Laureate Education Inc (LAUR) 2006 Q3 法說會逐字稿

Good day and welcome, everyone, to the Laureate Education third quarter 2006 earnings results conference call. Today's call is being recorded. And at this time for opening remarks and introductions, I'd like to turn the conference over to the Director of Investor Relations and Corporate Communications, Mr. Chris Symanoskie.

Thank you, operator. Good evening, everyone, and welcome to Laureate Education's third quarter 2006 conference call. Please note that a synchronous slide presentation is available for webcast participants and all presentation materials for today's call are available for download in the Investor Relations section of our website. Today's 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 differ materially from those described in the forward-looking statements. The following factors might cause 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-KA, and 10-Q, available for viewing on our website.

Our speakers this evening are Douglas Becker, Chairman and Chief Executive Officer of Laureate Education; Rosemarie Mecca, Executive Vice President and Chief Financial Officer; Bill Dennis, President of Latin America Operations; and also available for questions today are Raph Appadoo, President, and Paula Singer, President of Laureate Online. Now at this time, I would like to turn control of the call over to Douglas Becker. Doug?

Thanks, Chris. We're very pleased with our financial performance and our strong enrollment this quarter. This quarter results and the 9 months year-to-date position us well to achieve our full year goals for 2006. This quarter, Laureate's revenues increased 35% to over $260 million. And as you'll hear about from Rosemarie, that drove GAAP earnings of $0.19 per share. Excluding stock option expense, earnings would have been about $0.22, which is an increase of 29% over the same period last year.

We're executing successfully in the most critical areas of our 2006 plan and we're laying the foundation for 2007. We're encouraged by this recent enrollment season. We reported total enrollments that were in line with our expectations for our campus-based and online division. Laureate reported year-over-year new student enrollment growth of 24%, which allowed us to grow our total student population to over 240,000 students worldwide. That's an increase of 27%. It's important to note that we always provide you with enrollment performance with and without acquisitions, so that you can see the underlying performance of our business. 1 year after a university has been in our portfolio, we'll move its enrollment out of the acquired line item and into the base number.

Our northern hemisphere institutions have major intakes during this recently completed quarter. That's Europe, Mexico, and Central America. Our Southern hemisphere institutions have relatively small intakes this quarter, namely, Chile, Ecuador, and Peru. Laureate's campus-based enrollment increased 28%. That's 13% excluding acquisitions on a year-over-year basis. And our Online division grew total student enrollment by 20%.

We'll touch on this in just a few moments. Our growth in Latin America was led by solid performance in Mexico, and even faster growth in Central America. In a few minutes you'll hear more about our success in Mexico and the rest of Latin America from Bill Dennis, who's President of that region. Our universities in Europe enjoyed an 11% growth in new student enrollment, which drove an 8% increase in total student enrollment. This excludes Cyprus College, which is in the acquisition line. This improvement was led by our university in Spain, which is UEM, and our Les Roches and Glion hospitality schools in Switzerland.

Laureate Online which enjoys several major intakes annually, enrolled 10% more new students in the first 9 months of the year, driving a total enrollment increase of 20%. As we pointed out in last quarter's conference call, one of the intakes that occurred in the third quarter last year will fall in the fourth quarter this year, and that's October 30th. And that's part of why you're seeing new student enrollment dipping to such a low growth rate. New enrollment growth would have been about 15% had that intake occurred in Q3 as was the case last year.

Overall, our efforts to diversify our online marketing channels are proceeding on plan, which would result in better growth in new students in the fourth quarter. We do expect to meet our full year 2006 guidance of around a 20% increase in total online enrollment. A very strong number. I'd like to underscore that our online division is the absolute benchmark in the industry, with the lowest [inaudible] default rate, low bad debt and the best types of accreditation. Our online students are of a very high quality, typically more advanced in their careers than students who attend other online institutions.

We should note that online margins continue to improve for us. We are now expecting growth in online margins of approximately 300 basis points for the full year 2006. Our online division had tremendous success in targeting the right students and focusing on profitable programs. For example, Walden's PhD offerings increased 24% -- increased to 24% of our total enrollment. These programs are up to 6 years in length and represent an investment by students in tuition that could be as much as $60,000. Additionally our University of Liverpool programs finally moved into profitability, and we're very excited about their prospects in the future. All of these factors helped contribute to substantial margin improvement in this quarter.

Our international online growth is exciting. To date, 8% of our total student enrollment is based outside of United States, still a small percentage. We have a few hundred students at Walden, but over 2,000 at the University of Liverpool. This is expected to become an important driver of growth as the U.S. markets mature, and become more competitive. And Paula Singer is here, the head of that business unit for us, and will be available for questions later.

As you all know, in the third quarter we closed a series of transactions to acquire the remaining 20% minority interest in our businesses in Chile. This has allowed us to become more directly involved in the management of our Chilean institutions which we believe will yield better results in growth and efficiency over time. With the close, we've implemented a transition plan to add some seasoned Laureate executives to the existing talented management team in Chile. This is necessitated by the departure of some of our former partners in the UDLA organization in Chile.

All of our Chilean businesses fall under the outstanding leadership of Jorge Selume, who is the President of our Andean region, and UDLA itself is now led by German Ramirez, a long-standing Laureate executive, who was the architect of our highly successful strategy in the Central American countries of Costa Rica, Panama, and Honduras. We want to make sure that the departure of our former partners in Chile does not impact the all-important Chilean primary intake, which runs from January into April. And Jorge and German are extremely focused on preparations for that intake.

To support our growing international network, we've made some additional appointments to our management team. I want to highlight a few that are on the slide that is in front of you now. We're excited about the appointment of Jorge Brake as the President and CEO of our Mexico and Central American region. Jorge joins us from Proctor and Gamble, where he spent a 25-year career which culminated in his managing as the CEO of their Mexico and Central America business unit. Prior to that, and during his time at Proctor and Gamble, Jorge lived and worked in 6 different countries in Latin America.

We've also made a series of appointments in our finance department. These are important and very impressive additions that Rosemarie, our CFO, has been able to accomplish. This includes bringing on Gary Wojtaszek as our Senior Vice President and Treasurer. Gary comes to us from Agere Systems. And prior to Agere, he had 15 years of financial leadership and treasury planning and forecasting at General Motors and other major financial institutions.

Another person who came from General Motors is Cristina O'Naghten. She's our Vice President of Internal Audit for Laureate. And she comes to us with over 20 years of experience. Most recently as the audit services director for Latin America, Africa, and the Middle East for General Motors. And also we want to welcome Tony Viola, who is the Senior Vice President of Tax for us now. Mr. Viola was Vice President of Tax for for Sodexho, which is a $6.5 billion subsidiary of the Sodexho Alliance Corporation.

Now I'd like to turn to how this quarter's enrollment and performance to date supports our outlook. Enrollment growth, as I described, has been very strong and certainly on track with our plans. We continue to enjoy solid pricing power in many of our key markets. And as our existing campuses grow and achieve the necessary scale, we're seeing the improvements in profitability that we would have expected. As an example, this quarter, 5 campuses moved into our developing category.

So today we have 58 campuses. 25 of them which we would categorize as performing, meaning they have more than 20% margins, most of which are more than 4 years of age. And 25 of our campuses which are considered developing, which means that their margins are less than 20% and they're more than 2 years old. And we now have 8 categorized as new campuses, which means that they are less than 2 years old. As is clearly evident in this quarter's result, our Online division is on track for significant margin improvement. And these facts are the underpinnings of our full year 2006 EPS guidance. Because of all these factors, we are refining and essentially reiterating 2006 EPS outlook. And we are reiterating our 2007 outlook with an expectation of revenues for 2007 of about 1.275 to $1.375 billion, and GAAP earnings of $2.45 to $2.55 per share.

Moving to the next slide, adding new campuses and growing the ones we have is absolutely essential to our strategy. In Brazil, the preparations for the big intake of their year, which starts in late 2006 and runs into the beginning of 2007, are proceeding very well. We're implementing our normal step ladder Laureate approach as we've done in other countries in the past. And we expect to see the same strong results that we've achieved elsewhere.

We see Brazil as a key growth engine for the Company, to boost the otherwise maturing growth rates in our South American region. Because universities must obtain a license in each state within Brazil, we're focused on acquiring strong universities with existing licenses in key states throughout that country. This will add to the strong growth which we expect of our Anhembi Morumbi University, which is in Sao Paulo, the largest state in Brazil. We're continuing to put strong efforts and resources behind our China entry. And I know that many of you have a real interest in hearing more about that. We've worked very hard for many years on China. This is an effort that Raph Appadoo has been leading, and he'll be available for questions later, as well. And we feel the plans for China are proceeding well.

We will also look to enter 1 to 2 new countries in the next year. Perhaps another adjacent country in Latin America, where we can take advantage of the strong management teams that are available there. Or perhaps another part of the Mediterranean area in southern Europe, like Greece and Turkey, a strategy that we illustrated when we entered the Cyprus market. Worldwide, we'll launch new products, including study abroad and double degree programs, as we always do. We're finding our network programs to be very valuable and attractive to current and potential students. And most importantly, they're a great source of competitive differentiation.

We truly believe that by combining the right investments for the future with disciplined processes, we can provide consistent long-term growth. This will only work if we continue to build the strongest management team in the industry, consisting of experienced and dedicated professionals who care about our students and want to provide them with a solid preparation for their careers. And before I turn the call over to Bill Dennis, I do just want to say -- I want to extend a thanks of the whole management team to those new executives that I highlighted before, Jorge, Gary, Cristina, and Tony. And also congratulations to the important work that is being done by Jorge and German, which I mentioned in Chile. So, thanks to them.

And now, Bill Dennis, who heads our Latin America business will comment in more detail on the recent enrollment successes in Latin America. Bill?

Okay, thanks, Doug. I'll take just a few minutes here and talk about enrollment in Latin America. As Doug said, this is a very important quarter for us. As most of you know, Latin America has 2 major primary intakes each year. South America occurs during the March/April timeframe, and the Mexico region -- Mexico, Central America region, has its largest intake in the September/October period. Let me say that with respect to new students, this has been an excellent year for Latin America for new students. Including Brazil, we enrolled more than 82,000 new students, a growth of 28% over last year. In total, Latin America has about 190,000 students at this time. This represents an increase of 27% in total versus the same period for last year. We're very proud of this achievement.

Last April, we reported to you the results of our primary enrollment in South America. The South America region includes Chile, Ecuador, Peru, and Brazil. Having owned Brazil for less than 1 year, we report Brazil in the acquisitions category, or acquisitions line, and I will exclude it from the remainder of my comments here. Our traditional universities in South America, that is excluding our IF, our technical institute which I'll talk a little bit about later, have grown nearly 25,000 new students, or roughly 8% versus last year.

In total, we experienced an increase of about 13% to 63,000 students versus a year ago. This reflects a correction for last year's numbers to properly reflect attrition and graduations in 3 of our campuses in the Andean region. At IF, the technical institute, we continue to focus on near term profitability, and we're making good progress there. We've also been able to increase our total enrollment at IF to over 11,000 students, or about 4.7% higher than it was last year at this time. The biggest news in Latin America today is the enrollment results from the Mexico, Central America region. This year, we reached 44,436 new students, an increase of 25% over last year.

No other private university in the region has been able to achieve this level of new student intake. This very significant growth has occurred as a result of 1, our entry into new cities, 2, our success in the working adult program, 3, the addition of new campuses in existing markets, and fourth, the introduction of new study areas in our undergraduate and post graduate programs. Looking first at new markets this year, I think Doug mentioned we've opened 5 new campuses. 4 in Mexico, and 1in Panama. Over the past 3 years, this part of our growth strategy has allowed us to enter into 14 new markets. 14 new markets in 3 years. And going forward we see major opportunities in over 20 cities.

Today in the Mexican region, we have a total of 33 campuses. With respect to working adults in the Mexico, Central America region, that is students who are over the age of 25 and who have an average length of stay with us of about 3 years, we continue to experience very positive growth rates. Our executive programs now total 7,100 students in the Mexican region, reflecting a compounded annual growth rate of over 80% per year since we launched these programs 3 years ago. Some of our campuses have had such tremendous success with this program that they are dedicating specific buildings to working adults at this time, are constructing additional new facilities exclusively for the working adult program.

In summary, we're very pleased with our recruiting results this year. We have already launched our campaigns in Brazil and other parts of South America for the March/April intake, and we're very encouraged by the early results of these campaigns. Doug?

Rosemarie is going to continue.

Hello, everyone. I'm pleased to report the highlights for the quarter, which includes continued strong financial performance along with significant enrollment growth that you just heard Bill and Doug describe in both Mexico and Europe. As you know, this quarter is seasonally quiet, given that our European institutions and our largest university, UVM, are out of session for all or most of the quarter.

As a result, this quarter is our second lowest in earnings during the year. A brief reminder concerning the current revenue recognition methodology. As indicated in the last 2 conference calls, we voluntarily adopted a new weekly revenue recognition methodology on January 1, 2006. This has been reviewed and supported by our external auditors. We filed an 8-K-A on July 24th, in which you will find the 2005 and 2004 re-presented quarterly financials displayed at the segment level and at the operating profit level. Additional relevant information is available in the investor relations section of our website.

A few moments on the subject of EPS. The company achieved fully diluted earnings per share on income from continuing operations of $0.19 on 53.1 million shares outstanding. Excluding the negative one-time impact -- excluding the negative impact of FAS 123R, which is $0.03, earnings per share were $0.22, representing a 29% increase over the prior year EPS of $0.17. As Doug mentioned, we settled the remaining earnout payments and purchased the outstanding shares of our institutions in Chile. Included in the $0.19 EPS reported is a net negative charge of $0.02 for items associated with the Chilean buyout, including one-time severance payments, related interest expense and accretion for the quarter.

Some comments on revenue. For the third quarter, the Company generated revenues of $261 million, a 35% increase over the third quarter 2005 revenue. Organically, third quarter revenue increased 24%. Some color on campus-based results. Campus-based revenues grew 36% to $201 million from $148 million in the same period of 2005. These results have been positively impacted by a weighted average price increase of 4.3%, which has been slightly offset by a change in program mix. Both the Latin American and European segments continue to demonstrate strong revenue growth, organically and through acquisition.

On a quarter-over-quarter basis, Latin American revenues increased 35% to $169 million, and for the 9 months ending September 30th, 2006, revenues increased 42% to $483 million, which included a favorable impact of $12 million from the strengthening of the Chilean peso. On a year-over-year basis, Q3 revenue was unaffected by foreign currency in the quarter, as the strengthening of the Chilean peso was offset by a weakening Mexican peso. Organically, revenues grew 20% in the quarter and 22% year to date. The Brazil acquisition contributed $19 million in the quarter and $63 million for the 9 months.

Our European institutions grew revenue 41% to $32 million for the quarter, and 15% to $149 million for the 9 months ended September 30th, 2006. Revenue growth was strong in our hospitality business and in our university in Spain, UEM. A 23% quarterly increase in hospitality revenue was driven by a favorable increase in both price and program mix. On a year-over-year basis, revenue was favorably impacted by $1 million in foreign currency for the quarter, but unfavorably impacted by $5 million for the 9 months due to a weakening of the Euro and the Swiss Franc. Organically, revenues grew 34% in the quarter and 7% year to date. In local currency, organic European revenues grew 31% for the quarter and 10% for the 9 months.

Moving on to Online revenue. Online revenues grew 31% to $60 million in the quarter compared to the same quarter last year, and 28% for the 9 months of 2006. Key drivers were enrollment growth of 20% coupled with a weighted average price increase of 4.5%, slightly offset by program mix. This growth has been achieved with a continued emphasis on conversion, lead quality, and an increase in doctoral students to 24% of total students, versus 22% this time last year.

I'd like to add some color to Q3 operating profits. Q3 operating income was down $1.9 million on a quarter over quarter basis. I would like to call your attention to the impact of 3 events which contributed to the decrease in operating profits. For Latin America, these included a combined impact of $3.9 million for severance associated with the Chilean buyout and FAS 123R charges.

In Europe, these included the combined impact of $2.4 million for FAS 123R and the impact of the Cyprus acquisition. During the third quarter, Cyprus is out of session. Its losses of $2.3 million further accentuate the negative margins earned in Europe during the quarter. Excluding these 3 items and the additional FAS 123R charges of $1.3 million, underlying profit would be $21.1 million or a 37% increase over Q3 2005. For the 9 months ending September 30th, 2006, excluding impact of Chilean severance and FAS 123R charges, operating profit grew by 27% to $78.6 million over the same period last year.

Some additional details on margins. For Latin America, operating margins decreased quarter over quarter 23% to 18%. As a reminder, contributing to this decrease is the seasonal impact of our universities in Mexico and Brazil. Margins are impacted from the growth in our largest university, UVM. and the addition of our new university in Brazil, both of which are out of session for half of this quarter. Excluding the other items of significant impact, the Chilean severance payment and the Brazil acquisition, the margins for Latin America for the quarter would be 22%.

As stated in previous calls, the margins in Brazil are lower than the average for the rest of the Andean region. We are encouraged by our progress to date, and expect the Brazil margins to continue to expand in the future. For the 9 months ended September 30th, 2006, Latin American operating profit margin decreased from 21% to 18%. Excluding the 2 items I've just mentioned earlier, underlying margins would be 20% for the 9 months.

The operating margins in Europe reflect a loss in the third quarter, since most of our students are on summer break. The decline in this quarter's margin from negative 31% to negative 38% is mainly attributable to the acquisition of Cyprus College, which is also out of session during that period. Operating margins for the online business increased from 15% to 21%, or 530 basis points in the quarter, from a 10 to a 15% rate or 450 basis points in the 9 months, as a result of increasing enrollment in programs, prior investments in [brand]. Online margins continue to improve as a result of fixed cost leverage and mix. Full year margins are expected to improve by approximately 300 basis points in our online business.

Some comments on G&A and other items of note. Corporate G&A increased by $3 million to $11.2 million in Q3 as a result of increased compensation expense, including FAS 123R charges and associated with incremental staff and other performance-based compensation. Minority interest was down $1.3 million from the prior year due to the purchase of the remaining shares in our Chilean operations in the third quarter of this year. In the quarter, there are 3 components of non-operating items; interest income, interest expense, and foreign currency. The net impact of the non-operating items is $500,000. The corporate tax rate for the third quarter was 4.2%. The Company continues to estimate that the full year tax rate will be between 10 and 13%.

Some comments on the balance sheet. The balance sheet remains strong with over $2 billion in assets including cash and marketable securities of $174 million, and total Company debt of $464 million. For the year to date, cash flow from operations was $134 million, as reviewed by our external auditors. Depreciation and amortization expense was $46 million, capital expenditures were $143 million on a year to date basis.

I'd like to add some color on our current debt situation. During the third quarter, the Company secured a $250 million revolving credit, multi-currency facility that has a 5 year term, and a LIBOR-based interest rate. In the fourth quarter, the Company intends to increase the revolving credit facility to $350 million in total through the use of the $100 million accordion feature associated with this revolver. The additional available liquidity positions us to fund our long-term operating strategy of expanding existing locations, opening new campuses and entering new markets. On to the fourth quarter guidance and full year guidance. Based on 3 quarters of actual results and fourth quarter guidance, revenues for the full year are expected to be $1.10 billion to $1.135 billion or a 27% or greater increase over 2005.

Now turning to margins. Company margins are expected to be 13 to 14%, and they will be dampened by the following: Approximately 50 basis points for FAS 123R charges, 50 basis points for severance related to Chile and FAS 112 charges, and 100 points for additional costs, which include performance-based compensation. As described in the 2006 proxy, the Company has made significant progress in the implementation of performance-based compensation including restricted grants and long-term -- a long-term cash incentive plan. This plan was approved after initial 2000 guidance was communicated and has been implement for approximately the top 75 employees.

The plan requires the Company to achieve 3 years of growth in financial and other metrics. If and when the first year metrics are achieved, the appropriate costs will be reflected in the fourth quarter and the full year. Full year EPS is anticipated to be $1.99 to $2.06, including FAS 123R charges, or $2.11 to $2.16 excluding FAS 123R. As a reminder, this guidance includes a one-time $0.04 net gain recorded in the second quarter related to the continued liquidation of Venture's assets. As an additional note, our full year 2006 outlook, many of you are aware that we have implemented improvements to our tax staffing and planning. The Company will conclude an analysis related to G&A expense allocation before the end of 2006. With respect to 2007 guidance, enrollment from our largest intake in 2006 gives us continued confidence in the fundamentals of our 2007 guidance.

I want to emphasize our commitment to the 50 to 100 point basis point margin improvement, including performance-based compensation. In anticipation of your questions regarding the impact of the Chilean buyout on our 2007 results, and how that will impact seasonality, losses in the first quarter are estimated to be minus 2% to minus 4% of full year earnings, with most of that offset in the second quarter. For the full year, minority interest can be expected to be somewhere in the mid-teens as a percentage of campus-based operating profits. As has been typical in the past, the Company will provide detailed 2007 guidance in conjunction with our year end press release.

In summary, we are pleased with the third quarter and with the results on a year to date basis. We're hard at work to continue this in the fourth quarter, which is our financially strongest quarter of the year. I'll now turn the call back over to Chris.

At this time, we're going to take questions from the field. Operator, can you please start the Q&A session?

[OPERATOR INSTRUCTIONS] Trace Urdan, Signal Hill.

In trying to sort of get an understanding of what's happening in Mexico this quarter, if we assume that the private school market growth in Mexico is still 10%, that's a number you guys have put out, how would you assign the additional 25% in new student growth in terms of new campus openings, new openings in existing cities, and the new working adult student that's coming into the program? Could you break that part down?

When you say the market's growing at 10%, we've given some statistics that would show that across a pretty long period of time.

Okay.

But I think in general, certainly the private market is growing a lot faster than the overall market, because the private universities are taking share. And that's something that we see pretty much everywhere. But I think whether the private market is growing at 8% or 11%, your question is still a valid one. How are we growing faster than the rate of the market growth? Is that your question?

Essentially, yes.

Okay. And Bill Dennis is here, and maybe he can add to this. I think certainly entering new cities is a big part of it. We go into a city and we get a certain market share. But by definition, any other city where we're not operating, we don't have any share. So our ability to go into those cities and take share is an important part of growth. And I would guess probably the single biggest contributor to that divergence that you are asking about. Bill, do you want to comment on working adult or any of the other factors that allow us to grow faster than the market rate of growth?

Yes, Trace, the -- I guess I'd say a couple things very quickly here to add to Doug. One is on the working adult, of course that's a very different market altogether. So when we've given you growth rates in Mexico City for example, in the low single-digits, are growth rates outside of Mexico City and the higher double-digit rates, that's of course, excluding that segment of the market. That segment of the market, 25 years of age and older, is a huge opportunity for us. And we have a very much of a leading position there.

We were the first to introduce that program. And so it has grown very, very fast. And we have tried to expand it over the last 2.5 years to a number of campuses that we have in Mexico. So the working adult is moving very, very well for us. It is working so well that, in fact, we've had to dedicate certain facilities to it. But I would also come back and say in Central America we've had incredible growth. Now, offsetting that, that's a much lower per-student revenue amount.

As you know, that is not as high. We've shared that with you at investor day. That's not as high as what we typically get in Mexico itself, throughout Mexico. But the numbers of students there are quite substantial. We have opened working adult facilities in downtown San Jose, Costa Rica, and also in Panama City downtown. Special facilities just dedicated to that, and post graduate. And I would say that's the main reason for our growth.

But I just want to add - I think Bill made a very important point. We give an aggregate regional number. And in that number, you have Mexico and the rest of Central America. And we are seeing strong growth in the rest of Central America. It does have some modestly negative mix implications, but obviously very positive growth -- overall growth implications for the Company.

Okay, thanks. Let me shift gears just briefly, if I could. Doug, if we were to speak to a seller of a school in China, what would they describe as the biggest obstacle to completing a deal with Laureate? And what are you guys doing to address that presumptive challenge?

I assume you mean through a translator, Trace?

Yes.

Okay. I'd say the number 1 obstacle is probably something they wouldn't explain to you, which is something we find everywhere in the world. Which is that the people who own the best private schools never want to sell. And once we've done our analysis of who we think are the most promising future platforms for growth, those are not troubled assets. Those are really solid gems that we think that we can polish and expand. So really the first part of our efforts, Raph and I have spent a lot of time on this, have been to identify and select and create filters and screens.

Because there are 600 private colleges in China, and many, many of them would be, we think, the wrong choice in entering that market. But once we find the gem, these are prestigious, growing, exciting institutions and people don't want to sell them. I think our unique advantage is our ability to say that we will be a partner. That our sellers are welcome to keep equity in the local operation. And that we have a track record where they can talk to other people that have sold us businesses, and kept the minority stake, and done very, very well. So that's probably the number 1 factor. I think behind that, you'd probably hear concerns about regulatory process.

And the fact is that the regulations have been set in a way that should permit us to do everything that we want, but very few transactions have taken place. And I think everybody recognizes that this needs to be addresses in the most respectful way. The Chinese government is very interested in increasing capacity, but they have a process that needs to be followed very rigorously. So we're working hard on that.

Is it fair to assume that the owners of these schools, just speaking in aggregate, are more like traditional entrepreneurs than perhaps the sort of family-run businesses that you've dealt with in Latin America?

They are a bit more recent in their experiment, in their business activity, obviously because it's China. They are not 40-year-old veterans of any school. So, that's in a way helps -- explains why we want to take our time. But to add to what Doug just said, we don't rush into any country, as you know. Trace, in Brazil, we've been talking for 4 years. So China is the same thing. We are very methodical. We take our time. We prepare the ground before we buy. And when we buy, we hit the ground running.

Okay. I'll let you move on. Thank you very much.

I'm going to add 1 quick thought before we go to the next question, which is I think Raph made a very important point. That in China, it is the generation of founders that we're dealing with. And in most of the rest of the world, it's probably the sons and daughters of the founders that we're dealing with. Thanks for your question, Trace. Operator, next question, please.

Jennifer Childe, Bear, Stearns.

What are -- can you walk through what you used -- what your CapEx dollars were used for this year, so far? And any estimate for next year yet?

I think the biggest spending is building campuses, expanding existing campuses, creating the seats to allow us to accommodate the students that we're recruiting, and continues to be the vast majority of our CapEx spend. Rosemarie's going to make a few more detailed comments on that.

Jennifer, I'd tell you that we're not quite ready to give guidance on CapEx numbers that we would expect for 2007, although we are in the throes of our detailed planning with that. I'll tell you if you look at CapEx on a year to date basis, you'd find that it pretty much follows the trend that we have in previous years. About 70% or so of it is on growth CapEx, and 30% is on maintenance CapEx. So for maintenance CapEx, we mean things like books, computers in our labs, and things like that. So it really echoes what Doug just communicated in terms of it being spent on growth.

So 70/30. Okay. That's what I was getting after. Doug, what might you do differently in Chile, now that you own 100%?

That's a good question. And I'm sure Bill will add things to it. I think that we have great people in Chile and we have great institutions in Chile. We had an opportunity to be very involved in the strategy and operations at our UNAB institution, and at the small technical institute that we operate there, which is IF. We really did not have a very deep involvement in the UDLA organization because of the earnout and the conditions that required us to really allow that management team a level of independence in operation. I think for many years that level really served them and us well. I think as they got to a certain scale, the expertise that we can now bring in terms of process and discipline and management of a larger business is really important.

More important than it's ever been. And that's really where we're focused. We're focused on bringing in process and people that can allow us to continue to grow and position that specific university, UDLA, to grow. We're also really going to focus on thinking about all of our activities in a holistic fashion as opposed to some very distinct silos, the way we've operated it in the past. So we're optimistic that we can improve performance in Chile by owning 100% of it, an that's why we chose to accelerate the buyout of that remaining 20%. Bill?

Jennifer, I would just add very quickly to that, to Doug's comments about people, we're very excited about the team that we're putting in place there. And we do feel that we are getting greater participation. What will we do differently in that market? I think that we are seeing at the lower end of that market, lower price points, faster growth rates than the traditional side, I think we're going to continue to look at further segmentation in the market, a much more creative way of approaching that marketplace. We have 3 wonderful institutions there, and I think that we can make a real difference there. I think you'll see a greater differentiation between the various products that we're offering and the institutions that are in place there in Chile.

Great, thanks. Just 1 other quick question. Rosemarie, will we see any more enrollment restatements? Or was it a 1 quarter issue?

I'll speak on behalf of the management team, you shouldn't expect to see any other enrollment restatements.

Okay, thank you.

One-time error and -- .

We don't think it's anything that extends very broadly. It's 3 campuses out of the entire system. We changed our reporting for the way we counted enrollment, attrition, and graduation. And all of our campuses got it right. There were 3 campuses that didn't report it exactly right. 2 of those campuses were actually at UDLA, where I'm sure that the transition itself didn't help matters. And I think everybody here is confident that that kind of error won't happen again.

Okay, thanks

Mark Marostica, Piper Jaffray.

In regards to Mexico, Doug, you made a comment that one of the big drivers for the star growth is your penetration into new cities. With 33 campuses, how many cities are you in today? And how many cities yield a potential for you to create fully performing campuses in those cities?

And again, let's be clear that the 33 campuses would be not just in Mexico, but also the other 3 current countries that we're in in Central America. And there are more countries that we will enter. Bill, in Mexico itself, 24, 25?

25 campuses.

Want to make any comments to Mark's question?

Well, I would just say, we have said all along and we have showed you at investor day, for the last 2 or 3 investor days, a list of those cities that we consider to be big opportunities for us. Those are typically cities that are 500 to 750,000 total population. We don't see a lot of competition there. It enables us to leverage our management teams. We have gotten so big in Mexico that we set up hubs, regional rectors, that oversee a number of campuses. So I would say that we will continue for the next couple, 3 years of growing 3 to 4 campuses a year in that region.

Okay, very good. And since we're on the topic of Mexico, can you comment on tuition pricing in Mexico? I believe at one point in time you talked about being able to price 2 times the rate of inflation. And interested in whether or not that is still the case there?

I think we've usually referred to it as 1.5 to 2 times. And there can be a big difference. I think certainly, the bigger we get, the more we're cautious about how much share we give up by pricing too aggressively. But we also want to make sure that as we add value to the brand and the degrees that we're conferring, that we're getting paid for that. That we're charging commensurately. So I don't think we're at a level of 2 times the rate of inflation any longer in Mexico.

No, I would add also, Doug, that we are -- we actually are pricing campus by campus. Each of our campuses, we view that as a separate market, in Mexico and Central America. So our prices range, depending upon what the socioeconomic profile is of that particular market. But I would say on average today, it's around $4,500 in Mexico and something less than that in other parts of the region.

I think mix is probably a bigger story for Laureate and something we want always to have investors thinking about. Because I think in terms of price increases of a particular product, that we're doing a pretty good job of managing that balance between volume and price all over the world. Mix is just something where we can have good news of growth in lower tuition markets, and as Brazil takes off, it's higher tuition in Central America or Chile, but it's a lower tuition in Mexico, so that would have an impact.

If we get really big in China, the tuition levels are much lower. But of course, we would have growth that would compensate for that. So I think it's very important for investors to really focus on mix. Not that we can tell you today what it will be, but that it is a key factor that could swing over time. And certainly, I think the trends at the moment are probably that we're entering and prospering in higher growth markets, which is good, that happen to be some of the markets where we charge a little bit less, which is not as good.

And then a last question, and I'll turn it over. Focusing on online in your transition to an optimal marketing mix for online, could you talk about your progress on that front and perhaps comment specifically on lead flow and conversion rate trends? Thanks.

I'll ask Paula to answer that one.

Mark, thank you. We are actually on track. We're very pleased to say -- be able to report that we are up 31% over leads from Q1. So from Q1 to Q3, we're up 31%. That quality is strong for us. We're pleased with that. We are seeing diversification in the channel mix. I do need to remind people, is the web will continue to be important for us. But we are seeing television, our on the ground sales, our referrals, all of the other areas that we have been trying to emphasize are working well for us.

And frankly, what I'm very pleased about, is that there -- actually leads are coming in for targeted programs for which we wanted them to come in for. It's one of the reasons we're seeing the margin improvement that we have. And so we're really pleased with that progress. And as we told you back in Q1, that Q3 would be impacted by lower inquiries, we expect the good work that's happened in Q3 to bode well for Q1 of 2007.

I do want to add, though, that the percentage -- the growth rates in leads can be a little deceiving. Because even when leads were down earlier in the year over the prior year, the important thing was, what's your lead growth in areas where you can convert at high rates. And so you can have a lot growth in leads, and we saw this last year, in areas that you couldn't convert as well, and that doesn't help. Or you could have overall lead decline, but still grow your business, because you're growing in the types of leads that convert the best. And I think it's something we want to be a little bit careful. I don't think there's any linear relationship.

Paula can look at leads and divide them by source, and come up with a very sophisticated expectation of what our enrollment growth could be. And she'll be the first to say it's not a perfect prediction. But I don't think anybody should say a 31% increase in leads would imply that we can see increase enrollments by 31%. That's not in any of the cards that we see today.

Very good. Thanks for the color.

Gary Bisbee, Lehman Brothers.

Couple questions, if I could. The -- you give starts on a year to date basis. If we try to parse through what you've had in the last couple conference calls, to look at just this quarter's, it appears like the online starts are actually negative 6.5%. And I know you said 1 start from last year slipped to next quarter. But even so, it might have been flat if you adjusted for that. So I guess I wanted to get -- gauge your confidence in what you had said previously that the starts were going to rebound substantially in the fourth quarter, and that you could maintain somewhere around this 20% overall total student pace looking forward.

Can you just tell us how you're deriving that negative 6.5%?

All I did, was I took starts year to date this press release, minus last press release to get what happened in the third quarter. And used the year ago period in the press releases, this one, 9 months minus 6 months from last quarter.

Yes, I think given how many intakes we have, I'm not sure that that would work. I think frankly, we're looking at a cumulative new start number, stable attrition, and -- stable or even improving attrition, and total enrollments. And so my simple math would be, if attrition is stable or positive, then you should be able to see that new enrollment growth feeding in. And I don't see any scenario where that would be flat or down. So maybe we'll work on this a little bit and see if we can't, by the end of the call, come up with a better answer. But I'm not sure -- .

Let me take another crack at this, then. If in the June quarter, so last press release, new student enrollment year to date was plus 23%, and then we look at this quarter, it is plus 10? Obviously, whatever starts happened in the third quarter, and you can tell me mostly a timing issue of starts, but it had to have been pretty weak for the year to date to have fallen from 6 months at 23% to 9 months at 10. Am I thinking about this wrong?

It also depends on what the size of the intake is.

What I would say however, is that that's exactly what we predicted would happen. So while I agree with Doug saying that we can't predict precisely. In Q1, during that first quarter call, we anticipated that we would have a total new enrollment for the reporting period in Q3 of in the low double-digits. Low double-digits is actually what we said. So we absolutely expected this -- expected this to happen.

Remember, our conversions, our models that we use on our conversion history, show that leads that come in, come in 6 months prior had the biggest impact on the quarter. And we also know that we began to have improvement in Q2. And I will tell you that the improvement in Q2 was not as dramatic as the improvement in Q3. So we had to ramp up. We knew it was already starting by the time we talked to you during that earnings call.

And so that, understanding where our increase were, what our conversion history and models show us, being conservative about that a bit, and then also understanding the intake, in that we had one intake moving into the fourth quarter, we said with confidence at that time, that we expected to be able to rebound in fourth quarter. We still expect to have that happen. We see it following exactly in the same way. We do expect new enrollments, as we said at that time, to be somewhere in the high teens.

We're talking somewhere about 17% to 19%, in that range. And that total enrollments would be somewhere around 20%. I'll tell you, we think it'll probably be in the range of maybe 19 to 21. We're not quite sure about how we're going to close in on that, because we have a number of more intakes. But what I would say to you is that the good news is that we understood what was going to happen in Q1, when we talked to you, and the bad news was that we understood what was going to happen in Q1.

Okay, I'll follow-up offline, instead of wasting time now. But if I could sneak 2 more quick ones in. I'll come back to one I've asked you on and off over the years. And specifically, the cash flows. Year to date, before acquisitions or the contingent payments you've made, you're still spending more -- slightly more on CapEx than you're generating in cash from ops. And now that you're levered up, I guess a bit more than 2.3 times trailing EBITDA at the end of the quarter, it seems to me we still have the same issue, of are you at some point going to be able to make all the organic investments you want, and still be able to generate positive cash flow from operations after subtracting CapEx? I guess, wonder what your thoughts on that are now and specific to'07? Can you do that, or are we likely to debt finance further organic growth in addition to any acquisition?

Okay. Thank you, it is a good question. We really don't look at it as, are we spending more capital than we're generating, or are we spending less capital than we're generating? We look at it as, what are the returns that we're getting for the capital that we're generating -- that we're spending? So if we can get lots of great return investments, and we need to finance that by taking on additional debt, or even by issuing equity, although that's not something that we envision having to do, we should do as much of that as possible. And if that's 1.5 times to cash flow that we generate, or 2 times the cash flow that we generate, then that's what we would do, if we were really confident in the returns that we'd get from those investments. And there are lots of companies that do this when they are in growth modes like ours, and they issue equity to pay for it.

We've actually been limited by really discipline and control and management capacity. And that's why our spending has been a little -- it's almost coincidental that our spending has always been closer to what we've generated. It's not that we're just trying to live within what we generate, because we have great confidence that the returns are there for the investments that we make. It's more that the limiting factor for us is, how much risk are we willing to take, how much capital are we willing to put into any particular country, who's going to manage whatever it is that we're building or buying? Those are the types of things that regulate the decision making. So to the extent that the day comes when we're generating more cash than we can invest, and that day absolutely will come. But from my perspective, that would be a sad day.

Because right now, we see what appears to be an almost inexhaustible array of investment opportunities. And we are in the early days of growing our business. So that's the way we're looking at it. I don't think at this moment we're prepared to put a CapEx projection out for next year. I think that is something that we will finalize in our own budgeting process, which is in the December timeframe. And I guess the right time to provide commentary on that would probably be with our first quarter earnings. Would you agree, Rosemarie?

I agree.

Okay, then just 2 quick wrap-ups. Is it safe to assume, ballpark at least, a similar tax rate in '07 to what you've guided for in '06, first? And then second, can you give us any color on exactly how much you're earning from the Chilean loan program, in terms of dollar amount? The interest income that you report, obviously, is coming from a lot more than just the cash on balance sheet. So any sense as to how we should think about forecasting that? Thanks a lot.

Certainly, Gary. The first question is that in 2006, we've guided to 10 to 13% effective tax rate. And we've reiterated that today. I think you should have an expectation that that would continue in 2007. On your next question, which is how much interest are we getting on our Chilean financing program, I would tell you that we are getting a good deal of interest on our Chilean financing program, but we're obviously not going disclose that.

I guess the question is, can we comment on is it a large percentage of the interest income that we report?

I'd say that you could say that it's 80% or greater. Does that answer your question, Gary?

Yes. And I guess just then is it safe to assume that that will grow at a similar rate to whatever you're growing the Chilean enrollments?

I think that would be the case, except for our efforts to find and bring other lenders into the market. And so there's sort of a good news-bad news story. If we're successful bringing other lenders into the market, you'll see continued growth in participation rates in Chile, and good growth in enrollments, but you would see some decline in interest income. And I think that's probably the most likely scenario. Wouldn't you think so? We should probably go to another question.

Let me just tell Gary. Gary, correct the 80% to 50%, please.

At least 50% of the Company's interest income would relate to those students loans.

Howard Block, Banc of America Securities.

On the data that Raph offered on the working adult program, I imagine if you can calculate a 3 year [inaudible] you might have some historical data to share on that program. Do you have those prior years there?

On working adult in Mexico?

Yes, the number that you said was 7,100 now. And I think you said the [inaudible] was over 80.

We'll have to get it for you. I think it would be one of the many cases where we have a high growth rate on a low number.

I believe it's somewhere around, Howard, about 2,400 students to 7,100 students, but you can do the math yourself.

In what period of time, Bill?

In the last 3 years.

Over 3 years.

Okay. And so it's doing -- obviously doing well and becoming a substantial proportion of the growth in that market. Do you expect it, at some point, to really drive the majority, if not vast majority of growth in that market?

I guess we would say this, Howard. Yes, we do expect to see it to be a major, major driver for us in Mexico. And I hope that we're as successful in the other countries where we've launched this as we have been in Mexico. But I would also say that what we're seeing in those campuses where we have 7 to 8,500 students, those very mature, fully developed campuses, there we're growing basically at the market rate. We're not losing market share, we may gain a little. But we're just growing at the market rate. So the big opportunity for us in those mature campuses is working adult, and we're putting an enormous amount of focus on it.

And working adult, it's a good business for us. It is a little bit of a shorter length of stay and it is a little bit of a lower price point. But it is growing the market, and that's one area where our growth does not come really at anybody else's expense. So it's an important opportunity for us. It is still very early days. I think we would be reluctant to be too definitive around that. You said it's becoming an important part, it is still less than 10% of enrollments in that region. And something that I think we're working hard to grow and build.

And so, on the lower price point, is that a lower sort of annualized earning rate for the student? Or are the prices they're paying less?

I think it's probably a little bit of both. They probably take fewer credits, and we probably -- do we charge less per credit, Bill?

Well we give some -- there are some credits that are given for previous education experience and work experience given their age. The pricing for that product in the Mexico market is roughly 20% less than what we charge the traditional students. Again, price varies by campus, by city, by market. But it's about 20% less.

But his question would be, if the tuition is 20% less, do they also take fewer courses, so that the amount you'd earn in a given year would be more than 20% less. Or do you think your annual earnings would be around 20% less for those students.

I think the latter.

Okay.

And then, if you look at that student, sort of, say at a unit level, are they more or less profitable than your, let's say your, what's your traditional student?

I think the quickest answer people would give you is more. I think it's a complex question, to the extent that you're just starting the business and you're putting these students into empty evening hours in existing facility. That's a great factor.

Using existing faculty.

Using existing faculty. That's great for profitability. You're probably spending a lot more on marketing, because you're really pioneering a new -- . Over time though, I think what we find is to be a winner in that market, as competitors learn from us and imitate us, you really need facilities that are not necessarily dedicated, but certainly, specialized to the needs of an adult learner. You need to pick different faculty to make those customers happy, in order to have retention, and to build and maintain competitive share.

And that would be negative, but you'd also probably find your cost to acquire students coming down, because we've had to pioneer the segment. People didn't even know it was a product that existed in the market. So unfortunately, I don't think there's an easy answer on that. It's a lot of factors.

Okay. I'm sorry, did I hear Bill sort of almost whisper in the back that they are actually higher maintenance?

Higher maintenance, for sure, the customers.

They need more service.

They require a lot more, Howard, they require a lot more customer service. They are very demanding in that respect.

That's really no different from the U.S. I think that was one of the earliest learnings as to why a [inaudible] or a University of Phoenix succeeded and other traditional universities didn't. Is that they treated all their customers the same. I think we have a great history and experience and heritage in knowing what working adults want because of our online division. And we have all sorts of programs, including a concierge program that we implement now even internationally to address the needs of those students. But you did hear that whisper. They are high maintenance.

Okay, and then, on the intake periods with online, are there any unfair comparisons coming up in the fourth quarter that we should think about in terms of number of intakes 4Q '06 versus 4Q '05 or anything like that?

It's basically one more than last year.

Right.

Okay, so, 4Q '06 has one more intake. You don't happen to know the number of intakes, like 5 or something like that?

We have -- . Actually, I'm trying to think. The way it works, is we have one intake for PhDs every month. So we have 12 a year for the PhD. We have our 3 for each semester-based program. And an additional 6 for our 6-week course programs. So it's probably, as I'm thinking about it, probably 4 intakes that we'll have during that time period.

And the guidance about the -- which had been low double-digits I think, for the third quarter, that was a year to date guidance number? Or a 3Q guidance number?

It was for the reporting period.

So the next, the other number you gave, I think what you said was going to be mid-teens or high teens, I forget. That's also, again, a year to date guidance number?

For the full year. What I was saying was for the full year, 2006, we expected that new enrollments would be in the high teens. 17% to 19% to be specific. Rosemarie doesn't like to use a [wild term there]. 17 to 19% and we expect a total to be probably somewhere between 19 and 21%.

Okay, so just -- I was sort of struggling with the same math Gary was. So you're talking about pulling a year to date, 9 month year to date, 10% number up to the high teens in the final quarter of the year, which isn't necessarily seasonally of the best?

That's correct, but there's more starts in the fourth quarter.

But there is 1 more start, it is a semester-based start. So it's a big start.

Okay, and then, just the last question. Obviously the growth mode comments with regards to CapEx, I mean, I guess we can be sympathetic to that. But I imagine, it sounds like you have a pretty ambitious agenda for a number of years. So I imagine you're going to tell us you're in a growth mode for a long time. Probably past the retirement of some of these guys that cover you, like me. What is the likelihood that in the next few years we'll actually begin to see these returns that you're excited about in terms of capital deployment begin to manifest in the cash flow statement and the balance sheet?

I think the answer is, we will see them because we look at everything on a project by project basis. And we see them now. We have to find a way for you to see them too. So that you don't have to simply look to an aggregate whole-company number to get the comfort that the projects are delivering the way they are. It's hard for me to tell you what is the year where you will see that turning point. And as I say, the irony is, the analysts will all be so happy, because now you get to see what you've been hoping for. But the growth rate of the Company will come down substantially when that day comes. So I'm pushing for as far from now as possible.

Okay. Great. Thank you.

Iliana Edwards, Piper Jaffray.

Hello? Maybe we can go to the next question.

Chris Gutek, Morgan Stanley.

A couple of quick questions. Doug, you guys have been in a pretty aggressive hiring mode for awhile, and I'm curious what percentage of the way you're completed, or what inning, or however you want to characterize it. But how much more aggressive hiring of regional managers do you have yet to do?

I think unfortunately, it's a little bit like the previous question we got, which is we're in a full-on growth mode as a Company. And I think the reason why we have confidence in controls in this Company and in our systems and processes, is because we don't wait until after we've expanded someplace or grown our business to hire the people to control and manage that business. So it does mean that we always will have pressure on the G&A line. It means that we always will have pressure on margins. But the alternative is to not have the confidence in controls and systems, and given how many countries we operate in, that's just not something that we're comfortable with.

So I can't tell you that there's light at the end of the tunnel in that area. I think as long as we're seeing great growth opportunities, we're going to be investing in great people. And we announced some of these announcements today to get some of the people of this caliber. These are people that we're really proud to be able to attract to our Company, and they're not inexpensive investments.

Right. Rosemarie, I believe you said at the end of your prepared comments, that the Company is about to launch a review of G&A spending. Can you elaborate? Is there a big opportunity here, notwithstanding the hiring of senior people to take some of the back office costs out of the Company?

I think, Gary, there's 2 part answers to your questions. There are certainly opportunities to look as we will continue to do, at the productivity and the efficiency of our operations. So if Bill were to speak, he would tell you that it's one of the things that he and his team are working on now that we have full ownership in Chile. And I don't think that any of our businesses, whether it's in Chile or in Europe or Online. I think all of those businesses take all of its challenges.

And we've been looking at our tax processes from a best practice point of view. We want to make sure that we're doing, as we just did with revenue recognition, what is the best in the industry with respect to that. It may be that when we look in the fourth quarter at the conclusion of the study, that there might be a potential for reallocation of some of our G&A. We're not expecting any additional expenses to be incurred beyond what we've guided you to for the full year G&A, but we are just giving you a heads up that we do have a study in process.

I think the big answer is probably that we don't see G&A coming down as a percentage of our business in an imminent period. And again I would say that's a little bit like the optimization that people are looking for in margins and ROIC. It's something that you'll see when the Company begins to slow down a lot more in growth. And that's not something that's imminent.

And then finally, I'm a little confused on what the logic is to take down an extra $100 million of credit facility debt in the fourth quarter, unless there's some big acquisition or something pending. That would seem to be a lot of extra debt just for organic growth in a quarter.

Well, Gary, it's the type of debt -- let me be clear. It's the type of debt that it sits in a revolver.

We don't have to draw it.

We only use it -- we only draw it when we're going to use it. So it basically is in a liquid state for the Company to use when they wish. But I think I want to emphasize also that when the Company has the liquidity available, it can continue at a pace that it wishes to continue, with respect to its expansion plans, whether they happen to be new countries, new campuses, it's just part of our growth strategy to have that ready and available, should we need to use it.

So we're expanding the revolver, but not necessarily pulling the money down. All right, operator, we're going to take 1 last question

Brandon Dobell, Credit Suisse.

Once again, continuing my streak of the last person on the call. I appreciate the order. I'll make it pretty easy. If you look at the fully performing schools, and this kind of goes to what a couple of questions have been, but from a different perspective. At the fully performing schools, how wide of a variance do you see in the margin profiles of those schools? And then from a student perspective, how wide of a variance do you see in attrition rates, graduation rates? Trying to look at some of the metrics that historically the U.S. guys have pointed to. like adds and drops, and those kinds of things, to get a better idea of the consistency of the intakes relative to ongoing enrollments. Just trying to get a better feeling for do the fully performing schools all look alike, they're all generating the same kind of margin or cash flow, it being half of the overall school base, you would think you'd start to see some higher level of structural cash flow, because those schools don't require a whole lot more growth CapEx.

I think the best answer is, at some point we may have to refine our definition of terms. For us, fully performing by definition just means that they have more than 20% EBIT. So we have schools that in their second year have gotten there, although we normally would expect it to be at least 4 years or 5 years to get there. And we also have schools that are 10 and 15 and 20 and 30 and 40 years old, literally, that have EBIT margins that would be double that. And so I think what we've done on the one hand is probably very helpful in giving people the basic concept of new, developing, and performing. But at some point, we're probably going to need to break that performing into 2 buckets. Because I think it's becoming harder for people to get their arms around it.

And so I think it'd be fair to say that within that bucket, there's a wide range of all the questions you just described. You'd have newer campuses that would have higher attrition and are just newer to the whole process. You'd have really smooth running mature campuses that have low attrition rates, and really know how to generate maximum returns. So I think we're going to have to think about the best way to report that in the future. Rosemarie, or Bill or Raph, did you have any further comment on that? Any other follow-up questions we can answer for you?

Just 1 last question. I think last quarter, or 2 quarters ago, you mentioned the opportunity potentially in Mexico to replicate what you've done in some of the more lower end areas, vocational areas, either in Chile or Central America. Any updates there would be great. Thanks.

Bill, you want to comment on the low end product in Mexico?

Sure. Brandon, we launched in August a new campus. A grassroots greenfield campus for that low end. We call it UPRO, is the name of that product. It's got a price point of right at $2,000, slightly under. And we're off to a good start. I think we'll have 3 or 4 intakes before we get to their -- there are a series of intakes -- multiple intakes during the year. I think we'll have a series of intakes between now and the end of the year. The numbers themselves are small. They're under 1,000 students. Probably 500, 600 students. But we're very excited about it. We think it's a great academic model, and we're off to a good start.

Okay, thanks a lot.

Investment in it is very low, it's very new. And I think in the long-term, we're pretty excited, but we have a lot of work to do. So Brandon, thanks for your question. And thanks to everyone for staying late with us on the phone here. And if we can answer other questions, feel free to contact the Company. Thank you. Good night.

Thank you for your participation, everyone, on today's conference. You may disconnect at this time.