Laureate Education Inc (LAUR) 2005 Q1 法說會逐字稿

Thank you for holding everyone. Good day, and welcome to this Laureate Education First Quarter 2005 Earnings Results Conference Call. The call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the call over to the Director of Investor Relations and Corporate Communications Chris Symanoskie.

Please go ahead, Chris.

Thank you, Kevin. Good morning everyone, and welcome to Laureate Education first quarter 2005 earnings conference call and webcast. Please note that this call may include information that could constitute forward-looking statements made pursuant to the Safe Harbor position of the Private Securities and 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 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 risks.

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.

This morning our speakers are Douglas Becker, Chairman and Chief Executive Officer; Sean Creamer, Senior Vice President and Chief Financial Officer; Bill Dennis, President of Latin American Operations; and also available for questions today are Raph Appadoo, President; and Paula Singer, President of Laureate Online Education.

Now, at this time, I'd like to turn the call over to Doug Becker.

Thanks very much, Chris. And welcome everyone to our 2005 Q1 earnings and enrollment conference call. As many of you know, this is a seasonally low earnings quarter for us, because our universities in the southern hemisphere are mostly out of session during the quarter. We don't deliver a lot of service or generate much revenue in those markets over the summer, but we do across the course. In addition to our operations in Chile, our acquisition last year of UPC in Peru has added to the size of our southern hemisphere business and thus to our seasonality.

Let me highlight a few of the most important aspects of our press release. You'll note that we did exceed estimates for earnings in the first quarter. Some of this is based on timing in the Online division, and the out performance in Q1 with respect with Laureate Online will simply balance out when Q2 is taken into account.

However, our business overall is very, very strong with campus-based total enrollment growth of 33%, and a 26% increase in total online students. This growth, coupled with very strong business conditions, now puts us ahead of our internal earnings plan for the year, and as such, we're going to modestly raise our EPS guidance this year by 2 cents.

Most importantly, we believe that our enrollment growth and the exceptional interest today gives us the visibility to issue guidance for the next calendar year at this time, which has been our practice for the past two years.

We are establishing a range of $2 to $2.10 of earnings per share on projected revenues of around $1 billion for calendar 2006. This represents EPS growth of about 25% if you take the midpoints of the two ranges for '05 and '06 on revenue growth of 25%. This revenue growth can be achieved with some increase in total enrollment of about 15% and around 5% in price

The conditions for continued and sustainable growth for our business are very strong. Our campus-based businesses of international universities will benefit from growth of existing campuses, the opening of new campuses in countries where we currently operate, and we also expected to enter several new countries over this next year or next.

Now, we'll include Brazil and China which we rate as our two largest future markets and which we've studied for many years, and we're very excited about getting going in the next year or two in those two very large markets. We're confident that the formula that we refined in 10 countries over the past seven years will work equally well in these and many new markets. And we have the strongest pipeline of acquisitions through which to enter these new markets that we've ever had.

Our Laureate Online division is going to be a major player in our growth over the next several years. In fact, this year we expect 30 to 40% enrollment growth in the Online division. Their niche of graduate education in the US positions them very well in a growing but competitive market here.

And our undisputed leadership in higher education outside of the US should allow us to build a very powerful international franchise in the Online degree granting space. These very strong growth prospects campus-based and Online are the basis for our five-year plan to grow our earnings at a rate of at least 25%, of which 2006 will be the first installment.

Enrollments are at the very heart of our business, and in a moment, I'm going to turn this call over to Bill Dennis who runs our Latin America division, and he will discuss the results of the enrollment campaign. Then, Sean Creamer who is our CFO, will discuss the financial performance of the company in Q1, after which we'll open up to questions to the entire management team.

Before I turn the call over to Bill, I'd like to comment on some of the new information and new formats that we've introduced with this quarter. We've had a pretty large business over the past few years and our investors have become a lot of more knowledgeable about the company. We want to provide you more and more accurate information that will provide better insight into the company, but we also want to be careful not to delude you with much information. I hope that you'll continue to provide us feedback as to how we're doing on that balance.

Now the first step that we took which was reported for our results for last year was to break out our campus-based division into two reporting units; Europe and Latin America. In the past, we provided revenues for every country, but only provided profit results for the entire campus-based division.

So this change does provide more visibility to investors. Within Latin America, which is a very large business for us, we would provide revenue and enrollment information for two critical sub regions; Mexico and Central America is one region, and the Andean region, which includes Chile, Ecuador and our newly acquired business in Peru. Today, we're going to provide specifics about Chile enrollment, but going forward we will not breakout enrollments beyond these sub regions as we're going to end up with too many countries to report.

In another effort to add clarity, we're going to offer quarterly total enrollment census by sub regions, while in the past, we've only provided this information twice a year when we had primary intakes. Speaking of primary intake, we've also chosen to provide new enrollment data for the Mexico, Central America region even though Q1 represents their secondary intake, which is small compared to their primary intake in Q3.

We do this because, while the secondary intake is smaller, it has become, in fact, large enough to be relevant. And as we have other secondary intakes around the world that become similarly relevant, we're going to break those out for you too.

You'll hear from Bill that we had stunning intakes in Mexico, Central America and Peru, balanced by moderate growth in Chile. These results are consistent with our statements last year that we expected Mexico and our Online division to become the growth leaders for the company in 2005, and they're certainly on track to accomplish that goal. To hear more about enrollment growth, I'm now going to turn the call over to Bill Dennis.

Bill?

Thanks, Doug. Let me begin by briefly describing our enrollment process and what improvements we've made since last year in terms of reporting. While our enrollment process is essentially the same in every country in which we operate; that is recruiting campaigns, leading the student inquiries, followed by an application period, and then the final registration, the time frame in which these various stages occur varies from country to country, and sometimes, between different institutions within the same country.

For example, in Chile, UNAB tends to finalize their campaign in March, while UDLA and AIEP continue to enroll students through April and into May. You will recall why this happens. UNAB is very selective and very desirable, and thus fills up its programs very quickly. UDLA, which tends to be more about access, continues its campaign well into the second quarter. As a result, there had been different cutoff dates depending upon the institutions, and this has required us to make first quarter estimates as to enrollment.

This year we are changing enrollment-reporting methodology to the actual status at the time of reporting. In this case, as of yesterday, or April 20th, enrollment data reported to you today is being compared to actual data on the same date as of last year. Since our numbers are becoming increasingly larger, we felt the need to be as accurate as possible and avoid the use of estimates.

Notwithstanding this change, it is very important to remember that we still have not completed our enrollment for the first half. This time last year, for example, we were 90% completed in Chile, and as such, had to estimate final enrollment for investors. Last year, from this point forward until final registration, we enrolled another 2000 students.

Let me talk to the numbers. The enrollment statistics for the Andean region, principally, reflect our Chile operations, and do not include our Peru acquisition, which was completed last September. In reporting to you today, Peru has been grouped with other acquisitions and reported on a separate line. Our standard practice is to break out enrollments from newly acquired businesses until we have owned them for a full year.

The Andean region, principally Chile, continues to be a solid contributor for us with new students this year reaching over 20,000, a growth of about 11% versus April 20th of last year. Chile's enrollment growth rate, however, is declining from historical level and is trending from a market growth rate of around 10 to 12% per year. Turning out to total Chile enrollment, we're now at 57,000 total students or about 16% above April 20th of last year, and considering that this intake period is yet to be completed along with additional intakes between now and yearend, we believe that, overall, total enrollment growth this year could rise to 18 or 19%.

We continue to maintain our market share of roughly 10% of the total secondary market, and we would love to replicate this market share success in other countries. The Peru acquisition, where we have a total of over 6500 students, means a new element of growth to the Andean region. Our efforts to introduce new marketing practices, combined with the launching of the Laureate network, has led to first year new student growth rates of over 50% versus last year. We are very proud of this early on performance. This is yet another market where operating model has produced immediate results.

In Latin America, the Andean region alone does not tell whole story of our first quarter enrollment achievements. In Mexico, our secondary intake, having grown at 30% per year since 2003, is becoming increasingly more significant, and as Doug said, require a separate disclosure.

The Mexican region contributed over 8000 new students in the first quarter, a year-over-year growth rate of about 27% and bringing the total Mexican regional student count to over 57,000 students. This accomplishment add to our momentum in the first half and is a good indicator of what's to come in August and September when we have our primary intake for the year.

The Mexican region is both our largest market today and has the greatest potential of any of our current markets. We believe there is plenty of room for growth, given our less than 2% market share in Mexico, and also the number of other cities yet to have a UVM campus.

Our positioning of Mexico continues to be strong, and this fact was recently confirmed by a survey published earlier this month by Reader's Digest and AC Nielsen, where UVM is ranked by Mexican companies in the top 10 of more than 850 public and private universities in Mexico. In fact, we moved up from number 9 to number 7 this year.

In summary, total campus-based student enrollment, driven primarily by Latin America this time of the year, has added over 29,000 new students or 15% above last year. Including acquisitions, our year-over-year new student growth has reached 28%. Campus-based operations now total more than 145,000 students, and we believe that this gives us a very, very strong position to achieve our financial goals for 2005.

Let me now turn the financial review over to Sean.

Thanks, Bill. I will just quickly walk through some of the financial highlights, and then we'll open it up for some Q&A. For the quarter, the company generated revenues from continuing operations of 184 million or, as Doug had mentioned, 39% increase over the same quarter last year. What is seasonally a weak operational quarter for us due to our southern hemisphere universities being on their summer break, and Online's traditionally modest first quarter results, our operating income increased 46% to 5.2 million compared with the same quarter last year.

For the quarter we achieved diluted earnings per share of 7 cents on diluted shares outstanding of 51.8 million Craig. Turning to some divisional level detail, campus-based revenues increased 35% for the quarter to 145 million. Our European universities grew revenues 37% for the quarter while Latin American revenues were up 33%. If you exclude the impact of acquisitions completed within the last 12 months, campus-based revenues grew 14% for the quarter. At the operating income level, campus-based increased 17% to roughly $11 million, with Latin America growing 33% and Europe nearly flat.

From an operating margin perspective, there was actually a decline from the first quarter of 2004, a little over 100 basis points. As expected, the loss generated in Chile increased year-over-year for the quarter. We recognized very little revenue, as you know, in Chile during the first quarter, but incurred fixed costs throughout for the year, and as the business grows in Chile, the first quarter losses increase accordingly. Also the addition of Peru and other southern hemisphere university that generates losses in the first quarter and was not owned in the first quarter of 2004, further depressed first quarter operating income and margins.

In addition, you will recall we opened three new campuses in Mexico last year, two more than we were originally planned, and the new campus openings have a negative impact on margin in the first one to two years. If you exclude the impact of acquisitions within the last 12-month, campus-based operating income grew 30% and margins expanded approximately 120 basis points to 10%, again, despite the losses in Chile and the incremental new campuses.

Implicit in our full year guidance is margin expansion of 60 to 140 basis points for the whole company this year. Obviously, margin expense would be greater but for these new incremental campus openings, as well as temporary margin depression that was related to the recent French acquisitions, that are expect to generate revenues for the year 2005 of approximately $40 million, but with very modest margin contribution for 2005.

On the Online side of things, Laureate Online increased revenues 60% versus the same quarter last year to approximately $40 million. The growth was primarily driven by 27% increase in new online students. That number reflects a 61% increase in enrolled students and an expected continued reduction of approximately 25% in the non-Walden Canter partners, third-party partners. This puts us on track for our expectation of 30 to 40% total enrollment growth for Online for the year. For the quarter, operating income increased more than sevenfold to 1.2 million in this seasonally weakest quarter. The increase is attributable to improving margins involvement resulting primarily from increased efficiencies resulting from scale.

On FX, again, we have included in the body of the release a table that summarizes our revenue growth by location in both US dollars and local currency, as well as on a same-store basis.

And for the first quarter, the effects, again, on foreign currency were relatively modest, positively impacting our revenues by less than $2 million. The Mexico region revenues were up 19% in US dollars and 20% in local currencies. Chilean revenues were up 9% in US dollars and 6% in local currency.

The first quarter revenue growth in Chile was negatively impacted as a result of the timing of registration in Chile, a larger percentage of students enrolled after March 31st this year as compared with last year.

And our policy for revenue recognition requires that all the appropriate paperwork be completed and finalized before any revenue was recorded. For students whose paperwork was completed in April of this year, we will report that revenue in the second quarter, which will result in a second quarter revenue increase in Chile higher than last year, approximately 25% or greater. And our expectation for the full year in Chile in local currency is revenue growth of 18 to 19%, which is more in line with our expectations for total enrollment growth there.

Finally, in Europe, revenues increased 10% in US dollars and 5% in local currency for the quarter. Again, our diversified portfolio currencies proved, again, to be effective in sheltering us against any significant volatility for the quarter. The positive on a bottom-line as a result of currency was less than $500,000. On some balance sheet items, Laureate remains in a very strong position cash wise with 117 million in cash and a little over 100 million or roughly $107 million in third-party debt.

Just a quick update on student financing. In the first quarter we disclosed that our student loan pilot was yielding positive interest from local banks. We've mention that the gross balance at the end of the year was approximately $20 million and that we expected the portfolio would grow to approximate $35 million during 2005. That is still our expectation.

We're in discussion with a number of banks interested in purchasing various portions of the portfolio. I think its interest level by the banks is encouraging as our goal for the pilot from the beginning was to eventually eliminate all direct lending and have the banks take over, I think the interest is tangible evidence that we're getting closer to that eventuality.

But keep in mind that the program that we have is limited to Chile. We're not doing that student lending in any other country. We chose Chile because we believe that it has a well-developed considerable lending system including strong credit bureaus and the credit conscious population. In fact, we noted there are recent investor data at 26% of all Chilean post secondary students are receiving some form of financing. Approximately 27% of our Chilean students have student loans, exactly in line with the market and in fact third-party to providing more than half of those loans currently at increasing rate.

But we're taking a very cautious approach. We only provide financing for up to 50% of the cost situation and given that all margin on an incremental students in Chile is higher than 50%. We're virtually assured that we'll make money on these students regardless of any ultimate repayment history. But given the fact that we do have a limited repayment history, we have adopted a very conservative approach with respect to reserves, reserving between 25% or 30% as a loan balance.

In terms of guidance, I will simply refer you to our releases, where Doug mentioned we include our second quarter guidance, as well as an upward revision to 2005 to reflect the strong performance of our businesses, and the introduction as Doug mentioned of our 2006 EPS guidance of $2 to $2.10 cents.

With that, I'd ask, Kevin our operators to open it up to questions.

Certainly, thank you and ladies and gentlemen if you have question at this point, please press "star" "one" on your telephone keypad. Your questions will be addressed any order that you signals. So once again that's "star" "one". You would please make sure that your mute button is not engaged before you signal.

We will take our first question now from Jeff Silber at Harris Nesbitt. Please go ahead.

Thanks and good morning. I had mentioned on, you would mention in your talk at the beginning about in the online margin shift between the first quarter and second quarter, can you just go into a little bit more detail on that?

Sure. I will make a brief comment and ask Paula to add to it if she'd like. Because we're expecting accelerated growth throughout the balance to the year, there are -- there is a lot of, sort of, front-end investment spend associated with that in the second quarter. And when we put together our internal plans that we sort of always the case. So, in essence, a little bit about performance for the first quarter really ends-up averaging out to on track performance when you take those quarters combined.

That's it.

All right. Thank you, Paula.

Okay. Great. And then numbers related question, and I do appreciate the additional information you gave, but of course that leads to more questions. You have a line item for acquisition of both revenues, new student enrolling growth, and total enrollment. Is it possible to break out those numbers at least between the campus-based and online, so we can just sort of, get a better indication of those two different divisions?

It's all campus-based.

Yes. All of what you use -- this is in the relate

enrollment

Yes

Yes. It's all campus-based.

It's all campus-based, so everything from the online business, there were no acquisitions over the past 12 months?

The one acquisition that made occurred was in the first quarter of '04 that was the KIT Amsterdam business and so it had anniversary. It was a partial quarter for it, but effectively does not make a difference.

Okay. Great. And than one more quick one, on the guidance for the second quarter includes about 7 million in G&A up a little bit from this quarter any specific reason why?

Not other than what we've said in the last quarter, in that we have made some significant investment in additional headcount to support the international expansion. That is embedded in our guidance for the full year and as we would have expected we brought on people during the first quarter and the full year or full quarter impacted that's won't be self to the second quarter and beyond.

Okay. I appreciate that. I'll let somebody else in my place.

Thank you.

Next, we'll go to Piper Jaffray and Mark Marostica.

Hey, thank you. Good morning.

Hi, Mark.

Mark Marostica The first question relates to Chile and I wonder if you could discuss before us what steps you're taking to stabilize the enrollment growth as you kind of look forward to the next ending period?

Well, I'll start in if there was a amplifier. I thing the first I'd say is, I don't think there's really a lot to stabilize. I think it is stable -- a very stable market and a very stable business for us. I think it's more a function of we had hoped to sort of stave off the inevitable of our reverting to market growth rates, but as we got to bigger and bigger market share, it became clear that we would grow with the rate of the market and I think, that day is upon us.

I think it's not likely that we're going to push to try to increase to a much larger market share, I think we have a great business, I think that market rate of growth in that business, which we think now is running around ended 12%. Certainly, that will drift down overtime, should allow us to produce very nice growth in profits. Because we can grow revenues faster than enrollments and we can profits faster than revenues, and I think that really at this point the key for us in Chile is to use what we learned in Chile to take into other markets.

Well, I would just say that the line share of our student enrollment in Chile continues to be in the traditional undergraduate and we do have the additional opportunities in the technical, vocational, and we have additional opportunities in working adult, which is a different profile, be over 25 working adult.

And so, I think there are opportunities there for growth going forward, but the lion's share of our businesses again is traditional undergraduate. That's going to grow at those market rates we're going to continue to maintain our market share. There we're very pleased with the market share. But we do still have some other growth opportunities.

And I know what you are saying, I think the point still make that's why the market rate of growth is such a robust one. In other -- very few countries you'll say well, we can just refer to market rate of growth and in essence be happy, but this is a great market because you still had continuing growth in participation rates, among 18 year olds to college and a surging demand in working adult and the other point that Bill made. That's why I think market rate of growth in the business would be a very, very healthy rate of growth for years to come. I'm sure there will be some years that are better than others and I guess our point is that a certain point we want everyone to see Chile the way we see it, which is as part of a global portfolio and not sort of the whole story.

Thanks very much for the color. Switching gears to Mexico, this coming primary intake period, I'm wondering accounts for how many new campuses that weren't in place a year ago?

I will turn that over to Bill.

Well, actually, yes, it is. We actually opened three new campuses last year in Mexico and we open one early this year through an acquisition in the state of Sonora and northern Mexico. So the new student enrollment is reflecting for new campuses this year versus last.

Okay. And then one last question on Mexico, Bill, you drew attention to the idea that there are many other cities in Mexico for UBM to expand into. Could you -- give us a sense for how many markets you still look at is buyable for UBM?

We are currently analyzing 21 markets in Mexico,

to which we are in - those are new market.

We are analyzing 21 new markets in Mexico and we're also looking at a modified operation in Mexico where we would set up some clubs. For example, in the northwestern part of Mexico, we are looking at cities south of the Elesio (ph) where we would open the high school, the last two years of high school, plus the first year of undergraduate.

And with the idea being able to transfer them to and we'll see it to finish up their education because we are already seeing about a third of students coming from outside of that community. So we're looking at some new ways to even be able to explore beyond those 21 cities in smaller communities that would be communities in the 500,000-population range.

I think at this point there's still about a dozen of the top 20 markets that we're not in at all even before you have to get into the even smaller markets that you could access through the common domain with this period school. And then of the, lets call it seven or eight markets that we are in, several of them we're just been for the first year. So it really just including the very large one of Guadalajara that I would literally just in our first year.

So we see Mexico is just aggregated that and online. These are the growth power drivers for our company for next year or two and then we think there will be growth drivers for years to come but then we want to make sure we have a good pipeline of new countries to keep that process going and sustain this better growth for years to come.

Okay. Thank you very much. I'll turn it over.

Thank you

We'll move on next to Richard Close at Jefferies & Company.

Congratulations on a great quarter, guys.

Thank you.

A couple quick questions and we'll turn it over. Sean, I was wondering if you could give us the cash from operations and CapEx in the quarter.

We -- CapEx was about $24 million for the quarter and we expected and did to redeploy virtually all our cash from operations into that CapEx. Those are very comparable numbers for both of those.

And then Doug, you made a comment in terms of talking about Chile in terms of growing revenue in excess of the enrolled in growth. If I look -- looking at the press release, I see the -- I guess the enrollment growth in Chile have 16%, yet the revenue growth at 9%. And if you could just clarify that for me, is that a timing issue in terms of the enrollments?

Yes. It is a timing issue and I know Sean, briefly touched about the comments that, in essence, we think that the second quarter will grow faster than the first quarter and it's based on the cutoff date as to when we measure who is a student.

Okay.

And we have an earlier cutoff date then we did last year as to who got counted. We have students that are taking classes and would be revenue-generating students that we don't count until all the paperwork is filled in by certain date and that date is different this year from last year. I think the way, Sean, you describe that was that you expected revenue in Chile at this year around 18% or 90%.

That is right. And 25% in the second quarter, which is sort of flip-flop of the -- are normally in the first quarter.

Okay. Thanks for that clarification. And then finally a similar question on the Online, you had enrollment growth I guess, in the quarter of 26%, yet revenue growth was 48%. What's the -- I mean is that just pricing or what is the difference there?

I think it is mix and I think it is largely and Paula please correct me if I'm wrong I think its largely that we had increasing percentage of our students are running to Walden, which is our wholly-owned University, where as in the past we used partner Universities to a greater extent and we shared the revenues. We still have some partner Universities, but there were being diminished more dramatically even phased out to the point where in fact our enrollment growth would have looked much higher. Walden is growing much faster than that 26%, but we do continue to have some of phase out that impacts, the enrollment number.

Okay. So over the ensuing quarters, then, that variant should - revenue growth should maybe moderate down to where the enrollment growth is?

Well the enrollment growth should more likely moderate.

Right.

They will converge. Okay.

Okay. Great. Thanks. Congratulations.

Thank you.

From Legg Mason, this is Jerry Herman.

Hi Jerry.

Hi, good morning everybody. A couple of questions on Chile, if I may. With regard to the metric that you guys disclosed, I know you are talking about a population figure as of April 20. Last year, the number that you guys spoke of was about 3000 students more than the 49,000 I think you referenced this quarter. Right? And again, I realize it's an estimate, but in terms of what that number would have been, or I'm just trying to reconcile that.

I think the easiest way to describe it would be that every year because of the enrollment is almost done but not done, we hit let's call it around 90% actual and we estimated the last 10% and which a lot of businesses have to do and that's what the work rules come from.

And I think that in some years, we have ended up estimating a little bit high and some years, we actually estimated low and it came in better than we thought. And our feeling was if we're going through all these efforts to try to provide greater clarity with investors, why not get out of the estimating business and instead of coming to April 20th having an actual and estimating on top of that, let's just tell you what the actual is, what the actual would have been on a comparable period, and really try to provide the something that is of the greatest accuracy and integrity for investors. That is our goal.

I know Bill mentioned that certainly in the period from last year, when we announced our enrollment to when the campaign ended, there were a couple of thousand more new students that came in and that is what we are estimating. And this year I'm sure the same would be the case we just don't want to always be in the business of estimating and always make sure that estimating is always wrong by some amount.

No, I think, I heard you say sort of if you're still in the estimating business looking at your pipeline of students in April and May, that you probably be up 18% and 19% if that was the case am I reading that right?

Yes, for the year we would get we think it would be somewhere 18% or 19%.

Okay.

so that includes, not only what is going to happen between now and May, but also we have got some additional intakes in working the (inaudible) and postgraduate students as we go out through the balance of the year and then in September we have -- August September we have another intake. So all in all, we think we will be somewhere between 18% and 19% of total growth.

Okay. With regard to Chile, is there anything new on the regulatory front for your guys anything in progress or expected in the near periods

No. Not at this time. Through last year, a very major, major newer accreditation effort with (inaudible) in that campus, and under that same the same Ministry of Education guidelines, we are going to be taking IF through that process, this year. So that's the only new piece. We were I guess the youngest University last year approved in that accreditation process and we were very excited about that.

But it is still a voluntary accreditation.

Okay. Great. The acquired student population number of 18,000, I was wondering if you could give us some help just in terms of breaking that down sort of where it will fit in the future?

I'm not sure I understand the question.

If I look at your acquisition activity, you had the one in Mexico, you had UAJ (ph) 4200 you had Peru of 6500, you had one in France of approximately 1350, and another in France of something north of 2000.

You're doing pretty well actually.

That floats to something slightly north of 14,000.

There was one subsequent acquisition, which Bill mentioned which would be in Mexico that was not large enough that would broke. It was a little smaller than the (inaudible) acquisition and as a result we thought we're probably breaking out too many small numbers, but that would get you to the total.

Okay. Great. And then just one final question, I will finally turn it over. You guys are doing a great job on the secondary intakes in Mexico, is there should we expect maybe the primary intake to be somehow diluted because of the greater access students are getting throughout the year?

No, not all. Quite the contrary. We think that this is an indicator that we will have a very, very strong enrollment intake in August and September. So not at all, this is incremental, its very powerful its been growing as I said in over the last since 2003 almost 30% per year. And we're very excited about that.

Again I think it is important in setting expectations, Mexico as its bigger and bigger its rate of growth its not going always be growing in the high 20s or 30% range, that'll be coming down too. But it's such a large market that it will stay at very robust numbers for a long period of time and really impact the company. To put it in the context, our objective in the first half was to grow new enrollments in the campus based divisions, not including these acquisitions that are broken out at separate line, by at least 15%. And we had 15%.

Our objective in the second half is to grow new enrollments for campus based by at least 18%. And Mexico will be needs to be higher than that because Europe is in that same number at a lower number. And I hope that kind of gives a road map. You don't need Mexico to be 30% to hit that number, Mexico probably have to be somewhere in the '20s and Europe and others will be lower than that with averages in, but in terms of the -- are we on track?

We would like in the second half to have new enrollments not including the 2004 acquisitions of at least 18% and then acquisitions on top of that. And then that would basically dry total enrollment growth for the campus based division of 18% to 20%, not including acquisitions, and then online, we think will be in the 30% to 40% total enrollment growth. So that's kind of a roadmap of a where we are trying to go.

Great. Thank you, guys.

Thank you.

Moving on to Gary Bisbee at Lehman Brothers.

Hi Gary.

Hi guys. A couple of questions if I could. You're talking about 30% to 40% online enrolled growth it is going to have to accelerate. And I wondered if you could give us any sense on how you think that will happen throughout the year. And then secondly on that point, is a lot of that acceleration is going to be driven by just these year-over-year drop in the non Walden Canter partners sort of coming to an end or is it we're going to see accounting on the real acceleration in Walden teacher business?

Yes. But there's couple of things. Actually what we see is over that rest of the remaining quarters, we're going to see significant growth in students and in revenues much higher than this first quarter. You may see that happening and you're going to see continue in decommissioning called by Walden -- excuse me -- about Canter partners. And I think I mentioned in March at our Investor day that particular now that we have 100% of Walden, we really want to, as quickly as possible, decommission those partners and put the emphasis on Walden because that's where we get the better bang for our investment.

And we really had more control.

And had a lot more control.

So I think the answer is both. I think its accelerating enrollments for the first quarter is really not that bigger quarter and it is to some extent the creeping up effect of Walden being a bigger percentage. Walden is growing faster than that number that we were reporting, the decommissioning is lesser and lesser effect and overtime, sort of average is out to that 30 to 40% enrollment growth for this year for Online.

Okay. So just to clarify, is it likely to accelerate few percentage points to quarter or do we sort of move to a higher level on the second quarter and then sustain that? Can you give us any color?

You give me by on Wednesday or Thursday?

Well I think, to get to that 30 to 40% growth by the end of the year, and it's quite clear that we are going to have to have some significant growth in Q2 and Q3.

I think would rather give it, let's give a total for the year and at this point everything we see tells us we're on track to make that happen.

Okay. And just following-up on that in the profitability of this division, it was down, actually was very good this quarter but of a small basis, you point out in your guidance for next quarter is down some 100 basis points versus where it was last year. Is that a reasonable expectation that as you average it out year-over-year, you can maintain something close to the 15.6% reported in '04 or due to the investments accelerating, so we're likely going to see margins actually down year-over-year on the Online business?

We will absolutely be on track. For that 15% if you recall, we said that we're going to make a major investment and that investments are really beginning to hit in Q2 that's why you seen that drop for that particular quarter.

And those investments are -- can too make various in branding, which we're starting to get to the cost in Q2. And also, we have the launch of a number of new programs in September that had to be supported with marketing and additional efforts up front. What's different about that than last year is that last year's new programs were really in K-12 teacher markets. We didn't own 100% of Walden, we did on our program the K-12 teacher market. It didn't take as much in terms of marketing dollars to get those programs launched. We're now into a new vertical aggressively and so we're seeing more startups out front in the six to nine months before you're going to get your monuments launch for September to back out the year.

I will just add while we're not ready to get lots of detail about what goes into that '06 estimate, we worked very hard before we released that estimates and there is important margin expansion in Online expected for next year that is part of what's allowing us to be bullish at a very early stage this year for the '06 projections.

Okay, great. And just one last big picture one. Historically, we heard you guys talk lot about our balanced portfolio and on occasion you've said that Online America to be more than 50% of the business. Obviously with the strong growth there, I guess just wondering if you have any updated thoughts in terms of current comfort level or plan as we look forward?

Well I think Raph, maybe you can just comment a little bit on some of the thought we have about European growth and also the increasing opportunities that we're seeing in the Asian markets.

Yes. I don't believe we have set a goal of 50%. And what you mention is the way the business and the opportunities have come along.

I said 50% developing market.

Clearly, overtime we see the opportunities pending out as Doug recently, we were in China. We were impressed by the opportunities that are now emerging down. Separately in Europe, we have a very strong pipeline of acquisitions and of campus expansion that we believe we can put in place in the next few years.

So when you balance the opportunities we have in Asia and Europe, and several countries in Europe as we mentioned recently yesterday and growth in North America, overall that we do see a trend towards 55/45 perhaps in the next few years 50/50. However, we got to take opportunities when we can.

So rather than set a goal strictly as you might have thought, we have got to take the opportunities where we can. And opportunities are differently emerging in Europe and Asia and complement most by a high growth in Walden.

Gary, its Sean. Just some additional color on that, I think that 50% is certainly our self-imposed limit, but we have always said that we're comfortable being temporarily out of balance based on the growth in a particular region, provided we look at our pipeline and can evaluate our opportunity to rebound that portfolio within a relatively short period of time.

And so I think we are diligently following that approach and to your comfortable that we're going to continue to invest in Latin America as it is growing because that is the right thing to do right now, but it will allow us given our pipeline to get back to that of course to 50% over time.

I think the other thing that we do and certainly that our board looks at is everything is really return driven and risk handicapped. So at a certain point, if we wanted to, if we saw results and returns warranting a bigger and bigger percentage in any region, if the returns warranted that we would do it. But we sort of handicap that by raising the bar, on what kind of returns have required.

So for example, Brazil, the market that I think, we think it's going to be a fantastic market for us. We studied it for debt. We have both time people in that market for over four years and we are ready to go. Sometime in the next year we'll be there. The reason we are ready to go is the returns we expect to get will be really superior than it's anything else that we're seeing in the Company and they should be because on risk projected basis that's the way, we should see it.

On the other hand, I think we're very surprised and excited about how we see Asia sort of finally coming to a state of readiness. And I think that and the Online division are likely to be the sort of principal leaders in ensuring that balance that Sean and Raph and I were talking about.

Okay guys. That's helpful color. Thanks a lot.

Thank you.

Next we'll hear Collin McCue at CSFB.

Hi guys. This is actually Christopher. Just a couple of questions. Can you give a little more commentary on what you're seeing as far as lead flaws on conversion rates in the Online business and then same question for Mexico and Chile in particular?

Paula you want to comment.

I would just say that we are right on track for what we expect it to be receiving in terms of total leads coming in on for our programs. And that we are investing in additional enrollment advisors, we have that piece growing and reducing our span of control around increase. And so we are right on track for that investment for the way conversions are going. So we're pleased with that process.

I think, Chris in terms of Chile, given that the campaign is almost over, I think, the leading indicator aspect of those numbers make them a little bit less relevant.

I think so too. As we move towards the principal intake in Mexico and in the Mexican region, we see a lot of opportunities this year, primarily because we are visiting many, many more high school then we have in prior years. One of the great things about our business is, we know where I students live and we know where they are. And, so we can accelerate those programs and the needs with the directors of those various high schools that offer us the potential to build our first year student intake. So we're doing more of that more activity, but we're not belong in that process, just yet for the August quarter.

I think that's if a lead flow in Mexico, for you guys, it would be too early to be relevant and week full in Chile would have just conversed with enrollment growth rates because it's almost done.

Okay. And one other question, modeling question if you could talk about how do you think about minority interest in '05 and '06 and maybe review the ownership percentage in by region will be helpful?

Yes. Gary, it's Sean. Our guidance is for 2005, we expect minority interest to be about 17% to 18% of our EBIT. And there is some seasonality to that based on quarters. But now that we've bought back some of our minority shareholders, in particular involve in UEM, the lion's share of our minority states are in Latin America.

And I think, we now issue guidance by region and you can I think, hopefully, model by quarter now by using a 20% of the Latin American EBIT to model out your minority interest for the year, which should gets you to the 17% we guided. But, I think, now that we've given you that additional color by region, it helps us to help you to model it more efficiently by quarter.

That's helpful, thanks a lot.

And, so basically, 20% in Latin America and nothing anything,

Nothing material.

As just a reminder, if you have any questions, please signal us by pressing "star" "one". We will move on to Avram Fisher.

Hi. Thanks for taking my call, just a quick follow-up. Particular, for your guiding in Latin American out margins is 26% to 27%, in Europe for 14% to 15%. Can you give us the comparables for '04, please?

We're taking a look at that right now. Obviously, this is the first time we've issued guidance that way, and I'm not sure, we have it of south and you have to bear with me.

Have you looking it for to grow or up and down?

In Margins?

Yes. From the Latin America and Europe.

Absolutely, we expect in Latin America margins to grow. In Europe, we have depressed margins that are probably, flat with the prior year as a results of these French acquisition I alluded to in the call.

When you said to grow, you're saying compared for the second quarter compared to the prior year?

Prior year, correct.

You're not talking about south quarters?

Right

We will work on that, while we are -- if you have another question and if there is another caller and that call out.

All right. That's it for now.

Thank you.

Thank you

Operator, we can probably take one more question here.

All right. We will then move on to Trace Urdan at Robert W. Baird.

Hi. Good morning, guys. Thank you. I wanted to go back to the cost and currency growth of 6% in Chile, if I could. Sean, last quarter you guys had to take some of the revenue from Chile and recognize it is interest income, is that also faster this quarter?

Yes. But modest, I think if it's maybe $250,000 from the first quarter of last year. So, it is a partial explanation but not meaningful enough. I mean, the key is the cutoff date on registration.

Okay. Given that timing shift, I guess there is not quite the clarity on revenue for student that we might like to have. And I just wondered if you could give us some qualitative comments on a mix shift in Chile and what you're seeing in terms of the revenue per student metric.

Well, I think, to Bill's earlier point, the largest percentage of our students remain the traditional university students. And while IF (ph) is a vocational school is growing, enrollment at a robust rate. Their revenue contribution at this point is relatively modest, such that it is not having a significant impact on mix.

So, I think, you are largely looking at your price per student comparable to what the UDLA and UNAB tuition rates per student per year are.

Okay. Fair enough, and then I guess that the related question would be with respect to Mexico in the mid year enrollment is that disproportionately adult enrollment?

For the secondary intake?

Secondary intake, thank you, I'm getting my terminology wrong.

The growth rate of adult is higher than on the traditional. Yes. But if coming to the tuition is the size is still small, the growth rates are higher there.

That's true. We continue to see very large undergraduates, that's the primary more than 50% of our new student enrollment in the secondary intake, for from the integration site. But we are seeing incredible as Raph, just said incredible growth rates in working adults and postgraduate.

Okay. From a smaller base.

From a much smaller base.

Okay. I understood, so it's not -- it's not correct to read that secondary intake as being all adults at a lower price point?

No. And actually the good news is, if is mostly traditional students then you have a good reason to believe that it will order something for the primary intake, which is mostly traditional students. So actually, our view is, if traditional student growth was weak and was all being made up by working adults, I think we would actually be a little bit more nervous. In fact, working adult is going to gain investors, as that will be the case every quarter but the traditional is off to a great start and that does make us feel confident that the large intake for traditional students is going to do well this year.

Okay. And then last question. I realize this is a small piece of your business but I'm just wondering, if there is any reason we should have any concern about the kind of political turmoil that is going on in Ecuador right now with respect to your business?

Bill, you want to comment on that?

Yes. I'm not sure (inaudible) that everybody knows exactly what happened, but the Congress to move the President this year and replaced him with the Vice-President who is somewhat by the name of all fatal for last year.

Some people would like that to happen here.

So, they replaced him with the cardiologists who is Vice President there. We have very little financial exposure and Ecuador, but we have very, very good business and we got very high margins we've done very, very well of business wise in good times and in bad. We are open today, our students are there at the University. We're not expecting adverse results.

Okay.

It's ironic that they've replaced him with a Vice President who is a cardiologists and we have a Vice President who needs a cardiologists.

Who needs a cardiologists. Thank you.

Thank you.

And we'll go back to Mark Marostica at Piper Jaffray.

Well, I didn't know you're going to up one more question. The question is implicit in your guidance, is what tax rate?

15% to 17%, consistent with the full year guidance.

For '05 and '06?

Yes

Okay. Great. Thanks. Thank you very much. Did we ever find that other information?

Is consistent with what we said, we expect margins and expansion in Latin America region and flat to down in Europe quarter-over-quarter.

Q2 '05 versus Q2 '04?

And largely as a result in Europe of the acquisition of France and revenue share.

Okay. Great. But hopefully that wraps up all the questions. We want to thank everyone for your time and intention. Enrollment quarters do tend to be more complex in terms of the press release and the call and expecting at the next quarter, which will be focused much more focused just on earnings should be simpler. So, thank you all very much for your time and attention and we look forward see and hear from you throughout the year.

That concludes today's quarterly call. Again thank you all very much for joining us today. Have a good day.