paul Condra. BMO Capital Markets.

Great, thank you. I actually wanted to ask about the state authorization. You have several locations in many states, and the state authorization rules are still pretty uncertain, and it's even more uncertain what the states are going to do. So I just wondered how that impacts your expansion into new locations, and if there's any areas that you might be more wary of than others? And how do you ensure that you're not going to violate any of these authorization issues?

When you mention state authorization, I think you are referring to one of the 14 new regulations --?

Yes.

-- that the Department put out. Is that what you are referring to?

Yes, I am.

Okay. So that has -- that will not have any impact on our ability to open new locations. That has to do with for -- if a college wants to offer online programs, then they need to have authorization in every state where they have online students. And actually, because we already operate in so many states, we are actually in a somewhat advantageous position because we already have most of the authorizations that we need. We certainly will be fully compliant with that regulation going forward.

So we really don't see any impact on our ability to grow enrollments, online or on-site, as a result of that regulation.

Just, if I can follow up, do you have this dialogue with the states that you are in? Has there been any, I don't know, new requirements or anything that they have made known to you?

We are always in a regular dialogue with all the states in which we operate, which is most of the states in the Union -- well, all the states in the Union. And no, there is no new requirements or nothing new certainly of any material nature that we've heard about that would impede our ability to open new locations or anything like that.

Okay, thank you.

Patrick Elgrably with Credit Suisse.

This is Kelly Flynn, on Patrick's line. Thanks for taking my question.

Related to the fiscal 2012 comments about expecting revenue and earnings growth, can you talk about what type of new student declines or growth that implies or assumes for DeVry University? Are you assuming things start to improve from here and into fiscal 2012?

No, Kelly. I mean, we don't give guidance and what we said is the extent of the guidance we're going to give at this time.

Okay, and then for -- I think, Rick, you did mention when someone asked you about fiscal 2012, you mentioned something about gainful employment and some assumptions you might have there. I know in the past you've said you are working on analysis, but you are not prepared to guide.

But does that comment about growth in fiscal 2012 have any assumptions embedded in it about gainful employment?

It assumes that there is no major change in fiscal 2012, that gainful employment would have a big negative impact on, on next year.

Okay, thank you.

Blair Mlnarik, Robert W. Baird.

If we could touch on starts one last time, as of the end of January, Daniel, you had commented that you weren't really seeing any significant changes in DeVry undergraduate starts; you have fairly sizable sequential declines for the spring. Could you comment on the trends from January through now -- you know, to April -- and I guess the main drivers there?

Blair, just to correct that, I think the comments that you are referring to that I made -- I didn't see -- people were asking, did you see major changes in our programs in response to new regulation and sort of turning your business model upside down, those kinds of things.

Okay.

Yes, so -- that's a completely different question.

Could you speak to the trends within the term at all? (multiple speakers).

Just to be clear, so your question is --?

I guess, have trends continued to deteriorate kind of consistently year to date?

Yes, I think we really don't have much to add to what Rick said earlier.

Yes, I mean I think the thing you've got to realize is, we were overlapping a 24% growth in the prior year spring. So given that type of growth that we had 24% in the prior spring, the spring before that it was up 15.1%, the spring before that, it was up 12.1%. So to get continual growth on growth on growth is really not realistic. It declined to 15% -- are we totally happy with that? As I said in my comments, not really pleased with that but not unexpected that it was a decline.

And again, if you look at it over the long term, there's going to be some ups and downs. It's not going to be all smooth growth here, but it's going to moderate, we think, over the long term into the mid-single-digit growth rate.

Great. And then actually related to your comment there is you had also mentioned last quarter similarly not being pleased but that you would be proactively managing that to avoid some of the softening. Did you, I guess, find that your efforts were able to offset what otherwise could have been much worse, given the environment?

We're doing what we can. There's a lot of factors at play, and the results are what the results are, and we continue to make adjustments and modifications as needed to try and do everything we can to bring in quality students and help students succeed.

I think we are ready for your closing comments, Daniel.

Thank you, Joan.

I'd like to thank everyone for all your questions, and our next conference call is scheduled for August 11. There we will have the year-end and the summer enrollment results.

So, thank you again for your continued support of DeVry.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.