Laureate Education Inc (LAUR) 2003 Q3 法說會逐字稿

Good day, everyone, and welcome to the Sylvan Learning Systems third-quarter 2003 earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the conference over to Director of Corporate Communications, Mr. Chris Symanoskie. Please go ahead.

Good morning and welcome to Sylvan Learning Systems third-quarter 2003 earnings conference call. Before I start 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 provision of the Private Securities Litigation Reform Act of 1995.

Any such forward-looking statements may involve risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those described in the forward-looking statements.

The following factors might cause such a difference. The Company's operations can be materially affected by competition in its target markets and among other factors by overall market conditions. The Company's foreign operations in particular are subject to political, economic, legal, regulatory and currency related risk.

Additional information regarding these risk factors and uncertainties is detailed from time to time in the Company's filings with the SEC including but not limited to our most recent forms 10-K and 10 Q available for viewing on our website.

Our speakers this morning are Douglas Becker, Chairman and Chief Executive Officer of Sylvan Learning Systems, and Sean Creamer, Senior Vice President and Chief Financial Officer. Also available for questions today are Raph Appadoo, President of Sylvan Learning Systems, Bill Dennis, President of Latin American Operations and Paula Singer, President of Online Higher Education.

At this time, I would like to turn the call over to our CEO, Douglas Becker.

We're very excited about this quarter. Everybody knows that this is an essential period for us as we've wrapped up what is the largest of our two large enrollment periods each year. And we think the results have been fantastic.

Just to give you a bit of historical perspective. In the past, we've seen accelerating growth in total enrollments. And in our business the difference between new enrollments and total enrollments is even more pronounced than in a lot of other companies because we keep our students longer. So we want to pay special attention to new enrollments, recognizing that they are building a great pipeline that will improve total enrollments for years to come.

As an example, in 2001, we grew new enrollments by about 16 percent in our campus based universities and that drove total growth to about 12 percent. In 2002, we had a tremendous growth of about 27 percent in new enrollments and that growth drove total growth plus the success of the previous year by about 17 percent.

In '03, we've just announced about a 25 percent increase in new students has driven a 19 percent increase in total students. And so you can see that progression of total student enrollment growth from 12 percent growth in '01 to 17 percent in '02 to 19 percent enrollment growth in '03 and with a four-year length of stay just gives us tremendous visibility and confidence as we look into '04 and even to some extent in '05.

Now our guidance has been based on the idea that we can increase total enrollments to an 18 to 20 percent and that we can increase prices between 5 and 7 percent in our campus based business which is the largest part of our whole Company. So coming in a little above 19 percent in total enrollment puts us really towards the high end of that enrollment component of our guidance. And we're very pleased about that.

But the 25 percent new enrollment gives us right confidence in visibility as we look towards 2004. I will comment a little bit more in a moment on 2004.

Now in addition to having very strong enrollment that there were just any other successes in this quarter really does feel like we're hitting on all cylinders. We completed the largest university acquisition we ever made which was the UNAB (ph) acquisition in Chile and the integration of the management team at UNAB into our Company and our culture has been a great success. We feel so proud of those people and how they are now part of our team and feel that that augurs for great success in their business in Chile and really to help our existing business in Chile as well which has already been a bright star in our Company.

In essence if you think about enrollment and visibility, if the Q3 enrollment gave us more visibility into 2004 guidance, keep in mind that our Q1 enrollments in Chile are going to give us, in essence, the confidence in our 2005 guidance. And it is our plan that in the spring of 2004, we will introduce 2005 guidance just as we introduced 2004 guidance in the spring of 2003. And we think that really is the four-year average length of stay or four-year intended program length of our students playing out in much higher visibility as we have been saying and it's proving itself again and again.

So we're very much on track for that to happen.

Enrollment is obviously the big story and UNAB (ph) successful integration is important but there are many other places, other cylinders where we've done very well in this quarter. This allows us at this point to give you pricing information for the year. We've announced an average price increase of about 7 1/2 percent this year which is great, considering that inflation on a blended basis in campus based countries is a little over 3 percent so we actually are getting more real price growth than to my knowledge any of the U.S. post secondary companies which is in essence price (indiscernible) of inflation.

Margin enhancement. We saw campus based margins go 4.6 to 11.8 percent and that's driven by a number of factors including great operational improvements. But also growth in Chile and the addition of UNAB (ph) which now tips our seasonality into a little bit of a different direction in the third quarter as Sean will comment in a little bit.

Becomes a stronger quarter for us becomes in essence our third best quarter of the year instead of our worse quarter of the year and our first quarter will now become the weakest quarter because that's when Chile is out of session.

What else happened in this quarter that was important? I think a continued strength in management. Management focus and discipline continues to be what struck in the success of this company. We feel great about the teams that we have in our countries and how they work with our teams here in Baltimore - probably the most important thing we do as a team is what we're doing right now which is our work on budget preparation for next year which will allow us to continue, hopefully, to reiterate '04 guidance and perhaps help us in our thoughts and plans for '05 as well. We work very strongly and closely together as a team in working on enrollment growth, and especially work hard in capital planning and spending because we're seeing such great results from the capital investments that we're making.

We expect to continue to make very, very high return investments in new campuses and expanding existing campuses because of the enrollment growth.

Now this management team has been enhanced earlier this week - I hope you all noticed the announcement when we describe the arrival of Hernando Ramirez as our new corporate controller. Hernando is a very strong experienced international finance executive to us from [indiscernible] Sciences which is a subsidiary of Sumitomo. He was their CFO. Before that had a very distinguished career at Motorola for 12 years.

Other things that worked for us this quarter and this year, currency mix continues to work very well. We were very modestly hurt by currency in this quarter but not enough to impact our ability to meet or exceed our targets.

Tax rate continues to drop. Sean will talk about that but we now have normalized into a 25 percent tax rate which we think is a good sustainable tax rate and as we continue to grow in countries that have lower taxes, that will continue to work for us.

Going forward we think that our growth is going to continue to be driven by same-store enrollment and pricing growth as we demonstrated today. New campuses, I think, are going to be a big part of our story.

Now this year, another big success was new campuses. We intended to open 3 to 4 new campuses this year, we've opened 4 new campuses - 2 in Mexico, 1 in a place called [indiscernible] Guadalupe and 1 in a place called Toluca (ph) -- very successful. And 2 in Chile one in Concepcion, Chile and the other actually in Quito (ph) Ecuador where our Chilean operations used to manage a campus and now actually owns that campus. And we think that will be successful - very successful - and (indiscernible) going to comment briefly on that as well.

So the Company as a whole is hitting on all cylinders. I do want to comment a bit on Online Higher Education which I think is positioned to be the big part of our growth story in the second half of '04.

Many of you know we've been working hard to get OHE ready for primetime in further integrating the various companies that make up our Online Higher Education business and also changing the structure of our Cantor (ph) business to de-emphasize or actually to terminate partnership agreements with partners that we felt were not contributing to our growth in order to allow us to emphasize Walden within our group of partnerships and this is exactly on plan.

We told everyone we expected enrollments in our online group to drop into the single digits as we terminated outside third party university partnerships and grew Walden and you'll see in the release that Walden enrollments grew by 80 percent, which I think shows that strategy is working very well and as the effect of the reduction in third-party university partnerships works its way through our system, we expect the second half of next year to show very strong growth in enrollments across the online hiring station groups.

Other things that are successful, Online Higher Education is successful in reducing the NTU losses. They did still impact (indiscernible) results this quarter but should be pretty much wrapped up and also should be eliminated as we get to the end of the year on plan. And the combination of higher growth in the second half of next year in enrollments and elimination of the [indiscernible] losses makes Online Higher Education probably the fastest growth part of our business from a profit perspective going into '04. So that is certainly exciting as well.

Last comment on Online Higher Education, I think some of this enrollment will be driven by new program growth. We did announce some new programs in public health at Walden a Masters degree and a Ph.D. program and a very exciting Ph.D. in education associated with community college leadership and we expect lots of new programs to come in Walden in NTU and in other university programs that we intend to launch.

So, again, I think, really, just a tremendous way of coming out of the chute, looking to position for '04 for great continued success and certainly Q4 as well.

At this time I would like to turn the call over to Sean Creamer, our Chief Financial Officer, to comment more on financial results and then we're going to ask Raph Appadoo, our President, to briefly comment on enrollment and give you a little bit more color on enrollment and then we will open up for questions. Sean?

Pleased to report today on our third quarter results. I think our strong financial performance and the very impressive fall enrollments position us very well as we head into the fourth quarter as Doug had mentioned is our single largest quarter as well as we head into 2004 provide a great deal of visibility and confidence in the direction of the Company.

The combination of the size of enrollment growth numbers, the healthy pricing increases and strategic acquisition form the basis for what we considered to be a very sustainable postsecondary growth strategy. While the year-to-date numbers still do reflect some other nonrecurring gains in charges coming out of the K-12 divestitures and the recently completed restructuring and reorganization of the Company, the third quarter's GAAP results stand on their own. And reflect a pure postsecondary business.

Doug and I are thrilled with the level of interest and knowledge by investors as they get a clearer and clearer picture of our business strategy and our growth potential. At our upcoming investor day which is scheduled for November 18th, we intend to dedicate the entire day to further explain our [indiscernible] business and delve into our future growth prospects as well.

Turning quickly to review our financial results for the quarter and the year we reported revenues from continuing ops of 106 million and $318 million respectively. This represents a 48 percent quarter over quarter increase and a 40 percent year-to-date increase.

Campus based revenues grew 62 percent to a total of around 82 million and 41 percent year-to-date to a total of about 250 million 247, 248 million. Excluding the impact of acquisitions that would have been completed subsequent to the third-quarter 2002, campus based revenues still grew 28 percent for the quarter. This organic revenue growth is driven by combination of solid enrollment growth and pricing increases. And I think as we've said in the past our goal with respect to pricing is implementing increases during the year at a rate of 1 1/2 to 2 times a rate of local inflation. Our weighted average pricing increase as we indicated this in the release that we implemented across the network with 7 1/2 percent. And that compares to a composite inflation rate in the countries where we operate, of roughly three percent, so we certainly were able to exceed our goal of 1 1/2 to 2 time the rate of local inflation.

As far as currency impact goes. For the quarter revenues would've been roughly a million and 1/2 higher on a constant currency basis. Mexico's revenues were up 21 percent in US$ but 32 percent in local currency. Chilean revenues were up in UDLA since we didn't have UNAB last year, UDLA's revenues were up 52 percent in U.S. dollars and 49 percent in local currency. In Spain revenues were up 96 percent admittedly off a small base on their weakest quarter but 96 percent in US$ and 71 percent in local currency. And then Les Roches in Switzerland revenues were up nine percent in US$ and one percent in local currency. So obviously in some countries currency worked in our favor and others against us and while it is not a perfect hedge our diversified portfolio our currency currencies continue to prove effective in children as from any significant volatility based on currency movement.

In fact, for the quarter the negative impact on the bottom line as a result of FX was roughly $700,000 year-to-date about 1/2 a million neither of which has prevented us from meeting and or exceeding the target that we laid out.

Moving onto online very quickly online higher ed or OEG as we call it. Their revenues increased 13 percent quarter over quarter and 34 percent year-to-date to 24 million and close to 70 million respectively. This growth was driven primarily by the 80 percent increase in total number of Walden students.

As expected, Walden's growth was offset by an anticipated roughly 29 percent [indiscernible] in our non Walden students. Remember, Cantor is discontinuing certain of our third-party university partnerships in favor of emphasizing Walden. So in the short-term the OEG enrollment growth will be negatively impacted. As we noted last quarter we believe transition will be completed by the back half of 2004 and the overall enrollment growth rate should return to strong double-digit levels.

From an operating income perspective we saw a significant growth in both the total and relative terms. Consolidated operating income for the quarter was 10.9 million, up from a loss of a little over one million in the third-quarter 2002. On the campus based side operating profits grew more than fourfold to 9.7 million for the quarter and the margins, roughly, doubled during that period. Year-to-date campus based profits increased 62 percent to roughly $31 million, so obviously, we're very pleased with this kind of growth which was driven by a combination of internal growth and acquisition.

OEG's profits were a little over 4 million for the quarter compared to just about 4 million, a little under 4 million for the same quarter last year. This small increase is largely attributable to the expected NTU losses which were approximately $800,000 for the quarter. As a reminder we did not own NTU in the third-quarter last year.

Year-to-date OEG's operating profits grew 11 percent including these (indiscernible) losses - if you exclude the impact of the NTU losses online [indiscernible] or (indiscernible) 's profit growth was 27 percent for the quarter and 60 percent year-to-date. After-tax income from continuing operations on a normalized tax rate basis for the quarter was 7 vs. $7 million or 16 cents per share on diluted shares outstanding of 46.6. As a reminder for gas purposes, we accrue our income taxes based on our full year expected GAAP results.

And since the GAAP results still include a number of the large recurring items recorded in the first half of the year, specifically the ventures, losses, significant cheap stock charge and some of the G&A that relates to our K-12 business but does not get reported in discontinued ops, the resultant GAAP rate for the quarter - 39 percent - is not representative of the tax rate it is going to be applicable to an ongoing operation. The rate is artificially high relative to what we project and frankly what we guided towards for our continuing operations which is running at roughly 25 percent as Doug mentioned.

As we noted in the second-quarter our growth in Chile including a UNAB acquisition favorably impacts our overall tax rate.

In the fourth quarter the GAAP rate will be artificially low, it was artificially high in the third-quarter - will be artificially low in the fourth quarter. Virtually zero percent tax rate as remnant results of tax benefits related to those earlier charges make their way through the tax provision and it will result in a 61 cent EPS for the quarter on the GAAP basis. In modeling the fourth quarter we viewed the 25 percent tax rate which we think is more representative to arrive at the 44 to 46 cents guidance that we issued today.

Some quick balance sheet information. Total cash and markup securities as of end of the quarter was about 130 million. Total debt was approximately 92 million. Excluding the last 15 million of the convertible debentures that remain outstanding. We are in a position to force (indiscernible) force conversion of the remaining [indiscernible].

In summary, we're obviously very happy with a strong operating results. Our enrollment success during this really important intake period coupled with the multi year length of stay creates tremendous visibility for the future.

Quickly on fourth-quarter guidance, we anticipate total revenues for the fourth quarter of 141 to 147 million vs. roughly 108 million in the fourth quarter of last year, which is an increase of 30 to 35 percent. Our fourth-quarter operating income prior to our G&A is expected to be 36 to 39 million, a 65 percent increase over last year. G&A is expected to be 2 1/2 to 3 million for the quarter and we believe the earnings per share we will achieve is 44 to 46 cents.

Doug alluded to it in a little bit more detail from a seasonality standpoint. The fourth quarter is and will continue to be our seasonally strongest quarter as it is the only quarter where all of our universities are in session for the entire quarter. As a result of the acquisition of UNAB in Chile, and the mix of our results, between what had historically been our seasonally weaker quarter specifically the first and third quarters will change somewhat. The addition of UNAB in Chile means that 2 universities now - UDLA and UNAB will be out of session for the summer break in January and February. This, coupled with the fact that the first quarter is Cantor's seasonally weak as well means that the first quarter now replaces third-quarter as our weakest quarter perhaps approaching breakeven.

We intend to issue detail in full year first-quarter 2004 guidance following the completion of our budget review in late December our January. In the meantime you should take this change in seasonality into account as you develop your models.

That concludes my remarks. At this point, I will turn it back over to Doug.

Thanks, John. The only comment I would make your point about the artificially low tax rate in the fourth-quarter, resulting in the 61 cents reported GAAP EPS we probably should expect that is a range of give or take a penny given that the pro forma results and with the normalized tax rate are also expressed as a range. With that, I'd like to turn it over to Raph Appadoo to talk about enrollments and then after that we are going to open it up for questions.

Thank you. I will restrict my comments mainly to the campus based business where we have seen tremendous an impressive and more growth this year following last year's. This year, we see (indiscernible) 25 percent [indiscernible] growth total enrollment growth of 19 percent. With the acquisition of UNAB in June our total enrollment growth expense at 52.5 (ph) percent and also very much an impressive performance. Let me provide you with some commentaries by region.

First in Latin America. The campus based business enrollment was driven by impressive results [indiscernible] from the whole region, we experienced 16 percent total growth in Mexico and 43 percent enrollment growth in Chile and the addition of UNAB announced in June 2003 provides us with an additional platform for students in this growing region. We need to add some clarifications here, also, in Latin America.

UNAB's total enrollment of 20,618 as reported in the release include over 15,000 undergraduate and graduate students plus approximately 5000 students in the technical locational of UNAB which is [indiscernible]. [indiscernible]. (indiscernible) on the other hand announced the enrollment of [indiscernible] now included six campus in Ecuador which was managed and is now -- which was managed previously by [indiscernible] but is now owned by [indiscernible]. We have added Ecuador as a student count into both 2002 and 2003 enrollment and it does not affect the growth rate very much. Let me now turn to Europe.

In the mature markets of Spain and France we have been experimenting with new ways to grow given demographic trends and a weak economic environment. We're very glad to report that we have implemented new opportunities in the area of postgraduate education and international student intake, mainly from Latin American countries where UEM as you would remember has a lot of appeal. These new programs are promising and will support our growth going forward. So while our total enrollment performance is flat, we see it because of the prior two years somewhat lackluster results we expect change in the shape of UEM's growth curve going forward.

Hospitality education segments [indiscernible] tough environment this year due to the war in Iraq, the impact of the SARS epidemic and the strength of the Swiss franc that raised the relative cost of tuition for students from outside Switzerland by some 10 percent.

Our schools in Switzerland are the only ones in the whole network affected by world events. 100 percent of students are from outside Switzerland but despite these factors total enrollments were up 4.5 percent over last year and we remain very optimistic about our enrollment growth prospects in the hospitality line of business. This line of business is one where new enrollment data is not really as critical as elsewhere. I want to point out the structure of our tuition allows us to bring in new students in second or third year and, therefore, we do not -- we do see several ways to resume growth even from a lackluster new enrollment performance from any given year.

In summary, including the acquisition of UNAB, our initiatives and activities through the end of the third-quarter provide us with a base of 95,000 total enrollments, compared with 62,000 last year, for a total enrollment growth of 52.5 percent.

These 33 additional students provided us with tremendous revenue visibility for several years to come. Without acquisition our growth in new enrollments was 25 percent and in total enrollment it was 19 percent. Overall, therefore, we are experiencing a very dynamic growth environment.

Terrific Raph, thank you very much and we would like open up for questions now, operator.

[Operator Instructions]. Jerry Herman with Legg Mason.

Couple of questions. Sean, could you give us a feel for what the year end balance sheet might look like and, related to that question, what are you seeing on the acquisition front. Is the appetite still there and what are some of the -- what are you looking at this juncture?

From a cash and debt perspective we expect we will end the year with roughly the same cash balance maybe 120 million as we have now. We obviously are continuing to reinvest aggressively in countries with high return projects being earmarked for some of that cash. From a debt perspective we're looking at repaying what debt might be out there as unattractive interest rates or moving to a fixed rate from variable rate given (indiscernible) environment so I think the balance sheet is going to end the year very solid and Doug, you can [inaudible]

Sure. We have at this point given the Company's cash flow is generally sufficient to cover all of the good internal capital expansion investments that we can make. That excess cash that Sean describes and the borrowing capacity of the Company gives us I think really all the dry powder we would need for any acquisition opportunities.

Our focus in acquisition opportunities at this point remains European and U.S. businesses as we work hard to maintain a balanced portfolio from the geographic and currency component. That said we continue to see very strong opportunities in Latin America and there we probably give a special focus to acquisitions within existing countries like (indiscernible) acquisition where we can leverage our existing G&A and our management team and our track record. So that is certainly something that we continue to take a hard look at. There really is at this point as always we're not in a position to comment on any specific acquisition activities but that's really the philosophy. I think most importantly our philosophy is that we've got such strong organic growth that we don't need to do any acquisitions. And I think that really makes us feel good about the level of discipline and the willingness to walk away from any deal that doesn't really meet every element of our value and strategic interests.

Just by way of clarification you said the year end balance sheet will look similar to the third quarter -- specifically sort of net cash at $20 or $30 million. Is that fair?

Exactly -- 120 million of net cash yes I think we may cash balances may come down if we choose to pay off debt [indiscernible] [inaudible] about where we are right now.

And status of the capital gains payments.

We have substantially paid the tax liability. There is a final statement which is a relatively modest amount is due in December.

Doug, could you address your campus opening or Raph, could you address your campus opening program or outlook for '04?

Okay and we probably need to move on to other questioners, your multipart are going to [indiscernible]

I promise this is the last ...

We mentioned before that we expect to open 4 to 5 and [indiscernible] two in Mexico and two somewhere else 2 or 3 somewhere else in the world. We've done 4 already with [indiscernible] we are not changing our tune on this one. We will continue to maintain the same kind of momentum.

Mark Marostica with U.S. Bancorp.

Congratulations on the quarter. Following up on your point on the strong organic growth I wonder it looks as if you're disclosing what appears to the same-store enrollment figure of 19 percent year-over-year. If you exclude, I think four campuses I believe you opened last year, would you be able to give us a more pure number or is that a pure same-store number?

One of the things that makes this a great question. It is not a pure same-store number. One of the things that we're trying to decide is what's the best definition same-store? And we look at other companies that have for example stores over five years is a definition and in our case our campuses tend to expand and they don't really fill up and you have to go build a new one, you are just constantly growing them to the extent that you can. So the best way I think we can do it for now until we learn a better way is to just exclude as you suggested the new campuses during the period of time. And if you exclude the new campuses, the total enrollment growth for the whole Company would be about 14 -- a little more than 14 percent. And the new enrollment would be approximately 13 percent. So the new stores did contribute. But we think on a same-store basis we're probably as good or better than just about anybody else out there so we're pleased with that.

One question for Sean and that is for fiscal '04 the buck 22 guidance is that assuming the 25 percent tax rate?

Yes. I mean we understand, as our mix continues to change, we're going to benefit from adding lower tax to income into the portfolio. So each year we sort of contemplate that there will be a trending down in the grate. I can't tell you we are specifically earmarked at 25 but the assumption was that we were going to be lower than the 28 we modeled for this year and so there's pluses and minuses but we feel comfortable with the buck 22 is still [indiscernible]

When we bumped our guidance 10 cents because we were acquiring UNAB we certainly knew at that point that UNAB would tip us over into a lower tax category.

Howard Block with Bank of America.

I missed some of the opening comments. I apologize but with regards to the Chilean enrollment I wasn't sure you had broken out what may have been contributed from sort of secondary intakes. It looks like if our numbers here are accurate was a bit of an upward change from the last number we got from Chile - I just wasn't sure going from I think 17 4 to 20.3 what was secondary in [indiscernible] maybe a new campus?

Yes basically, the biggest difference is when we looked at Chile, when you say the 17 4 to 23 [indiscernible] the only thing that would have changed there is a small secondary intake but it's probably the addition of Ecuador. And Ecuador was a campus that was already managed by Chile but they didn't own it. And now they own it and so we thought it would be better to actually add it into both periods. So we added it into 02 and into '03 and it did not affect the growth rate at all.

I guess I was trying to get it -- is there [indiscernible] in Chile or anywhere else around the world -- are there opportunities that you see to perhaps break the traditional patterns of not meaningful secondary intakes and transforming the schools into having more robust secondary and tertiary intake periods during the year?

I think there is an opportunity to that and I'll ask Raph to comment on it. As we move into different product categories - such as technical vocational and postsecondary postgraduate, we do have the opportunity for more intakes and [indiscernible] in novel.

Doug is right - our schools are almost everywhere in the world for traditional students and we've been very clear on that that we have a very big market we are very well established in traditional and [indiscernible] opportunity in other segments and we are exploring them and have implemented some. So our results are clearly you will find primary intakes immediately following the end of the school year. And that's the cheapest way to grab students.

So we made a mill out of this kind of business and so to answer your question, yes, we have one primary intakes and that's the best way for us to grow. However we expect to see more opportunities to growing the postgraduate with working adults and those will take us to perhaps 2 or 3 perhaps 2 perhaps even 3 more intakes per year. So those are yet to come.

It's really a long-term trend, Howard, because I want to be really candid at this point. Let's say postgraduate and technical vocational in countries like Spain and Chile might be 10 or 15 percent total enrollment so it could be a few years before the impact of the trend that you're asking about really is material to our business.

Fred McCrea with Thomas Weisel Partners.

Hopefully, Doug, can we [indiscernible] about the Spanish market right now in terms of where -- you mentioned the initiative to bring more Latin American students up. What about the Spanish students themselves, the domestic population base? Is there particular challenges in terms of recruiting more of them into the campus or what are the current effects there right now?

Raph mentioned briefly in his early commentary that in essence the demography in Spain is not very good. And as a result the market for undergraduate enrollments in Spain is really for private university is essentially flat. Actually for public universities it's actually declining but private universities flat to very modest growth. Our good growth this year, really, is a result of a decision that Raph and the team in Spain made to really push postgraduate, master's degrees and other things that would our nontraditional and to some extent sort of unheard of that country. And while they're still a relatively small program they were able to move the dial and get good enrollment growth this year and we think that over time we can continue to do more of that.

So I would say the growth story in Spain is really going to be a function of more nontraditional, postgraduate enrollments which is a little bit more like the working adult model that you're familiar with here in the U.S. and our continued ability to get students from Mexico and Chile to have an interest in studying in Spain which is actually going very well.

Is there or will you be looking at opening more smaller neighborhood type centers on [indiscernible] along the lines of an Apollo's Learning Center large campus model here domestically?

Let me address that but before let me make one comment on the previous question. Clearly the impact of postgraduate students on our numbers was better than the Latin American -- just want to make sure you get that. (indiscernible) students are Spanish. We just happened to be moving in new segments and we expect those two to help us resume our growth as we leave this year. To answer your question, yes, we are -- we haven't forgotten that there are other parts of Spain other than Madrid. And we have several initiatives to get us back into being able to grow campuses outside of Madrid. So we have had a little delay on the legal front where the interpretation has been that we cannot take UEM as is outside of its regional location in Madrid. But there are -- we have initiatives to open campuses [indiscernible].

Your question was as you move more into working adults are you going to have smaller sites (technical difficulty)actually did just open a downtown site for UEM in Madrid but not big enough for us to sort of warrant counting it as a campus.

[indiscernible].

Trace Urdan with ThinkEquity.

My question is everything looks like it really is firing on all cylinders. I might have expected the fourth-quarter guidance to be a little bit stronger particularly given the improvement in the tax rate and I wondered if there is something about the mix between third and fourth-quarter that's different from what you guys were seeing a quarter ago?

I think we are just being exceptionally cautious. Currency mix is something that we're always watching. We have been incredibly I think successful at having diversification of currencies in a way that with tremendous individual swings have not aggregated to impact our Company in any material respect for years. But we are also very cautious about what -- where that might hit and how to manage expectations in a way that we have built in a little bit of pushing against that eventuality. And there's a lot of other things moving inside the Company as we try to look at where we want to make other investments in selling and marketing resources - for example in the Online Higher Ed group, we've been a lot of enrollment advisers who are essentially the sales consultants for that business. A lot of other factors.

So at this point we didn't think it made sense to take up guidance. But the message certainly is we're hitting on all cylinders and the guidance in the fourth-quarter is already an enormous increase over previous years.

And just to clarify that when we can out with the accretion from the UNAB deal that contemplated some benefit from the tax rates so this is not something that's new to us. We expected that and in the 10 cents next year, likewise.

Just a tiny one. Did you guys -- can you -- did you have intake for the new health-care programs with Walden in the fall in these numbers you put up here?

Not until December.

Not until December. Thanks.

Jeff Silber with Harris Nesbitt.

Really appreciate the fact you broke out the enrollment total [indiscernible] by campus. I was wondering if you're willing to do the same thing on your online enrollments in terms of breaking the Walden numbers out separately?

We did to the extent that we did describe the fact that there was a 29 percent decline in Cantor (ph) and an 80 percent increase in Walden - Cantor excluding Walden - and I think that probably gets you where you want to get to. I think we're trying to figure out how much disclosure is too much disclosure as we are trying to keep things consistent and straightforward. So I hope that gives you most of what it is you'd be looking for.

How about in terms of Walden on a stand alone basis in terms of profitability? Can you give us an update on that?

We had indicated that we were going to move that. It was profitable when we bought it, we reinvested heavily in that business and it's not a negative drag on the results for 2003 and, obviously, we would expect (indiscernible) 2004.

It is now a profitable company but not to the extent that it contributes any meaningful -- meaningfully to our current numbers.

Fair enough and in terms of the currency impact on earnings?

The total impact? The bottom line year-to-date it was about 500,000. For the quarter talking about a negative and for the quarter it was actually 700,000 negative.

You said that before. I am sorry I missed that. Just one quick follow up. Jerry asked earlier on the call about acquisitions you mentioned about U.S. and I know you are not going to give specific targets. But would we expect you guys to go into the U.S. focusing on one of your full-time traditional campus based models like you have outside the U.S. or would it be more of a working adults focus?

I think what I can tell you, our current ground rules for approaching the U.S. market is that whatever we do we want to be a leader in that niche so it is going to be niche driven because there are very strong U.S. postsecondary companies and there's no reason for us to be No. 7 at anything so we're looking for niches. We feel for example, looking for graduate education, masters and doctoral educations we're a leader. And online education regardless of graduate or not, we think we are a leader not maybe not the leader but certainly a number 1 or 2 or number 3. So we're really picking our niches carefully and we will continue to do that and secondly, we are interested in businesses that will benefit from or support our international network. So for example a higher education institution that could offer some sort of coordinated or double degree with our foreign universities which is something that we think is actually could be extremely successful. And even with our current U.S. universities, we're exploring.

Somebody that would have a campus that could host our foreign students that want to do a semester or year in the United States, we could fill up somebody's under utilized campus with all of the students that would like to spend a semester or year in the U.S. and even with slowing visa access and things like that. So those are some of the ways we're tending to look at it.

And lastly of course we're real value investors in how we approach acquisitions. If we know that we can make very attractive acquisitions at a four or five or six times trailing EBITDA type number anywhere in the world and sometimes considerably cheaper than that, we are not likely to want to step up and pay a huge multiple to buy something in the U.S.

Unfortunately with all those screens it is certainly possible that the results could be that we don't end up doing anything in the U.S. but we're working very hard on it and we actually think we got promising ideas in the hopper.

Jennifer Childe with Bear Stearns.

Any program transplants this quarter?

I don't think any -- this is a term used mostly for other companies so where you do get a few quizzical expressions around the table here but this is basically taking a program from a number universities or campuses and planting it in another. I don't think there was anything of any material --

(MULTIPLE SPEAKERS)

You've done a few, though, haven't you? Dental...?

Yes, we do and we plan several next year -- you will see we will announce some interesting ones next year.

I think we're going to talk more at our investor day.

What about organic enrollment growth excluding acquisitions?

Organic growth excluding acquisitions -- in essence, the enrollment growth already takes out UNAB which would really be the acquisition and the only other way to answer it would be the question that was asked earlier about what would enrollment be if we did not include the new campuses that were open during the year. And that was at 14 percent.

In Chile I am a little confused. I thought that when you acquired UNAB, it had 16,000 new students and now it is up to 20,000 students. Is that because you didn't include the vocational students?

Exactly. One of the things is we got ready for being a pure play postsecondary. We needed to come up with a completely standardized approach to (indiscernible) students. For example in the past in some countries, we counted graduate students as half a student because in some countries they spend less than an average year and we weren't counting technical and vocational because even though they tend to be multiyear they are not four year students per se. But what we learned is that those things all change. Postgraduate and average tuition has really closed the gap in large extent with a lot of undergraduate programs.

A lot of our technical vocational programs actually lead students into the ability to move into a four-year program. So we just decided the simplest way to go is as long as we're talking about year plus degree programs and not short training programs we count them and a nose is a nose is a nose and we've actually added back in all periods to make sure that there is no -- nothing confusing for the investors so that is the long answer. The short answer, specifically, is yes I asked the (indiscernible) location was excluded from the original number and has been added back in for the new number.

And last one why are you projecting G&A to drop so much in Q4?

Drop from where? It's pretty much at the same run rate as it was in the third quarter. I think if you are comparing it to last year you are probably including the G&A related to K-12.

No. 2 1/2 to 3 --

It's 2.6 (indiscernible) for the third quarter.

And just a quick request. It would be so helpful if you guys could release your results the evening before your conference call. I think we're all kind of scrambling in the morning to understand all this.

That's good feedback but it wouldn't give us anything to do the night before. No, we will look at that. If we can do that, we'll certainly talk to other investors and see if that's what people would prefer. We want to take that input. In terms of G&A you do bring up an important point which is G&A in our Company is very different from other companies. We got a parent company G&A which is actually not a big part of our total G&A. We got divisional G&A which is a bigger part and we got country level G&A because we have pretty big operations in some of these countries. And so we were always sort of torn as to the best way to present G&A and chosen to do it in a way that was comparable and consistent with the way we've always done it in the past.

That said I just wanted to make that point and also that G&A is an area in which there are costs that are rising and not to the point that it worries us in our guidance but certainly on (indiscernible) point that we're watching insurance costs -- costs associated with the implementation of Sarbanes Oxley, audit fees and other things. So certainly going forward I'd expect our G&A numbers to go up and that is certainly taken into account in the guidance that we reiterated today for 2004.

Operator, we have time for probably one or two more questions.

Brandon Dobell from Credit Suisse.

Sean, wonder if we could get some cash-flow statement information from cash from operation CapEx for the quarter for year-to-date?

In the past we talked about EBITDA. But I was [indiscernible] we do that, we have to get involved with an entire reconciliation so I think our cash-flow answer is it comes out with the Q and we are working feverishly to get that done quickly. From a CapEx perspective I think year-to-date was roughly 60 -- a little over $60 million of CapEx. And as we had indicated our expectations, if you want to extrapolate from that, is that we were reinvesting roughly 80, 85 to 90 percent over the next couple of years and probably a little bit higher than that this year over our EBITDA into CapEx. So I don't have a clean answer for that -- we don't have the cash flow from operations completed yet and I'm reluctant to talk about EBITDA given the complexities around how we have to reconcile that. But, obviously, as we head into the fourth quarter clearly our strongest from a cash-flow perspective. But we are continuing to reinvest aggressively in these high return projects. So I think after CapEx, we expect we're going to be sort of right around breakeven from a cash-flow perspective but that is discretionary rather than mandatory.

One more quickish one. You mentioned some of the legal issues in Spain. Just wanted to get a flavor for anything else out you have seen in any other countries that along the same lines where the policy of the governing boards have either given you more room or less room to operate and related to that how is India going. Anything there [indiscernible] University status.

I think the regulatory environment is something we have a lot of people watching and working very carefully. I would say there really isn't anything in my view that is noteworthy. There are lots of initiatives in every country and in some cases, things we think might be mildly bad or some things we [indiscernible] mildly good and sort of all sort of an ordinary course. From our perspective. I think that in Mexico in particular there continues to be a trend towards trying to weed out the really low end players and we think that is a generally favorable thing for us and so that would really be the only thing I would comment on.

India continues to be a very tough environment for us. Getting started is very difficult. We do think the long-term prospects there are tremendous. It is something that actually we've invested money, it cost us earnings this year. And if we do see the progress, we will continue to make those kinds of investments in India but I would say we're still very cautious that is the one we always refer to as the green banana, it's not ripe and it won't be ripe for a long time.

Operator, we have time for one last question.

Mark Hughes with SunTrust.

I don't know if you touched on this before but how did UNAB do on growth enrollment in their last intake?

We didn't actually own UNAB during the last intake although we were certainly watching them -- I don't know if anybody has that number handy, we probably do not because it was prior to our two-hour ownership.

General sense of how you think that they will do relative to the other schools?

They have been a very solid grower. Our other school in Chile has grown its enrollments in the - let's say 40 or 50 percent rate for the past three years. I would say that UNAB which is a more selective higher end university has probably grown its enrollment more like 15 to 20 percent over a longer period of time. I don't want to give a prediction for next year because we haven't provided that yet but I would say when we expect a blended enrollment growth next year total enrollment growth of 18 percent or more we've taken UNAB's growth rate into account.

Let me add something to that, UNAB used to be - until this year - used to be the largest private university in Chile. They have had a stellar performance of several years only this year (indiscernible) other university overtook them in terms of size. So we have two of the best horses in the stable.

(indiscernible) get included in the same school mix (indiscernible) that won't cause dilution in the growth, you don't think?

It will cause dilution to Chile's growth but not to the Company's growth.

Got a question in the online segment - given the (indiscernible) gains and the Cantner (ph) losses what's the outlook going forward for population [indiscernible]

Mark we missed the [indiscernible] looks like we might have lost him.

One moment while we re-establish his line.

Outlook over the next few quarters until you [indiscernible] decline what do you think the population growth numbers will look like - still sort of single digit type, type in total?

I think the way we described it is we would expect [indiscernible] as the losses which are more onetime [indiscernible] work their way through the system that it will keep us to single digit for the next couple of quarters and then as we move into the back half of the next year that we would see strong double-digit growth again and that's what we provided.

Thanks.

And thanks to everyone for your interest and patience with us this morning and we look forward to speaking with you in the future.

That does conclude today's conference call. Thank you for your participation.