Laureate Education Inc (LAUR) 2002 Q3 法說會逐字稿

Good day and welcome to the Sylvan Learning Systems Third Quarter 2002 Earnings Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Manager of Investor Relations, Mr. Chris Symanoskie. Please go ahead, sir.

Thank you, operator. Good morning everyone and welcome to the Sylvan Learning Systems Third Quarter 2002 Earnings Release Conference Call and webcast. Before introducing management, I would like to review a few administrative matters.

In response to investor request, we ask that Q and A participants limit their session to one question to improve the flow or the Q and A and to allow for broader participation.

Next, I’d like to call your attention to the safe harbor language listed in the press release and remind you that both the release and this call may include information that could constitute forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any such forward-looking statements may involve risk and uncertainties. Political, economic, currency, tax, regulatory, technological, competitive and other factors could cause actual results to differ materially from those anticipated in the forward-looking statements. Additional information regarding these risk factors and uncertainties is detailed from time to time in the Companies filings with Securities and Exchange Commission, including, but not limited to, our most recent forms, 10-K and 10-Q, available for viewing on our website.

This morning, I’m joined by Douglas Becker, Chairman and CEO of Sylvan Learning Systems and Sean Creamer, CFO of Sylvan Learning Systems. And we’ll have other members of management available for questions during the Q and A portion of this call.

Now at this time, Sean Creamer will discuss our financial results for the third quarter. Sean.

Thanks Chris. Good morning and welcome. Before I begin my discussion on the quarterly and year-to-date results, I want to provide a brief update on a few relevant matters.

First, in response to requests we’ve received for additional information on the presentation of our GAAP and pro forma results, we’ve included a detailed reconciliation of the two in the body of our release. Consistent with our past practices, we’re providing our guidance for the fourth quarter excluding Sylvan Ventures.

Recently, there’s been much discussion regarding the inclusion or exclusion of Sylvan Ventures losses in our results. For most of the two years following the formation of Ventures, most investors and analysts agreed that the best way to value Sylvan was to look at the financial results of our core operating segments, excluding Ventures, applying appropriate multiple to Sylvan’s core results and assigning a dollar value to the Ventures portfolio, utilizing in effect, a mark to market concept, was the approach followed by most investors for valuation purposes.

The argument being, that these losses would be largely non-recurring in nature. In effect, these early stage companies would be either moved towards profitability or would be shut down or sold. These losses would decrease, in any event.

In recent months, sentiment has changed. While some maintain their view excluding all of Ventures losses is preferable, others suggest losses from the more strategic assets in the portfolio, eSylvan and Walden, for example, should be included while the other losses excluded. Still others prefer to stick with GAAP results.

The enhanced presentation, hopefully, provides details necessary to allow investors to evaluate our results using whatever methodology they choose, and hopefully demonstrates our commitment to providing transparency into our numbers.

In addition to reconciliation we have, I think, improved the readability of the financial table. By including line numbers and referencing specific items included in the GAAP to pro forma reconciliation to these line numbers, we’ve hopefully provided a road map for tracing our numbers into the income statement.

We are pleased to report that we completed previously announced disposition of our Wall Street Institute franchise business in Spain to an investor group lead by the local Spanish management team and the original founder of WSI. In connection with the completion of this transaction we reported a final adjustment to the loss on the disposition of approximately $2 million, after tax.

This transaction had an effective date of July 1, 2002, the date the buyers assumed the management control. Accordingly, we do not have any operating losses for WSI Spain to report from that date forward.

The deal was structured as an [air out] and entitled Sylvan to share future cash flow from the operation based on a pre-determined formula, subject to certain performance thresholds.

During the quarter, we also wrote off our investment in Frontline, a corporate training business. We received our equities stake in Frontline in connection with our 1999 disposition of tapes out of corporate training business. Given the extremely difficult current state of the corporate training industry, in general, and Frontline, specifically, we have written off this investment resulting in a $4.9 million after tax charge.

Outside of Ventures, this equity stake was the only remaining investment on our balance sheet unrelated to our core businesses.

With these two items resolved, we’re turning our attention to reducing losses from Ventures and Doug will provide more color on that in a few moments.

Finally, we also completed negotiations of an early settlement of an earn-out relating to our January 2002 acquisition of 36 Sylvan Learning Centers and were able to accomplish that at a discount. These centers, like the [Empowered] Line Center business, are performing extremely well.

In connection with the transaction, we also acquired the Sylvan Learning Businesses in the U.K. and France. The total combined purchase price was approximately $16 million, in line with the estimate we disclosed in our second quarter 10-Q. The U.K. and France acquisitions are expected to be mutual to earnings for the fourth quarter.

With that background information, I’d like to turn to a review of the third quarter and year-to-date financial results. To present the clearest picture of our operating performance, unless otherwise noted, the results exclude the impact of Ventures, as well as the FAS 142 charge and any charges associated with the disposition of WSI Spain and the write-down of Frontline.

In addition, for comparison purposes, the results for prior years have been adjusted to back-out 2001 goodwill amortization, last years caliber related write-off and WSI Spain’s results. So, hopefully, we’ll present and apples-to-apples comparison.

For third quarter, reported total revenues from continuing ops of 124.5 million, an increase of 19% over the 104.9 million generated in the third quarter of 2001. Total operating income for the quarter, 11.1 million compares to operating income of 9 million in the third quarter of 2001.

Pro forma net income from continuing ops for the third quarter was 7.3 million, or 16 cents a share on diluted shares outstanding and 46.8 million, compares to 6.1 million or 13 cents per share in diluted shares outstanding of 46.6 million for the same period in 2001.

Sylvan’s net loss to the quarter ended September 30, 2002 on a GAAP basis, was 5.7 million or 14 cents per share, which includes the impact of Ventures losses, the additional WSI Spain loss and the write-down of Frontline I mentioned previously. This compares for a fully dilated gain of 20 cents per share for the same period in 2001. Included in Ventures results for the third quarter 2001 were the $24.7 million gain stemming from Ventures sale of its 42% stake in [class well] Learning Group.

Moving to the nine-month period ended September 30, 2002, we generated total revenues from continuing ops of 412.9 million, an increase of 19% over total revenues of 347.4 million, reported in the same period in 2001.

Year-to-date operating income was 45.7 million. This compares to 36.6 million of operating income reported in the same period in 2001, a 25% increase over last year.

The nine-month period ended September 30, pro forma net income was 28.1 million or 60 cents per share, undiluted shares outstanding, a 47.1 million comparing to 23.6 million, or 52 cents per share on diluted shares outstanding of 45.7 million for the same period last year. That represents year-over-year EPS growth for us of 15%.

Our EBITDA excluding WSI Spain and Frontline write-off was 17.3 million for the quarter and 60.3 million year-to-date, increases of 22 and 24% over prior year, respectively.

Moving quickly on to some balance sheet information, total cash and marketing of security to the end of the quarter stood at approximately 144 million, while total corporate debt was approximately 67 million, excluding the $95 million converted with [indiscernible]. As of September 30, 2002, Ventures had made funding commitments of 280 million, of which 263 million had been invested to date.

In summary, we’re pleased with our strong operating results for the quarter. Our enrollment success during this critically important intake period, coupled with our enviable length of stay, generates great visibility into our future growth process.

At this time I would like to review our guidance for the fourth quarter. And, again, it excludes Sylvan Ventures. We anticipate total revenues of 149 to 160 million for the fourth quarter versus roughly 133 million for the fourth quarter, 2001, an increase of 12 to 20%. Our fourth quarter 2002 operating income is expected to be 26 to 28 million, an increase of at least 18% over prior year.

G&A costs, quarter-to-quarter are expected to be approximately $5 million. The Company currently believed it will achieve earnings per share of 33 to 35 cents for the fourth quarter.

It’s worth mentioning that, as a result of increasing our stake in Walden from 41% to 51% during the first quarter, we now consolidate Walden into our GAAP results. This resulted in a change in our revenue recognition for [KANA] revenues from Walden students.

With respect to our other partner universities, we recognize revenue on our Distance Learning Masters program and will shift the product. This was the case with Walden as well, until we consolidated them. Now that we’ve consolidated Walden we recognize the revenue, over the course of the semester, in order to match the revenues with the expenses incurred by Walden in delivering service.

This has a substantial impact on our fourth quarter results. Given the large volume of shipments made in December, in advance of the winter semester beginning in January, this recognition policy results in a deferral of roughly $3.2 million in revenue and a corresponding $2 million of operating income to the first quarter of 2003, or roughly 3 cents a share.

As you may recall, Canter historically generated losses in the first quarter because all the revenue for the semester was reported in the preceding quarter. The result of this change will be to convert that first quarter loss into a profit on a going forward basis.

Despite the impact of this change, we’ve been able to meet our third, and expect to meet our fourth, quarter targets. After adjusting out the first quarter 2002 loss from WSI Spain, we are still achieving our full year guidance of 93 and 95 cents per share, while positioning us for a strong first quarter 2003 result at Canter.

Our guidance was issued prior to increasing our position at Walden, and therefore, did not contemplate the impact of this deferral.

That concludes my remarks regarding our financial results and guidance. And, at this time, I’d like to turn it over to Doug for his comments.

Thanks very much Sean. We are very pleased and excited by the financial performance of the Company. And I think, as our press release would describe and as Sean would have just described, the overall operating performance of the business in its divisions, continues to be really excellent. I think the strongest news that we could announce today was the enrollment information on SIU and I intend to give you some pretty detailed information about SIU and it’s enrollments.

Now, because we have a lot of information to present and because we would like to leave as much time as possible for questions, today we’ve decided to streamline our presentation, so that only Sean and I would present. But we do have a number of the other senior executives of the company with me, that you’re used to hearing from, so that if you have questions, we can call on them to help during the Q and A section and we’d like that to be longer than usual.

So, let me start with a review of K-12 business. K-12 businesses at Sylvan consists of Sylvan Learning Centers, which is our site-based consumer business and Sylvan Education Solutions, which is our institutional in-school business. The combined revenue for the quarter were $48 million, which is 27% over last year for K-12. And K-12 operating profit [technical difficult] .7 million dollars, which is a 38% increase over last year, same quarter.

Let me address the results of these two business units individually. The Learning Center business, under the leadership of Mary Foster as President, showed strong gains in the third quarter with an overall revenue increase of 36%, this for what, for many years, has been considered one of our most mature businesses.

Franchise Services revenues, which is a component of our revenues, increased by 13%, which is actually – it was actually much better than that, but as we phased out our tuition financing program that we used to provide ourselves, and we used to get revenues for, in favor of the third-party tuition financing revenues, which are now going to Sallie Mae, which has been a huge success for us. That actually reduces revenues in that franchise services line item.

Royalties in the third quarter increased 22%, so that will give you a sense of what the real underlying growth in the franchise business has been. And that really is, for us, nearly historical highs, in terms of increases in royalties.

We also opened eight new centers and did get some increased franchise development fees, although they’re still a relatively small part of our financial picture.

For Corporate Centers, which are increasingly important part of our business, performance was supplemented by the addition of 30 centers that we acquired at the beginning of this year. And an additional five new centers that we acquired this quarter, in San Diego, bringing our total Corporate Center counts to 127 centers.

Now many of you know we have a right of first refusal to buy back franchise centers, so we really can’t predict when they’re going to come on the market and most of the time, we decide not to buy them. But when an important market, a promising market like San Diego comes up, or early this year, the three markets that we bought in Atlanta, Pittsburgh and Boston, those things don’t come up every day and sometimes we choose to pounce on them. So, we’re very pleased about that. It more than fulfills our center acquisition goals.

Consequently, our total Corporate Center revenues were up 52%, but if you were to take out the acquisitions, same-center revenues were up 22%, which is really terrific.

That really reflects an increased number of tutoring hours that we are going to provide. In essence, our customers are spending more than they used to. That’s what’s really driving the revenue increases.

As noted in our previous call, our marketing and sales programs for 2002 continue to drive high levels of interest in Sylvan, which combined with our financing options, allow consumers to purchase a complete solution for their children’s reading, math and study skills and writing needs.

Our Education Solutions Systems, under the leadership of its President, Jeff Cohen, had 7% lower revenues this quarter than last year, and we had expected that decline. As we stated in previous calls, 2002 has been a rebuilding year for this SES division.

We’re investing in a stronger sales force, which is now building the pipeline of contracts we hope to realize next year. So, right now, we really have costs of a sales force and not really the revenues that they would generate next year.

Also, the “No Child Left Behind” act, which many people follow well, has provided two important sources of new contracts for 2003. The first is the fact that there’s been a general 18% increase in total Title One funding, which is massive. The second is the requirement for failing schools, in specific districts, to provide supplemental services provided by third parties, such as Sylvan, to students who are eligible.

Now, this act, “No Child Left Behind”, as we predicted, is very complicated. It was subject to many clarifying rules and regulations by the U.S. Department of Education and many schools have waited for those clarifying regulations before honoring or implementing that act.

We believe that the regulation writing out of the DOE was extremely favorable and we’re very pleased about that. And, as we said, we had not expected schools to begin adopting “No Child Left Behind” this early, but they are beginning to now and we think it will help us for next year.

As we had predicted, though, these schools are not yet implementing the program, but states were required to approve all of the supplemental providers have been getting into the act. There have been 10 states that have provided RFP’s, to find out who they would like to choose for authorized supplemental service providers.

We have been approved in all 10 states where we’ve applied. We continue to work at districts to fulfill their commitment to the “No Child Left Behind” act, and we expect to provide service in a few districts in Q4, although the real impact will be next year.

Now operating income for K-12 was $9.7 million or 38% above last year. The Learning Centers produced a 32% profit improvement over last year, and Franchise Services profits were down 7%. And again, that relates to the phasing out of the tuition-financing program more than anything else. We’re happy to say that our tuition-financing program, because the Sallie Mae program has yielded such superior results for our customers, our franchisees and for us.

So we don’t need to be in the tuition financing business. But it was a profitable business for us at the operating income level and so you see that’s been phased out. Profits down in that one line item. But, overall, still a very, very strong performance.

Corporate Centers, corporate-owned centers in the Learning Center business, profits were up 91%, or 60% without the benefit of the acquisitions. So, again, very, very strong results and that is based on increased customer spend. That really is the picture for the Sylvan Learning Centers business.

Education Solutions through a concerted effort in expense control was actually able to translate their 7% revenue decline into a 3% gain in operating profits. So they did a pretty good job of managing their expenses. And, again, I think they are spending well against the prospects of “No Child Left Behind”.

In summary, I think the K-12 services is being supported by this continuing emphasis on accountability in schools, strong increased federal funds, very low requirement on our part on state or local funds, and the success of marketing and selling strategies in development of our Corporate Center network into Sylvan Learning Center business.

The investments we’re making in international development and the e-selling business and the potential offered by the “No Child Left Behind” act, bodes well for our future growth. Although right now we just see the expenses, we’re looking forward to seeing the revenues from those investment areas.

The final quarter of 2002 reflects typically lower enrollment seasonality in the Learning Center business, and I think will continue to reflect the trend of slight decline in the Contract Services business is SES. But, again, we’re going into that quarter with very, very strong enrollment and strength in the Learning Center business. So, that’s the K-12 business.

In the area of the Online Higher Education business, let me comment for a few minutes on that. Our Online Higher Education business, first of all we call that name, really, as a placeholder. Today, Canter, which is our teacher training business, is Online Higher Education. But it is our intention, one day, to be able to pull the Walden and National Technological Universities components out of Sylvan Ventures and then you were really have an online higher education business, but, for now, it really is Canter. And, Canter, had a very strong third quarter.

Enrollment in our masters programs reached 12,100 students. That’s a 22% increase over the same period last year. Revenues were also up 22% from 15.5 million to the quarter to 12.8 to the previous quarter. Operating income rose from 5 million to 3.3 million, but when you adjust for the changes in the treatment of goodwill amortization, operating income was up about 22%, as well, so in line with revenue growth.

In July of 2001, Canter, in partnership with Walden, and that’s been a very productive partnership, launched a new masters degree in reading and literacy. This program was launched in our traditional model, in which online is a supplement, but it was also launched in a fully online model.

And, about 41% of total enrollment in that program are teachers that enrolled in the completely online version. We also have a masters in technology and learning and that is online only, and we have about 700 teachers enrolled in the fall semester for that program. So, even the online component of the Canter business is growing very dramatically.

I’d like to add a few words about Walden, Canter’s, obviously, continuing to do incredibly well; Walden is also doing incredibly well. Walden’s enrollment, as we mentioned in our press release, their new students essentially doubled in their traditional PhD and master degree programs. And that has driven about a 25% increase in total enrollments.

And, I want to mention, that in all cases, when I talk about enrollments, new enrollments are really a pre-cursor to what will happen to total enrollments, because we tend to keep our students for so many years. A massive increase in new students really only lists the total enrollments a little bit each year, but it certainly augurs extremely well for the future. So, Walden’s doubling of new students equated to about a 25% increase in total students because they had been a slower growth before we bought them.

Enrollment in Walden’s master degree programs for teachers increased incredibly through their Canter program, actually, a 500% increase and that really has been, again, a great success.

Now Walden, because we were able to exercise our options to take a 51% stake in Walden within Sylvan Ventures, we were subject to change of control approvals from the Department of Education and the NCA. We had our change of control visits from both of those organizations and we believe they went very, very well and we know that recommendations have been submitted for approval in both parties.

All of our accreditation and Title 4 eligibilities are in good standing.

In terms of National Technological University, many of you know, this is another fully accredited and completely distance learning university. We have been working with NTU, while waiting for our acquisition of NTU to close. We’ve worked about six months with them. We believe that’s their assets of accreditation, their partnership with leading university brands, their absolute leadership in the engineering and IT arena, and their 20 years of distance education experience will make it a very valuable addition to our overall family of online higher education businesses.

We are proceeding with our plans to purchase NTU, although that deal has still not closed yet. It is expected to close imminently, and that would be purchased by Sylvan Ventures. So, again, very, very strong progress in the online higher education arena.

That brings me to SIU, where we really had, I think, the most exciting activity in the Company. In the third quarter for SIU is typically a pretty low quarter. Most of our universities are closed for a couple of months for summer, during the third quarter, but nevertheless our revenues reached 60 million in the third quarter, or 22% higher than that of last year.

This quarter-over-quarter revenue growth was primarily driven by strong results in Mexico and Chile. It was impacted to a lesser extent, though, by acquisitions of our French university, which we bought in the fourth quarter of ’01, and two new additions to our hospitality segment, the Les Roches Marbella franchise, which we bought in the first quarter of this year and Glion, which is another leading hospitality school, which we are now in acquisition of in this past quarter.

I would mention that an adoption of a new accounting for application fees at our Spanish university, UEM, now requires those fees are amortized over the life of the student. And, so, the revenues that you see for UEM in the third quarter, again, albeit a negligible sum in quarter anyway, are sort of artificially depressed. For the full nine-month period, you’ll see our Spanish universities revenues are up about 14% and we expect that to pretty much reflect the full year trend.

Total revenues for SIU reached 206 million in the nine-months ending September. That’s an increase of 27% over the comparable period last year, even setting aside new acquisitions, the nine-month revenue growth would have still increased by more than 20%. We had double-digit growth in every single country in which we operate. We’re very proud of this achievement.

These revenue improvements are generally reflective of solid student enrollment gains, and increases in tuition. Total new enrollments, for example, coming from primary intakes, because we have one major intake in each of our universities each year, reached almost 20,000 new students, up about 28% over comparable data last year.

These sizeable new student enrollments, obviously, represent a significant future stream of revenue. Unlike a lot of the U.S. post-secondary businesses that keep their students for about two years, we keep our student for four to five years. So a 28% increase of new students this year gives us a flow of revenues for years to come.

Total enrollment at SIU now exceeds 60,000 students, up 17% over last year. And that, by the way, that 17% of total enrollment, increases accounts even the newly acquired universities as if they had been owned in both periods. So it’s a complete apples-to-apples comparison.

Just to give you an example, I know that last year we had accounted for about a 16% increase in new students and that drove total enrollment up about 12%. So now that 16% new students growth has grown to 29% and the 12% growth last year, has grown to 17%, and you see that trend convergence of total student enrollments growth converging with new student enrollment growth at a much higher number, and that’s really exciting.

SIU revenues have also benefited by price increases. I think that’s one of the things that investors like the most about higher education, is that, typically, people can increase prices faster than the rate of inflation. We have been very successful doing that.

Overall, the weighted average tuition increases across our entire network has been about 9-1/2%. The composite inflation rate for the countries that we’re in is probably about 4%. So I would say we’re increasing our tuitions at or above the ratio to inflation that really any of our U.S. competitors could do. So, we’re very pleased about that.

Turning to operating profits, the SIU segment in the third quarter has very low profits. It’s really a negligible quarter for us. If it’s anything in a growing business, we spend more in our dark quarters, the summer quarters, to get ready for opening up for the new school year.

So really, I don’t think there’s any meaningful information in the low level of profits in third quarter. They did show a modest decline, down about 19%, year-over-year on this very small number. That is a combination of, again, spend to get ready for the new school year and to a small extent, also, been impacted by the fact that we now include Wall Street Institute in SIU and it had some modest losses in this quarter, versus a small profit last year.

That, again, whenever we mention Wall Street from now on, we always mean Wall Street, not including Spain, since we’ve now completely disposed of the Spain business.

Other than Wall Street Institute, the university side of SIU actually had profits of about $2.2 million, which would have been up 37%. But, again, it’s such a small number, that it’s really not that relevant.

For the nine months, which is not a smaller number, including WSI, SIU has earned about $17.8 million or an increase of 47% in an overall year-to-year profit, driven by enrollment and tuition increases mentioned earlier. So, very pleased with the results of SIU. [Rath Athadu], Bill [Danneson], the whole SIU team continue to do just a fantastic job and we’re very pleased with the growth of that business.

I’d like to make just a few more comments. I do want to give, on SIU, some specific enrollment data on the universities that we own. For those of you, I’m sure many would be interested. Half of the 29% increase in new students really comes from about a 51% increase in Chile, which had its primary intake in the first quarter, many of you already know.

We had a fairly flat year in Spain. Our Spanish university continues to deal with these difficulties in the new testing regime, the new ways that students are tested for admission to universities. It hurt us last year, it continues to hurt us. But they’re about flat in Spain. The good news is that has not really now dragged our numbers down, and as they phase out their current testing regime in Spain that should turn into a nice growth for us again in the future.

Our Hospitality group, which is Glion, Les Roches and Marbella Les Roches business had a composite growth of new enrollments of about 11% and that was, again, treating them all as we’d owned them for both periods.

Our small French school had new increased enrollments of about 6%,

And the amazing accomplishment, and the most important one, we had a 26.7% increase in enrollments in Mexico. Now our Mexico University is by far our largest university. It accounts for half of total enrollments for our business. So having a 26% increase in Mexico almost entirely same-store as the campuses that we have, has just driven all the numbers up every where.

And the way I would describe it is, we have developed, through our team in Chile, these impressive marketing techniques for new student enrollments. We now have taken those techniques, transferred them through our network to the Mexico business and that has been very well received.

And I think we can now take those techniques to Spain and to our other universities and we’ll see continued growth. So that’s – when you add it all up you get to a 28.7% in new enrollments. Total enrollments, Chile would have been up about 52.8% year-over-year in total students, Mexico up 12.5%. So this 26% in new students in ramping up growth in what had been a much slower growth business in the past.

So you see 12-1/2% increase in total students in Mexico, a couple percent increase in Spain, 16.4% increase in total students in Hospitality and about 3-1/2% in France. And that’s how you get to the 17.2% growth in total enrollments for the universities in SIU.

So, we’re really pleased with that. It augurs very well for next year, for fourth quarter, of course, but for next year and beyond.

I’d like to make just a few concluding comments and then I do want to open up for questions and give people as much time as possible for that.

Obviously, to have a company with operating results as strong as ours and, obviously, a very weak, disappointed stock price, is frustrating for our investors, for our management team, for our board. And we are really trying to focus on building a strong business and not spending all of our time worrying about the stock price.

But we do understand a few things that give us some insight into ways that we might be able to continue to provide more transparency, less complexity and have a stock price that more accurately reflects the very strong underlying performance of our business.

Let me start with a comment on pro forma reporting. Because of the large Ventures losses that we had, we really have to use pro forma reporting or you can’t see how our underlying businesses are doing. But we understand that investors in today’s environment are not fond of pro forma reporting and we agree that GAAP earnings are the right way to value a company. We just need some time to make the transition.

2002 has been complicated by a number of factors that should no longer affect us in 2003. In the second quarter, we had to take a large, one-time goodwill charge associated with the FAS 142 changes.

We had also decided to sell our WSI Spain business. I think that was a good decision. It’s been completed as of the beginning of Q3.

We did announce in this quarter that we’ve written off the only major equity investment that we hold outside of Sylvan Ventures, and that’s our Frontline equity stake that we received when we sold off the corporate training business in 1999. Again, I think that was a good move given how tough the environment for corporate training has been.

We are systematically adjusting everything that we can find that complicates our Company or our financial reporting. The underlying performance of our business is too good for us to let it be overshadowed by one-time charges and flow-through losses from Venture investments. And much of our current complexity does come from our Sylvan Ventures entity.

Now we set this entity up in the year 2000 to help us look for future areas of growth for the Company. A lot has changed since the year 2000. Venture investing is not in favor at this point. While we have developed some attractive and very important strategic assets inside of Sylvan Ventures, the big challenge has been the flow through losses of these Ventures companies.

We continue to believe that these losses are temporary, given that the strongest Ventures companies will move toward profitability and the weakest will be sold or closed. After peaking in 2001, losses for Sylvan Ventures have declined about 30% so far this year and we think they will decline to zero in a few years.

But, in today’s stock market, investors really don’t want to hear about losses and complexity from our Ventures portfolio and we understand that, and are doing the best with it that we can. What can we do about it? Let me lay out some concrete things.

First, we can stop making new investments in Sylvan Ventures. At this point, we’re prepared to make a commitment that we’re not going to make any investments in new companies in Sylvan Ventures. Obviously, we will continue to support the companies within Sylvan Ventures today, that we think are winners. And we’re going to weed out the ones that we think aren’t going to make it. So that’s a commitment we can make.

Second, we can give investors more information so that they can determine which of the Ventures losses can be ignored and which, if any, should be offset against our operating results. Investors have really swung from looking through all of Ventures losses to now looking through none of Ventures losses. And I’ve seen some analyst reports that say you add back all of our Ventures losses and they think we’re still a very valuable company.

But I really think there’s probably a middle ground, where investors choose the persistent, strategic businesses, like eSylvan and Walden and add back the losses from that. And I think a lot of investors feel that the losses from our other categories of investments are not that important.

Investors do know, for example, that eSylvan is related to our Sylvan Learning Centers business, although it’s run separately. And if you choose to do so, you can add those losses back to the profit of that Sylvan division. That’s why we’ve broken out the eSylvan losses and the supplemental disclosure that we provide today.

I can tell you today, so that you can plan for it, we would expect eSylvan to loose about another 10 million in GAAP losses next year. That is, assuming 100% ownership, which we don’t have, and that’s a pre-tax number. But it should give you a sense that would be a small decline from this year’s losses, but we do believe that eSylvan should be close to cash flow break-even by late 2003 or early 2004. So that should really work it’s way out of that loss position pretty dramatically after 2003.

Walden University, which is owned 51% by Sylvan Ventures is a fully accredited online university. It’s quadrupled in enrollment since we first invested in it. We view it as an important online higher education strategy and it is essentially cash flow positive already.

NTU, which we’re in the process of acquiring, which specializes in engineering and IT, will lose some money while we get it into a condition to fit within our overall business. Since we’re just now closing on NTU, there are no losses for NTU included in our Q3 results, but they will be shown going forward.

The combination of NTU and Walden should generate, I would think, about 4 to $5 million of GAAP losses. Again, that would be assuming 100% ownership, which we don’t have and that will be a pre-tax number.

The rest of the Ventures losses relate to a whole series of investments that are not really directly related to any Sylvan operating company. This includes a lot of good companies, companies like [Chancery], Club Mom, Connections Academy, EdVerify and Learn It.

Most investors tell us that they’re not as concerned with this group of companies, as long as we don’t add new companies to the portfolio. I really expect about $10 million of GAAP losses in 2003 from these companies, again, assuming 100% ownership of our stake in these companies and pre-tax numbers. And we’d expect those losses to drop off dramatically as the strong ones achieve profitability and the weaker ones are closed or sold.

We should expect a couple of million dollars of overhead costs for Sylvan Ventures next year and we would expect those overhead costs to phase out almost entirely in 2004.

I hope this supplemental disclosure gives investors the tools that they need to better determine the right valuation for Sylvan. I think if you were to take the numbers that I gave you and take the pieces that investors ask us the most about, which would be eSylvan, Walden and NTU, what that would say to the losses from those businesses, our portion and after-tax, our part will be about, probably, 17 or 18 cents next year.

So you can choose to debit all of Sylvan Ventures losses against our earning next year, none of our Ventures losses next year, or what I think is probably the middle ground for most investors that I talk to, I want to provide a roughly 17 or 18 cent figure for what we think the losses for the strategic assets, eSylvan, Walden and NTU, will be next year. And, I hope that’s very helpful to investors.

Now, we are exploring other ways to create more clarity on Sylvan Ventures, or to reduce the losses more quickly. That could be unwinding Sylvan Ventures itself, pulling the strategic assets into the Sylvan operating companies. It could mean selling or spinning Ventures in its entirety, or any of a number of other approaches.

We have financial advisors actively advising us, and our board, on these ideas. But we won’t do anything to help our short-term results if we think it’s going to hurt our long-term future. We have too good of a future and too strong of an operating business to do that. And I know investors will support us in that decision.

Our Ventures losses are falling and they’re falling so dramatically that I would like you to think of this as a problem that would solve itself some time in 2004. Hopefully, we won’t have to wait that long and we do have some ideas and an active team working on a much quicker resolution.

In the meantime I encourage you to please focus on the operating performance of the Company, our profits, our enrollments, that’s really where the vast majority of our Company lies. We have total assets, at this point, of, roughly, $941 million. Our net carrying cost for Ventures, at this point, is, counting Ventures, for about a net carrying cost of $53 million, so it’s not – depending on assets or net carrying costs, Ventures accounts for somewhere between 5 and 10% of the total asset base of our Company. So, the idea that Ventures itself is somehow completely changing the way investors value Sylvan, I think could really be a mistake in the way people are looking at it.

So, please look at the long-term, look at the value of the underlying business. While we are exploring ideas on restructuring Ventures, we have been advised by our legal counsel that we may not re-purchase our stock, and I know that answers a lot of questions that would say, given how well our Company’s doing, why are we not re-purchasing our stock? We’re not allowed to.

We hope to conclude this exploration of restructuring ideas for Ventures quickly so that we could, if possible, proceed with our previously announced and authorized share re-purchase, as determined by conditions and our board at that time.

I’m sorry I’ve been so lengthy. I hope I’ve provided a lot of detailed information that’s helpful to you. Very excited about how our business is doing. And at this point, operator, if we could open up for questions, we’d be happy to take them.

Thank you, sir. Today’s question and answer session will be conducted electronically. If you would like to ask a question, we do ask you please press the star key, followed by the digit 1 on your touchtone phone. If you’re using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, for questions, please press star 1.

Our first question comes from Mark Marostica from Piper Jaffray.

Hi guys. Nice job on the quarter. Question for you regarding SIU, Doug. I know you went through a lot of enrollment data. I wanted to get a flavor for – at an overall level, what was the same-store enrollment growth if you exclude Leon and Marbella, if I pronounced it correctly, and the international business school?

You know those businesses are such a tiny percentage of total enrollments as to be almost irrelevant. I think that they might pull, actually - I think they don’t change the numbers at all based on the numbers that I’m looking at.

Okay.

I mean total enrollment in those three schools that you described would be 1500 students or something like that out of the 50,000.

Okay, great. Then if you looked at – I actually came up with about 12 to 13%, but if you looked at last year same-school enrollment growth, how does that compare to what you just reported?

Last year, we announced same-store enrollment growth of about 12% in total enrollment and about 17% in new student enrollment. So this year we’re saying it’s about 17% in total and 28% in new. And, again, Mark, because your asking about those other points, basically, Chile and Mexico are what have driven enrollments, although, we had positive enrollment growth everywhere.

Okay, great. I want to just ask a question on guidance then I’ll turn it over. I know we’re allowed only one question here, but organically, for Q3, what would you say the top and bottom line growth were?

For the overall Company?

Yes.

Mark, it’s Sean. You’re talking – you said guidance, but then you referred to third quarter, I’m sorry –

Yes, third quarter organic top and bottom line growth.

I’ll go calculate that. Really the only thing that would have substantially impacted that would have been Glion and the acquisition of the franchisee in the Sylvan Learning Center business and I know in my presentation, I stripped out the franchisees revenue, so why don’t ---

And I know Glion had a top line impact but, virtually, no bottom line impact.

What I’m trying to drive out, too, is with your guidance for Q4, what does the entire year of Fiscal ’02 look like on an organic top and bottom line level?

Well, why don’t you work on that, Sean. If we can get it done before the end of the Q and A session, we will. If not, I think the pieces that you need are in the pieces that we’ve laid out. But we’ll get working on it Mark.

We’ll go next to Bob Craig with [Lige Nation].

I have a number of questions, but I’ll limit it to one and get back in the queue. Just to help me understand the Company better, given the primary enrollment numbers, which are [technical difficulty] at SIU and the predictability of the post-secondary business, I wonder if you could comment on why such a wide range in revenue expectations for the fourth quarter? What might be some of your assumptions behind that range?

I think it’s what, $10 million revenue range, I think it was 149 to roughly 160 million, if my memory serves. I mean, obviously, with a significant international component, we are subject to movement and the FX rate that provide some difficulty in guiding a type of range, but I think that’s probably the only element that cause is involved and we want to put out guidance that we think we can imminently achieve and I think, as opposed to what would be top end and bottom line of those ranges, it’s a compelling increase year-over-year. So I think that’s probably the single biggest factor in our guidance to business.

Sean, was currency an issue in this quarter?

Certainly, at the university in Mexico it was a negative, but it was offset by the strengthening of the Euro, so I think at the top line, it was probably less than $2 million. The bottom line, it was probably a total of less than a million dollars.

I just wanted to comment, Bob, that the currency [indiscernible] has actually worked pretty well for us, that the interrelatedness of the Chilean Peso, the Mexican Peso, the Euro and the dollar have really provided, actually, a pretty interesting group of currencies that sometime help us a little, sometimes hurt us, but really has not been subject to any big disappointments or surprises.

The next question comes from Trace Urdan with Think Equity Partners.

Sean, I wondered, I hate to make you repeat yourself, but I was a little bit confused about the statements you made with respect to the accounting for Walden and how it was going to impact Canter in the fourth quarter and next year, coupled with Doug’s statements, it sounded like you had yet to move Walden over. Is Walden coming over, is it not?

I think, two different points. My point was when we acquired our 51% interest, regardless of whether it was in Ventures, or held by Sylvan, we are obligated to consolidate it. So, the fact that we took our interest from 41 to 51, changed the way we’re required to account for Walden and the Canter revenues from Walden.

And the differentiation is for those other partner universities; we recognize our revenue, which, in effect, we’ve done all we have to do to earn that revenue, which in the distance learning business is shipping the product. So much of that product gets shipped in December, in anticipation of the following years semester that there’s a huge revenue spike in the fourth quarter and it gets offset in the first quarter with a loss because you have much of the expenses.

Is it fair to say that although you’re not moving over for pro forma purposes, the change in accounting is having an effect on the pro forma revenue and earnings recognition for Canter?

It’s not even pro forma, on the actual reporting for Canter. I think just to net it out, Trace, for those who didn’t follow this carefully. Basically, the net result of this has been about $3 million in revenues that we would have recognized in the fourth quarter of this year, will now be recognized in the first quarter of next year.

And that’s about $2 million of operating income. I think it’s actually a good sense of how strong our business is, that we’re saying that’s going to move from the fourth quarter to the first quarter and we’re still pretty much where we thought we were going to be in terms of bottom line performance from a guidance perspective for Q4.

And just to clarify, that’s being done for both GAAP and pro forma? We’re not differentiating the approach. Our fourth quarter guidance reflects the fact that that deferral is real and is happening and I think it’s a positive sign that we’re still saying we think we can hit our full year guidance.

Fair enough, but for the headline effect you’re getting this morning that suggests that somehow guidance in the fourth quarter is coming down relative to the consensus estimates, it’s fair to say that that 3 cents is not included in most analysts estimates right now?

It wouldn’t be included in anybody’s estimates.

It wasn’t in our guidance either.

Exactly, it was not in our guidance. And the reason to understand this, Trace, is that this is not a change in Walden’s accounting, it’s a change in Canter’s accounting. Because Canter does business with Walden, once we consolidated with Walden, it happens we had to – it basically changes the way we recognize revenue between Walden and Canter. So, that’s the reason why it’s not really a function of just Walden, its really more Canter.

Our next question comes form Jeff Silber with Gerard Klauer.

Good morning. My question deals with your guidance for the fourth quarter. I was wondering if you could give us a little bit more color by the major divisions in terms of your revenue outlook, as well as operating income outlook for the fourth quarter?

Yes, Jeff, it’s Sean. I think we are being advised to continue to report top level guidance and not divisional level guidance, so our expectation is, beginning with next year, we will be able to go back to our prior practice of giving divisional level guidance, but at this point, we’re not able to.

Once we had been talking seriously about the SIU ipo as a possibility, we were told, as long as that is being considered, and it is being considered, that we can’t provide that divisional breakdown. At this point, given your nine months of data and your top line and total bottom line guidance for the fourth quarter, I’m hoping that investors will find that pretty straight forward to figure out.

I’m hoping I can sneak in a second one, since that wasn’t a great first question. In terms of the SIU spin-off, you said you’re still considering it again. I was wondering if we could just get a little bit more color on the pros and cons of your thinking.

Well, in some ways I really regret that we ever even talked about the SIU spin-out because our Company’s doing so well and yet everybody always seems to be waiting for something. They want clarity on the SIU spin-out, they want us to provide some way of reducing the losses of Ventures, there’s a lot of things that investors would like to see from us, and what I really think, we’re in a sort of return to fundamental values in companies. I would think the fundamental values and how our businesses do would be the most important thing.

That said, I think the comment to you is, that we’ve always known that Sylvan was complicated and the idea of spinning out SIU was an effort on our part to simplify the company. At this point, what has become clear to us is, if you spin-out ISU or not, if you don’t deal with the Ventures issues, you really have not dealt with what is, today, the single biggest source of confusion in the investment community.

So, we’re focusing on trying to explore some ideas on how to reduce the Ventures losses or restructure Ventures, and a lot will come out of that that will inform us as to whether it is appropriate after that to do an SIU spin or look at other structural alternatives for the Company. But I would say in the triage of what we’re dealing with, let’s first go for the issue of Ventures. At this point, is what we’re really focused on.

We’ll go now to Fred McRay with [Hom Schleigel] Partners.

Doug, quick question for you on Mexico. Can you tell us about your plans about expanding the current campus base in terms of absolute numbers of new campuses you might be interested in, in the next one to two years?

We opened two new campuses this year. Obviously, they haven’t impacted our numbers in a big way. The first year is always the slowest. So we opened two new campuses. In total they have about 500 students this year. And next year, we expect to open two more.

We’ve announced before that we intend to open two new campuses, which will grow, they start there, let’s say, 200, 300 or even up to 500 in the first year and they grow to about 3,000 in about five years or so. So, we intend to continue with two, we may accelerate it given the fact that we’re doing very well there. So, two is our current plan, maybe three, as we get more comfortable with locations to open.

What’s your current total right now in Mexico?

Current total is 36,000. Yes, we have 14 campuses.

We’ll now go to Alan [Sidlosky] with U.S. Trust.

Hi. How are you? Good job on the quarter anyway. But, two kind of main points coming from the buy side here. Let me see if I understand you guys. You will pursue, if it’s prudent, after you fix issues around Sylvan Ventures, you know, potential spin of SIU?

I think what I would say at this point is, we want to come up with a solution to Ventures if we can, and the flavors of solutions could invite completely different approaches to simplifying the Company. One of those approaches, I think, continues to be the SIU ipo. SIU’s doing extremely well and there’s nothing in the performance of SIU that would cause us to hesitate in taking it public, at all.

I don’t want to go into too much detail, but I would tell you that there are trade offs, tax trade-offs, substantial trade-offs; regulatory trade-offs and other things that are making us think about other approaches. And, again, in retrospect, what I really think I probably should have done, is not talked about the possibility of an ipo for SIU until we really had something absolutely ready to go, because, obviously, what’s happened since then is, we’re learned things about tax advantages to other structures, about the need to address Ventures.

So I hate to give you non-answer, that’s as much as I can tell you. Please, just focus on the value of the overall company and know that you’ve got a management team that will find a way to make this company easier to understand for investors and we’re working on that very aggressively and we’ll get to you with the answers, as soon as we have them.

Given that your legal team has basically told you it may not be the right time to begin buying stock back in the company, I know you’ve made several announcements to that affect, is there any kind of company rule saying that you executives have to own so much or is there an interest of buying some more stock individually?

We consider the stock pretty compelling. I think our legal advisors tell us that if we’re working on things that could happen that we know about, that you don’t know about, the company and all of us are precluded from trading in the stock. I’m very sad to say. But it’s a very frustrating fact for us and for our board and at this point – the idea is our board could actually say, you know what, let’s not work on restructuring ideas to reduce Ventures losses, let’s just not do that and let’s buy our stock back, and I think that would actually be a great way to build the value of the company, but it would be a fraction of the value we can create by actually getting to some of these root causes and providing a simpler and easier to understand Sylvan. So that’s what we’re focusing on.

Our next question comes from Richard Close with SunTrust Robinson Humphrey.

Congratulations on a good quarter. Doug, you had said with respect to eSylvan, Walden and NTU, if you wanted to pull that in, that next year would be 17 to 18 cents. Do you guys have what it would be on a comparison here for 2002, what the impact is?

For the same categories?

Yes.

I’ll give you a rough idea. And, again, I’m going to switch between what we just gave you, which was cent per share, so that’s our percentage ownership and after tax, but I’m going to switch because it’s what I have handy, to pre-tax and divisional numbers. I think eSylvan we said they’re going to do about 10 million in GAAP losses next year. I think the losses this year would have been in the, roughly, $13 million range. It would be coming down a lot more, but we’re anticipating spending a lot of money in marketing because eSylvan is growing and we think is heading the right direction.

Believe me, I realize we could solve a lot of our problems really quickly but not having an eSylvan, and if I thought I wouldn’t be cheating the investors out of a huge amount of value, I’d do that in a heart beat, but it’s just not the right decision.

Walden, this year, would have had, probably a couple million dollars worth of losses, GAAP losses, not a lot. It is, essentially, a profitable company. We’re just growing. In fact, when we bought in Walden, they were profitable, but they were also growing at 10% a year, so we told them to open up the throttle and grow and so they’ll lose a couple of million. And then I, next year, told you that number would be more like 5 million, but that’s because of two things, Richard. One is that NTU will have some losses that will be in there. Walden will actually probably turn profitable and also that there are some FAS 142 charges associated with the amortization of some of the purchase price on Walden NTU.

So we add all that up, that’s why those numbers will be the way they are. So I think the answer is, you can say that for eSylvan and Walden, they will – eSylvan will lose less than this year, Walden will make money next year, NTU, which will not have been in the prior period for comparison purpose, will lose some money. And that probably helps to answer your question.

And then, really quick, maybe a little color on eSylvan and enrollments and that, and how that’s going?

Knowing we have a queue of people, if you don’t mind when I say, it’s doing fine, it’s just very small and I’d rather focus on some bigger things for now.

Our next question comes from John [Ajay] with Oppenheimer Capital.

Hi. A couple of quick questions. I didn’t quite understand, when I looked at the revenue line, on the [UPN]s, the way I read it, it looked like it was up 4%, and yet the enrollments sounded like they were very strong. Can you help explain – am I reading this right? And is this just a currency thing?

I think it is partially a currency thing. Bill or [Rath] you want to comment on that?

Well, the third quarter is when we’re out of session, so it’s, even in both periods, it’s a very minor change, only 12%. There’s not, the FX effects -- operationally, our third quarter actual versus last year was up, well over and in excess of $3 million and that was offset, as Sean said earlier, by some devaluation in the Mexican Peso, in the third quarter, where we lost about a million eight in For Ex. So all in all, we had about a million two or so in growth.

I would just say that when you focus on one line like revenues – of course, in the case of Mexico, we had a negative effect because of the devaluation of the Peso. It’s, of course, returned very strongly again and is down below 10, I guess, just recently, in the last few days.

But we also, in these local countries, we have our operating expenses they’re having just the opposite effect. So when we get some devaluation in terms of revenue, we’re picking up a very substantial offset to that on the operating expense line because operating expenses are in local currency.

Is it fair to say that this 4% growth rate is not representative of what this segment should be doing?

It’s not representative at all of what you see. As Doug said at the outset, that’s a quarter of – it really doesn’t reflect what’s happening in the operation. And during that period, these enrollments, these incredible enrollments are more an indicator of what’s to come, so you’re going to see an extremely strong fourth quarter in Mexico and in this coming year, as a result of these incredible increases in new student enrollments.

I think, John, the way I would describe it is, if we said that enrollments in Mexico were up, new enrollments were 26%, but total enrollments up 12-1/2% and we know that prices have increased in Mexico by more than 10% and that’s pretty low inflation there now. Then you have pretty much baked in a 20 plus percent growth rate in that business. So the 4% would really be a seasonal anomaly and a little bit of a currency issue.

And you can see from the nine months year-to-date, it’s up 19% year-to-date and that’s’ taking into account the devaluation for that quarter. So I think that’s a much more representative number.

Great. One last question. I really applaud the move toward simplicity in managing the Sylvan Ventures losses. I want to make sure I understand, the figure for this quarter, the 5 3 5 8 figure, how much of that – can you break that out into operating losses versus the consolidation of equity?

Well, I think the tables that we presented within the body of the press release, we said that eSylvan’s was roughly $3 million of that number, Walden was approximately – these are pre-tax numbers now, $3 million associated with eSylvan. Walden was about a million, and then all others was really the balance that totaled up to an $8 million pre-tax number that then correlates to the 5 3 5 8 after tax and minority interest.

You also had revenue with that, right?

Yes, on the revenue side, I don’t think those number were quoted – there was roughly $6.9 million in revenue in the quarter, and I think it was, for the full year, 15 or 16 million – bear with me. Yes, 16.4 million.

Just for your future reference, if you turn, it’s essentially the third page of the press release; we actually broke out in the body, really for the first time, this information. So I hope you’ll find that useful.

We’ll now go to Gary [Bisbee] with Lehman Brothers.

Hi guys. Nice job on the quarter. A question that’s going to sound like two, but it’s really one about SIU. You mentioned some marketing strategies that have success in Chile and are being used in Mexico. I guess I wondered what, exactly, what those were, and sort of, if you thought that the credit quality was going to suffer, and if you were willing to make a comment on the graduation or retention rate, historically, and if you think by some of this growth and new marketing strategies, you’re getting a lower-quality student and it’s bad debts or drop-outs is something that’s going to increase?

Let me comment, and then, Rath, if you want to add something, please. I can tell you I don’t think there’s one iota of difference in the nature of the students we’re getting. There’s really not a credit issue. We don’t extend credit. Our students, typically, pay us on a monthly or quarterly basis. Our retention rates, the way we calculated them, were, we felt, approximately double what the U.S. post-secondary companies retention rates were, across our entire network of universities. Well, put it another way, we have half the attrition rate that they have. I don’t see any of that changing at all.

I think this really comes down to a very tactical process of the number of full-time sales people, as opposed to the use of part-time or multi-purpose people that are some times of the year are used for academic purposes and other times of the year are used for sales purposes, very specific changes in compensation in the way sales forces are compensated and a very powerful use of a marketing campaign that talks about the international network, which makes me feel good. Because this sort of wild dream that we could build an international network is now in newspapers all over the world and students are responding in incredible numbers because they think it’s exciting.

They want to be part of a Mexican university that’s part of a global network. And, we actually have hundreds of students, for example, in Mexico, who have applied, and would pay more, to go study in Spain, for example, for a semester. So, all these pieces are coming together. I don’t see a single dark lining to that silver cloud of the enrollment growth. Rath, you know it better than I do, what did I miss?

Let me just add, that clearly, for quality to drop, you’re assuming we would be getting students from the general market that would not, otherwise, join a university. In fact, a lot of our gains are coming from market share. In Chile, we moved from 4% market share when we bought the company, we have now 10% market share.

So we have taken market away from other people and they are people that would normally go to university. They’re a good quality. So we’re not inventing anything new. The market itself is growing. The market is growing and when we have an addition to the messages, to what Doug just mentioned, the fact that we’re now seen as a more international university, while domestically, it creates an incredible advantage in your marketing and the [indiscernible] that you need to get the attention of people.

The most important thing about our marketing today, once we get the attention of people, we’re able to work one-on-one with them. That’s what we brought into the industry, both in Chile and in Mexico now. We want to get their attention and they come to visit the school, we have a one-on-one approach. We track them, we follow-up and that’s where the blocking and tackling has really helped.

So, we’re taking market share to some extent. The market is good, it’s growing and our marketing and organization and incentive programs are tremendous.

Okay, and then, it sounds like you’ve put him some direct marketing and some more sophisticated marketing systems than maybe the competitors? Is that a fair statement?

Absolutely. For us marketing is extremely important. We have a new organization. We’ve beefed up in each campus and then the follow-up, which I believe other schools are not doing, the follow-up has been tremendous.

The next question comes from Howard Block of Bank of America.

With regards to the Learning Center business, which is doing so well, are there any [gating] factors that would prevent you from being more aggressive in the rate that you’re buying back centers?

Hi Howard. It’s Doug. I’d guess the biggest [gating] factor is that while we have a right of first refusal, which is a very powerful thing, on our entire franchise network, we can’t make people sell. And so what happens is, people decide to sell based on retirement, based on life changes. It’s a good enough business that most people don’t want to sell and the ones that do want to sell may very well be in markets that we’re really not ready to go, smaller secondary markets; markets that are too big to get into with just a few centers, so it’s – I would say, yes, there’s a very real [gating] factor.

This year’s pretty extraordinary with 35 centers that have been acquired. I’d say it’s more like -- we could probably normally absorb 10 or 15 centers a year, and have probably done that or a little less than that in the past. So, don’t see that as something we can rev up a lot more, but it is a nice guaranteed option we have to look at every center before it’s sold and decide if we want to own it.

Okay. So, of the existing franchises out there, do you give thought to just generally a ballpark figure as to how many may be targets or maybe considerations should the owner want to exit?

I would say that there’s probably a handful of large cities that we’ve identified as being interesting to us and probably quite a number of additional centers in the cities that we’re already in. We’re already in about a dozen cities, ranging in size from Birmingham to Boston, probably a pretty good range of size there, and besides both starting with a B.

And, if anybody in those markets would be interested in selling, we’re probably likely to look at that because we already have infrastructure in those cities. In terms of new cities that we’d like to own, we don’t want to get into cities that are so big that we’re not going to own enough centers to make market.

Most of our franchisees are owning only a few centers. So if two centers came up for sale in Michigan, in Detroit, or New York, or San Francisco, it wouldn’t be enough. So the big cities are a problem that way. And then the little cities are probably better managed by a franchisee who can really be a bigger part of that community than we could be as part of a corporate structure. So, I think it’s a great opportunity, but I’d say 10 to 15 centers a year is really the most we can do, despite the fact that I always ask my team to do more.

Okay, can I ask another question?

Sure.

I guess it would be for Rath. In trying to, I guess, allow the perspective on this idea to evolve and maybe trying to consider a comparable to some of the post-secondary equities that we track. Should we think of it as one company, or several companies? I guess I’m trying to see if, in fact, there are operating synergies that exist, again, across the world from one campus to the next or should we look at Mexico, in a sense, as one company, and look at Spain as a company? Are you seeing any synergies yet? I think you know where I’m going with the question if you could offer some perspective.

Yes, it’s definitely one company. We’re not exchanging as much in terms of expertise across – except as we said between Chile and Mexico, and programs between Spain and Latin America. The reason is that we will be one company. We’re building a network of universities that will have tremendous opportunities for exchanges for the students, faculty and programs, especially program and content, as well as in the brand and image building.

The network concept is becoming real and people are responding to it, so you need to think of it as one company. Are we getting all the synergies and systems in that administration? Not yet, but we are on our way there. This is one company to be one with a lot of overtime and very standardized approach to administration and [indiscernible] development.

I would add, I completely agree with Rath. There are different flavors and different currencies and other things and a real need for us to recognize that we have a different regulator in these countries.

Interestingly enough, that’s not that different from the U.S., where the U.S. companies have to be very respectful of the difference between state regulators. Some of our domestic post-secondary companies, like an Education Management or others, use different brands and different trade names, but still use very common systems across their businesses. They might have a school that’s culinary or a school that’s art and so their content is different, but again, they have very common systems.

I would say, are we an Apollo or a University of Phoenix, or a [strayer] who are stamping out the same thing, exactly, everywhere? I don’t think so. Are we a lot more like a [seco], a Corinthian, an Education Management, where there are lots of behind-the-scenes standardizations, but some customer facing on the differences? Yes, that’s probably the model.

We’ll go next to Jennifer Childe of Bear Stearns.

Hi. I’m wondering why you’re purchasing NTU, or why you’re putting it with Ventures, if you’re trying to simplify it. Doesn’t it dilute the value?

Well, it’s an interesting point. We’ve been working on the NTU for, literally, a couple of years and it’s something that has been underway for a long time and is just waiting for regulatory approval. I think for everybody involved, including the employees, the sellers and the team at Ventures, who can’t, at the last minute, just seize it into the parent company.

Given that we are interested in pulling assets from Ventures up into the parent company, there’s no question that that’s the direction we want to go. But we can’t just cherry-pick and say a new set of rules apply, we’re taking this one now.

Again, to be absolutely clear, if it was new deal coming in today and we’d seen it before and given that we’ve now committed that we’re not opening any new files in Ventures, we probably would. But enough time has passed that we can’t do that. And I hope we can deal with the fundamental issue by finding a way to really restructure Ventures across the board and that will certainly capture NTU within that.

Just a quick follow-up. Can you comment on how their enrollments are going, given the technology environment?

NTU, the enrollments have been essentially flat, and they’ve been flat for many, many years. Interesting – as are many of these institutions that we buy. Once we buy them -- I think Walden would be a great example. Walden was growing enrollments at single-digit rates for years and years. It’s a great team by the way. But they were focused on doctoral students. They were not really focused that much on marketing and I think it’s been an incredible partnership to take the tremendous academic and operational skill-set at Walden and marry it with the strategy and marketing and sales capabilities that we brought to the table.

And when we say that Walden’s new enrollments have more than doubled and the total enrollments are up 25%, they’ve never seen anything like that, so it’s been a great success. I think the same thing would happen with NTU.

Actually, I think Walden is bigger and in some ways, a more advanced organization in some ways, than NTU. I think the results we can get from NTU would be even more dramatic, because NTU is smaller and doesn’t have a lot of the things that we’re going to bring to the table.

NTU does have, though, an amazing base in engineering and IT, and I know the IT market is soft right now, but we are looking at a global market. The demand for engineering alone, outside the United States, is so much hotter than it is in the United States, that I’ll be very interested to see how NTU can integrate and serve, for example, some of the SIU businesses, and I think that will work very well for us, too.

We’ve got one more question. We’ve gone long today and I appreciate everybody’s patience. Please go ahead.

Our next question comes from Brandon Dobell from Credit Suisse First Boston.

Thanks for squeezing me in here. I want to focus on Learning Centers real quick, kind of a two-parter, if you could give us a definition of what same-center growth is? You know we hear different definitions from post-secondary guys and retail companies – kind of walk us through what the metrics are that you look at, as far as center maturity.

And then a related question, are there any structural changes in the way that your employees are working and the centers are operating, the Learning Centers right now, that might be contributing to the strong same-center growth? Are you centers opened longer? Are you adding more teachers? Are you seeing a different price point come in that are – or are some of your existing customers really stepping up? I’m trying to get a flavor for what the drivers of the same-center growth would be. Thanks and I’ll hop off.

Peter, why don’t you answer?

Okay, Brandon, let me answer the first one. Same-center growth is calculated as any center that’s been open for it’s thirteenth month so we have a rolling 12-month average, if you will. After their thirteenth month, they start to gather same-center growth. In terms of what’s happened this year versus –

Hold on, Peter, let me add to that. When we give you, for example, in our press release, a 19% same-store sales growth, that would be for all locations, combining franchise centers and corporate-owned centers, in that category of being in their thirteenth month or later.

Going back to the second part of your question in terms of what might have organically changed to improve the picture versus prior years. Specifically in this quarter, but really going back to the beginning of this year, we’ve been focusing on students who were enrolling for the purpose of an entire solution for their child, which means – in prior years we used a test, a diagnostic assessment for reading or math, for example, and this year we’ve concentrated on those students who are going to do the analysis, the diagnostic test in both reading and math and designed a full course of solutions for both subject matters, which has given us those students who actually take more hours with us for a longer period of time.

So, in addition to buying a more complete solution for the remediation challenges they have, we also focused, this summer, on really concentrating and getting those students back up to grade level because this summer, last summer, for example, we’ve had students coming more times per week, in addition to taking on the two subjects.

So we concentrated for a shorter period of time, the subject matter that they would have learned, but, because they’ve taken on two subjects, the aggregate amount of instruction has actually gone up per student.

And that has been enabled by having better financing options, because, especially in this economy, saying to a parent that they should buy twice as much, or half again as much, for their child as they used to is a very hard sell. But, basically, coupling that with a very powerful set of financial options – we have several options, but certainly the biggest invention has been this partnership with have with Sallie Mae. That has really made a big difference.

So it’s more average spend per customer. It’s not operational changes or anything else. And I think it’s also better advertising, because I do believe, in this economy, if we had not had an increase in our advertising, I actually think we would have had fewer students. So instead, we really don’t have fewer students per say, but we have a lot more spend per customer.

To just finish up on that last part, as Doug was saying, as far as the flow through profitability, we have the variable cost of labor to deliver services to each student, but the center director, the director of education, they’re all fixed. So driving more revenue through per student and in a shorter period of time generates more bottom line profitability. And that’s been the impact of those different [indiscernible].

I should say, Brandon, we view this scorching set of results in Learning Centers this year, as really remarkable, and I think it augurs well for the future, but we don’t –we’re not saying that this is a business that will maintain this particularly high growth rate.

Our feeling is, it’s doing great, it will continue to do great, but we don’t want to set an expectation that for years to come, this 23-year old business can continue to generate, for example, in our corporate centers, 22% same-store growth rate. That would be wishing for a bit much.

I appreciate that. That was actually going to be my next question, so I appreciate the pro-active answer to it. Thanks a lot.

Thanks a lot and thanks to everyone to listening to the long call today. We’d be happy to field calls if we can be helpful. Thank you. Bye.

That does conclude today’s conference. You may disconnect at this time.