Perdoceo Education Corp (PRDO) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the 2005 fourth quarter Career Education earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes. At this time, I would like to read the Safe Harbor statement. Statements made by CEC or its representatives on this call that are not historical facts are forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on information currently available to us and involve risks and uncertainties that could cause our actual growth results, performance, and business prospects and opportunities to differ materially from those expressed in or implied by these statements.

These risks and uncertainties, the outcome of which could materially and adversely affect our financial condition and operations include but are not limited to, risks related to our ability to comply with and the impact of changes and legislation and regulations that affect our ability to participate in student financial aid programs, costs, risks, and effects of legal and administrative proceedings and investigations, and governmental regulations including the pending Securities and Exchange Commission and Justice Department investigations and class actions, derivatives, and other lawsuits. Risks related to our ability to comply with accrediting agency requirements or obtain accrediting agency approvals, costs and difficulties related to the integration of acquired businesses. Risks related to our ability to manage and continue growth, future financial and operational results, risks related to competition, general economic conditions, and other risk factors relating to our industry and business. As detailed in our annual report Form 10-K for the year ending December 31, 2004. And from time to time in our other reports filed with the SEC. We disclaim any responsibility to update or revise these forward look statements.

I would now like to turn the presentation over to Jack Larson, Chairman, President and Chief Executive Officer. Sir, you may proceed.

Good afternoon, everybody and thank you for taking part in our 2005 fourth quarter and year end earnings call. With me today are Pat Pesch our CFO and Steve Fireng, President of our University Group. I'm pleased to say that this was another strong quarter for us in terms of revenue and earnings growth. We also have announced an additional share repurchase program that Pat will discuss with you in just a moment.

Before I give you some of the headlines for the quarter, let me take a moment to provide some context for what you will be hearing today and some initial thoughts regarding our plans and directions for the future. Later in the call I'll also discuss the significant actions we've recently announced with regard to enhancing corporate governance at the Company. Now, the fourth quarter of 2005 was a period of solid accomplishment for our company in terms of new customer focused innovation and strong financial results. It also presented us with a significant number of challenges. Primarily in terms of perceptions about the Company and general pressure on the for profit education sector. We are confident that those challenges can be resolved and we have a plan for addressing the issues and the opportunities that these challenges represent.

At Career Education Corporation, we are deeply aware that our company has reached an important stage in its development. I assure you that we continue to be focused on healthy growth that surpasses the competition. And driving significant shareholder value. But we all recognize that our long-term success depends on a well targeted strategy. A commitment to providing high quality education supported by superior customer service with governance and intelligent growth supported by the right infrastructure. We are aware of this challenge. We have a solid plan for our future and we intend to execute very well and take this company forward in the right way. I'll be talking more about our strategy and our commitments later on during this call. But I wanted to be very clear about this right up front.

We intend to turn challenges into opportunities, fully recognizing that we have a great deal of work ahead. Now for the quarter's headlines. We had solid financial performance during the quarter. Revenue grew 8% to 529 million from 491 million for the '04 fourth quarter. Net income was 70 million, an increase of 12% from the fourth quarter of '04. As of January 31, '06, we increased our online population by over 30% to nearly 33,000 students. Consolidated population was up to over 104,000 students. Once again we generated substantial year-over-year revenue growth reflecting the continuing value of for profit education and the strength of Career Education's unique offering.

I'm pleased to say that we also continued to grow our online business, a direct result we believe of the quality that we offer, particularly to those students for whom online education is an important enabler. We know that there is great demand for high quality online education, for those companies who can effectively target the right students and best meet their needs, online continues to be an area of enormous opportunity. The satisfaction of our online student remains very high and Career Education is a leader in the field. Online remains one of our strongest and most fundamental core competencies.

While our overall growth story has been outstanding and was strong for the quarter, there are areas that clearly bear watching. As Pat will report to you in a moment, we did see a softening of our growth in our on ground schools due in large part we believe to negative perceptions fueled by recent local and national media coverage and pressure on the overall industry. While I absolutely do not want to underestimate the potential continuing impact of such negative perceptions, we believe that this problem can be solved. And we plan to do so. Where legitimate operational issues have been raised, we will address them swiftly and thoroughly. Where media coverage has been biased or unbalanced we intend to tell our story more effectively. We are confident in the quality education provided by our on ground institutions and the Gold Standard brands represented by those schools.

During the quarter, we also made significant progress in several new customer focus initiatives, including the hybrid education model which provides our students with more choices and more flexibility, allowing them to pursue their education and ultimately their careers. In the way that works best for them and for their families. The continuing growth of online underscores the importance of adopting to our students and their needs throughout the student life cycle. Finally, we have adopted additional measures to strengthen our corporate governance including moving towards a declassified Board enabling shareholders to call a special meeting and adopting a majority vote standard for the election of Directors. We also have added independent Directors to our Board.

Over the past couple of weeks we have actively reached out to many of our shareholders and have received positive endorsements of the corporate governance measures we implemented, including statements from an independent analyst citing our company as well ahead of the rest of industry in terms of governance. We believe these moves which have been well received by investors will serve the long term interest of Career Education Corporation shareholders. Last year we talked to you about our five point plan which will continue to guide us tactically throughout 2006. I want to stress however that that plan focuses on the entire student life cycle, concluding with graduation and the student's ultimate step forward in a satisfying career. While we will continue to market actively and appropriately our goal is to serve our students well from admissions to graduation so we set ourselves apart from the competition, generate profitable and sustainable growth, and fulfill our ultimate mission of educating students.

Before I turn this call over to Pat and then to Steve Fireng, let me add that clarity admission and effectiveness of strategy will be increasingly important to this industry and to this company. We understand fully . After Pat and Steve provide additional detail on our business and operational results, and before our question and answer period, I'll be talking with you further about Career Education's business strategy, its impact on our operations, and on our future. Now Pat Pesch.

Thank you, Jack. Let me start by highlighting some of the financial information that Jack discussed. Fourth quarter revenue was 529 million and an 8% increase from the same period last year. The increase was due primarily to an increase in online student population and higher revenue per student offset partially by a decline in campus based student population. Online revenue was up 43% while campus based revenue was down about 3%. Total revenue was solidly within our previously disclosed guidance range of 522 to $532 million. Our operating margins decreased approximately 20 basis points from last year's fourth quarter. This decrease was the net result of numerous factors consistent with our guidance provided during our third quarter earnings call. Online margins were up about 120 basis points primarily due to improved administrative efficiencies, the absence of a charge for increased debt, increased bad debt reserves in the current year fourth quarter, offset by increases in occupancy costs and marketing and admissions costs.

Campus based margins were down 120 basis points versus the prior year, although margins were up sequentially. This was due to a decline in revenue which caused increases in most major line items as a percentage of revenue. Increases in these costs were partially offset by a significant decline in bad debt expense due to the absence of a charge for increased bad debt reserves in the current year fourth quarter as well as continued strong improvement in overall receivables management. Stricter credit standards have strongly contributed to this improved bad debt performance but has limited the market we are able to serve. This has adversely affected population growth, but we continue to believe that this is in the best long-term interest of our schools and our shareholders.

The above described revenue growth and margin changes, along with continued decreases in our average effective tax rate resulted in continued net income growth and an increase in earnings per share for the quarter of 17%. Full year earnings per share grew 32%. Cash generation continues to be strong. Cash and investments increased $60 million during the quarter.

As many of you know, last summer our Board of Directors authorized the use of up to 300 million for the repurchase of shares of our outstanding common stock. During the third quarter 2005, we repurchased approximately 5.3 million shares of our common stock for about 200.2 million at an average price of $37.97 per share. We made no additional purchases during the fourth quarter as we believed it was prudent to maintain our network position to ensure a high rating on our U.S. Department of Education financial responsibility ratio. The primary financial health measure used by the department. This ratio is measured on December 31, of each year and was approximately 2.7 on a 3.0 maximum scale at the end of 2005. Our Board of Directors has increased our authorization to repurchase shares by about 200 million to bring our total authorization back to the $300 million level. Purchases at this level should allow us to maintain our strong financial responsibility ratio during 2006, maintain liquidity, and put excess cash to its best use.

I would also like to provide updated guidance for 2006. No acquisitions or dispositions are contemplated by these forward looking statements. Nor are there any costs included that we might incur in connection with any transactions that might be entered into to rationalize the Company's capacity. The impact of such events if any, would be addressed when or after they occur. We expect full year 2006 revenue to increase approximately 10%. Campus based revenue should be down modestly in the early part of the year with gradual improvement throughout the year and ending the year with modest increases. Online revenues should increase as a percentage of prior year revenues in the mid 20s range. Online revenue growth expectations have been affected by slower AIU population growth, which Steve Fireng will discuss shortly.

Operating margins should maintain their historical seasonal characteristics during 2006. Campus based margins will continue to lag prior levels until population levels recover. Average online margins will continue to be strong, but may be below prior year levels due to continued investment in our Stonecliff platform and continued strong growth of our Colorado Technical University which operates at lower margins than the faster paced programs at AIU. We expect earnings per share to grow between 10 and 12% before giving effect to the required change in accounting for stock incentive compensation expense. That required change should reduce earnings approximately $0.10 to $0.11 per share.

Finally, I would like to address a few recent developments on the student financing front. First, we are nearing completion of a renewed three-year agreement with Sally May to provide recourse financing for our students. We believe that this agreement will demonstrate our commitment to ensuring that financially responsible funding is available to as many of our students as possible consistent with prudent lending practice.

In addition, we have decided to discontinue the use of the Stillwater National Bank loan program for new students effective May 1. This program is described in detail on our September 2005 10-Q and contributes less than 1% of our total domestic cash receipts. The program will continue to be available for students who have completed at least one academic year of study with us and we will honor any commitments already made for students enrolled for future start dates. With that, I'll turn it over to Steve.

Thanks, Pat. I'm pleased to be here today to discuss the fourth quarter and year-end results of our online universities. I also look forward to discussing our plans to ensure operational excellence and long-term growth. Fourth quarter online revenue and earnings were up substantially. Revenues were 169 million, an increase of 43% over last year and operating profits were 62 million, up 48% over prior year. The operating profit percentage was 36% of revenue as expected because the fourth quarter had the lowest revenue earning days of the year. For the full year 2005, revenues were 666 million, a 70% increase over 2004. Full year operating margin was an industry leader at 39%. And operating profit increase 65% over 2004.

We are certainly proud of these numbers and our financials are clearly an indication of the strength in the online education model. We are equally proud that our nearly 33,000 students see the value in their 100% online education and we were successfully graduated more than 15,000 students in 2005. First, I want to talk about a new university group structure recently implemented and its advantages. In order to better describe the teams and individuals dedicated to providing the support and guidance to both CTU and AIUs on-campus and online universities, we have merged our online education group into the university group. This blending of on campus and online gives us tremendous brand efficiencies, marketing and creative opportunities, league leveraging, and of course, accreditation alignment

Now shifting gears to AIU. As expected our AIU schools have been impacted to some degree by adverse publicity related to AIUs probation status. I will talk more in a moment about our steps being taken to address the university's probation, but first let me talk about our four point quality assurance plan to ensure operational excellence during our probation period. The first point of our plan addresses quality assurances of our admissions process. We have hired a third party to monitor our admissions calls and to provide quick feedback for opportunities in training and development. This process also will validate their admissions process is effective with our students.

Our second point complements the first point and deals with training and hiring of our admissions staff. We have a new assessment process that identifies key attributes for successful admissions reps and are working to lengthening our training to include more product knowledge, accreditation responsibilities and a university mission training.

The third point deals with targeted marketing efforts. We are focusing on conversion rates which will include scoring leads on conversions and buying more leads from the best vendors. We also have implemented a targeted recert program of our millions of unsold inquiries directing messages to areas of certain demographics and interest. Early indications have shown positive results.

The final point of the plan is to focus on communication and highlighting our success stories. We have made contact with many graduates, students and faculty to build an excellent website for students and employees to view. We welcome you to visit this site and read some of the inspired testimonials at www.aiuonline.edu/success.

As stated earlier, I wanted to take a few minutes to provide an update on facts and AIUs probation status. Dr. George Miller, the CEO of AIU indicated in early December that AIU was put on probation by its accreditor. With that being said, we appreciate your desire as shareholders to gain a clearer insight into the recommendations made by the Commission of Colleges. While we will share with you some broad areas that SACS has addressed and how we plan to resolve those areas of concern, please remember that the university intends to be respectful of its relationship with its accrediting agency and I may not be able to answer all your questions at this time.

The COC has asked AIU to demonstrate through policy and continuous improvement its resolution of 15 recommendations focused on five general areas. These include faculty and education programs, the academic leadership and management access, student complaint process, admissions and marketing, and the integrity as a SACS accredited institution. The university plan includes AIU engaging a team of outside experts in both quality control processes and industrial psychology to provide an initial snap shot of how the university currently operates.

In the second quarter, AIU will execute on the outside experts recommendations that will include an enhanced training and evaluation program for admissions and marketing. In the spring and summer academic quarters AIU will evaluate these improvements and measure the rules from the changes that the university implemented. In early September, AIU will submit its monitoring report to SACS in preparation for the special committee visit in October and in December, the COC will review all materials and make a formal decision on the status of AIUs probation.

We are 100% committed to supporting AIU to resolve the issues and concerns raised by SACS. All the recommendations highlighted are ones that the university believes can be addressed and resolved. Our support includes having the right management team in place and a strong action for improvement.

Shifting gears to CTU. We previously announced the marketing launch of Stonecliff College Online, an academic division of Colorado Technical University. With the addition of Stonecliff College Online, students now have the option of an associate degree at a slower pace. Stonecliff started its first group in February and overachieved our initial expectations due to better anticipated show rates and financial packaging rates. We are pleased with this turnout as students are still full-time degree-seeking students. CTU will approach margin expectations at Stonecliff with a focus on driving overall top line growth while achieving marketing efficiencies and maximizing retention while delivering a quality program for associate degree students. Overall, we feel very good about our CTU online operations with positive results in such metrics as lead costs, conversions, show rates, and packaging rates.

As Jack said earlier, our goal is quality growth, growth that comes from intelligent and well targeted strategies that are sustainable. Over the next 12 months we will dedicate ourselves to assessing and strengthening our university's infrastructure, both to continue to enhance the quality of the education they provide and to prepare for future growth. Our university students are absolutely our main priority and we are striving to serve their needs better than anyone else while also building the right foundation for the future.

Before I turn it back to Jack for his concluding comments, I wanted to take this opportunity to share our recent employee survey. With the strongest response rate we've ever had, eight out of ten employees would recommend a friend to come work with us. This is a great testimonial not only to our current employee morale but also the dedication and the rewarding jobs that our employees have serving our online students. Jack?

Thanks, Pat and Steve. As you can see, in addition to the strength of the quarter, we remain right on track with key initiatives that will be important foundation for our future. I mentioned earlier in the call that Career Education is at an important and very positive point in its development. We recognize that our job will be to stay focused in serving our students better than anybody else in the industry. While building the right foundation for the future. Our business strategy for the coming years is built on seven important concepts. A focus on the customer, business model discipline, return on investment focus, market expansion, a compliance culture, operational and educational excellence, and becoming an employer of choice.

Each of these concepts is designed to support and enhance growth. The development of a committed and highly skilled work force, improvement of our corporate risk management and the overall effective management of our business so that ultimately we become an even better company for our students and for all of our stakeholders.

To the first point we believe that serving our customers well is is a foundation for all of our other initiatives and should be a primary focus for us in 2006 and beyond. As you know in our company and our industry, we deal with multiple customers, students, employees, employers, regulators, shareholders, and many others. At the most fundamental level our successful graduates are a key deliverable. Our future employers are ultimate customers. Bringing students to our schools and then supporting them throughout the entire educational experience will be the foundation of our growth in the future. To the second point, business model discipline. Our intent will be to maximizing our business models to better targeting of our customers and enhancement of our service delivery.

Third, our return on investment focus will involve instilling greater discipline in our decision making process and ensuring that every part of our business is well aligned with the Company's goals and commitments and generates the maximum value.

In terms of the fourth concept, market expansion, we continue to be a growth oriented company with commitment to delivering shareholder value through quality growth that is strategic, targeted and sustainable. During 2006 and in the years to come, we'll be looking at the right opportunities to expand our markets through acquiring or building our true development and strategic alliances within the limitations and restrictions in which we operate, we will continue to grow aggressively and intelligently.

Fifth, the compliance culture we've begun to build in this company will encompass appropriate rules, standards, and guidelines across the organization that will extend well beyond into organizational and personal integrity. That culture is being built on shared understanding of the organizations goals and values and will be empowered and enabled by strong share focus on customer service and assess of individual and organizational accountability from the top down. Growth and the focus of this strategy will be operational and organizational excellence in all of our business operation. We will accept no less of ourselves than outstanding performance across the board.

Finally, we intend to become an employer of choice so that we have the best in terms of skills and innovation to leverage for our future. Our ability to become employer of choice will in large part be the result of our success in the other six areas. We recognize fully our responsibilities to you as our shareholders and to our students and our future employers. We also recognize that some of you have had your faith shaken in our industry and to some degree in us. I want you to know that we intend to earn your trust every day by driving value through high quality sustainable growth, by intelligent management of this valuable business and by fulfilling our promises. At this time, I'll be glad to take any questions, please.

Thank you, sir. [OPERATOR INSTRUCTIONS] Your first question will come from the line of Greg Cappelli of Credit Suisse.

Kind of an interesting name. Afternoon, guys. I wondered if I could ask just a follow-on on the -- Steve what you talked about in terms of online and where you are, sort of where you are and how attrition trended in the quarter.

Yes. I mean, we talked about during the last quarter. We actually put our plan together where we had to model out our 20 distinct characteristics. Really, we started seeing in the quarter actually some improvements in that quarter, third quarter compared to fourth quarter. So we did see some improvements in the fourth quarter with some of the initiatives that we had rolled out earlier.

Is it safe to assume that you're still looking for substantial improvement there or did you get part of the way there?

Well, I think we still have room. It's still a priority for us to -- for attrition rate. There still are some things that we've modified in the model and we have added some more initiatives with that. So it's still -- I don't think we're all the way there yet. There are still initiatives we can continue to improve upon.

Greg, we're still below prior year retention levels. But we're narrowing the gap from where we are.

Got you. Then just on the Stonecliff initiative, is it too early to give us an idea of how many students are enrolled there?

Yes, I think we're probably not going to give that number out at this point. But it's been very, very successful. We had a higher than normal show rate compared to our AIU and CTU and higher than normal than our financially packaging rates for that start.

Keep this in mind, too. That what we're trying to do here of course is build a system where there's different products for different people and certainly through AIU that's been a bit more accelerated, CTU is a bit more at a traditional pace. Stonecliff is set up to go at a bit slower pace. We've been able to track a very wide audience with these three products.

We did not have our first Stonecliff starts until February, so there are no Stonecliff students reflected in the January 31, population numbers we disclosed.

That was going to be my follow-up. Safe to assume this is a younger student than you're seeing in your other business areas.

Couple of the demographics have actually had a higher female population. So it really is attracting one of the fastest growing segments in education. That's a female market. It was a little bit younger but I wouldn't say substantially younger than our other online programs.

Okay great. Just one more quick one. If you guys look out past the next few quarters, maybe a year, let's assume that SACS and the probation stuff ends positively for this question. What do you guys think is the right growth rate for enrollments overall for this company? I mean, given the level of capital investment and human capital investment that you're making, what feels like -- where would you like it to be? You're talking about controlled, sort of more controlled growth going forward.

Greg, this is Pat. If we look on the campus based side, we think -- we think over time, given kind of the cyclicality that may exist from time to time, mid to high single digits growth within campus based operations should be achievable. The online business I think is a little bit harder to assess. Just kind of given the rampant growth that has existed in that market place overall. But we think comfortably into double digits growth for the next few years should be attainable. And again, we've been substantially above those levels. It's really just a matter of how that market's going size in predicting that.

Okay. And I know you mentioned, but just to clarify, you think you'll be into positive territory for offline enrollment second half of this year?

I think our plan and our expectation is that we'll gradually build into that. And that near the end of the year, we will be slightly positive.

Okay. Very helpful. Thank you, guys.

And we are going to ask that we try to keep questions to a single question and a follow-up.

Next question, please.

Your next question will come from Trace Urdan of Robert W. Baird.

Oh, my goodness, I hope I wasn't on there. Thank you. I wanted to ask about the mix within online. As you contemplate the blended mix of students that you have and you're likely to see going forward. We're obviously seeing a little bit of decline in the revenue per student number. I'm sort of wondering at what point you'd think we might see all of the different brands kind of level off and we might see that number stabilize?

Trace, I'm not -- this is Pat. I'm not sure I fully understand the question.

I guess I'm making the assumption that as you move into the second -- CTU and now with Stonecliff, that we're heading into a realm where the average revenue per student in any given quarter is going to be less than what we saw initially with AIU. And particularly with the MBA programs. And so, the future would suggest that the revenue per student number is going to come down somewhat as the population of these new brands increases relative to AIU. I'm just sort of wondering what the outlook is there.

I think you're right. I think the expectation would be for the average to come down. I think I would suggest that perhaps the average per student is not so relevant as to whether or not the individual segments of the population are growing of their own right. So if a lower paid -- lower priced program is growing at a faster rate, yes, that's going to bring the average down due to a mix change. But I think the important thing is that the various elements are all growing at a healthy and profitable basis. In terms of timing, I think you're seeing it already.

I think that we also are looking at with this strategy, though too, is gaining greater market share by having this kind of flexible array of products out there. I think we've already demonstrated that as we have designed the right product that we're able to track basically an entirely different student.

Okay then as my follow-up let me focus in then. Is AIU -- is the growth within AIU now at a level that you would consider sustainable or are we still sort of coming down off a high with respect to that?

Well, let me ask Steve to kind of address that. But if you look at it, once again there's -- I mean, we know from our lead generation activities that people have a high interest in these products, whether they're AIU or CTU or Stonecliff. And so we know that the market is out there for people who are looking for an accelerated program and people that might be looking for a more traditional or a different brand product, if you will, different program, as well as a slower pace. Steve, any comments?

Yes, I mean obviously we're not going -- probably the rate of growth just at AIU as an entity probably doesn't have the accelerated growth rate, but I do think there is still a tremendous out there, if you go back to our surveys and things, tremendous interest in this accelerated type of degree. It's still a niche out there in the online market that not too many people are covering. So there's still a tremendous opportunity, maybe not the growth rate that AIU's had in the recent past, but certainly I think if there is a sustainable growth at AIU, bear in mind the niche market that actually AIU has.

Okay. That's helpful. Thank you.

Great. Thank you.

Thank you, sir. Your next question will come from Susie Sackstein of Morgan Stanley

I was wondering if you could give us an update on any of the outstanding legal and regulatory issues beyond AIU?

Are you looking at overall legal issues?

Right. Any new ones or any update on the status of some of the outstanding ones?

If you look at the SEC investigation. That's still out there. And that's open. I guess if you look, there's a series of other legal issues that we are in various stages out there. Certainly our class action is still before the court. We're still waiting to hear on that a little bit more clarity. I'm just trying to think of some other ones here that we're looking at.

Does any have to do with Brooks? Any update on that?

Well, Brooks is before an administrative law judge. And so that's still pending. They've kind of divided that into two different proceedings. And that's being tried now, I guess, if you will. That went before the court I think February 2.

Okay. Just as a follow-up can you just comment on interest income? It seems high for the quarter. I'm just wondering what's in that number.

Well, I think when you look at interest income -- this is Pat. Looking at interest income for the quarter, we built cash throughout the quarter. The overall interest rate environment has improved, I guess from the standpoint of an investor. So average balances and an average increase in the rate really contributing to that. What we did undertake earlier in the year was a move with a stronger cash position, a move to longer average maturities on our investments which have also given us better yield opportunities.

Okay. Thank you.

Thank you.

And your next question will come from the line of Mark Marostica of Piper Jaffray.

Question regarding retention for CSU. How did that trend in the quarter?

It continued -- Mark, this is Pat. It continued up on a year over year basis. We're continuing to see good performance in the retention area for CSU. We believe there's still opportunities for further improvement in those levels.

Let me just give another kind of oversight here. We kind of kicked off 2006 with something we call the year of the graduate. Every year we pick a very powerful theme This certainly goes to the heart of what we believe. It's really something that all of our colleges, schools, and universities have grabbed on to and really used in their own way in a very positive way to make sure that we're focusing on getting students engaged and connected to each of the campuses. There's kind of a real emphasis on the quality and certainly our teaching and learning which we've been very strong in that area. And our administrators and faculty monitor student progress and campus leaders make student success a top priority.

We feel that kicking this off will pay some very big dividends this year. These are well documented studies that have shown that universities that -- you look at students and their prime focus is being to graduate. Retain students, they do a very good job of helping succeed in that area. We have done a lot in this area too, with data mining to find out what is it about on online or on ground students, why they might drop out of school. A lot of the groups have shown a real stability. Here recently and then as we move forward we hope to see more progress.

And as my follow-up with the decline in population growth for CSU, I was wondering if you could give us a little more color across the system looking at which brands took the brunt of the decline or if it was fairly evenly spread across the system? Thank you.

This is Pat. Again, the GIbbs group continues as a group of schools, continues to show the weakest performance excluding the effect of Gibbs we would have been down about 4% versus 7. And then there are -- as opposed to groups of schools there are individual campuses where we've had weaker year-over-year performance really due to adverse local publicity at certain schools.

One of the things to keep in mind about Gibbs is that we do see pockets of light at the end of the tunnel in some of the locations. Certainly we've seen some improvement in show rates and attrition and we've kind of shared in the past about different -- other improvements that we've seen out there. Media costs seem to have really stabilized and done well. A number of the markets have shown some very nice improvement here in recent times. Next question, please.

Your next question comes from the line of Gary Bisbee from Lehman Brothers.

Just following up on that last one. The campus declines have accelerated for the third and fourth straight quarter here. And you're talking about that returning to slightly positive territory by the end of '06. Can you give us some real hard data or examples or something to help us have some comfort that that's not just ambition, that that's something that can actually happen.

Well, I mean, some of the stuff that we've undertaken this year, I shared this with you last quarter. I'm going to ask Pat to speak here in a second, too. Part of this is, is we actually cut back on some of our spending last year when it came down to advertising and staffing and those types of things. As we said in the fourth quarter, we have now started to crank that up, if you will, to spend more dollars on that and to have our staffing at higher level, advertising at higher levels. We're seeing some positive trends there. I think there's other plans that we have, too.

Looking at it from, the things that we're doing with our five legs of the stool which we referred to which is, we've got very vibrant high school programs. That's something we're doing with our local market, our internet market. The international market. And the out of state marketing. Certainly we put a lot of effort into our show rate efforts. With our 16 point plan. Actually have seen some improvement in that area. We talk about our five point plan here and one of the big points is our selling premise and we've modified our advertising now really to reflect a do what you want to do for a living, what you love for a living. That has been successful with our brick and mortar schools. Online is is a little bit different. But we've seen the conversion rates stabilize, the show rates improve, retention improve, and we've seen some gross margin improvement.

Gary, this is Pat. I think one of the other things that we've looked at and it's been essentially a multiyear process of really tightening up on credit standards and those changes in credit standards have clearly kind of affected, if you will, the size of the funnel in terms of students that can come to the school. So I think one of the things that we'll see as we go forward is, you know, more of an apples to apples basis on a year-over-year basis to student recruitment. So, I mean, this was something that we really set about making some changes there, making sure that student financing was really consistent with strong stable population growth and profitable growth. So, again, this has been going on for some period of time. But as I indicated earlier, particularly in our CSU side we saw significant year-over-year improvement even after the adjusting for the effects of last years bad debt reserve adjustment, and again, that's adversely affected the population, but I think we'll be more on a comparable basis in our starts in the future.

Okay. Then the follow-up would be if we do try to back out the bad debt charge last year it looks to me the campus operating margin must have fallen somewhere around 400 basis points year-over-year. Obviously you'd expect that with falling revenues from that side of the house, and falling students. But what -- is there anything that you think is going to make that not quite as severe in '06 or is this earnings growth really predicated on below the line items like a substantial amount of stock buyback a continued big share coming from interest income et cetera, et cetera?

The earnings growth is not predicated on significant share repurchases. While we fully expect there will be activity in that area, there is nothing substantive implicit in the guidance with respect to share repurchase activity. In terms of what we expect going forward, I think one of the things is -- and we've talked about this. I have talked about this in prior calls. That we had geared certain activities to larger level of student population growth. We've adjusted those activities. Those were most pronounced in the occupancy expense and in depreciation expense.

In the fourth quarter the impact of CSUs margins of those two line items was almost 200 basis points. We don't expect the same implications going forward as we've scaled back our expansion activity significantly. You may have noticed in the press release that our capital spending as a percentage of revenue was down a couple hundred basis points as a percentage of revenue and that was even without the -- that was even with the presence of certain commitments on the expansion that had been undertaken before we had a slowdown in the growth. So clearly in 2006, we'll be much more measured about our capital spending and that should have a positive impact on occupancy as well as depreciation.

If I could sneak in just one I wanted to clarify something. The 17 to 18 million option expense I take it that's a pretax number?

That is is a pretax number.

Then any sense what tax rate we might expect in '06?

Tax rate for '06 you should expect comparable to our average tax rate for this year which was 37.4%.

Great. Thanks.

Thank you.

Our next question comes from Sarah Gubbins of Merrill Lynch.

Thank you. First question is, you've said before that you weren't considering shutting down on ground campuses or selling off any of the divisions. Is this still the case?

Well, we certainly keep all of our options open. We have nothing to talk about or announce certainly here today. We look for, as you heard from our -- the seven strategies that I read one of them certainly is making sure that the Company uses its resources wisely. And certainly, as we look at our future, we want to make sure that there's both a market out there for the programs that we're offering and it gives the Company the type of return that the shareholders expect.

Okay. And then second question. I know that you're not reporting the actual numbers but can you talk generally about job placement trends? And in particular as online grows as a percentage of your total enrollment, how you're managing job placement activities for online students? I'm guessing that it's more important for students going into programs like Stonecliff than it might be for an AIU online student and so just wondering what the strategy is behind that.

Sure. Let me ask Steve to comment on that in just a minute. I think certainly students, when they look at their education, I think they're looking to better their lives. Career opportunities are always very important to them. I think each new group probably enters college like any school. Looking to improve their life and if possible to certainly get that better career. Steve maybe a comment on that.

We have a dynamic careerer services department in the online group that probably different than maybe some of the schools, is majority of our students are working full-time. That's one of the reasons they chose online. Or a large percentage are in the military so a lot of the students who come and take online programs actually are in a job or that they actually like, they'd just like more opportunity probably in the current job that they're at. I think it's too early to tell on Stonecliff whether that would have any sort of different demographics but really still we have a great program to kind of support those type of students also.

Okay. Just broadly, can you give us a sense of how your job placement rates are trending versus prior years overall for the Company?

This is Pat. The employment rate is versus prior years is down a few points. Not major shift or major change but it's down on a year-over-year basis.

Thank you very much.

[OPERATOR INSTRUCTIONS] Your next question will come from Mark Hughes of SunTrust.

Thank you very much. Can you say how many leads you generated in the quarter?

We've not put that out. I will tell you that an abundant on leads is certainly ahead of last year as we've generated millions of lead on an annualized basis.

Right.

I mean, I could give you this kind of flavor for it. The majority of our leads that come in from the internet, that's almost all of the online group, gets their leads that way. But a very substantial part of the brick-and-mortar gets theirs from the Internet. And then of course the other segment for the brick-and-mortar would be TV, news print, referrals, high school, lead generation activities are very abundant, and direct mail.

Got you.

So anyway that's kind of the general area. But I will tell you it's been positive.

Right. And then do you happen to have the numbers for enrollment counselors at year end versus the same time last year?

We've typically not given out that number at any given point. But we are, as I say -- as I said in the fourth quarter, we looked at increasing that as we go into 2006 here to be hiring more admissions people.

Okay. The number is up significantly within the online operations. It's relatively flat for the brick-and-mortar business.

Okay. Thank you.

Thank you.

And your next question will come from Matt Litfin of William Blair and Company.

Hello Jack, Pat, Steve. Question is about acquisitions. Is there any update from the Department of Education on domestic acquisitions, and could you comment on pipeline and appetite for international acquisitions, please.

Sure. Yes. That's a great question. As we kind of talked about before, one of our goals has been and one of our strategies has been the international area. We probably, more than almost any other group with the exception of perhaps one has done more in that area. We've got schools in France, there's nine campuses. Certainly there's a large school in London, Dubai and in Canada.

But we are looking at other opportunities internationally because we really believe that there's a demand out there both from the people that live throughout the world obviously, but also from perhaps governments supporting those endeavors because they realize that to get their people educated is good for their economy and for license in general. So that is something I would see us doing more in. We certainly do a fair amount of that now with what we do with our online group. They're in some 50 different countries, I think. They've taken students from a very abundant group. I would see us doing more both online as well as brick-and-mortar.

Matt, there clearly is a pipeline of international transactions that we have looked at and are evaluating. As always, this precise timing and the ability to actually get a transaction closed is sometimes difficult to predict. But we're clearly looking at transactions in that area. There has been no change on the domestic front with respect to the Department of Education's position on acquisitions.

Okay. My follow-up is is a management question. Have you made any recent senior management hires or seen any turnover? And are there any major management holes that need to be filled?

No. I mean, I think there's, in the normal course there's certainly positions we are looking at as we look at our 2006 area. But I think we've got a seasoned team and a productive team. I think obviously with online expanding at a pretty good pace, there's perhaps some folks over there that they will be hiring here. But there's no large holes right now.

Okay thanks. Good quarter.

Thank you.

And your next question will come from Jeff Silber of Harris Nesbitt.

I think in Steve's remarks he mentioned about merging the online group into the CFC group. Does that mean you're no longer going to be disclosing any revenue or enrollment metric separately?

Jeff, this is Pat. Steve was really talking about the university operation. So he's talking about operational responsibility for campus based and online based operations for Colorado Tech and for AIU. Not all of CSU and all of online. So it's really just within the AIU and CTU institutions. With respect to the impact on any segment information, we would expect to be issuing our 10-K within the next few weeks. You will continue to see segment information within that 10-K on a basis consistent with what you've seen in the past. However, in the future, as we continue to expand our offering to include a broader level of hybrid offerings, we would expect that there may be some blurring within business units of delivery between pure campus base, hybrid base, online base, and it may be necessary in the future to look at some revised segment reporting if you're familiar with the segment rules, accounting rules and in large measure they are based somewhat on management information and reporting and how the business is operated. However, if we did make any changes there, we'd continue to provide supplementary information with respect to number of online students, number of purely campus based students, et cetera.

I think this just gives us a tremendous opportunity to -- they talk about a lead leveraging where someone's in a local area and given the opportunity to exchange inquiries that are interested in one of the two universities. Gives kind of the share best practices more on a regular basis between some of the online best practices with some of the brick-and-mortar and vice versa and really kind of build this brand power that I think both of these great universities have.

Great. Where are the hybrid students recorded now?

Right now there's a limited number of hybrid students. It's really within AIU today and CTU. And and those would be recorded now. They would be reflected in the campus based student count.

Okay great.

We do have plans for rolling out the hybrid offerings more broadly across the other brands over the course of the year.

Great. One more quick one regarding guidance. What is your capital expense budget for 2006?

We would expect in 2006 for capital spending to be down somewhat as a percentage of revenue. How much it's down really is going to be a function of whether or not there are changes with respect to our ability to open up new campuses. So it's a little bit of a stay tuned and if the department were to change its view on new campus openings, we probably would not be down substantially. If we do it could drop by a point or so.

Okay great. Thanks.

And your next question will come from Jerry Herman of Stifel Nicolaus.

Good afternoon, everybody. Question with regard to online. You guys referenced that part of the slowdown there was relative or relevant to the negative publicity. But are you seeing anything in the market place, i.e. competition or price sensitivity? As part of that question, your guidance for revenue growth for online in '06 is mid 20s. Maybe shed some additional color on volume and mix and price?

Yes. Well, yes. Certainly there's an impact with AIU. But if you go to our CTU operations which obviously is in that space, it is very, very strong. The leads that are very very strong, cost per lead has been very, very strong. Conversions have stayed very strong over the year. And then show rates. So I really believe because we have the CTU operations that is out there, and that's continuing to meet our expectations and in some cases overachieve our expectations. So I really feel like the online market is still tremendously strong that's out there. Then you go forward to our branch of CTU of Stonecliff college online. We've really launched that aggressively in December and there's been just a huge demand lead flow and interest in that type of program. So I really believe that there isn't really a major shift. There's still a huge interest out there in the online space.

Steve the composition of the 20% for this year? Comment on the composition of that growth for this year?

Yes, I think the majority of growth would come from the CTU, Stonecliff platforms.

Then just a quick follow-up on guidance, Pat. This should be an easy one. The EPS growth of 10, 12% that's off the 226 is that correct? And also as part of that the revenue growth number is pretty substantially higher than the 2.7% volume growth or student growth of this quarter. I'm just wondering what that reconciliation might be.

Well, you've got a couple things there. One, it is off of the 226. And secondly when you look at the total revenue growth, with online growing at a different rate, you do have some mix change that will really be baked into that revenue growth. And that also is a full year number.

Okay. Great.

Let me just make a couple comments here before we take the next question, if we could. I just want to make sure that I get this in. A couple questions were asked about our confidence in the future with just enrollments and starts and leads and that type of thing. Just a few things I meant to mention when the last question was asked is the fact that we're undertaking revising all of our web pages at our local campuses. We really feel that will make a major impact on giving us the ability to -- not only attract more students but also to have them see these more robust pages and be able to frankly do more with that in terms of finding out about the school and perhaps deciding to enroll.

The other thing we're doing is we're looking at putting in a -- centralizing our telemarketing efforts. We'll be doing that over the course of the next six months where we'll be just be able to give us better operations, certainly they will be our own people that work for us. And we really love to have a perhaps a smoother transition from when the call comes in to getting that call worked out to each one of our campuses.

The other area of opportunity, of course, is lot of our leads we just have millions of leads that come into our system. That's very positive. We want to work those leads certainly as fast as we can do it at the time that's right for the customer. And what we're also looking at is putting in automated enrollment sites so people, if they want to interview at 3 o'clock in the morning or midnight on Tuesday or whatever, that they have an opportunity to come in to the system and learn more about our schools and be able to perhaps get the presentation that they're looking for but also be able to enroll at the time. We've had something out there for about the last three years called [Robo Raft] and Robo Raft has done very well. But this kind of extends that now with actually putting enrollments or a presentation that's actually online there. So I think that will be very positive.

And then just one more comment here. I know there's a question asked a little while ago about some of the legal areas. And I guess I just want to say there's kind of a brief clarification here and amplification regarding our legal and regulatory issues. As I said, there are regulatory issues pending. But we have been very responsive to the agencies involved. Also we've been working hard to build productive relationships with education of regulatory agencies and various accreditors. And with respect to Brooks Institute of Photography matter asked earlier, on February 2, we went to a hearing on whether the Bureau in California violated the California Education Code in taking the action that it did. We're awaiting that judge's decision on that issue. So i just wanted to share some of those things with you, just kind of a clarification there. So let's go on with the -- Pat.

If I could add one thing. Jack mentioned the centralization of certain telemarketing activity. That's not a centralization of the rep force, but it is basically moving in house activity with respect to incoming leads and the handling and distribution of those leads. And that is is a process underway.

All right. Very good. Let's go on to the next question, if we could.

Yes, sir. Your next question is from Corey Greendale of First Analysis.

Good afternoon. First question for Pat. You've talked about kind of right sizing the growth spending to kind of the level of the opportunity right now. I was just wondering if there's any pockets of cost cutting you're looking at, if we could expect a head count reduction or anything like that during the year?

We're not really contemplating any significant head count reductions. We always look at the individual campus level to make sure that the costs are as well aligned as we can make them with the student population. So we've historically always made changes from time to time in our staffing to make sense with the population serve. I think what one of the things that we're strongly looking at and where there is the possibility of opportunity is within the facilities area. There are some pockets within the schools where we have excess capacity. We may be able to really adjust the amount of space that we have under lease and under control in certain cases. There could be some costs associated with those, but that would have a relatively quick pay back. So we are evaluating those kind of opportunities. That would probably be the biggest area that you could expect something from us in.

Okay. And my follow-up question is for Jack. I think in your -- the closing portion of your opening comments, one of the things you talked about was the compliance culture you're beginning to build. And just curious, sort of if you could give just kind of a quick State of the Union on that, what percent of the way you are to where you think you need to be on the compliance front and what are the big steps that you think still need to be taken?

Certainly we've put a lot of effort in that area. There's a full commitment there from everybody in the organization. One of the things we've done here in the last about, I think it was about 15 months ago, is we brought in a Chief Compliance Officer in Bob McNamara and really, committed there that we would put an individual in each one of our campuses that was independent from school management, if you will, to report directly through an organization that we would report through Bob. We also brought in a very strong internal audit person in Steve Kalby. Steve's been on for the last five, six months. And has come from a very large organization. And really brings a lot state of the art efforts in that area. Obviously our general legal counsel and prior, we've not had an in-house legal team. We do have that now with some very seasoned veterans, led by Janice Block. I think we have some of the top people anywhere.

So we've really undertaken to build the organization. It really is about having the right people at the individual schools. Certainly having the process out there that everybody needs to follow it, whether it be state, federal, or accreditation standards. We're implementing technology so we can go out and check the checker, if you will. We've undertaken the ethics training throughout our whole system, having all of our people go through substantial amounts of them. We've set up a special compliance committee that is chaired by myself with other very strong members of our team that have oversight in that area. I think these things will and do make a very positive action on our whole system. We're not only proud of that, but we know it's the right thing to do for the business.

Thank you.

Thank you.

Your next question is from Steve Barlow of Prudential Equity.

On the last conference call you talked about adding about 200 admission reps in the fourth quarter. Part of that obviously was related to Stonecliff. Did that turn out to be the number? And related to that, what are your staffing goals for '06?

This is Pat. We did add a level of reps consistent with what we talked about last quarter. Could you repeat that second part?

Goal for '06 in terms of adding more admission reps. Flat? Up from where we are now?

We would expect to be adding several hundred over the course of the year. The bulk of those would be within the online operations and probably pretty heavily biased towards the CTU segment. Could be shifted over to Stonecliff.

And as Stonecliff develops here with leads and trying to get students set up in that program are you finding that you're getting a lot of leads that you could actually send to other places based on the Stonecliff advertising that you're doing?

Sent to other places?

Internally? I mean is it targeted very specifically to Stonecliff or are you finding it's helping the overall lead generate to other parts of the operations even though you're sort of focusing on Stonecliff?

Yes, we certainly, inquiries that come in on Colorado Technical University that may be on a different program can be shifted over to Stonecliff and then there are some inquiries that do come in even though we're targeting Stonecliff that certainly can be moved over to Colorado Tech. So even though we get a new brand recognition out there, it is giving us some lead efficiencies out there? Certainly benefiting our cost per lead for CTU overall.

Thanks very much.

Your next question will come from the line of Tre Cauley of Stanford Group.

I just had a quick question. You talked about the compliance here, a couple questions back. It looks like the head count's gone from call it a handful of people to roughly about 100 or so. Do you foresee adding that many more people in the upcoming year?

Would you repeat the question, please? I'm sorry.

Sure. When you look at your compliance function, which is -- you've staffed up pretty significantly over the last 15 months. I'm assuming it's a level of about 100 people now, somewhere around there. And are you foreseeing some more additions in 2006 or are you pretty much leveled off as far as staffing needs go?

Well, there's quite a large number obviously at our local campuses that are in various positions, but if you look at them, plus we've got people that are here in the corporate office that have oversight, too. It's quite a large number. I'm not sure I've got the exact number here with me today.

This is Pat. I'm guessing you're getting to a 100 number. Assuming that there's a Director of Compliance at every campus and then there's some level of corporate staffing. But I think when you look at compliance, I mean, the number of people involved in compliance is well in excess of that.

I guess I'm trying to talk about incrementally, the new people that you've added this year to your compliance functions. I'm just -- again, I'm just guessing that it's about that level of new adds over the last year.

What you made on the basis of directors and compliance at most campuses and some additions at the corporate level. I mean, it's a reasonable estimate.

And then my question is, do you foresee some other staffing needs going forward into 2006 on compliance, or are you already where you need to be?

Just the size of the organization more than likely we will add people at different levels as we go through 2006.

I think in terms of the most important thing there Jack mentioned the compliance steering committee. Obviously, as that steering committee is at work, assessing needs and everything, we'll make decisions throughout the year. I think it's fair to say that the guidance that we've provided for the year contemplates our best estimates right now in terms of what level increased staffing we'll need across all of our areas.

Just two other quick questions regarding guidance. What kind of level of tuition increases do you foresee in 2006?

We would expect -- this is not revenue per student. Because that's going to be affected by mix changes. But in terms of tuition increases. When you look at kind of apples to apples basis, we'd expect in the 3 to 5% range.

Okay. So pretty much where it's historically been.

That's correct.

And then just finally, what kind of a share count are you assuming for -- that's going into that 10 to 12% growth?

The fair thing to say is that we've not assumed any significant level of share repurchase in those numbers. And that's not to say we won't be making those share repurchases. I think the best proxy that you can use is really taking a look at the fourth quarter numbers in terms of where we ended the year on share count. The average for the full year will not fully reflect the benefit of share repurchases made. So look at the fourth quarter levels. Obviously, common stock equivalents that are going to be involved in there are going to be based on what the -- how the share price moves, if you're familiar with the accounting there. And that's something we're not -- we're assuming something fairly stable.

Okay. Thank you very much, guys.

Thank you.

Your next question will come from Howard Block of Banc of America.

Good afternoon. This is actually Matt stepping in for Howard. Just a real quick question. I'll keep it quick. On the cash flow, deferred revenues seem to be down quite a bit year to year and sequentially. I just wondered if you could give a little color on how much of that is a result of slowing growth and if there might have been some timing issues there that contributed to the lower cash flow?

I think I would -- when you look at it on a year-over-year basis, I think what you should look at is in the overall cash flow in prior years we were really enjoying the benefit of a stepped up collection effort versus the past. So you're really to a certain extent up against a tough comp when you look at it versus last year.

Okay. So last year the collection efforts were stepped up and its just--.

I think I'd say they've been at a stepped up level, but if you kind of look at the metrics we were coming off a -- over the last couple of years a weaker base of collection and last year enjoyed a stronger benefit than the current year on a year-over-year basis. So for instance, we were -- like when you look at days outstanding, those improved this year versus in receivables but not nearly to the extent that the prior year did.

Got you. Thanks very much.

You're welcome.

Your next question will come from Kelly Flynn of UBS.

Thanks, actually just a couple of quick ones. Actually just to follow-up on the last one. He started to ask about deferred revenue, deferred tuition revenue. You explained the kind of DSO issue, but why -- is it that declined, deferred revenue declined this quarter and it had increased in prior quarters. Can you talk about that? Is there something causing that? Or should we take that as kind of a leading indicator of revenue? And then secondly, I still think that no one's asked about Q2 guidance. Can you give earnings and revenue guidance for Q1? And then just a third one, bad debt, we're calculating 3.7 for Q4 is that right? And were there any reversals? And what's the implied guidance for next year? Thanks.

I'm probably not good enough to remember every one of those little sub questions, Kelly, but I'll do my best here.

Okay.

I think in terms of looking at deferred revenue as some measure of future revenue, I don't think that that's the best proxy. I think the best proxy that you have for looking at revenue in the first quarter is the student population as of January 31. It's the reason we've always provided population a month into the quarter is really to provide the most up to date information that you could use to evaluate revenue expectation. Secondly, we do not intend to provide specific quarter by quarter guidance. That is why we provided it on a full year basis. We think with the business plans that we have in operation we do want to maintain flexibility in our operations to be thinking about the long term performance of the business, sustainable growth in the business, and we want to be able to opportunistically make good business decisions not dependent on an individual quarter. With respect to bad debt the question that you asked is what was -- I believe you were looking for what was the bad debt as the percentage of revenue during the quarter and that was about 3.5%.

Okay. Then why was that so low? Was there a one off in there? A reversal? And then what's implied for next year?

Well, I think one of the reasons it's low is we've continued to make strong progress in receivables management. Our accounts receivable were down to 14 days. In terms of DSOs that continues to move down. And the best way really to avoid bad debt is to minimize receivables levels.

So is that a good proxy for next year?

I'm not providing a proxy for next year, but we do expect to continue to perform solidly on the bad debt front.

Okay. Thanks for your patience, I appreciate it.

Great. Just prior to taking the next question, if I could just throw out one thing. Somebody asked us about quarter five questions ago. And I just want to throw it out here. Currently we are interviewing for a Chief Operating Officer candidate. I think the question was are we looking to fill other voids, or holes, or whatever. We're a large organization. We've done exceedingly well. We've had good growth. But we certainly now are prepared to look at the future and I just wanted to make this clear that that's somebody that we are interviewing for. There's different candidates and that type of thing, but I think that's part of any large organizations natural evolution. That's it. Those are all the questions at this time. I appreciate everybody participating today. And thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation and you may now disconnect. Have a wonderful day.