Laureate Education Inc (LAUR) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to the Laureate Education second quarter 2005 earning results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations and Corporate Communications, Mr. Chris Symanoskie. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and welcome to Laureate Education’s second quarter 2005 earnings release conference call and webcast. Before we begin, please note that this call may include information that could constitute forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements may involve 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 different 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 as detailed from time to time in the Company’s filings with the SEC, including, but not limited to, our most recent Forms 10K and 10Q available for viewing on our website.

This morning, our speakers are Douglas Becker, Chairman and Chief Executive Officer of Laureate Education, Sean Creamer, Senior Vice President and Chief Financial Officer. Also available for questions today are Raph Appadoo, President, Paula Singer, President of Laureate Online Education, and Bill Dennis, President of Latin American Operations. Now at this time, I’d like to turn control of the call over to Douglas Becker.

Thanks very much, Chris. I’m very pleased with the continued momentum in our business, and this is demonstrated by the total student enrollment growth rate that we’ve reported of 32%. That drove a 38% growth in revenue and a 52% growth in operating income. All of these numbers and all of the underlying information which is available to us gives us great confidence that we will deliver the full year guidance of $1.62 to $1.67, which we’ve reiterated today. I know there are some questions about Q3 and Sean is going to go into that in great detail as we put out guidance for the first time on Q3. We feel completely confident that our Q3 number is on track with our normal seasonality, except for the way that seasonality is impacted by the acquisitions that we’ve done. So, I’m sure everybody will listen carefully when Sean describes that.

As tremendous as our growth has been, and continues to be, the long-term opportunities for our business seem to have actually accelerated from this time last year. In the campus-based division, we’re seeing more opportunities for new campuses and new programs within existing countries, and tremendous opportunities for us to take this proven business model that we’ve developed to new countries. Brazil and China continue to lead the pack as the largest and most attractive markets for us. But we see many opportunities in other large countries, and also in smaller countries that are adjacent to existing operations or are in key strategic locations. Even India is showing better conditions than a few years ago in terms of regulatory outlook and the quality of our acquisition prospects, I’m surprised to say.

We’re investing heavily to ensure that we can take advantage of these opportunities, and our tremendous head start on the market around the world. This includes significant increases in senior management at the country and regional level, and I’m very pleased with the quality of executives that we’re attracting. As an example, we recently hired a Chief Executive and a Chief Operating Officer and a number of other positions for our business in France. We’re working solid in several extremely promising businesses that we’ve acquired over the past year. Building out an entire country headquarters operation for France is very expensive and depresses our margins, but it will pay off handsomely over the next several years. There are important management additions of this type or magnitude taking place in every country where we operate, or where we intend to operate, over the next several years.

Another major investment for us is the opening of new campuses in existing countries. Last year, we opened 4 new campuses in Mexico and Central America, after starting the year with plans for 2 to 3. This year, we also started the year with plans for 2 to 3, but are on track to open between 4 and 6 new campuses either built or acquired. This includes Hermosillo, in the northwest of Mexico, Tordeon in the northeast of Mexico, and 2 campuses in Honduras, none all of which of these are yet reflected in our campus count or our student count. So that will be updated in the next quarter.

Elsewhere in Latin America, we added a third campus in Lima, on the vocational/technical arena, and we’re building a new, larger campus in Ecuador to replace our current campus, which is at full capacity. These campus additions are exciting, but in the case of Mexico, where we’ve identified 24 cities that we need to be in, they will still only bring us to 11 of those 24 cities, so we’ve got a lot of work to do to really get that full national platform and have Mexico deliver the full scale that we know it’s capable of.

Investments in campuses are just one part of the range of investments we’re making. Investments in new programs are another important part of our growth strategy. Staying with Mexico for a minute, we’ve opened 6 hospitality and tourism centers within UVM campuses, which offer the famous curriculum and materials of our Swiss Hotel Management School, Lyon. Even more ground-breaking is the new Walden UVM double degree program, which we’ve been working on for a long time and actually finally opened for enrollments. This allows UVM students to obtain a U.S. degree as a second credential above and beyond their Mexican degree. This is an amazing opportunity for our students, as they can complete the program in the same amount of time as an ordinary UVM degree, and for cost, it’s only 15 to 20% more. No one in Mexico can match this.

I should note that there’s quite a lot of investment and excitement within the campus based division related to health sciences. We’re finding that our medical schools in Mexico and Chile are engines of growth, bringing a lot of credibility and momentum to other health-related programs, such as dentistry, nursing, physical therapy, and veterinary medicine. As a result, you will see us making more investments to build out our health and medical programs in many key countries.

Moving to Laureate online, this division is responsible for the majority of our investments in new programs and a lot of staffing to support them. This includes a doctorate in education, EDD in administration, a masters in mental health counseling and an RN to MSN, Registered Nurse to our Masters in Nursing, all of which will be offered by the end of this year. These programs follow on to the success of related programs, such as the EDD in Teaching and Learning, and the MSN degrees which we launched last year in which 1,000 students are already enrolled. We’re also investing in the infrastructure of our online division and this is infrastructure-specific. We just opened a major new operation center in Phoenix, Arizona. This will allow us to double our enrollment advisor base during 2005.

Many of these investments are not needed to allow us to achieve our goals in 2006, even, but are intended to allow us to sustain or increase our rate of growth for many years to come. These investments actually depress our results in 2005, especially in the first 3 quarters. The fact that we can increase our margins for the year, in the face of all these investments, is incredibly gratifying, and augers well for better margin expansion next year.

Now, I’m going to turn the call over to Sean for some more information about the quarter end guidance and then I’ll make a few final comments.

Great. Thanks, Doug. I’m pleased to report another strong quarter from both an operational and a financial perspective in the second quarter, which is, as you know, the second seasonally strongest quarter based on our business. I’ll first walk through the financial results, and then I’d like to spend a few minutes discussing today’s news about my planned departure.

For the quarter, the Company generated revenues from continuing ops of $218 million for the quarter, which represents a 38% increase over the same quarter last year. Year-to-date revenues also increased 38% over the prior year. Topline growth was driven primarily by the reported year-over-year total enrollment increase of 32%. Operating income increased 52%, quarter-over-quarter, and 51% year-to-date versus last year.

In addition, we reported fully diluted earnings per share from continuing ops of $0.43 in the quarter, in line with our previously issued guidance of $0.42 to $0.44. Bear in mind that our second quarter results in 2004 included a net benefit of approximately $0.13 from continuing ops, primarily related to the early repayment last year of the seller notes held in connection with our 2003 sale of the K12 business. Excluding this, the impact of this net non-recurring benefit, the second quarter of ‘04’s EPS from continuing ops as reported last year, was $0.37.

In addition, as I noted last year, the second quarter recurring results benefited to the tune of $0.03 to $0.04 from an unusually low tax rate in the quarter. It was approximately 9% in the second quarter of last year, versus this year’s -- this quarter’s rate of approximately 14 to 15%, as our most profitable businesses during that quarter last year were in our lowest tax rate jurisdiction. This year’s online solid growth in our highest tax rate jurisdiction was in the U.S., somewhat mutes that impact this year and reflects a tax rate more comparable to our expected full-year rate. So on a tax rate adjusted basis, EPS from continuing operations increased in the quarter by more than 25%.

Before moving on to the divisional level detail, as Doug mentioned, I want to spend a few minutes up front talking about the third quarter guidance issued today to clear up any questions folks might have on that up front. First and foremost, today, we are reiterating, as Doug said, our previously upwardly revised full year 2005 EPS guidance of $1.62 to $1.67. We are also introducing, for the first time, EPS guidance for the third quarter of $0.21 to $0.23. Bear in mind that during the third quarter, all of our campus locations in the northern hemisphere are on summer break for some portion of the quarter. Obviously, that would -- except our Universities in the Andean region. It appears to be on guided consensus for the quarter’s $0.33, which would imply a 74% increase in EPS versus the third quarter ’04 EPS of $0.19, which does not correlate for the seasonality patterns or the enrollment trends in our business.

A more reasonable expectation consistent with last year would have been that the third quarter would represent between 15 and 16% of our full-year EPS, or $0.24 to $0.25. However, our acquisition in France, and increased ownership in Spain, resulted in roughly $0.04 moving from the third quarter to the fourth quarter this year. Specifically, this year we’re going to report losses from our new French University during their summer session that we did not have last year.

Similarly, the increased ownership stake in UEM in Spain this year means that we’re picking up 100% of the losses they generate during their summer session versus only 78% last year. Slightly offsetting us on the positive would be the profits reported in Peru, a southern hemisphere school, which we did not own and [inaudible] last year.

But as I mentioned, the net decrease as a result of these changes is approximately $0.04. Adjusting this impact out, the quarter-over-quarter increase in EPS would be 25+% and in line with our full year guidance. The negative $0.04 impact in the third quarter obviously moves to the positive impact in our fourth quarter where the profits from these acquisitions will be reported. We are confident in our full year guidance of $1.62 to $1.67, and reiterate the fact that we historically generate 50+% of our EPS in the fourth quarter, and we expect it to be the case again this year. I’ll refer you to the release for the details of divisional level guidance information.

Now returning to 2Q results for ’05, I’d like to give a little bit more divisional color. Campus based business revenues grew 39% over the last year to $172 million. While some of this growth came from acquisition, we are pleased to report continued strong organic revenue growth from our existing businesses. Specifically, if you exclude the impact of acquisitions in the last 12 months, revenues grew 17% on a quarter-over-quarter basis. This organic revenue growth was driven through a combination of solid enrollment growth and pricing increases, offset modestly by product mix, as some of our more moderately priced working adult vocational offerings continue to grow.

Regionally, our Latin American universities increased revenues 43% quarter-over-quarter, and 39% year-to-date, while our European institutions grew 31% for the quarter and 34% for the 6 months ended June 30th. The reported quarter results for campus based business reflected 38% increase in operating income. Margins, as expected, were virtually flat for the quarter and slightly down year-to-date, as the addition of our 2004 acquisitions in France have added a healthy revenue contribution with low margins while we filled out our working adult platform in France.

In the online side, revenues for the quarter increased 32% over the same quarter last year to $46 million, that growth driven primarily by a 34% increase in new online students. Underlying this growth was a 53% increase in total Walden students, offset by a 20% decrease in total students at Cantor for non-Walden universities.

Walden’s new students increased 58%, while new students at Cantor from non-Walden partners decreased 40%, again, as expected, as planned. The solid improvement in both new and total student enrollment reflects the diminishing impact of the Cantor transition and puts us on target for our full year guidance of 30 to 40% total enrollment growth in online and 35 to 45% new student enrollment.

Again, in our release, we’ve included a table summarizing our revenue growth by location in both U.S. dollar and local currency on a same-store basis. Mexico revenues -- Mexico region revenues were up 19% in U.S. dollars and 16% in local currency. This 16% understates the annual growth rate due to some timing issues, similar to those you may recall we had in the Andean region in the first quarter. We expect the Mexico region growth, excluding acquisitions, to be 21% or more for the full year. Andean region revenues were up 25% in U.S. dollars and 16% in local currency for the quarter. In Europe, revenues increased 4% in U.S.D. and were virtually flat in local currency.

Moving on quickly to some balance sheet items. Obviously, the Company remains in a continued, very strong cash position, with over $100 million in cash and approximately the same in corporate debt.

That concludes the financial remarks, but I did want to spend some time on my specific situation. The other news of the day, certainly from my perspective, with mixed emotions that I announced today that I’m leaving Laureate in the next several months. It has been a spectacular 9 years, half of those as the CFO with a great company. Those of you who have followed us for some time know, we’ve done a lot in those 9 years. I believe our boldest move, and the most significant driver of shareholder value, was our decision 2 years ago to divest of our K12 business and focus exclusively on higher education. I think few could argue that this was an incredibly successful decision and process, and I am proud, personally, to have played a role in it.

Obviously, our shift to a predominantly international higher education business has delivered on virtually all the things we promised -- a clear and compelling business model, accelerated growth and greater visibility. Unfortunately for me, it’s also resulted in a significant increase in travel and time out of the country. In my personal situation, with 3 growing children and an already extensive daily commute to Baltimore, is such that I’m looking for less international travel, just at the time when the Company needs me to travel even more.

You should know this didn’t happen overnight, and Doug and I have often discussed how we might be able to address the issue, including other roles for me within the Company. However, as is often the case, opportunities sometimes present themselves rather unexpectedly. Recently, I was contacted regarding the CFO role with a prestigious public company, located close to my home, and with significantly less travel requirements. I have been presented an offer and am in the advanced stages of discussion. I literally would be going from a company with 80% of its operations outside the U.S. to a company that has virtually all of its operations in the U.S. While we are making the announcement today regarding my departure, I am not going anywhere immediately.

I have offered, and the Company has agreed, that I will stay on as we conduct our search for my successor to provide the necessary transition. The company that has extended the offer has a long-time CFO who recently announced his retirement at the end of the year. As a result, this unique opportunity would afford me the chance to ensure that the type of smooth transition that both companies are seeking without any urge or need on either end. I am sure I will speak with many of you, likely many times before I leave, but I would like to take the time now to thank you for your past support of the Company, and me personally.

We are well positioned for continued success, and I feel great about the condition of the Company as I step down and hand the reins over. I am confident we will be successful in identifying an ideal candidate who will bring new ideas and energy to the Company. Investors hearing of a CFO departure in today’s environment often worry that there is some underlying reason related to the health of the Company, its prospects, or the quality of its numbers. Rest assured that is not the case here. I’m leaving a great Company in great shape to join another great company, and hopefully contribute to their continued success. With that, Doug, I’ll turn it back to you for your closing remarks.

Thanks, Sean. I don’t want to miss the opportunity to thank you publicly for the incredible job that you’ve done for our company over the past 9 years. You’ve got a great team, actually, many of whom are in the room with us now, and great systems, which put us on very solid footing going forward. I especially appreciate your commitment to remain on board for the next several months, and I know that will ensure a smooth transition.

As our press release indicated, we have launched a search for a new CFO. Investors have complimented us many times on the depth and experience of our senior management team. We have a lot of experience in bringing on very senior people from large organizations, who know what it is going to take to grow our Company with lots of discipline and controls. I am sure we can bring on a very impressive new CFO who will continue Sean’s efforts to ready our Company to be a multi-billion dollar global enterprise. And with that, I would like to turn the call over to questions and answers.

Thank you. The question and answer session will be conducted electronically. [Operator Instructions]. And our first question will come from Mark Marostica of Piper Jaffray.

Hey, thank you, and good morning.

Good morning, Mark.

First question is related to the Q3 guidance, no surprise there. Bricks and mortar margins of 12 to 13% are well below the 17% figure I’d recorded year-over-year, and you may want to verify that for me. But I am just wondering, given your comments on seasonality, it still appears that that is rather low on the year-over-year compare basis. Can you maybe just comment on that?

Well, I think the addition of the French universities that lose money, that weren’t there last year, is really the explanation. I think a smaller component, but still a real component, is that as these businesses grow, the fixed cost structure expands as well, and we don’t recognize the revenues on these students while they’re out of session. But that combination, for us, was no surprise that that would be the outcome in the third quarter. Obviously, next year if we anniversary on the third quarter without any new European acquisitions, you won’t have that same phenomenon. But that is obviously the reason for that this year.

And then looking to Q4, with the reiteration of the full-year guidance, implying $0.91 to $0.94 of EPS in the quarter, I’m wondering, and I haven’t had an opportunity to do the math, but what operating margin, consolidated operating margin, does that imply for the fourth quarter?

We did not issue the fourth quarter, I think, on a full-year basis. We issued guidance for campus based of 19 to 20% margin, and online of 15 to 16% and that is implicit in the reiterated full-year guidance we have.

Okay. Moving on to another set of questions here. Regarding the guidance, again, you mentioned fiscal ’05 guidance. Are you also reiterating fiscal ’06 guidance of $2.00 to $2.10 today?

Absolutely.

Yes, we are.

Okay. And then, I just want to ask one other question on acquisitions. I’ll turn it over. You talked in the past about Brazil and China being somewhat imminent on the acquisition front. Can you give us a sense for what you are thinking about in terms of timing, particularly in those 2 regions?

Sure. I think the key is that we have green-lighted those countries. In other words, after years of research and study on the regulatory environment, and meetings with government and satisfying ourselves that the business model that we have will work in that country, we said we are ready to go. Now, what that means is we have an M&A team with a list of vetted acquisitions that were -- or prospects that we’re interested in buying at a price, a clearing price, that we’re willing to pay for them. There is no guarantee that we can deliver any of those acquisitions at the clearing price, although the fact that we are talking about it says that we think it is pretty likely. And that also means that we think that there will be multiple prospects in each country, so that we are not really dependent on one person saying yes or no to make that happen.

I think we would be incredibly confident that we will have a significant platform in either Brazil or China sometime next year. I think there is a pretty good chance that we will have a great platform in both Brazil and China next year. And then I’d say there is some chance that we could end up with a platform in one of those countries this year. But I don’t think there is any chance that we will have 2 this year. So that is about as precise as I can probably be.

I will tell you that one of the huge dividends that we are finding from being in this business for so many years, is that some of our acquisition prospects are people that we have literally known and been talking to for 5 or 6 years or even longer. And when these people finally decide that they’re ready for a partner, invariably they use the same words, which are in essence, “Laureate, you’ve earned the right to be first at the table with us.” It is really gratifying because it is something you can’t seen on our balance sheet, but the most quality acquisition prospects we could ever make, really, I think invariably, they wouldn’t even think twice as to who they’d most like to want to work with.

And so at this point, there is a lot of discussion and work and activity, and I think we feel extremely bullish. And we are hiring in advance, because we just can’t afford -- it would be more important to us to have a team in place even if we need another year to acquire a platform, than to go the other way around, and that’s a lot of why I talk about investments, because we’ve got full management teams in countries where we don’t have any revenues at all.

Thanks, and I will turn it over.

Thank you.

We will hear next from Howard Block of Banc of America Securities.

Hi, Howard.

Good morning. Sean, I didn’t know if you wanted to take this opportunity, maybe, to break a little bit from protocol and offer a little bit of guidance on the fourth quarter, because what is going to happen today later in the day is we are all going to revise our fourth quarter estimates substantially, and it may end up setting us up for a little bit of a more variance than you prefer when you give fourth quarter guidance in a few months.

Well, I think part of it is just math. We’ve got full year guidance that we’ve issued out there, and now 2 quarters of actual and 1 quarter of guidance. It falls out, by definition, given what has actually occurred and what we have already issued our guidance.

Okay. Well, there is some math between the top line and the operating line that might not be in sync with what you would like to imply.

Okay. I think the hesitation is we tend to issue our guidance on the revenue in the quarter -- in advance of the quarter, because currency is something that we cannot control. So we want to wait until there is a little bit more visibility, and that’s the reason why we don’t do it.

Okay. In terms of the campus enrollment growth, again, coming in certainly stronger than we had estimated, and it seems to be implying for the full year that growth will probably even come in ahead of the sort of your general, sort of 20-ish percent annual growth in campus enrollment. Is it sort of safe to say that the trajectory we have seen on campus enrollment for the first half of the year could continue for the full year?

I guess I would start by breaking out organic and acquisition, so that when we put our guidance out for the year, we never take in acquisitions at all. And as I recall, I think when we came out with our 18 to 20% enrollment growth, that was meant to be entirely organic. And it was -- and what we said was in essence, that should be about 15, 17% for the first half of the year, and then, Sean, what was it? I guess it was 19 or 20% for the back half of the year. So we came in on an organic basis, literally right down the middle of that. Then what is on top of that is there have been acquisitions that could not have been contemplated or just weren’t baked in when we did guidance, and I think that that does put us certainly ahead of plan.

In some cases, that’s enrollment growth in areas where we don’t have a lot of margins, like the French acquisitions. We know we can get those businesses up to our normal margins, but it is just going to take some time. And then there is a little bit of mix issue in there, Howard, where we do have some growth in some areas where price point can get a little bit lower, so working adult would be a good example where we are just doing great in working adult, literally from as far apart as Spain to Mexico to Chile. But it does bring average price point down. So it’s a big, overall moving situation. I guess the way I would net it out is to say we do think that we are ahead of plan with respect to enrollments, but it’s not so dramatic that we’re increasing guidance at this point.

Howard Block. Great, very helpful. In terms of acquisitions, Doug, it seems that at least in terms with what we read, there is a lot more activity out there with this company. I think it’s called Whitney University, with Randy Best and a couple others being more aggressive. Are you seeing a little bit more competition from some of the, I guess you could say, startups in this space and is that accelerating negotiations that you are a part of?

Not yet. I’m sure over time, it will happen. Over the years, I would say probably 5% of the prospects that we have talked to have spoken to anybody other than us. And that anybody could be private equity, local private equity, early stage or any of the names that everybody has heard of. And generally speaking, the only people we ever talk to who have spoken to the U.S. players that everybody on this call knows, would tend to be just a handful of the very, very biggest players out there, and in some cases, they don’t represent the value that we want. They already are big enough that we would rather buy somebody at a much lower price and turn them into the biggest player in the market, which is exactly what we have done in just about every country that we’ve entered.

So I have to say at the moment, I don’t see that as a factor at all. There is plenty of opportunity out there and very, very few people actually executing on it. I think that the talk versus action ratio, with respect to sort of everybody else in the space, continues to be very high and I think if you look at our track record in this case, I think you’d have to say it has probably been the other way around in our case.

Right. And just closing, Sean, you will be sorely missed. You’ve done a fabulous job.

Thank you very much, Howard.

Our next question will come from Matt Litfin of William Blair & Company.

Hi, good morning. Will finding a new CFO and bringing him up to speed on the various aspects of your business delay at all your entry into China and/or Brazil, and maybe the other question is, should it?

The question is finding a new CFO, does --

Whether that --

Yea. I don’t think so at all. I think our feeling is that as Sean got this inquiry and surfaced this over the past several weeks and we were discussing it, and he was trying to decide what he wanted to do with it, we were fortunate enough to be able to start discussions with a premiere recruiter. As a result, we’re literally meeting prospects as of tomorrow. I think that I feel very confident that we can secure somebody in the timeframe that Sean has agreed to, which is over the next couple months.

In terms of the strength of the rest of the Company, I think people that know our Company well know that there is a lot of financial talent, not only in the finance team, but in the operations team where a lot of our executives have in the past, themselves, been finance executives or CFOs. So I think at this point, I haven’t seen anything that we would feel the need to slow down on out of a concern about controls. And I think that the team that Sean has assembled is a great team and continuing and excited. So at the moment, I don’t think that would be the case. If anything changes, if we felt the search was going to take longer, or if other factors changed, I can tell you that control is more important to us than growth. We are just lucky enough that it doesn’t seem we have to trade the one off for the other right now.

Okay. Thanks, Doug. And, Sean, can you just give us the cash from ops and CapEx in the quarter?

Yes, it’s still obviously pending final for the issuance in the Q, but for the quarter, the current estimate of cash from operations is approximately $17 million and depreciation and amortization for the quarter was between 12 and $13 million.

Okay. And the CapEx?

CapEx for the quarter was in the neighborhood of $24 million -- excuse me, $34 million.

Okay. Thanks.

Our next question will come from Gary Bisbee of Lehman Brothers.

Hi, guys. Couple questions. Wondering if you would be able to give us from the third quarter of ’04, the operating margins for Europe and Latin America, just to help us put in context this guidance for the third quarter of ’05?

We won’t -- we’ll get it while we are sitting here and just answer it when -- I don’t have that information right in front of me, but we will get it.

Okay.

But when we started, Sean, breaking out by region, we didn’t do it retrospectively.

No. For the next quarter, obviously, we will show it.

We will, yes. Okay.

We can talk about it later.

We will get it.

All right. Moving on, I guess in terms of the Laureate online business, I had two questions. The first is that the revenues per enrollment growth or pricing mix shift, whatever it is, growth this quarter of around 2% was quite a bit below what the trend line has been the last 2 quarters. Is that something to do with mixed shift of Cantor versus Walden, or can you explain that?

Are you dividing, in essence, the revenues across the numbers of students?

Yes. It seems like it had been in the low teens the last few quarters, and my sense was that as Walden because a bigger piece, that was higher priced than the revenue you were getting from the Cantor partners in this quarter. Maybe it is just a timing issue, but it was a lot less. It appears to me, given the enrollment growth and the revenue guidance for next quarter, though, that we might see a similar level, and I guess I was just trying to figure out if there is anything going on there.

This is Paula. Just a couple of things -- as we watch new programs, those new programs -- I’m thinking of our nursing program -- had to go out with a little bit of a discount to encourage students to start and to be able to work with it. So there might be a little bit of that. I think it has more to do with probably our partners. I can tell you that 20% of our students remain at the doctoral level, so it’s really more of a timing issue than anything else.

We will look into it, Gary. I don’t think we’re aware of anything specific that would make us think that mix is any different than we thought it was going to be, but we will use the rest of the call to see if we can give you some more information on that.

Okay. And maybe just a better way to ask it is, there’s been no change in your pricing policies or anything like that? You’re not seeing price competition that’s led you to cut pricing or anything?

What we are really looking at, I think, there, as we launch new programs, we do go out with special pricing for those programs, and there have been a significant number of new programs that are out there and those will lift to the regular pricing. Usually we do the first couple of quarters that way.

Okay, great. In terms of -- you mentioned in France increasing the country level infrastructure. Can you give us a sense as to where else you are either doing that now or -- I realize it is somewhat a continuous process -- or other countries that you feel are going to need a substantial increase in infrastructure over the next 6 to 12 months?

It really is, as you say, sort of everywhere. And it is because we have a business plan for every country, and there is a lot of growth involved. We have many countries where they have a lot of geographic growth left. Mexico would be a good example. So they are needing to bring on management infrastructure to allow them to go to the other 13 cities that are left to go to that we are not in yet. We have a desire to have even more regional infrastructure and overhead, so that we can free up a lot of talent to focus on the Brazil market. So right now, the idea is to build more infrastructure for Mexico/Central America as a unit, and infrastructure for the Andean region as a unit, and to allow that to then take some of our people that are currently focused on those areas and refocus them on Brazil. We really -- we feel like we can accomplish some pretty amazing things in Brazil because of the management team that we have.

So that would be an area. A lot of investment in Asia we have got a number of full time people in Asia. And we are actually relocating some senior executives to the region because of what we perceive as accelerating opportunities there. So really kind of -- the answer is kind of everywhere. Interestingly enough, it is sometimes a little hard for us to guess who is going to end up hitting corporate G&A, and who is going to end up hitting country G&A, because sometimes we hire for a position and someone expresses a preference to be in the field as opposed to here. So we’re, I’d say, probably a little behind where we thought we’d be in terms of spending at the corporate level, and we’re definitely ahead of where we thought we’d be in terms of spending in the field, but it’s all -- it all nets out to where we thought we were going to be.

Okay, great. And then just one last one. You’re increasing infrastructure in France. Can you give us a sense what the revenue growth would have been there on a same-school basis, excluding the acquisition in the last -- second half of last year?

Well, the same store would have only been ESCE, which is the historic school we have, which iss a very small --

Very small.

8 or $9 million?

8 million Euro.

8 million Euro.

It’s only small.

Right. So we’ve gone from 8 to 40 million, and that business is growing. ESCE was growing in the sort of --

Low.

-- 10 percent range or -- ?

Yes, high .

So I think it is --

Single-digit growth [inaudible].

Yes, single-digit growth.

And I guess just on that last thing, any -- can you give us aany sense on how big you think the France opportunity is, if you're putting in several new people and trying to consolidate these businesses? Is it more just get that more profitable, or do you think there is a very sizable growth opportunity there?

I’m going to ask Raph to comment on that.

Maybe I should mention quickly that we have pretty much the same approach all over Europe. We believe in every single country that we move into in Europe, we need to build it and we can build it to over $100 million. Today we are at $40 million in France. We have plans enveloping the traditional market and in the working adult, which in our view, is the basis for growth in the future. In both these segments, we have plans to continue to grow funds and that’s the rationale for adding some very senior people who have joined us from AOL France to bring online capability and online experience, along with keeping some of the good education specialists that we already have. So we have plans all over Europe to take our business to at least $100 million over a time frame that is very [inaudible].

I would just say that I think France has some specific characteristics that make it very attractive, which obviously, everybody hears that there’s challenges with work rules and regulations and everything in lots of Europe. But in France, first, there’s 2 key characteristics. First, it is a much more fragmented market than most of the European markets where we operate, and a lot of small, private schools, especially in the area of business and engineering, exist in France. These are good schools with good names, but typically only 200 or 300 students.

So we see a tremendous opportunity for consolidation either through further acquisition or through taking share to actually have some scale benefit there. That is different from the rest of the European countries. Then the other this is that France has a very substantial requirement that employers pay for training and education for their employees, beyond what we find in any other European country. So those 2 characteristics would make us a lot more bullish and willing to invest pretty heavily on building France up to -- I think the team there would love to see this be a couple of hundred million dollar business, but obviously, that’s not overnight.

Okay, great. Thanks a lot.

Operator, next question, please.

We will hear next from [Trace Urban] of Robert W. Baird.

Hey, good morning. I wanted to extend Gary’s question a little bit, Sean, and maybe ask you to comment on -- more broadly on mixed shift or revenue per student trends, maybe by region internationally, what things are going on there, like growing adult education that could be, over time, as a trend line issue, affecting those metrics. And then, in particular, I was just curious as to what the impact on the amount of revenue you collect per student was from the dual UVM/Walden degree?

On the first part of the question, obviously, we keyed it up as a partial explanation for the constant currency growth rate versus enrollment trend. But really, we are not seeing significant impact from a mix perspective, although, we do know for a fact that vocational and working adult, we expect to be significant parts of our business as we go forth and they are at a lower price point. We don’t expect to see anything in the next 12 months is going to have a material effect, but we want to key it up that in the future, as those businesses continue to operate and form, it will have a more profound effect on the average price.

Okay. And at this point, though, the impact, the effect is most likely to be felt in Latin America versus Europe? Is that fair?

I think if you were to -- the problem is, you have to sort of net 2 factors. One is that we have got working adult growing, and that is lower price point. But the other is if we look at where our countries are growing, that we’re seeing Mexico, for example, growing at a faster rate than Chile and Mexico has a much higher price point than Chile. And I think that that, given the size of those 2 businesses in their core businesses, would be an overwhelmingly greater impact, and in this case, a positive impact.

Same with online.

And I was going to say, same thing with online. And we actually see -- we do believe -- part of the reason we are investing so much in Europe is that we do believe that over the next, let’s say, 18 months, that we will see Europe showing more growth in enrollment and in revenues. Obviously, that will take some time to trickle all the way down from revenues down through the income statement from enrollment through the income statement. But obviously, we have European products where we get 10 times as much as we get for one of our Latin American. Now, what would offset that, that is sort of hard to tell, is what the impact of, let’s say, Brazil and China would be. Brazil would have a price point that would probably be, let’s say, somewhere between Chile and Mexico. And China, it has a price point that would be lower.

They are not in any of our guidance right now, and I think until we see the pace that they are going to come in at, that it is hard to give you a fact. So I guess just at a high level, I would say I think of those as the 3 sort of trends and I would guess that the current trends in our business should be towards mixed as a positive. Then I would say in the long-term, I think mixed goes a little negative, probably more because of Asia than because of working adult. Does that help?

That’s exactly perfect and helpful. Thank you. I just back up everyone else, Sean, in terms of wishing you well. I’m glad you’re going to a public company, because that means that when we find out what it is, we can invest in it.

I appreciate that.

And we’ll move on to Mark Hughes of Suntrust Robinson Humphrey.

Thank you very much. Good morning. The foreign exchange is a little bit of a negative in 2Q. Would you anticipate a similar hit in 3Q?

We did recognize some loss in our non-operating for the quarter. We don’t expect in any quarter for it to be a material impact on our P&L results, and if I could predict currencies, I would have retired a long time ago.

That’s not the new job he is going to, with Greenspan.

But in all seriousness, if we expect the currencies are currently a tailwind rather than a headwind, and we don’t see anything other than some weakening in the Euro to have a profound effect, and right now the Euro’s impact on our overall business is decreasing in importance because of the growth in Latin American currencies.

Right. How about in online, could you talk about competition and marketing costs?

Paula?

Yes, competition. Well, I think that when you look at competition, the biggest competition is actually increasing from the traditional side of the equation and that is why we have been investing in brand, because we feel like it is very important to be well established as the premium brand within online. As you know, we made a number of investments in second quarter to enhance that. We are pleased with the way that has been working. Our awareness that we have been measuring has gone up significantly and we really believe that that investment is helping to keep our inquiry at the level that we expected and to help improve the conversion rates that we are going to need to make sure that we keep CPE in line.

Perfect. G&A was under control, let’s say, this quarter. Any particular issues there and is it stable?

I think when we say, “under control,” in many ways, we need to bring on people and sometimes G&A is affected because people we want to bring on come on faster than we expect or slower than we expect, so there is sort of a positive and a negative. The other, I think, overwhelming point there is that G&A, there are line items, but it really -- there is G&A everywhere. There is Mexico G&A. There is Mexico/Central America regional G&A. There is Latin America regional G&A. I think our point is that we do have probably a -- we should certainly expect to see G&A growing at a rate that would be higher than what you would have seen in the second quarter at the corporate G&A line item, but it is just a little bit hard to tell which line it is going to hit.

And just some additional color on that, obviously, as an international company, I think we’ve done a good job in taking talented people from corporate and dropping them in-country, which means that what might have been showing up as a corporate G&A item in one year, is showing up in the G&A at a local country. We expect that to continue. I don’t think it is going to have a material impact, but it does, I think, partially explain this quarter at the corporate G&A level, as well as the margin level in Latin America, where some of those costs are actually born in campus-based numbers instead of the corporate.

Very well. Thank you.

With Legg Mason, we will hear from Jerry Herman.

Thanks. Good morning, everybody. Couple of quick questions with regard to the acquisition student volume, would it be possible to break the acquired students among the various geographic regions?

I’m just trying to think. I think we can; we didn’t do it. If you look at the earnings table, it lists -- are you talking about enrollment, not -- ?

Enrollment. Right, Sean.

I think it is --

The 19,000.

Yes. [Audio interruption].

And at this time --

We are still pulling some information together here.

Okay. You want me to go to another one while you are doing that?

Please.

At your analyst meeting, you guys gave a seasonality table which indicated that the operating profit range for the third quarter is typically between 20 and 25%, and I am just wondering -- I am trying to think of the timing of the acquisitions. I thought they were all complete before that, and just trying to understand what changed.

Yes. I think it operated at that particular slide, an operating profit before G&A, which certainly doesn’t equate perfectly to net income, because I do know the minority interest line is a significant item that goes below the line. I think that in the future, that slide could be modified so that we show that the difference between operating income by quarter and net income by quarter.

Okay, great. And Doug, could you maybe comment on the prospects for lead generation into the seasonally important period? I guess we are just trying to understand the environment for lead and student generation, and maybe what are some of the positive and negative influences on achieving your targets for the important fall period?

Sure. First, I want to go back to your question about the students in the acquired number. It is a little more than 15,000 of the 19,000 that were listed out as acquisition -- a total from acquisitions, would be in Latin America, and a little over 3,000 would have been in Europe. Obviously, the ones in Europe carry a much higher price point, so that it would be more relevant from a revenue perspective.

I also want to make sure, Sean, that somebody is going to circle back before we get off the call, to those earlier questions.

If we can’t do it on the call, we will make the call back and try and put it together.

Right. But we also -- or make a release or whatever we have to do. Then your question is about color on lead, specific to online, or just across the board?

Just across the board heading into the obvious important intake here, and not only leads, but sort of the environment for conversions as well.

Right. I think most people know there is a pretty big difference in our business between the way the online business sources leads and converts them, which is to say, a lot of direct marketing and some internet to source lead, and then conversion through, in essence, enrollment advisors in call centers and then in the campus based division, much more than outbound, dedicated sales force calling on feeder schools that have historically set up students as they graduate from high school.

So it is a very, very different process. I guess the way I would describe it is that we are in the middle of our most important enrollment season. We obviously feel it’s not appropriate for us to comment specifically on how it is going. I think it would be fair to say that there aren’t any conditions that we are encountering that are any different that what we’ve experienced in the past or what we expected. So I think that is obviously a positive statement of fact. I’m not really sure how much more I can go into that, given that we are sort of halfway through at this point.

Okay, great. And then just one final question, sort of a follow-up to one earlier on online. The revenue guidance, at least the low end of it, would imply that is it below the enrollment increase that you just reported in online, and again, I guess the question is, the mix issue there, the pricing issue there.

Let me just continue. I’ve been thinking about the first question. I think there’s a couple of other areas that may be impacting that. I mentioned that our doctoral degrees are -- that we are really pleased that that is remaining strong at 20% of total students. However, one of the big growing portions of that is our EDDs. And our EDD is actually priced at somewhere between 30 and $40,000, rather than the 60 to 70 that the the Ph.D. is at. And that is close to 1,000 of our students at that level. I am sure that is having some impact.

We also have a -- I should add that we also have done some discounting around the bachelor’s degree where we have very little points of differentiation in the market and we now have got competition. Our competition is pretty strong there. And we are kind of -- we’ve come in later to that area, so there has been a little bit of discounting in that area to -- until we can put together a program that has a more differentiated product. So I think if you put new programs together with how we go out with some discounting to make sure we have got some strong momentum, the doctoral mix of EDD versus Ph.D. and the discounting that we are doing around that undergraduate, that is probably accounting for what you are seeing.

That is great. Thanks, guys. And best wishes, Sean.

Thank you very much.

And moving on to Bradon Dobell of Credit Suisse First Boston.

Hi, guys. And Sean, I would like to put in my comments as well. It’s been a fantastic job.

Thanks, Bradon.

A couple quick ones. You mention a little bit more focus on some of the health sciences programs. Maybe get a sense of how those are priced relative to the offerings you guys have, either -- current offerings you have in those schools or the other programs in those schools, get a sense of what the mix impact might be?

You know, I am so sorry. We were just trying to verify something on one of the questions that Gary did ask and Sean and I each thought that we were responding to your question. So I have got to be completely honest and embarrassed and to say, “Will you say that one more time, please?”

No problem. You mentioned that the health sciences area as an area of focus.

Oh.

Trying to get a sense of the pricing on those programs, either relative to current offerings you have in those schools, or relative to, in general, the offerings are down there to see what the mix impact might be as you get more aggressive in that area.

I think they’re pretty much always the most expensive products that we offer. I know in Latin America, Bill was saying it is about 25% more, typically, for health and I think medical, in particular, is probably even more than that.

Over 50%.

Probably 50% or more, greater than average tuition. I think in Spain it is very much the same case. So I think in everywhere, we are seeing that as a pretty premiere offering. And I guess the surprise to us is we have always known healthcare was good. In Spain, for example, it was one of our leading business units, would be health. But in Spain, we didn’t have a medical school and what we found that is so interesting, because I think we all came into it thinking really, medical school wouldn’t be -- would be more prestige, but not very lucrative. I think we found that while the margins are usually not as great in the medical school, there is huge spin-off effect on what it actually does to build momentum and credibility for the rest of your health offering.

So we are actually in the process of looking to add medical schools to many of our universities where we have a substantial health profile or where we think we could. So that is actually, again, I think an important, sort of finding over the past 6 months in the business.

Okay. Then switching gears a little bit, in Peru, you mentioned going and building a new, larger location. Maybe get a sense of how much bigger that location is, what kind of time frame we are looking at, and then if you could give us a sense of what kind of capital requirements you see for that location, that would be great.

Sure. That one where we are going to build a new campus is in Ecuador, which has been always operated as a branch operation from our Chilean business unit. Basically, they went into that market, which is not an investment-grade market, with very, very limited capital that they and we were comfortable with, and they took a great university that really has a premiere position in that country, and premiere pricing in that country. Bill, maybe can you just briefly comment roughly on the size and pricing in Ecuador and then just a comment on the size of the new campus?

Yes. Right now we have in excess of 2,500 students in Ecuador. We are housing them in 3 or 4 small buildings and we are pricing it between $4,000 and $4,500 a year. And we have very, very good margins in Ecuador, so very strong demand.

It’s about double what we charge in Chile.

Yes, very strong demand, a very strong demand for that product. This is the first time. We have just recently launched the Laureate name, because until we got our bearings there and got our footings in, we had not even launched the Laureate name until this year and we are very excited about that. We are seeing a very, very solid growth and progress right now in a campaign that is leading towards our principal campaign for the year. So we are going to build a new campus there. Ecuador is going very well.

In Peru, we also see the need to expand in Peru, because we are at about capacity in our existing facility for our traditional undergraduate programs, and therefore, we have been looking at land for the [hope], since late last year, and looking for an opportunity to expand that campus because there is such demand for that product. And then Doug mentioned that we’ve opened a new technical vocational offering in northern Lima, which is getting off to a very good start.

I guess the other point you asked about was investment level, and I think the investment level on the new campus, a larger campus, in Ecuador would be in the roughly $8 million range, all of which will be funded through the retained earnings that have been generated out of that business unit. They really have been very profitable and they’ve socked away enough money to pay for their campus in cash, basically.

Got it. Okay. And then one final one. As you look at the working adult market, and you’ve mentioned how strong it is going to be and the momentum you see there, if you get a sense of globally how it looks on an enrollment basis and percent of [inaudible], or some kind of metric there? Then a related question there would be do you have any sense for pricing sensitivity in that market? Do you have any room to close that gap between what the working adult tuitions are, versus the regular tuitions you charge in those markets in places like a Chile or a Spain?

Yes. I think in terms of general trends, I think it would be fair to say that working adult continues to be one of the real fast growers. It is still relatively small, the way we would define it. I would say that in Latin America, it is probably in the sort of 5% of total enrollment or a little bit more than -- not -- but basically, that 5 or 6% of total enrollment in Latin America. It is just that it is growing at a rate that would be greater than anything else, and I think that rate would, depending on the country, would range from, let’s say, 25% to 400%, depending on the country, but of course, from small numbers. So we never get fooled by big percentages on small numbers.

I think in terms of -- now, in Europe, for example, where working adult also equates to graduate studies, and I think that’s one of the sort of definitional issues here, is that there is graduate education and there’s working adult, and they aren’t always the same thing. In Europe where they usually are the same thing, you can get a very nice value, sort of on a per credit hour basis. You can charge a very nice amount of money, but again, they tend to take per -- they take fewer credits and they stay for a shorter period of time.

So I think it is a good rule of thumb to say that working adult students will be worth somewhere between 50 and 75% of an undergraduate student, and as we said before, it is still small enough that it just doesn’t seem that that will change the trend very much. Raph, did you want to add something?

However, Doug, I think we need to emphasize that while we, on a revenue basis, that is why. On a margin basis, it would not reflect that. On a margin basis, they use existing resources and therefore, the way we measure working adult performance is in contribution to fixed overheads that we are already sitting on. So on the one hand, the revenues or the price points are lower, but the margins are a lot, lot healthier than our normal business.

And I don’t think that we would anticipate that that gap is likely to close on the revenue side.

Sure.

I think it is just part of an overall long-term mix question that we always try to keep in mind as we are looking at where the business is going. At this point, I think we just don’t see that as being big enough to affect our overall mix per number of years.

Right.

Okay. Great. Thanks a lot.

We will take our next question from David Berliner of [Affleck] Partners.

Hi, good morning.

Hello.

The question may have been answered, but I’ll throw it back at you again anyway. I was just wondering if you had any insight into why the large disparity between what is going on in third quarter between what you were expecting all along and what the analysts are expecting? I followed your explanation of just the third quarter made up “X” percent of earnings last year, and if you apply that to this year, it is pretty straightforward math, but obviously, that was missed somewhere along the line, along the way. I am just wondering if you have any explanation for it? Is it as simple as the chart that you put out and people misunderstood it, or -- ?

I think we don’t fully know. The one thing I can certainly say we would take responsibility for is we probably could have gotten the word out on this earlier. I think we just had a lot of things going on, and it was just something that we didn’t have -- it is not -- it never, ever in our plans could we have done in the third quarter, under any circumstances, what the analysts thought we could do.

Right. I would think you’d see that coming, though, from months away, and maybe educate the analysts a little bit.

Well, first of all, keep in mind, we’re not allowed to educate the analysts any more and I have been doing this a long time. It used to be it would be easiest to just pick up the phone and you call them and help them walk through their models and in FD, that is not allowed.

Right.

What we would have had to do is we would have had to catch it at the first quarter earnings call. And then once we noticed it after that, the question is, is it worth putting out a separate press release on that or not? And I think by then, we were engaged in getting ready for a lot of other things related to this call.

Right.

I have got to say, we do take responsibility. We should have seen this coming, but it is important to say, there is no scenario in which that could have ever been right. I do think the chart may have been a little confusing, because we put out a chart that relates to pre-G&A. Of course we have operating income in our business growing a lot faster than EPS because we have some non-op stuff moving around, and I just understand that it is a little bit confusing. We should have gotten out there ahead of it. There is nothing about it in our mind that affects our ability to make Q4, and we are very confident about Q4.

Okay. That’s great. And my final question is, do you have any size constraints in terms of the acquisitions going forward, for instance, for China and Brazil? Is there a maximum deal size that you could -- that you probably wouldn’t buy anything that is more than “X” in revenues, or “X” amount in terms of purchase price?

I guess -- that’s a great question, and we spend a lot of time sort of thinking about what is the limit or the rate limit on our growth? In most companies, the limiter is market growth rate and competition. In some companies, the rate limiter is capital availability.

Um-hum.

In our company, the rate limiter is our ability to bring on management to allow us to take advantage of all these opportunities for which we have more than ample access to capital, and discipline. There are times when we could have gone ahead and done something in Brazil and we just weren’t ready. We thought it was too risky, either because of a regulatory framework at the time or because of our readiness and focus and attention. I would say at this point, we feel truly and hugely ready to make something happen in Brazil, if we can reach an attractive set of terms with one of our short-listed prospects, and that is always a question as to whether that happens.

I would say that our inclination is that we probably would not put more than $50 million of the Company’s equity capital to work in Brazil in an initial platform transaction. And then I’d say once we go in, we may decide that we are willing to put more capital in, based on how the market reacts and responds and what we see and learn in that market. Now, that doesn’t mean that we are going to do a $50 million deal. It may mean that we have a partner who is prepared to take back some paper or keep some equity, or it may mean that we never get there, that we do a smaller deal that doesn’t even come close to using that. And I also hope I can reserve the right -- this is a rough number, so if it is 50 or 55 or 45 or whatever, it is meant to kind of give you a sense of the neighborhood of what our appetite is.

And then in terms of China, I think in that case, the size limiter is more how big the prospects are to acquire. There are actually a number of fascinating prospects that we have known for years that we never really thought we could acquire because they didn’t have the accreditation that we wanted, and many of them have since got their accreditation upgraded by the government. Many of them have 10, 15, 20, 25,000 students, but they do tend to get a relatively low price point. Let’s call it in the 800 to $1,400 range per student, which is going up a lot, but that is where it is right now.

So you are talking about buying something with revenues that might be in the, let’s call it 10 to $25 million range, which means you are really not talking about spending that much money in the acquisition per se. The difference is that in Brazil, where I think at least initially, we would love to buy one platform and then grow over time, I think in China, our appetite to be a major player in that market for the long-term means that we are going in interested in doing multiple transactions from day one. And I think that is a little bit of a different orientation.

And I would tell you I don’t think that the Board or management would feel that there was a dollar limitation on China because the risk/reward. I mean Brazil, there is huge reward. There is reasonable risk. China, there is reasonable risk and there is just -- hard to even state the amount of opportunity. And so if the answer is, could we put $100 million to work in China, we’d be thrilled. We just don’t think that the size of transaction probably lets that happen in the short term.

And is there a next -- I hate to jump too far ahead, but is there a next country in line that is probably getting the closest look?

Well, yes and no. I think that we are always very interested in bolt-on opportunities, which would be typically adjacent and usually fairly small countries. We mentioned we opened 2 campuses through an acquisition in Honduras, for example, today, which literally can just be managed from the same infrastructure that is managing our Central American and Mexico/Central America region. So there are lots of those. And they are great, because we have a lot of confidence in the management teams that are already in place.

I would say we do keep our eye on India. It’s a market where some people know we tried to enter through a Greenfield a couple years ago, because we didn’t find any acquisition prospects that made sense and we felt the market was large enough that it was worth taking the risk of a Greenfield.

I think we can pretty much say categorically, we would not go back into that country through a Greenfield, but some of the acquisition prospects have actually gotten materially better than we would have thought. Again, we just can’t sneeze at the size of that market. If we really think that Mexico, just geographic expansion to cover the 24 cities we want to be in, should be a billion dollar a year business for us, just by getting the market share in the cities that we are not in to the level of the market share that we have in our core cities, then you say, okay, if Mexico is a billion dollar a year potential, people would laugh at us, if you correlated that to what our China or India could be. The numbers would be really, really big.

I got you.

The only other point I would make is there are lots of amazing countries that we have analyzed that at the moment, we are not prepared to put our capital into. There are other partners, joint venture partners, investors, that would, and that would include markets like Russia and Turkey and the Gulf states and lots of other places, and at this point, frankly, the main priority is Brazil and China, and that’s what we are focused on.

Great. Thanks for your thoughts on the topic.

Thank you. I think we do have time for one final question, Operator.

And our final question will come from Howard Block, Banc of America Securities.

Thanks for letting me circle back again. There are actually just a bunch of little maintenance questions, if I may. Doug, you mentioned I think earlier, I think you said put 24 cities in Mexico?

Um-hum.

Is that the same as when you add [inaudible] 20 markets, I believe? I mean, have you grown that number from 20 to 24?

We have added -- I think we’ve added 4 cities to that market.

Okay. So markets and cities are synonymous?

Yes. Now, in some cases, it is multiple campuses that we can open in a market, and just to give you a sense of it, that would range -- the smallest one on that list, which is a market we are already in, would be about a half a million population and the largest, which would be a market that we are not in, would be about 3 and a half million in population. So these are not small markets.

I’m sorry. Did you say that you are in 11 of them?

We are in 11 out of the 24.

Okay. And then in terms of Madrid, I think the K I was just looking at has 2 campuses, but I thought maybe you had 3.

We really have 2 tiny campuses in downtown Madrid, which are --

We have Marbaya, which --

Oh, right.

And then UEM has 2 campuses downtown that -- of which we only have one.

Yes. One of the things we are trying to do for consistency is decide when is a campus worth counting? So that small working adult outpost, should it be counted or not? So right now, we are counting Marbaya and Madrid, and not counting 2 small physical sites in downtown Madrid. I did also want to clarify, Howard, those 24 cities would be in addition to Mexico City, which -- that is the biggest city in the world. It counts for a lot of cities.

Okay. And then I don’t know if Raph wants to answer this or not, but there has been a bunch of -- a lot of press lately about how there will be fees being charged for students in Germany and Sweden, and I didn’t know if it had any -- if you guys saw that, and whether or not that may mean anything to your plans for Europe.

There are fees, and the first one is the UEM. The government had just trebled the amount, the fee that is charged to students, and this comes into effect in 2006, and there are other governments that now are looking at increasing fees. The UK has just -- has already passed a law and so on. We have projects in several of those European countries, including the UK. However, our priorities are among [inaudible] the UK, Netherlands, France and so on.

But I’d say relative priorities would be there really substantially lower than the efforts that we would put into, say, the Brazils or China of the world, for obvious reasons.

Okay. Great. Thanks a lot.

Thank you. I’m going to turn it back to Sean just to follow back on some of the questions that were asked earlier.

I just think the only open one was Gary’s question and I apologize for the delay. I bring every piece of paper in my office, but the one that has the information on it. So we tracked that down. To refresh people’s memories, the question was how would 3Q ‘04’s margins on a regional basis, compared to the guidance we issued for 3Q ’05 -- the 3Q ’05 guidance for Latin American margins was 24 to 25%, and the Europe is a negative 25. Those comparables would be -- it would imply modest margin decline year-over-year for the reasons we explained. The Latin American campuses are much -- have many more students at an increasing fixed cost base, but you don’t have the students there to generate the revenues, so there is anticipated margin decline.

And then in Europe, it is primarily the losses, additional losses, from the new French acquisition. And then on top of that, as we’ve spoken about all year, the campus based G&A number has grown through investments in people, so that year-over-year comparison would be negative as well.

And when we say margin decline, in the sort of few points range, it is not massive.

Yes.

Great. Well, thank you all very much for your patience, and we will look forward to speaking with you soon.

And that concludes today’s teleconference. Thank you for your participation, and have a great day.