Covista Inc. (CVSA) Q3 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to DeVry's Third Quarter 2011 Results Conference Call. My name is Alicia, and I will be your coordinator today. [Operator Instructions] I would now like to turn the call over to Ms. Joan Bates, Senior Director of Investor Relations. Please proceed.

Thank you, Alicia. With me today from DeVry management are Daniel Hamburger, President and Chief Executive Officer; and Rick Gunst, Senior Vice President and Chief Financial Officer; and Pat Unzicker, Vice President and Controller. I'll now review the Safe Harbor provisions of this call. This call may contain forward-looking statements within the meaning of the Federal Securities Laws. Such forward-looking statements reflect, among other things, management's current expectations, plans and strategies and anticipated financial results, all of which are subject to known and unknown risks, uncertainties and factors that may cause the actual results to differ materially from those expressed or implied by these forward-looking statements. Please see our public filings with the Securities and Exchange Commission for more information about forward-looking statements and related risk factors. Telephone and webcast replays of today's call are available until May 10, 2011. To access replays, please refer to today's release for information. I'll now turn the call over to Daniel Hamburger.

Thanks, Joan, and thank you all very much for joining us today for our fiscal 2011 third quarter results call. I will give a brief introduction and then Rick and Pat will discuss our financial and enrollment results. And then I'll review a few operational highlights in the quarter before we open it up to questions. Well here we are 3 quarters into what is turning out to be a good year, and I'd like to address what's driving that. So today, I'll start out talking about what we're doing to enhance academic quality, which is core to our central mission of helping our students achieve their educational and career goals. This emphasis on academic quality obviously begins with our Board of Directors, chaired by Dr. Harold Shapiro, who believe deeply in our investments in academic quality, and they work closely with senior management through the academic committee of our board, and that's chaired by Dr. Connie Curran. This committee is responsible to ensuring quality at each of our schools and they meet regularly. They assess progress and identify areas for improvements and collaboration across our colleges. They encourage investments in our programs and classroom technology and services and in people. Just some examples of those types of investments that we made this quarter. We're building a joint simulation center that will be used by both Ross and Chamberlain students at our new Miami, Florida location this summer. A good example of how we're providing our students with the latest technology and educational tools. The second example is building on the career services success that's achieved at the undergraduate level of DeVry University. We're taking that a step further for our graduate students to a partnership that we recently announced with CareerBuilder. This partnership will provide Keller graduates additional resources to find employment or also to advance their careers, including access to a personal career coach. The third example is we're also making investments in our people. Earlier this quarter, we announced the appointment of Dr. Joe Flaherty as Dean of Ross University School of Medicine. Dr. Flaherty comes to us from the University of Illinois College of Medicine. U of I is the largest U.S. medical school and it has 4 locations. So Dr. Flaherty brings experience in running a multi-location med school. We're excited to have someone of Dr. Flaherty's reputation leading the way as we continue to enhance the quality of our medical program. These ongoing investments in quality of our programs, services and people, continue to drive strong student outcomes and solid financial results. This spring, total enrollment across all of our degree-granting schools was up 7.6% from a year ago to nearly 130,000 students. This result points out the success of our diversification strategy while we're currently experiencing some softness within DeVry University undergraduate and at Carrington, the growth at our other colleges is offsetting that. So again our strategy is focused on high-quality academics in a diversified position. Beyond the investments we're making in our colleges, we're also participating in several important discussions that will help shape the future of higher education. One is a group of colleges, including DeVry, from all sectors of higher education, that's working with the Gates Foundation to develop a set of metrics that will help the public and policymakers better understand student outcomes across all colleges and universities, whether it's public sector, private sector or independent. This group is developing metrics in the areas of completion, cost and return on investment for students. And the second is participation in the forum that will be hosted by Senator Dick Durbin and Representative Danny Davis later this week to examine solutions, decrease student debt and default rates, and ensuring the value proposition for these degrees that students earn upon graduation. But before I turn the call over, I'd like to emphasize that all of these efforts are rooted in our belief that we only succeed when our students do. This belief underpins our operating philosophy, namely, that "Quality Leads to Growth". Let me give an example of that. Since we acquired Chamberlain College of Nursing 6 years ago, we've invested over $20 million in academic quality and growth initiatives. As result, our students' performance on their licensing exams has improved. And these results enhance Chamberlain's reputation and lead to growth in applications. And as our enrollments grow, so do our financial results. This gives us even more resources to invest back in the academic quality and growth initiatives. Those are reinforcing cycles where quality leads to growth. This philosophy has served the hundreds of thousands of student we've educated over our long history. This is why we'll continue our unwavering commitment to quality in everything we do. So with that brief overview, I'd like to turn the call over to Rick and Pat for the financial results.

Thanks Daniel, and good afternoon, everyone. I want to take a few minutes to highlight our enrollment and financial results for the third quarter and first 9 months of fiscal 2011. Third quarter revenue of about $563 million was up about 12% versus prior year and up 16% year-to-date. Revenue growth was driven by total enrollment growth of 7.6% across our degree-granting educational institutions. After-tax net income of $93 million in the quarter increased 14% and earnings per share of $1.32 increased 18% versus last year. Earnings per share were up 25% year-to-date. We have referenced third quarter results include expense related to share-based payments of approximately $2.9 million pretax or $2.5 million net of tax. Our overall effective tax rate was 32.3% for the quarter and 33.7% year-to-date, up from 32.1% for the full year fiscal 2010, primarily due to the increase in domestic source income. The tax rate was lower by about 220 basis points in the third quarter due to a one-time impact from certain incremental tax deductions from prior years. Note that our income tax provision for the first 9 months of the year was about $130 million and we had $91 million of capital spending invested in our schools. Cost of Educational Service expense increased by 9% versus prior year in the quarter and Student Services and Administrative Expense increased by about 15%. We continue to invest resources to drive academic quality and enhanced student services consistent with our philosophy of "Quality Leads to Growth". With that, let me now walk you through some of the key highlights of our operating segment results, which are further detailed in the release. First, the Business, Technology and Management segment revenue was up about 13% versus prior year in the quarter and 18% year-to-date. The revenue growth came down a bit in the quarter due to softening new student enrollments as undergraduate new student enrollments were down 15% versus prior year in the spring, with total enrollment up about 6%. Keep in mind that we're overlapping very strong new student growth of 24% from the spring of last year. If you take a step back from the peaks and valleys and look at the long-term trend, the compounding of growth rate over the past 3 to 4 years is in the 7% to 8% range, which is right in line with our prior long-term expectations. The new enrollment growth is growing and that was the expected after achieving 9 consecutive semesters with growth of 10% or more. And while we're actually happy with these results and there are broader external factors at play here, we believe the supply-demand relationship and the value proposition of our programs at DeVry University, undergraduate and graduate, remain strong over the long term. Enrollment at the graduate-level grew about 9% for both the January and March assessment. Segment earnings were up 16% in the quarter and 29% year-to-date, driven by continued operating leverage and increased efficiencies. At the same time we delivered these results, we've been making appropriate investments in academics, new program developments and new location expansions, the benefits of which we will see beyond this year. Within the Medical and Healthcare segment, revenue was up 7.5% in the quarter and about 12% year-to-date, driven primarily by the strong growth within Chamberlain College of Nursing. Chamberlain's new student enrollment was up about 32% in the spring term, with total enrollment up 48%. This growth was driven by the impact of the enrollment at our 3 new locations this year, Chicago and Arlington, Virginia, which opened in July 2010 and Houston, which just started teaching in March. Chamberlain's growth is also driven by continued increased enrollment at our existing locations and online due to continued strong demand for nursing professionals. As expected, Ross University new student enrollment declined about 8% for the January class due to capacity constraints within the medical school campus in Dominica, but total enrollment was up 3%. As we look forward, new student enrollment growth rates are likely to rebound and bounce around a bit, but for the purpose of your models, you should expect total enrollment to be in the mid-single digits. Meanwhile, enrollment at Carrington continue to decline with new student enrollments down about 23% and total enrollments down 15%, driven by the challenging market and countercyclical nature of many of Carrington's programs, resulting in lower inquiry volume and conversion rates. Segment earnings in the quarter came in as expected, down about 5% versus prior year and down slightly year-to-date, which reflects Chamberlain's growth offset by lower enrollment at Ross and Carrington. Cost containment initiatives have helped lessen the impact of these lower enrollments. Within our Professional Education segment, revenue was up 7.5% in the quarter and about 12% year-to-date. Revenue in the quarter remained in the high-single digits despite the unusually high revenue growth last quarter in advance with the CPA exam change. We anticipate hiring within the accounting and the finance fields to continue to improve slowly but don't expect the market improvement in performance until hiring ramps up further. Segment earnings in the quarter were up 12% and up 24% year-to-date. Lastly, our other Educational Services segment revenues were up 18.5% in the quarter, driven by very strong growth at DeVry Brasil. New student enrollments increased 41% and total enrollment grew 16% in the latest term, which is the main enrollment period in Brazil. The growth was driven by our enhanced admissions processes and best practice sharing such as implementation of the Student Central concept, which we call CASA in Brazil. Advanced Academics revenue was up modestly in the quarter due to continued state budget pressures. And earnings for the segment were $2.5 million better than prior year in the quarter and about $1 million better than last year for the nine-month period. Let me summarize this information in our segments as follows: While enrollment slowed at DeVry University undergrad and declined at Carrington, we grew at Keller, at Chamberlain, at Ross, and at DeVry Brasil. I think this really shows the value of our diversification strategy, as well as our ability to manage our schools for the long-term. At that point, we'd continually reallocate resources and reduce costs where needed without impacting academic quality or student services. This balance allows us to deliver the results we've discussed and continue to invest in quality and future growth. But before I turn the call over to Pat, with just 1 more quarter to go in fiscal 2011, we're in good shape to have another strong year. Looking ahead to the next fiscal year, the impact of the softer enrollment environment within DeVry University and Carrington will be mitigated by growth within Chamberlain, Ross and DeVry Brasil. While enrollment growth is trending back to more long-term levels, we still believe we can continue to deliver top- and bottom-line growth. And with that, I'll turn the call back over to Pat to review our cash flow and balance sheet.

Thanks, Rick, and good afternoon, everyone. Cash flow from operations for the first 9 months was $485 million versus $481 million last year. Cash flow was up only slightly versus prior year due to the timing of receivable receipts in the month of March. This strong cash generation drove our cash and marketable security balance to $599 million at the end of the quarter as compared to $502 million last year. We also remained debt-free during the quarter compared to having outstanding debt of $45 million last year. Our net accounts receivable balance was $224 million versus $156 million last year. This increase was mainly timing related, resulting from a delay in March of the receipt of funds for DeVry University undergraduate students. DeVry University's cohort default rate of 10.2% was slightly above the Department of Education's 10% threshold, thus resulting in a couple of weeks delay. We expect accounts receivable balances to be back in line with year-ago levels at the end of the fiscal year. Receivables were in line aside from this timing issue that hit us right at the end of the quarter. Our bad debt rates continue to reflect the focus on the receivable collection process, with bad debt expense for the first 9 months of the year actually down to 2.7% of revenue as compared to 3.1% last year, an indicator of our students paying back their accounts and the strong value proposition of our program. Capital spending was $91 million for the first 9 months versus $102 million last year. We anticipate the rate of spending to continue to pick up this quarter and expect spending to be around $150 million this fiscal year, give or take, depending on the timing of activity between June of this fiscal year and July of next. This high rate of spending is being driven by facility improvements to better serve our students across all of our schools, new locations planned at DeVry University and expansion within Ross University and Chamberlain College of Nursing, so that we can educate more doctors and nurses in this great time of need. Finally, during the quarter, we repurchased 571,000 shares of our common stock for $29 million or on average, $50.82 per share. We have completed about 2/3 of our fifth program, leaving just about $20 million remaining under this $50 million program. Now let me turn the call back over to Daniel for some more color on our operating results.

Thanks, Pat. Let me start off by discussing how we're managing our resources in our Business, Technology and Management segment, which of course consists of DeVry University and its Keller Graduate School of Management. We've been preparing for normalization of enrollment back to the long-term trend and we're improving processes and reducing cost in some areas while redeploying resources in others to continue to improve the value proposition to our students and to enhance academic quality. One area of particular focus is investment in improving the freshman year experience. We're also putting in place mechanisms to better track academic outcomes. We recently implemented direct assessment measures that will help us to better gauge our student success early in their academic careers. From these programs, we hope to improve our student retention as we help them to achieve their academic goals. We're also investing in faculty development and training. This week, we're holding our annual faculty symposium, where DeVry University's thought leaders will learn from one another through white paper presentations on topics such as student retention and blended learning models. I'm really looking forward to spending time with the group this week. And a quick update on new location at DeVry University. Our campus in the Houston Metro opens in March and we plan to open 2 additional campuses in July, 1 in the Los Angeles and 1 in the Seattle Metro. Moving on to our Medical and Healthcare segment, Ross continues to experience strong demand, given the overwhelming need for veterinarians and physicians in the United States. At Ross University School of Veterinary Medicine, for the last several years, we've been working on achieving an additional level of accreditation from the American Veterinary Medical Association, the AVMA. We're very proud to report that we received full seven-year accreditation from the AVMA. This prestigious accreditation is the gold standard in veterinary medicine and reflects the investments that we've made in academic quality and student services. At Ross University School of Medicine, we've had capacity constraints in Dominica, as Rick mentioned earlier, and we've been making investments to address that. We just opened a new academic center with a state-of-the-art simulation lab. At Chamberlain College of Nursing, we're continuing to see strong demand across all our programs. We believe the success at Chamberlain is a direct result of the investments that we continue to make in both programs and new markets. We're in the process of launching a new informatics program certification, which will provide students with education in patient electronic record and other technology-related healthcare services. This year has become an increasing focus as the healthcare industry continues to move towards digitization. We also expect to launch a new DNP, that's a Doctorate of Nursing Practice degree during fiscal 2012 and of course, that's pending approval. On the second half of the year, we'll be opening several new locations in addition to our co-location with DeVry University in Houston, which just opened in March, we're opening a new location in Miramar, Florida with DeVry University and Ross' clinical site this summer. Next fiscal year, we're targeting a new location in Indianapolis and a co-location with DeVry University in Atlanta. In the past, we've mentioned that our target has been to open 1 to 2 new locations at Chamberlain a year. With the increased demand we're seeing for skilled nurses, we've invested in the infrastructure and the management team to do more. And we're now aspiring to open 2 to 3 new locations going forward. Actually, that reminds me of the story, I was in a meeting, when somebody asked Susan Groenwald, the President of Chamberlain, "What's the secret sauce to Chamberlain's ability to open so many new locations in the last few years?" Without hesitation, she immediately shot back, "The secret sauce is quality. We're very proud of Chamberlain's growing reputation for quality." And then lastly in the Healthcare area, at Carrington Colleges, I'd like to give a little color on what we're doing to improve our results. We've experienced some challenges here, namely some execution issues associated with the name change and other internal factors, but we have a performance-improvement plan in place. Our plan centers on enhancing our students' experience, optimizing our marketing process and building new locations. During the quarter, we expanded the use of simulation for our students, with an offering that we branded, "The Simulink [ph] Experience". We've been receiving positive feedback from our campus test pilot in Albuquerque and in Mesa, Arizona. In marketing, we're investing in the qualification center in Phoenix to improve response time to prospective students. This is expected to be operational in the first quarter of fiscal 2012. And our new location in the Dallas Metro is on track to open later this year. We'll keep you posted on our progress. We believe in Carrington's long-term growth prospects given the large demand for allied health and ancillary care professionals throughout the United States. Separately, Rob Paul will be taking over as President of Carrington Colleges this summer, succeeding George Montgomery, who will be retiring. Rob has demonstrated strong operational expense at DeVry University and he's a proven leader. We absolutely love promoting from within. So we're just thrilled for Rob and for the whole Carrington team. Now moving on to our Other Educational Services segment, to comment about DeVry Brasil, where we experienced notable enrollment growth that significantly outpace the overall Brazilian market. And this was largely driven by sharing best practices from DeVry University at the DeVry Brasil campuses. It really is a great example of creating value through an acquisition and then sharing operating experience and infrastructure know-how to drive growth. The DeVry Brasil is very much on plan. In year 1, we set strategy and focused on integration. In year 2, we executed the plan, including implementing these best practices, and now with year 3, we're starting to see the benefits of the plan. Going forward, we'll continue to focus on quality, such as by expanding faculty training. Then we'll add course offerings and locations. We're currently building out a new facility at our Ruy Barbosa College and we're undertaking our first organic expansion in the city of Sao Luiz in northeast Brazil. So to summarize, our focus on academic quality continues to position DeVry as a leader in providing high-quality education to our students. This focus, coupled with our diversification strategy, supports long-term growth and continues to serve us well. But before I open it up to questions, I'd like to recognize and say thank you to all of my coworkers at DeVry, their commitment to our students is the foundation of our success. So with that, we'd be happy to take your questions.

Great. There are a number of people in the queue waiting to ask questions, so we're just going to ask everyone to just ask 1 and then jump right back in the queue so that we can get as many of you as possible. Alicia, if you'll give the instructions for the participants, we'll begin the Q&A.

[Operator Instructions] And the first question comes from the line of Corey Greendale with First Analysis.

Could you just talk a little bit about -- obviously, there's a lot of factors impacting new student enrollment across the various businesses, but could you just give us kind of your high-level current thinking on the magnitude of the impact, things like internal challenges versus the economy versus competition, et cetera?

Corey, thank you. And clearly, that varies by programmatic area, as well as by level of education. And so where we're seeing more of the challenge, or the biggest challenge, would be in the shorter programs like Carrington Colleges offer. So certificate and associate degree programs. And those exhibit the most countercyclical pattern of any of the programs that you see out there in higher education. And so it's not surprising as we've seen unemployment start to moderate a little bit that you see the trend here. And it is quite a different picture at the other end of the spectrum, in medical school and veterinary medicine, where the growth trends sort of continue at a steady rate. And there, we have our own internal issue of our capacity constraint in Dominica that we're working through, but in terms of gross demand, the question is not countercyclical at all, similarly in nursing. And then other programs sort of fall in between. And then last I just commented, DeVry University, part of this is, as we've mentioned, 10 semesters in a row of double-digit increases, that's not in line with the long-term trends. So as we've been saying for a little while, we expect things to moderate back to the long-term trend in the single-digits and I think that's where we expect things to settle out. In the graduate school, Keller Graduate School of Management is continuing to do at a very nice rate. So trying to cover the waterfront here, it's just a variety of factors and it hits different programs differently depending on their length and their level and the curriculum area that they're in.

All right. I'll get back in the queue. Thanks.

And the next question comes from the line of James Samford with Citigroup.

Just wanted to touch on the Healthcare side. I guess on the Nursing side, you were facing some pretty significant comps here, or tough comps here, and yet the deceleration was pretty modest. I was wondering how much is new location-driven and if you could touch on sort of what's going on in the online space, in that segment? Is that a key driver of growth?

Yes, feel free to chime in here if I miss something, Pat and Rick. Remember that here, what's going on with Chamberlain, we have a relatively small number of campuses and so you're adding 2 or 3 campuses on a smaller base. Whereas at DeVry University, you have nearly a hundred campuses and even if you added 4 or 5 or 6, it's on a much bigger base. So I think that helps to explain some of the arithmetic on the growth rate. And so we've added new campuses and you're seeing the maturation of campuses that opened up, say, a year ago. So that's definitely a driver. You also do have the online part, and that's where we do the post licensure program. So again, on site, on campus, is your pre-licensure program, primarily your Bachelor of Science in Nursing. And then online you have your -- the RN to BSN completion program, and have your MSN, Masters of Science in Nursing. So pretty high growth rates on the MSN because it's a relatively new program, it just started a couple of years ago, and so it's growing nicely on smaller numbers, so it gives you those large arithmetic growth rates. So I think those are some of the factors that are driving Chamberlain's growth.

Great. Thanks.

And the next question comes from the line of Mike Tarkan with FBR. Michael Tarkan - FBR Capital Markets & Co.: Just following up on Corey's question, can you maybe talk about the competitive landscape for new students at DeVry and Carrington specifically, and kind of how that compares to let's say 6 months ago and then maybe a couple of years ago.

From a competitive landscape perspective, I don't see more competition materially. I think it's really more a -- so I don't see us losing share. We don't have any evidence of that. And it's certainly possible. And we're going to continue to monitor and analyze that. So I appreciate your question. It's a good question, something that we need to continue to look at. We don't think we're losing share. We think it's more of a general -- a function of the overall market, which I commented on to Corey's question. Michael Tarkan - FBR Capital Markets & Co.: Okay. Thanks.

And the next question comes from the line of Suzi Stein with Morgan Stanley.

Some of your peers have noted a sharp uptick in student acquisition cost. Can you talk about trends you're seeing in terms of cost per inquiry and has your overall marketing budget changed as enrollments have slowed?

I'll take that. I mean, I think our cost per inquiry has been up modestly. And cost per start, up a little bit more than that, but still not up more than single digits. So we haven't seen any market uptick with that. We have been making additional investments in brand awareness and brand programs, beyond just the acquisition of inquiries. But we haven't seen the same phenomena that you mentioned.

Okay. Thank you.

And the next question comes from the line of Maria Karahalis with Goldman Sachs.

I believe last quarter, you had commented that you had been understaffed in some of your admissions teams during the fall recruiting period, and enrollment has been a bit softer at DeVry University. Can you give us an update on whether you believe you're right-sized today and have staff in the right seats?

Generally speaking, we worked on that issue. We have gone ahead and hired the people that we needed to. But of course, [ph] I put it back into the normal course of constantly balancing your resources relative to your demand. Some of those people might be a little bit newer so -- and there's some other internal execution issues when you certainly are not satisfied with the performance and have plans to go to work to do a better job.

If I can just ask a clarifying question, does that mean that despite the enrollment softness at DeVry University, you would expect to keep a similar number of admission staff in that particular -- to support DeVry University?

Yes, we don't have anything to report in terms of an action there. And questions like that, I always have to put into the same category as, are you going to do an acquisition or are you going to do this or are you going to do that? There's no guarantees in life, but short of a guarantee, I would say, no, just the normal course.

Understood. Thank you.

And the next question comes from the line of Paul Ginocchio with Deutsche Bank.

Just 2 questions or 1 question about incentive compensation. Can you just talk about where you are on changing the plan to fit with the new regulations and what, if any, impact that would have on enrollment trends going forward.

Thanks, Paul. And of course when it comes to compensation regulations, we've been compliant. We are compliant and we will continue to be compliant with the regulations in that area. So we do not pay a bonus or commission or anything like that today. And I'm not trying to tell you, you don't know, but I know there's been a lot of misunderstandings and misinformation out there, so just take the opportunity to clarify that. But we will be making some changes to our performance management systems and processes in the areas that are covered under the Title IV regulation. And yes, that could have some distraction for our folks. We do have people working on changes. And so that certainly could be 1 of the factors that are included when I say internal factors earlier. But to this point, I haven't seen that as a major driver, but it's a factor, and we just have to see where we go in the future.

Great. If I could just sneak in a follow-up. Is there any way to quantify what percentage of your student inquiries or new enrollment comes from lead aggregators versus referrals?

I don't have a number or color to give you on that.

It's been declining as a percent of the mix, less and less from lead aggregators across our schools than what we had in the past.

Is it safe to say majority is from referrals?

No. I wouldn't say the majority is from student referral, no. The majority is from the outreach and communications and advertising.

Yes. We get more and more from our advertising, that's for sure. I mean, we've increased the brand awareness efforts and that isn't a specific aggregator or inquiry generation result in itself, but it does drive people to the website that drives inquiries.

Thanks a lot.

And the next question comes from the line of Peter Appert with Piper Jaffray.

Thanks. Dan, the company has done an impressive job in terms of holding, even improving margins here, as revenue growth has slowed. So I'm wondering if 1, you see any possible need, perhaps to be a little more aggressive on the cost side of the equation given the trends of slowing starts and enrollments that you outlined? And 2, just on a longer-term basis, where you have comfort in terms of where you think the margins can and should be?

Yes, I think the way we think about that is first and foremost, by remembering the philosophy that we talked about of "Quality Leads to Growth," even though growth is moderating back to the long-term trend, there's still growth. And we want to continue to grow and to serve more students who need the kind of career-focused education that we provide. And the only way to do that is to continue to invest in quality. So even though there's a moderation, we wouldn't look at just managing for the short term to maintain a certain margin for this quarter or for that quarter. So that's really the most important thing to keep in mind. At the same time, we're good stewards of our fellow owners' capital and we look at opportunities to be more efficient in the use of our resources and how can we maybe find a more efficient streamlined process over here that, and yes, reduce the cost of doing something. But typically, the first thing then we'll do is look to gradually redeploy those resources we invest at and the quality initiative or growth initiatives. And sometimes, in a particular period of time, it may fall to the bottom line. But our first inclination is to look to where can we redeploy those resources for positive returns, positive academic return, positive, which also ultimately leads to positive financial return as well. But that's sort of the color, that's sort of the philosophy that underpins how we think about that.

Thank you.

And the next question comes from the line of Sara Gubins with Bank of America Merrill Lynch.

Could you talk about student retention trends in undergrad? I know that we can only look at persistence, which includes graduations, and it looks like it was down a little bit in the spring term and I'm just wondering if there was anything happening there.

Overall our persistence continues to be pretty consistent with where we have been for the balance of fiscal 2011. It's somewhat softer but nothing significant or anything unusual.

Okay. And then just as a follow-up, is there any way to talk about the fixed versus variable nature of costs for the undergraduate and Keller segment?

Sure. With respect to the fixed versus variable, our programs with online tend to be more variable. We still have a step function in terms of how we're able to fill sections and our need for faculty, which tend to be more variable on that side. Whereas of course the on-site tends to be more fixed. And we obviously see a bigger flow-through when we have more on-site enrollments because of that.

Any way to quantify that?

We don't specifically break out our profitability between on-site and online delivery.

At the campus level, Sara, this is Rick, you have your facilities and your full-time faculty would be fixed and then there's some other staff at the campus level that are also fixed. So it's going to be predominantly, majority fixed with some variable components associated with it.

Okay. That's a lot.

And the next question comes from the line of Bob Wetenhall with RBC.

This is a particularly strong quarter, and it looks like you got a lot of operating leverage through cost of Educational Services over 100 basis points. I was wondering if this is sustainable going forward? And also 2, just something that Daniel had spoken before about, is it likely that long-term enrollment will trend back to 7% to 9% in the next year or two? And is that kind of your target?

On the first part, you want to talk about the...

In terms of the sustainability, we continue to see -- we'd expect to see margin improvement as our total enrollments will grow just based on going into the previous question in terms of being able to continue to leverage our fixed cost base. In terms of that rate of growth, that would certainly moderate as our overall enrollments grow, but we'd continue to expect to see some margin improvement.

One piece of historical color, Bob, that might be helpful, is if you go back, many of our fellow owners and partners have been with us since DeVry was first to go public, back in 1991. And remember that decade of the 90s, where for 10 years in a row, there was 20% or more earnings per share growth over that whole decade. And if you go back, the enrollment growth average has been -- that was just DeVry University at that time, we weren't diversified as we are today, but the average was in the 7% range. So it's quite interesting to kind of look back and see that, that kind of a number, which is what you mentioned, is in the order of probably a magnitude to think about for the long term.

And do you think the target earnings per share growth of 20% is still applicable in the current environment on a long-term basis?

I think clearly, we've exceeded that over the past several years. We don't predict the future. We don't give up forward guidance. And right now, we're also, as we all know, facing some uncertainty, about whether the final regulations will come out. So I think it would be premature for us to try to speculate on that. But we'll keep you posted.

Thanks a lot.

And the next question comes from the line of Brandon Dobell with William Blair.

This is actually Tom Dillon. A quick follow-up to Sara's question on retention, how is the retention trends at DVU online look these days?

I will be the same answer. I mean, it's been improving and it's fairly consistent with what we've seen in the past.

All right. And then just 1 follow-up, how is job placement for DVU grads has been lately?

Well, and we like to call it employment statistics. And the only reason that I just point that out is when people say placement, it makes it sound like -- that the university has been placing the student and sort seems to take the responsibility off the student. And really, it's a relationship, it's a two-way street and the students is certainly responsible for that. And we provide the services and empower them with the tools. By the way, not just for their, of course, career position after they graduate, but we provide life-long career services. So that's why we always -- belabored the point here, and forgive me for doing that, but that's why we call it employment statistics. But the implement statistics that we hold ourselves accountable at DeVry University is the goal, is that our graduates in the active job market is 9 out of 10 should be employed in their field of study within 6 months of graduation. Of late, in the tough job market, we slipped a little bit, which is about 88%, and so when we say we hold ourselves accountable, that means that we are putting more resources into that area to make sure we provide our students with as much support as possible. And that's why we've hired several dozen additional career services advisors. We've also announced this CareerBuilder partnership, which we're very excited about. So that's where we are and we are putting more resources in there to continue to support our students.

And the next question comes from the line of Arvind Bhatia with Sterne Agee. Arvind Bhatia - Sterne Agee & Leach Inc.: Thank you very much. I just had a question on pricing and what your philosophy is on that front, particularly for DeVry University in the coming years. Just overall how you're thinking there.

Yes. The pricing for DeVry University, historically, it's been in the 3% to 6% range for undergrad and grad. For this coming year, our pricing is out already and it's going to be in the lower end of that range, a little bit less than 3% on average for both undergrad and grad. Arvind Bhatia - Sterne Agee & Leach Inc.: Okay, great. Thank you.

And the next question comes from the line of Jerry Harman with Stifel, Nicolaus. Jerry Herman - Stifel, Nicolaus & Co., Inc.: I was interested in your comments with regard to 2012 and you belief that top- and bottom-line growth will be delivered. And just wanted to address that given the fact that 70% of the business is BMT and the trends there seem to be, for lack of better word, deteriorating. Help us with how you get to that level of confidence given the fact that, that's just such an important piece of the business? And also, as part of that, can you address sort of the technology versus business disciplines within that segment? Relative strength or weakness?

For 1 thing, I think as we've diversified our portfolio, the 70% number is a little large. It's not quite as much of our revenue or earnings as it was in the past, but it is a big piece, there's no denying that. And as we have been putting actions in place in the past, we've been investing behind the school and we'll continue to do so. But we will be able to garner additional efficiencies as we complete this fiscal year and go on to next fiscal year. And that will help us show improvement in the bottom line year-over-year given what we know. And again, obviously, there's the elephant out there, which is whatever comes out of gainful employment, that I don't think it's kind of a big impact in '12 in that assumption. And the part of the benefit here is we do have a diversified portfolio. As I mentioned, we will see some softening enrollments, as you mentioned, in DeVry and at Carrington, but that will be offset by growth in the other areas, at Chamberlain, at Ross and at DeVry Brasil. So that also helps us in being able to say, we know what we know, that we think we can deliver growth in both the top and bottom line. Jerry Herman - Stifel, Nicolaus & Co., Inc.: And then Business versus Technology?

With respect to business versus technology specifically within DeVry University undergraduate, 2011 versus 2010, that has been pretty consistent and pretty constant. But what is important to note is the growing healthcare tech programs within DeVry University undergraduate and that's a single pie via a double-digit number of the total student mix. Jerry Herman - Stifel, Nicolaus & Co., Inc.: Great. Thanks guys. I appreciate it.

And the next question comes from the line of Gary Bisbee with Barclays Capital.

Just following up on that last comment, Rick, given what you know today, you feel like that there is an ability to grow profit next year. How are you thinking about the near-term enrollment trend? And is there any data you can give us that gives us a sense how that might trend? It looks like DeVry University undergrad will have major comparison clearly next quarter, but is there anything like inquiry flow and how that's changed or anything else that could give us some comfort that maybe it starts with trend better than this quarter, this term you've reported?

Well, again, we don't give guidance on enrollments and it's just based upon the programs and plans we have in place as we roll those up and take a realistic and usually conservative approach to that, we feel that we're going to be able to manage through this choppier period for DeVry University following the 10 semesters we had double-digit growth. The total enrollment obviously is going to continue to come down a bit but we still think that combination of the enrollment growth, the impacts of the price increase we mentioned earlier and the efficiency measures will give us the ability to deliver some growth on the bottom line next year.

And I don't think we heard an update this call on the student information system, really, as it relates to DeVry University. I think last quarter was a little behind schedule but maybe there were still some benefit you thought you'd get on efficiency in '12. Is that still a reasonable timeline? Or any update you want to give on that?

Sure. So we've been calling that Project DELTA. And that's right, just overall, the project is behind the original schedule and over the original budget, which is not a shock for those who've implemented large business improvements and systems improvement. But since that time, is now trending on plan to our revised plan. And so what's good there is that even though it's behind schedule and behind plan, is that we're not going to release the modules until they're ready. And that's just so important to us and to me personally, because I've worked with other organizations where they sort of jam it in and then the organization is brought to its knees as a result. And we're just committed to not doing that. So even though it will cost a little bit more money, we're willing to do what it takes to do it right and I just really appreciate the support of our organization and of our board, in doing that the right way. We are expecting to roll out subsequent modules and I'll continue to give you updates on that. Should have an update, I would expect, probably next quarter, on the next module. And we do expect to have improvements in efficiency, improvements in customer service and quality of service as a result. So those are the kinds -- that's in that category of things that Rick mentioned earlier about performance improvements, efficiency improvements that are part of our job as managers to continue to improve our results as we move along. So yes, that would definitely be in the category.

Okay. Thank you.

And the next question comes from the line of Trace Urdan with Signal Hill.

Rick, I was wondering if you could maybe quantify the impact of year-round Pell going away, whether to what extent you have students that are taking advantage of that and what you're anticipating will happen once it goes away? How that gap will be filled in other ways?

Thanks, Trace. It's Daniel here. I would -- I'm glad you asked that question because I know a lot of people probably have the same question. And I really like to answer the question from 2 perspectives, what's the impact on DeVry and then more importantly, what's the impact on our students, and on students generally. In terms of the impact on DeVry and on our results, it's not material. And 1 way to look at that is year-round Pell has only been in effect for about a year and a half. And the increase didn't materially affect our new enrollments then. And so it stands to reason that the decrease won't materially affect our enrollments now. Unfortunately, the impact is going to be more on students. And they'll have fewer, smaller amount of grants and bigger loans, which unfortunately is sort of counter to where I think we want to go generally as a society. But in terms of impact on our enrollments or retention, we don't see material impact of there.

In situations where GAAP occurs, do you have -- I mean, will you all be stepping in with the loan program to help those students out?

We already have that and we've had that in place for some time. We're comfortable with that. So yes, there is an institutional loan program that's there. That's just typically the last layer in a student's financial aid package. But most of any increased gap that would open up would be in terms of Stafford loans, Trace. The other thing is there's been a lot of misinformation, I'm sure it's not with you, but some misreporting at least that I've seen in the press, that they've cut -- they didn't cut the maximum Pell Grant, they moved away from the year-round Pell eligibility. So for students who are going year round, and a good example would be Chamberlain College of Nursing where we have a 4-year Bachelor of Science in Nursing that you can do in 3 years because of our trimester system. Or DeVry University where you can get a 4-year bachelors in 3 years because of our trimester system, so student under year-round Pell could then get a second Pell Grant because they enter a second academic year within 1 calendar year. So we think that it's very much in line with policy that wants to see more students graduate more quickly to have year-round Pell. And we're working with others to develop solutions around Pell that other ways of managing the program but to keep year-round Pell. So we'd like to see that come back. But again, we've only had it for a year-and-a-half and we didn't see a big or a material spike or something like then and we don't expect to see a diminution in enrollment as result now.

Great. Thanks.

Thank you.

And the next question comes from the line of Paul Condra with BMO Capital Markets.

Great. Thank you. I actually wanted to ask about the state authorization. You have several locations in many states, and the state authorization rules are still pretty uncertain and it's even more uncertain what the states are going to do. So I just wondered how that impacts are expansion into new locations and if there are any areas that you might be more wary of than others? And how do you assure that you're not going to violate any of these authorization issues?

When you mention state authorization, I think you're referring to the new -- 1 of the 14 new regulations that the department put out, is that what you're referring to?

Yes, I am.

Okay. So that will not have any impact on our ability to open new locations. That has to do with, if a college wants to offer online program then they need to have authorization in every state where they have online students. And actually, because we already operate in so many states, we're actually in somewhat advantageous position because we already have most of the authorizations that we need and we certainly will be fully compliant with that regulation going forward. So we really don't see any impact on our ability to go enrollment online or on-site as a result of that regulation.

Just if I can follow up, do you have this dialogue with the states that you're in? Has there been any new requirements or anything that they've made known to you?

We're always in a regular dialogue with all the states in which we operate, which is most of the states in the union -- well, like all the states in the union. And no, there's no new requirements or nothing new sort of any material nature that we've heard about that would impede our ability to open new locations or anything like that.

Okay. Thank you.

And the next question comes from the line of Patrick Elgrably with Credit Suisse. Kelly Flynn - Crédit Suisse AG: This is Kelly Flynn, on Patrick's line, thanks for taking my question. Relates to the fiscal '12 comments about expecting revenue and earnings growth. Can you talk about what type of new student declines or growth that implies or assumes for DeVry University? Or are you assuming things start to improve from here and into fiscal '12?

No, Kelly. I mean, we don't give guidance and what we said is the extent of the guidance we're going to give at this time. Kelly Flynn - Crédit Suisse AG: Okay. And then for -- I think Rick, you did mention when someone asked you about fiscal '12, you mentioned something about gainful employment and some assumptions you might have there. I know in the past you've said you're working on analysis but you're not prepared to guide. But does that comment about growth in fiscal '12 have any assumptions embedded in it about gainful employment?

It assumes that there's no major change in fiscal '12 what the gainful employment would have a big negative impact on next year. Kelly Flynn - Crédit Suisse AG: Okay. Thank you.

And the next question comes from the line of Blair Minarik [ph] with Robert W. Baird.

If we could touch on starts 1 last time. As of the end of January, Daniel, you had commented that you weren't really seeing any significant changes in DeVry undergraduate starts, fairly sizable sequential declines for the spring. Could you comment on the trends from January through now, to April, and I guess the main drivers there?

Just to correct that, I think the comments that you're referring to that I made, I didn't see -- people are asking, did we see major changes in our programs in response to new regulation and sort of turning your business model upside down, those kinds of things. So yes, that's a completely different question.

Could you speak to the trends within the term at all?

Just to be clear, so your question is...

I guess how trends continue to deteriorate kind of consistently year-to-date?

Yes, I think, I really don't have much to add to what Rick said.

Yes. I mean, I think the thing you've got to realize is we were overlapping the 24% growth in the prior year spring. So given that type of growth that we had 24% in the prior spring, the spring before that it was up 15.1%, the spring before that it was up to 12.1%. And so to get continual growth on growth on growth is really not realistic. Decline to 15%, are we totally happy with that? As I said in my comments, not really pleased with that, but not unexpected that it was a decline. And again, if you look at it over the long-term, there's going to be some ups and downs. It's not going to be all smooth growth here but it's going to moderate, we think, over the long term into the mid-single digit growth rate.

Great. And then actually related to your comment there, you had also mentioned last quarter, similar, not being pleased, but that you'd be proactively managing that to avoid some of the softening. Did you, I guess, find that your efforts were able to offset what otherwise could have been much worse given the environment?

We're doing what we can. There's a lot of factors at play. And the results are what the results are. We continue to make adjustments and modifications as needed to try and do everything we can to bring in quality students and help students succeed.

Okay. Thanks. I'll hand it over.

Okay, I think we're ready for your closing comments, Daniel.

Thank you, Joan. I'd like to thank everyone for all your questions. And our next conference call is scheduled for August 11. And there, we'll have the year end and the summer enrollment results. So thank you again for your continued support of DeVry.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.